Description
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.
www.zte.com.cn
stock code : 000063.SZ 763.HK
2014
Annual Report
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Important
The Board of Directors, Supervisory Committee and the Directors,
Supervisors and senior management of the Company confirm that this
report does not contain any false information, misleading statements or
material omissions, and collectively and individually accept responsibility
for the truthfulness, accuracy and completeness of the contents of this
report.
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 Twenty-fifth Meeting
of the Sixth Session of the Board of Directors of the Company. Mr. Dong
Lianbo, Director, was unable to attend the Meeting due to work reasons
and has authorised Mr. Xie Weiliang, Vice Chairman, to vote on his behalf.
Mr. Wei Wei, Independent Non-executive Director, was unable to attend
the Meeting due to work reasons and has authorised Mr. Tan Zhenhui,
Independent Non-executive Director, to vote on his behalf. Mr. Chen
Naiwei, Independent Non-executive Director, was unable to attend the
Meeting due to work reasons and has authorised Ms. Qu Xiaohui,
Independent Non-executive Director, to vote on his behalf.
The respective financial statements of the Group for the year ended 31
December 2014 were prepared in accordance with PRC Accounting
Standards for Business Enterprises and with Hong Kong Financial Reporting
Standards respectively, and had been audited by Ernst & Young Hua Ming
LLP and Ernst & Young, and an unqualified auditors’ report has been issued
by each of them.
During the year, there was no significant deficiency in internal control in
relation to financial reporting of the Company, nor was any significant
deficiency in internal control in relation to non-financial reporting identified.
Mr. Hou Weigui, Chairman of the Company, Mr. Wei Zaisheng, Chief
Financial Officer of the Company and Mr. Shi Chunmao, 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.
In view of the state of affairs of the Company, proposal for profit distribution
and conversion from capital reserve of 2014: cash dividend of RMB2.0 for
every 10 shares (before tax) based on the Company’s total share capital
of 3,437,541,278 shares as at 31 December 2014, creation of 2 shares for
every 10 shares by way of conversion of capital reserve. The aforesaid
matter shall require consideration and approval at the general meeting.
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.
This report has been prepared in Chinese and English respectively. In case
of discrepancy, the Chinese version shall prevail, except for the financial
report prepared in accordance with Hong Kong Financial Reporting
Standards, of which the English version shall prevail.
China Securities Journal, Securities Times, Shanghai Securities News and
http://www.cninfo.com.cn are designated media for the Company’s
information disclosure. Only information of the Company published in the
aforesaid media should be relied upon. Investors are asked to beware of
investment risks.
Contents
Definitions
Glossary
Company Profile
Corporate information
Chairman’s statement
Major events of the Group
Highlights of accounting and financial indicators
Report of the board of directors
Management discussion and analysis
Material matters
Changes in shareholdings and information of shareholders
Directors, supervisors, senior management and employees
Corporate governance structure
Internal control
Report of the PRC auditors
Financial statements prepared in accordance with PRC ASBEs and notes thereto
Independent auditors’ report
Financial statements prepared in accordance with HKFRSs and notes thereto
Documents available for inspection
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ZTE CORPORATION
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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
Company Law Company Law of the People’s Republic of China
Securities Law Securities Law of the People’s Republic of China
Accounting Law Accounting 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
ITU International Telecommunications Union, is a specialised agency of the United
Nations for information and communication technologies
SASAC State-owned Assets Supervision and Administration Commission of the State Council
CSRC China Securities Regulatory Commission
Shenzhen CSRC The CSRC Shenzhen Bureau
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)
PRC ASBEs Generally accepted accounting principles in the PRC
HKFRSs Hong Kong Financial Reporting Standards (including Hong Kong Accounting
Standards (“HKASs”) and Interpretations)
China All Access China All Access (Holdings) Limited
ZTE HK ZTE (H.K.) Limited
ANNUAL REPORT 2014
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Speed Huizhou Speed Wireless Technology Co., Ltd.
ZTE Capital Shenzhen ZTE Capital Management Company Limited
Zhonghe Chunsheng Fund Shenzhen Zhonghe Chunsheng Partnership Private Equity Fund I
Zhongxingxin Shenzhen Zhongxingxin Telecommunications Equipment Company Limited
Mobi Antenna Mobi Antenna Technologies (Shenzhen) Co., Ltd.
Huatong Huatong Technology Company Limited
Nanchang Software Zhongxing Software Technology (Nanchang) Company Limited
Zhongxing Hetai Shenzhen Zhongxing Hetai Hotel Investment and Management Company Limited
Zhongxing Development Zhongxing Development Company Limited
Chongqing Zhongxing
Development
Chongqing Zhongxing Development Company Limited
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Xi’an Microelectronics Xi’an Microelectronics Technology Research Institute
Aerospace Guangyu Shenzhen Aerospace Guangyu Industrial Company Limited
Zhongxing WXT Shenzhen Zhongxing WXT Equipment Company Limited
Zhongxing Software Shenzhen Zhongxing Software Company Limited
ZTE Kangxun Shenzhen ZTE Kangxun Telecom Company Limited
ZTE Group Finance ZTE Group Finance Co., Ltd.
ZTE CORPORATION
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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.
2G Second-generation mobile networks featuring digital wireless radio technology that
enables larger network capacity, improved voice quality and more secure encryption,
as well as seamless international roaming for users which includes GSM and CDMA.
GSM (Global System for Mobile Communication) is a global system for cellular mobile
communications originated in Europe using TDMA, while CDMA is a standard for
spread spectrum technology. The data rate of 2G can reach 115.2Kbps. The data
rate of GSM using EDGE (enhanced data rate for GSM evolution) can reach 384Kbps.
3G Third-generation mobile networks supporting peak data rate of 144Kbps at mobile
user speeds, 384Kbps at pedestrian user speeds and 2Mbps at fixed locations.
4G Fourth-generation mobile networks operating according to IMT-Advanced standards
as defined by ITU, including LTE-Advanced and Wireless MAN-Advanced (802.16m)
standards, which support theoretical download rates of 1Gbit/s at fixed locations
and 100Mbit/s in motion.
5G Fifth-generation mobile communications, which is a general reference to the ensemble
of post-4G broadband wireless communication technologies. The general view of the
industry is that 5G is capable of providing faster data throughput (1,000 times faster
than what is currently available) and more connections (100 times more than what is
currently available), more efficient utilisation of energy (10 times of the current level
of efficiency) and shorter end-to-end time delay (1/5 of the current length of time
delay). It goes beyond human-to-human communication to cover a wide range of
applications such as ultra-intensive networks, machine-to-machine communication
and the internet of vehicles.
Pre-5G The adoption of the 5G technology without modifying existing air interfaces standards,
providing in advance a 5G-like user experience on existing terminals.
UMTS A reference to WCDMA standards generally used in Europe. 3G technologies have
been collectively referred to as UMTS (Universal Mobile Telecommunications System)
by European Telecommunications Standards Institute (ETSI) since the early 1990s.
TD-SCDMA Time division synchronous code division multiple access, a 3G technology developed
by the PRC to support voice and data transmission.
ANNUAL REPORT 2014
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LTE LTE (Long Term Evolution) which is the long-term evolution of 3G technology, refers
to fourth-generation mobile communication technologies with OFDM as its core
technology. LTE is being promoted by 3GPP and is continuously under evolution.
There are two types of LTE, distinguished by the mode of division duplex, namely
FDD-LTE of frequency division and TDD-LTE of time division. The mixed operation
of FDD-LTE and TDD-LTE is supported. In terms of networking, its supports
homogeneous networks formed by macro base stations as well as heterogeneous
networks formed by macro base stations and micro base stations.
ICT New products and services arising from the integration of IT (information technology)
and CT (communications (i.e., the transmission of information) technology).
Cloud Radio An innovative radio solution capable of automatic selection of optimal synchronisation
modes based on the properties of the mobile networks and mobile bearer conditions.
It can effectively reduce inter-cell interference in LTE networks and significantly boost
network performance in the cell edge.
QCell QCell connects the BBU (base-band unit) to the PICO RRU (a small remote radio
unit) and facilitates power supply to the PICO RRU through Ethernet, enabling LTE
indoor coverage with the deployment of Ethernet cables only.
UBR Ultra-broadband radio frequency that can support bandwidth of 170MHz at the
800MHz frequency band and 365MHz at the 1.8-2.1GHz frequency bands, which is
significantly higher than conventional RRU (radio remote unit).
Magic Radio An innovative technology which allows GSM and LTE to share the same frequency
spectrum, hence supporting more GSM and LTE services within limited frequency
spectrum width.
PON Provision of optical fiber access service through unpowered optical network
technologies, using point-to-multipoint topological structures that enable conservation
of optical fiber resources for the main trunk as well as flow management and security
control functions. PON can be distinguished into FTTH, FTTDp, FTTB and FTTC
based on different destinations of optical connection, or GPON, EPON, 10G EPON
and XG PON based on different technology standards.
IDC Internet Data Center, an Internet-based centre for facilities that provide operating
maintenance and related services for equipment that handles data collection, storage,
processing and dispatch in an integrated manner.
ZTE CORPORATION
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Glossary
PTN Packet Transport Network, a network commonly using the MPLS-TP technology,
designed to cater to the sudden nature of packet flow and the requirement for
statistical multiplexing transmission and support multiple services provision with
packet services as core services. PTN offers the advantage of lower total cost of
use, while retaining the traditional strengths of optical transmission, such as high
availability and reliability, efficient bandwidth and flow management, convenient OAM
and network management, scalability and better security.
OTN Optical Transport Network, a transmission network formed at the optical layer based
on the wavelength-division multiplexing technology. OTN solves the problems of
traditional WDM networks, such as poor modulation in the no-wavelength/sub-
wavelength services, weak network formation and weak protection, through “digital
transmission system” and “optical transmission system” regulated by a range of
ITU-T recommendations such as G.872, G.709 and G.798.
Internet of Things A network interconnecting all things in the physical world, characterised by
comprehensive sensors, reliable transmission and smart processing and aiming at
connection at any time, any location and among any objects. It can help to realise the
organic integration of the human society with the physical world, so that humankind
can manage production and life in a more detailed and dynamic way to generally
enhance the level of informatisation of the society.
Cloud Computing A concept underlining the fusion of traditional computing technologies such as grid
computation and distributed computation with network technology development. The
core idea is to centralise the management and modulation of massive computing
resources connected through the network, forming a pool of computing resources
that serve users on an as-needed basis. Cloud Computing is applied in business
models such as SaaS, PaaS and IaaS.
Big Data A data set that is too large and complex to be processed by existing conventional
database management technologies and tools, and that requires the use of new
data processing and management technologies in order to create value from the set
in a speedy and economic manner. It has revolutionary long-term implications for
the development of informatisation, smart applications and business models of the
society. Big data is often characterised by 4Vs: Volume, Variety, Velocity and Value.
Smart City The application of information technologies such as Cloud Computing, Internet
of Things and Big Data in combination with wireline and wireless broadband
communication technologies to sense, analyse and integrate various key information
of the core operation systems of the city, so as to make automated smart
responses to various requirements such as livelihood, environmental protection,
public security, urban services and industrial/commercial activities, in realisation
of smart management and operation of cities, creating better lives for citizens and
facilitating harmony in and sustainable development for the city.
ANNUAL REPORT 2014
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Mobile Internet Internet access service facilitated through mobile terminals such as smart phones/
handheld digital assistants, notebooks and Pad, etc. Enriched by the popularisation
of smart terminals, Mobile Internet services now include mobile computing, mobile
music, smart phone games, positioning technology, wireless communities and
wireless payments, etc.
Smart Pipe Relative to the “dummy pipe,” the smart pipe facilitates optimisation of internet
traffic flow through technologies such as flow sensor, classification and control, etc
to enhance users’ experience and deliver added value.
M-ICT Strategy The strategy of ZTE is to be an “Enabler@M-ICT that facilitates the creation of value
through information.” The letter “M” denotes a variety of meanings, which include:
1) Mobile: as handheld smart terminals become increasingly popular, ICT services
are present everywhere; 2) M2M: the inter-connection of all things (Man-Man, Man-
Machine, Machine-Machine); 3)Multiple connection: all-present connection; 4) Multi-
service, More coverage and accessibility; 5) More secure, More reliable and easier
to use.
CGO Laboratory Responsible for the incubation of innovation projects and the development and
operation of Blue Ocean projects of the Company to support the implementation of
the blue ocean strategy under the Company’s M-ICT strategy, in realisation of its
strategic transformation to become “cool, green and open.”
ZTE CORPORATION
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Company Profile
The Company is a leading integrated telecommunications equipment manufacturer in the world market and a
provider of global telecommunications solutions, with shares listed on the main board of the Shenzhen Stock
Exchange and the Main Board of the Hong Kong Stock Exchange.
In November 1997, the Company conducted an initial public offering of A shares for listing on the main board of
the Shenzhen Stock Exchange. The Company is currently the largest telecommunications equipment manufacturer
in China’s A share market in terms of operating revenue. In December 2004, the Company conducted an initial
public offering of H shares for listing on the Main Board of the Hong Kong Stock Exchange, becoming the first
A-share company to be listed on the Main Board of the Hong Kong Stock Exchange.
The Group is dedicated to the design, development, production, distribution and installation of a broad range
of advanced telecommunications systems and equipment, including carriers’ networks, handset terminals and
telecommunications software systems, services and other products.
The Group is one of the major telecommunications equipment suppliers in China’s telecommunications market and
has also succeeded in gaining access to the international telecommunications market with respect to each of its
major product segments. The Group has achieved a leading market position for its various telecommunications
products in China with longstanding business ties with China’s leading telecommunications service providers such
as China Mobile, China Telecom and China Unicom. With respect to the global telecommunications market, the
Group has provided innovative technology and product solutions to telecommunications service providers and
government and corporate customers in more than 160 countries and regions, making contributions to facilitate
communications via multiple means, such as voice, data, multi-media,wireless broadband and cable broadband,
for users all over the world.
ANNUAL REPORT 2014
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Corporate Information
1 Legal name (in Chinese) ??????????
Chinese abbreviation ????
Legal name (in English) ZTE Corporation
English abbreviation ZTE
2 Legal representative Hou Weigui
3 Secretary to the Board of Directors/
Company Secretary
Feng Jianxiong
Securities affairs representatives Xu Yulong
Cao Wei
Correspondence Address No. 55, Hi-tech Road South,
Shenzhen, Guangdong Province,
The People’s Republic of China
Telephone +86 755 26770282
Facsimile +86 755 26770286
E-mail [email protected]
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 [email protected]
Principal place of business in Hong Kong 36/F, Tower Two, Time Square
1 Matheson Street, Causeway Bay
Hong Kong
5 Authorised representatives Shi Lirong
Feng Jianxiong
6 Newspapers designated for information
disclosure by the Company
China Securities Journal,
Securities Times,
Shanghai Securities News
Authorised websites on which this report
is made available
http://www.cninfo.com.cn
http://www.hkexnews.hk
Place where this report is available for
inspection
No. 55, Hi-tech Road South,
Shenzhen, Guangdong Province,
The People’s Republic of China
ZTE CORPORATION
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Corporate Information
7 Listing information A shares
Shenzhen Stock Exchange
Abbreviated name of stock: ????
Stock code: 000063
Corporate Bonds
Shenzhen Stock Exchange
Abbreviated name of bond: 12??01
Bond code: 112090
H shares
Hong Kong Stock Exchange
Abbreviated name of stock: ZTE
Stock code: 763
8 Hong Kong share registrar
and transfer office
Computershare Hong Kong Investor Services Limited
Shops 1712–16, 17th Floor, Hopewell Centre,
183 Queen’s Road East, Wanchai, Hong Kong
9 Legal advisers
As to Chinese law Beijing Jun He Law Offices
20th Floor, China Resources Building,
Beijing, The People’s Republic of China
As to Hong Kong law Paul Hastings
21–22/F, Bank of China Tower, 1 Garden Road,
Hong Kong
10 Auditors
PRC Ernst & Young Hua Ming LLP
21/F, China Resources Building,
5001 Shennan Dong Road,
Shenzhen, Guangdong Province,
The People’s Republic of China
Signing Accountants:
Li Yuxing, Fu Jie
Hong Kong Ernst & Young
22/F, CITIC Tower, No. 1 Tim Mei Avenue,
Central, Hong Kong
ANNUAL REPORT 2014
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11 Other relevant information
Initial registration
Date of registration 11 November 1997
Registered address 6/F, Building 710
Lian Tang Pengji Industrial Park
Luohu District, Shenzhen,
Guangdong Province,
The People’s Republic of China
Licence registration number 27939873-X
Tax registration 44030327939873X
Entity code (previously “Corporate Legal
Person Code”)
27939873-X
As at the end of the current year
Date of registration 23 October 2013
Registered address ZTE Plaza,
Keji Road South, Hi-Tech Industrial Park,
Nanshan District, Shenzhen,
Guangdong Province,
The People’s Republic of China
Licence registration number 440301103852869
Tax registration 44030127939873X
Entity code 27939873-X
Since the initial public offering of A shares and listing on the main board of the Shenzhen Stock Exchange,
there has been no change to the principal business and controlling shareholder of the Company.
ZTE CORPORATION
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Chairman’s Statement
DEAR SHAREHOLDERS,
I am pleased to present the annual report of the Group for the year
ended 31 December 2014, and would like to express, on behalf of
the Board of Directors, our sincere gratitude to all shareholders for
their concern and support for ZTE.
The Group reported rapid growth in net profit attributable to
shareholders of the listed company for 2014 as it continued
to improve contract profitability and enhance efficiency in cost
management during the year.
OPERATING RESULTS
The Group’s operating revenue for 2014 amounted to RMB81.47
billion, representing a year-on-year growth of 8.3%, while net profit
attributable to shareholders of the listed company amounted to
RMB2.63 billion, representing a year-on-year growth of 94.0%. Basic
earnings per share amounted to RMB0.77, improving by 97.4% as
compared to the previous year. For 2014, the Group’s operating
revenue from the domestic market and the international market
amounted to RMB40.58 billion and RMB40.89 billion, respectively.
BUSINESS DEVELOPMENT
Equipment investment by the global telecommunications industry experienced growth in 2014. The traditional
telecommunications industry was facing more opportunities as well as more challenges in its development under
the impact of the application of 4G technologies on all fronts, the integration of ICT industries and the trend of
informatisation. In addition to focusing on the enhancement of 4G network performance and the development
of next-generation broadband technologies, global carriers were also committing an increasing portion of their
resources to operations based on the value of flow volume, value-added Big Data business, integrated innovative
businesses and approaches for maintaining balance between security and privacy, in a bid to achieve effective
transformation by exploring new opportunities for development.
In 2014, in connection with the domestic market, the Group worked proactively in support of the network
construction plans of domestic carriers as it established and implemented in depth its M-ICT Strategy and
maintained its dominant market position through competitive innovative solutions. In the international market, the
Group has formed comprehensive partnerships with mainstream global carriers as it continued to focus on major
populous nations and mainstream global carriers and bolster its competitiveness on all fronts while securing stable
operations and quality growth.
CORPORATE GOVERNANCE
In 2014, the Company continued to improve its corporate governance systems and regimes, regulate operations
and optimise internal control regimes in accordance with the requirements of the Company Law, Securities Law,
Corporate Governance Standards for Listed Companies, Hong Kong Listing Rules and other relevant domestic
and overseas laws and regulations. During the year, the Company formulated its “2013 Summary Report and 2014
Work Plan for Internal Control and Audit” to confirm key tasks in internal control for 2014 and effectively rolled
out internal control tasks as planned to enhance the standard of the Company’s operations and management
and risk aversion ability.
ANNUAL REPORT 2014
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SUSTAINABLE DEVELOPMENT
Sustainable development represents important elements of the Group’s corporate culture. We constantly update
ourselves with the latest notions and standards in sustainable development and seek in-depth understanding of
the demands of our stakeholders, so as to ensure the incorporation of sustainable development into our corporate
strategies and improve our fulfilment of corporate social responsibility on an ongoing basis. The Group has
always been committed to the development of innovative information and communication technologies based on
research, development and innovation as the core to deliver and enhance value for its customers and partners.
We also seek to steer towards a highly efficient development model with low carbon emission by designing and
implementing eco-friendly and energy-saving solutions. It is our hope that, through our services, people in different
regions will enjoy freedom in communications on an equal basis. By enabling users around the world to carry out
full communication via voice, data, multi-media and wireless broadband, we do play a part contributing to the
sustainable development of the economy, society and environment. The Group’s efforts in sustainable development
and corporate social responsibility has been widely recognised by the government, international organisations and
media.
FUTURE PROSPECTS
Looking to 2015, the mobile inter-connection among all things will constitute the main theme underlying
developments of the telecommunications industry. From traditional inter-personal communication, we have
gradually progressed to communication between people and machines and communication between machines.
Given the characteristic features of “omni-connection, omni-present cloud service and safe privacy,” the traditional
telecommunications industry will face challenges as well as opportunities in its development. In connection with
carriers’ networks, large-scale deployment, capacity expansion, performance optimisation, and in-depth coverage
of 4G networks will drive new demand for investments in the telecommunications industry, as the 4G era has
started in most markets around the globe. Meanwhile, carriers will need to accelerate the construction of pipeline
intelligentization and “creating value out of information” will become our new opportunities. In connection with
government and corporate networks, there will be sophisticated integration between the telecommunications
industries and traditional industries, as opportunities relating to government and corporate networks will abound
in the information revolution triggered by emerging technologies such as Cloud Computing, Big Data and high-
power wireless charge. In connection with handset terminals, the new generation of handset terminals will feature
a higher level of smart functions, flexibility and integration. Next-generation voice control technologies and handset
security will also constitute new strategic focuses.
To address the aforesaid challenges and opportunities in 2015, the Group will focus on the three mainstream
markets of “carriers, government and corporate sectors and consumers” under the theme of “capitalising on
opportunities arising from macro-restructuring to create value out of information”. Our business development will
centre on “new sectors” such as smart voice, smart wireless charger, distributive on-grid power generation, big
data platform and its applications, internet finance, and mobile payments, etc, seeking to achieve breakthroughs
in profitability through innovations in technologies and business models.
Hou Weigui
Chairman
Shenzhen, the PRC
26 March 2015
ZTE CORPORATION
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Major Events of the Group
2014
January 2014
ZTE joined forces with China Mobile to launch the LTE-A VoLTE voice service, the
first of its kind in the industry.
February 2014
ZTE won the GTI innovation award for its innovative construction of TD-LTE
network boasting higher quality.
March 2014
ZTE filed 2,309 patent applications in 2013, ranking second in the world, according
to the WIPO report.
June 2014
ZTE operated more than 140 management service contracts globally, representing
a CAGR of 42% for the past five years.
September 2014
ZTE ranked first in PTN market share for three years in a row.
September 2014
ZTE partnered with Dongfeng Motor to build the first pre-commercial bus route
in China deploying new-energy vehicles equipped with the high-power wireless-
charging system.
September 2014
ZTE launched the first 4G Qcell multi-mode indoor depth coverage solution in
the industry.
October 2014
ZTE won 30.77% of China Mobile’s purchase of high-performance routers in 2014.
October 2014
ZTE set yet another world record for single carrier 400G signal transmission over
ultra-long distance.
November 2014
ZTE announced its blueprint for Pre-5G and 5G development in an illustration of
its vision for 5G.
November 2014
ZTE was named among the “Outstanding Cases in Global Smart Cities 2014” as
the only Chinese enterprises awarded.
December 2014
ZTE unveiled new company logo to underpin its massive M-ICT strategy for the
future.
ANNUAL REPORT 2014
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Highlights of accounting and financial indicators
(I) WHETHER THE COMPANY HAS MADE RETROSPECTIVE ADJUSTMENTS TO OR RESTATED
ACCOUNTING DATA OF THE PREVIOUS YEAR BECAUSE OF CHANGES IN ACCOUNTING POLICIES
OR FOR THE RECTIFICATION OF ACCOUNTING ERRORS
? Yes ? No
(II) MAJOR ACCOUNTING DATA OF THE GROUP FOR THE YEAR PREPARED IN ACCORDANCE WITH
PRC ASBEs
Unit: RMB in millions
Item 2014
Operating revenue 81,471.3
Operating profit 60.3
Total profit 3,538.2
Net profit attributable to shareholders of the listed company 2,633.6
Net profit after extraordinary items attributable to shareholders of the listed company 2,072.0
Net cash flows from operating activities 2,512.6
Extraordinary gains or losses items and amounts that have been deducted are as follows:
Unit: RMB in millions
Item 2014
Non-operating income 666.8
Gains/(Losses) from fair value change 148.3
Investment income 155.4
Less: Gains/(Losses) on disposal of non-current assets 35.7
Less: Other non-operating expenses 274.1
Less: Effect of income tax 99.1
Total 561.6
ZTE CORPORATION
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Highlights of accounting and financial indicators
(III) MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE GROUP FOR THE PAST THREE
YEARS PREPARED IN ACCORDANCE WITH PRC ASBEs
1. Major accounting data of the Group for the past three years prepared in accordance with PRC
ASBEs
Unit: RMB in millions
Item
For the
year ended
31 December
2014
For the
year ended
31 December
2013
Year-on-year
change
For the
year ended
31 December
2012
(Restated)
Operating revenue 81,471.3 75,233.7 8.29% 84,118.9
Operating profit 60.3 (1,493.1) 104.04% (5,002.2)
Total profit 3,538.2 1,827.8 93.58% (1,983.2)
Net profit attributable to shareholders
of the listed company 2,633.6 1,357.6 93.99% (2,840.9)
Net profit after extraordinary items
attributable to shareholders of the
listed company 2,072.0 73.0 2,738.36% (4,190.5)
Net cash flows from operating
activities 2,512.6 2,574.6 (2.41%) 1,550.0
Unit: RMB in millions
Item
As at
31 December
2014
As at
31 December
2013
Year-on-year
change
As at
31 December
2012
(Restated)
Total assets 106,214.2 100,079.5 6.13% 107,446.3
Total liabilities 79,921.7 76,453.8 4.54% 84,853.5
Owners’ equity attributable to
shareholders of the listed company 24,878.6 22,532.7 10.41% 21,456.6
Share capital (million shares) 3,437.5 3,437.5 — 3,440.1
ANNUAL REPORT 2014
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2. Major financial indicators of the Group for the past three years prepared in accordance with PRC
ASBEs
Item
For the
year ended
31 December
2014
For the
year ended
31 December
2013
Year-on-year
change
For the
year ended
31 December
2012
(Restated)
Basic earnings per share
(RMB/share)
Note 1
0.77 0.39 97.44% (0.83)
Diluted earnings per share
(RMB/share)
Note 2
0.77 0.39 97.44% (0.83)
Basic earnings per share after
extraordinary items
(RMB/share)
Note 1
0.60 0.02 2,900.00% (1.22)
Weighted average return on net assets
(%) 11.10% 6.17%
Increased by
4.93 percentage
points (12.46%)
Weighted average return on net assets
after extraordinary items (%) 8.74% 0.33%
Increased by
8.41 percentage
points (18.38%)
Net cash flows from operating
activities per share
(RMB/share)
Note 3
0.73 0.75 (2.67%) 0.45
Item
As at
31 December
2014
As at
31 December
2013
Year-on-year
change
As at
31 December
2012
(Restated)
Net asset per share attributable to
shareholders of the listed company
(RMB/share)
Note 3
7.24 6.55 10.53% 6.24
Gearing ratio (%) 75.25% 76.39%
Decreased by
1.14 percentage
points 78.97%
Note 1: Basic earnings per share for the reporting period and 2013 was calculated on the basis of the total share capital at the end of each
period. Basic earnings per share for 2012 was calculated on the basis of the weighted average number of ordinary shares, namely
the total share capital at the end of the period less 2,536,742 lapsed Subject Shares under the Phase I Share Incentive Scheme
of the Company;
Note 2: As share options granted by the Company have given rise to 2,543,000 and 1,767,000 potentially dilutive ordinary shares for the
reporting period and 2013, respectively, diluted earnings per share has been calculated on the basis of basic earnings per share
taking into account the said factor. As there was no Subject Share quota under the Phase I Share Incentive Scheme of the Company
remaining in lock-up in 2012, diluted earnings per share was the same as basic earnings per share;
Note 3: Net cash flow from operating activities per share and net asset per share attributable to shareholders of the listed company for
the reporting period and 2013 were calculated on the basis of the total share capital at the end of each period. The corresponding
indicators for 2012 were calculated on the basis of the total share capital at the end of the period less 2,536,742 lapsed Subject
Shares under the Phase I Share Incentive Scheme of the Company.
ZTE CORPORATION
22
Highlights of accounting and financial indicators
3. Extraordinary gains or losses items and amounts of the Group for the past three years prepared in
accordance with PRC ASBEs
Unit: RMB in millions
Item
For the
year ended
31 December
2014
For the
year ended
31 December
2013
For the
year ended
31 December
2012
Non-operating income 666.8 594.2 559.6
Gains/(Losses) from fair value change 148.3 204.0 (107.4)
Investment income 155.4 857.7 1,197.7
Less: Gains/(Losses) on disposal of non-current assets 35.7 18.1 19.4
Less: Other non-operating expenses 274.1 126.4 42.8
Less: Effect of income tax 99.1 226.7 238.1
Total 561.6 1,284.7 1,349.6
(IV) MAJOR FINANCIAL INFORMATION OF THE GROUP FOR THE PAST FIVE YEARS PREPARED IN
ACCORDANCE WITH HKFRSs
Unit: RMB in millions
Year ended 31 December
Results 2014 2013
2012
(Restated) 2011
2010
(Restated)
Revenue 81,471.3 75,233.7 84,118.9 86,254.5 69,906.7
Cost of sales (57,759.0) (54,775.1) (65,545.5) (62,086.4) (48,241.8)
Gross profit 23,712.3 20,458.6 18,573.4 24,168.1 21,664.9
Other income and gains 4,561.2 4,905.3 4,609.2 3,664.4 2,639.8
Research and development expenses (9,008.5) (7,383.9) (8,829.2) (8,492.6) (7,092.0)
Selling and distribution expenses (10,391.6) (10,158.5) (11,340.9) (11,112.2) (8,890.2)
Administrative expenses (2,138.1) (2,258.7) (2,449.2) (2,605.6) (2,524.0)
Other expenses (1,582.3) (2,119.1) (706.1) (1,684.1) (753.8)
Profit from operating activities 5,153.0 3,443.7 (142.8) 3,938.0 5,044.7
Finance costs (1,561.7) (1,650.4) (1,888.5) (1,374.2) (728.6)
Share of profit and loss of jointly controlled
entities and associates (53.0) 34.5 48.1 71.3 44.1
Profit before tax 3,538.3 1,827.8 (1,983.2) 2,635.1 4,360.2
Income tax expense (810.6) (394.2) (621.4) (392.0) (883.7)
Profit before non-controlling interests 2,727.7 1,433.6 (2,604.6) 2,243.1 3,476.5
Attributable to:
Non-controlling interests (94.1) (76.0) (236.3) (182.9) (226.3)
Attributable to:
Shareholders of parent company 2,633.6 1,357.6 (2,840.9) 2,060.2 3,250.2
ANNUAL REPORT 2014
23
Unit: RMB in millions
As at 31 December
Assets and liabilities 2014 2013
2012
(Restated)
2011
(Restated) 2010
Total assets 110,254.6 102,473.0 109,911.5 107,784.1 85,509.2
Total liabilities 83,962.1 78,847.3 87,318.7 81,549.6 60,547.2
Non-controlling interests 1,413.9 1,093.0 1,136.3 2,057.1 1,868.1
Shareholders’ equity attributable to parent
company 24,878.6 22,532.7 21,456.5 24,177.4 23,093.9
(V) MAJOR FINANCIAL INDICATORS OF THE GROUP FOR THE PAST FIVE YEARS PREPARED IN
ACCORDANCE WITH HKFRSs
Item 2014 2013
2012
(Restated)
2011
(Restated) 2010
Basic earnings per share (RMB/share)
Note 1
0.77 0.39 (0.83) 0.61 0.98
Net asset per share (RMB/share)
Note 2
7.24 6.55 6.24 7.05 6.87
Fully diluted return on net assets (%) 10.59% 6.03% (13.24%) 8.52% 14.07%
Note 1: Basic earnings per share for the reporting period and 2013 was calculated on the basis of the total share capital at the end of
each period;
Note 2: Net asset per share attributable to shareholders of the listed company for the reporting period and 2013 was calculated on the
basis of the total share capital at the end of each period.
(VI) THE AMOUNTS OF NET PROFIT AND NET ASSETS OF THE GROUP FOR THE YEAR ENDED AND
AS AT 31 DECEMBER 2014 CALCULATED IN ACCORDANCE WITH PRC ASBEs ARE ENTIRELY
CONSISTENT WITH THOSE CALCULATED UNDER HKFRSs.
ZTE CORPORATION
26
Report of the Board of Directors
The Board of Directors is pleased to present its audited operating results report together with the financial
statements of the Group for the year ended 31 December 2014.
BUSINESS OF THE GROUP
The Group is principally engaged in the design, development, production, distribution and installation of a broad
range of advanced telecommunications systems and equipment, including carriers’ networks, handset terminals,
telecommunications software systems, services and other products.
FINANCIAL RESULTS
Please refer to pages 155–156 and page 320 of this report for the results of the Group for the year ended 31
December 2014 prepared in accordance with PRC ASBEs and HKFRSs, respectively.
FINANCIAL SUMMARY
Set out on pages 19–22 of this report are the results and financial position of the Group for the three financial
years ended 31 December 2014 prepared in accordance with the PRC ASBEs.
Set out on pages 22–23 of this report are the results and financial position of the Group for the five financial years
ended 31 December 2014 prepared in accordance with HKFRSs, which have been extracted from the respective
financial statements of the Group for each of the five financial years ended 31 December 2010, 2011, 2012, 2013
and 2014 prepared in accordance with HKFRSs.
(I) Business Review for 2014
1. Overview of the domestic telecommunications industry for 2014
In 2014, investment in equipment by domestic carriers continued to grow mainly in connection with the large-
scale deployment of 4G networks and the construction of related ancillary facilities. The rapid development of
the Mobile Internet coupled with the further penetration of 4G smart phones was driving the commercialisation
process of 4G networks. While the wireless, transmission and broadband sectors remained heavily favoured spots
for equipment investment by carriers, Smart Pipe, Cloud Computing, Big Data and Smart City were also garnering
increasing attention and investments.
2. Overview of the global telecommunications industry for 2014
Equipment investment by the global telecommunications industry experienced growth in 2014. The traditional
telecommunications industry was facing more opportunities as well as more challenges in its development under
the impact of the application of 4G technologies on all fronts, the integration of ICT industries and the trend of
informatisation. In addition to focusing on the enhancement of 4G network performance and the development
of next-generation broadband technologies, global carriers were also committing an increasing portion of their
resources to operations based on the flow volume, value-added Big Data business, integrated innovative businesses
and approaches for maintaining balance between security and privacy, in a bid to achieve effective transformation
by exploring new opportunities for development.
ANNUAL REPORT 2014
27
3. Operating Results of the Group for 2014
The Group’s overall operating revenue for 2014 increased by 8.3% to RMB81.47 billion as compared to 2013,
primarily reflecting operating revenue growth for 4G system products in the domestic and international markets,
routers and switches in the domestic and international markets, optical communication systems in the domestic
market and 4G handsets in the domestic and international markets. In 2014, the continued growth in scale of the
Group’s domestic and international 4G system equipment business and domestic and international 4G handset
business coupled with ongoing improvements in contract profitability resulted in growth in both sales volume
and gross profit margin. In addition, the Group enhanced financial expenses control and mitigated the impact
of exchange rate volatility on the Group’s operations, resulting in the relatively substantial decrease in overall
financial expenses. As a result of the aforesaid factors, the Group reported net profit attributable to shareholders
of the listed company of RMB2.63 billion for 2014, representing a year-on-year growth of 94.0%. Basic earnings
per share amounted to RMB0.77.
(1) By market
The domestic market
During the year, the Group reported operating revenue of RMB40.58 billion from the domestic market, accounting
for 49.8% of the Group’s overall operating revenue. The Group worked proactively in support of the network
construction plans of domestic carriers as it established and implemented in depth its M-ICT Strategy and
maintained its dominant market position through competitive innovative solutions. Moreover, the Group also made
vigorous moves to roll out its operations in strategic emerging sectors such as Cloud Computing, Big Data and
Smart City, with a view to ensuring positive development in the long term.
The international market
During the year, the Group reported operating revenue of RMB40.89 billion from the international market, accounting
for 50.2% of the Group’s overall operating revenue. The Group has formed comprehensive partnerships with
mainstream global carriers as it continued to focus on major populous nations and mainstream global carriers and
bolster its competitiveness on all fronts while securing stable operations and quality growth.
(2) By product
During the year, the Group reported operating revenue of RMB46.77 billion for carriers’ networks. Operating revenue
for handset terminals amounted to RMB23.12 billion. Operating revenue for telecommunications software systems,
services and other products amounted to RMB11.58 billion.
Carriers’ networks
In connection with wireless products, the Group persisted in prioritising innovation and pursued ongoing
enhancement of product competitiveness, as it launched cutting-edge solutions, such as Cloud Radio, QCell, UBR
and Magic Radio, and maintained relatively strong growth in the market created by the deployment of new 4G
networks in the PRC and elsewhere. In the traditional 2G/3G markets, stable growth was achieved as the Group
continued to optimise its market profile. In anticipation of future developments in wireless communications, the
Group achieved substantial progress in the preliminary research of 5G technologies and became the first industry
player to introduce the Pre-5G concept and conduct related field tests.
ZTE CORPORATION
28
Report of the Board of Directors
In connection with wireline and optical communications products, the Group achieved stable growth on the back
of cutting-edge products and solutions launched following dedicated efforts in product innovation and solution
operations.
In connection with Cloud Computing and IT products, the Cloud Computing and Big Data processing platforms
developed by our Group remained cutting-edge products in the industry, as our Big Data processing platform
and distributive data base made breakthroughs in the financial sector, while our data center products made
breakthroughs in the domestic market.
Handset terminals
In line with the business philosophy of shifting to a more consumer-oriented and internet-driven approach, the
Group optimised the distribution of its product types with a special emphasis on the development of boutique
models and flagship series, while streamlining and new developments were conducted in many areas, such as
surface design, quality control, brand building, channel operation and after-sales service. In 2014, smartphone
products continued to account for an increasing percentage of the Group’s total sales, underpinned by a substantial
increase in the percentage share of 4G handsets.
Telecommunications software systems, services and other products
Operating revenue from the Group’s telecommunications software systems, services and other products for the year
reported year-on-year decline of 9.7%, attributable mainly to the decrease in operating revenue from international
services.
The Group is also vigorously developing the market for government and corporate sectors and services in pursuit
of sustainable development.
(II) Discussion and analysis prepared under PRC ASBEs
The financial data below are extracted from the Group’s audited financial statements prepared in accordance
with PRC ASBEs. The following discussion and analysis should be read in conjunction with the Group’s financial
statements audited by Ernst & Young Hua Ming LLP and the accompanying notes thereto set out in this report.
ANNUAL REPORT 2014
29
1. Breakdown of indicators by industry, product and region segments for the year as compared to the
previous year
Revenue mix
Operating
revenue
(RMB in
millions)
Operating
costs
(RMB in
millions)
Gross
profit
margin
Year-
on-year
increase/
decrease
in
operating
revenue
Year-
on-year
increase/
decrease
in
operating
costs
Year-on-year
increase/
decrease in
gross profit
margin
(percentage
points)
I. By industry
Manufacturing of
communication
equipment 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
Total 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
II. By product
Carriers’ networks 46,768.2 28,747.8 38.53% 14.92% 12.77% 1.17
Handset terminals
Note
23,117.1 19,549.6 15.43% 6.52% 5.75% 0.62
Telecommunications
software systems,
services and other
products 11,586.0 7,462.7 35.59% (9.74%) (18.41%) 6.85
Total 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
III. By region
The PRC 40,583.5 26,494.2 34.72% 13.88% 11.46% 1.42
Asia (excluding the PRC) 12,131.6 8,317.4 31.44% (12.40%) (20.36%) 6.85
Africa 6,174.2 3,902.4 36.80% 5.25% (10.36%) 11.02
Europe, Americas and
Oceania 22,582.0 17,046.1 24.51% 13.58% 17.10% (2.27)
Total 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
Note: Handset terminals include handsets, data cards, fixed terminals, etc.
(1) Analysis of change in revenue
The Group reported RMB81,471.3 million in operating revenue for 2014, improving by 8.29% as compared with
last year. Operating revenue generated from the domestic business amounted to RMB40,583.5 million, increasing
by 13.88% as compared with last year. Operating revenue generated from the international business also rose by
3.26%, as compared with last year, to RMB40,887.8 million.
Analysed by product segment, year-on-year growth of operating revenue was reported for carriers’ networks
and handset terminals, while decline was reported for telecommunication software systems, services and other
products. The increase in operating revenue from the Group’s carriers’ networks for 2014 reflected mainly the
increase in operating revenue from 4G system products, routers and switches in the domestic and international
markets, as well as optical communication system products in the domestic market. The increase in operating
revenue from the Group’s handset terminals for 2014 reflected mainly the increase in operating revenue generated
from 4G handsets in the domestic and international markets. The decrease in operating revenue from the Group’s
telecommunication software systems, services and other products for 2014 mainly reflected the decline in operating
revenue from international services.
ZTE CORPORATION
30
Report of the Board of Directors
(2) Changes in the scope of consolidation as a result of changes in equity interests in the Company’s
subsidiaries and analysis of operating revenue and operating costs for the comparable period last year
Unit: RMB in millions
2014 2013
Note
Operating
revenue
Operating
costs
Gross profit
margin
Operating
revenue
Operating
costs
Gross profit
margin
Year-on-year
increase/
decrease in
operating
revenue
Year-on-year
increase/
decrease in
operating
costs
Year-on-year
increase/decrease in
gross profit margin
(percentage points)
81,471.3 55,760.1 31.56% 75,199.2 53,097.4 29.39% 8.34% 5.01% 2.17
Note: Figures of operating revenue and operating costs for 2013 have excluded operating revenue and operating costs of subsidiaries
deconsolidated in 2014.
Anhui Yalong Communication Technology Company Limited (“Yalong”) was deconsolidated from the Group’s
2014 financial statements following the disposal of 100% equity interests in Yalong by Anhui Wantong Posts
and Telecommunication Company Limited, a subsidiary of the Company, in April 2014. The operating revenue
and operating cost attributable to Yalong in the 2013 consolidated financial statements amounted to RMB34.5
million and RMB28.5 million, respectively. Excluding operating revenue and operating cost attributable to Yalong
in 2013, the Group’s operating revenue and operating cost for 2014 increased by 8.34% and 5.01%, respectively,
as compared with last year. Gross profit margin improved by 2.17 percentage points as compared with last year.
2. Indicators for major products accounting for over 10% of the Group’s operating revenue for the
year
Unit: RMB in millions
By product
Operating
revenue
Operating
costs
Gross profit
margin
Carriers’ networks 46,768.2 28,747.8 38.53%
Handset terminals 23,117.1 19,549.6 15.43%
Telecommunications software systems, services and other
products 11,586.0 7,462.7 35.59%
3. Breakdown of the Group’s costs by principal items
Unit: RMB in millions
2014 2013
Industry Item Amount
As a
percentage
of operating
costs Amount
As a
percentage
of operating
costs
Year-
on-year
increase/
decrease
Manufacturing of
communication
equipment
Raw materials 43,414.0 77.86% 42,708.8 80.39% 1.65%
Engineering costs 10,576.6 18.97% 10,189.5 19.18% 3.80%
Total 53,990.6 96.83% 52,898.3 99.57% 2.06%
ANNUAL REPORT 2014
31
4. Breakdown of the Group’s expenses by principal items
Unit: RMB in millions
Item 2014 2013
Year-on-year
increase/
decrease
Selling and distribution expenses 10,259.2 10,003.9 2.55%
General and administrative expenses 2,031.4 2,202.3 (7.76%)
Finance expenses 2,101.0 2,460.3 (14.60%)
Income tax 810.5 394.2 105.61%
Note
Research and development expenses 9,008.5 7,383.9 22.00%
Note: Mainly attributable to the increase in the Group’s profit.
The Group’s research and development expenses for 2014 accounted for 36.21% and 11.06%, respectively, of
the Group’s net assets attributable to shareholders of the listed company and operating revenue.
5. Breakdown of the Group’s cash flow
Unit: RMB in millions
Item 2014 2013
Year-on-year
increase/
decrease
Sub-total of cash inflows from operating activities 97,264.4 90,572.1 7.39%
Sub-total of cash outflows from operating activities 94,751.8 87,997.5 7.68%
Net cash flows from operating activities 2,512.6 2,574.6 (2.41%)
Sub-total of cash inflows from investing activities 1,832.4 2,495.1 (26.56%)
Note 1
Sub-total of cash outflows from investing activities 3,455.1 4,157.2 (16.89%)
Net cash flows from investing activities (1,622.7) (1,662.1) 2.37%
Sub-total of cash inflows from financing activities 39,753.8 23,376.8 70.06%
Note 2
Sub-total of cash outflows from financing activities 43,480.1 26,058.4 66.86%
Note 3
Net cash flows from financing activities (3,726.3) (2,681.6) (38.96%)
Net increase in cash and cash equivalents (2,888.1) (2,541.4) (13.64%)
Note 1: Mainly attributable to the decrease in net cash received from the disposal of subsidiaries and other business units;
Note 2: Mainly attributable to the increase in cash received from loans;
Note 3: Mainly attributable to the increase in cash used in debt repayment.
For an explanation of reasons for the difference between net cash flows from operating activities and net profit of
the Group for the year, please refer to Note V 52.Supplemental information on cash flow statement to the financial
statements prepared under PRC ASBEs.
ZTE CORPORATION
32
Report of the Board of Directors
6. Reasons for substantial changes in the Group’s principal business and its structure, profit mix and
profitability of the principal business during the year
(1) There was no substantial change in the principal business and its structure during the year as compared to
the previous year.
(2) Changes in the profit mix during the year as compared to the previous year are set out as follows:
For 2014, the Group reported operating profit of RMB60.3 million representing year-on-year growth of 104.04%,
which was primarily attributable to growth in revenue and gross profit margin. Operating revenue improved 8.29%
to RMB81,471.3 million, as compared with last year, which was primarily attributable to operating revenue growth
for 4G system products in the domestic and international markets, routers and switches in the domestic and
international markets, optical communication systems in the domestic market and 4G handsets in the domestic
and international markets. Investment income declined 85.29% year-on-year to RMB134.5 million, reflecting mainly
the decrease in investment income arising from the disposal of equity interests as compared with last year. The
net amount of non-operating income and expense grew 4.73% to RMB3,477.9 million, reflecting mainly year-on-
year growth in VAT rebate for software products.
(3) Changes in the profitability (gross profit margin) of the principal business during the year as compared to
the previous year are set out as follows:
The year saw growth in both sales volume and gross profit margin as a result of continued growth in scale of the
Group’s domestic and international 4G system equipment business and domestic and international 4G handset
business coupled with ongoing improvements in contract profitability.
7. Analysis of the Group’s assets and liabilities
(1) Change in assets
Unit: RMB in millions
As at 31 December 2014 As at 31 December 2013
Year-on-year
increase/
decrease in
percentage of
total assets
(percentage
points) Item Amount
As a
percentage
of total
assets Amount
As a
percentage
of total
assets
Total assets 106,214.2 100% 100,079.5 100% —
Cash 18,115.9 17.06% 20,903.0 20.89% (3.83)
Trade receivables 25,153.0 23.68% 21,393.3 21.38% 2.30
Inventory 19,592.3 18.45% 12,434.4 12.42% 6.03
Investment properties 2,004.5 1.89% 1,855.2 1.85% 0.04
Long-term equity investments 461.3 0.43% 478.0 0.48% (0.05)
Fixed assets 7,348.3 6.92% 7,449.5 7.44% (0.52)
Construction in progress 262.9 0.25% 177.4 0.18% 0.07
ANNUAL REPORT 2014
33
(2) Change in liabilities
Unit: RMB in millions
As at 31 December 2014 As at 31 December 2013
Year-on-year
increase/
decrease in
percentage of
total assets
(percentage
points) Item Amount
As a
percentage
of total
assets Amount
As a
percentage
of total
assets
Short-term loans 10,998.1 10.35% 12,589.0 12.58% (2.23)
Long-term loans due within one
year 6,174.3 5.81% 2,753.9 2.75% 3.06
Long-term loans 10,039.7 9.45% 5,385.7 5.38% 4.07
(3) Assets and liabilities at fair value
? Items relating to fair value measurement
Unit: RMB in thousands
Item
Opening
balance
Gains/
losses
arising
from fair
value
change for
the period
Cumulative
fair value
change
dealt with
in equity
Impairment
charge for
the period
Amount
purchased
for the
period
Amount
disposed
of for the
period
Closing
balance
Financial assets
Including: 1. Financial assets at fair
value through profit or
loss (excluding derivative
financial assets) — — — — — — —
2. Derivative financial assets 217,454 134,548 — — — — 240,973
3. Available-for-sale financial
assets 364,479 — (28,570) — — — 319,469
Sub-total of financial assets 581,933 134,548 (28,570) — — — 560,442
Investment properties 1,855,246 130,306 — — 18,913 — 2,004,465
Productive living assets — — — — — — —
Others — — — — — — —
Total 2,437,179 264,854 (28,570) — 18,913 — 2,564,907
Financial liabilities
Note
72,065 (116,572) 3,965 — — — 71,485
Note: Financial liabilities comprise derivative financial liabilities.
There was no material change to the measurement attributes of the principal assets of the Company during the year.
ZTE CORPORATION
34
Report of the Board of Directors
? Fair value changes in items measured at fair value and their impact on the Company’s profit
Assets of the Company are stated at historical costs, except for derivative financial instruments, equity investments
at fair value through profit or loss, a small number of available-for-sale financial assets and investment properties
which are measured at fair value. Gains or losses arising from fair value changes in the Company’s derivative
financial instruments measured at fair value were subject to uncertainties relating to fluctuations in RMB/USD and
RMB/EUR forward exchange rates.
? Internal control systems relating to fair value measurement
The Company has established a fair value measurement internal control system to be operated through collaboration
of various departments under the leadership of the Chief Financial Officer. The “Fair Value Measurement Internal
Control Measures” (???????????????) has been formulated as a complement to the “ZTE Accounting
Policies” (??????????) and the “ZTE Internal Control System” (????????????) to regulate the
application and disclosure of fair value measurements.
(4) Financial assets and financial liabilities held in foreign currencies
Unit: RMB in thousands
Item
Opening
balance
Gains/losses
arising from
fair value
change for
the period
Cumulative
fair value
change
dealt with in
equity
Impairment
charge for
the period
Closing
balance
Financial assets
Including: 1. Financial assets
at fair value
through profit or
loss 217,454 134,548 — — 240,973
Including:
derivative
financial assets 217,454 134,548 — — 240,973
2. Loans and
receivables 40,914,462 — — 428,513 40,510,003
3. Available-for-sale
financial assets 424,918 — (47,386) — 348,375
4. Held-to-maturity
investments — — — — —
Sub-total of financial assets 41,556,834 134,548 (47,386) 428,513 41,099,351
Financial liabilities 12,514,689 (116,572) 3,965 — 13,189,929
ANNUAL REPORT 2014
35
8. Major customers and suppliers
Sales by the Group in 2014 to its largest customer amounted to RMB17,963.4 million, accounting for 22.05%
of the total sales of the Group for the year, while sales to its five largest customers amounted to RMB33,689.6
million, accounting for 41.35% of the total sales of the Group for the year. The five largest customers were not
connected to the Company in any way. None of the Directors, Supervisors, senior management, key technical
personnel, shareholders holding 5% or more of the shares, de facto controller and other connected parties of the
Company had any direct or indirect interest in any of the aforesaid five largest customers. None of the Directors
or Supervisors of the Company or their close associates or, to the knowledge of the Board of Directors, any of
the shareholders holding 5% or more of the shares of the Company had any interest in any of the five largest
customers of the Group. (The above figures of the Group are consistent under PRC ASBEs and HKFRSs).
Purchases by the Group from its largest supplier amounted to RMB3,707.6 million in 2014, accounting for 7.90%
of the total purchases of the Group for the year, while the purchases made from its five largest suppliers amounted
to RMB9,099.7 million, accounting for 19.39% of the total purchases of the Group for the year. The Company and
ZTE Capital together held 31% equity interests in Zhonghe Chunsheng Fund, which held 3.46% equity interests in
?????????????, one of the five largest suppliers of the Company. The Company also held 4.9% equity
interests in Shenzhen Xingfei Technology Company Limited, which held 100% equity interests in Nanchang Xingfei
Technology Company Limited, one of the five largest suppliers of the Company. Save as the holding of equity
interests disclosed above, the five largest suppliers were not connected to the Company, none of the Directors,
Supervisors, senior management, key technical personnel, shareholders holding 5% or more of the shares, de
facto controller and other connected parties of the Company had any direct or indirect interest in any of the
aforesaid five largest suppliers. (The above figures of the Group are consistent under PRC ASBEs and HKFRSs).
9. Technological innovations
The Group has effectively enhanced its technological progress and core competitiveness, as it continued to foster
technological capabilities and pursue new product development in close tandem with trends in the ICT industry, in
persistent adherence to the principles of proprietary innovation. In 2014, the Group confirmed its M-ICT strategy,
with the aim of becoming an enabler in the M-ICT era focused on carriers, government and corporate sectors,
handset terminals and strategic emerging markets, striving to add value through information and unveil the new
era of mobile interconnection of all things, where the original purpose of technology, namely to serve people, will
once again be endorsed. As we shift from a customer-focus to a user-focus, users’ experience will provide an
ongoing drive to the development of ICT technologies, while technological progress will, in turn, further enhance
users’ experience.
In terms of product strategy, the Group was mainly focused on broadband-based 4G products series. Government
and corporate networks and services, sectors holding out enormous market potential, also became a focus for
development.
In connection with wireless products, the commercial application of multi-mode soft-baseband chips and the
completion of product testing of the digital intermediate frequency chip have provided strong assurance for our
wireless broadband construction. With the launch of cutting-edge solutions, such as Cloud Radio, QCell, UBR and
Magic Radio, the Group continued to maintain relatively strong growth in the market created by the deployment
of new 4G networks in the PRC and elsewhere. The Group also achieved substantial progress in the preliminary
research of 5G technologies, as it became the first industry player to introduce the Pre-5G concept. In November
2014, we conducted a Pre 5G Massive MIMO field test, the first of its kind in the industry, which demonstrated
a local area data throughput rate at least 5 times higher than that of existing systems.
ZTE CORPORATION
36
Report of the Board of Directors
In connection with wireline products, we achieved full independence in the research and development of our
PON serialised chips, while the XG PON serialised products based on our independently developed core chips
were employed in the world’s first large-scale commercial deployment of such products in 2014, signifying
further enhancement of our product capacity. The Group also launched cutting edge products such as large-
capacity optical network cross-connection equipment and IDC switch, while the research and development of the
next-generation high-end packet product platform was also completed, providing strong support for the market
development of a variety of products, such as core router, multi-service edge router, packet transport network
and service gateway.
In connection with Cloud Computing and IT products, the Group completed the research and development
of cutting-edge Cloud Computing and Big Data processing platforms and offered comprehensive, customised
solutions for parallel and high-performance computing to support applications in services relating to the internet
and Internet of Things, securing breakthrough business deals in the financial, transportation, education, government
and public security sectors as a result.
In connection with handset terminals, we persisted in the principles of users’ senses, ongoing value creation, open
platforms and awesome experiences. In terms of technological innovation, we made strong efforts to resolve the
bottleneck in voice technologies and applied next-generation voice technologies in our smart phones to create a
brand new experience in human-machine interaction. In terms of platform development, we have built a secure
handset platform following sophisticated research and development in handset security, especially in relation to
personal security and corporate security.
Moreover, with the launch in Qinhuangdao, Ningbo and Yinchuan of the Smart City UOC (Urban Operation Center)
platform, developed upon the Group’s strengths in Cloud Computing, Internet of Things and Big Data technologies
to cater to practical domestic needs for building Smart Cities, the Group became a leader and trendsetter for
Smart City standards and construction in the domestic market.
In 2014, the Group made focused efforts in the development of the “CGO Laboratory,” which was specifically
designated as the operating arm for company-level innovative projects established to further enhance the incubation
of innovative projects and the development of new businesses and sectors.
The Group maintains an annual R&D budget equivalent to approximately 10% of its sales revenue. Currently, the
Group has approximately 27,000 R&D personnel and 19 R&D centres in China, the United States, Sweden, France
and Canada, as well as more than 10 joint innovation centres established in association with leading carriers to
ensure success in the market through better assessment of market demand and customers’ experience.
As at 31 December 2014, the Group held patent assets of over 60,000 items, including granted patents of
over 17,000 items. With memberships at more than 70 international standardisation organisations and forums,
convenorships and presenter roles at major international standardisation organisations taken up by more than
30 experts from the Group, the presentation of over 28,000 research papers in aggregate to international
standardisation organisations and editorships and authorships for more than 200 international standards, the Group
continued to foster strengths in technologies and patents for key products and technologies, ensuring ongoing
enhancement in its ability to counter patent risks.
In 2014, the “synergised high-speed wireless communication system” project developed under the leadership
of the Group won the Class II National Award for Progress in Science and Technology. The Group also won a
number of Class II Technological Invention Awards and Class II Technological Progress Awards in association with
other parties.
ANNUAL REPORT 2014
37
In 2014, the Group undertook leading roles in a number of key national technological projects, such as the
“next-generation broadband wireless mobile communication network,” in addition to the R&D and industrialisation
of more than 10 projects including the National 863 Project, Electronic Development Foundation and Integrated
Circuit Project.
“ZTE Forum for Cooperation of Enterprises, Academies and Research Institutes” has been formed to solicit
memberships among leading domestic colleges and research institutes specialising in telecommunications
technologies, in support of the government’s call for the formation of a regime for cooperation in technological
innovation, where the enterprise, academic and research sectors join forces in market-oriented initiatives under the
leadership of business enterprises. By far 30 institutions have joined the Forum. In 2014, we started cooperation
with tertiary institutions to build united innovation centres and united laboratories in association, to jointly undertake
key national projects and industrialization projects of the National Development and Reform Commission.
10. Analysis of investment
(1) Equity investments
? Overview
The Group’s equity investments in 2014 amounted to approximately RMB461,316,000, representing a decrease of
3.50% compared to approximately RMB478,037,000 reported for 2013.
For details of the Company’s equity investments and of the invested companies, please refer to Note V 11.Long-
term equity investments of the financial report prepared in accordance with PRC ASBEs.
? Investment in securities
A. Investment in securities as at the end of the year
Unit: RMB in ten thousands
Type of securities
Stock
code
Stock
name
Initial
investment
Shares
held at the
beginning
of the
period (ten
thousand
shares)
Shareholding
percentage
at the
beginning of
the period
Shares
held at the
end of the
period (ten
thousand
shares)
Shareholding
percentage
at the end of
the period
Nominal
value at
the end of
the period
Profit
and loss
in the
reporting
period
Accounting
classification
Source of
shares
Convertible bonds
Note
N/A N/A 16,309.61 N/A N/A N/A N/A 16,047.20 2,583.10 Other
receivables
Initial
investment
Other securities
investments held at
the end of the period
— — — — — — — — —
Total 16,309.61 N/A — N/A — 16,047.20 2,583.10 — —
Note: China All Access is a company listed on the Hong Kong Stock Exchange. The initial investment for the acquisition of convertible bonds
of China All Access by ZTE HK, a wholly-owned subsidiary of the Company, amounted to approximately HKD201.5 million, equivalent to
approximately RMB163.1 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.80941) on 31
January 2013. The nominal value of the investment as at the end of the reporting period was approximately HKD201.0 million, equivalent
to approximately RMB160.5 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.7984) on 31
December 2014.
ZTE CORPORATION
38
Report of the Board of Directors
B. Details of investment in securities
Pursuant to the “Resolution on the subscription for shares and convertible bonds of China All Access (Holdings)
Limited by ZTE HK” considered and passed at the Thirty-sixth Meeting of the Fifth Session of the Board of Directors
of the Company held on 16 November 2012, ZTE HK, a wholly-owned subsidiary of the Company, entered into
the “Agreement on the Subscription for Shares and Convertible Bonds of China All Access (Holdings) Limited”
with China All Access on 16 November 2012. On 15 January 2013, ZTE HK completed subscription for convertible
bonds with a principal amount of HKD201.5 million issued by China All Access for a total cash consideration of
HKD201.5 million.
Pursuant to “Resolution on the subscription of China All Access (Holdings) Limited convertible bonds by ZTE HK”
considered and approved at the Twenty-third Meeting of the Sixth Session of the Board of Directors of the Company
held on 23 December 2014, ZTE HK, a wholly-owned subsidiary of the Company, entered into the “Agreement in
relation to the Subscription of China All Access (Holdings) Limited Convertible Bonds” with China All Access on
23 December 2014 for the subscription of HKD350,000,000 convertible bonds issued by China All Access at an
annual interest rate of 6% and with the principle amount paid annually within two years. On 26 February 2015,
ZTE HK completed the subscription of China All Access convertible bonds.
As at the end of the year, ZTE HK held convertible bonds of China All Access in the amount of HKD201.5 million.
The convertible bonds held by ZTE HK have been classified as other receivables and interest income arising from
the convertible bonds has been included in current profit and loss.
? Holding of equity interests in other listed companies
A. Holding of equity interests in other listed companies as at the end of the year
Unit: RMB in ten thousands
Type of securities
Stock
code Stock name
Initial
investment
Shares
held at the
beginning of
the period
(ten thousand
shares)
Shareholding
percentage at
the beginning
of the period
Shares
held at the
end of the
period (ten
thousand
shares)
Shareholding
percentage
at the end of
the period
Nominal
value at
the end of
the period
Profit and
loss in the
reporting
period
Accounting
classification
Source of
shares
Stock 300322 Speed
Note 1
762.79 240 2.14% 480 2.14% 9,182.40 — Available-for-sale
financial assets
Initial
investment
Stock 00633.HK China All
Access
Note 2
16,309.61 11,200 8.43% 9,698.20 6.13% 22,764.50 2,270.63 Available-for-sale
financial assets
Initial
investment
Total 17,072.40 11,440 — 10,178.20 — 31,946.90 2,270.63 — —
Note 1: Figures corresponding to Speed are provided with Zhonghe Chunsheng Fund as the accounting subject.
Note 2: The initial investment for ZTE HK’s acquisition of China All Access shares amounted to approximately HKD201.5 million, equivalent to
approximately RMB163.1 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.80941) on 31
January 2013. The nominal value of the investment as at the end of the reporting period was approximately HKD285.1 million, equivalent
to approximately RMB227.6 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.7984) on
31 December 2014.
ANNUAL REPORT 2014
39
B. Details of holding of equity interests in other listed companies
a. Shareholdings in Speed
As at the end of the year, the Company and ZTE Capital held in aggregate 31% equity interests in Zhonghe
Chunsheng Fund. Zhonghe Chunsheng Fund was a partnership reported in the consolidated financial statements of
the Company. As at the end of the year, Zhonghe Chunsheng Fund held 4.80 million shares in Speed, a company
listed on the GEM Board of the Shenzhen Stock Exchange, accounting for 2.14% of the total share capital of
Speed (following Speed’s implementation of its 2013 profit distribution and conversion from capital reserves plans).
b. Shareholdings in China All Access
Pursuant to the “Agreement on the Subscription for Shares and Convertible Bonds of China All Access (Holdings)
Limited” entered into by ZTE HK, a wholly-owned subsidiary of the Company, with China All Access on 16
November 2012, ZTE HK subscribed for 112 million shares allotted and issued by China All Access on 15 January
2013 for a total cash consideration of HKD201.5 million.
As at the end of the year, ZTE HK held 96,982,000 shares in China All Access, accounting for approximately 6.13%
of the total share capital of China All Access. The shares held by ZTE HK have been classified as available-for-
sale financial assets for accounting purposes and recognised in capital reserve at fair value.
? Save as aforesaid, the Group did not hold any stakes in non-listed financial enterprises such as
commercial banks, securities companies, insurance companies, trust companies and future companies,
or conduct securities investment such as dealing in stocks of other listed companies during the reporting
period.
(2) Derivative investments, entrusted investments and entrusted loans
? Derivative investments
Unit: RMB in ten thousands
Name of party
operating the
derivative
investment
Connected
relationship
Whether a
connected
transaction
Type of
derivative
investment
Note 1
Initial
investment
amount
in the
derivative
investment Start date End date
Opening
balance of
investment
amount
Impairment
provision
(if any)
Closing
balance of
investment
amount
Closing balance
of investment
amount as a
percentage of
net assets
Note 2
of the Company
at the end of the
period (%)
Actual
profit or
loss for the
reporting
period
HSBC N/A No Interest rate
swap
Note 3
— 2011/12/19 2016/7/8 30,484.50 — 31,002.50 1.2% —
Standard Chartered
Bank
N/A No Interest rate
swap
Note 3
— 2011/12/22 2016/7/8 30,484.50 — 31,002.50 1.2% —
BOC N/A No Foreign
exchange
forwards
— 2014/1/6 2015/12/16 500,142.76 — 195,576.94 7.9% 4,537.11
BNP Paribas N/A No Foreign
exchange
forwards
— 2014/1/9 2015/11/30 333,810.82 — 171,398.53 6.9% 3,976.21
CITIC Bank N/A No Foreign
exchange
forwards
— 2014/1/23 2015/3/12 158,747.41 — 32,336.23 1.3% 750.16
Other banks N/A No Foreign
exchange
forwards
— 2014/1/6 2015/12/16 282,019.80 — 284,498.51 11.4% 6,207.61
Total — — — 1,335,689.79 — 745,815.21 29.9% 15,471.09
ZTE CORPORATION
40
Report of the Board of Directors
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 of Resolutions of the Fortieth Meeting of the Fifth Session
of the Board of Directors” and “Announcement on the Application for
Derivative Investment Limits for 2013,” both dated 27 March 2013, and
“Announcement of Resolutions of the Sixteenth Meeting of the Sixth
Session of the Board of Directors” and “Announcement on the Application
for Derivative Investment Limits for 2014,” both dated 26 March 2014.
Date of announcement of the
general meeting in respect
of the approval of derivative
investments (if any)
“Announcement of Resolutions of the 2012 Annual General Meeting”
dated 30 May 2013 and “Announcement of Resolutions of the 2013
Annual General Meeting” dated 29 May 2014.
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
Value-protection derivative investments were conducted by the Company
during 2014. The major risks and control measures are discussed as
follows:
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 value-
protection derivative investments. Effective gains or losses shall be
represented by the accumulative gains or losses on revaluation on
the maturity date;
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 matched 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 banks 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;
ANNUAL REPORT 2014
41
5. Control measures: The Company addressed legal risks by entering
into contracts with clear and precise terms with counterparty
banks 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.
Market prices or fair-value
change 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 from investments in derivatives during
the reporting period. Total gains recognised for the reporting period
amounted to RMB154.71 million, comprising gains from fair-value change
of RMB8.74 million and recognised investment income of RMB145.97
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 those for 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.
Specific opinion of Independent
Non-executive Directors on
the Company’s derivative
investments and risk control
Independent Non-executive Directors’ Opinion:
The Company 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. We are of the view that
the derivative investments made by the Company and its subsidiaries
have been closely related to their day-to-day operational requirements
and in compliance with relevant laws and regulations.
Note 1: Derivative investments are classified according to their types and the banks involved.
Note 2: Net assets as at the end of the reporting period represented net assets attributable to shareholders of the listed company as at the
end of the reporting period.
Note 3: Interest rate swaps were dealt with as value protection hedging for accounting purposes and the gains or losses arising from interest
rate swaps was recognised in the capital reserve.
ZTE CORPORATION
42
Report of the Board of Directors
? Entrusted Investments
Unit: RMB in ten thousands
Name of trustee
Connected
relationship
Whether a
connected
transaction Product type
Amount of
entrusted
investment
Commencement
date
Maturity
date
Method for
determining
remuneration
Principal
amount
returned for
the period
Impairment
provision
amount
(if any)
Estimated
gain
Actual
profit or
loss for the
reporting
period
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
2,500 2014-9-24 2014-12-10 Settlement
upon maturity
based on the
actual amount
2,500 — — 28.48
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
490 2014-9-24 2014-12-30 Settlement
upon maturity
based on the
actual amount
490 — — 1.92
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
300 2014-10-29 2014-12-3 Settlement
upon maturity
based on the
actual amount
300 — — 1.47
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
300 2014-12-10 2014-12-30 Settlement
upon maturity
based on the
actual amount
300 — — 0.50
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
2,500 2014-12-16 2014-12-30 Settlement
upon maturity
based on the
actual amount
2,500 — — 4.16
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
15 2014-12-25 2014-12-29 Settlement
upon maturity
based on the
actual amount
15 — — 0.01
China Merchants Bank,
Licheng Sub-
branch, Quanzhou
N/A No Bank
investment
product
40 2014-12-4 2014-12-21 Settlement
upon maturity
based on the
actual amount
40 — — 0.02
China Merchants Bank,
Licheng Sub-
branch, Quanzhou
N/A No Bank
investment
product
370 2014-12-12 2014-12-31 Settlement
upon maturity
based on the
actual amount
370 — — 0.41
China Merchants Bank,
Licheng Sub-
branch, Quanzhou
N/A No Bank
investment
product
320 2014-12-25 2015-3-10 Settlement
upon maturity
based on the
actual amount
— — — —
Wing Hang Bank (China)
Limited, Shenzhen
Branch
N/A No Bank
investment
product
3,000 2014-12-20 2015-12-21 Spot
realisation on
effective date
of contract
— — — 113
Wing Hang Bank (China)
Limited, Shenzhen
Branch
N/A No Bank
investment
product
3,000 2014-12-22 2015-12-23 Spot
realisation on
effective date
of contract
— — — 113
Total 12,835 — — — 6,515 — — 262.97
ANNUAL REPORT 2014
43
Source of funds for entrusted
investment
Internal funds
Aggregate amount of overdue and
outstanding principal and gain
Nil
Litigation incurred (if applicable) N/A
Date of announcement of the
Board of Directors regarding
the approval of entrusted
investment (if any)
N/A
Date of announcement of the
general meeting regarding
the approval of entrusted
investment (if any)
N/A
? During the year, the Company did not enter into any entrusted loans.
(3) Use of issue proceeds
? Overview of Corporate Bonds (12??01)
The Company issued corporate bonds (the “Issue”) on 13 June 2012 with a finalised issue size of RMB6,000 million,
comprising RMB200 million in online issue and RMB5,800 million in offline issue. The gross proceeds raised from
the Issue were deposited into the designated account of the Company on 18 June 2012. A capital verification
report in respect of the subscription amounts for the online issue (“Ernst & Young Hua Ming (2012) Zhuan Zi No.
60438556_H03”), a capital verification report in respect of the subscription amounts for the offline placing (“Ernst
& Young Hua Ming (2012) Zhuan Zi No. 60438556_H04”) and a capital verification report in respect of the actual
receipt of issue proceeds (“Ernst & Young Hua Ming (2012) Zhuan Zi No. 60438556_H05”) were issued by Ernst
& Young Hua Ming LLP per appointment by the Company.
As considered and approved at the Twenty-sixth Meeting of the Fifth Session of the Board of Directors of the
Company and the First Extraordinary General Meeting of 2012 of the Company, proceeds from the Issue shall be
applied to the repayment of bank loans and provision of additional working capital for the Company. The actual
use of the proceeds shall be determined by the Board of Directors, as authorised by the general meeting, based
on the fund requirements of the Company. For details, please refer to the Overseas Regulatory Announcement
published by the Company on 11 July 2012. As at 31 December 2012, proceeds from the Issue had been fully
utilised.
? Commitment of issue proceeds
? Applicable ? N/A
? Change in the use of issue proceeds
? Applicable ? N/A
ZTE CORPORATION
44
Report of the Board of Directors
(4) Analysis of principal subsidiaries and investee companies
Unit: RMB in million
Name of company
Corporate
type Business sector
Principal products
or services Registered capital
Total
assets
Net
assets
Operating
revenue
Operating
profit
Net
profit
Zhongxing Software Subsidiary Manufacturing Software
development
RMB51.08 million 20,156.3 5,592.3 16,154.1 (1,185.7) 1,075.0
ZTE HK Subsidiary Information technology General business HKD995 million 27,258.3 1,836.8 20,096.5 (281.4) (479.7)
ZTE ICT Company Limited Subsidiary Communications and
related equipment
manufacturing
Design and sales
of corporate
management
hardware and
software products
RMB60 million 1,472.3 593.6 867.3 92.2 150.7
ZTE Kangxun Subsidiary Communications and
related equipment
manufacturing
Manufacturing of
electronic products
and accessories
RMB1,755 million 18,717.9 2,436.6 49,032.5 279.2 207.8
ZTE Microelectronics
Technology Company
Limited
Subsidiary Communications and
related equipment
manufacturing
Design, generation
and sales of
integrated circuits
RMB100 million 1,794.5 730.4 3,064.2 368.6 453.9
ZTE (Thailand) Co., Ltd. Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
THB50 million 1,453.7 169.6 845.0 168.9 131.4
ZTE-Communication
Technologies, Ltd.
Subsidiary Communications
services
Sales of
communications
products and
engineering
services
RUB23.18 million 361.1 (115.4) 374.2 (224.5) (196.8)
Shenzhen Zhongxing
Telecom Technology &
Service Company Limited
Subsidiary Communications
services
Sales of
communications
products and
engineering
services
RMB200 million 4,706.2 774.3 2,864.2 136.4 104.4
ZTE Telecom India Private
Ltd.
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
USD50 million 2,988.5 (869.8) 1,669.6 71.6 71.9
ZTE Corporation Mexico S.
DE R.L DE C.V.
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
USD5,000 1,132.0 (178.6) 1,233.7 (120.4) (119.5)
ZTE (Malaysia) Corporation
SDN. BHD
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
USD60,000 536.6 (21.8) 473.7 99.9 89.3
Zhongxing Telecom Pakistan
(Private) Ltd.
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
RUB37,919,000 415.5 (43.7) 564.7 130.1 82.6
For information of other subsidiaries and principal investee companies, please refer to Note V 11.Long-term equity
investments and Note VII to the financial report prepared in accordance with PRC ASBEs.
ANNUAL REPORT 2014
45
For the year, 12 subsidiaries reported change of more than 30% in operating results as compared with the same
period last year with a significant impact on the consolidated operating results of the Company. Net profit of
Zhongxing Software, ZTE HK, Shenzhen Zhongxing Telecom Technology & Service Company Limited and ZTE
Corporation Mexico S. DE R.L DE C.V. decreased by 35.70%, 236.07%, 38.13% and 334.67%, respectively, as
compared with the same period last year, mainly as a result of decreased gross profit; net profit of ZTE Kangxun,
ZTE Microelectronics Technology Company Limited, ZTE ICT Company Limited and ZTE (Malaysia) Corporation
SDN. BHD increased by 122.57%, 279.86%, 161.26% and 199.76%, respectively, as compared with the same
period last year, mainly as a result of the increase in gross profit; net profit of ZTE-Communication Technologies,
Ltd. decreased by 5,355.28% as compared with the same period last year mainly as a result of exchange rate
volatility; net profit of ZTE (Thailand) Co., Ltd. and Zhongxing Telecom Pakistan (Private) Ltd. increased by 241.01%
and 5,778.55%, respectively, as compared with the same period last year, mainly as a result of increased gross
profit and exchange gains; net profit of ZTE Telecom India Private Ltd. increased by 124.88% as compared with
the same period last year, mainly as a result of decreased exchange losses and increased interest income.
For details of subsidiaries acquired or disposed of during the year and their effect, please refer to Note VI to the
financial report prepared in accordance with PRC ASBEs.
(5) Significant investments using funds other than issue proceeds
? Applicable ? N/A
11. Warnings of and reasons for any projected accumulated net loss from the beginning of the year
to the end of the next reporting period or substantial change in accumulated net profit from the
beginning of the year to the end of the next reporting period as compared to the same period last
year
? Applicable ? N/A
12 There was no special-purpose entity under the control of the Company, as provided for in the
practice note of “ASBEs No. 33 — Combined Financial Statements”.
13. Explanatory statement from the Board of Directors and the Supervisory Committee of the Company
on the accountant’s “qualified opinion” for the year.
? Applicable ? N/A
14. Explanatory statement on changes in the accounting policies, accounting estimates, and auditing
methods for the year in comparison with the last annual financial report.
? Applicable ? N/A
15. Explanatory statement on rectification of significant accounting errors for the year requiring
retrospective restatement.
? Applicable ? N/A
ZTE CORPORATION
46
Report of the Board of Directors
16. Explanation of changes to the scope of consolidated financial statement in comparison with the
last annual financial report.
New subsidiaries established in 2014 included: tier-one subsidiaries ?????????????, ???????
???????, ??????????, ?????????????? and ?????????????; tier-two
subsidiaries ????????????, ZTE HK CORPORATION DOMINICAN REPUBLIC, SRL, ?????????
??????, ????????????, WEIXIANTONG INTERNATIONAL ANGOLA, LIMITADA, ZTE XIN (MACAO)
LIMITED, ????????????, ????????????, ZTE CONGO S.A.R.L, ZTEICT International Co.,
Limited, ????????????, ZTESOFT Deutschland Gmbh, ???????????? and ???????
?????; tier-three subsidiaries ?????????????, ?????????????? and ZTE Managed
Services Southern Europe SL; and a tier-four subsidiary ZTE SERVICE ROMANIA SRL.
Anhui Wantong Posts and Telecommunication Company Limited, a subsidiary of the Company, has disposed
of its 100% equity interests in Yalong. The date of equity interest disposal was 10 April 2014 and Yalong was
deconsolidated from the Group as from April 2014.
17. Profit distribution or conversion from capital reserve
(1) Proposal for profit distribution and conversion from capital reserve of 2014
Audited net profit of the Company for the year 2014 calculated in accordance with PRC ASBEs amounted to
RMB1,558,172,000. Together with undistributed profit of RMB128,756,000 carried forward at the beginning of
the year and after deducting statutory surplus reserves of RMB155,817,000, profit available for distribution to
shareholders amounted to RMB1,531,111,000.
Audited net profit of the Company for the year 2014 calculated in accordance with HKFRSs amounted to
RMB1,616,476,000. Together with undistributed profit of RMB32,930,000 carried forward at the beginning of
the year and after deducting statutory surplus reserves of RMB155,817,000, profit available for distribution to
shareholders amounted to RMB1,493,589,000.
In accordance with the requirements of the Ministry of Finance of the People’s Republic of China and the Articles
of Association, profit available for distribution shall be the lower of profit available for distribution as calculated
in accordance with PRC ASBEs and that calculated in accordance with HKFRSs. Therefore the amount of profit
available for distribution is RMB1,493,589,000. The Board of Directors of the Company has recommended as
follows:
Proposed profit distribution for 2014: Cash dividend of RMB2.0 for every 10 shares (before tax) based on the
Company’s total share capital of 3,437,541,278 shares as at 31 December 2014.
Proposed conversion from capital reserve for 2014: the creation of 2 shares for every 10 shares by way of
conversion of capital reserve, representing a total increase of 687,508,255 shares based on the Company’s total
share capital of 3,437,541,278 shares as at 31 December 2014. Fractional entitlements shall be dealt with in
accordance with relevant rules of the stock exchange and the clearing house of the place where the stocks of the
Company are listed. As a result, the actual amount of share capital increased by conversion of capital reserve and
the actual number of shares created in aggregate after implementation of the proposed conversion from capital
reserve might be slightly different from the aforesaid estimates.
As for H shareholders, please refer to the circular dated 9 April 2015 for withholding of income taxes on dividends
paid to non-resident corporate shareholders and individual shareholders.
ANNUAL REPORT 2014
47
(2) Formulation, implementation and adjustment of profit distribution policies
According to the Articles of Association of ZTE, 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 profit distribution plan of the Company was formulated by the Board of Directors and
approved by the general meeting. Following a resolution on the profit distribution plan by the general meeting, the
Board of Directors should complete the distribution of dividend (or shares) within two months after the general
meeting; where the Board of Directors of the Company formulates a profit distribution proposal, the views of
Independent Non-executive Directors should be sufficiently heard and an independent opinion should be furnished
by the Independent Non-executive Directors; after the announcement of the profit distribution plan is published
in accordance with the law, the views and propositions of shareholders, the minority shareholders in particular,
should be sufficiently heard. If the Board of Directors has not drawn up a cash profit distribution proposal, the
reasons for not making the profit distribution and the use of funds not applied to profit distribution and retained
at the Company should be disclosed in regular reports, and the Independent Non-executive Directors should
furnish an independent opinion thereon.
The 2013 profit distribution plan of the Company was considered and approved at the 2013 Annual General Meeting
held on 29 May 2014 and distribution was completed on 24 July 2014. A cash dividend of RMB0.3 for every 10
shares (before tax) held was paid on the basis of the total share capital of the Company of 3,437,541,278 as at
the record date (comprising 2,807,955,833 A shares and 629,585,445 H shares). The record date for A shares
is 23 July 2014 and the ex-dividend date for A shares is 24 July 2014. The record date for H shares is 9 June
2014 and the dividend payment date for H shares is 24 July 2014. For details, please refer to the “Information
on Payment of Final Dividend” published by the Company on 16 July 2014.
Aggregate profit distribution of the Company in the form of cash in 2012-2014 accounted for 163.42% of the annual
average profit available for distribution in the past three years, in compliance with Article 234 of the Articles of
Association (amended in June 2014) which states that “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 year.
(3) Profit distribution or conversion from capital reserve in the past three years (including the reporting
period)
Year
Profit distribution or conversion from capital
reserve plan or proposal Implementation
2014 The profit distribution and conversion from capital
reserve proposal:
Cash dividend of RMB2.0 for every 10 shares
(before tax) based on the Company’s total share
capital of 3,437,541,278 shares as at 31 December
2014, creation of 2 shares for every 10 shares by
way of conversion of capital reserve.
Subject to consideration and approval
at the 2014 Annual General
Meeting of the Company.
2013 The profit distribution plan:
Cash dividend of RMB0.3 for every 10 shares
(before tax) based on the Company’s total share
capital of 3,437,541,278 shares as at 31 December
2013.
Considered and approved at the 2013
Annual General Meeting of the
Company.
2012 The profit distribution plan: No profit distribution or
conversion from capital reserve was conducted by
the Company.
Considered and approved at the 2012
Annual General Meeting of the
Company.
ZTE CORPORATION
48
Report of the Board of Directors
Details of cash dividend distribution for the past three years (including the reporting period):
Unit: RMB in ten thousands
Year
Cash distribution
Amount (before tax)
Net profit
attributable to
shareholders of the
listed company in
the consolidated
statements
Cash distribution
as a percentage
of net profit
attributable to
shareholders of the
listed company in
the consolidated
statements
Profit of the year
available for
distribution
2014 68,750.83 263,357.10 26.11% 149,358.90
2013 10,312.62 135,765.70 7.60% 13,605.60
2012 — (284,096.20) — (17,820.30)
Accumulated cash distribution amount in the past three years as a percentage of
average annual profit available for distribution (%) 163.42%
Note: There is no provision in the Articles of Association under which funds utilised in share repurchases by way of cash offer shall be deemed
as cash dividend of the listed company.
18. For details of the Company’s fulfillment of corporate social responsibility, please refer to the “2014
Sustainable Development Report” published on http://www.cninfo.com.cn on 26 March 2015.
The Company and its staff have been committed to rewarding the society and the cities and countries where the
Company operates. In 2014, the Company continued to conduct community welfare projects under its brand name
in line with its aim to “promote charity, fulfill social responsibility and advance community welfare development.”
Stronger efforts were made to integrate its community welfare resources and enhance the “ZTE Community
Welfare Foundation” as well as to encourage and promote various types of philanthropist activities, in a bid
to offer assistance to the underprivileged to the best of our ability in compassionate dedication to our society.
We started a number of community welfare projects in aid for the underprivileged, disaster relief, environmental
protection and incentives for technological development, which were operated in accordance with standardised
rules and regulations, under improved organisational structures and with higher transparency. For details of our
social welfare activities (including donations), please refer to the “2014 Sustainable Development Report” published
by the Company on http://www.cninfo.com.cn on 26 March 2015.
ANNUAL REPORT 2014
49
19. Reception of investors, communications and press interviews during the year
During the year, the Company hosted 51 receptions of investors for research purposes, receiving 108 institutional
investors but no individual investor or other researchers. For details, please refer to the following table. The
Company did not disclose, reveal or divulge unpublished material information to such investors.
Nature Time Location Mode Audience received
Key contents of
discussion Materials furnished
External
meetings
January 2014 Shanghai UBS investors’ meeting Customers of UBS Day-to-day operations of
the Company
Published announcements
and regular reports
January 2014 Hong Kong CICC investors’ meeting Customers of CICC Day-to-day operations of
the Company
Published announcements
and regular reports
February 2014 Shenzhen Shenyin Wanguo investors’
meeting
Customers of Shenyin Wanguo Day-to-day operations of
the Company
Published announcements
and regular reports
April 2014 Shenzhen Guotai Jun’an investors’ meeting Customers of Guotai Jun’an Day-to-day operations of
the Company
Published announcements
and regular reports
May 2014 Shanghai Orient Securities investors’
meeting
Customers of Orient Securities Day-to-day operations of
the Company
Published announcements
and regular reports
May 2014 Hong Kong Morgan Stanley investors’
meeting
Customers of Morgan Stanley Day-to-day operations of
the Company
Published announcements
and regular reports
May 2014 Hong Kong BNP investors’ meeting Customers of BNP Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Chengdu CITIC Securities investors’
meeting
Customers of CITIC Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Shanghai China Securities investors’
meeting
Customers of China Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Hubei Changjiang Securities investors’
meeting
Customers of Changjiang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Shanghai Guosen Securities investors’
meeting
Customers of Guosen Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Hangzhou Essence Securities investors’
meeting
Customers of Essence Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Beijing Jefferies investors’ meeting Customers of Jefferies Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Beijing JP Morgan investors’ meeting Customers of JP Morgan Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Shenzhen Maquarie Securities investors’
meeting
Customers of Maquarie Securities Day-to-day operations of
the Company
Published announcements
and regular reports
August 2014 Shanghai Hua Chuang Securities investors’
meeting
Customers of Hua Chuang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shenzhen Everbright Securities investors’
meeting
Customers of Everbright Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shanghai Nomura Securities investors’
meeting
Customers of Nomura Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shenzhen Guotai Jun’an investors’ meeting Customers of Guotai Jun’an Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Chengdu Sinolink Securities investors’
meeting
Customers of Sinolink Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shenzhen Orient Securities investors’
meeting
Customers of Orient Securities Day-to-day operations of
the Company
Published announcements
and regular reports
October 2014 Hong Kong Credit Suisse investors’ meeting Customers of Credit Suisse Day-to-day operations of
the Company
Published announcements
and regular reports
October 2014 Hong Kong Jefferies investors’ meeting Customers of Jefferies Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Macau Citi Bank investors’ meeting Customers of Citi Bank Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Beijing Merrill Lynch investors’ meeting Customers of Merrill Lynch Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Hong Kong JP Morgan investors’ meeting Customers of JP Morgan Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Beijing Shenyin Wanguo investors’
meeting
Customers of Shenyin Wanguo Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Beijing CICC investors’ meeting Customers of CICC Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Haikou Galaxy Securities investors’
meeting
Customers of Galaxy Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Shenzhen China Merchant Securities
investors’ meeting
Customers of China Merchant Securities Day-to-day operations of
the Company
Published announcements
and regular reports
ZTE CORPORATION
50
Report of the Board of Directors
Nature Time Location Mode Audience received
Key contents of
discussion Materials furnished
December
2014
Shenzhen Essence Securities investors’
meeting
Customers of Essence Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Shanghai Changjiang Securities investors’
meeting
Customers of Changjiang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Shanghai China Securities investors’
meeting
Customers of China Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Beijing Minsheng Securities investors’
meeting
Customers of Minsheng Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Sanya CITIC Securities investors’
meeting
Customers of CITIC Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Xiamen Hua Chuang Securities investors’
meeting
Customers of Hua Chuang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
Company
presentation
March 2014 Hong Kong Results presentation Analysts and investors 2013 Annual Report Published announcements
and regular reports
Overseas investors
Company visits
by investors
January to
December
2014
Company Verbal Teng Yue Partners, BOCI, Genesis Capital, China Orient AMC, ????, Mirae
Asset Global Investment, Pine River, ????, Ji-Asia, Mizuho Securities Asia
Limited, JK capital, Kayak Investment Partners, CIMB, Capital International,
Morgan Stanley, Public Mutual, Macquarie Securities, HI Asset Management,
HSBC, Momentum Investments, Old Mutual Investment Group, Stanlib, Credit
Suisse, Ashmore Equities Investment Management, Haitong International, ISI
Group, Marvin&Palmer Associates, Inc., SMBC Friend Securities, Claw Capital,
UBS Asset Management, AIA International Limited, SPARX Asia Investment
Advisors Limited, Asiya Investment, Balyasny Asset Management, Guotai Jun’an
(Hong Kong), AGF Investments, East Capital, Fidelity Investments, Thornourg
Investment Management, Norges Bank, Resona Bank, UBS, Northcape Capital,
Egerton Capital (UK) LLP, City National Rochdale Investment Management,
HSBC Global Asset Management (Hong Kong) Limited, China Merchant (HK),
Cantor Fitzgerald, CLSA, Nomura Securities, Amundi Asset Mgmt Hong Kong,
DIAM Asset Management (HK), Boci-prudential Asset Management Ltd, Keywise
Capital Management (HK) Ltd, Manulife Asset Management, ????????
Day-to-day operations of
the Company
Published announcements
and regular reports
Domestic investors
January to
December
2014
Company Verbal Hua Tai United Securities, China AMC, Orient Securities Asset Management,
Sealand Securities, ??????, Huatai Financial Holdings, ????, Guangfa
Securities, China Merchant Securities, Guangzheng Hang Seng Securities,
Rongheng Capital, Everbright Securities, Shenyin Wanguo, ?????, CITIC
Securities, Bosera Fund, Rongtong Fund, Invesco Great Wall, CCB Fund, Beijing
Da Guan Investment, Hua Chuang Securities, CC Fund, Dacheng Fund, China
Southern Asset Management, Changsheng Fund, Ping An Annuity, Guosen
Securities, China Securities, Gintong, ????????, Co-Power Capital
Management, Xin Ding Fund, ??????, ??????????, Minsheng
Royal Fund Management, Tomorrow Holding, Tulip Capital, Lion Fund
Day-to-day operations of
the Company
Published announcements
and regular reports
ANNUAL REPORT 2014
51
(III) Business outlook for 2015 and risk exposures
1. Business outlook for 2015
Looking to 2015, the mobile inter-connection among all things will constitute the main theme underlying
developments of the telecommunications industry. From traditional inter-personal communication, we have
gradually progressed to communication between people and machines and communication between machines.
Given the characteristic features of “omni-connection, omni-present cloud service and safe privacy,” the traditional
telecommunications industry will face challenges as well as opportunities in its development. In connection with
carriers’ networks, large-scale deployment, capacity expansion, performance optimisation, and in-depth coverage
of 4G networks will drive new demand for investments in the telecommunications industry, as the 4G era has
started in most markets around the globe. Meanwhile, carriers will need to accelerate the construction of pipeline
intelligentization and “creating value out of information” will become our new opportunities. In connection with
government and corporate networks, there will be sophisticated integration between the telecommunications
industries and traditional industries, as opportunities relating to government and corporate networks will abound
in the information revolution triggered by emerging technologies such as Cloud Computing, Big Data and high-
power wireless charge. In connection with handset terminals, the new generation of handset terminals will feature
a higher level of smart functions, flexibility and integration. Next-generation voice control technologies and handset
security will also constitute new strategic focuses.
To address the aforesaid challenges and opportunities in 2015, the Group will focus on the three mainstream
markets of “carriers, government and corporate sectors and consumers” under the theme of “capitalising on
opportunities arising from macro-restructuring to create value out of information”. Our business development will
centre on “new sectors” such as smart voice, smart wireless charger, distributive on-grid power generation, big
data platform and its applications, internet finance, and mobile payments, etc, seeking to achieve breakthroughs
in profitability through innovations in technologies and business models.
2. Risk Exposures
(1) Country risk
Given the complex nature of international economic and political conditions, the Group will continue to be
exposed to trade protection, debtors’ risks, political risks or even warfare or the succession of political regimes
in countries where the Group’s projects are operated. As such, a very high level of operational and risk control
capabilities is required. Currently, the Group conducts systematic management of country risks mainly through
regular assessment, timely warning and proactive response.
(2) Risk associated with intellectual property rights
The Group has always attached great importance to product technology research and development as well as the
management of intellectual property rights. We maintain our investment in technology research and development
each year at approximately 10% of our sales revenue. Trademarks of the Group’s products and services are all
registered, and such products and services are all protected under relevant patent rights. While the Group has
adopted stringent measures to protect its intellectual property rights, potential conflicts in intellectual property
rights between the Group and other telecommunications equipment manufacturers, franchisee companies and
carriers which partner with the Group cannot totally be ruled out. The Group will continue to drive the solution of
related issues with an open-minded, cooperative and mutually beneficial approach.
ZTE CORPORATION
52
Report of the Board of Directors
(3) Exchange rate risk
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. The Group seeks to mitigate the impact of exchange rate volatility on its operations by managing
its foreign exchange risks through the use of measures such as the business planning, consolidated hedging and
financial instruments based on the principle of exposure management.
(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 by managing
the structure of its interest-bearing liabilities.
(5) Credit risk
The Group provides one-stop communications solutions to its customers. With the swift 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 by adopting various
credit management measures, such as international customer credit rating, customer credit limit management,
credit risk assessment for projects, credit control against customers with faulty payment records, the purchase of
credit insurance and the transfer of credit risks through appropriate financial instruments, etc.
(IV) Other Matters in the Report of the Board of Directors
1. Fixed assets
Details of changes in fixed assets of the Company and the Group for the year are set out in Note 15 to the
financial statements prepared in accordance with HKFRSs.
2. Bank loans and other borrowings
Details of bank loans and other borrowings of the Company and the Group as at 31 December 2014 are set out
in Note 33 to the financial statements prepared in accordance with HKFRSs.
3. Reserves
Details of the reserves and changes in the reserves of the Company and the Group for the year are set out in
Note 41 to the financial statements prepared in accordance with HKFRSs.
4. Pre-emptive rights
There is no provision under the Company Law or the Articles of Association regarding pre-emptive rights that
requires the Company to offer new shares to its existing shareholders on a pro-rata basis.
ANNUAL REPORT 2014
53
5. Share capital
Details of the share capital of the Company, together with the changes in the share capital and the reasons
therefor, are set out in Note 39 to the financial statements prepared in accordance with HKFRSs and the section
headed “Changes in shareholdings and information of shareholders (I) Changes in shareholdings during the year”
in this report.
6. Competing interest
None of the Directors has interest in any business which competes or is likely to compete, either directly or
indirectly, with the businesses of the Group.
7. List of Directors
The list of Directors of the Company is set out in the section headed “Directors, Supervisors, Senior Management
and Employees — (II) Changes in the Shareholdings of the Company’s Directors, Supervisors, Senior Management
and Annual Remuneration” in this report.
8. Taxation
In accordance with the Law on Individual Income Tax of the People’s Republic of China and its regulations for
implementation, dividends/bonuses obtained by overseas resident individual shareholders from shares issued
in Hong Kong by Mainland non-foreign-invested enterprises shall be subject, under the category of “interests,
dividend, and bonus income,” to individual income tax to be withheld and paid on behalf of such shareholders
by the withholding agent in accordance with the law. The Company shall withhold and pay on behalf of such
shareholders such tax amounts in accordance with “Notice on the Charge and Management of Individual Income
Tax After the Repeal of the Document Guo Shui Fa [1993] No. 045” (Guo Shui Han [2011] No. 348) ??????
[1993]045?????????????????????????[2011]348?? issued by the State Administration
of Taxation, “Tax Arrangements on Dividends Paid to Hong Kong Residents by Mainland Companies” issued by
the Hong Kong Stock Exchange and pertinent laws and regulations. Shareholders are advised to consult their tax
advisors on implications relating to PRC, Hong Kong and other taxes involved in the ownership and disposal of
H shares of the Company.
ZTE CORPORATION
54
Management Discussion and Analysis
The financial data below are extracted from the Group’s audited financial statements prepared in accordance with
HKFRSs. The following discussion and analysis should be read in conjunction with the Group’s financial statements
audited by Ernst & Young and the accompanying notes as set out in this report.
Unit: RMB in millions
Profit or loss and other comprehensive income statement 2014 2013
Operating revenue:
Carriers’ networks 46,768.2 40,695.7
Handset terminals 23,117.1 21,702.1
Telecommunication software systems, services and other products 11,586.0 12,835.9
Total revenue 81,471.3 75,233.7
Cost of sales (57,759.0) (54,775.1)
Gross profit 23,712.3 20,458.6
Other income and gains 4,561.2 4,905.3
Research and development costs (9,008.5) (7,383.9)
Selling and distribution expenses (10,391.6) (10,158.5)
Administrative expenses (2,138.1) (2,258.7)
Other expenses (1,582.3) (2,119.1)
Profit from operating activities 5,153.0 3,443.7
Finance costs (1,561.7) (1,650.4)
Share of profit and loss of joint ventures and associates (53.0) 34.5
Profit before tax 3,538.3 1,827.8
Income tax expense (810.6) (394.2)
Net profit 2,727.7 1,433.6
Attributable to:
Non-controlling interests (94.1) (76.0)
Attributable to:
Shareholders of parent company 2,633.6 1,357.6
Other comprehensive income (333.6) (279.3)
Comprehensive income 2,394.1 1,154.3
Dividend 687.5 103.1
Earnings per share — Basic RMB0.77 RMB0.39
— Diluted RMB0.77 RMB0.39
REVENUE ANALYSIS BY PRODUCT AND GEOGRAPHIC REGION
The following table sets out the revenue attributable to the major product segments of the Group for the periods
indicated, in monetary amount and as a percentage of the total operating revenue:
Unit: RMB in millions
2014 2013
Product segment Revenue
As a
percentage
of operating
revenue Revenue
As a
percentage
of operating
revenue
Carriers’ networks 46,768.2 57.4% 40,695.7 54.1%
Handset terminals 23,117.1 28.4% 21,702.1 28.8%
Telecommunication software systems, services
and other products 11,586.0 14.2% 12,835.9 17.1%
Total 81,471.3 100.0% 75,233.7 100.0%
ANNUAL REPORT 2014
55
The following table sets out the revenue of the Group attributable to the PRC, Asia (excluding the PRC), Africa,
Europe, the Americas and Oceania for the periods indicated, in monetary amount and as a percentage of the
total operating revenue:
Unit: RMB in millions
2014 2013
Region Revenue
As a
percentage
of operating
revenue Revenue
As a
percentage
of operating
revenue
The PRC 40,583.5 49.8% 35,636.0 47.4%
Asia (excluding the PRC) 12,131.6 14.9% 13,849.5 18.4%
Africa 6,174.2 7.6% 5,866.0 7.8%
Europe, the Americas and Oceania 22,582.0 27.7% 19,882.2 26.4%
Total 81,471.3 100.0% 75,233.7 100.0%
The Group reported RMB81,471.3 million in operating revenue for 2014, improving by 8.3% as compared with
last year. Operating revenue generated from the domestic business amounted to RMB40,583.5 million, increasing
by 13.9% as compared with last year. Operating revenue generated from the international business also rose by
3.3%, as compared with last year, to RMB40,887.8 million.
Analysed by product segment, year-on-year growth of operating revenue was reported for carriers’ networks
and handset terminals, while decline was reported for telecommunication software systems, services and other
products. The increase in operating revenue from the Group’s carriers’ networks for 2014 reflected mainly the
increase in operating revenue from 4G system products, routers and switches in the domestic and international
markets, as well as optical communication system products in the domestic market. The increase in operating
revenue from the Group’s handset terminals for 2014 reflected mainly the increase in operating revenue generated
from 4G handsets in the domestic and international markets. The decrease in operating revenue from the Group’s
telecommunication software systems, services and other products for 2014 mainly reflected the decline in operating
revenue from international services.
COST OF SALES AND GROSS PROFIT
The following tables set out (1) the cost of sales of the Group and cost of sales as a percentage of total operating
revenue and (2) the Group’s gross profit and gross profit margin for the periods indicated:
Unit: RMB in millions
2014 2013
Product segment Cost of sales
As a
percentage
of product
segment
revenue Cost of sales
As a
percentage
of product
segment
revenue
Carriers’ networks 30,137.6 64.4% 26,612.8 65.4%
Handset terminals 19,603.5 84.8% 18,523.1 85.4%
Telecommunication software systems, services
and other products 8,017.9 69.2% 9,639.2 75.1%
Total 57,759.0 70.9% 54,775.1 72.8%
ZTE CORPORATION
56
Management Discussion and Analysis
Unit: RMB in millions
2014 2013
Product segment Gross profit
Gross profit
margin Gross profit
Gross profit
margin
Carriers’ networks 16,630.6 35.6% 14,082.9 34.6%
Handset terminals 3,513.6 15.2% 3,179.0 14.6%
Telecommunication software systems, services
and other products 3,568.1 30.8% 3,196.7 24.9%
Total 23,712.3 29.1% 20,458.6 27.2%
Cost of sales of the Group for 2014 increased by 5.4% as compared to last year to RMB57,759.0 million. The
Group’s overall gross profit margin of 29.1% was 1.9 percentage points higher as compared to last year, reflecting
mainly higher gross profit margins for carriers’ networks, handset terminals and telecommunication software
systems, services and other products.
Cost of sales of the Group’s carriers’ networks for 2014 amounted to RMB30,137.6 million, a 13.2% increase as
compared to last year. The relevant gross profit margin was 35.6% versus 34.6% for last year. The increase in
gross profit margin of carriers’ networks mainly reflected growth in gross profit margin of 4G system products in
the domestic and international markets, which accounted for a significant share in segment revenue.
Cost of sales of the Group’s handset terminals for 2014 amounted to RMB19,603.5 million, an increase of 5.8% as
compared to last year. The relevant gross profit margin was 15.2% versus 14.6% for last year. The improvement in
gross profit margin for handset terminals was in tandem with the increase in gross profit margin for 4G handsets
in the domestic and international markets.
Cost of sales of the Group’s telecommunication software systems, services and other products for 2014 amounted
to RMB8,017.9 million, decreasing by 16.8% as compared to last year. The relevant gross profit margin was 30.8%,
compared to 24.9% for last year. The increase in gross profit margin for telecommunication software systems,
services and other products was mainly attributable to improved gross profit margin for video and network terminals
products, which accounted for a significant share in segment revenue.
OTHER INCOME AND GAINS
Other income and gains of the Group for 2014 amounted to RMB4,561.2 million, representing a 7.0% decrease
compared to RMB4,905.3 million for 2013. The decrease reflected mainly gains resulting from the disposal of equity
interests in Shenzhen ZNV Technology Co., Ltd. by the Group for the same period last year and the absence of
such transaction for the current period.
RESEARCH AND DEVELOPMENT COSTS
The Group’s research and development costs for 2014 increased by 22.0% to RMB9,008.5 million from RMB7,383.9
million for 2013, and rose by 1.3 percentage points from 9.8% for 2013 to 11.1% for 2014 as a percentage of
operating revenue, attributable mainly to the Group’s increased investment in the research and development of
products such as 4G, 5G, high-end routers and core critical chips for the period.
ANNUAL REPORT 2014
57
SELLING AND DISTRIBUTION EXPENSES
The Group’s selling and distribution expenses for 2014 increased by 2.3% to RMB10,391.6 million from
RMB10,158.5 million for 2013, reflecting mainly the combined effect of increased investments in the European
and American markets and decreased investments in the African market for the period. Selling and distribution
expenses as a percentage of operating revenue dropped by 0.7 percentage points to 12.8% for 2014, compared
to 13.5% for 2013.
ADMINISTRATIVE EXPENSES
Administrative expenses of the Group for 2014 decreased by 5.3% to RMB2,138.1 million, as compared to
RMB2,258.7 million for 2013, mainly attributable to the Group’s enhanced control over administrative expenses
during the period. Administrative expenses as a percentage of operating revenue decreased by 0.4 percentage
points from 3.0% for 2013 to 2.6% for 2014.
OTHER EXPENSES
Other expenses of the Group for 2014 decreased by 25.3% to RMB1,582.3 million, as compared to RMB2,119.1
million for 2013, reflecting mainly the decrease in bad debt provisions and the decrease in losses arising from
exchange rate volatility for the period.
PROFIT FROM OPERATING ACTIVITIES
The Group’s profit from operating activities for 2014 increased to RMB5,153.0 million, as compared to RMB3,443.7
million for 2013, while the operating profit margin increased from 4.6% for 2013 to 6.3% for 2014, primarily as a
result of higher overall gross profit margin and gross profit of the Group for the period.
FINANCE COSTS
Finance costs of the Group for 2014 decreased by 5.4% to RMB1,561.7 million as compared to RMB1,650.4
million for 2013, reflecting mainly the Group’s effort to strengthen treasury management, adjust its debt structure
and vigorously explore low-cost financing channels in overseas markets for the period.
INCOME TAX EXPENSE
The Group’s income tax expense for 2014 was RMB810.6 million, which was 105.6% higher as compared to
RMB394.2 million for 2013, reflecting mainly the increase in the Group’s profit for the period.
PROFIT ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
The Group’s profit attributable to non-controlling interests for 2014 amounted to RMB94.1 million, representing an
increase of 23.8% as compared to RMB76.0 million for 2013, mainly attributable to the increase in the profit of
certain subsidiaries of the Group for the period.
OTHER COMPREHENSIVE INCOME
Other comprehensive income of the Group for 2014 decreased by 19.4% to RMB-333.6 million, compared to
RMB-279.3 million for 2013, mainly reflecting losses arising from change in the fair value of the Group’s available-
for-sale financial assets for the period compared to gains for the same period last year.
ZTE CORPORATION
58
Management Discussion and Analysis
CAPITAL MANAGEMENT POLICY
The Group has adopted an appropriate capital management policy, whereby its working capital is mainly financed
through its internal resources and bank loans. The Group confirms that sufficient funds are in place to meet its
debt repayment obligations as due, capital expenditure and the requirements of normal production operations.
DEBT-EQUITY RATIO AND THE BASIS OF CALCULATION
Debt-equity ratio is calculated by dividing interest-bearing liabilities by the sum of interest-bearing liabilities and
equity (including non-controlling interests).
The Group’s debt-equity ratio for 2014 was 55.0%, decreasing by 2.9 percentage points as compared to 57.9%
for 2013. The decrease was mainly attributable to the increase in reserve from operating profit of the Group for
the period.
LIQUIDITY AND CAPITAL RESOURCES
In 2014, 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.
Cash and cash equivalents of the Group as of 31 December 2014 amounted to RMB17,230.1 million.
CASH FLOW DATA
Unit: RMB in millions
2014 2013
Net cash inflow from operating activities 1,101.9 446.9
Net cash outflow from investing activities (2,022.3) (1,171.0)
Net cash outflow from financing activities (1,915.9) (1,045.1)
Net decrease in cash and cash equivalents (2,836.3) (1,769.2)
Cash and cash equivalents at year-end 17,230.1 20,118.3
OPERATING ACTIVITIES
The Group reported net cash inflow from operating activities of RMB1,101.9 million for 2014, compared to
RMB446.9 million for 2013, mainly reflecting year-on-year increase in cash received from sales of goods and
provision of services by RMB7,783.5 million, increase in other cash receipts relating to operating activities by
RMB652.2 million, decrease in tax refund received by RMB853.5 million, increase in cash paid for the purchase
of goods and services by RMB4,948.3 million, increase in cash payments to and on behalf of employees by
RMB765.7 million, increase in payments of tax expenses by RMB806.3 million, increase in other cash payments
relating to operating activities by RMB234.0 million, and increase in cash payments relating to dividend distribution
or interest repayment by RMB173.0 million.
INVESTING ACTIVITIES
The Group’s net cash outflow from investing activities was RMB2,022.3 million for 2014 and RMB1,171.0 million
for 2013, reflecting mainly cash received following the disposal of equity interests in Shenzhen ZNV Technology
Co., Ltd. by the Group for the same period last year and the absence of such transaction for the current period.
ANNUAL REPORT 2014
59
FINANCING ACTIVITIES
The Group’s net cash outflow from financing activities for 2014 was RMB1,915.9 million, compared to RMB1,045.1
million for 2013, reflecting mainly the combined effect of the increase in cash paid for debt settlement by
RMB17,248.6 million and the increase in cash received from borrowings by RMB16,142.5 million for the period.
CAPITAL EXPENDITURE
The following table sets out the Group’s capital expenditure for the periods indicated. The following capital
expenditure was funded by the Group’s long-term bank loans, cash generated from operating activities and
government grants.
Unit: RMB in millions
Capital Expenditure 2014 2013
Purchases of fixed assets and increase of construction in progress payments 1,007.1 904.1
The Group’s capital expenditure for 2014 amounting to RMB1,007.1 million was mainly used for the construction
work of Xi’an Research and Development Centre, Nanjing Research and Development Centre, staff quarters in
Shenzhen and Nanjing, equipment installation projects and purchases of machinery and equipment, etc.
INDEBTEDNESS
Unit: RMB in millions
31 December
Item 2014 2013
Secured bank loans 606.6 890.3
Unsecured bank loans 20,474.2 19,838.3
Unit: RMB in millions
31 December
Item 2014 2013
Short-term bank loans 11,041.1 15,343.0
Long-term bank loans 10,039.7 5,385.6
Credit facilities available to the Group included long-term and short-term bank loans, which were mainly used
as working capital. Of the Group’s long-term loans, RMB loans were subject to fixed interest rates, while USD
loans were subject to floating interest rates. The Group’s borrowings were mainly denominated in USD, apart from
certain RMB loans.
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. The Group seeks to mitigate the impact of exchange
rate volatility on its operations by managing its foreign exchange risks through business planning, consolidated
hedging and financial instruments based on the principle of exposure management.
The Group’s bank loans in 2014 increased by RMB352.2 million over previous year and were mainly applied to
provide additional working capital.
ZTE CORPORATION
60
Management Discussion and Analysis
CONTRACTUAL OBLIGATIONS
Unit: RMB in millions
31 December 2014
Item Total Less than 1 year 2-5 years More than 5 years
Bank loans 21,080.8 11,041.1 10,039.7 —
Operating lease obligation 518.9 282.5 234.2 2.2
CONTINGENT LIABILITIES
Unit: RMB in millions
31 December
Item 2014 2013
Guarantees given to banks in connection with borrowings to customers 63.7 46.3
Guarantees given to banks in respect of performance bonds 7,459.0 7,022.3
Total 7,522.7 7,068.6
CAPITAL COMMITMENTS
The Group had the following capital commitments as of the dates indicated:
Unit: RMB in millions
31 December
Item 2014 2013
Land and buildings:
Contracted, but not provided for 214.4 264.3
Investment in associates:
Contracted, but not provided for 5.2 17.3
Land and buildings:
Authorised, but not contracted 21,897.5 21,566.5
DETAILS OF THE SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES OF THE GROUP
Details of the subsidiaries, joint ventures and associates of the Group as at 31 December 2014 are set out in
Notes 20, 21 and 22 to the financial statements prepared in accordance with HKFRSs.
MATERIAL ACQUISITIONS AND DISPOSALS RELATED TO SUBSIDIARIES AND ASSOCIATES
No material acquisitions and disposals related to subsidiaries of the Group were conducted in 2014. Details of the
progress of disposals related to subsidiaries of the Group in the previous years are set out in the section headed
“Material Matters — (IV) Asset Transactions” in this report.
ANNUAL REPORT 2014
61
PROSPECTS FOR NEW BUSINESS
Details of the prospects for new business of the Group are set out in the section headed “Chairman’s Statement
— Future Prospects” in this report.
EMPLOYEES
Details of the number of employees, training programmes, remuneration, remuneration policy, bonus and the
share option scheme of the Group as at 31 December 2014 are set out in the sections headed “Directors,
Supervisors, Senior Management and Employees,” “Corporate Governance Structure” and “Material Matters — (V)
Implementation and Impact of the Company’s Share Option Incentive Scheme” in this report.
CHARGES ON ASSETS
Details of the Group’s charges on assets as at 31 December 2014 are set out in Note 33 to the financial statements
prepared under HKFRSs.
PLANS FOR MATERIAL INVESTMENTS OR ACQUISITION OF CAPITAL ASSETS
Details of the Group’s material investments and their performance and prospects as at 31 December 2014 are set
out in the section headed “Material Matters — (IV) Asset Transactions” in this report.
Details of future plans for material investments or acquisition of capital assets are set out in the section headed
“Report of the Board of Directors” in this report.
MARKET RISKS
For details of the Group’s exposure to market risks, please refer to the section headed “Report of the Board of
Directors — (III) Business outlook for 2015 and risk exposures.”
ZTE CORPORATION
62
Material Matters
(I) MATERIAL LITIGATION, ARBITRATION AND GENERAL MEDIA QUERIES
1. Material Litigation and Arbitration
During the year, the Group did not incur any material litigation or arbitration. Progress during the year of immaterial
litigation and arbitration proceedings incurred prior to the year and other litigation and arbitration proceedings
incurred during the year are set out as follows:
(1) In August 2005, an Indian consultant firm instituted an overseas arbitration to claim indemnity against the
Company for a total amount of approximately USD1.714 million in respect of advisory fees, agency fees and
related damages. The consultant firm subsequently raised its total claim amount to approximately USD2.27
million.
The case was heard before an arbitration court formed by International Chamber of Commerce (“ICC”) in
Singapore during 25-28 July 2008. The Company was represented at all arbitration sessions. On 23 July
2010, the arbitration court issued its arbitration award on the arbitration fees, legal fees and travel expenses
relating to the case and ruled that the Company should pay a total of USD1.323 million to the said consultant
firm. Subsequent to the consultant firm’s application to the High Court of Delhi in India on 28 September
2010 for the enforcement of the arbitration award, the Company filed an objection to the enforcement of the
arbitration award on the grounds that the said consultant firm no longer carried the status of a corporate.
On 23 September 2011, the High Court of Delhi in India ruled to reject the said consultant firm’s application
for the enforcement of the arbitration award. It also ruled that the said consultant firm may re-submit its
application for the enforcement of the arbitration award after restoring its corporate status. On 30 April 2013,
the High Court of Delhi in India received the application for the enforcement of arbitration award re-submitted
by the said consultant firm, and the case is currently pending judgement by the court.
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.
(2) In August 2006, a customer instituted arbitration against the Company and demanded indemnity in the amount
of PKR762.98 million (equivalent to approximately RMB47,228,500). Meanwhile, the Company instituted a
counter-claim against the customer’s breach of contract demanding for damages and payment of outstanding
contract amounts. In February 2008, the arbitration authorities issued its award ruling that an indemnity of
PKR328.04 million (equivalent to approximately RMB20,305,700) be paid by the Company. In accordance
with local laws, the Company had filed with the local court an objection against the arbitration award and a
claim against the customer’s breach of contract. Based on the legal opinion furnished by the legal counsel
engaged by the Company, the case will likely stand a prolonged period of litigation. There was no substantial
progress of the case during the reporting period.
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.
ANNUAL REPORT 2014
63
(3) Since April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction Fifth
Division”), an engineering contractor of the Company, had staged a slowdown in work followed by total
suspension, as part of its move to demand the Company to increase the contract amount on the grounds
that raw material prices had increased. In September 2008, the Company instituted litigation with the
Nanshan District People’s Court of Shenzhen (“Nanshan Court”), pleading for the revocation of the contract
and court order of the evacuation of the work sites by China Construction Fifth Division, as well as a
penalty payment for work delay in the amount of RMB24.912 million and damages of RMB11.319 million
payable to the Company. Nanshan Court handed down the first trial judgement in July 2009, ruling that the
contract between the Company and China Construction Fifth Division be revoked and a penalty payment
in the amount of RMB12.817 million be payable by China Construction Fifth Division. China Construction
Fifth Division filed an appeal against the aforesaid judgement with Shenzhen Intermediate People’s Court
(“Shenzhen Intermediate Court”). Following the conclusion of court hearing for the second trial, Shenzhen
Intermediate Court ruled to suspend trial, pending the result of the final trial of China Construction Fifth
Division’s case with Shenzhen Intermediate Court below. As the Guangdong Provincial Higher People’s Court
(“Guangdong Higher Court”) handed down the final trial judgement for China Construction Fifth Division’s
case with Shenzhen Intermediate Court in May 2014, Shenzhen Intermediate Court resumed trial of the case
and made its second trial judgement in November 2014, ruling that China Construction Fifth Division was
not required to pay the penalty payment of RMB12.817 million to the Company.
In October and November 2009, the Company further instituted two lawsuits with Nanshan Court, demanding
China Construction Fifth Division to undertake a penalty payment for work delay in the amount of RMB30.615
million and the payment of RMB39.537 million, representing the amount of work payments in excess of the
total contract amount. Currently, the above cases are under trial suspension.
In July 2009, China Construction Fifth Division instituted a lawsuit with the Shenzhen Intermediate Court in
respect of the aforementioned work, demanding the Company to make a payment of RMB75.563 million for
raw materials and staff deployment. The Shenzhen Intermediate Court handed down a first trial judgement
in November 2012, ruling that the Company should make work payments of approximately RMB14.497
million together with accrued interest, damages for work suspension of approximately RMB953,000 to
China Construction Fifth Division, while China Construction Fifth Division should refund to the Company
withheld payments in the amount of RMB20.15 million together with accrued interest. Other claims of
China Construction Fifth Division were rejected. China Construction Fifth Division has filed an appeal
with Guangdong Higher Court against the said judgement, and Guangdong Higher Court handed down a
second trial judgement in May 2014, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest and damages for work suspension of approximately
RMB2,869,400 to China Construction Fifth Division, while China Construction Fifth Division should refund to
the Company withheld payments in the amount of RMB20.15 million together with accrued interest. Other
claims of China Construction Fifth Division were rejected. Case admission fees and authentication fees paid
for the first trial and second trial relating to China Construction Fifth Division amounted to RMB2.699 million,
of which an amount of RMB654,000 was borne by the Company.
In July 2014, China Construction Fifth Division instituted a lawsuit with Nanshan Court, demanding the
refund of RMB24.596 million together with interest of RMB9.118 million (tentatively accrued to 10 July 2014,
although it should be accrued to the date on which the contract work amounts are settled in full), being
indemnity claim amounts under a bank performance guarantee letter withheld by the Company. Currently,
the above case is under trial suspension.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of
the cases, the aforesaid cases will not have any material adverse impact on the financial conditions and
operating results of the Group.
ZTE CORPORATION
64
Material Matters
(4) A lawsuit on breach of agreement and infringement of rights was instituted against the Company and its
wholly-owned subsidiary ZTE (USA), Inc. (“ZTE USA”) by Universal Telephone Exchange, Inc. (“UTE”) at the
district court of Dallas, Texas, the United States, alleging that the Company and ZTE USA had violated a
confidential agreement between UTE and ZTE USA, for which UTE was seeking a compensation of USD20
million in actual damages. UTE further claimed that it had lost a telecommunications project contract, which
otherwise should have been secured, as a result of inappropriate actions of the Company and ZTE USA, for
which UTE was seeking a compensation of USD10 million in actual damages and USD20 million in punitive
damages. Upon receipt of the writ of summons from the court, an attorney has been appointed by the
Company to defend its case.
On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE’s suit on
the grounds that there was an arbitration clause under the confidential agreement. On 1 March 2012, the
attorney representing UTE concurred with the Company’s application to subject the case to the arbitration
clause and executed with the Company an agreement which was then submitted to the court. On 1 May
2012, UTE filed an application for arbitration to the American Arbitration Association in respect of the case
to demand compensation from the Company. UTE subsequently raised the amount of compensation claimed.
On 19 September 2014, the arbitration court declared court trial of the case closed. As at the end of the
reporting period, the arbitration court had yet to make a final ruling.
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.
(5) On 28 April 2011, the Company and ZTE France SASU (“ZTE France”), a wholly-owned subsidiary of the
Company, received a statement of claim from the District Court of Paris, France, according to which a lawsuit
had been filed by Huawei Technologies Co., Ltd. (“Huawei”), claiming that the data card products of the
Company and ZTE France have infringed upon its patent rights and demanding the Company and ZTE France
to discontinue such act of infringement and pay damages in the amount of EUR500,000. In respect of the
patent which was the subject of Huawei’s litigation and other related patents of the same class, ZTE France
filed a lawsuit with the District Court of Paris, France to claim the invalidity of the patents. The aforesaid
two cases have been merged for trial purposes. On 28 March 2013, the District Court of Paris, France ruled
to reject all litigation claims of Huawei and ordered Huawei to pay a compensation of EUR100,000 to the
Company and ZTE France. At the same time, Huawei’s patents, which were the subject of the litigation, were
ruled “invalid” on the grounds of “lack of creativity.” Huawei has complied with the aforesaid judgement and
made an indemnity of EUR100,000 to the Company and ZTE France.
On 9 May 2011, ZTE Deutschland GmbH (“ZTE Deutschland”), a wholly-owned subsidiary of the Company,
received a provisional injunction order against ZTE Deutschland in respect of “labelled data cards” awarded
by the District Court of Hamburg, Germany based on an application by Huawei. For details please refer
to the “Announcement on Litigation” of the Company dated 12 May 2011. In response to the aforesaid
provisional injunction order, ZTE Deutschland had filed a dissent with the District Court of Hamburg, Germany.
On 1 October 2011, the Company received a ruling of the District Court of Hamburg, Germany in favor of
Huawei’s application for the said provisional injunction order. On 27 October 2011, ZTE Deutschland appealed
to the District High Court of Hamburg, Germany in respect of the ruling and the case is currently pending
trial. Such provisional injunction order will not have any impact on the current business of the Company.
On 27 June 2011, ZTE Deutschland received a statement of claim served by the District Court of Hamburg,
Germany, pursuant to which Huawei officially filed a lawsuit of trademark infringement in respect of “labelled
data cards” with the court. On 25 July 2011, ZTE Deutschland submitted a defense to the court. On 23
ANNUAL REPORT 2014
65
November 2011, the court ruled to suspend the litigation procedure for the case of trademark infringement.
ZTE Deutschland has reached a settlement with Huawei and the injunction order and infringement litigation
procedures have closed.
In May 2011 and May 2012, ZTE Deutschland and the Company respectively received statements of claim
filed by Huawei to the District Court of Dusseldorf, Germany, claiming that ZTE Deutschland and the Company
had infringed 4 of its patents. The amount in dispute for this case was estimated by Huawei at EUR1 million.
On 21 March 2013, the district court rejected all allegations of Huawei in connection with the infringement
on its EP 2033335 patent by the Company’s LTE systems products and terminals. Huawei appealed to the
Court of Appeal on 22 April 2013 and applied for the appeal case to the terminated on 3 May 2013. As of
now, the other three patents are pending court trial or judgement.
In May 2012, ZTE Deutschland received statements of claim filed by Huawei to the Court of Mannheim,
Germany, claiming that ZTE Deutschland had infringed its patent rights. The amount in dispute for this case
was estimated by Huawei at EUR1 million. On 15 March 2013, the Court of Mannheim, Germany made a
judgement to reject all allegations of Huawei in connection with the infringement by the LTE terminals of ZTE
Deutschland, but was of the view that the LTE systems products sold by ZTE Deutschland in Germany had
infringed on “a derived encryption function” of the said patent. In respect of the infringement ruled by the
judgement, ZTE Deutschland and Huawei each filed an appeal to the High Court of Karlsruher, Germany on
19 April 2013. The case is currently under court trial. As such patent is not used in the relevant products
currently sold by the Company, the litigation will not have any substantial impact on the local sales of the
Company.
On 12 November, 21 November and 2 December 2011, respectively, ZTE Hungary Kft. (“ZTE Hungary”), a
wholly-owned subsidiary of the Company, received statements of claim filed by Huawei with the Metropolitan
Court of Hungary alleging infringement of 4 of its patents by ZTE Hungary, although no specific amount of
compensation was named by Huawei in the statements of claim. ZTE Hungary submitted defenses to the
court on 12 January and 1 February 2012, respectively. In respect of the 4 patents which is the subject of
Huawei’s litigation, ZTE Hungary filed an application to the Patent Bureau of Hungary to claim the invalidity
of the patents. As at the end of the reporting period, the court had ruled to suspend trial in respect of all
of the 4 patents under litigation.
In addition to instituting lawsuits in other countries against the Company and its wholly-owned subsidiaries
for infringements of patent rights or trademarks, Huawei also filed a lawsuit with Shenzhen Intermediate
Court in 2011 alleging the Company’s infringement of 4 of its patent rights and demanding the Company
to discontinue such infringement and pay an amount of compensation. The Company responded actively
by filing a case with Shenzhen Intermediate Court alleging Huawei’s infringement of 3 patent rights of the
Company, demanding Huawei to discontinue such infringement and pay an amount of compensation. As
of now, trials of the aforesaid domestic cases have commenced. Shenzhen Intermediate Court has ruled to
reject one of the aforesaid applications by Huawei for lawsuit on infringements of patent rights and such
ruling has taken effect.
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.
ZTE CORPORATION
66
Material Matters
(6) On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business Arbitration
Tribunal of Guayaquil, Ecuador, claiming quality problems in the works performed by the Company and
demanding a total compensation amount of USD23.35 million from the Company, comprising USD22.25
million as reimbursement of the cost of network reconstruction and USD1.10 million as the cost for supervising
and managing construction work quality of the entire network. The legal counsel engaged by the Company
has submitted a defense in a timely manner.
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.
(7) On 29 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR Licensing,
Inc (all three of which being wholly-owned subsidiaries of InterDigital, Inc.) filed a claim with United States
International Trade Commission (“ITC”) and the Federal District Court of Delaware alleging infringement upon
their 3G patent rights by the Company and ZTE USA, a wholly-owned subsidiary of ZTE. Defendants in this
case included other companies in the industry. In the ITC case, the three said companies demanded the
issue of a permanent exclusion and injunction order against certain of the Company’s terminal products. In
the case filed with the District Court, damages for losses and payments of legal fees were also demanded
of the defendants in addition to the plea for injunction order, although no specific amount of compensation
was named. The litigation procedure at the District Court has been suspended. On 28 June 2013, ITC
issued its initial determination in respect of the case, ruling that one of the patent relating to the case was
invalid, while the Company and ZTE USA had not infringed upon the remaining patents relating to the case,
and that Section 337 had not been violated. (Section 337 investigation commonly refers to the investigation
of unfair acts and unfair measures in the importation of articles into or subsequent sales of articles in the
United States). On 19 December 2013, ITC issued its final verdict on the case, ruling that the Company and
ZTE USA had not violated Section 337. The three companies filed an appeal with the United States Court
of Appeals for the Federal Circuit in respect of the final verdict. On 18 February 2015, the United States
Court of Appeals for the Federal Circuit ruled to uphold the final verdict of ITC.
On 2 January 2013, the three said companies and InterDigital Holdings, Inc. (also a wholly-owned subsidiary
of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware alleging infringement
upon their 3G and 4G patent rights by ZTE and ZTE USA. Defendants in this case included other companies
in the industry. In the ITC case, the four said companies demanded the issue of a permanent exclusion
and injunction order against certain of the Company’s terminal products. In the case filed with the District
Court, damages for losses and payments of legal fees were also demanded of the defendants in addition to
the plea for injunction order, although no specific amount of compensation was named. On 13 June 2014,
ITC issued its initial determination in respect of the case, ruling that the Company and ZTE USA had not
infringed upon the patents relating to the case, and that Section 337 had not been violated. On 15 August
2014, ITC issued its final verdict on the case, ruling that the Company and ZTE USA had not infringed
upon the patents relating to the case and had not violated Section 337. The three companies aforesaid and
InterDigital Holdings, Inc. filed an appeal with the United States Court of Appeals for the Federal Circuit in
respect of the said final verdict, and the appeal process has currently been suspended. On 28 October 2014,
the Federal District Court of Delaware issued its verdict which ruled that the Company and ZTE USA had
infringed upon three out of four patents involved. Court hearing in respect of the remaining patent involved
has been postponed to April 2015. The Company and ZTE USA have engaged a legal counsel to conduct
active defense of the case and will consider whether to file an appeal based on the verdicts on the four
patents involved in the litigation.
ANNUAL REPORT 2014
67
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.
(8) On 9 December 2011, the Company and ZTE USA received a petition for arbitration filed by four USA
companies and a natural person (together “CLEARTALK”) with the International Center for Dispute Resolution
under the American Arbitration Association (“ICDR”), whereby CLEARTALK alleged that the Company and
ZTE USA had committed acts of breach of contract and fraud, and demanded cancellation of contract and
refund of payments and compensation with an aggregate amount of over USD10 million. On 28 December
2011, the Company and ZTE USA received a revised petition for arbitration filed by CLEARTALK with ICDR,
whereby CLEARTALK demanded, in respect of the same case, a USD300 million compensation together
with the reimbursement of legal fees, litigation costs and other compensation deemed appropriate by the
arbitration court.
On 12 October 2012, the Company and ZTE USA filed a defense and a counter-claim with ICDR, alleging
that CLEARTALK had committed breach of contract, fraud and abuse of litigation rights and had seriously
compromised the interests of the Company.
On 12 February 2014, ICDR issued a final ruling that rejected all requests of CLEARTALK and ruled that the
Company and ZTE USA were not required to pay any amounts to CLEARTALK. It also ruled against support
of the counter-claims of the Company and ZTE USA.
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.
(9) On 3 January 2012, ZTE DO BRAZIL LTDA (“ZTE Brazil”), a wholly-owned subsidiary of the Company, received
a notice of administrative penalty issued by the tax bureau of Sao Paulo State of Brazil. It was alleged in
the notice that ZTE Brazil had not paid the ICMS tax (a tax payable in respect of the transit of goods and
related services between different states) to the tax bureau of Sao Paulo State in respect of goods imported
at Espirito Santo State and transported to Sao Paulo State during the period from October 2006 to December
2008. The tax amount outstanding was approximately BRL74.70 million (equivalent to approximately RMB173
million). On 20 January 2012, ZTE Brazil submitted an administrative defense to the level 1 administrative
court under the tax bureau of Sao Paulo State, stating that ZTE Brazil had paid the ICMS tax at Espirito
Santo State. Pursuant to an agreement between Sao Paulo State and Espirito Santo State in June 2009
and Order No. 56045/2010 of Sao Paulo State, which provided that the agreement should apply to ICMS
tax incurred prior to May 2009, ZTE Brazil was not required to pay further ICMS to the tax bureau of Sao
Paulo State. On 13 April 2012, ZTE Brazil received the judgment of the level 1 administrative court under
the tax bureau of Sao Paulo State, which endorsed the administrative penalty imposed by the tax bureau of
Sao Paulo State. On 11 June 2012, ZTE Brazil filed an appeal with the level 2 administrative court under the
tax bureau of Sao Paulo State. On 29 November 2012, the tax bureau of Sao Paulo State issued a notice
that ZTE Brazil had paid the ICMS tax or made a remedial payment thereof and recommended suspension
of execution of the notice of administrative penalty. On 13 January 2014, the tax bureau of Sao Paulo State
resolved to rescind the aforesaid administrative penalty notice with effect from 1 June 2014 pursuant to
Order No. 56045/2010 and Administrative Regulation No. CAT154/2010. On 4 June 2014, the tax bureau of
Sao Paulo State resolved to officially rescind the aforesaid administrative penalty.
ZTE CORPORATION
68
Material Matters
On 20 May 2013, ZTE Brazil received another notice of administrative penalty issued by the tax bureau of
Sao Paulo State of Brazil, alleging that ZTE Brazil was not entitled to register and apply for ICMS output
tax on the grounds that ZTE Brazil had committed non-compliant acts such as revoking invoices in the
course of sales to customers during the period from 2010 to 2011, and therefore was required to make a
remedial payment of ICMS tax, accrued interests and a penalty in the aggregate amount of approximately
BRL96,448,400 (equivalent to approximately RMB223 million). On 19 June 2013, ZTE Brazil submitted an
administrative defense to the level 1 administrative court under the tax bureau of Sao Paulo State, stating
that: (1) ZTE Brazil’s entitlement to the ICMS output tax was provable by existing invoices and customers’
statements; (2) on the grounds that the fiscal revenue of Sao Paulo State would not be reduced, ZTE Brazil
pleaded for the penalty to be waived pursuant to Section 527.A of Law No. 45.490 of Sao Paulo State; (3)
the administrative penalty should be rendered invalid by the fact of duplicated calculation of the amount
of fine based on the same rules. On 18 September 2013, ZTE Brazil received the judgement of the level
1 administrative court under the tax bureau of Sao Paulo State, which endorsed the administrative penalty
imposed by the tax bureau of Sao Paulo State. On 18 October 2013, ZTE Brazil filed an appeal with the level
2 administrative court under the tax bureau of Sao Paulo State. The case is currently pending judgement
by the level 2 administrative court under the tax bureau of Sao Paulo State.
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.
(10) In May 2012, Flashpoint Technology, Inc., a U.S. company, filed a claim with ITC and the Federal District
Court of Delaware, respectively, in the United States, alleging the Company and ZTE USA of infringement
upon its patents in image processing technologies. Defendants in the case included other companies in the
industry. In the ITC case, the said company demanded the issue of a limited exclusion and injunction order
against the Company’s and ZTE USA’s products that had allegedly infringed its patent rights. In the case
filed with the Federal District Court of Delaware, damages for losses and payments of legal fees were also
demanded of the Company and ZTE USA in addition to the plea for injunction order, although no specific
amount of compensation was named. The litigation procedure at the Federal District Court of Delaware has
been suspended. On 1 October 2013, ITC issued its initial determination in respect of the case, ruling that
the Company and ZTE USA had not infringed upon the patents relating to the case, and that Section 337
had not been violated. On 14 March 2014, ITC issued its final determination in respect of the case, ruling
that the Company and ZTE USA had not violated the patents relating to the case and had not violated
Section 337.
Based on the legal opinion furnished by legal counsels engaged by the Company and the current 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.
(11) In July 2012, Technology Properties Limited LLC, a U.S. company, filed a claim with ITC and the Federal
District Court of California, respectively, in the United States, alleging the Company and ZTE USA of
infringement upon its patents in chips. Defendants in the case included other companies in the industry. In
the ITC case, the said company demanded the issue of a permanent exclusion and injunction order against
the Company’s and ZTE USA’s products that had allegedly infringed its patent rights. In the case filed with
the Federal District Court of California, damages for losses and payments of legal fees were demanded of the
Company and ZTE USA, although no specific amount of compensation was named. The litigation procedure
at the Federal District Court of California has been suspended. On 6 September 2013, ITC issued its initial
determination in respect of the case, ruling that the Company and ZTE USA had not infringed upon the
patents relating to the case, and that Section 337 had not been violated. On 19 February 2014, ITC issued
its final determination in respect of the case, ruling that the Company and ZTE USA had not infringed upon
ANNUAL REPORT 2014
69
the patents relating to the case and had not violated Section 337. Currently, the litigation procedure at the
Federal District Court of California has been resumed. There has been no substantial progress in the litigation
process.
Based on the legal opinion furnished by legal counsels engaged by the Company and the current 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.
(12) 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 RMB72,530,500). 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.
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 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 RMB192 million). The Company has
appointed a legal counsel to conduct active defense in respect of the said case.
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
(13) October 2013 and December 2013, Pragmatus Mobile LLC, a U.S. company, filed a claim with ITC and the
Federal District Court of Delaware, respectively, in the United States, alleging the Company and ZTE USA
of infringement upon its maps and wifi-related patents. Defendants in the case included other companies in
the industry. In the case filed with the Federal District Court of Delaware, damages for losses and payments
of legal fees were demanded of the Company and ZTE USA, although no specific amount of compensation
was named. In the ITC case, the said company demanded the issue of a limited exclusion and injunction
order against the Company’s and ZTE USA’s products that had allegedly infringed its patent rights. Pragmatus
Mobile LLC has withdrawn its claim after reaching a settlement deal with the Company and ZTE USA.
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.
(14) In February 2013, Vringo Germany GmbH (“Vringo Germany”) filed a patent litigation with the Court of
Mannheim, Germany against the Company and ZTE Deutschland GmbH (“ZTE Deutschland”), a wholly-owned
subsidiary of the Company, pleading for the UMTS products of the Company and ZTE Deutschland with
TSTD (Time Switched Transmitter Diversity) functions to be ruled to have infringed upon the patent rights of
Vringo Germany. In December 2013, the Court of Mannheim, Germany handed down the first trial judgement,
ruling that the Company and ZTE Deutschland had infringed upon the patent rights and issuing an injunction
order against the Company and ZTE Deutschland in respect of the UMTS products with TSTD functions.
The Company and ZTE Deutschland filed an appeal to the aforesaid court in January 2014, pleading for
the rejection of the patent infringement claims of Vringo Germany and revocation of the injunction order.
Vringo Germany withdrew its litigation in October 2014. In December 2014, Vringo Germany filed a patent
litigation with the Court of Dusseldorf, Germany in respect of the patents involved against the Company
and ZTE Service GmbH (“ZTE Service”), a wholly-owned subsidiary of the Company. As the UMTS products
ZTE CORPORATION
70
Material Matters
of the Company, ZTE Deutschland and ZTE Service sold in Germany do not support TSTD functions, the
injunction order will not have any impact on the business of the Company, ZTE Deutschland and ZTE Service
in Germany.
In February 2014, Vringo Infrastructure Inc. (“Vringo”) filed a patent litigation with the High Court of Delhi,
India against the Company and ZTE Telecom India Private Limited (“ZTE India”), a wholly-owned subsidiary
of the Company, pleading for the GSM products of the Company and ZTE India supporting Macro to Micro
Handover Algorithm functions to be ruled to have infringed upon the patent rights of Vringo and applied
for the issue of a provisional injunction order by the High Court of Delhi, India. In February 2014, the High
Court of Delhi, India issued a provisional injunction order against the Company and ZTE India in respect of
the GSM products with Macro to Micro Handover Algorithm functions. In April 2014, the Company and ZTE
India filed an application to the High Court of Delhi, India for the revocation of the provisional injunction
order. In August 2014, the High Court of Delhi, India revoked such provisional injunction order.
In April 2014, Vringo filed a patent litigation with the Court of Rio, Brazil against the Company and ZTE
Brazil, pleading for the UMTS and LTE products of the Company and ZTE Brazil supporting RNC Relocation
functions to be ruled to have infringed upon the patent rights of Vringo and applied for the issue of a
provisional injunction order by the Court of Rio, Brazil. In April 2014, the Court of Rio, Brazil issued a
provisional injunction order against the Company and ZTE Brazil in respect of UMTS and LTE products
supporting RNC Relocation functions. In April 2014, the Company and ZTE Brazil filed an application to the
Court of Rio, Brazil for the revocation of the provisional injunction order. As of now, the Court of Rio, Brazil
has yet to make a ruling. The provisional injunction order affects only the UMTS and LTE products of the
Company and ZTE Brazil supporting RNC Relocation functions sold in Brazil.
In June 2014, Vringo filed a patent litigation with the Court of Bucharest, Romania against the Company
and ZTE Romania SRL (“ZTE Romania”), a wholly-owned subsidiary of the Company, pleading for the LTE
products of the Company and ZTE Romania supporting Circuit Switched Fall Back functions to be ruled to
have infringed upon the patent rights of Vringo and applied for the issue of a provisional injunction order
by the court. In September 2014, the Court of Bucharest issued a provisional injunction order against ZTE
Romania in respect of LTE products, and ZTE Romania filed an appeal to the Court of Appeal of Bucharest.
In October 2014, the Court of Appeal of Bucharest ruled to suspend the provisional injunction order.
In March 2014, the Company filed an antitrust litigation with Shenzhen Intermediate Court against the
alleged abuse of market dominance of Vringo, and Shenzhen Intermediate Court has accepted such filing;
the Company also filed an application for antitrust investigation to the EU Commission in April 2014 and
the EU Commission has accepted such filing. Meanwhile, the Company has also filed litigations in the PRC,
Germany, India, Brazil and Romania against Vringo for its patent claims to be ruled invalid.
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 31 December 2014 where PKR amounts are
translated at the exchange rate of PKR1:RMB0.0619 and BRL amounts are translated at the exchange rate of BRL1:RMB2.3133.
2. General Media Queries
? Applicable ? N/A
ANNUAL REPORT 2014
71
(II) APPROPRIATION AND REPAYMENT OF NON-OPERATING FUNDS BY CONTROLLING SHAREHOLDER
AND ITS CONNECTED PARTIES
1. There was no appropriation and repayment of non-operating funds of the Company by the
controlling shareholder and its connected parties during the year.
2. Statement on fund appropriation issued by Ernst & Young Hua Ming LLP
The “Statement on Amounts Receivable from the Controlling Shareholder and Other Connected Parties by ZTE
Corporation” issued by Ernst & Young Hua Ming LLP was set out in the Overseas Regulatory Announcement
published by the Company on 25 March 2015.
(III) THE GROUP WAS NOT SUBJECT TO BANKRUPTCY, REORGANISATION OR RELATED ACTIONS
DURING THE YEAR
(IV) ASSET TRANSACTIONS
The Group was not engaged in any material acquisition, disposal or business merger commencing or subsisting
during the year. Details of progress of asset disposal disclosed by the Group are as follows:
On 16 November 2012, the Company and CCB International (Shenzhen) Investment Co., Ltd. (“CCBI”) entered
into the “Equity Transfer Agreement for the Transfer of 30% Equity Interests in Shenzhen Changfei Investment
Company Limited” (the “Former Equity Transfer Agreement”), pursuant to which the Company would, among other
things, transfer its 30% equity interests in Shenzhen Changfei Investment Company Limited (“Changfei”) to CCBI
and provide an undertaking of compensation in respect of the operating results of Changfei for the years 2012 to
2016. For details, please refer to the “Discloseable Transactions - Disposal of Equity Interest in Shenzhen Changfei
Investment Company Limited” published by the Company on 16 November 2012.
On 23 December 2014, the Company and CCBI entered into the “Variation of the Equity Transfer Agreement in
relation to the Transfer of 30% Equity Interests in Shenzhen Changfei Investment Company Limited” (the “Variation
Agreement”), pursuant to which the Company agreed to the transfer by CCBI of its 30% equity interests in Changfei
to a third party not related to the Company. The undertaking of compensation and other obligations of ZTE under
the Former Equity Transfer Agreement shall automatically be terminated as from the date on which the transfer
consideration is received by CCBI from the third party. The aforesaid matter was considered and approved at the
Twenty-third Meeting of the Sixth Session of the Board of Directors of the Company held on 23 December 2014.
(V) IMPLEMENTATION AND IMPACT OF THE COMPANY’S SHARE OPTION INCENTIVE SCHEME (THE
“SCHEME”)
1. Summary of the Scheme
(1) Objective
The 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 responsibilities of
the management and key personnel of the Company and retain talent, so as to facilitate sustainable development
of the Company and ensure the realisation of its development targets.
ZTE CORPORATION
72
Material Matters
(2) Scheme participants and their adjustments
Scheme participants of the Scheme include Directors, senior management personnel and key employees who have
a direct impact on, or have made outstanding contributions to, the Company’s overall results and sustainable
development (excluding Independent Non-executive Directors, Supervisors and substantial shareholders interested
in 5% or above of the Company’s shares or the de facto controller, or their respective spouses and immediate
or close family members).
Pursuant to the “ZTE Corporation Share Option Incentive Scheme (Revised Draft)” (“Share Option Incentive
Scheme (Revised Draft)”) considered and passed at the Third Extraordinary General Meeting of 2013, the First
A Shareholders’ Class Meeting of 2013 and the First H Shareholders’ Class Meeting of 2013 of the Company, it
was resolved that a total of 103,200,000 share options shall be granted to the Directors, senior management and
key business personnel of the Company.
Prior to the grant of share options under the Scheme of the Company, scheme participants Hua Rusong and Chi
Xun had left the Company, while scheme participant Hua Jianbin had deceased. Pursuant to the Share Option
Incentive Scheme (Revised Draft), pertinent laws and regulations and the approval granted by the Eleventh Meeting
of the Sixth Session of the Board of Directors of the Company held on 31 October 2013, the 3 persons aforesaid
were removed from the list of qualified participants of the Scheme and a total of 211,000 share options were
cancelled. As a result, the number of scheme participants was adjusted from 1,531 to 1,528 and the number of
share options to be granted under the Scheme was adjusted from 103,200,000 to 102,989,000.
(3) Number of underlying shares and maximum share options that may be granted to scheme
participants
Each share option granted shall entitle its holder to purchase one ZTE ordinary A share on any exercise date
during the effective period of the Scheme at the exercise price and subject to the conditions of exercise. The
source of shares under the Scheme comprises shares of the Company issued to the scheme participants by the
Company by way of placing. The total number of underlying A shares in respect of the share options to be granted
under the Scheme is 102,989,000 A shares, accounting for approximately 3% of the Company’s total share capital
currently in issue and approximately 3.7% of its A shares currently in issue.
Unless approved by the shareholders in a general meeting, the aggregate number of A shares to be issued to a
scheme participant upon exercise of his share options under the Scheme or other effective share option incentive
schemes of the Company (if any) 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 outstanding share options) within any 12-month period shall not exceed 1% of the Company’s total
share capital of the same class.
ANNUAL REPORT 2014
73
(4) Date of grant, validity period, vesting period, exercise period and exercisable percentage
The Scheme shall remain in force for 5 years from the date of grant (i.e. 31 October 2013). Subject to the fulfillment
of the exercise conditions, share options granted under the Scheme can be exercised by the following proportion
after the expiry of the 2-year vesting period from the date of grant:
Exercise period Duration
Exercisable share options
as a percentage of the
total number of share
options granted
First exercise period Commencing from the first trading day after
expiry of the 24-month period from the
date of grant and ending on the last
trading day of the 36-month period from
the date of grant
30%
Second exercise period Commencing from the first trading day after
expiry of the 36-month period from the
date of grant and ending on the last
trading day of the 48-month period from
the date of grant
30%
Third exercise period Commencing from the first trading day after
expiry of the 48-month period from the
date of grant and ending on the last
trading day of the 60-month period from
the date of grant
40%
(5) Exercise price and basis of determination
The exercise price of the share options shall be RMB13.69 per A share. Upon fulfilment of exercise conditions,
each share option granted to the scheme participant entitles the scheme participant to acquire one A Share of
the Company at RMB13.69 per A share.
The above exercise price is the higher of the following:
(i) closing price of the A Shares quoted on the Shenzhen Stock Exchange on the last trading day immediately
preceding the date on which the Scheme was announced (i.e. 12 July 2013), which was RMB13.69 per A
share; and
(ii) the average closing price of the A Shares quoted on the Shenzhen Stock Exchange for the last 30 trading
days immediately preceding the date on which the Scheme was announced, which was RMB12.61 per A
share.
During the validity period of the Scheme, in the event of any dividend distribution, capitalisation issue, bonus
issue, sub-division or rights issue or consolidation of shares in relation to the A shares of the Company before
the exercise of the share options, an adjustment to the exercise price shall be made accordingly.
ZTE CORPORATION
74
Material Matters
(6) Approval procedures fulfilled
The Scheme implemented by the Company has been approved by regulatory authorities including SASAC, CSRC
and Hong Kong Stock Exchange and the Remuneration and Evaluation Committee, Board of Directors, Supervisory
Committee and general meeting of the Company. For details, please refer to the “Announcement of Matters relating
to the Grant of Share Options” published by the Company on 31 October 2013.
2. Share options granted to scheme participants during the year and the exercise thereof
Name of
participant Position of participant
Number of
unexercised
options
at the
beginning
of the
reporting
period
Number
of options
granted
during the
reporting
period
Number
of options
exercised
during the
reporting
period
Number of
outstanding
options at
the end of
the reporting
period
Number
of options
cancelled
during the
reporting
period
Number
of options
lapsed
during the
reporting
period
Zhang Jianheng Director 30,000 0 0 30,000 0 0
Xie Weiliang Director 30,000 0 0 30,000 0 0
Wang Zhanchen Director 30,000 0 0 30,000 0 0
Zhang Junchao Director 30,000 0 0 30,000 0 0
Dong Lianbo Director 30,000 0 0 30,000 0 0
Tian Wenguo Executive Vice President 200,000 0 0 200,000 0 0
Qiu Weizhao Executive Vice President 500,000 0 0 500,000 0 0
Fan Qingfeng Executive Vice President 500,000 0 0 500,000 0 0
Zeng Xuezhong Executive Vice President 450,000 0 0 450,000 0 0
Zhao Xianming Executive Vice President 500,000 0 0 500,000 0 0
Pang Shengqing Senior Vice President 450,000 0 0 450,000 0 0
Xu Huijun Senior Vice President 350,000 0 0 350,000 0 0
Ye Weimin Senior Vice President 400,000 0 0 400,000 0 0
Zhu Jinyun Senior Vice President 450,000 0 0 450,000 0 0
Zhang Renjun Senior Vice President 350,000 0 0 350,000 0 0
Chen Jianzhou Senior Vice President 450,000 0 0 450,000 0 0
Cheng Lixin Senior Vice President 200,000 0 0 200,000 0 0
Feng Jianxiong Board Secretary 400,000 0 0 400,000 0 0
Other scheme
participants 1,510 persons 97,639,000 0 0 97,639,000 0 0
Total 1,528 persons 102,989,000 0 0 102,989,000 0 0
For details of the date of grant, validity period, vesting period, exercise period and exercise price under the
Scheme in respect of the share options set out in the table above, please refer to the section headed “Summary
of the Scheme” above.
ANNUAL REPORT 2014
75
3. Valuation and accounting policies relating to the share options
The Company has adopted the Binomial Tree model to calculate the value of the share options. The date of grant
(31 October 2013) has been adopted as the measurement date and the estimated value of the share options is
RMB5.36 per A share, representing 35.31% of the market price of the A shares on the date of grant. Data used
in and results of the calculation are as follows:
Factors Amount of factors and description
Exercise price RMB13.69 per A share
Market price RMB15.18 per A share, being the closing price of the A shares on the
date of grant
Expected life The scheme participants shall exercise all his/her options exercisable in
the first, second and third exercise period within the third year, the
fourth year and the fifth year from the date of grant, respectively.
Expected price volatility rate The historical price volatility rate of the Company’s A share used for the
first, second and third exercise period being 40.25%, 39.69% and
43.18% respectively.
Expected dividend (Note 1) RMB0.18 per share
Risk-free interest rate (Note 2) The risk-free interest rate for the first, second and third exercise period
being 3.34%, 3.40% and 3.46% respectively.
Value of share options per A
share
RMB5.36
Note 1: The expected dividend was calculated based on the historical dividends of the Company.
Note 2: The Company adopted the three-year, four-year and five-year national bond yield rates as quoted by Reuters as at the date of grant
as the risk-free interest rates for the first, second and third exercise period, respectively.
Note 3: The calculation results of the value of the share options are subject to a number of assumptions of the parameters used herein and
the limitation of the model adopted, therefore the estimate value of the share options may be subjective and subject to uncertainties.
The cost of the share options will be charged to operating profit or loss. The accounting policies relating to the
share options and their impact on the financial position and operating results of the Company have been set
out in Note XI to the financial statements prepared in accordance with PRC ASBEs and Note 40 to the financial
statements prepared in accordance with HKFRSs.
For details of the Scheme, please refer to the Overseas Regulatory Announcement published by the Company
on 26 August 2013.
The Scheme of the Company was under normal operation during the year.
(VI) INFORMATION ON THE CORPORATE BONDS OF THE COMPANY
To meet the Company’s working capital requirements, further improve its debt structure and lower its finance
costs, the Company was given approval to issue to the public corporate bonds with a nominal value of not more
than RMB6 billion at a price of RMB100 each with a coupon interest rate of 4.20% for a term of 3 years, in
accordance with relevant provisions of the Company Law, Securities Law, Trial Measures for the Issue of Corporate
Bonds and other pertinent laws, regulations and regulatory documents, following consideration and approval at
the Twenty-sixth Meeting of the Fifth Session of the Board of Directors of the Company held on 8 March 2012
and the First Extraordinary General Meeting of 2012 of the Company held on 11 April 2012 and approval by
the CSRC by virtue of the document Zheng Jian Xu Ke [2012] No. 754. The issue was conducted by way of a
ZTE CORPORATION
76
Material Matters
combination of online offering to public investors and offline bid placing to institutional investors. Corporate bonds
under the Issue were listed on Shenzhen Stock Exchange on 16 July 2012 under the bond code “112090” and
the abbreviated bond name “12??01”.
The corporate bond interest payment for 2014 was completed on 13 June 2014 and the total amount of interest
payment made was RMB252 million (before tax). For details please refer to the Overseas Regulatory Announcement
published by the Company on 4 June 2014.
As at 31 December 2014, there were 228 holders of Corporate Bonds of the Company, the top ten of which were
as follows:
No. Name of bond holders
Number of
bonds held
Bond holding
ratio
1 China Merchants Bank Co., Ltd. 10,000,000 16.67%
2 Industrial and Commercial Bank of China Limited 9,300,000 15.50%
2 China Construction Bank Corporation 9,300,000 15.50%
4 Bank of Communications — ICBC Credit Suisse Pure Bond Fixed-term
Open-ended Bond Fund
5,160,000 8.60%
5 Sha Dinan 1,847,816 3.08%
6 China Merchants Securities Co., Ltd. 1,597,205 2.66%
7 Bank of China Investment Management — BOC — Bank of China
Limited
1,241,882 2.07%
8 China Merchants Bank Co., Ltd.-BOC Stable Profit and Dividend Bond
Fund
1,201,051 2.00%
9 China Merchants Bank Co., Ltd.- BOC Multi-strategic Flexible
Allocation Hybrid Fund
1,022,991 1.70%
10 NSSF Portfolio #409 1,000,000 1.67%
(VII) THIRD-PARTY INVESTMENTS AND CONNECTED TRANSACTIONS BY THE COMPANY
With a view to capitalising on opportunities in the TMT sector, unlocking business potential and securing income
from sub-segment markets, ??????????????? (Jiaxing Xinghe Capital Management Company
Limited) (“Xinghe Capital”), a wholly-owned subsidiary of ZTE Capital (a subsidiary of the Company) established
?????????????(????) (Jiaxing Xinghe Equity Investment Partnership (Limited Partnership)) (“Xinghe
Partnership”) as the sole general partner by way of promotion. Xinghe Partnership is focused on the equity
investment of unlisted companies within the TMT industry (technology, media and telecommunication). As at
the date of this report, funds with a total amount of RMB346 million were raised, of which: RMB10 million has
been contributed in cash by Xinghe Capital as general partner and RMB100 million and RMB10 million have
been contributed in cash by the Company and Mr. Yin Yimin (Director of the Company), each as a limited
partner, respectively and RMB226 million has been contributed in cash by other limited partners as agreed in the
partnership agreements executed by them. Mr. Yin Yimin, Director of the Company, is a connecter natural person
of the Company. In accordance with the Shenzhen Listing Rules and the Hong Kong Listing Rules, the respective
capital contributions to and subscriptions for Xinghe Partnership by Xinghe Capital, the Company and Mr. Yin
Yimin (Director of the Company) constitute connected transactions.
The aforesaid external investment and connected transactions were considered and approved at the Seventeenth
Meeting of the Sixth Session of the Board of Directors of the Company held on 17 April 2014. For details please
refer to the “Announcement of Resolutions of the Seventeenth Meeting of the Sixth Session of the Board of
Directors” and the Overseas Regulatory Announcement published on 17 April 2014. The partnership agreement
ANNUAL REPORT 2014
77
relating to the Xinghe Partnership was entered into on 11 June 2014. For details please refer to the announcement
entitled “Connected Transaction — Establishment of Partnership” published in 12 June 2014. Xinghe Partnership
has currently been approved by the bureau of industrial and commercial administration of Nanhu District of Jiaxing
and completed registration as partnership. For details please refer to the “Announcement Progress of External
Investments” published by the Company on 23 June 2014.
(VIII) REGISTRATION AND ISSUE OF PERPETUAL MEDIUM TERM NOTE BY THE COMPANY
To further facilitate the Company’s business development and optimise its debt structure, the Company has
proposed to apply to the National Association of Financial Market Institutional Investors (???????????
?) for the registration and issue of perpetual medium term note with an amount of not more than RMB 9 billion.
The perpetual medium term note (the “Medium Term Note”) is a medium term note under which the issuer does
not specify due dates but has the options of redeeming the note and deferring interest payments, while creditors
are, usually, not entitled to demand redemption but are entitled to interest payments as agreed.
The aforesaid matter was considered and approved at the Twentieth Meeting of the Sixth Session of the Board
of Directors of the Company and the First Extraordinary General Meeting of 2014 of the Company. For details
please refer to the “Announcement of Resolutions of the Twentieth Meeting of the Sixth Session of the Board
of Directors” and “Announcement on Resolutions of the First Extraordinary General Meeting of 2014” published
on 22 August 2014 and 15 October 2014, respectively, by the Company. The National Association of Financial
Market Institutional Investors (????????????) has admitted the RMB9 billion Medium Term Note of the
Company for registration. For details please refer to the “Announcement on the Approval of Registration for the
Issue of Medium Term Notes” published by the Company on 15 December 2014.
On 27 January 2015, the Company completed the issue of tranche one of the 2015 Medium Term Notes for an
issue amount of RMB6 billion. For details please refer to the “Announcement on the Result of the Medium Term
Notes Issue” published by the Company on 27 January 2015. On 6 February 2015, the Company completed the
issue of tranche two of the 2015 Medium Term Notes for an issue amount of RMB1.5 billion. For details please
refer to the “Announcement on the Result of the Medium Term Notes Issue” published by the Company on 6
February 2015.
(IX) SIGNIFICANT CONNECTED TRANSACTIONS
1. SIGNIFICANT CONNECTED TRANSACTIONS UNDER APPLICABLE LAWS AND REGULATIONS OF
THE PRC
(1) Connected transactions in the ordinary course of business
The connected transactions disclosed in the following table represented continuing connected transactions in 2014
that reached the benchmark for public disclosure as defined under the Shenzhen Listing Rules.
ZTE CORPORATION
78
Material Matters
Counterparty to
connected transaction
Nature of
connection Classification Subject matter Pricing principle Price (RMB)
Amount
(RMB in ten
thousands)
As a
percentage
of
transactions
in the same
classification
(%) Settlement
Market price
for similar
transactions
available
(RMB)
Domestic
announcement
date
Domestic
announcement
index
Zhongxingxin and its
subsidiaries
Controlling
shareholder of the
Company and its
subsidiaries
Purchase of raw
materials
The purchase
of cabinets and
related accessories,
cases and related
accessories, shelters,
railings, antenna
poles, optical
products, refined
processing products,
packaging materials,
FPC, R-FPC and
components by the
Company from the
connected party
Purchase of raw
materials and lease
of properties by the
Company and its
subsidiaries from
connected parties at
prices determined
through arm’s length
negotiations and on
the basis of normal
commercial terms.
Continuing connected
transactions in
respect of the Group’s
purchases from
connected parties
were conducted in
the ordinary course
of business of the
two parties on normal
commercial terms
and terms no less
favourable than those
available to or from
(as the case may
be) independent
third parties. Prices
at which the Group
leased properties from
connected parties
were not higher than
market rent levels
for similar properties
in neighbouring
areas. The prices
of leased properties
were determined
through arm’s length
negotiations based on
normal commercial
terms. Transaction
prices at which
products were sold
by the Group to
connected parties
were based on market
prices and were not
lower than prices at
which similar products
of similar quantities
were purchased by
third parties from
the Group, taking
into consideration of
factors relating to the
specific transactions
such as conditions
of the projects, size
of transaction and
product costs.
Cabinets and related accessories:
RMB1-RMB30,000 per unit; cases
and related accessories: RMB1-
RMB15,000 per unit depending on
level of sophistication; Shelters:
RMB5,000-RMB100,000 per unit
depending on measurement,
materials used and configuration;
Railings: RMB11,000-50,000
per piece depending on level
of sophistication and functional
features; Antenna poles: RMB200-
2,000 per piece depending on level
of sophistication and functional
features; Optical products: RMB1.3-
30,000 per unit depending on level
of sophistication and functional
features; Refined-processing
products: RMB0.5-50,000 per unit
depending on level of sophistication
and functional features; Packaging
materials: RMB0.01-5,000 per piece
depending on level of sophistication
and functional features; FPC, R-FPC
and components: RMB0.5-100 per
piece depending on measurement,
level of process sophistication and
materials used.
54,081.50 1.11% Commercial
acceptance
bill
N/A 29 December
2012
Announcement
No. 201263
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Mobi Antenna A company at which
a supervisor of the
Company’s controlling
shareholder acted as
director
Purchase of raw
materials
The purchase
of various
products such as
communications
antennas, radio
frequency transmitter,
feeder and terminal
antenna by the
Company from the
connected party
Communication antenna: RMB100-
RMB9,999 per piece depending on
technical parameters and functional
features; Radio frequency transmitter:
RMB100-9,999 per unit depending
on technical parameters and
functional features; Feeder: RMB1-
200 per unit depending on technical
parameters and functional features;
Terminal antenna: RMB0.1-100
per piece depending on technical
parameters and functional features.
78,210.67 1.60% Commercial
acceptance
bill
N/A 29 December
2012
Announcement
No. 201263
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Huatong Subsidiary of a
company for which
the Chairman of
the Company
concurrently acted as
chairman
Purchase of
software outsourcing
services
The purchase of
personnel hiring and
project outsourcing
services by the
Company from the
connected party
Senior engineer at a price ranging
from RMB450-680 per head/day;
Intermediate-grade engineer at a
price ranging from RMB330-520 per
head/day; Junior engineer at a price
ranging from RMB230-400 per head/
day; Technician at a price ranging
from RMB190-230 per head/day.
2,592.71 0.05% Tele-transfer N/A 21 January
2014
Announcement
No. 201403
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
ANNUAL REPORT 2014
79
Counterparty to
connected transaction
Nature of
connection Classification Subject matter Pricing principle Price (RMB)
Amount
(RMB in ten
thousands)
As a
percentage
of
transactions
in the same
classification
(%) Settlement
Market price
for similar
transactions
available
(RMB)
Domestic
announcement
date
Domestic
announcement
index
Nanchang Software A company of
which the majority
of board members
can be controlled by
another company for
which the Chairman
of the Company
concurrently acted as
chairman
Purchase of
software outsourcing
services
The purchase of
personnel hiring and
project outsourcing
services by the
Company from the
connected party
Senior engineer at a price ranging
from RMB450-680 per head/day;
Intermediate-grade engineer at a
price ranging from RMB330-520 per
head/day; Junior engineer at a price
ranging from RMB230-400 per head/
day; Technician at a price ranging
from RMB190-230 per head/day.
2,793.78 0.06% Tele-transfer N/A 21 January
2014
24 October
2014
Announcement
No. 201403
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on
The Shenzhen
Stock Exchange”;
Announcement
No. 201446
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Zhongxing Hetai and its
subsidiaries
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Purchase of hotel
services
The purchase of
hotel services by the
Company from the
connected party
Single room: RMB240-380/night;
Double room: RMB240-380/night;
Suite: RMB500-600/night. The
purchase price is not higher than the
price at which products (or services)
are sold by Zhongxing Hetai to
other customers purchasing similar
products (or services) in similar
quantities. The actual price will be
confirmed upon execution of specific
agreements by the two parties.
3,450.25 0.07% Tele-transfer N/A 27 April 2013
30 May 2014
Announcement
No. 201322
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on
The Shenzhen
Stock Exchange”
Announcement
No. 201424
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange
Zhongxing Development A Company for
which the Chairman
of the Company
concurrently acted as
chairman
Property leasing Lease of property
located at No. 19
Huayuan East Road,
Haidian District,
Beijing with an
intended leased area
of 32,000 sq.m.;
Lease of 25 ground
level parking spaces
and 138 underground
parking spaces by
the Company from
the connected party
Monthly rent of RMB130/sq.m.;
monthly rent of ground level
parking spaces of RMB150 each;
monthly rent of underground parking
spaces of RMB500 each. (Property
management undertaken by ZTE and
no management fees are payable.)
4,293.14 5.55% Tele-transfer N/A 2012-12-29 Announcement
No. 201263
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Chongqing Zhongxing
Development
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Property leasing Lease of property
located at No. 3 Xing
Guang Wu Road,
North New District,
Chongqing with an
intended leased area
of 20,000 sq.m. by
the Company from
the connected party
Monthly rent of RMB45/sq.m. and
RMB40/sq.m. for the office and
cafeteria respectively and monthly
management fee of RMB2.5/sq.m.
803.06 1.04% Tele-transfer N/A 2011-12-14 Announcement
No 201153
“Announcement
of Connected
Transaction”
ZTE CORPORATION
80
Material Matters
Counterparty to
connected transaction
Nature of
connection Classification Subject matter Pricing principle Price (RMB)
Amount
(RMB in ten
thousands)
As a
percentage
of
transactions
in the same
classification
(%) Settlement
Market price
for similar
transactions
available
(RMB)
Domestic
announcement
date
Domestic
announcement
index
Zhongxing Hetai and its
subsidiaries
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Lease of property
and equipment and
facilities
The lease of
property and related
equipment and
facilities to the
connected party by
the Company
Six months ended 30 June 2014:
Rent: RMB34/sq.m./month for hotel
in Dameisha in Shenzhen; RMB27/
sq.m./month for hotel in Nanjing;
RMB55/sq.m./month for hotel in
Shanghai; and RMB24/sq.m./month
for hotel in Xi’an. Rental fee for
related equipment and facilities will
be based on the monthly rate of
depreciation of assets. Six months
ended 31 December 2014: Rent:
RMB68/sq.m./month for hotel and
related equipment and facilities in
Dameisha in Shenzhen; RMB42/
sq.m./month for hotel and related
equipment and facilities in Nanjing;
RMB110/sq.m./month for hotel and
related equipment and facilities in
Shanghai; and RMB41/sq.m./month
for hotel and related equipment and
facilities in Xi’an.
5,618.73 23.22% Tele-transfer N/A 2013-4-27
2014-5-30
Announcement
No. 201322
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on
The Shenzhen
Stock Exchange”
Announcement
No. 201424
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Zhongxing Hetai and its
subsidiaries
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Financial services The provision of
deposit services by
ZTE Group Finance
to the connected
party
The standard deposit interest rate
announced by the People’s Bank
of China (“PBOC”) was adopted; in
case the interest rate announced
by PBOC was not applicable, ZTE
Group Finance would pay interest
to the connected party at a rate
not higher than the interest rate
level adopted by similar businesses
carried out by other independent
financial institutions.
5,100.88
Note 1
1.10% Tele-transfer N/A 2014-5-30 Announcement
No. 201424
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
???? Subsidiary of a
company for which
a Director of the
Company acted as
director
Sale of products The sale of digital
communications
products and
communications
products by the
Company to the
connected party
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.
40,539.74 0.50% Tele-transfer
or bank
acceptance
bill
N/A 2014-1-21 Announcement
No. 201403
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Nanchang Software A company of
which the majority
of board members
can be controlled by
another company for
which the Chairman
of the Company
concurrently acted as
chairman
Sales of products
and rendering of
services
The provision by
the Company to
the connected party
of software and
hardware equipment
and engineering
services required
for smart campus
and campus IT
development, and
integrated solutions
for smart traffic, city
emergency command
system, smart
military camp and
government/corporate
IT systems
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.
106 0.00% Tele-transfer N/A 2014-10-24 Announcement
No. 201446
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Total — 197,590.46 N/A — — — —
ANNUAL REPORT 2014
81
Detailed information of substantial sales return None
Necessity and continuity of connected transactions
and reasons for choosing to conduct transactions with
the connected party (rather than other parties in the
market)
The aforesaid connected parties were able to manufacture products required
by the Group and provide quality products, services and lease properties in
sound conditions at competitive prices. The Company considers trustworthy and
cooperative partners as very important and beneficial to its operations.
Effect of the connected transaction on the
independence of the listed company
All transactions between the Company and the connected parties were in
compliance with pertinent national laws and regulations without any compromise to
the interest of the Company and its shareholders. The Company was not dependent
on the connected parties and the connected transactions would not affect the
independence of the Company.
The Company’s dependence on the connected party
and relevant solutions (if any)
The Company was not dependent on the connected parties.
Projected total amount of continuing connected
transaction during the period by type and actual
performance during the reporting period (if any)
At the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, it was considered and approved that the
estimated purchases from Zhongxingxin, a connected party, and its subsidiaries by
the Group in 2014 be capped at RMB1,000 million (before VAT);
At the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, it was considered and approved that the
estimated purchases from Mobi Antenna, a connected party, by the Group in 2014
be capped at RMB800 million (before VAT);
At the Fourteenth Meeting of the Sixth Session of the Board of Directors of the
Company held on 20 January 2014, it was considered and approved that the
estimated purchases from Huatong and Nanchang Software, both connected
parties, by the Company in 2014 be capped at RMB82 million and RMB18 million,
respectively (before VAT);
At the Twenty-second Meeting of the Sixth Session of the Board of Directors of
the Company held on 23 October 2014, it was considered and approved that the
estimated cap for purchases from Nanchang Software, a connected party, by the
Company in 2014 be revised to RMB45 million (before VAT); and the estimated sales
of products and rendering of services to Nanchang Software, a connected party, by
the Company in 2014 be capped at RMB28.50 million (before VAT);
At the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, it was considered and approved that the
annual rent payable by the Company to Zhongxing Development, a connected party,
for property lease, be capped at RMB50.80 million for a term commencing on 18
April 2013 and ending on 17 April 2015;
At the Twenty-fourth Meeting of the Fifth Session of the Board of Directors of
the Company held on 13 December 2011, it was considered and approved that
the annual rent payable by the Company to Chongqing Zhongxing Development,
a connected party, for property lease, be capped at RMB11.40 million for a term
commencing on 1 January 2012 and ending on 31 December 2014;
ZTE CORPORATION
82
Material Matters
At the Second Meeting of the Sixth Session of the Board of Directors of the
Company held on 26 April 2013, it was considered and approved that the estimated
amount payable by the Company to Zhongxing Hetai, a connected party, and its
subsidiaries to procure hotel services be capped at RMB90 million for the period
commencing on 1 July 2013 and ending on 30 June 2014; and the estimated
amount payable by Zhongxing Hetai and its subsidiaries to the Company for the
lease of properties and related equipment and facilities be capped at RMB48
million for the period commencing on 1 July 2013 and end on 30 June 2014; at the
Eighteenth Meeting of the Sixth Session of the Board of Directors of the Company
held on 29 May 2014, it was considered and approved that the estimated amount
payable by the Company to Zhongxing Hetai, a connected party, and its subsidiaries
to procure hotel services be capped at RMB90 million for the period commencing
on 1 July 2014 and ending on 30 June 2015; and the estimated amount payable
by Zhongxing Hetai and its subsidiaries to the Company for the lease of properties
and related equipment and facilities be capped at RMB75 million for the period
commencing on 1 July 2014 and end on 30 June 2015;
At the Eighteenth Meeting of the Sixth Session of the Board of Directors of the
Company held on 29 May 2014, it was considered and approved that the estimated
daily deposit balance (principal cum interest) of the deposit service provided by ZTE
Group Finance to Zhongxing Hetai and its subsidiaries in 2014 shall be capped at
RMB54 million;
At the Fourteenth Meeting of the Sixth Session of the Board of Directors of the
Company held on 20 January 2014, it was considered and approved that the
estimated sales of digital communications products and communications products to
???? by the Company in 2014 be capped at RMB600 million (before VAT); and
Please refer to the above table for details of the execution of the aforesaid
connected transactions.
Reason for the substantial difference between
transaction prices and referential market prices (if
applicable)
N/A
Note 1: The amount represented the estimated maximum daily deposit balance (principal cum interest) for the year ended 31 December 2014.
Note 2: ZTE Group Finance provided settlement services to Zhongxing Hetai and its subsidiaries in 2014, and the funds utilised for settlement
were limited to the cash deposits placed with ZTE Group Finance by Zhongxing Hetai and its subsidiaries. No handling fees were
charged for such settlement service.
Note 3: For details of the connected transactions, please refer to Note X to the financial statements prepared in accordance with PRC ASBEs.
(2) The Company did not conduct any connected transactions arising from asset acquisitions or
disposals during the year
(3) Connected transactions of the Company involving joint investment in third parties during the year
For details of connected transactions of the Company involving joint investment in third parties during the year,
please refer to “(VII) Third-party investments and connected transactions by the Company” under this section.
(4) Creditors and debtors with connected parties
During the year, the Company did not incur any creditors or debtors with connected parties of a non-operating
nature.
ANNUAL REPORT 2014
83
(5) Other connected transactions
At the Twenty-second Meeting of the Sixth Session of the Board of Directors of the Company held on 23 October
2014, the following connected transactions were considered and passed (for details, please refer to the Overseas
Regulatory Announcement published by the Company on 23 October 2014):
The estimated sales of digital communications products and communications products to ???? by the Company
in 2015 be capped at RMB1,000 million (before VAT);
At the Twenty-third Meeting of the Sixth Session of the Board of Directors of the Company held on 23 December
2014, the following connected transactions were considered and passed (for details, please refer to the Overseas
Regulatory Announcement published by the Company on 23 December 2014):
? The estimated purchases of software outsourcing services from Huatong by the Company in 2015-2017 be
capped at RMB60 million, RMB67 million and RMB75 million, respectively (before VAT);
? The estimated purchases of software outsourcing services from Nanchang Software by the Company in
2015-2017 be capped at RMB51 million, RMB63 million and RMB79 million, respectively (before VAT);
? The estimated sales of products and rendering of services to Nanchang Software by the Company in 2015-
2017 be capped at RMB29 million, RMB30 million and RMB31 million, respectively (before VAT);
? The annual rent payable by Chongqing Zhongxing Software Company Limited to Chongqing Zhongxing
Development for property lease, be capped at RMB13 million for a term commencing on 1 January 2015
and ending on 31 December 2017.
2. Continuing connected transactions under the Hong Kong Listing Rules
In accordance with Chapter 14A of the Hong Kong Listing Rules, the following connected transactions are required
to be disclosed in this report. Details of related parties under HKFRSs are set out in Note 48 to the financial
statements prepared under HKFRSs. Save as disclosed herein below, there were no other connected transactions
which should be deemed as “connected transactions” or “continuing connected transactions” as defined under
Chapter 14A of the Hong Kong Listing Rules and disclosed in accordance with the requirements of Chapter 14A
of the Hong Kong Listing Rules.
The Group has entered into connected transaction framework agreements with the following connected parties,
and has fulfilled the statutory procedures of reporting and announcement under Chapter 14A of the Hong Kong
Listing Rules based on the estimated annual cap of each connected transaction. For details, please refer to the
“Continuing Connected Transactions — Purchases of Raw Materials from Zhongxingxin” published on 28 December
2012. The Company hereby confirms that the disclosures requirements under Chapter 14A of the Hong Kong
Listing Rules have been complied with.
ZTE CORPORATION
84
Material Matters
(1) Purchases of raw materials comprising primarily cabinets and accessories, cases and accessories,
shelters, railings, antenna poles, optical products, refined processing products, packaging materials,
FPC, R-FPC and components by the Company from Zhongxingxin and its subsidiaries
• Description of the connected relationship between the parties to the transaction:
Zhongxingxin is the largest shareholder of the Company. As controlling shareholder of the Company, Zhongxingxin
is a connected person of the Company under the Hong Kong Listing Rules. As associates of Zhongxingxin, the
subsidiaries of Zhongxingxin are connected persons of the Company under the Hong Kong Listing Rules.
• Total transaction amount in 2014:
Approximately RMB540,815,000
• Price and other terms:
As considered and approved at the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, the “Zhongxingxin Purchase Framework Agreement” was entered into
between the Group and Zhongxingxin dated 28 December 2012 in respect of the purchase of raw materials by
the Group from Zhongxingxin and its subsidiaries effective from 1 January 2013 to 31 December 2015 with the
purchase amounts for 2013-2015 capped at RMB900 million, RMB1,000 million and RMB1,100 million (before
VAT), respectively.
A potential supplier must pass the Group’s internally formulated qualification procedures based on qualifications,
product quality and price in order to become an approved supplier of the Group. Zhongxingxin and its subsidiaries
were selected through the Group’s qualification and bidding procedures as described above. The Directors confirm
that the prices of the said purchases were determined on an arm’s length basis and on normal commercial terms.
Prices at which transactions under the Zhongxingxin Purchase Framework Agreement are conducted will be
determined on an arm’s length basis. Such prices shall be on terms no less favourable than those offered to the
Group by other parties. The Group will settle the payment by commercial acceptance bill for the products within
210 days from the date of inspection and acceptance of the products.
Pursuant to and subject to the terms of the Zhongxingxin Purchase Framework Agreement, the Group will issue
purchase orders to (or enter into individual agreements with) Zhongxingxin and its subsidiaries from time to
time, specifying, among other things, product types, agreed quantities and prices, quality specifications, delivery
schedules, locations and modes, as well as other contract details. The annual cap for purchase in 2014 was
estimated at RMB1,000 million (before VAT).
• Purpose of the transaction:
Zhongxingxin and its subsidiaries were selected as suppliers through the Group’s qualification and bidding
procedures as they have consistently been able to meet the Group’s stringent demands for fast product turnaround
time, high product quality and timely delivery. As the Group consider that having reliable and cooperative suppliers
is important and beneficial to us, purchasing components required for the Group’s products from Zhongxingxin
and its subsidiaries allows us to secure essential control over the supply of most of the raw materials of our
production by being able to ensure the quality and timely delivery of such raw materials.
ANNUAL REPORT 2014
85
(2) The Independent Non-executive Directors of the Company have reviewed each of the aforesaid
continuing connected transactions of the Group and confirmed that the transactions were:
• conducted in the ordinary and usual course of business of the Company;
• entered into on normal commercial terms; and
• conducted in accordance with the terms of the agreements governing them and the terms of the transactions
are fair and reasonable and in the interests of the shareholders of the Company as a whole.
(3) The auditors of the Company have examined the aforesaid continuing connected transactions and
confirmed to the Board of Directors of the Company that the continuing connected transactions
were:
• approved by the Board of Directors of the Company;
• conducted in accordance with the pricing policies of the Company (where goods or services are being
supplied or rendered by the Company);
• conducted in accordance with the terms of the agreements governing them; and
• within the relevant annual caps as disclosed by announcements.
(X) MATERIAL CONTRACTS AND THEIR PERFORMANCE
1. There was no trust, contract management or lease of assets of other companies by the Group or of
the Group’s assets by other companies commencing or subsisting during the year.
2. Third-party guarantees of the Group
(1) Third-party guarantees entered into during the year
A. Guarantee provided for joint tender partnership
To facilitate the participation in the tender for the Zambia Digital Migration Project Phase I of Zambian Ministry of
Information and Broadcasting Services (the “Project”), the Company proposed to provide a Letter of Guarantee for
Tender with an amount of ZMW1 million (equivalent to approximately USD160,000 based on the foreign currency
statement book exchange rate of the Company as at 31 December 2014) for the joint tender partnership, namely
the Company and Arelis Broadcast SAS of France, in respect of the bidding and evaluation process for the
Project. For details, please refer to the “Announcement on Third-party Guarantee” published by the Company on
10 February 2014.
The aforesaid matter was considered and approved at the Fifteenth Meeting of the Sixth Session of the Board of
Directors of the Company. For details, please refer to the “Announcement of Resolutions of the Fifteenth Meeting
of the Sixth Session of the Board of Directors” published by the Company on 10 February 2014.
The aforesaid Letter of Guarantee for Tender was issued in February 2014. As at the end of the year, the aforesaid
Letter of Guarantee for Tender had been withdrawn and the guarantee obligations of the Company had been
released.
ZTE CORPORATION
86
Material Matters
B. Provision of guarantee for ZTE HK and conduct of interest rate swap transactions by ZTE HK
In order to further optimise the long-term and short-term debt structure of the Company and the subsidiaries
included in its consolidated financial statements, reduce exposure to assets and liabilities denominated in foreign
currencies, and meet additional working capital requirements for the Company’s medium/long-term development
at appropriate finance costs, the Company proposed to seek 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, its
wholly-owned subsidiary, as the principal. In view of the current financial conditions and credit rating of ZTE HK,
the Company would provide guarantee by way of joint liability assurance for an amount of not more than USD600
million (or not more than RMB4,000 million) in relation to the aforesaid debt financing of ZTE HK for a guarantee
term of not more than 5 years (from the date on which the debt financing agreement comes into effect), in order to
secure debt financing at favourable costs. To avoid interest rate risks associated with the aforesaid debt financing,
ZTE HK proposed to conduct interest rate swap transactions with a nominal principal amount of not more than
USD600 million at selected timing.
The aforesaid matter was considered and passed at the Sixteenth Meeting of the Sixth Session of the Board of
Directors and the 2013 Annual General Meeting of the Company. For details, please refer to the “Announcement
of Resolutions of the Sixteenth Meeting of the Sixth Session of the Board of Directors,” “Announcement on The
Provision of Guarantee for A Wholly-owned Subsidiary” and “Announcement on The Proposed Interest Rate Swap
Transactions by A Wholly-owned Subsidiary” published on 26 March 2014 and the “Announcement on Resolutions
of the 2013 Annual General Meeting” published on 29 May 2014 by the Company.
In July 2014, ZTE HK (as borrower) entered into a USD450 million syndicate loan agreement with 12 international
banks including Bank of China (Hong Kong) Limited (“BOCHK”). At the same time, the Company (as guarantor)
entered into a guarantee agreement with BOCHK (as agent of the lending banks) to provide joint liability assurance
for an amount of not more than USD450 million in favour of the lending banks to guarantee ZTE HK’s due
performance of obligations for the payment of the loan principal, interest, fees, expenses and other amounts
payable under the syndicate loan agreement.
C. Provision of guarantee for ZTE HK
In order to reduce the debt financing cost of the Company and the subsidiaries included in its consolidated
financial statements and meet additional working capital requirements of the Company, the Company proposed
to seek debt financing (including but not limited to bank facilities and the issue of corporate bonds) of not more
than RMB2,000 million in the overseas market with ZTE HK, its wholly-owned subsidiary, as the principal. In view
of the current financial conditions and credit rating of ZTE HK, the Company would provide guarantee for ZTE HK
by way of joint liability assurance for an amount of not more than RMB2,000 million in relation to the aforesaid
debt financing of ZTE HK for a term of not more than three years (from the date on which the resolution of the
General Meeting takes effect), in order to secure debt financing at favourable costs.
The aforesaid matter was considered and approved at the Twentieth Meeting of the Sixth Session of the Board
of Directors of the Company and the First Extraordinary General Meeting of 2014 of the Company. For details
please refer to the “Announcement of Resolutions of the Twentieth Meeting of the Sixth Session of the Board of
Directors” and “Announcement on the Provision of Guarantee for a Wholly-owned Subsidiary” published on 22
August 2014 and “Announcement on Resolutions of the First Extraordinary General Meeting of 2014” published
on 15 October 2014 by the Company.
In December 2014, ZTE HK (as borrower) entered into a RMB1,500 million syndicate loan agreement with Bank
of China Corporation, London Branch (“BOC London”). At the same time, the Company (as guarantor) entered
into a guarantee agreement with BOC London to provide joint liability assurance for an amount of not more
ANNUAL REPORT 2014
87
than RMB1,500 million in favour of the lending banks to guarantee ZTE HK’s due performance of obligations for
the payment of the loan principal, interest, fees, expenses and other amounts payable under the syndicate loan
agreement.
D. Provision of guarantee for ZTE Malaysia
ZTE proposed to provide joint liability guarantee for ZTE (MALAYSIA) CORPORATION SDN BHD (“ZTE Malaysia”),
a wholly-owned subsidiary, in respect of the performance obligations under the “CONTRACT FOR THE DELIVERY,
SUPPLY, INSTALLATION, TESTING AND COMMISSIONING OF EQUIPMENT AND SOFTWARE AND PROVISION OF
SERVICES FOR U MOBILE’S 3G/LTE SYSTEM” (the “UM Wireless Capacity Expansion Contract”) for an amount of
not more than USD20 million, for a term commencing on the date on which the “UM Wireless Capacity Expansion
Contract” comes into effect upon execution and ending on the date on which performance of the obligations of
ZTE Malaysia under the “UM Wireless Capacity Expansion Contract” is completed. In addition, ZTE also proposed
to apply to the relevant bank for the issuance of a bank letter of guarantee to provide guarantee for a maximum
amount of USD2 million, on a cumulative basis, in respect of the performance obligations by ZTE Malaysia under
the “UM Wireless Capacity Expansion Contract,” for an effective term of not more than three years from the date
on which the bank letter of guarantee comes into effect upon issuance.
The aforesaid guarantee was considered and approved at the Twenty-first Meeting of the Sixth Session of the
Board of Directors and the First Extraordinary General Meeting of 2014 of the Company. For details please refer to
the “Announcement of Resolutions of the Twenty-first Meeting of the Sixth Session of the Board of Directors” and
“Announcement on Third-party Guarantee” published on 23 September 2014 and “Announcement on Resolutions
of the First Extraordinary General Meeting of 2014” published on 15 October 2014 by the Company.
As at the end of the year, the USD20 million performance guarantee provided by the Company for ZTE Malaysia
had come in effect. The USD2 million bank letter of guarantee issued by relevant banks, applied for by the
Company on behalf of ZTE Malaysia, came into effect in January 2015.
ZTE CORPORATION
88
Material Matters
(2) Third-party guarantees as at the end of the reporting period
Third-party guarantees provided by the Company (excluding guarantees on behalf of subsidiaries)
Guaranteed party
Date and index
of domestic
announcement
disclosing the
guarantee amount
Amount
guaranteed
Date of incurrence
(date of execution
of relevant
agreements)
Actual amount
guaranteed Type of guarantee Term of guarantee
Whether
fully
performed
Whether
provided on
behalf of
connected
parties
Djibouti Telecom S.A. 19 April 2007
200720
RMB50
million
8 September 2006 RMB50
million
Joint liability 12 years No No
Zena Technologies &
Telecommunication Systems
Co. WLL
Note 1
18 December 2013
201375
KWD0.82
million
25 January 2014 KWD0.82
million
Guarantee by pledge Commencing on the
date of submission of
the tender for the GPON
Project II of the Ministry
of Communications of
Kuwait and ending on the
date of announcement of
the tender award for the
project.
No No
Joint tender partnership
between the Company and
Arelis Broadcast SAS of
France
Note 2
11 February 2014
201406
ZMW1
million
10 February 2014 ZMW1
million
Assurance Commencing on the
date of issuance of the
Letter of Guarantee for
Tender and ending on:
(1) the receipt by the
guarantor of a copy of
contract signed by the
joint tender partnership
and the issue of a
performance guarantee
letter in accordance with
the instructions of the
joint tender partnership in
the event of a successful
bid by the joint tender
partnership; or (2) the
earlier of: A. the receipt
by the guarantor of a
notice issued by the
beneficiary to the joint
tender partnership
notifying the names of
the successful bidders;
and B. 28 days after the
expiry of the joint tender
partnership’s bid, in the
event of an unsuccessful
bid by the joint tender
partnership; or (3) 10
August 2014.
Yes No
????????????
Note 3
N/A RMB25
million
29 May 2014 Approximately
RMB7.30
million
Joint liability 24 June 2014 to 29
September 2014
Yes No
Shenzhen Zhongxing ICT
Company Limited (???
?????????)
Note 4
N/A RMB160
million
30 December 2014 RMB160
million
Joint liability 5 years from the date of
issue of the loan
No No
Total amount of third-party guarantee approved
during the reporting period (A1) RMB185,976,800
Total amount of third-party guarantee actually incurred during the
reporting period (A2) RMB185,667,100
Total amount of third-party guarantee approved as
at the end of the reporting period (A3) RMB227,390,300
Total amount of third-party guarantee actually incurred as at the
end the reporting period (A4) RMB227,390,300
ANNUAL REPORT 2014
89
Guarantees provided by the Company on behalf of subsidiaries
Guaranteed party
Date and index
of domestic
announcement
disclosing the
guarantee amount
Amount
guaranteed
Date of
incurrence
(date of
execution
of relevant
agreements)
Actual amount
guaranteed
Type of
guarantee Term of guarantee
Whether
fully
performed
Whether
provided on
behalf of
connected
parties
Closed Joint-Stock
Company CJSC TK
Mobile
Note 5
12 May 2009
200917
USD70.60
million
N/A — Pledge of
equity
— No No
PT. ZTE Indonesia
Note 5
6 June 2009 200926 USD40 million 10 June 2009 USD40 million Joint
liability
From maturity to the date on which
performance of obligations of PT. ZTE
Indonesia under “Framework Agreement for
Technical Support” is completed
Yes No
PT. ZTE Indonesia
Note 5
6 June 2009 200926 USD5 million 17 June 2009 USD5 million Joint
liability
3.5 years or from maturity to the date on which
performance of obligations of ZTE and PT. ZTE
Indonesia under the “Framework Agreement
for Equipment Purchase” and “Framework
Agreement for Technical Support” is completed,
whichever later
Yes No
ZTE (H.K.) Limited
Note 6
9 April 2011
201112
9 July 2011
201130
USD900 million 8 July 2011 USD450 million
Note 6
Joint
liability
assurance
From the effective date of the assurance
guarantee to the expiry of 60 months from the
date of the facility agreement
No No
ZTE France SASU
Note 7
14 December 2011
201152
EUR10 million N/A — Assurance From maturity to the date on which
performance of obligations of ZTE France under
the “SMS Contract” and “PATES Contract”
expires or terminates (whichever is later)
No No
PT. ZTE Indonesia
Note 8
13 September 2013
201362
USD40 million 23 October
2013
USD40 million Joint
liability
From maturity to the date on which
performance of material obligations of PT. ZTE
Indonesia under the “Equipment Purchase
Contract” and “Technical Support Contract” is
completed
No No
PT. ZTE Indonesia
Note 8
13 September 2013
201362
USD15 million 11 September
2013
USD15 million Joint
liability
From maturity to 5 March 2017 or the date
on which performance of obligations of PT.
ZTE Indonesia under the “Equipment Purchase
Contract” and “Technical Support Contract” is
completed (whichever is later)
No No
ZTE (H.K.) Limited
Note 9
27 March 2014
201413
Not more than
USD600 million
or RMB4,000
million
18 July 2014 USD450 million Joint
liability
assurance
Not more than 5 years (from the date on which
the debt financing agreement comes into effect)
No No
ZTE (H.K.) Limited
Note 10
23 August 2014
201435
RMB2,000
million
30 December
2014
RMB1,500 million Joint
liability
assurance
Not more than 3 years (from the date on which
the resolution of the General Meeting takes
effect)
No No
ZTE (MALAYSIA)
CORPORATION
SDN BHD
Note 11
24 September 2014
201440
USD20 million 27 November
2014
USD20 million Joint
liability
Commencing on the date on which the “UM
Wireless Capacity Expansion Contract” comes
into effect upon execution and ending on the
date on which performance of the obligations
of ZTE Malaysia under the “UM Wireless
Capacity Expansion Contract” is completed.
No No
ZTE (MALAYSIA)
CORPORATION
SDN BHD
Note 11
24 September 2014
201440
USD2 million N/A — Joint
liability
Not more than 3 years from the date on which
the bank letter of guarantee comes into effect
upon issuance.
No No
Total amount of guarantee on behalf of
subsidiaries approved during the reporting
period (B1)
RMB6,136,411,000 Total amount of guarantee on behalf of subsidiaries actually incurred during the
reporting period (B2)
RMB4,414,235,000
Total amount of guarantee on behalf of
subsidiaries approved as at the end of the
reporting period (B3)
RMB12,570,985,800 Total amount of guarantee on behalf of subsidiaries actually incurred as at the
end the reporting period (B4)
RMB7,545,487,500
ZTE CORPORATION
90
Material Matters
Total amount guaranteed by the Company (sum of the two categories aforesaid)
Total amount of guarantee approved during
the reporting period (A1+B1) RMB6,322,387,800
Total amount of guarantee actually incurred during the reporting period
(A2+B2) RMB4,599,902,100
Total amount of guarantee approved as at
the end of the reporting period (A3+B3) RMB12,798,376,100
Total amount of guarantee actually incurred as at the end the reporting period
(A4+B4) RMB7,772,877,800
Total amount of guarantee (A4+B4) as a percentage of net assets of the
Company
31.24%
Including:
Amount of guarantee provided on behalf of shareholders, de facto controllers
and their connected parties (C)
0
Amount of debt guarantee provided directly or indirectly on behalf of parties
with a gearing ratio exceeding 70% (D)
RMB7,545,487,500
Amount of total guarantee exceeding 50% of net assets (E) 0
Aggregate amount of the three guarantee amounts stated above (C+D+E) RMB7,545,487,500
Statement on potential joint liability involved in outstanding guarantees N/A
Statement on provision of guarantee to third parties in violation of stipulated
procedures
N/A
Note 1: It was considered and approved at the Twelfth Meeting of the Sixth Session of the Board of Directors that a Letter of Guarantee for
Tender with an amount of 0.82 million KWD be provided by the Company for Zena Technologies & Telecommunication Systems Co.
WLL, its agent company in Kuwait. The said Letter of Guarantee for Tender was issued in January 2014.
Note 2: It was considered and approved at the Fifteenth Meeting of the Sixth Session of the Board of Directors that a Letter of Guarantee for
Tender with an amount of ZMW1 million for the joint tender partnership, namely the Company and Arelis Broadcast SAS of France.
The said Letter of Guarantee for Tender was issued in February 2014. As at the end of the reporting period, the aforesaid Letter of
Guarantee for Tender had been withdrawn and the Company’s guarantee obligations had been released.
Note 3: It was considered and passed at the meeting of the board of directors of ZTE ICT Company Limited (“ZTE ICT”), a subsidiary of the
Company, that approval be given to the application by Hunan ZTE ICT Company Limited (“Hunan ICT”), a wholly-owned subsidiary of
ZTE ICT, to Bank of China Corporation, Shenzhen Branch for a letter of guarantee with a total amount of not more than RMB25 million
under the credit facilities available to ZTE ICT, and to the provision of joint liability guarantee by ZTE ICT in respect of the liability of
Hunan ICT under the said letter of guarantee. The aforesaid letter of guarantee was issued in June 2014 for an amount of approximately
RMB7.30 million and was released in September 2014 upon expiry.
Note 4: It was considered and approved at the board meeting of ZTE Group Finance, a wholly-owned subsidiary of the Company, that ZTE
Group Finance would provide guarantee by way of joint liability assurance for an amount of RMB160 million in respect of the project
financing of ZTE ICT, a wholly-owned subsidiary of the Company, for a term of 5 years (from the date of issuance of the loan). As
at the end of the reporting period, the aforesaid guarantee documents had come into effect and the other shareholder of ZTE ICT
(holding a 10% interest in ZTE ICT) had provided a counter-guarantee for RMB16 million in favour of ZTE Group Finance in respect of
the aforesaid guarantee.
Note 5: It was respectively considered and approved at the Twenty-fourth and Twenty-fifth Meetings of the Fourth Session of the Board of
Directors that the 51% equity interests in Closed Joint-Stock Company CJSC TK Mobile (“CJSC TK Mobile”) held by the Company be
applied as a security against a bank loan extended to CJSC TK Mobile, and a performance guarantee of USD40 million be provided
by the Company for PT. ZTE Indonesia (“ZTE Indonesia”), a wholly-owned subsidiary of the Company and application be made by
the Company to the relevant bank for the issuance of a letter of performance guarantee with an amount of USD5 million. Since the
gearing ratio of both CJSC TK Mobile and ZTE Indonesia was above 70%, the aforesaid guarantees were considered and approved
at the First Extraordinary General Meeting of 2009 in accordance with relevant laws and regulations. The USD40 million performance
guarantee provided by the Company for ZTE Indonesia and the USD5 million letter of performance guarantee issued by the relevant
bank were released in January 2014. As at the end of the reporting period, the guarantee provided by the Company in respect of CJSC
TK Mobile’s bank loans by way of pledge of equity was pending performance as the relevant agreement had not yet been signed.
Note 6: In July 2011, ZTE HK, a wholly-owned subsidiary of the Company, entered into a USD900 million syndicate loan agreement with 10
international banks including BOCHK. At the same time, the Company entered into a guarantee agreement with BOCHK to provide
guarantee by way of joint liability assurance for an amount of not more than USD900 million in favour of the lending banks for ZTE
HK. The aforesaid guarantee was considered and passed at the Seventeenth Meeting of the Fifth Session of the Board of Directors of
the Company. As the amount guaranteed by the Company in respect of the syndicate loan of ZTE HK exceeded 10% of the net assets
of the Company, and the gearing ratio of ZTE HK is above 70%, the aforesaid guarantee was submitted to the 2010 Annual General
Meeting of the Company and was considered and approved. In July 2014, ZTE HK made a repayment of USD450 million in loans to
ANNUAL REPORT 2014
91
the lending banks. In accordance with the guarantee agreement, the amount of guarantee shall be the outstanding amount due upon
maturity under the syndicate loan agreement. Hence the amount of joint liability assurance provided thereafter by ZTE for ZTE HK in
favour of the lending banks has been adjusted to not more than USD450 million.
Note 7: It was approved at the Twenty-fourth Meeting of the Fifth Session of the Board of Directors that a guarantee for an amount of not
more than EUR10 million in respect of the performance obligations of 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”). As at the end of the
reporting period, the guarantee provided by the Company in respect of the performance obligations of ZTE France was undergoing
registration procedures of the State Administration of Foreign Exchange and had yet to be performed.
Note 8: It was considered and approved at the Ninth Meeting of the Sixth Session of the Board of Directors that a performance guarantee of
USD40 million be provided by the Company for ZTE Indonesia, a wholly-owned subsidiary of the Company, and application be made
by the Company to the relevant bank for the issuance of a letter of performance guarantee with an amount of USD15 million. Since the
gearing ratio of ZTE Indonesia was above 70%, the aforesaid guarantees were approved at the Third Extraordinary General Meeting of
2013. As at the end of the reporting period, a USD15 million guarantee for ZTE Indonesia provided by way of standby letter of credit
backed by the Company’s bank credit facilities had been executed and the USD40 million performance guarantee agreement had been
signed.
Note 9: The Company proposed to seek 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, its wholly-owned subsidiary, as the principal. The Company would provide
guarantee by way of joint liability assurance for an amount of not more than USD600 million (or not more than RMB4,000 million)
in relation to the aforesaid debt financing of ZTE HK. The aforesaid guarantee was considered and passed at the Sixteenth Meeting
of the Sixth Session of the Board of Directors. As the amount guaranteed by the Company in respect of the syndicate loan of ZTE
HK exceeded 10% of the net assets of the Company, and the gearing ratio of ZTE HK is above 70%, the aforesaid guarantee was
considered and approved at the 2013 Annual General Meeting of the Company. 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) represented the higher of USD600 million or RMB4,000 million. In July 2014, ZTE HK, a wholly-owned subsidiary
of the Company, entered into a USD450 million syndicate loan agreement with 12 international banks including BOCHK. At the same
time, the Company entered into a guarantee agreement with BOCHK to provide joint liability assurance for an amount of not more than
USD450 million in favour of the lending banks for ZTE HK.
Note 10: The Company sought debt financing (including but not limited to bank facilities and the issue of corporate bonds) of not more than
RMB2,000 million in the overseas market with ZTE HK, its wholly-owned subsidiary, as the principal. The Company provided guarantee
for ZTE HK by way of joint liability assurance for an amount of not more than RMB2,000 million in relation to the aforesaid debt
financing of ZTE HK for a term of not more than three years (from the date on which the resolution of the General Meeting takes
effect). The aforesaid guarantee was considered and approved at the Twentieth Meeting of the Sixth Session of the Board of Directors
of the Company. As the gearing ratio of ZTE HK is above 70%, the aforesaid guarantee was considered and approved at and the First
Extraordinary General Meeting of 2014 of the Company. In December 2014, ZTE HK (as borrower) entered into a RMB1,500 million
syndicate loan agreement with BOC London. At the same time, the Company entered into a guarantee agreement with BOC London
to provide joint liability assurance of not more than RMB1,500 million for ZTE HK.
Note 11: At the Twenty-first Meeting of the Sixth Session of the Board of Directors, it was considered and approved that the Company would
provide a USD20 million performance guarantee for ZTE Malaysia, a wholly-owned subsidiary, and apply to relevant banks for the
issuance of a USD2 million bank letter of guarantee. As the gearing ratio of ZTE Malaysia is above 70%, the aforesaid guarantee was
considered and approved at the First Extraordinary General Meeting of 2014 of the Company. As at the end of the reporting period,
the USD20 million performance guarantee provided by the Company for ZTE Malaysia had come in effect. The USD2 million bank letter
of guarantee issued by relevant banks, applied for by the Company on behalf of ZTE Malaysia, came into effect in January 2015.
Note 12: The guaranteed amounts are translated at the book exchange rates of the Company as at 31 December 2014: USD1: RMB6.2005,
EUR1: RMB7.5342, KWD1: RMB21.2077; ZMW1: RMB0.9768.
Note 13: All third party guarantees of the Company have been submitted to the Board of Directors for its review and come into effect with the
approval of two-thirds of the members of the Board of Directors. Third party guarantees which are further subject to consideration and
approval at the general meeting in accordance with relevant regulations have come into effect with the approval of the general meeting
following approval by the Board of Directors.
ZTE CORPORATION
92
Material Matters
3. A special statement and independent opinion on the fund transfer between the Company and
connected parties and third-party guarantees of the Company has been furnished by Independent
Non-Executive Directors of the Company, Ms. Qu Xiaohui, Mr. Wei Wei, Mr. Chen Naiwei, Mr. Tan
Zhenhui and Mr. Richard Xike Zhang as follows:
(1) As at 31 December 2014, the transfer of funds between the Company and the controlling shareholder and
other connected parties represented transactions in the ordinary course of business. Neither the controlling
shareholder of the Company nor other connected parties had appropriated the Company’s funds for non-
operating purposes or compromised the interests of the Company and its shareholders. As required by
CSRC, the Independent Non-executive Directors of the Company have conducted reviews in the light of the
“Notice regarding Certain Issues on the Regulation of Fund Transactions Between Listed Companies and
Connected Parties and Third-party Guarantees Made by Listed Companies” (Zheng Jian Fa [2003] No. 56)
and are of the view that the Company has diligently implemented the relevant provisions under the Notice
and have not found any matter which is in breach of the Notice.
(2) As at 31 December 2014, the balance of guarantees provided by the Company actually incurred was
approximately RMB7,772,877,800, accounting for 31.24% of the owner’s equity attributable to shareholders
of the parent company. The amount of third-party guarantee (excluding guarantees on behalf of subsidiaries)
actually incurred during the 2014 reporting period was approximately RMB185,667,100. The balance of
actually incurred third-party guarantee (excluding guarantees on behalf of subsidiaries) as at the end of the
2014 reporting period was approximately RMB227,390,300. Third-party guarantees on behalf of subsidiaries
actually incurred during the 2014 reporting period amounted to approximately RMB4,414,235,000. The
balance of actually incurred third-party guarantees on behalf of subsidiaries as at the end of the 2014
reporting period was approximately RMB7,545,487,500. For details of the third party guarantees of the
Company, please refer to the sub-section headed “2. Third-party guarantees of the Group” in this section.
The information on guarantees disclosed in the 2014 Annual Report of the Company is true and accurate,
and the Company had not been engaged in any guarantees or connected-party guarantees in breach of
relevant regulations.
(3) In accordance with the “Notice regarding Third-party Guarantees Provided by Listed Companies”(Zheng Jian
Fa [2005] No. 120), the Shenzhen Listing Rules, the Hong Kong Listing Rules and other pertinent regulations,
the Company has specified the scope of authority for the Board of Directors and the general meeting in
approving third-party guarantees in the Articles of Association, and has formulated “the ZTE Measures for
the Administration of Third-party Guarantees”, in which the approval process of third-party guarantees to
be made by the Company and its subsidiaries is specifically provided for to regulate third-party guarantees
of the Company and effectively control risks arising therefrom.
(4) As Independent Non-executive Directors of the Company, we have conducted reviews in the light of the
“Notice regarding Certain Issues on the Regulation of Fund Transactions Between Listed Companies and
Connected Parties and Third-party Guarantees Made by Listed Companies” (Zheng Jian Fa [2003] No. 56),
the “Notice regarding the Regulation of Third-party Guarantees Made by Listed Companies” (Zheng Jian Fa
[2005] No. 120), and the Articles of Association, and are of the opinion that the decision making procedures
for third-party guarantees of the Company during 2014 are in compliance with the Articles of Association and
relevant regulations mentioned above, and there has been no infringement on the interests of the Company
and its shareholders.
ANNUAL REPORT 2014
93
4. Progress of material contracts entered into during or prior to the year
During the year, the Company did not enter into any material contracts requiring disclosure. Progress of material
contracts entered into prior to the year is set out as follows:
No. Contents of material contracts
Date of domestic
announcements Pricing principle Transaction prices
Whether a
connected
transaction
Performance status
as at the end of the
reporting period
1 Framework agreement and business contracts
thereunder between the Company and Ethiopian
Telecommunications Corporation
30 April 2007 By reference to
market prices
Business contracts
under the framework
agreement amounted
to USD200 million
No Under normal
progress
2 GSM Phase II project contract between the
Company and Ethiopian Telecommunications
Corporation
20 September 2007 By reference to
market prices
USD478 million No Under normal
progress
3 Network Supply Agreement and Managed
Service Agreement between the Company
and its subsidiary ZTE Corporation South
Africa (PTY) Limited on the one hand and
Cell C (PTY) LTD., a South African mobile
telecommunications operator, and its controlling
shareholder OGER TELECOM (SOUTH AFRICA)
(PTY) Limited, on the other
27 January 2010 By reference to
market prices
USD378 million No Under normal
progress
4 Framework Agreement of Chipset Procurement
for Calendar Years 2012-2015 between the
Company and Qualcomm
21 February 2012 By reference to
market prices
Subject to the long-
term supply contracts
signed between
the two parties and
specific purchase
orders
No Under normal
progress
5 Framework Agreement of Chipset Procurement
for Calendar Years 2012-2014 between the
Company and Broadcom
21 February 2012 By reference to
market prices
No Terminated under
normal conditions
as at 31 December
2014
(XI) UNDERTAKING
1. Undertakings by the Company or shareholders interested in 5% or more of the shares in the
Company made during the reporting period or made during prior periods but subsisting during the
reporting period
Zhongxingxin, 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, except 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.
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 and to sell down shareholdings by a
volume equivalent to 5% or more within six months after the first sell-down, by way of an indicative announcement
to be published by the Company within two trading days before the first sell-down.
ZTE CORPORATION
94
Material Matters
2. Company statement on meeting original profit forecasts for assets or projects and the reasons
therefor, where such profit forecasts have been made and the reporting period falls within the profit
forecast period
? Applicable ? N/A
(XII) APPOINTMENT OF AUDITORS
Ernst & Young Hua Ming LLP and Ernst & Young acted as the Company’s PRC and Hong Kong auditors,
respectively. For further details, please refer to the section of this report headed “Corporate Governance Structure
Part II—VI. Auditors’ Remuneration”.
(XIII) DURING THE YEAR, NONE OF THE COMPANY, ITS DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT OR SHAREHOLDER INTERESTED IN MORE THAN 5% OF THE SHARES WAS
SUBJECT TO INVESTIGATION BY COMPETENT AUTHORITIES, ENFORCEMENT BY JUDICIARY
OR DISCIPLINARY AUTHORITIES, DETAINMENT BY JUDICIAL AUTHORITIES OR PROSECUTION
FOR CRIMINAL CHARGES, CASE INVESTIGATION OR ADMINISTRATIVE PENALTY BY CSRC,
PROHIBITION FROM PARTICIPATION IN THE SECURITIES MARKET, OPINION OF DEEMED
INAPPROPRIATENESS, PUNISHMENT BY OTHER ADMINISTRATIVE AUTHORITIES OR PUBLIC
CENSURE BY THE STOCK EXCHANGE.
(XIV) ALLEGED ILLICIT TRADING IN SHARES OF THE COMPANY BY DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT OR SHAREHOLDERS HOLDING 5% OR MORE OF THE SHARES OF THE COMPANY
IN RESPECT OF WHICH THE RETRIEVAL OF GAINS FROM ALLEGED ILLICIT TRADING HAS BEEN
ANNOUNCED BY THE COMPANY
? Applicable ? N/A
(XV) PROSPECTS OF SUSPENSION OR TERMINATION OF LISTING AFTER THE PUBLICATION OF THE
ANNUAL REPORT
? Applicable ? N/A
(XVI) OTHER SIGNIFICANT EVENTS
Save as aforesaid, no other significant events as specified under Rule 67 of the Securities Law and Article 30 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 year.
(XVII) THERE WERE NO OTHER DISCLOSEABLE MATERIAL MATTERS OCCURRING TO THE SUBSIDIARIES
OF THE COMPANY DURING THE YEAR THAT REMAINED UNDISCLOSED.
ANNUAL REPORT 2014
95
Changes in Shareholdings and Information of Shareholders
(I) CHANGES IN SHAREHOLDINGS DURING THE YEAR
Unit: shares
At the beginning of
the year
Increase/decrease as a result of
the change during the year (+, -) At the end of the year
Number of
shares Percentage
New
issue
Bonus
issue
Transfer
from
capital
reserve Others
Note
Sub-total
Number of
shares Percentage
I. Shares subject to lock-up 7,225,715 0.21% — — — –455,137 –455,137 6,770,578 0.19%
1. State-owned shares — — — — — — — — —
2. State-owned corporate shares — — — — — — — — —
3. Other domestic shares — — — — — — — — —
Comprising: domestic non-state-owned corporate shares — — — — — — — — —
Domestic natural person shares — — — — — — — — —
4. Foreign shares — — — — — — — — —
Comprising: Foreign corporate shares — — — — — — — — —
Foreign natural person shares — — — — — — — — —
5. Senior management shares 7,225,715 0.21% — — — –455,137 –455,137 6,770,578 0.19%
II. Shares not subject to lockup 3,430,315,563 99.79% — — — 455,137 455,137 3,430,770,700 99.81%
1. RMB ordinary shares 2,800,730,118 81.47% — — — 455,137 455,137 2,801,185,255 81.49%
2. Domestic-listed foreign shares — — — — — — — — —
3. Overseas-listed foreign shares (H shares) 629,585,445 18.32% — — — — — 629,585,445 18.32%
4. Others — — — — — — — — —
III. Total number of shares 3,437,541,278 100.00% — — — — — 3,437,541,278 100.00%
Note: In accordance with relevant domestic regulations, shares held by the Directors, Supervisors or senior management shall be subject to
lock-up or unlocking on a pro-rata basis.
ZTE CORPORATION
96
Changes in Shareholdings and Information of Shareholders
(II) CHANGES IN SHARES SUBJECT TO LOCK-UP DURING THE YEAR
Unit: shares
No.
Name of
shareholders
subject to
lock-up
Number of
shares subject to
lock-up as at
31 Dec 2013
Number of
shares released
from lock-up
during the year
Increase in
the number
of shares
subject to
lock-up
during the
year
Number
of shares
subject to
lock-up at
the end of
the year Reason for lock-up
Date of
unlocking
1 Hou Weigui 973,103 — — 973,103 Restricted senior
management shares
Note 1
2 Chen Jie 595,936 37,499 — 558,437 Restricted senior
management shares
Note 1
3 Yin Yimin 474,624 — — 474,624 Restricted senior
management shares
Note 1
4 Xu Huijun 420,709 — — 420,709 Restricted senior
management shares
Note 1
5 Shi Lirong 307,882 — 105,000 412,882 Restricted senior
management shares
Note 1
6 Fan Qingfeng 421,874 59,999 — 361,875 Restricted senior
management shares
Note 1
7 Zhu Jinyun 361,844 — — 361,844 Restricted senior
management shares
Note 1
8 Wei Zaisheng 328,065 — — 328,065 Restricted senior
management shares
Note 1
9 Zeng Xuezhong 425,700 105,000 — 320,700 Restricted senior
management shares
Note 1
10 Pang Shengqing 391,051 75,000 — 316,051 Restricted senior
management shares
Note 1
11 Others 2,524,927 331,389 48,750 2,242,288 Restricted senior
management shares
Note 1 and
Note 2
Total 7,225,715 608,887 153,750 6,770,578 — —
Note 1: According to relevant domestic regulations, up to 25% of the shares held may be disposed of by the Directors, Supervisors and senior
management of the Company through the stock exchange each year. Up to 25% of shares not subject to lockup acquired by the
Directors, Supervisors and senior management are disposable during the year of acquisition.
Note 2: Relevant shares held by Directors, Supervisors and senior management who were newly appointed were subjected to lock-up in
accordance with relevant domestic regulations.
ANNUAL REPORT 2014
97
(III) ISSUE AND LISTING OF SECURITIES IN THE PAST THREE YEARS
1. The Company completed the issue of the 2012 corporate bonds (tranche 1) on 15 June 2012. The finalized
online and offline issue volumes amounted to RMB200 million and RMB5,800 million, respectively, with a
coupon interest rate of 4.20%. The corporate bonds under the said issue were listed on Shenzhen Stock
Exchange on 16 July 2012 under the bond code “112090” and the abbreviated bond name “12??01.”
2. On 31 October 2013, the Company granted 102,989,000 share options to 1,528 Scheme Participants.
Registration for the share options granted has been completed. The option code is “037032” and the
abbreviated name is “??JLC1.”
3. Changes in the structure of assets and liabilities of the Company as a result of changes in the total number
and structure of shares of the Company
Following the Company’s repurchase and cancellation of 2,536,742 restricted shares not qualified for
unlocking under the Phase I Share Incentive Scheme in 2013, the total share capital of the Company has
changed from 3,440,078,020 shares to 3,437,541,278 shares. The matters had no material impact on the
structure of assets and liabilities of the Company.
4. The Company had no employees’ shares.
ZTE CORPORATION
98
Changes in Shareholdings and Information of Shareholders
(IV) SHAREHOLDERS AND DE FACTO CONTROLLERS OF THE COMPANY AS AT THE END OF THE
YEAR
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 year
Total number of shareholders
As at 31 December 2014 There were 167,184 shareholders (comprising 166,820 holders of A shares
and 364 holders of H shares)
As at the close of trading on 19 March 2015, namely 5
trading days prior to the publication of the annual
results
There were 159,737 shareholders (comprising 159,377 holders of A shares
and 360 holders of H shares)
Shareholdings of top 10 shareholders or shareholders holding 5% or above of the shares
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
reporting
period
(shares)
Number of
shares held
subject to
lock-up
(shares)
Number
of shares
pledged or
frozen
1. Zhongxingxin State-owned
corporation
30.78% 1,058,191,944 0 0 Nil
2. HKSCC Nominees Limited Foreign
shareholders
18.28% 628,334,340 +26,768 0 Unknown
3. Hunan Nantian (Group) Co., Ltd. State-owned
corporation
1.09% 37,450,609 0 0 Unknown
4. China Life Insurance Company
Limited — Traditional — General
Insurance Products — 005L —
CT001 Shen
Others 0.66% 22,679,287 –2,017,098 0 Unknown
5. Qianhai Life Insurance Company
Limited — Owned Funds Huatai
Portfolio
Others 0.51% 17,605,008 +17,605,008 0 Unknown
6. Seventh Research Institute of China
Mobile
State-owned
corporation
0.46% 15,894,950 0 0 Unknown
7. NSSF Portfolio #113 Others 0.40% 13,711,011 –3,000,089 0 Unknown
8. CASIC Shenzhen (Group) Company
Limited
State-owned
corporation
0.35% 12,155,870 0 0 Unknown
9. ICBC — Bosera Select Stock Fund Others 0.35% 11,999,656 +6,999,738 0 Unknown
10. China Life Insurance (Group)
Company — Traditional — General
Insurance Products
Others 0.34% 11,683,756 –8,278,028 0 Unknown
ANNUAL REPORT 2014
99
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 1,058,191,944 A share
2. HKSCC Nominees Limited 628,334,340 H share
3. Hunan Nantian (Group) Co., Ltd. 37,450,609 A share
4. China Life Insurance Company Limited — Traditional — General Insurance Products —
005L — CT001 Shen 22,679,287 A share
5. Qianhai Life Insurance Company Limited — Owned Funds Huatai Portfolio 17,605,008 A share
6. Seventh Research Institute of China Mobile 15,894,950 A share
7. NSSF Portfolio #113 13,711,011 A share
8. CASIC Shenzhen (Group) Company Limited 12,155,870 A share
9. ICBC — Bosera Select Stock Fund 11,999,656 A share
10. China Life Insurance (Group) Company — Traditional — General Insurance Products 11,683,756 A share
Descriptions of any connected party relationships
or concerted party relationships among the
above shareholders
1. Zhongxingxin was a related party (as defined under Shenzhen Listing Rules), but not
a concerted party, of the 8th ranking shareholder among the top 10 shareholders and
the top 10 holders of shares that were not subject to lock up. Save as aforesaid,
there were no connected party relationships or concerted party relationships between
Zhongxingxin and other top 10 shareholders and other top 10 holders of shares that
were not subject to lock-up listed above.
2. China Life Insurance (Group) Company, fund manager of the 10th ranking shareholder
among the top 10 shareholders, was the controlling shareholder of China Life
Insurance Company Limited, fund manager of the 4th ranking shareholder.
3. 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.
Description of involvement in financing and
securities lending businesses of top 10
shareholders (if any)
N/A
Note 1: During the year, there was no placing of new shares in the Company to any strategic investors or ordinary legal persons that required
shareholding for a designated period.
Note 2: Shareholders holding 5% or above of the Company’s shares — Changes in the shareholding of Zhongxingxin, controlling shareholder
of the Company interested in 30.78% of the Company’s shares, during the year are as follows:
Name of shareholder
Increase/
decrease (+/-)
of number of
shares held
during the
reporting period
(shares)
Number of
shares held at
the end of the
reporting period
(shares)
Class of
shares
held
Number of
shares subject
to lock-up held
at the end of the
reporting period
(shares)
Number of
shares not
subject to
lock-up held at
the end of the
reporting period
(shares)
Number of
shares pledged
or frozen
(shares)
Zhongxingxin 0 1,058,191,944 A shares 0 1,058,191,944 Nil
ZTE CORPORATION
100
Changes in Shareholdings and Information of Shareholders
Whether the top ten shareholders and the top ten holders of shares that were not subject to lock-up of
the Company conducted any transactions on agreed repurchases during the reporting period
? Yes ? No
THE COMPANY HAD NO PREFERENTIAL SHARES.
2. Controlling shareholder of the Company
During the year, there was no change in the Company’s controlling shareholder, details of which are as follows:
Name of controlling shareholder: Zhongxingxin
Legal representative: Xie Weiliang
Date of incorporation: 29 April 1993
Organisation number: 19222451-8
Registered capital: RMB100 million
Scope of business: Production of SPC switch cabinets, telephones and related parts and
components, electronic products; import and export operations (in
accordance with the requirements under document Shen Mao Guan
Shen Zheng Zi No. 727); treatment of waste water, toxic fumes and noise
and related technical services, research and technical development of
environmental protection equipment; production of continuous monitoring
smoke systems; manufacturing of mining equipment; manufacturing of
power transmission and distribution and control equipment; computer
systems integration; development of digital processing system technologies
and technological research and development for related technical services.
As at the date of this report, Zhongxingxin’s 2014 annual audit work has yet to be completed. Unaudited data
are as follows: operating revenue, net profit and net cash flow from operating activities of Zhongxingxin for 2014
amounted to approximately RMB356 million, RMB22 million and RMB-31 million, respectively. As at 31 December
2014, total assets and total liabilities amounted to approximately RMB6,487 million and RMB1,206 million,
respectively. In future, Zhongxingxin will build an innovative investment group company engaged in diversified
capital applications with a primary focus on innovative technologies and services in close tandem with principal
economic activities in China.
During the year, Zhongxingxin did not hold any controlling or non-controlling stakes in other domestic or
international listed companies.
3. The shareholders (or de facto controllers) of the Company’s controlling shareholder
Zhongxingxin, the controlling shareholder of the Company, was jointly formed by Xi’an Microelectronics, Aerospace
Guangyu and Zhongxing WXT, each holding a 34%, 17% and 49% 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
ANNUAL REPORT 2014
101
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 asset management. Details of these three shareholders are as follows:
Xi’an Microelectronics, a subsidiary of China Aerospace Electronics Technology Research Institute, is a large state-
owned research institute established in 1965 with a start-up capital of RMB198,530,000. Its legal representative
is Tian Dongfang and its organization number is H0420141-X. It is the only specialized research institute in China
which integrates and complements the research, development and production of semiconductor integrated circuits,
hybrid integrated circuits and computers.
Aerospace Guangyu, a subsidiary of CASIC Shenzhen (Group) Company, Limited, is a wholly state-owned enterprise
established on 17 August 1989. The legal representative is Cui Yuping and the registered capital amounts to
RMB17,950,000. Its organization number is 19217503-1. The scope of business includes aerospace technology
products, machinery equipment, electrical appliances, apparatuses and instruments, electronic products, plastic
products, chemical products, hoisting and transportation products, hardware and furniture, construction materials,
magnetic materials, powder metallurgy, raw materials for textile, raw materials for chemical fibre, apparel, textile,
sales of automobile; domestic trade; import and export operations; trade brokerage and agency; lease of owned
properties.
Zhongxing WXT is a private enterprise incorporated on 23 October 1992. Its legal representative is Hou Weigui and
its registered capital amounts to RMB10 million. Its organization number is 27941498-X. The scope of business
includes the development and production of telecommunications and transmission equipment, ancillary equipment,
computer and peripheral equipment (excluding restricted projects); investment in industrial operations (specific
projects shall be separately reported).
The following diagram shows the shareholding and controlling relationships between the Company and its
shareholders as at 31 December 2014:
Xi’an
Microelectronics
Aerospace
Guangyu
Zhongxingxin
ZTE
Zhongxing
WXT
34% 17% 49%
30.78%
4. The Company had no other corporate shareholder who was interested in more than 10% of its
shares
5. So far as known to the Company, no shareholders of the Company and their concerted parties
proposed or implemented plans to increase shareholdings during the reporting period.
ZTE CORPORATION
102
Changes in Shareholdings and Information of Shareholders
6. Interests of substantial shareholders of the Company in shares and underlying shares
As at 31 December 2014, the following shareholders held interests or short positions in 5% or more in any
class 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
Number of
shares held
Shareholding as an
approximate percentage
(%) of:
Total share
capital
Class
shares
Zhongxingxin Beneficial owner 1,058,191,944
A shares (L)
30.78(L) 37.69(L)
Zhongxing WXT Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
Xi’an Microelectronics Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
China Aerospace Electronics
Technology Research
Institute
Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
China Aerospace Science and
Technology Corporation
Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
BlackRock, Inc. Interests of corporation
controlled by the substantial
shareholder
67,474,390
H share (L)
1.96(L) 10.72(L)
Interests of corporation
controlled by the substantial
shareholder
511,600
H share (S)
0.01(S) 0.08(S)
Aranda Investments (Mauritius)
Pte Ltd
Interests of corporation
controlled by the substantial
shareholder
11,141,800
H share (L)
1.16(L)
Note
6.96(L)
Note
JPMorgan Chase & Co. Beneficial owner, investment
manager and custodian
corporation/approved lending
agent
40,970,469
H share (L)
1.19(L) 6.50(L)
Beneficial owner 3,253,675
H share (S)
0.09(S) 0.51(S)
custodian corporation/approved
lending agent
30,647,239
H share (P)
0.89(P) 4.86(P)
Capital Research and
Management Company
Investment manager 38,410,000
H share (L)
1.12(L) 6.10(L)
Massachusetts Financial
Services Company (“MFS”)
Investment manager 8,428,100
H share (L)
0.88(L)
Note
5.26(L)
Note
Sun Life Financial, Inc. Interests of corporation
controlled by the substantial
shareholder
8,428,100
H share (L)
0.88(L)
Note
5.26(L)
Note
(L) — long position, (S) — short position, (P) — lending pool
ANNUAL REPORT 2014
103
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 (959,521,650 shares) and total number of H shares (160,151,040 shares) before the capitalisation of capital reserves on 10 July
2008.
Save as disclosed above, as at 31 December 2014, 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.
7. Purchase, sale and redemption of securities
During the year, the Company and its subsidiaries did not purchase, sell or redeem any listed securities of the
Company.
8. Public float
As at the latest practicable date prior to the publication of this report, so far as the Company and the Board of
Directors was aware of based on publicly available information, the Company’s public float is in compliance with
the minimum requirement for public float under the Hong Kong Listing Rules.
ZTE CORPORATION
104
Directors, Supervisors, Senior Management and Employees
(I) BRIEF BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
1. Brief biographies of Directors
Mr. Hou Weigui, born in 1941, is Chairman and Non-executive Director of the Company. He worked with China
Aerospace Factory No. 691 as head of the technology division prior to 1984. In 1984, he went to Shenzhen to
establish Shenzhen Zhongxing Semiconductor Co., Ltd., serving as general manager of the company. He was
President of the Company from October 1997 to February 2004 and has been Chairman and Non-executive Director
of the Company since February 2004. Mr. Hou has extensive experience in the telecommunications sector and in
corporate and business management.
Mr. Zhang Jianheng, born in 1961, is Vice Chairman and Non-executive Director of the Company. Mr. Zhang
graduated from Dalian Institute of Technology in 1982 majoring in Chemical Machinery and currently holds the title
of senior engineer. Mr. Zhang worked with the No. 1 Film Factory under the Ministry of Chemical Industry from
1982 to 1989 and with No. 1 Film Factory of China Lucky Film Corporation from 1989 to 1996. He was appointed
director of China Lucky Film Corporation in 1996, and went on to serve as deputy general manager and general
manager of that company until 2011. During this period, he also concurrently acted as general manager (vice
chairman) and chairman of Lucky Film Co., Ltd. Since November 2012 he has been chairman of China Lucky
Group Corporation. In November 2011 he was appointed deputy general manager of China Aerospace Science
and Technology Corporation, a position that he has been holding since. He has been non-executive director and
board chairman of China Aerospace International Holdings Limited (a company listed on The Stock Exchange of
Hong Kong Limited) since March 2012, and has been Vice Chairman and Non-executive Director of the Company
since April 2012. Mr. Zhang brings with him a wealth of experience in management and operation.
Mr. Xie Weiliang, born in 1956, is Vice Chairman and Non-executive Director of the Company. Mr. Xie graduated
from the Faculty of Politics, National University of Defense Technology in 1982 and currently holds the title of
professor. Mr. Xie served as the head of Nanjing Aerospace Management Cadres Institute from 2001 to 2003, and
as director and general manager of Shenzhen Aerospace Guangyu Industrial Company Limited since 2003. From
2003 to January 2014 he was director and general manager of CASIC Shenzhen (Group) Company, Limited. From
January 2014 to September 2014 he was chairman and CPC committee secretary of CASIC Shenzhen (Group)
Company, Limited. Since October 2014 he has been inspector (bureau-level) of CASIC Shenzhen (Group) Company,
Limited. He has been Vice Chairman and Non-executive Director of the Company since February 2004 and is
concurrently chairman of Zhongxingxin. Mr. Xie has substantial experience in management and business operations.
Mr. Wang Zhanchen, born in 1952, is Non-executive Director of the Company. Mr. Wang graduated from Xi’an
Artillery Engineering Institute in 1976 and currently holds the title of senior engineer. Mr. Wang served as factory
manager of Beijing Xinghua Machinery Factory of China Academy of Launch Vehicle Technology during 1997 to
2001. He was vice chairman of China Aerospace Times Electronics Co., Ltd. from June 2008 to June 2014 and
Non-executive Director of the Company since March 2010. Mr. Wang has substantial experience in management
and business operations.
Mr. Zhang Junchao, born in 1953, is Non-executive Director of the Company. Mr. Zhang graduated from
Department (I) of Electronic and Wireless Engineering, Xi’an Jiaotong University in 1977 and currently holds
the title of researcher. Mr. Zhang served as the deputy head of Foundational Electronic Technology Institute of
China Aerospace Science and Technology Corporation from 2000 to March 2003, head of Shaanxi Management
Division of China Aerospace Times Electronics Corporation (renamed as “China Academy of Aerospace Electronics
Technology”) and head of Xi’an Microelectronics Technology Institute from May 2003 to January 2014 and deputy
head of China Academy of Aerospace Electronic Technology from September 2010 to January 2014. He has been
Non-executive Director of the Company since February 2004. Mr. Zhang has substantial experience in management
and business operations.
ANNUAL REPORT 2014
105
Mr. Dong Lianbo, born in 1957, is Non-executive Director of the Company. Mr. Dong graduated from Northeastern
University in 2001 majoring in Business Administration and currently holds the titles of researcher-grade senior
engineer. Mr. Dong served as director and deputy general manager of Shenyang Aerospace Xinguang Group from
2001 to 2002, deputy team head of the Shenzhen Business Integration Working Group of China Aerospace Science
and Industry Corporation from 2002 to 2003 and director and deputy general manager of CASIC Shenzhen (Group)
Company, Limited from 2003 to January 2014. Since January 2014, he has been head of first inspection team of
China Aerospace Science and Industry Corporation. He has been Non-executive Director of the Company since
February 2004. Mr. Dong has substantial experience in management and business operations.
Mr. Shi Lirong, born in 1964, is Executive Director and President of the Company. Mr. Shi graduated from
Tsinghua University in 1984 majoring in wireless and information technology with a bachelor’s degree and Shanghai
Jiaotong University in 1989 majoring in telecommunications and electronic engineering with a master’s degree, and
currently holds the title of senior engineer. Mr. Shi served as an engineer and head of the production department
in Shenzhen Zhongxing Semiconductor Co., Ltd. from 1989 to 1993. From 1993 to 1997, he was deputy general
manager of Zhongxingxin. He was in charge of the Company’s overall marketing operations from 1997 to 2007
and global sales from 2007 to 2010. He has been Executive Director of the Company since February 2001 and
President of the Company since March 2010. Mr. Shi has many years of experience in the telecommunications
industry and over 24 years of management experience.
Mr. Yin Yimin, born in 1963, is Executive Director of the Company. Mr. Yin graduated from the Nanjing Institute
of Posts and Telecommunications (now known as Nanjing University of Posts and Telecommunications) in 1988
with a master’s degree in engineering, majoring in telecommunications and electronic systems, and currently
holds the title of senior engineer. Mr. Yin had served as a manager of the research and development department
of Shenzhen Zhongxing Semiconductor Co., Ltd. since 1991, and as deputy general manager of Zhongxingxin
between 1993 and 1997. From 1997 to March 2010 he served as the Company’s Vice President, Senior Vice
President and President, being in charge of different divisions such as research and development, marketing,
sales and handsets operations. He has been Executive Director of the Company since November 1997. Mr. Yin
has many years of experience in the telecommunications industry and over 24 years of management experience.
Mr. He Shiyou, born in 1966, is Executive Director of the Company. Mr. He graduated from Beijing University
of Posts and Telecommunications in 1990 with a master’s degree in engineering, specialising in electromagnetic
field and microwave technology and currently holds the title of senior engineer. Mr. He joined Zhongxingxin in
1993 and had since served as chief engineer of the Nanjing Research Centre and deputy head of the Shanghai
Research Centre. He was the Company’s Vice President from 1998 to 1999, responsible for divisions such as
research and development and marketing. From 1999 to 2014, he had been Senior Vice President and Executive
Vice President of the Company responsible for Sales Division II and the Handset Division of the Company. He
has been Executive Director of the Company since February 2001. Mr. He has many years of experience in the
telecommunications industry as well as over 22 years of management experience.
Ms. Qu Xiaohui, born in 1954, is Independent Non-executive Director of the Company. Ms. Qu graduated from
Xiamen University in July 1989 with a doctorate degree in Economics (Accounting) and currently holds the title
of accounting professor. She was named a Fulbright Scholar under the U.S. Fulbright Scholar Program in May
2001. Ms. Qu is the first female PhD in accounting and female tutor for doctorate candidates in accounting in
China, as well as the promoter of the project hypothesis procedure for the creation of a professional master’s
degree in accounting (MPAcc) in China. She is currently head of the research center for accounting development
at Xiamen University (a key research base for arts disciplines designated by the Ministry of Education) and head
of Financial Management and Accounting Research Institute of Xiamen University (a “National 985” Innovative
Base for Philosophy and Social Science). Since August 1989, she has been engaged in teaching and academic
research at the Department of Accounting of Xiamen University. She has been Independent Non-executive Director
of the Company since July 2009. Ms. Qu is concurrently independent non-executive director of each of Yunnan
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Directors, Supervisors, Senior Management and Employees
Baiyao Group Co., Ltd. (a company listed on the Shenzhen Stock Exchange), Taikang Life Insurance Co., Ltd.
and Guangzhou Baiyun Electric Equipment Co., Ltd. and chief financial advisor of Xiamen NetinNet Software Co.,
Ltd. Ms. Qu is well qualified, both academically and professionally, and vastly experienced in the accounting and
finance sector.
Mr. Wei Wei, born in 1965, is Independent Non-executive Director of the Company. Mr. Wei graduated from
Huazhong University of Science and Technology in 2004 with a doctorate degree in management science and
engineering. Mr. Wei was a post-doctorate fellow at Chinese Economic Research Centre at the Peking University
from July 2004 to June 2006. He has worked in Xinjiang Technology College and Xinjiang University. He was
Assistant to the Dean of Shenzhen School of Business of Peking University from July 2006 to September 2007
and has been associate dean of HSBC Business School of Peking University and the head of the Research Centre
of Doers’ Group Business Model of HSBC Business School of Peking University since October 2007. He has been
Independent Non-executive Director of the Company since July 2009. Mr. Wei is concurrently independent non-
executive director of each of Dalian Zhangzidao Fishery Group Company Limited (a company listed on Shenzhen
Stock Exchange), Telling Telecommunication Holding Co., Ltd. (a company listed on Shenzhen Stock Exchange)
and Skyworth Digital Holdings Limited (a company listed on the Hong Kong Stock Exchange). Mr. Wei is well
qualified, both academically and professionally, and vastly experienced in corporate management.
Mr. Chen Naiwei, born in 1957, is Independent Non-executive Director of the Company. Mr. Chen graduated from
the Graduate School of Macau University of Science and Technology in 2007 with a doctorate degree in Law. He
holds the title of professor in Law and is a qualified lawyer in China. Mr. Chen has served as head of the Law
Faculty and head of the Intellectual Property Research Centre of Shanghai Jiaotong University. He has been a
partner and senior lawyer of Shanghai Allbright Law Offices since 2001. Mr. Chen has been an Independent Non-
executive Director of the Company since July 2009 and is concurrently independent non-executive director of each
of Shanghai Pharmaceuticals Holding Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong
Kong Stock Exchange), Shanghai Taisheng Wind Power Equipment Co., Ltd. (a company listed on the Shenzhen
Stock Exchange), Shanghai Kinlita Chemical Co., Ltd. (a company listed on the Shenzhen Stock Exchange) and
Shanghai Jiaoyun Group Co., Ltd. (a company listed on the Shanghai Stock Exchange). Mr. Chen is well qualified,
both academically and professionally, and vastly experienced in the legal sector.
Mr. Tan Zhenhui, born in 1944, is Independent Non-executive Director of the Company. Mr. Tan graduated
from Southeast University in 1987 with a doctorate degree in engineering specialising in telecommunications
and electronic systems, and currently holds the title of professor. Mr. Tan is currently chairman of the Academic
Committee and a professor of Beijing Jiaotong University, where he has been serving since August 1982 as
faculty dean, vice chancellor and chancellor. He has been Independent Non-executive Director of the Company
since March 2010. Mr. Tan is well qualified, both academically and professionally, and vastly experienced in the
telecommunications sector.
Mr. Richard Xike Zhang, born in 1970, is Independent Non-executive Director of the Company. Mr. Zhang
graduated from J. L. Kellogg School of Management at Northwestern University in the United States in 1993 with
a master’s degree in finance. Mr. Zhang was mentioned among the most outstanding graduates of U.S. colleges
by USA Today, a mainstream news media in the United States. From August 1993 to July 2008, Mr. Zhang was
employed by McKinsey & Company, holding the positions of Director (Senior Partner) for global operations and
chairman of McKinsey’s Shanghai Office. As the first McKinsey Partner with a Mainland Chinese background in
McKinsey’s 80-year history, he served clients primarily in the telecommunications, technology, and automobile
sectors. Mr. Zhang assumed the role of Partner and Head of Greater China of Apax Partners in August 2008. In
January 2013, he was promoted to the position of Equity Partner while continuing to serve as the head of Apax
Greater China with responsibilities covering Apax funds investment operations in Mainland China, Hong Kong,
ANNUAL REPORT 2014
107
Taiwan and Southeast Asia. He has been Independent Non-executive Director of the Company since June 2013.
Mr. Zhang was also a member of the “Young Leaders Group” of the Boao Forum for Asia. Mr. Zhang brings with
him extensive experience in management consulting and investment.
2. Brief biography of Secretary to the Board of Directors/Company Secretary
Mr. Feng Jianxiong, born in 1974, is the Secretary to the Board of Directors and Company Secretary of the
Company. Mr. Feng graduated from Tianjin University of Finance and Economics with a bachelor’s degree
in economics, majoring in international finance, and from CEIBS in 2012 with a master’s degree in Business
Administration. He joined Zhongxingxin, controlling shareholder of the Company, in July 1996, and has been
the Secretary to the Board of Directors of the Company since 2000, with spells as heads of the Investment
Department, Securities and Finance Department and Securities and Investor Relations Department of the Company
during the period. Mr. Feng has many years of experience in the telecommunications industry and over 15 years
of management experience.
3. Brief biographies of Supervisors
Mr. Xie Daxiong, born in 1963, is Chairman of the Supervisory Committee of the Company. Mr. Xie is a professor-
grade senior engineer. He graduated from the Nanjing University of Science and Technology in 1986 with a master’s
degree in engineering, specialising in applied mechanics. Mr. Xie joined Zhongxingxin, controlling shareholder of
the Company, in 1994 and had been the head of the Nanjing Research Institute of Zhongxingxin. From 1998 to
2004, Mr. Xie had been CDMA Product Manager and General Manager of CDMA Division of the Company. From
2004 to 2012, he was Executive Vice President of the Company in charge of the Company’s technology planning
and strategy. He has become Chairman of the Supervisory Committee of the Company since March 2013. As a
national-level candidate of the talent programme, Mr. Xie is entitled to special government grants awarded by the
State Council. He was also a recipient of the first Shenzhen Mayor Award. Mr. Xie has many years of experience
in the telecommunications industry and over 18 years of management experience.
Ms. He Xuemei, born in 1970, is Supervisor of the Company and chairperson of the labor union of the Company.
Ms. He obtained a bachelor’s degree in mechanical engineering in 1991 and a second bachelor’s degree in
business administration in 1995, both from Chongqing University, where she had worked at the Student Affairs
Department. Ms. He has worked with ZTE Kangxun and the Network Operations Division of the Company after
joining the Company in January 1998.
Mr. Zhou Huidong, born in 1976, is Supervisor of the Company and Head of the Financial Control Department.
He graduated from Peking University in July 1998 with a bachelor’s degree majoring in finance and accounting. He
graduated from Guanghua School of Management of Peking University in July 2014 with a master’s degree. Mr.
Zhou has been with the Company since July 1998. He is a certified public accountant and a certified tax agent.
Ms. Xu Weiyan, born in 1962, is Supervisor of the Company and is currently Head of the Internal Control and
Audit Department of the Company. Ms. Xu graduated from the Department of History of Liaoning Normal University
in July 1988 with a bachelor’s degree in History and was qualified as an economist in 1992. She worked with
Shenzhen Zhongxing Semiconductor Co., Ltd. from 1989 to 1993 and with Zhongxingxin, controlling shareholder of
the Company, from 1993 to 1997, holding various positions such as secretary to the company’s finance committee
and deputy head of the president’s office. She has been working for the Company since 1997, holding positions
such as Head of the Tender Department.
Mr. Chang Qing, born in 1955, is Supervisor of the Company. Mr. Chang holds the title of senior engineer,
having graduated from the Department of Physics of the Northwest University specialising in semi-conductor and
obtained a bachelor of science degree in February 1982. From March 1993 to August 1996 he was executive
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Directors, Supervisors, Senior Management and Employees
deputy general manager of Shenzhen Zhongxing WXT Equipment Company Limited. He was general manager of
Shenzhen Zhongxingxin Telecommunications Equipment Company Limited overseeing the northeastern regional
market from September 1996 to October 1997, general manager (Northeast Region) of the Company and Head of
the 7th Marketing Department from November 1997 to February 2000, and general manager of ????????
???????? from March 2000 to March 2008. He has been Supervisor of the Company since March 2013.
He is currently assistant to the general manager and chairman of the labor union of Zhongxingxin, controlling
shareholder of the Company.
4. Brief biographies of Senior Management
Mr. Shi Lirong, President of the Company. Please refer to the section headed “Brief biographies of Directors”
for his biography.
Mr. Wei Zaisheng, born in 1962, is currently Executive Vice President and Chief Financial Officer in charge of
corporate finance and investment management of the Group. Mr. Wei obtained a master’s degree in business
administration from Peking University in 2004. He joined Shenzhen Zhongxing Semiconductor Co., Ltd. in 1988 and
served as chief financial officer and assistant to the general manager of Zhongxingxin, controlling shareholder of
the Company, from 1993 to 1997. He was Senior Vice President of the Company from 1997 to 1999 and has been
Executive Vice President of the Company in charge of the Financial System of the Company since 1999. He was
appointed member of Accounting Informatisation Committee and member of XBRL Regional Steering Committee
(China) by the Ministry of Finance in November 2008, and was appointed member of the Accounting Standards
Strategic Committee by the Ministry of Finance in December 2014. He is concurrently director of Zhongxingxin,
controlling shareholder of the Company, and chairman of ZTE Group Finance Co., Ltd. Mr. Wei has many years
of experience in the telecommunications industry and over 26 years of management experience.
Mr. Tian Wenguo, born in 1969, has been Executive Vice President of the Company since 2005 and is currently
in charge of sales and engineering service of the Company. Mr. Tian graduated from Harbin Institute of Technology
in 1991 with a bachelor’s degree in engineering, specialising in electromagnetic surveys and devices. In 2006, he
graduated from Tsinghua University with a master’s degree in business administration. Mr. Tian joined Zhongxingxin,
controlling shareholder of the Company, in 1996. Mr. Tian was manager of the Company’s Chongqing Sales Office
and general manager (Southwest Region) from 1997 to 2002 and Senior Vice President and General Manager
of Sales Division II of the Company from 2002 to 2005. Since 2005, he has been Executive Vice President of
the Company in charge of Marketing and Operations System, Marketing System, Product Marketing System and
Logistics System of the Company. Mr. Tian has many years of experience in the telecommunications industry and
over 17 years of management experience.
Mr. Qiu Weizhao, born in 1963, has been Executive Vice President of the Company since 2007 and is currently
in charge of Logistics and Administration Affairs of the Company. Mr. Qiu graduated from Xi’an University of
Electronic Technology in 1988, specialising in telecommunications and electronic systems with a master’s degree
in engineering. Mr. Qiu was in charge of the Logistics System of the Company from 1998 to 2007 and Human
Resources and Administration System from 2008 to 2012, and has been in charge of Logistics and Administration
since September 2012. Mr. Qiu has many years of experience in the telecommunications industry and over 26
years of management experience.
Mr. Fan Qingfeng, born in 1968, has been Executive Vice President of the Company since March 2008. Mr.
Fan graduated from Liaoning Engineering Technology University in 1992 with a bachelor’s degree specialising
in industrial electrical automation, and from Tsinghua University in 2006 with a master’s degree in business
administration. Mr. Fan joined Zhongxingxin in 1996. From 1997 to 2008, Mr. Fan acted as project manager of
ANNUAL REPORT 2014
109
regional office, manager of regional office, regional general manager, Division Deputy General Manager and Senior
Vice President of the Company. Mr. Fan has many years of experience in the telecommunications industry and
over 17 years of management experience.
Mr. Zeng Xuezhong, born in 1973, has been Executive Vice President of the Company since January 2014 and
is currently in charge of the Terminals Division. Mr. Zeng graduated from Tsinghua University with a bachelor’s
degree in science, specialising in modern applied science, in 1996 and with an EMBA degree in 2007. Mr. Zeng
joined Zhongxingxin in 1996. From 1997 to 2006, Mr. Zeng had been senior project manager, assistant to regional
general manager, manager of Guiyang Office, manager of Kunming Office, Deputy General Manager and General
Manager of Sales Division II and Vice President of the Company. Since 2006, he had been Senior Vice President
of the Company in charge of Sales Division III. Since January 2014, he has been Executive Vice President of
the Company in charge of the Terminals Division of the Company. Mr. Zeng has many years of experience in the
telecommunications industry and over 16 years of management experience.
Mr. Zhao Xianming, born in 1966, has been Executive Vice President of the Company since January 2014 and is
currently in charge of the Strategic and Platform Operations of the Company and the System Products Business
Departments, and concurrently acting as CTO. Mr. Zhao graduated from the Harbin Institute of Technology in
1997 specialising in telecommunications and electronic systems with a doctorate degree in engineering. He joined
the Company in 1998 to be engaged in the research, development and management of CDMA products. He had
been head of the research and development group, project manager and general product manager from 1998
to 2003. In 2004, he was appointed Senior Vice President of the Company in charge of the CDMA Division and
the Wireless Product Division. In January 2014, he was appointed Executive Vice President of the Company in
charge of the Strategic and Platform Operations of the Company. Mr. Zhao has many years of experience in the
telecommunications industry and over 23 years of management experience.
Ms. Chen Jie, born in 1958, has been Senior Vice President of the Company since 2002 and is currently in charge
of product research and development and operations management of the Wireline Product Operation Division. Ms.
Chen graduated from Nanjing Institute of Posts and Telecommunications (now known as “Nanjing University of
Posts and Telecommunications”) in 1989 specialising in telecommunications and electronic systems and from the
New York University in 1995 specialising in computer science and technology with a double master’s degree. Ms.
Chen holds the titles of senior researcher and senior engineer. From 1989 to 1992, Ms. Chen was manager of the
Development Department of Shenzhen Zhongxing Semiconductor Co., Ltd. She worked as senior researcher and
manager of Research Department of AT&T Bell Laboratories in U.S. from 1995 to 1998. From 1998 to 2002, she
served as general manager of the Company’s U.S. subsidiary. She served as general manager of the Networking
Operations Division on a concurrent basis following appointment as Senior Vice President of the Company in
2002. She has been responsible for the global research and development and sales of wireline products of the
Company for a substantial period from 2007 onwards, having been general manager of the Wireline and Services
Products Division under the Marketing System and general manager of the Wireline Division and the Wireline
Product Division, respectively, under the Product Research and Development System. Ms. Chen has demonstrated
strong research and development capabilities and expertise with many years of management experience in both
the domestic and international telecommunications indu stry.
Mr. Pang Shengqing, born in 1968, has been Senior Vice President of the Company since 2005 and is currently in
charge of the Government and Enterprise Sectors Division of the Company. Mr. Pang is an engineer. He graduated
from Huazhong University of Science and Technology with a doctorate degree in engineering in 1995, specialising
in mechanical manufacturing. He was awarded the Guangdong Science and Technology Award in May 2002. Mr.
Pang joined Zhongxingxin, controlling shareholder of the Company, in 1995. From 1998 to 2000, Mr. Pang was
involved in research and development of the Company’s CDMA core technology and hardware systems. Mr. Pang
was Deputy General Manager of the CDMA Division from 2001 to 2004 and general manager of Sales Division I
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Directors, Supervisors, Senior Management and Employees
of the Sales System of the Company from 2005 to 2011, and general manager of the System Product Solutions
Division of the Company from 2012 to 2013. Mr. Pang has many years of experience in the telecommunications
industry and over 16 years of management experience.
Mr. Xu Huijun, born in 1973, has been Senior Vice President of the Company since 2004 and is currently in
charge of the Wireless Product Division of the Company. Mr. Xu graduated from Tsinghua University in 1998 with
a master’s degree in engineering, specialising in electronic engineering. He joined the Company in 1998 and had
served as a project manager of the General Product Division and the head of Beijing Research Centre from 1998
to 2003. He has been in charge of the General Product Division and Engineering Services under the Sales System
of the Company after appointment as Senior Vice President of the Company in 2004. Mr. Xu has many years of
experience in the telecommunications industry and over 16 years of management experience.
Mr. Ye Weimin, born in 1966, has been Senior Vice President of the Company since 2001 and is currently in
charge of supply chain of the Company. Mr. Ye graduated from Shanghai Jiaotong University in 1988 with a
bachelor’s degree in engineering, majoring in computer science and engineering. He graduated from Rennes-
Shanghai Jiaotong University in 2007 with a doctor degree in business administration (DBA) conferred by ESC
Rennes School of Business. He has been involved in the research and development as well as engineering work
of the first 10,000-line digital programme-control PBX and mobile communication systems of the Company after
joining Zhongxingxin, controlling shareholder of the Company, in 1994. From 1997 to 2001, he had served as Chief
Officer of the Central Laboratory, Head of Quality Control Department and the Customer Services Department of the
Mobile Division and Deputy General Manager of Sales Division III of the Company. Since 2001, he has been Senior
Vice President of the Company in charge of the Mobile Division (research and operation of mobile communication
system products), Sales Division V (Sales in America and Africa), Handset Logistics Team, Procurement Tender
Team, China Terminal Business Division and supply chain management. Mr. Ye has many years of experience in
the telecommunications industry and over 22 years of management experience at intermediate and senior levels.
Mr. Zhu Jinyun, born in 1972, has been Senior Vice President of the Company since 2009. He is currently in
charge of the Company’s Cloud Computing and IT Products Operations. Mr. Zhu graduated from Harbin Engineering
University in 1998 with a master’s degree in engineering, specialising in communications and electronic systems.
He joined the Company in the same year to be engaged in the research and development and management of
CDMA products. From 2000 to 2008, Mr. Zhu had been head of the CDMA Hardware Development Department,
general project manager for various products under the CDMA Division and general project manager for WCDMA
products. From 2009 to 2012, he was General Manager of Sales Division IV of the Company. Since 2013, he has
been general manager of the Cloud Computing and IT Products Operations. Mr. Zhu has many years of experience
in the telecommunications industry and over 15 years of management experience.
Mr. Zhang Renjun, born in 1969, has been Senior Vice President of the Company since 2009 and is currently in
charge of Sales Division I. Mr. Zhang graduated from Northeastern University in 1990 with a bachelor’s degree in
engineering, specialising in automated controls. Mr. Zhang joined Shenzhen Zhongxing Semiconductor Co., Ltd
in 1992. From 2000 to 2011, he had been Deputy General Manager of Sales Division I, Deputy General Manager
of Sales Division IV, Head of the MTO Division and Director of the PMO Division, both under the Sales System,
and General Manager of Sales Division II. Mr. Zhang has many years of experience in the telecommunications
industry and over 15 years of management experience.
Mr. Chen Jianzhou, born in 1970, has been Senior Vice President of the Company since March 2012 and is
currently in charge of human resources, quality control and processes of the Company. Mr. Chen graduated from
Tsinghua University in 1995 with a master’s degree in engineering, majoring in signals and information systems.
Mr. Chen joined the Company in 1995 to be engaged in research and development as well as technical support.
He was Head of the Human Resources Centre of the Company from 1996 to 2003 and Head of ZTE Academic
Institute from 2003 to 2010. From October 1997 to February 2004, he acted as Supervisor of the Company. In
ANNUAL REPORT 2014
111
2011, he served as Assistant to the President responsible for the Company’s Architecture and Processes. From
2012 to 2013, Mr. Chen was in charge of Processes and Human Resources of the Company. Mr. Chen has many
years of experience in the telecommunications industry and over 18 years of management experience.
Mr. Cheng Lixin, born in 1966, has been Senior Vice President of the Company since April 2013 and is currently
in charge of the North America operations of the Terminal Business Division of the Company. Mr. Cheng graduated
from Zhejiang University in 1989 with a Bachelor’s Degree in Engineering, majoring in Radio Engineering, and
completed EMBA studies in the U.S. in 1997. Mr. Cheng worked at Nanjing Panda Ltd. as an engineer and a
project manager from 1989 until 1992. From 1992 to 2001, he had been project manager, production engineering
manager, deputy general manager of supply chain division, general manager of sales division and vice president
of sales and supply at Nanjing Ericsson Panda Ltd. From 2001 to 2004, Mr. Cheng served as sales director at
Ericsson Wireless Inc in the U.S. From 2004 to 2006, He had been director, president and chief sales officer at
Axesstel Inc in the U.S. From 2006 to 2010, he served as President of ALA Group, Inc. Mr. Cheng joined the
Company in 2010 as Deputy General Manager of Sales Division IV and General Manager of North America Region
of the Company and CEO of ZTE (USA) Inc. Since April 2013, he has been Senior Vice President of the Company
in charge of Sales Division IV of the Company. Mr. Cheng has 24 years of experience in the telecommunications
industry and top-level management at multinational corporations.
Mr. Xiong Hui, born in 1969, has been Senior Vice President of the Company since January 2014 and is currently
in charge of Marketing Division V of the Company. Mr. Xiong graduated from Sichuan University in 1990 majoring
in Materials Studies, with a bachelor’s degree in engineering. He received a master’s degree in management,
specialising in management science and engineering, in 1998 and a doctorate degree in enterprise management
in 2007, both from the University of Electronic Science and Technology of China. Mr. Xiong joined the Company
in 1998. He had been Head of Business Technology Section at the Company’s Chongqing Sales Office, Head
of Planning Department, Head of HR Department, Deputy General Manager of the Handset Division, General
Manager of U.S. Operations of the Handset Division, and General Manager of European and U.S. Operations of
the Handset Division from 1998 to 2012. He has been General Manager of Marketing Division V of the Company
since 2013. Mr. Xiong has many years of experience in the telecommunications industry and over 18 years of
management experience.
Mr. Zhang Zhenhui, born in 1973, has been Senior Vice President of the Company since January 2014 and
is currently in charge of Marketing Division III of the Company. Mr. Zhang graduated from Harbin University of
Science and Technology in 1993 with a bachelor’s degree in engineering, majoring in equipment engineering and
management. In 1998, he received a master’s degree in management science from Jiangsu University. In 2004,
he received a doctorate degree in management science and engineering from Southeast University. Mr. Zhang
had served as manager of Shijiazhuang Office and manager of Taiyuan Office of the Company from 2002 to 2006
after joining the Company in 2001. He was Deputy General Manager of Marketing Division III of the Company from
2006 to 2014, and has been General Manager of Marketing Division III of the Company since 2014. Mr. Zhang
has many years of experience in the telecommunications industry and over 11 years of management experience.
Mr. Feng Jianxiong is Secretary to the Board of Directors/Company Secretary of the Company. Please refer to
“Brief biography of Secretary to the Board/Company Secretary” in this section for his biography.
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Directors, Supervisors, Senior Management and Employees
(II) CHANGES IN THE SHAREHOLDINGS OF THE COMPANY’S DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT AND ANNUAL REMUNERATION
The effective shareholdings in the issued share capital of the Company held by the Directors, Supervisors and
senior management of the Company and annual remuneration at the end of the year are as follows:
No. Name Title
Status of
office Gender Age
Term of office
commencing
on
Term of office
ending on
Number of
A shares
held at the
beginning
of the
reporting
period
(shares)
Increase in
the number
of shares
held during
the period
(shares)
Decrease in
the number
of shares
held during
the period
(shares)
Number of
A shares
held at the
end of the
reporting
period
(shares)
Reason
for the
change
Total payable
remuneration
received from
the Company
during the
reporting period
(RMB in ten
thousands)
Whether
remuneration
is received
from
shareholder
entities
Directors of the Company
1 Hou Weigui Chairman Incumbent Male 73 3/2013 3/2016 1,297,472 — — 1,297,472 — 240.2 No
2 Zhang Jianheng Vice Chairman Incumbent Male 53 3/2013 3/2016 — — — — — 10.0 No
3 Xie Weiliang Vice Chairman Incumbent Male 58 3/2013 3/2016 32,760 — — 32,760 — 10.0 Yes
4 Wang Zhanchen Director Incumbent Male 62 3/2013 3/2016 — — — — — 10.0 No
5 Zhang Junchao Director Incumbent Male 61 3/2013 3/2016 32,760 — — 32,760 — 10.0 No
6 Dong Lianbo Director Incumbent Male 57 3/2013 3/2016 32,760 — — 32,760 — 10.0 Yes
7 Shi Lirong Director and President Incumbent Male 50 3/2013 3/2016 410,511 140,000 — 550,511 Note 1 382.8 No
8 Yin Yimin Director Incumbent Male 51 3/2013 3/2016 632,833 — — 632,833 — 91.6 No
9 He Shiyou Director Incumbent Male 48 3/2013 3/2016 344,940 — — 344,940 — 63.4 No
10 Qu Xiaohui Independent Non-
executive Director
Incumbent Female 60 3/2013 7/2015 — — — — — 13.0 No
11 Wei Wei Independent Non-
executive Director
Incumbent Male 49 3/2013 7/2015 — — — — — 13.0 No
12 Chen Naiwei Independent Non-
executive Director
Incumbent Male 57 3/2013 7/2015 — — — — — 13.0 No
13 Tan Zhenhui Independent Non-
executive Director
Incumbent Male 70 3/2013 3/2016 — — — — — 13.0 No
14 Richard Xike Zhang Independent Non-
executive Director
Incumbent Male 44 6/2013 3/2016 — — — — — 13.0 No
Supervisors of the Company
15 Xie Daxiong Chairman of
Supervisory Committee
Incumbent Male 51 3/2013 3/2016 413,169 — — 413,169 — 262.5 No
16 He Xuemei Supervisor Incumbent Female 44 3/2013 3/2016 80,347 — 20,087 60,260 Note 1 52.0 No
17 Zhou Huidong Supervisor Incumbent Male 38 3/2013 3/2016 78,158 — 19,540 58,618 Note 1 62.6 No
18 Xu Weiyan Supervisor Incumbent Female 52 3/2013 3/2016 9,199 — — 9,199 — 69.4 No
19 Chang Qing Supervisor Incumbent Male 59 3/2013 3/2016 — — — — — — Yes
Senior Management of the Company
20 He Shiyou
Note 2
Executive Vice
President
Resigned Male 48 4/2013 1/2014 Note 2
21 Wei Zaisheng Executive Vice
President and Chief
Financial Officer
Incumbent Male 52 4/2013 3/2016 437,421 — 104,356 333,065 Note 1 236.8 No
22 Tian Wenguo Executive Vice
President
Incumbent Male 45 4/2013 3/2016 204,877 — 51,219 153,658 Note 1 450.9 No
23 Qiu Weizhao Executive Vice
President
Incumbent Male 51 4/2013 3/2016 385,414 — 96,000 289,414 Note 1 175.7 No
24 Fan Qingfeng Executive Vice
President
Incumbent Male 46 4/2013 3/2016 482,500 — 120,625 361,875 Note 1 189.1 No
25 Zeng Xuezhong
Note 2
Senior Vice President Resigned Male 41 4/2013 1/2014 427,600 — 101,900 325,700 Note 1 79.5 No
Executive Vice
President
Incumbent 1/2014 3/2016
26 Zhao Xianming
Note 2
Senior Vice President Resigned Male 48 4/2013 1/2014 323,905 — 80,976 242,929 Note 1 775.9 No
Executive Vice
President
Incumbent 1/2014 3/2016
27 Chen Jie Senior Vice President Incumbent Female 56 4/2013 3/2016 744,583 — 60,000 684,583 Note 1 315.3 No
28 Pang Shengqing Senior Vice President Incumbent Male 46 4/2013 3/2016 421,402 — — 421,402 — 197.5 No
29 Xu Huijun Senior Vice President Incumbent Male 41 4/2013 3/2016 560,945 — 140,236 420,709 Note 1 432.5 No
30 Ye Weimin Senior Vice President Incumbent Male 48 4/2013 3/2016 397,248 — 30,000 367,248 Note 1 103.8 No
ANNUAL REPORT 2014
113
No. Name Title
Status of
office Gender Age
Term of office
commencing
on
Term of office
ending on
Number of
A shares
held at the
beginning
of the
reporting
period
(shares)
Increase in
the number
of shares
held during
the period
(shares)
Decrease in
the number
of shares
held during
the period
(shares)
Number of
A shares
held at the
end of the
reporting
period
(shares)
Reason
for the
change
Total payable
remuneration
received from
the Company
during the
reporting period
(RMB in ten
thousands)
Whether
remuneration
is received
from
shareholder
entities
31 Zhu Jinyun Senior Vice President Incumbent Male 42 4/2013 3/2016 482,460 — 120,616 361,844 Note 1 84.9 No
32 Zhang Renjun Senior Vice President Incumbent Male 45 4/2013 3/2016 — — — — — 165.7 No
33 Chen Jianzhou Senior Vice President Incumbent Male 44 4/2013 3/2016 130,028 — 32,507 97,521 Note 1 165.1 No
34 Cheng Lixin Senior Vice President Incumbent Male 48 4/2013 3/2016 3,000 — — 3,000 — 461.9 No
35 Xiong Hui
Note 2
Senior Vice President Incumbent Male 45 1/2014 3/2016 — — — — — 249.7 No
36 Zhang Zhenhui
Note 2
Senior Vice President Incumbent Male 41 1/2014 3/2016 65,000 — — 65,000 — 460.0 No
37 Feng Jianxiong Secretary to the Board Incumbent Male 40 4/2013 3/2016 275,000 — — 275,000 — 72.2 No
Total — — — — — — 8,706,292 140,000 978,062 7,868,230 — 5,956.0 —
Note 1: Reduction or increase of shareholdings in accordance with “Rules Governing the Holding of Shares in the Company by Directors,
Supervisors and Senior Management of Listed Companies and Changes Thereof”.
Note 2: At the Fourteenth Meeting of the Sixth Session of the Board of Directors of the Company held on 20 January 2014, the discontinuation
by the Company of the employment of Mr. He Shiyou as Executive Vice President of the Company; the appointment of each of Mr.
Zeng Xuezhong and Mr. Zhao Xianming as Executive Vice President of the Company and the removal of each of them from the office of
Senior Vice President of the Company; and the appointment of each of Mr. Xiong Hui and Mr. Zhang Zhenhui as Senior Vice President
of the Company were approved.
Note 3: None of the Company’s Directors, Supervisors and senior management held H shares in the issued share capital of the Company during
the reporting period.
Share incentives granted to Directors, Supervisors and senior management during the reporting period
? Applicable ? N/A
There was no change to the share options held by the Directors and senior management of the Company during
the year. For details of the share options of the Company held by the Directors and senior management of the
Company, please refer to the section headed “Material Matters — (V) Implementation and Impact of the Company’s
Share Option Incentive Scheme” in this report. Supervisors of the Company did not hold any share options of
the Company.
ZTE CORPORATION
114
Directors, Supervisors, Senior Management and Employees
(III) INFORMATION CONCERNING DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE
COMPANY HOLDING POSITIONS IN CORPORATE SHAREHOLDERS OF THE COMPANY
Name Name of shareholder
Position in the
shareholder
Commencement
of term of office
Conclusion of
term of office
Whether
remuneration is
received from
shareholder
entities
Xie Weiliang
Note 1
Zhongxingxin Chairman May 2013 May 2016 No
CASIC Shenzhen (Group) Company
Limited
Director and general
manager
February 2003 January 2014 Yes
Chairman and CPC
committee secretary
January 2014 September 2014 Yes
Inspector (bureau-level) October 2014 Incumbent Yes
Dong Lianbo
Note 2
Zhongxingxin Director May 2013 November 2014 No
CASIC Shenzhen (Group) Company
Limited
Director and deputy
general manager
February 2003 January 2014 Yes
Head of first inspection
team of CASIC
January 2014 Incumbent Yes
Chang Qing Zhongxingxin Assistant to general
manager
April 2008 Incumbent Yes
Chairman of labor union December 2012 Incumbent No
Wei Zaisheng Zhongxingxin Director May 2013 May 2016 No
Note 1: Mr. Xie Weiliang’s position at CASIC Shenzhen (Group) Company Limited was changed from director and general manager to chairman
and CPC committee secretary in January 2014 and further changed from chairman and CPC committee secretary to inspector (bureau-
level) in October 2014.
Note 2: Mr. Dong Lianbo’s position at CASIC Shenzhen (Group) Company Limited was changed from director and deputy general manager to
head of first inspection team of CASIC in January 2014. He has ceased to be director of Zhongxingxin as from November 2014.
Note 3: Mr. Zhang Junchao has ceased to be director of Zhongxingxin as from May 2014 and legal representative of Xi’an Microelectronics as
from January 2014.
ANNUAL REPORT 2014
115
(IV) INFORMATION CONCERNING DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE
COMPANY HOLDING MAJOR POSITIONS IN OTHER ENTITIES
Name Name of other entities Position in other entities
Whether
remuneration is
received from other
entities
Hou Weigui Held positions in 12 subsidiaries including Zhongxing Software Chairman No
Zhongxing WXT Chairman No
Zhongxing Development Chairman No
Zhongxing Energy Company Limited Chairman No
Zhongxing Energy (Tianjin) Company Limited Chairman No
???????????? Chairman No
Zhang Jianheng China Aerospace Science and Technology Corporation Deputy general manager Yes
China Aerospace International Holding Limited Non-executive director and
chairman of the board
No
China Lucky Group Corporation Chairman No
Xie Weiliang Shenzhen Aerospace Guangyu Industrial Company Limited General manager No
Dong Lianbo Shenzhen Aerospace Guangyu Industrial Company Limited Deputy general manager No
Shi Lirong Held positions in 3 subsidiaries including ZTE Kangxun Director No
Zhongxing WXT Director No
Yin Yimin
Note 1
Zhongxing WXT Vice chairman No
Shenzhen Hekang Investment Management Company Limited Executive director No
ZTE Capital Chairman/general manager Yes
Shenzhen Zhonghe Chunsheng Fund Executive manager No
Jiaxing Xinghe Capital Management Company Limited Executive director No
He Shiyou
Note 2
Zhongxing WXT Supervisor No
?????????? Chairman No
Qu Xiaohui Xiamen University Professor Yes
Head/dean No
Yunnan Baiyao Group Co., Ltd. Independent non-executive
director
Yes
Taikang Life Insurance Co., Ltd. Independent non-executive
director
Yes
Guangzhou Baiyun Electric Equipment Co., Ltd. Independent non-executive
director
Yes
Xiamen NetinNet Software Company Limited Financial advisor Yes
Wei Wei
Note 3
Peking University HSBC Business School Associate dean Yes
Dalian Zhangzidao Fishery Group Company Limited Independent non-executive
director
Yes
Telling Telecommunication Holding Co., Ltd. Independent non-executive
director
Yes
Skyworth Digital Holdings Limited Independent non-executive
director
Yes
ZTE CORPORATION
116
Directors, Supervisors, Senior Management and Employees
Name Name of other entities Position in other entities
Whether
remuneration is
received from other
entities
Chen Naiwei
Note 4
Shanghai Allbright Law Offices Partner/lawyer Yes
Fudan University Professor Yes
Shanghai Pharmaceuticals Holding Co., Ltd. Independent non-executive
director
Yes
Shanghai Taisheng Wind Power Equipment Co., Ltd. Independent non-executive
director
Yes
Shanghai Kinlita Chemical Co., Ltd. Independent non-executive
director
Yes
Shanghai Jiaoyun Group Co., Ltd. Independent non-executive
director
Yes
Tan Zhenhui
Note 5
Beijing Jiaotong University Director of University
Academic Committee/
professor
Yes
Richard Xike Zhang Apax Partners Equity Partner and Head of
Greater China
Yes
Xie Daxiong
Note 6
Held positions in 4 subsidiaries including Zhongxing Software Chairman/director No
He Xuemei
Note 7
??????????????? Director/general manager No
Zhou Huidong
Note 8
Held positions in 14 subsidiaries including ZTE Group Finance Supervisor No
Shenzhen Zhongxing Hetai Hotel Investment and Management
Company Limited
Supervisor No
Shanghai ZTE Straw Communication Limited
(????????????)
Supervisor No
Xu Weiyan
Note 9
Held positions in 2 subsidiaries including ZTE Kangxun Supervisor/chairman of
supervisory committee
No
Chang Qing ???????????????? Director No
Wei Zaisheng Held positions in 16 subsidiaries including ZTE Group Finance Chairman/director No
Zhongxing WXT Director No
Shenzhen Capital Group Co., Ltd. Supervisor No
Tian Wenguo Held positions in 13 subsidiaries including Shenzhen ZTE Supply
Chain Co., Ltd.
Chairman/director No
Qiu Weizhao Shenzhen Zhongxing Microelectronics Technology Company
Limited
Director No
Fan Qingfeng Held positions in 5 subsidiaries including Shenzhen
Zhongliancheng Electronic Development Company Limited
Chairman/director No
Zeng Xuezhong Held positions in 8 subsidiaries including Shenzhen ZTE Mobile
Telecom Company Limited
Chairman/executive
director/director
No
ZTE 9 (Wuxi) Co., Ltd.(??????????????) Chairman No
Zhao Xianming Held positions in 5 subsidiaries including ZTE Integration Telecom
Company Limited
Chairman/director No
Chen Jie Held positions in 15 subsidiaries including ZTEsoft Technology
Company Limited
Chairman/director/general
manager
No
Pang Shengqing Held positions in 12 subsidiaries including Shanghai Zhongxing
Software Company Limited
Chairman/director No
KAZNURTEL Limited Liability Company Director No
Xu Huijun Held positions in 4 subsidiaries including ???????????
??????
Chairman/director/general
manager/chairman of
supervisory committee
No
Held positions in 2 companies including Zhongxing Energy
Company Limited
Director No
ANNUAL REPORT 2014
117
Name Name of other entities Position in other entities
Whether
remuneration is
received from other
entities
Zhu Jinyun Held positions in 2 companies including Zhongxing Energy
Company Limited
Director No
Zhang Renjun ZTE Japan K.K. Director No
Cheng Lixin Held positions in 2 subsidiaries including ZTE (USA), Inc Chairman/director/general
manager
Note 12
Zhang Zhenhui Held positions in 2 subsidiaries including Anhui Wantong Postal
and Telecom Company Limited
Chairman No
Feng Jianxiong Held positions in 3 subsidiaries including ZTE Capital Director/supervisor No
Note 1: Mr. Yin Yimin was appointed executive director of Jiaxing Xinghe Capital Management Company Limited in May 2014.
Note 2: Mr. He Shiyou has ceased to be chairman of Shenzhen ZTE Mobile Telecom Company Limited and chairman of ZTE (Hangzhou) Company
Limited, as from April 2014 and May 2014, respectively, while being appointed chairman of ?????????? in August 2014.
Note 3: Mr. Wei Wei has ceased to be independent non-executive director of Changyuan Group Company Limited as from April 2014, while
being appointed independent non-executive director of Skyworth Digital Holdings Limited in March 2014.
Note 4: Mr. Chen Naiwei was appointed independent non-executive director of Shanghai Jiaoyun Group Co., Ltd. in November 2014.
Note 5: Mr. Tan Zhenhui has ceased to be independent non-executive director of Jiangsu Tongding Optic-electronic Stock Co., Ltd as from
May 2014.
Note 6: Mr. Xie Daxiong has ceased to be director of Tianjin Zhongxing Software Company Limited as from June 2014 and chairman of ZTE
Europe Research Institute as from August 2014.
Note 7: Ms. He Xuemei was appointed director and general manager of ??????????????? in September 2014.
Note 8: Mr. Zhou Huidong was appointed supervisor of ?????????????? in July 2014 and supervisor of ???????????
? in August 2014.
Note 9: Ms. Xu Weiyan was appointed supervisory committee chairperson of Puxing Mobile Tech Company Limited (????????????)
in June 2014.
Note 10: Mr. Wang Zhanchen has ceased to be vice chairman of China Aerospace Times Electronics Co., Ltd. as from June 2014.
Note 11: Mr. Zhang Junchao has ceased to be head of Shaanxi Management Division and deputy head of academy of China Academy of
Aerospace Electronics Technology as from January 2014.
Note 12: Mr. Cheng Lixin received remuneration from ZTE (USA), Inc.
(V) DECISION-MAKING PROCESS, BASES FOR DETERMINATION AND ACTUAL PAYMENT OF
REMUNERATION FOR DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY
Allowances for Directors are based on recommendations of the Remuneration and Evaluation Committee of the
Board of Directors made 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 Directors 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.
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118
Directors, Supervisors, Senior Management and Employees
The remuneration for senior management personnel is based on the results of 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.
(VI) CHANGES IN DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY DURING
THE YEAR
Pursuant to the “Resolution on the Appointment and Removal of Senior Management Personnel” considered and
passed at the Fourteenth Meeting of the Sixth Session of the Board of Directors of the Company held on 20
January 2014, the appointment of each of Mr. Zeng Xuezhong and Mr. Zhao Xianming as Executive Vice President
of the Company and the removal of each of them from the office of Senior Vice President of the Company; and
the appointment of each of Mr. Xiong Hui and Mr. Zhang Zhenhui as Senior Vice President of the Company
and the discontinuation of the employment of Mr. He Shiyou as Executive Vice President of the Company were
approved. The term of office of the aforesaid senior management appointed as aforesaid shall commence on the
date on which the appointment is considered and approved by the Board of Directors of the Company and shall
end upon the conclusion of the terms of the Sixth Session of the Board of Directors of the Company (namely 29
March 2016).
Please refer to sections (III) and (IV) in this chapter for details of positions at corporate shareholders and major
positions at other entities held by Directors, Supervisors and senior management of the Company.
(VII) INFORMATION ON GROUP EMPLOYEES
As at the end of the year, the Group had 75,609 employees (including 58,731 as employees of the parent company),
with an average age of 32. There were 101 retired employees, including 62 retired employees in respect of which
expenses were payable by the Company.
ANNUAL REPORT 2014
119
1. Classification by specialisation as follows:
Specialisation Headcount
As an approximate
percentage of total
headcount
Research and development 27,101 35.9%
Marketing and sales 12,885 17.0%
Customer service 13,628 18.0%
Manufacturing 15,200 20.1%
Financial 806 1.1%
Administration 5,989 7.9%
Total 75,609 100.0%
Administration
7.9%
R&D
35.9%
Marketing and sales
17.0%
Customer service
18.0%
Manufacturing
20.1%
Financial
1.1%
2. Classification by academic qualifications as follows:
Academic qualifications Headcount
As an approximate
percentage of total
headcount
Doctorate degree 416 0.5%
Master’s degree 20,620 27.3%
Bachelor’s degree 31,071 41.1%
Others 23,502 31.1%
Total 75,609 100.0%
Master’s degree
27.3%
Bachelor’s degree
41.1%
Others
31.1%
Doctorate degree
0.5%
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120
Directors, Supervisors, Senior Management and Employees
3. Remuneration Package and Training for Employees
The remuneration package for the Group’s employees includes salary, bonuses and allowances. Our employees
also receive welfare benefits including medical insurance, housing subsidies, retirement and other miscellaneous
benefits. In accordance with applicable PRC regulations, the Group participated in social insurance contribution
plans organised by the relevant government authorities, under which the Group paid monthly contributions towards
each employee’s social insurance in an amount equivalent to a specified percentage of his/her monthly salaries.
Staff training provided by the Group includes induction training, skills training for specific positions, management
training and training for management officers. After completion of induction training, new employees will receive
general training that lasts for six months to one year depending on their positions. In-service staff may conduct
self-learning based on their aptitude assessment results and personal career planning and take part in group
training on a selective basis, according to qualifications required for various positions. Integrated management
training comprises lectures, online learning and action-based learning. For in-service management officers, the
Group conducts reading classes, close-ended training and guided reading.
ANNUAL REPORT 2014
121
Corporate Governance Structure
The Company has prepared the “Corporate Governance Work Report” and the “Corporate Governance Report”
in accordance with different requirements in form and content of PRC securities regulatory authorities and the
Hong Kong Listing Rules, respectively. To avoid undue repetitions and to keep the presentation lucid, a cross-
referencing approach has been adopted.
PART I: CORPORATE GOVERNANCE WORK REPORT PREPARED IN ACCORDANCE WITH PRC
SECURITIES REGULATORY REQUIREMENTS
I. Status of Corporate Governance
The Company continued to improve its corporate governance systems and regimes, regulate operations and
optimise internal control regimes in accordance with requirements of the Company Law, Securities Law, Corporate
Governance Standards for Listed Companies and relevant laws and regulations of CSRC.
During the year, in accordance with the “Notice on the Publication of Supplementary Guidelines for Corporate
Internal Control” (??????????????????) jointly promulgated by 5 ministries and ministerial
commissions including the Ministry of Finance and the CSRC and the “Notice on the Proper Implementation of
Pilot Internal Control Standards of Listed Companies in Shenzhen” (?????????????????????
????????) and the “Notice on Further Procuring Work relating to the Implementation of Internal Control
Rules for Shenzhen Listed Companies” (??????????????????????????????) issued
by the Shenzhen CSRC, the “2013 Summary Report and 2014 Work Plan for Internal Control and Audit” has
been formulated and reviewed at the seventh meeting of the Audit Committee of the Fifth Session of the Board
of Directors and the Sixteenth Meeting of the Sixth Session of the Board of Directors.
At the end of the year, the status of corporate governance of the Company was in compliance with provisions
of regulatory documents relating to the governance of listed companies published by the CSRC. The Company
has not received any documents relating to administrative regulatory measures adopted by regulatory authorities
against the Company.
(I) Shareholders and general meetings: The Company has established a corporate governance structure to
ensure that all shareholders, minority shareholders in particular, can fully exercise their rights and enjoy
equal status. Sufficient time is provided at general meetings of shareholders, which are convened legally
and validly, for the discussion of each proposal, to provide a good opportunity for communications between
the Board and the shareholders. In accordance with the revised Rules for General Meetings of Listed
Companies, the Company has introduced online voting to afford convenience for shareholders participating
in its General Meetings, as well as the practice of separately disclosing the votes of minority shareholders
in announcements of resolutions of general meetings to give an adequate account of the views of minority
shareholders. In addition, shareholders may contact the Company through its shareholder hotline during
normal working hours or contact and communicate with the Company through its designated e-mail address
and the investors’ relations interactive platform of the Shenzhen Stock Exchange. The Company has also set
up an “Investor Protection Promotion” column on its website to collect, compile, publish or cite information
relating to investor protection.
(II) Controlling shareholder and the listed company: The Company’s controlling shareholder is Zhongxingxin.
The controlling shareholder exercises its rights as an investor in strict compliance with the law, without
compromising the lawful rights and interests of the Company and other shareholders. Candidates for election
as Directors and Supervisors are nominated in strict compliance with laws and regulations and the terms and
procedures as set out in the Articles of Association. The staffing, assets, financial affairs, organisation and
business of the controlling shareholder of the Company are independent from those of the listed company,
with the controlling shareholder and listed company each carrying out independent auditing and assuming
ZTE CORPORATION
122
Corporate Governance Structure
its own responsibilities and risks. The controlling shareholder of the Company was not engaged in any direct
or indirect interference with the decision-making and business activities of the Company in circumvention of
the general meeting.
(III) Directors and the Board: The Company appoints directors in strict compliance with the criteria and
procedures set out its Articles of Association, ensuring that the directors are appointed in an open, fair,
just and independent manner. In order to fully reflect the opinions of minority shareholders, a cumulative
voting scheme is adopted for the appointment of directors. The Board of Directors has a reasonable mix
of expertise and acts in the best interests of the Company in good faith. The Company has formulated the
Rules of Procedure of the Board of Directors Meetings, and board meetings are convened and held in strict
compliance with the Articles of Association and Rules of Procedure of the Board of Directors Meetings. To
optimise the corporate governance structure, three specialised committees — the Nomination Committee,
Audit Committee and Remuneration and Evaluation Committee — have been established by the Board of
Directors in accordance with the Governance Standards for Listed Companies. The majority of members and
the respective convenors of these committees are Independent Non-executive Directors, providing scientific
and professional opinions for reference by the Board of Directors in its decision-making.
(IV) Supervisors and the Supervisory Committee: The Supervisors possess professional knowledge and work
experience in management, accounting and other areas and are elected by way of cumulative voting. They
monitor the financial affairs and supervise the lawful and regulatory performance of duties by the Company’s
Directors, the Chief Executive Officer and other members of the senior management to safeguard the legal
rights and interests of the Company and shareholders. The Company has formulated the Rules of Procedure
for Supervisory Committee Meetings. Meetings of the Supervisory Committee are convened and held in strict
compliance with the Articles of Association and the Rules of Procedure for Supervisory Committee Meetings.
(V) Performance appraisal and incentive mechanism: During the year, the Remuneration and Evaluation
Committee of the Board of Directors linked the salaries of the senior management with the results of
the Company and personal performance in accordance with the Scheme for the Administration of Senior
Management’s Performance. Senior management personnel are recruited and appointed in strict compliance
with relevant rules, regulations and the Articles of Association. In order to establish a long-term incentive
mechanism closely linked with the Company’s business performance and long-term strategy, so as to help
optimise the overall remuneration structure and create a competitive advantage in human resources that will
contribute to the long-term, sustainable growth of the Company’s operation, the Remuneration and Evaluation
Committee of the Board of Directors has formulated the Share Option Incentive Scheme of the Company,
which has been approved at the general meeting of the Company. The grant of share options was completed
in October 2013 and registration was completed in November 2013.
(VI) Stakeholders: The Company respects the legal rights and interests of banks and other stakeholders such as
creditors, employees, consumers, suppliers, and the community, and works actively with these stakeholders
to promote the sustainable and healthy development of the Company.
(VII) Information disclosure and transparency: The Secretary to the Board of Directors and dedicated officers are
responsible for handling information disclosure, arranging receptions of visiting shareholders and answering
enquiries on behalf of the Company. Relevant information is disclosed in strict compliance with relevant laws
and regulations and the Articles of Association in a true, accurate, complete and timely manner, ensuring
that all shareholders have equal access to information. There were no instances of controlling shareholders
or de facto controllers owning information otherwise not publicly disclosed or other irregularities in corporate
governance during the year.
ANNUAL REPORT 2014
123
(VIII) Rules and regulations established
No. Title Date of disclosure
Note
1 Articles of Association 14 June 2014
2 Rules of Procedure of the General Meetings 20 May 2009
3 Rules of Procedure of the Board of Directors Meetings 26 May 2012
4 Rules of Procedure of the Supervisors’ Meetings 7 April 2006
5 Working Rules for the Nomination Committee of the Board of Directors 27 April 2013
6 Working Rules for the Audit Committee of the Board of Directors 29 March 2012
7 Working Rules for the Remuneration and Evaluation Committee of the
Board of Directors
29 March 2012
8 System of Derivative Investment Risk Control and Information Disclosure 28 April 2010
9 System for the Administration of External Information Users 9 April 2010
10 System of Accountability for Significant Errors in Information Disclosure of
Annual Reports
9 April 2010
11 System of Registration of Owners of Inside Information 23 August 2012
12 Specific System for the Selection and Appointment of Accountants’ Firms 20 August 2009
13 System of Annual Report Duties for Independent Directors 14 March 2008
14 Guidelines for Work of the Audit Committee of the Board of Directors
relating to the Annual Report
14 March 2008
15 Independent Director System 26 June 2007
16 Administrative Measures for Guest Reception and Promotion 26 June 2007
17 Administrative Rules of the Company on Issue Proceeds 26 June 2007
18 Internal Control System 21 August 2014
19 Administrative Rules for Information Disclosure 26 June 2007
20 Implementation Rules for the Dealings in Company’s Shares by Directors,
Supervisors, Senior Management and Their Related Parties
26 June 2007
Note: The dates on which the latest revised versions of the above rules and regulations being posted on http://www.cninfo.com.cn.
II. Implementation of specific corporate governance activities and the establishment and
implementation of the system of registration of owners of inside information
1. Implementation of specific corporate governance activities
During the year, the Company’s Internal Control and Audit Department revised the “ZTE Internal Control System”
in accordance with the Basic Rules for Corporate Internal Control and other pertinent laws and regulations, taking
into account the business characteristics and implementation status of internal control of the Company. The revised
Internal Control System was considered and passed at the Nineteenth Meeting of the Sixth Session of the Board of
Directors of the Company held on 20 August 2014 and published on http://www.cninfo.com.cn on 21 August 2014.
ZTE CORPORATION
124
Corporate Governance Structure
2. Establishment and implementation of the System of Registration of Owners of Inside Information
To regulate the Company’s management of inside information, enhance confidential treatment of inside information
and safeguard fairness in information disclosure, the Company formulated the System of Registration of Owners
of Inside Information in accordance with provisions of relevant laws and regulations, which was considered and
passed at the Thirtieth Meeting of the Fourth Session of the Board of Directors of the Company on 27 October
2009. The amendment of the system was considered and approved at the Thirty-second Meeting of the Fifth
Session of the Board of Directors of the Company held on 22 August 2012 and published on http://www.cninfo.
com.cn on 28 October 2009 and 23 August 2012, respectively. During the year, the Company diligently implemented
relevant provisions of the System of Registration of Owners of Inside Information and vigorously commenced work
in inside information management.
No instances of owners of inside information trading in the Company’s shares with the benefit of inside information
during the year have been identified. Neither the Company nor its relevant personnel had been subjected to
regulatory measures or administrative punishment by regulatory authorities as a result of alleged involvement in
inside trading.
III. Information on general meetings convened
At the 2013 Annual General Meeting of the Company convened on-site on 29 May 2014, the “2013 Annual Report
(comprising the financial statements for the year ended 31 December 2013 audited by the PRC and Hong Kong
auditors)”, “Report of the Board of Directors of the Company for the year ended 31 December 2013”, “Report
of the Supervisory Committee of the Company for the year ended 31 December 2013”, “Report of the President
of the Company for the year ended 31 December 2013”, “Final financial accounts of the Company for the year
ended 31 December 2013”, “Profit distribution proposal of the Company for the year ended 31 December 2013”,
“Resolutions on the proposed applications by the Company for composite credit facilities”, “Resolutions on the
appointment of the PRC auditors and the Hong Kong auditors of the Company for the year ended 31 December
2014”, “Resolution on the application for investment limits in derivative products of the Company in 2014”,
“Resolution on matters pertaining to debt financing of ZTE (H.K.) Limited”, “Resolution on General Mandate for
2014”, “Resolution on additions to the scope of business and the amendment of relevant clauses of the ‘Articles
of Association’ to reflect the same” were considered and approved. For details of the resolutions, please refer to
the “Announcement on Resolutions of the 2013 Annual General Meeting of ZTE Corporation” published by the
Company on 30 May 2014 at http://www.cninfo.com.cn and in China Securities Journal, Securities Times and
Shanghai Securities News.
At the First Extraordinary General Meeting of 2014 of the Company held on 15 October 2014 by way of a
combination of on-site voting and online voting, the “Resolution on the Provision of Guarantee by the Company
for ZTE (H.K.) Limited, a Wholly-owned Subsidiary, in respect of Debt Financing”, “Resolution on the Proposed
Registration and Issue of Perpetual Medium Term Note of the Company” and “Resolution on the Provision
of Performance Guarantee by the Company for ZTE (MALAYSIA) CORPORATION SDN BHD, a Wholly-owned
Subsidiary” were considered and approved. For details of the resolutions, please refer to the “Announcement on
Resolutions of the First Extraordinary General Meeting of 2014 of ZTE Corporation” published by the Company
on 16 October 2014 at http://www.cninfo.com.cn and in China Securities Journal, Securities Times and Shanghai
Securities News.
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125
IV. Performance of the Independent Non-executive Directors
During the year, the Independent Non-executive Directors played a significant role in optimising the corporate
governance structure of the Company and protecting the interests of minority shareholders. During the year, the
Independent Non-executive Directors of the Company did not dispute any resolutions passed at the Board of
Directors meetings and other matters of the Company. In relation to important matters on which they were required
to give independent opinions (including connected transactions, third-party guarantees and third-party investments),
the Independent Non-executive Directors have diligently reviewed the matters concerned and have issued
independent opinions in writing. By providing valuable and professional recommendations on major decisions by
the Company, the Independent Non-executive Directors have improved the rationality and objectiveness of the
Company’s decisions.
Attendance of Independent Non-executive Directors of the Company at Board of Directors meetings and general
meetings in 2014 was as follows:
Independent Non-
executive Directors
Number
of Board
meetings
required to
attend
Number of
personal
attendance
(including
video
conference)
Number of
attendance via
communications
Attendance
by proxy Absence
Failure to
attend in
person at two
consecutive
meetings
Attendance
at general
meetings
Qu Xiaohui 10 8 2 0 0 No 1
Wei Wei 10 6 2 2 0 No 1
Chen Naiwei 10 8 2 0 0 No 2
Tan Zhenhui 10 6 2 2 0 Yes
Note
2
Richard Xike Zhang 10 7 2 1 0 No 0
Note: Independent Non-executive Director Mr. Tan Zhenhui was not able to attend the Twenty-second Meeting and the Twenty-third Meeting of
the Sixth Session of the Board of Directors due to work reasons and appointed in writing Independent Non-executive Director Mr. Chen
Naiwei to vote on his behalf at both meetings.
The Company has adopted recommendations in respect of the Company proposed by the Independent Non-
executive Directors. For details, please refer to the “2014 Report on the Performance of Duties by Independent
Non-executive Directors” published on http://www.cninfo.com.cn on 26 March 2015.
V. Performance of principal duties by specialised committees of the Board of Directors
During the year, the specialist committees under the Board of Directors of the Company convened meetings
and performed their duties in strict accordance with the Articles of Association, Rules of Procedure of the
Board of Directors Meetings and their respective working rules, playing an important role in ensuring scientific
decision making at the Board of Directors as they operated in compliance with the laws to furnish opinions and
recommendations in respect of matters such as the Company’s financial information and its disclosure, internal
audit system and its implementation, internal control system and risk management system, material connected
transactions, nomination of candidates for Directors and senior management and management of remuneration
and performance of Directors and senior management.
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Corporate Governance Structure
1. Performance of principal duties by the Audit Committee
During the year, the Audit Committee diligently performed its duties in accordance with the “Working Rules for
the Audit Committee” and the “Guidelines for Work of the Audit Committee relating to the Annual Report” and
performed duties such as the vetting of the annual auditing and supervision and inspection of the building and
improvement of the Company’s internal controls.
(1) Issue of three review opinions on the 2014 financial report of the Company
Members of the Audit Committee boast rich expertise and experience in financial operations. During the year,
the Audit Committee issued three review opinions on the annual financial report in accordance with relevant
requirements of the CSRC.
The Audit Committee first examined the unaudited financial statements and issued an opinion in writing. The Audit
Committee was of the view that: relevant accounting standards had been appropriately applied and all significant
accounting systems adopted had been consistent with those adopted for 2013; key financial indicators calculated
on the basis of data from the 2014 management accounts were consistent with preliminary judgements made by
the Committee members based on known facts and comparison with financial indicators of 2013. The passing of
the financial statements to the PRC and Hong Kong auditors for auditing was approved.
Following timely review of the preliminary opinion of the audit report and discussions with the PRC and Hong
Kong auditors, the Audit Committee was of the view that the preliminary audit results of the 2014 annual report
was in compliance with the accounting standards for business enterprises and their practice notes.
Finally, the Audit Committee reviewed the audit opinion of the PRC and Hong Kong auditors and the audited
financial report of the Company for 2014. The Audit Committee was of the view that the report was a true
representation of the financial conditions of the Company in 2014 and approved the submission of the report for
consideration by the Board of Directors.
(2) Supervision of the audit work of the accountants’ firms
To ensure the conduct of auditing work in an orderly manner given the complex nature of the Company’s
business, the PRC and Hong Kong auditors of the Company had finalised the audit timetable for the year in
January 2015. In accordance with “Guidelines for Work of the Audit Committee relating to the Annual Report”, the
Company arranged the timely report of such audit timetable to the Audit Committee. Following discussion with
the accountants’ firms, the Audit Committee was of the view that the annual audit timetable scheduled by the
Company according to actual circumstances was appropriate, and the Audit Committee concurred with the annual
audit plan arranged by the accountants’ firms. During the course of audit, members of the Audit Committee held
discussions with principal officers in charge of the assignment to inform themselves of the progress of audit and
concerns of the accountants. Such concerns were then communicated to relevant departments of the Company
in a timely manner. The Audit Committee also issued two letters to the accountants’ firms requesting auditors in
charge of the assignment to expedite their work in accordance with the original timetable.
ANNUAL REPORT 2014
127
(3) Summary report on the 2014 audit work performed by the accountants’ firms
The PRC and Hong Kong auditors of the Company performed auditing on the Company’s annual report during the
period from October 2014 to March 2015. During such period, the PRC and Hong Kong auditors of the Company
and the Audit Committee held discussions on the annual audit plan, and issues identified in the audit process
were also brought to the attention of the Audit Committee in a timely manner. The preliminary audit opinion was
submitted to the Audit Committee for consideration. The PRC and Hong Kong auditors of the Company completed
the full audit process and acquired sufficient and appropriate audit evidence after nearly 6 months of auditing
work. The audit reports by PRC and Hong Kong auditors with unqualified opinion were then submitted to the
Audit Committee.
During the course of the annual audit, the Audit Committee held discussions and exchanged views with the PRC
and Hong Kong auditors of the Company, and also examined the annual audit report furnished by the PRC and
Hong Kong auditors. The Audit Committee was of the view that the PRC and Hong Kong auditors of the Company
were capable of performing their tasks in strict accordance with audit regulations, focusing on knowledge of the
Company and the environment in which it operated, understanding the building, improvement and implementation of
the Company’s internal control, demonstrating acute risk awareness and completing the audit work in accordance
with the audit timetable. The auditors maintained their independence and prudence in the course of audit and
completed the audit of the Company’s 2014 financial report and internal control audit in a satisfactory manner.
(4) Recommendations on the appointment of PRC and Hong Kong auditors
Based on cooperation with Ernst & Young Hua Ming LLP and Ernst & Young over the years, the Audit Committee
was of the view that the PRC and Hong Kong auditors of the Company are major accountants’ firms with high-
calibre professional teams, full qualifications for the practice, rich practical experience and stringent internal
management. As such, the Audit Committee recommends the Board of Directors to re-appoint Ernst & Young Hua
Ming LLP as PRC auditors and Ernst & Young as Hong Kong auditors of the Company for the financial reports
of 2015, and to re-appoint Ernst & Young Hua Ming LLP as the internal control auditor of the Company for 2015.
(5) Supervision of measures to improve the Company’s internal control system
The Audit Committee is highly concerned with the establishment of a department with appropriate staffing for the
inspection and supervision of the Company’s internal control. The Internal Control and Audit Department serves
as the day-to-day executive arm of the Audit Committee to implement supervision and inspection of internal
controls on behalf of the Audit Committee. The Audit Committee actively supports the Internal Control and Audit
Department to perform its audit functions in accordance with the law and fulfill the supervisory role of the audit
function. During the year, the Audit Committee received the report of the Internal Control and Audit Department
on internal control and audit, reviewed the derivative investments of the Company and made recommendations
in respect of risk control in the Company’s derivative investments.
2. Performance of principal duties by the Remuneration and Evaluation Committee
Examination opinion of the Remuneration and Evaluation Committee on the disclosed remuneration of Directors,
Supervisors and senior management of the Company:
The Remuneration and Evaluation Committee has conducted detailed examination of disclosed remuneration
of Directors, Supervisors and senior management of the Company, and is of the view that the procedure for
determining the remuneration of Directors, Supervisors and senior management of the Company is in compliance
with relevant provisions, and that the remuneration of Directors, Supervisors and senior management of the
Company disclosed in the 2014 annual report of the Company is true and accurate.
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Corporate Governance Structure
3. Performance of principal duties by the Nomination Committee
During the year, the principal work of the Nomination Committee included the consideration of resolutions on
the employment and dismissal of senior management personnel, and the review of the structure, headcount and
composition (in terms of skills, know-how and experience) of the Board of Directors.
VI. Performance of duties by the Supervisory Committee
Having conducted diligent supervision and inspection in relation to matters such as the legal compliance of the
Company’s operation, the financial conditions, connected transactions and third-party investments of the Company
during the year in strict accordance with the provisions of pertinent laws and regulations and the Articles of
Association, the Supervisory Committee of the Company does not express any dissent as a result of its supervision
over these matters.
VII. The Company’s independence from its controlling shareholder and integrity in staffing, assets,
finance, business and organisation
The Company is independent of its controlling shareholder Zhongxingxin in respect of the staff, assets, finance,
business and organisation. Each of the Company and Zhongxingxin is audited independently and assumes its
own responsibilities and risks.
With respect to staffing, the Company is fully independent in matters including the management of labour, human
resources and salaries. Members of the senior management receive their remuneration from the Company and
do not receive any remuneration from the controlling shareholder or take up other major positions other than as
directors.
With respect to assets, the Company’s assets are fully independent and the Company has clear ownership of
its assets. The Company has independent production systems, supplementary production systems and ancillary
facilities. Intangible assets such as industrial property rights, trademarks, and other non-patentable technologies are
owned by the Company. The Company’s procurement and sales systems are independently owned by the Company.
With respect to finance, the Company has an independent financial department. It has established an independent
accounting and auditing system and a financial management system, and maintains an independent bank account.
With respect to business, the Company’s business is fully independent from the controlling shareholder. Neither the
controlling shareholder nor its subsidiaries are engaged in any business identical or similar to that of the Company.
With respect to organisation, the Board of Directors, the Supervisory Committee and other internal organizations
of the Company operate in complete independence from the controlling shareholder. There are no subordinate
relationships between the controlling shareholder (and its functional departments) and the Company (and its
functional departments).
ANNUAL REPORT 2014
129
VIII. Establishment and Implementation of the Appraisal and Incentive Mechanism for Senior
Management
The Company has established a performance appraisal system for senior management and an incentive mechanism
linking remuneration to the Company’s results and the individual staff member’s performance. The Remuneration
and Evaluation Committee is mainly responsible for formulating and examining proposals for the management
of remuneration and performance of the Directors and senior management of the Company, conducting annual
performance appraisals for the senior management of the Company and determining the remuneration of the
senior management based on the results of the appraisal for implementation after consideration and approval by
the Board of Directors.
PART II: CORPORATE GOVERNANCE REPORT PREPARED IN ACCORDANCE WITH THE REQUIREMENTS
OF THE HONG KONG LISTING RULES
The Company is dedicated to improving its corporate governance standards and strives to increase its enterprise
value by adopting stringent corporate governance practices, with a view to ensuring sustainable development,
fulfilling corporate responsibilities as a listed company, and maximising value for its shareholders in the long term.
The Company had fully complied with all the principles and code provisions of the Corporate Governance Code
set out in Appendix 14 to the Hong Kong Listing Rules during the period from 1 January to 31 December 2014.
I. Shareholders’ Rights and Investors’ Relations
(I) Shareholders’ rights
The Company adopts relevant measures to facilitate and ensure the smooth exercise of shareholders’ rights in
strict compliance with relevant laws and regulations of the PRC or otherwise and in accordance with pertinent
requirements under the Articles of Association.
Details of the shareholding structure of the Company are set out in the section of this report headed “Changes
in Shareholdings and Information of Shareholders”.
The Company has always maintained effective communications with its shareholders by reporting the Group’s
results and operations to shareholders through numerous official channels, such as disclosures in annual reports,
interim reports and quarterly reports. Shareholders may also express their views or exercise their rights through
communication channels set up by the Company, such as the shareholders’ hotline and e-mail contacts. The
Company’s website is updated regularly to provide investors and the public with timely information of the
Company’s latest developments. Shareholders may also submit their enquiries and questions to the Board of
Directors in writing through the company secretary. For the contact information of the company secretary, please
refer to the section headed “Corporate Information” in this report.
The circular and the notice of general meeting of the Company is in strict compliance with pertinent provisions
of the Company Law, the Articles of Association and the Hong Kong Listing Rules in terms of dates, contents,
delivery modes, announcement methods and shareholders’ voting procedures, ensuring the smooth exercise of
shareholders’ right to participate in general meetings. Shareholders holding 10% of above of the shares of the
Company alone or in aggregate shall be entitled to request the Board of Directors or Supervisory Committee
to convene an extraordinary general meeting or to unilaterally convene such extraordinary general meeting. For
details, please refer to Articles 74, 75 and 76 of the Articles of Association. Shareholders holding 3% of above
of the shares of the Company alone or in aggregate shall be entitled to propose ex tempore motions 10 days
prior to the convening of the general meeting and submit the same in writing to the convener of the general
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Corporate Governance Structure
meeting. For details, please refer to Article 78 of the Articles of Association. In accordance with Article 100 of
the Articles of Association, the Directors, Supervisors and senior management of the Company shall be required
to give explanations in response to queries and suggestions of shareholders. In 2014, the Company convened 2
general meetings. For details, please refer to the section headed “III Information on general meetings convened”
in Part I of this chapter.
(II) Investors’ relations
The Company is committed to the development of investors’ relations programmes and sound communications
with investors are being maintained via our investors’ relations hotline, e-mail and investor reception. The Company
regards the convening of its annual general meeting as one of the most important annual events for the Company.
All Directors and key senior management members will attend the meeting on a best effort basis and engage in
direct dialogue with the shareholders during the arranged Q&A sessions. Details of the Company’s reception of
investors during 2014 are set out in the section of this report headed “Report of the Board of Directors (II) 19.
Reception of Investors, Communications and Press Interviews During the Year”.
In the coming year, the Company will further enhance communications with investors with the hope that they will
offer more support and concern for the Company on the back of better understanding.
In line with the Company’s business development, its scope of business was amended with the addition of
“technical design, development, consultancy and services for new energy power generation and application
systems,” and such additions were incorporated into the Articles of Association under Article 14 (clause on the
scope of business). Such amendments were considered and approved at the Annual General Meeting of 2013 of
the Company convened on 29 May 2014. For details, please refer to the “Announcement on Resolutions of the
Annual General Meeting of 2013” published by the Company on the same date.
II. Board of Directors
Members of the Board of Directors seek to act in the best interests of the Company, providing leadership and
supervision over the Company and assuming joint and individual responsibility to all shareholders of the Company
in respect of the management, control and operations of the Company.
(I) Functions of the Board
The Board of Directors is responsible for convening general meetings, reporting its work to the general meeting,
implementing resolutions of the general meeting in a timely manner, monitoring the development of the overall
operational strategy of the Company, deciding on the operational plan and investment proposal of the Company,
as well as supervising and guiding the management of the Company. The Board of Directors should also monitor
the business and financial performance of the Company and formulate the annual financial budgets and final
accounts of the Company.
The Directors confirm that it is their responsibility to prepare financial statements in respect of each financial
year to give a true and fair report on the Group’s conditions, as well as the results and cash flow accounts for
the relevant periods. The Directors have consistently applied appropriate accounting policies and complied with
all applicable accounting standards in preparing the financial statements for the year ended 31 December 2014.
After due enquiries, the Directors are of the opinion that the Group has sufficient resources to carry on operations
in the foreseeable future, and as a result it is appropriate for the Group to prepare its financial statements on an
ongoing concern basis.
ANNUAL REPORT 2014
131
(II) Composition of the Board
The Board of Directors of the Company comprises 14 Directors, including 1 Chairman and 2 Vice Chairmen. Except
for the Chief Executive Officer (Mr. Shi Lirong) and 2 Executive Directors (Mr. Yin Yimin and Mr. He Shiyou), all
Directors are Non-executive Directors independent of the management, including 5 Independent Non-executive
Directors, namely Ms. Qu Xiaohui, Mr. Wei Wei, Mr. Chen Naiwei, Mr. Tan Zhenhui and Mr. Richard Xike Zhang,
who possess academic and professional qualifications as well as substantial experience in the telecommunications,
financial, legal and management sectors and who have influence in relevant sectors and are proactive in the
performance of their duties, and 6 Non-executive Directors, namely Mr. Hou Weigui (Chairman), Mr. Zhang Jianheng,
Mr. Xie Weiliang, Mr. Wang Zhanchen, Mr. Zhang Junchao and Mr. Dong Lianbo, who have extensive business and
management experience. Their presence enables stringent review and control of the management procedures and
ensures that the interests of shareholders as a whole, including minority shareholders, are safeguarded. The profile
and terms of office of the Directors are set out in the section of this report headed “Directors, Supervisors, Senior
Management and Employees”. The composition of the Board of Directors was in compliance with the provisions
of Rule 3.10(1) and (2) and Rule 3.10A of the Hong Kong Listing Rules.
The Company confirms that it has received annual written confirmations of independence from all the Independent
Non-executive Directors regarding their independence in accordance with Rule 3.13 of the Hong Kong Listing
Rules. In accordance with the guidelines on independence set out in the Hong Kong Listing Rules, the Company
is of the opinion that all the Independent Non-executive Directors are independent persons.
There were no financial, business, family or other material/relevant connections among members of the Board of
Directors of the Company.
(III) Term of office, appointment and removal of Directors
A Director (including Non-executive Director) of the Company is appointed for a term of 3 years and is eligible for
re-election upon conclusion of each term. An Independent Non-executive Director can hold office for a maximum
of 6 years. The term of office of each of Ms. Qu Xiaohui, Mr. Wei Wei and Mr. Chen Naiwei as Independent Non-
executive Director of the Sixth Session of the Board of Directors commenced on 30 March 2013 and shall end on
21 July 2015. The term of office of Mr. Richard Xike Zhang as Independent Non-executive Director of the Sixth
Session of the Board of Directors commenced on 30 June 2013 and shall end on 29 March 2016. Other than the
above, the term of office of all Directors of the Sixth Session of the Company commenced on 30 March 2013
and shall end on 29 March 2016.
The appointment and removal of Directors is subject to the approval of the general meeting of the Company. Each
Director has entered into a Director’s Service Contract with the Company. There was no change in the Directors
of the Company during the year.
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Corporate Governance Structure
(IV) Board Meetings
1. The Articles of Association requires that the Board of Directors convene at least 4 meetings a year. In
2014, the Board of Directors of the Company convened 10 meetings. In 2014, the Company convened
2 general meetings. Attendance of Directors at the meetings of the Board of Directors and the general
meetings in 2014 was set out in the following table:
Board meetings General meetings
Number of meetings 10 2
Directors
Attendance
in person
Attendance
by proxy
Attendance
Note
Attendance
in person
Attendance
Note
Chairman and Non-executive Director
Hou Weigui 6 4 6/10 2 2/2
Vice Chairman and Non-executive Director
Zhang Jianheng 4 6 4/10 0 0/2
Xie Weiliang 7 3 7/10 1 1/2
Non-executive Director
Wang Zhanchen 8 2 8/10 1 1/2
Zhang Junchao 8 2 8/10 1 1/2
Dong Lianbo 6 4 6/10 1 1/2
Executive Director
Shi Lirong 9 1 9/10 1 1/2
Yin Yimin 6 4 6/10 0 0/2
He Shiyou 8 2 8/10 0 0/2
Independent Non-executive Director
Qu Xiaohui 10 0 10/10 1 1/2
Wei Wei 8 2 8/10 1 1/2
Chen Naiwei 10 0 10/10 2 2/2
Tan Zhenhui 8 2 8/10 2 2/2
Richard Xike Zhang 9 1 9/10 0 0/2
Note: Attendance by proxy was not counted for the percentage of attendance.
2. As stipulated by the Articles of Association, all Directors should be given 14 days’ notice prior to the
commencement of a regular Board of Directors meeting and 3 days’ notice prior to the commencement of
an interim Board of Directors meeting. The secretary to the Board of Directors should provide details of a
regular Board of Directors meeting (including information in relation to each of the meetings of specialised
committees of the Board of Directors) not later than 3 days prior to the commencement of the meeting to
ensure all Directors are briefed on matters to be considered in the meeting in advance.
As for interim Board of Directors meetings which are convened by way of voting via telecommunication
means at the request of the Company’s management, information about the meeting would be provided
simultaneously to all Directors via email and facsimile and sufficient time would be given to the Directors to
consider the matters. The secretary to the Board of Directors would respond to any questions raised by the
Directors and take appropriate action in a timely manner to assist the Directors to ensure that the procedures
of the Board of Directors are in compliance with the applicable regulations, such as the Company Law, the
Articles of Association and the Hong Kong Listing Rules.
ANNUAL REPORT 2014
133
3. Minutes of each Board of Directors meetings should be signed by the attending Directors and minute-takers,
and be kept for a term of 10 years, during which the minutes are available for Directors’ inspection from
time to time upon their request.
4. Where any matters (including connected transactions) to be considered by the Board of Directors of the
Company are deemed by the Board of Directors to involve a material conflict of interest, abstention measures
are adopted and the Directors who are by any means connected with such transactions would abstain from
voting.
(V) Respective scopes of delegation and duties of the Board of Directors and the management
The scopes of delegation and duties of the Board of Directors and the management have been clearly defined.
Duties of the Board of Directors are set forth in Article 160 of the Articles of Association, summary of which can
be found in the section headed “II (I) Functions of the Board” under Part II of this chapter. The management
should be responsible for day-to-day operation and management and be accountable to the Board of Directors
by furnishing adequate information to the Board of Directors and the specialised committees in a timely manner
to enable them to make informed decisions. Each Director is entitled to obtain further information from the
management of the Company.
(VI) Chairman and the Chief Executive Officer
The offices of the Chairman and that of the Chief Executive Officer of the Company are two distinctively separated
positions, assumed by Mr. Hou Weigui and Mr. Shi Lirong, respectively. Their respective duties and functions are
clearly defined in the Articles of Association. Duties of the Chairman and the Chief Executive Officer are set forth
in Articles 164 and 181 of the Articles of Association, respectively.
The Chairman of the Company is responsible for the operation of the Board of Directors and advising the Board of
Directors and the Company on the overall strategy and policies of the Company so as to ensure that all Directors
act in the best interest of the shareholders.
The Chief Executive Officer of the Company is responsible for leading the management team of the Company to
take charge of the day-to-day management and operation of the Company in accordance with the objectives and
directions set by the Board of Directors and the internal control policy and procedures of the Company.
The Chief Executive Officer of the Company maintains ongoing communications with the Chairman and all Directors
and reports his work to the Board of Directors regularly to ensure that all Directors are well informed of any
material business development.
(VII) Measures Taken to Ensure the Performance of Duties by Directors
1. The Company would supply the Director with all the relevant and necessary information when the Director
takes office and thereafter will supply, on a regular basis, information that would help the Directors understand
the business and operating conditions of the Company. The Company would subsequently provide the
Directors with the newly promulgated laws and regulations as well as information and development concerning
the Company, such as its internal publications, and arrange for the Directors to attend relevant continuing
professional training courses at the cost of the Company, in order to assist them to fully understand their
duties as a director under the requirements of the Hong Kong Listing Rules and other relevant laws and
regulations, as well as gaining comprehensive insight in the Company’s operation in a timely manner. To
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Corporate Governance Structure
ensure adequate performance of duties by the Independent Non-executive Directors, the Company will
organise on-site visits and communications with the Chief Financial Officer and Auditor for the Independent
Non-executive Directors.
2. According to records maintained by the Company, the Directors of the Company received the following
training focused on the roles, functions and duties of directors of listed companies in 2014:
Contents Laws, regulations and rules
Directors
Reading
materials
Attendance
at talks or
seminars
Chairman and Non-executive Director
Hou Weigui ? —
Vice Chairman and Non-executive Director
Zhang Jianheng ? —
Xie Weiliang ? —
Non-executive Director
Wang Zhanchen ? —
Zhang Junchao ? —
Dong Lianbo ? —
Executive Director
Shi Lirong ? —
Yin Yimin ? —
He Shiyou ? —
Independent Non-executive Director
Qu Xiaohui ? ?
Wei Wei ? ?
Chen Naiwei ? ?
Tan Zhenhui ? ?
Richard Xike Zhang ? —
3. Whenever the Directors of the Company are required to provide an opinion in relation to matters including
provision of third party guarantees, appropriation of funds and connected transactions, the Company would
engage relevant independent professional bodies, such as auditors, independent financial advisors and
lawyers, to provide independent and professional advice so as to assist the Directors in performing their
duties.
4. In respect of potential legal risks arising from the performance of duties by the Directors, Supervisors and
senior management and with the mandate of the general meeting, at the Nineteenth Meeting of the Sixth
Session of the Board of Directors held on 20 August 2014, the “Resolution on Directors’, Supervisors’ and
Senior Management’s Liability Insurance” was considered and passed, whereby the Company’s contract with
Chartis Insurance Company Limited, Shenzhen Branch was extended for one year with a compensation limit
of RMB100 million per annum.
ANNUAL REPORT 2014
135
III. Specialised Committees under the Board
There are 3 specialised committees under the Board of Directors of the Company, namely the Remuneration and
Evaluation Committee, Nomination Committee and Audit Committee. On 2 April 2013, the Sixth Session of the
Remuneration and Evaluation Committee, Nomination Committee and Audit Committee was elected at the First
Meeting of the Sixth Session of the Board of Directors of the Company. On 1 July 2013, the resolution on the
election of a new member as replacement to the Nomination Committee and the Remuneration and Evaluation
Committee of the Sixth Session of the Board of Directors was considered and approved at the Fifth Meeting of
the Sixth Session of the Board of Directors of the Company, whereby Mr. Richard Xike Zhang, Independent Non-
executive Director, was elected a new member as replacement to the Nomination Committee and the Remuneration
and Evaluation Committee of the Sixth Session of the Board of Directors. Specific working rules have been
formulated for each of the specialised committees, stipulating, among other things, the duties and powers of these
committees. The working rules of each of the specialised committees have been posted on the website of the
Hong Kong Stock Exchange and the website of the Company. The order of meeting for the specialised committees
is conducted in accordance with the provisions of the “Working Rules for the Remuneration and Evaluation
Committee”, “Working Rules for the Nomination Committee” and “Working Rules for the Audit Committee”, and
is implemented by reference to the statutory procedures for meetings of the Board of Directors.
(I) The Remuneration and Evaluation Committee
1. The role and functions of the Remuneration and Evaluation Committee
The Remuneration and Evaluation Committee is responsible for determining and reviewing specific remuneration
packages and performances of the Directors and senior management of the Company based on the management
policies and structures for the remuneration and performance of Directors and senior management laid down by
the Board of Directors.
2. Members and Meetings of the Remuneration and Evaluation Committee
The Remuneration and Evaluation Committee comprises 6 members, including 4 Independent Non-executive
Directors and 2 Non-executive Directors. As at the end of the year, the convenor of the Remuneration and
Evaluation Committee of the Sixth Session of the Board of Directors is Mr. Wei Wei, Independent Non-executive
Director. Members of the committee include Mr. Hou Weigui, Mr. Zhang Jianheng, Ms. Qu Xiaohui, Mr. Tan Zhenhui
and Mr. Richard Xike Zhang. The Remuneration and Evaluation Committee held 4 meetings in 2014. Attendance
at the meetings was as follows:
Members of the Remuneration and Evaluation Committee
Attendance in
person
Attendance by
proxy
Wei Wei 4/4 0/4
Hou Weigui 3/4 1/4
Zhang Jianheng 2/4 2/4
Qu Xiaohui 4/4 0/4
Tan Zhenhui 3/4 1/4
Richard Xike Zhang 4/4 0/4
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3. The decision-making process and criteria for determining remuneration for Directors and senior
management
The Remuneration and Evaluation Committee makes recommendations to the Board of Directors on the allowances
for Directors by reference to the work performance of the Directors of the Company as well as the levels offered
by other listed companies in the industry. Such recommendations shall be confirmed upon consideration and
approval both by the Board of Directors and the general meeting, namely in the manner set out in Code B.1.2(c)
(ii) of Appendix 14 to the Hong Kong Listing Rules.
The Remuneration and Evaluation Committee reviews implementation of remuneration appraisals on an annual
basis to determine the annual remuneration budget. It also conducts annual performance appraisals in respect of
each senior management personnel of the Company and determines the remuneration of such senior management
personnel based on the results of such appraisals for implementation after consideration and approval by the
Board of Directors.
4. Work of the Remuneration and Evaluation Committee during the year
The Remuneration and Evaluation Committee held 4 meetings in 2014 mainly to:
a) consider the preliminary drafts of the Company’s evaluation and incentive plans for the President, Executive
Vice Presidents and Senior Vice Presidents of 2014;
b) consider the resolution on the performance of and annual bonus amount for the President of the Company
for 2013, and submit the same to the Board of Directors of the Company for consideration and approval;
c) consider the resolution on the performance of and annual bonus amount for other senior management
personnel of the Company for 2013, and submit the same to the Board of Directors of the Company for
consideration and approval;
d) consider the resolution on the principles for determining the 2013 annual bonus amount for the Chairman
of the Board of Directors and the Chairman of the Supervisory Committee;
e) consider the report on the Company’s implementation of remuneration matters in 2013;
f) consider the report on the Company’s remuneration budget in 2014;
g) consider the resolution on Performance Management Measures for the President of the Company for 2014,
and submit the same to the Board of Directors of the Company for consideration and approval;
h) consider the resolution on Performance Management Measures for other senior management personnel of
the Company for 2014, and submit the same to the Board of Directors of the Company for consideration
and approval;
i) consider the resolution of the Company on the renewal of “Directors’, Supervisors’ and senior management’s
liability insurance,” and submit the same to the Board of Directors of the Company for consideration and
approval;
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(II) The Nomination Committee
1. The role and functions of the Nomination Committee
The Nomination Committee is primarily responsible for considering standards and procedures for the selection
of Directors and senior management of the Company. The committee considers the criteria, procedures and
duration of appointment for Directors and senior management of the Company in accordance with relevant laws
and regulations and the Articles of Association and taking into account the actual conditions of the Company. The
Nomination Committee then submits a proposal to the Board of Directors and general meetings (if applicable) for
approval, and implements the decisions.
2. Members and Meetings of the Nomination Committee
The Nomination Committee comprises 7 members, including 4 Independent Non-executive Directors and 3 Non-
executive Directors. As at the end of the year, the convenor of the Nomination Committee of the Sixth Session of
the Board of Directors is Mr. Tan Zhenhui, Independent Non-executive Director, and members of the committee
include Mr. Hou Weigui, Mr. Xie Weiliang, Mr. Wang Zhanchen, Mr. Wei Wei, Mr. Chen Naiwei and Mr. Richard
Xike Zhang.
The Nomination Committee held 1 meeting in 2014. Attendance at the meeting was as follows:
Members of the Nomination Committee
Attendance in
person
Attendance by
proxy
Tan Zhenhui 1/1 0/1
Hou Weigui 1/1 0/1
Xie Weiliang 1/1 0/1
Wang Zhanchen 0/1 1/1
Wei Wei 1/1 0/1
Chen Naiwei 1/1 0/1
Richard Xike Zhang 1/1 0/1
3. The criteria and procedures for the nomination and recommendation of Directors and senior management
and the board diversity policy
(1) The Nomination Committee conducts extensive searches for candidates for Directors and senior management
both internally in the Company, its subsidiaries or associate companies and externally in the open market
after considering the Company’s requirements for new Directors and senior management. With the consent
of the nominees, a meeting of the Nomination Committee will be convened to examine the qualifications of
the initial nominees based on the terms for appointment of Directors and senior management. Prior to the
election of new Directors, the Nomination Committee will propose candidates for Directors to the Board of
Directors and furnish the Board of Directors with relevant information. Prior to the appointment of new senior
management personnel, the Nomination Committee will also propose to the Board of Directors candidates to
be appointed as senior management personnel and furnish the Board of Directors with relevant information.
(2) The Nomination Committee shall recommend candidates for Directors and new senior management
appointments to the Board of the Directors in accordance with qualifications for directors and senior
management set out in the Company Law, Guiding Opinion of the China Securities Regulatory Commission
on the Establishment of the Independent Director System at Listed Companies (??????????????
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?????????????), Measures of the Shenzhen Stock Exchange for the Registration of Independent
Directors (?????????????????), the Hong Kong Listing Rules, the Articles of Association and
the Rules of Procedures of the Board of Directors, etc.
(3) The Nomination Committee has formulated a Board Diversity Policy, which has been set out in the Working
Rules of the Nomination Committee. The Board Diversity Policy primarily states that the Company will
consider board diversity from several perspectives when determining the composition of the Board of
Directors, including but not limited to age, cultural and education background, professional experience,
skills and know-how. All appointments of the Board of Directors are based on meritocracy, and candidates
are being considered under objective conditions taking into account the benefits of board diversity. The
composition of the Board of Directors of the Company is basically in line with the diversity principle. For
details, please refer to “II (II) Composition of the Board” in Part II of this chapter.
4. Work of the Nomination Committee during the year
In 2014, the Nomination Committee held 1 meeting mainly to consider the resolution on the proposed appointment
and dismissal of senior management personnel and submit the same to the Board of Directors of the Company
for consideration and approval.
(III) The Audit Committee
1. The role and functions of the Audit Committee
The Audit Committee is primarily responsible for making recommendations to the Board of Directors on the
appointment and removal, remuneration and terms of engagement of external auditors, supervising the Company’s
internal audit system and its implementation, examining the financial information of the Company and its disclosure
(including the inspection of the completeness of the Company’s financial statements and annual reports and
accounts, interim reports and quarterly reports, as well as the review of significant opinions on financial reporting
contained in the statements and reports), assessing the financial controls, internal controls and risk management
system of the Company, and reviewing material connected transactions.
2. Members and Meetings of the Audit Committee
The Audit Committee comprises 7 members, including 4 Independent Non-executive Directors and 3 Non-executive
Directors. As at the end of the year, the convenor of the Audit Committee of the Sixth Session of the Board of
Directors is Ms. Qu Xiaohui, Independent Non-executive Director, and members of the committee include Mr. Hou
Weigui, Mr. Zhang Junchao, Mr. Dong Lianbo, Mr. Wei Wei, Mr. Chen Naiwei and Mr. Tan Zhenhui. The composition
of the Audit Committee was in compliance with the provisions of Rule 3.21 of the Hong Kong Listing Rules.
The Audit Committee held 8 meetings in 2014. Attendance at the meetings was as follows:
Members of the Audit Committee
Attendance in
person
Attendance by
proxy
Qu Xiaohui 8/8 0/8
Hou Weigui 5/8 3/8
Zhang Junchao 6/8 2/8
Dong Lianbo 5/8 3/8
Wei Wei 7/8 1/8
Chen Naiwei 8/8 0/8
Tan Zhenhui 5/8 3/8
ANNUAL REPORT 2014
139
3. Work of the Audit Committee during the year
In 2014, the Audit Committee held 8 meetings mainly to:
a) consider the financial report of the Company for the year ended 31 December 2013, and submit the same
to the Board of Directors of the Company for consideration and approval;
b) receive the report of Ernst & Young on the audit plan relating to the financial report of the Company in 2013;
c) consider the resolution of the Company on continuing connected transaction relating to the purchase of
software outsourcing services from Huatong, a connected party, and submit the same to the Board of
Directors of the Company for consideration and approval;
d) consider the resolution of the Company on continuing connected transaction relating to the purchase of
software outsourcing services from Nanchang Software, a connected party, and submit the same to the
Board of Directors of the Company for consideration and approval;
e) consider the resolution of the Company on continuing connected transaction relating to the entering into of
a channel cooperation agreement with ????, a connected party, and submit the same to the Board of
Directors of the Company for consideration and approval;
f) consider whether actions taken by the management in litigations in which the Company or any members of
the Group is a defendant are appropriate;
g) receive the report of Ernst & Young on the financial audit of the Company in 2013;
h) receive the report of Ernst & Young on the internal control audit of the Company in 2013;
i) receive the explanatory statement of Ernst & Young on the 2013 continuing connected transactions of the
Company;
j) consider the summary report on the audit of the Company performed by the PRC and Hong Kong auditors
in 2013;
k) consider the audit fees payable to the PRC and Hong Kong auditors for the year ended 31 December 2013
and submit the same to the Board of Directors of the Company for consideration and approval;
l) consider resolutions on the appointment of the PRC and Hong Kong auditors of the Company for 2014
and submit the same to the Board of Directors and general meeting of the Company for consideration and
approval;
m) consider the resolution on the write-off of bad debts of the Company for the second half of 2013 and submit
the same to the Board of Directors of the Company for consideration and approval;
n) consider the report of the Company on derivative investments in 2013;
o) consider the resolution on the application for investment limits in derivative products of the Company for 2014
and submit the same to the Board of Directors and the general meeting of the Company for consideration
and approval;
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Corporate Governance Structure
p) consider the assessment report on internal control of the Company for the year ended 31 December 2013;
q) consider the report of the Company on the “2013 Summary Report and 2014 Work Plan for Internal Control
and Audit”;
r) consider the resolution of the Company on matters pertaining to debt financing of ZTE (H.K.) Limited and
submit the same to the Board of Directors and the general meeting of the Company for consideration and
approval;
s) consider the resolution of the Company on the proposed capital contribution to and subscription for Zhonghe
Chunsheng Fund II and submit the same to the Board of Directors of the Company for consideration and
approval;
t) consider the report on the preparation of the Company’s First Quarterly Report of 2014 and submit the same
to the Board of Directors of the Company for consideration and approval;
u) consider the report of the Company on derivative investments in the first quarter of 2014;
v) consider the resolution of the Company on the continuing connected transaction relating to the Property
and Equipment and Facilities Lease Framework Agreement entered into with Zhongxing Hetai, and submit
the same to the Board of Directors of the Company for consideration and approval;
w) consider the resolution of the Company on the continuing connected transaction relating to the Hotel Service
Purchase Framework Agreement entered into with Zhongxing Hetai, and submit the same to the Board of
Directors of the Company for consideration and approval;
x) consider the resolution of the Company on the continuing connected transaction relating to the provision
of financial services, and submit the same to the Board of Directors of the Company for consideration and
approval;
y) consider the interim financial report of the Company for the six months ended 30 June 2014 and submit
the same to the Board of Directors of the Company for consideration and approval;
z) receive the summary report of Ernst & Young on its advisory work for the preparation of the Company’s
interim financial report for the first half of 2014;
aa) consider the internal control and audit work report of the Company for the six months ended 30 June 2014;
bb) consider the resolution of the Company on the amendment of the ZTE Internal Control System and submit
the same to the Board of Directors of the Company for consideration and approval;
cc) review the report of the Company on derivative investments in the first six months of 2014;
dd) consider the report on the preparation of the Company’s Third Quarterly Report of 2014 and submit the
same to the Board of Directors of the Company for consideration and approval;
ee) review the report of the Company on derivative investments in the first three quarters of 2014;
ANNUAL REPORT 2014
141
ff) consider the resolution of the Company on revising the maximum aggregate amount of transactions for
continuing connected transactions in respect of the purchase of software outsourcing services in 2014 from
Nanchang Software, a connected party, and submit the same to the Board of Directors of the Company for
consideration and approval;
gg) consider the resolution of the Company on continuing connected transaction in respect of the execution of
the 2014 sales framework agreement with Nanchang Software, a connected party, and submit the same to
the Board of Directors of the Company for consideration and approval;
hh) consider the resolution of the Company on continuing connected transaction in respect of the execution
of the 2015 channel cooperation agreement with ????, a connected party, and submit the same to the
Board of Directors of the Company for consideration and approval;
ii) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 software outsourcing procurement framework agreement with Huatong, a connected party,
and submit the same to the Board of Directors of the Company for consideration and approval;
jj) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 software outsourcing procurement framework agreement with Nanchang Software, a
connected party, and submit the same to the Board of Directors of the Company for consideration and
approval;
kk) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 sales framework agreement with Nanchang Software, a connected party, and submit the
same to the Board of Directors of the Company for consideration and approval;
ll) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 property leasing agreement with Chongqing Zhongxing Development, a connected party,
and submit the same to the Board of Directors of the Company for consideration and approval; and
mm) consider the resolution of the Company on the subscription of China All Access (Holdings) Limited convertible
bonds by ZTE (H.K.) Limited and submit the same to the Board of Directors of the Company for consideration
and approval.
(IV) Corporate governance functions
The Board of Directors is charged with duties in corporate governance, procuring the management to establish a
compliant organisational structure and regime and to abide by the Corporate Governance Code and other laws
and regulations in day-to-day management. During the year, the Board of Directors examined the Company’s
compliance with corporate governance policies and codes. In accordance with the Articles of Association and
Rules of Procedure of the Board of Directors Meetings, the Board of Directors is responsible for the following
corporate governance functions:
1. Formulating and reviewing the corporate governance policies and practices of the Company;
2. Reviewing and monitoring training and continuous professional development of the Directors and senior
management;
3. Reviewing and monitoring the Company’s policies and practices in compliance with legal and regulatory
provisions;
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Corporate Governance Structure
4. Formulating, reviewing and monitoring the code of conduct for employees and Directors; and
5. Reviewing the Company’s compliance with the Corporate Governance Code set out in Appendix 14 to the
Hong Kong Listing Rules and the disclosures in its corporate governance report.
IV. Remuneration and Interests of Directors, Supervisors and the President
(I) Remuneration
Please refer to the section of this report headed “Directors, Supervisors, Senior Management and Employees
— (II) Changes in the shareholdings of the Company’s Directors, Supervisors, senior management and annual
remuneration” for details of the annual remuneration of the Directors, Supervisors and senior management of the
Company.
Further details of the remuneration of Directors and Supervisors for 2014 are set out in Note 8 to the financial
statements prepared in accordance with HKFRSs.
(II) Interests
1. Service contracts and contractual interests of Directors and Supervisors
The Company did not enter into any service contract which is not determinable by the Company within one year
without payment of compensation (other than statutory compensation) with any Director or Supervisor.
2. Interests of Directors and Supervisors in contracts
None of the Directors and Supervisors of the Company was or had been materially interested, either directly or
indirectly, in any contracts of significance to which the Group is a party subsisting during or at the end of 2014.
3. Interests of Directors, Supervisors and Chief Executive Officer in shares or debentures
The interests in shares of the Company held by Directors, Supervisors and Chief Executive Officer of the Company
as at 31 December 2014 are set out in the section of this report headed “Directors, Supervisors, Senior Management
and Employees — (II) Changes in the shareholdings of the Company’s Directors, Supervisors, senior management
and annual remuneration.”
Save as disclosed above, as at 31 December 2014, none of the Directors, Supervisors and Chief Executive Officer
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 for Securities Transactions by Directors of Listed Issuers (the “Model
Code”) as set out in Appendix 10 to the Hong Kong Listing Rules.
Save as disclosed above, as at 31 December 2014, none of the Directors, Supervisors or the Chief Executive
Officer 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.
ANNUAL REPORT 2014
143
4. Securities transactions by Directors and Supervisors
The Directors and Supervisors of the Company confirmed that the Company has adopted the Model Code. Upon
due enquiry with all Directors and Supervisors of the Company, the Company is not aware of any information that
reasonably indicates non-compliance with code provisions set out in the Model Code by Director or Supervisor
during the year.
V. Remuneration Package and Retirement Benefits for Employees
The remuneration package for the Group’s employees includes salary, bonuses and allowances. Our employees also
receive welfare benefits including medical care insurance, housing subsidies, retirement and other miscellaneous
benefits. In accordance with applicable PRC regulations, the Group participated in social insurance contribution
plans organised by the relevant government authorities, under which we paid monthly contributions towards each
employee’s social insurance in an amount equivalent to a specified percentage of his/her monthly salaries. Further
details of the remuneration of top 5 employees of the Company for 2014 are set out in Note 9 to the financial
statements prepared in accordance with HKFRSs.
Details of staff retirement benefits provided by the Group are set out in Note 35 to the financial statements
prepared in accordance with HKFRSs.
VI. Auditors’ Remuneration
Ernst & Young Hua Ming LLP (“Ernst & Young Hua Ming”) and Ernst & Young acted as the Group’s PRC and
Hong Kong auditors, respectively.
Ernst & Young Hua Ming has been appointed the Company’s PRC auditor for 10 consecutive years since 2005.
Ernst & Young has been appointed the Company’s Hong Kong auditor for 11 consecutive years since 2004. The
undersigning accountants of Ernst & Young Hua Ming are Mr. Li Yuxing and Ms. Fu Jie. Mr. Li Yuxing has been
providing audit services to the Company for 6 years and the year under review was the fifth year for which he
acted in the capacity of undersigning accountant. Ms. Fu Jie has been providing audit services to the Company
for 7 years and the year under review was the third year for which she acted in the capacity of undersigning
accountant.
Financial report audit fees payable to the PRC auditor and the Hong Kong auditor for 2014 were paid in a
consolidated manner, whereby an aggregate audit fee of RMB5.85 million was paid to Ernst & Young Hua Ming
and Ernst & Young.
At the Sixteenth Meeting of the Sixth Session of the Board of Directors of the Company on 26 March 2014, it
was approved that Ernst & Young Hua Ming be appointed the Company’s internal control auditor for 2014. The
amount of 2014 internal control audit fee paid to Ernst & Young Hua Ming by the Company was RMB824,000.
In 2014, Ernst & Young (China) Advisory Limited, Shenzhen Branch (“Ernst & Young Consulting”) provided tax
advisory services to the overseas subsidiaries of the Company and its subsidiary Shenzhen Zhongxing Software
Company Limited for a fee of RMB944,500. Ernst & Young provided tax return and tax advisory services to the
Company and its subsidiaries ZTE HK and Xinxun International (Hong Kong) Limited for a fee of HKD189,500.
Ernst & Young Hua Ming provided advisory services to the Company relating to its 2014 sustainable development
report for a fee of RMB140,000. Save as the aforesaid three instances, Ernst & Young Hua Ming, Ernst & Young
and Ernst & Young Consulting did not provide other significant non-audit services to the Group.
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Corporate Governance Structure
Item Amount Auditor
Audit fees 2014 RMB5.85 million Ernst & Young Hua Ming (PRC)
Ernst & Young (Hong Kong)
Internal control audit fees 2014 RMB824,000 Ernst & Young Hua Ming
Fees for tax advisory services 2014 RMB944,500 Ernst & Young Consulting
Fees for tax return and tax advisory services 2014 HKD189,500 Ernst & Young
Fees for advisory services relating to the 2014
sustainable development report RMB140,000 Ernst & Young Hua Ming
VII. Company Secretary
The Company Secretary (Mr. Feng Jianxiong) is responsible for facilitating the procedures of the Board of
Directors of the Company and communications among Directors, between Directors and shareholders and among
the management. A brief biography of the Company Secretary is set out in the section of this report headed
“Directors, Supervisors, Senior Management and Employees (I) Brief Biographies of Directors, Supervisors and
Senior Management”. In 2014, the Company Secretary received more than 15 hours of training to update his
professional skills and expertise.
VIII. Accountability and Audit
The Directors of the Company confirm that they are responsible for preparing the accounts and providing balanced,
objective assessments which are clear and easy to understand in the consolidated financial statements of the
annual reports, interim reports and quarterly reports, other inside information announcements and other financial
disclosures required under the Hong Kong Listing Rules, and disclosing information to regulatory authorities in
accordance with statutory requirements.
If the Directors become aware of significant uncertainties or conditions that might have an adverse material impact
on the ability of the Company to operate as a going concern, the Directors must provide a clear disclosure and
detailed discussion of such uncertainties in the corporate governance report.
A statement of the Company’s Hong Kong auditor on its reporting responsibility and views on the financial
statements of the Company for the year ended 31 December 2014 is set out in the Independent Auditors’ Report
in pages 318–319 of this report.
ANNUAL REPORT 2014
145
IX. Internal Control
The Board of Directors of the Company is responsible for reviewing the Company’s internal control systems to
ensure its effective implementation. The Board of Directors has delegated to the Audit Committee the responsibility
for reviewing the effectiveness of the internal control systems of the Company and its subsidiaries. The Directors
are responsible for reviewing resources on the financial reporting functions, qualification and experience of the
staff and whether the courses and budget for staff training are sufficient.
The Company continued to improve its internal control system in 2014. During the year, the Company engaged
an independent consultant agency to improve the conventions, processes and methodologies relating to risk
management and internal control in a systematic manner, commenced internal control handbook updating and
self-assessment of internal control on the basis of internal control work conducted in 2013, and exercised ongoing
control over significant operating risks. All in all, the Company has established and effectively implemented an
internal control regime that meets its operational needs and covers all segments of the Company’s operation. The
Company will continue to adjust and improve the development of its internal control regime in a timely manner
in response to changes in internal and external conditions.
The Audit Committee under the Board of Directors convenes regular meetings each year in accordance with
relevant laws and regulations to review the effectiveness of and identify rooms for further improvements in financial,
operational and supervisory controls and the risk management procedures. Reports are being submitted to the
Board of Directors of the Company on the implementation of internal control measures.
The internal control system of the Company was designed to provide reasonable (but not absolute) assurance
against material misstatements or losses and to manage (but not eliminate) risks arising from the malfunctioning
of operating systems or failures to attain the Company’s objectives. The Board of Directors is of the view that the
internal control system was in normal operation during the financial year ended 31 December 2014.
During the year, the Company performed self-inspection on its corporate governance and self-assessment on
its internal control. An assessment report on internal control has been prepared as a result. For details of the
Company’s internal control in 2014, please refer to the section of this report headed “Internal Control”.
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Internal Control
(I) OVERVIEW OF THE COMPANY’S INTERNAL CONTROL DEVELOPMENT
In order to enhance internal control, improve the Company’s operational management standard and risk aversion
ability and ensure the security, compliance and effective operation of the Company’s assets, the Company has
established a reasonable and effectively operating internal control regime in accordance with provisions of the
Company Law, the Securities Law, Corporate Governance Standards for Listed Companies, Rules for Corporate
Internal Control and Supplementary Guidelines for Corporate Internal Control and other pertinent laws, regulations
and regulatory documents.
I. Overview of internal control development and improvement
The Company’s internal control establishment has basically covered all operating segments of the Company,
including production operations, financial management, organization, personnel management, and information
disclosure, etc. The Company has, taking into account its specific conditions, developed a comprehensive
internal control system comprising the Rules of Procedure of the General Meetings, Rules of Procedure of the
Board of Directors Meetings, Rules of Procedure of the Supervisory Committee, Independent Director System,
Administrative Rules for Information Disclosure, Internal Control System, Administrative Rules of the Company on
Issue Proceeds, System of Registration of Owners of Inside Information, System for the Administration of External
Information Users, System of Accountability for Significant Errors in Information Disclosure of Annual Reports,
System of Derivative Investment Risk Control and Information Disclosure, Administrative Measures on Third-
party Guarantees, Administrative Measures on Connected Transactions and Administrative Measures on Equity
Investment in Operating Subsidiaries, etc.
2. Establishment of internal control departments and internal control implementation
The Company has established an all-encompassing and multi-level structure for internal control development
comprising mainly the Board, the Audit Committee, the risk control work steering group, the Internal Control and
Audit Department Risk Control Team, the risk control directors and managers of various business units. In 2014,
the Company focused on the following internal control operations:
The Company’s internal control work during the first quarter of 2014 mainly involved overall review and evaluation
of its internal control work in 2013, convened the start-up meeting for internal control and risk management
operations in 2014 and made plans for internal control and risk management in 2014. For details, please refer to
the section headed “Material Matters” in the 2014 first quarterly report of the Company.
During the second quarter of 2014, the Company engaged an independent consultant agency to improve the
conventions, processes and methodologies relating to risk management and internal control in a systematic manner,
drive the advanced development of risk management and internal control and enhance specialised capabilities
in risk management and internal control. For details, please refer to the section headed “Material Matters” in the
2014 Interim Report of the Company.
During the third quarter of 2014, the Company conducted several training sessions on risk management and
internal control tailored for intermediary management officers and members of the risk control teams, commenced
internal control handbook updating and self-assessment of internal control, and exercised ongoing control over
significant operating risks. For details, please refer to the section headed “Material Matters” in the 2014 third
quarterly report of the Company.
ANNUAL REPORT 2014
147
Internal control performed during the fourth quarter of 2014:
1. Reviewing risk management and internal control in 2014, assessing the progress of risk control in key
business operations such as sales, purchase and research and development, and starting to formulate the
internal control plan for 2015.
2. Conducting analyses on key risks faced by the Company’s operations, with special emphasis on risks
associated with foreign exchange movements, deterioration of political situations in Eastern Europe, end
customer credibility and legal compliance on a global basis.
3. Working with Ernst and Young Hua Ming (LLP) on the audit of the Company’s internal control for 2014.
4. Review, finalisation and publication of the 2014 internal control handbook of the Company.
5. Enhancing promotion of the anti-corruption culture through newsletters, weibo messages and mails.
(II) OPINION ON INTERNAL CONTROL ASSESSMENT
1. The 2014 Internal Control Assessment Report published by the Company
The Company has conducted an assessment on the effectiveness of its internal control as at 31 December 2014
(being the record date for the internal control assessment report) in accordance with the Basic Rules for Corporate
Internal Control, its supplementary guidelines and other internal control regulatory requirements and taking into
account its internal control system and assessment methods, based on general as well as specific supervision
of internal control.
Based on the work of identifying significant deficiencies in the Company’s internal control in relation to financial
reporting, as at the record date for the internal control assessment report, there was no significant deficiency
in internal control in relation to financial reporting. The Board of Directors is of the view that the Company has
maintained effective internal control in relation to financial reporting in all material aspects in accordance with the
internal control regulatory regime and pertinent regulations.
Based on the work of identifying significant deficiencies in the Company’s internal control in relation to non-financial
reporting, as at the record date for the internal control assessment report, the Company was not aware of any
significant deficiency in internal control in relation to non-financial reporting.
There were no events occurring during the period from the record date for the internal control assessment report
to the date of publication of the internal control assessment report that would have affected the conclusion on
the assessment of the effectiveness of internal control.
For details of the Company’s internal control, please refer to the “2014 Internal Control Assessment Report of ZTE
Corporation” published by the Company on 26 March 2015 on http://www.cninfo.com.cn.
2. Statement of the Directors of the Company on Internal Control Responsibility
In accordance with the provisions of the Rules for Corporate Internal Control, the Board of Directors of the Company
is responsible for the development and effective implementation of effective internal control, assessment of the
effectiveness thereof and truthful disclosure of the internal control assessment report. The Board of Directors of
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Internal Control
the Company warrants that there are no false records or misleading statements in or material omissions from the
Company’s 2014 Internal Control Assessment Report and collectively and individually accept legal responsibility
for the truthfulness, accuracy and completeness of the contents of the said report.
The Board of Directors of the Company is of the view that the Company has fundamentally established a
comprehensive internal control system in accordance with relevant laws and regulations and regulatory documents.
The internal control system of the Company has taken into account five basic elements of internal control: internal
environment, risk assessment, business controls, information and communications and internal supervision. The
Company has exercised stringent, adequate and effective internal control in respect of subsidiaries, connected
transactions, third-party guarantees, significant investments, information disclosure, and all systems have been
adequately and effectively implemented. The operation of the Company’s internal control regime is generally
effective without any significant defects in its mechanism and system as a whole or any significant deviations in
implementation.
Therefore, the Board of Directors of the Company is of the view that the Company has not identified any
significant defects in the design or implementation of internal control in 2014. The Company’s 2014 Internal Control
Assessment Report is in line with the status of internal control at the Company.
3. Opinion of the Supervisors of the Company on the 2014 Internal Control Assessment Report of the
Company
(1) The Company has established a comprehensive and proper internal control system in accordance with
relevant regulations of the CSRC and the Shenzhen Stock Exchange and taking into account the specific
conditions of the Company, effectively ensuring regulated operation and sound development for the Company
and safeguarding the safety and integrity of the Company’s assets.
(2) The Company has established and optimised its internal organisational structure in accordance with modern
enterprise systems and internal control principles, forming a scientific mechanism for decision-making,
implementation and supervision. The Company’s internal audit department is equipped with sufficient
manpower that ensures effective implementation and supervision of its key internal control activities.
(3) During the reporting period, the management and decision-making processes of the Company were in strict
compliance with various rules and regulations and no violations of provisions under Basic Rules for Corporate
Internal Control and its Supplementary Guidelines and other regulatory requirements for internal control or
the Company’s internal control system had been reported.
In view of the above and having reviewed the Company’s 2014 Internal Control Assessment Report, the Supervisory
Committee is of the view that the 2014 Internal Control Assessment Report of the Company is a true, objective
and complete reflection of the status of the Company’s internal control, and has no objection to the 2014 Internal
Control Assessment Report of the Company.
4. Independent Opinion of the Independent non-executive Directors of the Company on the 2014
Internal Control Assessment Report of the Company
(1) The Company has established a comprehensive internal control regime in compliance with relevant laws,
administrative regulations and departmental rules and regulations of the State. In 2014, the Company was in
compliance with basic principles in internal control and further improved and developed its internal control
and management system and continued to advance its internal control development in an organized manner
taking into account its specific conditions, business development and management requirements.
ANNUAL REPORT 2014
149
(2) The Company has established relevant control regimes and mechanisms for each of the five aspects of
environment for control, risk assessment, business controls, information and communications and supervision.
The internal control system in force is sound, reasonable and effective and provides reasonable assurance
for legal compliance of the Company’s operations and management, asset security and true and complete
financial reporting and information disclosure.
(3) The 2014 Internal Control Assessment Report of the Company duly reflects the status of the Company’s
internal Control.
5. Internal control audit report furnished by the audit firm
In accordance with relevant requirements under the Corporate Internal Control Audit Guidelines and the China Code
of Ethics for Certified Public Accountants, Ernst & Young Hua Ming LLP conducted an audit on the effectiveness
of internal control in relation to the financial reporting of the Company for the year ended 31 December 2014
and furnished an opinion as follows:
Ernst & Young Hua Ming LLP is of the view that ZTE Corporation has maintained effective internal control in
financial reporting in all material aspects in accordance with the Basic Rules for Corporate Internal Control and
pertinent provisions.
For the internal control audit report of the Company, please refer to the “Internal Control Audit Report of ZTE
Corporation” published by the Company on 26 March 2015 on http://www.cninfo.com.cn.
(III) BASIS, IMPROVEMENT AND OPERATION OF THE FINANCIAL REPORTING INTERNAL CONTROL
SYSTEM
The Company has formulated a range of administrative systems in connection with financial management, etc
in accordance with laws and regulations including the Accounting Law, ASBEs and Basic Rules for Corporate
Internal Control and its Supplementary Guidelines, and has effectively implemented and executed such systems
in actual operation, and the functions of and delegations in accounting and financial management have been
improved and enhanced in terms of rules and regulations. In connection with job positions, staff deployment and
key accounting practices, the Company has established an independent accounting department and members of
such accounting department have diligently complied with national financial policies and laws and regulations and
deal with accounting matters in strict accordance with the Accounting Law, ASBEs and other pertinent regulations.
During the year, the Company did not identify any significant deficiencies in its financial reporting internal control.
(IV) ESTABLISHMENT AND IMPLEMENTATION OF THE SYSTEM OF ACCOUNTABILITY FOR SIGNIFICANT
ERRORS IN INFORMATION DISCLOSURE OF ANNUAL REPORTS
The Company has established the ZTE Corporation System of Accountability for Significant Errors in Information
Disclosure of Annual Reports in accordance with the Company Law, Securities Law, Accounting Law, Measures
for the Administration of Information Disclosure by Listed Companies and other pertinent laws, regulations and
regulatory documents, which expressly provides for the identification and handling of significant accounting errors
in financial reports and significant errors in other information disclosures of annual reports, as well as accountability
for such significant errors in information disclosures of annual reports. The system was considered and approved
at the Second Meeting of the Fifth Session of the Board of Directors of the Company held on 8 April 2010 and
became effective on the same date.
The Company has diligently implemented the system. There was no correction of significant accounting errors,
remedy of significant omission of information and revision of business projections during the year.
ZTE CORPORATION
150
Report of the PRC Auditors
Ernst & Young Hua Ming (2015) Shen Zi No. 60438556_H01
To the Shareholders of ZTE Corporation:
We have audited the accompanying financial statements of ZTE Corporation which comprise the consolidated and
company balance sheets as at 31 December 2014, the consolidated and company income statements, statement
of changes in equity and cash flow statement for the year ended 31 December 2014 and notes to the financial
statements.
I. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The management of ZTE Corporation is responsible for the preparation and fair presentation of financial statements.
Such responsibility includes: (1) preparation of the financial statements in accordance with the Accounting
Standards for Business Enterprises to ensure fair representation; (2) the design, implementation and maintenance
of necessary internal controls so that the financial statements are free from material misstatement whether due
to fraud or error.
II. RESPONSIBILITY OF THE CERTIFIED PUBLIC ACCOUNTANT
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants.
Those standards require that we comply with ethical requirements of the Chinese Certified Public Accountants
and plan and perform the audit to obtain a reasonable assurance as to whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
certified public accountants consider the internal control relevant to the entity’s preparation of financial statements
in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating
the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
ANNUAL REPORT 2014
151
Report of the PRC Auditors (continued)
III. OPINION
In our opinion, the financial statements have been prepared in accordance with Accounting Standards for Business
Enterprises, and present fairly, in all material aspects, the consolidated and company financial position as at 31
December 2014 and the consolidated and company results of operations and cash flows of ZTE Corporation for
the year ended 31 December 2014.
Ernst & Young Hua Ming LLP Chinese Certified Public Accountant:
Li Yuxing (???)
Beijing, the People’s Republic of China Chinese Certified Public Accountant:
Fu Jie (??)
25 March 2015
ZTE CORPORATION
152
Consolidated Balance Sheet
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Assets Note V 2014 2013
(Restated)
Current assets
Cash 1 18,115,874 20,903,035
Financial assets dealt with at fair value through current
profit and loss 2 240,973 217,454
Bills receivable 3 2,086,771 3,500,671
Trade receivables 4 25,152,963 21,393,257
Factored trade receivables 4 3,160,705 3,338,801
Other receivables 5 2,159,677 1,729,163
Prepayments 6 682,778 751,405
Inventories 7 19,592,298 12,434,352
Amount due from customers for contract works 8 11,033,468 12,137,144
Total current assets 82,225,507 76,405,282
Non-current assets
Available-for-sale financial assets 9 1,739,664 1,630,271
Long-term trade receivables 10 266,501 366,762
Factored long-term trade receivables 10 1,701,978 2,311,525
Long-term equity investments 11 461,316 478,037
Investment properties 12 2,004,465 1,855,246
Fixed assets 13 7,348,292 7,449,476
Construction in progress 14 262,863 177,423
Intangible assets 15 1,364,695 1,236,755
Deferred development costs 16 3,483,505 2,932,148
Deferred tax assets 17 1,284,493 1,353,033
Long-term deferred assets 53,287 70,942
Other non-current assets 19 4,017,630 3,812,597
Total non-current assets 23,988,689 23,674,215
TOTAL ASSETS 106,214,196 100,079,497
ANNUAL REPORT 2014
153
Consolidated Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Liabilities and shareholder’s equity Note V 2014 2013
(Restated)
Current liabilities
Short-term loans 20 10,998,077 12,589,032
Bank advances on factored trade receivables 4 3,175,432 3,377,374
Financial liabilities dealt with at fair value through
current profit and loss 21 70,604 67,779
Bills payable 22 10,381,688 8,498,021
Trade payables 23 19,244,400 16,492,534
Amount due to customers for contract works 8 3,825,106 3,682,564
Advances from customers 24 3,305,520 2,776,366
Salary and welfare payables 25 2,806,947 2,462,006
Taxes payable 26 (2,790,280) (1,251,859)
Dividends payable 27 8,113 34,963
Other payables 28 7,531,970 8,478,144
Deferred income 451,507 408,845
Provisions 29 741,391 601,111
Long-term loans due within one year 30 6,174,257 2,753,925
Total current liabilities 65,924,732 60,970,805
Non-current liabilities
Long-term loans 31 10,039,687 5,385,673
Bank advances on factored long-term trade receivables 10 1,701,978 2,311,525
Bonds payable 32 — 6,119,590
Provision for retirement benefits 25 115,450 95,806
Deferred tax liabilities 17 159,340 139,900
Deferred income 631,149 —
Other non-current liabilities 33 1,349,356 1,430,509
Total non-current liabilities 13,996,960 15,483,003
Total liabilities 79,921,692 76,453,808
ZTE CORPORATION
154
Consolidated Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Liabilities and Shareholder's equity Note V 2014 2013
(Restated)
Shareholders’ equity
Share capital 34 3,437,541 3,437,541
Capital reserves 35 8,724,754 8,545,701
Other comprehensive income 36 (464,275) (100,703)
Surplus reserve 37 1,769,012 1,613,195
Retained profits 38 10,724,034 8,933,788
Proposed final dividends 38 687,508 103,126
Total equity attributable to equity holders of the parent 24,878,574 22,532,648
Non-controlling interests 1,413,930 1,093,041
Total shareholders’ equity 26,292,504 23,625,689
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 106,214,196 100,079,497
The financial statements set out on pages 152 to 317 have been signed by:
Legal representative: Hou Weigui Chief Financial Officer: Wei Zaisheng Head of Finance Division: Shi Chunmao
ANNUAL REPORT 2014
155
Consolidated Income Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note V 2014 2013
(Restated)
Operating revenue 39 81,471,275 75,233,724
Less: Operating costs 39 55,760,104 53,125,904
Taxes and surcharges 40 1,331,243 1,079,532
Selling and distribution costs 41 10,259,165 10,003,850
Administrative expenses 42 2,031,445 2,202,267
Research and development costs 9,008,537 7,383,892
Finance expenses 45 2,100,977 2,460,303
Impairment losses 46 1,202,232 1,589,486
Add: Gains from changes in fair values 43 148,282 204,010
Investment income 44 134,474 914,406
Including: Share of profits and losses of associates
and joint ventures 44 (53,043) 34,466
Operating profit/(loss) 60,328 (1,493,094)
Add: Non-operating income 47 3,787,643 3,465,428
Less: Non-operating expenses 47 309,749 144,491
Including: Loss on disposal of non-current assets 35,661 18,066
Total profit 48 3,538,222 1,827,843
Less: Income tax 49 810,492 394,207
Net profit 2,727,730 1,433,636
Attributable to:
Owners of the parent 2,633,571 1,357,657
Non-controlling interests 94,159 75,979
Other comprehensive income, net of tax (333,604) (279,262)
Other comprehensive income attributable to owners of the
parent, net of tax 36 (363,572) (301,911)
Other comprehensive income that cannot be reclassified to
profit and loss in subsequent periods
Change in net liabilities arising from the re-measurement
of defined benefit plans (16,599) 7,040
Share of investee results in other comprehensive income
under equity method which will not be reclassified to
profit and loss in subsequent periods upon fulfillment
of certain conditions 3,090 —
(13,509) 7,040
Other comprehensive income will be reclassified to profit
and loss in subsequent periods
Changes in the fair value of available-for-sale financial
assets (40,800) 149,231
Effective portion of cash flow hedging instruments 3,965 5,784
Exchange differences on translation of foreign operations (313,228) (463,966)
(350,063) (308,951)
Other comprehensive income attributable to non-controlling
interests, net of tax 29,968 22,649
Total comprehensive income 2,394,126 1,154,374
ZTE CORPORATION
156
Consolidated Income Statement (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note V 2014 2013
(Restated)
Attributable to:
Owners of the parent 2,269,999 1,055,746
Non-controlling interests 124,127 98,628
Earnings per share (RMB/share) 50
Basic RMB0.77 RMB0.39
Diluted RMB0.77 RMB0.39
ANNUAL REPORT 2014
157
Consolidated Statement of Changes in Equity
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
2014
Equity attributable to equity holders of the parent
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit
Proposed
final
dividends Sub-total
Minority
interests
Total
shareholders’
equity
I. Current year’s opening balance 3,437,541 8,545,701 (100,703) 1,613,195 8,933,788 103,126 22,532,648 1,093,041 23,625,689
II. Changes during the year
(I) Total comprehensive income — — (363,572) — 2,633,571 — 2,269,999 124,127 2,394,126
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — — 253,500 253,500
2. Equity settled share expenses charged to equity — 178,241 — — — — 178,241 — 178,241
3. Capital reduction by shareholders — — — — — — — (48,990) (48,990)
4. Disposal of fractional shares — 812 — — — — 812 — 812
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 155,817 (155,817) — — — —
2. Distribution to shareholders — — — — — (103,126) (103,126) (7,748) (110,874)
3. Proposed final dividends — — — — (687,508) 687,508 — — —
III. Current year’s closing balance 3,437,541 8,724,754 (464,275) 1,769,012 10,724,034 687,508 24,878,574 1,413,930 26,292,504
2013 (Restated)
Equity attributable to equity holders of the parent
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit
Proposed
final
dividends Sub-total
Minority
interests
Total
shareholders’
equity
I. Current year’s opening balance 3,440,078 8,522,845 201,208 1,587,430 7,705,022 — 21,456,583 1,136,256 22,592,839
II. Changes during the year
(I) Total comprehensive income — — (301,911) — 1,357,657 — 1,055,746 98,628 1,154,374
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — — 18,895 18,895
2. Equity settled share expenses charged to equity (2,537) 22,856 — — — — 20,319 — 20,319
3. Disposal of subsidiaries — — — — — — — (110,224) (110,224)
4. Capital reduction by shareholders — — — — — — — (48,990) (48,990)
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 25,765 (25,765) — — — —
2. Distribution to shareholders — — — — — — — (1,524) (1,524)
3. Proposed final dividends — — — — (103,126) 103,126 — — —
III. Current year’s closing balance 3,437,541 8,545,701 (100,703) 1,613,195 8,933,788 103,126 22,532,648 1,093,041 23,625,689
ZTE CORPORATION
158
Consolidated Cash Flow Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note V 2014 2013
I. Cash flows from operating activities
Cash received from sale of goods or rendering of services 88,611,704 81,718,914
Refunds of taxes 6,231,137 7,084,639
Cash received relating to other operating activities 51 2,421,604 1,768,549
Sub-total of cash inflows 97,264,445 90,572,102
Cash paid for goods and services 67,684,267 62,736,010
Cash paid to and on behalf of employees 12,372,398 11,606,711
Cash paid for all types of taxes 6,608,317 5,801,983
Cash paid relating to other operating activities 51 8,086,828 7,852,820
Sub-total of cash outflows 94,751,810 87,997,524
Net cash flows from operating activities 52 2,512,635 2,574,578
II. Cash flows from investing activities
Cash received from sale of investments 1,314,820 987,347
Cash received from return on investment 155,642 183,098
Net cash received from the disposal of fixed assets,
intangible assets and other long-term assets 72,015 5,955
Net cash received from the disposal of subsidiaries 289,890 1,318,667
Sub-total of cash inflows 1,832,367 2,495,067
Cash paid to acquisition of fixed asset, intangible assets
and other long term assets 2,067,604 2,336,926
Cash paid for acquisition of investments 1,387,493 1,820,312
Sub-total of cash outflows 3,455,097 4,157,238
Net cash flows from investing activities (1,622,730) (1,662,171)
III. Cash flows from financing activities
Cash received from capital injection 253,500 18,895
Including: Capital injection into subsidiaries by minority
shareholders 253,500 18,895
Cash received from borrowings 39,500,323 23,357,872
Sub-total of cash inflows 39,753,823 23,376,767
Cash repayment of borrowings 41,621,563 24,372,924
Cash payments for distribution of dividends, profits and for
interest expenses 1,858,509 1,685,508
Including: Distribution of dividends, profits by subsidiaries to
minority shareholders 34,598 157,567
Sub-total of cash outflows 43,480,072 26,058,432
Net cash flows from financing activities (3,726,249) (2,681,665)
IV. Effect of changes in foreign exchange rate on cash and
cash equivalents (51,790) (772,103)
V. Net increase in cash and cash equivalents (2,888,134) (2,541,361)
Add: cash and cash equivalents at beginning of year 20,118,274 22,659,635
VI. Net balance of cash and cash equivalents at the
end of year 52 17,230,140 20,118,274
ANNUAL REPORT 2014
159
Balance Sheet
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Assets Note XV 2014 2013
(Restated)
Current assets
Cash 10,025,991 12,163,330
Financial assets dealt with at fair value through current
profit and loss 53,390 69,300
Bills receivable 1,873,999 2,851,182
Trade receivables 1 36,620,720 34,030,487
Factored trade receivables 1 1,259,713 2,084,134
Prepayments 66,692 29,328
Dividend receivable 2,487,128 1,970,264
Other receivables 2 6,338,933 10,454,633
Inventories 12,353,923 7,056,518
Amount due from customers for contract works 7,799,190 7,029,635
Total current assets 78,879,679 77,738,811
Non-current assets
Available-for-sale financial assets 3 373,555 373,555
Long-term trade receivables 4 5,480,245 4,517,856
Factored long-term trade receivables 4 1,287,954 1,968,052
Long-term equity investments 5 6,884,411 6,430,526
Investment properties 1,597,919 1,496,338
Fixed assets 4,458,748 4,751,559
Construction in progress 11,909 14,393
Intangible assets 515,110 451,947
Deferred development costs 846,625 665,650
Deferred tax assets 674,629 762,009
Long-term deferred assets 44,518 50,778
Other non-current assets 3,879,675 3,596,641
Total non-current assets 26,055,298 25,079,304
TOTAL ASSETS 104,934,977 102,818,115
ZTE CORPORATION
160
Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Liabilities and shareholders’ equity Note XV 2014 2013
(Restated)
Current liabilities
Short-term loans 8,418,581 8,375,865
Financial liabilities dealt with at fair value through current
profit and loss 17,587 12,575
Bank advances on factored trade receivables 1,274,440 2,122,707
Bills payable 12,389,807 10,250,993
Trade payables 31,214,686 34,200,975
Amount due to customers for contract works 2,654,158 2,496,029
Advances from customers 3,411,519 2,896,512
Salary and welfare payables 771,370 688,982
Taxes payable (2,377,915) (1,286,296)
Dividends payable 156 152
Other payables 19,020,951 17,178,123
Deferred income 191,584 80,401
Provisions 388,995 349,291
Long-term loans due within one year 6,131,185 —
Total current liabilities 83,507,104 77,366,309
Non-current liabilities
Long-term loans 2,980,100 1,780,000
Bank advances on factored long-term trade receivables 1,287,954 1,968,052
Bonds payable — 6,119,590
Provision for retirement benefits 115,450 95,806
Deferred tax liabilities 158,350 138,400
Other non-current liabilities 1,348,475 1,430,509
Total non-current liabilities 5,890,329 11,532,357
Total liabilities 89,397,433 88,898,666
Shareholders’ equity
Share capital 3,437,541 3,437,541
Capital reserves 8,740,683 8,561,630
Other comprehensive income 720,953 736,957
Surplus reserve 1,107,256 951,439
Retained profits 843,603 128,756
Proposed final dividends 687,508 103,126
Total shareholders’ equity 15,537,544 13,919,449
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 104,934,977 102,818,115
ANNUAL REPORT 2014
161
Income Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note XV 2014 2013
Operating revenue 6 76,598,340 68,951,943
Less: Operating costs 6 64,426,341 58,380,388
Taxes and surcharges 733,974 628,622
Selling and distribution costs 6,522,405 6,012,345
Administrative expenses 1,224,755 1,323,247
Research and development costs 2,606,804 2,173,020
Finance expenses 1,404,784 2,061,598
Impairment losses 851,874 1,149,141
Add: Gains from changes in fair values 75,934 136,906
Investment income 7 2,017,647 1,910,787
Including: Share of profits and losses of associates and
jointly-controlled entities 7 (58,304) 35,898
Operating profit/loss 920,984 (728,725)
Add: Non-operating income 848,779 898,979
Less: Non-operating expenses 137,504 50,200
Including: Loss on disposal of non-current assets 21,221 13,568
Total profit 1,632,259 120,054
Less: Income tax 74,087 (255,869)
Net profit 1,558,172 375,923
Other comprehensive income, net of tax
Other comprehensive income that cannot be reclassified to
profit and loss in subsequent periods
Change in net liabilities arising from the re-measurement of
defined benefit plans (16,599) 7,040
Other comprehensive income will be reclassified to profit and
loss in subsequent periods
Exchange differences on translation of foreign operations 595 (943)
Other comprehensive income, net of income tax effect on
respective items (16,004) 6,097
Total comprehensive income 1,542,168 382,020
ZTE CORPORATION
162
Statement of Changes in Equity
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
2014
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit/
(losses
not made
up for)
Proposed
final
dividends
Total
shareholders’
equity
I. Current year’s opening balance 3,437,541 8,561,630 736,957 951,439 128,756 103,126 13,919,449
II. Changes during the year
(I) Total comprehensive income — — (16,004) — 1,558,172 — 1,542,168
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — —
2. Equity settled share expenses charged to equity — 178,241 — — — — 178,241
3. Disposal of fractional shares — 812 — — — — 812
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 155,817 (155,817) — —
2. Distribution to shareholders — — — — — (103,126) (103,126)
3. Proposed final dividends — — — — (687,508) 687,508 —
III. Current year’s closing balance 3,437,541 8,740,683 720,953 1,107,256 843,603 687,508 15,537,544
2013 (Restated)
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit/(losses
not made
up for)
Proposed
final
dividends
Total
shareholders’
equity
I. Current year’s opening balance 3,440,078 8,538,774 730,860 925,674 (118,276) — 13,517,110
II. Changes during the year
(I) Total comprehensive income — — 6,097 — 375,923 — 382,020
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — —
2. Equity settled share expenses charged to equity (2,537) 22,856 — — — — 20,319
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 25,765 (25,765) — —
2. Distribution to shareholders — — — — — — —
3. Proposed final dividends — — — — (103,126) 103,126 —
III. Current year’s closing balance 3,437,541 8,561,630 736,957 951,439 128,756 103,126 13,919,449
ANNUAL REPORT 2014
163
Cash Flow Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
2014 2013
I. Cash flows from operating activities
Cash received from sale of goods or rendering of services 68,927,313 66,576,915
Refunds of taxes 3,561,374 4,662,932
Cash received relating to other operating activities 2,097,732 1,333,177
Sub-total of cash inflows 74,586,419 72,573,024
Cash paid for goods and services 61,745,917 63,215,952
Cash paid to and on behalf of employees 4,332,398 4,035,264
Cash paid for all types of taxes 761,629 712,708
Cash paid relating to other operating activities 5,764,856 4,622,116
Sub-total of cash outflows 72,604,800 72,586,040
Net cash flows from operating activities 1,981,619 (13,016)
II. Cash flows from investing activities
Cash received from sale of investments 21,300 21,300
Cash received from return on investments 145,189 49,700
Net cash received from the disposal of fixed assets, intangible assets and
other long-term assets 62,395 4,606
Net cash received from the disposal of subsidiaries 291,233 1,375,693
Sub-total of cash inflows 520,117 1,451,299
Cash paid to acquisition of fixed asset, intangible assets and other long
term assets 611,424 937,565
Cash paid for acquisition of investments 541,684 264,674
Sub-total of cash outflows 1,153,108 1,202,239
Net cash flows from investing activities (632,991) 249,060
III. Cash flows from financing activities
Cash received from borrowings 12,461,575 15,074,922
Sub-total of cash inflows 12,461,575 15,074,922
Cash repayment of borrowings 14,409,081 17,088,287
Cash payments for distribution of dividends, profits and for interest
expenses 1,322,215 1,413,923
Sub-total of cash outflows 15,731,296 18,502,210
Net cash flows from financing activities (3,269,721) (3,427,288)
IV. Effect of changes in foreign exchange rate on cash and cash
equivalents (119,476) (328,755)
V. Net increase in cash and cash equivalents (2,040,569) (3,519,999)
Add: cash and cash equivalents at beginning of year 11,756,438 15,276,437
VI. Net balance of cash and cash equivalents at the end of year 9,715,869 11,756,438
ZTE CORPORATION
164
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
I. CORPORATE BACKGROUND
ZTE Corporation (the “Company”) was a limited liability company jointly founded by Shenzhen Zhongxingxin
Telecommunications Equipment Company Limited, China Precision Machinery Import & Export Shenzhen
Company, Lishan Microelectronics Corporation, Shenzhen Zhaoke Investment Development Company Limited,
Hunan Nantian (Group) Company Limited, 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”) mainly engaged in production of remote control
switch systems, multimedia communications systems and communications transmission systems; provision
of technical design, development, consultation and related services for the research and manufacture
and production of mobile communications systems equipment, satellite communications, microwave
communications equipment, beepers, computer hardware and software, closed-circuit TVs, microwave
communications, automated signal control, computer information processing, process monitoring systems,
fire 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,
mass transit railways, urban rail transit, highways, plants and mines, ports and terminals and airports
(excluding restricted projects); purchase and sale of electronics devices, micro-electronics components
(excluding franchised, state-controlled and monopolized 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 sending 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 monopolized
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);
specialized subcontracting of telecommunications projects.
The controlling shareholder of the Group is Shenzhen Zhongxingxin Telecommunications Equipment 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
25 March 2015. In accordance with the Articles of Association of the Company, the financial statements will
be tabled at the general meeting for consideration.
The consolidation scope for consolidated financial statement is determined based on the concept of control.
For details of changes during the year, please refer to Note VI.
ANNUAL REPORT 2014
165
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
II. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
1. Basis of preparation
These financial statements have been prepared in accordance with the “Accounting Standards for
Business Enterprises — Basic Standards” promulgated by the Ministry of Finance 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.
2. Adoption of certain revised/new accounting standards
In January to March 2014, the Ministry of Finance promulgated “ASBE No. 39 — Fair Value
Measurement”, “ASBE No. 40 — Joint Venture Arrangements” and “ASBE No. 41 — Disclosure of
Interests in Other Entities”, the amended “ASBE No. 2 — Long-term Equity Investments,” “ASBE No.
9 — Employees’ Remuneration,” “ASBE No. 30 — Presentation of Financial Statements” and “ASBE
No. 33 — Consolidated Financial Statements”. The seven aforesaid accounting standards will come
into effect on 1 July 2014, although overseas listing enterprises are encouraged to bring forward
their implementation. In June 2014, the Ministry of Finance amended “ASBE No. 37 — Presentation
of Financial Instruments” for implementation in financial reports in respect of 2014 and subsequent
periods. As a company listed in both Mainland China and Hong Kong, the Company brought forward
the implementation of 5 of the aforesaid ASBEs, other than ASBE No. 41 — Disclosure of Interests
in Other Entities”, “ASBE No. 2 — Long-term Equity Investments,” and “ASBE No. 37 — Presentation
of Financial Instruments,” in the preparation of its 2013 financial statements, and made adjustments
in accordance with relevant provisions for reconciliation. For discussions of the major impact of such
implementation, please refer to the 2013 financial statements.
For the purposes of these financial statements, where changes in the aforesaid accounting standards
result in changes in the accounting policies of the Company, adjustments have been made in
accordance with relevant provisions for reconciliation. Comparatives figures have been adjusted
retrospectively where necessary.
ZTE CORPORATION
166
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
1. Statement of compliance
The financial statements truly and completely reflect the financial position of the Group and the
Company as at 31 December 2014 and the results of their operations and their cash flows for the
year ended 31 December 2014.
2. Financial year
The financial year of the Group is from 1 January to 31 December of each calendar year.
3. Reporting currency
Reporting currency and the currency used in preparing the financial statements were Renminbi. The
amounts in the financial statements were denominated in thousand 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.
4. Business combination
Business combination represents transaction which combines two or more separate businesses into
one reporting entity. 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. The combining party is the entity that
obtains control of the other entities participating in the combination at the combination date, and the
other entities participating in the combination are the parties being combined. The combination date
is the date on which the combining party effectively obtains control of the parties being combined.
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 recognized 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.
ANNUAL REPORT 2014
167
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
4. Business combination (continued)
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 acquirer is the entity that obtains control of the other
entities participating in the combination at the acquisition date, and the other entities participating in
the combination are the acquirees. The acquisition date is the date on which the acquirer effectively
obtains control of the acquiree.
The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized 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 recognized 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 acquiree 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 recognized in current profit or loss.
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 for the year ended 31
December 2014. Subsidiaries 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.
ZTE CORPORATION
168
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
5. Consolidated financial statements (continued)
For subsidiaries obtained through a business combination not involving entities under common control,
the operating results and cash flows of the acquirees will be recognized 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 recognized in consolidated financial
statement from the beginning of the 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 an 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.
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.
ANNUAL REPORT 2014
169
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
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 capitalization shall be dealt with according to the principle of capitalization of borrowing costs,
are recognized 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 recognized 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. Translation differences arising form 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 recognized 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. The impact on cash by the fluctuation
of exchange rates is presented as a separate line item of reconciliation in the cash flow statement.
ZTE CORPORATION
170
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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 recognizes 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 derecognized 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 financial assets have been transferred, or (b) control over such financial assets
has not been retained even though substantially all risks and rewards of the ownership of such
financial assets have been neither transferred nor retained.
If the obligation of financial liability has been fulfilled, cancelled or expired, the financial liability is
derecognized. 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 recognized 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
The Group classifies its financial assets into four categories at initial recognition: financial assets at
fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale
financial assets and derivatives designated as effective hedging instruments. For financial assets at fair
value through profit or loss, the relevant transaction costs are directly recognized in profit or loss; for
other financial assets, the relevant transaction costs are recognized in their initial recognition amount.
ANNUAL REPORT 2014
171
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss comprise mainly trading financial assets. Financial
assets are classified as trading if they satisfy one of the following conditions: they are acquired or
incurred principally for the purpose of selling or repurchasing in the near term; they are part of a
portfolio of identified financial instruments that are managed together, and for which there is objective
evidence of a recent pattern of short-term profit taking; they are derivative financial instruments, with the
exception of derivatives designated as valid arbitrage, derivatives under financial guarantee contracts
and derivatives linked to and settled by way of delivery of equity investments not quoted in an active
market and whose fair value cannot be reliably measured. These financial assets are subsequently
measured at fair value, and gain or loss from changes in fair value and derecognition are recognized
in current period’s profit or loss. Dividends or interest income derived from financial assets at fair value
through profit or loss are also recognized in current profit or loss.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets whose maturity and redemption amount
are fixed or ascertained and in respect of which the Group has clear intentions and ability to hold until
maturity. Such financial assets are subsequently measured using the effective interest method on the
basis of amortised cost. Gains or losses arising from derecognition, impairment or amortization are
recognised in the current profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Such assets are subsequently carried at amortized cost using the
effective interest method less any allowance for impairment. Gains or losses arising from amortisation
or impairment are recognised in the current profit or loss.
ZTE CORPORATION
172
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Classification and valuation of financial assets (continued)
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-
sale or those financial assets that are not classified in any of the above categories. Subsequent to initial
recognition, these financial assets are measured at fair value. Discounts or premiums are amortised
using the effective interest method and recognised as interest income or expense. Fair value changes
in available-for-sale financial assets, except for impairment losses and foreign currency monetary items’
translation differences which are recognized in profit or loss, are recognized as other comprehensive
income until the financial assets are derecognized or impaired upon which the cumulative gains or
losses are transferred out from capital reserves to profit or loss. Dividends or interest income derived
from available-for-sale financial assets is recognized in profit or loss.
Equity investments that are not quoted in an active market and whose fair value cannot be reliably
measured are carried at cost.
Classification and valuation of financial liabilities
The Group classifies its financial liabilities at initial recognition: financial liabilities at fair value through
profit or loss, other financial liabilities and derivatives designated as effective hedging instruments.
For financial liabilities at fair value through profit or loss, the relevant transaction costs are directly
recognized in profit or loss; for other financial liabilities, the relevant transaction costs are recognized
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 comprise mainly derivative financial liabilities.
Financial liabilities are classified as derivative if they satisfy one of the following conditions: they are
acquired or incurred principally for the purpose of repurchasing in the near term; they are part of a
portfolio of identified financial instruments that are managed together, and for which there is objective
evidence of a recent pattern of short-term profit taking; they are derivative financial instruments, with the
exception of derivatives designated as valid arbitrage, derivatives under financial guarantee contracts
and derivatives linked to and settled by way of delivery of equity investments not quoted in an active
market and whose fair value cannot be reliably measured. These financial liabilities are subsequently
measured at fair value, and all realized or unrealised gain or loss are recognized in current period’s
profit or loss.
ANNUAL REPORT 2014
173
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Classification and valuation of financial liabilities (continued)
Other financial liabilities
Subsequent to initial recognition, these financial assets are carried at amortized cost using the effective
interest method.
Set-off of financial instruments
The net amount resulting from the set-off between financial assets and financial liabilities shall be
presented in the balance sheet only if all of the following criteria are met: there is a statutory right to
set off recognised amounts which is currently enforceable; the plan is settled on a net basis, or the
realisation of the financial asset and the settlement of the financial liability take place at the same time.
Financial guarantee contracts
A financial guarantee contract is a contract under which the guarantor and the creditor agree that the
guarantor shall assume the debts or liability in the event of default of the debtor. Financial guarantee
contracts are initially recognized as liability at fair value. Financial guarantee contracts not classified as
financial liabilities designated at fair value through profit or loss, after initial recognition, are subsequently
measured at the higher of: (i) the amount of the best estimates of the expenditure required to settle the
present obligations at the balance sheet date; and (ii) the initial amount less accumulated amortization.
Derivative financial instruments
The Group uses derivative financial instruments such as forward currency contracts to hedge its risks
associated with foreign currency fluctuations and interest rate swaps to hedging against interest rate
risks. Such derivative financial instruments are initially recognized 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. Derivatives
linked to and settled by way of delivery of equity investments not quoted in an active market and
whose fair value cannot be reliably measured that are not quoted in an active market and whose fair
value cannot be reliably measured are carried at cost.
Any gains or losses arising from the change in fair value on derivatives are taken directly to current
profit and loss, except for the effective portion of cash flow hedging recognised as other comprehensive
income which is transferred to current profit and loss when profit and loss is affected by hedged items.
ZTE CORPORATION
174
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Impairment of financial assets
The Group assesses the carrying amount of financial assets at the balance sheet date. If there is any
objective evidence that a financial asset is impaired, the Group provides for such impairment losses. The
objective evidence, which indicates impairment of financial assets, represents events actually occurring
after initial recognition of financial assets, having an impact on financial assets’ estimated future cash
flows, and such impact can be reliably measured. Objective evidences for impairment of financial assets
include significant financial difficulties experienced by the issuer or debtor, default of contract terms
(such as default or overdue of interest or principal payments) by the debtor, probable closure or other
financial restructuring of the debtor and publicly available information indicating estimated future cash
flow has decreased and such decrease being measurable.
Assets carried at amortised cost
If an impairment loss has been incurred, the financial asset’s carrying amount is reduced to the present
value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate (namely the effective interest rate
determined at initial recognition), taking into account the value of relevant collaterals. The reduced
amount is charged to profit or loss. Interest income after impairment is recognized by adopting
the discount rate used for discounting future cash flow to its present value when determining the
impairment loss. Loans and receivables for which there is no realistic expectation for future recovery
and all collaterals have been realized or transferred to the Group shall be written off against loans and
receivables and the corresponding impairment provision.
For a financial asset that is individually significant, the Group assesses the asset individually for
impairment if there is objective evidence of impairment, and recognizes the amount of impairment
in profit or loss. For a financial asset that is not individually significant, the Group include the asset
in a group of financial assets with similar credit risk characteristics and collectively assess them for
impairment. If it is determined that no objective evidence of impairment exists for an individually
assessed financial asset, whether the financial asset is individually significant or not, the financial
asset is included in a group of financial assets with similar credit risk characteristics and collectively
assessed for impairment. Financial assets, for which an impairment loss is individually recognized, are
not included in the collective assessment for impairment.
After the Group recognizes impairment loss of financial assets carried at amortized cost, if there is
objective evidence that the financial assets’ value recovered and the recovery is objectively related to
an event occurring after the impairment is recognized, the previously recognized impairment loss shall
be reversed and recognized in profit or loss. However the reversal shall not result in a carrying amount
of the financial asset that exceeds what the amortized cost would have been had the impairment not
been recognized at the date when the impairment is reversed.
ANNUAL REPORT 2014
175
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Impairment of financial assets (continued)
Available-for-sale financial assets
If an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fair value
that had been recognized directly in capital reserves is removed from capital reserves and recognized
in profit or loss. The cumulative loss that is removed from capital reserves is the difference between
its acquisition cost (net of any principal repayment and amortization) and its current fair value, less
any impairment loss previously recognized in profit or loss.
Objective evidence of impairment in equity instruments available-for-sale includes a significant or
prolonged decline in their fair value. Whether the decline is “significant” or not shall be determined by
reference to the extent to which the fair value is lower the cost. Whether the decline is “prolonged”
or not shall be determined by reference to the duration in which the fair value is lower than the cost.
Where objective evidence of impairment exists, the accumulated loss of the transfer is represented by
the balance of acquisition cost after deduction of the current fair value and impairment loss previously
charged to profit and loss. Impairment losses recognized for equity instruments classified as available-
for-sale are not reversed through profit or loss. Fair value gains that arise after the impairment are
directly recognized in other comprehensive income.
The exercise of judgement is required to determine the meaning of “significant” or “prolonged.” The
Group makes its judgement based on the duration in which the fair value is lower than the cost and
other factors.
If after an impairment loss has been recognized on an available-for-sale debt instrument, the fair value
of the debt instrument increases in a subsequent period whereby the increase can be objectively related
to an event occurring after the impairment losses were recognized, the impairment loss is reversed
which is recognized in profit or loss.
Assets carried at cost
If financial assets carried at cost are impaired, the impairment loss are recognized in profit or loss and
measured as the difference between the carrying amount of the financial asset and the present value
of estimated future cash flows discounted at the current market rate of return for a similar financial
asset. Such impairment losses shall not be reversed.
ZTE CORPORATION
176
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Derecognition 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 derecognized. If the Group retains substantially
all the risks and rewards of ownership of a financial asset, the asset should not be derecognized.
When the Group has neither transferred nor retained substantially all the risks and rewards of ownership
of the financial asset, it may either derecognize the financial asset and recognize any associated assets
and liabilities if control of the financial asset has not been retained; or recognizes the financial asset to
the extent of its continuing involvement in the transferred financial asset and recognizes 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 book 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. Accounts Receivable
(1) Individually significant accounts receivable for which separate bad-debt provision is made
The Group conducts impairment tests in respect of its significant account receivables and makes
provision for impairment when there is objective evidence of impairment. Objective evidence for
impairment includes: (1) significant financial difficulties experienced by the debtor; (2) default on
or non-payment of due interest or principal payments; (3) concessions made to the insolvent
debtor by creditors owing to economic or legal considerations; (4) probable bankruptcy or other
financial reorganisation of the debtor; (5) inability to recover the debt after repayments from the
bankruptcy assets or the estate upon the bankruptcy or death of the debtor.
An account receivable is considered individually significant if it amounts to 0.1% or above of the
total original value of all accounts receivable.
ANNUAL REPORT 2014
177
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
10. Accounts Receivable (continued)
(2) Accounts receivable for which bad debt provision is made on the basis of credit risk
characteristic groups
Individually insignificant accounts, for which there is no objective evidence under individual
impairment tests warranting individual provision, are divided into different asset groups based on
their credit risk characteristics, and each group is assessed in accordance with different policies
to determine their impairment provision. The management divides trade receivables (other than
those in respect of which individual asset impairment provision has been made) into the following
asset groups as follows on the basis of credit risk rating and historical repayment records:
Percentage of
provision (%)
0–6 months —
7–12 months 0–15
13–18 months 5–60
19–24 months 15–85
2–3 years 50–100
Over 3 years 100
11. Inventories
Inventories include raw materials, materials sub-contracted for processing, work-in-progress, finished
goods, materials for construction-in-progress and product deliveries.
Inventories are initially recorded at costs. Inventories’ costs include purchasing costs, processing costs
and other costs. Actual costs of goods delivered are recognized using the weighted moving average
method. Materials for construction-in-progress include low-value consumables and packaging materials,
which are amortised using the separate amortization method/one-off write-off method.
Inventories are valued using the perpetual inventories system.
Inventories at the end of the year are stated at the lower of cost or net realizable value. Provision for
impairment of inventories is made and recognized in profit or loss when the net realizable value is
lower than cost. If the factors that give rise to the provision in prior years are not in effect in current
year, as a result that the net realizable value of the inventories is higher than cost, provision should
be reversed within the impaired cost, and recognized in profit or loss.
Net realizable 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.
ZTE CORPORATION
178
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
12. 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 accounting. The initial investment cost of long-term equity investments other than
those acquired through business combination shall be recognized 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.”
ANNUAL REPORT 2014
179
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
12. 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 long-term 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. Any excess of the Company’s share of the investment’s
identifiable assets and liabilities over the cost of investment is excluded from the carrying amount
of the investment and recognized in profit and loss for the current period, and the cost of long-term
equity investment is adjusted accordingly.
Under the equity method, after the long-term equity investments are acquired, investment gains or
losses and other comprehensive income are recognized 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 recognizing 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 recognized), 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 recognizing 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.
ZTE CORPORATION
180
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
12. Long-term equity investments (continued)
On disposal of the long-term equity investments, the difference between book value and market price
is recognized 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.
13. 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 book value as at the date of
reclassification is included in the capital reserve. After initial recognition, investment properties will
be subsequently measured and presented in fair value. The difference between the fair value and the
original book value shall be included in current profit and 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.
ANNUAL REPORT 2014
181
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
14. Fixed Assets
A fixed asset is recognized 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 recognized in the carrying amount of the fixed asset if the
above recognition criteria are met, and the book value of the replaced part is derecognized; otherwise,
those expenditures are recognized in profit or loss as incurred.
Fixed assets are initially recognized 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 Indefinite — N/A
Buildings 30–50 years 5% 1.9%–3.17%
Electronic equipment 5–10 years 5% 9.5%–19%
Machinery equipment 5–10 years 5% 9.5%–19%
Motor vehicles 5–10 years 5% 9.5%–19%
Other equipment 5 years 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.
15. Construction in progress
Construction-in-progress is measured at the actual construction expenditures, including 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.
ZTE CORPORATION
182
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
16. Borrowing costs
Borrowing costs are interest and other costs incurred by the Group in connection with the borrowings
of funds, which include borrowing interest, amortisation of discount or premium on debt, other
supplementary costs and certain foreign exchange differences that occurred from the borrowings in
foreign currencies.
Borrowing costs directly attributable to the acquisition or construction of assets qualified for
capitalization, 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 capitalized as part of the cost of those
assets. Other borrowing costs are charged to current profit or loss.
Capitalization 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 capitalization of such borrowing costs ceases when the assets are substantially ready for their
intended use or sale. Borrowing costs incurred afterwards are recognized in profit or loss.
During capitalization, interest of each accounting period is recognized 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
capitalization rate to the expenditure on that asset. The capitalization 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, capitalization 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 recognized as expenses and recorded in the income statement until the construction resumes.
ANNUAL REPORT 2014
183
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
17. 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 and whose fair value can be reliably measured shall be separately recognized 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 2–5 years
Technology know-how 2–10 years
Land use rights 50–70 years
Franchise 3–10 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 amortization 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.
ZTE CORPORATION
184
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
17. Intangible assets (continued)
The Group classifies the expenses for internal research and development as research costs and
development costs. All research costs are charged to the income statement 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 in the Group are formed when they meet the above condition technical feasibility
and economic feasibility studies. Then, those projects are progressed into the development phase.
18. Provisions
Other than contingent consideration and assumed contingent liabilities in a business combination
involving parties not under common control, the Group recognizes 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 resources 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 book value of
the provisions would be reassessed on every balance sheet date. The book value will be adjusted to the
best estimated value if there is certain evidence that the current book value is not the best estimate.
ANNUAL REPORT 2014
185
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
19. Share-based payments
Share-based payments can be distinguished into equity-settled share-based payments and cash-settled
share-based payments. Equity-settled share-based payments are transactions of the Group settled
through the payment of shares of 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 recognizing 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 Black-Scholes option
pricing model. For details see Note XI. Share-based 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, except where vesting is conditional
upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the
market or non-vesting condition is satisfied, provided that all other non-market conditions are satisfied.
Where the terms of an equity-settled share-based payment are modified, as a minimum, services
obtained are recognized as if the terms had not been modified. In addition, an expense is recognized
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 recognized for the award is recognized 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.
ZTE CORPORATION
186
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
20. Revenue
Revenue is recognized when it is probable that the economic benefits will flow to the Group and the
amount of the revenue can be measured reliably. Revenue is recognized on the following bases:
Revenue from the sales of goods
Revenue from sales of goods is recognized when the significant risks and rewards of ownership have
been transferred to the buyer, provided that the Group maintains neither managerial involvement to
the degree usually associated with ownership, nor effective control over the goods sold and related
costs incurred or to be incurred can be measured reliably. Revenue from sales of goods is determined
according to amounts stipulated in contracts or agreements received or receivable from buyers, unless
such amounts are deemed unfair. The receipt of amounts stipulated in contracts or agreements is
recognized on a deferred basis. Those with a financing nature are measured at the fair value of amounts
stipulated in contracts or agreements.
Revenue from the rendering of services
On the balance sheet date, when transaction result of the rendering of services could be measured
reliably, related revenue from rendering of services is recognized according to the percentage of
completion, otherwise revenue is recognized only to the extent of cost incurred and expected to be
recoverable. The transaction result of the rendering of services could be measured reliably by meeting
the following conditions at the same time: Revenue can be measured reliably, the relevant economic
benefits will flow to the Group, the percentage of construction work and relevant cost incurred or to
be incurred can be measured reliably. The percentage of completion is based on the percentage of
costs incurred to date on a contract relative to the estimated total contract costs. Total revenue for
the rendering of services is determined according to amounts stipulated in contracts or agreements
received or receivable by workers, unless such amounts are deemed unfair.
Where the sales of goods and rendering of services are included in contracts or agreements between
the Group and other enterprises, revenue is separately recognized according to the fair values of
various sales items in the contracts, by reference to the aforesaid principles for revenue recognition.
ANNUAL REPORT 2014
187
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
20. Revenue (continued)
Construction contracts
Construction contract revenue and cost are recognised by percentage of completion at the balance
sheet date where the results of the contract could be reliably estimated, otherwise revenue is recognized
on the basis of the actual contract cost amount which has been incurred and is expected to be
recoverable. The results of the contract can be reliably estimated if it is probable that economic benefits
relating to the contract will flow to the Group and the actually incurred contract cost can be clearly
distinguished and reliably measured. For contracts with fixed prices, the following conditions should
also be met: the total revenue of the contract can be reliably measured, and percentage of completion
and outstanding cost for completion can be reliably estimated. The percentage of completion is based
on the percentage of costs incurred to date on a contract relative to the estimated total contract
costs. Total contract revenue includes initial income stipulated by the contract and income derived
from contract modifications, compensation and rewards, and etc.
Rental income
Rental income generated under operating leases is recognized over the respective periods during the
lease term using the straight line method. Contingent rental income is charged to current profit and
loss when incurred.
Interest income
Interest income is determined by the length of time for which the Group’s cash is in use by other
parties and the effective interest rate.
ZTE CORPORATION
188
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
21. Government grants
Government grants are recognized 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 recognized as income-related government grants.
Government grants, relating to income and applied towards reimbursement of related costs or losses
in subsequent periods, are recognized as deferred income and taken to current profit or loss for the
period in which the related costs are recognized. Government grants, applied towards reimbursement
of related costs or losses already incurred, are directly recognized in current profit or loss. Where the
grant relates to an asset, it is recognized as a deferred income and allocated to the income statement
over the expected useful life of the relevant asset by equal annual instalments. Where the grant is
measured at nominal value, it is directly recognized in current profit or loss.
22. Income tax
Income taxes include current and deferred tax. Income taxes are recognized in current period’s profit
or loss as income tax expense or income tax benefit, except for the adjustment made for goodwill
in a business combination and income tax from transactions or items that directly related to equity.
For current period’s deferred tax assets and liabilities arising in current and prior periods, the Group
measures them at the amount expected to be paid or recovered according to the relevant taxation
regulations.
The Group recognizes 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 book values and tax bases of items not recognized as assets or
liabilities where the tax base can be calculated according to the relevant tax regulations.
Deferred tax liabilities are recognized 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;
ANNUAL REPORT 2014
189
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
22. Income tax (continued)
(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 recognized 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 differences arises from 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 deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred tax assets are only recognized to the extent
that it is probable that the temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be utilized.
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 realized 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.
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 if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity
and the same taxation authority.
ZTE CORPORATION
190
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
23. Leases
Other than leases under which substantially all risks and rewards of ownership are transferred, which
are classified as finance lease, all leases are classified as operating leases.
As lessee of operating leases
Rental expenses under operating leases are recognized as relevant asset costs or in current profit or
loss on the straight-line basis over the lease term. Contingent rental is charged to current profit or
loss when incurred.
As lesser of operating leases
Rental income under operating leases are recognized as profit/loss for the current period on a straightline
basis over the lease term. Contingent rental is charged to current profit or loss when incurred.
24. Hedge accounting
For the purpose of hedge accounting, hedges are classified as:Cash flow hedges when hedging the
exposure to variability in cash flows that is either attributable to a particular risk associated with a
recognised asset or liability or a highly probable forecast transaction, or a foreign currency risk in an
unrecognised firm commitment.
At the inception of a hedge relationship, the Group formally designates and documents the hedge
relationship to which the Group wishes to apply hedge accounting, the risk management objective
and its strategy for undertaking the hedge. The documentation includes identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group
will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged
item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly
effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective throughout the financial reporting
periods for which they were designated.
ANNUAL REPORT 2014
191
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
24. Hedge accounting (continued)
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised directly in other
comprehensive income, while the ineffective portion is recognised immediately in profit or loss.
Amounts recognized in other comprehensive income are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when hedged financial income or financial expense is
recognised or when a forecast sale occurs.
If the hedging instrument expires or is sold, terminated or exercised (with the expiry of rollover of the
hedging strategic component or unfulfilled replacement or the termination of processing of the contract),
if its designation as a hedge is revoked, or if the hedge no longer fulfills the accounting requirement of
a hedge, the amounts previously taken to other comprehensive income remain in other comprehensive
income until the forecast transaction or firm commitment occurs or is fulfilled in actual terms.
25. Impairment
The Group assesses impairment of assets other than inventories, investment properties measured at
fair value, deferred tax assets and financial assets, using the methods described below:
The Group assesses at each balance sheet date 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, tests for impairment is performed at
least annually regardless of whether there are indications of impairment. Intangible assets which are
not yet ready for use are also tested annually for 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 recognized in the current period’s
profit or loss and provision for impairment is made accordingly.
ZTE CORPORATION
192
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
25. Impairment (continued)
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.
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 recognize 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.
26. 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.
ANNUAL REPORT 2014
193
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
26. Employee remuneration (continued)
Retirement benefit (defined benefit scheme)
The Group operates a defined benefit pension scheme which requires the deposit of fees to an
independently managed fund. 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 recognized 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 recognized by the Group, whichever earlier.
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 recognized 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
recognized 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 recognized,
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.
ZTE CORPORATION
194
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
27. Fair value measurement
At each balance sheet date, the Group measures the fair value of investment properties, derivative
financial instruments and listed 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 Group measures assets or liabilities at
fair value with the assumption that the orderly transaction of asset disposal or the transfer of liabilities
takes place in the major market for the relevant assets or liabilities. Where there is no major market,
the Group assumes such transaction takes place in the most favourable market for the relevant assets
or liabilities. The major market (or most favourable market) is a trading market which the Group has
access to on the measurement date. The Group adopts assumptions used by market participants when
they price the asset or liability with the aim of maximizing its economic benefits.
The measurement of non-financial assets measured at fair value should take into account the ability of
market participants to utilize the asset in the best way for generating economic benefits, or the ability
to dispose of such asset to other market participants who are able to utilize the asset in the best way
for generating economic benefits.
The Group adopts valuation techniques that are appropriate in the current circumstances and supported
by sufficient usable data and other information. Observable input will be used first and foremost.
Unobservable input will only be used when it is not possible or practicable to obtain observable input.
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 recognized in the financial statements to determine whether the level of fair value
measurement should be changed.
28. Profit distribution
Cash dividend of the Company is recognized as liability after approval by the general meeting.
ANNUAL REPORT 2014
195
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. 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 book
value of the asset or liability affected in the future.
Judgements
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 recognized in the financial
statements:
Revenue Recognition
The Group’s material revenue streams are the result of a wide range of activities, from custom design
and installation over a period of time to a single delivery of equipment to a customer. The Group’s
networking solutions also cover a broad range of technologies and are offered on a global basis. As
a result, our revenue recognition policies can differ depending on the level of customization within the
solution and the contractual terms with the customer. Newer technologies within one of the Group’s
reporting segments may also have different revenue recognition policies, depending on, among other
factors, the specific performance and acceptance criteria within the applicable contracts. Therefore,
management must use significant judgement in determining how to apply the current accounting
standards and interpretations, not only based on the networking solutions, but also within networking
solutions based on reviewing the level of customization and contractual terms with the customer. As
a result, our revenues may fluctuate from period to period based on the mix of solutions sold and the
geographic regions in which they are sold.
When a customer arrangement involves multiple deliverables where the deliverables are governed by
more than one authoritative standard, the Group evaluates all deliverables to determine whether they
represent separate units of accounting based on the following criteria:
1) whether the delivered item has value to the customer on a stand-alone basis; and
2) if the contract includes a general right of return relative to the delivered item, delivery or
performance of the undelivered item(s) is considered probable and is substantially in the Group’s
control.
ZTE CORPORATION
196
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Judgements (continued)
Revenue Recognition (continued)
The Group’s determination of whether deliverables within a multiple element contract can be treated
separately for revenue recognition purposes involves significant estimates and judgement, such as
whether the delivered elements have standalone value to the customer. Changes to the Group’s
assessment of the accounting units in an arrangement and/or its ability to establish fair values could
significantly change the timing of revenue recognition.
At the inception of the arrangement, contract amounts shall be allocated to all deliverables on the
basis of their relative selling price (the relative selling price method). When applying the relative selling
price method, the selling price for each deliverable shall be determined using vendor-specific objective
evidence (“VSOE”) of selling price, if it exists; otherwise, third-party evidence of selling price should
be used. If neither VSOE nor third-party evidence of selling price exists for a deliverable, the vendor
shall use its best estimate of the selling price for that deliverable when applying the relative selling
price method. In deciding whether the vendor can determine VSOE or third-party evidence of selling
price, the vendor shall not ignore information that is reasonably available without undue cost and effort.
For instance, the Group sells hardware and post-contract services on a stand-alone basis and therefore
we have evidence to establish VSOE for both of sale of goods and post-contract services.
The Group’s adoption of appropriate revenue recognition policy for a deliverable involves significant
judgement. For instance, the Group has to determine whether post-contract support services is more
than incidental to hardware, so as to decided whether the hardware should be accounted for based
on multiple-element revenue recognition guidance or general revenue recognition guidance. This
assessment could significantly impact the amount and timing of revenue recognition.
ANNUAL REPORT 2014
197
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Judgements (continued)
Revenue Recognition (continued)
For elements related to customised network solutions and certain network build-outs, revenues are
recognized under the ASBE No. 15 Construction Contract, generally using the percentage-of-completion
method. In using the percentage-of-completion method, revenues are generally recorded based on
a measure of the percentage of costs incurred to date on a contract relative to the estimated total
expected contract costs. Profit estimates on long-term contracts are revised periodically based on
changes in circumstances and any losses on contracts are recognized in the period that such losses
become known. Generally, the terms of long-term contracts provide for progress billing are based on
completion of certain phases of work. Contract revenues recognized, based on costs incurred towards
the completion of the project, that are unbilled are accumulated in the contracts in progress account
included in amount due from customers for contract works. Billings in excess of revenues recognized to
date on long-term contracts are recorded as advance billings in excess of revenues recognized to date
on contracts within amount due to customers for contract works. Significant judgement is often required
when estimating total contract costs and progress to completion on these arrangements, as well as
whether a loss is expected to be incurred on the contract. Management uses historical experience,
project plans and an assessment of the risks and uncertainties inherent in the arrangement to establish
these estimates. Uncertainties include implementation delays or performance issues that may or may
not be within the control of the Group. Changes in these estimates could result in a material impact
on revenues and net earnings.
Where hardware does not require significant customisation, and any software is considered incidental,
revenue should be recognized under ASBE No.14 — Revenue if: it is probable that the economic
benefits associated with the transaction will flow to the Group the amount can be measured reliably;
the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the
entity retains neither continuing managerial involvement to the degree usually associated with ownership
nor effective control over the goods sold; and the costs incurred or to be incurred in respect of the
transaction can be measured reliably.
For hardware, delivery is considered to have occurred upon shipment provided that the risk of loss and
title have been transferred to the customer. For arrangements where the criteria for revenue recognition
have not been met because legal title or the risk of loss on products was not transfer to the buyer
until final payment had been received or where delivery had not occurred, revenue is deferred to a
later period when title or the risk of loss passes either on delivery or on receipt of payment from the
customer.
For further information on the Group’s revenue recognition policies relating to our material revenue
streams, please refer to Note III.20 to the consolidated financial statements.
ZTE CORPORATION
198
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Judgements (continued)
Deferred tax liabilities arising from dividend distribution
The Group is required to recognize deferred tax liabilities for taxable temporary differences relating
to investments in certain subsidiaries, 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. 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 has not recognised any deferred income tax liability.
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 recognized 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 fixed assets, construction in progress and intangible assets
The Group assesses at each balance sheet date whether there is an indication that 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 recognized 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.
ANNUAL REPORT 2014
199
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Impairment of financial assets
The Group determines whether financial assets are impaired by estimating the future cash flow from
the financial assets. An impairment loss is recognized only if the carrying amount of an asset exceeds
the present value of estimated future cash flows discounted at the financial asset’s original effective
interest rate, taking into account the value of the related collateral. Where the actual future cash flows
and less than expected, an impairment loss may arise.
Depreciation and amortization
The Group depreciates items of fixed assets and amortises items of intangible assets on the straightline
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. The estimated
useful lives and dates that the Group places the items of fixed assets into productive use 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.
Deferred development costs
In determining the amount of capitalization, 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 recognized for all unused tax losses, to the extent that it is likely that taxable
profit will be available to utilize 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 recognized.
Provision for inventory impairment
The impairment of inventory to its net realizable value is based on the marketability and net realizable
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
book value of the inventory and charge or reversal of impairment provision for the period during which
the estimates were revised.
ZTE CORPORATION
200
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Provision for warranty
Provision for warranties is recognised on a best-estimate basis according to the warranty period,
supply volume of the product concerned and past data and experience on the performance of warranty
services, taking into account risks and uncertainties relating to contingencies and the time value of
currency.
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 31 December 2014
was RMB2,004,465,000 (31 December 2013: RMB1,855,246,000).
ANNUAL REPORT 2014
201
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IV. TAXATION
1. Principal tax items and tax rates
Value-added tax — Payable on income generated from domestic sales of products and
equipment repair services at a tax rate of 17%; Output tax at a tax rate
of 6% is payable on sales service income generated from amended or
new additional scope of business deducting the current balance of tax
credit available for offsetting.
Business tax — In accordance with relevant PRC tax regulations, business tax was
payable by the Group at tax rates of 3% and 5%, respectively, on its
sales income and service income which were subject to business tax
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
2. Tax concession
The Company is subject to an enterprise income tax rate of 15% for the years from 2014 to 2016 as
a national-grade hi-tech enterprise incorporated in Shenzhen. Income tax rates for certain domestic
subsidiaries of the Group are disclosed as follows:
Xi’an Zhongxing New Software Company Limited, recognized as a Key Software Enterprise within the
National Programming Layout for the years from 2013 to 2014, is a national-grade hi-tech enterprise,
subject to an enterprise income tax rate of 10%.
Nanjing Zhongxingxin Software Company Limited, recognized as a software enterprise in December
2009, has been entitled to enterprise income tax exemption in the first and second profitable years
and a 50% reduction in enterprise income tax from the third to the fifth years pursuant to Cai Shui
[2008] No. 1. The current year is its fifth profitable year and a 50% reduction in enterprise income tax
rate of 25% is applicable.
ZTE CORPORATION
202
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IV. TAXATION (continued)
2. Tax concession (continued)
Shenzhen Zhongxing ICT Company Limited is subject to an enterprise income tax rate of 15% for the
years from 2013 to 2015 as a national-grade hi-tech enterprise.
Shenzhen Zhongxing Software Company Limited is subject to an enterprise income tax rate of 10%
for the current year as a national-grade hi-tech enterprise and an Important Software Enterprise under
the National Planning Layout from 2013 to 2014.
Shenzhen ZTE Mobile Telecom Co., Ltd is subject to an enterprise income tax rate of 15% from 2014
to 2016 as a national-grade hi-tech enterprise registered in Shenzhen Nanshan Hitech Industrial Park.
ZTE Microelectronics Technology Company Limited is subject to an enterprise income tax rate of 10%
for the current year as a national-grade hi-tech enterprise and an Integrated Circuit Design Enterprise
under the National Planning Layout from 2013 to 2014.
Shanghai Zhongxing Telecom Equipment Technology & Service Company Limited is subject to an
enterprise income tax rate of 15% from 2014 to 2016 as a national-grade hi-tech enterprise registered
in Shanghai Pudong New Area.
Shanghai Zhongxing Software Company Limited is subject to an enterprise income tax rate of 10%
from 2013 to 2014 a national-grade hi-tech enterprise and as an Important Software Enterprise under
the National Planning Layout.
Nanjing Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% from
2014 to 2016 as a national-grade hi-tech enterprise.
ZTEsoft Technology Company Limited is a national-grade hi-tech enterprise which has been accredited
as an Important Software Enterprise under the National Planning Layout from 2013 to 2014. The
applicable enterprise income tax rate for the current year is 10%.
Xi’an Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% from
2012 to 2014 as a national-grade hi-tech enterprise.
Xi’an Zhongxing Jing Cheng Communication Company Limited has applied for the status of and been
confirmed as an enterprise engaged in State-endorsed industries in the current year and is subject to
an enterprise income tax rate of 15% for the current year.
ZTEsoft Technology Company Limited is subject to an enterprise income tax rate of 15% for the years
from 2013 to 2015 as a national-grade hi-tech enterprise
ANNUAL REPORT 2014
203
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS
1. Cash
2014 2013
Cash 16,314 24,760
Bank deposit 17,381,254 20,169,634
Other cash 718,306 708,641
18,115,874 20,903,035
As at 31 December 2014, the Group’s time deposit of RMB23,000,000 (31 December 2013:
RMB23,000,000) was pledged to secure bank borrowings for a term of 1 year.
As at 31 December 2014, the Group’s overseas currency deposits amounted to RMB6,039,157,000
(31 December 2013: RMB6,722,472,000). Funds placed overseas and subject to remittance restrictions
amounted to RMB70,175,000 (31 December 2013: RMB27,493,000).
Current bank deposits earn interest income based on current deposit interest rate. The period for
time deposits varies from 7 days to 1 year. The short-term time deposits, subject to the Group’s cash
needs, earn interest income based on corresponding time deposits interest rate. Time deposit of over
three months amounting to RMB167,428,000 (31 December 2013: RMB76,120,000) were not included
in cash and cash equivalents.
2. Financial assets at fair value through current profit and loss
2014 2013
Trading financial assets
Derivative financial assets 240,973 217,454
Trading in derivative financial instruments comprised two components: one component comprised
transactions in forward exchange contracts with reputable banks in the PRC 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. The other component comprised the
value of the conversion rights of the convertible bonds of China All Access (Holdings) Limited subscribed
for by ZTE (H.K.) Limited, a wholly-owned subsidiary of the Company. For the year, gain arising from
fair value changes of non-hedging derivative financial instruments amounting to RMB17,976,000 (2013:
RMB174,829,000) was dealt with in current profit or loss.
ZTE CORPORATION
204
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Bills receivable
2014 2013
Commercial acceptance bills 988,599 1,690,895
Bank acceptance bills 1,098,172 1,809,776
2,086,771 3,500,671
Endorsed or discounted bills receivable outstanding on the balance sheet date are analysed as follows:
2014 2013
De-
recognised
Not de-
recognised
De-
recognised
Not de-
recognised
Commercial acceptance bills 294,779 44,028 240,388 102,000
Bank acceptance bills — — 251,246 —
294,779 44,028 491,634 102,000
As at 31 December 2014, there was no bill which had been transferred to trade receivables as a result
of the issuers’ default (31 December 2013: Nil).
As at 31 December 2014, no bills were pledged for obtaining short-term borrowing (31 December
2013: Nil).
As at 31 December 2014, there were no outstanding bills receivable endorsed on behalf of third parties
(31 December 2013: Nil).
ANNUAL REPORT 2014
205
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Trade receivables
Trade receivables arising from communications systems construction works and the provision of labour
services are recognised according to the payment periods stipulated in contracts. The credit period
for trade receivables arising in the sales of goods 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:
2014 2013
Within 1 year 23,604,948 19,024,398
1 to 2 years 2,626,579 3,574,181
2 to 3 years 1,310,146 712,489
Over 3 years 1,928,466 1,833,407
29,470,139 25,144,475
Less: bad debt provision for trade receivables 4,317,176 3,751,218
25,152,963 21,393,257
Please refer to Note V. 18 for details of movements in bad debt provision for trade receivables for
the year.
ZTE CORPORATION
206
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Trade receivables (continued)
2014 2013
Book balance Bad debt provision Book balance Bad debt provision
Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%)
Individually significant
and for which bad
debt provision has
been separately
made 509,312 2 509,312 100 507,337 2 507,337 100
For which bad debt
provision has
been collectively
made based on
credit risks
0-6 months 20,307,402 69 — — 16,094,642 63 — —
7-12 months 3,297,545 11 292,712 9 2,929,756 12 234,541 8
13-18 months 1,712,530 6 425,970 25 2,684,587 11 621,248 23
19-24 months 914,049 3 580,641 64 886,725 4 542,964 61
2-3 years 1,304,670 4 1,083,910 83 680,822 3 484,522 71
Over 3 years 1,424,631 5 1,424,631 100 1,360,606 5 1,360,606 100
28,960,827 98 3,807,864 13 24,637,138 98 3,243,881 13
29,470,139 100 4,317,176 25,144,475 100 3,751,218
As at 31 December 2014, bad debt provisions for trade receivables which were individually significant
and individually tested were as follows:
Book
balance
Bad debt
provision
Percentage
of charge Reason
Overseas carriers 1 173,226 173,226 100% Debtor running into serious
financial difficulties
Overseas carriers 2 162,995 162,995 100% Debtor running into serious
financial difficulties
Overseas carriers 3 77,858 77,858 100% Debtor running into serious
financial difficulties
Others 95,233 95,233 100% Debtor running into serious
financial difficulties
509,312 509,312
ANNUAL REPORT 2014
207
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Trade receivables (continued)
As at 31 December 2013, bad debt provisions for trade receivables which were individually significant
and individually tested were as follows:
Book
balance
Bad debt
provision
Percentage
of charge Reason
Overseas carriers 1 170,331 170,331 100% Debtor running into serious
financial difficulties
Overseas carriers 2 160,272 160,272 100% Debtor running into serious
financial difficulties
Overseas carriers 3 77,282 77,282 100% Debtor running into serious
financial difficulties
Others 99,452 99,452 100% Debtor running into serious
financial difficulties
507,337 507,337
For 2014, there were no write-back, write-off or recovery of trade receivables which were individually
significant and for which bad-debt provision had been made separately (2013: Nil).
Top 5 accounts of trade receivables as at 31 December 2014 were as follows:
Customer Amount
As a
percentage
of total trade
receivables
Closing balance
of bad debt
provision
Customer 1 4,429,239 15.03% 18,223
Customer 2 2,102,621 7.13% 77,593
Customer 3 2,039,043 6.92% 30,109
Customer 4 467,227 1.59% 51,973
Customer 5 418,059 1.42% 18,169
Total 9,456,189 32.09% 196,067
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.
ZTE CORPORATION
208
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Other receivables
Aging analysis of other receivables was as follows
2014 2013
Within 1 year 1,592,615 1,420,081
1 to 2 years 317,980 199,854
2 to 3 years 159,854 61,510
Over 3 years 89,228 47,718
2,159,677 1,729,163
Other receivables analysed by nature as follows:
2014 2013
Staff loans 321,500 343,456
Transactions with third parties 1,446,721 821,253
Others 391,456 564,454
2,159,677 1,729,163
Top 5 accounts of other receivables as at 31 December 2014 were as follows:
Due from Closing balance
As a
percentage of
total amounts
of other
receivables Nature
Third-party entity 1 696,351 32.24% Transactions
with third
parties
Third-party entity 2 200,000 9.26% Others
Third-party entity 3 177,151 8.20% Transactions
with third
parties
Third-party entity 4 32,660 1.51% Transactions
with third
parties
Third-party entity 5 18,203 0.84% Transactions
with third
parties
Total 1,124,365 52.05%
ANNUAL REPORT 2014
209
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Other receivables (continued)
The above other receivables from top five accounts represent amounts receivable from third parties of
the Group and were aged within 36 months.
6. Prepayments
Aging analysis of prepayments was as follows:
2014 2013
Book balance Percentage (%) Book balance Percentage (%)
Within 1 year 682,778 100% 751,405 100%
Top 5 accounts of prepayments as at 31 December 2014 were as follows:
Supplier Amount
As a
percentage of
total amounts
of prepayments
Supplier 1 39,890 5.84%
Supplier 2 29,807 4.37%
Supplier 3 25,317 3.71%
Supplier 4 20,378 2.98%
Supplier 5 20,028 2.93%
Total 135,420 19.83%
7. Inventories
2014 2013
Book
balance
Provision For
impairment
Carrying
value
Book
balance
Provision For
impairment
Carrying
value
Raw materials 3,024,252 423,227 2,601,025 3,794,947 475,135 3,319,812
Materials under sub-
contract processing 302,833 14,602 288,231 159,844 7,603 152,241
Work-in-progress 1,340,404 71,860 1,268,544 943,734 46,673 897,061
Finished goods 4,352,821 321,735 4,031,086 2,940,432 376,657 2,563,775
Dispatch of goods 12,555,690 1,152,278 11,403,412 6,120,524 619,061 5,501,463
21,576,000 1,983,702 19,592,298 13,959,481 1,525,129 12,434,352
Please refer to Note V.18 for details of movements in the provision for impairment of inventory during
the year.
ZTE CORPORATION
210
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Amount due from/to customers for contract works
2014 2013
Amount due from customers for contract works 11,033,468 12,137,144
Amount due to customers for contract works (3,825,106) (3,682,564)
7,208,362 8,454,580
Contract costs incurred plus recognized profits (losses) to date 64,203,987 41,905,232
Less: estimated loss 340,199 105,908
Progress billings 56,655,426 33,344,744
7,208,362 8,454,580
Where estimated total contract costs exceed estimated total contract revenue, provision for estimated
losses on the contract measured at the difference between the amount in excess and recognized losses
on the contract should be made and charged to current profit or loss.
9. Available-for-sale financial assets
2014 2013
Book value
Impairment
provision
Carrying
amount Book value
Impairment
provision
Carrying
amount
Available-for-sale
equity instruments
At fair value 319,470 — 319,470 364,479 — 364,479
At cost 1,420,194 — 1,420,194 1,265,792 — 1,265,792
1,739,664 — 1,739,664 1,630,271 — 1,630,271
Available-for-sale financial assets at fair value:
2014 2013
Available-for-
sale equity
instruments
Available-for-
sale equity
instruments
Equity instrument cost 147,608 164,047
Fair value 319,470 364,479
Accumulated fair value change included in other comprehensive
income 171,862 200,432
ANNUAL REPORT 2014
211
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Available-for-sale financial assets (continued)
Available-for-sale financial assets at cost:
Book balance
Shareholding
percentage
Cash
dividend for
the year
Opening
Balance
Increase
during the
year
Decrease
during the
year
Closing
balance (%)
???????????? 201,734 — — 201,734 5% —
?????????????? — 196,000 — 196,000 0.985% —
Others 1,064,058 24,139 (65,737) 1,022,460 5,593
1,265,792 220,139 (65,737) 1,420,194 5,593
10. Long-term receivables
2014 2013
Installment payments for the provision of system construction
projects telecommunication 345,916 449,713
Less: Bad debt provision for long-term receivables 79,415 82,951
266,501 366,762
The discount rates adopted for long-term receivables ranged from 6.16% to 17.56%.
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.
Please refer to Note V.18 for details of movements in bad debt provision for long-term receivables.
ZTE CORPORATION
212
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments
2014 2013
Equity method
Jointly-controlled entities (1) 67,607 66,891
Associates (2) 393,709 411,146
461,316 478,037
2014
(1) Jointly-controlled entities
Movements during the year
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
Bestel Communications
Ltd. 2,255 — — — — — — — 2,255 —
????????
????* 46,005 — — 4,480 — — — — 50,485 —
??????????
???? 9,000 — — (3,764) — — — — 5,236 —
Pengzhong Xingsheng 9,631 — — — — — — — 9,631 —
66,891 — — 716 — — — — 67,607 —
ANNUAL REPORT 2014
213
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments (continued)
2014 (continued)
(2) Associates
Movements during the year
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
KAZNURTEL Limited
Liability Company 2,477 — — — — — — — 2,477 —
???????????
??? 19,501 — — 511 — — — — 20,012 —
???????????
??? 24,851 — — (2,424) — — — — 22,427 —
ZTE Energy Co., Ltd 315,822 — — (50,116) — — — — 265,706 —
ZTE Software
Technology
(Nanchang) Company
Limited 973 — — (973) — — — — — —
Nanjing Piaoxun Network
Technology Company
Limited 62 — — (37) — — — — 25 —
?????????? 3,222 — — 5 — — — — 3,227 —
Shenzhen Yuanxing
Technology Co., Ltd. 2,753 — (2,753) — — — — — — —
Telecom Innovations 10,077 — — — 157 — — — 10,234 —
Shenzhen Zhongxing
Hetai Hotel
Investment
Management
Company Limited 5,795 — — 1,221 — — — — 7,016 —
??????????
???? 4,764 — — — — — — — 4,764 —
??????????
???? 6,813 — — 10,831 — — — — 17,644 —
??????????
???? 3,702 — — (497) — — — — 3,205 —
??????????
???? 3,134 — — (4,654) — 3,434 — — 1,914 —
?????????
???? 4,000 — — 97 — — — — 4,097 —
????????
???? 3,200 12,800 — (484) — — — — 15,516 —
????????
???? — 17,304 — (3,515) — — — — 13,789 —
??????????
???? — 5,380 — (3,724) — — — — 1,656 —
411,146 35,484 (2,753) (53,759) 157 3,434 — — 393,709 —
ZTE CORPORATION
214
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments (continued)
2013
(1) Jointly-controlled entities
Movements during the year
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
Bestel Communications
Ltd. 2,255 — — — — — — — 2,255 —
????????
????* 44,559 — — 1,446 — — — — 46,005 —
??????????
???? — 9,000 — — — — — — 9,000 —
Pengzhong Xingsheng — 9,631 — — — — — — 9,631 —
46,814 18,631 — 1,446 — — — — 66,891 —
ANNUAL REPORT 2014
215
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments (continued)
2013 (continued)
(2) Associates
Movements during the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
KAZNURTEL Limited
Liability Company 2,477 — — — — — — — 2,477 —
Wuxi Kaier Technology
Company Limited 21,374 — (22,460) 1,086 — — — — — —
?????????
??? 626 — — (626) — — — — — —
??????????
???? 19,455 — — 46 — — — — 19,501 —
??????????
???? 12,152 — — 12,699 — — — — 24,851 —
ZTE Energy Co., Ltd 302,793 — — 22,490 — — (9,461) — 315,822 —
ZTE Software
Technology
(Nanchang)
Company Limited 836 — — 137 — — — — 973 —
Nanjing Piaoxun
Network Technology
Company Limited 62 — — — — — — — 62 —
?????????? 1,566 1,650 — 6 — — — — 3,222 —
Shenzhen Yuanxing
Technology Co.,
Ltd. 4,116 — — (1,363) — — — — 2,753 —
Telecom Innovations 4,322 — — — 5,755 — — — 10,077 —
Shenzhen Zhongxing
Hetai Hotel
Investment
Management
Company Limited 5,548 — — 247 — — — — 5,795 —
??????????
???? 5,932 — — (1,168) — — — — 4,764 —
Wuxi Hongtu
Micro-electronic
Technology Co., Ltd 21,826 — (21,062) (764) — — — — — —
??????????
???? 5,869 — — 944 — — — — 6,813 —
??????????
???? — 4,200 — (498) — — — — 3,702 —
??????????
???? — 3,350 — (216) — — — — 3,134 —
??????????
??? — 4,000 — — — — — — 4,000 —
?????????
??? — 3,200 — — — — — — 3,200 —
408,954 16,400 (43,522) 33,020 5,755 — (9,461) — 411,146 —
ZTE CORPORATION
216
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Investment Properties
Fair value measurement
2014
Buildings
RMB’000
Opening balance 1,855,246
Acquisition 18,913
Fair value change (Note 43) 130,306
Closing balance 2,004,465
2013
Buildings
RMB’000
Opening balance 1,686,158
Transfer from construction in progress (Note 14) 130,384
Fair value change (Note 43) 38,704
Closing balance 1,855,246
During the year, the investment properties of the Group leased buildings to Shenzhen Zhongxing Hetai
Hotel Investment and Management Company Limited, a related party, and other non-related parties
by way of operating lease.
As at 31 December 2014, investment properties with a carrying value of RMB1,420,685,000 (31
December2013: RMB1,323,370,000) had yet to obtain title registration certificates.
ANNUAL REPORT 2014
217
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fixed Assets
2014
Buildings
Freehold
land
Electronic
equipment
Machinery
equipment Vehicles
Other
equipment Total
Cost
Opening
balance 5,575,209 60,600 3,624,951 2,374,673 312,797 246,902 12,195,132
Acquisitions 183,082 — 392,959 453,291 21,708 26,082 1,077,122
Transfer from
construction-
in-progress — — 187 5,087 — 175 5,449
Disposal or
retirement (43,747) — (335,864) (172,051) (30,986) (42,730) (625,378)
Exchange rate
adjustments (24,461) (6,604) (14,232) (19,479) (1,836) (8,249) (74,861)
Closing balance 5,690,083 53,996 3,668,001 2,641,521 301,683 222,180 12,577,464
Accumulated
depreciation
Opening
balance 756,755 — 2,415,467 1,270,026 165,272 136,078 4,743,598
Provision 179,293 — 513,027 200,180 29,923 32,490 954,913
Disposed or
retirement (10,474) — (281,729) (98,541) (23,822) (18,518) (433,084)
Exchange rate
adjustments (19,236) — 1,170 (15,346) (1,218) (6,471) (41,101)
Closing balance 906,338 — 2,647,935 1,356,319 170,155 143,579 5,224,326
Provision for
impairment
Opening
balance — — — 2,058 — — 2,058
Provision — — 2,677 — — 83 2,760
Disposal or
retirement — — — — — — —
Exchange rate
adjustments — — — 34 — (6) 28
Closing balance — — 2,677 2,092 — 77 4,846
Net book value
At the end of
the year 4,783,745 53,996 1,017,389 1,283,110 131,528 78,524 7,348,292
At the beginning
of the year 4,818,454 60,600 1,209,484 1,102,589 147,525 110,824 7,449,476
ZTE CORPORATION
218
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fixed Assets (continued)
2013
Buildings
Freehold
land
Electronic
equipment
Machinery
equipment Vehicles
Other
equipment Total
Cost
Opening balance 4,729,684 71,672 3,633,073 2,351,935 348,045 226,289 11,360,698
Acquisitions 60,449 — 251,197 147,390 14,770 41,161 514,967
Transfer from
construction-in-
progress 955,158 — — 35,622 — — 990,780
Disposal or retirement (130,224) — (241,368) (145,460) (46,356) (9,781) (573,189)
Exchange rate
adjustments (39,858) (11,072) (17,951) (14,814) (3,662) (10,767) (98,124)
Closing balance 5,575,209 60,600 3,624,951 2,374,673 312,797 246,902 12,195,132
Accumulated depreciation
Opening balance 660,464 — 2,098,494 1,221,680 166,988 114,389 4,262,015
Provision 154,531 — 551,100 170,231 35,747 32,733 944,342
Disposal or retirement (29,482) — (223,298) (114,546) (35,067) (5,506) (407,899)
Exchange rate
adjustments (28,758) — (10,829) (7,339) (2,396) (5,538) (54,860)
Closing balance 756,755 — 2,415,467 1,270,026 165,272 136,078 4,743,598
Provision for impairment
Opening balance — — — 2,059 — — 2,059
Provision — — — — — — —
Disposal or retirement — — — — — — —
Exchange rate
adjustments — — — (1) — — (1)
Closing balance — — — 2,058 — — 2,058
Net book value
At the end of the year 4,818,454 60,600 1,209,484 1,102,589 147,525 110,824 7,449,476
At the beginning of the
year 4,069,220 71,672 1,534,579 1,128,196 181,057 111,900 7,096,624
ANNUAL REPORT 2014
219
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fixed Assets (continued)
2013 (continued)
As at 31 December 2014, the Group was in the process of applying for property ownership certificate
for buildings in Shenzhen, Shanghai, Nanjing, Xi’an, Anhui and Hengyang of Hunan in China with a net
book value of approximately RMB3,616,184,000 (31 December 2013: RMB3,687,123,000).
As at 31 December 2014, there were no retired fixed asset or idle fixed assets pending disposal (31
December 2013: Nil).
14. Construction in progress
Changes in significant construction in progress during 2014 as follows:
Budget
Opening
balance
Increase
during the
year
Transfer
to fixed
assets
Transfer to
Investment
properties
during the
year
Closing
balance
Source of
funds
Staff quarters Nil 5,556 599 — — 6,155
Internal
funds
Sanya R&D Base Project Nil 6,371 218 — — 6,589
Internal
funds
Equipment installation Nil 35,372 — 5,449 — 29,923
Internal
funds
Xi’an District 2 Phase 1 Nil 93,069 2,291 — — 95,360
Internal
funds
Heyuan R&D training Center Phase I Nil 13,852 22,026 — — 35,878
Internal
funds
Nanjing District 3 Phase I Nil 643 45 — — 688
Internal
funds
Nanjing staff quarters Phase II Nil 4,173 8,073 — — 12,246
Internal
funds
Zhongxing ICT Qinhuangdao
Northern Base infrastructure Nil — 5,609 — — 5,609
Internal
funds
IDC data centre engine room Nil — 25,739 — — 25,739
Internal
funds
Nanjing Internet of Things office Nil 829 14,232 — — 15,061
Internal
funds
Others Nil 17,558 12,057 — — 29,615
Internal
funds
Total 177,423 90,889 5,449 262,863
ZTE CORPORATION
220
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Construction in progress (continued)
Changes in major constructions in progress in 2013 are as follows:
Budget
Opening
balance
Increase
during the
year
Transfer to
fixed assets
Transfer to
Investment
properties
during the
year
Closing
balance
Source of
funds
Staff quarters Nil 32,946 5,215 32,605 — 5,556
Internal
funds
Sanya R&D Base Project Nil 3,603 2,768 — — 6,371
Internal
funds
Equipment installation Nil 38,389 — 3,017 — 35,372
Internal
funds
Xi’an District 2 Phase 1 Nil 683,394 306,675 897,000 — 93,069
Internal
funds
Xi’an Technology Park Site A10 Nil 8,995 63,414 — 72,409 —
Internal
funds
Technology Park C3 R&D Centre Nil 15,861 42,114 — 57,975 —
Internal
funds
Heyuan R&D training Center Phase I Nil 9,459 4,393 — — 13,852
Internal
funds
Industrial Park North Phase II Nil 94 — — — 94
Internal
funds
Nanjing District 3 Phase I Nil — 643 — — 643
Internal
funds
Xi’an District 2 Phase II Nil — 194 — — 194
Internal
funds
Nanjing District 2 Phase II Nil — 161 — — 161
Internal
funds
Nanjing staff quarters Phase II Nil — 4,173 — — 4,173
Internal
funds
Other projects Nil 31,646 44,450 58,158 — 17,938
Internal
funds
Total 824,387 474,200 990,780 130,384 177,423
As at 31 December 2014, there was no capitalized interest in the balance of the construction in
progress (31 December 2013: Nil).
ANNUAL REPORT 2014
221
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Intangible assets
2014
Software
Technology
know-how
Land use
right Franchise Total
Cost
Opening balance 464,168 6,605 1,188,778 332,583 1,992,134
Acquisition 149,658 1,650 45,558 76,439 273,305
Disposal or retirement (128,834) — (4,091) — (132,925)
Closing balance 484,992 8,255 1,230,245 409,022 2,132,514
Accumulated amortization
Opening balance 326,556 1,768 94,786 325,947 749,057
Provision 70,760 1,101 23,050 14,401 109,312
Disposal or retirement (96,273) — (599) — (96,872)
Closing balance 301,043 2.869 117,237 340,348 761,497
Provision for impairment
Opening balance — — 6,322 — 6,322
Provision — — — — —
Disposal or retirement — — — — —
Closing balance — — 6,322 — 6,322
Book value
At the end of the year 183,949 5,386 1,106,686 68,674 1,364,695
At the beginning of the year 137,612 4,837 1,087,670 6,636 1,236,755
ZTE CORPORATION
222
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Intangible assets (continued)
2013
Software
Technology
know-how
Land use
right Franchise Total
Cost
Opening balance 438,971 10,689 990,174 222,905 1,662,739
Acquisition 148,863 1,906 209,671 109,678 470,118
Disposal or retirement (123,666) (5,990) (11,067) — (140,723)
Closing balance 464,168 6,605 1,188,778 332,583 1,992,134
Accumulated amortization
Opening balance 312,928 4,831 74,824 176,796 569,379
Provision 60,270 1,250 21,138 149,151 231,809
Disposal or retirement (46,642) (4,313) (1,176) — (52,131)
Closing balance 326,556 1,768 94,786 325,947 749,057
Provision for impairment
Opening balance — — 6,322 — 6,322
Provision — — — — —
Disposal or retirement — — — — —
Closing balance — — 6,322 — 6,322
Book value
At the end of the year 137,612 4,837 1,087,670 6,636 1,236,755
At the beginning of the year 126,043 5,858 909,028 46,109 1,087,038
At 31 December 2014, intangible assets with a book value of RMB79,963,000 (31 December 2013:
RMB23,650,000) were subject to ownership restriction as they had been pledged as security for
borrowings.
As at 31 December 2014, the Group was in the process of obtaining the land use right certificate of land
blocks located in Shenzhen, Sanya and Nanjing in the PRC, with a net carrying value of approximately
RMB565,604,000 (31 December 2013: RMB647,083,000).
ANNUAL REPORT 2014
223
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Development expenses
2014
Opening
balance
Increase
during the year
Decrease
during the year
Closing
balance
Handsets 289,356 139,395 (123,548) 305,203
System Products 2,642,792 1,152,755 (617,245) 3,178,302
2,932,148 1,292,150 (740,793) 3,483,505
2013
Opening
balance
Increase
during the year
Decrease
during the year
Closing
balance
Handsets 291,077 96,989 (98,710) 289,356
System Products 2,155,857 934,039 (447,104) 2,642,792
2,446,934 1,031,028 (545,814) 2,932,148
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.
ZTE CORPORATION
224
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Deferred tax assets/liabilities
2014 2013
Deductible
temporary
differences
Deferred tax
assets
Deductible
temporary
differences
Deferred tax
assets
Deferred tax assets
Unrealized profits arising on
consolidation 572,329 126,540 422,510 117,100
Provision for impairment in
inventory 831,424 123,081 906,067 131,522
Foreseeable contract losses 204,058 30,609 121,546 18,232
Amortization of deferred
development costs 1,028,752 130,897 689,764 87,447
Provision for warranties and
returned goods 626,318 98,325 466,901 66,064
Provision for retirement benefits 115,450 17,348 95,806 14,370
Deductible tax losses 1,792,443 423,283 2,925,991 591,006
Accruals 1,082,895 153,361 1,153,143 166,264
Overseas taxes pending
deduction 999,046 149,857 1,043,813 156,572
Share option scheme expenses 207,948 31,192 29,707 4,456
7,460,663 1,284,493 7,855,248 1,353,033
2014 2013
Taxable
temporary
differences
Deferred tax
liabilities
Taxable
temporary
differences
Deferred tax
liabilities
Deferred tax liabilities
Revaluation gain of investment
properties 1,062,264 159,340 932,669 139,900
Deductible tax losses of unrecognized deferred tax assets:
2014 2013
Deductible tax losses 7,723,300 6,937,787
ANNUAL REPORT 2014
225
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Deferred tax assets/liabilities (continued)
Deductible tax losses of unrecognized deferred tax assets expiring in the following periods:
2014 2013
2014 — 20,328
2015 — —
2016 1,265,245 1,265,245
After 2016 6,458,055 5,652,214
7,723,300 6,937,787
The Group recognises deferred income tax assets based on deductible temporary differences. In relation
to deferred income tax relating to deductible loss and tax allowance, the Group expects to generate
sufficient taxable income prior to the expiry of deductible loss and tax allowance.
18. Provision for impairment of assets
2014
Decrease during the year
Opening
balance
Provision for
the Closing
year Write-back Write-off
Closing
balance
Bad debt provision 3,834,169 758,331 (82,809) (113,100) 4,396,591
Including: Trade
receivables 3,751,218 757,480 (82,809) (108,713) 4,317,176
Long-term
receivables 82,951 851 — (4,387) 79,415
Provision for impairment
of inventories 1,525,129 672,349 (148,399) (65,377) 1,983,702
Provision for impairment
of Fixed assets 2,058 2,760 — 28 4,846
Provision for impairment
of intangible assets 6,322 — — — 6,322
5,367,678 1,433,440 (231,208) (178,449) 6,391,461
ZTE CORPORATION
226
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Provision for impairment of assets (continued)
2013
Decrease during the year
Opening
balance
Provision for
the Closing
year Write-back Write-off
Closing
balance
Bad debt provision 2,979,412 1,167,414 (57,632) (255,025) 3,834,169
Including: Trade
receivables 2,894,611 1,167,414 (56,082) (254,725) 3,751,218
Long-term
receivables 84,801 — (1,550) (300) 82,951
Provision for impairment
of inventories 1,143,864 530,313 (50,609) (98,439) 1,525,129
Provision for impairment
of Fixed assets 2,059 — — (1) 2,058
Provision for impairment
of intangible assets 6,322 — — — 6,322
4,131,657 1,697,727 (108,241) (353,465) 5,367,678
The Group determines at the balance sheet date whether there is an indication of impairment in trade
receivables. Where there is such indication, the Group will estimate its recoverable amount and conduct
impairment tests.
Inventory is measured at the lower of cost and net realizable value. Where the cost is higher than the
net realisable value, provision for impairment in inventory is recognized in current profit or loss.
19. Other non-current assets
2014 2013
Prepayments for project and equipment 223,158 217,270
Risk compensation fund 3,744,472 3,396,897
Others 50,000 198,430
4,017,630 3,812,597
ANNUAL REPORT 2014
227
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Short-term loans
2014 2013
Original
currency
RMB
equivalent
Original
currency
RMB
equivalent
Credit loans RMB 4,132,364 4,132,364 4,715,950 4,715,950
USD 1,016,544 6,303,083 1,206,556 7,356,253
EUR — — 24,207 203,799
INR — — 2,076,400 204,933
Bill discounted
loans RMB 544,028 544,028 102,000 102,000 Note 1
Pledged loans USD 3,000 18,602 1,000 6,097 Note 2
10,998,077 12,589,032
As at 31 December 2014, the annual interest rate of the above loans ranged from 1.44%–7.20% (31
December 2013: 1.54%–14.25%).
Note 1: Bill discounted loans were loans discounted by bank acceptance bills. For 2014, discounted bills amounting to RMB500
million were issued on an intra-Group basis.
Note 2: Pledged loans were loans secured by time deposits.
There were no due and outstanding loans at 31 December 2014 (31 December 2013: Nil).
21. Financial liabilities at fair value through current profit and loss
2014 2013
Trading financial liability
Derivative financial liability 64,904 61,659
Hedging instruments — current portion 5,700 6,120
70,604 67,779
Derivative financial liability represents forward foreign exchange contract. For details please refer to
Note V.2.
For details of hedging instruments, please refer to Note V.55.
ZTE CORPORATION
228
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. Bills payable
2014 2013
Bank acceptance bills 4,774,931 4,071,009
Commercial acceptance bills 5,606,757 4,427,012
10,381,688 8,498,021
As at 31 December 2014, there was no due and outstanding bills payable (31 December 2013: Nil).
23. Trade payables
An aging analysis of the trade payables are as follows:
2014 2013
0 to 6 months 18,794,292 15,853,456
7 to 12 months 298,251 144,334
1 to 2 years 14,258 181,730
2 to 3 years 114,309 258,957
Over 3 years 23,290 54,057
19,244,400 16,492,534
Trade payables are interest-free and repayable normally within 6 months.
As at 31 December 2014, there were no material trade payables aged over 1 year (31 December 2013:
Nil).
24. Advances from customers
2014 2013
Advanced payments for system project work 2,596,703 1,890,385
Advanced payments for terminals 708,817 885,981
3,305,520 2,776,366
ANNUAL REPORT 2014
229
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables
Salaries payable to employees
2014
Opening
balance
Increase during
the year
Decrease during
the year Closing balance
Short-term remuneration 2,408,669 12,860,737 (12,513,101) 2,756,305
Retirement benefits
(Defined deposit
schemes) 50,223 989,907 (993,995) 46,135
Termination benefits 3,114 4,523 (3,130) 4,507
2,462,006 13,855,167 (13,510,226) 2,806,947
2013
Opening
Balance
Increase during
the year
Decrease during
the year Closing balance
Short-term remuneration 2,303,136 10,843,638 (10,738,105) 2,408,669
Retirement benefits
(Defined deposit
schemes) 40,572 935,347 (925,696) 50,223
Termination benefits 2,818 2,363 (2,067) 3,114
2,346,526 11,781,348 (11,665,868) 2,462,006
ZTE CORPORATION
230
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Salaries payable to employees (continued)
Short-term remuneration analysed as follows:
2014
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Salary, bonus and allowance 1,501,579 11,486,888 (11,196,930) 1,791,537
Staff welfare 5,441 59,177 (59,953) 4,665
Social insurance 18,829 493,086 (493,784) 18,131
Including: Medical Insurance 17,265 446,596 (446,711) 17,150
Work Injuries
Insurance 1,453 18,686 (19,731) 408
Maternity
Insurance 111 27,804 (27,342) 573
Housing funds 44,472 330,724 (341,129) 34,067
Labour union fund and
employee education fund 838,348 490,862 (421,305) 907,905
2,408,669 12,860,737 (12,513,101) 2,756,305
2013
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Salary, bonus and allowance 1,437,224 9,451,234 (9,386,879) 1,501,579
Staff welfare 19,891 199,095 (213,545) 5,441
Social insurance 15,720 506,181 (503,072) 18,829
Including: Medical Insurance 15,250 454,543 (452,528) 17,265
Work Injuries
Insurance 205 24,317 (23,069) 1,453
Maternity
Insurance 265 27,321 (27,475) 111
Housing funds 27,182 383,967 (366,677) 44,472
Labour union fund and
employee education fund 803,119 303,161 (267,932) 838,348
2,303,136 10,843,638 (10,738,105) 2,408,669
ANNUAL REPORT 2014
231
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Salaries payable to employees (continued)
Defined contribution plans are analysed as follows:
2014
Opening
balance
Increase during
the year
Decrease during
the year Closing balance
Pension Insurance 48,995 927,972 (932,004) 44,963
Unemployment Insurance 1,228 61,935 (61,991) 1,172
50,223 989,907 (993,995) 46,135
2013
Opening
balance
Increase during
the year
Decrease during
the year Closing balance
Pension Insurance 40,650 881,361 (873,016) 48,995
Unemployment Insurance (78) 53,986 (52,680) 1,228
40,572 935,347 (925,696) 50,223
Long-term staff remuneration payable
2014 2013
RMB’000 RMB’000
Net liabilities under defined benefit plan 115,450 95,806
The Group operates for all qualifying employees a defined benefit plan that has yet to receive capital
injection. Under the plan, an employee is entitled to retirement benefits ranging from 0% to 50% of
his/her last salary at the retirement age.
The scheme is subject to interest rate risks and the risk of change in the life expectancy of the pension
beneficiaries.
The latest actuarial valuation of assets under the plan and the present value of obligations under defined
benefit plans were determined by ???????????????? using the expected benefit accrual
unit approach at 31 December 2014.
ZTE CORPORATION
232
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Long-term staff remuneration payable (continued)
Major actuarial assumptions applied as at the balance sheet date are as follows:
2014
Discount rate % 4.00%
Expected salary increase % 5.50%
A quantitative sensitivity analysis of significant assumptions applied as at 31 December 2014 is set
out as follows:
Increase
Increase/
(decrease) in
Obligations
under defined
benefit plan Decease
Increase/
(decrease) in
Obligations
under defined
benefit plan
RMB’000 RMB’000
Discount rate 0.25% (4,019) 0.25% 4,197
Expected salary increase 1.00% 13,854 1.00% (12,700)
The above sensitivity analysis is based on inference of the impact of reasonable changes in key
assumptions at the balance sheet date on the net amount of defined benefits.
Relevant plans recognised in the income statement are as follows:
2014
RMB’000
Interest expenses 4,466
Charged to administrative expenses 4,466
Change in the present value of obligations under defined benefit plan:
2014
RMB’000
1 January 95,806
Interest expenses 4,466
Pension paid (1,421)
Benefit costs recognized in comprehensive income 16,599
31 December 115,450
ANNUAL REPORT 2014
233
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Long-term staff remuneration payable (continued)
Present value of changes in obligations under defined benefit plans are as follows:
Net liabilities
under defined
benefit plan
2014
Opening balance 95,806
Net interest 4,466
Charged to other comprehensive income
Actuary loss 11,555
Experience adjustments 5,044
Other changes
Benefit paid (1,421)
Closing balance 115,450
26. Tax payable
2014 2013
Value-added tax (4,040,415) (2,393,454)
Business tax 565,212 434,616
Income tax 489,141 557,059
PRC tax 363,422 348,085
Overseas tax 125,719 208,974
Individual income tax 89,430 60,350
City maintenance and construction tax 52,762 54,272
Education surcharge 43,069 43,330
Other taxes 10,521 (8,032)
(2,790,280) (1,251,859)
27. Dividend payable
2014 2013
Dividend payable to holders of restricted shares 156 152
Dividend payable to minority shareholders 7,957 34,811
8,113 34,963
ZTE CORPORATION
234
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. Other payables
2014 2013
Accruals 1,123,200 686,700
Contributions to staff housing 66,168 66,168
Payables to external parties 5,319,690 6,788,985
Deposits 29,972 28,488
Factored interests payable 71,233 84,084
Payables to employees 483,277 426,883
Others 438,430 396,836
7,531,970 8,478,144
29. Provisions
2014
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Outstanding litigation 110,694 63,442 (13,221) 160,915
Provision for returned handsets 169,315 212,207 (114,713) 266,809
Provision for warranties 321,102 505,868 (513,303) 313,667
601,111 781,517 (641,237) 741,391
2013
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Outstanding litigation 44,765 67,114 (1,185) 110,694
Provision for returned handsets 51,257 130,953 (12,895) 169,315
Provision for warranties 195,435 677,989 (552,322) 321,102
291,457 876,056 (566,402) 601,111
ANNUAL REPORT 2014
235
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30. Long-term non-current liabilities due within one year
2014 2013
Long-term loans due within one year 43,072 2,753,925
Bonds payable due within one year 6,131,185 —
6,174,257 2,753,925
31. Long-term loans
2014 2013
Original
currency
RMB
equivalent
Original
currency
RMB
equivalent
Credit loans RMB 1,740,000 1,740,000 1,782,000 1,782,000
USD 200,000 1,240,100 17,664 107,696
Guaranteed loans RMB 1,500,000 1,500,000 — — Note 1
USD 889,539 5,515,587 447,109 2,725,977 Note 1
Secured loans RMB 44,000 44,000 269,500 269,500 Note 2
Pledged loans RMB — — 500,500 500,500
10,039,687 5,385,673
Note 1 The guaranteed loans comprised mainly guaranteed loans provided by the Company for its subsidiary ZTE (H.K.) Limited.
Note 2 The secured loans was pledged by land use rights of ???????????? with a value of RMB79,963,000.
As at 31 December 2014, the annual interest rate for the aforesaid loans was 3.930%-6.765% (31
December 2013: 0%-6.654%).
32. Bonds payable
2014 2013
Bonds payable — 6,119,590
Balance of bonds payable as at 31 December 2014 is analysed as follows:
Nominal
value
Date of
issue
Term of
bond
Issue
amount
Opening
balance
Amortisation
of interest
discount/
premium for
the year
Repayment
during the
year
Closing
balance
Bonds payable 6 billion 2012.6.13 3 years 5,965,212 6,119,590 263,595 (252,000) 6,131,185*
* The bonds will be due in 2015 and is shown as non-current liabilities due within 1 year for this year.
ZTE CORPORATION
236
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32. Bonds payable (continued)
Balance of bonds payable as at 31 December 2013 is analysed as follows:
Nominal
value
Date of
issue
Term of
bond
Issue
amount
Opening
balance
Amortisation of
interest discount/
premium for the
year
Repayment
during the year
Closing
balance
Bonds payable 6 billion 2012.6.13 3 years 5,965,212 6,107,993 263,597 (252,000) 6,119,590
33. Other non-current liabilities
2014 2013
Long-term financial guarantee contract 3,689 3,689
Factored interests payable 204,435 257,540
Hedging instruments — non-current portion 881 4,286
Deferred income relating to staff housing 1,140,351 1,164,994
1,349,356 1,430,509
34. Share capital
2014
Opening
balance
Increase/
decrease
during the year Closing balance
Restricted shares
Senior management shares 7,226 (455) 6,771
Total number of restricted shares 7,226 (455) 6,771
Unrestricted shares
RMB Ordinary shares 2,800,730 455 2,801,185
Overseas listed foreign shares 629,585 — 629,585
Total number of unrestricted shares 3,430,315 455 3,430,770
Total number of shares 3,437,541 — 3,437,541
ANNUAL REPORT 2014
237
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
34. Share capital (continued)
2013
Opening balance
Increase/
decrease during
the year Closing balance
Restricted shares
Domestic natural person shares 2,537 (2,537) —
Senior management shares 8,724 (1,498) 7,226
Total number of restricted shares 11,261 (4,035) 7,226
Unrestricted shares
RMB Ordinary shares 2,799,232 1,498 2,800,730
Overseas listed foreign shares 629,585 — 629,585
Total number of unrestricted shares 3,428,817 1,498 3,430,315
Total number of shares 3,440,078 (2,537) 3,437,541
35. Capital reserves
2014
Opening
balance
Increase during
the year
Decrease
during the year Closing balance
Share premium 8,442,845 812 — 8,443,657
Share-based payment
(Note 1) 22,856 178,241 — 201,097
Capital investment by
government 80,000 — — 80,000
8,545,701 179,053 — 8,724,754
2013
Opening balance
Increase during
the year
Decrease during
the year Closing balance
Share premium 8,442,845 — — 8,442,845
Share-based payment
(Note 1) — 29,707 (6,851) 22,856
Capital investment by
government 80,000 — — 80,000
8,522,845 29,707 (6,851) 8,545,701
ZTE CORPORATION
238
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
35. Capital reserves (continued)
2013 (continued)
Note 1 Total current expenses of equity-settled share-based payments for 2014 amounted to RMB178,241,000. Total current
expenses of equity-settled share-based payments for 2013 amounted to RMB29,707,000. In September 2013, the Company
repurchased 2,536,742 restrictive shares not qualifying for unlocking from 126 scheme participants and cancelled such
shares in accordance with provisions of the Phase I Share Incentive Scheme, and a charge of RMB6,851,000 was made
to the capital reserve.
36. Other comprehensive income
Accumulated balance of other comprehensive income on the balance sheet attributable to the parent
company:
1 January
2013
Increase/
decrease
31 December
2013
Increase/
decrease
31 December
2014
Changes in net liabilities arising
from the re-measurement of
defined benefit plans (45,891) 7,040 (38,851) (16,599) (55,450)
Share of investee results in other
comprehensive income under
equity method which will not
be reclassified to profit and
loss in subsequent periods
upon fulfillment of certain
conditions 41,260 — 41,260 3,090 44,350
Change in fair value of available-
for-sale financial assets 12,625 149,231 161,856 (40,800) 121,056
Effective portion of cash flow
hedging instruments (16,856) 5,784 (11,072) 3,965 (7,107)
Differences arising from foreign
currency translation (582,699) (463,966) (1,046,665) (313,228) (1,359,893)
Fair value at date of
reclassification of owned
properties reclassified as
investment properties at fair
value in excess of book value 792,769 — 792,769 — 792,769
201,208 (301,911) (100,703) (363,572) (464,275)
ANNUAL REPORT 2014
239
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
36. Other comprehensive income (continued)
Other comprehensive income on the income statement attributable to the parent company incurred
during the current period:
2014
Amount
before
taxation Income tax
Amount after
taxation
Other comprehensive income that cannot be
subsequently reclassified to profit or loss
Changes in net liabilities arising from the re-
measurement of defined benefit plans (16,599) — (16,599)
Share of investee results in other comprehensive
income under equity method which will
not be reclassified to profit and loss in
subsequent periods upon fulfillment of certain
conditions 3,090 — 3,090
Other comprehensive income to be subsequently
reclassified to profit or loss
Change in fair value of available-for-sale financial
assets (28,350) — (28,350)
Less: amount recognised in other comprehensive
income for the previous period and profit and
loss for the current period (12,450) — (12,450)
Effective portion of cash flow hedging
instruments 3,965 — 3,965
Differences arising from foreign currency
translation (313,228) — (313,228)
(363,572) — (363,572)
ZTE CORPORATION
240
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
36. Other comprehensive income (continued)
2013
Amount
before
taxation Income tax
Amount after
taxation
Other comprehensive income that cannot be
subsequently reclassified to profit or loss
Changes in net liabilities arising from the re-
measurement of defined benefit plans 7,040 — 7,040
Other comprehensive income to be subsequently
reclassified to profit or loss
Change in fair value of available-for-sale financial
assets 149,231 — 149,231
Effective portion of cash flow hedging
instruments 5,784 — 5,784
Differences arising from foreign currency
translation (463,966) — (463,966)
(301,911) — (301,911)
37. Surplus reserves
2014
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance
Statutory surplus reserves 1,613,195 155,817 — 1,769,012
2013
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance
Statutory surplus reserves 1,587,430 25,765 — 1,613,195
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 capitalized as the Company’s share capital.
ANNUAL REPORT 2014
241
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
38. Retained profits
2014 2013
Retained profits at the beginning of the year 8,933,788 7,705,022
Net profit attributable to shareholders of the parent 2,633,571 1,357,657
Less: Statutory surplus reserves (155,817) (25,765)
Proposed final dividend (687,508) (103,126)
Retained profits at the end of the year 10,724,034 8,933,788
In accordance with the Articles of Association of the Company, profit available for distribution shall
be the lower of profit available for distribution as calculated in accordance with PRC ASBEs and that
calculated in accordance with HKFRSs.
39. Operating revenue and costs
2014 2013
Revenue Cost Revenue Cost
Revenue 81,045,164 55,608,415 74,748,695 52,898,371
Other income 426,111 151,689 485,029 227,533
81,471,275 55,760,104 75,233,724 53,125,904
Operating revenue is analysed as follows:
2014 2013
Telecommunications systems contracts 58,321,583 53,169,672
Sales of goods 23,117,090 21,702,058
Rendering of services 32,602 361,994
81,471,275 75,233,724
40. Taxes and surcharges
2014 2013
Business tax 703,703 571,323
City maintenance and construction tax 276,633 244,370
Education surcharge 221,401 199,553
Others 129,506 64,286
1,331,243 1,079,532
ZTE CORPORATION
242
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
41. Selling and distribution costs
2014 2013
Wages, welfare and bonuses 3,807,881 3,496,095
Consulting and services charges 2,103,079 2,956,711
Travelling expenses 790,830 539,561
Transportation and fuel charges 563,145 503,124
Office expenses 424,637 248,675
Advertising and promotion expenses 980,822 567,876
Rental fees 561,718 442,030
Communication expenses 104,620 116,350
Others 922,433 1,133,428
10,259,165 10,003,850
42. Administrative expenses
2014 2013
Wages, welfare and bonuses 819,935 881,901
Office expenses 102,580 100,555
Amortization and depreciation charges 286,495 274,294
Taxes 171,270 164,921
Rental fees 143,396 144,029
Travelling expenses 85,719 95,185
Others 422,050 541,382
2,031,445 2,202,267
43. Profits from changes in fair values
2014 2013
Financial assets/liabilities at fair value through profit or loss 17,976 165,306
Including: Derivative financial instruments 17,976 174,829
Investment properties at fair value 130,306 38,704
148,282 204,010
ANNUAL REPORT 2014
243
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
44. Investment income
2014 2013
Investment (loss)/gain from long-term equity investment under
equity method (53,043) 34,466
Investment gain from long-term equity investment under cost
method 32,176 22,240
Investment gain/(loss) arising from the disposal of financial assets
at fair value through profit or loss during the period of holding 146,039 (9,644)
Investment gain from the disposal of available-for-sale financial
assets 13,483 667
Investment (loss)/gain from the disposal of equity interests (4,181) 866,677
134,474 914,406
45. Financial expenses
2014 2013
Interest expenses 1,561,674 1,650,437
Less: Interest income 433,604 355,958
Loss on foreign currency exchange 590,085 864,721
Cash discounts and interest subsidy 143,730 89,943
Bank charges 239,092 211,160
2,100,977 2,460,303
For 2014, interest income from ZTE Group Finance Company Limited (“Finance Company”) amounted
to RMB177,290,000 (2013: RMB151,666,000).
46. Impairment Losses
2014 2013
Bad debt provisions 675,522 1,109,782
Inventories provisions 523,950 479,704
Impairment losses on fixed assets 2,760 —
1,202,232 1,589,486
ZTE CORPORATION
244
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
47. Non-operating income/Non-operating expenses
Non-operating income
2014 2013
Amount of
recurrent
gain/loss
recognised
for 2014
Refund of VAT on software products (Note 1) 2,481,772 2,305,836 —
Others (Note 2) 1,305,871 1,159,592 666,814
3,787,643 3,465,428 666,814
Note 1 Refund of VAT on software products represents the refund upon payment of VAT according to the portion of any effective
VAT 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.
Note 2 Others include government grant, gains from contract penalties and other gains.
Non-operating expenses
2014 2013
Amount of
recurrent
gain/loss
recognised
for 2014
Compensation 236,953 108,758 236,953
Loss arising from the disposal of non-current assets 35,661 18,066 35,661
Others 37,135 17,667 37,135
309,749 144,491 309,749
48. Total profit
Supplementary information of the Group’s expenses by nature as follows:
2014 2013
Cost of goods and services 48,363,247 39,205,492
Staff remuneration 12,661,267 10,567,938
Depreciation and amortization 1,825,796 1,745,216
Loss arising from impairment of no-current assets 2,760 —
Rent 705,114 586,059
Financial Expenses 2,100,977 2,460,303
ANNUAL REPORT 2014
245
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
49. Income tax
2014 2013
Current income tax 722,512 528,635
Deferred income tax 87,980 (134,428)
810,492 394,207
Reconciliation between income tax and total profit was as follows:
2014 2013
Total profit 3,538,222 1,827,843
Tax at statutory tax rate (Note 1) 884,556 456,961
Effect of different tax rates applicable to certain subsidiaries (260,192) (428,015)
Adjustment to current tax in previous periods 66,171 (51,790)
Profits and losses attributable to jointly-controlled entitles and
associates 13,164 (8,708)
Income not subject to tax (165,899) (336,735)
Expenses not deductible for tax 172,618 120,598
Utilization of tax losses from previous years (57,029) (59,620)
Unrecognized tax losses 157,103 701,516
Tax charge at the Group’s effective rate 810,492 394,207
Note 1 The Group’s income tax has been provided at the rate on the estimated taxable profits arising in the PRC during the
year. Taxes on taxable profits elsewhere have been calculated at the rates of tax prevailing in the countries in which the
Group operates, based on existing legislation, interpretations and practices in respect thereof.
50. Earnings per share
Basic earnings per share is computed by dividing the net profit attributable to equity holders of the
Company for the year 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 year is adjusted for the following: (1) interests on potentially dilutive ordinary shares
recognized as expenses for the year; (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 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.
ZTE CORPORATION
246
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
50. 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 years
are assumed to have been converted at the beginning of the current year, whereas potentially dilutive
ordinary shares issued in the current year are assumed to have been converted on the date of issue.
Calculations of basic and diluted earnings per shares were as follows:
2014 2013
Earnings
Net profit attributable to ordinary shareholders of the Company
for the year 2,633,571 1,357,657
Shares
Weighted average number of ordinary shares of the Company 3,437,541 3,437,541
Diluting effect — weighted average number of ordinary shares
Stock option 2,543 1,767
Adjusted weighted average number of ordinary shares of the
Company 3,440,084 3,439,308
During the reporting period, stock options granted by the Company gave rise to potentially 2,543,000
dilutive ordinary shares.
51. Notes to major items in cash flow statement
2014 2013
Cash received in connection with other operating activities:
Interest income 421,190 341,563
Cash paid in connection with other operating activities:
Selling and distribution costs 5,994,584 6,212,889
Administrative expenses and research and development costs 1,583,202 1,515,596
ANNUAL REPORT 2014
247
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
52. Supplemental information on cash flow statement
(1) Supplemental information on cash flow statement
Reconciliation of net profit to cash flows from operating activities:
2014 2013
Net profit 2,727,730 1,433,636
Add: Provision for impairment of assets 1,202,232 1,589,486
Depreciation of fixed assets 954,913 944,342
Amortisation of intangible assets and deferred
development costs 850,105 777,623
Amortisation of long-term deferred assets 20,778 23,251
Loss on disposal of fixed assets, intangible assets and
other long-term assets 35,661 18,066
Gain from changes in fair value (148,282) (204,010)
Financial expenses 1,628,717 2,063,087
Investment income (134,474) (914,406)
Decrease/(increase) in deferred tax assets 68,540 (134,428)
Increase in deferred tax liabilities 19,440 —
Increase in inventories (7,681,897) (1,681,392)
Decrease in operating receivables 1,078,372 5,912,039
Increase/(decrease) in operating payables 2,161,107 (7,724,630)
Cost of share-based payment 178,241 29,707
(Increase)/decrease in cash not immediately available for
payments (448,548) 442,207
Net cash flow from operating activities 2,512,635 2,574,578
(2) Change in cash and cash equivalents:
2014 2013
Cash
Including: Cash on hand 16,314 24,760
Bank deposit readily available 17,213,826 20,093,514
Cash and cash equivalents at end of year 17,230,140 20,118,274
ZTE CORPORATION
248
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
53. Assets under restrictions on ownership or right of use
2014 2013
Cash 741,306 731,641 Note 1
Bills receivables 44,028 102,000 Note 2
Trade receivables — 750,000 Note 3
Fixed assets — 683,394 Note 4
Intangible assets 79,963 23,650 Note 5
865,297 2,290,685
Note 1: As at 31 December 2014, the Group’s cash subject to ownership restriction amounted to RMB741,306,000 (31 December
2013: RMB731,641,000), including time deposits of RMB23,000,000 (31 December 2013: RMB23,000,000) pledged to secure
bank borrowings, acceptance bill deposits of RMB63,030,000 (31 December 2013: RMB37,237,000), letter of credit deposits
of RMB10,711,000 (31 December 2013: RMB11,209,000), deposit for guarantee letter of RMB99,891,000 (31 December
2013: RMB116,791,000), dues from the People’s Bank of China of RMB376,188,000 (31 December 2013: 288,821,000)
and risk compensation fund to be released within one year of RMB168,486,000 (31December 2013: RMB254,583,000).
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 31 December 2014, the risk compensation fund under the arrangements for loans and factored
trade receivables amounted to RMB3,912,958,000 (31 December 2013: RMB3,651,480,000). Risk compensation fund to be
released within one year amounting to RMB168,486,000 (31 December 2013: RMB254,583,000) was accounted for as cash
subject to ownership restriction. Risk compensation fund to be released after one year amounting to RMB3,744,472,000
(31 December 2013: RMB3,396,897,000) was accounted for as other non-current assets.
Note 2: As at 31 December 2014, bank acceptance bills with a carrying value of RMB44,028,000 (31 December 2013:
RMB102,000,000) were pledged to secure bank borrowing.
Note 3: As at 31 December 2014, no trade receivables (31 December 2013: RMB750,000,000) were pledged to secure bank
borrowings.
Note 4: As at 31 December 2014, no fixed assets (31 December 2013: RMB683,394,000) were pledged to secure bank borrowings.
Note 5: As at 31 December 2014, intangible assets with a carrying value of RMB79,963,000 (31 December 2013: RMB23,650,000)
were pledged to secure bank borrowings.
ANNUAL REPORT 2014
249
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
54. Monetary items in foreign currencies
2014 2013
Original
currency
Exchange
rate
RMB
equivalent
Original
currency
Exchange
rate
RMB
equivalent
Cash USD 1,433 6.2005 8,884 2,812 6.0969 17,144
SAR 45 1.6526 74 84 1.6258 136
DZD 4,753 0.0709 337 4,510 0.0785 354
INR 410 0.0975 40 486 0.0987 48
THB 361 0.1886 68 501 0.1858 93
PLN 129 1.7544 227 783 2.0248 1,586
KZT 3,663 0.0344 126 14,375 0.0400 575
EGP 93 0.8697 81 46 0.8820 41
Bank deposit USD 579,892 6.2005 3,595,620 722,971 6.0969 4,407,879
HKD 109,384 0.7984 87,332 230,094 0.7862 180,900
BRL 27,724 2.3133 64,134 58,772 2.5962 152,583
PKR 1,551,826 0.0619 96,058 1,613,948 0.0580 93,609
EGP 193,939 0.8697 168,669 90,680 0.8820 79,980
IDR 130,878,000 0.0005 65,439 99,816,000 0.0005 49,908
EUR 206,682 7.5342 1,557,184 246,778 8.4189 2,077,603
DZD 446,417 0.0709 31,651 708,841 0.0785 55,644
MYR 43,244 1.7726 76,654 18,365 1.8470 33,921
ETB 168,210 0.3095 52,061 191,776 0.3209 61,541
CAD 14,887 5.2755 78,536 70,698 5.7259 404,812
GBP 5,229 9.6475 50,447 5,038 10.0556 50,662
THB 814,316 0.1886 153,580 3,005,651 0.1858 558,450
RUB 331,339 0.1105 36,612 597,306 0.1852 110,621
JPY 3,943,141 0.0519 204,649 6,717,336 0.0578 388,262
VEF 15,046 0.9842 14,808 112,263 0.9691 108,794
COP 14,365,769 0.0026 37,351 48,595,000 0.0032 155,504
NPR 2,886,976 0.0615 177,549 2,305,040 0.0623 143,604
CLP 1,510,980 0.0102 15,412 743,362 0.0116 8,623
Other cash USD 31,176 6.2005 193,304 55,888 6.0969 340,744
Trade receivables USD 1,498,159 6.2005 9,289,333 1,246,533 6.0969 7,599,987
EUR 229,447 7.5342 1,728,697 221,689 8.4189 1,866,381
BRL 59,670 2.3133 138,034 77,856 2.5962 202,130
THB 165,933 0.1886 31,295 3,321,066 0.1858 617,054
INR 22,795,426 0.0975 2,222,554 16,558,956 0.0987 1,634,369
Sub-total 20,176,800 21,403,542
The Group’s principal places of business overseas include the United States, Brazil and India. Its
operating entities in these countries adopt their respective principal currency for conducting business
as their book currencies.
ZTE CORPORATION
250
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
55. Hedging
2014 2013
Liabilities Liabilities
Interest rate swap agreement 6,581 10,406
Non-current portion 881 4,286
Current portion 5,700 6,120
Periods during which the Group’s estimated cash flow under hedge as at 31 December 2014 is
expected to occur:
2014 2013
Cash
outflows
Net cash
flows
Cash
outflows
Net cash
flows
Within 1 year (2,282) (2,282) (1,811) (1,811)
1 to 3 years (4,273) (4,273) (8,659) (8,659)
As at 31 December 2014, the estimated effect of the Group’s expected cash flow under hedging on
profit and loss for the following period is as follows:
2014 2013
Within 1 year (2,282) (1,811)
1 to 3 years (4,273) (8,659)
The key terms of interest rate swap agreement were under negotiation in order to be consistent with the
committed terms. The evaluation results of the estimated future interest for related cash flow hedging
payment was highly effective, and the net gain of RMB3,965,000 was included in other comprehensive
income as follows:
2014 2013
Net fair value gain included in other comprehensive income 3,965 5,784
Net gain cash flow hedging 3,965 (5,784)
ANNUAL REPORT 2014
251
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VI. CHANGES IN THE SCOPE OF CONSOLIDATION
New subsidiaries established in 2014 included: tier-one subsidiaries ?????????????, ?????
?????????, ??????????, ?????????????? and ?????????????;
tier-two subsidiaries ????????????, ZTE HK CORPORATION DOMINICAN REPUBLIC, SRL, ???
????????????, ????????????, WEIXIANTONG INTERNATIONAL ANGOLA, LIMITADA,
ZTE XIN (MACAO) LIMITED, ????????????, ????????????, ZTE CONGO S.A.R.L, ?
?????????, ????????????, ZTE SOFT Deutschland Gmbh, ???????????? and
????????????; tier-three subsidiaries ?????????????, ??????????????
and ZTE Managed Services Southern Europe SL; and a tier-four subsidiary ZTE SERVICE ROMANIA SRL.
VII. INTERESTS IN OTHER ENTITIES
1 Interests in subsidiaries
Particulars of the subsidiaries of the Company are as below:
Type of subsidiary
Place of
registration/
principal
place of
business Business nature Registered capital
Shareholding
percentage (%)
Direct Indirect
Subsidiaries acquired by way of
incorporation or investment
Shenzhen Zhongxing Software
Company Limited
Shenzhen Manufacturing RMB51.08 million 100% —
ZTE (H.K) Limited Hong Kong Information technology HK995 million 100% —
Shenzhen Zhongxing Telecom
Technology & Service Company
Limited
Shenzhen Telecommunications
services
RMB50 million 90% 10%
ZTE Kangxun Telecom Company
Limited
Shenzhen Telecommunications
and related equipment
manufacturing
RMB1,755 million 100% —
ZTEsoft Technology Company Limited Nanjing Manufacturing RMB300 million 80.1% —
Shenzhen ZTE Mobile Telecom Co., Ltd Shenzhen Telecommunications
and related equipment
manufacturing
RMB79.166 million 90% —
Shanghai Zhongxing Telecom
Equipment Technology & Service
Company Limited
Shanghai Telecommunications
services
RMB10 million 90% —
Xi’an Zhongxing New Software
Company Limited
Xi’an Telecommunications
and related equipment
manufacturing
RMB600 million 100% —
ZTE (Hangzhou) Company Limited Hangzhou Telecommunications
and related equipment
manufacturing
RMB100 million 100% —
Shenzhen Zhongxing ICT Company
Limited
Shenzhen Telecommunications
and related equipment
manufacturing
RMB 60 million 90% —
ZTE CORPORATION
252
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VII. INTERESTS IN OTHER ENTITIES (continued)
2 Equity investments in joint ventures and associates
Place of registration/
principal place of
business Nature of business Registered capital
Percentage of Shareholding
%
Accounting
method
Direct Indirect
Joint Ventures
Bestel Communications Ltd. Republic of Cyprus Information technology EUR446,915 50% — Equity
method
???????????? PRC R&D, production and sales of
communications equipment
RMB128,500,000 50% — Equity
method
?????????????? PRC R&D, sales and technical services for
communications products
RMB18,000,000 50% — Equity
method
Pengzhong Xingsheng Uzbekistan Mobile terminals and smart phones USD3,160,000 50% — Equity
method
Associates
KAZNURTEL Limited Liability Company Kazakhstan Manufacturing of computers and
related equipment
USD3,000,000 49% — Equity
method
???????????? PRC Computer application services RMB4,000,000 49% — Equity
method
????(??)?????? PRC Sales and R&D of communications
equipment
USD7,000,000 49% — Equity
method
?????????????? PRC Manufacturing of computers and
related equipment
RMB5,000,000 40% — Equity
method
ZTE Energy Co., Ltd. PRC Energy RMB1,290,000,000 23.26% — Equity
method
ZTE Software Technology (Nanchang)
Company Limited
PRC Computer application services RMB15,000,000 30% — Equity
method
Nanjing Piaoxun Network Technology
Company Limited
PRC Computer application services RMB870,000 20% — Equity
method
?????????? PRC Advertising, Internet, communications
and import and export
RMB5,000,000 33% — Equity
method
Telecom Innovations Uzbekistan Sales and production of
communications equipment
USD2,875,347.3 27.70% — Equity
method
Shenzhen Zhongxing Hetai Hotel
Investment and Management
Company Limited
PRC Hotel management service RMB30,000,000 18% — Equity
method
?????????????? PRC Computer application services RMB34,221,649 20% — Equity
method
??????(??)???? PRC Communications business and related
services
RMB20,000,000 30% — Equity
method
?????????????? PRC Network software development
and sales and related technical
services
USD2,000,000 25% — Equity
method
?????????????? PRC Computer application services RMB10,000,000 30.15% — Equity
method
????????????? PRC End to end supply chain integration
services including procurement
etc
RMB20,000,000 20% — Equity
method
???????????? PRC Software R&D and supply chain
management
RMB80,000,000 20% — Equity
method
???????????? PRC R&D, sales and investments in
communications and related
equipment
RMB57,680,000 30% — Equity
method
?????????????? PRC Computer hardware, electronic
equipment and development of
network technologies
RMB30,000,000 35% — Equity
method
During the year, the Group had no subsidiaries that were subject to significant minority interest, nor
key joint ventures and associates which had a significant impact on the Group.
ANNUAL REPORT 2014
253
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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:
2014 2013
Joint ventures
Aggregate carrying value of investments 67,607 66,891
Aggregate amounts of the following attributable to shareholdings:
Net profit 716 1,446
Other comprehensive income — —
Total comprehensive income 716 1,446
Associates
Aggregate carrying value of investments 393,709 411,146
Aggregate amounts of the following attributable to shareholdings:
Net profit/(loss) (53,759) 33,020
Other comprehensive income 3,434 —
Total comprehensive income (50,325) 33,020
As ???????????? (“Zhongding”) and ZTE Software Technology (Nanchang) Company
Limited (“ZTE Nanchang”) did not have the obligation to bear additional losses, therefore the net losses
of Zhongding and ZTE Nanchang were recognised to the extent of the book value of such long-term
equity investments and other long-term equity effectively constituting net investments in Zhongding
and ZTE Nanchang. The Group’s unrecognised investment losses for the year and on an accumulated
basis amounted to RMB3,163,000 (2013: RMB62,000) and RMB3,225,000 (2013: RMB62,000).
For 2014, there were no contingent liabilities associated with the investments in joint ventures and
associates (2013: Nil).
ZTE CORPORATION
254
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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:
2014
Financial assets
Financial
assets at fair
value through
current profit
and loss
Trading
Loans and
receivables
Available-
for-sale
financial
assets Total
Cash — 18,115,874 — 18,115,874
Financial assets at fair value through
current profit and loss 240,973 — — 240,973
Available-for-sale financial assets — — 1,739,664 1,739,664
Bills receivable — 2,086,771 — 2,086,771
Trade receivables and long-term
receivables — 25,419,464 — 25,419,464
Factored trade receivables and
factored long-term receivables — 4,862,683 — 4,862,683
Other receivables (excluding
dividends receivable) — 2,159,677 — 2,159,677
Other non-current assets — 3,794,472 — 3,794,472
240,973 56,438,941 1,739,664 58,419,578
ANNUAL REPORT 2014
255
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
1. Classification of financial instruments (continued)
2014 (continued)
Financial liabilities
Financial
liabilities at
fair value
through current
profit and loss
Trading
Other
financial
liabilities
Derivatives
designated
as effective
hedging
instruments Total
Financial liabilities at fair value
through current profit and loss 64,904 — 5,700 70,604
Bank loans — 21,080,836 — 21,080,836
Bills payables — 10,381,688 — 10,381,688
Trade payables — 19,244,400 — 19,244,400
Bank advances on factored trade
receivables and long-term trade
receivables — 4,877,410 — 4,877,410
Other payables (excluding
accruals and staff housing fund
contributions) — 6,342,602 — 6,342,602
Bonds payable — 6,131,185 — 6,131,185
Other non-current liabilities — 208,124 881 209,005
64,904 68,266,245 6,581 68,337,730
ZTE CORPORATION
256
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
1. Classification of financial instruments (continued)
2013
Financial assets
Financial assets
at fair value
through current
profit and loss Loans and
receivables
Available-for-
sale financial
assets Total Trading
Cash — 20,903,035 — 20,903,035
Financial assets at fair value
through current profit and loss 217,454 — — 217,454
Available-for-sale financial assets — — 1,630,271 1,630,271
Bills receivable — 3,500,671 — 3,500,671
Trade receivables and long-term
receivables — 21,760,019 — 21,760,019
Factored trade receivables and
factored long-term receivables — 5,650,326 — 5,650,326
Other receivables (excluding
dividends receivable) — 1,666,645 — 1,666,645
Other non-current assets — 3,595,327 — 3,595,327
217,454 57,076,023 1,630,271 58,923,748
ANNUAL REPORT 2014
257
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
1. Classification of financial instruments (continued)
2013 (continued)
Financial liabilities
Financial liabilities
at fair value
through current
profit and loss
Other
financial
liabilities
Derivatives
designated
as effective
hedging
instruments Total Trading
Financial liabilities at fair value
through current profit and loss 61,659 — 6,120 67,779
Bank loans — 20,728,630 — 20,728,630
Bills payable — 8,498,021 — 8,498,021
Trade payables — 16,492,534 — 16,492,534
Bank advances on factored trade
receivables and long-term
trade receivables — 5,688,899 — 5,688,899
Other payables (excluding
accruals and staff housing
fund contributions) — 7,791,444 — 7,791,444
Bonds payable — 6,119,590 — 6,119,590
Other non-current liabilities — 261,229 4,286 265,515
61,659 65,580,347 10,406 65,652,412
ZTE CORPORATION
258
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
2. Transfers of financial assets
Transferred financial assets that are not derecognized in their entirety
During the year, the Group was engaged in certain discounting business with a number of PRC domestic
banks. The Group was of the view that not substantially all risks and rewards relating to bills receivable
with a carrying amount of RMB44,028,000 (31 December 2013: RMB102,000,000) had been transferred
upon discounting and therefore such bills receivable did not qualify for derecognition of financial assets.
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”).
Under certain trade receivables factoring agreement, the Group was still exposed, after the transfer of
the trade receivables, to risks relating to debtor’s default and delayed payments, and therefore retained
substantially all risks and rewards relating to the trade receivables and did not qualify for derecognition
of financial assets. The Group continued to recognise assets and liabilities concerned to the extent
of the carrying value of the trade receivables. As at 31 December 2014, trade receivables that have
been transferred but not settled by the debtors amounted to RMB2,915,814,000 (31 December 2013:
RMB2,790,279,000).
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 recognized to the extent of trade receivables transferred under
continuous involvement. As at 31 December 2014, the carrying value of trade receivables that have
been transferred but not settled by the debtors amounted to RMB9,547,043,000 (31 December 2013:
RMB13,222,149,000). 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
2014 2013
RMB’000 RMB’000
Carrying value of assets under continuous involvement 1,946,869 2,860,047
Carrying value of liabilities under continuous involvement 1,961,596 2,898,620
ANNUAL REPORT 2014
259
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
2. Transfers of financial assets (continued)
Transferred financial assets that are not derecognized in their entirety (continued)
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 31 December 2014, the amount of factored trade receivables was RMB4,862,683,000
(31 December 2013: RMB5,650,326,000). Relevant liabilities were classified as “Bank advances on
factored trade receivables” or “Bank advances on long-term trade receivables.” As at 31 December
2014, the amount of bank advances on factored trade receivables was RMB4,877,410,000 (31 December
2013: RMB5,688,899,000)
Transfer of long-term receivables comprised factored trade receivables recognized under continuous
involvement as described below.
In prior year, the Company entered into a telecommunications system project with an African
telecommunications operator with a total contract amount of USD1.5 billion. The related accounts
receivable is to be settled by promissory notes issued by the telecommunications operator with
maturity dates ranging from 3 to 13 years. Two government strategic banks in the PRC have agreed to
factor these promissory notes pursuant to factored trade receivables agreements. During the financing
period, the banks will charge interest at 6-month USD LIBOR+1.5% or LIBOR+1.8% which will be
shared by the Company and the telecommunications operator at a predetermined portion. If there is
any delay in the payment by the telecommunications operator, the Company is not responsible for
the related penalties. If there is default in the payment, the Company would bear the first 20% of
default losses on the factored amount unless the Company breaches the Agreements or the factoring
conditions are not satisfied. As at 31 December 2014, under the above arrangement, trade receivable
due from the customer amounted to RMB6,559,107,000 (31 December 2013: RMB6,837,218,000)
among which RMB5,247,286,000 (31 December 2013: RMB5,469,775,000) has been derecognised from
the consolidated statement of financial position as these receivables have fulfilled the derecognition
conditions as stipulated in ASBEs No. 23. An associated liability of RMB1,311,821,000 (31 December
2013: RMB1,367,443,000) has been recognised in the consolidated statement of financial position to
the extent of the Company’s continuing involvement.
In addition, factored finance interest for future periods relating to the derecognition of trade receivables
undertaken by the Company as at 31 December 2014 amounted to RMB275,668,000 (31 December
2013: RMB341,624,000), comprising RMB71,233,000 (31 December 2013: RMB84,084,000) due within
one year and classified as other payables (see Note V. 28) and RMB204,435,000 (31 December 2013:
RMB257,540,000) due after one year and classified as other non-current liabilities (see Note V. 33).
ZTE CORPORATION
260
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
2. Transfers of financial assets (continued)
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 year. The Group was of the view that substantially all risks and rewards relating to bills receivable
with a book value of RMB294,779,000 (31 December 2013: RMB491,634,000) were transferred upon
discounting and therefore the bills receivable qualified for the derecognition of financial assets. Hence,
the relevant bills receivable were derecognized 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 did not recognise any profit or loss
in respect of the derecognised bills receivable as at the date of transfer. No profit or loss relating to
continuous involvement was recognised in respect of the current year and the previous year.
3. Risks of financial instruments
The main financial instruments of the Group, except for derivatives, include bank loans, cash, etc. The
main purpose of these financial instruments is to finance for the Group’s operation. The Group has
many other financial assets and liabilities arising directly from operation, such as trade receivables and
trade payables and etc.
The Group entered into forward currency contracts and interest rate swap contracts with the aim of
managing the foreign exchange risk and interest rate risk in the Group’s operation. The major risks
which come from the Group’s financial instruments are the credit risk, liquidity risk and market risk.
The Group’s policies for managing each of these risks are summarized as follows.
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 and the Group’s exposure to bad debts is not
significant.
The Group’s other financial assets, which comprise cash, available-for-sale financial assets, other
receivables and certain derivatives. The Group’s credit risk of financial assets and financial guarantee
contract arises from default of the counterparty, with a maximum exposure equal to the carrying
amounts of these instruments.
Although the top five accounts accounted for 32.09% (2013: 32.73%) of the total trade receivables,
their risk profiles were relatively low and did not give rise to significant concentration of credit risk
for the Group.
ANNUAL REPORT 2014
261
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Credit risk (continued)
Since the Group trades only with recognised and creditworthy third parties, there is no requirement for
collateral. The Group did not hold any collateral or other credit enhancements over the balances of
the trade receivables. For further quantitative disclosures on the Group’s credit risk arising from trade
receivables, other receivables and long-term trade receivables, please refer to Notes V. 4, 5 and 10.
The maturity profile of trade receivables, long-term receivables and other receivables not subject to
impairment as at 31 December is analysed as follows:
2014
Not
overdue/
not
impaired
Overdue for
Total
Less than
1 year 1–2 years 2–3 years
Over 3
years
Trade receivables 25,152,963 2,533,268 20,778,967 1,619,968 220,760 —
Long-term
receivables 266,501 266,501 — — — —
Other receivables 2,159,677 — 1,592,615 317,980 159,854 89,228
2013
Not
overdue/
not
impaired
Overdue for
Total
Less than
1 year 1–2 years 2–3 years
Over 3
years
Trade receivables 21,393,257 3,566,625 15,223,232 2,407,100 196,300 —
Long-term
receivables 366,762 366,762 — — — —
Other receivables 1,666,645 — 1,357,563 199,854 61,510 47,718
ZTE CORPORATION
262
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Liquidity risk
The Group monitors its risk to a 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, bonds payable and other interest-bearing loans. With the exception of the non-
current portion of bank loans, all borrowings are repayable within one year.
The maturity profile of financial liabilities based on undiscounted contractual cash flow is summarised
as follows:
2014
Current Within 1 year 1–2 years 2–3 years Over 3 years Total
Banks loans — 11,193,023 6,431,576 1,368,816 3,048,910 22,042,325
Financial liabilities at fair
value through current
profit and loss — 70,604 — — — 70,604
Bills payable — 10,381,688 — — — 10,381,688
Trade payables 19,244,400 — — — — 19,244,400
Bank advances on factored
trade receivables and
factored long-term trade
receivable — 3,254,431 638,663 389,151 735,447 5,017,692
Other payables (excluding
accruals and staff housing
fund contributions) 6,342,602 — — — — 6,342,602
Bonds payable — 6,252,000 — — — 6,252,000
Other non-current liabilities 50,000 571 74,223 63,889 189,065 377,748
25,637,002 31,152,317 7,144,462 1,821,856 3,973,422 69,729,059
ANNUAL REPORT 2014
263
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Liquidity risk (continued)
2013
Current Within 1 year 1–2 years 2–3 years Over 3 years Total
Banks loans — 15,508,467 839,379 5,023,976 — 21,371,822
Financial liabilities at fair
value through current
profit and loss — 67,779 — — — 67,779
Bills payable — 8,498,021 — — — 8,498,021
Trade payables 16,492,534 — — — — 16,492,534
Bank advances on factored
trade receivables and
factored long-term trade
receivable — 3,377,374 729,055 546,622 1,120,002 5,773,053
Other payables (excluding
accruals and staff housing
fund contributions) 7,707,360 84,084 — — — 7,791,444
Bonds payable — 252,000 6,252,000 — — 6,504,000
Other non-current liabilities 50,000 — 77,597 63,935 189,065 380,597
24,249,894 27,787,725 7,898,031 5,634,533 1,309,067 66,879,250
Market risk
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s
long-term liabilities with floating interest rates.
As at 31 December 2014, the bank loans of the Group and the Company including fixed rate debts
and floating debts based on LIBOR. 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
1.44% and 7.2%. In addition, the Group borrowed a USD900 million loan at floating interest rates.
The Group intends to enter into interest rate swaps with a nominal principal amount of no more than
USD900 million at an appropriate timing as a hedge against the said USD loan, in which the Group
agrees to exchange, at specified intervals, the difference between fixed and variable rate interest
amounts calculated by reference to an agreed-upon notional principal amount. As at 31 December
2014, taking into account interest rate swaps for a nominal principal amount of USD100 million (2013:
USD100 million) already executed, approximately 40% (2013: 30%) of the Group’s interest bearing
borrowings were subject to interests at fixed rates.
ZTE CORPORATION
264
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Market risk (continued)
Interest rate risk (continued)
Interest-bearing borrowings with floating interest rate were mainly denominated in USD. 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 total profit (through the impact on floating rate loans) and
shareholders’ equity assuming that other variables remain constant and taking into account the effect
of interest rate swaps.
Increase/
(decrease) in
basis points
Increase/
(decrease) in
total profit
Increase/
(decrease) in
shareholders’
equity*
2014 0.25% (31,557) 5,591
(0.25%) 31,557 (5,591)
2013 0.25% (36,641) 4,065
(0.25%) 36,641 (4,065)
* excluding retained earnings.
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 minimize its transactional currency exposures. The Group takes rolling forecast on
foreign currency revenue and expenses, matches the currency and amount incurred, so as to alleviate
the impact to business due to exchange rate fluctuation.
ANNUAL REPORT 2014
265
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Market risk (continued)
Foreign currency risk (continued)
The following table demonstrates the sensitivity of a reasonably possible change in exchange rates
may lead to the changes in the Group’s total profit, with all other variables held constant, as at the
balance sheet date.
Increase/
(decrease) in
US dollars
exchange rate
Increase/
(decrease) in
total profit
2014
Weaker RMB against USD 3% 38,204
Stronger RMB against USD (3%) (38,204)
2013
Weaker RMB against USD 3% 37,160
Stronger RMB against USD (3%) (37,160)
Increase/
(decrease) in
EUR exchange
rate
Increase/
(decrease) in
total profit
2014
Weaker RMB against EUR 5% 136,696
Stronger RMB against EUR (5%) (136,696)
2013
Weaker RMB against EUR 5% 185,118
Stronger RMB against EUR (5%) (185,118)
ZTE CORPORATION
266
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
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 maximize
shareholders’ value.
The Group manages its capital structure and 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 years 2014 and 2013.
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:
2014 2013
RMB’000 RMB’000
Interest-bearing bank borrowings 21,080,836 20,728,630
Interest-bearing bonds 6,131,185 6,119,590
Bank advances on factored trade receivables and long-term trade
receivables 4,877,410 5,688,899
Total interest-bearing liabilities 32,089,431 32,537,119
Owners’ equity 26,292,504 23,625,689
Total equity and interest-bearing liabilities 58,381,935 56,162,808
Gearing ratio 55.0% 57.9%
ANNUAL REPORT 2014
267
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE
1. Assets and liabilities measured at fair value:
2014
Input applied in the measurement of fair value
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
Level 1 Level 2 Level 3 Total
Continuous measurement of fair value
Financial assets at fair value through
current profit and loss:
Trading financial assets
Derivative financial assets — 240,973 — 240,973
Available-for-sale financial assets
Investment in equity instruments 319,470 — — 319,470
Investment properties
Leased properties — — 2,004,465 2,004,465
319,470 240,973 2,004,465 2,564,908
Financial liabilities at fair value through
current profit and loss
Trading financial liabilities
Derivative financial liabilities — (64,904) — (64,904)
Hedging instruments — (6,581) — (6,581)
— (71,485) — (71,485)
2013
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
Financial assets at fair value through
current profit and loss:
Trading financial assets
Derivative financial assets — 217,454 — 217,454
Available-for-sale financial assets
Investment in equity instruments 364,479 — — 364,479
Investment properties
Leased properties — — 1,855,246 1,855,246
364,479 217,454 1,855,246 2,437,179
Financial liabilities at fair value through
current profit and loss
Trading financial liabilities
Derivative financial liabilities — (61,659) — (61,659)
Hedging instruments — (10,406) — (10,406)
— (72,065) — (72,065)
ZTE CORPORATION
268
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
2. Assets and liabilities disclosed at fair value
2014
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
Long-term receivables — 266,501 — 266,501
Long-term loans — 10,039,687 — 10,039,687
Bonds payable — 6,131,185 — 6,131,185
2013
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
Long-term receivables — 366,762 — 366,762
Long-term loans — 5,385,673 — 5,385,673
Bonds payable — 6,119,590 — 6,119,590
ANNUAL REPORT 2014
269
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
3. 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 approximates 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, long/short-term loans, bonds payable 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 31 December 2014, the non-performance risk in respect of long/short-term
loans was assessed to be insignificant.
The fair values of listed equity instruments are determined on the basis of market prices.
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 input 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 31 December 2014, the fair value of derivative
financial assets represented the net value after offsetting credit valuation adjustments attributable to
the risk of counterparty default. Changes in the credit risk profile of counterparties did not have any
material impact on the evaluation of the hedging effectiveness of designated derivative instruments in
the hedge and other financial instruments measured at fair value.
ZTE CORPORATION
270
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
3. Estimation of fair value (continued)
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 31 December 2014 was RMB2,004,465,000 (2013: RMB1,855,246,000).
4. Unobservable inputs
Below is a summary of the significant unobservable inputs to the fair value measurement of level 3:
2014
Fair value
at year-end
Valuation
techniques Unobservable inputs
Range
(weighted
average)
Commercial properties RMB2,004,465,000 Discounted cash
flow method
Estimated rental value
(per sq. m. and per
month)
RMB24 to 477
Rent growth (p.a.) 1%–5%
Long term vacancy
rate
5%
Discount rate 6%
2013
Fair value
at year-end
Valuation
techniques Unobservable inputs
Range
(weighted
average)
Commercial properties RMB1,855,246,000 Discounted cash
flow method
Estimated rental value
(per sq. m. and per
month)
RMB24 to 477
Rent growth (p.a.) 1%–5%
Long term vacancy rate 5%
Discount rate 6%
ANNUAL REPORT 2014
271
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
5. Fair value measurement adjustment
Reconciliation of continuous fair value measurements categorised within Level 3 of the fair value
hierarchy:
2014
Opening
balance
Transfer
into
Level 3
Transfer
out of
Level 3
Total profit or loss
for the period Acquisition
Closing
balance
Change in
unrealized profit or
loss for the period
of assets held at
year-end included in
profit and loss
Included in
profit and
loss
Included in other
comprehensive
income
Investment
properties 1,855,246 — — 130,306 — 18,913 2,004,465 130,306
2013
Opening
balance
Transfer into
Level 3
Transfer
out of
Level 3
Total profit or loss
for the period Acquisition
Closing
balance
Change in
unrealized profit or
loss for the period
of assets held at
year-end included in
profit and loss
Included in
profit and
loss
Included in other
comprehensive
income
Investment
properties 1,686,158 — — 38,704 — 130,384 1,855,246 38,704
In the continuous fair value measurement at level 3, profit and loss included in current profit and loss
relating to financial assets and non-financial assets is analysed as follows:
2014 2013
Relating to
non-financial
assets
Relating to
non-financial
assets
Total profit or loss for the period included in profit and loss 130,306 38,704
Change in unrealized profit or loss for the period of assets
held at year-end included in profit and loss 130,306 38,704
6. Transfers between levels of fair value measurement
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and
no transfers into or out of Level 3.
ZTE CORPORATION
272
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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 (%)
Shenzhen Zhongxingxin
Telecommunications
Equipment Company
Limited
Shenzhen,
Guangdong
Manufacturing RMB100 million 30.78% 30.78%
According to Shenzhen Stock Exchange Listing Rules, the Company’s controlling shareholder is
Shenzhen Zhongxingxin Telecommunications Equipment Company Limited.
2. Subsidiaries
Details of the subsidiaries are set out in Note VI. Changes in the Scope of Consolidation and Note
VII Interests in Other Entities.
3. Joint ventures and associates
Details of the joint ventures and associates are set out in Note V. 11.
ANNUAL REPORT 2014
273
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
4. Other related parties
Relationship
Shenzhen Zhongxing Xindi Telecommunications Equipment
Company Limited
Under the same controlling shareholder as the
Company
Zhongxing Xinzhou Complete Equipment Company Limited Under the same controlling shareholder as the
Company
????????????? (Formerly “Shenzhen Zhongxing
Xinyu FPC Company Limited”)
Under the same controlling shareholder as the
Company
??????????? 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 an associate of the Company
Zhongxing Energy (Inner Mongolia) Company Limited Subsidiary of an associate of the Company
Zhongxing Energy (Shenzhen) Company Limited Subsidiary of an associate of the Company
Zhongxing Energy (Tianjin) Company Limited Subsidiary of an associate of the Company
?????????????? Subsidiary of an associate of the Company
???????????????? Subsidiary of an associate of the Company
?????????????? Subsidiary of an associate of the Company
????(??)???????? Indirect subsidiary of an associate of the Company
????????????? Indirect subsidiary of an associate of the Company
Shenzhen Zhongxing WXT Equipment Company Limited Shareholder of the Company’s controlling shareholder
Xi’an Microelectronics Technology Research Institute Shareholder of the Company’s controlling shareholder
Mobi Antenna Technologies (Shenzhen) Co., Ltd. Company for which a supervisor of the Company’s
controlling shareholder acted as director
Shenzhen Zhongxing Information Company Limited Company with equity investment from shareholders
of the Company’s controlling shareholder
Shenzhen Gaodonghua Communication Technology
Company Limited
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 chairman
INTLIVE TECHNOLOGIES (PRIVATE) LIMITED Company for which a connected natural person of
the Company acted as chairman
???????????? Subsidiary of shareholders of the Company’s
controlling shareholder
Shenzhen Aerospace Guangyu Industrial Company Limited Company for which a Director of the Company
acted as director
????????????????? Subsidiary of a company for which a Director of the
Company acted as director
Chongqing Zhongxing Development Company Limited Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
ZTE CORPORATION
274
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
4. Other related parties (continued)
Relationship
Zhongxing Energy (Hubei) Company Limited Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
Huatong Technology Company Limited Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
??????(??)???? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
?????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
???????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
?????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
?????????? Indirect subsidiary of a company for which the
Chairman of the Company concurrently acted as
chairman
?????????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
??????????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
Zhongxing Development Company Limited Company for which the Chairman of the Company
concurrently acted as chairman
???????????????* Company for which the Independent Director of
the Company concurrently acted as Independent
director
???????????????? 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
* An independent director of the Company ceased to be the independent director of the company with effect from November
2012. With effect from December 2013, the company ceased to be a related party of the Company.
ANNUAL REPORT 2014
275
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties:
(1) The transaction of goods with related parties:
Sales of goods to related parties:
2014 2013
Amount Amount
Shenzhen Zhongxing Information Company Limited 6 1,069
Shenzhen Zhongxingxin Telecommunications Equipment Company
Limited 3,800 2,658
Shenzhen Zhongxing Xindi Telecommunications Equipment Company
Limited 2,600 2,370
ZTE Software Technology (Nanchang) Company Limited 1,210 135
Mobi Antenna Technologies (Shenzhen) Company Limited 61 61
?????????????? 1,674 1,197
???????????? 530,347 109,868
???????????? 20 127
??????????? 89 2,850
Zhongxing Development Company Limited — 44
?????????? 17,037 411
Zhongxing Energy Company Limited 2 6,604
????????????????? 405,397 49,882
Telecom Innovations 19,076 1,048
??????(??)???? 1,047 7,404
????????????? — 1,740
?????????????? — 9
?????????????? 13,145 1,648
Zhongxing Energy (Inner Mongolia) Company Limited — 2
?????????????? 32 10
???????????????? — 17
??????(??)???? 2 —
?????????????? 337 —
???????????????? 18 —
???????????? 306 —
???????????? 741 —
?????????? 5 —
????(??)???? 209 —
??????????????? 157 —
997,318 189,154
In 2014, sales to related parties accounted for 1.21% of the Group’s total sales. (2013: 0.24%).
ZTE CORPORATION
276
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties: (continued)
(1) The transaction of goods with related parties: (continued)
Purchases from related parties
2014 2013
Amount Amount
Shenzhen Zhongxingxin Telecommunications Equipment Company
Limited 260,991 227,609
Shenzhen Zhongxing Xindi Telecommunications Equipment Company
Limited 203,907 200,396
????????????? 75,916 62,105
Mobi Antenna Technologies (Shenzhen) Company Limited 782,107 426,865
Huatong Technology Company Limited 25,927 37,318
ZTE Software Technology (Nanchang) Company Limited 27,938 9,066
Shenzhen Zhongxing Information Company Limited 4,273 3,363
Wuxi Kaier Technology Company Limited ** — 30,728
Shenzhen Aerospace Guangyu Industrial Company Limited — 20,684
????????????????? — 10,598
?????????? — 296
?????????????? — 1,540
????(??)???????? — 6,209
???????????????* — 1,181
??????????? — 3,800
Shenzhen Zhongxing Hetai Hotel Investment and Management
Company Limited 26,311 29,815
?????????????? 3,231 2,080
???????????????? 3,872 3,808
?????????????? 1,089 1,498
Zhongxing Energy (Shenzhen) Company Limited 1,865 1,873
Zhongxing Energy (Tianjin) Company Limited 4,559 1,029
Xi’an Microelectronics Technology Research Institute 164 —
?????????????? 128 —
???????????? 21,111 —
?????????????? 5,432 —
???????????? 1,969 —
??????(??)???? 12,659 —
1,463,449 1,081,861
ANNUAL REPORT 2014
277
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties: (continued)
(1) The transaction of goods with related parties: (continued)
Purchases from related parties (continued)
In 2014, purchases from related parties accounted for 2.99% of the Group’s total purchases
(2013: 2.74%).
** In November 2013, Wuxi Zhongxing was deconsolidated from the financial statements, and Wuxi KaiEr Technology
Company Limited and Wuxi Hongtu Micro-electronic Technology Co., Ltd, associates of Wuxi Zhongxing, ceased to
be related parties of the Group. The connected transactions with the two said companies set out above comprised
only transactions with the Group conducted during the period when they were related parties of the Group.
(2) Leasing with related parties:
As lessor
2014
2014 2013
Property leased Lease income Lease income
Zhongxing Development Company Limited Office 2,146 2,146
???????????? Office — 11
???????????????? Office 315 311
?????????? Office 273 236
???????????? Office 258 85
????(??)???? Office 780 293
??????????? Office — 403
?????????????? Office 452 267
?????????? Office 320 313
Wuxi Hongtu Micro-electronic Technology
Co., Ltd ** Office — 180
???????????? Office 886 —
Shenzhen Zhongxing Hetai Hotel Investment
and Management Company Limited
Property and
equipment and
facilities 11,598 8,080
?????????????? Property and
equipment and
facilities 4,954 4,276
???????????????? Property and
equipment and
facilities 21,915 14,580
?????????????? Property and
equipment and
facilities 17,720 14,755
ZTE CORPORATION
278
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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
2014 2013
Property
leased
Lease
expense
Lease
expense
Shenzhen Zhongxingxin Telecommunications Equipment
Company Limited Office 8,827 8,827
Zhongxing Development Company Limited Office 42,931 44,221
Chongqing Zhongxing Development Company Limited Office 8,031 8,405
?????????? Office 5,078 779
???????????? Office 1,207 136
(3) Guarantees for related parties:
In 2014 and 2013, no guarantee was provided by/to related parties to/by the Group.
(4) Transfer of equity interests to related parties
In 2014 and 2013, the Group did not transfer any equity interests to related parties.
(5) Transfer of assets to related parties
In 2014 and 2013, the Group did not transfer any assets to related parties.
(6) Other major related transactions
2014 2013
Remuneration of key management personnel 46,163 19,062
ANNUAL REPORT 2014
279
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties: (continued)
(6) Other major related transactions (continued)
Notes:
(i) Commercial transactions
with related parties:
Commercial transactions with related parties was conducted by the Group at market price
(ii) Leasing property from/to
related parties:
Office space was leased to the aforesaid related parties by the Group during the year and
lease income of RMB61,617,000 (2013: RMB45,936,000) was recognized in accordance with
relevant lease contracts.
Office space was leased to the Group by the aforesaid related parties during the year and
lease expenses of RMB66,074,000 (2013: RMB62,368,000) was recognized in accordance
with relevant lease contracts.
(iii) Other major related
transactions:
The total amount of remuneration (in the form of monetary amounts physical rewards or
otherwise) for the key management personnel of the Company incurred the Group for the
year was RMB46,163,000 (2013: RMB19,062,000). The corresponding cost for share-based
payment was RMB9,259,000 (2013: RMB1,543,000).
6. Commitments with related parties
(1) In December 2012, the Group entered into a purchase agreement for a term of 3 years with
Shenzhen Zhongxingxin Telecommunications Equipment Company Limited and subsidiaries for
the purchase of raw materials for use in production. For details of purchases conducted during
the year, please refer to Note X.5 (1). The maximum amount of total purchases by the Group for
the year 2015 is estimated at RMB1,100 million (before VAT).
(2) In December 2012, the Group entered into a purchase agreement for a term of 3 years with Mobi
Antenna Technologies (Shenzhen) Company Limited for the purchase of raw materials for use in
production. For details of purchases conducted during the year, please refer to Note X.5 (1). The
maximum amount of total purchases by the Group for the year 2015 is estimated at RMB900
million (before VAT).
(3) In May 2014, the Group entered into a purchase agreement for a term of 1 year with Shenzhen
Zhongxing Hetai Hotel Investment and Management Company Limited or its subsidiary for the
purchase of hotel services. For details of purchases conducted during the year, please refer
to Note X. 5 (1). The maximum amount of purchase of hotel services for 2015 is estimated at
RMB70,192,000.
ZTE CORPORATION
280
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
6. Commitments with related parties (continued)
(4) In December 2014, the Group entered into a software outsourcing service and purchase agreement
for a term of 3 years with Huatong Technology Company Limited (“Huatong”) for the purchase
of software outsourcing services from Huatong. For details of purchases conducted during the
year, please refer to Note X.5 (1). The maximum amounts of total purchases by the Group for
the years 2015–2017 are estimated at RMB60 million, RMB67 million and RMB75 million (before
VAT), respectively.
(5) In December 2014, the Group entered into a software outsourcing service and purchase agreement
for a term of 3 years with ZTE Software Technology (Nanchang) Company Limited (“ZTE
Nanchang”) for the purchase of software outsourcing services from ZTE Nanchang. For details
of purchases conducted during the year, please refer to Note X.5 (1). The maximum amounts of
total purchases by the Group for the years 2015-2017 are estimated at RMB51 million, RMB63
million and RMB79 million (before VAT), respectively.
(6) In December 2014, the Group entered into a product and service sales agreement for a term of 3
years with ZTE Software Technology (Nanchang) Company Limited for the sales of products and
provision of services to ZTE Nanchang. For details of sales conducted during the year, please
refer to Note X.5 (1). The maximum amounts of total sales by the Group for the years 2015–2017
are estimated at RMB29 million, RMB30 million and RMB31 million (before VAT), respectively.
(7) In December 2014, the Group entered into a property lease agreement for a term of 1 years with
Zhongxing Development Company Limited.. For details of rental income incurred during the year,
please refer to Note X. 5 (2). The annual rental income for 2015 is estimated at approximately
RMB2,146,000.
(8) In December 2014, the Group entered into a property lease agreement for a term of 1 years with
????????????????.. For details of rental income incurred during the year, please
refer to Note X. 5 (2). The Group estimated the rental income for 2015 to be RMB139,000.
(9) In July 2014, the Group entered into a property lease agreement for a term of 2 years with ?
???????????????. For details of rental income incurred during the year, please
refer to Note X. 5 (2). The annual rental income for 2015 and 2016 is estimated at approximately
RMB180,000 and RMB90,000, respectively.
ANNUAL REPORT 2014
281
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
6. Commitments with related parties (continued)
(10) In October 2014, the Group entered into a property lease agreement for a term of 5 months with
??????????. For details of rental income incurred during the year, please refer to Note
X. 5 (2). The Group estimated the rental income for 2015 to be RMB32,000.
(11) In January 2014, the Group entered into a property lease agreement for a term of 4 years with
????????????. For details of rental income incurred during the year, please refer
to Note X. 5 (2). The Group estimated the annual rental income for the years 2015-2017 to be
RMB258,000, respectively.
(12) In June 2014, the Group entered into a property lease agreement for a term of 3 years with ?
???(??)????. For details of rental income incurred during the year, please refer to Note
X. 5 (2). The Group estimated the rental income for 2015, 2016 and 2017 to be RMB1,129,000,
RMB1,129,000 and RMB470,000, respectively.
(13) In October 2014, the Group entered into a property lease agreement for a term of 2 years with
??????????????. For details of rental income incurred during the year, please refer
to Note X. 5 (2). The Group estimated the rental income for 2015 and 2016 to be RMB468,000
and RMB351,000, respectively.
(14) In July 2014, the Group entered into a property lease agreement for a term of 2 years with ?
?????????. For details of rental income incurred during the year, please refer to Note
X. 5 (2). The Group estimated the rental income for 2015 and 2016 to be RMB328,000 and
RMB164,000, respectively.
(15) In July 2014, the Group entered into a property lease agreement for a term of 1 year with Shenzhen
Zhongxing Hetai Hotel Investment and Management Company Limited or its subsidiary. For details
of rental income incurred during the year, please refer to Note X. 5 (2). The Group estimated the
rental income for 2015 to be RMB41,542,000.
(16) In January 2014, the Group entered into a property lease agreement for a term of 14 months
with ????????????. For details of rental income incurred during the year, please refer
to Note X. 5 (2). The Group estimated the rental income for 2015 to be RMB148,000.
(17) In April 2013, the Group entered into a lease agreement for a term of 2 years with Shenzhen
Zhongxingxin Telecommunications Equipment Company Limited. For details of rental expenses
incurred during the year, please refer to Note X. 5 (2). The Group estimated the rental for 2015
to be RMB2,575,000.
(18) In July 2014, the Group entered into a lease agreement for a term of 9.5 months with Zhongxing
Development Company Limited. For details of rental expenses incurred during the year, please
refer to Note X. 5 (2). The Group estimated the rental for 2015 to be RMB11,704,000.
ZTE CORPORATION
282
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
6. Commitments with related parties (continued)
(19) In December 2012, the Group entered into 2 lease agreements each for a term of 3 years with ?
?????????. For details of rental expenses incurred during the year, please refer to Note
X. 5 (2). The Group estimated the annual rental for 2015 to be approximately RMB581,000.
(20) In March 2014, the Group entered into 2 lease agreements each for a term of 3 years with ?
?????????. For details of rental expenses incurred during the year, please refer to Note
X. 5 (2). The Group estimated the annual rental for 2015, 2016 and 2017 to be RMB5,500,000,
RMB5,500,000 and RMB1,029,000, respectively.
(21) In December 2012, the Group entered into 2 lease agreements each for a term of 3 years with
????????????. For details of rental expenses incurred during the year, please refer
to Note X. 5 (2). The Group estimated the annual rental for 2015 to be RMB97,000.
(22) In March 2014, the Group entered into 2 lease agreements each for a term of 3 years with ??
??????????. For details of rental expenses incurred during the year, please refer to Note
X. 5 (2). The Group estimated the annual rental for 2015, 2016 and 2017 to be RMB2,049,000,
RMB2,049,000 and RMB469,000, respectively.
(23) In December 2014, the Group entered into a lease agreement for a term of 3 years with Chongqing
Zhongxing Development Limited. For details of rental expenses incurred during the year, please
refer to Note X. 5 (2). The Group estimated the maximum annual rental for the years 2015-2017
to be RMB13,000,000.
ANNUAL REPORT 2014
283
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties
Item Name of related parties 2014 2013
Bills receivable ????????????????? 95,836 84,312
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 166 610
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 514 120
96,516 85,042
Trade receivables ???????????? 418,059 81,048
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 930 1,031
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 1,314 961
Xi’an Microelectronics Technology Research
Institute 9 9
??????????? 37 2,936
????????????????? 60,097 5,598
?????????????? 28 28
?????????????? 839 1,922
????????????? 1 1
??????(??)???? 2,928 8,631
?????????????? 2 —
?????????? 2,970 —
???????????? 86 —
???????????? 24 —
ZTE Software Technology (Nanchang)
Company Limited 116 —
????(??)???? 132 —
Shenzhen Zhongxing Information Company
Limited — 9
????????????? — 85
???????????? — 9
Mobi Antenna Technologies (Shenzhen)
Company Limited — 127
Zhongxing Development Company Limited — 52
?????????????? — 5
487,572 102,452
ZTE CORPORATION
284
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties (continued)
Item Name of related parties 2014 2013
Prepayment Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 445 493
?????????????? 100 —
?????????????? 2,250 —
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 283 —
Zhongxing Development Company Limited 14 —
Shenzhen Zhongxing Information Company
Limited — 229
?????????????? — 186
3,092 908
Dividend receivable Shenzhen Yuanxing Technology Co., Ltd*** — 400
Other receivables ??????????????? 2 2
???????????? 179 22
INTLIVE TECHNOLOGIES (PRIVATE) LIMITED 1,727 1,820
?????????? 304 304
?????????????? 30 —
?????????????? 174 —
?????????????? 5,840 —
??????(??)???? 5,534 —
?????????????? 29 —
Mobi Antenna Technologies (Shenzhen)
Company Limited 61 —
Shenzhen Zhongxing Information Company
Limited 38 —
???????????? 123 —
Zhongxing Development Company Limited 72 —
14,113 2,148
Bills payable ?????????????? 2,166 —
Mobi Antenna Technologies (Shenzhen)
Company Limited 449 —
????????????? 6,908 3,588
?????????????? 150 450
9,673 4,038
ANNUAL REPORT 2014
285
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties (continued)
Item Name of related parties 2014 2013
Trade payables Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 53,879 56,507
????????????? 17,251 6,649
Mobi Antenna Technologies (Shenzhen)
Company Limited 133,225 159,768
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 778 24,238
Shenzhen Zhongxing Xinzhou Complete
Equipment Company Limited 183 183
Shenzhen Zhongxing WXT Equipment
Company Limited 327 327
Shenzhen Zhongxing Information Company
Limited 5,632 4,531
Shenzhen Gaodonghua Communication
Technology Company Limited 176 176
???????????? 20,669 1,433
????????????????? 2,795 9,170
????(??)???????? 3,801 5,538
Shenzhen Aerospace Guangyu Industrial
Company Limited — 2,000
??????(??)???? 7,894 —
???????????? 5 —
Xi’an Microelectronics Technology Research
Institute 192 —
?????????????? — 150
?????????????? — 56
246,807 270,726
Advanced receipts ZTE Software Technology (Nanchang)
Company Limited 5,327 5,327
???????????? 4 1,048
Xi’an Microelectronics Technology Research
Institute 1,628 2
???????????? 155 155
?????????????? 7,821 352
????????????????? 33,909 4,858
??????(??)???? 3 3
?????????? 5,250 —
??????(??)???? 1,272 —
???????????? 310 —
ZTE Energy Co., Ltd. 1 —
??????????? 4 —
????(??)???? 450 —
?????????????? 138 —
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 18 —
56,290 11,745
ZTE CORPORATION
286
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties (continued)
Item Name of related parties 2014 2013
Other payables ????????????? 31 31
Shenzhen Zhongxing WXT Equipment
Company Limited 12 12
Shenzhen Zhongxing Information Company
Limited 48 48
Zhongxing Energy (Hubei) Company Limited 53 53
Zhongxing Development Company Limited 260 215
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 310 1,308
??????????? 51 —
?????????????? 3 —
??????(??)???? 345 —
ZTE Energy Co., Ltd. 85 —
Huatong Technology Company Limited 227 —
?????????????? 4 —
???????????? 70 —
1,499 1,667
Amounts due from/to related parties were interest-free, unsecured and had no fixed term of repayment.
*** Following its disposal in December 2014, Shenzhen Yuanxing Technology Co., Ltd. (“Yuanxing”) was no longer a related party
of the Group. While there were balances in dividend receivable and other receivables as at the end of 2014, such amounts
were not amounts receivable from related parties and hence were presented as nil.
8. Deposit and lending services provided by ZTE Group Finance Company Limited to related
parties
(1) Customer deposits
2014 2013
Shenzhen Zhongxing Hetai Hotel Investment and
Management Company Limited 19,237 —
?????????????? 3,086 3,305
???????????????? 4,571 12,366
?????????????? 6,879 8,675
?????????????? — 51
33,773 24,397
ANNUAL REPORT 2014
287
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
8. Deposit and lending services provided by ZTE Group Finance Company Limited to related
parties (continued)
(2) Interest expenses
2014 2013
Wuxi Kaier Technology Company Limited ** — 24
?????????????? 39 34
???????????????? 120 132
?????????????? 137 11
?????????????? — 32
Shenzhen Zhongxing Hetai Hotel Investment Management
Company Limited 75 —
371 233
(3) Release of loans and advances — release of loans
2014 2013
?????????????? — 5,773
— 5,773
(4) Release of loans and advances — discounted bills
2014 2013
?????????????? — 491
?????????? 429 —
429 491
As at 31 December 2014, issuers of bills of approximately RMB429,000 (31 December 2013:
RMB491,000) were Group companies. Assets and liabilities arising therefrom have been set off
on consolidation of the Group account.
(5) Interest income from loans and bills discounting
2014 2013
Wuxi Kaier Technology Company Limited** — 4,224
?????????? 3 —
?????????????? 110 538
113 4,762
ZTE CORPORATION
288
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
8. Deposit and lending services provided by ZTE Group Finance Company Limited to related
parties (continued)
(6) Interest receivable
2014 2013
?????????????? — 13
— 13
(7) Interest payable
2014 2013
?????????????? 1 1
???????????????? 4 4
?????????????? 5 1
Shenzhen Zhongxing Hetai Hotel Investment Management
Company Limited 5 —
15 6
XI. SHARE-BASED PAYMENT
1. Overview
2014 2013
Total amount of employee service in consideration for which share
based payments were made 524,023 524,023
Equity-settled share-based payments are as follows:
2014 2013
Accumulated balance of equity-settled share-based payments
credited to capital reserves 201,097 22,856
Total costs of equity-settled share-based payments in the year 178,241 29,707
ANNUAL REPORT 2014
289
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XI. SHARE-BASED PAYMENT (continued)
2. Share option incentive scheme
On 22 July 2013, the “ZTE Corporation Share Option Incentive Scheme (Draft)” and its summary was
considered and approved at the Sixth Meeting of the Sixth Session of the Board of Directors and the
Fourth Meeting of the Sixth Supervisory Committee of the Company. On 20 August 2013, the Company
was notified that the opinion of the state-owned shareholders of the Company on the implementation
of the Share Option Incentive Scheme had been approved and filed by State-owned Assets Supervision
and Administration Commission of the State Council. On 23 August 2013, the Company was notified
that the Listed Companies’ Regulation Department I of CSRC had confirmed it had no objection to the
Company convening a general meeting to consider the share option incentive scheme in accordance
with the Administrative Measures on Share Incentives of Listed Company (Trial) (?????????
????(??)?). On 26 August 2013, the resolution on the “ZTE Corporation Share Option Incentive
Scheme (Revised Draft)” (hereinafter referred to as the “Share Incentive Scheme”) and its summary was
considered and approved at Eighth Meeting of the Sixth Session of the Board of Directors and the
Fourth Meeting of the Sixth Supervisory Committee. The Share Incentive Scheme was considered and
approved at Third Extraordinary General Meeting of 2013, the First A Shareholders’ Class Meeting of
2013 and the First H Shareholders’ Class Meeting of 2013 of the Company convened on 15 October
2013. On 31 October 2013, relevant resolutions were considered and passed at the Eleventh Meeting
of the Sixth Session of the Board of Directors and the Ninth Meeting of the Sixth Session of the
Supervisory Committee of the Company, pursuant to which the date of grant for the Share Option
Incentive Scheme of the Company has been set for 31 October 2013 Under the Share Incentive Scheme,
102.989 million share options were granted to 1,528 Participants. Each share option shall entitle its
holder to purchase one ZTE ordinary A share on any exercise date during the effective period of the
Scheme at the exercise price, subject to the conditions of exercise. The source of 2 shares under the
Scheme shall be shares of the Company issued to the Participants by the Company by way of placing.
The Scheme Participants of the Share Incentive Scheme were the directors and senior management
of the Company and key staff of the Company, excluding independent non-executive directors and
supervisors, principal shareholders holding 5% or more of the company’s shares or the actual controller
of the Company and their spouse or blood relative.
The share options shall be valid for a period of 5 years from the date of grant. The first exercise
period shall commence from the first trading day after expiry of the 24-month period from the date of
grant. The share options shall be exercisable separately in the subsequent 3 exercise periods, whose
percentages of options exercisable are 30%, 30% and 40% respectively, subject to the Company’s
performance as the conditions of exercise. The exercise price shall be RMB13.69/share. The share
options not exercisable due to failing to fulfill the Company’s performance as the conditions of exercise
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).
ZTE CORPORATION
290
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XI. SHARE-BASED PAYMENT (continued)
2. Share option incentive scheme (continued)
The calculation of the net profit used by the above indicators is based on the net profit before or
after extraordinary items whichever is lower. Net assets refer to the net assets attributable to the
shareholders of the listed company.
The detailed conditions for the exercise of the share options:
(1) Within the valid period of the Share Incentive Scheme, the net profit attributable to the shareholders
of the listed company and the net profit after extraordinary items attributable to the shareholders
of the listed company shall not be lower than the average of the three most recent accounting
years before the date of grant and shall not be a negative number;
(2) The conditions for the exercise of the granted share options:
Exercise period
Percentage
of options
exercisable Duration Conditions for exercise
First exercise period 30% From 1 November 2015
to 31 October 2016
ROE for the year 2014 not less than 6%; growth
rate of net profit for the year 2014 not less
than 20% compared to 2013
Second exercise
period
30% From 1 November 2016
to 31 October 2017
ROE for the year 2015 not less than 8%; growth
rate of net profit for the year 2015 not less
than 20% compared to 2014
Third exercise
period
40% From 1 November 2017
to 31 October 2018
ROE for the year 2016 not less than 10%; growth
rate of net profit for the year 2016 not less
than 44% compared to 2014
The fair value of the share options granted in 2014 amounted to RMB524,023,000, among which
the share options tariff confirmed by the Company in 2014 amounted to RMB178,241,000.
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) 0.18 0.18 0.18
Volatility (%) 40.25 39.69 43.18
Risk-free interest rate (%) 3.34 3.40 3.46
Demission rate Directors & senior management 5% 5% 5%
Key staff of the Company 5% 5% 5%
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.
ANNUAL REPORT 2014
291
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS
1. Material commitments
2014 2013
Capital commitments
Contracted but not provided of 214,356 264,314
Authorised by the Board but not yet contracted 21,897,474 21,566,513
22,111,830 21,830,827
Investment commitments
Contracted but performance not completed 8,323 17,304
2. Contingent events
2.1. In August 2006, a customer instituted arbitration against the Company to demand indemnity from
the Company in the amount of PKR762,984,000 (approximately RMB47,229,000). Meanwhile, the
Company instituted a counter-claim against the customer’s breach of contract to demand for
damages. In February 2008, the arbitration authority issued its award ruling that an indemnity of
PKR328,040,000 (approximately RMB20,306,000) is to be paid by the Company. On the balance
sheet date, the Company has made provisions for the amount. In accordance with local laws,
the Company had filed with the local court an objection against the arbitration award and a
claim against the customer’s breach of contract. Based on the legal opinion furnished by lawyers
engaged by the Company, the litigation is likely to continue for a prolonged period. As at the date
of approval of the financial statements, the Group had not made any payments of compensation
pursuant to the aforesaid judgement.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated. No additional provision in respect of the
litigation was made.
ZTE CORPORATION
292
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.2. In April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction
Fifth”), an engineering contractor of the Company, demanded the Company to increase the
contract amount on the grounds that raw material prices had increased, in connection with which
it launched first a slowdown in work, followed later by total suspension. In September 2008,
the Company instituted litigation with the Shenzhen Nanshan District People’s Court (“Nanshan
Court”), pleading for the revocation of the contract and court order of the evacuation of the
work sites by the defendant, as well as a penalty payment for work delay in the amount of
RMB24,912,000 and damages of RMB11,319,000 payable to the Company. The Nanshan Court
handed the first trial judgement in July 2009, ruling that the contract between the Company
and China Construction Fifth be revoked and a penalty payment for work delay in the amount
of RMB12,817,000 be payable by China Construction Fifth. China Construction Fifth filed an
appeal against the aforesaid judgement with Shenzhen Intermediate People’s Court (“Shenzhen
Intermediate Court”). Following the conclusion of court hearing for the second trial, Shenzhen
Intermediate Court ruled to suspend trial, pending the result of the final trial of China Construction
Fifth’s case with Shenzhen Intermediate Court below. As the Guangdong Provincial Higher
People’s Court (“Guangdong Higher Court”) handed down the final trial judgement for China
Construction Fifth’s case with Shenzhen Intermediate Court in May 2014, Shenzhen Intermediate
Court resumed trial of the case and made its second trial judgement in November 2014, ruling
that China Construction Fifth was not required to pay the penalty payment of RMB12.817 million
to the Company.
In October and November 2009, the Company further instituted two lawsuits with Nanshan
Court, demanding China Construction Fifth to undertake a penalty payment for work delay in the
amount of RMB30.615 million and the payment of RMB39.537 million, representing the amount
of work payments in excess of the total contract amount. Currently, the above cases are under
trial suspension.
ANNUAL REPORT 2014
293
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.2. (continued)
In July 2009, China Construction Fifth instituted a litigation with the Shenzhen Intermediate
People’s Court, demanding the Company to make a payment of RMB75,563,000 for raw materials
and staff deployment. The Shenzhen Intermediate People’s Court issued its first-trial judgement
in November 2012 which ruled contract amounts of approximately RMB14,497,000 together with
interest accrued thereon and losses incurred as a a result of work delay and suspension amounting
to approximately RMB953,000 to be paid by the Company to China Construction Fifth; while
RMB20,150,000 withheld by China Construction Fifth together with interest accrued thereon shall
be refunded by China Construction Fifth to the Company. Other claims of China Construction
Fifth were rejected. rejected. China Construction Fifth filed an appeal with Guangdong Higher
Court against the said judgement, and Guangdong Higher Court handed down a second trial
judgement in May 2014, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest and damages for work suspension of
approximately RMB2,869,400 to China Construction Fifth Division, while China Construction Fifth
should refund to the Company withheld payments in the amount of RMB20.15 million together
with accrued interest. Other claims of China Construction Fifth were rejected. Case admission fees
and authentication fees paid for the first trial and second trial relating to China Construction Fifth
amounted to RMB2.699 million, of which an amount of RMB654,000 was borne by the Company.
In July 2014, China Construction Fifth instituted a lawsuit with the Nanshan Court, demanding
the refund of RMB24.596 million together with interest of RMB9.118 million (tentatively accrued
to 10 July 2014, although it should be accrued to the date on which the contract work amounts
are settled in full), being indemnity claim amounts under a bank performance guarantee letter
withheld by the Company. Currently, the above case is under trial suspension.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ZTE CORPORATION
294
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.3 A lawsuit on breach of agreement and infringement of rights was instituted against the Company
and its wholly-owned subsidiary ZTE (USA), Inc. (“ZTE (USA)”) by Universal Telephone Exchange,
Inc. (UTE) at the district court of Dallas, Texas, the United States, alleging that the Company and
ZTE (USA) had violated a confidential agreement between UTE and ZTE (USA), for which UTE
was seeking compensation of USD20 million in actual damages. UTE further claimed that it had
lost a telecommunications project contract as a result of inappropriate actions of the Company
and ZTE (USA), for which UTE was seeking compensation of USD10 million in actual damages
and USD20 million in punitive damages. Upon receipt of the writ of summons from the court,
the Company has appointed an attorney to defend its case.
On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE’s
suit on the grounds that there was an arbitration clause under the confidential agreement. On 1
March 2012, the attorney representing UTE concurred with the Company’s application to subject
the case to the arbitration clause and executed an agreement with the Company. The agreement
has been submitted to the court. On 1 May 2012, UTE filed an application for arbitration to
the American Arbitration Association in respect of the case to demand compensation from the
Company and subsequently raised the amount of compensation claimed. On 19 September 2014,
the arbitration court declared court trial of the case closed. As at the end of the reporting period,
the arbitration court had yet to make a final ruling.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
2.4. On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business
Arbitration Tribunal of Guayaquil, Ecuador, claiming quality problems in the construction work
undertaken by the Company and demanding from the Company damages of USD23.35 million
in aggregate, comprising USD22.25 million for network reconstruction and USD1.10 million for
construction quality supervision and management in relation to the entire network. The attorney
engaged by the Company has submitted a defense in a timely manner to deny all allegations of
the carrier. Based on the legal opinion furnished by the legal counsel engaged by the Company
and the progress of the case, the Company has a valid defense against the allegation.
ANNUAL REPORT 2014
295
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.5. On 29 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR
Licensing, Inc. (all three of which being wholly-owned subsidiaries of InterDigital, Inc.) filed a
claim with United States International Trade Commission (“ITC”) and the Federal District Court
of Delaware alleging infringement upon their 3G patent rights by ZTE and ZTE USA. Defendants
in this case included other companies in the industry. In the ITC case, the three said companies
demanded the issue of a permanent exclusion and injunction order against certain of the
Company’s terminal products. In the case filed with the District Court, damages for losses and
payments of legal fees were also demanded of the defendants in addition to the plea for injunction
order, although no specific amount of compensation was named. The litigation procedure at the
District Court has been suspended. On 28 June 2013, ITC issued its initial determination in respect
of the case, ruling that one of the patents relating to the case was invalid, while the Company
and ZTE USA had not infringed upon the remaining patents relating to the case, and that Section
337 had not been violated. (Section 337 investigation commonly refers to the investigation of
unfair acts and unfair measures in the importation of articles into or subsequent sales of articles
in the United States). On 19 December 2013, ITC issued its final verdict on the case, ruling that
the Company and ZTE USA had not violated Section 337. The three companies filed an appeal
with the United States Court of Appeals for the Federal Circuit in respect of the final verdict. On
18 February 2015, the United States Court of Appeals for the Federal Circuit ruled to uphold the
final verdict of ITC.
On 2 January 2013, the three said companies and InterDigital Holdings, Inc. (also a wholly-owned
subsidiary of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware
alleging infringement upon their 3G patent rights by ZTE and ZTE USA. Defendants in this case
included other companies in the industry. In the ITC case, the four said companies demanded
the issue of a permanent exclusion and injunction order against certain of the Company’s terminal
products. In the case filed with the District Court, damages for losses and payments of legal fees
were also demanded of the defendants in addition to the plea for injunction order, although no
specific amount of compensation was named. On 13 June 2014, ITC issued its initial determination
in respect of the case, ruling that the Company and ZTE USA had not infringed upon the patents
relating to the case, and that Section 337 had not been violated. On 15 August 2014, ITC issued
its final verdict on the case, ruling that the Company and ZTE USA had not infringed upon the
patents relating to the case and had not violated Section 337. The three companies aforesaid and
InterDigital Holdings, Inc. filed an appeal with the United States Court of Appeals for the Federal
Circuit in respect of the said final verdict, and the appeal process has currently been suspended.
On 28 October 2014, the Federal District Court of Delaware issued its verdict which ruled that
the Company and ZTE USA had infringed upon three out of four patents involved. Court hearing
in respect of the remaining patent involved has been postponed to April 2015. The Company and
ZTE USA have engaged a legal counsel to conduct active defense of the case and will consider
whether to file an appeal based on the verdicts on the four patents involved in the litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ZTE CORPORATION
296
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.6. On 20 May 2013, ZTE Brazil received another notice of administrative penalty issued by the tax
bureau of Sao Paulo State of Brazil, alleging that ZTE Brazil was not entitled to register and
apply for ICMS output tax on the grounds that ZTE Brazil had committed non-compliant acts
such as revoking invoices in the course of sales to customers during the period from 2010 to
2011, and therefore was required to make a remedial payment of ICMS tax, accrued interest and
a penalty in the aggregate amount of approximately BRL96,448,400 (equivalent to approximately
RMB223 million). On 19 June 2013, ZTE Brazil submitted an administrative defense to the primary
administrative court under the tax bureau of Sao Paulo State, stating that ZTE Brazil’s entitlement
to the ICMS output tax was provable by existing invoices and customers’ statements. On the
grounds that the fiscal revenue of Sao Paulo State would not be reduced as a result, ZTE Brazil
pleaded for the penalty to be waived pursuant to Section 527.A of Law No. 45.490 of Sao Paulo
State. ZTE Brazil also pointed out that the administrative penalty should be rendered invalid by the
fact of duplicated calculation of the amount of fine based on the same rules. On 18 September
2013, ZTE Brazil was notified of the ruling by the primary administrative court under the tax
bureau of Sao Paulo State that supported the administrative penalty. On 18 October 2013, ZTE
Brazil filed an appeal with the secondary administrative court of the tax bureau of Sao Paulo
State. The case is awaiting judgement by the secondary administrative court of the tax bureau of
Sao Paulo State. As at the balance sheet date, the Company had made a provision of BRL5.22
million (equivalent to approximately RMB14.77 million) in respect of the said litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim can be reliably estimated. No additional provision in respect of the litigation
was made.
2.7. In May 2012, the U.S. Flashpoint Technology Inc. filed a claim with ITC and the Federal District
Court of Delaware, respectively, in the United States, alleging the Company and ZTE USA of
infringement upon its patent rights in image processing related technologies. Defendants in the
case included other companies. In the ITC case, the said company demanded the issue of a
limited exclusion and injunction order against the Company’s and ZTE USA’s products that had
allegedly infringed its patent rights. In the case filed with the Federal District Court of Delaware,
damages for losses and payments of legal fees were also demanded of the Company and ZTE
USA in addition to the plea for injunction order, although no specific amount of compensation was
named. The litigation procedure at the Federal District Court of Delaware has been suspended.
On 1 October 2013, ITC announced the preliminary decision on the case that the Company and
ZTE USA did not infringe upon the patent rights as stipulated in Section 337. On 14 March 2014,
ITC issued its final determination in respect of the case, ruling that the Company and ZTE USA
had not violated the patents relating to the case and had not violated Section 337.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ANNUAL REPORT 2014
297
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.8. In July 2012, Technology Properties Limited LLC filed a claim with ITC and the Federal District
Court of California, respectively, in the United States, alleging the Company and ZTE USA of
infringement upon its patent rights in chips. Defendants in the ITC case included other companies.
In the ITC case, the said U.S. company demanded the issue of a permanent exclusion and
injunction order against the Company’s and ZTE USA’s products that had allegedly infringed its
patent rights. In the case filed with the Federal District Court of California, damages for losses
and payments of legal fees were also demanded of the Company and ZTE USA. in addition to the
plea for injunction order, although no specific amount of compensation was named. The litigation
procedure at the Federal District Court of California has been suspended. On 6 September 2013,
ITC announced the preliminary decision on the case that the Company and ZTE USA did not
infringe upon the patent rights as stipulated in Section 337. On 19 February 2014, ITC announced
the final decision on the case that the Company and ZTE USA did not infringe upon Section 337.
Currently, the litigation procedure at the Federal District Court of California has been resumed.
There has been no substantial progress in the litigation process.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
2.9. In November 2012, ZTE Brazil, a wholly-owned subsidiary of the Company, filed an application
with 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 RMB72,530,000). On 7 February 2013, Civil Court of Brasilia ruled
that given that there was no obvious dispute over obligation between the said Brazilian company
and any other company and no sign of bankruptcy, the freeze on the assets was suspended.
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 alleging that ZTE Brazil had
committed fraud and negligence in the course of cooperation and demanded compensation for
direct and indirect losses in the aggregate amount of approximately BRL82,974,500 (equivalent
to approximately RMB192 million). The Company has appointed an external legal counsel to
conduct active defense in respect of the said case.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ZTE CORPORATION
298
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.10. In February 2013, Vringo Germany GmbH (“Vringo Germany”) filed a patent litigation with the Court
of Mannheim, Germany against the Company and ZTE Deutschland GmbH (“ZTE Deutschland”), a
wholly-owned subsidiary of the Company, pleading for the UMTS products of the Company and
ZTE Deutschland with TSTD (Time Switched Transmitter Diversity) functions to be ruled to have
infringed upon the patent rights of Vringo Germany. In December 2013, the Court of Mannheim,
Germany handed down the first trial judgement, ruling that the Company and ZTE Deutschland
had infringed upon the patent rights and issuing an injunction order against the Company and
ZTE Deutschland in respect of the UMTS products with TSTD functions. The Company and ZTE
Deutschland filed an appeal to the aforesaid court in January 2014, pleading for the rejection of
the patent infringement claims of Vringo Germany and revocation of the injunction order. Vringo
Germany withdrew its litigation in October 2014. In December 2014, Vringo Germany filed a patent
litigation with the Court of Dusseldorf, Germany in respect of the patents involved against the
Company and ZTE Service GmbH (“ZTE Service”), a wholly-owned subsidiary of the Company.
As the UMTS products of the Company, ZTE Deutschland and ZTE Service sold in Germany do
not support TSTD functions, the injunction order will not have any impact on the business of the
Company, ZTE Deutschland and ZTE Service in Germany.
In February 2014, Vringo Infrastructure Inc. (“Vringo”) filed a patent litigation with the High Court
of Delhi, India against the Company and ZTE Telecom India Private Limited (“ZTE India”), a wholly-
owned subsidiary of the Company, pleading for the GSM products of the Company and ZTE India
supporting Macro to Micro Handover Algorithm functions to be ruled to have infringed upon the
patent rights of Vringo and applied for the issue of a provisional injunction order by the High Court
of Delhi, India. In February 2014, the High Court of Delhi, India issued a provisional injunction
order against the Company and ZTE India in respect of the GSM products with Macro to Micro
Handover Algorithm functions. In April 2014, the Company and ZTE India filed an application to
the High Court of Delhi, India for the revocation of the provisional injunction order. In August
2014, the High Court of Delhi, India revoked such provisional injunction order.
In April 2014, Vringo filed a patent litigation with the Court of Rio, Brazil against the Company and
ZTE Brazil, pleading for the UMTS and LTE products of the Company and ZTE Brazil supporting
RNC Relocation functions to be ruled to have infringed upon the patent rights of Vringo and
applied for the issue of a provisional injunction order by the Court of Rio, Brazil. In April 2014,
the Court of Rio, Brazil issued a provisional injunction order against the Company and ZTE Brazil
in respect of UMTS and LTE products supporting RNC Relocation functions. In April 2014, the
Company and ZTE Brazil filed an application to the Court of Rio, Brazil for the revocation of the
provisional injunction order. As of now, the Court of Rio, Brazil has yet to make a ruling. The
provisional injunction order affects only the UMTS and LTE products of the Company and ZTE
Brazil supporting RNC Relocation functions sold in Brazil.
ANNUAL REPORT 2014
299
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.10. (continued)
In June 2014, Vringo filed a patent litigation with the Court of Bucharest, Romania against the
Company and ZTE Romania SRL (“ZTE Romania”), a wholly-owned subsidiary of the Company,
pleading for the LTE products of the Company and ZTE Romania supporting Circuit Switched Fall
Back functions to be ruled to have infringed upon the patent rights of Vringo and applied for the
issue of a provisional injunction order by the court. In September 2014, the Court of Bucharest
issued a provisional injunction order against ZTE Romania in respect of LTE products, and ZTE
Romania filed an appeal to the Court of Appeal of Bucharest. In October 2014, the Court of
Appeal of Bucharest ruled to suspend the provisional injunction order.
In March 2014, the Company filed an antitrust litigation with Shenzhen Intermediate Court against
the alleged abuse of market dominance of Vringo, and Shenzhen Intermediate Court has accepted
such filing; the Company also filed an application for antitrust investigation to the EU Commission
in April 2014 and the EU Commission has accepted such filing. Meanwhile, the Company has
also filed litigations in the PRC, Germany, India, Brazil and Romania against Vringo for its patent
claims to be ruled invalid.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
2.11. As at 31 December 2014, the Group had outstanding guarantees given to banks in respect of
performance bonds amounting to RMB7,458,959,000 (31 December 2013: RMB7,022,304,000).
2.12. As at 31 December 2014, the Group provided financial guarantee (including interests accruable)
to independent customers for a maximum amount of RMB63,701,000 (31 December 2013:
RMB46,311,000).
XIII. EVENTS AFTER THE REPORTING PERIOD
Pursuant to the “Resolution on the Proposed Registration and Issue of Perpetual Medium Term Note of the
Company” considered and approved at the First Extraordinary General Meeting of 2014 of the Company
held on 15 October 2014, approval was granted to the Company for the issue of perpetual medium term
notes (“Medium Term Notes”) with an amount of no more than RMB9 billion. On 27 January 2015, the
issue of the 2015 first tranche of Medium Term Notes with an amount of RMB6 billion was completed. On
6 February 2015, the issue of the 2015 second tranche of Medium Term Notes with an amount of RMB1.5
billion was completed.
Pursuant to the profit distribution proposal recommended by the Board, cash dividend of RMB2 (before tax)
for every 10 shares held will be paid on the basis of the total share capital of the Company of 3,437,541,278
shares as at 31 December 2014, and 2 bonus shares will also be issued for every 10 shares held by
shareholders whose name appear in the register as at the Record Date through an increase in registered
capital by way of capitalisation of capital reserves. The profit distribution proposal is subject to approval by
the annual general meeting of the Company.
ZTE CORPORATION
300
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS
1. Leases
As lessee:
According to the lease contract signed with lessor, the group had total future minimum lease payments
under non-cancellable operating leases falling due as follows:
2014 2013
Within one year (including first year) 282,519 389,625
In the first to second years (including second year) 122,796 308,149
In the second to third years (including third year) 76,897 184,079
After the third year 36,648 205,126
518,860 1,086,979
2. Segment reporting
Operating segments
For management purposes, the Group is organised into business units based on their products and
services and has three reportable operating segments as follows:
(1) The networks (communication system) segment includes wireless communications, wireline switch
and access and optical and data communications;
(2) The handset terminals segment engages in the manufacture and sale of mobile phone handsets
and data card products;
(3) The telecommunications software systems, services and other products segment represent the
provision of telecommunications software systems such as operation support systems and the
provision of fee-based services.
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 profit before tax. The
adjusted profit before tax is measured consistently with the Group’s profit before tax except that
finance expenses, research and development costs, impairment losses, gain/(losses) from changes in
fair values, investment income as well as head office and corporate expenses are excluded from such
measurement.
Segment assets exclude deferred tax assets, cash, long-term equity investments, other receivables and
other unallocated head office and corporate assets as these assets are managed on a group basis.
ANNUAL REPORT 2014
301
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS (continued)
2. Segment reporting (continued)
Operating segments (continued)
Segment liabilities exclude derivative financial instruments, loans, other payables, bonds payables,
tax payable, deferred tax liabilities and other unallocated head office and corporate liabilities as these
liabilities are managed on a group basis.
Inter-segment sales and transfers are transacted with reference to the fair value prices used for sales
made to third parties.
2014
Network
(communication
systems)
Handset
terminals
Telecommunication
software systems,
services and other
products Total
Segment revenue
Revenue from telecommunications systems
contracts 46,768,231 — 11,553,352 58,321,583
Sales of goods and services — 23,117,090 32,602 23,149,692
Sub-total 46,768,231 23,117,090 11,585,954 81,471,275
Segment results 11,366,945 278,804 2,475,014 14,120,763
Unallocated revenue 3,787,643
Unallocated cost (12,364,446)
Finance costs (2,100,977)
Gain from changes in fair values 148,282
Investment loss from associates
and joint ventures (53,043)
Total profit 3,538,222
Income tax (810,492)
Net Profit 2,727,730
Total assets
Segment assets 36,161,825 17,874,444 8,958,415 62,994,684
Unallocated assets 43,219,512
Sub-total 106,214,196
Total liabilities
Segment liabilities 8,866,579 938,004 2,203,453 12,008,036
Unallocated liabilities 67,913,656
Sub-total 79,921,692
Supplemental information
Depreciation and amortization expenses 1,048,090 518,061 259,645 1,825,796
Capital expenditure 1,570,928 776,495 389,167 2,736,590
Asset impairment losses 690,136 341,128 170,968 1,202,232
ZTE CORPORATION
302
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS (continued)
2. Segment reporting (continued)
Operating segments (continued)
2013
Network
(communication
systems)
Handset
terminals
Telecommunication
software systems,
services and other
products Total
Segment revenue
Revenue from telecommunications systems
contracts 40,695,724 — 12,473,948 53,169,672
Sales of goods and services — 21,702,058 361,994 22,064,052
Sub-total 40,695,724 21,702,058 12,835,942 75,233,724
Segment results 9,208,655 17,946 1,797,837 11,024,438
Unallocated revenue 3,465,428
Unallocated cost (10,440,196)
Finance costs (2,460,303)
Gain from changes in fair values 204,010
Investment income from associates and
joint ventures 34,466
Total profit 1,827,843
Income tax (394,207)
Net profit 1,433,636
Total assets
Segment assets 33,992,931 10,767,784 10,721,797 55,482,512
Unallocated assets 44,596,985
Sub-total 100,079,497
Total liabilities
Segment liabilities 8,626,156 800,876 2,720,797 12,147,829
Unallocated liabilities 64,305,979
Sub-total 76,453,808
Supplemental information
Depreciation and amortization expenses 944,029 503,428 297,759 1,745,216
Capital expenditure 1,453,649 775,196 458,500 2,687,345
Asset impairment losses 859,791 458,506 271,189 1,589,486
ANNUAL REPORT 2014
303
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS (continued)
2. Segment reporting (continued)
Group information
Geographic information
Revenue from external customers
2014 2013
The PRC 40,583,527 35,635,964
Asia (excluding the PRC) 12,131,576 13,849,495
Africa 6,174,187 5,866,115
Europe, America and Oceania 22,581,985 19,882,150
81,471,275 75,233,724
Revenue from external customers is analysed by geographic locations where the customers are located.
Total non-current assets
2014 2013
The PRC 11,812,310 11,486,177
Asia (excluding the PRC) 1,198,456 1,003,837
Africa 375,623 335,313
Europe, America and Oceania 1,130,718 896,663
14,517,107 13,721,990
Non-current assets are analysed by geographic locations where the assets (excluding long-term equity
investments, financial assets, deferred tax assets and other long-term receivables) are located.
Information of major customers
Operating revenue of RMB17,963,359,000 was derived from carriers’ network and handset terminal
revenue from one major customer (2013: RMB11,993,737,000 from one major customer).
3. Comparative data
As stated in Note II.2, the adoption of certain ASBEs with effect from 1 July 2014 resulted in the
revision of the accounting treatment and presentation of certain items and the adjustment of certain
amounts in the financial statements to comply with the new requirement. Certain data for the prior
year have also been restated accordingly.
ZTE CORPORATION
304
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS
1. Trade receivables
Aging analysis of trade receivables:
2014 2013
Within 1 year 27,795,706 24,930,582
1-2 years 5,042,898 6,126,670
2-3 years 2,788,914 2,553,484
Over 3 years 4,131,488 3,192,083
39,759,006 36,802,819
Less: bad debt provision for trade receivables 3,138,286 2,772,332
36,620,720 34,030,487
2014 2013
Book balance Bad debt provision Book balance Bad debt provision
Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%)
Individually significant and for
which bad debt provision
has been separately made 458,033 1 458,033 100 455,008 1 455,008 100
For which bad debt provision
has been collectively
made
0-6 months 23,497,793 59 — — 20,944,486 57 — —
7-12 months 4,297,913 11 160,968 4 3,986,096 11 138,797 3
13-18 months 3,631,313 9 311,189 9 4,292,764 12 544,511 13
19-24 months 1,411,584 4 430,435 30 1,831,038 5 326,279 18
2-3 years 2,786,001 7 834,942 30 2,521,816 7 423,080 17
Over 3 years 3,676,369 9 942,719 26 2,771,611 7 884,657 32
39,300,973 99 2,680,253 7 36,347,811 99 2,317,324 6
39,759,006 100 3,138,286 36,802,819 100 2,772,332
Movements in bad-debt provisions for trade receivables:
Decrease during the year
Opening
balance
Provision for
the year Write back Write off
Closing
balance
2014 2,772,332 414,061 — (48,107) 3,138,286
2013 2,034,184 841,840 — (103,692) 2,772,332
There was no write-back or recovery of individually significant trade receivables, for which bad debt
provision had been individually made in 2014 (2013: Nil).
Transfer of trade receivables that did not qualify for derecognition was separately classified as “Factored
trade receivables” and “Bank advances on factored trade receivables”.
ANNUAL REPORT 2014
305
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
2. Other receivables
The aging analysis of other receivables:
2014 2013
Within 1 year 379,947 7,176,627
1 to 2 years 2,962,180 2,218,545
2 to 3 years 2,068,545 818,400
Over 3 years 928,261 241,061
6,338,933 10,454,633
Other receivables are analysed as follows:
2014 2013
Staff loans 72,698 87,281
Transactions with third parties 6,266,235 10,367,352
6,338,933 10,454,633
3. Available-for-sale financial assets
2014 2013
Available-for-sale equity instruments
At cost 373,555 373,555
Available-for-sale financial assets at cost:
Book balance
Shareholding
percentage
Cash
dividend
for the
year
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance (%)
???????????? 201,734 — — 201,734 5% —
Others 171,821 — — 171,821 —
373,555 — — 373,555 —
ZTE CORPORATION
306
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
4. Long-term receivables
2014 2013
Loans granted to subsidiaries (Note 1) 5,234,574 4,151,237
Installment payments for the provision of telecommunication
system construction projects 296,620 416,717
Less: Bad debt provision for long-term receivables 50,949 50,098
5,480,245 4,517,856
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 year are as follows:
Decrease during the year
Opening
balance
Provision for
the year Write-back Write-off
Closing
balance
2014 50,098 851 — — 50,949
2013 51,647 — (1,549) — 50,098
The discount rates adopted for long-term receivables ranged from 6.16% to 17.56%.
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”.
5. Long-term equity investments
2014 2013
Equity method
Joint ventures (1) 55,721 55,005
Associates (2) 337,847 374,183
Cost method
Subsidiaries (3) 6,570,188 6,093,653
Less: Provision for impairment in long-term equity
investments (4) 79,345 92,315
6,884,411 6,430,526
ANNUAL REPORT 2014
307
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014
(1) Joint ventures
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under
equity
method
Other
comprehensive
income
Other
changes in
equity
Cash
dividend
declared
Provision
for
impairment
Closing
book value
Provision
for
impairment
at year-end
???????????? 46,005 — — 4,480 — — — — 50,485 —
?????????????? 9,000 — — (3,764) — — — — 5,236 —
55,005 — — 716 — — — — 55,721 —
(2) Associates
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under equity
method
Other
comprehensive
income
Other
changes
in equity
Cash
dividend
declared
Provision for
impairment
Closing
book
value
Provision for
impairment
at year-end
KAZNURTEL Limited Liability Company 2,477 — — — — — — — 2,477 —
????(??)?????? 19,501 — — 511 — — — — 20,012 —
?????????????? 24,851 — — (2,424) — — — — 22,427 —
ZTE Energy Co., Ltd 315,822 — — (50,116) — — — — 265,706 —
ZTE Software Technology (Nanchang)
Company Limited 973 — — (973) — — — — — —
Shenzhen Zhongxing Hetai Hotel
Investment Management
Company Limited 5,795 — — 1,221 — — — — 7,016 —
?????????????? 4,764 — — — — — — — 4,764 —
???????????? — 17,304 — (3,515) — — — — 13,789 —
?????????????? — 5,380 — (3,724) — — — — 1,656 —
374,183 22,684 — (59,020) — — — — 337,847 —
ZTE CORPORATION
308
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014 (continued)
(3) Subsidiaries
Investment
cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage
of
shareholding
Percentage of
voting rights
Cash dividend
for the year
Shenzhen Zhongxing Software Company Limited 263,293 263,293 — 263,293 100% 100% 2,000,000
ZTEsoft Technology Company Limited 89,921 89,921 — 89,921 80.10% 80.10% —
Shanghai Zhongxing Telecom Equipment Technology
Company Limited 37,382 37,382 — 37,382 90% 90% —
ZTE Kangxun Telecom Company Limited 580,000 580,000 — 580,000 100% 100% —
ZTE Microelectronics Technology Company Limited 102,174 102,174 — 102,174 100% 100% —
Anhui Wantong Posts and Telecommunication Company
Limited 11,329 11,329 — 11,329 51% 51% 3,172
ZTE Integration Telecom Limited 41,250 41,250 — 41,250 80% 80% —
Shenzhen ZTE Mobile Telecom Co., Ltd 321,407 321,407 — 321,407 90% 90% —
Shenzhen Zhongxing Telecom Equipment Technology &
Service Company Limited 45,000 45,000 — 45,000 100% 100% —
Xi’an Zhongxing Jing Cheng Communication Company
Limited 40,500 40,500 — 40,500 83% 83% —
Guangdong New Pivot Technology & Service Company
Limited 13,110 13,110 — 13,110 90% 90% 1,800
?????????????? 5,000 5,000 — 5,000 100% 100% —
Shenzhen Zhongliancheng Electronic Development
Company Limited 2,100 2,100 — 2,100 100% 100% —
Xi’an Zhongxing New Software Company Limited 600,000 600,000 — 600,000 100% 100% —
Shenzhen Zhongxing ICT Company Limited 157,019 157,019 — 157,019 90% 90% —
ZTE (Hangzhou) Company Limited 100,000 100,000 — 100,000 100% 100% —
??????????(??)???? 15,200 15,200 — 15,200 76% 76% —
Shenzhen Guoxin Electronics Development Company
Limited 29,700 29,700 — 29,700 100% 100% —
PT.ZTE Indonesia 15,275 15,275 — 15,275 100% 100% —
Telrise (Cayman) Telecom Limited 21,165 21,165 (21,165) — 100% 100% —
ZTE Wistron Telecom AB (Europe Research Institute) 2,137 2,137 — 2,137 100% 100% —
ZTE (Malaysia) CorporationSDN.BHD 496 496 — 496 100% 100% —
ZTE Holdings(Thailand) Co.,Ltd 10 10 — 10 100% 100% —
ZTE(Thailand) Co.,Ltd. 5,253 5,253 — 5,253 100% 100% —
ZTE(USA) Inc. 190,133 190,133 — 190,133 100% 100% —
ZTE Corporation Mexico S.DER.LDEC.V. 42 42 — 42 100% 100% —
ZTE DoBrasil LTDA 18,573 18,573 — 18,573 100% 100% —
ZTE Romania S.R.L 827 827 — 827 100% 100% —
ZTE Telecom India Private Ltd. 335,759 335,759 — 335,759 100% 100% —
ZTE-Communication Technologies,Ltd. 6,582 6,582 — 6,582 100% 100% —
Zhongxing Telecom Pakistan (Private) Ltd. 5,279 5,279 — 5,279 93% 93% —
ANNUAL REPORT 2014
309
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014 (continued)
(3) Subsidiaries (continued)
Investment
cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage
of
shareholding
Percentage of
voting rights
Cash dividend
for the year
Closed Joint Stock Company TK Mobile 16,871 16,871 — 16,871 51% 51% —
ZTE (H.K.) Limited 853,800 853,800 — 853,800 100% 100% —
Shenzhen ZTE Capital Management Company
Limited 16,500 16,500 — 16,500 55% 55% 6,317
ZTE (Heyuan) Company Limited 500,000 500,000 — 500,000 100% 100% —
Shenzhen Zhonghe Chunsheng No. 1 Equity
Investment Fund Partnership Enterprise 278,700 278,700 (21,300) 257,400 30% N/A —
ZTE Group Finance Co., Ltd 1,000,000 1,000,000 — 1,000,000 100% 100% —
??????????? 16,000 16,000 — 16,000 100% 100% —
Shenzhen Zhongxing Supply Chain Co., Ltd 28,500 28,500 — 28,500 95% 95% —
???????????? 159,341 159,341 — 159,341 100% 100% —
?????????????? 300 300 — 300 100% 100% —
????????????? 45,125 45,125 — 45,125 95% 95% —
???????????? 50,000 50,000 — 50,000 100% 100% —
???????????? 32,600 32,600 — 32,600 100% 100% —
??????????????? 30,000 30,000 — 30,000 100% 100% —
??????????? 10,000 10,000 37,500 47,500 95% 95% —
????????????? 42,500 — 42,500 42,500 85% 85% —
?????????????? 300,000 — 300,000 300,000 100% 100% —
?????????? 15,000 — 15,000 15,000 50% 50% —
?????????????? 9,000 — 9,000 9,000 100% 100% —
????????????? 15,000 — 15,000 15,000 100% 100% —
????????????? 100,000 — 100,000 100,000 30% N/A —
6,093,653 476,535 6,570,188 2,011,289
ZTE CORPORATION
310
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014 (continued)
(4) Provision for long-term equity investments
Opening
balance
Increase/
decrease
during the
year
Closing
balance
ZTE (USA) Inc. 5,381 — 5,381
Telrise (Cayman) Telecom Limited 12,970 (12,970) —
Shenzhen Guoxin Electronics Development
Company Limited 23,767 — 23,767
Shenzhen ZTE Mobile Telecom Co., Ltd 17,657 — 17,657
ZTE DoBrasil LTDA 10,059 — 10,059
ZTE Integration Telecom Limited 4,591 — 4,591
Wistron Telecom AB (Europe Research
Institute) 2,030 — 2,030
ZTE Corporation Mexico S.DER.LDEC.V. 41 — 41
Zhongxing Telecom Pakistan (Private ) Ltd. 2,971 — 2,971
Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited 9,656 — 9,656
ZTE Holdings (Thailand) Co., Ltd 10 — 10
ZTE (Thailand) Co., Ltd. 205 — 205
ZTE Telecom India Private Ltd. 1,654 — 1,654
ZTE Romania S.R.L 827 — 827
ZTE (Malaysia) Corporation SDN. BHD 496 — 496
92,315 (12,970) 79,345
2013
(1) Joint ventures
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under equity
method
Other
comprehensive
income
Other
changes
in equity
Cash
dividend
declared
Provision
for
impairment
Closing
book
value
Provision for
impairment
at year-end
???????????? 44,559 — — 1,446 — — — — 46,005 —
?????????????? — 9,000 — — — — — — 9,000 —
44,559 9,000 — 1,446 — — — — 55,005 —
ANNUAL REPORT 2014
311
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(2) Associates
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under equity
method
Other
comprehensive
income
Other
changes
in equity
Cash
dividend
declared
Provision for
impairment
Closing
book value
Provision for
impairment at
year-end
KAZNURTEL Limited
Liability Company 2,477 — — — — — — — 2,477 —
????(??)?????? 19,455 — — 46 — — — — 19,501 —
??????????
???? 12,152 — — 12,699 — — — — 24,851 —
ZTE Energy Co., Ltd 302,793 — — 22,490 — — (9,461) — 315,822 —
ZTE Software Technology
(Nanchang) Company
Limited 836 — — 137 — — — — 973 —
Shenzhen Zhongxing Hetai
Hotel investment
Management Company
Limited 5,548 — — 247 — — — — 5,795 —
??????????
???? 5,932 — — (1,168) — — — — 4,764 —
349,193 — — 34,451 — — (9,461) — 374,183 —
ZTE CORPORATION
312
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(3) Subsidiaries
Investment
Cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage of
shareholding
(%)
Percentage of
voting rights
(%)
Cash dividend
for the year
Shenzhen Zhongxing Software Company
Limited 263,293 263,293 — 263,293 100% 100% 1,000,000
ZTEsoft Technology Company Limited 89,921 89,921 — 89,921 80.10% 80.10% —
Shenzhen ZNV Technology Company Limited — 244,827 (244,827) — — — —
Shanghai Zhongxing Telecom Equipment
Technology Company Limited 37,382 37,382 — 37,382 90% 90% —
ZTE Kangxun Telecom Company Limited 580,000 580,000 — 580,000 100% 100% —
ZTE Microelectronics Technology Company
Limited 102,174 102,174 — 102,174 100% 100% —
Anhui Wantong Posts and Telecommunication
Company Limited 11,329 11,329 — 11,329 51% 51% 1,586
Wuxi Zhongxing Optoelectronics Technologies
Company Limited — 6,500 (6,500) — — — —
ZTE Integration Telecom Limited 41,250 41,250 — 41,250 80% 80% —
Shenzhen ZTE Mobile Telecom Co., Ltd 321,407 321,407 — 321,407 90% 90% —
Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited 45,000 45,000 — 45,000 100% 100% —
Xi’an Zhongxing Jing Cheng Communication
Company Limited 40,500 10,500 30,000 40,500 83% 83% —
Guangdong New Pivot Technology & Service
Company Limited 13,110 13,110 — 13,110 90% 90% —
?????????????? 5,000 5,000 — 5,000 100% 100% —
Shenzhen Zhongliancheng Electronic
Development Company Limited 2,100 2,100 — 2,100 100% 100% —
Xi’an Zhongxing New Software Company
Limited 600,000 600,000 — 600,000 100% 100% —
Shenzhen Zhongxing ICT Company Limited 157,019 157,019 — 157,019 90% 90% —
ZTE (Hangzhou) Company Limited 100,000 100,000 — 100,000 100% 100% —
??????????(??)???? 15,200 15,200 — 15,200 76% 76% —
Shenzhen Guoxin Electronics Development
Company Limited 29,700 29,700 — 29,700 100% 100% —
PT.ZTE Indonesia 15,275 15,275 — 15,275 100% 100% —
Telrise (Cayman) Telecom Limit 21,165 21,165 — 21,165 100% 100% —
ZTE Wistron Telecom AB (Europe Research
Institute) 2,137 2,137 — 2,137 100% 100% —
ZTE (Malaysia) CorporationSDN.BHD 496 496 — 496 100% 100% —
ZTE Holdings(Thailand) Co.,Ltd 10 10 — 10 100% 100% —
ZTE(Thailand) Co.,Ltd.(Thailand) 5,253 5,253 — 5,253 100% 100% —
ZTE(USA) Inc. 190,133 190,133 — 190,133 100% 100% —
ZTE Corporation MexicoS.DER.LDEC.V. 42 42 — 42 100% 100% —
ZTE DoBrasil LTDA 18,573 18,573 — 18,573 100% 100% —
ZTE Romania S.R.L 827 827 — 827 100% 100% —
ZTE Telecom India Private Ltd. 335,759 335,759 — 335,759 100% 100% —
ZTE-Communication Technologies,Ltd. 6,582 6,582 — 6,582 100% 100% —
ANNUAL REPORT 2014
313
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(3) Subsidiaries (continued)
Investment
Cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage of
shareholding
(%)
Percentage of
voting rights
(%)
Cash dividend
for the year
Zhongxing Telecom Pakistan (Private) Ltd. 5,279 5,279 — 5,279 93% 93% —
Closed Joint Stock Company TK Mobile 16,871 16,871 — 16,871 51% 51% —
ZTE (H.K.) Limited 853,800 853,800 — 853,800 100% 100% —
Shenzhen ZTE Capital Management Company
Limited 16,500 16,500 — 16,500 55% 55% —
ZTE (Heyuan) Company Limited 500,000 500,000 — 500,000 100% 100% —
Shenzhen Zhonghe Chunsheng No. 1 Equity
Investment Fund Partnership Enterprise 278,700 300,000 (21,300) 278,700 30% N/A —
ZTE Group Finance Co., Ltd 1,000,000 1,000,000 — 1,000,000 100% 100% —
??????????? 16,000 10,000 6,000 16,000 100% 100% —
Shenzhen Zhongxing Supply Chain Co., Ltd 28,500 28,500 — 28,500 95% 95% —
???????????? 159,341 159,341 — 159,341 100% 100% —
?????????????? 300 300 — 300 100% 100% —
????????????? 45,125 28,500 16,625 45,125 95% 95% —
???????????? 50,000 — 50,000 50,000 100% 100% —
???????????? 32,600 — 32,600 32,600 100% 100% —
??????????????? 30,000 — 30,000 30,000 100% 100% —
??????????? 10,000 — 10,000 10,000 95% 95% —
6,191,055 (97,402) 6,093,653 1,001,586
ZTE CORPORATION
314
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(4) Provision for long-term equity investments
Opening
balance
Increase/
decrease
during the
year
Closing
balance
ZTE (USA) Inc. 5,381 — 5,381
Telrise (Cayman) Telecom Limited 12,970 — 12,970
Shenzhen Guoxin Electronics Development
Company Limited 23,767 — 23,767
Shenzhen ZTE Mobile Telecom Co., Ltd 17,657 — 17,657
ZTE DoBrasil LTDA 10,059 — 10,059
ZTE Integration Telecom Limited 4,591 — 4,591
Wistron Telecom AB (Europe research institute) 2,030 — 2,030
ZTE Corporation Mexico S.DER.LDEC.V. 41 — 41
Zhongxing Telecom Pakistan (Private) Ltd. 2,971 — 2,971
Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited 9,656 — 9,656
ZTE Holdings (Thailand) Co., Ltd 10 — 10
ZTE (Thailand) Co., Ltd. 205 — 205
ZTE TelecomIndia Private Ltd. 1,654 — 1,654
ZTE Romania S.R.L 827 — 827
ZTE (Malaysia) Corporation SDN. BHD 496 — 496
92,315 — 92,315
6. Operating revenue and costs
2014 2013
Revenue Cost Revenue Cost
Revenue 63,084,800 64,424,944 56,490,240 58,376,755
Other income 13,513,540 1,397 12,461,703 3,633
76,598,340 64,426,341 68,951,943 58,380,388
ANNUAL REPORT 2014
315
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
7. Investment income
2014 2013
Investment (loss)/income from long-term equity investment under
equity method (58,304) 35,898
Investment income from long-term equity investment under cost
method 2,025,896 1,012,506
Investment income/(loss) from financial assets at fair value through
profit and loss for the period of holding 56,907 (25,085)
Investment (loss)/income from the disposal of long-term equity
investment (6,852) 887,468
2,017,647 1,910,787
ZTE CORPORATION
316
Supplementary Information to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
1. BREAKDOWN OF EXTRAORDINARY GAINS/LOSSES
Amount for 2014
Loss from the disposal of non-current assets (35,661)
Investment loss from disposal of long-term equity investment (4,181)
Profit of changes in fair value arising from trading financial assets and trading
financial liabilities except for valid straddle business relevant to normal business
of the company, as well as investment gain realised from disposal of trading
financial assets and trading financial liabilities 177,498
Gain from change in fair value of investment properties 130,306
Net amount of other non-operating income and expenses 392,726
Effect of income tax (99,103)
561,585
Note 1 The Group recognizes 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:
Amount for 2014 Reason
Refund of VAT on software products 2,481,772 In line with national policies and received on an ongoing basis
Refund of individual tax 15,075 In line with national policies and received on an ongoing basis
2. RETURN RATIO ON NET ASSETS AND EARNINGS PER SHARE
2014
Weighted average return
on net assets (%)
Earnings per share
Basic Diluted
Net profit attributable to ordinary shareholders of the
Company 11.10% RMB0.77 RMB0.77
Net profit after extraordinary items attributable to
ordinary shareholders of the Company 8.74% RMB0.60 RMB0.60
2013
Weighted average return
on net assets (%)
Earnings per share
Basic Diluted
Net profit attributable to ordinary shareholders of the
Company 6.17% RMB0.39 RMB0.39
Net profit after extraordinary items attributable to
ordinary shareholders of the Company 0.33% RMB0.02 RMB0.02
ANNUAL REPORT 2014
317
Supplementary Information to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
3. RECONCILIATION OF DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER PRC
AND HONG KONG FINANCIAL REPORTING STANDARDS
There were no significant differences between financial statements prepared under PRC ASBEs and under
HKFRSs. Ernst & Young is the auditor for the Group and Company’s financial statements prepared under
HKFRSs.
ZTE CORPORATION
318
Independent Auditors’ Report
To the shareholders of ZTE Corporation
(Established in the People’s Republic of China with limited liability)
We have audited the consolidated financial statements of ZTE Corporation (the “Company”) and its subsidiaries
(together, the “Group”) set out on pages 320 to 439, which comprise the consolidated and company statements
of financial position as at 31 December 2014, and the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Directors’ responsibility for the consolidated financial statements
The directors of the Company are responsible for the preparation of consolidated financial statements that give a
true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute
of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for
such internal control as the directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our
report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or
accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute
of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation
of consolidated financial statements that give a true and fair view in order to design audit procedures that are
appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
ANNUAL REPORT 2014
319
Independent Auditors’ Report (continued)
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company
and of the Group as at 31 December 2014, and of the Group’s profit and cash flows for the year then ended in
accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with
the disclosure requirements of the Hong Kong Companies Ordinance.
Certified Public Accountants
22nd Floor, CITIC Tower
1 Tim Mei Avenue
Central, Hong Kong
25 March 2015
ZTE CORPORATION
320
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
REVENUE 5 81,471,275 75,233,724
Cost of sales (57,759,027) (54,775,081)
Gross profit 23,712,248 20,458,643
Other income and gains 5 4,561,228 4,905,336
Research and development costs (9,008,537) (7,383,892)
Selling and distribution expenses (10,391,579) (10,158,537)
Administrative expenses (2,138,123) (2,258,739)
Other expenses (1,582,298) (2,118,997)
Finance costs 7 (1,561,674) (1,650,437)
Share of profits and losses of:
Joint ventures 716 1,446
Associates (53,759) 33,020
PROFIT BEFORE TAX 6 3,538,222 1,827,843
Income tax expense 10 (810,492) (394,207)
PROFIT FOR THE YEAR 2,727,730 1,433,636
Attributable to:
Owners of the parent 11 2,633,571 1,357,657
Non-controlling interests 94,159 75,979
2,727,730 1,433,636
OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) to be reclassified to profit
or loss in subsequent periods:
Cash flow hedges — effective portion of changes in fair
value of hedging instruments arising during the year 3,965 5,784
Changes in fair value of available-for-sale investments (28,570) 169,639
Exchange differences on translation of foreign operations (295,834) (461,725)
Net other comprehensive loss to be reclassified to profit or
loss in subsequent periods (320,439) (286,302)
Other comprehensive income (loss) not to be reclassified to
profit or loss in subsequent periods:
Share of investee results in other comprehensive income
under the equity method which will not be reclassified to
profit or loss in subsequent periods upon fulfillment of
certain conditions 3,434 —
Actuarial gains (loss) on defined benefit plans (16,599) 7,040
Net other comprehensive income (loss) not to be reclassified
to profit or loss in subsequent periods (13,165) 7,040
OTHER COMPREHENSIVE LOSS FOR THE YEAR,
NET OF TAX (333,604) (279,262)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,394,126 1,154,374
Attributable to:
Owners of the parent 2,269,999 1,055,746
Non-controlling interests 124,127 98,628
2,394,126 1,154,374
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY
EQUITY HOLDERS OF THE PARENT 13
Basic RMB0.77 RMB0.39
Diluted RMB0.77 RMB0.39
Details of the dividends payable and proposed for the year are disclosed in note 12 to the financial statements.
ANNUAL REPORT 2014
321
Consolidated Statement of Financial Position
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT ASSETS
Property, plant and equipment 15 7,664,442 7,697,841
Prepaid land lease payments 17 1,082,208 1,064,021
Intangible assets 18 3,741,514 3,081,233
Investment properties 16 2,004,465 1,855,246
Investments in joint ventures 21 67,607 66,891
Investments in associates 22 393,709 411,146
Available-for-sale investments 23 1,739,664 1,630,271
Long-term trade receivables 26 266,501 366,762
Factored long-term trade receivables 27 1,701,978 2,311,525
Deferred tax assets 38 1,284,493 1,353,033
Pledged deposits 30 3,744,472 3,396,897
Long-term prepayments, deposits and other receivables 19 273,158 415,700
Total non-current assets 23,964,211 23,650,566
CURRENT ASSETS
Prepaid land lease payments 17 24,478 23,649
Inventories 24 19,592,298 12,434,352
Amount due from customers for contract works 25 11,033,468 12,137,144
Trade and bills receivables 26 27,239,734 24,893,928
Factored trade receivables 27 3,160,705 3,338,801
Prepayments, deposits and other receivables 28 6,882,868 4,874,021
Derivative financial instruments 29 240,973 217,454
Pledged deposits 30 718,306 708,641
Time deposits with original maturity of over three months 30 167,428 76,120
Cash and cash equivalents 30 17,230,140 20,118,274
Total current assets 86,290,398 78,822,384
CURRENT LIABILITIES
Trade and bills payables 31 29,626,088 24,990,555
Amount due to customers for contract works 25 3,825,106 3,682,564
Other payables and accruals 32 15,598,327 15,311,007
Derivative financial instruments 29 70,604 67,779
Interest-bearing bank borrowings 33 11,041,149 15,342,957
Bank advances on factored trade receivables 27 3,175,432 3,377,374
Tax payable 489,141 557,059
Dividends payable 8,113 34,963
Bonds payable 34 6,131,185 —
Total current liabilities 69,965,145 63,364,258
NET CURRENT ASSETS 16,325,253 15,458,126
TOTAL ASSETS LESS CURRENT LIABILITIES 40,289,464 39,108,692
continued/…
ZTE CORPORATION
322
Consolidated Statement of Financial Position (continued)
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT LIABILITIES
Derivative financial instruments 29 881 4,286
Bonds payable 34 — 6,119,590
Interest-bearing bank borrowings 33 10,039,687 5,385,673
Bank advances on factored long-term trade receivables 27 1,701,978 2,311,525
Financial guarantee contract 44 3,689 3,689
Deferred tax liabilities 38 159,340 139,900
Provision for retirement benefits 35 115,450 95,806
Other non-current liabilities 36 1,975,935 1,422,534
Total non-current liabilities 13,996,960 15,483,003
Net assets 26,292,504 23,625,689
EQUITY
Equity attributable to owners of the parent
Issued capital 39 3,437,541 3,437,541
Reserves 41 20,753,525 18,991,981
Proposed final dividend 12 687,508 103,126
24,878,574 22,532,648
Non-controlling interests 1,413,930 1,093,041
Total equity 26,292,504 23,625,689
Hou Weigui Shi Lirong
Director Director
ANNUAL REPORT 2014
323
Consolidated Statement of Changes in Equity
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
Attributable to owners of the parent
Issued
capital
Capital
reserve
Hedging
reserve
Share
Incentive
Scheme
reserve
Statutory
reserves
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend Total
Non-
controlling
interests Total equity
Notes RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2013
As previously reported 3,440,078 9,369,499 (16,856) — 1,587,430 (582,699) 7,705,022 — 21,502,474 1,136,256 22,638,730
Prior year adjustments — (45,891) — — — — — — (45,891) — (45,891)
As restated 3,440,078 9,323,608 (16,856) — 1,587,430 (582,699) 7,705,022 — 21,456,583 1,136,256 22,592,839
Profit for the year — — — — — — 1,357,657 — 1,357,657 75,979 1,433,636
Other comprehensive income for the year:
Cash flow hedges, net of tax — — 5,784 — — — — — 5,784 — 5,784
Actuarial gains and losses on defined
benefit plans — 7,040 — — — — — — 7,040 — 7,040
Changes in fair value of available-for-sale
investments — 149,231 — — — — — — 149,231 20,408 169,639
Exchange differences on translation of
foreign operations — — — — — (463,966) — — (463,966) 2,241 (461,725)
Total comprehensive income/(loss) for
the year — 156,271 5,784 — — (463,966) 1,357,657 — 1,055,746 98,628 1,154,374
Disposal of subsidiaries — — — — — — — — — (110,224) (110,224)
Dividends declared to non-controlling
shareholders — — — — — — — — — (1,524) (1,524)
Capital contributions by non-controlling
shareholders — — — — — — — — — 18,895 18,895
Capital withdrawal by non-controlling
shareholders — — — — — — — — — (48,990) (48,990)
Share Incentive Scheme: 40
— Equity-settled share option expense (2,537) — — 22,856 — — — — 20,319 — 20,319
Proposed final 2013 dividend 12 — — — — — — (103,126) 103,126 — — —
Transfer from retained profits — — — — 25,765 — (25,765) — — — —
At 31 December 2013 3,437,541 9,479,879* (11,072)* 22,856* 1,613,195* (1,046,665)* 8,933,788* 103,126 22,532,648 1,093,041 23,625,689
ZTE CORPORATION
324
Consolidated Statement of Changes in Equity (continued)
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
Attributable to owners of the parent
Issued
capital
Capital
reserve
Hedging
reserve
Share
Incentive
Scheme
reserve
Statutory
reserves
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend Total
Non-
controlling
interests Total equity
Notes RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2014 3,437,541 9,479,879 (11,072) 22,856 1,613,195 (1,046,665) 8,933,788 103,126 22,532,648 1,093,041 23,625,689
Profit for the year — — — — — — 2,633,571 — 2,633,571 94,159 2,727,730
Other comprehensive income for the year:
Cash flow hedges, net of tax — — 3,965 — — — — — 3,965 — 3,965
Actuarial gains and losses on defined
benefit plans — (16,599) — — — — — — (16,599) — (16,599)
Changes in fair value of available-for-sale
investments — (40,800) — — — — — — (40,800) 12,230 (28,570)
Share of investee results in other
comprehensive income under the equity
method which will not be reclassified
to profit or loss in subsequent periods
upon fulfillment of certain conditions — 3,090 — — — — — — 3,090 344 3,434
Exchange differences on translation of
foreign operations of foreign operations — — — — — (313,228) — — (313,228) 17,394 (295,834)
Total comprehensive income/(loss) for
the year — (54,309) 3,965 — — (313,228) 2,633,571 — 2,269,999 124,127 2,394,126
Disposal of fractional shares — 812 — — — — — — 812 — 812
Dividends declared to non-controlling
shareholders — — — — — — — — — (7,748) (7,748)
Capital contributions by non-controlling
shareholders — — — — — — — — — 253,500 253,500
Capital withdrawal by non-controlling
shareholders — — — — — — — — — (48,990) (48,990)
Final 2013 dividend declared — — — — — — — (103,126) (103,126) — (103,126)
Share Incentive Scheme: 40 — —
— Equity-settled share option expense — — — 178,241 — — — — —
— Unlocking the lock-up shares — — — — — — — — 178,241 — 178,241
Proposed final 2014 dividend 12 — — — — — — (687,508) 687,508 — — —
Transfer from retained profits — — — — 155,817 — (155,817) — — — —
At 31 December 2014 3,437,541 9,426,382* (7,107)* 201,097* 1,769,012* (1,359,893)* 10,724,034* 687,508 24,878,574 1,413,930 26,292,504
* These reserve accounts comprise the consolidated reserves of approximately RMB 20,753,525,000 (2013: RMB18,991,981,000) in the
consolidated statement of financial position.
ANNUAL REPORT 2014
325
Consolidated Statement of Cash Flows
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 3,538,222 1,827,843
Adjustments for:
Finance costs 7 1,561,674 1,650,437
Share of profits and losses of joint ventures (716) (1,446)
Share of profits and losses of associates 53,759 (33,020)
Bank and other interest income 5 (433,604) (355,958)
Dividend income 5 (32,176) (22,240)
Loss on disposal of items of property, plant and equipment 6 35,661 18,066
Loss/(gain) on disposal of equity interests 6 4,181 (866,677)
Gain on disposal of available-for-sale investments 6 (13,483) (667)
Fair value loss on equity investments held for trading 6 — 9,523
Fair value gain on derivative instruments 6 (17,976) (174,829)
(Gain)/loss on disposal of derivative financial instruments 6 (146,039) 30,548
Gain on disposal of equity investment at fair value through
profit or loss 5 — (20,904)
Depreciation 15 975,691 967,593
Recognition of prepaid land lease payments 17 23,050 21,138
Amortisation of intangible assets 18 827,055 756,485
Write-down of inventories to net realisable value 6 523,950 479,704
Impairment of trade receivables 6 675,522 1,109,782
Impairment of property, plant and equipment 6 2,760 —
Equity-settled share option expense 6 178,241 29,707
Changes in fair value of investment properties 6 (130,306) (38,704)
7,625,466 5,386,381
Increase in inventories (7,681,897) (1,694,241)
Decrease in the amount due from customers for contract
works 1,103,676 1,322,264
Increase in trade and bills receivables (3,021,328) (183,277)
Decrease in long-term trade receivables 100,261 841,430
Decrease/(increase) in factored trade receivables 787,643 (31,355)
(Increase)/decrease in prepayments, deposits and other
receivables (2,344,183) 683,602
Increase/(decrease) in trade and bills payables 4,636,985 (4,200,710)
Increase in the amount due to customers for contract works 142,542 223,019
Increase/(decrease) in other payables and accruals 1,985,077 (104,266)
(Increase)/decrease in other non-current assets (7,583) 70,437
Increase in provision for retirement benefits 3,045 2,913
Cash generated from operations 3,329,704 2,316,197
continued/…
ZTE CORPORATION
326
Consolidated Statement of Cash Flows (continued)
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
Cash generated from operations 3,329,704 2,316,197
Interest received 421,190 341,563
Interest and other finance costs paid (1,720,785) (1,527,941)
Hong Kong profits tax paid (14,058) (6,160)
PRC taxes paid (260,896) (273,049)
Overseas taxes paid (515,569) (246,180)
Dividends paid (103,126) —
Dividends paid to non-controlling shareholders (34,598) (157,567)
Net cash flows from operating activities 1,101,862 446,863
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to prepaid land lease payments (42,066) (199,780)
Purchases of items of property, plant and equipment (1,007,144) (904,052)
Purchases of intangible assets (1,018,394) (1,233,094)
Proceeds from disposal of items of property, plant and
equipment 72,015 5,955
Acquisition of joint ventures — (18,631)
Capital contribution in associates (32,731) (22,155)
Purchases of available-for-sale investments (220,000) (486,556)
Purchases of convertible bonds — (168,329)
Proceeds from disposal of equity investment at fair value
through profit or loss — 56,309
Addition to other receivables 68,530 (144,613)
Disposal of subsidiaries 289,890 1,318,667
Acquisition of a subsidiary 71,876 —
Dividend received from associates — 9,461
Dividend received from available-for-sale investments 5,593 9,977
Proceeds from available-for-sale investments 88,642 —
Settlement of derivative financial instruments 154,240 (30,509)
(Increase)/decrease in time deposits with original maturity of
over three months (91,308) 10,488
(Increase)/decrease in pledged bank deposits (357,240) 431,719
(Increase)/decrease in other non-current assets (4,191) 194,169
Net cash flows used in investing activities (2,022,288) (1,170,974)
continued/…
ANNUAL REPORT 2014
327
Consolidated Statement of Cash Flows (continued)
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
Net cash flows used in investing activities (2,022,288) (1,170,974)
CASH FLOWS FROM FINANCING ACTIVITIES
Disposal of fractional shares 812 —
Repayment of corporate bonds — (4,000,000)
Capital contribution by non-controlling shareholders 253,500 18,895
Acquisition of non-controlling interests (48,990) (48,990)
New bank loans 39,500,323 23,291,362
Repayment of bank loans (40,810,074) (20,372,924)
(Decrease)/increase in bank advances on factored trade
receivables (811,489) 66,510
Net cash flows used in financing activities (1,915,918) (1,045,147)
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,836,344) (1,769,258)
Cash and cash equivalents at beginning of year 20,118,274 22,659,635
Effect of foreign exchange rate changes, net (51,790) (772,103)
CASH AND CASH EQUIVALENTS AT END OF YEAR 30 17,230,140 20,118,274
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Unrestricted bank balances and cash 30 13,528,462 17,827,033
Time deposits with original maturity of less than three months 30 3,701,678 2,291,241
Cash and cash equivalents as stated in the statement of
financial position and the statement of cash flows 17,230,140 20,118,274
ZTE CORPORATION
328
Statement of Financial Position
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT ASSETS
Property, plant and equipment 15 4,515,175 4,816,730
Prepaid land lease payments 17 366,182 369,058
Intangible assets 18 986,515 739,638
Investment properties 16 1,597,919 1,496,338
Investments in subsidiaries 20 11,725,417 10,152,575
Investments in joint ventures 21 55,721 55,005
Investments in associates 22 287,200 265,232
Available-for-sale investments 23 373,555 373,555
Long-term trade receivables 26 245,671 366,619
Factored long-term trade receivables 27 1,287,954 1,968,052
Deferred tax assets 38 674,629 762,009
Pledged deposits 30 3,744,472 3,396,897
Long-term prepayments, deposits and other receivables 19 135,203 199,744
Total non-current assets 25,995,613 24,961,452
CURRENT ASSETS
Prepaid land lease payments 17 9,038 8,901
Inventories 24 12,353,923 7,056,518
Amount due from customers for contract works 25 7,799,190 7,029,635
Trade and bills receivables 26 38,494,719 36,881,669
Factored trade receivables 27 1,259,713 2,084,134
Prepayments, deposits and other receivables 28 12,004,220 14,444,035
Derivative financial instruments 29 53,390 69,300
Pledged deposits 30 310,122 406,892
Cash and cash equivalents 30 9,715,869 11,756,438
Total current assets 82,000,184 79,737,522
CURRENT LIABILITIES
Trade and bills payables 31 43,604,493 44,451,968
Amount due to customers for contract works 25 2,654,158 2,496,029
Other payables and accruals 32 24,402,769 21,691,193
Interest-bearing bank borrowings 33 8,418,581 8,375,865
Bank advances on factored trade receivables 27 1,274,440 2,122,707
Bonds payable 34 6,131,185 —
Derivative financial instruments 29 17,587 12,575
Tax payable 111,846 202,275
Dividends payable 156 152
Total current liabilities 86,615,215 79,352,764
NET CURRENT (LIABILITIES)/ASSETS (4,615,031) 384,758
TOTAL ASSETS LESS CURRENT LIABILITIES 21,380,582 25,346,210
continued/…
ANNUAL REPORT 2014
329
Statement of Financial Position (continued)
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT LIABILITIES
Bonds payable 34 — 6,119,590
Interest-bearing bank borrowings 33 2,980,100 1,780,000
Bank advances on factored long-term trade receivables 27 1,287,954 1,968,052
Financial guarantee contract 44 3,689 3,689
Deferred tax liabilities 38 158,350 138,400
Provision for retirement benefits 35 115,450 95,806
Other long-term payables 1,344,787 1,426,820
Total non-current liabilities 5,890,330 11,532,357
Net assets 15,490,252 13,813,853
EQUITY
Issued capital 39 3,437,541 3,437,541
Reserves 41 11,365,203 10,273,186
Proposed final dividend 12 687,508 103,126
Total equity 15,490,252 13,813,853
Hou Weigui Shi Lirong
Director Director
ZTE CORPORATION
330
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
1. CORPORATE INFORMATION
ZTE Corporation (the “Company”) is a limited liability company established in the People’s Republic of China
(the “PRC”).
The registered office of the Company is located at ZTE Plaza, Keji Road South, Hi-Tech Industrial Park,
Nanshan District, Shenzhen 518057, the PRC.
During the year, the Company and its subsidiaries (collectively referred to as the “Group”) were principally
involved in the design, development, manufacture and sale of telecommunications system equipment and
solutions.
In the opinion of the directors, in accordance with Chapter 8 “Qualifications For Listing” of the Rules
Governing The Listing of Securities On The Stock Exchange of Hong Kong Limited (the “Listing Rules”), the
controlling shareholder of the Group is Shenzhen Zhongxingxin Telecommunications Equipment Company
Limited (“Zhongxingxin”), a limited liability company registered in the PRC.
2.1 BASIS OF PREPARATION
These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards
(“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards
(“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”),
and accounting principles generally accepted in Hong Kong. These financial statements also comply with
the applicable requirements of the Hong Kong Companies Ordinance relating to the preparation of financial
statements, which for this financial year and the comparative period continue to be those of the predecessor
Companies Ordinance (Cap. 32), in accordance with transitional and saving arrangements for Part 9 of the
Hong Kong Companies Ordinance (Cap. 622), “Accounts and Audit”, which are set out in sections 76 to 87
of Schedule 11 to that Ordinance. The financial statements have been prepared under the historical cost
convention, except for derivative financial instruments, investment properties and certain equity investments,
which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”) and
all values are rounded to the nearest thousand except when otherwise indicated.
Basis of consolidation
The consolidated financial statements include the financial statements of the Group for the year ended 31
December 2014. The financial statements of the subsidiaries are prepared for the same reporting period as
the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date
on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Profit or loss and each component of other comprehensive income are attributed to the owners of the parent
of the Group and to the non-controlling interests even if this results in the non-controlling interests having
a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
ANNUAL REPORT 2014
331
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.1 BASIS OF PREPARATION (continued)
Basis of consolidation (continued)
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control described in the accounting policy for subsidiaries
below. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.
If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities
of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation
differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value
of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of
components previously recognised in other comprehensive income is reclassified to profit or loss or retained
profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the
related assets or liabilities.
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Group has adopted the following revised standards and new interpretation for the first time for the
current year’s financial statements.
Amendments to HKFRS 10, HKFRS 12 and
HKAS 27 (2011)
Investment Entities
Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities
Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial Assets
Amendments to HKAS 39 Novation of Derivatives and Continuation of Hedge
Accounting
HK(IFRIC) — Int 21 Levies
Amendment to HKFRS 2 included in Annual
Improvements 2010–2012 Cycle
Definition of Vesting Condition
1
Amendment to HKFRS 3 included in Annual
Improvements 2010–2012 Cycle
Accounting for Contingent Consideration in a Business
Combination
1
Amendment to HKFRS 13 included in Annual
Improvements 2010–2012 Cycle
Short-term Receivables and Payables
Amendment to HKFRS 1 included in Annual
Improvements 2011–2013 Cycle
Meaning of Effective HKFRSs
1
Effective from 1 July 2014
Other than explained below regarding the impact of HKFRS 10, HKAS 32, HKAS 39,, HK(IFRIC)-Int 21, HKFRS
2, HKFRS 3, and HKFRS 13, the adoption of the above standards and interpretation has had no significant
financial effect on these financial statements.
ZTE CORPORATION
332
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(a) Amendments to HKFRS 10 include a definition of an investment entity and provide an exception to
the consolidation requirement for entities that meet the definition of an investment entity. Investment
entities are required to account for subsidiaries at fair value through profit or loss rather than consolidate
them. Consequential amendments were made to HKFRS 12 and HKAS 27 (2011). The amendments
to HKFRS 12 also set out the disclosure requirements for investment entities. The amendments have
had no impact on the Group as the Company does not qualify as an investment entity as defined in
HKFRS 10.
(b) The HKAS 32 Amendments clarify the meaning of “currently has a legally enforceable right to set off”
for offsetting financial assets and financial liabilities. The amendments also clarify the application of the
offsetting criteria in HKAS 32 to settlement systems (such as central clearing house systems) which
apply gross settlement mechanisms that are not simultaneous. The amendments have had no impact
on the Group as the Group does not have any offsetting arrangement.
(c) The HKAS 39 Amendments provide an exception to the requirement of discontinuing hedge accounting
in situations where over-the-counter derivatives designated in hedging relationships are directly or
indirectly, novated to a central counterparty as a consequence of laws or regulations, or the introduction
of laws or regulations. For continuance of hedge accounting under this exception, all of the following
criteria must be met: (i) the novations must arise as a consequence of laws or regulations, or the
introduction of laws or regulations; (ii) the parties to the hedging instrument agree that one or more
clearing counterparties replace their original counterparty to become the new counterparty to each of
the parties; and (iii) the novations do not result in changes to the terms of the original derivative other
than changes directly attributable to the change in counterparty to achieve clearing. The amendments
have had no impact on the Group as the Group has not novated any derivatives during the current
and prior years.
(d) HK(IFRIC)-Int 21 clarifies that an entity recognises a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. The interpretation also clarifies that a levy
liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in
accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold,
the interpretation clarifies that no liability should be recognised before the specified minimum threshold
is reached. The interpretation has had no impact on the Group as the Group applied, in prior years,
the recognition principles under HKAS 37 Provisions, Contingent Liabilities and Contingent Assets which
for the levies incurred by the Group are consistent with the requirements of HK(IFRIC)-Int 21.
(e) The HKFRS 2 Amendment clarifies various issues relating to the definitions of performance and service
conditions which are vesting conditions, including (i) a performance condition must contain a service
condition; (ii) a performance target must be met while the counterparty is rendering service; (iii) a
performance target may relate to the operations or activities of an entity, or to those of another entity
in the same group; (iv) a performance condition may be a market or non-market condition; and (v) if
the counterparty, regardless of the reason, ceases to provide service during the vesting period, the
service condition is not satisfied. The amendment has had no impact on the Group.
ANNUAL REPORT 2014
333
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(f) The HKFRS 3 Amendment clarifies that contingent consideration arrangements arising from a business
combination that are not classified as equity should be subsequently measured at fair value through
profit or loss whether or not they fall within the scope of HKFRS 9 or HKAS 39. The amendment has
had no impact on the Group.
(g) The HKFRS 13 Amendment clarifies that short-term receivables and payables with no stated interest
rates can be measured at invoice amounts when the effect of discounting is immaterial. The amendment
has had no impact on the Group.
2.3 NEW AND REVISED HKFRSs AND NEW DISCLOSURE REQUIREMENTS UNDER THE HONG KONG
COMPANIES ORDINANCE NOT YET ADOPTED
The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet
effective, in these financial statements.
HKFRS 9 Financial Instruments
4
Amendments to HKFRS 10 and
HKAS 28 (2011)
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
2
Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations
2
HKFRS 14 Regulatory Deferral Accounts
5
HKFRS 15 Revenue from Contracts with Customers
3
Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and
Amortisation
2
Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants
2
Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions
1
Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements
2
Annual Improvements 2010–2012 Cycle Amendments to a number of HKFRSs
1
Annual Improvements 2011–2013 Cycle Amendments to a number of HKFRSs
1
Annual Improvements 2012–2014 Cycle Amendments to a number of HKFRSs
2
1
Effective for annual periods beginning on or after 1 July 2014
2
Effective for annual periods beginning on or after 1 January 2016
3
Effective for annual periods beginning on or after 1 January 2017
4
Effective for annual periods beginning on or after 1 January 2018
5
Effective for an entity that first adopts HKFRSs for its annual financial statements beginning on or after 1 January 2016 and therefore
is not applicable to the Group
In addition, the Hong Kong Companies Ordinance (Cap. 622) will affect the presentation and disclosure of
certain information in the consolidated financial statements for the year ending 31 December 2015. The
Group is in the process of making an assessment of the impact of these changes.
ZTE CORPORATION
334
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.3 NEW AND REVISED HKFRSs AND NEW DISCLOSURE REQUIREMENTS UNDER THE HONG KONG
COMPANIES ORDINANCE NOT YET ADOPTED (continued)
Further information about those HKFRSs that are expected to be applicable to the Group is as follows:
In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the
financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard
introduces new requirements for classification and measurement, impairment and hedge accounting. The
Group expects to adopt HKFRS 9 from 1 January 2018. The Group expects that the adoption of HKFRS 9
will have an impact on the classification and measurement of the Group’s financial assets. Further information
about the impact will be available nearer the implementation date of the standard.
The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in
HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and
its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or
contribution of assets between an investor and its associate or joint venture constitutes a business. For a
transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction
is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that
associate or joint venture. The amendments are to be applied prospectively. The Group expects to adopt
the amendments from 1 January 2016.
The amendments to HKFRS 11 require that an acquirer of an interest in a joint operation in which the activity
of the joint operation constitutes a business must apply the relevant principles for business combinations in
HKFRS 3. The amendments also clarify that a previously held interest in a joint operation is not remeasured on
the acquisition of an additional interest in the same joint operation while joint control is retained. In addition,
a scope exclusion has been added to HKFRS 11 to specify that the amendments do not apply when the
parties sharing joint control, including the reporting entity, are under common control of the same ultimate
controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and
the acquisition of any additional interests in the same joint operation. The amendments are not expected to
have any impact on the financial position or performance of the Group upon adoption on 1 January 2016.
HKFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers.
Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS
15 provide a more structured approach for measuring and recognising revenue. The standard also introduces
extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue,
information about performance obligations, changes in contract asset and liability account balances between
periods and key judgements and estimates. The standard will supersede all current revenue recognition
requirements under HKFRSs. The Group expects to adopt HKFRS 15 on 1 January 2017 and is currently
assessing the impact of HKFRS 15 upon adoption.
ANNUAL REPORT 2014
335
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.3 NEW AND REVISED HKFRSs AND NEW DISCLOSURE REQUIREMENTS UNDER THE HONG KONG
COMPANIES ORDINANCE NOT YET ADOPTED (continued)
Amendments to HKAS 16 and HKAS 38 clarify the principle in HKAS 16 and HKAS 38 that revenue reflects
a pattern of economic benefits that are generated from operating business (of which the asset is part)
rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-
based method cannot be used to depreciate property, plant and equipment and may only be used in very
limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The
amendments are not expected to have any impact on the financial position or performance of the Group
upon adoption on 1 January 2016 as the Group has not used a revenue-based method for the calculation
of depreciation of its non-current assets.
The Annual Improvements to HKFRSs 2010–2012 Cycle issued in January 2014 sets out amendments to a
number of HKFRSs. Except for those described in note 2.2, the Group expects to adopt the amendments
from 1 January 2015. None of the amendments are expected to have a significant financial impact on the
Group. Details of the amendment most applicable to the Group are as follows:
HKFRS 8 Operating Segments: Clarifies that an entity must disclose the judgements made by management
in applying the aggregation criteria in HKFRS 8, including a brief description of operating segments that
have been aggregated and the economic characteristics used to assess whether the segments are similar.
The amendments also clarify that a reconciliation of segment assets to total assets is only required to be
disclosed if the reconciliation is reported to the chief operating decision maker.
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Subsidiaries
A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee (i.e., existing
rights that give the Group the current ability to direct the relevant activities of the investee).
When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an
investee, the Group considers all relevant facts and circumstances in assessing whether it has power over
an investee, including:
(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.
The results of subsidiaries are included in the Company’s statement of profit or loss to the extent of dividends
received and receivable. The Company’s investments in subsidiaries are stated at cost less any impairment
losses.
ZTE CORPORATION
336
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in associates and joint ventures
An associate is an entity, in which the Group has a long-term interest of generally not less than 20% of the
equity voting rights and over which it is in a position to exercise significant influence. Significant influence
is the power to participate in the financial and operating policy decisions of the investee, but is not control
or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. 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.
The Group’s investments in associates and joint ventures are stated in the consolidated statement of financial
position at the Group’s share of net assets under the equity method of accounting, less any impairment
losses. The Group’s share of the post-acquisition results and other comprehensive income of associates and
joint ventures is included in profit or loss and consolidated other comprehensive income, respectively. In
addition, when there has been a change recognised directly in the equity of the associate or joint venture,
the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in
equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint
ventures are eliminated to the extent of the Group’s investments in the associates or joint ventures, except
where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from
the acquisition of associates or joint ventures is included as part of the Group’s investments in associates
or joint ventures.
If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest
is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all
other cases, upon loss of significant influence over the associate or joint control over the joint venture, the
Group measures and recognises any retained investment at its fair value. Any difference between the carrying
amount of the associate or joint venture upon loss of significant influence or joint control and the fair value
of the retained investment and proceeds from disposal is recognised in profit or loss.
The results of associates or joint ventures are included in the Company’s statement of profit or loss to the
extent of dividends received and receivable. The Company’s investments in associates and joint ventures
are treated as non-current assets and are stated at cost less any impairment losses.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The consideration transferred is
measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets
transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the
equity interests issued by the Group in exchange for control of the acquiree. For each business combination,
the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership
interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair
value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-
controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.
ANNUAL REPORT 2014
337
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Business combinations and goodwill (continued)
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host
contracts of the acquiree.
If the business combination is achieved in stages, the previously held equity interest is remeasured at its
acquisition date fair value and any resulting gain or loss is recognised in profit or loss.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition
date. Contingent consideration classified as an asset or liability that is a financial instrument and within the
scope of HKAS 39 is measured at fair value with changes in fair value either recognised in profit or loss or
as a change to other comprehensive income. If the contingent consideration is not within the scope of HKAS
39, it is measured in accordance with the appropriate HKFRS. Contingent consideration that is classified as
equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred,
the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity
interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this
consideration and other items is lower than the fair value of the net assets acquired, the difference is, after
reassessment, recognised in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill
is tested for impairment annually or more frequently if events or changes in circumstances indicate that
the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31
December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units,
that are expected to benefit from the synergies of the combination, irrespective of whether other assets or
liabilities of the Group are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (or group of
cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating
unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part
of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill
disposed of in these circumstances is measured based on the relative value of the operation disposed of
and the portion of the cash-generating unit retained.
ZTE CORPORATION
338
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurement
The Group measures its investment properties, derivative financial instruments and equity investments at fair
value at the end of each reporting period. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value measurement is based on the presumption that the transaction to sell the asset or transfer
the liability takes place either in the principal market for the asset or liability, or in the absence of a principal
market, in the most advantageous market for the asset or liability. The principal or the most advantageous
market must be accessible by the Group. The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximising the use of relevant observable inputs and minimising the
use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 — based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 — based on valuation techniques for which the lowest level input that is significant to the fair value
measurement is observable, either directly or indirectly
Level 3 — based on valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of
each reporting period.
ANNUAL REPORT 2014
339
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other
than inventories, construction contract assets, investment properties, deferred tax assets and financial
assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the
asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for
an individual asset, unless the asset does not generate cash inflows that are largely independent of those
from other assets or groups of assets, in which case the recoverable amount is determined for the cash-
generating unit to which the asset belongs.
An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense
categories consistent with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously
recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the
recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is
reversed only if there has been a change in the estimates used to determine the recoverable amount of that
asset, but not to an amount higher than the carrying amount that would have been determined (net of any
depreciation amortisation) had no impairment loss been recognised for the asset in prior years. A reversal
of such an impairment loss is credited to profit or loss in the period in which it arises.
Related parties
A party is considered to be related to the Group if:
(a) the party is a person or a close member of that person’s family and that person:
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;
ZTE CORPORATION
340
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Related parties (continued)
(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow
subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or
an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a); and
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity (or of a parent of the entity).
Property, plant and equipment and depreciation
Property, plant and equipment, other than construction in progress, are stated at cost less accumulated
depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its
purchase price and any directly attributable costs of bringing the asset to its working condition and location
for its intended use.
Expenditure incurred after items of property, plant and equipment have been put into operation, such
as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In
situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in
the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such parts as individual assets with specific
useful lives and depreciates them accordingly.
Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant
and equipment to its residual value over its estimated useful life. The estimated useful lives used for this
purpose are as follows:
Freehold land Not depreciated
Buildings 30 to 50 years
Leasehold improvements Over the shorter of the lease terms and 10 years
Machinery, computers and office equipment 5 to 10 years
Motor vehicles 5 to 10 years
ANNUAL REPORT 2014
341
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment and depreciation (continued)
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is
allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values,
useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial
year end.
An item of property, plant and equipment including any significant part initially recognised is derecognised
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss
on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference
between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress represents buildings, plant and machinery and other fixed assets under construction
or installation, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises
the direct costs of construction or installation during the period of construction. Construction in progress is
reclassified to the appropriate category of property, plant and equipment when completed and ready for use.
Investment properties
Investment properties are interests in land and buildings (including the leasehold interest under an operating
lease for a property which would otherwise meet the definition of an investment property) held to earn rental
income and/or for capital appreciation, rather than for use in the production or supply of goods or services
or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured
initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated
at fair value, which reflects market conditions at the end of the reporting period.
Gains or losses arising from changes in the fair values of investment properties are included in profit or loss
in the year in which they arise.
Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss
in the year of the retirement or disposal.
For a transfer from investment properties to owner-occupied properties or inventories, the deemed cost of
a property for subsequent accounting is its fair value at the date of change in use. If a property occupied
by the Group as an owner-occupied property becomes an investment property, the Group accounts for
such property in accordance with the policy stated under “Property, plant and equipment and depreciation”
up to the date of change in use, and any difference at that date between the carrying amount and the fair
value of the property is accounted for as a revaluation in accordance with the policy stated under “Property,
plant and equipment and depreciation” above. For a transfer from inventories to investment properties, any
difference between the fair value of the property at that date and its previous carrying amount is recognised
in profit or loss.
ZTE CORPORATION
342
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible
assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently
amortised over the useful economic life and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible
asset with a finite useful life are reviewed at least at each financial year end.
Technology know-how
Purchased technology know-how is stated at cost less accumulated amortisation and any impairment losses.
Amortisation is provided on the straight-line basis over its estimated useful life of not more than 10 years.
Computer software
Purchased computer software is stated at cost less accumulated amortisation and any impairment losses,
and is amortised on the straight-line basis over its estimated useful life of not more than 5 years.
Operating concession
Operating concession is stated at cost less accumulated amortisation and any impairment losses.
Amortisation is provided on the straight-line basis for 3 to 10 years, being the period that the operating
concession granted to the Group.
Research and development costs
All research costs are charged to 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, the availability of resources to complete the project and the ability to measure
reliably the expenditure during the development. Product development expenditure which does not meet
these criteria is expensed when incurred.
Deferred development costs are stated at cost less any impairment losses and are amortised using the
straight-line basis over the commercial lives of the underlying products not exceeding five years, commencing
from the date when the products are put into commercial production.
ANNUAL REPORT 2014
343
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than
legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased
asset is capitalised at the present value of the minimum lease payments and recorded together with the
obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised
finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease
terms and the estimated useful lives of the assets. The finance costs of such leases are charged to profit
or loss so as to provide a constant periodic rate of charge over the lease terms.
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are
accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating
leases are included in non-current assets, and rentals receivable under the operating leases are credited to
profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable
under operating leases are charged to profit or loss on the straight-line basis over the lease terms.
Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised
on the straight-line basis over the lease terms.
Investments and other financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments and available-for-sale financial investments, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised
initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the
financial assets, except in the case of financial assets recorded at fair value through profit or loss.
All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date
that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or
sales of financial assets that require delivery of assets within the period generally established by regulation
or convention in the marketplace.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as
held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless they are designated as effective hedging
instruments as defined by HKAS 39.
ZTE CORPORATION
344
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets (continued)
Financial assets at fair value through profit or loss (continued)
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair
value with positive net changes in fair value presented as other income and gains and negative net changes
in fair value presented as finance costs in the statement of profit or loss. These net fair value changes do
not include any dividends or interest earned on these financial assets, which are recognised in accordance
with the policies set out for “Revenue recognition” below.
Financial assets designated upon initial recognition as at fair value through profit or loss are designated at
the date of initial recognition and only if the criteria in HKAS 39 are satisfied.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value
if their economic characteristics and risks are not closely related to those of the host contracts and the host
contracts are not held for trading or designated as at fair value through profit or loss. These embedded
derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment
only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows
that would otherwise be required or a reclassification of a financial asset out of the fair value through profit
or loss category.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement, such assets are subsequently measured at amortised
cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated
taking into account any discount or premium on acquisition and includes fees or costs that are an integral
part of the effective interest rate. The effective interest rate amortisation is included in other income and
gains in profit or loss. The loss arising from impairment is recognised in profit or loss in finance costs for
loans and in other expenses for receivables.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held
to maturity when the Group has the positive intention and ability to hold them to maturity. Held-to-maturity
investments are subsequently measured at amortised cost using the effective interest rate method less any
allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest
rate amortisation is included in other income and gains in profit or loss. The loss arising from impairment
is recognised in profit or loss in other expenses.
ANNUAL REPORT 2014
345
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets (continued)
Available-for-sale financial investments
Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity
investments and debt securities. Equity investments classified as available for sale are those which are
neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities
in this category are those which are intended to be held for an indefinite period of time and which may be
sold in response to needs for liquidity or in response to changes in market conditions.
After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with
unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment
revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is
recognised in profit or loss in other income, or until the investment is determined to be impaired, when the
cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to profit or
loss in other gains or losses.
Interest and dividends earned whilst holding the available-for-sale financial investments are reported as
interest income and dividend income, respectively and are recognised in profit or loss as other income in
accordance with the policies set out for “Revenue recognition” below.
When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in
the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the
various estimates within the range cannot be reasonably assessed and used in estimating fair value, such
investments are stated at cost less any impairment losses.
The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near
term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets
due to inactive markets if management has the ability and intention to hold the assets for the foreseeable
future or until maturity.
For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the
date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that
has been recognised in equity is amortised to profit or loss over the remaining life of the investment using
the effective interest rate. Any difference between the new amortised cost and the maturity amount is also
amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently
determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.
ZTE CORPORATION
346
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets)
is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation
to pay the received cash flows in full without material delay to a third party under a “pass-through”
arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the
asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-
through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership
of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, Group continues to recognise the transferred asset to the extent
of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated
liability. The transferred asset and the associated liability are measured on a basis that reflects the rights
and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the
lower of the original carrying amount of the asset and the maximum amount of consideration that the Group
could be required to repay.
Impairment of financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a financial
asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred
after the initial recognition of the asset have an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include
indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganisation and observable data indicating that there is a measurable decrease in the estimated future
cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses individually whether objective
evidence of impairment exists individually for financial assets that are individually significant, or collectively
for financial assets that are not individually significant. If the Group determines that no objective evidence
of impairment exists for an individually assessed financial asset, whether significant or not, it includes the
asset in a group of financial assets with similar credit risk characteristics and collectively assesses them
for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or
continues to be, recognised are not included in a collective assessment of impairment.
ANNUAL REPORT 2014
347
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets (continued)
Financial assets carried at amortised cost (continued)
The amount of any impairment loss identified is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that have not
yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s
original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a
variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the loss is
recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and
is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring
the impairment loss. Loans and receivables together with any associated allowance are written off when
there is no realistic prospect of future recovery and all collateral has been realised or has been transferred
to the Group.
If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because
of an event occurring after the impairment was recognised, the previously recognised impairment loss is
increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is
credited to other expenses in profit or loss.
Assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument
that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses
on these assets are not reversed.
Available-for-sale financial investments
For available-for-sale financial investments, the Group assesses at the end of each reporting period whether
there is objective evidence that an investment or a group of investments is impaired.
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any
principal payment and amortisation) and its current fair value, less any impairment loss previously recognised
in profit or loss, is removed from other comprehensive income and recognised in profit or loss.
ZTE CORPORATION
348
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets (continued)
Available-for-sale financial investments (continued)
In the case of equity investments classified as available for sale, objective evidence would include a significant
or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the
original cost of the investment and “prolonged” against the period in which the fair value has been below
its original cost. Where there is evidence of impairment, the cumulative loss — measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that investment previously
recognised in profit or loss — is removed from other comprehensive income and recognised in profit or loss.
Impairment losses on equity instruments classified as available for sale are not reversed through profit or
loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.
The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the
Group evaluates, among other factors, the duration or extent to which the fair value of an investment is
less than its cost.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or
loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of
directly attributable transaction costs.
The Group’s financial liabilities include trade and bills payables, bank advances on factored trade receivables,
interest-bearing bank borrowings, a financial guarantee contract, bonds cum warrants, bonds payable, other
payables and accruals, factoring costs payable and derivative financial instruments.
ANNUAL REPORT 2014
349
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial liabilities (continued)
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in
the near term. This category includes derivative financial instruments entered into by the Group that are not
designated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embedded
derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in profit or loss. The net fair value gain or loss
recognised in profit or loss does not include any interest charged on these financial liabilities.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at
the date of initial recognition and only if the criteria in HKAS 39 are satisfied.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost,
using the effective interest rate method unless the effect of discounting would be immaterial, in which case
they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised
as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or
costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included
in finance costs in profit or loss.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due
in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as
a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the
guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the
higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at
the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative
amortisation.
ZTE CORPORATION
350
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or
expires.
When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and a recognition of a new liability, and the difference
between the respective carrying amounts is recognised in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial
position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention
to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps,
to hedge its foreign currency risk and interest rate risk, respectively. These derivative financial instruments
are initially recognised at fair value on the date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and
as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss, except
for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later
reclassified to profit or loss when the hedged item affects profit or loss.
For the purpose of hedge accounting, hedges are classified as:
• fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or
liability or an unrecognised firm commitment; or
• cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognised asset or liability or a highly probable forecast transaction,
or a foreign currency risk in an unrecognised firm commitment; or
• hedges of a net investment in a foreign operation.
ANNUAL REPORT 2014
351
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative financial instruments and hedge accounting (continued)
Initial recognition and subsequent measurement (continued)
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship
to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for
undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item
or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s
effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the
hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective throughout the financial reporting periods
for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Fair value hedges
The change in the fair value of a hedging derivative is recognised in profit or loss as other expenses. The
change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the
carrying amount of the hedged item and is also recognised in profit or loss as other expenses.
For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised
through profit or loss over the remaining term of the hedge using the effective interest rate method. Effective
interest rate amortisation may begin as soon as an adjustment exists and shall begin no later than when
the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss.
When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change
in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability
with a corresponding gain or loss recognised in profit or loss. The changes in the fair value of the hedging
instrument are also recognised in profit or loss.
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised directly in other
comprehensive income in the hedging reserve, while any ineffective portion is recognised immediately in
profit or loss as other expenses.
Amounts recognised in other comprehensive income are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when hedged financial income or financial expense is recognised
or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial
liability, the amounts recognised in other comprehensive income are transferred to the initial carrying amount
of the non-financial asset or non-financial liability.
ZTE CORPORATION
352
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative financial instruments and hedge accounting (continued)
Cash flow hedges (continued)
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part
of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the
criteria for hedge accounting, the amounts previously recognised in other comprehensive income remain in
other comprehensive income until the forecast transaction occurs or the foreign currency firm commitment
is met.
Current versus non-current classification
Derivative instruments that are not designated as effective hedging instruments are classified as current or
non-current or separated into current and non-current portions based on an assessment of the facts and
circumstances (i.e., the underlying contracted cash flows).
• Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge
accounting) for a period beyond 12 months after the end of the reporting period, the derivative is
classified as non-current (or separated into current and non-current portions) consistently with the
classification of the underlying item.
• Embedded derivatives that are not closely related to the host contract are classified consistently with
the cash flows of the host contract.
• Derivative instruments that are designated as, and are effective hedging instruments, are classified
consistently with the classification of the underlying hedged item. The derivative instruments are
separated into current portions and non-current portions only if a reliable allocation can be made.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted
average basis and, in the case of finished goods, comprises direct materials, direct labour, an appropriate
proportion of overheads and/or subcontracting fees. Net realisable value is based on estimated selling prices
less any estimated costs to be incurred to completion and disposal.
Construction contracts
Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders,
claims and incentive payments in respect of telecommunications system contracts. Contract costs incurred
comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable
and fixed construction overheads.
ANNUAL REPORT 2014
353
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Construction contracts (continued)
Revenue from fixed price telecommunications system contracts is recognised using the percentage of
completion method when the contract activities have progressed to a stage where an economic benefit can
be reasonably foreseen and is measured by reference to the proportion of costs incurred to date to the
estimated total cost of the relevant contract.
Provision is made for foreseeable losses as soon as they are anticipated by management.
Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings,
the surplus is treated as an amount due from customers for contract works.
Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses,
the surplus is treated as an amount due to customers for contract works.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash
on hand and demand deposits, and short-term highly liquid investments that are readily convertible into
known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity
of generally within three months when acquired.
For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand
and at banks, including term deposits, which are not restricted as to use.
Provisions
A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past
event and it is probable that a future outflow of resources will be required to settle the obligation, provided
that a reliable estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognised for a provision is the present value at
the end of the reporting period of the future expenditures expected to be required to settle the obligation.
The increase in the discounted present value amount arising from the passage of time is included in finance
costs in profit or loss.
Provision for warranties granted by the Group on handsets is recognised based on sales volume and past
experience of the level of repairs and returns.
A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently,
it is measured at the higher of (i) the amount that would be recognised in accordance with the general
guidance for provisions above; and (ii) the amount initially recognised less, when appropriate, cumulative
amortisation recognised in accordance with the guidance for revenue recognition.
ZTE CORPORATION
354
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or
loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations
and practices prevailing in the countries in which the Group operates.
Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting
period between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• when the deferred tax liability arises from the initial recognition of goodwill or 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; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and
joint ventures, when 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, the carry forward of unused
tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences, the carryforward of
unused tax credits and unused tax losses can be utilised, except:
• when the deferred tax asset relating to the deductible temporary differences arises from 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; and
• in respect of deductible temporary differences associated with investments in subsidiaries, associates
and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
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.
ANNUAL REPORT 2014
355
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the
same taxation authority.
Government grants
Government grants are recognised at their fair value where there is reasonable assurance that the grant will
be received and all attaching conditions will be complied with. When the grant relates to an expense item,
it is recognised as income on a systematic basis over the period that the costs, which it is intended to
compensate, are expensed. Where the grant relates to an asset, the fair value is credited to other payables
or other long-term payable accounts and is released to profit or loss over the expected useful life of the
relevant asset by equal annual instalments.
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the
revenue can be measured reliably, on the following bases:
(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred
to the buyer, provided that the Group maintains neither managerial involvement to the degree usually
associated with ownership, nor effective control over the goods sold;
(b) from the telecommunications system contracts, on the percentage of completion basis, as further
explained in the accounting policy for “Construction contracts” above;
(c) from the rendering of services, when services are rendered;
(d) interest income, on an accrual basis using the effective interest method by applying the rate that exactly
discounts the estimated future cash receipts over the expected life of the financial instrument to the
net carrying amount of the financial asset;
(e) dividend income, when the shareholders’ right to receive payment has been established; and
ZTE CORPORATION
356
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
(f) for contracts involving multiple deliverables, where the deliverables are governed by more than one
authoritative accounting standard, the Group generally evaluates each deliverable to determine whether
it represents a separate unit of accounting based on the following criteria: (i) whether the delivered
item has value to the customer on a stand-alone basis and (ii) whether the contract that includes a
general right of return relative to the delivered item, delivery or performance of the undelivered item(s)
is considered probable and substantially in the control of the Group. Arrangement consideration shall
be allocated at the inception of the arrangement to all deliverables on the basis of their relative selling
price (the relative selling price method). When applying the relative selling price method, the selling
price for each deliverable shall be determined using vendor-specific objective evidence of selling price,
if it exists; otherwise, third-party evidence of selling price. If neither vendor-specific objective evidence
nor third-party evidence of selling price exists for a deliverable, the Group shall use its best estimate
of the selling price for that deliverable when applying the relative selling price method. In deciding
whether the Group can determine vendor-specific objective evidence or third-party evidence of selling
price, the Group shall not ignore information that is reasonably available without undue cost and effort.
Employee benefits
Defined contribution pension schemes
The Company and certain of its subsidiaries established in the PRC have joined a number of defined
contribution pension schemes organised by the relevant provincial and municipal social insurance management
bodies of the PRC government for those employees who are eligible to participate in the schemes. The
Company, these subsidiaries and the employees are required to make monthly contributions to these plans
calculated as a percentage of the employees’ salaries during the year. The contributions payable are charged
as an expense to profit or loss as incurred. The assets of the schemes are held separately from those of
the Group in independently administered funds.
Defined benefit pension scheme
In addition, the Group provides certain employees, who joined the Group before 1 January 2002, with
post-retirement monthly pension payments. The cost of providing these benefits under the Group’s defined
benefit pension scheme is actuarially determined and recognised over the employees’ service period by
using the projected unit credit method. The Group makes monthly pension payments to eligible retirees and
no contribution has been made to fund future obligations since the commencement of the defined benefit
pension scheme. Therefore, there are no assets in respect of this scheme held separately from those of the
Group in independently administered funds and no actuarial valuation for the plan assets has been conducted.
Remeasurements arising from defined benefit pension plans, comprising actuarial gains and losses, the
effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are
recognised immediately in the consolidated statement of financial position with a corresponding debit or credit
to capital reserve through other comprehensive income in the period in which they occur. Remeasurements
are not reclassified to profit or loss in subsequent periods.
ANNUAL REPORT 2014
357
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
Defined benefit pension scheme (continued)
Past service costs are recognised in profit or loss at the earlier of:
• the date of the plan amendment or curtailment; and
• the date that the Group recognises restructuring-related costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The
Group recognises the following changes in the net defined benefit obligation under “cost of sales” and
“administrative expenses” in profit or loss by function:
• service costs comprising current service costs, past-service costs, gains and losses on curtailments
and non-routine settlements
• net interest expense or income
Share-based payments
The Company operates a share incentive scheme (the “Share Incentive Scheme”) for the purpose of providing
incentives and rewards to eligible participants who contribute to the success of the operations of the Group.
Employees (including directors) of the Group receive remuneration in the form of share-based payment
transactions, whereby employees render services as consideration for equity instruments (“equity-settled
transactions”).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date
at which they are granted. The fair value is determined by an external valuer using an appropriate pricing
model, further details of which are given in note 40 to the financial statements.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over
the period in which the performance and/or service conditions are fulfilled in employee benefit expense. 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. The charge or credit to profit or loss for a period
represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where
vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of
whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or
service conditions are satisfied.
ZTE CORPORATION
358
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
Share-based payments (continued)
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the
terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised
for any modification that increases the total fair value of the share-based payments, 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. This includes any award where
non-vesting conditions within the control of either the Group or the employee are not met. 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 cancelled and new awards are treated as if they were a modification of the original award,
as described in the previous paragraph.
The dilutive effect of the outstanding subject shares is reflected as additional share dilution in the computation
of earnings per share.
Termination benefits
Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those
benefits and when the Group recognises restructuring costs involving the payment of termination benefits.
Borrowing costs
Borrowing costs directly attributable to the acquisition or construction of qualifying assets, i.e., assets 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. The capitalisation of such borrowing costs ceases when the assets are
substantially ready for their intended use or sale. Investment income earned on the temporary investment
of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs
capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing
costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.
Dividends
Final dividends proposed by the directors are classified as a separate allocation of retained profits within
the equity section of the statement of financial position, until they have been approved by the shareholders
in a general meeting. When these dividends have been approved by the shareholders and declared, they
are recognised as a liability.
ANNUAL REPORT 2014
359
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
These financial statements are presented in Renminbi, which is the Company’s functional and presentation
currency. Each entity in the Group determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency. Foreign currency transactions recorded
by the entities in the Group are initially recorded using their respective functional currency rates prevailing at
the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated
at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on
settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in
a foreign currency are translated using the exchange rates at the date when the fair value was measured.
The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with
the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item
whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised
in other comprehensive income or profit or loss, respectively).
The functional currencies of certain overseas subsidiaries, joint ventures and associates are currencies other
than Renminbi. As at the end of the reporting period, the assets and liabilities of these entities are translated
into the presentation currency of the Company at the exchange rates prevailing at the end of the reporting
period and their statements of profit or loss are translated into Renminbi at the weighted average exchange
rates for the year.
The resulting exchange differences are recognised in other comprehensive income and accumulated in the
exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive
income relating to that particular foreign operation is recognised in profit or loss.
For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are
translated into Renminbi at the exchange rates ruling at the dates of the cash flows. Frequently recurring
cash flows of overseas subsidiaries which arise throughout the year are translated into Renminbi at the
weighted average exchange rates for the year.
ZTE CORPORATION
360
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group’s financial statements requires management to make judgements, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their
accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions
and estimates could result in outcomes that could require a material adjustment to the carrying amounts of
the assets or liabilities affected in the future.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements,
apart from those involving estimations, which have the most significant effect on the amounts recognised
in the financial statements:
Revenue recognition
The Group’s material revenue streams are the result of a wide range of activities, from custom design and
installation over a period of time to a single delivery of equipment to a customer. The Group’s networking
solutions also cover a broad range of technologies and are offered on a global basis. As a result, the Group’s
revenue recognition policies can differ depending on the level of customisation within the solution and the
contractual terms with the customer. Newer technologies within one of the Group’s, reporting segments
may also have different revenue recognition policies, depending on, among other factors, the specific
performance and acceptance criteria within the applicable contracts. Therefore, management must use
significant judgement in determining how to apply the current accounting standards and interpretations, not
only based on the networking solutions, but also within networking solutions based on reviewing the level
of customisation and contractual terms with the customer. As a result, the Group’s revenues may fluctuate
from period to period based on the mix of solutions sold and the geographic regions in which they are sold.
When a customer arrangement involves multiple deliverables which are governed by more than one
authoritative standard, the Group evaluates all deliverables to determine whether they represent separate
units of accounting based on the following criteria:
• whether the delivered item has value to the customer on a stand-alone basis; and
• whether the contract that includes a general right of return relative to the delivered item, delivery or
performance of the undelivered item(s) is considered probable and is substantially in the Group’s control.
The Group’s determination of whether deliverables within a multiple element arrangement can be treated
separately for revenue recognition purposes involves significant estimates and judgements, such as whether
delivered elements have stand-alone value to the customer. Changes to the Group’s assessment of the
accounting units in an arrangement and/or its ability to establish fair values could significantly change the
timing of revenue recognition.
ANNUAL REPORT 2014
361
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Judgements (continued)
Revenue recognition (continued)
Arrangement consideration shall be allocated at the inception of the arrangement to all deliverables on the
basis of their relative selling price (the relative selling price method). When applying the relative selling price
method, the selling price for each deliverable shall be determined using vendor-specific objective evidence
(“VSOE”) of selling price, if it exists; otherwise, third-party evidence of selling price. If neither vendor-specific
objective evidence nor third-party evidence of selling price exists for a deliverable, the vendor shall use its
best estimate of the selling price for that deliverable when applying the relative selling price method. In
deciding whether the vendor can determine vendor-specific objective evidence or third-party evidence of
selling price, the vendor shall not ignore information that is reasonably available without undue cost and effort.
For instance, the Group sells hardware and post-contract support services on a stand-alone basis and
therefore it has evidence to establish VSOE for both the sale of goods and post-contract support.
The Group’s assessment of which revenue recognition guidance is appropriate for accounting for a deliverable
also involves significant judgement. For instance, the determination of whether post-contract support services
is more than incidental to hardware can impact on whether the hardware is accounted for based on multiple-
element revenue recognition guidance or based on general revenue recognition guidance. This assessment
could significantly impact the amount and timing of revenue recognition.
For elements related to customised network solutions and certain network build-outs, revenues are recognised
under HKAS 11 Construction Contracts, generally using the percentage of completion method. In using the
percentage of completion method, revenues are generally recorded based on a measure of the percentage of
costs incurred to date on a contract relative to the estimated total expected contract costs. Profit estimates
on long-term contracts are revised periodically based on changes in circumstances and any losses on
contracts are recognised in the period that such losses become known. Generally, the terms of long-term
contracts that provide for progress billings are based on completion of certain phases of work. Contract
revenues recognised, based on costs incurred towards the completion of the project that are unbilled, are
accumulated in the contracts in progress account included in the amount due from customers for contract
works. Billings in excess of revenues recognised to date on long-term contracts are recorded as advance
billings in excess of revenues recognised to date on contracts within the amount due to customers for
contract works. Significant judgement is often required when estimating total contract costs and progress to
completion on these arrangements, as well as whether a loss is expected to be incurred on the contracts.
Management uses historical experience, project plans and an assessment of the risks and uncertainties
inherent in the arrangements to establish these judgements. Uncertainties include implementation delays or
performance issues that may or may not be within the control of the Group. Changes in these estimates
could result in a material impact on revenues and net earnings.
ZTE CORPORATION
362
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Judgements (continued)
Revenue recognition (continued)
Revenue for hardware that does not require significant customisation, and where any software is considered
incidental, is recognised under HKAS 18 Revenue, where revenue is recognised provided that the entity has
transferred to the buyer the significant risks and rewards of ownership of the goods; the entity retains neither
continuing managerial involvement to the degree usually associated with ownership nor effective control over
the goods sold; the entity retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it
is probable that the economic benefits associated with the transaction will flow to the entity; and the costs
incurred or to be incurred in respect of the transaction can be measured reliably.
For hardware, delivery is considered to have occurred upon shipment provided that the risk of loss, and
the title in certain jurisdictions have been transferred to the customer. For arrangements where the criteria
for revenue recognition have not been met because the legal title or risk of loss on products has not been
transferred to the buyer until final payment had been received or where delivery had not occurred, revenue
is deferred to a later period when the title or risk of loss passes either on delivery or on receipt of final
payment from the customer.
For further information on the Group’s revenue recognition policies relating to the Group’s material revenue
streams, please refer to note 2.4 to the financial statements.
Derecognition of financial assets
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-
through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing
involvement in the asset. Significant judgement is often required when the Group has neither transferred
nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, and
estimates the extent of the Group’s continuing involvement in the asset.
Recognition of deferred tax liability for withholding taxes
Deferred tax liability is recognised for withholding tax levied on dividends declared to foreign investors from
the foreign investment enterprises established in Mainland China. Significant management judgement is
required to determine the amount of deferred tax liabilities that can be recognised, based upon the likely
dividends declared. 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 these subsidiaries and it is not probable that
these subsidiaries will make such profit distribution in the foreseeable future. Therefore, the Group has not
recognised any deferred tax liability for withholding taxes. More details are set out in note 38.
ANNUAL REPORT 2014
363
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year, are described below.
Impairment of intangible assets and property, plant and equipment
The carrying amount of property, plant and equipment as at 31 December 2014 was approximately
RMB7,664,442,000 (2013: RMB7,697,841,000). The carrying amount of intangible assets as at 31 December
2014 was RMB3,741,514,000 (2013: RMB3,081,233,000). More details are set out in notes 15 and 18.
The Group assesses whether there are any indicators of impairment for all non-financial assets at the end of
each reporting period. Indefinite life intangible assets are tested for impairment annually and at other times
when such an indicator exists. Other non-financial assets are tested for impairment when there are indicators
that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset
or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to
sell and its value in use. The calculation of the fair value less costs of disposal is based on available data
from binding sales transactions in an arm’s length transaction of similar assets or observable market prices
less incremental costs for disposing of the asset. When value in use calculations are undertaken, management
must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable
discount rate in order to calculate the present value of those cash flows.
Impairment of trade receivables
The carrying amount of trade receivables as at 31 December 2014 was approximately RMB27,506,235,000
(2013: RMB25,260,690,000).
In determining whether there is objective evidence of an impairment loss, the Group takes into consideration
the estimation of future cash flows. The amount of the impairment loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e.,
the effective interest rate computed at initial recognition). Where the actual future cash flows are less than
expected, a material impairment loss may arise.
Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit
will be available against which the losses can be utilised. Significant management judgement is required to
determine the amount of deferred tax assets that can be recognised based upon the likely timing and level
of future taxable profits together with future tax planning strategies. The carrying value of deferred tax assets
relating to recognised tax losses at 31 December 2014 was RMB423,283,000 (2013: RMB591,006,000). The
amount of unrecognised tax losses at 31 December 2014 was RMB7,723,300,000 (2013:RMB6,937,787,000).
Further details are contained in note 38 to the financial statements.
ZTE CORPORATION
364
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Estimation uncertainty (continued)
Deferred development costs
Deferred development costs are capitalised in accordance with the accounting policy for research and
development costs in note 2.4 to the financial statements. Determining the amounts to be capitalised requires
management to make assumptions regarding the expected future cash generation of the assets, discount
rates to be applied and the expected period of benefits. At 31 December 2014, the best estimate of the
carrying amount of capitalised development costs was RMB3,483,505,000 (2013: RMB2,932,148,000).
Write-down of inventories to net realisable value
The Group, pursuant to the accounting policy for inventories, writes down inventories from cost to net
realisable value and makes provision against obsolete and slow-moving items by using the lower of cost
and net realisable value rule. The assessment of the write-down required involves management’s judgement
and estimates. Where the actual outcome or expectation in future is different from the original estimate,
the differences will have an impact on the carrying amounts of inventories and the write-down/write-back
of inventories in the period in which the estimate has been changed. At 31 December 2014, the carrying
amount of inventories was RMB19,592,298,000 (2013: RMB12,434,352,000).
Estimation of 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. Further details, including the key assumptions used for fair value measurement and a sensitivity
analysis, are given in note 16 to the financial statements. The carrying amount of investment properties at
31 December 2014 was RMB2,004,465,000 (2013: RMB1,855,246,000).
Provision for warranties
Provision for warranties granted by the Group on handsets is recognised based on sales volume and past
experience of the level of repairs and returns. The carrying amount of provision for warranties at 31 December
2014 was RMB580,476,000 (2013: RMB490,417,000).
ANNUAL REPORT 2014
365
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on their products and services
and has three reportable operating segments as follows:
(a) The networks (communication system) segment includes wireless communications, wireline switch and
access and optical and data communications.
(b) The handset terminals segment engages in the manufacture and sale of mobile phone handsets and
data card products.
(c) The telecommunications software systems, services and other products segment represent the provision
of telecommunications software systems such as operation support systems and the provision of fee-
based services.
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 profit before tax. The adjusted profit
before tax is measured consistently with the Group’s profit before tax except that interest income, finance
costs, research and development costs, impairment losses, dividend income, share of profits and losses of
associates and joint ventures, fair value gains/(losses) from the Group’s financial instruments as well as head
office and corporate expenses are excluded from the measurement.
Segment assets exclude derivative financial instruments, deferred tax assets, pledged deposits, cash and
cash equivalents, investments in joint ventures and associates, other receivables, other unallocated head
office and corporate assets as these assets are managed on a group basis.
Segment liabilities exclude derivative financial instruments, interest-bearing bank borrowings, other payables,
bonds payable, tax payable, deferred tax liabilities, provision for retirement benefits and other unallocated
head office and corporate liabilities as these liabilities are managed on a group basis.
ZTE CORPORATION
366
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION (continued)
Year ended
31 December 2014 Networks
Handset
terminals
Telecommunications
software systems,
services and other
products Total
RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue:
Telecommunications system
contracts 46,768,231 — 11,553,352 58,321,583
Sale of goods and services — 23,117,090 32,602 23,149,692
46,768,231 23,117,090 11,585,954 81,471,275
Segment results 11,366,945 278,804 2,475,014 14,120,763
Bank and other interest
income 433,604
Dividend income and
unallocated gains 4,127,624
Corporate and other
unallocated expenses (13,529,052)
Finance costs (1,561,674)
Share of profits and losses
of associates and joint
ventures (53,043)
Profit before tax 3,538,222
Segment assets 36,161,825 17,874,444 8,958,415 62,994,684
Investments in joint ventures 67,607
Investment in associates 393,709
Corporate and other
unallocated assets 46,798,609
Total assets 110,254,609
Segment liabilities 8,866,579 938,004 2,203,453 12,008,036
Corporate and other
unallocated liabilities 71,954,069
Total liabilities 83,962,105
Other segment information:
Impairment losses recognised
in profit or loss 690,136 341,128 170,968 1,202,232
Depreciation and amortisation 1,048,090 518,061 259,645 1,825,796
Capital expenditure* 1,570,928 776,495 389,167 2,736,590
* Capital expenditure consists of additions to property, plant and equipment, intangible assets, prepaid land lease payments and
investment properties.
ANNUAL REPORT 2014
367
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION (continued)
Year ended
31 December 2013 Networks
Handset
terminals
Telecommunications
software systems,
services and other
products Total
RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue:
Telecommunications system
contracts 40,695,724 — 12,473,948 53,169,672
Sale of goods and services — 21,702,058 361,994 22,064,052
40,695,724 21,702,058 12,835,942 75,233,724
Segment results 9,208,655 17,946 1,797,837 11,024,438
Bank and other interest income 355,958
Dividend income and
unallocated gains 4,549,378
Corporate and other unallocated
expenses (12,485,960)
Finance costs (1,650,437)
Share of profits and losses of
associates and joint ventures 34,466
Profit before tax 1,827,843
Segment assets 33,992,931 10,767,784 10,721,797 55,482,512
Investments in joint ventures 66,891
Investment in associates 411,146
Corporate and other unallocated
assets 46,512,401
Total assets 102,472,950
Segment liabilities 8,626,156 800,876 2,720,797 12,147,829
Corporate and other unallocated
liabilities 66,699,432
Total liabilities 78,847,261
Other segment information:
Impairment losses recognised in
profit or loss 859,791 458,506 271,189 1,589,486
Depreciation and amortisation 944,029 503,428 297,759 1,745,216
Capital expenditure* 1,453,649 775,196 458,500 2,687,345
ZTE CORPORATION
368
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION (continued)
Geographical information
(a) Revenue from external customers
2014 2013
RMB’000 RMB’000
The PRC (place of domicile) 40,583,527 35,635,964
Asia (excluding the PRC) 12,131,576 13,849,495
Africa 6,174,187 5,866,115
Europe, Americas and Oceania 22,581,985 19,882,150
81,471,275 75,233,724
The revenue information above is based on the locations of the customers.
(b) Non-current assets
2014 2013
RMB’000 RMB’000
The PRC (place of domicile) 11,812,310 11,497,243
Asia (excluding the PRC) 1,198,456 990,114
Africa 375,623 328,789
Europe, Americas and Oceania 1,130,718 882,195
14,517,107 13,698,341
The non-current asset information above is based on the locations of the assets and excludes financial
instruments, deferred tax assets, investments in joint ventures and investments in associates.
Information about major customers
Revenue from telecommunications systems contracts and terminals from one single customer individually
accounted for more than 10% of the Group’s consolidated revenues for 2014 in the amount of RMB17,963
million (2013: one single customer individually accounted for more than 10% of the Group’s consolidated
revenues for 2013 in the amount of RMB11,994 million).
ANNUAL REPORT 2014
369
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
5. REVENUE, OTHER INCOME AND GAINS
Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold, after allowances
for returns and trade discounts; an appropriate proportion of contract revenue of construction contracts and
the value of services rendered during the year. All significant intra-group transactions have been eliminated
on consolidation.
An analysis of revenue, other income and gains is as follows:
2014 2013
Note RMB’000 RMB’000
Revenue
Telecommunications system contracts 58,321,583 53,169,672
Sale of goods 23,117,090 21,702,058
Rendering of services 32,602 361,994
81,471,275 75,233,724
Other income
VAT refunds and other tax subsidies
#
2,496,847 2,314,547
Dividend income 32,176 22,240
Bank and other interest income
##
433,604 355,958
Others
###
1,290,797 1,150,880
4,253,424 3,843,625
Gains
Gain on disposal of equity investment at fair value through
profit or loss — 20,904
Gain on disposal of available-for-sale investments 13,483 667
Gain on disposal of subsidiaries — 866,677
Derivative instruments 164,015 134,759
Fair value gains on investment properties 130,306 38,704
307,804 1,061,711
4,561,228 4,905,336
#
Refund of VAT on software products represents the refund upon payment of VAT according to the portion of any effective VAT
rate in excess of 3% in respect of software product sales of the Group, pursuant to the principles of the State Council document
entitled “Certain Policies to Encourage the Development of Software Enterprise and the IC Industry” and the approval reply of the
state taxation authorities.
##
The bank and other interest income for the year ended 31 December 2014 includes the interest income generated from ZTE Group
Finance Company Ltd amounted to RMB177,289,000 (2013: RMB151,666,000).
###
Others mainly represent gains on government grants, contract penalty income and other miscellaneous income.
ZTE CORPORATION
370
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
6. PROFIT BEFORE TAX
The Group’s profit before tax is arrived at after charging/(crediting):
2014 2013
Notes RMB’000 RMB’000
Cost of goods and services 48,363,247 39,205,492
Depreciation 15 975,691 967,593
Amortisation of land lease payments 17 23,050 21,138
Amortisation of intangible assets other than deferred
development costs 18 86,262 210,671
Research and development costs:
Deferred development costs amortised 18 740,793 545,814
Current year expenditure 9,559,894 7,869,106
Less: Deferred development costs (1,292,150) (1,031,028)
9,008,537 7,383,892
Fair value (gains)/losses, net*:
Derivative instruments 29 (17,976) (174,829)
Equity investments held for trading — 9,523
Investment properties (130,306) (38,704)
Impairment of trade receivables* 26 675,522 1,109,782
Provision for warranties 37 718,075 808,942
Write-down of inventories to net realisable value** 523,950 479,704
Impairment of items of property, plant and equipment 15 2,760 —
Minimum lease payments under operating leases on land
and buildings 705,114 586,059
Contingent rental income in respect of operating leases 46(a) (79,403) (114,309)
Auditors’ remuneration 6,674 6,962
Staff costs (including directors’, chief executives’ and
supervisors’ remuneration in note 8):
Wages, salaries, bonuses, allowances and welfare 11,550,588 9,652,692
Equity-settled share option expense 178,241 29,707
Retirement benefit scheme contributions:
Defined benefit pension scheme 35 4,466 4,178
Defined contribution pension schemes 927,972 881,361
12,661,267 10,567,938
ANNUAL REPORT 2014
371
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
6. PROFIT BEFORE TAX (continued)
The Group’s profit before tax is arrived at after charging/(crediting): (continued)
2014 2013
Notes RMB’000 RMB’000
Foreign exchange loss* 590,085 864,721
Loss on disposal of items of property, plant and
equipment* 35,661 18,066
Gain on disposal of equity investment at fair value
through profit or loss — (20,904)
Loss/(gain) on disposal of subsidiaries* 4,933 (866,677)
Gain on deemed disposal of interest in an associate (752) —
(Gain)/loss on disposal of derivative financial instruments (146,039) 30,548
Gain on disposal of available-for-sale investments (13,483) (667)
* The fair value losses, impairment of trade receivables, foreign exchange loss, loss on disposal of items of property, plant and
equipment and loss/gain on disposal of subsidiaries are included in “Other expenses” on the face of the consolidated statement
of profit or loss and other comprehensive income.
** Write-down of inventories to net realisable value are included in “Cost of sales” on the face of the consolidated statement of profit
or loss and other comprehensive income.
7. FINANCE COSTS
An analysis of finance costs is as follows:
Group
2014 2013
Note RMB’000 RMB’000
Interest on bank loans wholly repayable within five years 769,871 767,697
Interest on bank loans wholly repayable over five years 2,849 —
Interest on bonds cum warrants — 13,866
Interest on bonds payable 34 263,595 263,597
Total interest expense on financial liabilities not at fair
value through profit or loss 1,036,315 1,045,160
Other finance costs:
Finance costs on trade receivables factored and bills
discounted 525,359 605,277
1,561,674 1,650,437
ZTE CORPORATION
372
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
8. DIRECTORS’, CHIEF EXECUTIVES’ AND SUPERVISORS’ REMUNERATION
Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the Listing Rules and section
78 of Schedule 11 to the Hong Kong Companies Ordinance (Cap. 622), with reference to section 161 of the
predecessor Hong Kong Companies Ordinance (Cap. 32), is as follows:
Group
2014 2013
RMB’000 RMB’000
Fees — —
Other emoluments of directors, chief executives and supervisors:
Salaries, bonuses, allowances and welfare 5,224 4,799
Performance-related bonuses* 8,142 1,661
Equity-settled share option expense — —
Retirement benefit scheme contributions 29 17
13,395 6,477
* Certain executive directors of the Company are entitled to bonus payments which are determined based on their work performance.
(a) Independent non-executive directors
The salaries, bonuses, allowances and welfare paid to independent non-executive directors during the
year were as follows:
2014 2013
RMB’000 RMB’000
Qu Xiaohui 130 130
Wei Wei 130 130
Chen Naiwei 130 130
Tan Zhenhui 130 130
Timothy Alexander Steinert — 65
Zhang Xike 130 65
650 650
There were no other emoluments payable to the independent non-executive directors during the year
(2013: Nil).
ANNUAL REPORT 2014
373
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
8. DIRECTORS’, CHIEF EXECUTIVES’ AND SUPERVISORS’ REMUNERATION (continued)
(b) Executive directors, non-executive directors, chief executives and supervisors
Fees
Salaries,
bonuses,
allowances
and welfare
Performance-
related
bonuses
Share
Incentive
Scheme
Retirement
benefit scheme
contributions Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2014
Executive directors:
Yin Yimin — 457 450 — 9 916
Shi Lirong — 730 3,091 — 7 3,828
He Shiyou — 630 — — 5 635
— 1,817 3,541 — 21 5,379
Non-executive
directors:
Hou Weigui — 383 2,018 — — 2,401
Xie Weiliang — 100 — — — 100
Zhang Junchao — 100 — — — 100
Wang Zhanchen — 100 — — — 100
Dong Lianbo — 100 — — — 100
Zhang Jianheng — 100 — — — 100
— 883 2,018 — — 2,901
— 2,700 5,559 — — 8,280
Supervisors:
Xie Daxiong — 605 2,018 — 2 2,625
He Xuemei — 368 150 — 2 520
Zhou Huidong — 409 215 — 2 626
Xu Weiyan — 492 200 — 2 694
— 1,874 2,583 — 8 4,465
ZTE CORPORATION
374
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
8. DIRECTORS’, CHIEF EXECUTIVES’ AND SUPERVISORS’ REMUNERATION (continued)
(b) Executive directors, non-executive directors, chief executives and supervisors (continued)
Fees
Salaries,
bonuses,
allowances
and welfare
Performance-
related
bonuses
Share
Incentive
Scheme
Retirement
benefit
scheme
contributions Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2013
Executive directors:
Yin Yimin — 376 400 — 3 779
Shi Lirong — 570 100 — 3 673
He Shiyou — 556 100 — 3 659
— 1,502 600 — 9 2,111
Non-executive
directors:
Hou Weigui — 327 475 — — 802
Xie Weiliang — 100 — — — 100
Zhang Junchao — 100 — — — 100
Wang Zhanchen — 100 — — — 100
Dong Lianbo — 100 — — — 100
Zhang Jianheng — 100 — — — 100
827 475 — — 1,302
— 2,329 1,075 — 9 3,413
Supervisors:
Zhang Taifeng — 327 119 — — 446
Xie Daxiong — 535 356 — 2 893
He Xuemei — 264 10 — 2 276
Zhou Huidong — 325 11 — 2 338
Wang Yan — — — — — —
Xu Weiyan — 369 90 — 2 461
Chang Qing — — — — — —
— 1,820 586 — 8 2,414
There was no arrangement under which the directors, chief executives or supervisors waived or agreed
to waive any remuneration during the year.
ANNUAL REPORT 2014
375
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
9. FIVE HIGHEST PAID EMPLOYEES
The five highest paid employees during the year included no (2013: Nil) directors, chief executives or
supervisors, details of whose remuneration are set out in note 8 above. Details of the remuneration for
the year of the five (2013: five) highest paid employees who are neither a director nor chief executive or a
supervisor of the Company are as follows:
Group
2014 2013
RMB’000 RMB’000
Salaries, bonuses, allowances and welfare 5,141 11,935
Performance-related bonuses 20,670 8,928
Retirement benefit scheme contributions — —
25,811 20,863
The number of non-director, non-supervisor, non-chief executive and highest paid employees whose
remuneration fell within the following bands is as follows:
Number of employees
2014 2013
RMB2,000,001 to RMB3,000,000 — 2
RMB3,000,001 to RMB4,000,000 — 1
RMB4,000,001 to RMB5,000,000 4 —
RMB5,000,001 to RMB6,000,000 — 1
RMB6,000,001 to RMB7,000,000 — 1
RMB7,000,001 to RMB8,000,000 1 —
5 5
During the year, no director, chief executive or supervisor waived or agreed to waive any emolument, and no
emoluments were paid by the Group to the directors, chief executives, supervisors or any of the five highest
paid employees as an inducement to join or upon joining the Group or as compensation for loss of office.
10. INCOME TAX
2014 2013
RMB’000 RMB’000
Group:
Current — Hong Kong 105,473 50,586
Current — Mainland China 461,709 402,177
Current — Overseas 155,330 75,872
Deferred (note 38) 87,980 (134,428)
Total tax charge for the year 810,492 394,207
ZTE CORPORATION
376
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
10. INCOME TAX (continued)
Hong Kong profits tax has been provided at the rate of 16.5% (2013: 16.5%) on the estimated assessable
profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated
at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation,
interpretations and practices in respect thereof.
Under the new enterprise income tax law of the PRC effective from 1 January 2008, the tax rate applicable
to domestic-invested enterprises and foreign-invested enterprises has been standardised at 25%.
As a hi-tech enterprise in Shenzhen, the Company has obtained the certificate as a national-grade hi-tech
enterprise, with which the Company enjoyed an enterprise income tax rate of 15% for the years from 2014
to 2016.
Major subsidiaries operating in Mainland China that enjoyed preferential tax rates are as follows:
Xi’an Zhongxing New Software Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important Software Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Nanjing Zhongxingxin Software Company Limited, recognised as a software enterprise in December 2009,
has been entitled to enterprise income tax exemption in the first and second profitable years and a 50%
reduction in enterprise income tax from the third to the fifth years pursuant to Document Cai Shui (2008)
No. 1. The current year is its fifth profitable year and a 50% reduction in the enterprise income tax rate of
25% is applicable.
Shenzhen Zhongxing ICT Company Limited, was subject to an enterprise income tax rate of 15% from 2013
to 2015 as a national-grade hi-tech enterprise.
Shenzhen Zhongxing Software Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important Software Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Shenzhen Zhongxing Mobile Technology Company Limited was subject to an enterprise income tax rate
of 15% from 2014 to 2016 as a national-grade hi-tech enterprise registered in Shenzhen Nanshan Hi-tech
Industrial Park.
ZTE Microelectronics Technology Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important IC Design Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Shanghai Zhongxing Telecom Equipment Technology & Service Company Limited was subject to an enterprise
income tax rate of 15% from 2014 to 2016 as a national-grade hi-tech enterprise in the Shanghai Pudong
New Area.
ANNUAL REPORT 2014
377
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
10. INCOME TAX (continued)
Shanghai Zhongxing Software Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important Software Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Nanjing Zhongxing Software Company Limited was subject to an enterprise income tax rate of 15% from
2014 to 2016 as a national-grade hi-tech enterprise.
ZTEsoft Technology Company Limited, recognised as a national-grade hi-tech enterprise, was granted an
Important Software Enterprise under the National Planning Layout for the years from 2013 to 2014. The
enterprise income tax rate applied in 2014 was 10%.
Xi’an Zhongxing Software Company Limited was subject to an enterprise income tax rate of 15% from 2012
to 2014 as a national-grade hi-tech enterprise.
Xi’an Zhongxing Jing Cheng Communication Company Limited was subject to an enterprise income tax rate
of 15% in 2014 as a national-encouraged industry enterprise.
Nanjing ZTEsoft Software Technology Company Limited was subject to an enterprise income tax rate of 15%
from 2013 to 2015 as a national-grade hi-tech enterprise.
A reconciliation of the tax expense applicable to profit before tax at the statutory rate for the jurisdiction
in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective
tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax rate, are
as follows:
2014 2013
RMB’000 % RMB’000 %
Profit before tax 3,538,222 1,827,843
Tax at the statutory tax rate 884,556 (25.0) 456,961 25.0
Lower tax rate for specific provinces or
enacted by local authority (260,192) (7.4) (428,015) (23.4)
Adjustments in respect of current tax of
previous periods 66,171 1.9 (51,790) (2.8)
Profits and losses attributable to associates
and joint ventures 13,164 0.4 (8,708) (0.5)
Income not subject to tax (165,899) (4.7) (336,735) (18.4)
Expenses not deductible for tax 172,618 4.9 120,598 6.6
Tax losses utilised from previous years (57,029) (1.6) (59,620) (3.3)
Tax losses of subsidiaries not recognised 157,103 4.4 701,516 38.4
Tax charge at the Group’s effective rate 810,492 22.9 394,207 21.6
The share of tax attributable to associates amounting to RMB408,000 (2013: RMB18,732,000) is included in
“Share of profits and losses of associates” on the face of the consolidated statement of profit or loss and
other comprehensive income.
ZTE CORPORATION
378
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
11. PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT
The consolidated profit attributable to owners of the parent for the year ended 31 December 2014 includes a
profit of approximately RMB1,616,476,000 (2013: RMB340,024,000) which has been dealt with in the financial
statements of the Company (note 41(b)).
12. DIVIDEND
2014 2013
RMB’000 RMB’000
Proposed final - RMB0.2(2013: RMB0.03) per ordinary share 687,508 103,126
Details of proposed final dividend for the year are set out in Note 53, the profit distribution proposal is
subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.
13. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
The basic earnings per share amount is computed by dividing the profit for the year attributable to ordinary
equity holders of the parent by the weighted average number of ordinary shares of 3,437,541,000 (2013:
3,437,541,000) in issue during the year.
The calculation of the diluted earnings per share amount is based on the profit for the year 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 year, as used in the basic earnings per share calculation,
and the weighted average number of ordinary shares assumed to have been issued at no consideration on
the deemed exercise of all dilutive potential ordinary shares into ordinary shares.
The calculations of basic and diluted earnings per share are as follows:
2014 2013
RMB’000 RMB’000
Earnings
Profit for the year attributable to ordinary equity holders of the parent 2,633,571 1,357,657
Number of shares
2014 2013
’000 ’000
Shares
Weighted average number of ordinary shares in issue during the year as
used in the basic earnings per share calculation 3,437,541 3,437,541
Share options 2,543 1,767
Adjusted weighted average number of ordinary shares in issue 3,440,084 3,439,308
ANNUAL REPORT 2014
379
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
14. DISTRIBUTION OF PROFIT
In accordance with the Company Law of the PRC and the articles of association, the Company and certain of
its subsidiaries are required to allocate 10% of their profit after tax, as determined in accordance with PRC
accounting standards and regulations applicable to these companies, to their respective statutory surplus
reserves (the “SSR”) until this reserves reach 50% of the registered capital of these companies. Part of the
SSR may be capitalised as these companies’ share capital, provided that the remaining balances after the
capitalisation are not less than 25% of the registered capital of these companies.
15. PROPERTY, PLANT AND EQUIPMENT
Group
Land and
buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
At 31 December 2013 and
at 1 January 2014:
Cost 5,597,110 38,699 6,432,249 312,797 177,423 12,558,278
Accumulated depreciation and
impairment (739,006) (17,749) (3,938,410) (165,272) — (4,860,437)
Net carrying amount 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
At 1 January 2014, net of
accumulated depreciation and
impairment 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
Additions 148,717 34,365 875,457 21,708 284,966 1,365,213
Disposals (15,056) (18,217) (151,859) (7,164) (194,462) (386,758)
Depreciation provided during the
year (167,286) (12,007) (766,475) (29,923) — (975,691)
Transfers — — 5,449 — (5,449) —
Exchange realignments (11,397) (432) (21,341) (618) 385 (33,403)
Impairment — — (2,760) — — (2,760)
At 31 December 2014, net of
accumulated depreciation and
impairment 4,813,082 24,659 2,432,310 131,528 262,863 7,664,442
At 31 December 2014:
Cost 5,714,487 29,592 6,720,548 301,683 262,863 13,029,173
Accumulated depreciation and
impairment (901,405) (4,933) (4,288,238) (170,155) — (5,364,731)
Net carrying amount 4,813,082 24,659 2,432,310 131,528 262,863 7,664,442
ZTE CORPORATION
380
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Group
Land and
buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2013
At 31 December 2012 and
at 1 January 2013:
Cost 4,713,201 88,155 6,392,844 348,045 824,387 12,366,632
Accumulated depreciation and
impairment (610,901) (49,563) (3,528,152) (166,988) — (4,355,604)
Net carrying amount 4,102,300 38,592 2,864,692 181,057 824,387 8,011,028
At 1 January 2013, net of
accumulated depreciation and
impairment 4,102,300 38,592 2,864,692 181,057 824,387 8,011,028
Additions 52,390 8,059 443,924 14,770 529,369 1,048,512
Disposals (89,472) (11,270) (53,259) (11,289) (54,528) (219,818)
Transfer to investment property
(note 16) — — — — (130,384) (130,384)
Depreciation provided during the
year (140,814) (13,717) (777,315) (35,747) — (967,593)
Transfers 955,158 — 35,622 — (990,780) —
Exchange realignments (21,458) (714) (19,825) (1,266) (641) (43,904)
At 31 December 2013, net of
accumulated depreciation and
impairment 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
At 31 December 2013:
Cost 5,597,110 38,699 6,432,249 312,797 177,423 12,558,278
Accumulated depreciation and
impairment (739,006) (17,749) (3,938,410) (165,272) — (4,860,437)
Net carrying amount 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
ANNUAL REPORT 2014
381
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Company
Buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
At 31 December 2013 and
at 1 January 2014:
Cost 3,778,233 4,850 4,035,205 239,209 14,393 8,071,890
Accumulated depreciation and
impairment (628,487) (3,961) (2,502,411) (120,301) — (3,255,160)
Net carrying amount 3,149,746 889 1,532,794 118,908 14,393 4,816,730
At 1 January 2014, net of
accumulated depreciation and
impairment 3,149,746 889 1,532,794 118,908 14,393 4,816,730
Additions — 6,388 466,293 18,230 7,141 498,052
Disposals — (6,388) (54,283) (4,693) (9,625) (74,989)
Transfer to investment property
(note 16) — — (4,725) — — (4,725)
Transfers to subsidiaries — — (28,767) (804) — (29,571)
Depreciation provided during the
year (111,955) (889) (553,089) (24,389) — (690,322)
Transfers — — — — — —
At 31 December 2014, net of
accumulated depreciation and
impairment 3,037,791 — 1,358,223 107,252 11,909 4,515,175
At 31 December 2014:
Cost 3,778,233 — 4,118,779 234,461 11,909 8,143,382
Accumulated depreciation and
impairment (740,442) — (2,760,556) (127,209) — (3,628,207)
Net carrying amount 3,037,791 — 1,358,223 107,252 11,909 4,515,175
ZTE CORPORATION
382
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Company
Buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2013
At 31 December 2012 and at 1
January 2013:
Cost 3,733,107 4,850 3,907,081 259,588 54,714 7,959,340
Accumulated depreciation and
impairment (526,601) (2,991) (2,110,108) (123,887) — (2,763,587)
Net carrying amount 3,206,506 1,859 1,796,973 135,701 54,714 5,195,753
At 1 January 2013, net of
accumulated depreciation and
impairment 3,206,506 1,859 1,796,973 135,701 54,714 5,195,753
Additions 26,128 — 333,636 10,127 69,257 439,148
Disposals — — (20,683) (4,487) — (25,170)
Transfer to investment property
(note 16) — — — — (57,975) (57,975)
Transfers to subsidiaries — — (17,694) (174) — (17,868)
Depreciation provided during the
year (101,886) (970) (592,116) (22,259) — (717,231)
Transfers 18,998 — 32,678 — (51,603) 73
At 31 December 2013, net of
accumulated depreciation and
impairment 3,149,746 889 1,532,794 118,908 14,393 4,816,730
At 31 December 2013:
Cost 3,778,233 4,850 4,035,205 239,209 14,393 8,071,890
Accumulated depreciation and
impairment (628,487) (3,961) (2,502,411) (120,301) — (3,255,160)
Net carrying amount 3,149,746 889 1,532,794 118,908 14,393 4,816,730
As at 31 December 2014, none of the Group’s buildings (2013: RMB683,394,000) were pledged to secure
bank borrowings granted to the Group (note 33).
As at 31 December 2014, the Group was in the process of obtaining the real estate title certificates for
buildings located in Nanjing, Shenzhen, Shanghai, Xi’an and Hengyang, the PRC, with net carrying values
of approximately RMB658,489,000 (2013: RMB 670,505,000), RMB1,841,137,000 (2013: RMB1,869,263,000),
RMB199,201,000 (2013: RMB203,160,000), RMB861,494,000 (2013: RMB875,696,000) and RMB55,863,000
(2013: RMB63,141,000), respectively.
ANNUAL REPORT 2014
383
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
16. INVESTMENT PROPERTIES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Fair value
Carrying amount at 1 January 1,855,246 1,686,158 1,496,338 1,381,593
Addition 18,913 — 4,725 —
Transfer from owner-occupied
properties Property, plant and
equipment (note 15) — 130,384 — 57,975
Net gain from a fair value adjustment
(note 6) 130,306 38,704 96,856 56,770
Carrying amount at 31 December 2,004,465 1,855,246 1,597,919 1,496,338
Completed investment properties 2,004,465 1,855,246 1,597,919 1,496,338
Investment properties under construction — — — —
2,004,465 1,855,246 1,597,919 1,496,338
The Group’s investment properties are situated in Mainland China and are held under a medium term lease.
The Group’s investment properties consist of five commercial properties in Mainland China. The Group’s
investment properties were revalued on 31 December 2014 based on valuations performed by ??????
????????????, an independent professionally qualified valuer, at RMB2,004,465,000. Each year,
the Group’s property manager and the chief financial officer decide, after approval from the audit committee,
to appoint which external valuer to be responsible for the external valuations of the Group’s properties.
Selection criteria include market knowledge, reputation, independence and whether professional standards
are maintained. The Group’s property manager and the chief financial officer have discussions with the valuer
on the valuation assumptions and valuation results twice a year when the valuation is performed for interim
and annual financial reporting.
The investment properties are leased to a related party, Shenzhen Zhongxing Hetai Hotel Investment and
Management Company Limited (“Zhongxing Hetai”) and third parties under operating leases, further summary
details of which are included in note 48 to the financial statements.
ZTE CORPORATION
384
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
16. INVESTMENT PROPERTIES (continued)
Fair value hierarchy
The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:
Fair value measurement as at 31 December 2014 using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurement for:
Commercial properties — — 2,004,465 2,004,465
Fair value measurement as at 31 December 2013 using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurement for:
Commercial properties — — 1,855,246 1,855,246
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no
transfers into or out of Level 3.
Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:
Commercial
properties
RMB’000
Carrying amount at 1 January 2013 1,686,158
Additions 130,384
Net gain from a fair value adjustment recognised in other income and
gains in profit or loss 38,704
Carrying amount at 31 December 2013 1,855,246
Carrying amount at 1 January 2014 1,855,246
Additions 18,913
Net gain from a fair value adjustment recognised in other income and
gains in profit or loss 130,306
Carrying amount at 31 December 2014 2,004,465
ANNUAL REPORT 2014
385
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
16. INVESTMENT PROPERTIES (continued)
Below is a summary of the valuation techniques used and the key inputs to the valuation of investment
properties:
Valuation
techniques
Significant unobservable
inputs Range or weighted average
2014 2013
Commercial
properties
Discounted cash
flow method
Estimated rental value
(per sq. m. and per month)
RMB24 to
RMB477
RMB24 to
RMB477
Rent growth (p.a.) 1% to 5% 1% to 5%
Long-term vacancy rate 5% 5%
Discount rate 6% 6%
Valuations were based on either: (i) the direct comparison approach assuming sale of each of these
properties in its existing state with the benefit of vacant possession by making reference to comparable sales
transactions as available in the relevant market; or (ii) the residual method of valuation which is common in
valuing development sites by establishing the market value of the properties on an “as-if” completed basis
with appropriate deduction on construction costs, professional fees and interest payments to be incurred as
well as developer’s profits; or (iii) the capitalisation of net rental income derived from the existing tenancies
with allowance for the reversionary income potential of the properties, using discount rates that reflect current
market assessments of the uncertainty in the amount and timing of the cash flows. The resultant figures are
adjusted back to present values to reflect the existing state of the properties on the balance sheet date.
Under the discounted cash flow method, fair value is estimated using assumptions regarding the benefits
and liabilities of ownership over the asset’s life including an exit or terminal value. This method involves the
projection of a series of cash flows on a property interest. A market-derived discount rate is applied to the
projected cash flow in order to establish the present value of the income stream associated with the asset.
The exit yield is normally separately determined and differs from the discount rate.
The duration of the cash flows and the specific timing of inflows and outflows are determined by events
such as rent reviews, lease renewal and related reletting, redevelopment or refurbishment. The appropriate
duration is driven by market behaviour that is a characteristic of the class of property. The periodic cash flow
is estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives,
maintenance costs, agent and commission costs and other operating and management expenses. The series
of periodic net operating income, along with an estimate of the terminal value anticipated at the end of the
projection period, is then discounted.
A significant increase/(decrease) in the estimated rental value and the market rent growth rate per annum
in isolation would result in a significant increase/(decrease) in the fair value of the investment properties. A
significant increase/(decrease) in the long-term vacancy rate and the discount rate in isolation would result
in a significant decrease/(increase) in the fair value of the investment properties. Generally, a change in the
assumption made for the estimated rental value is accompanied by a directionally similar change in the rent
growth per annum and the discount rate and an opposite change in the long-term vacancy rate.
ZTE CORPORATION
386
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
17. PREPAID LAND LEASE PAYMENTS
Group
2014 2013
RMB’000 RMB’000
Carrying amount at 1 January 1,087,670 909,028
Additions during the year 45,558 209,671
Disposals (3,492) (9,891)
Recognised during the year (23,050) (21,138)
Carrying amount at 31 December 1,106,686 1,087,670
Current portion (24,478) (23,649)
Non-current portion 1,082,208 1,064,021
All the leasehold lands are held under medium term leases and are situated in Mainland China.
Company
2014 2013
RMB’000 RMB’000
Carrying amount at 1 January 377,959 385,464
Additions during the year 6,846 1,720
Recognised during the year (9,585) (9,225)
Carrying amount at 31 December 375,220 377,959
Current portion (9,038) (8,901)
Non-current portion 366,182 369,058
All the leasehold lands are held under medium term leases and are situated in Mainland China.
As at 31 December 2014, the Group was in the process of obtaining the land use right certificate of land
blocks located in Shenzhen, Sanya, Nanjing and Xi’an in the PRC, with a net carrying value of approximately
RMB565,604,000 (2013: RMB647,083,000).
As at 31 December 2014, a subsidiary of the Group pledged its land use right with a net carrying value of
RMB79,963,000 (2013: RMB23,650,000) as security for a bank loan (note 33).
ANNUAL REPORT 2014
387
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
18. INTANGIBLE ASSETS
Group
Technology
know-how
Computer
software Franchise
Deferred
development
costs Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
Cost at 1 January 2014, net of
accumulated amortisation and
impairment 4,837 137,612 6,636 2,932,148 3,081,233
Additions 1,650 149,658 76,439 1,391,830 1,619,577
Retirements and disposals — (32,561) — (99,680) (132,241)
Amortisation provided during the
year (1,101) (70,760) (14,401) (740,793) (827,055)
At 31 December 2014 5,386 183,949 68,674 3,483,505 3,741,514
At 31 December 2014:
Cost 8,255 484,992 409,022 5,864,735 6,767,004
Accumulated amortisation and
impairment (2,869) (301,043) (340,348) (2,381,230) (3,025,490)
Net carrying amount 5,386 183,949 68,674 3,483,505 3,741,514
31 December 2013
Cost at 1 January 2013, net of
accumulated amortisation and
impairment 5,858 126,043 46,109 2,446,934 2,624,944
Additions 1,906 148,863 109,678 1,168,715 1,429,162
Retirements and disposals (1,677) (77,024) — (137,687) (216,388)
Amortisation provided during the
year (1,250) (60,270) (149,151) (545,814) (756,485)
At 31 December 2013 4,837 137,612 6,636 2,932,148 3,081,233
At 31 December 2013:
Cost 6,605 464,168 332,583 4,572,586 5,375,942
Accumulated amortisation and
impairment (1,768) (326,556) (325,947) (1,640,438) (2,294,709)
Net carrying amount 4,837 137,612 6,636 2,932,148 3,081,233
ZTE CORPORATION
388
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
18. INTANGIBLE ASSETS (continued)
Company
Computer
software Franchise
Deferred
development
costs Total
RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
Cost at 1 January 2014, net of
accumulated amortisation and
impairment 73,988 — 665,650 739,638
Additions 49,568 76,580 425,073 551,221
Retirements and disposals (2,617) — — (2,617)
Amortisation provided during the year (43,840) (13,789) (244,098) (301,727)
At 31 December 2014 77,099 62,791 846,625 986,515
At 31 December 2014:
Cost 335,421 401,377 1,662,761 2,399,559
Accumulated amortisation and
impairment (258,322) (338,586) (816,136) (1,413,044)
Net carrying amount 77,099 62,791 846,625 986,515
31 December 2013
Cost at 1 January 2013, net of
accumulated amortisation and
impairment 99,704 44,696 595,205 739,605
Additions 31,769 104,009 218,680 354,458
Retirements and disposals (9,036) — — (9,036)
Amortisation provided during the year (48,449) (148,705) (148,235) (345,389)
At 31 December 2013 73,988 — 665,650 739,638
At 31 December 2013:
Cost 364,971 324,796 1,237,689 1,927,456
Accumulated amortisation and
impairment (290,983) (324,796) (572,039) (1,187,818)
Net carrying amount 73,988 — 665,650 739,638
19. LONG-TERM PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Deposits for purchase of property,
plant and equipment 223,158 217,270 135,203 199,744
Other long-term receivable 50,000 198,430 — —
273,158 415,700 135,203 199,744
ANNUAL REPORT 2014
389
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
20. INVESTMENTS IN SUBSIDIARIES
Company
2014 2013
RMB’000 RMB’000
Unlisted shares, at cost 6,570,188 6,093,653
Less: Impairment
#
(79,345) (92,315)
Loans to subsidiaries 5,234,574 4,151,237
11,725,417 10,152,575
#
An impairment was recognised for certain unlisted investments in subsidiaries, with a carrying amount of RMB995,866,000 (before
deducting the impairment loss) (2013: RMB1,017,031,000) because the respective subsidiaries were loss-making.
The Company’s balances of trade and bills receivables, other receivables, trade and bills payables and
other payables with the subsidiaries are disclosed in notes 26, 28, 31 and 32 to the financial statements,
respectively. The amounts due from/to subsidiaries are unsecured, interest-free and are repayable on demand.
The amounts advanced to the subsidiaries included in the investments in subsidiaries above are unsecured,
interest-free and have no fixed terms of repayment. In the opinion of the directors, these advances are
considered as part of the Company’s investments in its subsidiaries.
ZTE CORPORATION
390
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
20. INVESTMENTS IN SUBSIDIARIES (continued)
Particulars of the principal subsidiaries are as follows:
Name
Place of
incorporation/
registration and
business
Nominal value of
issued ordinary/
registered share
capital
Percentage of equity
attributable to the
Company
Direct Indirect Principal Activities
ZTE Kangxun Telecom Company
Limited
#
(i)
(?????????????)
The PRC/Mainland
China
RMB1,755,000,000 100 — Manufacture and sale of electronic
components
ZTEsoft Technology Company
Limited
#
(ii)
(????????????)
The PRC/Mainland
China
RMB300,000,000 80.1 — Sale and development of business
operation support systems
Zhongxing Software Company Limited
(“Zhongxing Software”)
#
(i)
(?????????????)
The PRC/Mainland
China
RMB51,080,000 100 — Development of telecommunications
software systems and provision
of related consultancy services
Xi’an Zhongxing New Software Company
Limited (“Xi’an Zhongxing New
Software”)
#
(i) (iii)
(?????????????)
The PRC/Mainland
China
RMB600,000,000 100 — Development of telecommunications
software systems and provision
of related consultancy services
ZTE (Hangzhou) Company Limited
#
(i)
(iii) (????(??)??????)
The PRC/Mainland
China
RMB100,000,000 100 — Telecommunications and related
equipment manufacturing
ZTE Mobile Tech Company Limited
#
(i)
(iii) (?????????????)
The PRC/Mainland
China
RMB79,166,000 90 — Development, manufacture and sale
of telecommunications related
products
ZTE (H.K.) Limited
(????(??)????)
Hong Kong HK$995,000,000 100 — Marketing and sale of
telecommunications system
equipment and provision of
management services
Shenzhen Zhongxing ICT Company
Limited
#
(i) (iii)
(????????????)
The PRC/Mainland
China
RMB60,000,000 90 — Design and sale of corporate
management hard/software
products
ZTE Technology & Service Company
Limited
#
(i)
(?????????????????)
The PRC/Mainland
China
RMB50,000,000 90 10 Development, manufacture and sale
of telecommunications related
products
Shanghai Zhongxing Telecom Equipment
Technology & Service Company
Limited
#
(i) (iii)
(??????????????)
The PRC/Mainland
China
RMB10,000,000 90 — Development, manufacture and
sale of computer software and
telecommunications system
equipment
ZTE Group Finance Company
Limited
#
(i) (iii)
(????????????)
The PRC/Mainland
China
RMB1,000,000,000 100 — Financing and consulting
(i) These subsidiaries are registered as limited companies under PRC law.
(ii) These subsidiaries are registered as foreign-invested enterprises under PRC law.
(iii) The statutory financial statements of these subsidiaries are not audited by Ernst & Young, Hong Kong or another member firm of
the Ernst & Young global network.
#
The English names of these subsidiaries are directly translated from their Chinese names.
ANNUAL REPORT 2014
391
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
20. INVESTMENTS IN SUBSIDIARIES (continued)
The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally
affected the results for the year or formed a substantial portion of the net assets of the Group. To give
details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.
21. INVESTMENTS IN JOINT VENTURES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Unlisted investments, at cost — — 55,721 55,005
Share of net assets 44,202 39,587 — —
Goodwill on acquisition 23,405 27,304 — —
67,607 66,891 55,721 55,005
The Group’s balances of trade receivables with joint ventures are disclosed in note 26 to the financial
statements. The amounts due from joint ventures are unsecured and interest-free.
Particulars of the Group’s joint ventures are as follows:
Percentage of
Name
Place of
incorporation/
registration and
business
Nominal value of
issued and paid-up
capital/registered
capital
Ownership
interest
Voting
power
Profit
Sharing Principal activities
Bestel Communications
Limited (“Bestel”)
Republic of Cyprus EUR446,915 50 50 50 Provision of
telecommunications
solutions and related
consultancy services
Puxing Mobile Tech
Company Limited#
(????????
????)
The PRC/Mainland
China
RMB128,500,000 34 50 50 Provision of
telecommunications
solutions and related
consultancy services
Jiangsu Zhongxing
Weitong Information
and Technology
Company Limited
(?????????
?????)
The PRC/Mainland
China
RMB18,000,000 50 50 50 Provision of
telecommunications
solutions and related
consultancy services
Pengzhong Xingsheng Republic of
Uzbekistan
USD3,160,000 50 50 50 Sale of telecommunications
related products
#
The English name of this joint venture is directly translated from its Chinese name.
The investments in Bestel and Pengzhong Xingsheng are held by a wholly-owned subsidiary of the Company.
They have no operating activities in 2014.
ZTE CORPORATION
392
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
21. INVESTMENTS IN JOINT VENTURES (continued)
The following table illustrates the aggregate financial information of the Group’s joint ventures:
2014 2013
RMB’000 RMB’000
Share of the joint ventures’ assets and liabilities:
Assets 386,169 125,818
Liabilities 341,967 86,231
Net assets 44,202 39,587
Share of the joint ventures’ results:
Revenue 349,533 123,465
Profit before tax 716 1,446
Tax — —
Profit after tax 716 1,446
22. INVESTMENTS IN ASSOCIATES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Unlisted shares, at cost — — 296,974 275,006
Share of net assets 393,709 411,146 — —
393,709 411,146 296,974 275,006
Provision for impairment — — (9,774) (9,774)
393,709 411,146 287,200 265,232
The Group’s balances of trade receivables and trade payables with associates are disclosed in notes 26 and
31 to the financial statements, respectively.
ANNUAL REPORT 2014
393
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
22. INVESTMENTS IN ASSOCIATES (continued)
Particulars of the principal associates are as follows:
Name
Place of
registration and
business
Nominal value
of issued and
paid-up capital/
registered capital
Percentage
of ownership
interest
attributable to
the Group Principal activities
ZTE Energy Co., Ltd.
#
*
(????????)
The PRC/Mainland
China
RMB1,290,000,000 23.26 Research, development and sale
of biological energy and new
energy
Sizhuo Zhongxing Hangzhou
Technology Co., Ltd.
#
*
(????(??)??????)
The PRC/Mainland
China
USD7,000,000 49.00 Research and sale of
communication device
Shenzhen Zhongxing Hetai Hotel
Investment and Management
Co., Ltd.
#
*
(?????????????
????)
The PRC/Mainland
China
RMB30,000,000 18.00 Hotel management service
Xingtian Communication
Technology (Tianjin) Co., Ltd.
#
* (??????(??)????)
The PRC/Mainland
China
RMB20,000,000 30.00 Research and sale of
communication devices
#
The English names of these associates are directly translated from their Chinese names.
* Not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.
The above table lists the associates of the Group which, in the opinion of the directors, principally affected
the results for the year or formed a substantial portion of the net assets of the Group. To give details of
other associates would, in the opinion of the directors, result in particulars of excessive length.
The year end date of the financial statements of the above associates is coterminous with that of the Group.
All the above associates have been accounted for using the equity method in the consolidated financial
statements.
The following table illustrates the aggregate financial information of the Group’s associates extracted from
their management accounts:
2014 2013
RMB’000 RMB’000
Assets 5,324,735 4,493,255
Liabilities 3,459,004 2,510,576
Revenues 1,540,577 1,235,129
Profit (234,475) 118,190
ZTE CORPORATION
394
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
23. AVAILABLE-FOR-SALE INVESTMENTS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Listed equity investment, at market value 319,470 364,479 — —
Unlisted equity investments, at cost 1,420,194 1,265,792 373,555 373,555
1,739,664 1,630,271 373,555 373,555
The above investments consist of investments in equity securities which have been designated as available-
for-sale financial assets and have no fixed maturity date or coupon rate.
As at 31 December 2014, the above listed equity investment with a carrying amount of RMB319,470,000
(2013: RMB364,479,000) was stated at market value. During the year, the gross loss in respect of the Group’s
available-for-sale investments recognised in other comprehensive income amounted to RMB28,570,000 (2013:
gain of RMB169,639,000). Certain unlisted equity investments with a carrying amount of RMB1,420,194,000
(2013: RMB1,265,792,000) were stated at cost less impairment because the range of reasonable fair value
estimates is so significant that the directors are of the opinion that their fair value cannot be measured
reliably. The Group does not intend to dispose of them in the near future.
24. INVENTORIES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Raw materials 2,889,256 3,472,053 106,936 934,485
Work in progress 1,268,544 897,061 773,570 324,204
Finished goods 4,031,086 2,563,775 1,887,617 794,848
Contract works in progress 11,403,412 5,501,463 9,585,800 5,002,981
19,592,298 12,434,352 12,353,923 7,056,518
ANNUAL REPORT 2014
395
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
25. TELECOMMUNICATIONS SYSTEM CONTRACTS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Amount due from customers for contract
works 11,033,468 12,137,144 7,799,190 7,029,635
Amount due to customers for contract
works (3,825,106) (3,682,564) (2,654,158) (2,496,029)
7,208,362 8,454,580 5,145,032 4,533,606
Contract costs incurred plus recognised
profits 64,203,987 41,905,232 44,324,433 26,109,712
Less: Recognised losses to date 340,199 105,908 204,058 18,066
Less: Progress billings 56,655,426 33,344,744 38,975,343 21,558,040
7,208,362 8,454,580 5,145,032 4,533,606
26. TRADE AND BILLS RECEIVABLES/LONG-TERM TRADE RECEIVABLES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Trade and bills receivables 31,902,826 29,094,859 41,929,625 40,070,718
Impairment (4,396,591) (3,834,169) (3,189,235) (2,822,430)
27,506,235 25,260,690 38,740,390 37,248,288
Current portion (27,239,734) (24,893,928) (38,494,719) (36,881,669)
Long-term portion 266,501 366,762 245,671 366,619
Progress payment for telecommunications system contracts is normally made in accordance with the agreed
payment schedule. The Group’s trading terms with its major customers are mainly on credit, except for new
customers, where payment in advance is normally required. The credit period is generally 90 days and is
extendable up to one year depending on customers’ creditworthiness except for certain overseas customers.
The credit terms for major customers are reviewed regularly by senior management. The Group seeks to
maintain strict control over its outstanding receivables and has a credit control department to minimise credit
risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned, there
is no significant concentration of credit risk.
ZTE CORPORATION
396
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
26. TRADE AND BILLS RECEIVABLES/LONG-TERM TRADE RECEIVABLES (continued)
An aged analysis of the trade and bills receivables as at the end of the reporting period, based on the
invoice date and net of provision, is as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Within 6 months 22,660,674 19,962,075 25,617,463 24,162,287
7 to 12 months 3,004,833 2,695,215 4,136,945 3,301,829
1 to 2 years 1,619,968 2,407,100 4,301,273 5,798,481
2 to 3 years 220,760 196,300 1,951,059 2,098,737
Over 3 years — — 2,733,650 1,886,954
27,506,235 25,260,690 38,740,390 37,248,288
Current portion of trade and bills
receivables (27,239,734) (24,893,928) (38,494,719) (36,881,669)
Long-term portion 266,501 366,762 245,671 366,619
The movements in the provision for impairment of trade and bills receivables are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 3,834,169 2,979,412 2,822,430 2,085,831
Impairment losses recognised (note 6) 758,331 1,167,414 414,912 840,290
Amount written off as uncollectible (113,100) (255,025) (48,107) (103,691)
Impairment losses reversed (note 6) (82,809) (57,632) — —
At 31 December 4,396,591 3,834,169 3,189,235 2,822,430
Included in the above provision for impairment of trade and bills receivables is a provision for individually
impaired trade receivables of RMB588,727,000 (2013: RMB RMB590,288,000) with a carrying amount before
provision of RMB588,727,000 (2013:RMB590,288,000). The individually impaired trade receivables relate to
customers that were in financial difficulties and are not expected to be recovered. The Group does not hold
any collateral or other credit enhancements over these balances. Trade receivables are non-interest-bearing.
An aged analysis of the trade and bills receivables that are not considered to be impaired is as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Neither past due nor impaired 2,799,769 3,933,387 4,056,186 5,301,870
Less than one year past due 22,720,064 19,590,411 22,623,878 17,444,113
25,519,833 23,523,798 26,680,064 22,745,983
ANNUAL REPORT 2014
397
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
26. TRADE AND BILLS RECEIVABLES/LONG-TERM TRADE RECEIVABLES (continued)
Receivables that were neither past due nor impaired relate to a large number of diversified customers for
whom there was no recent history of default.
Receivables that were past due but not impaired relate to a number of independent customers that have
a good track record with the Group. Based on past experience, the directors of the Company are of the
opinion that no provision for impairment is necessary in respect of these balances as there has not been a
significant change in credit quality and the balances are still considered fully recoverable.
The balances due from subsidiaries, the controlling shareholder, joint ventures, associates and other related
companies included in the above are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Subsidiaries — — 26,778,531 25,020,281
The controlling shareholder 1,096 1,031 — —
Joint ventures 418,061 81,048 417,976 80,971
Associates 6,963 10,553 2,770 —
Other related companies 157,968 94,862 142,027 89,928
584,088 187,494 27,341,304 25,191,180
The balances are unsecured, non-interest-bearing and on credit terms similar to those offered to the major
customers of the Group.
The Group has not pledged trade receivables, but has pledged bills receivables of RMB44,028,000 (2013:
RMB750,000,000 and RMB102,000,000) to secure the bank borrowings (note 33).
27. FACTORED TRADE RECEIVABLES/FACTORED LONG-TERM TRADE RECEIVABLES
As part of its normal business, the Group entered into some trade receivables factoring arrangements (the
“Arrangements”) and transferred certain trade receivables to banks. Some of the trade receivables are not
derecognised in their entirety and some of them were derecognised in their entirety but for which the Group
retains continuing involvement. More details are set in note 42.
ZTE CORPORATION
398
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
27. FACTORED TRADE RECEIVABLES/FACTORED LONG-TERM TRADE RECEIVABLES (continued)
In 2008, the Company entered into a contract of a telecommunications system project (the “Project”) with an
African telecommunications operator with a total contract amount of USD1,500,000,000. The related accounts
receivable are to be settled by promissory notes issued by the telecommunications operator with maturity
dates ranging from 3 to 13 years. In 2009, two government strategic banks in the PRC have agreed to factor
these promissory notes pursuant to the receivable purchase agreements (the “Agreements”), which stipulate
the factoring conditions based on the future performance of the African telecommunications operator. During
the financing period, the banks will charge interest to the Company and the telecommunications operator. If
there is any delay in the payment by the telecommunications operator, the Company is not responsible for
the related penalties. If there is default in the payment, the Company would bear the first 20% of default
losses on the factored amount unless the Company breaches the Agreements or the factoring conditions
are not satisfied. As at 31 December 2014, under the above arrangements, accounts receivable due from
the customer amounted to RMB6,559,107,000 (2013: RMB6,837,218,000) among which RMB5,247,286,000
(2013: RMB5,469,775,000) has been derecognised from the consolidated statement of financial position as
these receivables have fulfilled the derecognition conditions as stipulated in HKAS 39. An associated liability
of RMB1,311,821,000 (2013: RMB1,367,443,000) has been recognised in the consolidated statement of
financial position to the extent of the Company’s continuing involvement.
28. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Prepayments 682,778 751,405 66,692 29,328
Deposits and other receivables 6,008,637 3,798,163 3,931,324 2,170,516
Due from subsidiaries — — 5,519,076 10,273,927
Dividends receivable — 62,518 2,487,128 1,970,264
Interest receivable 28,068 15,654 — —
Advances and loans 2,913 246,281 — —
Other receivables* 160,472 — — —
6,882,868 4,874,021 12,004,220 14,444,035
* On 15 January 2013, ZTE (HK) Limited (“ZTE HK”), a wholly-owned subsidiary of ZTE subscribed a convertible bond of
HKD201,500,000, which is matured on 15, January 2015. The other receivable represents amortized cost of the convertible bond.
None of the above assets is either past due or impaired. The financial assets included in the above balances
relate to receivables for which there was no recent history of default.
ANNUAL REPORT 2014
399
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
28. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES (continued)
The balances due from subsidiaries, associates and other related companies included in the above are as
follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Subsidiaries — — 9,752,035 12,992,908
Associates 13,832 6,208 5,842 —
Other related companies 3,373 3,199 12,993 —
17,205 9,407 9,770,870 12,992,908
The amounts due from subsidiaries and other related companies are unsecured, non-interest-bearing and
are repayable on demand.
29. DERIVATIVE FINANCIAL INSTRUMENTS
Group
2014 2013
Assets Liabilities Assets Liabilities
RMB’000 RMB’000 RMB’000 RMB’000
Forward currency contracts 186,858 (64,904) 173,263 (61,659)
Conversion right on convertible notes 54,115 — 44,191 —
Interest rate swaps — (6,581) — (10,406)
240,973 (71,485) 217,454 (72,065)
Portion classified as non-current:
Interest rate swaps — (881) — (4,286)
Current portion 240,973 (70,604) 217,454 (67,779)
Company
2014 2013
Assets Liabilities Assets Liabilities
RMB’000 RMB’000 RMB’000 RMB’000
Forward currency contracts 53,390 (17,587) 69,300 (12,575)
Forward currency contracts
The carrying amounts of forward currency contracts were the same as their fair values. The above transactions
involving derivative financial instruments were with various well-known banks in Mainland China and Hong
Kong with A- or above credit ratings.
The Group has entered into these contracts to manage its exchange rate exposure. These forward currency
contracts are not designated for hedge purposes and are measured at fair value through profit or loss.
Gains on the fair value amounting to RMB17,976,000 (2013: RMB174,829,000) were recognised in profit or
loss during the year.
ZTE CORPORATION
400
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
29. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Conversion right on convertible notes
On 15 January 2013, ZTE HK subscribed for 112,000,000 ordinary shares and convertible bonds of
HKD201,500,000. The conversion right on convertible notes represents the fair value of the convertible right.
Interest rate swaps — cash flow hedges
Interest rate swaps are designated as hedging instruments in respect of expected interest payments for
floating rate debts incurred by the Group.
The terms of the interest rate swaps have been negotiated to match the terms of the debts. The cash
flow hedges relating to expected interest payments were assessed to be highly effective and a net gain of
RMB3,965,000 was included in the hedging reserve as follows:
Group
2014 2013
RMB’000 RMB’000
Total fair value gain 3,965 5,784
Net gain on cash flow hedges 3,965 5,784
30. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Cash and bank balances 21,860,346 24,299,932 13,770,463 15,560,227
Less:
Pledged deposits — non-current (3,744,472) (3,396,897) (3,744,472) (3,396,897)
Pledged deposits — current (718,306) (708,641) (310,122) (406,892)
Time deposits with original maturity of over
three months (167,428) (76,120) — —
Cash and cash equivalents 17,230,140 20,118,274 9,715,869 11,756,438
Time deposits with original maturity of less
than three months (3,701,678) (2,291,241) — —
Unrestricted bank balances and cash 13,528,462 17,827,033 9,715,869 11,756,438
At the end of the reporting period, the cash and bank balances of the Group denominated in Renminbi
amounted to approximately RMB9,915,647,000 (2013: RMB9,707,024,000). The Renminbi is not freely
convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and
Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to
exchange Renminbi for other currencies through banks authorised to conduct foreign exchange business.
ANNUAL REPORT 2014
401
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
30. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS (continued)
Pledged deposits included the deposits as at 31 December 2014 of RMB377,959,000 (2013: RMB288,821,000)
with the People’s Bank of China, at a statutory reserve of 15% (2013: 15%) for RMB on customer deposits
held by ZTE Group Finance Company Limited.
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits
are made for varying periods of between seven days and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term time deposit rates. The bank
balances and pledged deposits are deposited with creditworthy banks with no recent history of default.
31. TRADE AND BILLS PAYABLES
An aged analysis of the trade and bills payables as at the end of the reporting period, based on the invoice
date, is as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Within 6 months 29,175,980 24,351,477 43,182,819 44,153,242
7 to 12 months 298,251 144,334 175,837 96,562
1 to 2 years 14,258 181,730 169,714 191,386
2 to 3 years 114,309 258,957 71,765 5,217
Over 3 years 23,290 54,057 4,358 5,561
29,626,088 24,990,555 43,604,493 44,451,968
The balances due to subsidiaries, the controlling shareholder, joint ventures, associates and other related
companies included in the above are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Subsidiaries — — 35,431,654 38,271,764
The controlling shareholder 53,879 56,507 — —
Joint ventures 20,669 1,433 — —
Associates 2,171 56 — —
Other related companies 179,761 216,768 1,741 1,515
256,480 274,764 35,433,395 38,273,279
The balances are unsecured, non-interest-bearing and are repayable on demand.
The trade payables are non-interest-bearing and are normally settled on 180-day terms.
ZTE CORPORATION
402
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
32. OTHER PAYABLES AND ACCRUALS
Group Company
Note 2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Receipts in advance 3,305,520 2,776,366 3,411,519 2,896,512
Other payables 7,885,871 8,890,302 4,477,869 7,437,198
Factoring costs payable 71,233 84,084 71,233 84,084
Advance receipts for staff
housing scheme 66,168 66,168 66,168 66,168
Accruals 3,687,565 3,002,003 1,504,679 1,193,723
Provision for warranties 37 580,476 490,417 357,109 317,404
Due to the controlling
shareholder 888 1,308 308 308
Due to subsidiaries — — 14,513,331 9,695,474
Due to other related companies 606 359 553 322
15,598,327 15,311,007 24,402,769 21,691,193
The other payables are non-interest-bearing and have an average term of three months. The balances due
to the controlling shareholder, subsidiaries and other related companies are unsecured, non-interest-bearing
and are repayable on demand.
ANNUAL REPORT 2014
403
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
33. INTEREST-BEARING BANK BORROWINGS
Group
2014 2013
Effective interest
rate (%) Maturity RMB’000
Effective interest
rate (%) Maturity RMB’000
Current
Bank loans — unsecured 1.4436–7.2000 2015 4,007,770 1.8707–14.25 2014 10,392,010
Bank loans — unsecured 3MLIBOR+2.90 2015 930,075 Libor/Hibor+1.9 2014 508,644
Bank loans — unsecured 6MLIBOR+1.80-3.45 2015 3,664,496 Libor+1–4 2014 818,169
Bank loans — guaranteed* — — — 2 2014 2,132,563
Bank loans — guaranteed — — — 3 2014 609,168
Bank loans — secured 3 2015 544,028 3-5 2014 120,291
Bank loans — unsecured COF+2.1 2015 155,012 Sibor+2.2 2014 152,422
Bank loans — unsecured Libor+1.5–1.8 2015 1,219,166 3MLibor+2 2014 609,690
Bank loans — unsecured LRP+5 2015 500,000 — — —
Bank loans — unsecured — 2015 2,000 — — —
Bank loans — secured :ibor+4 2015 18,602 — — —
11,041,149 15,342,957
Non-current
Bank loans — secured 6.77 2021 44,000 6.65 2015 269,500
Bank loans — secured — — — 6.65 2015 500,500
Bank loans — guaranteed* Libor+1.95 2016 2,779,037 — — —
Bank loans — guaranteed* Libor+2.25 2018 2,736,550 3 2016 2,725,977
Bank loans — guaranteed 5 2016 1,500,000 — — —
Bank loans — unsecured 6MLIBOR+3.6 2017 1,240,100 — 2015 2,000
Bank loans — unsecured 5.5350–6.1500 2016 1,740,000 Libor+Margin1.5 2016 107,696
Bank loans — unsecured — — — 5.53-5.85 2016 1,780,000
10,039,687 5,385,673
21,080,836 20,728,630
* Excludes the effects of related interest rate swaps as further detailed in note 29 to the financial statements.
Company
2014 2013
Effective interest
rate (%) Maturity RMB’000
Effective interest
rate (%) Maturity RMB’000
Current
Bank loans — unsecured 2.05–6.30 2015 3,324,010 2.34–6.6 2014 8,375,865
Bank loans — unsecured 3MLIBOR+2.90 2015 930,075 — — —
Bank loans — unsecured 6MLIBOR+1.80–3.45 2015 3,664,496 — — —
Bank loans — unsecured LRP+5 2015 500,000 — — —
8,418,581 8,375,865
Non-current
Bank loans — unsecured 5.535–6.1500 2016 1,740,000 4.2–6.15 2016 1,780,000
Bank loans — unsecured 6MLIBOR+3.6 2017 1,240,100 — — —
2,980,100 1,780,000
11,398,681 10,155,865
ZTE CORPORATION
404
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
33. INTEREST-BEARING BANK BORROWINGS (continued)
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Analysed into:
Bank loans repayable:
Within one year or on demand 11,041,149 15,342,957 8,418,581 8,375,865
In the second year 6,019,037 772,000 1,740,000 —
In the third to fifth years, inclusive 3,976,650 4,613,673 1,240,100 1,780,000
Over five years 44,000 — — —
21,080,836 20,728,630 11,398,681 10,155,865
Notes:
Except for bank loans of approximately RMB7,962,393,000 (2013: RMB7,369,950,000) which are denominated in Renminbi, all the Group’s
and the Company’s borrowings are in United States dollars and other foreign currencies.
Except for bank loans with a carrying amount of RMB7,837,798,000 (2013: RMB5,462,393,000), all borrowings of the Group bear interest
at floating interest rates.
The Group’s secured bank loans and banking facilities are secured by:
Group
2014 2013
RMB’000 RMB’000
Real estate properties — 683,394
Land use rights 79,963 23,650
Pledged bank deposits 4,462,778 4,105,538
Trade receivables — 750,000
Bills receivable* 544,028 102,000
5,086,769 5,664,582
* Bills receivables of RMB500,000,000 were issued by the Company.
Certain of the Group’s bank loans are guaranteed by:
Group
2014 2013
RMB’000 RMB’000
Entities within the Group 7,015,587 5,467,708
ANNUAL REPORT 2014
405
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
33. INTEREST-BEARING BANK BORROWINGS (continued)
The carrying amounts of the Group’s and the Company’s borrowings approximate to their fair values which
have been calculated by discounting the expected future cash flows at the prevailing interest rates.
ZTE (H.K.) Limited (“ZTE HK”), a subsidiary of the Company, entered into a syndicated loan agreement (“Loan
Agreement”) with an aggregate amount of USD900 million with 10 international banks, including Bank of
China (Hong Kong) Limited, in 2011. The loans were guaranteed by the Company. Balances and outstanding
terms of the loans as at the end of the current year are set out as follows:
Drawdown
date Due date Currency Interest rate 31 December 2014 31 December 2013
(%)
Foreign
currency
RMB
equivalent
Foreign
currency
RMB
equivalent
Bank of China 2011.8.15 2016.8.15 USD Approx. 3% 448,196 2,779,037 447,109 2,725,977
Bank of China 2011.7.20 2014.7.20 USD Approx. 2% — — 349,778 2,132,563
Bank of China 2014.8.13 2018.7.18 USD Approx. 2% 441,343 2,736,550 99,914 609,168
34. BONDS PAYABLE
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance
RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014 6,119,590 263,595 (252,000) 6,131,185
31 December 2013 6,107,993 263,597 (252,000) 6,119,590
On 13 June 2012, the Company issued 3-year unsecured corporate bonds for a total amount of RMB6
billion. The corporate bonds carry a coupon interest rate of 4.2% with bond interest payable annually on
13 June. As at the issue date, the net book value of the liabilities amounted to RMB5,965,212,000 after the
deduction of issue expenses of RMB 34,788,000.
2014 2013
RMB’000 RMB’000
Carrying amount at 1 January 6,119,590 6,107,993
Increase during the year — —
Interest expense (note 7) 263,595 263,597
Interest paid (252,000) (252,000)
Carrying amount at 31 December 6,131,185 6,119,590
ZTE CORPORATION
406
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
35. PROVISION FOR RETIREMENT BENEFITS
The Group and the Company provide certain of the eligible staff with post-retirement benefits pursuant to a
retirement benefit plan. The plan is funded solely by the Group on an actual payment basis.
The latest actuarial valuation of the plan was conducted as at 31 December 2014 in accordance with HKAS
19 Employee Benefits. The present values of defined benefit obligations and current service costs are
determined actuarially based on the projected unit credit method.
The principal actuarial assumptions used as at the end of the reporting period are as follows:
2014 2013
Discount rate (%) 4.00% 4.75%
Expected rate of salary increases (%) 5.50% 5.50%
A quantitative sensitivity analysis for significant assumptions as at 31 December 2014 is shown below:
Increase in
rate %
Increase/
(decrease) in
net defined
benefit
obligation
Decrease in
rate %
Increase/
(decrease) in
net defined
benefit
obligation
Discount rate 0.25% (4,019) 0.25% 4,197
Future salary increase 1.00% 13,854 1.00% (12,700)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on
net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end
of the reporting period.
The total expenses recognised in profit or loss in respect of the plan is follows:
2014 2013
RMB’000 RMB’000
Interest cost 4,466 4,178
Net benefit expenses 4,466 4,178
Recognised in administrative expenses 4,466 4,178
ANNUAL REPORT 2014
407
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
35. PROVISION FOR RETIREMENT BENEFITS (continued)
The movements in the present value of the defined benefit obligations are as follows:
2014 2013
RMB’000 RMB’000
At 1 January 95,806 99,932
Interest cost 4,466 4,178
Pension payments made (1,421) (1,264)
Benefit expenses recognised in other comprehensive income 16,599 (7,040)
At 31 December 115,450 95,806
The movements in the defined benefit obligations and the fair value of plan assets are as follows:
2014
1 January
2014 Net interest
Sub-total
included in
profit or loss Benefit paid
Actuarial
changes
arising from
changes
in financial
assumptions
Experience
adjustments
Sub-total
included
in other
comprehensive
income
31 December
2014
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Defined benefit obligations 95,806 4,466 4,466 (1,421) 11,555 5,044 16,599 115,450
Benefit liability 95,806 4,466 4,466 (1,421) 11,555 5,044 16,599 115,450
2013
1 January
2013 Net interest
Sub-total
included in
profit or loss Benefit paid
Actuarial
changes
arising from
changes
in financial
assumptions
Experience
adjustments
Sub-total
included
in other
comprehensive
income
31 December
2013
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Defined benefit obligations 99,932 4,178 4,178 (1,264) (7,422) 382 (7,040) 95,806
Benefit liability 99,932 4,178 4,178 (1,264) (7,422) 382 (7,040) 95,806
36. OTHER NON-CURRENT LIABILITIES
Group
2014 2013
RMB’000 RMB’000
Factoring costs payable 204,435 257,540
Deferred income for staff housing scheme 1,140,351 1,164,994
Other non-current liabilities 631,149 —
1,975,935 1,422,534
ZTE CORPORATION
408
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
37. PROVISION FOR WARRANTIES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 490,417 246,692 317,404 127,805
Additional provision 718,075 808,942 620,088 661,866
Amounts utilised during the year (628,016) (565,217) (580,383) (472,267)
At 31 December 580,476 490,417 357,109 317,404
In respect of handsets, the Group and the Company generally provide a one-year warranty to their customers
under which faulty products will be repaired or replaced. The amount of provision for warranties is estimated
based on sales volume and past experience of the level of repairs and returns. The estimation basis is
reviewed on an ongoing basis and revised where appropriate.
38. DEFERRED TAX
The movements in deferred tax assets and liabilities during the year are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Deferred tax assets and liabilities:
At 1 January 1,213,133 1,078,705 623,609 443,107
Deferred tax credited/(charged) to profit or
loss during the year (note 10) (87,980) 134,428 (107,330) 180,502
Deferred tax credited to other
comprehensive income — — — —
At 31 December 1,125,153 1,213,133 516,279 623,609
ANNUAL REPORT 2014
409
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
38. DEFERRED TAX (continued)
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Deferred tax assets:
Unrealised profits arising on consolidation 126,540 117,100 — —
Provision against inventories 123,081 131,522 44,783 49,442
Foreseeable contract losses 30,609 18,232 30,609 2,710
Amortisation of intangible assets 130,897 87,447 41,558 24,969
Provision for warranties 98,325 66,064 58,349 52,395
Provision for retirement benefits 17,348 14,370 17,318 14,370
Undeducted payables 153,361 166,264 — —
Equity-settled share options 31,192 4,456 31,192 4,456
Tax losses 423,283 591,006 300,963 457,095
Overseas tax 149,857 156,572 149,857 156,572
1,284,493 1,353,033 674,629 762,009
Deferred tax liabilities:
Revaluation gain on owner-occupied
properties (159,340) (139,900) (158,350) (138,400)
1,125,153 1,213,133 516,279 623,609
Deferred tax assets have not been recognised in respect of the following item:
2014 2013
RMB’000 RMB’000
Tax losses 7,723,300 6,937,787
The tax losses that have not been recognised as deferred tax assets will expire as follows:
2014 2013
RMB’000 RMB’000
2014 — 20,328
2015 — —
2016 1,265,245 1,265,245
After 2016 6,458,055 5,652,214
7,723,300 6,937,787
Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries
that have been loss-making for some time and it is not considered probable that taxable profits will be
available against which the tax losses can be utilised.
ZTE CORPORATION
410
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
39. ISSUED CAPITAL
2014 2013
RMB’000 RMB’000
Restricted shares
Senior management shares 6,771 7,226
6,771 7,226
Unrestricted shares
RMB ordinary shares 2,801,185 2,800,730
Overseas listed foreign shares 629,585 629,585
3,430,770 3,430,315
3,437,541 3,437,541
40. SHARE OPTION INCENTIVE SCHEME
On 22 July 2013, the “ZTE Corporation Share Option Incentive Scheme (Draft)” and its summary was
considered and approved at the Sixth Meeting of the Sixth Session of the Board of Directors and the
Fourth Meeting of the Sixth Supervisory Committee of the Company. On 20 August 2013, the Company
was notified that the opinion of the state-owned shareholders of the Company on the implementation of
the Share Option Incentive Scheme had been approved and filed by the State-owned Assets Supervision
and Administration Commission of the State Council. On 23 August 2013, the Company was notified that
the resolution of the Share Option Incentive Scheme at the General Meeting convened in accordance with
the Administrative Measures on Share Incentives of Listed Company (Trial) had been recognised with no
objection by the China Securities Regulatory Commission. On 26 August 2013, the resolution on the “ZTE
Corporation Share Option Incentive Scheme (Revised Draft)” (hereinafter referred to as the “Share Incentive
Scheme”) and its summary was considered and approved at the Eighth Meeting of the Sixth Session of the
Board of Directors. The Share Incentive Scheme was considered and approved at the Third Extraordinary
General Meeting of 2013 convened on 15 October 2013. On 31 October 2013, relevant resolutions were
considered and passed at the Eleventh Meeting of the Sixth Session of the Board of Directors and the
Ninth Meeting of the Sixth Session of the Supervisory Committee of the Company, pursuant to which the
date of grant for the Share Option Incentive Scheme of the Company has been set for 31 October 2013.
Under the Share Incentive Scheme, 102.989 million share options were granted to 1,528 Participants. Each
share option shall entitle its holder to purchase one ZTE ordinary A share on any exercise date during the
effective period of the scheme at the exercise price, subject to the conditions of exercise. The source of
two shares under the scheme shall be shares of the Company issued to the participants by the Company
by way of placing. The scheme participants of the Share Incentive Scheme were the directors and senior
management of the Company and key staff of the Company, excluding independent non-executive directors
and supervisors, principal shareholders holding 5% or more of the company’s shares or the actual controller
of the Company and their spouse or blood relative.
ANNUAL REPORT 2014
411
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
40. SHARE OPTION INCENTIVE SCHEME (continued)
The share options shall be valid for a period of five years from the date of grant. The first exercise period
shall commence from the first trading day after expiry of the 24-month period from the date of grant. The
share options shall be exercisable separately in the subsequent three exercise periods, whose percentages
of options exercisable are 30%, 30% and 40% respectively, subject to the Company’s performance as the
conditions of exercise. The exercise price shall be RMB13.69 per share. The share options not exercisable due
to failure to fulfill the Company’s performance as the conditions of exercise 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 the shareholders of the listed company (The growth rate of
net profit).
The calculation of the net profit used by the above indicators is based on the net profit before or after
extraordinary items whichever is lower. Net assets refer to the net assets attributable to the shareholders
of the listed company.
The detailed conditions for the exercise of the share options:
(1) Within the valid period of the Share Incentive Scheme, the net profit attributable to the shareholders of
the listed company and the net profit after extraordinary items attributable to the shareholders of the
listed company shall not be lower than the average of the three most recent accounting years before
the date of grant and shall not be a negative number;
(2) The conditions for the exercise of the granted share options:
Exercise
period
Percentage
of options
exercisable Duration Conditions for exercise
First exercise
period
30% From 1 November
2015 to
31 October 2016
ROE for the year 2014 not less than 6%;
growth rate of net profit for the year
2014 not less than 20% compared to
2013
Second
exercise
period
30% From 1 November
2016 to
31 October 2017
ROE for the year 2015 not less than 8%;
growth rate of net profit for the year
2015 not less than 20% compared to
2014
Third exercise
period
40% From 1 November
2017 to
31 October 2018
ROE for the year 2016 not less than 10%;
growth rate of net profit for the year
2016 not less than 44% compared to
2014
ZTE CORPORATION
412
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
40. SHARE OPTION INCENTIVE SCHEME (continued)
The fair value of the share options granted in 2014 amounted to RMB524,023,000, among which the share
option expenses recognised by the Company in 2014 amounted to RMB178,241,000.
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
Proposed dividend (RMB) 0.18 0.18 0.18
Volatility (%) 40.25 39.69 43.18
Risk-free interest rate (%) 3.34 3.40 3.46
Demission rate
Directors and senior
management 5% 5% 5%
Key staff of the Company 5% 5% 5%
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.
41. RESERVES
(a) Group
The amounts of the Group’s reserves and the movements therein for the current and prior years are
presented in the consolidated statement of changes in equity on pages 323 and 324 of the financial
statements.
The capital reserve of the Group includes the non-distributable reserves of the Company and its
subsidiaries created in accordance with accounting and financial regulations in the PRC.
In accordance with the PRC Company Law and the Company’s articles of association, the Company and
its subsidiaries registered in the PRC are required to appropriate a certain percentage of the statutory
profit after tax to the statutory reserve fund. Subject to certain restrictions set out in the relevant PRC
regulations and in the subsidiaries’ articles of association, the statutory reserve fund may be used
either to offset losses, or for capitalisation issue by way of paid-up capital. The fund cannot be used
for purposes other than those for which they are created and are not distributable as cash dividends.
The Share Incentive Scheme reserve was created for the Share Incentive Scheme launched by
the Company that provides incentives and rewards to certain employees of the Company and its
subsidiaries.
ANNUAL REPORT 2014
413
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
41. RESERVES (continued)
(b) Company
Notes
Issued
capital
Capital
reserve
Statutory
reserves
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2012 and 1 January 2013 3,440,078 9,277,002 925,674 (17,138) (178,203) — 13,447,413
Final 2012 dividend declared — — — — — —
Total comprehensive income for the year 11 — 7,040 — (943) 340,024 — 346,121
Share Incentive Scheme: 40 —
— Equity-settled share option expense (2,537) 22,856 — — — — 20,319
— Unlocking the lock-up shares — — — — — — —
Proposed final 2013 dividend — — — — (103,126) 103,126 —
Transfer from retained profits — — 25,765 — (25,765) — —
At 31 December 2013 and 1 January 2014 3,437,541 9,306,898 951,439 (18,081) 32,930 103,126 13,813,853
Final 2013 dividend declared — — — — — (103,126) (103,126)
Total comprehensive income for the year 11 — (16,599) — 595 1,616,476 — 1,600,472
Share Incentive Scheme: 40
— Equity-settled share option expense — 178,241 — — — — 178,241
— Unlocking the lock-up shares — — — — — — —
Disposal of fractional share — 812 — — — — 812
Proposed final 2014 dividend — — — — (687,508) 687,508 —
Transfer from retained profits — — 155,817 — (155,817) — —
At 31 December 2014 3,437,541 9,469,352 1,107,256 (17,486) 806,081 687,508 15,490,252
42. TRANSFERS OF FINANCIAL ASSETS
Bills receivable
Financial assets that are derecognised in their entirety
Bills discount
At 31 December 2014, certain bills receivable were discounted by banks in the PRC (the “Discounted Bills”)
with a carrying amount of RMB294,779,000. In the opinion of the directors, the Group has transferred
substantially all risks and rewards relating to the Discounted Bills. Accordingly, it has derecognised the
full carrying amounts of the Discounted Bills. The maximum exposure to loss from the Group’s continuing
involvement in the Discounted Bills and the undiscounted cash flows to repurchase these Discounted Bills
is equal to their carrying amounts. In the opinion of the directors, the fair values of the Group’s continuing
involvement in the Discounted Bills are not significant.
ZTE CORPORATION
414
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
42. TRANSFERS OF FINANCIAL ASSETS (continued)
Bills receivable (continued)
Financial assets that are derecognised in their entirety (continued)
Bills discount (continued)
During the year ended 31 December 2014, the Group has not recognised any gain or loss on the date
of transfer of the Discounted Bills (2013: Nil). No gains or losses were recognised from the continuing
involvement, both during the year or cumulatively.
Trade receivables factoring
As part of its normal business, the Group entered into some trade receivables factoring arrangements (the
“Arrangements”) and transferred certain trade receivables to banks. Some of the trade receivables are not
derecognised in their entirety and some of them were derecognised in their entirety but for which the Group
retains continuing involvement.
Transferred trade receivables that are not derecognised in their entirety
According to some factoring arrangements, the Group is exposed to default risks of the trade debtors after
the transfer and accordingly, it continued to recognise the full carrying amounts of the trade receivables. The
original carrying value of trade receivables transferred under the Arrangements that have not been settled
as at 31 December 2014 amounted to RMB2,915,814,000.
Transferred financial assets that are derecognised in their entirety but for which the Company retains
continuing involvement
According to some factoring arrangements, the Group may be required to reimburse the banks for loss of
a certain proportion of the principal ranging from 0% to 25% if any trade debtors default and to reimburse
interest if any trade debtors have late payment up to 180 days. The Group is not exposed to significant
default risks of the trade debtors after the transfer. Subsequent to the transfer, the Group does not retain any
rights on the use of the trade receivables, including sale, transfer or pledge of the trade receivables to any
other third parties. The original carrying value of trade receivables transferred under the Arrangements that
have not been settled as at 31 December 2014 amounted to RMB9,547,043,000. The continuing involvement
and associated liabilities are summarised as follows:
RMB’000
Carrying amount of assets that continue to be recognised 1,946,869
Carrying amount of liabilities that continue to be recognised 1,961,596
ANNUAL REPORT 2014
415
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES
(a) At the end of the reporting period, contingent liabilities not provided for in the financial statements
were as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Guarantees given to banks in
connection with borrowings to
customers 63,701 46,311 7,609,189 6,143,211
Guarantees given to banks in
respect of performance bonds 7,458,959 7,022,304 7,458,959 7,022,304
7,522,660 7,068,615 15,068,148 13,165,515
(b) In August 2006, a customer instituted arbitration against the Company and demanded indemnity in the
amount of PKR762.98 million (equivalent to approximately RMB47,229,000). Meanwhile, the Company
instituted a counter-claim against the customer’s breach of contract demanding for damages and
payment of outstanding contract amounts. In February 2008, the arbitration authorities issued their
award ruling that an indemnity of PKR328.04 million (equivalent to approximately RMB20,306,000) be
paid by the Company. As at the balance sheet date, the Company had made provisions in respect of
the amount. In accordance with local laws, the Company had filed with the local court an objection
against the arbitration award and a claim against the customer’s breach of contract. Based on the
legal opinion furnished by the legal counsel engaged by the Company, the case will likely stand a
prolonged period of litigation. As at the date of approval of the financial statements, the Group had
not made any payments of compensation pursuant to the aforesaid judgement.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated. No additional provision in respect of the litigation was made.
ZTE CORPORATION
416
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(c) In April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction Fifth”), an
engineering contractor of the Company, demanded the Company to increase the contract amount on the
grounds that raw material prices had increased, in connection with which it launched first a slowdown in
work, followed later by total suspension. In September 2008, the Company instituted litigation with the
Shenzhen Nanshan District People’s Court (“Nanshan Court”), pleading for the revocation of the contract
and court order of the evacuation of the work sites by the defendant, as well as a penalty payment for
work delay in the amount of RMB24,912,000 and damages of RMB11,319,000 payable to the Company.
The Nanshan Court handed the first trial judgement in July 2009, ruling that the contract between the
Company and China Construction Fifth be revoked and a penalty payment for work delay in the amount
of RMB12,817,000 be payable by China Construction Fifth. China Construction Fifth filed an appeal
against the aforesaid judgement with the Shenzhen Intermediate People’s Court (“Shenzhen Intermediate
Court”). Following the conclusion of court hearing for the second trial, Shenzhen Intermediate Court
ruled to suspend trial, pending the result of the final trial of China Construction Fifth Division’s case
with the Shenzhen Intermediate Court below. As the Guangdong Provincial Higher People’s Court
(“Guangdong Higher Court”) handed down the final trial judgement for China Construction Fifth’s case
with the Shenzhen Intermediate Court in May 2014, the Shenzhen Intermediate Court resumed trial of
the case and made its second trial judgement in November 2014, ruling that China Construction Fifth
was not required to pay the penalty payment of RMB12.817 million to the Company.
In October and November 2009, the Company further instituted two lawsuits with the Nanshan Court,
demanding China Construction Fifth Division to undertake a penalty payment for work delay in the
amount of RMB30.615 million and the payment of RMB39.537 million, representing the amount of work
payments in excess of the total contract amount. Currently, the above cases are under trial suspension.
In July 2009, China Construction Fifth instituted a lawsuit with the Shenzhen Intermediate Court in
respect of the aforementioned work, demanding the Company to make a payment of RMB75.563 million
for raw materials and staff deployment. The Shenzhen Intermediate Court handed down a first trial
judgement in November 2012, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest, damages for work suspension of approximately
RMB953,000 to China Construction Fifth, while China Construction Fifth should refund to the Company
withheld payments in the amount of RMB20.15 million together with accrued interest. Other claims of
China Construction Fifth were rejected. China Construction Fifth filed an appeal with the Guangdong
Higher Court against the said judgement, and Guangdong Higher Court handed down a second trial
judgement in May 2014, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest and damages for work suspension of approximately
RMB2,869,400 to China Construction Fifth, while China Construction Fifth should refund to the
Company withheld payments in the amount of RMB20.15 million together with accrued interest. Other
claims of China Construction Fifth were rejected. Case admission fees and authentication fees paid
for the first trial and second trial relating to China Construction Fifth amounted to RMB2.699 million,
of which an amount of RMB654,000 was borne by the Company.
ANNUAL REPORT 2014
417
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(c) (continued)
In July 2014, China Construction Fifth instituted a lawsuit with the Nanshan Court, demanding the
refund of RMB24.596 million together with interest of RMB9.118 million (tentatively accrued to 10 July
2014, although it should be accrued to the date on which the contract work amounts are settled in full),
being indemnity claim amounts under a bank performance guarantee letter withheld by the Company.
Currently, the above case is under trial suspension.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
(d) A lawsuit on breach of agreement and infringement of rights was instituted against the Company and
its wholly-owned subsidiary ZTE (USA), Inc. (“ZTE USA”) by Universal Telephone Exchange, Inc. (UTE)
at the district court of Dallas, Texas, the United States, alleging that the Company and ZTE USA had
violated a confidential agreement between UTE and ZTE USA, for which UTE was seeking compensation
of USD20 million in actual damages. UTE further claimed that it had lost a telecommunications project
contract as a result of inappropriate actions of the Company and ZTE USA, for which UTE was seeking
compensation of USD10 million in actual damages and USD20 million in punitive damages. Upon receipt
of the writ of summons from the court, the Company has appointed an attorney to defend its case
On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE’s suit
on the grounds that there was an arbitration clause under the confidential agreement. On 1 March
2012, the attorney representing UTE concurred with the Company’s application to subject the case to
the arbitration clause and executed with the Company an agreement which was then submitted to the
court. On 1 May 2012, UTE filed an application for arbitration to the American Arbitration Association in
respect of the case to demand compensation from the Company. UTE subsequently raised the amount
of compensation claimed. On 19 September 2014, the arbitration court declared court trial of the case
closed. As at the end of the reporting period, the arbitration court had yet to make a final ruling.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
(e) On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business
Arbitration Tribunal of Guayaquil, Ecuador, claiming quality problems in the construction work
undertaken by the Company and demanding from the Company damages of USD23.35 million in
aggregate, comprising USD22.25 million for network reconstruction and USD1.10 million for construction
quality supervision and management in relation to the entire network. The attorney engaged by the
Company has submitted a defense in a timely manner to deny all allegations of the carrier. Based on
the legal opinion furnished by the legal counsel engaged by the Company and the progress of the
case, the Company has a valid defense against the allegation.
ZTE CORPORATION
418
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(f) On 29 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR
Licensing, Inc. (all three of which being wholly-owned subsidiaries of InterDigital, Inc.) filed a claim with
the United States International Trade Commission (“ITC”) and the Federal District Court of Delaware
alleging infringement upon their 3G patent rights by ZTE and ZTE USA. a wholly-owned subsidiary
of ZTE. Defendants in this case included other companies in the industry. In the ITC case, the three
said companies demanded the issue of a permanent exclusion and injunction order against certain of
the Company’s terminal products. In the case filed with the District Court, damages for losses and
payments of legal fees were also demanded of the defendants in addition to the plea for injunction
order, although no specific amount of compensation was named. The litigation procedure at the
District Court has been suspended. On 28 June 2013, ITC issued its initial determination in respect of
the case, ruling that one of the patents relating to the case was invalid, while the Company and ZTE
USA had not infringed upon the remaining patents relating to the case, and that Section 337 had not
been violated. (Section 337 investigation commonly refers to the investigation of unfair acts and unfair
measures in the importation of articles into or subsequent sales of articles in the United States). On
19 December 2013, ITC issued its final verdict on the case, ruling that the Company and ZTE USA
had not violated Section 337. The three companies filed an appeal with the United States Court of
Appeals for the Federal Circuit in respect of the final verdict. On 18 February, 2015, the United States
Court of Appeals for the Federal Circuit upheld the ITC’s final results.
On 2 January 2013, the three said companies and InterDigital Holdings, Inc. (also a wholly-owned
subsidiary of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware
alleging infringement upon their 3G and 4G patent rights by ZTE and ZTE USA. Defendants in this
case included other companies in the industry. In the ITC case, the four said companies demanded
the issue of a permanent exclusion and injunction order against certain of the Company’s terminal
products. In the case filed with the District Court, damages for losses and payments of legal fees
were also demanded of the defendants in addition to the plea for injunction order, although no specific
amount of compensation was named. On 13 June 2014, ITC issued its initial determination in respect
of the case, ruling that the Company and ZTE USA had not infringed upon the patents relating to the
case, and that Section 337 had not been violated. On 15 August 2014, ITC issued its final verdict on
the case, ruling that the Company and ZTE USA had not infringed upon the patents relating to the
case and had not violated Section 337. The three companies aforesaid and InterDigital Holdings, Inc.
filed an appeal with the United States Court of Appeals for the Federal Circuit in respect of the said
final verdict, and the appeal process has currently been suspended. On 28 October 2014, the jury
of the Federal District Court of Delaware issued its verdict which ruled that the Company and ZTE
USA had infringed upon three out of four patents involved. Court hearing in respect of the remaining
patent involved has been postponed to April 2015. The Company and ZTE USA have engaged a legal
counsel to conduct active defense of the case and will consider whether to file an appeal based on
the verdicts on the four patents involved in the litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
ANNUAL REPORT 2014
419
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(g) On 20 May 2013, ZTE Brazil received another notice of administrative penalty issued by the tax bureau
of Sao Paulo State of Brazil, alleging that ZTE Brazil was not entitled to register and apply for ICMS
output tax on the grounds that ZTE Brazil had committed non-compliant acts such as revoking invoices
in the course of sales to customers during the period from 2010 to 2011, and therefore was required
to make a remedial payment of ICMS tax, accrued interest and a penalty in the aggregate amount of
approximately BRL96,448,400 (equivalent to approximately RMB223 million). On 19 June 2013, ZTE
Brazil submitted an administrative defense to the primary administrative court under the tax bureau of
Sao Paulo State, stating that ZTE Brazil’s entitlement to the ICMS output tax was provable by existing
invoices and customers’ statements. On the grounds that the fiscal revenue of Sao Paulo State would
not be reduced as a result, ZTE Brazil pleaded for the penalty to be waived pursuant to Section 527.A
of Law No. 45.490 of Sao Paulo State. ZTE Brazil also pointed out that the administrative penalty should
be rendered invalid by the fact of duplicated calculation of the amount of fine based on the same rules.
On 18 September 2013, ZTE Brazil was notified of the ruling by the primary administrative court under
the tax bureau of Sao Paulo State that supported the administrative penalty. On 18 October 2013, ZTE
Brazil filed an appeal with the secondary administrative court of the tax bureau of Sao Paulo State.
The case is awaiting judgement by the secondary administrative court of the tax bureau of Sao Paulo
State. The Company had made a provision of BRL5.22 million (equivalent to approximately RMB14.77
million) in respect of the said litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim can be reliably estimated. No additional provision in respect of the litigation was made.
(h) In May 2012, the U.S. Flashpoint Technology Inc. filed a claim with ITC and the Federal District Court
of Delaware, respectively, in the United States, alleging the Company and ZTE USA of infringement
upon its patent rights in image processing. Defendants in the ITC case included other companies. In
the ITC case, the said U.S. company demanded the issue of a limited exclusion and injunction order
that would prevent the Company’s product that had allegedly infringed its patent rights from entering
the United States. In the case filed with the District Court, damages for losses and payments of legal
fees were also demanded of the defendants in addition to the plea for injunction order, although no
specific amount of compensation was named. The litigation procedure at the District Court has been
suspended. On 1 October 2013, ITC announced the preliminary decision on the case that the Company
and ZTE USA did not infringe upon the patent rights as stipulated in Section 337. On 14 March 2014,
ITC issued its final determination in respect of the case, ruling that the Company and ZTE USA had
not violated the patents relating to the case and had not violated Section 337.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
ZTE CORPORATION
420
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(i) In July 2012, Technology Properties Limited LLC, a U.S. company, filed a claim with ITC and the
Federal District Court of California, respectively, in the United States, alleging the Company and ZTE
USA of infringement upon its patents in chips. Defendants in the ITC case included other companies
in the industry. In the ITC case, the said U.S. company demanded the issue of a permanent exclusion
and injunction order that would prevent the Company’s product that had allegedly infringed its patent
rights from entering the United States. In the case filed with the Federal District Court, damages for
losses and payments of legal fees were demanded of the defendants, although no specific amount of
compensation was named. The litigation procedure at the Federal District Court has been suspended.
On 6 September 2013, ITC issued its initial determination in respect of the case, ruling that the Company
and ZTE USA had not infringed upon the patents relating to the case, and that Section 337 had not
been violated. On 19 February 2014, ITC issued its final determination in respect of the case, ruling
that the Company and ZTE USA had not infringed upon the patents relating to the case and had not
violated Section 337. Currently, the litigation procedure at the Federal District Court of California has
been resumed. There has been no substantial progress in the litigation process.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
(j) 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 RMB72,530,000). 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.
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 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 RMB192 million).
The Company has appointed a legal counsel to conduct active defense in respect of the said case.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
ANNUAL REPORT 2014
421
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(k) In February 2013, Vringo Germany GmbH (“Vringo Germany”) filed a patent litigation with the Court
of Mannheim, Germany against the Company and ZTE Deutschland GmbH (“ZTE Deutschland”), a
wholly-owned subsidiary of the Company, pleading for the UMTS products of the Company and ZTE
Deutschland with TSTD (Time Switched Transmitter Diversity) functions to be ruled to have infringed
upon the patent rights of Vringo Germany. In December 2013, the Court of Mannheim, Germany handed
down the first trial judgement, ruling that the Company and ZTE Deutschland had infringed upon the
patent rights and issuing an injunction order against the Company and ZTE Deutschland in respect of
the UMTS products with TSTD functions. The Company and ZTE Deutschland filed an appeal to the
aforesaid court in January 2014, pleading for the rejection of the patent infringement claims of Vringo
Germany and revocation of the injunction order. Vringo Germany withdrew its litigation in October 2014.
In December 2014, Vringo Germany filed a patent litigation with the Court of Dusseldorf, Germany
in respect of the patents involved against the Company and ZTE Service GmbH (“ZTE Service”), a
wholly-owned subsidiary of the Company. As the UMTS products of the Company, ZTE Deutschland
and ZTE Service sold in Germany do not support TSTD functions, the injunction order will not have
any impact on the business of the Company, ZTE Deutschland and ZTE Service in Germany.
In February 2014, Vringo Infrastructure Inc. (“Vringo”) filed a patent litigation with the High Court of
Delhi, India against the Company and ZTE Telecom India Private Limited (“ZTE India”), a wholly-owned
subsidiary of the Company, pleading for the GSM products of the Company and ZTE India supporting
Macro to Micro Handover Algorithm functions to be ruled to have infringed upon the patent rights of
Vringo and applied for the issue of a provisional injunction order by the High Court of Delhi, India. In
February 2014, the High Court of Delhi, India issued a provisional injunction order against the Company
and ZTE India in respect of the GSM products with Macro to Micro Handover Algorithm functions. In
April 2014, the Company and ZTE India filed an application to the High Court of Delhi, India for the
revocation of the provisional injunction order. In August 2014, the High Court of Delhi, India revoked
such provisional injunction order.
In April 2014, Vringo filed a patent litigation with the Court of Rio, Brazil against the Company and
ZTE Brazil, pleading for the UMTS and LTE products of the Company and ZTE Brazil supporting RNC
Relocation functions to be ruled to have infringed upon the patent rights of Vringo and applied for the
issue of a provisional injunction order by the Court of Rio, Brazil. In April 2014, the Court of Rio, Brazil
issued a provisional injunction order against the Company and ZTE Brazil in respect of UMTS and LTE
products supporting RNC Relocation functions. In April 2014, the Company and ZTE Brazil filed an
application to the Court of Rio, Brazil for the revocation of the provisional injunction order. As of now,
the Court of Rio, Brazil has yet to make a ruling. The provisional injunction order affects only the UMTS
and LTE products of the Company and ZTE Brazil supporting RNC Relocation functions sold in Brazil.
In June 2014, Vringo filed a patent litigation with the Court of Bucharest, Romania against the Company
and ZTE Romania SRL (“ZTE Romania”), a wholly-owned subsidiary of the Company, pleading for the
LTE products of the Company and ZTE Romania supporting Circuit Switched Fall Back functions to
be ruled to have infringed upon the patent rights of Vringo and applied for the issue of a provisional
injunction order by the court. In September 2014, the Court of Bucharest issued a provisional injunction
order against ZTE Romania in respect of LTE products, and ZTE Romania filed an appeal to the Court
of Appeal of Bucharest. In October 2014, the Court of Appeal of Bucharest ruled to suspend the
provisional injunction order.
ZTE CORPORATION
422
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(k) (continued)
In March 2014, the Company filed an antitrust litigation with Shenzhen Intermediate Court against
the alleged abuse of market dominance of Vringo, and Shenzhen Intermediate Court has accepted
such filing; the Company also filed an application for antitrust investigation to the EU Commission in
April 2014 and the EU Commission has accepted such filing. Meanwhile, the Company has also filed
litigations in the PRC, Germany, India, Brazil and Romania against Vringo for its patent claims to be
ruled invalid.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
44. FINANCIAL GUARANTEE CONTRACT
The Group has recognised a financial guarantee contract of RMB3,689,000 for an independent customer
with a maximum amount of RMB63,701,000 including the corresponding interest.
In accordance with HKAS 39, this financial guarantee contract is accounted for as a financial liability and
subsequently measured at the higher of: (i) the amount of the best estimate of the expenditure required to
settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less,
when appropriate, cumulative amortisation.
45. PLEDGE OF ASSETS
Details of the Group’s bank loans, which are secured by the assets of the Group, are included in note 33
to the financial statements.
46. OPERATING LEASE ARRANGEMENTS
(a) As lessor
The Group is entitled to share a portion of the profit generated from the telecommunications network
up to year 2014. During the year, approximately operating lease rental income of RMB79,403,000 (2013:
RMB114,309,000) has been recognised under this arrangement.
(b) As lessee
The Group leases certain of its offices under operating lease arrangements, with leases negotiated for
terms ranging from 1 to 48 years.
ANNUAL REPORT 2014
423
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
46. OPERATING LEASE ARRANGEMENTS (continued)
(b) As lessee (continued)
At 31 December 2014, the Group had total future minimum lease payments under non-cancellable
operating leases falling due as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Within one year 282,519 389,625 90,346 187,978
In the second to fifth years, inclusive 234,178 639,658 28,460 305,514
After five years 2,163 57,696 2,163 14,466
518,860 1,086,979 120,969 507,958
47. COMMITMENTS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Contracted, but not provided for:
Land and buildings 214,356 264,314 50,278 27,714
Investments in associates 5,223 17,304 — —
219,579 281,618 50,278 27,714
Authorised, but not contracted for:
Land and buildings 21,897,474 21,566,513 — —
ZTE CORPORATION
424
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS
(I) Transactions with related parties
In addition to the transactions and balances detailed elsewhere in these financial statements, the Group
had the following material related party transactions during the year:
2014 2013
Notes RMB’000 RMB’000
The controlling shareholder:
Purchases of raw materials (a) 260,991 227,609
Sales of finished goods (b) 3,800 2,658
Rental expense (c) 8,827 8,827
Associates:
Purchases of raw materials (a) 74,309 71,445
Sales of finished goods (b) 52,564 17,250
Rental income (e) 12,804 4,533
Interest expense (f) 75 56
Interest income (f) 110 4,762
Joint ventures:
Purchases of raw materials (a) 21,111 —
Sales of finished goods (b) 530,684 109,868
Rental income (e) 258 85
Entities significantly influenced by key
management personnel of the Group:
Purchases of raw materials (a) 782,107 447,549
Sales of finished goods (b) 61 105
Rental expense (d) 42,931 44,221
Rental income (e) 2,146 2,146
Entities controlled by the controlling shareholder:
Purchases of raw materials (a) 279,823 266,301
Sales of finished goods (b) 2,930 6,970
Rental income (e) 780 696
The substantial shareholder of the controlling
shareholder:
Purchases of raw materials (a) 164 —
In the opinion of the directors, the above transactions were conducted in the ordinary course of
business.
Notes:
(a) The purchases of raw materials were made in accordance with published prices and conditions similar to those offered by
the suppliers to their major customers.
(b) The sales of finished goods were made in accordance with published prices and conditions offered to major customers of
the Group.
ANNUAL REPORT 2014
425
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS (continued)
(I) Transactions with related parties (continued)
Notes: (continued)
(c) The rental expense was charged at rates of RMB40 per square metre and RMB200 per car parking space.
(d) The rental expense was charged at rates ranging from RMB130 to RMB500 per square metre.
(e) The rental income was earned from RMB12.74 to RMB150 per square metre.
(f) The interest rates for deposits, loans and bills discounting were determined with reference to the interest rates adopted by
financial institutions as regulated by the People’s Bank of China.
(II) Commitments with related parties
(i) The Group leases certain of its office premises from related parties under non-cancellable
operating lease arrangements. The Group expected the lease payments to related parties under
non-cancellable operating leases falling due as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
The controlling shareholder 2,575 — —
Entities significantly influenced by key
management personnel of the Group 11,704 — —
(ii) A subsidiary of the Group entered into a series of agreements with related parties to purchase
raw materials for the Group’s future production. The maximum amounts of total purchases from
related parties in the following year were expected as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
The controlling shareholder 1,100,000 — —
An entity significantly influenced by key
management personnel of the Group 900,000 — —
Associates 121,192 63,000 79,000
ZTE CORPORATION
426
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS (continued)
(II) Commitments with related parties (continued)
(iii) The Group leases certain of its office premises to related parties under non-cancellable operating
lease arrangements. The Group expected the lease receivables from related parties under non-
cancellable operating leases falling due as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
Associates 42,018 164 —
Joint ventures 258 258 258
Entities significantly influenced by key
management personnel of the Group 2,146 — —
The substantial shareholder of the controlling
shareholder 1,129 1,129 470
(iv) A subsidiary of the Group entered into a series of agreements with related parties to sell products
and services. The maximum amount of total sale to related parties in the following year was
expected as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
Associates 29,000 30,000 31,000
(III) Outstanding balances with related parties
(i) Details of the Group’s trade balances with the controlling shareholder, joint ventures, associates
and other related parties as at the end of the reporting period are disclosed in notes 26 and 31
to the financial statements.
(ii) Details of the Group’s balances of receivables and payables which are not trade in nature with
the controlling shareholder, associates and other related parties as at the end of the reporting
period are disclosed in notes 28 and 32 to the financial statements.
(IV) Compensation of key management personnel of the Group
2014 2013
RMB’000 RMB’000
Short-term employee benefits 46,157 19,022
Post-employment benefits 6 40
Equity-settled share option expense — —
Total compensation paid to key management personnel 46,163 19,062
ANNUAL REPORT 2014
427
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS (continued)
(IV) Compensation of key management personnel of the Group (continued)
The related party transactions in respect of purchases of raw materials amounting to approximately
RMB541 million (2013: RMB494 million) constitute continuing connected transactions as defined in
Chapter 14A of the Listing Rules. For details, please refer to the section of the Annual Report headed
“Material Matters (IX) Significant Connected Transactions of the Group (2) Continuing Connected
Transactions under the Hong Kong Listing Rules” of the Annual Report.
49. FINANCIAL INSTRUMENTS BY CATEGORY
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows:
2014 Group
Financial assets
Financial
assets at
fair value
through
profit or loss
Loans and
receivables
Available-
for-sale
financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 1,739,664 1,739,664
Trade and bills receivables/long-term trade
receivables — 27,506,235 — 27,506,235
Factored trade receivables/factored long-
term trade receivables — 4,862,683 — 4,862,683
Financial assets included in prepayments,
deposits and other receivables — 2,209,677 — 2,209,677
Pledged deposits — 4,462,778 — 4,462,778
Time deposits with original maturity of
over three months — 167,428 — 167,428
Cash and cash equivalents — 17,230,140 — 17,230,140
Derivative financial instruments 240,973 — — 240,973
240,973 56,438,941 1,739,664 58,419,578
ZTE CORPORATION
428
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2014 Group
Financial liabilities
Financial
liabilities at
fair value
through
profit or loss
Financial
liabilities at
amortised cost
Derivatives
designated
as hedging
instruments
in effective
hedges
Other
financial
liabilities Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade and bills payables — 29,626,088 — — 29,626,088
Bank advances on factored trade
receivables/bank advances on
factored long-term trade receivables — 4,877,410 — — 4,877,410
Financial liabilities included in other
payables and accruals — 6,342,602 — — 6,342,602
Interest-bearing bank borrowings — 21,080,836 — — 21,080,836
Financial guarantee contract — — — 3,689 3,689
Bonds payable — 6,131,185 — — 6,131,185
Factoring costs payable — 204,435 — — 204,435
Derivative financial instruments 64,904 — 6,581 — 71,485
64,904 68,262,556 6,581 3,689 68,337,730
2013 Group
Financial assets
Financial assets
at fair value
through profit
or loss
Loans and
receivables
Available-for-
sale financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 1,630,271 1,630,271
Trade and bills receivables/long-term trade receivables — 25,260,690 — 25,260,690
Factored trade receivables/factored long-term trade
receivables — 5,650,326 — 5,650,326
Financial assets included in prepayments, deposits and
other receivables — 1,865,075 — 1,865,075
Equity investment at fair value through profit or loss — — — —
Pledged deposits — 4,105,538 — 4,105,538
Time deposits with original maturity of over three months — 76,120 — 76,120
Cash and cash equivalents — 20,118,274 — 20,118,274
Derivative financial instruments 217,454 — — 217,454
217,454 57,076,023 1,630,271 58,923,748
ANNUAL REPORT 2014
429
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2013 Group
Financial liabilities
Financial
liabilities at fair
value through
profit or loss
Financial
liabilities at
amortised cost
Derivatives
designated
as hedging
instruments
in effective
hedges
Other financial
liabilities Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade and bills payables — 24,990,555 — — 24,990,555
Bank advances on factored trade
receivables/bank advances on
factored long-term trade receivables — 5,688,899 — — 5,688,899
Financial liabilities included in other
payables and accruals — 7,791,444 — — 7,791,444
Interest-bearing bank borrowings — 20,728,630 — — 20,728,630
Financial guarantee contract — — — 3,689 3,689
Bonds payable — 6,119,590 — — 6,119,590
Factoring costs payable — 257,540 — — 257,540
Derivative financial instruments 61,659 — 10,406 — 72,065
61,659 65,576,658 10,406 3,689 65,652,412
2014 Company
Financial assets
Financial
assets at
fair value
through
profit or loss
Loans and
receivables
Available-
for-sale
financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 373,555 373,555
Trade and bills receivables/long-term trade
receivables — 38,740,390 — 38,740,390
Factored trade receivables/factored long-
term trade receivables — 2,547,667 — 2,547,667
Financial assets included in prepayments,
deposits and other receivables — 9,450,398 — 9,450,398
Derivative financial instruments 53,390 — — 53,390
Pledged deposits — 4,054,594 — 4,054,594
Cash and cash equivalents — 9,715,869 — 9,715,869
53,390 64,508,918 373,555 64,935,863
ZTE CORPORATION
430
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2014 Company
Financial liabilities
Financial
liabilities at
amortised
cost
Other
financial
liabilities Total
RMB’000 RMB’000 RMB’000
Trade and bills payables 43,604,493 — 43,604,493
Bank advances on factored trade receivables/bank
advances on factored long-term trade receivables 2,562,394 — 2,562,394
Financial liabilities included in other payables and
accruals 22,474,813 — 22,474,813
Interest-bearing bank borrowings 11,398,681 — 11,398,681
Financial guarantee contract — 3,689 3,689
Bonds payable 6,131,185 — 6,131,185
Factoring costs payable 204,435 — 204,435
Derivative financial instruments 17,587 — 17,587
86,393,588 3,689 86,397,277
2013 Company
Financial assets
Financial
assets at fair
value through
profit or loss
Loans and
receivables
Available- for-
sale financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 373,555 373,555
Trade and bills receivables/long-term trade
receivables — 37,248,288 — 37,248,288
Factored trade receivables/factored long-
term trade receivables — 4,052,186 — 4,052,186
Financial assets included in prepayments,
deposits and other receivables — 12,444,443 — 12,444,443
Derivative financial instruments 69,300 — — 69,300
Pledged deposits — 3,803,789 — 3,803,789
Cash and cash equivalents — 11,756,438 — 11,756,438
69,300 69,305,144 373,555 69,747,999
ANNUAL REPORT 2014
431
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2013 Company
Financial liabilities
Financial
liabilities at
amortised
cost
Other
financial
liabilities Total
RMB’000 RMB’000 RMB’000
Trade and bills payables 44,451,968 — 44,451,968
Bank advances on factored trade receivables/bank
advances on factored long-term trade receivables 4,090,759 — 4,090,759
Financial liabilities included in other payables and
accruals 20,180,066 — 20,180,066
Interest-bearing bank borrowings 10,155,865 — 10,155,865
Financial guarantee contract — 3,689 3,689
Bonds payable 6,119,590 — 6,119,590
Factoring costs payable 257,540 — 257,540
Derivative financial instruments 12,575 — 12,575
85,268,363 3,689 85,272,052
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The carrying amounts of the Group’s and the Company’s financial instruments approximate to their fair values.
Management has assessed that the fair values of cash and cash equivalents, the current portion of pledged
deposits, trade and bills receivables, trade and bills payables, financial assets included in prepayments,
deposits and other receivables, financial liabilities included in other payables and accruals, amounts due
from/to subsidiaries, an amount due to the ultimate holding company and loans from associates approximate
to their carrying amounts largely due to the short-term maturities of these instruments.
The Group’s finance department headed by the finance manager is responsible for determining the policies
and procedures for the fair value measurement of financial instruments. The finance department reports
directly to the chief financial officer and the audit committee. At each reporting date, the finance department
analyses the movements in the values of financial instruments and determines the major inputs applied in
the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process
and results are discussed with the audit committee twice a year for interim and annual financial reporting.
The fair values of the financial assets and liabilities are included at the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The
following methods and assumptions were used to estimate the fair values:
ZTE CORPORATION
432
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)
The fair values of the non-current portion of pledged deposits, trade receivables, deposits and other
receivables and interest-bearing bank borrowings have been calculated by discounting the expected future
cash flows using rates currently available for instruments with similar terms, credit risk and remaining
maturities. The Group’s own non-performance risk for interest-bearing bank and other borrowings as at 31
December 2014 was assessed to be insignificant. The fair value of the liability portion of the convertible
bonds is estimated by discounting the expected future cash flows using an equivalent market interest rate
for a similar convertible bond with consideration of the Group’s own non-performance risk.
The fair value of a listed equity investment is based on quoted market prices.
The Group enters into derivative financial instruments with various counterparties, principally financial
institutions with A- or above credit ratings. Derivative financial instruments, including forward currency
contracts and interest rate swaps are measured using valuation techniques similar to forward pricing and swap
models, using present value calculations. The models incorporate various market observable inputs including
the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. The
carrying amounts of forward currency contracts and interest rate swaps are the same as their fair values.
Fair value hierarchy
The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:
Assets measured at fair value:
Group
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 319,470 — — 319,470
Derivative financial instruments — 240,973 — 240,973
319,470 240,973 — 560,443
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 364,479 — — 364,479
Derivative financial instruments — 217,454 — 217,454
364,479 217,454 — 581,933
ANNUAL REPORT 2014
433
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)
Fair value hierarchy (continued)
Assets measured at fair value: (continued)
Company
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — 53,390 — 53,390
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — 69,300 — 69,300
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no
transfers into or out of Level 3 for financial assets (2013: Nil).
Liabilities measured at fair value:
Group
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (71,485) — (71,485)
ZTE CORPORATION
434
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)
Fair value hierarchy (continued)
Liabilities measured at fair value: (continued)
Group (continued)
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (72,065) — (72,065)
Company
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (17,587) — (17,587)
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (12,575) — (12,575)
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no
transfers into or out of Level 3 for financial liabilities (2013: Nil).
ANNUAL REPORT 2014
435
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk,
credit risk and liquidity risk. Generally, the Group introduces conservative strategies on its risk management.
The Group also enters into derivative transactions to manage the interest rate and currency risks arising
from the Group’s operations and its sources of finance, but is forbidden to engage in speculative activities
for profit-making. The board of directors reviews and agrees policies for managing each of these risks and
they are summarised as follows:
Interest rate risk
At 31 December 2014, the bank loans of the Group and the Company included fixed and variable rate debts.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-
term debt obligations with floating interest rates.
The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. As the Group
borrowed a USD900 million floating interest rate loan, the Group entered into and will enter into interest
rate swaps with a nominal principal amount of not more than USD900 million at an appropriate timing, in
which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate
interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are
designated to hedge underlying debt obligations. At 31 December 2014, after taking into account the effect
of the interest rate swaps, approximately 40% (2013: 30%) of the Group’s interest-bearing borrowings bore
interest at fixed rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all
other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings)
and the Group’s equity.
Increase/
(decrease) in
basis points
Increase/
(decrease) in
profit before
tax
Increase/
(decrease) in
equity *
2014 0.25% (31,557) 5,591
(0.25%) 31,557 (5,591)
2013 0.25% (36,641) 4,065
(0.25%) 36,641 (4,065)
* Excluding retained profits
ZTE CORPORATION
436
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Foreign currency risk
The Group has transactional currency exposures. These exposures arise from sales or purchases by operating
units in currencies other than the units’ functional currencies, where the revenue is predominately in USD,
EUR and a certain portion of the bank loans is denominated in USD. The Group entered into forward currency
contracts and tends to accept foreign currency exchange risk avoidance or allocation terms when arriving
at purchase and sale contracts to minimise its transactional currency exposures. The Group takes a rolling
forecast on foreign currency revenue and expenses and matches the currency and amount incurred, so as
to alleviate the impact on business due to exchange rate fluctuation.
The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible
change in the USD and EUR exchange rate, with all other variables held constant, of the Group’s profit
before tax (due to changes in the fair value of monetary assets and liabilities). There would be no change
in other components of equity.
Increase/
(decrease)
in exchange
rate
Increase/
(decrease) in
profit before tax
% RMB’000
2014
If RMB weakens against USD 3% 38,204
If RMB strengthens against USD (3%) (38,204)
If RMB weakens against EUR 5% 136,696
If RMB strengthens against EUR (5%) (136,696)
Increase/
(decrease) in
exchange rate
Increase/
(decrease) in profit
before tax
% RMB’000
2013
If RMB weakens against USD 3% 37,160
If RMB strengthens against USD (3%) (37,160)
If RMB weakens against EUR 5% 185,118
If RMB strengthens against EUR (5%) (185,118)
Credit risk
The Group trades only 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 and the Group’s exposure to bad debts is not significant.
ANNUAL REPORT 2014
437
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Credit risk (continued)
The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, other
receivables and derivative instruments, arises from default of the counterparty, with a maximum exposure
equal to the carrying amounts of these instruments. The Group is also exposed to credit risk through the
granting of financial guarantees.
Since the Group trades only with recognised and creditworthy third parties, there is no requirement for
collateral. Concentrations of credit risk are managed by analysis, by counterparty, by geographical region and
by industry sector. There are no significant concentrations of credit risk within the Group as the customer
bases of the Group’s trade receivables are widely dispersed in different sectors and industries.
Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are
disclosed in note 26 to the financial statements.
Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers
the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash
flows from operations.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use
of bank loans and other interest-bearing loans. In addition, banking facilities have been put in place for
contingency purposes. Except for the non-current portion of interest-bearing bank borrowings, all borrowings
of the Group mature in less than one year.
The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the
contractual undiscounted payments, is as follows:
2014 Group
On demand Within 1 year 1 to 2 years 2 to 3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Interest-bearing bank borrowings — 11,193,023 6,431,576 1,368,816 3,048,910 22,042,325
Trade and bills payables 19,244,400 10,381,688 — — — 29,626,088
Bank advances on factored trade
receivables/bank advances
on factored long-term trade
receivables — 3,254,431 638,663 389,151 735,447 5,017,692
Other payables 6,342,602 — — — — 6,342,602
Bonds payable — 6,252,000 — — — 6,252,000
Factoring costs payable — — 73,327 63,889 189,065 326,281
Derivative financial instruments — 71,175 896 — — 72,071
Financial guarantee contract 50,000 — — — — 50,000
25,637,002 31,152,317 7,144,462 1,821,856 3,973,422 69,729,059
ZTE CORPORATION
438
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Liquidity risk (continued)
2013 Group
On demand Within 1 year 1 to 2 years 2 to 3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Interest-bearing bank borrowings — 15,508,467 839,379 5,023,976 — 21,371,822
Trade and bills payables 16,492,534 8,498,021 — — — 24,990,555
Bank advances on factored trade
receivables/bank advances
on factored long-term trade
receivables — 3,377,374 729,055 546,622 1,120,002 5,773,053
Other payables 7,707,360 84,084 — — — 7,791,444
Bonds payable — 252,000 6,252,000 — — 6,504,000
Factoring costs payable — — 73,327 63,889 189,065 326,281
Derivative financial instruments — 67,779 4,270 46 — 72,095
Financial guarantee contract 50,000 — — — — 50,000
24,249,894 27,787,725 7,898,031 5,634,533 1,309,067 66,879,250
Capital management
The primary objectives of the Group’s capital management are 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 manages its capital structure and makes adjustments to it in light of changes in economic
conditions. 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 years ended 31 December 2014 and 31 December 2013.
The Group monitors capital using a gearing ratio, which are interest-bearing liabilities divided by the sum
of total equity and interest-bearing liabilities. The gearing ratios as at the end of the reporting periods were
as follows:
Group
2014 2013
RMB’000 RMB’000
Interest-bearing borrowings 21,080,836 20,728,630
Bonds payable 6,131,185 6,119,590
Bank advances on factored trade receivables and long-term trade
receivables 4,877,410 5,688,899
Total interest-bearing liabilities 32,089,431 32,537,119
Total equity 26,292,504 23,625,689
Total equity and interest-bearing liabilities 58,381,935 56,162,808
Gearing ratio 55.0% 57.9%
ANNUAL REPORT 2014
439
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
52. MAJOR NON-CASH TRANSACTIONS
During the year, the acquisition of property, plant and equipment of RMB358,069,000 (2013: RMB144,460,000)
is by assuming directly related liabilities.
53. EVENTS AFTER THE REPORTING PERIOD
Pursuant to the “Resolution on the Proposed Registration and Issue of Perpetual Medium Term Note of the
Company” considered and approved at the First Extraordinary General Meeting of 2014 of the Company
held on 15 October 2014, approval was granted to the Company for the issue of perpetual medium term
note (hereinafter referred to as the “Medium Term Note”) with a size of not more than RMB9 billion. On 27
January 2015, the issue of the 2015 first tranche Medium Term Notes with an amount of RMB 6 billion was
completed. On 6 February 2015, the issue of the 2015 second tranche Medium Term Notes with an amount
of RMB1.5 billion was completed.
Pursuant to the profit distribution proposal recommended by the Board, cash dividend of RMB2 (before tax)
for every 10 shares held will be paid on the basis of the total share capital of the Company of 3,437,541,278
shares as at 31 December 2014, and 2 bonus shares will also be issued for every 10 shares held by
shareholders whose name appear in the register as at the Record Date through an increase in registered
capital by way of capitalisation of capital reserves. The profit distribution proposal is subject to approval by
the annual general meeting of the Company.
54. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the board of directors on 25 March 2015.
ZTE CORPORATION
440
Documents Available for Inspection
(I) Text of the 2014 annual report signed by the Chairman of the Board of Directors;
(II) Original copies of the Group’s audited financial reports and consolidated financial statements for the year
ended 31 December 2014 prepared in accordance with the PRC ASBEs and HKFRSs duly signed by the
Company’s legal representative, Chief Financial Officer and Head of Finance Division;
(III) Original copy of the auditors’ report affixed with seal of the accountants’ firm and duly signed under the
hand and seal of the certified public accountants;
(IV) Original copies of all of the Company’s documents and announcements published in China Securities Journal,
Securities Times and Shanghai Securities News and posted on http://www.cninfo.com.cn during the year;
and
(V) Articles of Association.
By order of the Board
Hou Weigui
Chairman
26 March 2015
www.zte.com.cn
stock code : 000063.SZ 763.HK
2014
Annual Report
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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.
www.zte.com.cn
stock code : 000063.SZ 763.HK
2014
Annual Report
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Important
The Board of Directors, Supervisory Committee and the Directors,
Supervisors and senior management of the Company confirm that this
report does not contain any false information, misleading statements or
material omissions, and collectively and individually accept responsibility
for the truthfulness, accuracy and completeness of the contents of this
report.
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 Twenty-fifth Meeting
of the Sixth Session of the Board of Directors of the Company. Mr. Dong
Lianbo, Director, was unable to attend the Meeting due to work reasons
and has authorised Mr. Xie Weiliang, Vice Chairman, to vote on his behalf.
Mr. Wei Wei, Independent Non-executive Director, was unable to attend
the Meeting due to work reasons and has authorised Mr. Tan Zhenhui,
Independent Non-executive Director, to vote on his behalf. Mr. Chen
Naiwei, Independent Non-executive Director, was unable to attend the
Meeting due to work reasons and has authorised Ms. Qu Xiaohui,
Independent Non-executive Director, to vote on his behalf.
The respective financial statements of the Group for the year ended 31
December 2014 were prepared in accordance with PRC Accounting
Standards for Business Enterprises and with Hong Kong Financial Reporting
Standards respectively, and had been audited by Ernst & Young Hua Ming
LLP and Ernst & Young, and an unqualified auditors’ report has been issued
by each of them.
During the year, there was no significant deficiency in internal control in
relation to financial reporting of the Company, nor was any significant
deficiency in internal control in relation to non-financial reporting identified.
Mr. Hou Weigui, Chairman of the Company, Mr. Wei Zaisheng, Chief
Financial Officer of the Company and Mr. Shi Chunmao, 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.
In view of the state of affairs of the Company, proposal for profit distribution
and conversion from capital reserve of 2014: cash dividend of RMB2.0 for
every 10 shares (before tax) based on the Company’s total share capital
of 3,437,541,278 shares as at 31 December 2014, creation of 2 shares for
every 10 shares by way of conversion of capital reserve. The aforesaid
matter shall require consideration and approval at the general meeting.
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.
This report has been prepared in Chinese and English respectively. In case
of discrepancy, the Chinese version shall prevail, except for the financial
report prepared in accordance with Hong Kong Financial Reporting
Standards, of which the English version shall prevail.
China Securities Journal, Securities Times, Shanghai Securities News and
http://www.cninfo.com.cn are designated media for the Company’s
information disclosure. Only information of the Company published in the
aforesaid media should be relied upon. Investors are asked to beware of
investment risks.
Contents
Definitions
Glossary
Company Profile
Corporate information
Chairman’s statement
Major events of the Group
Highlights of accounting and financial indicators
Report of the board of directors
Management discussion and analysis
Material matters
Changes in shareholdings and information of shareholders
Directors, supervisors, senior management and employees
Corporate governance structure
Internal control
Report of the PRC auditors
Financial statements prepared in accordance with PRC ASBEs and notes thereto
Independent auditors’ report
Financial statements prepared in accordance with HKFRSs and notes thereto
Documents available for inspection
2
4
8
9
14
18
19
26
54
62
95
104
121
146
150
152
318
320
440
ZTE CORPORATION
2
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
Company Law Company Law of the People’s Republic of China
Securities Law Securities Law of the People’s Republic of China
Accounting Law Accounting 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
ITU International Telecommunications Union, is a specialised agency of the United
Nations for information and communication technologies
SASAC State-owned Assets Supervision and Administration Commission of the State Council
CSRC China Securities Regulatory Commission
Shenzhen CSRC The CSRC Shenzhen Bureau
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)
PRC ASBEs Generally accepted accounting principles in the PRC
HKFRSs Hong Kong Financial Reporting Standards (including Hong Kong Accounting
Standards (“HKASs”) and Interpretations)
China All Access China All Access (Holdings) Limited
ZTE HK ZTE (H.K.) Limited
ANNUAL REPORT 2014
3
Speed Huizhou Speed Wireless Technology Co., Ltd.
ZTE Capital Shenzhen ZTE Capital Management Company Limited
Zhonghe Chunsheng Fund Shenzhen Zhonghe Chunsheng Partnership Private Equity Fund I
Zhongxingxin Shenzhen Zhongxingxin Telecommunications Equipment Company Limited
Mobi Antenna Mobi Antenna Technologies (Shenzhen) Co., Ltd.
Huatong Huatong Technology Company Limited
Nanchang Software Zhongxing Software Technology (Nanchang) Company Limited
Zhongxing Hetai Shenzhen Zhongxing Hetai Hotel Investment and Management Company Limited
Zhongxing Development Zhongxing Development Company Limited
Chongqing Zhongxing
Development
Chongqing Zhongxing Development Company Limited
???? ?????????????????
Xi’an Microelectronics Xi’an Microelectronics Technology Research Institute
Aerospace Guangyu Shenzhen Aerospace Guangyu Industrial Company Limited
Zhongxing WXT Shenzhen Zhongxing WXT Equipment Company Limited
Zhongxing Software Shenzhen Zhongxing Software Company Limited
ZTE Kangxun Shenzhen ZTE Kangxun Telecom Company Limited
ZTE Group Finance ZTE Group Finance Co., Ltd.
ZTE CORPORATION
4
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.
2G Second-generation mobile networks featuring digital wireless radio technology that
enables larger network capacity, improved voice quality and more secure encryption,
as well as seamless international roaming for users which includes GSM and CDMA.
GSM (Global System for Mobile Communication) is a global system for cellular mobile
communications originated in Europe using TDMA, while CDMA is a standard for
spread spectrum technology. The data rate of 2G can reach 115.2Kbps. The data
rate of GSM using EDGE (enhanced data rate for GSM evolution) can reach 384Kbps.
3G Third-generation mobile networks supporting peak data rate of 144Kbps at mobile
user speeds, 384Kbps at pedestrian user speeds and 2Mbps at fixed locations.
4G Fourth-generation mobile networks operating according to IMT-Advanced standards
as defined by ITU, including LTE-Advanced and Wireless MAN-Advanced (802.16m)
standards, which support theoretical download rates of 1Gbit/s at fixed locations
and 100Mbit/s in motion.
5G Fifth-generation mobile communications, which is a general reference to the ensemble
of post-4G broadband wireless communication technologies. The general view of the
industry is that 5G is capable of providing faster data throughput (1,000 times faster
than what is currently available) and more connections (100 times more than what is
currently available), more efficient utilisation of energy (10 times of the current level
of efficiency) and shorter end-to-end time delay (1/5 of the current length of time
delay). It goes beyond human-to-human communication to cover a wide range of
applications such as ultra-intensive networks, machine-to-machine communication
and the internet of vehicles.
Pre-5G The adoption of the 5G technology without modifying existing air interfaces standards,
providing in advance a 5G-like user experience on existing terminals.
UMTS A reference to WCDMA standards generally used in Europe. 3G technologies have
been collectively referred to as UMTS (Universal Mobile Telecommunications System)
by European Telecommunications Standards Institute (ETSI) since the early 1990s.
TD-SCDMA Time division synchronous code division multiple access, a 3G technology developed
by the PRC to support voice and data transmission.
ANNUAL REPORT 2014
5
LTE LTE (Long Term Evolution) which is the long-term evolution of 3G technology, refers
to fourth-generation mobile communication technologies with OFDM as its core
technology. LTE is being promoted by 3GPP and is continuously under evolution.
There are two types of LTE, distinguished by the mode of division duplex, namely
FDD-LTE of frequency division and TDD-LTE of time division. The mixed operation
of FDD-LTE and TDD-LTE is supported. In terms of networking, its supports
homogeneous networks formed by macro base stations as well as heterogeneous
networks formed by macro base stations and micro base stations.
ICT New products and services arising from the integration of IT (information technology)
and CT (communications (i.e., the transmission of information) technology).
Cloud Radio An innovative radio solution capable of automatic selection of optimal synchronisation
modes based on the properties of the mobile networks and mobile bearer conditions.
It can effectively reduce inter-cell interference in LTE networks and significantly boost
network performance in the cell edge.
QCell QCell connects the BBU (base-band unit) to the PICO RRU (a small remote radio
unit) and facilitates power supply to the PICO RRU through Ethernet, enabling LTE
indoor coverage with the deployment of Ethernet cables only.
UBR Ultra-broadband radio frequency that can support bandwidth of 170MHz at the
800MHz frequency band and 365MHz at the 1.8-2.1GHz frequency bands, which is
significantly higher than conventional RRU (radio remote unit).
Magic Radio An innovative technology which allows GSM and LTE to share the same frequency
spectrum, hence supporting more GSM and LTE services within limited frequency
spectrum width.
PON Provision of optical fiber access service through unpowered optical network
technologies, using point-to-multipoint topological structures that enable conservation
of optical fiber resources for the main trunk as well as flow management and security
control functions. PON can be distinguished into FTTH, FTTDp, FTTB and FTTC
based on different destinations of optical connection, or GPON, EPON, 10G EPON
and XG PON based on different technology standards.
IDC Internet Data Center, an Internet-based centre for facilities that provide operating
maintenance and related services for equipment that handles data collection, storage,
processing and dispatch in an integrated manner.
ZTE CORPORATION
6
Glossary
PTN Packet Transport Network, a network commonly using the MPLS-TP technology,
designed to cater to the sudden nature of packet flow and the requirement for
statistical multiplexing transmission and support multiple services provision with
packet services as core services. PTN offers the advantage of lower total cost of
use, while retaining the traditional strengths of optical transmission, such as high
availability and reliability, efficient bandwidth and flow management, convenient OAM
and network management, scalability and better security.
OTN Optical Transport Network, a transmission network formed at the optical layer based
on the wavelength-division multiplexing technology. OTN solves the problems of
traditional WDM networks, such as poor modulation in the no-wavelength/sub-
wavelength services, weak network formation and weak protection, through “digital
transmission system” and “optical transmission system” regulated by a range of
ITU-T recommendations such as G.872, G.709 and G.798.
Internet of Things A network interconnecting all things in the physical world, characterised by
comprehensive sensors, reliable transmission and smart processing and aiming at
connection at any time, any location and among any objects. It can help to realise the
organic integration of the human society with the physical world, so that humankind
can manage production and life in a more detailed and dynamic way to generally
enhance the level of informatisation of the society.
Cloud Computing A concept underlining the fusion of traditional computing technologies such as grid
computation and distributed computation with network technology development. The
core idea is to centralise the management and modulation of massive computing
resources connected through the network, forming a pool of computing resources
that serve users on an as-needed basis. Cloud Computing is applied in business
models such as SaaS, PaaS and IaaS.
Big Data A data set that is too large and complex to be processed by existing conventional
database management technologies and tools, and that requires the use of new
data processing and management technologies in order to create value from the set
in a speedy and economic manner. It has revolutionary long-term implications for
the development of informatisation, smart applications and business models of the
society. Big data is often characterised by 4Vs: Volume, Variety, Velocity and Value.
Smart City The application of information technologies such as Cloud Computing, Internet
of Things and Big Data in combination with wireline and wireless broadband
communication technologies to sense, analyse and integrate various key information
of the core operation systems of the city, so as to make automated smart
responses to various requirements such as livelihood, environmental protection,
public security, urban services and industrial/commercial activities, in realisation
of smart management and operation of cities, creating better lives for citizens and
facilitating harmony in and sustainable development for the city.
ANNUAL REPORT 2014
7
Mobile Internet Internet access service facilitated through mobile terminals such as smart phones/
handheld digital assistants, notebooks and Pad, etc. Enriched by the popularisation
of smart terminals, Mobile Internet services now include mobile computing, mobile
music, smart phone games, positioning technology, wireless communities and
wireless payments, etc.
Smart Pipe Relative to the “dummy pipe,” the smart pipe facilitates optimisation of internet
traffic flow through technologies such as flow sensor, classification and control, etc
to enhance users’ experience and deliver added value.
M-ICT Strategy The strategy of ZTE is to be an “Enabler@M-ICT that facilitates the creation of value
through information.” The letter “M” denotes a variety of meanings, which include:
1) Mobile: as handheld smart terminals become increasingly popular, ICT services
are present everywhere; 2) M2M: the inter-connection of all things (Man-Man, Man-
Machine, Machine-Machine); 3)Multiple connection: all-present connection; 4) Multi-
service, More coverage and accessibility; 5) More secure, More reliable and easier
to use.
CGO Laboratory Responsible for the incubation of innovation projects and the development and
operation of Blue Ocean projects of the Company to support the implementation of
the blue ocean strategy under the Company’s M-ICT strategy, in realisation of its
strategic transformation to become “cool, green and open.”
ZTE CORPORATION
8
Company Profile
The Company is a leading integrated telecommunications equipment manufacturer in the world market and a
provider of global telecommunications solutions, with shares listed on the main board of the Shenzhen Stock
Exchange and the Main Board of the Hong Kong Stock Exchange.
In November 1997, the Company conducted an initial public offering of A shares for listing on the main board of
the Shenzhen Stock Exchange. The Company is currently the largest telecommunications equipment manufacturer
in China’s A share market in terms of operating revenue. In December 2004, the Company conducted an initial
public offering of H shares for listing on the Main Board of the Hong Kong Stock Exchange, becoming the first
A-share company to be listed on the Main Board of the Hong Kong Stock Exchange.
The Group is dedicated to the design, development, production, distribution and installation of a broad range
of advanced telecommunications systems and equipment, including carriers’ networks, handset terminals and
telecommunications software systems, services and other products.
The Group is one of the major telecommunications equipment suppliers in China’s telecommunications market and
has also succeeded in gaining access to the international telecommunications market with respect to each of its
major product segments. The Group has achieved a leading market position for its various telecommunications
products in China with longstanding business ties with China’s leading telecommunications service providers such
as China Mobile, China Telecom and China Unicom. With respect to the global telecommunications market, the
Group has provided innovative technology and product solutions to telecommunications service providers and
government and corporate customers in more than 160 countries and regions, making contributions to facilitate
communications via multiple means, such as voice, data, multi-media,wireless broadband and cable broadband,
for users all over the world.
ANNUAL REPORT 2014
9
Corporate Information
1 Legal name (in Chinese) ??????????
Chinese abbreviation ????
Legal name (in English) ZTE Corporation
English abbreviation ZTE
2 Legal representative Hou Weigui
3 Secretary to the Board of Directors/
Company Secretary
Feng Jianxiong
Securities affairs representatives Xu Yulong
Cao Wei
Correspondence Address No. 55, Hi-tech Road South,
Shenzhen, Guangdong Province,
The People’s Republic of China
Telephone +86 755 26770282
Facsimile +86 755 26770286
E-mail [email protected]
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 [email protected]
Principal place of business in Hong Kong 36/F, Tower Two, Time Square
1 Matheson Street, Causeway Bay
Hong Kong
5 Authorised representatives Shi Lirong
Feng Jianxiong
6 Newspapers designated for information
disclosure by the Company
China Securities Journal,
Securities Times,
Shanghai Securities News
Authorised websites on which this report
is made available
http://www.cninfo.com.cn
http://www.hkexnews.hk
Place where this report is available for
inspection
No. 55, Hi-tech Road South,
Shenzhen, Guangdong Province,
The People’s Republic of China
ZTE CORPORATION
10
Corporate Information
7 Listing information A shares
Shenzhen Stock Exchange
Abbreviated name of stock: ????
Stock code: 000063
Corporate Bonds
Shenzhen Stock Exchange
Abbreviated name of bond: 12??01
Bond code: 112090
H shares
Hong Kong Stock Exchange
Abbreviated name of stock: ZTE
Stock code: 763
8 Hong Kong share registrar
and transfer office
Computershare Hong Kong Investor Services Limited
Shops 1712–16, 17th Floor, Hopewell Centre,
183 Queen’s Road East, Wanchai, Hong Kong
9 Legal advisers
As to Chinese law Beijing Jun He Law Offices
20th Floor, China Resources Building,
Beijing, The People’s Republic of China
As to Hong Kong law Paul Hastings
21–22/F, Bank of China Tower, 1 Garden Road,
Hong Kong
10 Auditors
PRC Ernst & Young Hua Ming LLP
21/F, China Resources Building,
5001 Shennan Dong Road,
Shenzhen, Guangdong Province,
The People’s Republic of China
Signing Accountants:
Li Yuxing, Fu Jie
Hong Kong Ernst & Young
22/F, CITIC Tower, No. 1 Tim Mei Avenue,
Central, Hong Kong
ANNUAL REPORT 2014
11
11 Other relevant information
Initial registration
Date of registration 11 November 1997
Registered address 6/F, Building 710
Lian Tang Pengji Industrial Park
Luohu District, Shenzhen,
Guangdong Province,
The People’s Republic of China
Licence registration number 27939873-X
Tax registration 44030327939873X
Entity code (previously “Corporate Legal
Person Code”)
27939873-X
As at the end of the current year
Date of registration 23 October 2013
Registered address ZTE Plaza,
Keji Road South, Hi-Tech Industrial Park,
Nanshan District, Shenzhen,
Guangdong Province,
The People’s Republic of China
Licence registration number 440301103852869
Tax registration 44030127939873X
Entity code 27939873-X
Since the initial public offering of A shares and listing on the main board of the Shenzhen Stock Exchange,
there has been no change to the principal business and controlling shareholder of the Company.
ZTE CORPORATION
14
Chairman’s Statement
DEAR SHAREHOLDERS,
I am pleased to present the annual report of the Group for the year
ended 31 December 2014, and would like to express, on behalf of
the Board of Directors, our sincere gratitude to all shareholders for
their concern and support for ZTE.
The Group reported rapid growth in net profit attributable to
shareholders of the listed company for 2014 as it continued
to improve contract profitability and enhance efficiency in cost
management during the year.
OPERATING RESULTS
The Group’s operating revenue for 2014 amounted to RMB81.47
billion, representing a year-on-year growth of 8.3%, while net profit
attributable to shareholders of the listed company amounted to
RMB2.63 billion, representing a year-on-year growth of 94.0%. Basic
earnings per share amounted to RMB0.77, improving by 97.4% as
compared to the previous year. For 2014, the Group’s operating
revenue from the domestic market and the international market
amounted to RMB40.58 billion and RMB40.89 billion, respectively.
BUSINESS DEVELOPMENT
Equipment investment by the global telecommunications industry experienced growth in 2014. The traditional
telecommunications industry was facing more opportunities as well as more challenges in its development under
the impact of the application of 4G technologies on all fronts, the integration of ICT industries and the trend of
informatisation. In addition to focusing on the enhancement of 4G network performance and the development
of next-generation broadband technologies, global carriers were also committing an increasing portion of their
resources to operations based on the value of flow volume, value-added Big Data business, integrated innovative
businesses and approaches for maintaining balance between security and privacy, in a bid to achieve effective
transformation by exploring new opportunities for development.
In 2014, in connection with the domestic market, the Group worked proactively in support of the network
construction plans of domestic carriers as it established and implemented in depth its M-ICT Strategy and
maintained its dominant market position through competitive innovative solutions. In the international market, the
Group has formed comprehensive partnerships with mainstream global carriers as it continued to focus on major
populous nations and mainstream global carriers and bolster its competitiveness on all fronts while securing stable
operations and quality growth.
CORPORATE GOVERNANCE
In 2014, the Company continued to improve its corporate governance systems and regimes, regulate operations
and optimise internal control regimes in accordance with the requirements of the Company Law, Securities Law,
Corporate Governance Standards for Listed Companies, Hong Kong Listing Rules and other relevant domestic
and overseas laws and regulations. During the year, the Company formulated its “2013 Summary Report and 2014
Work Plan for Internal Control and Audit” to confirm key tasks in internal control for 2014 and effectively rolled
out internal control tasks as planned to enhance the standard of the Company’s operations and management
and risk aversion ability.
ANNUAL REPORT 2014
15
SUSTAINABLE DEVELOPMENT
Sustainable development represents important elements of the Group’s corporate culture. We constantly update
ourselves with the latest notions and standards in sustainable development and seek in-depth understanding of
the demands of our stakeholders, so as to ensure the incorporation of sustainable development into our corporate
strategies and improve our fulfilment of corporate social responsibility on an ongoing basis. The Group has
always been committed to the development of innovative information and communication technologies based on
research, development and innovation as the core to deliver and enhance value for its customers and partners.
We also seek to steer towards a highly efficient development model with low carbon emission by designing and
implementing eco-friendly and energy-saving solutions. It is our hope that, through our services, people in different
regions will enjoy freedom in communications on an equal basis. By enabling users around the world to carry out
full communication via voice, data, multi-media and wireless broadband, we do play a part contributing to the
sustainable development of the economy, society and environment. The Group’s efforts in sustainable development
and corporate social responsibility has been widely recognised by the government, international organisations and
media.
FUTURE PROSPECTS
Looking to 2015, the mobile inter-connection among all things will constitute the main theme underlying
developments of the telecommunications industry. From traditional inter-personal communication, we have
gradually progressed to communication between people and machines and communication between machines.
Given the characteristic features of “omni-connection, omni-present cloud service and safe privacy,” the traditional
telecommunications industry will face challenges as well as opportunities in its development. In connection with
carriers’ networks, large-scale deployment, capacity expansion, performance optimisation, and in-depth coverage
of 4G networks will drive new demand for investments in the telecommunications industry, as the 4G era has
started in most markets around the globe. Meanwhile, carriers will need to accelerate the construction of pipeline
intelligentization and “creating value out of information” will become our new opportunities. In connection with
government and corporate networks, there will be sophisticated integration between the telecommunications
industries and traditional industries, as opportunities relating to government and corporate networks will abound
in the information revolution triggered by emerging technologies such as Cloud Computing, Big Data and high-
power wireless charge. In connection with handset terminals, the new generation of handset terminals will feature
a higher level of smart functions, flexibility and integration. Next-generation voice control technologies and handset
security will also constitute new strategic focuses.
To address the aforesaid challenges and opportunities in 2015, the Group will focus on the three mainstream
markets of “carriers, government and corporate sectors and consumers” under the theme of “capitalising on
opportunities arising from macro-restructuring to create value out of information”. Our business development will
centre on “new sectors” such as smart voice, smart wireless charger, distributive on-grid power generation, big
data platform and its applications, internet finance, and mobile payments, etc, seeking to achieve breakthroughs
in profitability through innovations in technologies and business models.
Hou Weigui
Chairman
Shenzhen, the PRC
26 March 2015
ZTE CORPORATION
18
Major Events of the Group
2014
January 2014
ZTE joined forces with China Mobile to launch the LTE-A VoLTE voice service, the
first of its kind in the industry.
February 2014
ZTE won the GTI innovation award for its innovative construction of TD-LTE
network boasting higher quality.
March 2014
ZTE filed 2,309 patent applications in 2013, ranking second in the world, according
to the WIPO report.
June 2014
ZTE operated more than 140 management service contracts globally, representing
a CAGR of 42% for the past five years.
September 2014
ZTE ranked first in PTN market share for three years in a row.
September 2014
ZTE partnered with Dongfeng Motor to build the first pre-commercial bus route
in China deploying new-energy vehicles equipped with the high-power wireless-
charging system.
September 2014
ZTE launched the first 4G Qcell multi-mode indoor depth coverage solution in
the industry.
October 2014
ZTE won 30.77% of China Mobile’s purchase of high-performance routers in 2014.
October 2014
ZTE set yet another world record for single carrier 400G signal transmission over
ultra-long distance.
November 2014
ZTE announced its blueprint for Pre-5G and 5G development in an illustration of
its vision for 5G.
November 2014
ZTE was named among the “Outstanding Cases in Global Smart Cities 2014” as
the only Chinese enterprises awarded.
December 2014
ZTE unveiled new company logo to underpin its massive M-ICT strategy for the
future.
ANNUAL REPORT 2014
19
Highlights of accounting and financial indicators
(I) WHETHER THE COMPANY HAS MADE RETROSPECTIVE ADJUSTMENTS TO OR RESTATED
ACCOUNTING DATA OF THE PREVIOUS YEAR BECAUSE OF CHANGES IN ACCOUNTING POLICIES
OR FOR THE RECTIFICATION OF ACCOUNTING ERRORS
? Yes ? No
(II) MAJOR ACCOUNTING DATA OF THE GROUP FOR THE YEAR PREPARED IN ACCORDANCE WITH
PRC ASBEs
Unit: RMB in millions
Item 2014
Operating revenue 81,471.3
Operating profit 60.3
Total profit 3,538.2
Net profit attributable to shareholders of the listed company 2,633.6
Net profit after extraordinary items attributable to shareholders of the listed company 2,072.0
Net cash flows from operating activities 2,512.6
Extraordinary gains or losses items and amounts that have been deducted are as follows:
Unit: RMB in millions
Item 2014
Non-operating income 666.8
Gains/(Losses) from fair value change 148.3
Investment income 155.4
Less: Gains/(Losses) on disposal of non-current assets 35.7
Less: Other non-operating expenses 274.1
Less: Effect of income tax 99.1
Total 561.6
ZTE CORPORATION
20
Highlights of accounting and financial indicators
(III) MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE GROUP FOR THE PAST THREE
YEARS PREPARED IN ACCORDANCE WITH PRC ASBEs
1. Major accounting data of the Group for the past three years prepared in accordance with PRC
ASBEs
Unit: RMB in millions
Item
For the
year ended
31 December
2014
For the
year ended
31 December
2013
Year-on-year
change
For the
year ended
31 December
2012
(Restated)
Operating revenue 81,471.3 75,233.7 8.29% 84,118.9
Operating profit 60.3 (1,493.1) 104.04% (5,002.2)
Total profit 3,538.2 1,827.8 93.58% (1,983.2)
Net profit attributable to shareholders
of the listed company 2,633.6 1,357.6 93.99% (2,840.9)
Net profit after extraordinary items
attributable to shareholders of the
listed company 2,072.0 73.0 2,738.36% (4,190.5)
Net cash flows from operating
activities 2,512.6 2,574.6 (2.41%) 1,550.0
Unit: RMB in millions
Item
As at
31 December
2014
As at
31 December
2013
Year-on-year
change
As at
31 December
2012
(Restated)
Total assets 106,214.2 100,079.5 6.13% 107,446.3
Total liabilities 79,921.7 76,453.8 4.54% 84,853.5
Owners’ equity attributable to
shareholders of the listed company 24,878.6 22,532.7 10.41% 21,456.6
Share capital (million shares) 3,437.5 3,437.5 — 3,440.1
ANNUAL REPORT 2014
21
2. Major financial indicators of the Group for the past three years prepared in accordance with PRC
ASBEs
Item
For the
year ended
31 December
2014
For the
year ended
31 December
2013
Year-on-year
change
For the
year ended
31 December
2012
(Restated)
Basic earnings per share
(RMB/share)
Note 1
0.77 0.39 97.44% (0.83)
Diluted earnings per share
(RMB/share)
Note 2
0.77 0.39 97.44% (0.83)
Basic earnings per share after
extraordinary items
(RMB/share)
Note 1
0.60 0.02 2,900.00% (1.22)
Weighted average return on net assets
(%) 11.10% 6.17%
Increased by
4.93 percentage
points (12.46%)
Weighted average return on net assets
after extraordinary items (%) 8.74% 0.33%
Increased by
8.41 percentage
points (18.38%)
Net cash flows from operating
activities per share
(RMB/share)
Note 3
0.73 0.75 (2.67%) 0.45
Item
As at
31 December
2014
As at
31 December
2013
Year-on-year
change
As at
31 December
2012
(Restated)
Net asset per share attributable to
shareholders of the listed company
(RMB/share)
Note 3
7.24 6.55 10.53% 6.24
Gearing ratio (%) 75.25% 76.39%
Decreased by
1.14 percentage
points 78.97%
Note 1: Basic earnings per share for the reporting period and 2013 was calculated on the basis of the total share capital at the end of each
period. Basic earnings per share for 2012 was calculated on the basis of the weighted average number of ordinary shares, namely
the total share capital at the end of the period less 2,536,742 lapsed Subject Shares under the Phase I Share Incentive Scheme
of the Company;
Note 2: As share options granted by the Company have given rise to 2,543,000 and 1,767,000 potentially dilutive ordinary shares for the
reporting period and 2013, respectively, diluted earnings per share has been calculated on the basis of basic earnings per share
taking into account the said factor. As there was no Subject Share quota under the Phase I Share Incentive Scheme of the Company
remaining in lock-up in 2012, diluted earnings per share was the same as basic earnings per share;
Note 3: Net cash flow from operating activities per share and net asset per share attributable to shareholders of the listed company for
the reporting period and 2013 were calculated on the basis of the total share capital at the end of each period. The corresponding
indicators for 2012 were calculated on the basis of the total share capital at the end of the period less 2,536,742 lapsed Subject
Shares under the Phase I Share Incentive Scheme of the Company.
ZTE CORPORATION
22
Highlights of accounting and financial indicators
3. Extraordinary gains or losses items and amounts of the Group for the past three years prepared in
accordance with PRC ASBEs
Unit: RMB in millions
Item
For the
year ended
31 December
2014
For the
year ended
31 December
2013
For the
year ended
31 December
2012
Non-operating income 666.8 594.2 559.6
Gains/(Losses) from fair value change 148.3 204.0 (107.4)
Investment income 155.4 857.7 1,197.7
Less: Gains/(Losses) on disposal of non-current assets 35.7 18.1 19.4
Less: Other non-operating expenses 274.1 126.4 42.8
Less: Effect of income tax 99.1 226.7 238.1
Total 561.6 1,284.7 1,349.6
(IV) MAJOR FINANCIAL INFORMATION OF THE GROUP FOR THE PAST FIVE YEARS PREPARED IN
ACCORDANCE WITH HKFRSs
Unit: RMB in millions
Year ended 31 December
Results 2014 2013
2012
(Restated) 2011
2010
(Restated)
Revenue 81,471.3 75,233.7 84,118.9 86,254.5 69,906.7
Cost of sales (57,759.0) (54,775.1) (65,545.5) (62,086.4) (48,241.8)
Gross profit 23,712.3 20,458.6 18,573.4 24,168.1 21,664.9
Other income and gains 4,561.2 4,905.3 4,609.2 3,664.4 2,639.8
Research and development expenses (9,008.5) (7,383.9) (8,829.2) (8,492.6) (7,092.0)
Selling and distribution expenses (10,391.6) (10,158.5) (11,340.9) (11,112.2) (8,890.2)
Administrative expenses (2,138.1) (2,258.7) (2,449.2) (2,605.6) (2,524.0)
Other expenses (1,582.3) (2,119.1) (706.1) (1,684.1) (753.8)
Profit from operating activities 5,153.0 3,443.7 (142.8) 3,938.0 5,044.7
Finance costs (1,561.7) (1,650.4) (1,888.5) (1,374.2) (728.6)
Share of profit and loss of jointly controlled
entities and associates (53.0) 34.5 48.1 71.3 44.1
Profit before tax 3,538.3 1,827.8 (1,983.2) 2,635.1 4,360.2
Income tax expense (810.6) (394.2) (621.4) (392.0) (883.7)
Profit before non-controlling interests 2,727.7 1,433.6 (2,604.6) 2,243.1 3,476.5
Attributable to:
Non-controlling interests (94.1) (76.0) (236.3) (182.9) (226.3)
Attributable to:
Shareholders of parent company 2,633.6 1,357.6 (2,840.9) 2,060.2 3,250.2
ANNUAL REPORT 2014
23
Unit: RMB in millions
As at 31 December
Assets and liabilities 2014 2013
2012
(Restated)
2011
(Restated) 2010
Total assets 110,254.6 102,473.0 109,911.5 107,784.1 85,509.2
Total liabilities 83,962.1 78,847.3 87,318.7 81,549.6 60,547.2
Non-controlling interests 1,413.9 1,093.0 1,136.3 2,057.1 1,868.1
Shareholders’ equity attributable to parent
company 24,878.6 22,532.7 21,456.5 24,177.4 23,093.9
(V) MAJOR FINANCIAL INDICATORS OF THE GROUP FOR THE PAST FIVE YEARS PREPARED IN
ACCORDANCE WITH HKFRSs
Item 2014 2013
2012
(Restated)
2011
(Restated) 2010
Basic earnings per share (RMB/share)
Note 1
0.77 0.39 (0.83) 0.61 0.98
Net asset per share (RMB/share)
Note 2
7.24 6.55 6.24 7.05 6.87
Fully diluted return on net assets (%) 10.59% 6.03% (13.24%) 8.52% 14.07%
Note 1: Basic earnings per share for the reporting period and 2013 was calculated on the basis of the total share capital at the end of
each period;
Note 2: Net asset per share attributable to shareholders of the listed company for the reporting period and 2013 was calculated on the
basis of the total share capital at the end of each period.
(VI) THE AMOUNTS OF NET PROFIT AND NET ASSETS OF THE GROUP FOR THE YEAR ENDED AND
AS AT 31 DECEMBER 2014 CALCULATED IN ACCORDANCE WITH PRC ASBEs ARE ENTIRELY
CONSISTENT WITH THOSE CALCULATED UNDER HKFRSs.
ZTE CORPORATION
26
Report of the Board of Directors
The Board of Directors is pleased to present its audited operating results report together with the financial
statements of the Group for the year ended 31 December 2014.
BUSINESS OF THE GROUP
The Group is principally engaged in the design, development, production, distribution and installation of a broad
range of advanced telecommunications systems and equipment, including carriers’ networks, handset terminals,
telecommunications software systems, services and other products.
FINANCIAL RESULTS
Please refer to pages 155–156 and page 320 of this report for the results of the Group for the year ended 31
December 2014 prepared in accordance with PRC ASBEs and HKFRSs, respectively.
FINANCIAL SUMMARY
Set out on pages 19–22 of this report are the results and financial position of the Group for the three financial
years ended 31 December 2014 prepared in accordance with the PRC ASBEs.
Set out on pages 22–23 of this report are the results and financial position of the Group for the five financial years
ended 31 December 2014 prepared in accordance with HKFRSs, which have been extracted from the respective
financial statements of the Group for each of the five financial years ended 31 December 2010, 2011, 2012, 2013
and 2014 prepared in accordance with HKFRSs.
(I) Business Review for 2014
1. Overview of the domestic telecommunications industry for 2014
In 2014, investment in equipment by domestic carriers continued to grow mainly in connection with the large-
scale deployment of 4G networks and the construction of related ancillary facilities. The rapid development of
the Mobile Internet coupled with the further penetration of 4G smart phones was driving the commercialisation
process of 4G networks. While the wireless, transmission and broadband sectors remained heavily favoured spots
for equipment investment by carriers, Smart Pipe, Cloud Computing, Big Data and Smart City were also garnering
increasing attention and investments.
2. Overview of the global telecommunications industry for 2014
Equipment investment by the global telecommunications industry experienced growth in 2014. The traditional
telecommunications industry was facing more opportunities as well as more challenges in its development under
the impact of the application of 4G technologies on all fronts, the integration of ICT industries and the trend of
informatisation. In addition to focusing on the enhancement of 4G network performance and the development
of next-generation broadband technologies, global carriers were also committing an increasing portion of their
resources to operations based on the flow volume, value-added Big Data business, integrated innovative businesses
and approaches for maintaining balance between security and privacy, in a bid to achieve effective transformation
by exploring new opportunities for development.
ANNUAL REPORT 2014
27
3. Operating Results of the Group for 2014
The Group’s overall operating revenue for 2014 increased by 8.3% to RMB81.47 billion as compared to 2013,
primarily reflecting operating revenue growth for 4G system products in the domestic and international markets,
routers and switches in the domestic and international markets, optical communication systems in the domestic
market and 4G handsets in the domestic and international markets. In 2014, the continued growth in scale of the
Group’s domestic and international 4G system equipment business and domestic and international 4G handset
business coupled with ongoing improvements in contract profitability resulted in growth in both sales volume
and gross profit margin. In addition, the Group enhanced financial expenses control and mitigated the impact
of exchange rate volatility on the Group’s operations, resulting in the relatively substantial decrease in overall
financial expenses. As a result of the aforesaid factors, the Group reported net profit attributable to shareholders
of the listed company of RMB2.63 billion for 2014, representing a year-on-year growth of 94.0%. Basic earnings
per share amounted to RMB0.77.
(1) By market
The domestic market
During the year, the Group reported operating revenue of RMB40.58 billion from the domestic market, accounting
for 49.8% of the Group’s overall operating revenue. The Group worked proactively in support of the network
construction plans of domestic carriers as it established and implemented in depth its M-ICT Strategy and
maintained its dominant market position through competitive innovative solutions. Moreover, the Group also made
vigorous moves to roll out its operations in strategic emerging sectors such as Cloud Computing, Big Data and
Smart City, with a view to ensuring positive development in the long term.
The international market
During the year, the Group reported operating revenue of RMB40.89 billion from the international market, accounting
for 50.2% of the Group’s overall operating revenue. The Group has formed comprehensive partnerships with
mainstream global carriers as it continued to focus on major populous nations and mainstream global carriers and
bolster its competitiveness on all fronts while securing stable operations and quality growth.
(2) By product
During the year, the Group reported operating revenue of RMB46.77 billion for carriers’ networks. Operating revenue
for handset terminals amounted to RMB23.12 billion. Operating revenue for telecommunications software systems,
services and other products amounted to RMB11.58 billion.
Carriers’ networks
In connection with wireless products, the Group persisted in prioritising innovation and pursued ongoing
enhancement of product competitiveness, as it launched cutting-edge solutions, such as Cloud Radio, QCell, UBR
and Magic Radio, and maintained relatively strong growth in the market created by the deployment of new 4G
networks in the PRC and elsewhere. In the traditional 2G/3G markets, stable growth was achieved as the Group
continued to optimise its market profile. In anticipation of future developments in wireless communications, the
Group achieved substantial progress in the preliminary research of 5G technologies and became the first industry
player to introduce the Pre-5G concept and conduct related field tests.
ZTE CORPORATION
28
Report of the Board of Directors
In connection with wireline and optical communications products, the Group achieved stable growth on the back
of cutting-edge products and solutions launched following dedicated efforts in product innovation and solution
operations.
In connection with Cloud Computing and IT products, the Cloud Computing and Big Data processing platforms
developed by our Group remained cutting-edge products in the industry, as our Big Data processing platform
and distributive data base made breakthroughs in the financial sector, while our data center products made
breakthroughs in the domestic market.
Handset terminals
In line with the business philosophy of shifting to a more consumer-oriented and internet-driven approach, the
Group optimised the distribution of its product types with a special emphasis on the development of boutique
models and flagship series, while streamlining and new developments were conducted in many areas, such as
surface design, quality control, brand building, channel operation and after-sales service. In 2014, smartphone
products continued to account for an increasing percentage of the Group’s total sales, underpinned by a substantial
increase in the percentage share of 4G handsets.
Telecommunications software systems, services and other products
Operating revenue from the Group’s telecommunications software systems, services and other products for the year
reported year-on-year decline of 9.7%, attributable mainly to the decrease in operating revenue from international
services.
The Group is also vigorously developing the market for government and corporate sectors and services in pursuit
of sustainable development.
(II) Discussion and analysis prepared under PRC ASBEs
The financial data below are extracted from the Group’s audited financial statements prepared in accordance
with PRC ASBEs. The following discussion and analysis should be read in conjunction with the Group’s financial
statements audited by Ernst & Young Hua Ming LLP and the accompanying notes thereto set out in this report.
ANNUAL REPORT 2014
29
1. Breakdown of indicators by industry, product and region segments for the year as compared to the
previous year
Revenue mix
Operating
revenue
(RMB in
millions)
Operating
costs
(RMB in
millions)
Gross
profit
margin
Year-
on-year
increase/
decrease
in
operating
revenue
Year-
on-year
increase/
decrease
in
operating
costs
Year-on-year
increase/
decrease in
gross profit
margin
(percentage
points)
I. By industry
Manufacturing of
communication
equipment 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
Total 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
II. By product
Carriers’ networks 46,768.2 28,747.8 38.53% 14.92% 12.77% 1.17
Handset terminals
Note
23,117.1 19,549.6 15.43% 6.52% 5.75% 0.62
Telecommunications
software systems,
services and other
products 11,586.0 7,462.7 35.59% (9.74%) (18.41%) 6.85
Total 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
III. By region
The PRC 40,583.5 26,494.2 34.72% 13.88% 11.46% 1.42
Asia (excluding the PRC) 12,131.6 8,317.4 31.44% (12.40%) (20.36%) 6.85
Africa 6,174.2 3,902.4 36.80% 5.25% (10.36%) 11.02
Europe, Americas and
Oceania 22,582.0 17,046.1 24.51% 13.58% 17.10% (2.27)
Total 81,471.3 55,760.1 31.56% 8.29% 4.96% 2.17
Note: Handset terminals include handsets, data cards, fixed terminals, etc.
(1) Analysis of change in revenue
The Group reported RMB81,471.3 million in operating revenue for 2014, improving by 8.29% as compared with
last year. Operating revenue generated from the domestic business amounted to RMB40,583.5 million, increasing
by 13.88% as compared with last year. Operating revenue generated from the international business also rose by
3.26%, as compared with last year, to RMB40,887.8 million.
Analysed by product segment, year-on-year growth of operating revenue was reported for carriers’ networks
and handset terminals, while decline was reported for telecommunication software systems, services and other
products. The increase in operating revenue from the Group’s carriers’ networks for 2014 reflected mainly the
increase in operating revenue from 4G system products, routers and switches in the domestic and international
markets, as well as optical communication system products in the domestic market. The increase in operating
revenue from the Group’s handset terminals for 2014 reflected mainly the increase in operating revenue generated
from 4G handsets in the domestic and international markets. The decrease in operating revenue from the Group’s
telecommunication software systems, services and other products for 2014 mainly reflected the decline in operating
revenue from international services.
ZTE CORPORATION
30
Report of the Board of Directors
(2) Changes in the scope of consolidation as a result of changes in equity interests in the Company’s
subsidiaries and analysis of operating revenue and operating costs for the comparable period last year
Unit: RMB in millions
2014 2013
Note
Operating
revenue
Operating
costs
Gross profit
margin
Operating
revenue
Operating
costs
Gross profit
margin
Year-on-year
increase/
decrease in
operating
revenue
Year-on-year
increase/
decrease in
operating
costs
Year-on-year
increase/decrease in
gross profit margin
(percentage points)
81,471.3 55,760.1 31.56% 75,199.2 53,097.4 29.39% 8.34% 5.01% 2.17
Note: Figures of operating revenue and operating costs for 2013 have excluded operating revenue and operating costs of subsidiaries
deconsolidated in 2014.
Anhui Yalong Communication Technology Company Limited (“Yalong”) was deconsolidated from the Group’s
2014 financial statements following the disposal of 100% equity interests in Yalong by Anhui Wantong Posts
and Telecommunication Company Limited, a subsidiary of the Company, in April 2014. The operating revenue
and operating cost attributable to Yalong in the 2013 consolidated financial statements amounted to RMB34.5
million and RMB28.5 million, respectively. Excluding operating revenue and operating cost attributable to Yalong
in 2013, the Group’s operating revenue and operating cost for 2014 increased by 8.34% and 5.01%, respectively,
as compared with last year. Gross profit margin improved by 2.17 percentage points as compared with last year.
2. Indicators for major products accounting for over 10% of the Group’s operating revenue for the
year
Unit: RMB in millions
By product
Operating
revenue
Operating
costs
Gross profit
margin
Carriers’ networks 46,768.2 28,747.8 38.53%
Handset terminals 23,117.1 19,549.6 15.43%
Telecommunications software systems, services and other
products 11,586.0 7,462.7 35.59%
3. Breakdown of the Group’s costs by principal items
Unit: RMB in millions
2014 2013
Industry Item Amount
As a
percentage
of operating
costs Amount
As a
percentage
of operating
costs
Year-
on-year
increase/
decrease
Manufacturing of
communication
equipment
Raw materials 43,414.0 77.86% 42,708.8 80.39% 1.65%
Engineering costs 10,576.6 18.97% 10,189.5 19.18% 3.80%
Total 53,990.6 96.83% 52,898.3 99.57% 2.06%
ANNUAL REPORT 2014
31
4. Breakdown of the Group’s expenses by principal items
Unit: RMB in millions
Item 2014 2013
Year-on-year
increase/
decrease
Selling and distribution expenses 10,259.2 10,003.9 2.55%
General and administrative expenses 2,031.4 2,202.3 (7.76%)
Finance expenses 2,101.0 2,460.3 (14.60%)
Income tax 810.5 394.2 105.61%
Note
Research and development expenses 9,008.5 7,383.9 22.00%
Note: Mainly attributable to the increase in the Group’s profit.
The Group’s research and development expenses for 2014 accounted for 36.21% and 11.06%, respectively, of
the Group’s net assets attributable to shareholders of the listed company and operating revenue.
5. Breakdown of the Group’s cash flow
Unit: RMB in millions
Item 2014 2013
Year-on-year
increase/
decrease
Sub-total of cash inflows from operating activities 97,264.4 90,572.1 7.39%
Sub-total of cash outflows from operating activities 94,751.8 87,997.5 7.68%
Net cash flows from operating activities 2,512.6 2,574.6 (2.41%)
Sub-total of cash inflows from investing activities 1,832.4 2,495.1 (26.56%)
Note 1
Sub-total of cash outflows from investing activities 3,455.1 4,157.2 (16.89%)
Net cash flows from investing activities (1,622.7) (1,662.1) 2.37%
Sub-total of cash inflows from financing activities 39,753.8 23,376.8 70.06%
Note 2
Sub-total of cash outflows from financing activities 43,480.1 26,058.4 66.86%
Note 3
Net cash flows from financing activities (3,726.3) (2,681.6) (38.96%)
Net increase in cash and cash equivalents (2,888.1) (2,541.4) (13.64%)
Note 1: Mainly attributable to the decrease in net cash received from the disposal of subsidiaries and other business units;
Note 2: Mainly attributable to the increase in cash received from loans;
Note 3: Mainly attributable to the increase in cash used in debt repayment.
For an explanation of reasons for the difference between net cash flows from operating activities and net profit of
the Group for the year, please refer to Note V 52.Supplemental information on cash flow statement to the financial
statements prepared under PRC ASBEs.
ZTE CORPORATION
32
Report of the Board of Directors
6. Reasons for substantial changes in the Group’s principal business and its structure, profit mix and
profitability of the principal business during the year
(1) There was no substantial change in the principal business and its structure during the year as compared to
the previous year.
(2) Changes in the profit mix during the year as compared to the previous year are set out as follows:
For 2014, the Group reported operating profit of RMB60.3 million representing year-on-year growth of 104.04%,
which was primarily attributable to growth in revenue and gross profit margin. Operating revenue improved 8.29%
to RMB81,471.3 million, as compared with last year, which was primarily attributable to operating revenue growth
for 4G system products in the domestic and international markets, routers and switches in the domestic and
international markets, optical communication systems in the domestic market and 4G handsets in the domestic
and international markets. Investment income declined 85.29% year-on-year to RMB134.5 million, reflecting mainly
the decrease in investment income arising from the disposal of equity interests as compared with last year. The
net amount of non-operating income and expense grew 4.73% to RMB3,477.9 million, reflecting mainly year-on-
year growth in VAT rebate for software products.
(3) Changes in the profitability (gross profit margin) of the principal business during the year as compared to
the previous year are set out as follows:
The year saw growth in both sales volume and gross profit margin as a result of continued growth in scale of the
Group’s domestic and international 4G system equipment business and domestic and international 4G handset
business coupled with ongoing improvements in contract profitability.
7. Analysis of the Group’s assets and liabilities
(1) Change in assets
Unit: RMB in millions
As at 31 December 2014 As at 31 December 2013
Year-on-year
increase/
decrease in
percentage of
total assets
(percentage
points) Item Amount
As a
percentage
of total
assets Amount
As a
percentage
of total
assets
Total assets 106,214.2 100% 100,079.5 100% —
Cash 18,115.9 17.06% 20,903.0 20.89% (3.83)
Trade receivables 25,153.0 23.68% 21,393.3 21.38% 2.30
Inventory 19,592.3 18.45% 12,434.4 12.42% 6.03
Investment properties 2,004.5 1.89% 1,855.2 1.85% 0.04
Long-term equity investments 461.3 0.43% 478.0 0.48% (0.05)
Fixed assets 7,348.3 6.92% 7,449.5 7.44% (0.52)
Construction in progress 262.9 0.25% 177.4 0.18% 0.07
ANNUAL REPORT 2014
33
(2) Change in liabilities
Unit: RMB in millions
As at 31 December 2014 As at 31 December 2013
Year-on-year
increase/
decrease in
percentage of
total assets
(percentage
points) Item Amount
As a
percentage
of total
assets Amount
As a
percentage
of total
assets
Short-term loans 10,998.1 10.35% 12,589.0 12.58% (2.23)
Long-term loans due within one
year 6,174.3 5.81% 2,753.9 2.75% 3.06
Long-term loans 10,039.7 9.45% 5,385.7 5.38% 4.07
(3) Assets and liabilities at fair value
? Items relating to fair value measurement
Unit: RMB in thousands
Item
Opening
balance
Gains/
losses
arising
from fair
value
change for
the period
Cumulative
fair value
change
dealt with
in equity
Impairment
charge for
the period
Amount
purchased
for the
period
Amount
disposed
of for the
period
Closing
balance
Financial assets
Including: 1. Financial assets at fair
value through profit or
loss (excluding derivative
financial assets) — — — — — — —
2. Derivative financial assets 217,454 134,548 — — — — 240,973
3. Available-for-sale financial
assets 364,479 — (28,570) — — — 319,469
Sub-total of financial assets 581,933 134,548 (28,570) — — — 560,442
Investment properties 1,855,246 130,306 — — 18,913 — 2,004,465
Productive living assets — — — — — — —
Others — — — — — — —
Total 2,437,179 264,854 (28,570) — 18,913 — 2,564,907
Financial liabilities
Note
72,065 (116,572) 3,965 — — — 71,485
Note: Financial liabilities comprise derivative financial liabilities.
There was no material change to the measurement attributes of the principal assets of the Company during the year.
ZTE CORPORATION
34
Report of the Board of Directors
? Fair value changes in items measured at fair value and their impact on the Company’s profit
Assets of the Company are stated at historical costs, except for derivative financial instruments, equity investments
at fair value through profit or loss, a small number of available-for-sale financial assets and investment properties
which are measured at fair value. Gains or losses arising from fair value changes in the Company’s derivative
financial instruments measured at fair value were subject to uncertainties relating to fluctuations in RMB/USD and
RMB/EUR forward exchange rates.
? Internal control systems relating to fair value measurement
The Company has established a fair value measurement internal control system to be operated through collaboration
of various departments under the leadership of the Chief Financial Officer. The “Fair Value Measurement Internal
Control Measures” (???????????????) has been formulated as a complement to the “ZTE Accounting
Policies” (??????????) and the “ZTE Internal Control System” (????????????) to regulate the
application and disclosure of fair value measurements.
(4) Financial assets and financial liabilities held in foreign currencies
Unit: RMB in thousands
Item
Opening
balance
Gains/losses
arising from
fair value
change for
the period
Cumulative
fair value
change
dealt with in
equity
Impairment
charge for
the period
Closing
balance
Financial assets
Including: 1. Financial assets
at fair value
through profit or
loss 217,454 134,548 — — 240,973
Including:
derivative
financial assets 217,454 134,548 — — 240,973
2. Loans and
receivables 40,914,462 — — 428,513 40,510,003
3. Available-for-sale
financial assets 424,918 — (47,386) — 348,375
4. Held-to-maturity
investments — — — — —
Sub-total of financial assets 41,556,834 134,548 (47,386) 428,513 41,099,351
Financial liabilities 12,514,689 (116,572) 3,965 — 13,189,929
ANNUAL REPORT 2014
35
8. Major customers and suppliers
Sales by the Group in 2014 to its largest customer amounted to RMB17,963.4 million, accounting for 22.05%
of the total sales of the Group for the year, while sales to its five largest customers amounted to RMB33,689.6
million, accounting for 41.35% of the total sales of the Group for the year. The five largest customers were not
connected to the Company in any way. None of the Directors, Supervisors, senior management, key technical
personnel, shareholders holding 5% or more of the shares, de facto controller and other connected parties of the
Company had any direct or indirect interest in any of the aforesaid five largest customers. None of the Directors
or Supervisors of the Company or their close associates or, to the knowledge of the Board of Directors, any of
the shareholders holding 5% or more of the shares of the Company had any interest in any of the five largest
customers of the Group. (The above figures of the Group are consistent under PRC ASBEs and HKFRSs).
Purchases by the Group from its largest supplier amounted to RMB3,707.6 million in 2014, accounting for 7.90%
of the total purchases of the Group for the year, while the purchases made from its five largest suppliers amounted
to RMB9,099.7 million, accounting for 19.39% of the total purchases of the Group for the year. The Company and
ZTE Capital together held 31% equity interests in Zhonghe Chunsheng Fund, which held 3.46% equity interests in
?????????????, one of the five largest suppliers of the Company. The Company also held 4.9% equity
interests in Shenzhen Xingfei Technology Company Limited, which held 100% equity interests in Nanchang Xingfei
Technology Company Limited, one of the five largest suppliers of the Company. Save as the holding of equity
interests disclosed above, the five largest suppliers were not connected to the Company, none of the Directors,
Supervisors, senior management, key technical personnel, shareholders holding 5% or more of the shares, de
facto controller and other connected parties of the Company had any direct or indirect interest in any of the
aforesaid five largest suppliers. (The above figures of the Group are consistent under PRC ASBEs and HKFRSs).
9. Technological innovations
The Group has effectively enhanced its technological progress and core competitiveness, as it continued to foster
technological capabilities and pursue new product development in close tandem with trends in the ICT industry, in
persistent adherence to the principles of proprietary innovation. In 2014, the Group confirmed its M-ICT strategy,
with the aim of becoming an enabler in the M-ICT era focused on carriers, government and corporate sectors,
handset terminals and strategic emerging markets, striving to add value through information and unveil the new
era of mobile interconnection of all things, where the original purpose of technology, namely to serve people, will
once again be endorsed. As we shift from a customer-focus to a user-focus, users’ experience will provide an
ongoing drive to the development of ICT technologies, while technological progress will, in turn, further enhance
users’ experience.
In terms of product strategy, the Group was mainly focused on broadband-based 4G products series. Government
and corporate networks and services, sectors holding out enormous market potential, also became a focus for
development.
In connection with wireless products, the commercial application of multi-mode soft-baseband chips and the
completion of product testing of the digital intermediate frequency chip have provided strong assurance for our
wireless broadband construction. With the launch of cutting-edge solutions, such as Cloud Radio, QCell, UBR and
Magic Radio, the Group continued to maintain relatively strong growth in the market created by the deployment
of new 4G networks in the PRC and elsewhere. The Group also achieved substantial progress in the preliminary
research of 5G technologies, as it became the first industry player to introduce the Pre-5G concept. In November
2014, we conducted a Pre 5G Massive MIMO field test, the first of its kind in the industry, which demonstrated
a local area data throughput rate at least 5 times higher than that of existing systems.
ZTE CORPORATION
36
Report of the Board of Directors
In connection with wireline products, we achieved full independence in the research and development of our
PON serialised chips, while the XG PON serialised products based on our independently developed core chips
were employed in the world’s first large-scale commercial deployment of such products in 2014, signifying
further enhancement of our product capacity. The Group also launched cutting edge products such as large-
capacity optical network cross-connection equipment and IDC switch, while the research and development of the
next-generation high-end packet product platform was also completed, providing strong support for the market
development of a variety of products, such as core router, multi-service edge router, packet transport network
and service gateway.
In connection with Cloud Computing and IT products, the Group completed the research and development
of cutting-edge Cloud Computing and Big Data processing platforms and offered comprehensive, customised
solutions for parallel and high-performance computing to support applications in services relating to the internet
and Internet of Things, securing breakthrough business deals in the financial, transportation, education, government
and public security sectors as a result.
In connection with handset terminals, we persisted in the principles of users’ senses, ongoing value creation, open
platforms and awesome experiences. In terms of technological innovation, we made strong efforts to resolve the
bottleneck in voice technologies and applied next-generation voice technologies in our smart phones to create a
brand new experience in human-machine interaction. In terms of platform development, we have built a secure
handset platform following sophisticated research and development in handset security, especially in relation to
personal security and corporate security.
Moreover, with the launch in Qinhuangdao, Ningbo and Yinchuan of the Smart City UOC (Urban Operation Center)
platform, developed upon the Group’s strengths in Cloud Computing, Internet of Things and Big Data technologies
to cater to practical domestic needs for building Smart Cities, the Group became a leader and trendsetter for
Smart City standards and construction in the domestic market.
In 2014, the Group made focused efforts in the development of the “CGO Laboratory,” which was specifically
designated as the operating arm for company-level innovative projects established to further enhance the incubation
of innovative projects and the development of new businesses and sectors.
The Group maintains an annual R&D budget equivalent to approximately 10% of its sales revenue. Currently, the
Group has approximately 27,000 R&D personnel and 19 R&D centres in China, the United States, Sweden, France
and Canada, as well as more than 10 joint innovation centres established in association with leading carriers to
ensure success in the market through better assessment of market demand and customers’ experience.
As at 31 December 2014, the Group held patent assets of over 60,000 items, including granted patents of
over 17,000 items. With memberships at more than 70 international standardisation organisations and forums,
convenorships and presenter roles at major international standardisation organisations taken up by more than
30 experts from the Group, the presentation of over 28,000 research papers in aggregate to international
standardisation organisations and editorships and authorships for more than 200 international standards, the Group
continued to foster strengths in technologies and patents for key products and technologies, ensuring ongoing
enhancement in its ability to counter patent risks.
In 2014, the “synergised high-speed wireless communication system” project developed under the leadership
of the Group won the Class II National Award for Progress in Science and Technology. The Group also won a
number of Class II Technological Invention Awards and Class II Technological Progress Awards in association with
other parties.
ANNUAL REPORT 2014
37
In 2014, the Group undertook leading roles in a number of key national technological projects, such as the
“next-generation broadband wireless mobile communication network,” in addition to the R&D and industrialisation
of more than 10 projects including the National 863 Project, Electronic Development Foundation and Integrated
Circuit Project.
“ZTE Forum for Cooperation of Enterprises, Academies and Research Institutes” has been formed to solicit
memberships among leading domestic colleges and research institutes specialising in telecommunications
technologies, in support of the government’s call for the formation of a regime for cooperation in technological
innovation, where the enterprise, academic and research sectors join forces in market-oriented initiatives under the
leadership of business enterprises. By far 30 institutions have joined the Forum. In 2014, we started cooperation
with tertiary institutions to build united innovation centres and united laboratories in association, to jointly undertake
key national projects and industrialization projects of the National Development and Reform Commission.
10. Analysis of investment
(1) Equity investments
? Overview
The Group’s equity investments in 2014 amounted to approximately RMB461,316,000, representing a decrease of
3.50% compared to approximately RMB478,037,000 reported for 2013.
For details of the Company’s equity investments and of the invested companies, please refer to Note V 11.Long-
term equity investments of the financial report prepared in accordance with PRC ASBEs.
? Investment in securities
A. Investment in securities as at the end of the year
Unit: RMB in ten thousands
Type of securities
Stock
code
Stock
name
Initial
investment
Shares
held at the
beginning
of the
period (ten
thousand
shares)
Shareholding
percentage
at the
beginning of
the period
Shares
held at the
end of the
period (ten
thousand
shares)
Shareholding
percentage
at the end of
the period
Nominal
value at
the end of
the period
Profit
and loss
in the
reporting
period
Accounting
classification
Source of
shares
Convertible bonds
Note
N/A N/A 16,309.61 N/A N/A N/A N/A 16,047.20 2,583.10 Other
receivables
Initial
investment
Other securities
investments held at
the end of the period
— — — — — — — — —
Total 16,309.61 N/A — N/A — 16,047.20 2,583.10 — —
Note: China All Access is a company listed on the Hong Kong Stock Exchange. The initial investment for the acquisition of convertible bonds
of China All Access by ZTE HK, a wholly-owned subsidiary of the Company, amounted to approximately HKD201.5 million, equivalent to
approximately RMB163.1 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.80941) on 31
January 2013. The nominal value of the investment as at the end of the reporting period was approximately HKD201.0 million, equivalent
to approximately RMB160.5 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.7984) on 31
December 2014.
ZTE CORPORATION
38
Report of the Board of Directors
B. Details of investment in securities
Pursuant to the “Resolution on the subscription for shares and convertible bonds of China All Access (Holdings)
Limited by ZTE HK” considered and passed at the Thirty-sixth Meeting of the Fifth Session of the Board of Directors
of the Company held on 16 November 2012, ZTE HK, a wholly-owned subsidiary of the Company, entered into
the “Agreement on the Subscription for Shares and Convertible Bonds of China All Access (Holdings) Limited”
with China All Access on 16 November 2012. On 15 January 2013, ZTE HK completed subscription for convertible
bonds with a principal amount of HKD201.5 million issued by China All Access for a total cash consideration of
HKD201.5 million.
Pursuant to “Resolution on the subscription of China All Access (Holdings) Limited convertible bonds by ZTE HK”
considered and approved at the Twenty-third Meeting of the Sixth Session of the Board of Directors of the Company
held on 23 December 2014, ZTE HK, a wholly-owned subsidiary of the Company, entered into the “Agreement in
relation to the Subscription of China All Access (Holdings) Limited Convertible Bonds” with China All Access on
23 December 2014 for the subscription of HKD350,000,000 convertible bonds issued by China All Access at an
annual interest rate of 6% and with the principle amount paid annually within two years. On 26 February 2015,
ZTE HK completed the subscription of China All Access convertible bonds.
As at the end of the year, ZTE HK held convertible bonds of China All Access in the amount of HKD201.5 million.
The convertible bonds held by ZTE HK have been classified as other receivables and interest income arising from
the convertible bonds has been included in current profit and loss.
? Holding of equity interests in other listed companies
A. Holding of equity interests in other listed companies as at the end of the year
Unit: RMB in ten thousands
Type of securities
Stock
code Stock name
Initial
investment
Shares
held at the
beginning of
the period
(ten thousand
shares)
Shareholding
percentage at
the beginning
of the period
Shares
held at the
end of the
period (ten
thousand
shares)
Shareholding
percentage
at the end of
the period
Nominal
value at
the end of
the period
Profit and
loss in the
reporting
period
Accounting
classification
Source of
shares
Stock 300322 Speed
Note 1
762.79 240 2.14% 480 2.14% 9,182.40 — Available-for-sale
financial assets
Initial
investment
Stock 00633.HK China All
Access
Note 2
16,309.61 11,200 8.43% 9,698.20 6.13% 22,764.50 2,270.63 Available-for-sale
financial assets
Initial
investment
Total 17,072.40 11,440 — 10,178.20 — 31,946.90 2,270.63 — —
Note 1: Figures corresponding to Speed are provided with Zhonghe Chunsheng Fund as the accounting subject.
Note 2: The initial investment for ZTE HK’s acquisition of China All Access shares amounted to approximately HKD201.5 million, equivalent to
approximately RMB163.1 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.80941) on 31
January 2013. The nominal value of the investment as at the end of the reporting period was approximately HKD285.1 million, equivalent
to approximately RMB227.6 million based on the Company’s foreign currency statement book exchange rate (HKD1: RMB0.7984) on
31 December 2014.
ANNUAL REPORT 2014
39
B. Details of holding of equity interests in other listed companies
a. Shareholdings in Speed
As at the end of the year, the Company and ZTE Capital held in aggregate 31% equity interests in Zhonghe
Chunsheng Fund. Zhonghe Chunsheng Fund was a partnership reported in the consolidated financial statements of
the Company. As at the end of the year, Zhonghe Chunsheng Fund held 4.80 million shares in Speed, a company
listed on the GEM Board of the Shenzhen Stock Exchange, accounting for 2.14% of the total share capital of
Speed (following Speed’s implementation of its 2013 profit distribution and conversion from capital reserves plans).
b. Shareholdings in China All Access
Pursuant to the “Agreement on the Subscription for Shares and Convertible Bonds of China All Access (Holdings)
Limited” entered into by ZTE HK, a wholly-owned subsidiary of the Company, with China All Access on 16
November 2012, ZTE HK subscribed for 112 million shares allotted and issued by China All Access on 15 January
2013 for a total cash consideration of HKD201.5 million.
As at the end of the year, ZTE HK held 96,982,000 shares in China All Access, accounting for approximately 6.13%
of the total share capital of China All Access. The shares held by ZTE HK have been classified as available-for-
sale financial assets for accounting purposes and recognised in capital reserve at fair value.
? Save as aforesaid, the Group did not hold any stakes in non-listed financial enterprises such as
commercial banks, securities companies, insurance companies, trust companies and future companies,
or conduct securities investment such as dealing in stocks of other listed companies during the reporting
period.
(2) Derivative investments, entrusted investments and entrusted loans
? Derivative investments
Unit: RMB in ten thousands
Name of party
operating the
derivative
investment
Connected
relationship
Whether a
connected
transaction
Type of
derivative
investment
Note 1
Initial
investment
amount
in the
derivative
investment Start date End date
Opening
balance of
investment
amount
Impairment
provision
(if any)
Closing
balance of
investment
amount
Closing balance
of investment
amount as a
percentage of
net assets
Note 2
of the Company
at the end of the
period (%)
Actual
profit or
loss for the
reporting
period
HSBC N/A No Interest rate
swap
Note 3
— 2011/12/19 2016/7/8 30,484.50 — 31,002.50 1.2% —
Standard Chartered
Bank
N/A No Interest rate
swap
Note 3
— 2011/12/22 2016/7/8 30,484.50 — 31,002.50 1.2% —
BOC N/A No Foreign
exchange
forwards
— 2014/1/6 2015/12/16 500,142.76 — 195,576.94 7.9% 4,537.11
BNP Paribas N/A No Foreign
exchange
forwards
— 2014/1/9 2015/11/30 333,810.82 — 171,398.53 6.9% 3,976.21
CITIC Bank N/A No Foreign
exchange
forwards
— 2014/1/23 2015/3/12 158,747.41 — 32,336.23 1.3% 750.16
Other banks N/A No Foreign
exchange
forwards
— 2014/1/6 2015/12/16 282,019.80 — 284,498.51 11.4% 6,207.61
Total — — — 1,335,689.79 — 745,815.21 29.9% 15,471.09
ZTE CORPORATION
40
Report of the Board of Directors
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 of Resolutions of the Fortieth Meeting of the Fifth Session
of the Board of Directors” and “Announcement on the Application for
Derivative Investment Limits for 2013,” both dated 27 March 2013, and
“Announcement of Resolutions of the Sixteenth Meeting of the Sixth
Session of the Board of Directors” and “Announcement on the Application
for Derivative Investment Limits for 2014,” both dated 26 March 2014.
Date of announcement of the
general meeting in respect
of the approval of derivative
investments (if any)
“Announcement of Resolutions of the 2012 Annual General Meeting”
dated 30 May 2013 and “Announcement of Resolutions of the 2013
Annual General Meeting” dated 29 May 2014.
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
Value-protection derivative investments were conducted by the Company
during 2014. The major risks and control measures are discussed as
follows:
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 value-
protection derivative investments. Effective gains or losses shall be
represented by the accumulative gains or losses on revaluation on
the maturity date;
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 matched 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 banks 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;
ANNUAL REPORT 2014
41
5. Control measures: The Company addressed legal risks by entering
into contracts with clear and precise terms with counterparty
banks 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.
Market prices or fair-value
change 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 from investments in derivatives during
the reporting period. Total gains recognised for the reporting period
amounted to RMB154.71 million, comprising gains from fair-value change
of RMB8.74 million and recognised investment income of RMB145.97
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 those for 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.
Specific opinion of Independent
Non-executive Directors on
the Company’s derivative
investments and risk control
Independent Non-executive Directors’ Opinion:
The Company 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. We are of the view that
the derivative investments made by the Company and its subsidiaries
have been closely related to their day-to-day operational requirements
and in compliance with relevant laws and regulations.
Note 1: Derivative investments are classified according to their types and the banks involved.
Note 2: Net assets as at the end of the reporting period represented net assets attributable to shareholders of the listed company as at the
end of the reporting period.
Note 3: Interest rate swaps were dealt with as value protection hedging for accounting purposes and the gains or losses arising from interest
rate swaps was recognised in the capital reserve.
ZTE CORPORATION
42
Report of the Board of Directors
? Entrusted Investments
Unit: RMB in ten thousands
Name of trustee
Connected
relationship
Whether a
connected
transaction Product type
Amount of
entrusted
investment
Commencement
date
Maturity
date
Method for
determining
remuneration
Principal
amount
returned for
the period
Impairment
provision
amount
(if any)
Estimated
gain
Actual
profit or
loss for the
reporting
period
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
2,500 2014-9-24 2014-12-10 Settlement
upon maturity
based on the
actual amount
2,500 — — 28.48
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
490 2014-9-24 2014-12-30 Settlement
upon maturity
based on the
actual amount
490 — — 1.92
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
300 2014-10-29 2014-12-3 Settlement
upon maturity
based on the
actual amount
300 — — 1.47
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
300 2014-12-10 2014-12-30 Settlement
upon maturity
based on the
actual amount
300 — — 0.50
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
2,500 2014-12-16 2014-12-30 Settlement
upon maturity
based on the
actual amount
2,500 — — 4.16
China Merchants Bank,
Zhangjiang Sub-
branch, Shanghai
N/A No Bank
investment
product
15 2014-12-25 2014-12-29 Settlement
upon maturity
based on the
actual amount
15 — — 0.01
China Merchants Bank,
Licheng Sub-
branch, Quanzhou
N/A No Bank
investment
product
40 2014-12-4 2014-12-21 Settlement
upon maturity
based on the
actual amount
40 — — 0.02
China Merchants Bank,
Licheng Sub-
branch, Quanzhou
N/A No Bank
investment
product
370 2014-12-12 2014-12-31 Settlement
upon maturity
based on the
actual amount
370 — — 0.41
China Merchants Bank,
Licheng Sub-
branch, Quanzhou
N/A No Bank
investment
product
320 2014-12-25 2015-3-10 Settlement
upon maturity
based on the
actual amount
— — — —
Wing Hang Bank (China)
Limited, Shenzhen
Branch
N/A No Bank
investment
product
3,000 2014-12-20 2015-12-21 Spot
realisation on
effective date
of contract
— — — 113
Wing Hang Bank (China)
Limited, Shenzhen
Branch
N/A No Bank
investment
product
3,000 2014-12-22 2015-12-23 Spot
realisation on
effective date
of contract
— — — 113
Total 12,835 — — — 6,515 — — 262.97
ANNUAL REPORT 2014
43
Source of funds for entrusted
investment
Internal funds
Aggregate amount of overdue and
outstanding principal and gain
Nil
Litigation incurred (if applicable) N/A
Date of announcement of the
Board of Directors regarding
the approval of entrusted
investment (if any)
N/A
Date of announcement of the
general meeting regarding
the approval of entrusted
investment (if any)
N/A
? During the year, the Company did not enter into any entrusted loans.
(3) Use of issue proceeds
? Overview of Corporate Bonds (12??01)
The Company issued corporate bonds (the “Issue”) on 13 June 2012 with a finalised issue size of RMB6,000 million,
comprising RMB200 million in online issue and RMB5,800 million in offline issue. The gross proceeds raised from
the Issue were deposited into the designated account of the Company on 18 June 2012. A capital verification
report in respect of the subscription amounts for the online issue (“Ernst & Young Hua Ming (2012) Zhuan Zi No.
60438556_H03”), a capital verification report in respect of the subscription amounts for the offline placing (“Ernst
& Young Hua Ming (2012) Zhuan Zi No. 60438556_H04”) and a capital verification report in respect of the actual
receipt of issue proceeds (“Ernst & Young Hua Ming (2012) Zhuan Zi No. 60438556_H05”) were issued by Ernst
& Young Hua Ming LLP per appointment by the Company.
As considered and approved at the Twenty-sixth Meeting of the Fifth Session of the Board of Directors of the
Company and the First Extraordinary General Meeting of 2012 of the Company, proceeds from the Issue shall be
applied to the repayment of bank loans and provision of additional working capital for the Company. The actual
use of the proceeds shall be determined by the Board of Directors, as authorised by the general meeting, based
on the fund requirements of the Company. For details, please refer to the Overseas Regulatory Announcement
published by the Company on 11 July 2012. As at 31 December 2012, proceeds from the Issue had been fully
utilised.
? Commitment of issue proceeds
? Applicable ? N/A
? Change in the use of issue proceeds
? Applicable ? N/A
ZTE CORPORATION
44
Report of the Board of Directors
(4) Analysis of principal subsidiaries and investee companies
Unit: RMB in million
Name of company
Corporate
type Business sector
Principal products
or services Registered capital
Total
assets
Net
assets
Operating
revenue
Operating
profit
Net
profit
Zhongxing Software Subsidiary Manufacturing Software
development
RMB51.08 million 20,156.3 5,592.3 16,154.1 (1,185.7) 1,075.0
ZTE HK Subsidiary Information technology General business HKD995 million 27,258.3 1,836.8 20,096.5 (281.4) (479.7)
ZTE ICT Company Limited Subsidiary Communications and
related equipment
manufacturing
Design and sales
of corporate
management
hardware and
software products
RMB60 million 1,472.3 593.6 867.3 92.2 150.7
ZTE Kangxun Subsidiary Communications and
related equipment
manufacturing
Manufacturing of
electronic products
and accessories
RMB1,755 million 18,717.9 2,436.6 49,032.5 279.2 207.8
ZTE Microelectronics
Technology Company
Limited
Subsidiary Communications and
related equipment
manufacturing
Design, generation
and sales of
integrated circuits
RMB100 million 1,794.5 730.4 3,064.2 368.6 453.9
ZTE (Thailand) Co., Ltd. Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
THB50 million 1,453.7 169.6 845.0 168.9 131.4
ZTE-Communication
Technologies, Ltd.
Subsidiary Communications
services
Sales of
communications
products and
engineering
services
RUB23.18 million 361.1 (115.4) 374.2 (224.5) (196.8)
Shenzhen Zhongxing
Telecom Technology &
Service Company Limited
Subsidiary Communications
services
Sales of
communications
products and
engineering
services
RMB200 million 4,706.2 774.3 2,864.2 136.4 104.4
ZTE Telecom India Private
Ltd.
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
USD50 million 2,988.5 (869.8) 1,669.6 71.6 71.9
ZTE Corporation Mexico S.
DE R.L DE C.V.
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
USD5,000 1,132.0 (178.6) 1,233.7 (120.4) (119.5)
ZTE (Malaysia) Corporation
SDN. BHD
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
USD60,000 536.6 (21.8) 473.7 99.9 89.3
Zhongxing Telecom Pakistan
(Private) Ltd.
Subsidiary Communications and
related equipment
manufacturing
Sales of
communications
products and
engineering
services
RUB37,919,000 415.5 (43.7) 564.7 130.1 82.6
For information of other subsidiaries and principal investee companies, please refer to Note V 11.Long-term equity
investments and Note VII to the financial report prepared in accordance with PRC ASBEs.
ANNUAL REPORT 2014
45
For the year, 12 subsidiaries reported change of more than 30% in operating results as compared with the same
period last year with a significant impact on the consolidated operating results of the Company. Net profit of
Zhongxing Software, ZTE HK, Shenzhen Zhongxing Telecom Technology & Service Company Limited and ZTE
Corporation Mexico S. DE R.L DE C.V. decreased by 35.70%, 236.07%, 38.13% and 334.67%, respectively, as
compared with the same period last year, mainly as a result of decreased gross profit; net profit of ZTE Kangxun,
ZTE Microelectronics Technology Company Limited, ZTE ICT Company Limited and ZTE (Malaysia) Corporation
SDN. BHD increased by 122.57%, 279.86%, 161.26% and 199.76%, respectively, as compared with the same
period last year, mainly as a result of the increase in gross profit; net profit of ZTE-Communication Technologies,
Ltd. decreased by 5,355.28% as compared with the same period last year mainly as a result of exchange rate
volatility; net profit of ZTE (Thailand) Co., Ltd. and Zhongxing Telecom Pakistan (Private) Ltd. increased by 241.01%
and 5,778.55%, respectively, as compared with the same period last year, mainly as a result of increased gross
profit and exchange gains; net profit of ZTE Telecom India Private Ltd. increased by 124.88% as compared with
the same period last year, mainly as a result of decreased exchange losses and increased interest income.
For details of subsidiaries acquired or disposed of during the year and their effect, please refer to Note VI to the
financial report prepared in accordance with PRC ASBEs.
(5) Significant investments using funds other than issue proceeds
? Applicable ? N/A
11. Warnings of and reasons for any projected accumulated net loss from the beginning of the year
to the end of the next reporting period or substantial change in accumulated net profit from the
beginning of the year to the end of the next reporting period as compared to the same period last
year
? Applicable ? N/A
12 There was no special-purpose entity under the control of the Company, as provided for in the
practice note of “ASBEs No. 33 — Combined Financial Statements”.
13. Explanatory statement from the Board of Directors and the Supervisory Committee of the Company
on the accountant’s “qualified opinion” for the year.
? Applicable ? N/A
14. Explanatory statement on changes in the accounting policies, accounting estimates, and auditing
methods for the year in comparison with the last annual financial report.
? Applicable ? N/A
15. Explanatory statement on rectification of significant accounting errors for the year requiring
retrospective restatement.
? Applicable ? N/A
ZTE CORPORATION
46
Report of the Board of Directors
16. Explanation of changes to the scope of consolidated financial statement in comparison with the
last annual financial report.
New subsidiaries established in 2014 included: tier-one subsidiaries ?????????????, ???????
???????, ??????????, ?????????????? and ?????????????; tier-two
subsidiaries ????????????, ZTE HK CORPORATION DOMINICAN REPUBLIC, SRL, ?????????
??????, ????????????, WEIXIANTONG INTERNATIONAL ANGOLA, LIMITADA, ZTE XIN (MACAO)
LIMITED, ????????????, ????????????, ZTE CONGO S.A.R.L, ZTEICT International Co.,
Limited, ????????????, ZTESOFT Deutschland Gmbh, ???????????? and ???????
?????; tier-three subsidiaries ?????????????, ?????????????? and ZTE Managed
Services Southern Europe SL; and a tier-four subsidiary ZTE SERVICE ROMANIA SRL.
Anhui Wantong Posts and Telecommunication Company Limited, a subsidiary of the Company, has disposed
of its 100% equity interests in Yalong. The date of equity interest disposal was 10 April 2014 and Yalong was
deconsolidated from the Group as from April 2014.
17. Profit distribution or conversion from capital reserve
(1) Proposal for profit distribution and conversion from capital reserve of 2014
Audited net profit of the Company for the year 2014 calculated in accordance with PRC ASBEs amounted to
RMB1,558,172,000. Together with undistributed profit of RMB128,756,000 carried forward at the beginning of
the year and after deducting statutory surplus reserves of RMB155,817,000, profit available for distribution to
shareholders amounted to RMB1,531,111,000.
Audited net profit of the Company for the year 2014 calculated in accordance with HKFRSs amounted to
RMB1,616,476,000. Together with undistributed profit of RMB32,930,000 carried forward at the beginning of
the year and after deducting statutory surplus reserves of RMB155,817,000, profit available for distribution to
shareholders amounted to RMB1,493,589,000.
In accordance with the requirements of the Ministry of Finance of the People’s Republic of China and the Articles
of Association, profit available for distribution shall be the lower of profit available for distribution as calculated
in accordance with PRC ASBEs and that calculated in accordance with HKFRSs. Therefore the amount of profit
available for distribution is RMB1,493,589,000. The Board of Directors of the Company has recommended as
follows:
Proposed profit distribution for 2014: Cash dividend of RMB2.0 for every 10 shares (before tax) based on the
Company’s total share capital of 3,437,541,278 shares as at 31 December 2014.
Proposed conversion from capital reserve for 2014: the creation of 2 shares for every 10 shares by way of
conversion of capital reserve, representing a total increase of 687,508,255 shares based on the Company’s total
share capital of 3,437,541,278 shares as at 31 December 2014. Fractional entitlements shall be dealt with in
accordance with relevant rules of the stock exchange and the clearing house of the place where the stocks of the
Company are listed. As a result, the actual amount of share capital increased by conversion of capital reserve and
the actual number of shares created in aggregate after implementation of the proposed conversion from capital
reserve might be slightly different from the aforesaid estimates.
As for H shareholders, please refer to the circular dated 9 April 2015 for withholding of income taxes on dividends
paid to non-resident corporate shareholders and individual shareholders.
ANNUAL REPORT 2014
47
(2) Formulation, implementation and adjustment of profit distribution policies
According to the Articles of Association of ZTE, 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 profit distribution plan of the Company was formulated by the Board of Directors and
approved by the general meeting. Following a resolution on the profit distribution plan by the general meeting, the
Board of Directors should complete the distribution of dividend (or shares) within two months after the general
meeting; where the Board of Directors of the Company formulates a profit distribution proposal, the views of
Independent Non-executive Directors should be sufficiently heard and an independent opinion should be furnished
by the Independent Non-executive Directors; after the announcement of the profit distribution plan is published
in accordance with the law, the views and propositions of shareholders, the minority shareholders in particular,
should be sufficiently heard. If the Board of Directors has not drawn up a cash profit distribution proposal, the
reasons for not making the profit distribution and the use of funds not applied to profit distribution and retained
at the Company should be disclosed in regular reports, and the Independent Non-executive Directors should
furnish an independent opinion thereon.
The 2013 profit distribution plan of the Company was considered and approved at the 2013 Annual General Meeting
held on 29 May 2014 and distribution was completed on 24 July 2014. A cash dividend of RMB0.3 for every 10
shares (before tax) held was paid on the basis of the total share capital of the Company of 3,437,541,278 as at
the record date (comprising 2,807,955,833 A shares and 629,585,445 H shares). The record date for A shares
is 23 July 2014 and the ex-dividend date for A shares is 24 July 2014. The record date for H shares is 9 June
2014 and the dividend payment date for H shares is 24 July 2014. For details, please refer to the “Information
on Payment of Final Dividend” published by the Company on 16 July 2014.
Aggregate profit distribution of the Company in the form of cash in 2012-2014 accounted for 163.42% of the annual
average profit available for distribution in the past three years, in compliance with Article 234 of the Articles of
Association (amended in June 2014) which states that “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 year.
(3) Profit distribution or conversion from capital reserve in the past three years (including the reporting
period)
Year
Profit distribution or conversion from capital
reserve plan or proposal Implementation
2014 The profit distribution and conversion from capital
reserve proposal:
Cash dividend of RMB2.0 for every 10 shares
(before tax) based on the Company’s total share
capital of 3,437,541,278 shares as at 31 December
2014, creation of 2 shares for every 10 shares by
way of conversion of capital reserve.
Subject to consideration and approval
at the 2014 Annual General
Meeting of the Company.
2013 The profit distribution plan:
Cash dividend of RMB0.3 for every 10 shares
(before tax) based on the Company’s total share
capital of 3,437,541,278 shares as at 31 December
2013.
Considered and approved at the 2013
Annual General Meeting of the
Company.
2012 The profit distribution plan: No profit distribution or
conversion from capital reserve was conducted by
the Company.
Considered and approved at the 2012
Annual General Meeting of the
Company.
ZTE CORPORATION
48
Report of the Board of Directors
Details of cash dividend distribution for the past three years (including the reporting period):
Unit: RMB in ten thousands
Year
Cash distribution
Amount (before tax)
Net profit
attributable to
shareholders of the
listed company in
the consolidated
statements
Cash distribution
as a percentage
of net profit
attributable to
shareholders of the
listed company in
the consolidated
statements
Profit of the year
available for
distribution
2014 68,750.83 263,357.10 26.11% 149,358.90
2013 10,312.62 135,765.70 7.60% 13,605.60
2012 — (284,096.20) — (17,820.30)
Accumulated cash distribution amount in the past three years as a percentage of
average annual profit available for distribution (%) 163.42%
Note: There is no provision in the Articles of Association under which funds utilised in share repurchases by way of cash offer shall be deemed
as cash dividend of the listed company.
18. For details of the Company’s fulfillment of corporate social responsibility, please refer to the “2014
Sustainable Development Report” published on http://www.cninfo.com.cn on 26 March 2015.
The Company and its staff have been committed to rewarding the society and the cities and countries where the
Company operates. In 2014, the Company continued to conduct community welfare projects under its brand name
in line with its aim to “promote charity, fulfill social responsibility and advance community welfare development.”
Stronger efforts were made to integrate its community welfare resources and enhance the “ZTE Community
Welfare Foundation” as well as to encourage and promote various types of philanthropist activities, in a bid
to offer assistance to the underprivileged to the best of our ability in compassionate dedication to our society.
We started a number of community welfare projects in aid for the underprivileged, disaster relief, environmental
protection and incentives for technological development, which were operated in accordance with standardised
rules and regulations, under improved organisational structures and with higher transparency. For details of our
social welfare activities (including donations), please refer to the “2014 Sustainable Development Report” published
by the Company on http://www.cninfo.com.cn on 26 March 2015.
ANNUAL REPORT 2014
49
19. Reception of investors, communications and press interviews during the year
During the year, the Company hosted 51 receptions of investors for research purposes, receiving 108 institutional
investors but no individual investor or other researchers. For details, please refer to the following table. The
Company did not disclose, reveal or divulge unpublished material information to such investors.
Nature Time Location Mode Audience received
Key contents of
discussion Materials furnished
External
meetings
January 2014 Shanghai UBS investors’ meeting Customers of UBS Day-to-day operations of
the Company
Published announcements
and regular reports
January 2014 Hong Kong CICC investors’ meeting Customers of CICC Day-to-day operations of
the Company
Published announcements
and regular reports
February 2014 Shenzhen Shenyin Wanguo investors’
meeting
Customers of Shenyin Wanguo Day-to-day operations of
the Company
Published announcements
and regular reports
April 2014 Shenzhen Guotai Jun’an investors’ meeting Customers of Guotai Jun’an Day-to-day operations of
the Company
Published announcements
and regular reports
May 2014 Shanghai Orient Securities investors’
meeting
Customers of Orient Securities Day-to-day operations of
the Company
Published announcements
and regular reports
May 2014 Hong Kong Morgan Stanley investors’
meeting
Customers of Morgan Stanley Day-to-day operations of
the Company
Published announcements
and regular reports
May 2014 Hong Kong BNP investors’ meeting Customers of BNP Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Chengdu CITIC Securities investors’
meeting
Customers of CITIC Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Shanghai China Securities investors’
meeting
Customers of China Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Hubei Changjiang Securities investors’
meeting
Customers of Changjiang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Shanghai Guosen Securities investors’
meeting
Customers of Guosen Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Hangzhou Essence Securities investors’
meeting
Customers of Essence Securities Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Beijing Jefferies investors’ meeting Customers of Jefferies Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Beijing JP Morgan investors’ meeting Customers of JP Morgan Day-to-day operations of
the Company
Published announcements
and regular reports
June 2014 Shenzhen Maquarie Securities investors’
meeting
Customers of Maquarie Securities Day-to-day operations of
the Company
Published announcements
and regular reports
August 2014 Shanghai Hua Chuang Securities investors’
meeting
Customers of Hua Chuang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shenzhen Everbright Securities investors’
meeting
Customers of Everbright Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shanghai Nomura Securities investors’
meeting
Customers of Nomura Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shenzhen Guotai Jun’an investors’ meeting Customers of Guotai Jun’an Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Chengdu Sinolink Securities investors’
meeting
Customers of Sinolink Securities Day-to-day operations of
the Company
Published announcements
and regular reports
September
2014
Shenzhen Orient Securities investors’
meeting
Customers of Orient Securities Day-to-day operations of
the Company
Published announcements
and regular reports
October 2014 Hong Kong Credit Suisse investors’ meeting Customers of Credit Suisse Day-to-day operations of
the Company
Published announcements
and regular reports
October 2014 Hong Kong Jefferies investors’ meeting Customers of Jefferies Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Macau Citi Bank investors’ meeting Customers of Citi Bank Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Beijing Merrill Lynch investors’ meeting Customers of Merrill Lynch Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Hong Kong JP Morgan investors’ meeting Customers of JP Morgan Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Beijing Shenyin Wanguo investors’
meeting
Customers of Shenyin Wanguo Day-to-day operations of
the Company
Published announcements
and regular reports
November
2014
Beijing CICC investors’ meeting Customers of CICC Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Haikou Galaxy Securities investors’
meeting
Customers of Galaxy Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Shenzhen China Merchant Securities
investors’ meeting
Customers of China Merchant Securities Day-to-day operations of
the Company
Published announcements
and regular reports
ZTE CORPORATION
50
Report of the Board of Directors
Nature Time Location Mode Audience received
Key contents of
discussion Materials furnished
December
2014
Shenzhen Essence Securities investors’
meeting
Customers of Essence Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Shanghai Changjiang Securities investors’
meeting
Customers of Changjiang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Shanghai China Securities investors’
meeting
Customers of China Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Beijing Minsheng Securities investors’
meeting
Customers of Minsheng Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Sanya CITIC Securities investors’
meeting
Customers of CITIC Securities Day-to-day operations of
the Company
Published announcements
and regular reports
December
2014
Xiamen Hua Chuang Securities investors’
meeting
Customers of Hua Chuang Securities Day-to-day operations of
the Company
Published announcements
and regular reports
Company
presentation
March 2014 Hong Kong Results presentation Analysts and investors 2013 Annual Report Published announcements
and regular reports
Overseas investors
Company visits
by investors
January to
December
2014
Company Verbal Teng Yue Partners, BOCI, Genesis Capital, China Orient AMC, ????, Mirae
Asset Global Investment, Pine River, ????, Ji-Asia, Mizuho Securities Asia
Limited, JK capital, Kayak Investment Partners, CIMB, Capital International,
Morgan Stanley, Public Mutual, Macquarie Securities, HI Asset Management,
HSBC, Momentum Investments, Old Mutual Investment Group, Stanlib, Credit
Suisse, Ashmore Equities Investment Management, Haitong International, ISI
Group, Marvin&Palmer Associates, Inc., SMBC Friend Securities, Claw Capital,
UBS Asset Management, AIA International Limited, SPARX Asia Investment
Advisors Limited, Asiya Investment, Balyasny Asset Management, Guotai Jun’an
(Hong Kong), AGF Investments, East Capital, Fidelity Investments, Thornourg
Investment Management, Norges Bank, Resona Bank, UBS, Northcape Capital,
Egerton Capital (UK) LLP, City National Rochdale Investment Management,
HSBC Global Asset Management (Hong Kong) Limited, China Merchant (HK),
Cantor Fitzgerald, CLSA, Nomura Securities, Amundi Asset Mgmt Hong Kong,
DIAM Asset Management (HK), Boci-prudential Asset Management Ltd, Keywise
Capital Management (HK) Ltd, Manulife Asset Management, ????????
Day-to-day operations of
the Company
Published announcements
and regular reports
Domestic investors
January to
December
2014
Company Verbal Hua Tai United Securities, China AMC, Orient Securities Asset Management,
Sealand Securities, ??????, Huatai Financial Holdings, ????, Guangfa
Securities, China Merchant Securities, Guangzheng Hang Seng Securities,
Rongheng Capital, Everbright Securities, Shenyin Wanguo, ?????, CITIC
Securities, Bosera Fund, Rongtong Fund, Invesco Great Wall, CCB Fund, Beijing
Da Guan Investment, Hua Chuang Securities, CC Fund, Dacheng Fund, China
Southern Asset Management, Changsheng Fund, Ping An Annuity, Guosen
Securities, China Securities, Gintong, ????????, Co-Power Capital
Management, Xin Ding Fund, ??????, ??????????, Minsheng
Royal Fund Management, Tomorrow Holding, Tulip Capital, Lion Fund
Day-to-day operations of
the Company
Published announcements
and regular reports
ANNUAL REPORT 2014
51
(III) Business outlook for 2015 and risk exposures
1. Business outlook for 2015
Looking to 2015, the mobile inter-connection among all things will constitute the main theme underlying
developments of the telecommunications industry. From traditional inter-personal communication, we have
gradually progressed to communication between people and machines and communication between machines.
Given the characteristic features of “omni-connection, omni-present cloud service and safe privacy,” the traditional
telecommunications industry will face challenges as well as opportunities in its development. In connection with
carriers’ networks, large-scale deployment, capacity expansion, performance optimisation, and in-depth coverage
of 4G networks will drive new demand for investments in the telecommunications industry, as the 4G era has
started in most markets around the globe. Meanwhile, carriers will need to accelerate the construction of pipeline
intelligentization and “creating value out of information” will become our new opportunities. In connection with
government and corporate networks, there will be sophisticated integration between the telecommunications
industries and traditional industries, as opportunities relating to government and corporate networks will abound
in the information revolution triggered by emerging technologies such as Cloud Computing, Big Data and high-
power wireless charge. In connection with handset terminals, the new generation of handset terminals will feature
a higher level of smart functions, flexibility and integration. Next-generation voice control technologies and handset
security will also constitute new strategic focuses.
To address the aforesaid challenges and opportunities in 2015, the Group will focus on the three mainstream
markets of “carriers, government and corporate sectors and consumers” under the theme of “capitalising on
opportunities arising from macro-restructuring to create value out of information”. Our business development will
centre on “new sectors” such as smart voice, smart wireless charger, distributive on-grid power generation, big
data platform and its applications, internet finance, and mobile payments, etc, seeking to achieve breakthroughs
in profitability through innovations in technologies and business models.
2. Risk Exposures
(1) Country risk
Given the complex nature of international economic and political conditions, the Group will continue to be
exposed to trade protection, debtors’ risks, political risks or even warfare or the succession of political regimes
in countries where the Group’s projects are operated. As such, a very high level of operational and risk control
capabilities is required. Currently, the Group conducts systematic management of country risks mainly through
regular assessment, timely warning and proactive response.
(2) Risk associated with intellectual property rights
The Group has always attached great importance to product technology research and development as well as the
management of intellectual property rights. We maintain our investment in technology research and development
each year at approximately 10% of our sales revenue. Trademarks of the Group’s products and services are all
registered, and such products and services are all protected under relevant patent rights. While the Group has
adopted stringent measures to protect its intellectual property rights, potential conflicts in intellectual property
rights between the Group and other telecommunications equipment manufacturers, franchisee companies and
carriers which partner with the Group cannot totally be ruled out. The Group will continue to drive the solution of
related issues with an open-minded, cooperative and mutually beneficial approach.
ZTE CORPORATION
52
Report of the Board of Directors
(3) Exchange rate risk
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. The Group seeks to mitigate the impact of exchange rate volatility on its operations by managing
its foreign exchange risks through the use of measures such as the business planning, consolidated hedging and
financial instruments based on the principle of exposure management.
(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 by managing
the structure of its interest-bearing liabilities.
(5) Credit risk
The Group provides one-stop communications solutions to its customers. With the swift 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 by adopting various
credit management measures, such as international customer credit rating, customer credit limit management,
credit risk assessment for projects, credit control against customers with faulty payment records, the purchase of
credit insurance and the transfer of credit risks through appropriate financial instruments, etc.
(IV) Other Matters in the Report of the Board of Directors
1. Fixed assets
Details of changes in fixed assets of the Company and the Group for the year are set out in Note 15 to the
financial statements prepared in accordance with HKFRSs.
2. Bank loans and other borrowings
Details of bank loans and other borrowings of the Company and the Group as at 31 December 2014 are set out
in Note 33 to the financial statements prepared in accordance with HKFRSs.
3. Reserves
Details of the reserves and changes in the reserves of the Company and the Group for the year are set out in
Note 41 to the financial statements prepared in accordance with HKFRSs.
4. Pre-emptive rights
There is no provision under the Company Law or the Articles of Association regarding pre-emptive rights that
requires the Company to offer new shares to its existing shareholders on a pro-rata basis.
ANNUAL REPORT 2014
53
5. Share capital
Details of the share capital of the Company, together with the changes in the share capital and the reasons
therefor, are set out in Note 39 to the financial statements prepared in accordance with HKFRSs and the section
headed “Changes in shareholdings and information of shareholders (I) Changes in shareholdings during the year”
in this report.
6. Competing interest
None of the Directors has interest in any business which competes or is likely to compete, either directly or
indirectly, with the businesses of the Group.
7. List of Directors
The list of Directors of the Company is set out in the section headed “Directors, Supervisors, Senior Management
and Employees — (II) Changes in the Shareholdings of the Company’s Directors, Supervisors, Senior Management
and Annual Remuneration” in this report.
8. Taxation
In accordance with the Law on Individual Income Tax of the People’s Republic of China and its regulations for
implementation, dividends/bonuses obtained by overseas resident individual shareholders from shares issued
in Hong Kong by Mainland non-foreign-invested enterprises shall be subject, under the category of “interests,
dividend, and bonus income,” to individual income tax to be withheld and paid on behalf of such shareholders
by the withholding agent in accordance with the law. The Company shall withhold and pay on behalf of such
shareholders such tax amounts in accordance with “Notice on the Charge and Management of Individual Income
Tax After the Repeal of the Document Guo Shui Fa [1993] No. 045” (Guo Shui Han [2011] No. 348) ??????
[1993]045?????????????????????????[2011]348?? issued by the State Administration
of Taxation, “Tax Arrangements on Dividends Paid to Hong Kong Residents by Mainland Companies” issued by
the Hong Kong Stock Exchange and pertinent laws and regulations. Shareholders are advised to consult their tax
advisors on implications relating to PRC, Hong Kong and other taxes involved in the ownership and disposal of
H shares of the Company.
ZTE CORPORATION
54
Management Discussion and Analysis
The financial data below are extracted from the Group’s audited financial statements prepared in accordance with
HKFRSs. The following discussion and analysis should be read in conjunction with the Group’s financial statements
audited by Ernst & Young and the accompanying notes as set out in this report.
Unit: RMB in millions
Profit or loss and other comprehensive income statement 2014 2013
Operating revenue:
Carriers’ networks 46,768.2 40,695.7
Handset terminals 23,117.1 21,702.1
Telecommunication software systems, services and other products 11,586.0 12,835.9
Total revenue 81,471.3 75,233.7
Cost of sales (57,759.0) (54,775.1)
Gross profit 23,712.3 20,458.6
Other income and gains 4,561.2 4,905.3
Research and development costs (9,008.5) (7,383.9)
Selling and distribution expenses (10,391.6) (10,158.5)
Administrative expenses (2,138.1) (2,258.7)
Other expenses (1,582.3) (2,119.1)
Profit from operating activities 5,153.0 3,443.7
Finance costs (1,561.7) (1,650.4)
Share of profit and loss of joint ventures and associates (53.0) 34.5
Profit before tax 3,538.3 1,827.8
Income tax expense (810.6) (394.2)
Net profit 2,727.7 1,433.6
Attributable to:
Non-controlling interests (94.1) (76.0)
Attributable to:
Shareholders of parent company 2,633.6 1,357.6
Other comprehensive income (333.6) (279.3)
Comprehensive income 2,394.1 1,154.3
Dividend 687.5 103.1
Earnings per share — Basic RMB0.77 RMB0.39
— Diluted RMB0.77 RMB0.39
REVENUE ANALYSIS BY PRODUCT AND GEOGRAPHIC REGION
The following table sets out the revenue attributable to the major product segments of the Group for the periods
indicated, in monetary amount and as a percentage of the total operating revenue:
Unit: RMB in millions
2014 2013
Product segment Revenue
As a
percentage
of operating
revenue Revenue
As a
percentage
of operating
revenue
Carriers’ networks 46,768.2 57.4% 40,695.7 54.1%
Handset terminals 23,117.1 28.4% 21,702.1 28.8%
Telecommunication software systems, services
and other products 11,586.0 14.2% 12,835.9 17.1%
Total 81,471.3 100.0% 75,233.7 100.0%
ANNUAL REPORT 2014
55
The following table sets out the revenue of the Group attributable to the PRC, Asia (excluding the PRC), Africa,
Europe, the Americas and Oceania for the periods indicated, in monetary amount and as a percentage of the
total operating revenue:
Unit: RMB in millions
2014 2013
Region Revenue
As a
percentage
of operating
revenue Revenue
As a
percentage
of operating
revenue
The PRC 40,583.5 49.8% 35,636.0 47.4%
Asia (excluding the PRC) 12,131.6 14.9% 13,849.5 18.4%
Africa 6,174.2 7.6% 5,866.0 7.8%
Europe, the Americas and Oceania 22,582.0 27.7% 19,882.2 26.4%
Total 81,471.3 100.0% 75,233.7 100.0%
The Group reported RMB81,471.3 million in operating revenue for 2014, improving by 8.3% as compared with
last year. Operating revenue generated from the domestic business amounted to RMB40,583.5 million, increasing
by 13.9% as compared with last year. Operating revenue generated from the international business also rose by
3.3%, as compared with last year, to RMB40,887.8 million.
Analysed by product segment, year-on-year growth of operating revenue was reported for carriers’ networks
and handset terminals, while decline was reported for telecommunication software systems, services and other
products. The increase in operating revenue from the Group’s carriers’ networks for 2014 reflected mainly the
increase in operating revenue from 4G system products, routers and switches in the domestic and international
markets, as well as optical communication system products in the domestic market. The increase in operating
revenue from the Group’s handset terminals for 2014 reflected mainly the increase in operating revenue generated
from 4G handsets in the domestic and international markets. The decrease in operating revenue from the Group’s
telecommunication software systems, services and other products for 2014 mainly reflected the decline in operating
revenue from international services.
COST OF SALES AND GROSS PROFIT
The following tables set out (1) the cost of sales of the Group and cost of sales as a percentage of total operating
revenue and (2) the Group’s gross profit and gross profit margin for the periods indicated:
Unit: RMB in millions
2014 2013
Product segment Cost of sales
As a
percentage
of product
segment
revenue Cost of sales
As a
percentage
of product
segment
revenue
Carriers’ networks 30,137.6 64.4% 26,612.8 65.4%
Handset terminals 19,603.5 84.8% 18,523.1 85.4%
Telecommunication software systems, services
and other products 8,017.9 69.2% 9,639.2 75.1%
Total 57,759.0 70.9% 54,775.1 72.8%
ZTE CORPORATION
56
Management Discussion and Analysis
Unit: RMB in millions
2014 2013
Product segment Gross profit
Gross profit
margin Gross profit
Gross profit
margin
Carriers’ networks 16,630.6 35.6% 14,082.9 34.6%
Handset terminals 3,513.6 15.2% 3,179.0 14.6%
Telecommunication software systems, services
and other products 3,568.1 30.8% 3,196.7 24.9%
Total 23,712.3 29.1% 20,458.6 27.2%
Cost of sales of the Group for 2014 increased by 5.4% as compared to last year to RMB57,759.0 million. The
Group’s overall gross profit margin of 29.1% was 1.9 percentage points higher as compared to last year, reflecting
mainly higher gross profit margins for carriers’ networks, handset terminals and telecommunication software
systems, services and other products.
Cost of sales of the Group’s carriers’ networks for 2014 amounted to RMB30,137.6 million, a 13.2% increase as
compared to last year. The relevant gross profit margin was 35.6% versus 34.6% for last year. The increase in
gross profit margin of carriers’ networks mainly reflected growth in gross profit margin of 4G system products in
the domestic and international markets, which accounted for a significant share in segment revenue.
Cost of sales of the Group’s handset terminals for 2014 amounted to RMB19,603.5 million, an increase of 5.8% as
compared to last year. The relevant gross profit margin was 15.2% versus 14.6% for last year. The improvement in
gross profit margin for handset terminals was in tandem with the increase in gross profit margin for 4G handsets
in the domestic and international markets.
Cost of sales of the Group’s telecommunication software systems, services and other products for 2014 amounted
to RMB8,017.9 million, decreasing by 16.8% as compared to last year. The relevant gross profit margin was 30.8%,
compared to 24.9% for last year. The increase in gross profit margin for telecommunication software systems,
services and other products was mainly attributable to improved gross profit margin for video and network terminals
products, which accounted for a significant share in segment revenue.
OTHER INCOME AND GAINS
Other income and gains of the Group for 2014 amounted to RMB4,561.2 million, representing a 7.0% decrease
compared to RMB4,905.3 million for 2013. The decrease reflected mainly gains resulting from the disposal of equity
interests in Shenzhen ZNV Technology Co., Ltd. by the Group for the same period last year and the absence of
such transaction for the current period.
RESEARCH AND DEVELOPMENT COSTS
The Group’s research and development costs for 2014 increased by 22.0% to RMB9,008.5 million from RMB7,383.9
million for 2013, and rose by 1.3 percentage points from 9.8% for 2013 to 11.1% for 2014 as a percentage of
operating revenue, attributable mainly to the Group’s increased investment in the research and development of
products such as 4G, 5G, high-end routers and core critical chips for the period.
ANNUAL REPORT 2014
57
SELLING AND DISTRIBUTION EXPENSES
The Group’s selling and distribution expenses for 2014 increased by 2.3% to RMB10,391.6 million from
RMB10,158.5 million for 2013, reflecting mainly the combined effect of increased investments in the European
and American markets and decreased investments in the African market for the period. Selling and distribution
expenses as a percentage of operating revenue dropped by 0.7 percentage points to 12.8% for 2014, compared
to 13.5% for 2013.
ADMINISTRATIVE EXPENSES
Administrative expenses of the Group for 2014 decreased by 5.3% to RMB2,138.1 million, as compared to
RMB2,258.7 million for 2013, mainly attributable to the Group’s enhanced control over administrative expenses
during the period. Administrative expenses as a percentage of operating revenue decreased by 0.4 percentage
points from 3.0% for 2013 to 2.6% for 2014.
OTHER EXPENSES
Other expenses of the Group for 2014 decreased by 25.3% to RMB1,582.3 million, as compared to RMB2,119.1
million for 2013, reflecting mainly the decrease in bad debt provisions and the decrease in losses arising from
exchange rate volatility for the period.
PROFIT FROM OPERATING ACTIVITIES
The Group’s profit from operating activities for 2014 increased to RMB5,153.0 million, as compared to RMB3,443.7
million for 2013, while the operating profit margin increased from 4.6% for 2013 to 6.3% for 2014, primarily as a
result of higher overall gross profit margin and gross profit of the Group for the period.
FINANCE COSTS
Finance costs of the Group for 2014 decreased by 5.4% to RMB1,561.7 million as compared to RMB1,650.4
million for 2013, reflecting mainly the Group’s effort to strengthen treasury management, adjust its debt structure
and vigorously explore low-cost financing channels in overseas markets for the period.
INCOME TAX EXPENSE
The Group’s income tax expense for 2014 was RMB810.6 million, which was 105.6% higher as compared to
RMB394.2 million for 2013, reflecting mainly the increase in the Group’s profit for the period.
PROFIT ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
The Group’s profit attributable to non-controlling interests for 2014 amounted to RMB94.1 million, representing an
increase of 23.8% as compared to RMB76.0 million for 2013, mainly attributable to the increase in the profit of
certain subsidiaries of the Group for the period.
OTHER COMPREHENSIVE INCOME
Other comprehensive income of the Group for 2014 decreased by 19.4% to RMB-333.6 million, compared to
RMB-279.3 million for 2013, mainly reflecting losses arising from change in the fair value of the Group’s available-
for-sale financial assets for the period compared to gains for the same period last year.
ZTE CORPORATION
58
Management Discussion and Analysis
CAPITAL MANAGEMENT POLICY
The Group has adopted an appropriate capital management policy, whereby its working capital is mainly financed
through its internal resources and bank loans. The Group confirms that sufficient funds are in place to meet its
debt repayment obligations as due, capital expenditure and the requirements of normal production operations.
DEBT-EQUITY RATIO AND THE BASIS OF CALCULATION
Debt-equity ratio is calculated by dividing interest-bearing liabilities by the sum of interest-bearing liabilities and
equity (including non-controlling interests).
The Group’s debt-equity ratio for 2014 was 55.0%, decreasing by 2.9 percentage points as compared to 57.9%
for 2013. The decrease was mainly attributable to the increase in reserve from operating profit of the Group for
the period.
LIQUIDITY AND CAPITAL RESOURCES
In 2014, 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.
Cash and cash equivalents of the Group as of 31 December 2014 amounted to RMB17,230.1 million.
CASH FLOW DATA
Unit: RMB in millions
2014 2013
Net cash inflow from operating activities 1,101.9 446.9
Net cash outflow from investing activities (2,022.3) (1,171.0)
Net cash outflow from financing activities (1,915.9) (1,045.1)
Net decrease in cash and cash equivalents (2,836.3) (1,769.2)
Cash and cash equivalents at year-end 17,230.1 20,118.3
OPERATING ACTIVITIES
The Group reported net cash inflow from operating activities of RMB1,101.9 million for 2014, compared to
RMB446.9 million for 2013, mainly reflecting year-on-year increase in cash received from sales of goods and
provision of services by RMB7,783.5 million, increase in other cash receipts relating to operating activities by
RMB652.2 million, decrease in tax refund received by RMB853.5 million, increase in cash paid for the purchase
of goods and services by RMB4,948.3 million, increase in cash payments to and on behalf of employees by
RMB765.7 million, increase in payments of tax expenses by RMB806.3 million, increase in other cash payments
relating to operating activities by RMB234.0 million, and increase in cash payments relating to dividend distribution
or interest repayment by RMB173.0 million.
INVESTING ACTIVITIES
The Group’s net cash outflow from investing activities was RMB2,022.3 million for 2014 and RMB1,171.0 million
for 2013, reflecting mainly cash received following the disposal of equity interests in Shenzhen ZNV Technology
Co., Ltd. by the Group for the same period last year and the absence of such transaction for the current period.
ANNUAL REPORT 2014
59
FINANCING ACTIVITIES
The Group’s net cash outflow from financing activities for 2014 was RMB1,915.9 million, compared to RMB1,045.1
million for 2013, reflecting mainly the combined effect of the increase in cash paid for debt settlement by
RMB17,248.6 million and the increase in cash received from borrowings by RMB16,142.5 million for the period.
CAPITAL EXPENDITURE
The following table sets out the Group’s capital expenditure for the periods indicated. The following capital
expenditure was funded by the Group’s long-term bank loans, cash generated from operating activities and
government grants.
Unit: RMB in millions
Capital Expenditure 2014 2013
Purchases of fixed assets and increase of construction in progress payments 1,007.1 904.1
The Group’s capital expenditure for 2014 amounting to RMB1,007.1 million was mainly used for the construction
work of Xi’an Research and Development Centre, Nanjing Research and Development Centre, staff quarters in
Shenzhen and Nanjing, equipment installation projects and purchases of machinery and equipment, etc.
INDEBTEDNESS
Unit: RMB in millions
31 December
Item 2014 2013
Secured bank loans 606.6 890.3
Unsecured bank loans 20,474.2 19,838.3
Unit: RMB in millions
31 December
Item 2014 2013
Short-term bank loans 11,041.1 15,343.0
Long-term bank loans 10,039.7 5,385.6
Credit facilities available to the Group included long-term and short-term bank loans, which were mainly used
as working capital. Of the Group’s long-term loans, RMB loans were subject to fixed interest rates, while USD
loans were subject to floating interest rates. The Group’s borrowings were mainly denominated in USD, apart from
certain RMB loans.
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. The Group seeks to mitigate the impact of exchange
rate volatility on its operations by managing its foreign exchange risks through business planning, consolidated
hedging and financial instruments based on the principle of exposure management.
The Group’s bank loans in 2014 increased by RMB352.2 million over previous year and were mainly applied to
provide additional working capital.
ZTE CORPORATION
60
Management Discussion and Analysis
CONTRACTUAL OBLIGATIONS
Unit: RMB in millions
31 December 2014
Item Total Less than 1 year 2-5 years More than 5 years
Bank loans 21,080.8 11,041.1 10,039.7 —
Operating lease obligation 518.9 282.5 234.2 2.2
CONTINGENT LIABILITIES
Unit: RMB in millions
31 December
Item 2014 2013
Guarantees given to banks in connection with borrowings to customers 63.7 46.3
Guarantees given to banks in respect of performance bonds 7,459.0 7,022.3
Total 7,522.7 7,068.6
CAPITAL COMMITMENTS
The Group had the following capital commitments as of the dates indicated:
Unit: RMB in millions
31 December
Item 2014 2013
Land and buildings:
Contracted, but not provided for 214.4 264.3
Investment in associates:
Contracted, but not provided for 5.2 17.3
Land and buildings:
Authorised, but not contracted 21,897.5 21,566.5
DETAILS OF THE SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES OF THE GROUP
Details of the subsidiaries, joint ventures and associates of the Group as at 31 December 2014 are set out in
Notes 20, 21 and 22 to the financial statements prepared in accordance with HKFRSs.
MATERIAL ACQUISITIONS AND DISPOSALS RELATED TO SUBSIDIARIES AND ASSOCIATES
No material acquisitions and disposals related to subsidiaries of the Group were conducted in 2014. Details of the
progress of disposals related to subsidiaries of the Group in the previous years are set out in the section headed
“Material Matters — (IV) Asset Transactions” in this report.
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61
PROSPECTS FOR NEW BUSINESS
Details of the prospects for new business of the Group are set out in the section headed “Chairman’s Statement
— Future Prospects” in this report.
EMPLOYEES
Details of the number of employees, training programmes, remuneration, remuneration policy, bonus and the
share option scheme of the Group as at 31 December 2014 are set out in the sections headed “Directors,
Supervisors, Senior Management and Employees,” “Corporate Governance Structure” and “Material Matters — (V)
Implementation and Impact of the Company’s Share Option Incentive Scheme” in this report.
CHARGES ON ASSETS
Details of the Group’s charges on assets as at 31 December 2014 are set out in Note 33 to the financial statements
prepared under HKFRSs.
PLANS FOR MATERIAL INVESTMENTS OR ACQUISITION OF CAPITAL ASSETS
Details of the Group’s material investments and their performance and prospects as at 31 December 2014 are set
out in the section headed “Material Matters — (IV) Asset Transactions” in this report.
Details of future plans for material investments or acquisition of capital assets are set out in the section headed
“Report of the Board of Directors” in this report.
MARKET RISKS
For details of the Group’s exposure to market risks, please refer to the section headed “Report of the Board of
Directors — (III) Business outlook for 2015 and risk exposures.”
ZTE CORPORATION
62
Material Matters
(I) MATERIAL LITIGATION, ARBITRATION AND GENERAL MEDIA QUERIES
1. Material Litigation and Arbitration
During the year, the Group did not incur any material litigation or arbitration. Progress during the year of immaterial
litigation and arbitration proceedings incurred prior to the year and other litigation and arbitration proceedings
incurred during the year are set out as follows:
(1) In August 2005, an Indian consultant firm instituted an overseas arbitration to claim indemnity against the
Company for a total amount of approximately USD1.714 million in respect of advisory fees, agency fees and
related damages. The consultant firm subsequently raised its total claim amount to approximately USD2.27
million.
The case was heard before an arbitration court formed by International Chamber of Commerce (“ICC”) in
Singapore during 25-28 July 2008. The Company was represented at all arbitration sessions. On 23 July
2010, the arbitration court issued its arbitration award on the arbitration fees, legal fees and travel expenses
relating to the case and ruled that the Company should pay a total of USD1.323 million to the said consultant
firm. Subsequent to the consultant firm’s application to the High Court of Delhi in India on 28 September
2010 for the enforcement of the arbitration award, the Company filed an objection to the enforcement of the
arbitration award on the grounds that the said consultant firm no longer carried the status of a corporate.
On 23 September 2011, the High Court of Delhi in India ruled to reject the said consultant firm’s application
for the enforcement of the arbitration award. It also ruled that the said consultant firm may re-submit its
application for the enforcement of the arbitration award after restoring its corporate status. On 30 April 2013,
the High Court of Delhi in India received the application for the enforcement of arbitration award re-submitted
by the said consultant firm, and the case is currently pending judgement by the court.
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.
(2) In August 2006, a customer instituted arbitration against the Company and demanded indemnity in the amount
of PKR762.98 million (equivalent to approximately RMB47,228,500). Meanwhile, the Company instituted a
counter-claim against the customer’s breach of contract demanding for damages and payment of outstanding
contract amounts. In February 2008, the arbitration authorities issued its award ruling that an indemnity of
PKR328.04 million (equivalent to approximately RMB20,305,700) be paid by the Company. In accordance
with local laws, the Company had filed with the local court an objection against the arbitration award and a
claim against the customer’s breach of contract. Based on the legal opinion furnished by the legal counsel
engaged by the Company, the case will likely stand a prolonged period of litigation. There was no substantial
progress of the case during the reporting period.
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.
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63
(3) Since April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction Fifth
Division”), an engineering contractor of the Company, had staged a slowdown in work followed by total
suspension, as part of its move to demand the Company to increase the contract amount on the grounds
that raw material prices had increased. In September 2008, the Company instituted litigation with the
Nanshan District People’s Court of Shenzhen (“Nanshan Court”), pleading for the revocation of the contract
and court order of the evacuation of the work sites by China Construction Fifth Division, as well as a
penalty payment for work delay in the amount of RMB24.912 million and damages of RMB11.319 million
payable to the Company. Nanshan Court handed down the first trial judgement in July 2009, ruling that the
contract between the Company and China Construction Fifth Division be revoked and a penalty payment
in the amount of RMB12.817 million be payable by China Construction Fifth Division. China Construction
Fifth Division filed an appeal against the aforesaid judgement with Shenzhen Intermediate People’s Court
(“Shenzhen Intermediate Court”). Following the conclusion of court hearing for the second trial, Shenzhen
Intermediate Court ruled to suspend trial, pending the result of the final trial of China Construction Fifth
Division’s case with Shenzhen Intermediate Court below. As the Guangdong Provincial Higher People’s Court
(“Guangdong Higher Court”) handed down the final trial judgement for China Construction Fifth Division’s
case with Shenzhen Intermediate Court in May 2014, Shenzhen Intermediate Court resumed trial of the case
and made its second trial judgement in November 2014, ruling that China Construction Fifth Division was
not required to pay the penalty payment of RMB12.817 million to the Company.
In October and November 2009, the Company further instituted two lawsuits with Nanshan Court, demanding
China Construction Fifth Division to undertake a penalty payment for work delay in the amount of RMB30.615
million and the payment of RMB39.537 million, representing the amount of work payments in excess of the
total contract amount. Currently, the above cases are under trial suspension.
In July 2009, China Construction Fifth Division instituted a lawsuit with the Shenzhen Intermediate Court in
respect of the aforementioned work, demanding the Company to make a payment of RMB75.563 million for
raw materials and staff deployment. The Shenzhen Intermediate Court handed down a first trial judgement
in November 2012, ruling that the Company should make work payments of approximately RMB14.497
million together with accrued interest, damages for work suspension of approximately RMB953,000 to
China Construction Fifth Division, while China Construction Fifth Division should refund to the Company
withheld payments in the amount of RMB20.15 million together with accrued interest. Other claims of
China Construction Fifth Division were rejected. China Construction Fifth Division has filed an appeal
with Guangdong Higher Court against the said judgement, and Guangdong Higher Court handed down a
second trial judgement in May 2014, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest and damages for work suspension of approximately
RMB2,869,400 to China Construction Fifth Division, while China Construction Fifth Division should refund to
the Company withheld payments in the amount of RMB20.15 million together with accrued interest. Other
claims of China Construction Fifth Division were rejected. Case admission fees and authentication fees paid
for the first trial and second trial relating to China Construction Fifth Division amounted to RMB2.699 million,
of which an amount of RMB654,000 was borne by the Company.
In July 2014, China Construction Fifth Division instituted a lawsuit with Nanshan Court, demanding the
refund of RMB24.596 million together with interest of RMB9.118 million (tentatively accrued to 10 July 2014,
although it should be accrued to the date on which the contract work amounts are settled in full), being
indemnity claim amounts under a bank performance guarantee letter withheld by the Company. Currently,
the above case is under trial suspension.
Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of
the cases, the aforesaid cases will not have any material adverse impact on the financial conditions and
operating results of the Group.
ZTE CORPORATION
64
Material Matters
(4) A lawsuit on breach of agreement and infringement of rights was instituted against the Company and its
wholly-owned subsidiary ZTE (USA), Inc. (“ZTE USA”) by Universal Telephone Exchange, Inc. (“UTE”) at the
district court of Dallas, Texas, the United States, alleging that the Company and ZTE USA had violated a
confidential agreement between UTE and ZTE USA, for which UTE was seeking a compensation of USD20
million in actual damages. UTE further claimed that it had lost a telecommunications project contract, which
otherwise should have been secured, as a result of inappropriate actions of the Company and ZTE USA, for
which UTE was seeking a compensation of USD10 million in actual damages and USD20 million in punitive
damages. Upon receipt of the writ of summons from the court, an attorney has been appointed by the
Company to defend its case.
On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE’s suit on
the grounds that there was an arbitration clause under the confidential agreement. On 1 March 2012, the
attorney representing UTE concurred with the Company’s application to subject the case to the arbitration
clause and executed with the Company an agreement which was then submitted to the court. On 1 May
2012, UTE filed an application for arbitration to the American Arbitration Association in respect of the case
to demand compensation from the Company. UTE subsequently raised the amount of compensation claimed.
On 19 September 2014, the arbitration court declared court trial of the case closed. As at the end of the
reporting period, the arbitration court had yet to make a final ruling.
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.
(5) On 28 April 2011, the Company and ZTE France SASU (“ZTE France”), a wholly-owned subsidiary of the
Company, received a statement of claim from the District Court of Paris, France, according to which a lawsuit
had been filed by Huawei Technologies Co., Ltd. (“Huawei”), claiming that the data card products of the
Company and ZTE France have infringed upon its patent rights and demanding the Company and ZTE France
to discontinue such act of infringement and pay damages in the amount of EUR500,000. In respect of the
patent which was the subject of Huawei’s litigation and other related patents of the same class, ZTE France
filed a lawsuit with the District Court of Paris, France to claim the invalidity of the patents. The aforesaid
two cases have been merged for trial purposes. On 28 March 2013, the District Court of Paris, France ruled
to reject all litigation claims of Huawei and ordered Huawei to pay a compensation of EUR100,000 to the
Company and ZTE France. At the same time, Huawei’s patents, which were the subject of the litigation, were
ruled “invalid” on the grounds of “lack of creativity.” Huawei has complied with the aforesaid judgement and
made an indemnity of EUR100,000 to the Company and ZTE France.
On 9 May 2011, ZTE Deutschland GmbH (“ZTE Deutschland”), a wholly-owned subsidiary of the Company,
received a provisional injunction order against ZTE Deutschland in respect of “labelled data cards” awarded
by the District Court of Hamburg, Germany based on an application by Huawei. For details please refer
to the “Announcement on Litigation” of the Company dated 12 May 2011. In response to the aforesaid
provisional injunction order, ZTE Deutschland had filed a dissent with the District Court of Hamburg, Germany.
On 1 October 2011, the Company received a ruling of the District Court of Hamburg, Germany in favor of
Huawei’s application for the said provisional injunction order. On 27 October 2011, ZTE Deutschland appealed
to the District High Court of Hamburg, Germany in respect of the ruling and the case is currently pending
trial. Such provisional injunction order will not have any impact on the current business of the Company.
On 27 June 2011, ZTE Deutschland received a statement of claim served by the District Court of Hamburg,
Germany, pursuant to which Huawei officially filed a lawsuit of trademark infringement in respect of “labelled
data cards” with the court. On 25 July 2011, ZTE Deutschland submitted a defense to the court. On 23
ANNUAL REPORT 2014
65
November 2011, the court ruled to suspend the litigation procedure for the case of trademark infringement.
ZTE Deutschland has reached a settlement with Huawei and the injunction order and infringement litigation
procedures have closed.
In May 2011 and May 2012, ZTE Deutschland and the Company respectively received statements of claim
filed by Huawei to the District Court of Dusseldorf, Germany, claiming that ZTE Deutschland and the Company
had infringed 4 of its patents. The amount in dispute for this case was estimated by Huawei at EUR1 million.
On 21 March 2013, the district court rejected all allegations of Huawei in connection with the infringement
on its EP 2033335 patent by the Company’s LTE systems products and terminals. Huawei appealed to the
Court of Appeal on 22 April 2013 and applied for the appeal case to the terminated on 3 May 2013. As of
now, the other three patents are pending court trial or judgement.
In May 2012, ZTE Deutschland received statements of claim filed by Huawei to the Court of Mannheim,
Germany, claiming that ZTE Deutschland had infringed its patent rights. The amount in dispute for this case
was estimated by Huawei at EUR1 million. On 15 March 2013, the Court of Mannheim, Germany made a
judgement to reject all allegations of Huawei in connection with the infringement by the LTE terminals of ZTE
Deutschland, but was of the view that the LTE systems products sold by ZTE Deutschland in Germany had
infringed on “a derived encryption function” of the said patent. In respect of the infringement ruled by the
judgement, ZTE Deutschland and Huawei each filed an appeal to the High Court of Karlsruher, Germany on
19 April 2013. The case is currently under court trial. As such patent is not used in the relevant products
currently sold by the Company, the litigation will not have any substantial impact on the local sales of the
Company.
On 12 November, 21 November and 2 December 2011, respectively, ZTE Hungary Kft. (“ZTE Hungary”), a
wholly-owned subsidiary of the Company, received statements of claim filed by Huawei with the Metropolitan
Court of Hungary alleging infringement of 4 of its patents by ZTE Hungary, although no specific amount of
compensation was named by Huawei in the statements of claim. ZTE Hungary submitted defenses to the
court on 12 January and 1 February 2012, respectively. In respect of the 4 patents which is the subject of
Huawei’s litigation, ZTE Hungary filed an application to the Patent Bureau of Hungary to claim the invalidity
of the patents. As at the end of the reporting period, the court had ruled to suspend trial in respect of all
of the 4 patents under litigation.
In addition to instituting lawsuits in other countries against the Company and its wholly-owned subsidiaries
for infringements of patent rights or trademarks, Huawei also filed a lawsuit with Shenzhen Intermediate
Court in 2011 alleging the Company’s infringement of 4 of its patent rights and demanding the Company
to discontinue such infringement and pay an amount of compensation. The Company responded actively
by filing a case with Shenzhen Intermediate Court alleging Huawei’s infringement of 3 patent rights of the
Company, demanding Huawei to discontinue such infringement and pay an amount of compensation. As
of now, trials of the aforesaid domestic cases have commenced. Shenzhen Intermediate Court has ruled to
reject one of the aforesaid applications by Huawei for lawsuit on infringements of patent rights and such
ruling has taken effect.
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.
ZTE CORPORATION
66
Material Matters
(6) On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business Arbitration
Tribunal of Guayaquil, Ecuador, claiming quality problems in the works performed by the Company and
demanding a total compensation amount of USD23.35 million from the Company, comprising USD22.25
million as reimbursement of the cost of network reconstruction and USD1.10 million as the cost for supervising
and managing construction work quality of the entire network. The legal counsel engaged by the Company
has submitted a defense in a timely manner.
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.
(7) On 29 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR Licensing,
Inc (all three of which being wholly-owned subsidiaries of InterDigital, Inc.) filed a claim with United States
International Trade Commission (“ITC”) and the Federal District Court of Delaware alleging infringement upon
their 3G patent rights by the Company and ZTE USA, a wholly-owned subsidiary of ZTE. Defendants in this
case included other companies in the industry. In the ITC case, the three said companies demanded the
issue of a permanent exclusion and injunction order against certain of the Company’s terminal products. In
the case filed with the District Court, damages for losses and payments of legal fees were also demanded
of the defendants in addition to the plea for injunction order, although no specific amount of compensation
was named. The litigation procedure at the District Court has been suspended. On 28 June 2013, ITC
issued its initial determination in respect of the case, ruling that one of the patent relating to the case was
invalid, while the Company and ZTE USA had not infringed upon the remaining patents relating to the case,
and that Section 337 had not been violated. (Section 337 investigation commonly refers to the investigation
of unfair acts and unfair measures in the importation of articles into or subsequent sales of articles in the
United States). On 19 December 2013, ITC issued its final verdict on the case, ruling that the Company and
ZTE USA had not violated Section 337. The three companies filed an appeal with the United States Court
of Appeals for the Federal Circuit in respect of the final verdict. On 18 February 2015, the United States
Court of Appeals for the Federal Circuit ruled to uphold the final verdict of ITC.
On 2 January 2013, the three said companies and InterDigital Holdings, Inc. (also a wholly-owned subsidiary
of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware alleging infringement
upon their 3G and 4G patent rights by ZTE and ZTE USA. Defendants in this case included other companies
in the industry. In the ITC case, the four said companies demanded the issue of a permanent exclusion
and injunction order against certain of the Company’s terminal products. In the case filed with the District
Court, damages for losses and payments of legal fees were also demanded of the defendants in addition to
the plea for injunction order, although no specific amount of compensation was named. On 13 June 2014,
ITC issued its initial determination in respect of the case, ruling that the Company and ZTE USA had not
infringed upon the patents relating to the case, and that Section 337 had not been violated. On 15 August
2014, ITC issued its final verdict on the case, ruling that the Company and ZTE USA had not infringed
upon the patents relating to the case and had not violated Section 337. The three companies aforesaid and
InterDigital Holdings, Inc. filed an appeal with the United States Court of Appeals for the Federal Circuit in
respect of the said final verdict, and the appeal process has currently been suspended. On 28 October 2014,
the Federal District Court of Delaware issued its verdict which ruled that the Company and ZTE USA had
infringed upon three out of four patents involved. Court hearing in respect of the remaining patent involved
has been postponed to April 2015. The Company and ZTE USA have engaged a legal counsel to conduct
active defense of the case and will consider whether to file an appeal based on the verdicts on the four
patents involved in the litigation.
ANNUAL REPORT 2014
67
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.
(8) On 9 December 2011, the Company and ZTE USA received a petition for arbitration filed by four USA
companies and a natural person (together “CLEARTALK”) with the International Center for Dispute Resolution
under the American Arbitration Association (“ICDR”), whereby CLEARTALK alleged that the Company and
ZTE USA had committed acts of breach of contract and fraud, and demanded cancellation of contract and
refund of payments and compensation with an aggregate amount of over USD10 million. On 28 December
2011, the Company and ZTE USA received a revised petition for arbitration filed by CLEARTALK with ICDR,
whereby CLEARTALK demanded, in respect of the same case, a USD300 million compensation together
with the reimbursement of legal fees, litigation costs and other compensation deemed appropriate by the
arbitration court.
On 12 October 2012, the Company and ZTE USA filed a defense and a counter-claim with ICDR, alleging
that CLEARTALK had committed breach of contract, fraud and abuse of litigation rights and had seriously
compromised the interests of the Company.
On 12 February 2014, ICDR issued a final ruling that rejected all requests of CLEARTALK and ruled that the
Company and ZTE USA were not required to pay any amounts to CLEARTALK. It also ruled against support
of the counter-claims of the Company and ZTE USA.
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.
(9) On 3 January 2012, ZTE DO BRAZIL LTDA (“ZTE Brazil”), a wholly-owned subsidiary of the Company, received
a notice of administrative penalty issued by the tax bureau of Sao Paulo State of Brazil. It was alleged in
the notice that ZTE Brazil had not paid the ICMS tax (a tax payable in respect of the transit of goods and
related services between different states) to the tax bureau of Sao Paulo State in respect of goods imported
at Espirito Santo State and transported to Sao Paulo State during the period from October 2006 to December
2008. The tax amount outstanding was approximately BRL74.70 million (equivalent to approximately RMB173
million). On 20 January 2012, ZTE Brazil submitted an administrative defense to the level 1 administrative
court under the tax bureau of Sao Paulo State, stating that ZTE Brazil had paid the ICMS tax at Espirito
Santo State. Pursuant to an agreement between Sao Paulo State and Espirito Santo State in June 2009
and Order No. 56045/2010 of Sao Paulo State, which provided that the agreement should apply to ICMS
tax incurred prior to May 2009, ZTE Brazil was not required to pay further ICMS to the tax bureau of Sao
Paulo State. On 13 April 2012, ZTE Brazil received the judgment of the level 1 administrative court under
the tax bureau of Sao Paulo State, which endorsed the administrative penalty imposed by the tax bureau of
Sao Paulo State. On 11 June 2012, ZTE Brazil filed an appeal with the level 2 administrative court under the
tax bureau of Sao Paulo State. On 29 November 2012, the tax bureau of Sao Paulo State issued a notice
that ZTE Brazil had paid the ICMS tax or made a remedial payment thereof and recommended suspension
of execution of the notice of administrative penalty. On 13 January 2014, the tax bureau of Sao Paulo State
resolved to rescind the aforesaid administrative penalty notice with effect from 1 June 2014 pursuant to
Order No. 56045/2010 and Administrative Regulation No. CAT154/2010. On 4 June 2014, the tax bureau of
Sao Paulo State resolved to officially rescind the aforesaid administrative penalty.
ZTE CORPORATION
68
Material Matters
On 20 May 2013, ZTE Brazil received another notice of administrative penalty issued by the tax bureau of
Sao Paulo State of Brazil, alleging that ZTE Brazil was not entitled to register and apply for ICMS output
tax on the grounds that ZTE Brazil had committed non-compliant acts such as revoking invoices in the
course of sales to customers during the period from 2010 to 2011, and therefore was required to make a
remedial payment of ICMS tax, accrued interests and a penalty in the aggregate amount of approximately
BRL96,448,400 (equivalent to approximately RMB223 million). On 19 June 2013, ZTE Brazil submitted an
administrative defense to the level 1 administrative court under the tax bureau of Sao Paulo State, stating
that: (1) ZTE Brazil’s entitlement to the ICMS output tax was provable by existing invoices and customers’
statements; (2) on the grounds that the fiscal revenue of Sao Paulo State would not be reduced, ZTE Brazil
pleaded for the penalty to be waived pursuant to Section 527.A of Law No. 45.490 of Sao Paulo State; (3)
the administrative penalty should be rendered invalid by the fact of duplicated calculation of the amount
of fine based on the same rules. On 18 September 2013, ZTE Brazil received the judgement of the level
1 administrative court under the tax bureau of Sao Paulo State, which endorsed the administrative penalty
imposed by the tax bureau of Sao Paulo State. On 18 October 2013, ZTE Brazil filed an appeal with the level
2 administrative court under the tax bureau of Sao Paulo State. The case is currently pending judgement
by the level 2 administrative court under the tax bureau of Sao Paulo State.
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.
(10) In May 2012, Flashpoint Technology, Inc., a U.S. company, filed a claim with ITC and the Federal District
Court of Delaware, respectively, in the United States, alleging the Company and ZTE USA of infringement
upon its patents in image processing technologies. Defendants in the case included other companies in the
industry. In the ITC case, the said company demanded the issue of a limited exclusion and injunction order
against the Company’s and ZTE USA’s products that had allegedly infringed its patent rights. In the case
filed with the Federal District Court of Delaware, damages for losses and payments of legal fees were also
demanded of the Company and ZTE USA in addition to the plea for injunction order, although no specific
amount of compensation was named. The litigation procedure at the Federal District Court of Delaware has
been suspended. On 1 October 2013, ITC issued its initial determination in respect of the case, ruling that
the Company and ZTE USA had not infringed upon the patents relating to the case, and that Section 337
had not been violated. On 14 March 2014, ITC issued its final determination in respect of the case, ruling
that the Company and ZTE USA had not violated the patents relating to the case and had not violated
Section 337.
Based on the legal opinion furnished by legal counsels engaged by the Company and the current 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.
(11) In July 2012, Technology Properties Limited LLC, a U.S. company, filed a claim with ITC and the Federal
District Court of California, respectively, in the United States, alleging the Company and ZTE USA of
infringement upon its patents in chips. Defendants in the case included other companies in the industry. In
the ITC case, the said company demanded the issue of a permanent exclusion and injunction order against
the Company’s and ZTE USA’s products that had allegedly infringed its patent rights. In the case filed with
the Federal District Court of California, damages for losses and payments of legal fees were demanded of the
Company and ZTE USA, although no specific amount of compensation was named. The litigation procedure
at the Federal District Court of California has been suspended. On 6 September 2013, ITC issued its initial
determination in respect of the case, ruling that the Company and ZTE USA had not infringed upon the
patents relating to the case, and that Section 337 had not been violated. On 19 February 2014, ITC issued
its final determination in respect of the case, ruling that the Company and ZTE USA had not infringed upon
ANNUAL REPORT 2014
69
the patents relating to the case and had not violated Section 337. Currently, the litigation procedure at the
Federal District Court of California has been resumed. There has been no substantial progress in the litigation
process.
Based on the legal opinion furnished by legal counsels engaged by the Company and the current 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.
(12) 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 RMB72,530,500). 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.
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 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 RMB192 million). The Company has
appointed a legal counsel to conduct active defense in respect of the said case.
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
(13) October 2013 and December 2013, Pragmatus Mobile LLC, a U.S. company, filed a claim with ITC and the
Federal District Court of Delaware, respectively, in the United States, alleging the Company and ZTE USA
of infringement upon its maps and wifi-related patents. Defendants in the case included other companies in
the industry. In the case filed with the Federal District Court of Delaware, damages for losses and payments
of legal fees were demanded of the Company and ZTE USA, although no specific amount of compensation
was named. In the ITC case, the said company demanded the issue of a limited exclusion and injunction
order against the Company’s and ZTE USA’s products that had allegedly infringed its patent rights. Pragmatus
Mobile LLC has withdrawn its claim after reaching a settlement deal with the Company and ZTE USA.
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.
(14) In February 2013, Vringo Germany GmbH (“Vringo Germany”) filed a patent litigation with the Court of
Mannheim, Germany against the Company and ZTE Deutschland GmbH (“ZTE Deutschland”), a wholly-owned
subsidiary of the Company, pleading for the UMTS products of the Company and ZTE Deutschland with
TSTD (Time Switched Transmitter Diversity) functions to be ruled to have infringed upon the patent rights of
Vringo Germany. In December 2013, the Court of Mannheim, Germany handed down the first trial judgement,
ruling that the Company and ZTE Deutschland had infringed upon the patent rights and issuing an injunction
order against the Company and ZTE Deutschland in respect of the UMTS products with TSTD functions.
The Company and ZTE Deutschland filed an appeal to the aforesaid court in January 2014, pleading for
the rejection of the patent infringement claims of Vringo Germany and revocation of the injunction order.
Vringo Germany withdrew its litigation in October 2014. In December 2014, Vringo Germany filed a patent
litigation with the Court of Dusseldorf, Germany in respect of the patents involved against the Company
and ZTE Service GmbH (“ZTE Service”), a wholly-owned subsidiary of the Company. As the UMTS products
ZTE CORPORATION
70
Material Matters
of the Company, ZTE Deutschland and ZTE Service sold in Germany do not support TSTD functions, the
injunction order will not have any impact on the business of the Company, ZTE Deutschland and ZTE Service
in Germany.
In February 2014, Vringo Infrastructure Inc. (“Vringo”) filed a patent litigation with the High Court of Delhi,
India against the Company and ZTE Telecom India Private Limited (“ZTE India”), a wholly-owned subsidiary
of the Company, pleading for the GSM products of the Company and ZTE India supporting Macro to Micro
Handover Algorithm functions to be ruled to have infringed upon the patent rights of Vringo and applied
for the issue of a provisional injunction order by the High Court of Delhi, India. In February 2014, the High
Court of Delhi, India issued a provisional injunction order against the Company and ZTE India in respect of
the GSM products with Macro to Micro Handover Algorithm functions. In April 2014, the Company and ZTE
India filed an application to the High Court of Delhi, India for the revocation of the provisional injunction
order. In August 2014, the High Court of Delhi, India revoked such provisional injunction order.
In April 2014, Vringo filed a patent litigation with the Court of Rio, Brazil against the Company and ZTE
Brazil, pleading for the UMTS and LTE products of the Company and ZTE Brazil supporting RNC Relocation
functions to be ruled to have infringed upon the patent rights of Vringo and applied for the issue of a
provisional injunction order by the Court of Rio, Brazil. In April 2014, the Court of Rio, Brazil issued a
provisional injunction order against the Company and ZTE Brazil in respect of UMTS and LTE products
supporting RNC Relocation functions. In April 2014, the Company and ZTE Brazil filed an application to the
Court of Rio, Brazil for the revocation of the provisional injunction order. As of now, the Court of Rio, Brazil
has yet to make a ruling. The provisional injunction order affects only the UMTS and LTE products of the
Company and ZTE Brazil supporting RNC Relocation functions sold in Brazil.
In June 2014, Vringo filed a patent litigation with the Court of Bucharest, Romania against the Company
and ZTE Romania SRL (“ZTE Romania”), a wholly-owned subsidiary of the Company, pleading for the LTE
products of the Company and ZTE Romania supporting Circuit Switched Fall Back functions to be ruled to
have infringed upon the patent rights of Vringo and applied for the issue of a provisional injunction order
by the court. In September 2014, the Court of Bucharest issued a provisional injunction order against ZTE
Romania in respect of LTE products, and ZTE Romania filed an appeal to the Court of Appeal of Bucharest.
In October 2014, the Court of Appeal of Bucharest ruled to suspend the provisional injunction order.
In March 2014, the Company filed an antitrust litigation with Shenzhen Intermediate Court against the
alleged abuse of market dominance of Vringo, and Shenzhen Intermediate Court has accepted such filing;
the Company also filed an application for antitrust investigation to the EU Commission in April 2014 and
the EU Commission has accepted such filing. Meanwhile, the Company has also filed litigations in the PRC,
Germany, India, Brazil and Romania against Vringo for its patent claims to be ruled invalid.
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 31 December 2014 where PKR amounts are
translated at the exchange rate of PKR1:RMB0.0619 and BRL amounts are translated at the exchange rate of BRL1:RMB2.3133.
2. General Media Queries
? Applicable ? N/A
ANNUAL REPORT 2014
71
(II) APPROPRIATION AND REPAYMENT OF NON-OPERATING FUNDS BY CONTROLLING SHAREHOLDER
AND ITS CONNECTED PARTIES
1. There was no appropriation and repayment of non-operating funds of the Company by the
controlling shareholder and its connected parties during the year.
2. Statement on fund appropriation issued by Ernst & Young Hua Ming LLP
The “Statement on Amounts Receivable from the Controlling Shareholder and Other Connected Parties by ZTE
Corporation” issued by Ernst & Young Hua Ming LLP was set out in the Overseas Regulatory Announcement
published by the Company on 25 March 2015.
(III) THE GROUP WAS NOT SUBJECT TO BANKRUPTCY, REORGANISATION OR RELATED ACTIONS
DURING THE YEAR
(IV) ASSET TRANSACTIONS
The Group was not engaged in any material acquisition, disposal or business merger commencing or subsisting
during the year. Details of progress of asset disposal disclosed by the Group are as follows:
On 16 November 2012, the Company and CCB International (Shenzhen) Investment Co., Ltd. (“CCBI”) entered
into the “Equity Transfer Agreement for the Transfer of 30% Equity Interests in Shenzhen Changfei Investment
Company Limited” (the “Former Equity Transfer Agreement”), pursuant to which the Company would, among other
things, transfer its 30% equity interests in Shenzhen Changfei Investment Company Limited (“Changfei”) to CCBI
and provide an undertaking of compensation in respect of the operating results of Changfei for the years 2012 to
2016. For details, please refer to the “Discloseable Transactions - Disposal of Equity Interest in Shenzhen Changfei
Investment Company Limited” published by the Company on 16 November 2012.
On 23 December 2014, the Company and CCBI entered into the “Variation of the Equity Transfer Agreement in
relation to the Transfer of 30% Equity Interests in Shenzhen Changfei Investment Company Limited” (the “Variation
Agreement”), pursuant to which the Company agreed to the transfer by CCBI of its 30% equity interests in Changfei
to a third party not related to the Company. The undertaking of compensation and other obligations of ZTE under
the Former Equity Transfer Agreement shall automatically be terminated as from the date on which the transfer
consideration is received by CCBI from the third party. The aforesaid matter was considered and approved at the
Twenty-third Meeting of the Sixth Session of the Board of Directors of the Company held on 23 December 2014.
(V) IMPLEMENTATION AND IMPACT OF THE COMPANY’S SHARE OPTION INCENTIVE SCHEME (THE
“SCHEME”)
1. Summary of the Scheme
(1) Objective
The 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 responsibilities of
the management and key personnel of the Company and retain talent, so as to facilitate sustainable development
of the Company and ensure the realisation of its development targets.
ZTE CORPORATION
72
Material Matters
(2) Scheme participants and their adjustments
Scheme participants of the Scheme include Directors, senior management personnel and key employees who have
a direct impact on, or have made outstanding contributions to, the Company’s overall results and sustainable
development (excluding Independent Non-executive Directors, Supervisors and substantial shareholders interested
in 5% or above of the Company’s shares or the de facto controller, or their respective spouses and immediate
or close family members).
Pursuant to the “ZTE Corporation Share Option Incentive Scheme (Revised Draft)” (“Share Option Incentive
Scheme (Revised Draft)”) considered and passed at the Third Extraordinary General Meeting of 2013, the First
A Shareholders’ Class Meeting of 2013 and the First H Shareholders’ Class Meeting of 2013 of the Company, it
was resolved that a total of 103,200,000 share options shall be granted to the Directors, senior management and
key business personnel of the Company.
Prior to the grant of share options under the Scheme of the Company, scheme participants Hua Rusong and Chi
Xun had left the Company, while scheme participant Hua Jianbin had deceased. Pursuant to the Share Option
Incentive Scheme (Revised Draft), pertinent laws and regulations and the approval granted by the Eleventh Meeting
of the Sixth Session of the Board of Directors of the Company held on 31 October 2013, the 3 persons aforesaid
were removed from the list of qualified participants of the Scheme and a total of 211,000 share options were
cancelled. As a result, the number of scheme participants was adjusted from 1,531 to 1,528 and the number of
share options to be granted under the Scheme was adjusted from 103,200,000 to 102,989,000.
(3) Number of underlying shares and maximum share options that may be granted to scheme
participants
Each share option granted shall entitle its holder to purchase one ZTE ordinary A share on any exercise date
during the effective period of the Scheme at the exercise price and subject to the conditions of exercise. The
source of shares under the Scheme comprises shares of the Company issued to the scheme participants by the
Company by way of placing. The total number of underlying A shares in respect of the share options to be granted
under the Scheme is 102,989,000 A shares, accounting for approximately 3% of the Company’s total share capital
currently in issue and approximately 3.7% of its A shares currently in issue.
Unless approved by the shareholders in a general meeting, the aggregate number of A shares to be issued to a
scheme participant upon exercise of his share options under the Scheme or other effective share option incentive
schemes of the Company (if any) 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 outstanding share options) within any 12-month period shall not exceed 1% of the Company’s total
share capital of the same class.
ANNUAL REPORT 2014
73
(4) Date of grant, validity period, vesting period, exercise period and exercisable percentage
The Scheme shall remain in force for 5 years from the date of grant (i.e. 31 October 2013). Subject to the fulfillment
of the exercise conditions, share options granted under the Scheme can be exercised by the following proportion
after the expiry of the 2-year vesting period from the date of grant:
Exercise period Duration
Exercisable share options
as a percentage of the
total number of share
options granted
First exercise period Commencing from the first trading day after
expiry of the 24-month period from the
date of grant and ending on the last
trading day of the 36-month period from
the date of grant
30%
Second exercise period Commencing from the first trading day after
expiry of the 36-month period from the
date of grant and ending on the last
trading day of the 48-month period from
the date of grant
30%
Third exercise period Commencing from the first trading day after
expiry of the 48-month period from the
date of grant and ending on the last
trading day of the 60-month period from
the date of grant
40%
(5) Exercise price and basis of determination
The exercise price of the share options shall be RMB13.69 per A share. Upon fulfilment of exercise conditions,
each share option granted to the scheme participant entitles the scheme participant to acquire one A Share of
the Company at RMB13.69 per A share.
The above exercise price is the higher of the following:
(i) closing price of the A Shares quoted on the Shenzhen Stock Exchange on the last trading day immediately
preceding the date on which the Scheme was announced (i.e. 12 July 2013), which was RMB13.69 per A
share; and
(ii) the average closing price of the A Shares quoted on the Shenzhen Stock Exchange for the last 30 trading
days immediately preceding the date on which the Scheme was announced, which was RMB12.61 per A
share.
During the validity period of the Scheme, in the event of any dividend distribution, capitalisation issue, bonus
issue, sub-division or rights issue or consolidation of shares in relation to the A shares of the Company before
the exercise of the share options, an adjustment to the exercise price shall be made accordingly.
ZTE CORPORATION
74
Material Matters
(6) Approval procedures fulfilled
The Scheme implemented by the Company has been approved by regulatory authorities including SASAC, CSRC
and Hong Kong Stock Exchange and the Remuneration and Evaluation Committee, Board of Directors, Supervisory
Committee and general meeting of the Company. For details, please refer to the “Announcement of Matters relating
to the Grant of Share Options” published by the Company on 31 October 2013.
2. Share options granted to scheme participants during the year and the exercise thereof
Name of
participant Position of participant
Number of
unexercised
options
at the
beginning
of the
reporting
period
Number
of options
granted
during the
reporting
period
Number
of options
exercised
during the
reporting
period
Number of
outstanding
options at
the end of
the reporting
period
Number
of options
cancelled
during the
reporting
period
Number
of options
lapsed
during the
reporting
period
Zhang Jianheng Director 30,000 0 0 30,000 0 0
Xie Weiliang Director 30,000 0 0 30,000 0 0
Wang Zhanchen Director 30,000 0 0 30,000 0 0
Zhang Junchao Director 30,000 0 0 30,000 0 0
Dong Lianbo Director 30,000 0 0 30,000 0 0
Tian Wenguo Executive Vice President 200,000 0 0 200,000 0 0
Qiu Weizhao Executive Vice President 500,000 0 0 500,000 0 0
Fan Qingfeng Executive Vice President 500,000 0 0 500,000 0 0
Zeng Xuezhong Executive Vice President 450,000 0 0 450,000 0 0
Zhao Xianming Executive Vice President 500,000 0 0 500,000 0 0
Pang Shengqing Senior Vice President 450,000 0 0 450,000 0 0
Xu Huijun Senior Vice President 350,000 0 0 350,000 0 0
Ye Weimin Senior Vice President 400,000 0 0 400,000 0 0
Zhu Jinyun Senior Vice President 450,000 0 0 450,000 0 0
Zhang Renjun Senior Vice President 350,000 0 0 350,000 0 0
Chen Jianzhou Senior Vice President 450,000 0 0 450,000 0 0
Cheng Lixin Senior Vice President 200,000 0 0 200,000 0 0
Feng Jianxiong Board Secretary 400,000 0 0 400,000 0 0
Other scheme
participants 1,510 persons 97,639,000 0 0 97,639,000 0 0
Total 1,528 persons 102,989,000 0 0 102,989,000 0 0
For details of the date of grant, validity period, vesting period, exercise period and exercise price under the
Scheme in respect of the share options set out in the table above, please refer to the section headed “Summary
of the Scheme” above.
ANNUAL REPORT 2014
75
3. Valuation and accounting policies relating to the share options
The Company has adopted the Binomial Tree model to calculate the value of the share options. The date of grant
(31 October 2013) has been adopted as the measurement date and the estimated value of the share options is
RMB5.36 per A share, representing 35.31% of the market price of the A shares on the date of grant. Data used
in and results of the calculation are as follows:
Factors Amount of factors and description
Exercise price RMB13.69 per A share
Market price RMB15.18 per A share, being the closing price of the A shares on the
date of grant
Expected life The scheme participants shall exercise all his/her options exercisable in
the first, second and third exercise period within the third year, the
fourth year and the fifth year from the date of grant, respectively.
Expected price volatility rate The historical price volatility rate of the Company’s A share used for the
first, second and third exercise period being 40.25%, 39.69% and
43.18% respectively.
Expected dividend (Note 1) RMB0.18 per share
Risk-free interest rate (Note 2) The risk-free interest rate for the first, second and third exercise period
being 3.34%, 3.40% and 3.46% respectively.
Value of share options per A
share
RMB5.36
Note 1: The expected dividend was calculated based on the historical dividends of the Company.
Note 2: The Company adopted the three-year, four-year and five-year national bond yield rates as quoted by Reuters as at the date of grant
as the risk-free interest rates for the first, second and third exercise period, respectively.
Note 3: The calculation results of the value of the share options are subject to a number of assumptions of the parameters used herein and
the limitation of the model adopted, therefore the estimate value of the share options may be subjective and subject to uncertainties.
The cost of the share options will be charged to operating profit or loss. The accounting policies relating to the
share options and their impact on the financial position and operating results of the Company have been set
out in Note XI to the financial statements prepared in accordance with PRC ASBEs and Note 40 to the financial
statements prepared in accordance with HKFRSs.
For details of the Scheme, please refer to the Overseas Regulatory Announcement published by the Company
on 26 August 2013.
The Scheme of the Company was under normal operation during the year.
(VI) INFORMATION ON THE CORPORATE BONDS OF THE COMPANY
To meet the Company’s working capital requirements, further improve its debt structure and lower its finance
costs, the Company was given approval to issue to the public corporate bonds with a nominal value of not more
than RMB6 billion at a price of RMB100 each with a coupon interest rate of 4.20% for a term of 3 years, in
accordance with relevant provisions of the Company Law, Securities Law, Trial Measures for the Issue of Corporate
Bonds and other pertinent laws, regulations and regulatory documents, following consideration and approval at
the Twenty-sixth Meeting of the Fifth Session of the Board of Directors of the Company held on 8 March 2012
and the First Extraordinary General Meeting of 2012 of the Company held on 11 April 2012 and approval by
the CSRC by virtue of the document Zheng Jian Xu Ke [2012] No. 754. The issue was conducted by way of a
ZTE CORPORATION
76
Material Matters
combination of online offering to public investors and offline bid placing to institutional investors. Corporate bonds
under the Issue were listed on Shenzhen Stock Exchange on 16 July 2012 under the bond code “112090” and
the abbreviated bond name “12??01”.
The corporate bond interest payment for 2014 was completed on 13 June 2014 and the total amount of interest
payment made was RMB252 million (before tax). For details please refer to the Overseas Regulatory Announcement
published by the Company on 4 June 2014.
As at 31 December 2014, there were 228 holders of Corporate Bonds of the Company, the top ten of which were
as follows:
No. Name of bond holders
Number of
bonds held
Bond holding
ratio
1 China Merchants Bank Co., Ltd. 10,000,000 16.67%
2 Industrial and Commercial Bank of China Limited 9,300,000 15.50%
2 China Construction Bank Corporation 9,300,000 15.50%
4 Bank of Communications — ICBC Credit Suisse Pure Bond Fixed-term
Open-ended Bond Fund
5,160,000 8.60%
5 Sha Dinan 1,847,816 3.08%
6 China Merchants Securities Co., Ltd. 1,597,205 2.66%
7 Bank of China Investment Management — BOC — Bank of China
Limited
1,241,882 2.07%
8 China Merchants Bank Co., Ltd.-BOC Stable Profit and Dividend Bond
Fund
1,201,051 2.00%
9 China Merchants Bank Co., Ltd.- BOC Multi-strategic Flexible
Allocation Hybrid Fund
1,022,991 1.70%
10 NSSF Portfolio #409 1,000,000 1.67%
(VII) THIRD-PARTY INVESTMENTS AND CONNECTED TRANSACTIONS BY THE COMPANY
With a view to capitalising on opportunities in the TMT sector, unlocking business potential and securing income
from sub-segment markets, ??????????????? (Jiaxing Xinghe Capital Management Company
Limited) (“Xinghe Capital”), a wholly-owned subsidiary of ZTE Capital (a subsidiary of the Company) established
?????????????(????) (Jiaxing Xinghe Equity Investment Partnership (Limited Partnership)) (“Xinghe
Partnership”) as the sole general partner by way of promotion. Xinghe Partnership is focused on the equity
investment of unlisted companies within the TMT industry (technology, media and telecommunication). As at
the date of this report, funds with a total amount of RMB346 million were raised, of which: RMB10 million has
been contributed in cash by Xinghe Capital as general partner and RMB100 million and RMB10 million have
been contributed in cash by the Company and Mr. Yin Yimin (Director of the Company), each as a limited
partner, respectively and RMB226 million has been contributed in cash by other limited partners as agreed in the
partnership agreements executed by them. Mr. Yin Yimin, Director of the Company, is a connecter natural person
of the Company. In accordance with the Shenzhen Listing Rules and the Hong Kong Listing Rules, the respective
capital contributions to and subscriptions for Xinghe Partnership by Xinghe Capital, the Company and Mr. Yin
Yimin (Director of the Company) constitute connected transactions.
The aforesaid external investment and connected transactions were considered and approved at the Seventeenth
Meeting of the Sixth Session of the Board of Directors of the Company held on 17 April 2014. For details please
refer to the “Announcement of Resolutions of the Seventeenth Meeting of the Sixth Session of the Board of
Directors” and the Overseas Regulatory Announcement published on 17 April 2014. The partnership agreement
ANNUAL REPORT 2014
77
relating to the Xinghe Partnership was entered into on 11 June 2014. For details please refer to the announcement
entitled “Connected Transaction — Establishment of Partnership” published in 12 June 2014. Xinghe Partnership
has currently been approved by the bureau of industrial and commercial administration of Nanhu District of Jiaxing
and completed registration as partnership. For details please refer to the “Announcement Progress of External
Investments” published by the Company on 23 June 2014.
(VIII) REGISTRATION AND ISSUE OF PERPETUAL MEDIUM TERM NOTE BY THE COMPANY
To further facilitate the Company’s business development and optimise its debt structure, the Company has
proposed to apply to the National Association of Financial Market Institutional Investors (???????????
?) for the registration and issue of perpetual medium term note with an amount of not more than RMB 9 billion.
The perpetual medium term note (the “Medium Term Note”) is a medium term note under which the issuer does
not specify due dates but has the options of redeeming the note and deferring interest payments, while creditors
are, usually, not entitled to demand redemption but are entitled to interest payments as agreed.
The aforesaid matter was considered and approved at the Twentieth Meeting of the Sixth Session of the Board
of Directors of the Company and the First Extraordinary General Meeting of 2014 of the Company. For details
please refer to the “Announcement of Resolutions of the Twentieth Meeting of the Sixth Session of the Board
of Directors” and “Announcement on Resolutions of the First Extraordinary General Meeting of 2014” published
on 22 August 2014 and 15 October 2014, respectively, by the Company. The National Association of Financial
Market Institutional Investors (????????????) has admitted the RMB9 billion Medium Term Note of the
Company for registration. For details please refer to the “Announcement on the Approval of Registration for the
Issue of Medium Term Notes” published by the Company on 15 December 2014.
On 27 January 2015, the Company completed the issue of tranche one of the 2015 Medium Term Notes for an
issue amount of RMB6 billion. For details please refer to the “Announcement on the Result of the Medium Term
Notes Issue” published by the Company on 27 January 2015. On 6 February 2015, the Company completed the
issue of tranche two of the 2015 Medium Term Notes for an issue amount of RMB1.5 billion. For details please
refer to the “Announcement on the Result of the Medium Term Notes Issue” published by the Company on 6
February 2015.
(IX) SIGNIFICANT CONNECTED TRANSACTIONS
1. SIGNIFICANT CONNECTED TRANSACTIONS UNDER APPLICABLE LAWS AND REGULATIONS OF
THE PRC
(1) Connected transactions in the ordinary course of business
The connected transactions disclosed in the following table represented continuing connected transactions in 2014
that reached the benchmark for public disclosure as defined under the Shenzhen Listing Rules.
ZTE CORPORATION
78
Material Matters
Counterparty to
connected transaction
Nature of
connection Classification Subject matter Pricing principle Price (RMB)
Amount
(RMB in ten
thousands)
As a
percentage
of
transactions
in the same
classification
(%) Settlement
Market price
for similar
transactions
available
(RMB)
Domestic
announcement
date
Domestic
announcement
index
Zhongxingxin and its
subsidiaries
Controlling
shareholder of the
Company and its
subsidiaries
Purchase of raw
materials
The purchase
of cabinets and
related accessories,
cases and related
accessories, shelters,
railings, antenna
poles, optical
products, refined
processing products,
packaging materials,
FPC, R-FPC and
components by the
Company from the
connected party
Purchase of raw
materials and lease
of properties by the
Company and its
subsidiaries from
connected parties at
prices determined
through arm’s length
negotiations and on
the basis of normal
commercial terms.
Continuing connected
transactions in
respect of the Group’s
purchases from
connected parties
were conducted in
the ordinary course
of business of the
two parties on normal
commercial terms
and terms no less
favourable than those
available to or from
(as the case may
be) independent
third parties. Prices
at which the Group
leased properties from
connected parties
were not higher than
market rent levels
for similar properties
in neighbouring
areas. The prices
of leased properties
were determined
through arm’s length
negotiations based on
normal commercial
terms. Transaction
prices at which
products were sold
by the Group to
connected parties
were based on market
prices and were not
lower than prices at
which similar products
of similar quantities
were purchased by
third parties from
the Group, taking
into consideration of
factors relating to the
specific transactions
such as conditions
of the projects, size
of transaction and
product costs.
Cabinets and related accessories:
RMB1-RMB30,000 per unit; cases
and related accessories: RMB1-
RMB15,000 per unit depending on
level of sophistication; Shelters:
RMB5,000-RMB100,000 per unit
depending on measurement,
materials used and configuration;
Railings: RMB11,000-50,000
per piece depending on level
of sophistication and functional
features; Antenna poles: RMB200-
2,000 per piece depending on level
of sophistication and functional
features; Optical products: RMB1.3-
30,000 per unit depending on level
of sophistication and functional
features; Refined-processing
products: RMB0.5-50,000 per unit
depending on level of sophistication
and functional features; Packaging
materials: RMB0.01-5,000 per piece
depending on level of sophistication
and functional features; FPC, R-FPC
and components: RMB0.5-100 per
piece depending on measurement,
level of process sophistication and
materials used.
54,081.50 1.11% Commercial
acceptance
bill
N/A 29 December
2012
Announcement
No. 201263
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Mobi Antenna A company at which
a supervisor of the
Company’s controlling
shareholder acted as
director
Purchase of raw
materials
The purchase
of various
products such as
communications
antennas, radio
frequency transmitter,
feeder and terminal
antenna by the
Company from the
connected party
Communication antenna: RMB100-
RMB9,999 per piece depending on
technical parameters and functional
features; Radio frequency transmitter:
RMB100-9,999 per unit depending
on technical parameters and
functional features; Feeder: RMB1-
200 per unit depending on technical
parameters and functional features;
Terminal antenna: RMB0.1-100
per piece depending on technical
parameters and functional features.
78,210.67 1.60% Commercial
acceptance
bill
N/A 29 December
2012
Announcement
No. 201263
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Huatong Subsidiary of a
company for which
the Chairman of
the Company
concurrently acted as
chairman
Purchase of
software outsourcing
services
The purchase of
personnel hiring and
project outsourcing
services by the
Company from the
connected party
Senior engineer at a price ranging
from RMB450-680 per head/day;
Intermediate-grade engineer at a
price ranging from RMB330-520 per
head/day; Junior engineer at a price
ranging from RMB230-400 per head/
day; Technician at a price ranging
from RMB190-230 per head/day.
2,592.71 0.05% Tele-transfer N/A 21 January
2014
Announcement
No. 201403
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
ANNUAL REPORT 2014
79
Counterparty to
connected transaction
Nature of
connection Classification Subject matter Pricing principle Price (RMB)
Amount
(RMB in ten
thousands)
As a
percentage
of
transactions
in the same
classification
(%) Settlement
Market price
for similar
transactions
available
(RMB)
Domestic
announcement
date
Domestic
announcement
index
Nanchang Software A company of
which the majority
of board members
can be controlled by
another company for
which the Chairman
of the Company
concurrently acted as
chairman
Purchase of
software outsourcing
services
The purchase of
personnel hiring and
project outsourcing
services by the
Company from the
connected party
Senior engineer at a price ranging
from RMB450-680 per head/day;
Intermediate-grade engineer at a
price ranging from RMB330-520 per
head/day; Junior engineer at a price
ranging from RMB230-400 per head/
day; Technician at a price ranging
from RMB190-230 per head/day.
2,793.78 0.06% Tele-transfer N/A 21 January
2014
24 October
2014
Announcement
No. 201403
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on
The Shenzhen
Stock Exchange”;
Announcement
No. 201446
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Zhongxing Hetai and its
subsidiaries
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Purchase of hotel
services
The purchase of
hotel services by the
Company from the
connected party
Single room: RMB240-380/night;
Double room: RMB240-380/night;
Suite: RMB500-600/night. The
purchase price is not higher than the
price at which products (or services)
are sold by Zhongxing Hetai to
other customers purchasing similar
products (or services) in similar
quantities. The actual price will be
confirmed upon execution of specific
agreements by the two parties.
3,450.25 0.07% Tele-transfer N/A 27 April 2013
30 May 2014
Announcement
No. 201322
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on
The Shenzhen
Stock Exchange”
Announcement
No. 201424
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange
Zhongxing Development A Company for
which the Chairman
of the Company
concurrently acted as
chairman
Property leasing Lease of property
located at No. 19
Huayuan East Road,
Haidian District,
Beijing with an
intended leased area
of 32,000 sq.m.;
Lease of 25 ground
level parking spaces
and 138 underground
parking spaces by
the Company from
the connected party
Monthly rent of RMB130/sq.m.;
monthly rent of ground level
parking spaces of RMB150 each;
monthly rent of underground parking
spaces of RMB500 each. (Property
management undertaken by ZTE and
no management fees are payable.)
4,293.14 5.55% Tele-transfer N/A 2012-12-29 Announcement
No. 201263
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Chongqing Zhongxing
Development
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Property leasing Lease of property
located at No. 3 Xing
Guang Wu Road,
North New District,
Chongqing with an
intended leased area
of 20,000 sq.m. by
the Company from
the connected party
Monthly rent of RMB45/sq.m. and
RMB40/sq.m. for the office and
cafeteria respectively and monthly
management fee of RMB2.5/sq.m.
803.06 1.04% Tele-transfer N/A 2011-12-14 Announcement
No 201153
“Announcement
of Connected
Transaction”
ZTE CORPORATION
80
Material Matters
Counterparty to
connected transaction
Nature of
connection Classification Subject matter Pricing principle Price (RMB)
Amount
(RMB in ten
thousands)
As a
percentage
of
transactions
in the same
classification
(%) Settlement
Market price
for similar
transactions
available
(RMB)
Domestic
announcement
date
Domestic
announcement
index
Zhongxing Hetai and its
subsidiaries
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Lease of property
and equipment and
facilities
The lease of
property and related
equipment and
facilities to the
connected party by
the Company
Six months ended 30 June 2014:
Rent: RMB34/sq.m./month for hotel
in Dameisha in Shenzhen; RMB27/
sq.m./month for hotel in Nanjing;
RMB55/sq.m./month for hotel in
Shanghai; and RMB24/sq.m./month
for hotel in Xi’an. Rental fee for
related equipment and facilities will
be based on the monthly rate of
depreciation of assets. Six months
ended 31 December 2014: Rent:
RMB68/sq.m./month for hotel and
related equipment and facilities in
Dameisha in Shenzhen; RMB42/
sq.m./month for hotel and related
equipment and facilities in Nanjing;
RMB110/sq.m./month for hotel and
related equipment and facilities in
Shanghai; and RMB41/sq.m./month
for hotel and related equipment and
facilities in Xi’an.
5,618.73 23.22% Tele-transfer N/A 2013-4-27
2014-5-30
Announcement
No. 201322
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on
The Shenzhen
Stock Exchange”
Announcement
No. 201424
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Zhongxing Hetai and its
subsidiaries
Subsidiary of the
company for which
the Chairman of
the Company
concurrently acted as
chairman
Financial services The provision of
deposit services by
ZTE Group Finance
to the connected
party
The standard deposit interest rate
announced by the People’s Bank
of China (“PBOC”) was adopted; in
case the interest rate announced
by PBOC was not applicable, ZTE
Group Finance would pay interest
to the connected party at a rate
not higher than the interest rate
level adopted by similar businesses
carried out by other independent
financial institutions.
5,100.88
Note 1
1.10% Tele-transfer N/A 2014-5-30 Announcement
No. 201424
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
???? Subsidiary of a
company for which
a Director of the
Company acted as
director
Sale of products The sale of digital
communications
products and
communications
products by the
Company to the
connected party
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.
40,539.74 0.50% Tele-transfer
or bank
acceptance
bill
N/A 2014-1-21 Announcement
No. 201403
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Nanchang Software A company of
which the majority
of board members
can be controlled by
another company for
which the Chairman
of the Company
concurrently acted as
chairman
Sales of products
and rendering of
services
The provision by
the Company to
the connected party
of software and
hardware equipment
and engineering
services required
for smart campus
and campus IT
development, and
integrated solutions
for smart traffic, city
emergency command
system, smart
military camp and
government/corporate
IT systems
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.
106 0.00% Tele-transfer N/A 2014-10-24 Announcement
No. 201446
“Announcement
on Projected
Continuing
Connected
Transactions
under the Rules
Governing Listing
of Stocks on The
Shenzhen Stock
Exchange”
Total — 197,590.46 N/A — — — —
ANNUAL REPORT 2014
81
Detailed information of substantial sales return None
Necessity and continuity of connected transactions
and reasons for choosing to conduct transactions with
the connected party (rather than other parties in the
market)
The aforesaid connected parties were able to manufacture products required
by the Group and provide quality products, services and lease properties in
sound conditions at competitive prices. The Company considers trustworthy and
cooperative partners as very important and beneficial to its operations.
Effect of the connected transaction on the
independence of the listed company
All transactions between the Company and the connected parties were in
compliance with pertinent national laws and regulations without any compromise to
the interest of the Company and its shareholders. The Company was not dependent
on the connected parties and the connected transactions would not affect the
independence of the Company.
The Company’s dependence on the connected party
and relevant solutions (if any)
The Company was not dependent on the connected parties.
Projected total amount of continuing connected
transaction during the period by type and actual
performance during the reporting period (if any)
At the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, it was considered and approved that the
estimated purchases from Zhongxingxin, a connected party, and its subsidiaries by
the Group in 2014 be capped at RMB1,000 million (before VAT);
At the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, it was considered and approved that the
estimated purchases from Mobi Antenna, a connected party, by the Group in 2014
be capped at RMB800 million (before VAT);
At the Fourteenth Meeting of the Sixth Session of the Board of Directors of the
Company held on 20 January 2014, it was considered and approved that the
estimated purchases from Huatong and Nanchang Software, both connected
parties, by the Company in 2014 be capped at RMB82 million and RMB18 million,
respectively (before VAT);
At the Twenty-second Meeting of the Sixth Session of the Board of Directors of
the Company held on 23 October 2014, it was considered and approved that the
estimated cap for purchases from Nanchang Software, a connected party, by the
Company in 2014 be revised to RMB45 million (before VAT); and the estimated sales
of products and rendering of services to Nanchang Software, a connected party, by
the Company in 2014 be capped at RMB28.50 million (before VAT);
At the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, it was considered and approved that the
annual rent payable by the Company to Zhongxing Development, a connected party,
for property lease, be capped at RMB50.80 million for a term commencing on 18
April 2013 and ending on 17 April 2015;
At the Twenty-fourth Meeting of the Fifth Session of the Board of Directors of
the Company held on 13 December 2011, it was considered and approved that
the annual rent payable by the Company to Chongqing Zhongxing Development,
a connected party, for property lease, be capped at RMB11.40 million for a term
commencing on 1 January 2012 and ending on 31 December 2014;
ZTE CORPORATION
82
Material Matters
At the Second Meeting of the Sixth Session of the Board of Directors of the
Company held on 26 April 2013, it was considered and approved that the estimated
amount payable by the Company to Zhongxing Hetai, a connected party, and its
subsidiaries to procure hotel services be capped at RMB90 million for the period
commencing on 1 July 2013 and ending on 30 June 2014; and the estimated
amount payable by Zhongxing Hetai and its subsidiaries to the Company for the
lease of properties and related equipment and facilities be capped at RMB48
million for the period commencing on 1 July 2013 and end on 30 June 2014; at the
Eighteenth Meeting of the Sixth Session of the Board of Directors of the Company
held on 29 May 2014, it was considered and approved that the estimated amount
payable by the Company to Zhongxing Hetai, a connected party, and its subsidiaries
to procure hotel services be capped at RMB90 million for the period commencing
on 1 July 2014 and ending on 30 June 2015; and the estimated amount payable
by Zhongxing Hetai and its subsidiaries to the Company for the lease of properties
and related equipment and facilities be capped at RMB75 million for the period
commencing on 1 July 2014 and end on 30 June 2015;
At the Eighteenth Meeting of the Sixth Session of the Board of Directors of the
Company held on 29 May 2014, it was considered and approved that the estimated
daily deposit balance (principal cum interest) of the deposit service provided by ZTE
Group Finance to Zhongxing Hetai and its subsidiaries in 2014 shall be capped at
RMB54 million;
At the Fourteenth Meeting of the Sixth Session of the Board of Directors of the
Company held on 20 January 2014, it was considered and approved that the
estimated sales of digital communications products and communications products to
???? by the Company in 2014 be capped at RMB600 million (before VAT); and
Please refer to the above table for details of the execution of the aforesaid
connected transactions.
Reason for the substantial difference between
transaction prices and referential market prices (if
applicable)
N/A
Note 1: The amount represented the estimated maximum daily deposit balance (principal cum interest) for the year ended 31 December 2014.
Note 2: ZTE Group Finance provided settlement services to Zhongxing Hetai and its subsidiaries in 2014, and the funds utilised for settlement
were limited to the cash deposits placed with ZTE Group Finance by Zhongxing Hetai and its subsidiaries. No handling fees were
charged for such settlement service.
Note 3: For details of the connected transactions, please refer to Note X to the financial statements prepared in accordance with PRC ASBEs.
(2) The Company did not conduct any connected transactions arising from asset acquisitions or
disposals during the year
(3) Connected transactions of the Company involving joint investment in third parties during the year
For details of connected transactions of the Company involving joint investment in third parties during the year,
please refer to “(VII) Third-party investments and connected transactions by the Company” under this section.
(4) Creditors and debtors with connected parties
During the year, the Company did not incur any creditors or debtors with connected parties of a non-operating
nature.
ANNUAL REPORT 2014
83
(5) Other connected transactions
At the Twenty-second Meeting of the Sixth Session of the Board of Directors of the Company held on 23 October
2014, the following connected transactions were considered and passed (for details, please refer to the Overseas
Regulatory Announcement published by the Company on 23 October 2014):
The estimated sales of digital communications products and communications products to ???? by the Company
in 2015 be capped at RMB1,000 million (before VAT);
At the Twenty-third Meeting of the Sixth Session of the Board of Directors of the Company held on 23 December
2014, the following connected transactions were considered and passed (for details, please refer to the Overseas
Regulatory Announcement published by the Company on 23 December 2014):
? The estimated purchases of software outsourcing services from Huatong by the Company in 2015-2017 be
capped at RMB60 million, RMB67 million and RMB75 million, respectively (before VAT);
? The estimated purchases of software outsourcing services from Nanchang Software by the Company in
2015-2017 be capped at RMB51 million, RMB63 million and RMB79 million, respectively (before VAT);
? The estimated sales of products and rendering of services to Nanchang Software by the Company in 2015-
2017 be capped at RMB29 million, RMB30 million and RMB31 million, respectively (before VAT);
? The annual rent payable by Chongqing Zhongxing Software Company Limited to Chongqing Zhongxing
Development for property lease, be capped at RMB13 million for a term commencing on 1 January 2015
and ending on 31 December 2017.
2. Continuing connected transactions under the Hong Kong Listing Rules
In accordance with Chapter 14A of the Hong Kong Listing Rules, the following connected transactions are required
to be disclosed in this report. Details of related parties under HKFRSs are set out in Note 48 to the financial
statements prepared under HKFRSs. Save as disclosed herein below, there were no other connected transactions
which should be deemed as “connected transactions” or “continuing connected transactions” as defined under
Chapter 14A of the Hong Kong Listing Rules and disclosed in accordance with the requirements of Chapter 14A
of the Hong Kong Listing Rules.
The Group has entered into connected transaction framework agreements with the following connected parties,
and has fulfilled the statutory procedures of reporting and announcement under Chapter 14A of the Hong Kong
Listing Rules based on the estimated annual cap of each connected transaction. For details, please refer to the
“Continuing Connected Transactions — Purchases of Raw Materials from Zhongxingxin” published on 28 December
2012. The Company hereby confirms that the disclosures requirements under Chapter 14A of the Hong Kong
Listing Rules have been complied with.
ZTE CORPORATION
84
Material Matters
(1) Purchases of raw materials comprising primarily cabinets and accessories, cases and accessories,
shelters, railings, antenna poles, optical products, refined processing products, packaging materials,
FPC, R-FPC and components by the Company from Zhongxingxin and its subsidiaries
• Description of the connected relationship between the parties to the transaction:
Zhongxingxin is the largest shareholder of the Company. As controlling shareholder of the Company, Zhongxingxin
is a connected person of the Company under the Hong Kong Listing Rules. As associates of Zhongxingxin, the
subsidiaries of Zhongxingxin are connected persons of the Company under the Hong Kong Listing Rules.
• Total transaction amount in 2014:
Approximately RMB540,815,000
• Price and other terms:
As considered and approved at the Thirty-eighth Meeting of the Fifth Session of the Board of Directors of the
Company held on 28 December 2012, the “Zhongxingxin Purchase Framework Agreement” was entered into
between the Group and Zhongxingxin dated 28 December 2012 in respect of the purchase of raw materials by
the Group from Zhongxingxin and its subsidiaries effective from 1 January 2013 to 31 December 2015 with the
purchase amounts for 2013-2015 capped at RMB900 million, RMB1,000 million and RMB1,100 million (before
VAT), respectively.
A potential supplier must pass the Group’s internally formulated qualification procedures based on qualifications,
product quality and price in order to become an approved supplier of the Group. Zhongxingxin and its subsidiaries
were selected through the Group’s qualification and bidding procedures as described above. The Directors confirm
that the prices of the said purchases were determined on an arm’s length basis and on normal commercial terms.
Prices at which transactions under the Zhongxingxin Purchase Framework Agreement are conducted will be
determined on an arm’s length basis. Such prices shall be on terms no less favourable than those offered to the
Group by other parties. The Group will settle the payment by commercial acceptance bill for the products within
210 days from the date of inspection and acceptance of the products.
Pursuant to and subject to the terms of the Zhongxingxin Purchase Framework Agreement, the Group will issue
purchase orders to (or enter into individual agreements with) Zhongxingxin and its subsidiaries from time to
time, specifying, among other things, product types, agreed quantities and prices, quality specifications, delivery
schedules, locations and modes, as well as other contract details. The annual cap for purchase in 2014 was
estimated at RMB1,000 million (before VAT).
• Purpose of the transaction:
Zhongxingxin and its subsidiaries were selected as suppliers through the Group’s qualification and bidding
procedures as they have consistently been able to meet the Group’s stringent demands for fast product turnaround
time, high product quality and timely delivery. As the Group consider that having reliable and cooperative suppliers
is important and beneficial to us, purchasing components required for the Group’s products from Zhongxingxin
and its subsidiaries allows us to secure essential control over the supply of most of the raw materials of our
production by being able to ensure the quality and timely delivery of such raw materials.
ANNUAL REPORT 2014
85
(2) The Independent Non-executive Directors of the Company have reviewed each of the aforesaid
continuing connected transactions of the Group and confirmed that the transactions were:
• conducted in the ordinary and usual course of business of the Company;
• entered into on normal commercial terms; and
• conducted in accordance with the terms of the agreements governing them and the terms of the transactions
are fair and reasonable and in the interests of the shareholders of the Company as a whole.
(3) The auditors of the Company have examined the aforesaid continuing connected transactions and
confirmed to the Board of Directors of the Company that the continuing connected transactions
were:
• approved by the Board of Directors of the Company;
• conducted in accordance with the pricing policies of the Company (where goods or services are being
supplied or rendered by the Company);
• conducted in accordance with the terms of the agreements governing them; and
• within the relevant annual caps as disclosed by announcements.
(X) MATERIAL CONTRACTS AND THEIR PERFORMANCE
1. There was no trust, contract management or lease of assets of other companies by the Group or of
the Group’s assets by other companies commencing or subsisting during the year.
2. Third-party guarantees of the Group
(1) Third-party guarantees entered into during the year
A. Guarantee provided for joint tender partnership
To facilitate the participation in the tender for the Zambia Digital Migration Project Phase I of Zambian Ministry of
Information and Broadcasting Services (the “Project”), the Company proposed to provide a Letter of Guarantee for
Tender with an amount of ZMW1 million (equivalent to approximately USD160,000 based on the foreign currency
statement book exchange rate of the Company as at 31 December 2014) for the joint tender partnership, namely
the Company and Arelis Broadcast SAS of France, in respect of the bidding and evaluation process for the
Project. For details, please refer to the “Announcement on Third-party Guarantee” published by the Company on
10 February 2014.
The aforesaid matter was considered and approved at the Fifteenth Meeting of the Sixth Session of the Board of
Directors of the Company. For details, please refer to the “Announcement of Resolutions of the Fifteenth Meeting
of the Sixth Session of the Board of Directors” published by the Company on 10 February 2014.
The aforesaid Letter of Guarantee for Tender was issued in February 2014. As at the end of the year, the aforesaid
Letter of Guarantee for Tender had been withdrawn and the guarantee obligations of the Company had been
released.
ZTE CORPORATION
86
Material Matters
B. Provision of guarantee for ZTE HK and conduct of interest rate swap transactions by ZTE HK
In order to further optimise the long-term and short-term debt structure of the Company and the subsidiaries
included in its consolidated financial statements, reduce exposure to assets and liabilities denominated in foreign
currencies, and meet additional working capital requirements for the Company’s medium/long-term development
at appropriate finance costs, the Company proposed to seek 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, its
wholly-owned subsidiary, as the principal. In view of the current financial conditions and credit rating of ZTE HK,
the Company would provide guarantee by way of joint liability assurance for an amount of not more than USD600
million (or not more than RMB4,000 million) in relation to the aforesaid debt financing of ZTE HK for a guarantee
term of not more than 5 years (from the date on which the debt financing agreement comes into effect), in order to
secure debt financing at favourable costs. To avoid interest rate risks associated with the aforesaid debt financing,
ZTE HK proposed to conduct interest rate swap transactions with a nominal principal amount of not more than
USD600 million at selected timing.
The aforesaid matter was considered and passed at the Sixteenth Meeting of the Sixth Session of the Board of
Directors and the 2013 Annual General Meeting of the Company. For details, please refer to the “Announcement
of Resolutions of the Sixteenth Meeting of the Sixth Session of the Board of Directors,” “Announcement on The
Provision of Guarantee for A Wholly-owned Subsidiary” and “Announcement on The Proposed Interest Rate Swap
Transactions by A Wholly-owned Subsidiary” published on 26 March 2014 and the “Announcement on Resolutions
of the 2013 Annual General Meeting” published on 29 May 2014 by the Company.
In July 2014, ZTE HK (as borrower) entered into a USD450 million syndicate loan agreement with 12 international
banks including Bank of China (Hong Kong) Limited (“BOCHK”). At the same time, the Company (as guarantor)
entered into a guarantee agreement with BOCHK (as agent of the lending banks) to provide joint liability assurance
for an amount of not more than USD450 million in favour of the lending banks to guarantee ZTE HK’s due
performance of obligations for the payment of the loan principal, interest, fees, expenses and other amounts
payable under the syndicate loan agreement.
C. Provision of guarantee for ZTE HK
In order to reduce the debt financing cost of the Company and the subsidiaries included in its consolidated
financial statements and meet additional working capital requirements of the Company, the Company proposed
to seek debt financing (including but not limited to bank facilities and the issue of corporate bonds) of not more
than RMB2,000 million in the overseas market with ZTE HK, its wholly-owned subsidiary, as the principal. In view
of the current financial conditions and credit rating of ZTE HK, the Company would provide guarantee for ZTE HK
by way of joint liability assurance for an amount of not more than RMB2,000 million in relation to the aforesaid
debt financing of ZTE HK for a term of not more than three years (from the date on which the resolution of the
General Meeting takes effect), in order to secure debt financing at favourable costs.
The aforesaid matter was considered and approved at the Twentieth Meeting of the Sixth Session of the Board
of Directors of the Company and the First Extraordinary General Meeting of 2014 of the Company. For details
please refer to the “Announcement of Resolutions of the Twentieth Meeting of the Sixth Session of the Board of
Directors” and “Announcement on the Provision of Guarantee for a Wholly-owned Subsidiary” published on 22
August 2014 and “Announcement on Resolutions of the First Extraordinary General Meeting of 2014” published
on 15 October 2014 by the Company.
In December 2014, ZTE HK (as borrower) entered into a RMB1,500 million syndicate loan agreement with Bank
of China Corporation, London Branch (“BOC London”). At the same time, the Company (as guarantor) entered
into a guarantee agreement with BOC London to provide joint liability assurance for an amount of not more
ANNUAL REPORT 2014
87
than RMB1,500 million in favour of the lending banks to guarantee ZTE HK’s due performance of obligations for
the payment of the loan principal, interest, fees, expenses and other amounts payable under the syndicate loan
agreement.
D. Provision of guarantee for ZTE Malaysia
ZTE proposed to provide joint liability guarantee for ZTE (MALAYSIA) CORPORATION SDN BHD (“ZTE Malaysia”),
a wholly-owned subsidiary, in respect of the performance obligations under the “CONTRACT FOR THE DELIVERY,
SUPPLY, INSTALLATION, TESTING AND COMMISSIONING OF EQUIPMENT AND SOFTWARE AND PROVISION OF
SERVICES FOR U MOBILE’S 3G/LTE SYSTEM” (the “UM Wireless Capacity Expansion Contract”) for an amount of
not more than USD20 million, for a term commencing on the date on which the “UM Wireless Capacity Expansion
Contract” comes into effect upon execution and ending on the date on which performance of the obligations of
ZTE Malaysia under the “UM Wireless Capacity Expansion Contract” is completed. In addition, ZTE also proposed
to apply to the relevant bank for the issuance of a bank letter of guarantee to provide guarantee for a maximum
amount of USD2 million, on a cumulative basis, in respect of the performance obligations by ZTE Malaysia under
the “UM Wireless Capacity Expansion Contract,” for an effective term of not more than three years from the date
on which the bank letter of guarantee comes into effect upon issuance.
The aforesaid guarantee was considered and approved at the Twenty-first Meeting of the Sixth Session of the
Board of Directors and the First Extraordinary General Meeting of 2014 of the Company. For details please refer to
the “Announcement of Resolutions of the Twenty-first Meeting of the Sixth Session of the Board of Directors” and
“Announcement on Third-party Guarantee” published on 23 September 2014 and “Announcement on Resolutions
of the First Extraordinary General Meeting of 2014” published on 15 October 2014 by the Company.
As at the end of the year, the USD20 million performance guarantee provided by the Company for ZTE Malaysia
had come in effect. The USD2 million bank letter of guarantee issued by relevant banks, applied for by the
Company on behalf of ZTE Malaysia, came into effect in January 2015.
ZTE CORPORATION
88
Material Matters
(2) Third-party guarantees as at the end of the reporting period
Third-party guarantees provided by the Company (excluding guarantees on behalf of subsidiaries)
Guaranteed party
Date and index
of domestic
announcement
disclosing the
guarantee amount
Amount
guaranteed
Date of incurrence
(date of execution
of relevant
agreements)
Actual amount
guaranteed Type of guarantee Term of guarantee
Whether
fully
performed
Whether
provided on
behalf of
connected
parties
Djibouti Telecom S.A. 19 April 2007
200720
RMB50
million
8 September 2006 RMB50
million
Joint liability 12 years No No
Zena Technologies &
Telecommunication Systems
Co. WLL
Note 1
18 December 2013
201375
KWD0.82
million
25 January 2014 KWD0.82
million
Guarantee by pledge Commencing on the
date of submission of
the tender for the GPON
Project II of the Ministry
of Communications of
Kuwait and ending on the
date of announcement of
the tender award for the
project.
No No
Joint tender partnership
between the Company and
Arelis Broadcast SAS of
France
Note 2
11 February 2014
201406
ZMW1
million
10 February 2014 ZMW1
million
Assurance Commencing on the
date of issuance of the
Letter of Guarantee for
Tender and ending on:
(1) the receipt by the
guarantor of a copy of
contract signed by the
joint tender partnership
and the issue of a
performance guarantee
letter in accordance with
the instructions of the
joint tender partnership in
the event of a successful
bid by the joint tender
partnership; or (2) the
earlier of: A. the receipt
by the guarantor of a
notice issued by the
beneficiary to the joint
tender partnership
notifying the names of
the successful bidders;
and B. 28 days after the
expiry of the joint tender
partnership’s bid, in the
event of an unsuccessful
bid by the joint tender
partnership; or (3) 10
August 2014.
Yes No
????????????
Note 3
N/A RMB25
million
29 May 2014 Approximately
RMB7.30
million
Joint liability 24 June 2014 to 29
September 2014
Yes No
Shenzhen Zhongxing ICT
Company Limited (???
?????????)
Note 4
N/A RMB160
million
30 December 2014 RMB160
million
Joint liability 5 years from the date of
issue of the loan
No No
Total amount of third-party guarantee approved
during the reporting period (A1) RMB185,976,800
Total amount of third-party guarantee actually incurred during the
reporting period (A2) RMB185,667,100
Total amount of third-party guarantee approved as
at the end of the reporting period (A3) RMB227,390,300
Total amount of third-party guarantee actually incurred as at the
end the reporting period (A4) RMB227,390,300
ANNUAL REPORT 2014
89
Guarantees provided by the Company on behalf of subsidiaries
Guaranteed party
Date and index
of domestic
announcement
disclosing the
guarantee amount
Amount
guaranteed
Date of
incurrence
(date of
execution
of relevant
agreements)
Actual amount
guaranteed
Type of
guarantee Term of guarantee
Whether
fully
performed
Whether
provided on
behalf of
connected
parties
Closed Joint-Stock
Company CJSC TK
Mobile
Note 5
12 May 2009
200917
USD70.60
million
N/A — Pledge of
equity
— No No
PT. ZTE Indonesia
Note 5
6 June 2009 200926 USD40 million 10 June 2009 USD40 million Joint
liability
From maturity to the date on which
performance of obligations of PT. ZTE
Indonesia under “Framework Agreement for
Technical Support” is completed
Yes No
PT. ZTE Indonesia
Note 5
6 June 2009 200926 USD5 million 17 June 2009 USD5 million Joint
liability
3.5 years or from maturity to the date on which
performance of obligations of ZTE and PT. ZTE
Indonesia under the “Framework Agreement
for Equipment Purchase” and “Framework
Agreement for Technical Support” is completed,
whichever later
Yes No
ZTE (H.K.) Limited
Note 6
9 April 2011
201112
9 July 2011
201130
USD900 million 8 July 2011 USD450 million
Note 6
Joint
liability
assurance
From the effective date of the assurance
guarantee to the expiry of 60 months from the
date of the facility agreement
No No
ZTE France SASU
Note 7
14 December 2011
201152
EUR10 million N/A — Assurance From maturity to the date on which
performance of obligations of ZTE France under
the “SMS Contract” and “PATES Contract”
expires or terminates (whichever is later)
No No
PT. ZTE Indonesia
Note 8
13 September 2013
201362
USD40 million 23 October
2013
USD40 million Joint
liability
From maturity to the date on which
performance of material obligations of PT. ZTE
Indonesia under the “Equipment Purchase
Contract” and “Technical Support Contract” is
completed
No No
PT. ZTE Indonesia
Note 8
13 September 2013
201362
USD15 million 11 September
2013
USD15 million Joint
liability
From maturity to 5 March 2017 or the date
on which performance of obligations of PT.
ZTE Indonesia under the “Equipment Purchase
Contract” and “Technical Support Contract” is
completed (whichever is later)
No No
ZTE (H.K.) Limited
Note 9
27 March 2014
201413
Not more than
USD600 million
or RMB4,000
million
18 July 2014 USD450 million Joint
liability
assurance
Not more than 5 years (from the date on which
the debt financing agreement comes into effect)
No No
ZTE (H.K.) Limited
Note 10
23 August 2014
201435
RMB2,000
million
30 December
2014
RMB1,500 million Joint
liability
assurance
Not more than 3 years (from the date on which
the resolution of the General Meeting takes
effect)
No No
ZTE (MALAYSIA)
CORPORATION
SDN BHD
Note 11
24 September 2014
201440
USD20 million 27 November
2014
USD20 million Joint
liability
Commencing on the date on which the “UM
Wireless Capacity Expansion Contract” comes
into effect upon execution and ending on the
date on which performance of the obligations
of ZTE Malaysia under the “UM Wireless
Capacity Expansion Contract” is completed.
No No
ZTE (MALAYSIA)
CORPORATION
SDN BHD
Note 11
24 September 2014
201440
USD2 million N/A — Joint
liability
Not more than 3 years from the date on which
the bank letter of guarantee comes into effect
upon issuance.
No No
Total amount of guarantee on behalf of
subsidiaries approved during the reporting
period (B1)
RMB6,136,411,000 Total amount of guarantee on behalf of subsidiaries actually incurred during the
reporting period (B2)
RMB4,414,235,000
Total amount of guarantee on behalf of
subsidiaries approved as at the end of the
reporting period (B3)
RMB12,570,985,800 Total amount of guarantee on behalf of subsidiaries actually incurred as at the
end the reporting period (B4)
RMB7,545,487,500
ZTE CORPORATION
90
Material Matters
Total amount guaranteed by the Company (sum of the two categories aforesaid)
Total amount of guarantee approved during
the reporting period (A1+B1) RMB6,322,387,800
Total amount of guarantee actually incurred during the reporting period
(A2+B2) RMB4,599,902,100
Total amount of guarantee approved as at
the end of the reporting period (A3+B3) RMB12,798,376,100
Total amount of guarantee actually incurred as at the end the reporting period
(A4+B4) RMB7,772,877,800
Total amount of guarantee (A4+B4) as a percentage of net assets of the
Company
31.24%
Including:
Amount of guarantee provided on behalf of shareholders, de facto controllers
and their connected parties (C)
0
Amount of debt guarantee provided directly or indirectly on behalf of parties
with a gearing ratio exceeding 70% (D)
RMB7,545,487,500
Amount of total guarantee exceeding 50% of net assets (E) 0
Aggregate amount of the three guarantee amounts stated above (C+D+E) RMB7,545,487,500
Statement on potential joint liability involved in outstanding guarantees N/A
Statement on provision of guarantee to third parties in violation of stipulated
procedures
N/A
Note 1: It was considered and approved at the Twelfth Meeting of the Sixth Session of the Board of Directors that a Letter of Guarantee for
Tender with an amount of 0.82 million KWD be provided by the Company for Zena Technologies & Telecommunication Systems Co.
WLL, its agent company in Kuwait. The said Letter of Guarantee for Tender was issued in January 2014.
Note 2: It was considered and approved at the Fifteenth Meeting of the Sixth Session of the Board of Directors that a Letter of Guarantee for
Tender with an amount of ZMW1 million for the joint tender partnership, namely the Company and Arelis Broadcast SAS of France.
The said Letter of Guarantee for Tender was issued in February 2014. As at the end of the reporting period, the aforesaid Letter of
Guarantee for Tender had been withdrawn and the Company’s guarantee obligations had been released.
Note 3: It was considered and passed at the meeting of the board of directors of ZTE ICT Company Limited (“ZTE ICT”), a subsidiary of the
Company, that approval be given to the application by Hunan ZTE ICT Company Limited (“Hunan ICT”), a wholly-owned subsidiary of
ZTE ICT, to Bank of China Corporation, Shenzhen Branch for a letter of guarantee with a total amount of not more than RMB25 million
under the credit facilities available to ZTE ICT, and to the provision of joint liability guarantee by ZTE ICT in respect of the liability of
Hunan ICT under the said letter of guarantee. The aforesaid letter of guarantee was issued in June 2014 for an amount of approximately
RMB7.30 million and was released in September 2014 upon expiry.
Note 4: It was considered and approved at the board meeting of ZTE Group Finance, a wholly-owned subsidiary of the Company, that ZTE
Group Finance would provide guarantee by way of joint liability assurance for an amount of RMB160 million in respect of the project
financing of ZTE ICT, a wholly-owned subsidiary of the Company, for a term of 5 years (from the date of issuance of the loan). As
at the end of the reporting period, the aforesaid guarantee documents had come into effect and the other shareholder of ZTE ICT
(holding a 10% interest in ZTE ICT) had provided a counter-guarantee for RMB16 million in favour of ZTE Group Finance in respect of
the aforesaid guarantee.
Note 5: It was respectively considered and approved at the Twenty-fourth and Twenty-fifth Meetings of the Fourth Session of the Board of
Directors that the 51% equity interests in Closed Joint-Stock Company CJSC TK Mobile (“CJSC TK Mobile”) held by the Company be
applied as a security against a bank loan extended to CJSC TK Mobile, and a performance guarantee of USD40 million be provided
by the Company for PT. ZTE Indonesia (“ZTE Indonesia”), a wholly-owned subsidiary of the Company and application be made by
the Company to the relevant bank for the issuance of a letter of performance guarantee with an amount of USD5 million. Since the
gearing ratio of both CJSC TK Mobile and ZTE Indonesia was above 70%, the aforesaid guarantees were considered and approved
at the First Extraordinary General Meeting of 2009 in accordance with relevant laws and regulations. The USD40 million performance
guarantee provided by the Company for ZTE Indonesia and the USD5 million letter of performance guarantee issued by the relevant
bank were released in January 2014. As at the end of the reporting period, the guarantee provided by the Company in respect of CJSC
TK Mobile’s bank loans by way of pledge of equity was pending performance as the relevant agreement had not yet been signed.
Note 6: In July 2011, ZTE HK, a wholly-owned subsidiary of the Company, entered into a USD900 million syndicate loan agreement with 10
international banks including BOCHK. At the same time, the Company entered into a guarantee agreement with BOCHK to provide
guarantee by way of joint liability assurance for an amount of not more than USD900 million in favour of the lending banks for ZTE
HK. The aforesaid guarantee was considered and passed at the Seventeenth Meeting of the Fifth Session of the Board of Directors of
the Company. As the amount guaranteed by the Company in respect of the syndicate loan of ZTE HK exceeded 10% of the net assets
of the Company, and the gearing ratio of ZTE HK is above 70%, the aforesaid guarantee was submitted to the 2010 Annual General
Meeting of the Company and was considered and approved. In July 2014, ZTE HK made a repayment of USD450 million in loans to
ANNUAL REPORT 2014
91
the lending banks. In accordance with the guarantee agreement, the amount of guarantee shall be the outstanding amount due upon
maturity under the syndicate loan agreement. Hence the amount of joint liability assurance provided thereafter by ZTE for ZTE HK in
favour of the lending banks has been adjusted to not more than USD450 million.
Note 7: It was approved at the Twenty-fourth Meeting of the Fifth Session of the Board of Directors that a guarantee for an amount of not
more than EUR10 million in respect of the performance obligations of 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”). As at the end of the
reporting period, the guarantee provided by the Company in respect of the performance obligations of ZTE France was undergoing
registration procedures of the State Administration of Foreign Exchange and had yet to be performed.
Note 8: It was considered and approved at the Ninth Meeting of the Sixth Session of the Board of Directors that a performance guarantee of
USD40 million be provided by the Company for ZTE Indonesia, a wholly-owned subsidiary of the Company, and application be made
by the Company to the relevant bank for the issuance of a letter of performance guarantee with an amount of USD15 million. Since the
gearing ratio of ZTE Indonesia was above 70%, the aforesaid guarantees were approved at the Third Extraordinary General Meeting of
2013. As at the end of the reporting period, a USD15 million guarantee for ZTE Indonesia provided by way of standby letter of credit
backed by the Company’s bank credit facilities had been executed and the USD40 million performance guarantee agreement had been
signed.
Note 9: The Company proposed to seek 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, its wholly-owned subsidiary, as the principal. The Company would provide
guarantee by way of joint liability assurance for an amount of not more than USD600 million (or not more than RMB4,000 million)
in relation to the aforesaid debt financing of ZTE HK. The aforesaid guarantee was considered and passed at the Sixteenth Meeting
of the Sixth Session of the Board of Directors. As the amount guaranteed by the Company in respect of the syndicate loan of ZTE
HK exceeded 10% of the net assets of the Company, and the gearing ratio of ZTE HK is above 70%, the aforesaid guarantee was
considered and approved at the 2013 Annual General Meeting of the Company. 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) represented the higher of USD600 million or RMB4,000 million. In July 2014, ZTE HK, a wholly-owned subsidiary
of the Company, entered into a USD450 million syndicate loan agreement with 12 international banks including BOCHK. At the same
time, the Company entered into a guarantee agreement with BOCHK to provide joint liability assurance for an amount of not more than
USD450 million in favour of the lending banks for ZTE HK.
Note 10: The Company sought debt financing (including but not limited to bank facilities and the issue of corporate bonds) of not more than
RMB2,000 million in the overseas market with ZTE HK, its wholly-owned subsidiary, as the principal. The Company provided guarantee
for ZTE HK by way of joint liability assurance for an amount of not more than RMB2,000 million in relation to the aforesaid debt
financing of ZTE HK for a term of not more than three years (from the date on which the resolution of the General Meeting takes
effect). The aforesaid guarantee was considered and approved at the Twentieth Meeting of the Sixth Session of the Board of Directors
of the Company. As the gearing ratio of ZTE HK is above 70%, the aforesaid guarantee was considered and approved at and the First
Extraordinary General Meeting of 2014 of the Company. In December 2014, ZTE HK (as borrower) entered into a RMB1,500 million
syndicate loan agreement with BOC London. At the same time, the Company entered into a guarantee agreement with BOC London
to provide joint liability assurance of not more than RMB1,500 million for ZTE HK.
Note 11: At the Twenty-first Meeting of the Sixth Session of the Board of Directors, it was considered and approved that the Company would
provide a USD20 million performance guarantee for ZTE Malaysia, a wholly-owned subsidiary, and apply to relevant banks for the
issuance of a USD2 million bank letter of guarantee. As the gearing ratio of ZTE Malaysia is above 70%, the aforesaid guarantee was
considered and approved at the First Extraordinary General Meeting of 2014 of the Company. As at the end of the reporting period,
the USD20 million performance guarantee provided by the Company for ZTE Malaysia had come in effect. The USD2 million bank letter
of guarantee issued by relevant banks, applied for by the Company on behalf of ZTE Malaysia, came into effect in January 2015.
Note 12: The guaranteed amounts are translated at the book exchange rates of the Company as at 31 December 2014: USD1: RMB6.2005,
EUR1: RMB7.5342, KWD1: RMB21.2077; ZMW1: RMB0.9768.
Note 13: All third party guarantees of the Company have been submitted to the Board of Directors for its review and come into effect with the
approval of two-thirds of the members of the Board of Directors. Third party guarantees which are further subject to consideration and
approval at the general meeting in accordance with relevant regulations have come into effect with the approval of the general meeting
following approval by the Board of Directors.
ZTE CORPORATION
92
Material Matters
3. A special statement and independent opinion on the fund transfer between the Company and
connected parties and third-party guarantees of the Company has been furnished by Independent
Non-Executive Directors of the Company, Ms. Qu Xiaohui, Mr. Wei Wei, Mr. Chen Naiwei, Mr. Tan
Zhenhui and Mr. Richard Xike Zhang as follows:
(1) As at 31 December 2014, the transfer of funds between the Company and the controlling shareholder and
other connected parties represented transactions in the ordinary course of business. Neither the controlling
shareholder of the Company nor other connected parties had appropriated the Company’s funds for non-
operating purposes or compromised the interests of the Company and its shareholders. As required by
CSRC, the Independent Non-executive Directors of the Company have conducted reviews in the light of the
“Notice regarding Certain Issues on the Regulation of Fund Transactions Between Listed Companies and
Connected Parties and Third-party Guarantees Made by Listed Companies” (Zheng Jian Fa [2003] No. 56)
and are of the view that the Company has diligently implemented the relevant provisions under the Notice
and have not found any matter which is in breach of the Notice.
(2) As at 31 December 2014, the balance of guarantees provided by the Company actually incurred was
approximately RMB7,772,877,800, accounting for 31.24% of the owner’s equity attributable to shareholders
of the parent company. The amount of third-party guarantee (excluding guarantees on behalf of subsidiaries)
actually incurred during the 2014 reporting period was approximately RMB185,667,100. The balance of
actually incurred third-party guarantee (excluding guarantees on behalf of subsidiaries) as at the end of the
2014 reporting period was approximately RMB227,390,300. Third-party guarantees on behalf of subsidiaries
actually incurred during the 2014 reporting period amounted to approximately RMB4,414,235,000. The
balance of actually incurred third-party guarantees on behalf of subsidiaries as at the end of the 2014
reporting period was approximately RMB7,545,487,500. For details of the third party guarantees of the
Company, please refer to the sub-section headed “2. Third-party guarantees of the Group” in this section.
The information on guarantees disclosed in the 2014 Annual Report of the Company is true and accurate,
and the Company had not been engaged in any guarantees or connected-party guarantees in breach of
relevant regulations.
(3) In accordance with the “Notice regarding Third-party Guarantees Provided by Listed Companies”(Zheng Jian
Fa [2005] No. 120), the Shenzhen Listing Rules, the Hong Kong Listing Rules and other pertinent regulations,
the Company has specified the scope of authority for the Board of Directors and the general meeting in
approving third-party guarantees in the Articles of Association, and has formulated “the ZTE Measures for
the Administration of Third-party Guarantees”, in which the approval process of third-party guarantees to
be made by the Company and its subsidiaries is specifically provided for to regulate third-party guarantees
of the Company and effectively control risks arising therefrom.
(4) As Independent Non-executive Directors of the Company, we have conducted reviews in the light of the
“Notice regarding Certain Issues on the Regulation of Fund Transactions Between Listed Companies and
Connected Parties and Third-party Guarantees Made by Listed Companies” (Zheng Jian Fa [2003] No. 56),
the “Notice regarding the Regulation of Third-party Guarantees Made by Listed Companies” (Zheng Jian Fa
[2005] No. 120), and the Articles of Association, and are of the opinion that the decision making procedures
for third-party guarantees of the Company during 2014 are in compliance with the Articles of Association and
relevant regulations mentioned above, and there has been no infringement on the interests of the Company
and its shareholders.
ANNUAL REPORT 2014
93
4. Progress of material contracts entered into during or prior to the year
During the year, the Company did not enter into any material contracts requiring disclosure. Progress of material
contracts entered into prior to the year is set out as follows:
No. Contents of material contracts
Date of domestic
announcements Pricing principle Transaction prices
Whether a
connected
transaction
Performance status
as at the end of the
reporting period
1 Framework agreement and business contracts
thereunder between the Company and Ethiopian
Telecommunications Corporation
30 April 2007 By reference to
market prices
Business contracts
under the framework
agreement amounted
to USD200 million
No Under normal
progress
2 GSM Phase II project contract between the
Company and Ethiopian Telecommunications
Corporation
20 September 2007 By reference to
market prices
USD478 million No Under normal
progress
3 Network Supply Agreement and Managed
Service Agreement between the Company
and its subsidiary ZTE Corporation South
Africa (PTY) Limited on the one hand and
Cell C (PTY) LTD., a South African mobile
telecommunications operator, and its controlling
shareholder OGER TELECOM (SOUTH AFRICA)
(PTY) Limited, on the other
27 January 2010 By reference to
market prices
USD378 million No Under normal
progress
4 Framework Agreement of Chipset Procurement
for Calendar Years 2012-2015 between the
Company and Qualcomm
21 February 2012 By reference to
market prices
Subject to the long-
term supply contracts
signed between
the two parties and
specific purchase
orders
No Under normal
progress
5 Framework Agreement of Chipset Procurement
for Calendar Years 2012-2014 between the
Company and Broadcom
21 February 2012 By reference to
market prices
No Terminated under
normal conditions
as at 31 December
2014
(XI) UNDERTAKING
1. Undertakings by the Company or shareholders interested in 5% or more of the shares in the
Company made during the reporting period or made during prior periods but subsisting during the
reporting period
Zhongxingxin, 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, except 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.
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 and to sell down shareholdings by a
volume equivalent to 5% or more within six months after the first sell-down, by way of an indicative announcement
to be published by the Company within two trading days before the first sell-down.
ZTE CORPORATION
94
Material Matters
2. Company statement on meeting original profit forecasts for assets or projects and the reasons
therefor, where such profit forecasts have been made and the reporting period falls within the profit
forecast period
? Applicable ? N/A
(XII) APPOINTMENT OF AUDITORS
Ernst & Young Hua Ming LLP and Ernst & Young acted as the Company’s PRC and Hong Kong auditors,
respectively. For further details, please refer to the section of this report headed “Corporate Governance Structure
Part II—VI. Auditors’ Remuneration”.
(XIII) DURING THE YEAR, NONE OF THE COMPANY, ITS DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT OR SHAREHOLDER INTERESTED IN MORE THAN 5% OF THE SHARES WAS
SUBJECT TO INVESTIGATION BY COMPETENT AUTHORITIES, ENFORCEMENT BY JUDICIARY
OR DISCIPLINARY AUTHORITIES, DETAINMENT BY JUDICIAL AUTHORITIES OR PROSECUTION
FOR CRIMINAL CHARGES, CASE INVESTIGATION OR ADMINISTRATIVE PENALTY BY CSRC,
PROHIBITION FROM PARTICIPATION IN THE SECURITIES MARKET, OPINION OF DEEMED
INAPPROPRIATENESS, PUNISHMENT BY OTHER ADMINISTRATIVE AUTHORITIES OR PUBLIC
CENSURE BY THE STOCK EXCHANGE.
(XIV) ALLEGED ILLICIT TRADING IN SHARES OF THE COMPANY BY DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT OR SHAREHOLDERS HOLDING 5% OR MORE OF THE SHARES OF THE COMPANY
IN RESPECT OF WHICH THE RETRIEVAL OF GAINS FROM ALLEGED ILLICIT TRADING HAS BEEN
ANNOUNCED BY THE COMPANY
? Applicable ? N/A
(XV) PROSPECTS OF SUSPENSION OR TERMINATION OF LISTING AFTER THE PUBLICATION OF THE
ANNUAL REPORT
? Applicable ? N/A
(XVI) OTHER SIGNIFICANT EVENTS
Save as aforesaid, no other significant events as specified under Rule 67 of the Securities Law and Article 30 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 year.
(XVII) THERE WERE NO OTHER DISCLOSEABLE MATERIAL MATTERS OCCURRING TO THE SUBSIDIARIES
OF THE COMPANY DURING THE YEAR THAT REMAINED UNDISCLOSED.
ANNUAL REPORT 2014
95
Changes in Shareholdings and Information of Shareholders
(I) CHANGES IN SHAREHOLDINGS DURING THE YEAR
Unit: shares
At the beginning of
the year
Increase/decrease as a result of
the change during the year (+, -) At the end of the year
Number of
shares Percentage
New
issue
Bonus
issue
Transfer
from
capital
reserve Others
Note
Sub-total
Number of
shares Percentage
I. Shares subject to lock-up 7,225,715 0.21% — — — –455,137 –455,137 6,770,578 0.19%
1. State-owned shares — — — — — — — — —
2. State-owned corporate shares — — — — — — — — —
3. Other domestic shares — — — — — — — — —
Comprising: domestic non-state-owned corporate shares — — — — — — — — —
Domestic natural person shares — — — — — — — — —
4. Foreign shares — — — — — — — — —
Comprising: Foreign corporate shares — — — — — — — — —
Foreign natural person shares — — — — — — — — —
5. Senior management shares 7,225,715 0.21% — — — –455,137 –455,137 6,770,578 0.19%
II. Shares not subject to lockup 3,430,315,563 99.79% — — — 455,137 455,137 3,430,770,700 99.81%
1. RMB ordinary shares 2,800,730,118 81.47% — — — 455,137 455,137 2,801,185,255 81.49%
2. Domestic-listed foreign shares — — — — — — — — —
3. Overseas-listed foreign shares (H shares) 629,585,445 18.32% — — — — — 629,585,445 18.32%
4. Others — — — — — — — — —
III. Total number of shares 3,437,541,278 100.00% — — — — — 3,437,541,278 100.00%
Note: In accordance with relevant domestic regulations, shares held by the Directors, Supervisors or senior management shall be subject to
lock-up or unlocking on a pro-rata basis.
ZTE CORPORATION
96
Changes in Shareholdings and Information of Shareholders
(II) CHANGES IN SHARES SUBJECT TO LOCK-UP DURING THE YEAR
Unit: shares
No.
Name of
shareholders
subject to
lock-up
Number of
shares subject to
lock-up as at
31 Dec 2013
Number of
shares released
from lock-up
during the year
Increase in
the number
of shares
subject to
lock-up
during the
year
Number
of shares
subject to
lock-up at
the end of
the year Reason for lock-up
Date of
unlocking
1 Hou Weigui 973,103 — — 973,103 Restricted senior
management shares
Note 1
2 Chen Jie 595,936 37,499 — 558,437 Restricted senior
management shares
Note 1
3 Yin Yimin 474,624 — — 474,624 Restricted senior
management shares
Note 1
4 Xu Huijun 420,709 — — 420,709 Restricted senior
management shares
Note 1
5 Shi Lirong 307,882 — 105,000 412,882 Restricted senior
management shares
Note 1
6 Fan Qingfeng 421,874 59,999 — 361,875 Restricted senior
management shares
Note 1
7 Zhu Jinyun 361,844 — — 361,844 Restricted senior
management shares
Note 1
8 Wei Zaisheng 328,065 — — 328,065 Restricted senior
management shares
Note 1
9 Zeng Xuezhong 425,700 105,000 — 320,700 Restricted senior
management shares
Note 1
10 Pang Shengqing 391,051 75,000 — 316,051 Restricted senior
management shares
Note 1
11 Others 2,524,927 331,389 48,750 2,242,288 Restricted senior
management shares
Note 1 and
Note 2
Total 7,225,715 608,887 153,750 6,770,578 — —
Note 1: According to relevant domestic regulations, up to 25% of the shares held may be disposed of by the Directors, Supervisors and senior
management of the Company through the stock exchange each year. Up to 25% of shares not subject to lockup acquired by the
Directors, Supervisors and senior management are disposable during the year of acquisition.
Note 2: Relevant shares held by Directors, Supervisors and senior management who were newly appointed were subjected to lock-up in
accordance with relevant domestic regulations.
ANNUAL REPORT 2014
97
(III) ISSUE AND LISTING OF SECURITIES IN THE PAST THREE YEARS
1. The Company completed the issue of the 2012 corporate bonds (tranche 1) on 15 June 2012. The finalized
online and offline issue volumes amounted to RMB200 million and RMB5,800 million, respectively, with a
coupon interest rate of 4.20%. The corporate bonds under the said issue were listed on Shenzhen Stock
Exchange on 16 July 2012 under the bond code “112090” and the abbreviated bond name “12??01.”
2. On 31 October 2013, the Company granted 102,989,000 share options to 1,528 Scheme Participants.
Registration for the share options granted has been completed. The option code is “037032” and the
abbreviated name is “??JLC1.”
3. Changes in the structure of assets and liabilities of the Company as a result of changes in the total number
and structure of shares of the Company
Following the Company’s repurchase and cancellation of 2,536,742 restricted shares not qualified for
unlocking under the Phase I Share Incentive Scheme in 2013, the total share capital of the Company has
changed from 3,440,078,020 shares to 3,437,541,278 shares. The matters had no material impact on the
structure of assets and liabilities of the Company.
4. The Company had no employees’ shares.
ZTE CORPORATION
98
Changes in Shareholdings and Information of Shareholders
(IV) SHAREHOLDERS AND DE FACTO CONTROLLERS OF THE COMPANY AS AT THE END OF THE
YEAR
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 year
Total number of shareholders
As at 31 December 2014 There were 167,184 shareholders (comprising 166,820 holders of A shares
and 364 holders of H shares)
As at the close of trading on 19 March 2015, namely 5
trading days prior to the publication of the annual
results
There were 159,737 shareholders (comprising 159,377 holders of A shares
and 360 holders of H shares)
Shareholdings of top 10 shareholders or shareholders holding 5% or above of the shares
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
reporting
period
(shares)
Number of
shares held
subject to
lock-up
(shares)
Number
of shares
pledged or
frozen
1. Zhongxingxin State-owned
corporation
30.78% 1,058,191,944 0 0 Nil
2. HKSCC Nominees Limited Foreign
shareholders
18.28% 628,334,340 +26,768 0 Unknown
3. Hunan Nantian (Group) Co., Ltd. State-owned
corporation
1.09% 37,450,609 0 0 Unknown
4. China Life Insurance Company
Limited — Traditional — General
Insurance Products — 005L —
CT001 Shen
Others 0.66% 22,679,287 –2,017,098 0 Unknown
5. Qianhai Life Insurance Company
Limited — Owned Funds Huatai
Portfolio
Others 0.51% 17,605,008 +17,605,008 0 Unknown
6. Seventh Research Institute of China
Mobile
State-owned
corporation
0.46% 15,894,950 0 0 Unknown
7. NSSF Portfolio #113 Others 0.40% 13,711,011 –3,000,089 0 Unknown
8. CASIC Shenzhen (Group) Company
Limited
State-owned
corporation
0.35% 12,155,870 0 0 Unknown
9. ICBC — Bosera Select Stock Fund Others 0.35% 11,999,656 +6,999,738 0 Unknown
10. China Life Insurance (Group)
Company — Traditional — General
Insurance Products
Others 0.34% 11,683,756 –8,278,028 0 Unknown
ANNUAL REPORT 2014
99
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 1,058,191,944 A share
2. HKSCC Nominees Limited 628,334,340 H share
3. Hunan Nantian (Group) Co., Ltd. 37,450,609 A share
4. China Life Insurance Company Limited — Traditional — General Insurance Products —
005L — CT001 Shen 22,679,287 A share
5. Qianhai Life Insurance Company Limited — Owned Funds Huatai Portfolio 17,605,008 A share
6. Seventh Research Institute of China Mobile 15,894,950 A share
7. NSSF Portfolio #113 13,711,011 A share
8. CASIC Shenzhen (Group) Company Limited 12,155,870 A share
9. ICBC — Bosera Select Stock Fund 11,999,656 A share
10. China Life Insurance (Group) Company — Traditional — General Insurance Products 11,683,756 A share
Descriptions of any connected party relationships
or concerted party relationships among the
above shareholders
1. Zhongxingxin was a related party (as defined under Shenzhen Listing Rules), but not
a concerted party, of the 8th ranking shareholder among the top 10 shareholders and
the top 10 holders of shares that were not subject to lock up. Save as aforesaid,
there were no connected party relationships or concerted party relationships between
Zhongxingxin and other top 10 shareholders and other top 10 holders of shares that
were not subject to lock-up listed above.
2. China Life Insurance (Group) Company, fund manager of the 10th ranking shareholder
among the top 10 shareholders, was the controlling shareholder of China Life
Insurance Company Limited, fund manager of the 4th ranking shareholder.
3. 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.
Description of involvement in financing and
securities lending businesses of top 10
shareholders (if any)
N/A
Note 1: During the year, there was no placing of new shares in the Company to any strategic investors or ordinary legal persons that required
shareholding for a designated period.
Note 2: Shareholders holding 5% or above of the Company’s shares — Changes in the shareholding of Zhongxingxin, controlling shareholder
of the Company interested in 30.78% of the Company’s shares, during the year are as follows:
Name of shareholder
Increase/
decrease (+/-)
of number of
shares held
during the
reporting period
(shares)
Number of
shares held at
the end of the
reporting period
(shares)
Class of
shares
held
Number of
shares subject
to lock-up held
at the end of the
reporting period
(shares)
Number of
shares not
subject to
lock-up held at
the end of the
reporting period
(shares)
Number of
shares pledged
or frozen
(shares)
Zhongxingxin 0 1,058,191,944 A shares 0 1,058,191,944 Nil
ZTE CORPORATION
100
Changes in Shareholdings and Information of Shareholders
Whether the top ten shareholders and the top ten holders of shares that were not subject to lock-up of
the Company conducted any transactions on agreed repurchases during the reporting period
? Yes ? No
THE COMPANY HAD NO PREFERENTIAL SHARES.
2. Controlling shareholder of the Company
During the year, there was no change in the Company’s controlling shareholder, details of which are as follows:
Name of controlling shareholder: Zhongxingxin
Legal representative: Xie Weiliang
Date of incorporation: 29 April 1993
Organisation number: 19222451-8
Registered capital: RMB100 million
Scope of business: Production of SPC switch cabinets, telephones and related parts and
components, electronic products; import and export operations (in
accordance with the requirements under document Shen Mao Guan
Shen Zheng Zi No. 727); treatment of waste water, toxic fumes and noise
and related technical services, research and technical development of
environmental protection equipment; production of continuous monitoring
smoke systems; manufacturing of mining equipment; manufacturing of
power transmission and distribution and control equipment; computer
systems integration; development of digital processing system technologies
and technological research and development for related technical services.
As at the date of this report, Zhongxingxin’s 2014 annual audit work has yet to be completed. Unaudited data
are as follows: operating revenue, net profit and net cash flow from operating activities of Zhongxingxin for 2014
amounted to approximately RMB356 million, RMB22 million and RMB-31 million, respectively. As at 31 December
2014, total assets and total liabilities amounted to approximately RMB6,487 million and RMB1,206 million,
respectively. In future, Zhongxingxin will build an innovative investment group company engaged in diversified
capital applications with a primary focus on innovative technologies and services in close tandem with principal
economic activities in China.
During the year, Zhongxingxin did not hold any controlling or non-controlling stakes in other domestic or
international listed companies.
3. The shareholders (or de facto controllers) of the Company’s controlling shareholder
Zhongxingxin, the controlling shareholder of the Company, was jointly formed by Xi’an Microelectronics, Aerospace
Guangyu and Zhongxing WXT, each holding a 34%, 17% and 49% 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
ANNUAL REPORT 2014
101
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 asset management. Details of these three shareholders are as follows:
Xi’an Microelectronics, a subsidiary of China Aerospace Electronics Technology Research Institute, is a large state-
owned research institute established in 1965 with a start-up capital of RMB198,530,000. Its legal representative
is Tian Dongfang and its organization number is H0420141-X. It is the only specialized research institute in China
which integrates and complements the research, development and production of semiconductor integrated circuits,
hybrid integrated circuits and computers.
Aerospace Guangyu, a subsidiary of CASIC Shenzhen (Group) Company, Limited, is a wholly state-owned enterprise
established on 17 August 1989. The legal representative is Cui Yuping and the registered capital amounts to
RMB17,950,000. Its organization number is 19217503-1. The scope of business includes aerospace technology
products, machinery equipment, electrical appliances, apparatuses and instruments, electronic products, plastic
products, chemical products, hoisting and transportation products, hardware and furniture, construction materials,
magnetic materials, powder metallurgy, raw materials for textile, raw materials for chemical fibre, apparel, textile,
sales of automobile; domestic trade; import and export operations; trade brokerage and agency; lease of owned
properties.
Zhongxing WXT is a private enterprise incorporated on 23 October 1992. Its legal representative is Hou Weigui and
its registered capital amounts to RMB10 million. Its organization number is 27941498-X. The scope of business
includes the development and production of telecommunications and transmission equipment, ancillary equipment,
computer and peripheral equipment (excluding restricted projects); investment in industrial operations (specific
projects shall be separately reported).
The following diagram shows the shareholding and controlling relationships between the Company and its
shareholders as at 31 December 2014:
Xi’an
Microelectronics
Aerospace
Guangyu
Zhongxingxin
ZTE
Zhongxing
WXT
34% 17% 49%
30.78%
4. The Company had no other corporate shareholder who was interested in more than 10% of its
shares
5. So far as known to the Company, no shareholders of the Company and their concerted parties
proposed or implemented plans to increase shareholdings during the reporting period.
ZTE CORPORATION
102
Changes in Shareholdings and Information of Shareholders
6. Interests of substantial shareholders of the Company in shares and underlying shares
As at 31 December 2014, the following shareholders held interests or short positions in 5% or more in any
class 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
Number of
shares held
Shareholding as an
approximate percentage
(%) of:
Total share
capital
Class
shares
Zhongxingxin Beneficial owner 1,058,191,944
A shares (L)
30.78(L) 37.69(L)
Zhongxing WXT Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
Xi’an Microelectronics Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
China Aerospace Electronics
Technology Research
Institute
Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
China Aerospace Science and
Technology Corporation
Interests of corporation
controlled by the substantial
shareholder
1,058,191,944
A shares (L)
30.78(L) 37.69(L)
BlackRock, Inc. Interests of corporation
controlled by the substantial
shareholder
67,474,390
H share (L)
1.96(L) 10.72(L)
Interests of corporation
controlled by the substantial
shareholder
511,600
H share (S)
0.01(S) 0.08(S)
Aranda Investments (Mauritius)
Pte Ltd
Interests of corporation
controlled by the substantial
shareholder
11,141,800
H share (L)
1.16(L)
Note
6.96(L)
Note
JPMorgan Chase & Co. Beneficial owner, investment
manager and custodian
corporation/approved lending
agent
40,970,469
H share (L)
1.19(L) 6.50(L)
Beneficial owner 3,253,675
H share (S)
0.09(S) 0.51(S)
custodian corporation/approved
lending agent
30,647,239
H share (P)
0.89(P) 4.86(P)
Capital Research and
Management Company
Investment manager 38,410,000
H share (L)
1.12(L) 6.10(L)
Massachusetts Financial
Services Company (“MFS”)
Investment manager 8,428,100
H share (L)
0.88(L)
Note
5.26(L)
Note
Sun Life Financial, Inc. Interests of corporation
controlled by the substantial
shareholder
8,428,100
H share (L)
0.88(L)
Note
5.26(L)
Note
(L) — long position, (S) — short position, (P) — lending pool
ANNUAL REPORT 2014
103
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 (959,521,650 shares) and total number of H shares (160,151,040 shares) before the capitalisation of capital reserves on 10 July
2008.
Save as disclosed above, as at 31 December 2014, 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.
7. Purchase, sale and redemption of securities
During the year, the Company and its subsidiaries did not purchase, sell or redeem any listed securities of the
Company.
8. Public float
As at the latest practicable date prior to the publication of this report, so far as the Company and the Board of
Directors was aware of based on publicly available information, the Company’s public float is in compliance with
the minimum requirement for public float under the Hong Kong Listing Rules.
ZTE CORPORATION
104
Directors, Supervisors, Senior Management and Employees
(I) BRIEF BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
1. Brief biographies of Directors
Mr. Hou Weigui, born in 1941, is Chairman and Non-executive Director of the Company. He worked with China
Aerospace Factory No. 691 as head of the technology division prior to 1984. In 1984, he went to Shenzhen to
establish Shenzhen Zhongxing Semiconductor Co., Ltd., serving as general manager of the company. He was
President of the Company from October 1997 to February 2004 and has been Chairman and Non-executive Director
of the Company since February 2004. Mr. Hou has extensive experience in the telecommunications sector and in
corporate and business management.
Mr. Zhang Jianheng, born in 1961, is Vice Chairman and Non-executive Director of the Company. Mr. Zhang
graduated from Dalian Institute of Technology in 1982 majoring in Chemical Machinery and currently holds the title
of senior engineer. Mr. Zhang worked with the No. 1 Film Factory under the Ministry of Chemical Industry from
1982 to 1989 and with No. 1 Film Factory of China Lucky Film Corporation from 1989 to 1996. He was appointed
director of China Lucky Film Corporation in 1996, and went on to serve as deputy general manager and general
manager of that company until 2011. During this period, he also concurrently acted as general manager (vice
chairman) and chairman of Lucky Film Co., Ltd. Since November 2012 he has been chairman of China Lucky
Group Corporation. In November 2011 he was appointed deputy general manager of China Aerospace Science
and Technology Corporation, a position that he has been holding since. He has been non-executive director and
board chairman of China Aerospace International Holdings Limited (a company listed on The Stock Exchange of
Hong Kong Limited) since March 2012, and has been Vice Chairman and Non-executive Director of the Company
since April 2012. Mr. Zhang brings with him a wealth of experience in management and operation.
Mr. Xie Weiliang, born in 1956, is Vice Chairman and Non-executive Director of the Company. Mr. Xie graduated
from the Faculty of Politics, National University of Defense Technology in 1982 and currently holds the title of
professor. Mr. Xie served as the head of Nanjing Aerospace Management Cadres Institute from 2001 to 2003, and
as director and general manager of Shenzhen Aerospace Guangyu Industrial Company Limited since 2003. From
2003 to January 2014 he was director and general manager of CASIC Shenzhen (Group) Company, Limited. From
January 2014 to September 2014 he was chairman and CPC committee secretary of CASIC Shenzhen (Group)
Company, Limited. Since October 2014 he has been inspector (bureau-level) of CASIC Shenzhen (Group) Company,
Limited. He has been Vice Chairman and Non-executive Director of the Company since February 2004 and is
concurrently chairman of Zhongxingxin. Mr. Xie has substantial experience in management and business operations.
Mr. Wang Zhanchen, born in 1952, is Non-executive Director of the Company. Mr. Wang graduated from Xi’an
Artillery Engineering Institute in 1976 and currently holds the title of senior engineer. Mr. Wang served as factory
manager of Beijing Xinghua Machinery Factory of China Academy of Launch Vehicle Technology during 1997 to
2001. He was vice chairman of China Aerospace Times Electronics Co., Ltd. from June 2008 to June 2014 and
Non-executive Director of the Company since March 2010. Mr. Wang has substantial experience in management
and business operations.
Mr. Zhang Junchao, born in 1953, is Non-executive Director of the Company. Mr. Zhang graduated from
Department (I) of Electronic and Wireless Engineering, Xi’an Jiaotong University in 1977 and currently holds
the title of researcher. Mr. Zhang served as the deputy head of Foundational Electronic Technology Institute of
China Aerospace Science and Technology Corporation from 2000 to March 2003, head of Shaanxi Management
Division of China Aerospace Times Electronics Corporation (renamed as “China Academy of Aerospace Electronics
Technology”) and head of Xi’an Microelectronics Technology Institute from May 2003 to January 2014 and deputy
head of China Academy of Aerospace Electronic Technology from September 2010 to January 2014. He has been
Non-executive Director of the Company since February 2004. Mr. Zhang has substantial experience in management
and business operations.
ANNUAL REPORT 2014
105
Mr. Dong Lianbo, born in 1957, is Non-executive Director of the Company. Mr. Dong graduated from Northeastern
University in 2001 majoring in Business Administration and currently holds the titles of researcher-grade senior
engineer. Mr. Dong served as director and deputy general manager of Shenyang Aerospace Xinguang Group from
2001 to 2002, deputy team head of the Shenzhen Business Integration Working Group of China Aerospace Science
and Industry Corporation from 2002 to 2003 and director and deputy general manager of CASIC Shenzhen (Group)
Company, Limited from 2003 to January 2014. Since January 2014, he has been head of first inspection team of
China Aerospace Science and Industry Corporation. He has been Non-executive Director of the Company since
February 2004. Mr. Dong has substantial experience in management and business operations.
Mr. Shi Lirong, born in 1964, is Executive Director and President of the Company. Mr. Shi graduated from
Tsinghua University in 1984 majoring in wireless and information technology with a bachelor’s degree and Shanghai
Jiaotong University in 1989 majoring in telecommunications and electronic engineering with a master’s degree, and
currently holds the title of senior engineer. Mr. Shi served as an engineer and head of the production department
in Shenzhen Zhongxing Semiconductor Co., Ltd. from 1989 to 1993. From 1993 to 1997, he was deputy general
manager of Zhongxingxin. He was in charge of the Company’s overall marketing operations from 1997 to 2007
and global sales from 2007 to 2010. He has been Executive Director of the Company since February 2001 and
President of the Company since March 2010. Mr. Shi has many years of experience in the telecommunications
industry and over 24 years of management experience.
Mr. Yin Yimin, born in 1963, is Executive Director of the Company. Mr. Yin graduated from the Nanjing Institute
of Posts and Telecommunications (now known as Nanjing University of Posts and Telecommunications) in 1988
with a master’s degree in engineering, majoring in telecommunications and electronic systems, and currently
holds the title of senior engineer. Mr. Yin had served as a manager of the research and development department
of Shenzhen Zhongxing Semiconductor Co., Ltd. since 1991, and as deputy general manager of Zhongxingxin
between 1993 and 1997. From 1997 to March 2010 he served as the Company’s Vice President, Senior Vice
President and President, being in charge of different divisions such as research and development, marketing,
sales and handsets operations. He has been Executive Director of the Company since November 1997. Mr. Yin
has many years of experience in the telecommunications industry and over 24 years of management experience.
Mr. He Shiyou, born in 1966, is Executive Director of the Company. Mr. He graduated from Beijing University
of Posts and Telecommunications in 1990 with a master’s degree in engineering, specialising in electromagnetic
field and microwave technology and currently holds the title of senior engineer. Mr. He joined Zhongxingxin in
1993 and had since served as chief engineer of the Nanjing Research Centre and deputy head of the Shanghai
Research Centre. He was the Company’s Vice President from 1998 to 1999, responsible for divisions such as
research and development and marketing. From 1999 to 2014, he had been Senior Vice President and Executive
Vice President of the Company responsible for Sales Division II and the Handset Division of the Company. He
has been Executive Director of the Company since February 2001. Mr. He has many years of experience in the
telecommunications industry as well as over 22 years of management experience.
Ms. Qu Xiaohui, born in 1954, is Independent Non-executive Director of the Company. Ms. Qu graduated from
Xiamen University in July 1989 with a doctorate degree in Economics (Accounting) and currently holds the title
of accounting professor. She was named a Fulbright Scholar under the U.S. Fulbright Scholar Program in May
2001. Ms. Qu is the first female PhD in accounting and female tutor for doctorate candidates in accounting in
China, as well as the promoter of the project hypothesis procedure for the creation of a professional master’s
degree in accounting (MPAcc) in China. She is currently head of the research center for accounting development
at Xiamen University (a key research base for arts disciplines designated by the Ministry of Education) and head
of Financial Management and Accounting Research Institute of Xiamen University (a “National 985” Innovative
Base for Philosophy and Social Science). Since August 1989, she has been engaged in teaching and academic
research at the Department of Accounting of Xiamen University. She has been Independent Non-executive Director
of the Company since July 2009. Ms. Qu is concurrently independent non-executive director of each of Yunnan
ZTE CORPORATION
106
Directors, Supervisors, Senior Management and Employees
Baiyao Group Co., Ltd. (a company listed on the Shenzhen Stock Exchange), Taikang Life Insurance Co., Ltd.
and Guangzhou Baiyun Electric Equipment Co., Ltd. and chief financial advisor of Xiamen NetinNet Software Co.,
Ltd. Ms. Qu is well qualified, both academically and professionally, and vastly experienced in the accounting and
finance sector.
Mr. Wei Wei, born in 1965, is Independent Non-executive Director of the Company. Mr. Wei graduated from
Huazhong University of Science and Technology in 2004 with a doctorate degree in management science and
engineering. Mr. Wei was a post-doctorate fellow at Chinese Economic Research Centre at the Peking University
from July 2004 to June 2006. He has worked in Xinjiang Technology College and Xinjiang University. He was
Assistant to the Dean of Shenzhen School of Business of Peking University from July 2006 to September 2007
and has been associate dean of HSBC Business School of Peking University and the head of the Research Centre
of Doers’ Group Business Model of HSBC Business School of Peking University since October 2007. He has been
Independent Non-executive Director of the Company since July 2009. Mr. Wei is concurrently independent non-
executive director of each of Dalian Zhangzidao Fishery Group Company Limited (a company listed on Shenzhen
Stock Exchange), Telling Telecommunication Holding Co., Ltd. (a company listed on Shenzhen Stock Exchange)
and Skyworth Digital Holdings Limited (a company listed on the Hong Kong Stock Exchange). Mr. Wei is well
qualified, both academically and professionally, and vastly experienced in corporate management.
Mr. Chen Naiwei, born in 1957, is Independent Non-executive Director of the Company. Mr. Chen graduated from
the Graduate School of Macau University of Science and Technology in 2007 with a doctorate degree in Law. He
holds the title of professor in Law and is a qualified lawyer in China. Mr. Chen has served as head of the Law
Faculty and head of the Intellectual Property Research Centre of Shanghai Jiaotong University. He has been a
partner and senior lawyer of Shanghai Allbright Law Offices since 2001. Mr. Chen has been an Independent Non-
executive Director of the Company since July 2009 and is concurrently independent non-executive director of each
of Shanghai Pharmaceuticals Holding Co., Ltd. (a company listed on the Shanghai Stock Exchange and the Hong
Kong Stock Exchange), Shanghai Taisheng Wind Power Equipment Co., Ltd. (a company listed on the Shenzhen
Stock Exchange), Shanghai Kinlita Chemical Co., Ltd. (a company listed on the Shenzhen Stock Exchange) and
Shanghai Jiaoyun Group Co., Ltd. (a company listed on the Shanghai Stock Exchange). Mr. Chen is well qualified,
both academically and professionally, and vastly experienced in the legal sector.
Mr. Tan Zhenhui, born in 1944, is Independent Non-executive Director of the Company. Mr. Tan graduated
from Southeast University in 1987 with a doctorate degree in engineering specialising in telecommunications
and electronic systems, and currently holds the title of professor. Mr. Tan is currently chairman of the Academic
Committee and a professor of Beijing Jiaotong University, where he has been serving since August 1982 as
faculty dean, vice chancellor and chancellor. He has been Independent Non-executive Director of the Company
since March 2010. Mr. Tan is well qualified, both academically and professionally, and vastly experienced in the
telecommunications sector.
Mr. Richard Xike Zhang, born in 1970, is Independent Non-executive Director of the Company. Mr. Zhang
graduated from J. L. Kellogg School of Management at Northwestern University in the United States in 1993 with
a master’s degree in finance. Mr. Zhang was mentioned among the most outstanding graduates of U.S. colleges
by USA Today, a mainstream news media in the United States. From August 1993 to July 2008, Mr. Zhang was
employed by McKinsey & Company, holding the positions of Director (Senior Partner) for global operations and
chairman of McKinsey’s Shanghai Office. As the first McKinsey Partner with a Mainland Chinese background in
McKinsey’s 80-year history, he served clients primarily in the telecommunications, technology, and automobile
sectors. Mr. Zhang assumed the role of Partner and Head of Greater China of Apax Partners in August 2008. In
January 2013, he was promoted to the position of Equity Partner while continuing to serve as the head of Apax
Greater China with responsibilities covering Apax funds investment operations in Mainland China, Hong Kong,
ANNUAL REPORT 2014
107
Taiwan and Southeast Asia. He has been Independent Non-executive Director of the Company since June 2013.
Mr. Zhang was also a member of the “Young Leaders Group” of the Boao Forum for Asia. Mr. Zhang brings with
him extensive experience in management consulting and investment.
2. Brief biography of Secretary to the Board of Directors/Company Secretary
Mr. Feng Jianxiong, born in 1974, is the Secretary to the Board of Directors and Company Secretary of the
Company. Mr. Feng graduated from Tianjin University of Finance and Economics with a bachelor’s degree
in economics, majoring in international finance, and from CEIBS in 2012 with a master’s degree in Business
Administration. He joined Zhongxingxin, controlling shareholder of the Company, in July 1996, and has been
the Secretary to the Board of Directors of the Company since 2000, with spells as heads of the Investment
Department, Securities and Finance Department and Securities and Investor Relations Department of the Company
during the period. Mr. Feng has many years of experience in the telecommunications industry and over 15 years
of management experience.
3. Brief biographies of Supervisors
Mr. Xie Daxiong, born in 1963, is Chairman of the Supervisory Committee of the Company. Mr. Xie is a professor-
grade senior engineer. He graduated from the Nanjing University of Science and Technology in 1986 with a master’s
degree in engineering, specialising in applied mechanics. Mr. Xie joined Zhongxingxin, controlling shareholder of
the Company, in 1994 and had been the head of the Nanjing Research Institute of Zhongxingxin. From 1998 to
2004, Mr. Xie had been CDMA Product Manager and General Manager of CDMA Division of the Company. From
2004 to 2012, he was Executive Vice President of the Company in charge of the Company’s technology planning
and strategy. He has become Chairman of the Supervisory Committee of the Company since March 2013. As a
national-level candidate of the talent programme, Mr. Xie is entitled to special government grants awarded by the
State Council. He was also a recipient of the first Shenzhen Mayor Award. Mr. Xie has many years of experience
in the telecommunications industry and over 18 years of management experience.
Ms. He Xuemei, born in 1970, is Supervisor of the Company and chairperson of the labor union of the Company.
Ms. He obtained a bachelor’s degree in mechanical engineering in 1991 and a second bachelor’s degree in
business administration in 1995, both from Chongqing University, where she had worked at the Student Affairs
Department. Ms. He has worked with ZTE Kangxun and the Network Operations Division of the Company after
joining the Company in January 1998.
Mr. Zhou Huidong, born in 1976, is Supervisor of the Company and Head of the Financial Control Department.
He graduated from Peking University in July 1998 with a bachelor’s degree majoring in finance and accounting. He
graduated from Guanghua School of Management of Peking University in July 2014 with a master’s degree. Mr.
Zhou has been with the Company since July 1998. He is a certified public accountant and a certified tax agent.
Ms. Xu Weiyan, born in 1962, is Supervisor of the Company and is currently Head of the Internal Control and
Audit Department of the Company. Ms. Xu graduated from the Department of History of Liaoning Normal University
in July 1988 with a bachelor’s degree in History and was qualified as an economist in 1992. She worked with
Shenzhen Zhongxing Semiconductor Co., Ltd. from 1989 to 1993 and with Zhongxingxin, controlling shareholder of
the Company, from 1993 to 1997, holding various positions such as secretary to the company’s finance committee
and deputy head of the president’s office. She has been working for the Company since 1997, holding positions
such as Head of the Tender Department.
Mr. Chang Qing, born in 1955, is Supervisor of the Company. Mr. Chang holds the title of senior engineer,
having graduated from the Department of Physics of the Northwest University specialising in semi-conductor and
obtained a bachelor of science degree in February 1982. From March 1993 to August 1996 he was executive
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Directors, Supervisors, Senior Management and Employees
deputy general manager of Shenzhen Zhongxing WXT Equipment Company Limited. He was general manager of
Shenzhen Zhongxingxin Telecommunications Equipment Company Limited overseeing the northeastern regional
market from September 1996 to October 1997, general manager (Northeast Region) of the Company and Head of
the 7th Marketing Department from November 1997 to February 2000, and general manager of ????????
???????? from March 2000 to March 2008. He has been Supervisor of the Company since March 2013.
He is currently assistant to the general manager and chairman of the labor union of Zhongxingxin, controlling
shareholder of the Company.
4. Brief biographies of Senior Management
Mr. Shi Lirong, President of the Company. Please refer to the section headed “Brief biographies of Directors”
for his biography.
Mr. Wei Zaisheng, born in 1962, is currently Executive Vice President and Chief Financial Officer in charge of
corporate finance and investment management of the Group. Mr. Wei obtained a master’s degree in business
administration from Peking University in 2004. He joined Shenzhen Zhongxing Semiconductor Co., Ltd. in 1988 and
served as chief financial officer and assistant to the general manager of Zhongxingxin, controlling shareholder of
the Company, from 1993 to 1997. He was Senior Vice President of the Company from 1997 to 1999 and has been
Executive Vice President of the Company in charge of the Financial System of the Company since 1999. He was
appointed member of Accounting Informatisation Committee and member of XBRL Regional Steering Committee
(China) by the Ministry of Finance in November 2008, and was appointed member of the Accounting Standards
Strategic Committee by the Ministry of Finance in December 2014. He is concurrently director of Zhongxingxin,
controlling shareholder of the Company, and chairman of ZTE Group Finance Co., Ltd. Mr. Wei has many years
of experience in the telecommunications industry and over 26 years of management experience.
Mr. Tian Wenguo, born in 1969, has been Executive Vice President of the Company since 2005 and is currently
in charge of sales and engineering service of the Company. Mr. Tian graduated from Harbin Institute of Technology
in 1991 with a bachelor’s degree in engineering, specialising in electromagnetic surveys and devices. In 2006, he
graduated from Tsinghua University with a master’s degree in business administration. Mr. Tian joined Zhongxingxin,
controlling shareholder of the Company, in 1996. Mr. Tian was manager of the Company’s Chongqing Sales Office
and general manager (Southwest Region) from 1997 to 2002 and Senior Vice President and General Manager
of Sales Division II of the Company from 2002 to 2005. Since 2005, he has been Executive Vice President of
the Company in charge of Marketing and Operations System, Marketing System, Product Marketing System and
Logistics System of the Company. Mr. Tian has many years of experience in the telecommunications industry and
over 17 years of management experience.
Mr. Qiu Weizhao, born in 1963, has been Executive Vice President of the Company since 2007 and is currently
in charge of Logistics and Administration Affairs of the Company. Mr. Qiu graduated from Xi’an University of
Electronic Technology in 1988, specialising in telecommunications and electronic systems with a master’s degree
in engineering. Mr. Qiu was in charge of the Logistics System of the Company from 1998 to 2007 and Human
Resources and Administration System from 2008 to 2012, and has been in charge of Logistics and Administration
since September 2012. Mr. Qiu has many years of experience in the telecommunications industry and over 26
years of management experience.
Mr. Fan Qingfeng, born in 1968, has been Executive Vice President of the Company since March 2008. Mr.
Fan graduated from Liaoning Engineering Technology University in 1992 with a bachelor’s degree specialising
in industrial electrical automation, and from Tsinghua University in 2006 with a master’s degree in business
administration. Mr. Fan joined Zhongxingxin in 1996. From 1997 to 2008, Mr. Fan acted as project manager of
ANNUAL REPORT 2014
109
regional office, manager of regional office, regional general manager, Division Deputy General Manager and Senior
Vice President of the Company. Mr. Fan has many years of experience in the telecommunications industry and
over 17 years of management experience.
Mr. Zeng Xuezhong, born in 1973, has been Executive Vice President of the Company since January 2014 and
is currently in charge of the Terminals Division. Mr. Zeng graduated from Tsinghua University with a bachelor’s
degree in science, specialising in modern applied science, in 1996 and with an EMBA degree in 2007. Mr. Zeng
joined Zhongxingxin in 1996. From 1997 to 2006, Mr. Zeng had been senior project manager, assistant to regional
general manager, manager of Guiyang Office, manager of Kunming Office, Deputy General Manager and General
Manager of Sales Division II and Vice President of the Company. Since 2006, he had been Senior Vice President
of the Company in charge of Sales Division III. Since January 2014, he has been Executive Vice President of
the Company in charge of the Terminals Division of the Company. Mr. Zeng has many years of experience in the
telecommunications industry and over 16 years of management experience.
Mr. Zhao Xianming, born in 1966, has been Executive Vice President of the Company since January 2014 and is
currently in charge of the Strategic and Platform Operations of the Company and the System Products Business
Departments, and concurrently acting as CTO. Mr. Zhao graduated from the Harbin Institute of Technology in
1997 specialising in telecommunications and electronic systems with a doctorate degree in engineering. He joined
the Company in 1998 to be engaged in the research, development and management of CDMA products. He had
been head of the research and development group, project manager and general product manager from 1998
to 2003. In 2004, he was appointed Senior Vice President of the Company in charge of the CDMA Division and
the Wireless Product Division. In January 2014, he was appointed Executive Vice President of the Company in
charge of the Strategic and Platform Operations of the Company. Mr. Zhao has many years of experience in the
telecommunications industry and over 23 years of management experience.
Ms. Chen Jie, born in 1958, has been Senior Vice President of the Company since 2002 and is currently in charge
of product research and development and operations management of the Wireline Product Operation Division. Ms.
Chen graduated from Nanjing Institute of Posts and Telecommunications (now known as “Nanjing University of
Posts and Telecommunications”) in 1989 specialising in telecommunications and electronic systems and from the
New York University in 1995 specialising in computer science and technology with a double master’s degree. Ms.
Chen holds the titles of senior researcher and senior engineer. From 1989 to 1992, Ms. Chen was manager of the
Development Department of Shenzhen Zhongxing Semiconductor Co., Ltd. She worked as senior researcher and
manager of Research Department of AT&T Bell Laboratories in U.S. from 1995 to 1998. From 1998 to 2002, she
served as general manager of the Company’s U.S. subsidiary. She served as general manager of the Networking
Operations Division on a concurrent basis following appointment as Senior Vice President of the Company in
2002. She has been responsible for the global research and development and sales of wireline products of the
Company for a substantial period from 2007 onwards, having been general manager of the Wireline and Services
Products Division under the Marketing System and general manager of the Wireline Division and the Wireline
Product Division, respectively, under the Product Research and Development System. Ms. Chen has demonstrated
strong research and development capabilities and expertise with many years of management experience in both
the domestic and international telecommunications indu stry.
Mr. Pang Shengqing, born in 1968, has been Senior Vice President of the Company since 2005 and is currently in
charge of the Government and Enterprise Sectors Division of the Company. Mr. Pang is an engineer. He graduated
from Huazhong University of Science and Technology with a doctorate degree in engineering in 1995, specialising
in mechanical manufacturing. He was awarded the Guangdong Science and Technology Award in May 2002. Mr.
Pang joined Zhongxingxin, controlling shareholder of the Company, in 1995. From 1998 to 2000, Mr. Pang was
involved in research and development of the Company’s CDMA core technology and hardware systems. Mr. Pang
was Deputy General Manager of the CDMA Division from 2001 to 2004 and general manager of Sales Division I
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Directors, Supervisors, Senior Management and Employees
of the Sales System of the Company from 2005 to 2011, and general manager of the System Product Solutions
Division of the Company from 2012 to 2013. Mr. Pang has many years of experience in the telecommunications
industry and over 16 years of management experience.
Mr. Xu Huijun, born in 1973, has been Senior Vice President of the Company since 2004 and is currently in
charge of the Wireless Product Division of the Company. Mr. Xu graduated from Tsinghua University in 1998 with
a master’s degree in engineering, specialising in electronic engineering. He joined the Company in 1998 and had
served as a project manager of the General Product Division and the head of Beijing Research Centre from 1998
to 2003. He has been in charge of the General Product Division and Engineering Services under the Sales System
of the Company after appointment as Senior Vice President of the Company in 2004. Mr. Xu has many years of
experience in the telecommunications industry and over 16 years of management experience.
Mr. Ye Weimin, born in 1966, has been Senior Vice President of the Company since 2001 and is currently in
charge of supply chain of the Company. Mr. Ye graduated from Shanghai Jiaotong University in 1988 with a
bachelor’s degree in engineering, majoring in computer science and engineering. He graduated from Rennes-
Shanghai Jiaotong University in 2007 with a doctor degree in business administration (DBA) conferred by ESC
Rennes School of Business. He has been involved in the research and development as well as engineering work
of the first 10,000-line digital programme-control PBX and mobile communication systems of the Company after
joining Zhongxingxin, controlling shareholder of the Company, in 1994. From 1997 to 2001, he had served as Chief
Officer of the Central Laboratory, Head of Quality Control Department and the Customer Services Department of the
Mobile Division and Deputy General Manager of Sales Division III of the Company. Since 2001, he has been Senior
Vice President of the Company in charge of the Mobile Division (research and operation of mobile communication
system products), Sales Division V (Sales in America and Africa), Handset Logistics Team, Procurement Tender
Team, China Terminal Business Division and supply chain management. Mr. Ye has many years of experience in
the telecommunications industry and over 22 years of management experience at intermediate and senior levels.
Mr. Zhu Jinyun, born in 1972, has been Senior Vice President of the Company since 2009. He is currently in
charge of the Company’s Cloud Computing and IT Products Operations. Mr. Zhu graduated from Harbin Engineering
University in 1998 with a master’s degree in engineering, specialising in communications and electronic systems.
He joined the Company in the same year to be engaged in the research and development and management of
CDMA products. From 2000 to 2008, Mr. Zhu had been head of the CDMA Hardware Development Department,
general project manager for various products under the CDMA Division and general project manager for WCDMA
products. From 2009 to 2012, he was General Manager of Sales Division IV of the Company. Since 2013, he has
been general manager of the Cloud Computing and IT Products Operations. Mr. Zhu has many years of experience
in the telecommunications industry and over 15 years of management experience.
Mr. Zhang Renjun, born in 1969, has been Senior Vice President of the Company since 2009 and is currently in
charge of Sales Division I. Mr. Zhang graduated from Northeastern University in 1990 with a bachelor’s degree in
engineering, specialising in automated controls. Mr. Zhang joined Shenzhen Zhongxing Semiconductor Co., Ltd
in 1992. From 2000 to 2011, he had been Deputy General Manager of Sales Division I, Deputy General Manager
of Sales Division IV, Head of the MTO Division and Director of the PMO Division, both under the Sales System,
and General Manager of Sales Division II. Mr. Zhang has many years of experience in the telecommunications
industry and over 15 years of management experience.
Mr. Chen Jianzhou, born in 1970, has been Senior Vice President of the Company since March 2012 and is
currently in charge of human resources, quality control and processes of the Company. Mr. Chen graduated from
Tsinghua University in 1995 with a master’s degree in engineering, majoring in signals and information systems.
Mr. Chen joined the Company in 1995 to be engaged in research and development as well as technical support.
He was Head of the Human Resources Centre of the Company from 1996 to 2003 and Head of ZTE Academic
Institute from 2003 to 2010. From October 1997 to February 2004, he acted as Supervisor of the Company. In
ANNUAL REPORT 2014
111
2011, he served as Assistant to the President responsible for the Company’s Architecture and Processes. From
2012 to 2013, Mr. Chen was in charge of Processes and Human Resources of the Company. Mr. Chen has many
years of experience in the telecommunications industry and over 18 years of management experience.
Mr. Cheng Lixin, born in 1966, has been Senior Vice President of the Company since April 2013 and is currently
in charge of the North America operations of the Terminal Business Division of the Company. Mr. Cheng graduated
from Zhejiang University in 1989 with a Bachelor’s Degree in Engineering, majoring in Radio Engineering, and
completed EMBA studies in the U.S. in 1997. Mr. Cheng worked at Nanjing Panda Ltd. as an engineer and a
project manager from 1989 until 1992. From 1992 to 2001, he had been project manager, production engineering
manager, deputy general manager of supply chain division, general manager of sales division and vice president
of sales and supply at Nanjing Ericsson Panda Ltd. From 2001 to 2004, Mr. Cheng served as sales director at
Ericsson Wireless Inc in the U.S. From 2004 to 2006, He had been director, president and chief sales officer at
Axesstel Inc in the U.S. From 2006 to 2010, he served as President of ALA Group, Inc. Mr. Cheng joined the
Company in 2010 as Deputy General Manager of Sales Division IV and General Manager of North America Region
of the Company and CEO of ZTE (USA) Inc. Since April 2013, he has been Senior Vice President of the Company
in charge of Sales Division IV of the Company. Mr. Cheng has 24 years of experience in the telecommunications
industry and top-level management at multinational corporations.
Mr. Xiong Hui, born in 1969, has been Senior Vice President of the Company since January 2014 and is currently
in charge of Marketing Division V of the Company. Mr. Xiong graduated from Sichuan University in 1990 majoring
in Materials Studies, with a bachelor’s degree in engineering. He received a master’s degree in management,
specialising in management science and engineering, in 1998 and a doctorate degree in enterprise management
in 2007, both from the University of Electronic Science and Technology of China. Mr. Xiong joined the Company
in 1998. He had been Head of Business Technology Section at the Company’s Chongqing Sales Office, Head
of Planning Department, Head of HR Department, Deputy General Manager of the Handset Division, General
Manager of U.S. Operations of the Handset Division, and General Manager of European and U.S. Operations of
the Handset Division from 1998 to 2012. He has been General Manager of Marketing Division V of the Company
since 2013. Mr. Xiong has many years of experience in the telecommunications industry and over 18 years of
management experience.
Mr. Zhang Zhenhui, born in 1973, has been Senior Vice President of the Company since January 2014 and
is currently in charge of Marketing Division III of the Company. Mr. Zhang graduated from Harbin University of
Science and Technology in 1993 with a bachelor’s degree in engineering, majoring in equipment engineering and
management. In 1998, he received a master’s degree in management science from Jiangsu University. In 2004,
he received a doctorate degree in management science and engineering from Southeast University. Mr. Zhang
had served as manager of Shijiazhuang Office and manager of Taiyuan Office of the Company from 2002 to 2006
after joining the Company in 2001. He was Deputy General Manager of Marketing Division III of the Company from
2006 to 2014, and has been General Manager of Marketing Division III of the Company since 2014. Mr. Zhang
has many years of experience in the telecommunications industry and over 11 years of management experience.
Mr. Feng Jianxiong is Secretary to the Board of Directors/Company Secretary of the Company. Please refer to
“Brief biography of Secretary to the Board/Company Secretary” in this section for his biography.
ZTE CORPORATION
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Directors, Supervisors, Senior Management and Employees
(II) CHANGES IN THE SHAREHOLDINGS OF THE COMPANY’S DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT AND ANNUAL REMUNERATION
The effective shareholdings in the issued share capital of the Company held by the Directors, Supervisors and
senior management of the Company and annual remuneration at the end of the year are as follows:
No. Name Title
Status of
office Gender Age
Term of office
commencing
on
Term of office
ending on
Number of
A shares
held at the
beginning
of the
reporting
period
(shares)
Increase in
the number
of shares
held during
the period
(shares)
Decrease in
the number
of shares
held during
the period
(shares)
Number of
A shares
held at the
end of the
reporting
period
(shares)
Reason
for the
change
Total payable
remuneration
received from
the Company
during the
reporting period
(RMB in ten
thousands)
Whether
remuneration
is received
from
shareholder
entities
Directors of the Company
1 Hou Weigui Chairman Incumbent Male 73 3/2013 3/2016 1,297,472 — — 1,297,472 — 240.2 No
2 Zhang Jianheng Vice Chairman Incumbent Male 53 3/2013 3/2016 — — — — — 10.0 No
3 Xie Weiliang Vice Chairman Incumbent Male 58 3/2013 3/2016 32,760 — — 32,760 — 10.0 Yes
4 Wang Zhanchen Director Incumbent Male 62 3/2013 3/2016 — — — — — 10.0 No
5 Zhang Junchao Director Incumbent Male 61 3/2013 3/2016 32,760 — — 32,760 — 10.0 No
6 Dong Lianbo Director Incumbent Male 57 3/2013 3/2016 32,760 — — 32,760 — 10.0 Yes
7 Shi Lirong Director and President Incumbent Male 50 3/2013 3/2016 410,511 140,000 — 550,511 Note 1 382.8 No
8 Yin Yimin Director Incumbent Male 51 3/2013 3/2016 632,833 — — 632,833 — 91.6 No
9 He Shiyou Director Incumbent Male 48 3/2013 3/2016 344,940 — — 344,940 — 63.4 No
10 Qu Xiaohui Independent Non-
executive Director
Incumbent Female 60 3/2013 7/2015 — — — — — 13.0 No
11 Wei Wei Independent Non-
executive Director
Incumbent Male 49 3/2013 7/2015 — — — — — 13.0 No
12 Chen Naiwei Independent Non-
executive Director
Incumbent Male 57 3/2013 7/2015 — — — — — 13.0 No
13 Tan Zhenhui Independent Non-
executive Director
Incumbent Male 70 3/2013 3/2016 — — — — — 13.0 No
14 Richard Xike Zhang Independent Non-
executive Director
Incumbent Male 44 6/2013 3/2016 — — — — — 13.0 No
Supervisors of the Company
15 Xie Daxiong Chairman of
Supervisory Committee
Incumbent Male 51 3/2013 3/2016 413,169 — — 413,169 — 262.5 No
16 He Xuemei Supervisor Incumbent Female 44 3/2013 3/2016 80,347 — 20,087 60,260 Note 1 52.0 No
17 Zhou Huidong Supervisor Incumbent Male 38 3/2013 3/2016 78,158 — 19,540 58,618 Note 1 62.6 No
18 Xu Weiyan Supervisor Incumbent Female 52 3/2013 3/2016 9,199 — — 9,199 — 69.4 No
19 Chang Qing Supervisor Incumbent Male 59 3/2013 3/2016 — — — — — — Yes
Senior Management of the Company
20 He Shiyou
Note 2
Executive Vice
President
Resigned Male 48 4/2013 1/2014 Note 2
21 Wei Zaisheng Executive Vice
President and Chief
Financial Officer
Incumbent Male 52 4/2013 3/2016 437,421 — 104,356 333,065 Note 1 236.8 No
22 Tian Wenguo Executive Vice
President
Incumbent Male 45 4/2013 3/2016 204,877 — 51,219 153,658 Note 1 450.9 No
23 Qiu Weizhao Executive Vice
President
Incumbent Male 51 4/2013 3/2016 385,414 — 96,000 289,414 Note 1 175.7 No
24 Fan Qingfeng Executive Vice
President
Incumbent Male 46 4/2013 3/2016 482,500 — 120,625 361,875 Note 1 189.1 No
25 Zeng Xuezhong
Note 2
Senior Vice President Resigned Male 41 4/2013 1/2014 427,600 — 101,900 325,700 Note 1 79.5 No
Executive Vice
President
Incumbent 1/2014 3/2016
26 Zhao Xianming
Note 2
Senior Vice President Resigned Male 48 4/2013 1/2014 323,905 — 80,976 242,929 Note 1 775.9 No
Executive Vice
President
Incumbent 1/2014 3/2016
27 Chen Jie Senior Vice President Incumbent Female 56 4/2013 3/2016 744,583 — 60,000 684,583 Note 1 315.3 No
28 Pang Shengqing Senior Vice President Incumbent Male 46 4/2013 3/2016 421,402 — — 421,402 — 197.5 No
29 Xu Huijun Senior Vice President Incumbent Male 41 4/2013 3/2016 560,945 — 140,236 420,709 Note 1 432.5 No
30 Ye Weimin Senior Vice President Incumbent Male 48 4/2013 3/2016 397,248 — 30,000 367,248 Note 1 103.8 No
ANNUAL REPORT 2014
113
No. Name Title
Status of
office Gender Age
Term of office
commencing
on
Term of office
ending on
Number of
A shares
held at the
beginning
of the
reporting
period
(shares)
Increase in
the number
of shares
held during
the period
(shares)
Decrease in
the number
of shares
held during
the period
(shares)
Number of
A shares
held at the
end of the
reporting
period
(shares)
Reason
for the
change
Total payable
remuneration
received from
the Company
during the
reporting period
(RMB in ten
thousands)
Whether
remuneration
is received
from
shareholder
entities
31 Zhu Jinyun Senior Vice President Incumbent Male 42 4/2013 3/2016 482,460 — 120,616 361,844 Note 1 84.9 No
32 Zhang Renjun Senior Vice President Incumbent Male 45 4/2013 3/2016 — — — — — 165.7 No
33 Chen Jianzhou Senior Vice President Incumbent Male 44 4/2013 3/2016 130,028 — 32,507 97,521 Note 1 165.1 No
34 Cheng Lixin Senior Vice President Incumbent Male 48 4/2013 3/2016 3,000 — — 3,000 — 461.9 No
35 Xiong Hui
Note 2
Senior Vice President Incumbent Male 45 1/2014 3/2016 — — — — — 249.7 No
36 Zhang Zhenhui
Note 2
Senior Vice President Incumbent Male 41 1/2014 3/2016 65,000 — — 65,000 — 460.0 No
37 Feng Jianxiong Secretary to the Board Incumbent Male 40 4/2013 3/2016 275,000 — — 275,000 — 72.2 No
Total — — — — — — 8,706,292 140,000 978,062 7,868,230 — 5,956.0 —
Note 1: Reduction or increase of shareholdings in accordance with “Rules Governing the Holding of Shares in the Company by Directors,
Supervisors and Senior Management of Listed Companies and Changes Thereof”.
Note 2: At the Fourteenth Meeting of the Sixth Session of the Board of Directors of the Company held on 20 January 2014, the discontinuation
by the Company of the employment of Mr. He Shiyou as Executive Vice President of the Company; the appointment of each of Mr.
Zeng Xuezhong and Mr. Zhao Xianming as Executive Vice President of the Company and the removal of each of them from the office of
Senior Vice President of the Company; and the appointment of each of Mr. Xiong Hui and Mr. Zhang Zhenhui as Senior Vice President
of the Company were approved.
Note 3: None of the Company’s Directors, Supervisors and senior management held H shares in the issued share capital of the Company during
the reporting period.
Share incentives granted to Directors, Supervisors and senior management during the reporting period
? Applicable ? N/A
There was no change to the share options held by the Directors and senior management of the Company during
the year. For details of the share options of the Company held by the Directors and senior management of the
Company, please refer to the section headed “Material Matters — (V) Implementation and Impact of the Company’s
Share Option Incentive Scheme” in this report. Supervisors of the Company did not hold any share options of
the Company.
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Directors, Supervisors, Senior Management and Employees
(III) INFORMATION CONCERNING DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE
COMPANY HOLDING POSITIONS IN CORPORATE SHAREHOLDERS OF THE COMPANY
Name Name of shareholder
Position in the
shareholder
Commencement
of term of office
Conclusion of
term of office
Whether
remuneration is
received from
shareholder
entities
Xie Weiliang
Note 1
Zhongxingxin Chairman May 2013 May 2016 No
CASIC Shenzhen (Group) Company
Limited
Director and general
manager
February 2003 January 2014 Yes
Chairman and CPC
committee secretary
January 2014 September 2014 Yes
Inspector (bureau-level) October 2014 Incumbent Yes
Dong Lianbo
Note 2
Zhongxingxin Director May 2013 November 2014 No
CASIC Shenzhen (Group) Company
Limited
Director and deputy
general manager
February 2003 January 2014 Yes
Head of first inspection
team of CASIC
January 2014 Incumbent Yes
Chang Qing Zhongxingxin Assistant to general
manager
April 2008 Incumbent Yes
Chairman of labor union December 2012 Incumbent No
Wei Zaisheng Zhongxingxin Director May 2013 May 2016 No
Note 1: Mr. Xie Weiliang’s position at CASIC Shenzhen (Group) Company Limited was changed from director and general manager to chairman
and CPC committee secretary in January 2014 and further changed from chairman and CPC committee secretary to inspector (bureau-
level) in October 2014.
Note 2: Mr. Dong Lianbo’s position at CASIC Shenzhen (Group) Company Limited was changed from director and deputy general manager to
head of first inspection team of CASIC in January 2014. He has ceased to be director of Zhongxingxin as from November 2014.
Note 3: Mr. Zhang Junchao has ceased to be director of Zhongxingxin as from May 2014 and legal representative of Xi’an Microelectronics as
from January 2014.
ANNUAL REPORT 2014
115
(IV) INFORMATION CONCERNING DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE
COMPANY HOLDING MAJOR POSITIONS IN OTHER ENTITIES
Name Name of other entities Position in other entities
Whether
remuneration is
received from other
entities
Hou Weigui Held positions in 12 subsidiaries including Zhongxing Software Chairman No
Zhongxing WXT Chairman No
Zhongxing Development Chairman No
Zhongxing Energy Company Limited Chairman No
Zhongxing Energy (Tianjin) Company Limited Chairman No
???????????? Chairman No
Zhang Jianheng China Aerospace Science and Technology Corporation Deputy general manager Yes
China Aerospace International Holding Limited Non-executive director and
chairman of the board
No
China Lucky Group Corporation Chairman No
Xie Weiliang Shenzhen Aerospace Guangyu Industrial Company Limited General manager No
Dong Lianbo Shenzhen Aerospace Guangyu Industrial Company Limited Deputy general manager No
Shi Lirong Held positions in 3 subsidiaries including ZTE Kangxun Director No
Zhongxing WXT Director No
Yin Yimin
Note 1
Zhongxing WXT Vice chairman No
Shenzhen Hekang Investment Management Company Limited Executive director No
ZTE Capital Chairman/general manager Yes
Shenzhen Zhonghe Chunsheng Fund Executive manager No
Jiaxing Xinghe Capital Management Company Limited Executive director No
He Shiyou
Note 2
Zhongxing WXT Supervisor No
?????????? Chairman No
Qu Xiaohui Xiamen University Professor Yes
Head/dean No
Yunnan Baiyao Group Co., Ltd. Independent non-executive
director
Yes
Taikang Life Insurance Co., Ltd. Independent non-executive
director
Yes
Guangzhou Baiyun Electric Equipment Co., Ltd. Independent non-executive
director
Yes
Xiamen NetinNet Software Company Limited Financial advisor Yes
Wei Wei
Note 3
Peking University HSBC Business School Associate dean Yes
Dalian Zhangzidao Fishery Group Company Limited Independent non-executive
director
Yes
Telling Telecommunication Holding Co., Ltd. Independent non-executive
director
Yes
Skyworth Digital Holdings Limited Independent non-executive
director
Yes
ZTE CORPORATION
116
Directors, Supervisors, Senior Management and Employees
Name Name of other entities Position in other entities
Whether
remuneration is
received from other
entities
Chen Naiwei
Note 4
Shanghai Allbright Law Offices Partner/lawyer Yes
Fudan University Professor Yes
Shanghai Pharmaceuticals Holding Co., Ltd. Independent non-executive
director
Yes
Shanghai Taisheng Wind Power Equipment Co., Ltd. Independent non-executive
director
Yes
Shanghai Kinlita Chemical Co., Ltd. Independent non-executive
director
Yes
Shanghai Jiaoyun Group Co., Ltd. Independent non-executive
director
Yes
Tan Zhenhui
Note 5
Beijing Jiaotong University Director of University
Academic Committee/
professor
Yes
Richard Xike Zhang Apax Partners Equity Partner and Head of
Greater China
Yes
Xie Daxiong
Note 6
Held positions in 4 subsidiaries including Zhongxing Software Chairman/director No
He Xuemei
Note 7
??????????????? Director/general manager No
Zhou Huidong
Note 8
Held positions in 14 subsidiaries including ZTE Group Finance Supervisor No
Shenzhen Zhongxing Hetai Hotel Investment and Management
Company Limited
Supervisor No
Shanghai ZTE Straw Communication Limited
(????????????)
Supervisor No
Xu Weiyan
Note 9
Held positions in 2 subsidiaries including ZTE Kangxun Supervisor/chairman of
supervisory committee
No
Chang Qing ???????????????? Director No
Wei Zaisheng Held positions in 16 subsidiaries including ZTE Group Finance Chairman/director No
Zhongxing WXT Director No
Shenzhen Capital Group Co., Ltd. Supervisor No
Tian Wenguo Held positions in 13 subsidiaries including Shenzhen ZTE Supply
Chain Co., Ltd.
Chairman/director No
Qiu Weizhao Shenzhen Zhongxing Microelectronics Technology Company
Limited
Director No
Fan Qingfeng Held positions in 5 subsidiaries including Shenzhen
Zhongliancheng Electronic Development Company Limited
Chairman/director No
Zeng Xuezhong Held positions in 8 subsidiaries including Shenzhen ZTE Mobile
Telecom Company Limited
Chairman/executive
director/director
No
ZTE 9 (Wuxi) Co., Ltd.(??????????????) Chairman No
Zhao Xianming Held positions in 5 subsidiaries including ZTE Integration Telecom
Company Limited
Chairman/director No
Chen Jie Held positions in 15 subsidiaries including ZTEsoft Technology
Company Limited
Chairman/director/general
manager
No
Pang Shengqing Held positions in 12 subsidiaries including Shanghai Zhongxing
Software Company Limited
Chairman/director No
KAZNURTEL Limited Liability Company Director No
Xu Huijun Held positions in 4 subsidiaries including ???????????
??????
Chairman/director/general
manager/chairman of
supervisory committee
No
Held positions in 2 companies including Zhongxing Energy
Company Limited
Director No
ANNUAL REPORT 2014
117
Name Name of other entities Position in other entities
Whether
remuneration is
received from other
entities
Zhu Jinyun Held positions in 2 companies including Zhongxing Energy
Company Limited
Director No
Zhang Renjun ZTE Japan K.K. Director No
Cheng Lixin Held positions in 2 subsidiaries including ZTE (USA), Inc Chairman/director/general
manager
Note 12
Zhang Zhenhui Held positions in 2 subsidiaries including Anhui Wantong Postal
and Telecom Company Limited
Chairman No
Feng Jianxiong Held positions in 3 subsidiaries including ZTE Capital Director/supervisor No
Note 1: Mr. Yin Yimin was appointed executive director of Jiaxing Xinghe Capital Management Company Limited in May 2014.
Note 2: Mr. He Shiyou has ceased to be chairman of Shenzhen ZTE Mobile Telecom Company Limited and chairman of ZTE (Hangzhou) Company
Limited, as from April 2014 and May 2014, respectively, while being appointed chairman of ?????????? in August 2014.
Note 3: Mr. Wei Wei has ceased to be independent non-executive director of Changyuan Group Company Limited as from April 2014, while
being appointed independent non-executive director of Skyworth Digital Holdings Limited in March 2014.
Note 4: Mr. Chen Naiwei was appointed independent non-executive director of Shanghai Jiaoyun Group Co., Ltd. in November 2014.
Note 5: Mr. Tan Zhenhui has ceased to be independent non-executive director of Jiangsu Tongding Optic-electronic Stock Co., Ltd as from
May 2014.
Note 6: Mr. Xie Daxiong has ceased to be director of Tianjin Zhongxing Software Company Limited as from June 2014 and chairman of ZTE
Europe Research Institute as from August 2014.
Note 7: Ms. He Xuemei was appointed director and general manager of ??????????????? in September 2014.
Note 8: Mr. Zhou Huidong was appointed supervisor of ?????????????? in July 2014 and supervisor of ???????????
? in August 2014.
Note 9: Ms. Xu Weiyan was appointed supervisory committee chairperson of Puxing Mobile Tech Company Limited (????????????)
in June 2014.
Note 10: Mr. Wang Zhanchen has ceased to be vice chairman of China Aerospace Times Electronics Co., Ltd. as from June 2014.
Note 11: Mr. Zhang Junchao has ceased to be head of Shaanxi Management Division and deputy head of academy of China Academy of
Aerospace Electronics Technology as from January 2014.
Note 12: Mr. Cheng Lixin received remuneration from ZTE (USA), Inc.
(V) DECISION-MAKING PROCESS, BASES FOR DETERMINATION AND ACTUAL PAYMENT OF
REMUNERATION FOR DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY
Allowances for Directors are based on recommendations of the Remuneration and Evaluation Committee of the
Board of Directors made 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 Directors 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.
ZTE CORPORATION
118
Directors, Supervisors, Senior Management and Employees
The remuneration for senior management personnel is based on the results of 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.
(VI) CHANGES IN DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY DURING
THE YEAR
Pursuant to the “Resolution on the Appointment and Removal of Senior Management Personnel” considered and
passed at the Fourteenth Meeting of the Sixth Session of the Board of Directors of the Company held on 20
January 2014, the appointment of each of Mr. Zeng Xuezhong and Mr. Zhao Xianming as Executive Vice President
of the Company and the removal of each of them from the office of Senior Vice President of the Company; and
the appointment of each of Mr. Xiong Hui and Mr. Zhang Zhenhui as Senior Vice President of the Company
and the discontinuation of the employment of Mr. He Shiyou as Executive Vice President of the Company were
approved. The term of office of the aforesaid senior management appointed as aforesaid shall commence on the
date on which the appointment is considered and approved by the Board of Directors of the Company and shall
end upon the conclusion of the terms of the Sixth Session of the Board of Directors of the Company (namely 29
March 2016).
Please refer to sections (III) and (IV) in this chapter for details of positions at corporate shareholders and major
positions at other entities held by Directors, Supervisors and senior management of the Company.
(VII) INFORMATION ON GROUP EMPLOYEES
As at the end of the year, the Group had 75,609 employees (including 58,731 as employees of the parent company),
with an average age of 32. There were 101 retired employees, including 62 retired employees in respect of which
expenses were payable by the Company.
ANNUAL REPORT 2014
119
1. Classification by specialisation as follows:
Specialisation Headcount
As an approximate
percentage of total
headcount
Research and development 27,101 35.9%
Marketing and sales 12,885 17.0%
Customer service 13,628 18.0%
Manufacturing 15,200 20.1%
Financial 806 1.1%
Administration 5,989 7.9%
Total 75,609 100.0%
Administration
7.9%
R&D
35.9%
Marketing and sales
17.0%
Customer service
18.0%
Manufacturing
20.1%
Financial
1.1%
2. Classification by academic qualifications as follows:
Academic qualifications Headcount
As an approximate
percentage of total
headcount
Doctorate degree 416 0.5%
Master’s degree 20,620 27.3%
Bachelor’s degree 31,071 41.1%
Others 23,502 31.1%
Total 75,609 100.0%
Master’s degree
27.3%
Bachelor’s degree
41.1%
Others
31.1%
Doctorate degree
0.5%
ZTE CORPORATION
120
Directors, Supervisors, Senior Management and Employees
3. Remuneration Package and Training for Employees
The remuneration package for the Group’s employees includes salary, bonuses and allowances. Our employees
also receive welfare benefits including medical insurance, housing subsidies, retirement and other miscellaneous
benefits. In accordance with applicable PRC regulations, the Group participated in social insurance contribution
plans organised by the relevant government authorities, under which the Group paid monthly contributions towards
each employee’s social insurance in an amount equivalent to a specified percentage of his/her monthly salaries.
Staff training provided by the Group includes induction training, skills training for specific positions, management
training and training for management officers. After completion of induction training, new employees will receive
general training that lasts for six months to one year depending on their positions. In-service staff may conduct
self-learning based on their aptitude assessment results and personal career planning and take part in group
training on a selective basis, according to qualifications required for various positions. Integrated management
training comprises lectures, online learning and action-based learning. For in-service management officers, the
Group conducts reading classes, close-ended training and guided reading.
ANNUAL REPORT 2014
121
Corporate Governance Structure
The Company has prepared the “Corporate Governance Work Report” and the “Corporate Governance Report”
in accordance with different requirements in form and content of PRC securities regulatory authorities and the
Hong Kong Listing Rules, respectively. To avoid undue repetitions and to keep the presentation lucid, a cross-
referencing approach has been adopted.
PART I: CORPORATE GOVERNANCE WORK REPORT PREPARED IN ACCORDANCE WITH PRC
SECURITIES REGULATORY REQUIREMENTS
I. Status of Corporate Governance
The Company continued to improve its corporate governance systems and regimes, regulate operations and
optimise internal control regimes in accordance with requirements of the Company Law, Securities Law, Corporate
Governance Standards for Listed Companies and relevant laws and regulations of CSRC.
During the year, in accordance with the “Notice on the Publication of Supplementary Guidelines for Corporate
Internal Control” (??????????????????) jointly promulgated by 5 ministries and ministerial
commissions including the Ministry of Finance and the CSRC and the “Notice on the Proper Implementation of
Pilot Internal Control Standards of Listed Companies in Shenzhen” (?????????????????????
????????) and the “Notice on Further Procuring Work relating to the Implementation of Internal Control
Rules for Shenzhen Listed Companies” (??????????????????????????????) issued
by the Shenzhen CSRC, the “2013 Summary Report and 2014 Work Plan for Internal Control and Audit” has
been formulated and reviewed at the seventh meeting of the Audit Committee of the Fifth Session of the Board
of Directors and the Sixteenth Meeting of the Sixth Session of the Board of Directors.
At the end of the year, the status of corporate governance of the Company was in compliance with provisions
of regulatory documents relating to the governance of listed companies published by the CSRC. The Company
has not received any documents relating to administrative regulatory measures adopted by regulatory authorities
against the Company.
(I) Shareholders and general meetings: The Company has established a corporate governance structure to
ensure that all shareholders, minority shareholders in particular, can fully exercise their rights and enjoy
equal status. Sufficient time is provided at general meetings of shareholders, which are convened legally
and validly, for the discussion of each proposal, to provide a good opportunity for communications between
the Board and the shareholders. In accordance with the revised Rules for General Meetings of Listed
Companies, the Company has introduced online voting to afford convenience for shareholders participating
in its General Meetings, as well as the practice of separately disclosing the votes of minority shareholders
in announcements of resolutions of general meetings to give an adequate account of the views of minority
shareholders. In addition, shareholders may contact the Company through its shareholder hotline during
normal working hours or contact and communicate with the Company through its designated e-mail address
and the investors’ relations interactive platform of the Shenzhen Stock Exchange. The Company has also set
up an “Investor Protection Promotion” column on its website to collect, compile, publish or cite information
relating to investor protection.
(II) Controlling shareholder and the listed company: The Company’s controlling shareholder is Zhongxingxin.
The controlling shareholder exercises its rights as an investor in strict compliance with the law, without
compromising the lawful rights and interests of the Company and other shareholders. Candidates for election
as Directors and Supervisors are nominated in strict compliance with laws and regulations and the terms and
procedures as set out in the Articles of Association. The staffing, assets, financial affairs, organisation and
business of the controlling shareholder of the Company are independent from those of the listed company,
with the controlling shareholder and listed company each carrying out independent auditing and assuming
ZTE CORPORATION
122
Corporate Governance Structure
its own responsibilities and risks. The controlling shareholder of the Company was not engaged in any direct
or indirect interference with the decision-making and business activities of the Company in circumvention of
the general meeting.
(III) Directors and the Board: The Company appoints directors in strict compliance with the criteria and
procedures set out its Articles of Association, ensuring that the directors are appointed in an open, fair,
just and independent manner. In order to fully reflect the opinions of minority shareholders, a cumulative
voting scheme is adopted for the appointment of directors. The Board of Directors has a reasonable mix
of expertise and acts in the best interests of the Company in good faith. The Company has formulated the
Rules of Procedure of the Board of Directors Meetings, and board meetings are convened and held in strict
compliance with the Articles of Association and Rules of Procedure of the Board of Directors Meetings. To
optimise the corporate governance structure, three specialised committees — the Nomination Committee,
Audit Committee and Remuneration and Evaluation Committee — have been established by the Board of
Directors in accordance with the Governance Standards for Listed Companies. The majority of members and
the respective convenors of these committees are Independent Non-executive Directors, providing scientific
and professional opinions for reference by the Board of Directors in its decision-making.
(IV) Supervisors and the Supervisory Committee: The Supervisors possess professional knowledge and work
experience in management, accounting and other areas and are elected by way of cumulative voting. They
monitor the financial affairs and supervise the lawful and regulatory performance of duties by the Company’s
Directors, the Chief Executive Officer and other members of the senior management to safeguard the legal
rights and interests of the Company and shareholders. The Company has formulated the Rules of Procedure
for Supervisory Committee Meetings. Meetings of the Supervisory Committee are convened and held in strict
compliance with the Articles of Association and the Rules of Procedure for Supervisory Committee Meetings.
(V) Performance appraisal and incentive mechanism: During the year, the Remuneration and Evaluation
Committee of the Board of Directors linked the salaries of the senior management with the results of
the Company and personal performance in accordance with the Scheme for the Administration of Senior
Management’s Performance. Senior management personnel are recruited and appointed in strict compliance
with relevant rules, regulations and the Articles of Association. In order to establish a long-term incentive
mechanism closely linked with the Company’s business performance and long-term strategy, so as to help
optimise the overall remuneration structure and create a competitive advantage in human resources that will
contribute to the long-term, sustainable growth of the Company’s operation, the Remuneration and Evaluation
Committee of the Board of Directors has formulated the Share Option Incentive Scheme of the Company,
which has been approved at the general meeting of the Company. The grant of share options was completed
in October 2013 and registration was completed in November 2013.
(VI) Stakeholders: The Company respects the legal rights and interests of banks and other stakeholders such as
creditors, employees, consumers, suppliers, and the community, and works actively with these stakeholders
to promote the sustainable and healthy development of the Company.
(VII) Information disclosure and transparency: The Secretary to the Board of Directors and dedicated officers are
responsible for handling information disclosure, arranging receptions of visiting shareholders and answering
enquiries on behalf of the Company. Relevant information is disclosed in strict compliance with relevant laws
and regulations and the Articles of Association in a true, accurate, complete and timely manner, ensuring
that all shareholders have equal access to information. There were no instances of controlling shareholders
or de facto controllers owning information otherwise not publicly disclosed or other irregularities in corporate
governance during the year.
ANNUAL REPORT 2014
123
(VIII) Rules and regulations established
No. Title Date of disclosure
Note
1 Articles of Association 14 June 2014
2 Rules of Procedure of the General Meetings 20 May 2009
3 Rules of Procedure of the Board of Directors Meetings 26 May 2012
4 Rules of Procedure of the Supervisors’ Meetings 7 April 2006
5 Working Rules for the Nomination Committee of the Board of Directors 27 April 2013
6 Working Rules for the Audit Committee of the Board of Directors 29 March 2012
7 Working Rules for the Remuneration and Evaluation Committee of the
Board of Directors
29 March 2012
8 System of Derivative Investment Risk Control and Information Disclosure 28 April 2010
9 System for the Administration of External Information Users 9 April 2010
10 System of Accountability for Significant Errors in Information Disclosure of
Annual Reports
9 April 2010
11 System of Registration of Owners of Inside Information 23 August 2012
12 Specific System for the Selection and Appointment of Accountants’ Firms 20 August 2009
13 System of Annual Report Duties for Independent Directors 14 March 2008
14 Guidelines for Work of the Audit Committee of the Board of Directors
relating to the Annual Report
14 March 2008
15 Independent Director System 26 June 2007
16 Administrative Measures for Guest Reception and Promotion 26 June 2007
17 Administrative Rules of the Company on Issue Proceeds 26 June 2007
18 Internal Control System 21 August 2014
19 Administrative Rules for Information Disclosure 26 June 2007
20 Implementation Rules for the Dealings in Company’s Shares by Directors,
Supervisors, Senior Management and Their Related Parties
26 June 2007
Note: The dates on which the latest revised versions of the above rules and regulations being posted on http://www.cninfo.com.cn.
II. Implementation of specific corporate governance activities and the establishment and
implementation of the system of registration of owners of inside information
1. Implementation of specific corporate governance activities
During the year, the Company’s Internal Control and Audit Department revised the “ZTE Internal Control System”
in accordance with the Basic Rules for Corporate Internal Control and other pertinent laws and regulations, taking
into account the business characteristics and implementation status of internal control of the Company. The revised
Internal Control System was considered and passed at the Nineteenth Meeting of the Sixth Session of the Board of
Directors of the Company held on 20 August 2014 and published on http://www.cninfo.com.cn on 21 August 2014.
ZTE CORPORATION
124
Corporate Governance Structure
2. Establishment and implementation of the System of Registration of Owners of Inside Information
To regulate the Company’s management of inside information, enhance confidential treatment of inside information
and safeguard fairness in information disclosure, the Company formulated the System of Registration of Owners
of Inside Information in accordance with provisions of relevant laws and regulations, which was considered and
passed at the Thirtieth Meeting of the Fourth Session of the Board of Directors of the Company on 27 October
2009. The amendment of the system was considered and approved at the Thirty-second Meeting of the Fifth
Session of the Board of Directors of the Company held on 22 August 2012 and published on http://www.cninfo.
com.cn on 28 October 2009 and 23 August 2012, respectively. During the year, the Company diligently implemented
relevant provisions of the System of Registration of Owners of Inside Information and vigorously commenced work
in inside information management.
No instances of owners of inside information trading in the Company’s shares with the benefit of inside information
during the year have been identified. Neither the Company nor its relevant personnel had been subjected to
regulatory measures or administrative punishment by regulatory authorities as a result of alleged involvement in
inside trading.
III. Information on general meetings convened
At the 2013 Annual General Meeting of the Company convened on-site on 29 May 2014, the “2013 Annual Report
(comprising the financial statements for the year ended 31 December 2013 audited by the PRC and Hong Kong
auditors)”, “Report of the Board of Directors of the Company for the year ended 31 December 2013”, “Report
of the Supervisory Committee of the Company for the year ended 31 December 2013”, “Report of the President
of the Company for the year ended 31 December 2013”, “Final financial accounts of the Company for the year
ended 31 December 2013”, “Profit distribution proposal of the Company for the year ended 31 December 2013”,
“Resolutions on the proposed applications by the Company for composite credit facilities”, “Resolutions on the
appointment of the PRC auditors and the Hong Kong auditors of the Company for the year ended 31 December
2014”, “Resolution on the application for investment limits in derivative products of the Company in 2014”,
“Resolution on matters pertaining to debt financing of ZTE (H.K.) Limited”, “Resolution on General Mandate for
2014”, “Resolution on additions to the scope of business and the amendment of relevant clauses of the ‘Articles
of Association’ to reflect the same” were considered and approved. For details of the resolutions, please refer to
the “Announcement on Resolutions of the 2013 Annual General Meeting of ZTE Corporation” published by the
Company on 30 May 2014 at http://www.cninfo.com.cn and in China Securities Journal, Securities Times and
Shanghai Securities News.
At the First Extraordinary General Meeting of 2014 of the Company held on 15 October 2014 by way of a
combination of on-site voting and online voting, the “Resolution on the Provision of Guarantee by the Company
for ZTE (H.K.) Limited, a Wholly-owned Subsidiary, in respect of Debt Financing”, “Resolution on the Proposed
Registration and Issue of Perpetual Medium Term Note of the Company” and “Resolution on the Provision
of Performance Guarantee by the Company for ZTE (MALAYSIA) CORPORATION SDN BHD, a Wholly-owned
Subsidiary” were considered and approved. For details of the resolutions, please refer to the “Announcement on
Resolutions of the First Extraordinary General Meeting of 2014 of ZTE Corporation” published by the Company
on 16 October 2014 at http://www.cninfo.com.cn and in China Securities Journal, Securities Times and Shanghai
Securities News.
ANNUAL REPORT 2014
125
IV. Performance of the Independent Non-executive Directors
During the year, the Independent Non-executive Directors played a significant role in optimising the corporate
governance structure of the Company and protecting the interests of minority shareholders. During the year, the
Independent Non-executive Directors of the Company did not dispute any resolutions passed at the Board of
Directors meetings and other matters of the Company. In relation to important matters on which they were required
to give independent opinions (including connected transactions, third-party guarantees and third-party investments),
the Independent Non-executive Directors have diligently reviewed the matters concerned and have issued
independent opinions in writing. By providing valuable and professional recommendations on major decisions by
the Company, the Independent Non-executive Directors have improved the rationality and objectiveness of the
Company’s decisions.
Attendance of Independent Non-executive Directors of the Company at Board of Directors meetings and general
meetings in 2014 was as follows:
Independent Non-
executive Directors
Number
of Board
meetings
required to
attend
Number of
personal
attendance
(including
video
conference)
Number of
attendance via
communications
Attendance
by proxy Absence
Failure to
attend in
person at two
consecutive
meetings
Attendance
at general
meetings
Qu Xiaohui 10 8 2 0 0 No 1
Wei Wei 10 6 2 2 0 No 1
Chen Naiwei 10 8 2 0 0 No 2
Tan Zhenhui 10 6 2 2 0 Yes
Note
2
Richard Xike Zhang 10 7 2 1 0 No 0
Note: Independent Non-executive Director Mr. Tan Zhenhui was not able to attend the Twenty-second Meeting and the Twenty-third Meeting of
the Sixth Session of the Board of Directors due to work reasons and appointed in writing Independent Non-executive Director Mr. Chen
Naiwei to vote on his behalf at both meetings.
The Company has adopted recommendations in respect of the Company proposed by the Independent Non-
executive Directors. For details, please refer to the “2014 Report on the Performance of Duties by Independent
Non-executive Directors” published on http://www.cninfo.com.cn on 26 March 2015.
V. Performance of principal duties by specialised committees of the Board of Directors
During the year, the specialist committees under the Board of Directors of the Company convened meetings
and performed their duties in strict accordance with the Articles of Association, Rules of Procedure of the
Board of Directors Meetings and their respective working rules, playing an important role in ensuring scientific
decision making at the Board of Directors as they operated in compliance with the laws to furnish opinions and
recommendations in respect of matters such as the Company’s financial information and its disclosure, internal
audit system and its implementation, internal control system and risk management system, material connected
transactions, nomination of candidates for Directors and senior management and management of remuneration
and performance of Directors and senior management.
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Corporate Governance Structure
1. Performance of principal duties by the Audit Committee
During the year, the Audit Committee diligently performed its duties in accordance with the “Working Rules for
the Audit Committee” and the “Guidelines for Work of the Audit Committee relating to the Annual Report” and
performed duties such as the vetting of the annual auditing and supervision and inspection of the building and
improvement of the Company’s internal controls.
(1) Issue of three review opinions on the 2014 financial report of the Company
Members of the Audit Committee boast rich expertise and experience in financial operations. During the year,
the Audit Committee issued three review opinions on the annual financial report in accordance with relevant
requirements of the CSRC.
The Audit Committee first examined the unaudited financial statements and issued an opinion in writing. The Audit
Committee was of the view that: relevant accounting standards had been appropriately applied and all significant
accounting systems adopted had been consistent with those adopted for 2013; key financial indicators calculated
on the basis of data from the 2014 management accounts were consistent with preliminary judgements made by
the Committee members based on known facts and comparison with financial indicators of 2013. The passing of
the financial statements to the PRC and Hong Kong auditors for auditing was approved.
Following timely review of the preliminary opinion of the audit report and discussions with the PRC and Hong
Kong auditors, the Audit Committee was of the view that the preliminary audit results of the 2014 annual report
was in compliance with the accounting standards for business enterprises and their practice notes.
Finally, the Audit Committee reviewed the audit opinion of the PRC and Hong Kong auditors and the audited
financial report of the Company for 2014. The Audit Committee was of the view that the report was a true
representation of the financial conditions of the Company in 2014 and approved the submission of the report for
consideration by the Board of Directors.
(2) Supervision of the audit work of the accountants’ firms
To ensure the conduct of auditing work in an orderly manner given the complex nature of the Company’s
business, the PRC and Hong Kong auditors of the Company had finalised the audit timetable for the year in
January 2015. In accordance with “Guidelines for Work of the Audit Committee relating to the Annual Report”, the
Company arranged the timely report of such audit timetable to the Audit Committee. Following discussion with
the accountants’ firms, the Audit Committee was of the view that the annual audit timetable scheduled by the
Company according to actual circumstances was appropriate, and the Audit Committee concurred with the annual
audit plan arranged by the accountants’ firms. During the course of audit, members of the Audit Committee held
discussions with principal officers in charge of the assignment to inform themselves of the progress of audit and
concerns of the accountants. Such concerns were then communicated to relevant departments of the Company
in a timely manner. The Audit Committee also issued two letters to the accountants’ firms requesting auditors in
charge of the assignment to expedite their work in accordance with the original timetable.
ANNUAL REPORT 2014
127
(3) Summary report on the 2014 audit work performed by the accountants’ firms
The PRC and Hong Kong auditors of the Company performed auditing on the Company’s annual report during the
period from October 2014 to March 2015. During such period, the PRC and Hong Kong auditors of the Company
and the Audit Committee held discussions on the annual audit plan, and issues identified in the audit process
were also brought to the attention of the Audit Committee in a timely manner. The preliminary audit opinion was
submitted to the Audit Committee for consideration. The PRC and Hong Kong auditors of the Company completed
the full audit process and acquired sufficient and appropriate audit evidence after nearly 6 months of auditing
work. The audit reports by PRC and Hong Kong auditors with unqualified opinion were then submitted to the
Audit Committee.
During the course of the annual audit, the Audit Committee held discussions and exchanged views with the PRC
and Hong Kong auditors of the Company, and also examined the annual audit report furnished by the PRC and
Hong Kong auditors. The Audit Committee was of the view that the PRC and Hong Kong auditors of the Company
were capable of performing their tasks in strict accordance with audit regulations, focusing on knowledge of the
Company and the environment in which it operated, understanding the building, improvement and implementation of
the Company’s internal control, demonstrating acute risk awareness and completing the audit work in accordance
with the audit timetable. The auditors maintained their independence and prudence in the course of audit and
completed the audit of the Company’s 2014 financial report and internal control audit in a satisfactory manner.
(4) Recommendations on the appointment of PRC and Hong Kong auditors
Based on cooperation with Ernst & Young Hua Ming LLP and Ernst & Young over the years, the Audit Committee
was of the view that the PRC and Hong Kong auditors of the Company are major accountants’ firms with high-
calibre professional teams, full qualifications for the practice, rich practical experience and stringent internal
management. As such, the Audit Committee recommends the Board of Directors to re-appoint Ernst & Young Hua
Ming LLP as PRC auditors and Ernst & Young as Hong Kong auditors of the Company for the financial reports
of 2015, and to re-appoint Ernst & Young Hua Ming LLP as the internal control auditor of the Company for 2015.
(5) Supervision of measures to improve the Company’s internal control system
The Audit Committee is highly concerned with the establishment of a department with appropriate staffing for the
inspection and supervision of the Company’s internal control. The Internal Control and Audit Department serves
as the day-to-day executive arm of the Audit Committee to implement supervision and inspection of internal
controls on behalf of the Audit Committee. The Audit Committee actively supports the Internal Control and Audit
Department to perform its audit functions in accordance with the law and fulfill the supervisory role of the audit
function. During the year, the Audit Committee received the report of the Internal Control and Audit Department
on internal control and audit, reviewed the derivative investments of the Company and made recommendations
in respect of risk control in the Company’s derivative investments.
2. Performance of principal duties by the Remuneration and Evaluation Committee
Examination opinion of the Remuneration and Evaluation Committee on the disclosed remuneration of Directors,
Supervisors and senior management of the Company:
The Remuneration and Evaluation Committee has conducted detailed examination of disclosed remuneration
of Directors, Supervisors and senior management of the Company, and is of the view that the procedure for
determining the remuneration of Directors, Supervisors and senior management of the Company is in compliance
with relevant provisions, and that the remuneration of Directors, Supervisors and senior management of the
Company disclosed in the 2014 annual report of the Company is true and accurate.
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3. Performance of principal duties by the Nomination Committee
During the year, the principal work of the Nomination Committee included the consideration of resolutions on
the employment and dismissal of senior management personnel, and the review of the structure, headcount and
composition (in terms of skills, know-how and experience) of the Board of Directors.
VI. Performance of duties by the Supervisory Committee
Having conducted diligent supervision and inspection in relation to matters such as the legal compliance of the
Company’s operation, the financial conditions, connected transactions and third-party investments of the Company
during the year in strict accordance with the provisions of pertinent laws and regulations and the Articles of
Association, the Supervisory Committee of the Company does not express any dissent as a result of its supervision
over these matters.
VII. The Company’s independence from its controlling shareholder and integrity in staffing, assets,
finance, business and organisation
The Company is independent of its controlling shareholder Zhongxingxin in respect of the staff, assets, finance,
business and organisation. Each of the Company and Zhongxingxin is audited independently and assumes its
own responsibilities and risks.
With respect to staffing, the Company is fully independent in matters including the management of labour, human
resources and salaries. Members of the senior management receive their remuneration from the Company and
do not receive any remuneration from the controlling shareholder or take up other major positions other than as
directors.
With respect to assets, the Company’s assets are fully independent and the Company has clear ownership of
its assets. The Company has independent production systems, supplementary production systems and ancillary
facilities. Intangible assets such as industrial property rights, trademarks, and other non-patentable technologies are
owned by the Company. The Company’s procurement and sales systems are independently owned by the Company.
With respect to finance, the Company has an independent financial department. It has established an independent
accounting and auditing system and a financial management system, and maintains an independent bank account.
With respect to business, the Company’s business is fully independent from the controlling shareholder. Neither the
controlling shareholder nor its subsidiaries are engaged in any business identical or similar to that of the Company.
With respect to organisation, the Board of Directors, the Supervisory Committee and other internal organizations
of the Company operate in complete independence from the controlling shareholder. There are no subordinate
relationships between the controlling shareholder (and its functional departments) and the Company (and its
functional departments).
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VIII. Establishment and Implementation of the Appraisal and Incentive Mechanism for Senior
Management
The Company has established a performance appraisal system for senior management and an incentive mechanism
linking remuneration to the Company’s results and the individual staff member’s performance. The Remuneration
and Evaluation Committee is mainly responsible for formulating and examining proposals for the management
of remuneration and performance of the Directors and senior management of the Company, conducting annual
performance appraisals for the senior management of the Company and determining the remuneration of the
senior management based on the results of the appraisal for implementation after consideration and approval by
the Board of Directors.
PART II: CORPORATE GOVERNANCE REPORT PREPARED IN ACCORDANCE WITH THE REQUIREMENTS
OF THE HONG KONG LISTING RULES
The Company is dedicated to improving its corporate governance standards and strives to increase its enterprise
value by adopting stringent corporate governance practices, with a view to ensuring sustainable development,
fulfilling corporate responsibilities as a listed company, and maximising value for its shareholders in the long term.
The Company had fully complied with all the principles and code provisions of the Corporate Governance Code
set out in Appendix 14 to the Hong Kong Listing Rules during the period from 1 January to 31 December 2014.
I. Shareholders’ Rights and Investors’ Relations
(I) Shareholders’ rights
The Company adopts relevant measures to facilitate and ensure the smooth exercise of shareholders’ rights in
strict compliance with relevant laws and regulations of the PRC or otherwise and in accordance with pertinent
requirements under the Articles of Association.
Details of the shareholding structure of the Company are set out in the section of this report headed “Changes
in Shareholdings and Information of Shareholders”.
The Company has always maintained effective communications with its shareholders by reporting the Group’s
results and operations to shareholders through numerous official channels, such as disclosures in annual reports,
interim reports and quarterly reports. Shareholders may also express their views or exercise their rights through
communication channels set up by the Company, such as the shareholders’ hotline and e-mail contacts. The
Company’s website is updated regularly to provide investors and the public with timely information of the
Company’s latest developments. Shareholders may also submit their enquiries and questions to the Board of
Directors in writing through the company secretary. For the contact information of the company secretary, please
refer to the section headed “Corporate Information” in this report.
The circular and the notice of general meeting of the Company is in strict compliance with pertinent provisions
of the Company Law, the Articles of Association and the Hong Kong Listing Rules in terms of dates, contents,
delivery modes, announcement methods and shareholders’ voting procedures, ensuring the smooth exercise of
shareholders’ right to participate in general meetings. Shareholders holding 10% of above of the shares of the
Company alone or in aggregate shall be entitled to request the Board of Directors or Supervisory Committee
to convene an extraordinary general meeting or to unilaterally convene such extraordinary general meeting. For
details, please refer to Articles 74, 75 and 76 of the Articles of Association. Shareholders holding 3% of above
of the shares of the Company alone or in aggregate shall be entitled to propose ex tempore motions 10 days
prior to the convening of the general meeting and submit the same in writing to the convener of the general
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meeting. For details, please refer to Article 78 of the Articles of Association. In accordance with Article 100 of
the Articles of Association, the Directors, Supervisors and senior management of the Company shall be required
to give explanations in response to queries and suggestions of shareholders. In 2014, the Company convened 2
general meetings. For details, please refer to the section headed “III Information on general meetings convened”
in Part I of this chapter.
(II) Investors’ relations
The Company is committed to the development of investors’ relations programmes and sound communications
with investors are being maintained via our investors’ relations hotline, e-mail and investor reception. The Company
regards the convening of its annual general meeting as one of the most important annual events for the Company.
All Directors and key senior management members will attend the meeting on a best effort basis and engage in
direct dialogue with the shareholders during the arranged Q&A sessions. Details of the Company’s reception of
investors during 2014 are set out in the section of this report headed “Report of the Board of Directors (II) 19.
Reception of Investors, Communications and Press Interviews During the Year”.
In the coming year, the Company will further enhance communications with investors with the hope that they will
offer more support and concern for the Company on the back of better understanding.
In line with the Company’s business development, its scope of business was amended with the addition of
“technical design, development, consultancy and services for new energy power generation and application
systems,” and such additions were incorporated into the Articles of Association under Article 14 (clause on the
scope of business). Such amendments were considered and approved at the Annual General Meeting of 2013 of
the Company convened on 29 May 2014. For details, please refer to the “Announcement on Resolutions of the
Annual General Meeting of 2013” published by the Company on the same date.
II. Board of Directors
Members of the Board of Directors seek to act in the best interests of the Company, providing leadership and
supervision over the Company and assuming joint and individual responsibility to all shareholders of the Company
in respect of the management, control and operations of the Company.
(I) Functions of the Board
The Board of Directors is responsible for convening general meetings, reporting its work to the general meeting,
implementing resolutions of the general meeting in a timely manner, monitoring the development of the overall
operational strategy of the Company, deciding on the operational plan and investment proposal of the Company,
as well as supervising and guiding the management of the Company. The Board of Directors should also monitor
the business and financial performance of the Company and formulate the annual financial budgets and final
accounts of the Company.
The Directors confirm that it is their responsibility to prepare financial statements in respect of each financial
year to give a true and fair report on the Group’s conditions, as well as the results and cash flow accounts for
the relevant periods. The Directors have consistently applied appropriate accounting policies and complied with
all applicable accounting standards in preparing the financial statements for the year ended 31 December 2014.
After due enquiries, the Directors are of the opinion that the Group has sufficient resources to carry on operations
in the foreseeable future, and as a result it is appropriate for the Group to prepare its financial statements on an
ongoing concern basis.
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131
(II) Composition of the Board
The Board of Directors of the Company comprises 14 Directors, including 1 Chairman and 2 Vice Chairmen. Except
for the Chief Executive Officer (Mr. Shi Lirong) and 2 Executive Directors (Mr. Yin Yimin and Mr. He Shiyou), all
Directors are Non-executive Directors independent of the management, including 5 Independent Non-executive
Directors, namely Ms. Qu Xiaohui, Mr. Wei Wei, Mr. Chen Naiwei, Mr. Tan Zhenhui and Mr. Richard Xike Zhang,
who possess academic and professional qualifications as well as substantial experience in the telecommunications,
financial, legal and management sectors and who have influence in relevant sectors and are proactive in the
performance of their duties, and 6 Non-executive Directors, namely Mr. Hou Weigui (Chairman), Mr. Zhang Jianheng,
Mr. Xie Weiliang, Mr. Wang Zhanchen, Mr. Zhang Junchao and Mr. Dong Lianbo, who have extensive business and
management experience. Their presence enables stringent review and control of the management procedures and
ensures that the interests of shareholders as a whole, including minority shareholders, are safeguarded. The profile
and terms of office of the Directors are set out in the section of this report headed “Directors, Supervisors, Senior
Management and Employees”. The composition of the Board of Directors was in compliance with the provisions
of Rule 3.10(1) and (2) and Rule 3.10A of the Hong Kong Listing Rules.
The Company confirms that it has received annual written confirmations of independence from all the Independent
Non-executive Directors regarding their independence in accordance with Rule 3.13 of the Hong Kong Listing
Rules. In accordance with the guidelines on independence set out in the Hong Kong Listing Rules, the Company
is of the opinion that all the Independent Non-executive Directors are independent persons.
There were no financial, business, family or other material/relevant connections among members of the Board of
Directors of the Company.
(III) Term of office, appointment and removal of Directors
A Director (including Non-executive Director) of the Company is appointed for a term of 3 years and is eligible for
re-election upon conclusion of each term. An Independent Non-executive Director can hold office for a maximum
of 6 years. The term of office of each of Ms. Qu Xiaohui, Mr. Wei Wei and Mr. Chen Naiwei as Independent Non-
executive Director of the Sixth Session of the Board of Directors commenced on 30 March 2013 and shall end on
21 July 2015. The term of office of Mr. Richard Xike Zhang as Independent Non-executive Director of the Sixth
Session of the Board of Directors commenced on 30 June 2013 and shall end on 29 March 2016. Other than the
above, the term of office of all Directors of the Sixth Session of the Company commenced on 30 March 2013
and shall end on 29 March 2016.
The appointment and removal of Directors is subject to the approval of the general meeting of the Company. Each
Director has entered into a Director’s Service Contract with the Company. There was no change in the Directors
of the Company during the year.
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(IV) Board Meetings
1. The Articles of Association requires that the Board of Directors convene at least 4 meetings a year. In
2014, the Board of Directors of the Company convened 10 meetings. In 2014, the Company convened
2 general meetings. Attendance of Directors at the meetings of the Board of Directors and the general
meetings in 2014 was set out in the following table:
Board meetings General meetings
Number of meetings 10 2
Directors
Attendance
in person
Attendance
by proxy
Attendance
Note
Attendance
in person
Attendance
Note
Chairman and Non-executive Director
Hou Weigui 6 4 6/10 2 2/2
Vice Chairman and Non-executive Director
Zhang Jianheng 4 6 4/10 0 0/2
Xie Weiliang 7 3 7/10 1 1/2
Non-executive Director
Wang Zhanchen 8 2 8/10 1 1/2
Zhang Junchao 8 2 8/10 1 1/2
Dong Lianbo 6 4 6/10 1 1/2
Executive Director
Shi Lirong 9 1 9/10 1 1/2
Yin Yimin 6 4 6/10 0 0/2
He Shiyou 8 2 8/10 0 0/2
Independent Non-executive Director
Qu Xiaohui 10 0 10/10 1 1/2
Wei Wei 8 2 8/10 1 1/2
Chen Naiwei 10 0 10/10 2 2/2
Tan Zhenhui 8 2 8/10 2 2/2
Richard Xike Zhang 9 1 9/10 0 0/2
Note: Attendance by proxy was not counted for the percentage of attendance.
2. As stipulated by the Articles of Association, all Directors should be given 14 days’ notice prior to the
commencement of a regular Board of Directors meeting and 3 days’ notice prior to the commencement of
an interim Board of Directors meeting. The secretary to the Board of Directors should provide details of a
regular Board of Directors meeting (including information in relation to each of the meetings of specialised
committees of the Board of Directors) not later than 3 days prior to the commencement of the meeting to
ensure all Directors are briefed on matters to be considered in the meeting in advance.
As for interim Board of Directors meetings which are convened by way of voting via telecommunication
means at the request of the Company’s management, information about the meeting would be provided
simultaneously to all Directors via email and facsimile and sufficient time would be given to the Directors to
consider the matters. The secretary to the Board of Directors would respond to any questions raised by the
Directors and take appropriate action in a timely manner to assist the Directors to ensure that the procedures
of the Board of Directors are in compliance with the applicable regulations, such as the Company Law, the
Articles of Association and the Hong Kong Listing Rules.
ANNUAL REPORT 2014
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3. Minutes of each Board of Directors meetings should be signed by the attending Directors and minute-takers,
and be kept for a term of 10 years, during which the minutes are available for Directors’ inspection from
time to time upon their request.
4. Where any matters (including connected transactions) to be considered by the Board of Directors of the
Company are deemed by the Board of Directors to involve a material conflict of interest, abstention measures
are adopted and the Directors who are by any means connected with such transactions would abstain from
voting.
(V) Respective scopes of delegation and duties of the Board of Directors and the management
The scopes of delegation and duties of the Board of Directors and the management have been clearly defined.
Duties of the Board of Directors are set forth in Article 160 of the Articles of Association, summary of which can
be found in the section headed “II (I) Functions of the Board” under Part II of this chapter. The management
should be responsible for day-to-day operation and management and be accountable to the Board of Directors
by furnishing adequate information to the Board of Directors and the specialised committees in a timely manner
to enable them to make informed decisions. Each Director is entitled to obtain further information from the
management of the Company.
(VI) Chairman and the Chief Executive Officer
The offices of the Chairman and that of the Chief Executive Officer of the Company are two distinctively separated
positions, assumed by Mr. Hou Weigui and Mr. Shi Lirong, respectively. Their respective duties and functions are
clearly defined in the Articles of Association. Duties of the Chairman and the Chief Executive Officer are set forth
in Articles 164 and 181 of the Articles of Association, respectively.
The Chairman of the Company is responsible for the operation of the Board of Directors and advising the Board of
Directors and the Company on the overall strategy and policies of the Company so as to ensure that all Directors
act in the best interest of the shareholders.
The Chief Executive Officer of the Company is responsible for leading the management team of the Company to
take charge of the day-to-day management and operation of the Company in accordance with the objectives and
directions set by the Board of Directors and the internal control policy and procedures of the Company.
The Chief Executive Officer of the Company maintains ongoing communications with the Chairman and all Directors
and reports his work to the Board of Directors regularly to ensure that all Directors are well informed of any
material business development.
(VII) Measures Taken to Ensure the Performance of Duties by Directors
1. The Company would supply the Director with all the relevant and necessary information when the Director
takes office and thereafter will supply, on a regular basis, information that would help the Directors understand
the business and operating conditions of the Company. The Company would subsequently provide the
Directors with the newly promulgated laws and regulations as well as information and development concerning
the Company, such as its internal publications, and arrange for the Directors to attend relevant continuing
professional training courses at the cost of the Company, in order to assist them to fully understand their
duties as a director under the requirements of the Hong Kong Listing Rules and other relevant laws and
regulations, as well as gaining comprehensive insight in the Company’s operation in a timely manner. To
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ensure adequate performance of duties by the Independent Non-executive Directors, the Company will
organise on-site visits and communications with the Chief Financial Officer and Auditor for the Independent
Non-executive Directors.
2. According to records maintained by the Company, the Directors of the Company received the following
training focused on the roles, functions and duties of directors of listed companies in 2014:
Contents Laws, regulations and rules
Directors
Reading
materials
Attendance
at talks or
seminars
Chairman and Non-executive Director
Hou Weigui ? —
Vice Chairman and Non-executive Director
Zhang Jianheng ? —
Xie Weiliang ? —
Non-executive Director
Wang Zhanchen ? —
Zhang Junchao ? —
Dong Lianbo ? —
Executive Director
Shi Lirong ? —
Yin Yimin ? —
He Shiyou ? —
Independent Non-executive Director
Qu Xiaohui ? ?
Wei Wei ? ?
Chen Naiwei ? ?
Tan Zhenhui ? ?
Richard Xike Zhang ? —
3. Whenever the Directors of the Company are required to provide an opinion in relation to matters including
provision of third party guarantees, appropriation of funds and connected transactions, the Company would
engage relevant independent professional bodies, such as auditors, independent financial advisors and
lawyers, to provide independent and professional advice so as to assist the Directors in performing their
duties.
4. In respect of potential legal risks arising from the performance of duties by the Directors, Supervisors and
senior management and with the mandate of the general meeting, at the Nineteenth Meeting of the Sixth
Session of the Board of Directors held on 20 August 2014, the “Resolution on Directors’, Supervisors’ and
Senior Management’s Liability Insurance” was considered and passed, whereby the Company’s contract with
Chartis Insurance Company Limited, Shenzhen Branch was extended for one year with a compensation limit
of RMB100 million per annum.
ANNUAL REPORT 2014
135
III. Specialised Committees under the Board
There are 3 specialised committees under the Board of Directors of the Company, namely the Remuneration and
Evaluation Committee, Nomination Committee and Audit Committee. On 2 April 2013, the Sixth Session of the
Remuneration and Evaluation Committee, Nomination Committee and Audit Committee was elected at the First
Meeting of the Sixth Session of the Board of Directors of the Company. On 1 July 2013, the resolution on the
election of a new member as replacement to the Nomination Committee and the Remuneration and Evaluation
Committee of the Sixth Session of the Board of Directors was considered and approved at the Fifth Meeting of
the Sixth Session of the Board of Directors of the Company, whereby Mr. Richard Xike Zhang, Independent Non-
executive Director, was elected a new member as replacement to the Nomination Committee and the Remuneration
and Evaluation Committee of the Sixth Session of the Board of Directors. Specific working rules have been
formulated for each of the specialised committees, stipulating, among other things, the duties and powers of these
committees. The working rules of each of the specialised committees have been posted on the website of the
Hong Kong Stock Exchange and the website of the Company. The order of meeting for the specialised committees
is conducted in accordance with the provisions of the “Working Rules for the Remuneration and Evaluation
Committee”, “Working Rules for the Nomination Committee” and “Working Rules for the Audit Committee”, and
is implemented by reference to the statutory procedures for meetings of the Board of Directors.
(I) The Remuneration and Evaluation Committee
1. The role and functions of the Remuneration and Evaluation Committee
The Remuneration and Evaluation Committee is responsible for determining and reviewing specific remuneration
packages and performances of the Directors and senior management of the Company based on the management
policies and structures for the remuneration and performance of Directors and senior management laid down by
the Board of Directors.
2. Members and Meetings of the Remuneration and Evaluation Committee
The Remuneration and Evaluation Committee comprises 6 members, including 4 Independent Non-executive
Directors and 2 Non-executive Directors. As at the end of the year, the convenor of the Remuneration and
Evaluation Committee of the Sixth Session of the Board of Directors is Mr. Wei Wei, Independent Non-executive
Director. Members of the committee include Mr. Hou Weigui, Mr. Zhang Jianheng, Ms. Qu Xiaohui, Mr. Tan Zhenhui
and Mr. Richard Xike Zhang. The Remuneration and Evaluation Committee held 4 meetings in 2014. Attendance
at the meetings was as follows:
Members of the Remuneration and Evaluation Committee
Attendance in
person
Attendance by
proxy
Wei Wei 4/4 0/4
Hou Weigui 3/4 1/4
Zhang Jianheng 2/4 2/4
Qu Xiaohui 4/4 0/4
Tan Zhenhui 3/4 1/4
Richard Xike Zhang 4/4 0/4
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Corporate Governance Structure
3. The decision-making process and criteria for determining remuneration for Directors and senior
management
The Remuneration and Evaluation Committee makes recommendations to the Board of Directors on the allowances
for Directors by reference to the work performance of the Directors of the Company as well as the levels offered
by other listed companies in the industry. Such recommendations shall be confirmed upon consideration and
approval both by the Board of Directors and the general meeting, namely in the manner set out in Code B.1.2(c)
(ii) of Appendix 14 to the Hong Kong Listing Rules.
The Remuneration and Evaluation Committee reviews implementation of remuneration appraisals on an annual
basis to determine the annual remuneration budget. It also conducts annual performance appraisals in respect of
each senior management personnel of the Company and determines the remuneration of such senior management
personnel based on the results of such appraisals for implementation after consideration and approval by the
Board of Directors.
4. Work of the Remuneration and Evaluation Committee during the year
The Remuneration and Evaluation Committee held 4 meetings in 2014 mainly to:
a) consider the preliminary drafts of the Company’s evaluation and incentive plans for the President, Executive
Vice Presidents and Senior Vice Presidents of 2014;
b) consider the resolution on the performance of and annual bonus amount for the President of the Company
for 2013, and submit the same to the Board of Directors of the Company for consideration and approval;
c) consider the resolution on the performance of and annual bonus amount for other senior management
personnel of the Company for 2013, and submit the same to the Board of Directors of the Company for
consideration and approval;
d) consider the resolution on the principles for determining the 2013 annual bonus amount for the Chairman
of the Board of Directors and the Chairman of the Supervisory Committee;
e) consider the report on the Company’s implementation of remuneration matters in 2013;
f) consider the report on the Company’s remuneration budget in 2014;
g) consider the resolution on Performance Management Measures for the President of the Company for 2014,
and submit the same to the Board of Directors of the Company for consideration and approval;
h) consider the resolution on Performance Management Measures for other senior management personnel of
the Company for 2014, and submit the same to the Board of Directors of the Company for consideration
and approval;
i) consider the resolution of the Company on the renewal of “Directors’, Supervisors’ and senior management’s
liability insurance,” and submit the same to the Board of Directors of the Company for consideration and
approval;
ANNUAL REPORT 2014
137
(II) The Nomination Committee
1. The role and functions of the Nomination Committee
The Nomination Committee is primarily responsible for considering standards and procedures for the selection
of Directors and senior management of the Company. The committee considers the criteria, procedures and
duration of appointment for Directors and senior management of the Company in accordance with relevant laws
and regulations and the Articles of Association and taking into account the actual conditions of the Company. The
Nomination Committee then submits a proposal to the Board of Directors and general meetings (if applicable) for
approval, and implements the decisions.
2. Members and Meetings of the Nomination Committee
The Nomination Committee comprises 7 members, including 4 Independent Non-executive Directors and 3 Non-
executive Directors. As at the end of the year, the convenor of the Nomination Committee of the Sixth Session of
the Board of Directors is Mr. Tan Zhenhui, Independent Non-executive Director, and members of the committee
include Mr. Hou Weigui, Mr. Xie Weiliang, Mr. Wang Zhanchen, Mr. Wei Wei, Mr. Chen Naiwei and Mr. Richard
Xike Zhang.
The Nomination Committee held 1 meeting in 2014. Attendance at the meeting was as follows:
Members of the Nomination Committee
Attendance in
person
Attendance by
proxy
Tan Zhenhui 1/1 0/1
Hou Weigui 1/1 0/1
Xie Weiliang 1/1 0/1
Wang Zhanchen 0/1 1/1
Wei Wei 1/1 0/1
Chen Naiwei 1/1 0/1
Richard Xike Zhang 1/1 0/1
3. The criteria and procedures for the nomination and recommendation of Directors and senior management
and the board diversity policy
(1) The Nomination Committee conducts extensive searches for candidates for Directors and senior management
both internally in the Company, its subsidiaries or associate companies and externally in the open market
after considering the Company’s requirements for new Directors and senior management. With the consent
of the nominees, a meeting of the Nomination Committee will be convened to examine the qualifications of
the initial nominees based on the terms for appointment of Directors and senior management. Prior to the
election of new Directors, the Nomination Committee will propose candidates for Directors to the Board of
Directors and furnish the Board of Directors with relevant information. Prior to the appointment of new senior
management personnel, the Nomination Committee will also propose to the Board of Directors candidates to
be appointed as senior management personnel and furnish the Board of Directors with relevant information.
(2) The Nomination Committee shall recommend candidates for Directors and new senior management
appointments to the Board of the Directors in accordance with qualifications for directors and senior
management set out in the Company Law, Guiding Opinion of the China Securities Regulatory Commission
on the Establishment of the Independent Director System at Listed Companies (??????????????
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Corporate Governance Structure
?????????????), Measures of the Shenzhen Stock Exchange for the Registration of Independent
Directors (?????????????????), the Hong Kong Listing Rules, the Articles of Association and
the Rules of Procedures of the Board of Directors, etc.
(3) The Nomination Committee has formulated a Board Diversity Policy, which has been set out in the Working
Rules of the Nomination Committee. The Board Diversity Policy primarily states that the Company will
consider board diversity from several perspectives when determining the composition of the Board of
Directors, including but not limited to age, cultural and education background, professional experience,
skills and know-how. All appointments of the Board of Directors are based on meritocracy, and candidates
are being considered under objective conditions taking into account the benefits of board diversity. The
composition of the Board of Directors of the Company is basically in line with the diversity principle. For
details, please refer to “II (II) Composition of the Board” in Part II of this chapter.
4. Work of the Nomination Committee during the year
In 2014, the Nomination Committee held 1 meeting mainly to consider the resolution on the proposed appointment
and dismissal of senior management personnel and submit the same to the Board of Directors of the Company
for consideration and approval.
(III) The Audit Committee
1. The role and functions of the Audit Committee
The Audit Committee is primarily responsible for making recommendations to the Board of Directors on the
appointment and removal, remuneration and terms of engagement of external auditors, supervising the Company’s
internal audit system and its implementation, examining the financial information of the Company and its disclosure
(including the inspection of the completeness of the Company’s financial statements and annual reports and
accounts, interim reports and quarterly reports, as well as the review of significant opinions on financial reporting
contained in the statements and reports), assessing the financial controls, internal controls and risk management
system of the Company, and reviewing material connected transactions.
2. Members and Meetings of the Audit Committee
The Audit Committee comprises 7 members, including 4 Independent Non-executive Directors and 3 Non-executive
Directors. As at the end of the year, the convenor of the Audit Committee of the Sixth Session of the Board of
Directors is Ms. Qu Xiaohui, Independent Non-executive Director, and members of the committee include Mr. Hou
Weigui, Mr. Zhang Junchao, Mr. Dong Lianbo, Mr. Wei Wei, Mr. Chen Naiwei and Mr. Tan Zhenhui. The composition
of the Audit Committee was in compliance with the provisions of Rule 3.21 of the Hong Kong Listing Rules.
The Audit Committee held 8 meetings in 2014. Attendance at the meetings was as follows:
Members of the Audit Committee
Attendance in
person
Attendance by
proxy
Qu Xiaohui 8/8 0/8
Hou Weigui 5/8 3/8
Zhang Junchao 6/8 2/8
Dong Lianbo 5/8 3/8
Wei Wei 7/8 1/8
Chen Naiwei 8/8 0/8
Tan Zhenhui 5/8 3/8
ANNUAL REPORT 2014
139
3. Work of the Audit Committee during the year
In 2014, the Audit Committee held 8 meetings mainly to:
a) consider the financial report of the Company for the year ended 31 December 2013, and submit the same
to the Board of Directors of the Company for consideration and approval;
b) receive the report of Ernst & Young on the audit plan relating to the financial report of the Company in 2013;
c) consider the resolution of the Company on continuing connected transaction relating to the purchase of
software outsourcing services from Huatong, a connected party, and submit the same to the Board of
Directors of the Company for consideration and approval;
d) consider the resolution of the Company on continuing connected transaction relating to the purchase of
software outsourcing services from Nanchang Software, a connected party, and submit the same to the
Board of Directors of the Company for consideration and approval;
e) consider the resolution of the Company on continuing connected transaction relating to the entering into of
a channel cooperation agreement with ????, a connected party, and submit the same to the Board of
Directors of the Company for consideration and approval;
f) consider whether actions taken by the management in litigations in which the Company or any members of
the Group is a defendant are appropriate;
g) receive the report of Ernst & Young on the financial audit of the Company in 2013;
h) receive the report of Ernst & Young on the internal control audit of the Company in 2013;
i) receive the explanatory statement of Ernst & Young on the 2013 continuing connected transactions of the
Company;
j) consider the summary report on the audit of the Company performed by the PRC and Hong Kong auditors
in 2013;
k) consider the audit fees payable to the PRC and Hong Kong auditors for the year ended 31 December 2013
and submit the same to the Board of Directors of the Company for consideration and approval;
l) consider resolutions on the appointment of the PRC and Hong Kong auditors of the Company for 2014
and submit the same to the Board of Directors and general meeting of the Company for consideration and
approval;
m) consider the resolution on the write-off of bad debts of the Company for the second half of 2013 and submit
the same to the Board of Directors of the Company for consideration and approval;
n) consider the report of the Company on derivative investments in 2013;
o) consider the resolution on the application for investment limits in derivative products of the Company for 2014
and submit the same to the Board of Directors and the general meeting of the Company for consideration
and approval;
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Corporate Governance Structure
p) consider the assessment report on internal control of the Company for the year ended 31 December 2013;
q) consider the report of the Company on the “2013 Summary Report and 2014 Work Plan for Internal Control
and Audit”;
r) consider the resolution of the Company on matters pertaining to debt financing of ZTE (H.K.) Limited and
submit the same to the Board of Directors and the general meeting of the Company for consideration and
approval;
s) consider the resolution of the Company on the proposed capital contribution to and subscription for Zhonghe
Chunsheng Fund II and submit the same to the Board of Directors of the Company for consideration and
approval;
t) consider the report on the preparation of the Company’s First Quarterly Report of 2014 and submit the same
to the Board of Directors of the Company for consideration and approval;
u) consider the report of the Company on derivative investments in the first quarter of 2014;
v) consider the resolution of the Company on the continuing connected transaction relating to the Property
and Equipment and Facilities Lease Framework Agreement entered into with Zhongxing Hetai, and submit
the same to the Board of Directors of the Company for consideration and approval;
w) consider the resolution of the Company on the continuing connected transaction relating to the Hotel Service
Purchase Framework Agreement entered into with Zhongxing Hetai, and submit the same to the Board of
Directors of the Company for consideration and approval;
x) consider the resolution of the Company on the continuing connected transaction relating to the provision
of financial services, and submit the same to the Board of Directors of the Company for consideration and
approval;
y) consider the interim financial report of the Company for the six months ended 30 June 2014 and submit
the same to the Board of Directors of the Company for consideration and approval;
z) receive the summary report of Ernst & Young on its advisory work for the preparation of the Company’s
interim financial report for the first half of 2014;
aa) consider the internal control and audit work report of the Company for the six months ended 30 June 2014;
bb) consider the resolution of the Company on the amendment of the ZTE Internal Control System and submit
the same to the Board of Directors of the Company for consideration and approval;
cc) review the report of the Company on derivative investments in the first six months of 2014;
dd) consider the report on the preparation of the Company’s Third Quarterly Report of 2014 and submit the
same to the Board of Directors of the Company for consideration and approval;
ee) review the report of the Company on derivative investments in the first three quarters of 2014;
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141
ff) consider the resolution of the Company on revising the maximum aggregate amount of transactions for
continuing connected transactions in respect of the purchase of software outsourcing services in 2014 from
Nanchang Software, a connected party, and submit the same to the Board of Directors of the Company for
consideration and approval;
gg) consider the resolution of the Company on continuing connected transaction in respect of the execution of
the 2014 sales framework agreement with Nanchang Software, a connected party, and submit the same to
the Board of Directors of the Company for consideration and approval;
hh) consider the resolution of the Company on continuing connected transaction in respect of the execution
of the 2015 channel cooperation agreement with ????, a connected party, and submit the same to the
Board of Directors of the Company for consideration and approval;
ii) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 software outsourcing procurement framework agreement with Huatong, a connected party,
and submit the same to the Board of Directors of the Company for consideration and approval;
jj) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 software outsourcing procurement framework agreement with Nanchang Software, a
connected party, and submit the same to the Board of Directors of the Company for consideration and
approval;
kk) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 sales framework agreement with Nanchang Software, a connected party, and submit the
same to the Board of Directors of the Company for consideration and approval;
ll) consider the resolution of the Company on continuing connected transactions in respect of the execution
of the 2015-2017 property leasing agreement with Chongqing Zhongxing Development, a connected party,
and submit the same to the Board of Directors of the Company for consideration and approval; and
mm) consider the resolution of the Company on the subscription of China All Access (Holdings) Limited convertible
bonds by ZTE (H.K.) Limited and submit the same to the Board of Directors of the Company for consideration
and approval.
(IV) Corporate governance functions
The Board of Directors is charged with duties in corporate governance, procuring the management to establish a
compliant organisational structure and regime and to abide by the Corporate Governance Code and other laws
and regulations in day-to-day management. During the year, the Board of Directors examined the Company’s
compliance with corporate governance policies and codes. In accordance with the Articles of Association and
Rules of Procedure of the Board of Directors Meetings, the Board of Directors is responsible for the following
corporate governance functions:
1. Formulating and reviewing the corporate governance policies and practices of the Company;
2. Reviewing and monitoring training and continuous professional development of the Directors and senior
management;
3. Reviewing and monitoring the Company’s policies and practices in compliance with legal and regulatory
provisions;
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Corporate Governance Structure
4. Formulating, reviewing and monitoring the code of conduct for employees and Directors; and
5. Reviewing the Company’s compliance with the Corporate Governance Code set out in Appendix 14 to the
Hong Kong Listing Rules and the disclosures in its corporate governance report.
IV. Remuneration and Interests of Directors, Supervisors and the President
(I) Remuneration
Please refer to the section of this report headed “Directors, Supervisors, Senior Management and Employees
— (II) Changes in the shareholdings of the Company’s Directors, Supervisors, senior management and annual
remuneration” for details of the annual remuneration of the Directors, Supervisors and senior management of the
Company.
Further details of the remuneration of Directors and Supervisors for 2014 are set out in Note 8 to the financial
statements prepared in accordance with HKFRSs.
(II) Interests
1. Service contracts and contractual interests of Directors and Supervisors
The Company did not enter into any service contract which is not determinable by the Company within one year
without payment of compensation (other than statutory compensation) with any Director or Supervisor.
2. Interests of Directors and Supervisors in contracts
None of the Directors and Supervisors of the Company was or had been materially interested, either directly or
indirectly, in any contracts of significance to which the Group is a party subsisting during or at the end of 2014.
3. Interests of Directors, Supervisors and Chief Executive Officer in shares or debentures
The interests in shares of the Company held by Directors, Supervisors and Chief Executive Officer of the Company
as at 31 December 2014 are set out in the section of this report headed “Directors, Supervisors, Senior Management
and Employees — (II) Changes in the shareholdings of the Company’s Directors, Supervisors, senior management
and annual remuneration.”
Save as disclosed above, as at 31 December 2014, none of the Directors, Supervisors and Chief Executive Officer
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 for Securities Transactions by Directors of Listed Issuers (the “Model
Code”) as set out in Appendix 10 to the Hong Kong Listing Rules.
Save as disclosed above, as at 31 December 2014, none of the Directors, Supervisors or the Chief Executive
Officer 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.
ANNUAL REPORT 2014
143
4. Securities transactions by Directors and Supervisors
The Directors and Supervisors of the Company confirmed that the Company has adopted the Model Code. Upon
due enquiry with all Directors and Supervisors of the Company, the Company is not aware of any information that
reasonably indicates non-compliance with code provisions set out in the Model Code by Director or Supervisor
during the year.
V. Remuneration Package and Retirement Benefits for Employees
The remuneration package for the Group’s employees includes salary, bonuses and allowances. Our employees also
receive welfare benefits including medical care insurance, housing subsidies, retirement and other miscellaneous
benefits. In accordance with applicable PRC regulations, the Group participated in social insurance contribution
plans organised by the relevant government authorities, under which we paid monthly contributions towards each
employee’s social insurance in an amount equivalent to a specified percentage of his/her monthly salaries. Further
details of the remuneration of top 5 employees of the Company for 2014 are set out in Note 9 to the financial
statements prepared in accordance with HKFRSs.
Details of staff retirement benefits provided by the Group are set out in Note 35 to the financial statements
prepared in accordance with HKFRSs.
VI. Auditors’ Remuneration
Ernst & Young Hua Ming LLP (“Ernst & Young Hua Ming”) and Ernst & Young acted as the Group’s PRC and
Hong Kong auditors, respectively.
Ernst & Young Hua Ming has been appointed the Company’s PRC auditor for 10 consecutive years since 2005.
Ernst & Young has been appointed the Company’s Hong Kong auditor for 11 consecutive years since 2004. The
undersigning accountants of Ernst & Young Hua Ming are Mr. Li Yuxing and Ms. Fu Jie. Mr. Li Yuxing has been
providing audit services to the Company for 6 years and the year under review was the fifth year for which he
acted in the capacity of undersigning accountant. Ms. Fu Jie has been providing audit services to the Company
for 7 years and the year under review was the third year for which she acted in the capacity of undersigning
accountant.
Financial report audit fees payable to the PRC auditor and the Hong Kong auditor for 2014 were paid in a
consolidated manner, whereby an aggregate audit fee of RMB5.85 million was paid to Ernst & Young Hua Ming
and Ernst & Young.
At the Sixteenth Meeting of the Sixth Session of the Board of Directors of the Company on 26 March 2014, it
was approved that Ernst & Young Hua Ming be appointed the Company’s internal control auditor for 2014. The
amount of 2014 internal control audit fee paid to Ernst & Young Hua Ming by the Company was RMB824,000.
In 2014, Ernst & Young (China) Advisory Limited, Shenzhen Branch (“Ernst & Young Consulting”) provided tax
advisory services to the overseas subsidiaries of the Company and its subsidiary Shenzhen Zhongxing Software
Company Limited for a fee of RMB944,500. Ernst & Young provided tax return and tax advisory services to the
Company and its subsidiaries ZTE HK and Xinxun International (Hong Kong) Limited for a fee of HKD189,500.
Ernst & Young Hua Ming provided advisory services to the Company relating to its 2014 sustainable development
report for a fee of RMB140,000. Save as the aforesaid three instances, Ernst & Young Hua Ming, Ernst & Young
and Ernst & Young Consulting did not provide other significant non-audit services to the Group.
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Corporate Governance Structure
Item Amount Auditor
Audit fees 2014 RMB5.85 million Ernst & Young Hua Ming (PRC)
Ernst & Young (Hong Kong)
Internal control audit fees 2014 RMB824,000 Ernst & Young Hua Ming
Fees for tax advisory services 2014 RMB944,500 Ernst & Young Consulting
Fees for tax return and tax advisory services 2014 HKD189,500 Ernst & Young
Fees for advisory services relating to the 2014
sustainable development report RMB140,000 Ernst & Young Hua Ming
VII. Company Secretary
The Company Secretary (Mr. Feng Jianxiong) is responsible for facilitating the procedures of the Board of
Directors of the Company and communications among Directors, between Directors and shareholders and among
the management. A brief biography of the Company Secretary is set out in the section of this report headed
“Directors, Supervisors, Senior Management and Employees (I) Brief Biographies of Directors, Supervisors and
Senior Management”. In 2014, the Company Secretary received more than 15 hours of training to update his
professional skills and expertise.
VIII. Accountability and Audit
The Directors of the Company confirm that they are responsible for preparing the accounts and providing balanced,
objective assessments which are clear and easy to understand in the consolidated financial statements of the
annual reports, interim reports and quarterly reports, other inside information announcements and other financial
disclosures required under the Hong Kong Listing Rules, and disclosing information to regulatory authorities in
accordance with statutory requirements.
If the Directors become aware of significant uncertainties or conditions that might have an adverse material impact
on the ability of the Company to operate as a going concern, the Directors must provide a clear disclosure and
detailed discussion of such uncertainties in the corporate governance report.
A statement of the Company’s Hong Kong auditor on its reporting responsibility and views on the financial
statements of the Company for the year ended 31 December 2014 is set out in the Independent Auditors’ Report
in pages 318–319 of this report.
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145
IX. Internal Control
The Board of Directors of the Company is responsible for reviewing the Company’s internal control systems to
ensure its effective implementation. The Board of Directors has delegated to the Audit Committee the responsibility
for reviewing the effectiveness of the internal control systems of the Company and its subsidiaries. The Directors
are responsible for reviewing resources on the financial reporting functions, qualification and experience of the
staff and whether the courses and budget for staff training are sufficient.
The Company continued to improve its internal control system in 2014. During the year, the Company engaged
an independent consultant agency to improve the conventions, processes and methodologies relating to risk
management and internal control in a systematic manner, commenced internal control handbook updating and
self-assessment of internal control on the basis of internal control work conducted in 2013, and exercised ongoing
control over significant operating risks. All in all, the Company has established and effectively implemented an
internal control regime that meets its operational needs and covers all segments of the Company’s operation. The
Company will continue to adjust and improve the development of its internal control regime in a timely manner
in response to changes in internal and external conditions.
The Audit Committee under the Board of Directors convenes regular meetings each year in accordance with
relevant laws and regulations to review the effectiveness of and identify rooms for further improvements in financial,
operational and supervisory controls and the risk management procedures. Reports are being submitted to the
Board of Directors of the Company on the implementation of internal control measures.
The internal control system of the Company was designed to provide reasonable (but not absolute) assurance
against material misstatements or losses and to manage (but not eliminate) risks arising from the malfunctioning
of operating systems or failures to attain the Company’s objectives. The Board of Directors is of the view that the
internal control system was in normal operation during the financial year ended 31 December 2014.
During the year, the Company performed self-inspection on its corporate governance and self-assessment on
its internal control. An assessment report on internal control has been prepared as a result. For details of the
Company’s internal control in 2014, please refer to the section of this report headed “Internal Control”.
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Internal Control
(I) OVERVIEW OF THE COMPANY’S INTERNAL CONTROL DEVELOPMENT
In order to enhance internal control, improve the Company’s operational management standard and risk aversion
ability and ensure the security, compliance and effective operation of the Company’s assets, the Company has
established a reasonable and effectively operating internal control regime in accordance with provisions of the
Company Law, the Securities Law, Corporate Governance Standards for Listed Companies, Rules for Corporate
Internal Control and Supplementary Guidelines for Corporate Internal Control and other pertinent laws, regulations
and regulatory documents.
I. Overview of internal control development and improvement
The Company’s internal control establishment has basically covered all operating segments of the Company,
including production operations, financial management, organization, personnel management, and information
disclosure, etc. The Company has, taking into account its specific conditions, developed a comprehensive
internal control system comprising the Rules of Procedure of the General Meetings, Rules of Procedure of the
Board of Directors Meetings, Rules of Procedure of the Supervisory Committee, Independent Director System,
Administrative Rules for Information Disclosure, Internal Control System, Administrative Rules of the Company on
Issue Proceeds, System of Registration of Owners of Inside Information, System for the Administration of External
Information Users, System of Accountability for Significant Errors in Information Disclosure of Annual Reports,
System of Derivative Investment Risk Control and Information Disclosure, Administrative Measures on Third-
party Guarantees, Administrative Measures on Connected Transactions and Administrative Measures on Equity
Investment in Operating Subsidiaries, etc.
2. Establishment of internal control departments and internal control implementation
The Company has established an all-encompassing and multi-level structure for internal control development
comprising mainly the Board, the Audit Committee, the risk control work steering group, the Internal Control and
Audit Department Risk Control Team, the risk control directors and managers of various business units. In 2014,
the Company focused on the following internal control operations:
The Company’s internal control work during the first quarter of 2014 mainly involved overall review and evaluation
of its internal control work in 2013, convened the start-up meeting for internal control and risk management
operations in 2014 and made plans for internal control and risk management in 2014. For details, please refer to
the section headed “Material Matters” in the 2014 first quarterly report of the Company.
During the second quarter of 2014, the Company engaged an independent consultant agency to improve the
conventions, processes and methodologies relating to risk management and internal control in a systematic manner,
drive the advanced development of risk management and internal control and enhance specialised capabilities
in risk management and internal control. For details, please refer to the section headed “Material Matters” in the
2014 Interim Report of the Company.
During the third quarter of 2014, the Company conducted several training sessions on risk management and
internal control tailored for intermediary management officers and members of the risk control teams, commenced
internal control handbook updating and self-assessment of internal control, and exercised ongoing control over
significant operating risks. For details, please refer to the section headed “Material Matters” in the 2014 third
quarterly report of the Company.
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147
Internal control performed during the fourth quarter of 2014:
1. Reviewing risk management and internal control in 2014, assessing the progress of risk control in key
business operations such as sales, purchase and research and development, and starting to formulate the
internal control plan for 2015.
2. Conducting analyses on key risks faced by the Company’s operations, with special emphasis on risks
associated with foreign exchange movements, deterioration of political situations in Eastern Europe, end
customer credibility and legal compliance on a global basis.
3. Working with Ernst and Young Hua Ming (LLP) on the audit of the Company’s internal control for 2014.
4. Review, finalisation and publication of the 2014 internal control handbook of the Company.
5. Enhancing promotion of the anti-corruption culture through newsletters, weibo messages and mails.
(II) OPINION ON INTERNAL CONTROL ASSESSMENT
1. The 2014 Internal Control Assessment Report published by the Company
The Company has conducted an assessment on the effectiveness of its internal control as at 31 December 2014
(being the record date for the internal control assessment report) in accordance with the Basic Rules for Corporate
Internal Control, its supplementary guidelines and other internal control regulatory requirements and taking into
account its internal control system and assessment methods, based on general as well as specific supervision
of internal control.
Based on the work of identifying significant deficiencies in the Company’s internal control in relation to financial
reporting, as at the record date for the internal control assessment report, there was no significant deficiency
in internal control in relation to financial reporting. The Board of Directors is of the view that the Company has
maintained effective internal control in relation to financial reporting in all material aspects in accordance with the
internal control regulatory regime and pertinent regulations.
Based on the work of identifying significant deficiencies in the Company’s internal control in relation to non-financial
reporting, as at the record date for the internal control assessment report, the Company was not aware of any
significant deficiency in internal control in relation to non-financial reporting.
There were no events occurring during the period from the record date for the internal control assessment report
to the date of publication of the internal control assessment report that would have affected the conclusion on
the assessment of the effectiveness of internal control.
For details of the Company’s internal control, please refer to the “2014 Internal Control Assessment Report of ZTE
Corporation” published by the Company on 26 March 2015 on http://www.cninfo.com.cn.
2. Statement of the Directors of the Company on Internal Control Responsibility
In accordance with the provisions of the Rules for Corporate Internal Control, the Board of Directors of the Company
is responsible for the development and effective implementation of effective internal control, assessment of the
effectiveness thereof and truthful disclosure of the internal control assessment report. The Board of Directors of
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Internal Control
the Company warrants that there are no false records or misleading statements in or material omissions from the
Company’s 2014 Internal Control Assessment Report and collectively and individually accept legal responsibility
for the truthfulness, accuracy and completeness of the contents of the said report.
The Board of Directors of the Company is of the view that the Company has fundamentally established a
comprehensive internal control system in accordance with relevant laws and regulations and regulatory documents.
The internal control system of the Company has taken into account five basic elements of internal control: internal
environment, risk assessment, business controls, information and communications and internal supervision. The
Company has exercised stringent, adequate and effective internal control in respect of subsidiaries, connected
transactions, third-party guarantees, significant investments, information disclosure, and all systems have been
adequately and effectively implemented. The operation of the Company’s internal control regime is generally
effective without any significant defects in its mechanism and system as a whole or any significant deviations in
implementation.
Therefore, the Board of Directors of the Company is of the view that the Company has not identified any
significant defects in the design or implementation of internal control in 2014. The Company’s 2014 Internal Control
Assessment Report is in line with the status of internal control at the Company.
3. Opinion of the Supervisors of the Company on the 2014 Internal Control Assessment Report of the
Company
(1) The Company has established a comprehensive and proper internal control system in accordance with
relevant regulations of the CSRC and the Shenzhen Stock Exchange and taking into account the specific
conditions of the Company, effectively ensuring regulated operation and sound development for the Company
and safeguarding the safety and integrity of the Company’s assets.
(2) The Company has established and optimised its internal organisational structure in accordance with modern
enterprise systems and internal control principles, forming a scientific mechanism for decision-making,
implementation and supervision. The Company’s internal audit department is equipped with sufficient
manpower that ensures effective implementation and supervision of its key internal control activities.
(3) During the reporting period, the management and decision-making processes of the Company were in strict
compliance with various rules and regulations and no violations of provisions under Basic Rules for Corporate
Internal Control and its Supplementary Guidelines and other regulatory requirements for internal control or
the Company’s internal control system had been reported.
In view of the above and having reviewed the Company’s 2014 Internal Control Assessment Report, the Supervisory
Committee is of the view that the 2014 Internal Control Assessment Report of the Company is a true, objective
and complete reflection of the status of the Company’s internal control, and has no objection to the 2014 Internal
Control Assessment Report of the Company.
4. Independent Opinion of the Independent non-executive Directors of the Company on the 2014
Internal Control Assessment Report of the Company
(1) The Company has established a comprehensive internal control regime in compliance with relevant laws,
administrative regulations and departmental rules and regulations of the State. In 2014, the Company was in
compliance with basic principles in internal control and further improved and developed its internal control
and management system and continued to advance its internal control development in an organized manner
taking into account its specific conditions, business development and management requirements.
ANNUAL REPORT 2014
149
(2) The Company has established relevant control regimes and mechanisms for each of the five aspects of
environment for control, risk assessment, business controls, information and communications and supervision.
The internal control system in force is sound, reasonable and effective and provides reasonable assurance
for legal compliance of the Company’s operations and management, asset security and true and complete
financial reporting and information disclosure.
(3) The 2014 Internal Control Assessment Report of the Company duly reflects the status of the Company’s
internal Control.
5. Internal control audit report furnished by the audit firm
In accordance with relevant requirements under the Corporate Internal Control Audit Guidelines and the China Code
of Ethics for Certified Public Accountants, Ernst & Young Hua Ming LLP conducted an audit on the effectiveness
of internal control in relation to the financial reporting of the Company for the year ended 31 December 2014
and furnished an opinion as follows:
Ernst & Young Hua Ming LLP is of the view that ZTE Corporation has maintained effective internal control in
financial reporting in all material aspects in accordance with the Basic Rules for Corporate Internal Control and
pertinent provisions.
For the internal control audit report of the Company, please refer to the “Internal Control Audit Report of ZTE
Corporation” published by the Company on 26 March 2015 on http://www.cninfo.com.cn.
(III) BASIS, IMPROVEMENT AND OPERATION OF THE FINANCIAL REPORTING INTERNAL CONTROL
SYSTEM
The Company has formulated a range of administrative systems in connection with financial management, etc
in accordance with laws and regulations including the Accounting Law, ASBEs and Basic Rules for Corporate
Internal Control and its Supplementary Guidelines, and has effectively implemented and executed such systems
in actual operation, and the functions of and delegations in accounting and financial management have been
improved and enhanced in terms of rules and regulations. In connection with job positions, staff deployment and
key accounting practices, the Company has established an independent accounting department and members of
such accounting department have diligently complied with national financial policies and laws and regulations and
deal with accounting matters in strict accordance with the Accounting Law, ASBEs and other pertinent regulations.
During the year, the Company did not identify any significant deficiencies in its financial reporting internal control.
(IV) ESTABLISHMENT AND IMPLEMENTATION OF THE SYSTEM OF ACCOUNTABILITY FOR SIGNIFICANT
ERRORS IN INFORMATION DISCLOSURE OF ANNUAL REPORTS
The Company has established the ZTE Corporation System of Accountability for Significant Errors in Information
Disclosure of Annual Reports in accordance with the Company Law, Securities Law, Accounting Law, Measures
for the Administration of Information Disclosure by Listed Companies and other pertinent laws, regulations and
regulatory documents, which expressly provides for the identification and handling of significant accounting errors
in financial reports and significant errors in other information disclosures of annual reports, as well as accountability
for such significant errors in information disclosures of annual reports. The system was considered and approved
at the Second Meeting of the Fifth Session of the Board of Directors of the Company held on 8 April 2010 and
became effective on the same date.
The Company has diligently implemented the system. There was no correction of significant accounting errors,
remedy of significant omission of information and revision of business projections during the year.
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150
Report of the PRC Auditors
Ernst & Young Hua Ming (2015) Shen Zi No. 60438556_H01
To the Shareholders of ZTE Corporation:
We have audited the accompanying financial statements of ZTE Corporation which comprise the consolidated and
company balance sheets as at 31 December 2014, the consolidated and company income statements, statement
of changes in equity and cash flow statement for the year ended 31 December 2014 and notes to the financial
statements.
I. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The management of ZTE Corporation is responsible for the preparation and fair presentation of financial statements.
Such responsibility includes: (1) preparation of the financial statements in accordance with the Accounting
Standards for Business Enterprises to ensure fair representation; (2) the design, implementation and maintenance
of necessary internal controls so that the financial statements are free from material misstatement whether due
to fraud or error.
II. RESPONSIBILITY OF THE CERTIFIED PUBLIC ACCOUNTANT
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants.
Those standards require that we comply with ethical requirements of the Chinese Certified Public Accountants
and plan and perform the audit to obtain a reasonable assurance as to whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
certified public accountants consider the internal control relevant to the entity’s preparation of financial statements
in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating
the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
ANNUAL REPORT 2014
151
Report of the PRC Auditors (continued)
III. OPINION
In our opinion, the financial statements have been prepared in accordance with Accounting Standards for Business
Enterprises, and present fairly, in all material aspects, the consolidated and company financial position as at 31
December 2014 and the consolidated and company results of operations and cash flows of ZTE Corporation for
the year ended 31 December 2014.
Ernst & Young Hua Ming LLP Chinese Certified Public Accountant:
Li Yuxing (???)
Beijing, the People’s Republic of China Chinese Certified Public Accountant:
Fu Jie (??)
25 March 2015
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152
Consolidated Balance Sheet
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Assets Note V 2014 2013
(Restated)
Current assets
Cash 1 18,115,874 20,903,035
Financial assets dealt with at fair value through current
profit and loss 2 240,973 217,454
Bills receivable 3 2,086,771 3,500,671
Trade receivables 4 25,152,963 21,393,257
Factored trade receivables 4 3,160,705 3,338,801
Other receivables 5 2,159,677 1,729,163
Prepayments 6 682,778 751,405
Inventories 7 19,592,298 12,434,352
Amount due from customers for contract works 8 11,033,468 12,137,144
Total current assets 82,225,507 76,405,282
Non-current assets
Available-for-sale financial assets 9 1,739,664 1,630,271
Long-term trade receivables 10 266,501 366,762
Factored long-term trade receivables 10 1,701,978 2,311,525
Long-term equity investments 11 461,316 478,037
Investment properties 12 2,004,465 1,855,246
Fixed assets 13 7,348,292 7,449,476
Construction in progress 14 262,863 177,423
Intangible assets 15 1,364,695 1,236,755
Deferred development costs 16 3,483,505 2,932,148
Deferred tax assets 17 1,284,493 1,353,033
Long-term deferred assets 53,287 70,942
Other non-current assets 19 4,017,630 3,812,597
Total non-current assets 23,988,689 23,674,215
TOTAL ASSETS 106,214,196 100,079,497
ANNUAL REPORT 2014
153
Consolidated Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Liabilities and shareholder’s equity Note V 2014 2013
(Restated)
Current liabilities
Short-term loans 20 10,998,077 12,589,032
Bank advances on factored trade receivables 4 3,175,432 3,377,374
Financial liabilities dealt with at fair value through
current profit and loss 21 70,604 67,779
Bills payable 22 10,381,688 8,498,021
Trade payables 23 19,244,400 16,492,534
Amount due to customers for contract works 8 3,825,106 3,682,564
Advances from customers 24 3,305,520 2,776,366
Salary and welfare payables 25 2,806,947 2,462,006
Taxes payable 26 (2,790,280) (1,251,859)
Dividends payable 27 8,113 34,963
Other payables 28 7,531,970 8,478,144
Deferred income 451,507 408,845
Provisions 29 741,391 601,111
Long-term loans due within one year 30 6,174,257 2,753,925
Total current liabilities 65,924,732 60,970,805
Non-current liabilities
Long-term loans 31 10,039,687 5,385,673
Bank advances on factored long-term trade receivables 10 1,701,978 2,311,525
Bonds payable 32 — 6,119,590
Provision for retirement benefits 25 115,450 95,806
Deferred tax liabilities 17 159,340 139,900
Deferred income 631,149 —
Other non-current liabilities 33 1,349,356 1,430,509
Total non-current liabilities 13,996,960 15,483,003
Total liabilities 79,921,692 76,453,808
ZTE CORPORATION
154
Consolidated Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Liabilities and Shareholder's equity Note V 2014 2013
(Restated)
Shareholders’ equity
Share capital 34 3,437,541 3,437,541
Capital reserves 35 8,724,754 8,545,701
Other comprehensive income 36 (464,275) (100,703)
Surplus reserve 37 1,769,012 1,613,195
Retained profits 38 10,724,034 8,933,788
Proposed final dividends 38 687,508 103,126
Total equity attributable to equity holders of the parent 24,878,574 22,532,648
Non-controlling interests 1,413,930 1,093,041
Total shareholders’ equity 26,292,504 23,625,689
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 106,214,196 100,079,497
The financial statements set out on pages 152 to 317 have been signed by:
Legal representative: Hou Weigui Chief Financial Officer: Wei Zaisheng Head of Finance Division: Shi Chunmao
ANNUAL REPORT 2014
155
Consolidated Income Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note V 2014 2013
(Restated)
Operating revenue 39 81,471,275 75,233,724
Less: Operating costs 39 55,760,104 53,125,904
Taxes and surcharges 40 1,331,243 1,079,532
Selling and distribution costs 41 10,259,165 10,003,850
Administrative expenses 42 2,031,445 2,202,267
Research and development costs 9,008,537 7,383,892
Finance expenses 45 2,100,977 2,460,303
Impairment losses 46 1,202,232 1,589,486
Add: Gains from changes in fair values 43 148,282 204,010
Investment income 44 134,474 914,406
Including: Share of profits and losses of associates
and joint ventures 44 (53,043) 34,466
Operating profit/(loss) 60,328 (1,493,094)
Add: Non-operating income 47 3,787,643 3,465,428
Less: Non-operating expenses 47 309,749 144,491
Including: Loss on disposal of non-current assets 35,661 18,066
Total profit 48 3,538,222 1,827,843
Less: Income tax 49 810,492 394,207
Net profit 2,727,730 1,433,636
Attributable to:
Owners of the parent 2,633,571 1,357,657
Non-controlling interests 94,159 75,979
Other comprehensive income, net of tax (333,604) (279,262)
Other comprehensive income attributable to owners of the
parent, net of tax 36 (363,572) (301,911)
Other comprehensive income that cannot be reclassified to
profit and loss in subsequent periods
Change in net liabilities arising from the re-measurement
of defined benefit plans (16,599) 7,040
Share of investee results in other comprehensive income
under equity method which will not be reclassified to
profit and loss in subsequent periods upon fulfillment
of certain conditions 3,090 —
(13,509) 7,040
Other comprehensive income will be reclassified to profit
and loss in subsequent periods
Changes in the fair value of available-for-sale financial
assets (40,800) 149,231
Effective portion of cash flow hedging instruments 3,965 5,784
Exchange differences on translation of foreign operations (313,228) (463,966)
(350,063) (308,951)
Other comprehensive income attributable to non-controlling
interests, net of tax 29,968 22,649
Total comprehensive income 2,394,126 1,154,374
ZTE CORPORATION
156
Consolidated Income Statement (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note V 2014 2013
(Restated)
Attributable to:
Owners of the parent 2,269,999 1,055,746
Non-controlling interests 124,127 98,628
Earnings per share (RMB/share) 50
Basic RMB0.77 RMB0.39
Diluted RMB0.77 RMB0.39
ANNUAL REPORT 2014
157
Consolidated Statement of Changes in Equity
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
2014
Equity attributable to equity holders of the parent
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit
Proposed
final
dividends Sub-total
Minority
interests
Total
shareholders’
equity
I. Current year’s opening balance 3,437,541 8,545,701 (100,703) 1,613,195 8,933,788 103,126 22,532,648 1,093,041 23,625,689
II. Changes during the year
(I) Total comprehensive income — — (363,572) — 2,633,571 — 2,269,999 124,127 2,394,126
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — — 253,500 253,500
2. Equity settled share expenses charged to equity — 178,241 — — — — 178,241 — 178,241
3. Capital reduction by shareholders — — — — — — — (48,990) (48,990)
4. Disposal of fractional shares — 812 — — — — 812 — 812
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 155,817 (155,817) — — — —
2. Distribution to shareholders — — — — — (103,126) (103,126) (7,748) (110,874)
3. Proposed final dividends — — — — (687,508) 687,508 — — —
III. Current year’s closing balance 3,437,541 8,724,754 (464,275) 1,769,012 10,724,034 687,508 24,878,574 1,413,930 26,292,504
2013 (Restated)
Equity attributable to equity holders of the parent
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit
Proposed
final
dividends Sub-total
Minority
interests
Total
shareholders’
equity
I. Current year’s opening balance 3,440,078 8,522,845 201,208 1,587,430 7,705,022 — 21,456,583 1,136,256 22,592,839
II. Changes during the year
(I) Total comprehensive income — — (301,911) — 1,357,657 — 1,055,746 98,628 1,154,374
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — — 18,895 18,895
2. Equity settled share expenses charged to equity (2,537) 22,856 — — — — 20,319 — 20,319
3. Disposal of subsidiaries — — — — — — — (110,224) (110,224)
4. Capital reduction by shareholders — — — — — — — (48,990) (48,990)
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 25,765 (25,765) — — — —
2. Distribution to shareholders — — — — — — — (1,524) (1,524)
3. Proposed final dividends — — — — (103,126) 103,126 — — —
III. Current year’s closing balance 3,437,541 8,545,701 (100,703) 1,613,195 8,933,788 103,126 22,532,648 1,093,041 23,625,689
ZTE CORPORATION
158
Consolidated Cash Flow Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note V 2014 2013
I. Cash flows from operating activities
Cash received from sale of goods or rendering of services 88,611,704 81,718,914
Refunds of taxes 6,231,137 7,084,639
Cash received relating to other operating activities 51 2,421,604 1,768,549
Sub-total of cash inflows 97,264,445 90,572,102
Cash paid for goods and services 67,684,267 62,736,010
Cash paid to and on behalf of employees 12,372,398 11,606,711
Cash paid for all types of taxes 6,608,317 5,801,983
Cash paid relating to other operating activities 51 8,086,828 7,852,820
Sub-total of cash outflows 94,751,810 87,997,524
Net cash flows from operating activities 52 2,512,635 2,574,578
II. Cash flows from investing activities
Cash received from sale of investments 1,314,820 987,347
Cash received from return on investment 155,642 183,098
Net cash received from the disposal of fixed assets,
intangible assets and other long-term assets 72,015 5,955
Net cash received from the disposal of subsidiaries 289,890 1,318,667
Sub-total of cash inflows 1,832,367 2,495,067
Cash paid to acquisition of fixed asset, intangible assets
and other long term assets 2,067,604 2,336,926
Cash paid for acquisition of investments 1,387,493 1,820,312
Sub-total of cash outflows 3,455,097 4,157,238
Net cash flows from investing activities (1,622,730) (1,662,171)
III. Cash flows from financing activities
Cash received from capital injection 253,500 18,895
Including: Capital injection into subsidiaries by minority
shareholders 253,500 18,895
Cash received from borrowings 39,500,323 23,357,872
Sub-total of cash inflows 39,753,823 23,376,767
Cash repayment of borrowings 41,621,563 24,372,924
Cash payments for distribution of dividends, profits and for
interest expenses 1,858,509 1,685,508
Including: Distribution of dividends, profits by subsidiaries to
minority shareholders 34,598 157,567
Sub-total of cash outflows 43,480,072 26,058,432
Net cash flows from financing activities (3,726,249) (2,681,665)
IV. Effect of changes in foreign exchange rate on cash and
cash equivalents (51,790) (772,103)
V. Net increase in cash and cash equivalents (2,888,134) (2,541,361)
Add: cash and cash equivalents at beginning of year 20,118,274 22,659,635
VI. Net balance of cash and cash equivalents at the
end of year 52 17,230,140 20,118,274
ANNUAL REPORT 2014
159
Balance Sheet
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Assets Note XV 2014 2013
(Restated)
Current assets
Cash 10,025,991 12,163,330
Financial assets dealt with at fair value through current
profit and loss 53,390 69,300
Bills receivable 1,873,999 2,851,182
Trade receivables 1 36,620,720 34,030,487
Factored trade receivables 1 1,259,713 2,084,134
Prepayments 66,692 29,328
Dividend receivable 2,487,128 1,970,264
Other receivables 2 6,338,933 10,454,633
Inventories 12,353,923 7,056,518
Amount due from customers for contract works 7,799,190 7,029,635
Total current assets 78,879,679 77,738,811
Non-current assets
Available-for-sale financial assets 3 373,555 373,555
Long-term trade receivables 4 5,480,245 4,517,856
Factored long-term trade receivables 4 1,287,954 1,968,052
Long-term equity investments 5 6,884,411 6,430,526
Investment properties 1,597,919 1,496,338
Fixed assets 4,458,748 4,751,559
Construction in progress 11,909 14,393
Intangible assets 515,110 451,947
Deferred development costs 846,625 665,650
Deferred tax assets 674,629 762,009
Long-term deferred assets 44,518 50,778
Other non-current assets 3,879,675 3,596,641
Total non-current assets 26,055,298 25,079,304
TOTAL ASSETS 104,934,977 102,818,115
ZTE CORPORATION
160
Balance Sheet (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Liabilities and shareholders’ equity Note XV 2014 2013
(Restated)
Current liabilities
Short-term loans 8,418,581 8,375,865
Financial liabilities dealt with at fair value through current
profit and loss 17,587 12,575
Bank advances on factored trade receivables 1,274,440 2,122,707
Bills payable 12,389,807 10,250,993
Trade payables 31,214,686 34,200,975
Amount due to customers for contract works 2,654,158 2,496,029
Advances from customers 3,411,519 2,896,512
Salary and welfare payables 771,370 688,982
Taxes payable (2,377,915) (1,286,296)
Dividends payable 156 152
Other payables 19,020,951 17,178,123
Deferred income 191,584 80,401
Provisions 388,995 349,291
Long-term loans due within one year 6,131,185 —
Total current liabilities 83,507,104 77,366,309
Non-current liabilities
Long-term loans 2,980,100 1,780,000
Bank advances on factored long-term trade receivables 1,287,954 1,968,052
Bonds payable — 6,119,590
Provision for retirement benefits 115,450 95,806
Deferred tax liabilities 158,350 138,400
Other non-current liabilities 1,348,475 1,430,509
Total non-current liabilities 5,890,329 11,532,357
Total liabilities 89,397,433 88,898,666
Shareholders’ equity
Share capital 3,437,541 3,437,541
Capital reserves 8,740,683 8,561,630
Other comprehensive income 720,953 736,957
Surplus reserve 1,107,256 951,439
Retained profits 843,603 128,756
Proposed final dividends 687,508 103,126
Total shareholders’ equity 15,537,544 13,919,449
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 104,934,977 102,818,115
ANNUAL REPORT 2014
161
Income Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
Note XV 2014 2013
Operating revenue 6 76,598,340 68,951,943
Less: Operating costs 6 64,426,341 58,380,388
Taxes and surcharges 733,974 628,622
Selling and distribution costs 6,522,405 6,012,345
Administrative expenses 1,224,755 1,323,247
Research and development costs 2,606,804 2,173,020
Finance expenses 1,404,784 2,061,598
Impairment losses 851,874 1,149,141
Add: Gains from changes in fair values 75,934 136,906
Investment income 7 2,017,647 1,910,787
Including: Share of profits and losses of associates and
jointly-controlled entities 7 (58,304) 35,898
Operating profit/loss 920,984 (728,725)
Add: Non-operating income 848,779 898,979
Less: Non-operating expenses 137,504 50,200
Including: Loss on disposal of non-current assets 21,221 13,568
Total profit 1,632,259 120,054
Less: Income tax 74,087 (255,869)
Net profit 1,558,172 375,923
Other comprehensive income, net of tax
Other comprehensive income that cannot be reclassified to
profit and loss in subsequent periods
Change in net liabilities arising from the re-measurement of
defined benefit plans (16,599) 7,040
Other comprehensive income will be reclassified to profit and
loss in subsequent periods
Exchange differences on translation of foreign operations 595 (943)
Other comprehensive income, net of income tax effect on
respective items (16,004) 6,097
Total comprehensive income 1,542,168 382,020
ZTE CORPORATION
162
Statement of Changes in Equity
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
2014
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit/
(losses
not made
up for)
Proposed
final
dividends
Total
shareholders’
equity
I. Current year’s opening balance 3,437,541 8,561,630 736,957 951,439 128,756 103,126 13,919,449
II. Changes during the year
(I) Total comprehensive income — — (16,004) — 1,558,172 — 1,542,168
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — —
2. Equity settled share expenses charged to equity — 178,241 — — — — 178,241
3. Disposal of fractional shares — 812 — — — — 812
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 155,817 (155,817) — —
2. Distribution to shareholders — — — — — (103,126) (103,126)
3. Proposed final dividends — — — — (687,508) 687,508 —
III. Current year’s closing balance 3,437,541 8,740,683 720,953 1,107,256 843,603 687,508 15,537,544
2013 (Restated)
Share
capital
Capital
reserve
Other
comprehensive
income
Surplus
reserve
Retained
profit/(losses
not made
up for)
Proposed
final
dividends
Total
shareholders’
equity
I. Current year’s opening balance 3,440,078 8,538,774 730,860 925,674 (118,276) — 13,517,110
II. Changes during the year
(I) Total comprehensive income — — 6,097 — 375,923 — 382,020
(II) Shareholder’s capital injection and capital reduction
1. Capital injection from shareholders — — — — — — —
2. Equity settled share expenses charged to equity (2,537) 22,856 — — — — 20,319
(III) Profit appropriation
1. Appropriation to surplus reserves — — — 25,765 (25,765) — —
2. Distribution to shareholders — — — — — — —
3. Proposed final dividends — — — — (103,126) 103,126 —
III. Current year’s closing balance 3,437,541 8,561,630 736,957 951,439 128,756 103,126 13,919,449
ANNUAL REPORT 2014
163
Cash Flow Statement
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
2014 2013
I. Cash flows from operating activities
Cash received from sale of goods or rendering of services 68,927,313 66,576,915
Refunds of taxes 3,561,374 4,662,932
Cash received relating to other operating activities 2,097,732 1,333,177
Sub-total of cash inflows 74,586,419 72,573,024
Cash paid for goods and services 61,745,917 63,215,952
Cash paid to and on behalf of employees 4,332,398 4,035,264
Cash paid for all types of taxes 761,629 712,708
Cash paid relating to other operating activities 5,764,856 4,622,116
Sub-total of cash outflows 72,604,800 72,586,040
Net cash flows from operating activities 1,981,619 (13,016)
II. Cash flows from investing activities
Cash received from sale of investments 21,300 21,300
Cash received from return on investments 145,189 49,700
Net cash received from the disposal of fixed assets, intangible assets and
other long-term assets 62,395 4,606
Net cash received from the disposal of subsidiaries 291,233 1,375,693
Sub-total of cash inflows 520,117 1,451,299
Cash paid to acquisition of fixed asset, intangible assets and other long
term assets 611,424 937,565
Cash paid for acquisition of investments 541,684 264,674
Sub-total of cash outflows 1,153,108 1,202,239
Net cash flows from investing activities (632,991) 249,060
III. Cash flows from financing activities
Cash received from borrowings 12,461,575 15,074,922
Sub-total of cash inflows 12,461,575 15,074,922
Cash repayment of borrowings 14,409,081 17,088,287
Cash payments for distribution of dividends, profits and for interest
expenses 1,322,215 1,413,923
Sub-total of cash outflows 15,731,296 18,502,210
Net cash flows from financing activities (3,269,721) (3,427,288)
IV. Effect of changes in foreign exchange rate on cash and cash
equivalents (119,476) (328,755)
V. Net increase in cash and cash equivalents (2,040,569) (3,519,999)
Add: cash and cash equivalents at beginning of year 11,756,438 15,276,437
VI. Net balance of cash and cash equivalents at the end of year 9,715,869 11,756,438
ZTE CORPORATION
164
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
I. CORPORATE BACKGROUND
ZTE Corporation (the “Company”) was a limited liability company jointly founded by Shenzhen Zhongxingxin
Telecommunications Equipment Company Limited, China Precision Machinery Import & Export Shenzhen
Company, Lishan Microelectronics Corporation, Shenzhen Zhaoke Investment Development Company Limited,
Hunan Nantian (Group) Company Limited, 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”) mainly engaged in production of remote control
switch systems, multimedia communications systems and communications transmission systems; provision
of technical design, development, consultation and related services for the research and manufacture
and production of mobile communications systems equipment, satellite communications, microwave
communications equipment, beepers, computer hardware and software, closed-circuit TVs, microwave
communications, automated signal control, computer information processing, process monitoring systems,
fire 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,
mass transit railways, urban rail transit, highways, plants and mines, ports and terminals and airports
(excluding restricted projects); purchase and sale of electronics devices, micro-electronics components
(excluding franchised, state-controlled and monopolized 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 sending 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 monopolized
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);
specialized subcontracting of telecommunications projects.
The controlling shareholder of the Group is Shenzhen Zhongxingxin Telecommunications Equipment 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
25 March 2015. In accordance with the Articles of Association of the Company, the financial statements will
be tabled at the general meeting for consideration.
The consolidation scope for consolidated financial statement is determined based on the concept of control.
For details of changes during the year, please refer to Note VI.
ANNUAL REPORT 2014
165
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
II. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
1. Basis of preparation
These financial statements have been prepared in accordance with the “Accounting Standards for
Business Enterprises — Basic Standards” promulgated by the Ministry of Finance 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.
2. Adoption of certain revised/new accounting standards
In January to March 2014, the Ministry of Finance promulgated “ASBE No. 39 — Fair Value
Measurement”, “ASBE No. 40 — Joint Venture Arrangements” and “ASBE No. 41 — Disclosure of
Interests in Other Entities”, the amended “ASBE No. 2 — Long-term Equity Investments,” “ASBE No.
9 — Employees’ Remuneration,” “ASBE No. 30 — Presentation of Financial Statements” and “ASBE
No. 33 — Consolidated Financial Statements”. The seven aforesaid accounting standards will come
into effect on 1 July 2014, although overseas listing enterprises are encouraged to bring forward
their implementation. In June 2014, the Ministry of Finance amended “ASBE No. 37 — Presentation
of Financial Instruments” for implementation in financial reports in respect of 2014 and subsequent
periods. As a company listed in both Mainland China and Hong Kong, the Company brought forward
the implementation of 5 of the aforesaid ASBEs, other than ASBE No. 41 — Disclosure of Interests
in Other Entities”, “ASBE No. 2 — Long-term Equity Investments,” and “ASBE No. 37 — Presentation
of Financial Instruments,” in the preparation of its 2013 financial statements, and made adjustments
in accordance with relevant provisions for reconciliation. For discussions of the major impact of such
implementation, please refer to the 2013 financial statements.
For the purposes of these financial statements, where changes in the aforesaid accounting standards
result in changes in the accounting policies of the Company, adjustments have been made in
accordance with relevant provisions for reconciliation. Comparatives figures have been adjusted
retrospectively where necessary.
ZTE CORPORATION
166
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
1. Statement of compliance
The financial statements truly and completely reflect the financial position of the Group and the
Company as at 31 December 2014 and the results of their operations and their cash flows for the
year ended 31 December 2014.
2. Financial year
The financial year of the Group is from 1 January to 31 December of each calendar year.
3. Reporting currency
Reporting currency and the currency used in preparing the financial statements were Renminbi. The
amounts in the financial statements were denominated in thousand 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.
4. Business combination
Business combination represents transaction which combines two or more separate businesses into
one reporting entity. 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. The combining party is the entity that
obtains control of the other entities participating in the combination at the combination date, and the
other entities participating in the combination are the parties being combined. The combination date
is the date on which the combining party effectively obtains control of the parties being combined.
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 recognized 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.
ANNUAL REPORT 2014
167
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
4. Business combination (continued)
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 acquirer is the entity that obtains control of the other
entities participating in the combination at the acquisition date, and the other entities participating in
the combination are the acquirees. The acquisition date is the date on which the acquirer effectively
obtains control of the acquiree.
The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized 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 recognized 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 acquiree 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 recognized in current profit or loss.
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 for the year ended 31
December 2014. Subsidiaries 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.
ZTE CORPORATION
168
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
5. Consolidated financial statements (continued)
For subsidiaries obtained through a business combination not involving entities under common control,
the operating results and cash flows of the acquirees will be recognized 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 recognized in consolidated financial
statement from the beginning of the 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 an 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.
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.
ANNUAL REPORT 2014
169
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
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 capitalization shall be dealt with according to the principle of capitalization of borrowing costs,
are recognized 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 recognized 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. Translation differences arising form 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 recognized 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. The impact on cash by the fluctuation
of exchange rates is presented as a separate line item of reconciliation in the cash flow statement.
ZTE CORPORATION
170
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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 recognizes 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 derecognized 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 financial assets have been transferred, or (b) control over such financial assets
has not been retained even though substantially all risks and rewards of the ownership of such
financial assets have been neither transferred nor retained.
If the obligation of financial liability has been fulfilled, cancelled or expired, the financial liability is
derecognized. 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 recognized 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
The Group classifies its financial assets into four categories at initial recognition: financial assets at
fair value through profit or loss, held-to-maturity investments, loans and receivables, available-for-sale
financial assets and derivatives designated as effective hedging instruments. For financial assets at fair
value through profit or loss, the relevant transaction costs are directly recognized in profit or loss; for
other financial assets, the relevant transaction costs are recognized in their initial recognition amount.
ANNUAL REPORT 2014
171
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss comprise mainly trading financial assets. Financial
assets are classified as trading if they satisfy one of the following conditions: they are acquired or
incurred principally for the purpose of selling or repurchasing in the near term; they are part of a
portfolio of identified financial instruments that are managed together, and for which there is objective
evidence of a recent pattern of short-term profit taking; they are derivative financial instruments, with the
exception of derivatives designated as valid arbitrage, derivatives under financial guarantee contracts
and derivatives linked to and settled by way of delivery of equity investments not quoted in an active
market and whose fair value cannot be reliably measured. These financial assets are subsequently
measured at fair value, and gain or loss from changes in fair value and derecognition are recognized
in current period’s profit or loss. Dividends or interest income derived from financial assets at fair value
through profit or loss are also recognized in current profit or loss.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets whose maturity and redemption amount
are fixed or ascertained and in respect of which the Group has clear intentions and ability to hold until
maturity. Such financial assets are subsequently measured using the effective interest method on the
basis of amortised cost. Gains or losses arising from derecognition, impairment or amortization are
recognised in the current profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Such assets are subsequently carried at amortized cost using the
effective interest method less any allowance for impairment. Gains or losses arising from amortisation
or impairment are recognised in the current profit or loss.
ZTE CORPORATION
172
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Classification and valuation of financial assets (continued)
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-
sale or those financial assets that are not classified in any of the above categories. Subsequent to initial
recognition, these financial assets are measured at fair value. Discounts or premiums are amortised
using the effective interest method and recognised as interest income or expense. Fair value changes
in available-for-sale financial assets, except for impairment losses and foreign currency monetary items’
translation differences which are recognized in profit or loss, are recognized as other comprehensive
income until the financial assets are derecognized or impaired upon which the cumulative gains or
losses are transferred out from capital reserves to profit or loss. Dividends or interest income derived
from available-for-sale financial assets is recognized in profit or loss.
Equity investments that are not quoted in an active market and whose fair value cannot be reliably
measured are carried at cost.
Classification and valuation of financial liabilities
The Group classifies its financial liabilities at initial recognition: financial liabilities at fair value through
profit or loss, other financial liabilities and derivatives designated as effective hedging instruments.
For financial liabilities at fair value through profit or loss, the relevant transaction costs are directly
recognized in profit or loss; for other financial liabilities, the relevant transaction costs are recognized
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 comprise mainly derivative financial liabilities.
Financial liabilities are classified as derivative if they satisfy one of the following conditions: they are
acquired or incurred principally for the purpose of repurchasing in the near term; they are part of a
portfolio of identified financial instruments that are managed together, and for which there is objective
evidence of a recent pattern of short-term profit taking; they are derivative financial instruments, with the
exception of derivatives designated as valid arbitrage, derivatives under financial guarantee contracts
and derivatives linked to and settled by way of delivery of equity investments not quoted in an active
market and whose fair value cannot be reliably measured. These financial liabilities are subsequently
measured at fair value, and all realized or unrealised gain or loss are recognized in current period’s
profit or loss.
ANNUAL REPORT 2014
173
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Classification and valuation of financial liabilities (continued)
Other financial liabilities
Subsequent to initial recognition, these financial assets are carried at amortized cost using the effective
interest method.
Set-off of financial instruments
The net amount resulting from the set-off between financial assets and financial liabilities shall be
presented in the balance sheet only if all of the following criteria are met: there is a statutory right to
set off recognised amounts which is currently enforceable; the plan is settled on a net basis, or the
realisation of the financial asset and the settlement of the financial liability take place at the same time.
Financial guarantee contracts
A financial guarantee contract is a contract under which the guarantor and the creditor agree that the
guarantor shall assume the debts or liability in the event of default of the debtor. Financial guarantee
contracts are initially recognized as liability at fair value. Financial guarantee contracts not classified as
financial liabilities designated at fair value through profit or loss, after initial recognition, are subsequently
measured at the higher of: (i) the amount of the best estimates of the expenditure required to settle the
present obligations at the balance sheet date; and (ii) the initial amount less accumulated amortization.
Derivative financial instruments
The Group uses derivative financial instruments such as forward currency contracts to hedge its risks
associated with foreign currency fluctuations and interest rate swaps to hedging against interest rate
risks. Such derivative financial instruments are initially recognized 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. Derivatives
linked to and settled by way of delivery of equity investments not quoted in an active market and
whose fair value cannot be reliably measured that are not quoted in an active market and whose fair
value cannot be reliably measured are carried at cost.
Any gains or losses arising from the change in fair value on derivatives are taken directly to current
profit and loss, except for the effective portion of cash flow hedging recognised as other comprehensive
income which is transferred to current profit and loss when profit and loss is affected by hedged items.
ZTE CORPORATION
174
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Impairment of financial assets
The Group assesses the carrying amount of financial assets at the balance sheet date. If there is any
objective evidence that a financial asset is impaired, the Group provides for such impairment losses. The
objective evidence, which indicates impairment of financial assets, represents events actually occurring
after initial recognition of financial assets, having an impact on financial assets’ estimated future cash
flows, and such impact can be reliably measured. Objective evidences for impairment of financial assets
include significant financial difficulties experienced by the issuer or debtor, default of contract terms
(such as default or overdue of interest or principal payments) by the debtor, probable closure or other
financial restructuring of the debtor and publicly available information indicating estimated future cash
flow has decreased and such decrease being measurable.
Assets carried at amortised cost
If an impairment loss has been incurred, the financial asset’s carrying amount is reduced to the present
value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate (namely the effective interest rate
determined at initial recognition), taking into account the value of relevant collaterals. The reduced
amount is charged to profit or loss. Interest income after impairment is recognized by adopting
the discount rate used for discounting future cash flow to its present value when determining the
impairment loss. Loans and receivables for which there is no realistic expectation for future recovery
and all collaterals have been realized or transferred to the Group shall be written off against loans and
receivables and the corresponding impairment provision.
For a financial asset that is individually significant, the Group assesses the asset individually for
impairment if there is objective evidence of impairment, and recognizes the amount of impairment
in profit or loss. For a financial asset that is not individually significant, the Group include the asset
in a group of financial assets with similar credit risk characteristics and collectively assess them for
impairment. If it is determined that no objective evidence of impairment exists for an individually
assessed financial asset, whether the financial asset is individually significant or not, the financial
asset is included in a group of financial assets with similar credit risk characteristics and collectively
assessed for impairment. Financial assets, for which an impairment loss is individually recognized, are
not included in the collective assessment for impairment.
After the Group recognizes impairment loss of financial assets carried at amortized cost, if there is
objective evidence that the financial assets’ value recovered and the recovery is objectively related to
an event occurring after the impairment is recognized, the previously recognized impairment loss shall
be reversed and recognized in profit or loss. However the reversal shall not result in a carrying amount
of the financial asset that exceeds what the amortized cost would have been had the impairment not
been recognized at the date when the impairment is reversed.
ANNUAL REPORT 2014
175
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Impairment of financial assets (continued)
Available-for-sale financial assets
If an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fair value
that had been recognized directly in capital reserves is removed from capital reserves and recognized
in profit or loss. The cumulative loss that is removed from capital reserves is the difference between
its acquisition cost (net of any principal repayment and amortization) and its current fair value, less
any impairment loss previously recognized in profit or loss.
Objective evidence of impairment in equity instruments available-for-sale includes a significant or
prolonged decline in their fair value. Whether the decline is “significant” or not shall be determined by
reference to the extent to which the fair value is lower the cost. Whether the decline is “prolonged”
or not shall be determined by reference to the duration in which the fair value is lower than the cost.
Where objective evidence of impairment exists, the accumulated loss of the transfer is represented by
the balance of acquisition cost after deduction of the current fair value and impairment loss previously
charged to profit and loss. Impairment losses recognized for equity instruments classified as available-
for-sale are not reversed through profit or loss. Fair value gains that arise after the impairment are
directly recognized in other comprehensive income.
The exercise of judgement is required to determine the meaning of “significant” or “prolonged.” The
Group makes its judgement based on the duration in which the fair value is lower than the cost and
other factors.
If after an impairment loss has been recognized on an available-for-sale debt instrument, the fair value
of the debt instrument increases in a subsequent period whereby the increase can be objectively related
to an event occurring after the impairment losses were recognized, the impairment loss is reversed
which is recognized in profit or loss.
Assets carried at cost
If financial assets carried at cost are impaired, the impairment loss are recognized in profit or loss and
measured as the difference between the carrying amount of the financial asset and the present value
of estimated future cash flows discounted at the current market rate of return for a similar financial
asset. Such impairment losses shall not be reversed.
ZTE CORPORATION
176
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
9. Financial instruments (continued)
Derecognition 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 derecognized. If the Group retains substantially
all the risks and rewards of ownership of a financial asset, the asset should not be derecognized.
When the Group has neither transferred nor retained substantially all the risks and rewards of ownership
of the financial asset, it may either derecognize the financial asset and recognize any associated assets
and liabilities if control of the financial asset has not been retained; or recognizes the financial asset to
the extent of its continuing involvement in the transferred financial asset and recognizes 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 book 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. Accounts Receivable
(1) Individually significant accounts receivable for which separate bad-debt provision is made
The Group conducts impairment tests in respect of its significant account receivables and makes
provision for impairment when there is objective evidence of impairment. Objective evidence for
impairment includes: (1) significant financial difficulties experienced by the debtor; (2) default on
or non-payment of due interest or principal payments; (3) concessions made to the insolvent
debtor by creditors owing to economic or legal considerations; (4) probable bankruptcy or other
financial reorganisation of the debtor; (5) inability to recover the debt after repayments from the
bankruptcy assets or the estate upon the bankruptcy or death of the debtor.
An account receivable is considered individually significant if it amounts to 0.1% or above of the
total original value of all accounts receivable.
ANNUAL REPORT 2014
177
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
10. Accounts Receivable (continued)
(2) Accounts receivable for which bad debt provision is made on the basis of credit risk
characteristic groups
Individually insignificant accounts, for which there is no objective evidence under individual
impairment tests warranting individual provision, are divided into different asset groups based on
their credit risk characteristics, and each group is assessed in accordance with different policies
to determine their impairment provision. The management divides trade receivables (other than
those in respect of which individual asset impairment provision has been made) into the following
asset groups as follows on the basis of credit risk rating and historical repayment records:
Percentage of
provision (%)
0–6 months —
7–12 months 0–15
13–18 months 5–60
19–24 months 15–85
2–3 years 50–100
Over 3 years 100
11. Inventories
Inventories include raw materials, materials sub-contracted for processing, work-in-progress, finished
goods, materials for construction-in-progress and product deliveries.
Inventories are initially recorded at costs. Inventories’ costs include purchasing costs, processing costs
and other costs. Actual costs of goods delivered are recognized using the weighted moving average
method. Materials for construction-in-progress include low-value consumables and packaging materials,
which are amortised using the separate amortization method/one-off write-off method.
Inventories are valued using the perpetual inventories system.
Inventories at the end of the year are stated at the lower of cost or net realizable value. Provision for
impairment of inventories is made and recognized in profit or loss when the net realizable value is
lower than cost. If the factors that give rise to the provision in prior years are not in effect in current
year, as a result that the net realizable value of the inventories is higher than cost, provision should
be reversed within the impaired cost, and recognized in profit or loss.
Net realizable 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.
ZTE CORPORATION
178
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
12. 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 accounting. The initial investment cost of long-term equity investments other than
those acquired through business combination shall be recognized 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.”
ANNUAL REPORT 2014
179
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
12. 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 long-term 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. Any excess of the Company’s share of the investment’s
identifiable assets and liabilities over the cost of investment is excluded from the carrying amount
of the investment and recognized in profit and loss for the current period, and the cost of long-term
equity investment is adjusted accordingly.
Under the equity method, after the long-term equity investments are acquired, investment gains or
losses and other comprehensive income are recognized 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 recognizing 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 recognized), 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 recognizing 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.
ZTE CORPORATION
180
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
12. Long-term equity investments (continued)
On disposal of the long-term equity investments, the difference between book value and market price
is recognized 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.
13. 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 book value as at the date of
reclassification is included in the capital reserve. After initial recognition, investment properties will
be subsequently measured and presented in fair value. The difference between the fair value and the
original book value shall be included in current profit and 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.
ANNUAL REPORT 2014
181
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
14. Fixed Assets
A fixed asset is recognized 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 recognized in the carrying amount of the fixed asset if the
above recognition criteria are met, and the book value of the replaced part is derecognized; otherwise,
those expenditures are recognized in profit or loss as incurred.
Fixed assets are initially recognized 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 Indefinite — N/A
Buildings 30–50 years 5% 1.9%–3.17%
Electronic equipment 5–10 years 5% 9.5%–19%
Machinery equipment 5–10 years 5% 9.5%–19%
Motor vehicles 5–10 years 5% 9.5%–19%
Other equipment 5 years 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.
15. Construction in progress
Construction-in-progress is measured at the actual construction expenditures, including 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.
ZTE CORPORATION
182
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
16. Borrowing costs
Borrowing costs are interest and other costs incurred by the Group in connection with the borrowings
of funds, which include borrowing interest, amortisation of discount or premium on debt, other
supplementary costs and certain foreign exchange differences that occurred from the borrowings in
foreign currencies.
Borrowing costs directly attributable to the acquisition or construction of assets qualified for
capitalization, 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 capitalized as part of the cost of those
assets. Other borrowing costs are charged to current profit or loss.
Capitalization 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 capitalization of such borrowing costs ceases when the assets are substantially ready for their
intended use or sale. Borrowing costs incurred afterwards are recognized in profit or loss.
During capitalization, interest of each accounting period is recognized 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
capitalization rate to the expenditure on that asset. The capitalization 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, capitalization 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 recognized as expenses and recorded in the income statement until the construction resumes.
ANNUAL REPORT 2014
183
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
17. 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 and whose fair value can be reliably measured shall be separately recognized 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 2–5 years
Technology know-how 2–10 years
Land use rights 50–70 years
Franchise 3–10 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 amortization 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.
ZTE CORPORATION
184
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
17. Intangible assets (continued)
The Group classifies the expenses for internal research and development as research costs and
development costs. All research costs are charged to the income statement 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 in the Group are formed when they meet the above condition technical feasibility
and economic feasibility studies. Then, those projects are progressed into the development phase.
18. Provisions
Other than contingent consideration and assumed contingent liabilities in a business combination
involving parties not under common control, the Group recognizes 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 resources 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 book value of
the provisions would be reassessed on every balance sheet date. The book value will be adjusted to the
best estimated value if there is certain evidence that the current book value is not the best estimate.
ANNUAL REPORT 2014
185
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
19. Share-based payments
Share-based payments can be distinguished into equity-settled share-based payments and cash-settled
share-based payments. Equity-settled share-based payments are transactions of the Group settled
through the payment of shares of 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 recognizing 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 Black-Scholes option
pricing model. For details see Note XI. Share-based 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, except where vesting is conditional
upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the
market or non-vesting condition is satisfied, provided that all other non-market conditions are satisfied.
Where the terms of an equity-settled share-based payment are modified, as a minimum, services
obtained are recognized as if the terms had not been modified. In addition, an expense is recognized
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 recognized for the award is recognized 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.
ZTE CORPORATION
186
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
20. Revenue
Revenue is recognized when it is probable that the economic benefits will flow to the Group and the
amount of the revenue can be measured reliably. Revenue is recognized on the following bases:
Revenue from the sales of goods
Revenue from sales of goods is recognized when the significant risks and rewards of ownership have
been transferred to the buyer, provided that the Group maintains neither managerial involvement to
the degree usually associated with ownership, nor effective control over the goods sold and related
costs incurred or to be incurred can be measured reliably. Revenue from sales of goods is determined
according to amounts stipulated in contracts or agreements received or receivable from buyers, unless
such amounts are deemed unfair. The receipt of amounts stipulated in contracts or agreements is
recognized on a deferred basis. Those with a financing nature are measured at the fair value of amounts
stipulated in contracts or agreements.
Revenue from the rendering of services
On the balance sheet date, when transaction result of the rendering of services could be measured
reliably, related revenue from rendering of services is recognized according to the percentage of
completion, otherwise revenue is recognized only to the extent of cost incurred and expected to be
recoverable. The transaction result of the rendering of services could be measured reliably by meeting
the following conditions at the same time: Revenue can be measured reliably, the relevant economic
benefits will flow to the Group, the percentage of construction work and relevant cost incurred or to
be incurred can be measured reliably. The percentage of completion is based on the percentage of
costs incurred to date on a contract relative to the estimated total contract costs. Total revenue for
the rendering of services is determined according to amounts stipulated in contracts or agreements
received or receivable by workers, unless such amounts are deemed unfair.
Where the sales of goods and rendering of services are included in contracts or agreements between
the Group and other enterprises, revenue is separately recognized according to the fair values of
various sales items in the contracts, by reference to the aforesaid principles for revenue recognition.
ANNUAL REPORT 2014
187
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
20. Revenue (continued)
Construction contracts
Construction contract revenue and cost are recognised by percentage of completion at the balance
sheet date where the results of the contract could be reliably estimated, otherwise revenue is recognized
on the basis of the actual contract cost amount which has been incurred and is expected to be
recoverable. The results of the contract can be reliably estimated if it is probable that economic benefits
relating to the contract will flow to the Group and the actually incurred contract cost can be clearly
distinguished and reliably measured. For contracts with fixed prices, the following conditions should
also be met: the total revenue of the contract can be reliably measured, and percentage of completion
and outstanding cost for completion can be reliably estimated. The percentage of completion is based
on the percentage of costs incurred to date on a contract relative to the estimated total contract
costs. Total contract revenue includes initial income stipulated by the contract and income derived
from contract modifications, compensation and rewards, and etc.
Rental income
Rental income generated under operating leases is recognized over the respective periods during the
lease term using the straight line method. Contingent rental income is charged to current profit and
loss when incurred.
Interest income
Interest income is determined by the length of time for which the Group’s cash is in use by other
parties and the effective interest rate.
ZTE CORPORATION
188
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
21. Government grants
Government grants are recognized 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 recognized as income-related government grants.
Government grants, relating to income and applied towards reimbursement of related costs or losses
in subsequent periods, are recognized as deferred income and taken to current profit or loss for the
period in which the related costs are recognized. Government grants, applied towards reimbursement
of related costs or losses already incurred, are directly recognized in current profit or loss. Where the
grant relates to an asset, it is recognized as a deferred income and allocated to the income statement
over the expected useful life of the relevant asset by equal annual instalments. Where the grant is
measured at nominal value, it is directly recognized in current profit or loss.
22. Income tax
Income taxes include current and deferred tax. Income taxes are recognized in current period’s profit
or loss as income tax expense or income tax benefit, except for the adjustment made for goodwill
in a business combination and income tax from transactions or items that directly related to equity.
For current period’s deferred tax assets and liabilities arising in current and prior periods, the Group
measures them at the amount expected to be paid or recovered according to the relevant taxation
regulations.
The Group recognizes 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 book values and tax bases of items not recognized as assets or
liabilities where the tax base can be calculated according to the relevant tax regulations.
Deferred tax liabilities are recognized 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;
ANNUAL REPORT 2014
189
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
22. Income tax (continued)
(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 recognized 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 differences arises from 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 deductible temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, deferred tax assets are only recognized to the extent
that it is probable that the temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be utilized.
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 realized 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.
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 if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity
and the same taxation authority.
ZTE CORPORATION
190
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
23. Leases
Other than leases under which substantially all risks and rewards of ownership are transferred, which
are classified as finance lease, all leases are classified as operating leases.
As lessee of operating leases
Rental expenses under operating leases are recognized as relevant asset costs or in current profit or
loss on the straight-line basis over the lease term. Contingent rental is charged to current profit or
loss when incurred.
As lesser of operating leases
Rental income under operating leases are recognized as profit/loss for the current period on a straightline
basis over the lease term. Contingent rental is charged to current profit or loss when incurred.
24. Hedge accounting
For the purpose of hedge accounting, hedges are classified as:Cash flow hedges when hedging the
exposure to variability in cash flows that is either attributable to a particular risk associated with a
recognised asset or liability or a highly probable forecast transaction, or a foreign currency risk in an
unrecognised firm commitment.
At the inception of a hedge relationship, the Group formally designates and documents the hedge
relationship to which the Group wishes to apply hedge accounting, the risk management objective
and its strategy for undertaking the hedge. The documentation includes identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group
will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged
item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly
effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective throughout the financial reporting
periods for which they were designated.
ANNUAL REPORT 2014
191
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
24. Hedge accounting (continued)
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised directly in other
comprehensive income, while the ineffective portion is recognised immediately in profit or loss.
Amounts recognized in other comprehensive income are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when hedged financial income or financial expense is
recognised or when a forecast sale occurs.
If the hedging instrument expires or is sold, terminated or exercised (with the expiry of rollover of the
hedging strategic component or unfulfilled replacement or the termination of processing of the contract),
if its designation as a hedge is revoked, or if the hedge no longer fulfills the accounting requirement of
a hedge, the amounts previously taken to other comprehensive income remain in other comprehensive
income until the forecast transaction or firm commitment occurs or is fulfilled in actual terms.
25. Impairment
The Group assesses impairment of assets other than inventories, investment properties measured at
fair value, deferred tax assets and financial assets, using the methods described below:
The Group assesses at each balance sheet date 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, tests for impairment is performed at
least annually regardless of whether there are indications of impairment. Intangible assets which are
not yet ready for use are also tested annually for 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 recognized in the current period’s
profit or loss and provision for impairment is made accordingly.
ZTE CORPORATION
192
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
25. Impairment (continued)
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.
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 recognize 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.
26. 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.
ANNUAL REPORT 2014
193
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
26. Employee remuneration (continued)
Retirement benefit (defined benefit scheme)
The Group operates a defined benefit pension scheme which requires the deposit of fees to an
independently managed fund. 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 recognized 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 recognized by the Group, whichever earlier.
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 recognized 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
recognized 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 recognized,
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.
ZTE CORPORATION
194
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
27. Fair value measurement
At each balance sheet date, the Group measures the fair value of investment properties, derivative
financial instruments and listed 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 Group measures assets or liabilities at
fair value with the assumption that the orderly transaction of asset disposal or the transfer of liabilities
takes place in the major market for the relevant assets or liabilities. Where there is no major market,
the Group assumes such transaction takes place in the most favourable market for the relevant assets
or liabilities. The major market (or most favourable market) is a trading market which the Group has
access to on the measurement date. The Group adopts assumptions used by market participants when
they price the asset or liability with the aim of maximizing its economic benefits.
The measurement of non-financial assets measured at fair value should take into account the ability of
market participants to utilize the asset in the best way for generating economic benefits, or the ability
to dispose of such asset to other market participants who are able to utilize the asset in the best way
for generating economic benefits.
The Group adopts valuation techniques that are appropriate in the current circumstances and supported
by sufficient usable data and other information. Observable input will be used first and foremost.
Unobservable input will only be used when it is not possible or practicable to obtain observable input.
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 recognized in the financial statements to determine whether the level of fair value
measurement should be changed.
28. Profit distribution
Cash dividend of the Company is recognized as liability after approval by the general meeting.
ANNUAL REPORT 2014
195
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. 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 book
value of the asset or liability affected in the future.
Judgements
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 recognized in the financial
statements:
Revenue Recognition
The Group’s material revenue streams are the result of a wide range of activities, from custom design
and installation over a period of time to a single delivery of equipment to a customer. The Group’s
networking solutions also cover a broad range of technologies and are offered on a global basis. As
a result, our revenue recognition policies can differ depending on the level of customization within the
solution and the contractual terms with the customer. Newer technologies within one of the Group’s
reporting segments may also have different revenue recognition policies, depending on, among other
factors, the specific performance and acceptance criteria within the applicable contracts. Therefore,
management must use significant judgement in determining how to apply the current accounting
standards and interpretations, not only based on the networking solutions, but also within networking
solutions based on reviewing the level of customization and contractual terms with the customer. As
a result, our revenues may fluctuate from period to period based on the mix of solutions sold and the
geographic regions in which they are sold.
When a customer arrangement involves multiple deliverables where the deliverables are governed by
more than one authoritative standard, the Group evaluates all deliverables to determine whether they
represent separate units of accounting based on the following criteria:
1) whether the delivered item has value to the customer on a stand-alone basis; and
2) if the contract includes a general right of return relative to the delivered item, delivery or
performance of the undelivered item(s) is considered probable and is substantially in the Group’s
control.
ZTE CORPORATION
196
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Judgements (continued)
Revenue Recognition (continued)
The Group’s determination of whether deliverables within a multiple element contract can be treated
separately for revenue recognition purposes involves significant estimates and judgement, such as
whether the delivered elements have standalone value to the customer. Changes to the Group’s
assessment of the accounting units in an arrangement and/or its ability to establish fair values could
significantly change the timing of revenue recognition.
At the inception of the arrangement, contract amounts shall be allocated to all deliverables on the
basis of their relative selling price (the relative selling price method). When applying the relative selling
price method, the selling price for each deliverable shall be determined using vendor-specific objective
evidence (“VSOE”) of selling price, if it exists; otherwise, third-party evidence of selling price should
be used. If neither VSOE nor third-party evidence of selling price exists for a deliverable, the vendor
shall use its best estimate of the selling price for that deliverable when applying the relative selling
price method. In deciding whether the vendor can determine VSOE or third-party evidence of selling
price, the vendor shall not ignore information that is reasonably available without undue cost and effort.
For instance, the Group sells hardware and post-contract services on a stand-alone basis and therefore
we have evidence to establish VSOE for both of sale of goods and post-contract services.
The Group’s adoption of appropriate revenue recognition policy for a deliverable involves significant
judgement. For instance, the Group has to determine whether post-contract support services is more
than incidental to hardware, so as to decided whether the hardware should be accounted for based
on multiple-element revenue recognition guidance or general revenue recognition guidance. This
assessment could significantly impact the amount and timing of revenue recognition.
ANNUAL REPORT 2014
197
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Judgements (continued)
Revenue Recognition (continued)
For elements related to customised network solutions and certain network build-outs, revenues are
recognized under the ASBE No. 15 Construction Contract, generally using the percentage-of-completion
method. In using the percentage-of-completion method, revenues are generally recorded based on
a measure of the percentage of costs incurred to date on a contract relative to the estimated total
expected contract costs. Profit estimates on long-term contracts are revised periodically based on
changes in circumstances and any losses on contracts are recognized in the period that such losses
become known. Generally, the terms of long-term contracts provide for progress billing are based on
completion of certain phases of work. Contract revenues recognized, based on costs incurred towards
the completion of the project, that are unbilled are accumulated in the contracts in progress account
included in amount due from customers for contract works. Billings in excess of revenues recognized to
date on long-term contracts are recorded as advance billings in excess of revenues recognized to date
on contracts within amount due to customers for contract works. Significant judgement is often required
when estimating total contract costs and progress to completion on these arrangements, as well as
whether a loss is expected to be incurred on the contract. Management uses historical experience,
project plans and an assessment of the risks and uncertainties inherent in the arrangement to establish
these estimates. Uncertainties include implementation delays or performance issues that may or may
not be within the control of the Group. Changes in these estimates could result in a material impact
on revenues and net earnings.
Where hardware does not require significant customisation, and any software is considered incidental,
revenue should be recognized under ASBE No.14 — Revenue if: it is probable that the economic
benefits associated with the transaction will flow to the Group the amount can be measured reliably;
the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the
entity retains neither continuing managerial involvement to the degree usually associated with ownership
nor effective control over the goods sold; and the costs incurred or to be incurred in respect of the
transaction can be measured reliably.
For hardware, delivery is considered to have occurred upon shipment provided that the risk of loss and
title have been transferred to the customer. For arrangements where the criteria for revenue recognition
have not been met because legal title or the risk of loss on products was not transfer to the buyer
until final payment had been received or where delivery had not occurred, revenue is deferred to a
later period when title or the risk of loss passes either on delivery or on receipt of payment from the
customer.
For further information on the Group’s revenue recognition policies relating to our material revenue
streams, please refer to Note III.20 to the consolidated financial statements.
ZTE CORPORATION
198
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Judgements (continued)
Deferred tax liabilities arising from dividend distribution
The Group is required to recognize deferred tax liabilities for taxable temporary differences relating
to investments in certain subsidiaries, 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. 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 has not recognised any deferred income tax liability.
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 recognized 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 fixed assets, construction in progress and intangible assets
The Group assesses at each balance sheet date whether there is an indication that 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 recognized 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.
ANNUAL REPORT 2014
199
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Impairment of financial assets
The Group determines whether financial assets are impaired by estimating the future cash flow from
the financial assets. An impairment loss is recognized only if the carrying amount of an asset exceeds
the present value of estimated future cash flows discounted at the financial asset’s original effective
interest rate, taking into account the value of the related collateral. Where the actual future cash flows
and less than expected, an impairment loss may arise.
Depreciation and amortization
The Group depreciates items of fixed assets and amortises items of intangible assets on the straightline
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. The estimated
useful lives and dates that the Group places the items of fixed assets into productive use 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.
Deferred development costs
In determining the amount of capitalization, 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 recognized for all unused tax losses, to the extent that it is likely that taxable
profit will be available to utilize 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 recognized.
Provision for inventory impairment
The impairment of inventory to its net realizable value is based on the marketability and net realizable
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
book value of the inventory and charge or reversal of impairment provision for the period during which
the estimates were revised.
ZTE CORPORATION
200
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (continued)
29. Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Provision for warranty
Provision for warranties is recognised on a best-estimate basis according to the warranty period,
supply volume of the product concerned and past data and experience on the performance of warranty
services, taking into account risks and uncertainties relating to contingencies and the time value of
currency.
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 31 December 2014
was RMB2,004,465,000 (31 December 2013: RMB1,855,246,000).
ANNUAL REPORT 2014
201
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IV. TAXATION
1. Principal tax items and tax rates
Value-added tax — Payable on income generated from domestic sales of products and
equipment repair services at a tax rate of 17%; Output tax at a tax rate
of 6% is payable on sales service income generated from amended or
new additional scope of business deducting the current balance of tax
credit available for offsetting.
Business tax — In accordance with relevant PRC tax regulations, business tax was
payable by the Group at tax rates of 3% and 5%, respectively, on its
sales income and service income which were subject to business tax
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
2. Tax concession
The Company is subject to an enterprise income tax rate of 15% for the years from 2014 to 2016 as
a national-grade hi-tech enterprise incorporated in Shenzhen. Income tax rates for certain domestic
subsidiaries of the Group are disclosed as follows:
Xi’an Zhongxing New Software Company Limited, recognized as a Key Software Enterprise within the
National Programming Layout for the years from 2013 to 2014, is a national-grade hi-tech enterprise,
subject to an enterprise income tax rate of 10%.
Nanjing Zhongxingxin Software Company Limited, recognized as a software enterprise in December
2009, has been entitled to enterprise income tax exemption in the first and second profitable years
and a 50% reduction in enterprise income tax from the third to the fifth years pursuant to Cai Shui
[2008] No. 1. The current year is its fifth profitable year and a 50% reduction in enterprise income tax
rate of 25% is applicable.
ZTE CORPORATION
202
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IV. TAXATION (continued)
2. Tax concession (continued)
Shenzhen Zhongxing ICT Company Limited is subject to an enterprise income tax rate of 15% for the
years from 2013 to 2015 as a national-grade hi-tech enterprise.
Shenzhen Zhongxing Software Company Limited is subject to an enterprise income tax rate of 10%
for the current year as a national-grade hi-tech enterprise and an Important Software Enterprise under
the National Planning Layout from 2013 to 2014.
Shenzhen ZTE Mobile Telecom Co., Ltd is subject to an enterprise income tax rate of 15% from 2014
to 2016 as a national-grade hi-tech enterprise registered in Shenzhen Nanshan Hitech Industrial Park.
ZTE Microelectronics Technology Company Limited is subject to an enterprise income tax rate of 10%
for the current year as a national-grade hi-tech enterprise and an Integrated Circuit Design Enterprise
under the National Planning Layout from 2013 to 2014.
Shanghai Zhongxing Telecom Equipment Technology & Service Company Limited is subject to an
enterprise income tax rate of 15% from 2014 to 2016 as a national-grade hi-tech enterprise registered
in Shanghai Pudong New Area.
Shanghai Zhongxing Software Company Limited is subject to an enterprise income tax rate of 10%
from 2013 to 2014 a national-grade hi-tech enterprise and as an Important Software Enterprise under
the National Planning Layout.
Nanjing Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% from
2014 to 2016 as a national-grade hi-tech enterprise.
ZTEsoft Technology Company Limited is a national-grade hi-tech enterprise which has been accredited
as an Important Software Enterprise under the National Planning Layout from 2013 to 2014. The
applicable enterprise income tax rate for the current year is 10%.
Xi’an Zhongxing Software Company Limited is subject to an enterprise income tax rate of 15% from
2012 to 2014 as a national-grade hi-tech enterprise.
Xi’an Zhongxing Jing Cheng Communication Company Limited has applied for the status of and been
confirmed as an enterprise engaged in State-endorsed industries in the current year and is subject to
an enterprise income tax rate of 15% for the current year.
ZTEsoft Technology Company Limited is subject to an enterprise income tax rate of 15% for the years
from 2013 to 2015 as a national-grade hi-tech enterprise
ANNUAL REPORT 2014
203
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS
1. Cash
2014 2013
Cash 16,314 24,760
Bank deposit 17,381,254 20,169,634
Other cash 718,306 708,641
18,115,874 20,903,035
As at 31 December 2014, the Group’s time deposit of RMB23,000,000 (31 December 2013:
RMB23,000,000) was pledged to secure bank borrowings for a term of 1 year.
As at 31 December 2014, the Group’s overseas currency deposits amounted to RMB6,039,157,000
(31 December 2013: RMB6,722,472,000). Funds placed overseas and subject to remittance restrictions
amounted to RMB70,175,000 (31 December 2013: RMB27,493,000).
Current bank deposits earn interest income based on current deposit interest rate. The period for
time deposits varies from 7 days to 1 year. The short-term time deposits, subject to the Group’s cash
needs, earn interest income based on corresponding time deposits interest rate. Time deposit of over
three months amounting to RMB167,428,000 (31 December 2013: RMB76,120,000) were not included
in cash and cash equivalents.
2. Financial assets at fair value through current profit and loss
2014 2013
Trading financial assets
Derivative financial assets 240,973 217,454
Trading in derivative financial instruments comprised two components: one component comprised
transactions in forward exchange contracts with reputable banks in the PRC 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. The other component comprised the
value of the conversion rights of the convertible bonds of China All Access (Holdings) Limited subscribed
for by ZTE (H.K.) Limited, a wholly-owned subsidiary of the Company. For the year, gain arising from
fair value changes of non-hedging derivative financial instruments amounting to RMB17,976,000 (2013:
RMB174,829,000) was dealt with in current profit or loss.
ZTE CORPORATION
204
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Bills receivable
2014 2013
Commercial acceptance bills 988,599 1,690,895
Bank acceptance bills 1,098,172 1,809,776
2,086,771 3,500,671
Endorsed or discounted bills receivable outstanding on the balance sheet date are analysed as follows:
2014 2013
De-
recognised
Not de-
recognised
De-
recognised
Not de-
recognised
Commercial acceptance bills 294,779 44,028 240,388 102,000
Bank acceptance bills — — 251,246 —
294,779 44,028 491,634 102,000
As at 31 December 2014, there was no bill which had been transferred to trade receivables as a result
of the issuers’ default (31 December 2013: Nil).
As at 31 December 2014, no bills were pledged for obtaining short-term borrowing (31 December
2013: Nil).
As at 31 December 2014, there were no outstanding bills receivable endorsed on behalf of third parties
(31 December 2013: Nil).
ANNUAL REPORT 2014
205
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Trade receivables
Trade receivables arising from communications systems construction works and the provision of labour
services are recognised according to the payment periods stipulated in contracts. The credit period
for trade receivables arising in the sales of goods 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:
2014 2013
Within 1 year 23,604,948 19,024,398
1 to 2 years 2,626,579 3,574,181
2 to 3 years 1,310,146 712,489
Over 3 years 1,928,466 1,833,407
29,470,139 25,144,475
Less: bad debt provision for trade receivables 4,317,176 3,751,218
25,152,963 21,393,257
Please refer to Note V. 18 for details of movements in bad debt provision for trade receivables for
the year.
ZTE CORPORATION
206
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Trade receivables (continued)
2014 2013
Book balance Bad debt provision Book balance Bad debt provision
Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%)
Individually significant
and for which bad
debt provision has
been separately
made 509,312 2 509,312 100 507,337 2 507,337 100
For which bad debt
provision has
been collectively
made based on
credit risks
0-6 months 20,307,402 69 — — 16,094,642 63 — —
7-12 months 3,297,545 11 292,712 9 2,929,756 12 234,541 8
13-18 months 1,712,530 6 425,970 25 2,684,587 11 621,248 23
19-24 months 914,049 3 580,641 64 886,725 4 542,964 61
2-3 years 1,304,670 4 1,083,910 83 680,822 3 484,522 71
Over 3 years 1,424,631 5 1,424,631 100 1,360,606 5 1,360,606 100
28,960,827 98 3,807,864 13 24,637,138 98 3,243,881 13
29,470,139 100 4,317,176 25,144,475 100 3,751,218
As at 31 December 2014, bad debt provisions for trade receivables which were individually significant
and individually tested were as follows:
Book
balance
Bad debt
provision
Percentage
of charge Reason
Overseas carriers 1 173,226 173,226 100% Debtor running into serious
financial difficulties
Overseas carriers 2 162,995 162,995 100% Debtor running into serious
financial difficulties
Overseas carriers 3 77,858 77,858 100% Debtor running into serious
financial difficulties
Others 95,233 95,233 100% Debtor running into serious
financial difficulties
509,312 509,312
ANNUAL REPORT 2014
207
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Trade receivables (continued)
As at 31 December 2013, bad debt provisions for trade receivables which were individually significant
and individually tested were as follows:
Book
balance
Bad debt
provision
Percentage
of charge Reason
Overseas carriers 1 170,331 170,331 100% Debtor running into serious
financial difficulties
Overseas carriers 2 160,272 160,272 100% Debtor running into serious
financial difficulties
Overseas carriers 3 77,282 77,282 100% Debtor running into serious
financial difficulties
Others 99,452 99,452 100% Debtor running into serious
financial difficulties
507,337 507,337
For 2014, there were no write-back, write-off or recovery of trade receivables which were individually
significant and for which bad-debt provision had been made separately (2013: Nil).
Top 5 accounts of trade receivables as at 31 December 2014 were as follows:
Customer Amount
As a
percentage
of total trade
receivables
Closing balance
of bad debt
provision
Customer 1 4,429,239 15.03% 18,223
Customer 2 2,102,621 7.13% 77,593
Customer 3 2,039,043 6.92% 30,109
Customer 4 467,227 1.59% 51,973
Customer 5 418,059 1.42% 18,169
Total 9,456,189 32.09% 196,067
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.
ZTE CORPORATION
208
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Other receivables
Aging analysis of other receivables was as follows
2014 2013
Within 1 year 1,592,615 1,420,081
1 to 2 years 317,980 199,854
2 to 3 years 159,854 61,510
Over 3 years 89,228 47,718
2,159,677 1,729,163
Other receivables analysed by nature as follows:
2014 2013
Staff loans 321,500 343,456
Transactions with third parties 1,446,721 821,253
Others 391,456 564,454
2,159,677 1,729,163
Top 5 accounts of other receivables as at 31 December 2014 were as follows:
Due from Closing balance
As a
percentage of
total amounts
of other
receivables Nature
Third-party entity 1 696,351 32.24% Transactions
with third
parties
Third-party entity 2 200,000 9.26% Others
Third-party entity 3 177,151 8.20% Transactions
with third
parties
Third-party entity 4 32,660 1.51% Transactions
with third
parties
Third-party entity 5 18,203 0.84% Transactions
with third
parties
Total 1,124,365 52.05%
ANNUAL REPORT 2014
209
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Other receivables (continued)
The above other receivables from top five accounts represent amounts receivable from third parties of
the Group and were aged within 36 months.
6. Prepayments
Aging analysis of prepayments was as follows:
2014 2013
Book balance Percentage (%) Book balance Percentage (%)
Within 1 year 682,778 100% 751,405 100%
Top 5 accounts of prepayments as at 31 December 2014 were as follows:
Supplier Amount
As a
percentage of
total amounts
of prepayments
Supplier 1 39,890 5.84%
Supplier 2 29,807 4.37%
Supplier 3 25,317 3.71%
Supplier 4 20,378 2.98%
Supplier 5 20,028 2.93%
Total 135,420 19.83%
7. Inventories
2014 2013
Book
balance
Provision For
impairment
Carrying
value
Book
balance
Provision For
impairment
Carrying
value
Raw materials 3,024,252 423,227 2,601,025 3,794,947 475,135 3,319,812
Materials under sub-
contract processing 302,833 14,602 288,231 159,844 7,603 152,241
Work-in-progress 1,340,404 71,860 1,268,544 943,734 46,673 897,061
Finished goods 4,352,821 321,735 4,031,086 2,940,432 376,657 2,563,775
Dispatch of goods 12,555,690 1,152,278 11,403,412 6,120,524 619,061 5,501,463
21,576,000 1,983,702 19,592,298 13,959,481 1,525,129 12,434,352
Please refer to Note V.18 for details of movements in the provision for impairment of inventory during
the year.
ZTE CORPORATION
210
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Amount due from/to customers for contract works
2014 2013
Amount due from customers for contract works 11,033,468 12,137,144
Amount due to customers for contract works (3,825,106) (3,682,564)
7,208,362 8,454,580
Contract costs incurred plus recognized profits (losses) to date 64,203,987 41,905,232
Less: estimated loss 340,199 105,908
Progress billings 56,655,426 33,344,744
7,208,362 8,454,580
Where estimated total contract costs exceed estimated total contract revenue, provision for estimated
losses on the contract measured at the difference between the amount in excess and recognized losses
on the contract should be made and charged to current profit or loss.
9. Available-for-sale financial assets
2014 2013
Book value
Impairment
provision
Carrying
amount Book value
Impairment
provision
Carrying
amount
Available-for-sale
equity instruments
At fair value 319,470 — 319,470 364,479 — 364,479
At cost 1,420,194 — 1,420,194 1,265,792 — 1,265,792
1,739,664 — 1,739,664 1,630,271 — 1,630,271
Available-for-sale financial assets at fair value:
2014 2013
Available-for-
sale equity
instruments
Available-for-
sale equity
instruments
Equity instrument cost 147,608 164,047
Fair value 319,470 364,479
Accumulated fair value change included in other comprehensive
income 171,862 200,432
ANNUAL REPORT 2014
211
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Available-for-sale financial assets (continued)
Available-for-sale financial assets at cost:
Book balance
Shareholding
percentage
Cash
dividend for
the year
Opening
Balance
Increase
during the
year
Decrease
during the
year
Closing
balance (%)
???????????? 201,734 — — 201,734 5% —
?????????????? — 196,000 — 196,000 0.985% —
Others 1,064,058 24,139 (65,737) 1,022,460 5,593
1,265,792 220,139 (65,737) 1,420,194 5,593
10. Long-term receivables
2014 2013
Installment payments for the provision of system construction
projects telecommunication 345,916 449,713
Less: Bad debt provision for long-term receivables 79,415 82,951
266,501 366,762
The discount rates adopted for long-term receivables ranged from 6.16% to 17.56%.
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.
Please refer to Note V.18 for details of movements in bad debt provision for long-term receivables.
ZTE CORPORATION
212
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments
2014 2013
Equity method
Jointly-controlled entities (1) 67,607 66,891
Associates (2) 393,709 411,146
461,316 478,037
2014
(1) Jointly-controlled entities
Movements during the year
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
Bestel Communications
Ltd. 2,255 — — — — — — — 2,255 —
????????
????* 46,005 — — 4,480 — — — — 50,485 —
??????????
???? 9,000 — — (3,764) — — — — 5,236 —
Pengzhong Xingsheng 9,631 — — — — — — — 9,631 —
66,891 — — 716 — — — — 67,607 —
ANNUAL REPORT 2014
213
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments (continued)
2014 (continued)
(2) Associates
Movements during the year
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
KAZNURTEL Limited
Liability Company 2,477 — — — — — — — 2,477 —
???????????
??? 19,501 — — 511 — — — — 20,012 —
???????????
??? 24,851 — — (2,424) — — — — 22,427 —
ZTE Energy Co., Ltd 315,822 — — (50,116) — — — — 265,706 —
ZTE Software
Technology
(Nanchang) Company
Limited 973 — — (973) — — — — — —
Nanjing Piaoxun Network
Technology Company
Limited 62 — — (37) — — — — 25 —
?????????? 3,222 — — 5 — — — — 3,227 —
Shenzhen Yuanxing
Technology Co., Ltd. 2,753 — (2,753) — — — — — — —
Telecom Innovations 10,077 — — — 157 — — — 10,234 —
Shenzhen Zhongxing
Hetai Hotel
Investment
Management
Company Limited 5,795 — — 1,221 — — — — 7,016 —
??????????
???? 4,764 — — — — — — — 4,764 —
??????????
???? 6,813 — — 10,831 — — — — 17,644 —
??????????
???? 3,702 — — (497) — — — — 3,205 —
??????????
???? 3,134 — — (4,654) — 3,434 — — 1,914 —
?????????
???? 4,000 — — 97 — — — — 4,097 —
????????
???? 3,200 12,800 — (484) — — — — 15,516 —
????????
???? — 17,304 — (3,515) — — — — 13,789 —
??????????
???? — 5,380 — (3,724) — — — — 1,656 —
411,146 35,484 (2,753) (53,759) 157 3,434 — — 393,709 —
ZTE CORPORATION
214
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments (continued)
2013
(1) Jointly-controlled entities
Movements during the year
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
Bestel Communications
Ltd. 2,255 — — — — — — — 2,255 —
????????
????* 44,559 — — 1,446 — — — — 46,005 —
??????????
???? — 9,000 — — — — — — 9,000 —
Pengzhong Xingsheng — 9,631 — — — — — — 9,631 —
46,814 18,631 — 1,446 — — — — 66,891 —
ANNUAL REPORT 2014
215
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Long-term equity investments (continued)
2013 (continued)
(2) Associates
Movements during the year
Balance
as at the
beginning
of the year
Increase of
investment
Decrease of
investment
Investment
gains/
losses
under
equity
method
Other
comprehensive
income
Other
equity
movements
Cash
dividend
declared
Allowance
for
impairment
provision
Carrying
value as at
the end of
the year
Impairment
provision
at the end
of the year
KAZNURTEL Limited
Liability Company 2,477 — — — — — — — 2,477 —
Wuxi Kaier Technology
Company Limited 21,374 — (22,460) 1,086 — — — — — —
?????????
??? 626 — — (626) — — — — — —
??????????
???? 19,455 — — 46 — — — — 19,501 —
??????????
???? 12,152 — — 12,699 — — — — 24,851 —
ZTE Energy Co., Ltd 302,793 — — 22,490 — — (9,461) — 315,822 —
ZTE Software
Technology
(Nanchang)
Company Limited 836 — — 137 — — — — 973 —
Nanjing Piaoxun
Network Technology
Company Limited 62 — — — — — — — 62 —
?????????? 1,566 1,650 — 6 — — — — 3,222 —
Shenzhen Yuanxing
Technology Co.,
Ltd. 4,116 — — (1,363) — — — — 2,753 —
Telecom Innovations 4,322 — — — 5,755 — — — 10,077 —
Shenzhen Zhongxing
Hetai Hotel
Investment
Management
Company Limited 5,548 — — 247 — — — — 5,795 —
??????????
???? 5,932 — — (1,168) — — — — 4,764 —
Wuxi Hongtu
Micro-electronic
Technology Co., Ltd 21,826 — (21,062) (764) — — — — — —
??????????
???? 5,869 — — 944 — — — — 6,813 —
??????????
???? — 4,200 — (498) — — — — 3,702 —
??????????
???? — 3,350 — (216) — — — — 3,134 —
??????????
??? — 4,000 — — — — — — 4,000 —
?????????
??? — 3,200 — — — — — — 3,200 —
408,954 16,400 (43,522) 33,020 5,755 — (9,461) — 411,146 —
ZTE CORPORATION
216
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Investment Properties
Fair value measurement
2014
Buildings
RMB’000
Opening balance 1,855,246
Acquisition 18,913
Fair value change (Note 43) 130,306
Closing balance 2,004,465
2013
Buildings
RMB’000
Opening balance 1,686,158
Transfer from construction in progress (Note 14) 130,384
Fair value change (Note 43) 38,704
Closing balance 1,855,246
During the year, the investment properties of the Group leased buildings to Shenzhen Zhongxing Hetai
Hotel Investment and Management Company Limited, a related party, and other non-related parties
by way of operating lease.
As at 31 December 2014, investment properties with a carrying value of RMB1,420,685,000 (31
December2013: RMB1,323,370,000) had yet to obtain title registration certificates.
ANNUAL REPORT 2014
217
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fixed Assets
2014
Buildings
Freehold
land
Electronic
equipment
Machinery
equipment Vehicles
Other
equipment Total
Cost
Opening
balance 5,575,209 60,600 3,624,951 2,374,673 312,797 246,902 12,195,132
Acquisitions 183,082 — 392,959 453,291 21,708 26,082 1,077,122
Transfer from
construction-
in-progress — — 187 5,087 — 175 5,449
Disposal or
retirement (43,747) — (335,864) (172,051) (30,986) (42,730) (625,378)
Exchange rate
adjustments (24,461) (6,604) (14,232) (19,479) (1,836) (8,249) (74,861)
Closing balance 5,690,083 53,996 3,668,001 2,641,521 301,683 222,180 12,577,464
Accumulated
depreciation
Opening
balance 756,755 — 2,415,467 1,270,026 165,272 136,078 4,743,598
Provision 179,293 — 513,027 200,180 29,923 32,490 954,913
Disposed or
retirement (10,474) — (281,729) (98,541) (23,822) (18,518) (433,084)
Exchange rate
adjustments (19,236) — 1,170 (15,346) (1,218) (6,471) (41,101)
Closing balance 906,338 — 2,647,935 1,356,319 170,155 143,579 5,224,326
Provision for
impairment
Opening
balance — — — 2,058 — — 2,058
Provision — — 2,677 — — 83 2,760
Disposal or
retirement — — — — — — —
Exchange rate
adjustments — — — 34 — (6) 28
Closing balance — — 2,677 2,092 — 77 4,846
Net book value
At the end of
the year 4,783,745 53,996 1,017,389 1,283,110 131,528 78,524 7,348,292
At the beginning
of the year 4,818,454 60,600 1,209,484 1,102,589 147,525 110,824 7,449,476
ZTE CORPORATION
218
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fixed Assets (continued)
2013
Buildings
Freehold
land
Electronic
equipment
Machinery
equipment Vehicles
Other
equipment Total
Cost
Opening balance 4,729,684 71,672 3,633,073 2,351,935 348,045 226,289 11,360,698
Acquisitions 60,449 — 251,197 147,390 14,770 41,161 514,967
Transfer from
construction-in-
progress 955,158 — — 35,622 — — 990,780
Disposal or retirement (130,224) — (241,368) (145,460) (46,356) (9,781) (573,189)
Exchange rate
adjustments (39,858) (11,072) (17,951) (14,814) (3,662) (10,767) (98,124)
Closing balance 5,575,209 60,600 3,624,951 2,374,673 312,797 246,902 12,195,132
Accumulated depreciation
Opening balance 660,464 — 2,098,494 1,221,680 166,988 114,389 4,262,015
Provision 154,531 — 551,100 170,231 35,747 32,733 944,342
Disposal or retirement (29,482) — (223,298) (114,546) (35,067) (5,506) (407,899)
Exchange rate
adjustments (28,758) — (10,829) (7,339) (2,396) (5,538) (54,860)
Closing balance 756,755 — 2,415,467 1,270,026 165,272 136,078 4,743,598
Provision for impairment
Opening balance — — — 2,059 — — 2,059
Provision — — — — — — —
Disposal or retirement — — — — — — —
Exchange rate
adjustments — — — (1) — — (1)
Closing balance — — — 2,058 — — 2,058
Net book value
At the end of the year 4,818,454 60,600 1,209,484 1,102,589 147,525 110,824 7,449,476
At the beginning of the
year 4,069,220 71,672 1,534,579 1,128,196 181,057 111,900 7,096,624
ANNUAL REPORT 2014
219
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Fixed Assets (continued)
2013 (continued)
As at 31 December 2014, the Group was in the process of applying for property ownership certificate
for buildings in Shenzhen, Shanghai, Nanjing, Xi’an, Anhui and Hengyang of Hunan in China with a net
book value of approximately RMB3,616,184,000 (31 December 2013: RMB3,687,123,000).
As at 31 December 2014, there were no retired fixed asset or idle fixed assets pending disposal (31
December 2013: Nil).
14. Construction in progress
Changes in significant construction in progress during 2014 as follows:
Budget
Opening
balance
Increase
during the
year
Transfer
to fixed
assets
Transfer to
Investment
properties
during the
year
Closing
balance
Source of
funds
Staff quarters Nil 5,556 599 — — 6,155
Internal
funds
Sanya R&D Base Project Nil 6,371 218 — — 6,589
Internal
funds
Equipment installation Nil 35,372 — 5,449 — 29,923
Internal
funds
Xi’an District 2 Phase 1 Nil 93,069 2,291 — — 95,360
Internal
funds
Heyuan R&D training Center Phase I Nil 13,852 22,026 — — 35,878
Internal
funds
Nanjing District 3 Phase I Nil 643 45 — — 688
Internal
funds
Nanjing staff quarters Phase II Nil 4,173 8,073 — — 12,246
Internal
funds
Zhongxing ICT Qinhuangdao
Northern Base infrastructure Nil — 5,609 — — 5,609
Internal
funds
IDC data centre engine room Nil — 25,739 — — 25,739
Internal
funds
Nanjing Internet of Things office Nil 829 14,232 — — 15,061
Internal
funds
Others Nil 17,558 12,057 — — 29,615
Internal
funds
Total 177,423 90,889 5,449 262,863
ZTE CORPORATION
220
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Construction in progress (continued)
Changes in major constructions in progress in 2013 are as follows:
Budget
Opening
balance
Increase
during the
year
Transfer to
fixed assets
Transfer to
Investment
properties
during the
year
Closing
balance
Source of
funds
Staff quarters Nil 32,946 5,215 32,605 — 5,556
Internal
funds
Sanya R&D Base Project Nil 3,603 2,768 — — 6,371
Internal
funds
Equipment installation Nil 38,389 — 3,017 — 35,372
Internal
funds
Xi’an District 2 Phase 1 Nil 683,394 306,675 897,000 — 93,069
Internal
funds
Xi’an Technology Park Site A10 Nil 8,995 63,414 — 72,409 —
Internal
funds
Technology Park C3 R&D Centre Nil 15,861 42,114 — 57,975 —
Internal
funds
Heyuan R&D training Center Phase I Nil 9,459 4,393 — — 13,852
Internal
funds
Industrial Park North Phase II Nil 94 — — — 94
Internal
funds
Nanjing District 3 Phase I Nil — 643 — — 643
Internal
funds
Xi’an District 2 Phase II Nil — 194 — — 194
Internal
funds
Nanjing District 2 Phase II Nil — 161 — — 161
Internal
funds
Nanjing staff quarters Phase II Nil — 4,173 — — 4,173
Internal
funds
Other projects Nil 31,646 44,450 58,158 — 17,938
Internal
funds
Total 824,387 474,200 990,780 130,384 177,423
As at 31 December 2014, there was no capitalized interest in the balance of the construction in
progress (31 December 2013: Nil).
ANNUAL REPORT 2014
221
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Intangible assets
2014
Software
Technology
know-how
Land use
right Franchise Total
Cost
Opening balance 464,168 6,605 1,188,778 332,583 1,992,134
Acquisition 149,658 1,650 45,558 76,439 273,305
Disposal or retirement (128,834) — (4,091) — (132,925)
Closing balance 484,992 8,255 1,230,245 409,022 2,132,514
Accumulated amortization
Opening balance 326,556 1,768 94,786 325,947 749,057
Provision 70,760 1,101 23,050 14,401 109,312
Disposal or retirement (96,273) — (599) — (96,872)
Closing balance 301,043 2.869 117,237 340,348 761,497
Provision for impairment
Opening balance — — 6,322 — 6,322
Provision — — — — —
Disposal or retirement — — — — —
Closing balance — — 6,322 — 6,322
Book value
At the end of the year 183,949 5,386 1,106,686 68,674 1,364,695
At the beginning of the year 137,612 4,837 1,087,670 6,636 1,236,755
ZTE CORPORATION
222
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Intangible assets (continued)
2013
Software
Technology
know-how
Land use
right Franchise Total
Cost
Opening balance 438,971 10,689 990,174 222,905 1,662,739
Acquisition 148,863 1,906 209,671 109,678 470,118
Disposal or retirement (123,666) (5,990) (11,067) — (140,723)
Closing balance 464,168 6,605 1,188,778 332,583 1,992,134
Accumulated amortization
Opening balance 312,928 4,831 74,824 176,796 569,379
Provision 60,270 1,250 21,138 149,151 231,809
Disposal or retirement (46,642) (4,313) (1,176) — (52,131)
Closing balance 326,556 1,768 94,786 325,947 749,057
Provision for impairment
Opening balance — — 6,322 — 6,322
Provision — — — — —
Disposal or retirement — — — — —
Closing balance — — 6,322 — 6,322
Book value
At the end of the year 137,612 4,837 1,087,670 6,636 1,236,755
At the beginning of the year 126,043 5,858 909,028 46,109 1,087,038
At 31 December 2014, intangible assets with a book value of RMB79,963,000 (31 December 2013:
RMB23,650,000) were subject to ownership restriction as they had been pledged as security for
borrowings.
As at 31 December 2014, the Group was in the process of obtaining the land use right certificate of land
blocks located in Shenzhen, Sanya and Nanjing in the PRC, with a net carrying value of approximately
RMB565,604,000 (31 December 2013: RMB647,083,000).
ANNUAL REPORT 2014
223
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Development expenses
2014
Opening
balance
Increase
during the year
Decrease
during the year
Closing
balance
Handsets 289,356 139,395 (123,548) 305,203
System Products 2,642,792 1,152,755 (617,245) 3,178,302
2,932,148 1,292,150 (740,793) 3,483,505
2013
Opening
balance
Increase
during the year
Decrease
during the year
Closing
balance
Handsets 291,077 96,989 (98,710) 289,356
System Products 2,155,857 934,039 (447,104) 2,642,792
2,446,934 1,031,028 (545,814) 2,932,148
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.
ZTE CORPORATION
224
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Deferred tax assets/liabilities
2014 2013
Deductible
temporary
differences
Deferred tax
assets
Deductible
temporary
differences
Deferred tax
assets
Deferred tax assets
Unrealized profits arising on
consolidation 572,329 126,540 422,510 117,100
Provision for impairment in
inventory 831,424 123,081 906,067 131,522
Foreseeable contract losses 204,058 30,609 121,546 18,232
Amortization of deferred
development costs 1,028,752 130,897 689,764 87,447
Provision for warranties and
returned goods 626,318 98,325 466,901 66,064
Provision for retirement benefits 115,450 17,348 95,806 14,370
Deductible tax losses 1,792,443 423,283 2,925,991 591,006
Accruals 1,082,895 153,361 1,153,143 166,264
Overseas taxes pending
deduction 999,046 149,857 1,043,813 156,572
Share option scheme expenses 207,948 31,192 29,707 4,456
7,460,663 1,284,493 7,855,248 1,353,033
2014 2013
Taxable
temporary
differences
Deferred tax
liabilities
Taxable
temporary
differences
Deferred tax
liabilities
Deferred tax liabilities
Revaluation gain of investment
properties 1,062,264 159,340 932,669 139,900
Deductible tax losses of unrecognized deferred tax assets:
2014 2013
Deductible tax losses 7,723,300 6,937,787
ANNUAL REPORT 2014
225
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Deferred tax assets/liabilities (continued)
Deductible tax losses of unrecognized deferred tax assets expiring in the following periods:
2014 2013
2014 — 20,328
2015 — —
2016 1,265,245 1,265,245
After 2016 6,458,055 5,652,214
7,723,300 6,937,787
The Group recognises deferred income tax assets based on deductible temporary differences. In relation
to deferred income tax relating to deductible loss and tax allowance, the Group expects to generate
sufficient taxable income prior to the expiry of deductible loss and tax allowance.
18. Provision for impairment of assets
2014
Decrease during the year
Opening
balance
Provision for
the Closing
year Write-back Write-off
Closing
balance
Bad debt provision 3,834,169 758,331 (82,809) (113,100) 4,396,591
Including: Trade
receivables 3,751,218 757,480 (82,809) (108,713) 4,317,176
Long-term
receivables 82,951 851 — (4,387) 79,415
Provision for impairment
of inventories 1,525,129 672,349 (148,399) (65,377) 1,983,702
Provision for impairment
of Fixed assets 2,058 2,760 — 28 4,846
Provision for impairment
of intangible assets 6,322 — — — 6,322
5,367,678 1,433,440 (231,208) (178,449) 6,391,461
ZTE CORPORATION
226
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Provision for impairment of assets (continued)
2013
Decrease during the year
Opening
balance
Provision for
the Closing
year Write-back Write-off
Closing
balance
Bad debt provision 2,979,412 1,167,414 (57,632) (255,025) 3,834,169
Including: Trade
receivables 2,894,611 1,167,414 (56,082) (254,725) 3,751,218
Long-term
receivables 84,801 — (1,550) (300) 82,951
Provision for impairment
of inventories 1,143,864 530,313 (50,609) (98,439) 1,525,129
Provision for impairment
of Fixed assets 2,059 — — (1) 2,058
Provision for impairment
of intangible assets 6,322 — — — 6,322
4,131,657 1,697,727 (108,241) (353,465) 5,367,678
The Group determines at the balance sheet date whether there is an indication of impairment in trade
receivables. Where there is such indication, the Group will estimate its recoverable amount and conduct
impairment tests.
Inventory is measured at the lower of cost and net realizable value. Where the cost is higher than the
net realisable value, provision for impairment in inventory is recognized in current profit or loss.
19. Other non-current assets
2014 2013
Prepayments for project and equipment 223,158 217,270
Risk compensation fund 3,744,472 3,396,897
Others 50,000 198,430
4,017,630 3,812,597
ANNUAL REPORT 2014
227
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Short-term loans
2014 2013
Original
currency
RMB
equivalent
Original
currency
RMB
equivalent
Credit loans RMB 4,132,364 4,132,364 4,715,950 4,715,950
USD 1,016,544 6,303,083 1,206,556 7,356,253
EUR — — 24,207 203,799
INR — — 2,076,400 204,933
Bill discounted
loans RMB 544,028 544,028 102,000 102,000 Note 1
Pledged loans USD 3,000 18,602 1,000 6,097 Note 2
10,998,077 12,589,032
As at 31 December 2014, the annual interest rate of the above loans ranged from 1.44%–7.20% (31
December 2013: 1.54%–14.25%).
Note 1: Bill discounted loans were loans discounted by bank acceptance bills. For 2014, discounted bills amounting to RMB500
million were issued on an intra-Group basis.
Note 2: Pledged loans were loans secured by time deposits.
There were no due and outstanding loans at 31 December 2014 (31 December 2013: Nil).
21. Financial liabilities at fair value through current profit and loss
2014 2013
Trading financial liability
Derivative financial liability 64,904 61,659
Hedging instruments — current portion 5,700 6,120
70,604 67,779
Derivative financial liability represents forward foreign exchange contract. For details please refer to
Note V.2.
For details of hedging instruments, please refer to Note V.55.
ZTE CORPORATION
228
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. Bills payable
2014 2013
Bank acceptance bills 4,774,931 4,071,009
Commercial acceptance bills 5,606,757 4,427,012
10,381,688 8,498,021
As at 31 December 2014, there was no due and outstanding bills payable (31 December 2013: Nil).
23. Trade payables
An aging analysis of the trade payables are as follows:
2014 2013
0 to 6 months 18,794,292 15,853,456
7 to 12 months 298,251 144,334
1 to 2 years 14,258 181,730
2 to 3 years 114,309 258,957
Over 3 years 23,290 54,057
19,244,400 16,492,534
Trade payables are interest-free and repayable normally within 6 months.
As at 31 December 2014, there were no material trade payables aged over 1 year (31 December 2013:
Nil).
24. Advances from customers
2014 2013
Advanced payments for system project work 2,596,703 1,890,385
Advanced payments for terminals 708,817 885,981
3,305,520 2,776,366
ANNUAL REPORT 2014
229
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables
Salaries payable to employees
2014
Opening
balance
Increase during
the year
Decrease during
the year Closing balance
Short-term remuneration 2,408,669 12,860,737 (12,513,101) 2,756,305
Retirement benefits
(Defined deposit
schemes) 50,223 989,907 (993,995) 46,135
Termination benefits 3,114 4,523 (3,130) 4,507
2,462,006 13,855,167 (13,510,226) 2,806,947
2013
Opening
Balance
Increase during
the year
Decrease during
the year Closing balance
Short-term remuneration 2,303,136 10,843,638 (10,738,105) 2,408,669
Retirement benefits
(Defined deposit
schemes) 40,572 935,347 (925,696) 50,223
Termination benefits 2,818 2,363 (2,067) 3,114
2,346,526 11,781,348 (11,665,868) 2,462,006
ZTE CORPORATION
230
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Salaries payable to employees (continued)
Short-term remuneration analysed as follows:
2014
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Salary, bonus and allowance 1,501,579 11,486,888 (11,196,930) 1,791,537
Staff welfare 5,441 59,177 (59,953) 4,665
Social insurance 18,829 493,086 (493,784) 18,131
Including: Medical Insurance 17,265 446,596 (446,711) 17,150
Work Injuries
Insurance 1,453 18,686 (19,731) 408
Maternity
Insurance 111 27,804 (27,342) 573
Housing funds 44,472 330,724 (341,129) 34,067
Labour union fund and
employee education fund 838,348 490,862 (421,305) 907,905
2,408,669 12,860,737 (12,513,101) 2,756,305
2013
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Salary, bonus and allowance 1,437,224 9,451,234 (9,386,879) 1,501,579
Staff welfare 19,891 199,095 (213,545) 5,441
Social insurance 15,720 506,181 (503,072) 18,829
Including: Medical Insurance 15,250 454,543 (452,528) 17,265
Work Injuries
Insurance 205 24,317 (23,069) 1,453
Maternity
Insurance 265 27,321 (27,475) 111
Housing funds 27,182 383,967 (366,677) 44,472
Labour union fund and
employee education fund 803,119 303,161 (267,932) 838,348
2,303,136 10,843,638 (10,738,105) 2,408,669
ANNUAL REPORT 2014
231
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Salaries payable to employees (continued)
Defined contribution plans are analysed as follows:
2014
Opening
balance
Increase during
the year
Decrease during
the year Closing balance
Pension Insurance 48,995 927,972 (932,004) 44,963
Unemployment Insurance 1,228 61,935 (61,991) 1,172
50,223 989,907 (993,995) 46,135
2013
Opening
balance
Increase during
the year
Decrease during
the year Closing balance
Pension Insurance 40,650 881,361 (873,016) 48,995
Unemployment Insurance (78) 53,986 (52,680) 1,228
40,572 935,347 (925,696) 50,223
Long-term staff remuneration payable
2014 2013
RMB’000 RMB’000
Net liabilities under defined benefit plan 115,450 95,806
The Group operates for all qualifying employees a defined benefit plan that has yet to receive capital
injection. Under the plan, an employee is entitled to retirement benefits ranging from 0% to 50% of
his/her last salary at the retirement age.
The scheme is subject to interest rate risks and the risk of change in the life expectancy of the pension
beneficiaries.
The latest actuarial valuation of assets under the plan and the present value of obligations under defined
benefit plans were determined by ???????????????? using the expected benefit accrual
unit approach at 31 December 2014.
ZTE CORPORATION
232
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Long-term staff remuneration payable (continued)
Major actuarial assumptions applied as at the balance sheet date are as follows:
2014
Discount rate % 4.00%
Expected salary increase % 5.50%
A quantitative sensitivity analysis of significant assumptions applied as at 31 December 2014 is set
out as follows:
Increase
Increase/
(decrease) in
Obligations
under defined
benefit plan Decease
Increase/
(decrease) in
Obligations
under defined
benefit plan
RMB’000 RMB’000
Discount rate 0.25% (4,019) 0.25% 4,197
Expected salary increase 1.00% 13,854 1.00% (12,700)
The above sensitivity analysis is based on inference of the impact of reasonable changes in key
assumptions at the balance sheet date on the net amount of defined benefits.
Relevant plans recognised in the income statement are as follows:
2014
RMB’000
Interest expenses 4,466
Charged to administrative expenses 4,466
Change in the present value of obligations under defined benefit plan:
2014
RMB’000
1 January 95,806
Interest expenses 4,466
Pension paid (1,421)
Benefit costs recognized in comprehensive income 16,599
31 December 115,450
ANNUAL REPORT 2014
233
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. Salary and welfare payables (continued)
Long-term staff remuneration payable (continued)
Present value of changes in obligations under defined benefit plans are as follows:
Net liabilities
under defined
benefit plan
2014
Opening balance 95,806
Net interest 4,466
Charged to other comprehensive income
Actuary loss 11,555
Experience adjustments 5,044
Other changes
Benefit paid (1,421)
Closing balance 115,450
26. Tax payable
2014 2013
Value-added tax (4,040,415) (2,393,454)
Business tax 565,212 434,616
Income tax 489,141 557,059
PRC tax 363,422 348,085
Overseas tax 125,719 208,974
Individual income tax 89,430 60,350
City maintenance and construction tax 52,762 54,272
Education surcharge 43,069 43,330
Other taxes 10,521 (8,032)
(2,790,280) (1,251,859)
27. Dividend payable
2014 2013
Dividend payable to holders of restricted shares 156 152
Dividend payable to minority shareholders 7,957 34,811
8,113 34,963
ZTE CORPORATION
234
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28. Other payables
2014 2013
Accruals 1,123,200 686,700
Contributions to staff housing 66,168 66,168
Payables to external parties 5,319,690 6,788,985
Deposits 29,972 28,488
Factored interests payable 71,233 84,084
Payables to employees 483,277 426,883
Others 438,430 396,836
7,531,970 8,478,144
29. Provisions
2014
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Outstanding litigation 110,694 63,442 (13,221) 160,915
Provision for returned handsets 169,315 212,207 (114,713) 266,809
Provision for warranties 321,102 505,868 (513,303) 313,667
601,111 781,517 (641,237) 741,391
2013
Opening
balance
Increase during
the year
Decrease during
the year
Closing
balance
Outstanding litigation 44,765 67,114 (1,185) 110,694
Provision for returned handsets 51,257 130,953 (12,895) 169,315
Provision for warranties 195,435 677,989 (552,322) 321,102
291,457 876,056 (566,402) 601,111
ANNUAL REPORT 2014
235
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30. Long-term non-current liabilities due within one year
2014 2013
Long-term loans due within one year 43,072 2,753,925
Bonds payable due within one year 6,131,185 —
6,174,257 2,753,925
31. Long-term loans
2014 2013
Original
currency
RMB
equivalent
Original
currency
RMB
equivalent
Credit loans RMB 1,740,000 1,740,000 1,782,000 1,782,000
USD 200,000 1,240,100 17,664 107,696
Guaranteed loans RMB 1,500,000 1,500,000 — — Note 1
USD 889,539 5,515,587 447,109 2,725,977 Note 1
Secured loans RMB 44,000 44,000 269,500 269,500 Note 2
Pledged loans RMB — — 500,500 500,500
10,039,687 5,385,673
Note 1 The guaranteed loans comprised mainly guaranteed loans provided by the Company for its subsidiary ZTE (H.K.) Limited.
Note 2 The secured loans was pledged by land use rights of ???????????? with a value of RMB79,963,000.
As at 31 December 2014, the annual interest rate for the aforesaid loans was 3.930%-6.765% (31
December 2013: 0%-6.654%).
32. Bonds payable
2014 2013
Bonds payable — 6,119,590
Balance of bonds payable as at 31 December 2014 is analysed as follows:
Nominal
value
Date of
issue
Term of
bond
Issue
amount
Opening
balance
Amortisation
of interest
discount/
premium for
the year
Repayment
during the
year
Closing
balance
Bonds payable 6 billion 2012.6.13 3 years 5,965,212 6,119,590 263,595 (252,000) 6,131,185*
* The bonds will be due in 2015 and is shown as non-current liabilities due within 1 year for this year.
ZTE CORPORATION
236
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
32. Bonds payable (continued)
Balance of bonds payable as at 31 December 2013 is analysed as follows:
Nominal
value
Date of
issue
Term of
bond
Issue
amount
Opening
balance
Amortisation of
interest discount/
premium for the
year
Repayment
during the year
Closing
balance
Bonds payable 6 billion 2012.6.13 3 years 5,965,212 6,107,993 263,597 (252,000) 6,119,590
33. Other non-current liabilities
2014 2013
Long-term financial guarantee contract 3,689 3,689
Factored interests payable 204,435 257,540
Hedging instruments — non-current portion 881 4,286
Deferred income relating to staff housing 1,140,351 1,164,994
1,349,356 1,430,509
34. Share capital
2014
Opening
balance
Increase/
decrease
during the year Closing balance
Restricted shares
Senior management shares 7,226 (455) 6,771
Total number of restricted shares 7,226 (455) 6,771
Unrestricted shares
RMB Ordinary shares 2,800,730 455 2,801,185
Overseas listed foreign shares 629,585 — 629,585
Total number of unrestricted shares 3,430,315 455 3,430,770
Total number of shares 3,437,541 — 3,437,541
ANNUAL REPORT 2014
237
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
34. Share capital (continued)
2013
Opening balance
Increase/
decrease during
the year Closing balance
Restricted shares
Domestic natural person shares 2,537 (2,537) —
Senior management shares 8,724 (1,498) 7,226
Total number of restricted shares 11,261 (4,035) 7,226
Unrestricted shares
RMB Ordinary shares 2,799,232 1,498 2,800,730
Overseas listed foreign shares 629,585 — 629,585
Total number of unrestricted shares 3,428,817 1,498 3,430,315
Total number of shares 3,440,078 (2,537) 3,437,541
35. Capital reserves
2014
Opening
balance
Increase during
the year
Decrease
during the year Closing balance
Share premium 8,442,845 812 — 8,443,657
Share-based payment
(Note 1) 22,856 178,241 — 201,097
Capital investment by
government 80,000 — — 80,000
8,545,701 179,053 — 8,724,754
2013
Opening balance
Increase during
the year
Decrease during
the year Closing balance
Share premium 8,442,845 — — 8,442,845
Share-based payment
(Note 1) — 29,707 (6,851) 22,856
Capital investment by
government 80,000 — — 80,000
8,522,845 29,707 (6,851) 8,545,701
ZTE CORPORATION
238
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
35. Capital reserves (continued)
2013 (continued)
Note 1 Total current expenses of equity-settled share-based payments for 2014 amounted to RMB178,241,000. Total current
expenses of equity-settled share-based payments for 2013 amounted to RMB29,707,000. In September 2013, the Company
repurchased 2,536,742 restrictive shares not qualifying for unlocking from 126 scheme participants and cancelled such
shares in accordance with provisions of the Phase I Share Incentive Scheme, and a charge of RMB6,851,000 was made
to the capital reserve.
36. Other comprehensive income
Accumulated balance of other comprehensive income on the balance sheet attributable to the parent
company:
1 January
2013
Increase/
decrease
31 December
2013
Increase/
decrease
31 December
2014
Changes in net liabilities arising
from the re-measurement of
defined benefit plans (45,891) 7,040 (38,851) (16,599) (55,450)
Share of investee results in other
comprehensive income under
equity method which will not
be reclassified to profit and
loss in subsequent periods
upon fulfillment of certain
conditions 41,260 — 41,260 3,090 44,350
Change in fair value of available-
for-sale financial assets 12,625 149,231 161,856 (40,800) 121,056
Effective portion of cash flow
hedging instruments (16,856) 5,784 (11,072) 3,965 (7,107)
Differences arising from foreign
currency translation (582,699) (463,966) (1,046,665) (313,228) (1,359,893)
Fair value at date of
reclassification of owned
properties reclassified as
investment properties at fair
value in excess of book value 792,769 — 792,769 — 792,769
201,208 (301,911) (100,703) (363,572) (464,275)
ANNUAL REPORT 2014
239
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
36. Other comprehensive income (continued)
Other comprehensive income on the income statement attributable to the parent company incurred
during the current period:
2014
Amount
before
taxation Income tax
Amount after
taxation
Other comprehensive income that cannot be
subsequently reclassified to profit or loss
Changes in net liabilities arising from the re-
measurement of defined benefit plans (16,599) — (16,599)
Share of investee results in other comprehensive
income under equity method which will
not be reclassified to profit and loss in
subsequent periods upon fulfillment of certain
conditions 3,090 — 3,090
Other comprehensive income to be subsequently
reclassified to profit or loss
Change in fair value of available-for-sale financial
assets (28,350) — (28,350)
Less: amount recognised in other comprehensive
income for the previous period and profit and
loss for the current period (12,450) — (12,450)
Effective portion of cash flow hedging
instruments 3,965 — 3,965
Differences arising from foreign currency
translation (313,228) — (313,228)
(363,572) — (363,572)
ZTE CORPORATION
240
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
36. Other comprehensive income (continued)
2013
Amount
before
taxation Income tax
Amount after
taxation
Other comprehensive income that cannot be
subsequently reclassified to profit or loss
Changes in net liabilities arising from the re-
measurement of defined benefit plans 7,040 — 7,040
Other comprehensive income to be subsequently
reclassified to profit or loss
Change in fair value of available-for-sale financial
assets 149,231 — 149,231
Effective portion of cash flow hedging
instruments 5,784 — 5,784
Differences arising from foreign currency
translation (463,966) — (463,966)
(301,911) — (301,911)
37. Surplus reserves
2014
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance
Statutory surplus reserves 1,613,195 155,817 — 1,769,012
2013
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance
Statutory surplus reserves 1,587,430 25,765 — 1,613,195
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 capitalized as the Company’s share capital.
ANNUAL REPORT 2014
241
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
38. Retained profits
2014 2013
Retained profits at the beginning of the year 8,933,788 7,705,022
Net profit attributable to shareholders of the parent 2,633,571 1,357,657
Less: Statutory surplus reserves (155,817) (25,765)
Proposed final dividend (687,508) (103,126)
Retained profits at the end of the year 10,724,034 8,933,788
In accordance with the Articles of Association of the Company, profit available for distribution shall
be the lower of profit available for distribution as calculated in accordance with PRC ASBEs and that
calculated in accordance with HKFRSs.
39. Operating revenue and costs
2014 2013
Revenue Cost Revenue Cost
Revenue 81,045,164 55,608,415 74,748,695 52,898,371
Other income 426,111 151,689 485,029 227,533
81,471,275 55,760,104 75,233,724 53,125,904
Operating revenue is analysed as follows:
2014 2013
Telecommunications systems contracts 58,321,583 53,169,672
Sales of goods 23,117,090 21,702,058
Rendering of services 32,602 361,994
81,471,275 75,233,724
40. Taxes and surcharges
2014 2013
Business tax 703,703 571,323
City maintenance and construction tax 276,633 244,370
Education surcharge 221,401 199,553
Others 129,506 64,286
1,331,243 1,079,532
ZTE CORPORATION
242
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
41. Selling and distribution costs
2014 2013
Wages, welfare and bonuses 3,807,881 3,496,095
Consulting and services charges 2,103,079 2,956,711
Travelling expenses 790,830 539,561
Transportation and fuel charges 563,145 503,124
Office expenses 424,637 248,675
Advertising and promotion expenses 980,822 567,876
Rental fees 561,718 442,030
Communication expenses 104,620 116,350
Others 922,433 1,133,428
10,259,165 10,003,850
42. Administrative expenses
2014 2013
Wages, welfare and bonuses 819,935 881,901
Office expenses 102,580 100,555
Amortization and depreciation charges 286,495 274,294
Taxes 171,270 164,921
Rental fees 143,396 144,029
Travelling expenses 85,719 95,185
Others 422,050 541,382
2,031,445 2,202,267
43. Profits from changes in fair values
2014 2013
Financial assets/liabilities at fair value through profit or loss 17,976 165,306
Including: Derivative financial instruments 17,976 174,829
Investment properties at fair value 130,306 38,704
148,282 204,010
ANNUAL REPORT 2014
243
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
44. Investment income
2014 2013
Investment (loss)/gain from long-term equity investment under
equity method (53,043) 34,466
Investment gain from long-term equity investment under cost
method 32,176 22,240
Investment gain/(loss) arising from the disposal of financial assets
at fair value through profit or loss during the period of holding 146,039 (9,644)
Investment gain from the disposal of available-for-sale financial
assets 13,483 667
Investment (loss)/gain from the disposal of equity interests (4,181) 866,677
134,474 914,406
45. Financial expenses
2014 2013
Interest expenses 1,561,674 1,650,437
Less: Interest income 433,604 355,958
Loss on foreign currency exchange 590,085 864,721
Cash discounts and interest subsidy 143,730 89,943
Bank charges 239,092 211,160
2,100,977 2,460,303
For 2014, interest income from ZTE Group Finance Company Limited (“Finance Company”) amounted
to RMB177,290,000 (2013: RMB151,666,000).
46. Impairment Losses
2014 2013
Bad debt provisions 675,522 1,109,782
Inventories provisions 523,950 479,704
Impairment losses on fixed assets 2,760 —
1,202,232 1,589,486
ZTE CORPORATION
244
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
47. Non-operating income/Non-operating expenses
Non-operating income
2014 2013
Amount of
recurrent
gain/loss
recognised
for 2014
Refund of VAT on software products (Note 1) 2,481,772 2,305,836 —
Others (Note 2) 1,305,871 1,159,592 666,814
3,787,643 3,465,428 666,814
Note 1 Refund of VAT on software products represents the refund upon payment of VAT according to the portion of any effective
VAT 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.
Note 2 Others include government grant, gains from contract penalties and other gains.
Non-operating expenses
2014 2013
Amount of
recurrent
gain/loss
recognised
for 2014
Compensation 236,953 108,758 236,953
Loss arising from the disposal of non-current assets 35,661 18,066 35,661
Others 37,135 17,667 37,135
309,749 144,491 309,749
48. Total profit
Supplementary information of the Group’s expenses by nature as follows:
2014 2013
Cost of goods and services 48,363,247 39,205,492
Staff remuneration 12,661,267 10,567,938
Depreciation and amortization 1,825,796 1,745,216
Loss arising from impairment of no-current assets 2,760 —
Rent 705,114 586,059
Financial Expenses 2,100,977 2,460,303
ANNUAL REPORT 2014
245
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
49. Income tax
2014 2013
Current income tax 722,512 528,635
Deferred income tax 87,980 (134,428)
810,492 394,207
Reconciliation between income tax and total profit was as follows:
2014 2013
Total profit 3,538,222 1,827,843
Tax at statutory tax rate (Note 1) 884,556 456,961
Effect of different tax rates applicable to certain subsidiaries (260,192) (428,015)
Adjustment to current tax in previous periods 66,171 (51,790)
Profits and losses attributable to jointly-controlled entitles and
associates 13,164 (8,708)
Income not subject to tax (165,899) (336,735)
Expenses not deductible for tax 172,618 120,598
Utilization of tax losses from previous years (57,029) (59,620)
Unrecognized tax losses 157,103 701,516
Tax charge at the Group’s effective rate 810,492 394,207
Note 1 The Group’s income tax has been provided at the rate on the estimated taxable profits arising in the PRC during the
year. Taxes on taxable profits elsewhere have been calculated at the rates of tax prevailing in the countries in which the
Group operates, based on existing legislation, interpretations and practices in respect thereof.
50. Earnings per share
Basic earnings per share is computed by dividing the net profit attributable to equity holders of the
Company for the year 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 year is adjusted for the following: (1) interests on potentially dilutive ordinary shares
recognized as expenses for the year; (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 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.
ZTE CORPORATION
246
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
50. 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 years
are assumed to have been converted at the beginning of the current year, whereas potentially dilutive
ordinary shares issued in the current year are assumed to have been converted on the date of issue.
Calculations of basic and diluted earnings per shares were as follows:
2014 2013
Earnings
Net profit attributable to ordinary shareholders of the Company
for the year 2,633,571 1,357,657
Shares
Weighted average number of ordinary shares of the Company 3,437,541 3,437,541
Diluting effect — weighted average number of ordinary shares
Stock option 2,543 1,767
Adjusted weighted average number of ordinary shares of the
Company 3,440,084 3,439,308
During the reporting period, stock options granted by the Company gave rise to potentially 2,543,000
dilutive ordinary shares.
51. Notes to major items in cash flow statement
2014 2013
Cash received in connection with other operating activities:
Interest income 421,190 341,563
Cash paid in connection with other operating activities:
Selling and distribution costs 5,994,584 6,212,889
Administrative expenses and research and development costs 1,583,202 1,515,596
ANNUAL REPORT 2014
247
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
52. Supplemental information on cash flow statement
(1) Supplemental information on cash flow statement
Reconciliation of net profit to cash flows from operating activities:
2014 2013
Net profit 2,727,730 1,433,636
Add: Provision for impairment of assets 1,202,232 1,589,486
Depreciation of fixed assets 954,913 944,342
Amortisation of intangible assets and deferred
development costs 850,105 777,623
Amortisation of long-term deferred assets 20,778 23,251
Loss on disposal of fixed assets, intangible assets and
other long-term assets 35,661 18,066
Gain from changes in fair value (148,282) (204,010)
Financial expenses 1,628,717 2,063,087
Investment income (134,474) (914,406)
Decrease/(increase) in deferred tax assets 68,540 (134,428)
Increase in deferred tax liabilities 19,440 —
Increase in inventories (7,681,897) (1,681,392)
Decrease in operating receivables 1,078,372 5,912,039
Increase/(decrease) in operating payables 2,161,107 (7,724,630)
Cost of share-based payment 178,241 29,707
(Increase)/decrease in cash not immediately available for
payments (448,548) 442,207
Net cash flow from operating activities 2,512,635 2,574,578
(2) Change in cash and cash equivalents:
2014 2013
Cash
Including: Cash on hand 16,314 24,760
Bank deposit readily available 17,213,826 20,093,514
Cash and cash equivalents at end of year 17,230,140 20,118,274
ZTE CORPORATION
248
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
53. Assets under restrictions on ownership or right of use
2014 2013
Cash 741,306 731,641 Note 1
Bills receivables 44,028 102,000 Note 2
Trade receivables — 750,000 Note 3
Fixed assets — 683,394 Note 4
Intangible assets 79,963 23,650 Note 5
865,297 2,290,685
Note 1: As at 31 December 2014, the Group’s cash subject to ownership restriction amounted to RMB741,306,000 (31 December
2013: RMB731,641,000), including time deposits of RMB23,000,000 (31 December 2013: RMB23,000,000) pledged to secure
bank borrowings, acceptance bill deposits of RMB63,030,000 (31 December 2013: RMB37,237,000), letter of credit deposits
of RMB10,711,000 (31 December 2013: RMB11,209,000), deposit for guarantee letter of RMB99,891,000 (31 December
2013: RMB116,791,000), dues from the People’s Bank of China of RMB376,188,000 (31 December 2013: 288,821,000)
and risk compensation fund to be released within one year of RMB168,486,000 (31December 2013: RMB254,583,000).
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 31 December 2014, the risk compensation fund under the arrangements for loans and factored
trade receivables amounted to RMB3,912,958,000 (31 December 2013: RMB3,651,480,000). Risk compensation fund to be
released within one year amounting to RMB168,486,000 (31 December 2013: RMB254,583,000) was accounted for as cash
subject to ownership restriction. Risk compensation fund to be released after one year amounting to RMB3,744,472,000
(31 December 2013: RMB3,396,897,000) was accounted for as other non-current assets.
Note 2: As at 31 December 2014, bank acceptance bills with a carrying value of RMB44,028,000 (31 December 2013:
RMB102,000,000) were pledged to secure bank borrowing.
Note 3: As at 31 December 2014, no trade receivables (31 December 2013: RMB750,000,000) were pledged to secure bank
borrowings.
Note 4: As at 31 December 2014, no fixed assets (31 December 2013: RMB683,394,000) were pledged to secure bank borrowings.
Note 5: As at 31 December 2014, intangible assets with a carrying value of RMB79,963,000 (31 December 2013: RMB23,650,000)
were pledged to secure bank borrowings.
ANNUAL REPORT 2014
249
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
54. Monetary items in foreign currencies
2014 2013
Original
currency
Exchange
rate
RMB
equivalent
Original
currency
Exchange
rate
RMB
equivalent
Cash USD 1,433 6.2005 8,884 2,812 6.0969 17,144
SAR 45 1.6526 74 84 1.6258 136
DZD 4,753 0.0709 337 4,510 0.0785 354
INR 410 0.0975 40 486 0.0987 48
THB 361 0.1886 68 501 0.1858 93
PLN 129 1.7544 227 783 2.0248 1,586
KZT 3,663 0.0344 126 14,375 0.0400 575
EGP 93 0.8697 81 46 0.8820 41
Bank deposit USD 579,892 6.2005 3,595,620 722,971 6.0969 4,407,879
HKD 109,384 0.7984 87,332 230,094 0.7862 180,900
BRL 27,724 2.3133 64,134 58,772 2.5962 152,583
PKR 1,551,826 0.0619 96,058 1,613,948 0.0580 93,609
EGP 193,939 0.8697 168,669 90,680 0.8820 79,980
IDR 130,878,000 0.0005 65,439 99,816,000 0.0005 49,908
EUR 206,682 7.5342 1,557,184 246,778 8.4189 2,077,603
DZD 446,417 0.0709 31,651 708,841 0.0785 55,644
MYR 43,244 1.7726 76,654 18,365 1.8470 33,921
ETB 168,210 0.3095 52,061 191,776 0.3209 61,541
CAD 14,887 5.2755 78,536 70,698 5.7259 404,812
GBP 5,229 9.6475 50,447 5,038 10.0556 50,662
THB 814,316 0.1886 153,580 3,005,651 0.1858 558,450
RUB 331,339 0.1105 36,612 597,306 0.1852 110,621
JPY 3,943,141 0.0519 204,649 6,717,336 0.0578 388,262
VEF 15,046 0.9842 14,808 112,263 0.9691 108,794
COP 14,365,769 0.0026 37,351 48,595,000 0.0032 155,504
NPR 2,886,976 0.0615 177,549 2,305,040 0.0623 143,604
CLP 1,510,980 0.0102 15,412 743,362 0.0116 8,623
Other cash USD 31,176 6.2005 193,304 55,888 6.0969 340,744
Trade receivables USD 1,498,159 6.2005 9,289,333 1,246,533 6.0969 7,599,987
EUR 229,447 7.5342 1,728,697 221,689 8.4189 1,866,381
BRL 59,670 2.3133 138,034 77,856 2.5962 202,130
THB 165,933 0.1886 31,295 3,321,066 0.1858 617,054
INR 22,795,426 0.0975 2,222,554 16,558,956 0.0987 1,634,369
Sub-total 20,176,800 21,403,542
The Group’s principal places of business overseas include the United States, Brazil and India. Its
operating entities in these countries adopt their respective principal currency for conducting business
as their book currencies.
ZTE CORPORATION
250
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
55. Hedging
2014 2013
Liabilities Liabilities
Interest rate swap agreement 6,581 10,406
Non-current portion 881 4,286
Current portion 5,700 6,120
Periods during which the Group’s estimated cash flow under hedge as at 31 December 2014 is
expected to occur:
2014 2013
Cash
outflows
Net cash
flows
Cash
outflows
Net cash
flows
Within 1 year (2,282) (2,282) (1,811) (1,811)
1 to 3 years (4,273) (4,273) (8,659) (8,659)
As at 31 December 2014, the estimated effect of the Group’s expected cash flow under hedging on
profit and loss for the following period is as follows:
2014 2013
Within 1 year (2,282) (1,811)
1 to 3 years (4,273) (8,659)
The key terms of interest rate swap agreement were under negotiation in order to be consistent with the
committed terms. The evaluation results of the estimated future interest for related cash flow hedging
payment was highly effective, and the net gain of RMB3,965,000 was included in other comprehensive
income as follows:
2014 2013
Net fair value gain included in other comprehensive income 3,965 5,784
Net gain cash flow hedging 3,965 (5,784)
ANNUAL REPORT 2014
251
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VI. CHANGES IN THE SCOPE OF CONSOLIDATION
New subsidiaries established in 2014 included: tier-one subsidiaries ?????????????, ?????
?????????, ??????????, ?????????????? and ?????????????;
tier-two subsidiaries ????????????, ZTE HK CORPORATION DOMINICAN REPUBLIC, SRL, ???
????????????, ????????????, WEIXIANTONG INTERNATIONAL ANGOLA, LIMITADA,
ZTE XIN (MACAO) LIMITED, ????????????, ????????????, ZTE CONGO S.A.R.L, ?
?????????, ????????????, ZTE SOFT Deutschland Gmbh, ???????????? and
????????????; tier-three subsidiaries ?????????????, ??????????????
and ZTE Managed Services Southern Europe SL; and a tier-four subsidiary ZTE SERVICE ROMANIA SRL.
VII. INTERESTS IN OTHER ENTITIES
1 Interests in subsidiaries
Particulars of the subsidiaries of the Company are as below:
Type of subsidiary
Place of
registration/
principal
place of
business Business nature Registered capital
Shareholding
percentage (%)
Direct Indirect
Subsidiaries acquired by way of
incorporation or investment
Shenzhen Zhongxing Software
Company Limited
Shenzhen Manufacturing RMB51.08 million 100% —
ZTE (H.K) Limited Hong Kong Information technology HK995 million 100% —
Shenzhen Zhongxing Telecom
Technology & Service Company
Limited
Shenzhen Telecommunications
services
RMB50 million 90% 10%
ZTE Kangxun Telecom Company
Limited
Shenzhen Telecommunications
and related equipment
manufacturing
RMB1,755 million 100% —
ZTEsoft Technology Company Limited Nanjing Manufacturing RMB300 million 80.1% —
Shenzhen ZTE Mobile Telecom Co., Ltd Shenzhen Telecommunications
and related equipment
manufacturing
RMB79.166 million 90% —
Shanghai Zhongxing Telecom
Equipment Technology & Service
Company Limited
Shanghai Telecommunications
services
RMB10 million 90% —
Xi’an Zhongxing New Software
Company Limited
Xi’an Telecommunications
and related equipment
manufacturing
RMB600 million 100% —
ZTE (Hangzhou) Company Limited Hangzhou Telecommunications
and related equipment
manufacturing
RMB100 million 100% —
Shenzhen Zhongxing ICT Company
Limited
Shenzhen Telecommunications
and related equipment
manufacturing
RMB 60 million 90% —
ZTE CORPORATION
252
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VII. INTERESTS IN OTHER ENTITIES (continued)
2 Equity investments in joint ventures and associates
Place of registration/
principal place of
business Nature of business Registered capital
Percentage of Shareholding
%
Accounting
method
Direct Indirect
Joint Ventures
Bestel Communications Ltd. Republic of Cyprus Information technology EUR446,915 50% — Equity
method
???????????? PRC R&D, production and sales of
communications equipment
RMB128,500,000 50% — Equity
method
?????????????? PRC R&D, sales and technical services for
communications products
RMB18,000,000 50% — Equity
method
Pengzhong Xingsheng Uzbekistan Mobile terminals and smart phones USD3,160,000 50% — Equity
method
Associates
KAZNURTEL Limited Liability Company Kazakhstan Manufacturing of computers and
related equipment
USD3,000,000 49% — Equity
method
???????????? PRC Computer application services RMB4,000,000 49% — Equity
method
????(??)?????? PRC Sales and R&D of communications
equipment
USD7,000,000 49% — Equity
method
?????????????? PRC Manufacturing of computers and
related equipment
RMB5,000,000 40% — Equity
method
ZTE Energy Co., Ltd. PRC Energy RMB1,290,000,000 23.26% — Equity
method
ZTE Software Technology (Nanchang)
Company Limited
PRC Computer application services RMB15,000,000 30% — Equity
method
Nanjing Piaoxun Network Technology
Company Limited
PRC Computer application services RMB870,000 20% — Equity
method
?????????? PRC Advertising, Internet, communications
and import and export
RMB5,000,000 33% — Equity
method
Telecom Innovations Uzbekistan Sales and production of
communications equipment
USD2,875,347.3 27.70% — Equity
method
Shenzhen Zhongxing Hetai Hotel
Investment and Management
Company Limited
PRC Hotel management service RMB30,000,000 18% — Equity
method
?????????????? PRC Computer application services RMB34,221,649 20% — Equity
method
??????(??)???? PRC Communications business and related
services
RMB20,000,000 30% — Equity
method
?????????????? PRC Network software development
and sales and related technical
services
USD2,000,000 25% — Equity
method
?????????????? PRC Computer application services RMB10,000,000 30.15% — Equity
method
????????????? PRC End to end supply chain integration
services including procurement
etc
RMB20,000,000 20% — Equity
method
???????????? PRC Software R&D and supply chain
management
RMB80,000,000 20% — Equity
method
???????????? PRC R&D, sales and investments in
communications and related
equipment
RMB57,680,000 30% — Equity
method
?????????????? PRC Computer hardware, electronic
equipment and development of
network technologies
RMB30,000,000 35% — Equity
method
During the year, the Group had no subsidiaries that were subject to significant minority interest, nor
key joint ventures and associates which had a significant impact on the Group.
ANNUAL REPORT 2014
253
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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:
2014 2013
Joint ventures
Aggregate carrying value of investments 67,607 66,891
Aggregate amounts of the following attributable to shareholdings:
Net profit 716 1,446
Other comprehensive income — —
Total comprehensive income 716 1,446
Associates
Aggregate carrying value of investments 393,709 411,146
Aggregate amounts of the following attributable to shareholdings:
Net profit/(loss) (53,759) 33,020
Other comprehensive income 3,434 —
Total comprehensive income (50,325) 33,020
As ???????????? (“Zhongding”) and ZTE Software Technology (Nanchang) Company
Limited (“ZTE Nanchang”) did not have the obligation to bear additional losses, therefore the net losses
of Zhongding and ZTE Nanchang were recognised to the extent of the book value of such long-term
equity investments and other long-term equity effectively constituting net investments in Zhongding
and ZTE Nanchang. The Group’s unrecognised investment losses for the year and on an accumulated
basis amounted to RMB3,163,000 (2013: RMB62,000) and RMB3,225,000 (2013: RMB62,000).
For 2014, there were no contingent liabilities associated with the investments in joint ventures and
associates (2013: Nil).
ZTE CORPORATION
254
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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:
2014
Financial assets
Financial
assets at fair
value through
current profit
and loss
Trading
Loans and
receivables
Available-
for-sale
financial
assets Total
Cash — 18,115,874 — 18,115,874
Financial assets at fair value through
current profit and loss 240,973 — — 240,973
Available-for-sale financial assets — — 1,739,664 1,739,664
Bills receivable — 2,086,771 — 2,086,771
Trade receivables and long-term
receivables — 25,419,464 — 25,419,464
Factored trade receivables and
factored long-term receivables — 4,862,683 — 4,862,683
Other receivables (excluding
dividends receivable) — 2,159,677 — 2,159,677
Other non-current assets — 3,794,472 — 3,794,472
240,973 56,438,941 1,739,664 58,419,578
ANNUAL REPORT 2014
255
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
1. Classification of financial instruments (continued)
2014 (continued)
Financial liabilities
Financial
liabilities at
fair value
through current
profit and loss
Trading
Other
financial
liabilities
Derivatives
designated
as effective
hedging
instruments Total
Financial liabilities at fair value
through current profit and loss 64,904 — 5,700 70,604
Bank loans — 21,080,836 — 21,080,836
Bills payables — 10,381,688 — 10,381,688
Trade payables — 19,244,400 — 19,244,400
Bank advances on factored trade
receivables and long-term trade
receivables — 4,877,410 — 4,877,410
Other payables (excluding
accruals and staff housing fund
contributions) — 6,342,602 — 6,342,602
Bonds payable — 6,131,185 — 6,131,185
Other non-current liabilities — 208,124 881 209,005
64,904 68,266,245 6,581 68,337,730
ZTE CORPORATION
256
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
1. Classification of financial instruments (continued)
2013
Financial assets
Financial assets
at fair value
through current
profit and loss Loans and
receivables
Available-for-
sale financial
assets Total Trading
Cash — 20,903,035 — 20,903,035
Financial assets at fair value
through current profit and loss 217,454 — — 217,454
Available-for-sale financial assets — — 1,630,271 1,630,271
Bills receivable — 3,500,671 — 3,500,671
Trade receivables and long-term
receivables — 21,760,019 — 21,760,019
Factored trade receivables and
factored long-term receivables — 5,650,326 — 5,650,326
Other receivables (excluding
dividends receivable) — 1,666,645 — 1,666,645
Other non-current assets — 3,595,327 — 3,595,327
217,454 57,076,023 1,630,271 58,923,748
ANNUAL REPORT 2014
257
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
1. Classification of financial instruments (continued)
2013 (continued)
Financial liabilities
Financial liabilities
at fair value
through current
profit and loss
Other
financial
liabilities
Derivatives
designated
as effective
hedging
instruments Total Trading
Financial liabilities at fair value
through current profit and loss 61,659 — 6,120 67,779
Bank loans — 20,728,630 — 20,728,630
Bills payable — 8,498,021 — 8,498,021
Trade payables — 16,492,534 — 16,492,534
Bank advances on factored trade
receivables and long-term
trade receivables — 5,688,899 — 5,688,899
Other payables (excluding
accruals and staff housing
fund contributions) — 7,791,444 — 7,791,444
Bonds payable — 6,119,590 — 6,119,590
Other non-current liabilities — 261,229 4,286 265,515
61,659 65,580,347 10,406 65,652,412
ZTE CORPORATION
258
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
2. Transfers of financial assets
Transferred financial assets that are not derecognized in their entirety
During the year, the Group was engaged in certain discounting business with a number of PRC domestic
banks. The Group was of the view that not substantially all risks and rewards relating to bills receivable
with a carrying amount of RMB44,028,000 (31 December 2013: RMB102,000,000) had been transferred
upon discounting and therefore such bills receivable did not qualify for derecognition of financial assets.
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”).
Under certain trade receivables factoring agreement, the Group was still exposed, after the transfer of
the trade receivables, to risks relating to debtor’s default and delayed payments, and therefore retained
substantially all risks and rewards relating to the trade receivables and did not qualify for derecognition
of financial assets. The Group continued to recognise assets and liabilities concerned to the extent
of the carrying value of the trade receivables. As at 31 December 2014, trade receivables that have
been transferred but not settled by the debtors amounted to RMB2,915,814,000 (31 December 2013:
RMB2,790,279,000).
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 recognized to the extent of trade receivables transferred under
continuous involvement. As at 31 December 2014, the carrying value of trade receivables that have
been transferred but not settled by the debtors amounted to RMB9,547,043,000 (31 December 2013:
RMB13,222,149,000). 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
2014 2013
RMB’000 RMB’000
Carrying value of assets under continuous involvement 1,946,869 2,860,047
Carrying value of liabilities under continuous involvement 1,961,596 2,898,620
ANNUAL REPORT 2014
259
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
2. Transfers of financial assets (continued)
Transferred financial assets that are not derecognized in their entirety (continued)
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 31 December 2014, the amount of factored trade receivables was RMB4,862,683,000
(31 December 2013: RMB5,650,326,000). Relevant liabilities were classified as “Bank advances on
factored trade receivables” or “Bank advances on long-term trade receivables.” As at 31 December
2014, the amount of bank advances on factored trade receivables was RMB4,877,410,000 (31 December
2013: RMB5,688,899,000)
Transfer of long-term receivables comprised factored trade receivables recognized under continuous
involvement as described below.
In prior year, the Company entered into a telecommunications system project with an African
telecommunications operator with a total contract amount of USD1.5 billion. The related accounts
receivable is to be settled by promissory notes issued by the telecommunications operator with
maturity dates ranging from 3 to 13 years. Two government strategic banks in the PRC have agreed to
factor these promissory notes pursuant to factored trade receivables agreements. During the financing
period, the banks will charge interest at 6-month USD LIBOR+1.5% or LIBOR+1.8% which will be
shared by the Company and the telecommunications operator at a predetermined portion. If there is
any delay in the payment by the telecommunications operator, the Company is not responsible for
the related penalties. If there is default in the payment, the Company would bear the first 20% of
default losses on the factored amount unless the Company breaches the Agreements or the factoring
conditions are not satisfied. As at 31 December 2014, under the above arrangement, trade receivable
due from the customer amounted to RMB6,559,107,000 (31 December 2013: RMB6,837,218,000)
among which RMB5,247,286,000 (31 December 2013: RMB5,469,775,000) has been derecognised from
the consolidated statement of financial position as these receivables have fulfilled the derecognition
conditions as stipulated in ASBEs No. 23. An associated liability of RMB1,311,821,000 (31 December
2013: RMB1,367,443,000) has been recognised in the consolidated statement of financial position to
the extent of the Company’s continuing involvement.
In addition, factored finance interest for future periods relating to the derecognition of trade receivables
undertaken by the Company as at 31 December 2014 amounted to RMB275,668,000 (31 December
2013: RMB341,624,000), comprising RMB71,233,000 (31 December 2013: RMB84,084,000) due within
one year and classified as other payables (see Note V. 28) and RMB204,435,000 (31 December 2013:
RMB257,540,000) due after one year and classified as other non-current liabilities (see Note V. 33).
ZTE CORPORATION
260
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
2. Transfers of financial assets (continued)
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 year. The Group was of the view that substantially all risks and rewards relating to bills receivable
with a book value of RMB294,779,000 (31 December 2013: RMB491,634,000) were transferred upon
discounting and therefore the bills receivable qualified for the derecognition of financial assets. Hence,
the relevant bills receivable were derecognized 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 did not recognise any profit or loss
in respect of the derecognised bills receivable as at the date of transfer. No profit or loss relating to
continuous involvement was recognised in respect of the current year and the previous year.
3. Risks of financial instruments
The main financial instruments of the Group, except for derivatives, include bank loans, cash, etc. The
main purpose of these financial instruments is to finance for the Group’s operation. The Group has
many other financial assets and liabilities arising directly from operation, such as trade receivables and
trade payables and etc.
The Group entered into forward currency contracts and interest rate swap contracts with the aim of
managing the foreign exchange risk and interest rate risk in the Group’s operation. The major risks
which come from the Group’s financial instruments are the credit risk, liquidity risk and market risk.
The Group’s policies for managing each of these risks are summarized as follows.
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 and the Group’s exposure to bad debts is not
significant.
The Group’s other financial assets, which comprise cash, available-for-sale financial assets, other
receivables and certain derivatives. The Group’s credit risk of financial assets and financial guarantee
contract arises from default of the counterparty, with a maximum exposure equal to the carrying
amounts of these instruments.
Although the top five accounts accounted for 32.09% (2013: 32.73%) of the total trade receivables,
their risk profiles were relatively low and did not give rise to significant concentration of credit risk
for the Group.
ANNUAL REPORT 2014
261
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Credit risk (continued)
Since the Group trades only with recognised and creditworthy third parties, there is no requirement for
collateral. The Group did not hold any collateral or other credit enhancements over the balances of
the trade receivables. For further quantitative disclosures on the Group’s credit risk arising from trade
receivables, other receivables and long-term trade receivables, please refer to Notes V. 4, 5 and 10.
The maturity profile of trade receivables, long-term receivables and other receivables not subject to
impairment as at 31 December is analysed as follows:
2014
Not
overdue/
not
impaired
Overdue for
Total
Less than
1 year 1–2 years 2–3 years
Over 3
years
Trade receivables 25,152,963 2,533,268 20,778,967 1,619,968 220,760 —
Long-term
receivables 266,501 266,501 — — — —
Other receivables 2,159,677 — 1,592,615 317,980 159,854 89,228
2013
Not
overdue/
not
impaired
Overdue for
Total
Less than
1 year 1–2 years 2–3 years
Over 3
years
Trade receivables 21,393,257 3,566,625 15,223,232 2,407,100 196,300 —
Long-term
receivables 366,762 366,762 — — — —
Other receivables 1,666,645 — 1,357,563 199,854 61,510 47,718
ZTE CORPORATION
262
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Liquidity risk
The Group monitors its risk to a 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, bonds payable and other interest-bearing loans. With the exception of the non-
current portion of bank loans, all borrowings are repayable within one year.
The maturity profile of financial liabilities based on undiscounted contractual cash flow is summarised
as follows:
2014
Current Within 1 year 1–2 years 2–3 years Over 3 years Total
Banks loans — 11,193,023 6,431,576 1,368,816 3,048,910 22,042,325
Financial liabilities at fair
value through current
profit and loss — 70,604 — — — 70,604
Bills payable — 10,381,688 — — — 10,381,688
Trade payables 19,244,400 — — — — 19,244,400
Bank advances on factored
trade receivables and
factored long-term trade
receivable — 3,254,431 638,663 389,151 735,447 5,017,692
Other payables (excluding
accruals and staff housing
fund contributions) 6,342,602 — — — — 6,342,602
Bonds payable — 6,252,000 — — — 6,252,000
Other non-current liabilities 50,000 571 74,223 63,889 189,065 377,748
25,637,002 31,152,317 7,144,462 1,821,856 3,973,422 69,729,059
ANNUAL REPORT 2014
263
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Liquidity risk (continued)
2013
Current Within 1 year 1–2 years 2–3 years Over 3 years Total
Banks loans — 15,508,467 839,379 5,023,976 — 21,371,822
Financial liabilities at fair
value through current
profit and loss — 67,779 — — — 67,779
Bills payable — 8,498,021 — — — 8,498,021
Trade payables 16,492,534 — — — — 16,492,534
Bank advances on factored
trade receivables and
factored long-term trade
receivable — 3,377,374 729,055 546,622 1,120,002 5,773,053
Other payables (excluding
accruals and staff housing
fund contributions) 7,707,360 84,084 — — — 7,791,444
Bonds payable — 252,000 6,252,000 — — 6,504,000
Other non-current liabilities 50,000 — 77,597 63,935 189,065 380,597
24,249,894 27,787,725 7,898,031 5,634,533 1,309,067 66,879,250
Market risk
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s
long-term liabilities with floating interest rates.
As at 31 December 2014, the bank loans of the Group and the Company including fixed rate debts
and floating debts based on LIBOR. 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
1.44% and 7.2%. In addition, the Group borrowed a USD900 million loan at floating interest rates.
The Group intends to enter into interest rate swaps with a nominal principal amount of no more than
USD900 million at an appropriate timing as a hedge against the said USD loan, in which the Group
agrees to exchange, at specified intervals, the difference between fixed and variable rate interest
amounts calculated by reference to an agreed-upon notional principal amount. As at 31 December
2014, taking into account interest rate swaps for a nominal principal amount of USD100 million (2013:
USD100 million) already executed, approximately 40% (2013: 30%) of the Group’s interest bearing
borrowings were subject to interests at fixed rates.
ZTE CORPORATION
264
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Market risk (continued)
Interest rate risk (continued)
Interest-bearing borrowings with floating interest rate were mainly denominated in USD. 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 total profit (through the impact on floating rate loans) and
shareholders’ equity assuming that other variables remain constant and taking into account the effect
of interest rate swaps.
Increase/
(decrease) in
basis points
Increase/
(decrease) in
total profit
Increase/
(decrease) in
shareholders’
equity*
2014 0.25% (31,557) 5,591
(0.25%) 31,557 (5,591)
2013 0.25% (36,641) 4,065
(0.25%) 36,641 (4,065)
* excluding retained earnings.
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 minimize its transactional currency exposures. The Group takes rolling forecast on
foreign currency revenue and expenses, matches the currency and amount incurred, so as to alleviate
the impact to business due to exchange rate fluctuation.
ANNUAL REPORT 2014
265
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
3. Risks of financial instruments (continued)
Market risk (continued)
Foreign currency risk (continued)
The following table demonstrates the sensitivity of a reasonably possible change in exchange rates
may lead to the changes in the Group’s total profit, with all other variables held constant, as at the
balance sheet date.
Increase/
(decrease) in
US dollars
exchange rate
Increase/
(decrease) in
total profit
2014
Weaker RMB against USD 3% 38,204
Stronger RMB against USD (3%) (38,204)
2013
Weaker RMB against USD 3% 37,160
Stronger RMB against USD (3%) (37,160)
Increase/
(decrease) in
EUR exchange
rate
Increase/
(decrease) in
total profit
2014
Weaker RMB against EUR 5% 136,696
Stronger RMB against EUR (5%) (136,696)
2013
Weaker RMB against EUR 5% 185,118
Stronger RMB against EUR (5%) (185,118)
ZTE CORPORATION
266
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
VIII. RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (continued)
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 maximize
shareholders’ value.
The Group manages its capital structure and 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 years 2014 and 2013.
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:
2014 2013
RMB’000 RMB’000
Interest-bearing bank borrowings 21,080,836 20,728,630
Interest-bearing bonds 6,131,185 6,119,590
Bank advances on factored trade receivables and long-term trade
receivables 4,877,410 5,688,899
Total interest-bearing liabilities 32,089,431 32,537,119
Owners’ equity 26,292,504 23,625,689
Total equity and interest-bearing liabilities 58,381,935 56,162,808
Gearing ratio 55.0% 57.9%
ANNUAL REPORT 2014
267
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE
1. Assets and liabilities measured at fair value:
2014
Input applied in the measurement of fair value
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
Level 1 Level 2 Level 3 Total
Continuous measurement of fair value
Financial assets at fair value through
current profit and loss:
Trading financial assets
Derivative financial assets — 240,973 — 240,973
Available-for-sale financial assets
Investment in equity instruments 319,470 — — 319,470
Investment properties
Leased properties — — 2,004,465 2,004,465
319,470 240,973 2,004,465 2,564,908
Financial liabilities at fair value through
current profit and loss
Trading financial liabilities
Derivative financial liabilities — (64,904) — (64,904)
Hedging instruments — (6,581) — (6,581)
— (71,485) — (71,485)
2013
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
Financial assets at fair value through
current profit and loss:
Trading financial assets
Derivative financial assets — 217,454 — 217,454
Available-for-sale financial assets
Investment in equity instruments 364,479 — — 364,479
Investment properties
Leased properties — — 1,855,246 1,855,246
364,479 217,454 1,855,246 2,437,179
Financial liabilities at fair value through
current profit and loss
Trading financial liabilities
Derivative financial liabilities — (61,659) — (61,659)
Hedging instruments — (10,406) — (10,406)
— (72,065) — (72,065)
ZTE CORPORATION
268
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
2. Assets and liabilities disclosed at fair value
2014
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
Long-term receivables — 266,501 — 266,501
Long-term loans — 10,039,687 — 10,039,687
Bonds payable — 6,131,185 — 6,131,185
2013
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
Long-term receivables — 366,762 — 366,762
Long-term loans — 5,385,673 — 5,385,673
Bonds payable — 6,119,590 — 6,119,590
ANNUAL REPORT 2014
269
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
3. 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 approximates 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, long/short-term loans, bonds payable 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 31 December 2014, the non-performance risk in respect of long/short-term
loans was assessed to be insignificant.
The fair values of listed equity instruments are determined on the basis of market prices.
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 input 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 31 December 2014, the fair value of derivative
financial assets represented the net value after offsetting credit valuation adjustments attributable to
the risk of counterparty default. Changes in the credit risk profile of counterparties did not have any
material impact on the evaluation of the hedging effectiveness of designated derivative instruments in
the hedge and other financial instruments measured at fair value.
ZTE CORPORATION
270
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
3. Estimation of fair value (continued)
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 31 December 2014 was RMB2,004,465,000 (2013: RMB1,855,246,000).
4. Unobservable inputs
Below is a summary of the significant unobservable inputs to the fair value measurement of level 3:
2014
Fair value
at year-end
Valuation
techniques Unobservable inputs
Range
(weighted
average)
Commercial properties RMB2,004,465,000 Discounted cash
flow method
Estimated rental value
(per sq. m. and per
month)
RMB24 to 477
Rent growth (p.a.) 1%–5%
Long term vacancy
rate
5%
Discount rate 6%
2013
Fair value
at year-end
Valuation
techniques Unobservable inputs
Range
(weighted
average)
Commercial properties RMB1,855,246,000 Discounted cash
flow method
Estimated rental value
(per sq. m. and per
month)
RMB24 to 477
Rent growth (p.a.) 1%–5%
Long term vacancy rate 5%
Discount rate 6%
ANNUAL REPORT 2014
271
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
IX. DISCLOSURE OF FAIR VALUE (continued)
5. Fair value measurement adjustment
Reconciliation of continuous fair value measurements categorised within Level 3 of the fair value
hierarchy:
2014
Opening
balance
Transfer
into
Level 3
Transfer
out of
Level 3
Total profit or loss
for the period Acquisition
Closing
balance
Change in
unrealized profit or
loss for the period
of assets held at
year-end included in
profit and loss
Included in
profit and
loss
Included in other
comprehensive
income
Investment
properties 1,855,246 — — 130,306 — 18,913 2,004,465 130,306
2013
Opening
balance
Transfer into
Level 3
Transfer
out of
Level 3
Total profit or loss
for the period Acquisition
Closing
balance
Change in
unrealized profit or
loss for the period
of assets held at
year-end included in
profit and loss
Included in
profit and
loss
Included in other
comprehensive
income
Investment
properties 1,686,158 — — 38,704 — 130,384 1,855,246 38,704
In the continuous fair value measurement at level 3, profit and loss included in current profit and loss
relating to financial assets and non-financial assets is analysed as follows:
2014 2013
Relating to
non-financial
assets
Relating to
non-financial
assets
Total profit or loss for the period included in profit and loss 130,306 38,704
Change in unrealized profit or loss for the period of assets
held at year-end included in profit and loss 130,306 38,704
6. Transfers between levels of fair value measurement
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and
no transfers into or out of Level 3.
ZTE CORPORATION
272
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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 (%)
Shenzhen Zhongxingxin
Telecommunications
Equipment Company
Limited
Shenzhen,
Guangdong
Manufacturing RMB100 million 30.78% 30.78%
According to Shenzhen Stock Exchange Listing Rules, the Company’s controlling shareholder is
Shenzhen Zhongxingxin Telecommunications Equipment Company Limited.
2. Subsidiaries
Details of the subsidiaries are set out in Note VI. Changes in the Scope of Consolidation and Note
VII Interests in Other Entities.
3. Joint ventures and associates
Details of the joint ventures and associates are set out in Note V. 11.
ANNUAL REPORT 2014
273
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
4. Other related parties
Relationship
Shenzhen Zhongxing Xindi Telecommunications Equipment
Company Limited
Under the same controlling shareholder as the
Company
Zhongxing Xinzhou Complete Equipment Company Limited Under the same controlling shareholder as the
Company
????????????? (Formerly “Shenzhen Zhongxing
Xinyu FPC Company Limited”)
Under the same controlling shareholder as the
Company
??????????? 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 an associate of the Company
Zhongxing Energy (Inner Mongolia) Company Limited Subsidiary of an associate of the Company
Zhongxing Energy (Shenzhen) Company Limited Subsidiary of an associate of the Company
Zhongxing Energy (Tianjin) Company Limited Subsidiary of an associate of the Company
?????????????? Subsidiary of an associate of the Company
???????????????? Subsidiary of an associate of the Company
?????????????? Subsidiary of an associate of the Company
????(??)???????? Indirect subsidiary of an associate of the Company
????????????? Indirect subsidiary of an associate of the Company
Shenzhen Zhongxing WXT Equipment Company Limited Shareholder of the Company’s controlling shareholder
Xi’an Microelectronics Technology Research Institute Shareholder of the Company’s controlling shareholder
Mobi Antenna Technologies (Shenzhen) Co., Ltd. Company for which a supervisor of the Company’s
controlling shareholder acted as director
Shenzhen Zhongxing Information Company Limited Company with equity investment from shareholders
of the Company’s controlling shareholder
Shenzhen Gaodonghua Communication Technology
Company Limited
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 chairman
INTLIVE TECHNOLOGIES (PRIVATE) LIMITED Company for which a connected natural person of
the Company acted as chairman
???????????? Subsidiary of shareholders of the Company’s
controlling shareholder
Shenzhen Aerospace Guangyu Industrial Company Limited Company for which a Director of the Company
acted as director
????????????????? Subsidiary of a company for which a Director of the
Company acted as director
Chongqing Zhongxing Development Company Limited Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
ZTE CORPORATION
274
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
4. Other related parties (continued)
Relationship
Zhongxing Energy (Hubei) Company Limited Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
Huatong Technology Company Limited Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
??????(??)???? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
?????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
???????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
?????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
?????????? Indirect subsidiary of a company for which the
Chairman of the Company concurrently acted as
chairman
?????????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
??????????????? Subsidiary of a company for which the Chairman
of the Company concurrently acted as chairman
Zhongxing Development Company Limited Company for which the Chairman of the Company
concurrently acted as chairman
???????????????* Company for which the Independent Director of
the Company concurrently acted as Independent
director
???????????????? 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
* An independent director of the Company ceased to be the independent director of the company with effect from November
2012. With effect from December 2013, the company ceased to be a related party of the Company.
ANNUAL REPORT 2014
275
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties:
(1) The transaction of goods with related parties:
Sales of goods to related parties:
2014 2013
Amount Amount
Shenzhen Zhongxing Information Company Limited 6 1,069
Shenzhen Zhongxingxin Telecommunications Equipment Company
Limited 3,800 2,658
Shenzhen Zhongxing Xindi Telecommunications Equipment Company
Limited 2,600 2,370
ZTE Software Technology (Nanchang) Company Limited 1,210 135
Mobi Antenna Technologies (Shenzhen) Company Limited 61 61
?????????????? 1,674 1,197
???????????? 530,347 109,868
???????????? 20 127
??????????? 89 2,850
Zhongxing Development Company Limited — 44
?????????? 17,037 411
Zhongxing Energy Company Limited 2 6,604
????????????????? 405,397 49,882
Telecom Innovations 19,076 1,048
??????(??)???? 1,047 7,404
????????????? — 1,740
?????????????? — 9
?????????????? 13,145 1,648
Zhongxing Energy (Inner Mongolia) Company Limited — 2
?????????????? 32 10
???????????????? — 17
??????(??)???? 2 —
?????????????? 337 —
???????????????? 18 —
???????????? 306 —
???????????? 741 —
?????????? 5 —
????(??)???? 209 —
??????????????? 157 —
997,318 189,154
In 2014, sales to related parties accounted for 1.21% of the Group’s total sales. (2013: 0.24%).
ZTE CORPORATION
276
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties: (continued)
(1) The transaction of goods with related parties: (continued)
Purchases from related parties
2014 2013
Amount Amount
Shenzhen Zhongxingxin Telecommunications Equipment Company
Limited 260,991 227,609
Shenzhen Zhongxing Xindi Telecommunications Equipment Company
Limited 203,907 200,396
????????????? 75,916 62,105
Mobi Antenna Technologies (Shenzhen) Company Limited 782,107 426,865
Huatong Technology Company Limited 25,927 37,318
ZTE Software Technology (Nanchang) Company Limited 27,938 9,066
Shenzhen Zhongxing Information Company Limited 4,273 3,363
Wuxi Kaier Technology Company Limited ** — 30,728
Shenzhen Aerospace Guangyu Industrial Company Limited — 20,684
????????????????? — 10,598
?????????? — 296
?????????????? — 1,540
????(??)???????? — 6,209
???????????????* — 1,181
??????????? — 3,800
Shenzhen Zhongxing Hetai Hotel Investment and Management
Company Limited 26,311 29,815
?????????????? 3,231 2,080
???????????????? 3,872 3,808
?????????????? 1,089 1,498
Zhongxing Energy (Shenzhen) Company Limited 1,865 1,873
Zhongxing Energy (Tianjin) Company Limited 4,559 1,029
Xi’an Microelectronics Technology Research Institute 164 —
?????????????? 128 —
???????????? 21,111 —
?????????????? 5,432 —
???????????? 1,969 —
??????(??)???? 12,659 —
1,463,449 1,081,861
ANNUAL REPORT 2014
277
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties: (continued)
(1) The transaction of goods with related parties: (continued)
Purchases from related parties (continued)
In 2014, purchases from related parties accounted for 2.99% of the Group’s total purchases
(2013: 2.74%).
** In November 2013, Wuxi Zhongxing was deconsolidated from the financial statements, and Wuxi KaiEr Technology
Company Limited and Wuxi Hongtu Micro-electronic Technology Co., Ltd, associates of Wuxi Zhongxing, ceased to
be related parties of the Group. The connected transactions with the two said companies set out above comprised
only transactions with the Group conducted during the period when they were related parties of the Group.
(2) Leasing with related parties:
As lessor
2014
2014 2013
Property leased Lease income Lease income
Zhongxing Development Company Limited Office 2,146 2,146
???????????? Office — 11
???????????????? Office 315 311
?????????? Office 273 236
???????????? Office 258 85
????(??)???? Office 780 293
??????????? Office — 403
?????????????? Office 452 267
?????????? Office 320 313
Wuxi Hongtu Micro-electronic Technology
Co., Ltd ** Office — 180
???????????? Office 886 —
Shenzhen Zhongxing Hetai Hotel Investment
and Management Company Limited
Property and
equipment and
facilities 11,598 8,080
?????????????? Property and
equipment and
facilities 4,954 4,276
???????????????? Property and
equipment and
facilities 21,915 14,580
?????????????? Property and
equipment and
facilities 17,720 14,755
ZTE CORPORATION
278
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
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
2014 2013
Property
leased
Lease
expense
Lease
expense
Shenzhen Zhongxingxin Telecommunications Equipment
Company Limited Office 8,827 8,827
Zhongxing Development Company Limited Office 42,931 44,221
Chongqing Zhongxing Development Company Limited Office 8,031 8,405
?????????? Office 5,078 779
???????????? Office 1,207 136
(3) Guarantees for related parties:
In 2014 and 2013, no guarantee was provided by/to related parties to/by the Group.
(4) Transfer of equity interests to related parties
In 2014 and 2013, the Group did not transfer any equity interests to related parties.
(5) Transfer of assets to related parties
In 2014 and 2013, the Group did not transfer any assets to related parties.
(6) Other major related transactions
2014 2013
Remuneration of key management personnel 46,163 19,062
ANNUAL REPORT 2014
279
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
5. Major transactions between the Group and related parties: (continued)
(6) Other major related transactions (continued)
Notes:
(i) Commercial transactions
with related parties:
Commercial transactions with related parties was conducted by the Group at market price
(ii) Leasing property from/to
related parties:
Office space was leased to the aforesaid related parties by the Group during the year and
lease income of RMB61,617,000 (2013: RMB45,936,000) was recognized in accordance with
relevant lease contracts.
Office space was leased to the Group by the aforesaid related parties during the year and
lease expenses of RMB66,074,000 (2013: RMB62,368,000) was recognized in accordance
with relevant lease contracts.
(iii) Other major related
transactions:
The total amount of remuneration (in the form of monetary amounts physical rewards or
otherwise) for the key management personnel of the Company incurred the Group for the
year was RMB46,163,000 (2013: RMB19,062,000). The corresponding cost for share-based
payment was RMB9,259,000 (2013: RMB1,543,000).
6. Commitments with related parties
(1) In December 2012, the Group entered into a purchase agreement for a term of 3 years with
Shenzhen Zhongxingxin Telecommunications Equipment Company Limited and subsidiaries for
the purchase of raw materials for use in production. For details of purchases conducted during
the year, please refer to Note X.5 (1). The maximum amount of total purchases by the Group for
the year 2015 is estimated at RMB1,100 million (before VAT).
(2) In December 2012, the Group entered into a purchase agreement for a term of 3 years with Mobi
Antenna Technologies (Shenzhen) Company Limited for the purchase of raw materials for use in
production. For details of purchases conducted during the year, please refer to Note X.5 (1). The
maximum amount of total purchases by the Group for the year 2015 is estimated at RMB900
million (before VAT).
(3) In May 2014, the Group entered into a purchase agreement for a term of 1 year with Shenzhen
Zhongxing Hetai Hotel Investment and Management Company Limited or its subsidiary for the
purchase of hotel services. For details of purchases conducted during the year, please refer
to Note X. 5 (1). The maximum amount of purchase of hotel services for 2015 is estimated at
RMB70,192,000.
ZTE CORPORATION
280
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
6. Commitments with related parties (continued)
(4) In December 2014, the Group entered into a software outsourcing service and purchase agreement
for a term of 3 years with Huatong Technology Company Limited (“Huatong”) for the purchase
of software outsourcing services from Huatong. For details of purchases conducted during the
year, please refer to Note X.5 (1). The maximum amounts of total purchases by the Group for
the years 2015–2017 are estimated at RMB60 million, RMB67 million and RMB75 million (before
VAT), respectively.
(5) In December 2014, the Group entered into a software outsourcing service and purchase agreement
for a term of 3 years with ZTE Software Technology (Nanchang) Company Limited (“ZTE
Nanchang”) for the purchase of software outsourcing services from ZTE Nanchang. For details
of purchases conducted during the year, please refer to Note X.5 (1). The maximum amounts of
total purchases by the Group for the years 2015-2017 are estimated at RMB51 million, RMB63
million and RMB79 million (before VAT), respectively.
(6) In December 2014, the Group entered into a product and service sales agreement for a term of 3
years with ZTE Software Technology (Nanchang) Company Limited for the sales of products and
provision of services to ZTE Nanchang. For details of sales conducted during the year, please
refer to Note X.5 (1). The maximum amounts of total sales by the Group for the years 2015–2017
are estimated at RMB29 million, RMB30 million and RMB31 million (before VAT), respectively.
(7) In December 2014, the Group entered into a property lease agreement for a term of 1 years with
Zhongxing Development Company Limited.. For details of rental income incurred during the year,
please refer to Note X. 5 (2). The annual rental income for 2015 is estimated at approximately
RMB2,146,000.
(8) In December 2014, the Group entered into a property lease agreement for a term of 1 years with
????????????????.. For details of rental income incurred during the year, please
refer to Note X. 5 (2). The Group estimated the rental income for 2015 to be RMB139,000.
(9) In July 2014, the Group entered into a property lease agreement for a term of 2 years with ?
???????????????. For details of rental income incurred during the year, please
refer to Note X. 5 (2). The annual rental income for 2015 and 2016 is estimated at approximately
RMB180,000 and RMB90,000, respectively.
ANNUAL REPORT 2014
281
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
6. Commitments with related parties (continued)
(10) In October 2014, the Group entered into a property lease agreement for a term of 5 months with
??????????. For details of rental income incurred during the year, please refer to Note
X. 5 (2). The Group estimated the rental income for 2015 to be RMB32,000.
(11) In January 2014, the Group entered into a property lease agreement for a term of 4 years with
????????????. For details of rental income incurred during the year, please refer
to Note X. 5 (2). The Group estimated the annual rental income for the years 2015-2017 to be
RMB258,000, respectively.
(12) In June 2014, the Group entered into a property lease agreement for a term of 3 years with ?
???(??)????. For details of rental income incurred during the year, please refer to Note
X. 5 (2). The Group estimated the rental income for 2015, 2016 and 2017 to be RMB1,129,000,
RMB1,129,000 and RMB470,000, respectively.
(13) In October 2014, the Group entered into a property lease agreement for a term of 2 years with
??????????????. For details of rental income incurred during the year, please refer
to Note X. 5 (2). The Group estimated the rental income for 2015 and 2016 to be RMB468,000
and RMB351,000, respectively.
(14) In July 2014, the Group entered into a property lease agreement for a term of 2 years with ?
?????????. For details of rental income incurred during the year, please refer to Note
X. 5 (2). The Group estimated the rental income for 2015 and 2016 to be RMB328,000 and
RMB164,000, respectively.
(15) In July 2014, the Group entered into a property lease agreement for a term of 1 year with Shenzhen
Zhongxing Hetai Hotel Investment and Management Company Limited or its subsidiary. For details
of rental income incurred during the year, please refer to Note X. 5 (2). The Group estimated the
rental income for 2015 to be RMB41,542,000.
(16) In January 2014, the Group entered into a property lease agreement for a term of 14 months
with ????????????. For details of rental income incurred during the year, please refer
to Note X. 5 (2). The Group estimated the rental income for 2015 to be RMB148,000.
(17) In April 2013, the Group entered into a lease agreement for a term of 2 years with Shenzhen
Zhongxingxin Telecommunications Equipment Company Limited. For details of rental expenses
incurred during the year, please refer to Note X. 5 (2). The Group estimated the rental for 2015
to be RMB2,575,000.
(18) In July 2014, the Group entered into a lease agreement for a term of 9.5 months with Zhongxing
Development Company Limited. For details of rental expenses incurred during the year, please
refer to Note X. 5 (2). The Group estimated the rental for 2015 to be RMB11,704,000.
ZTE CORPORATION
282
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
6. Commitments with related parties (continued)
(19) In December 2012, the Group entered into 2 lease agreements each for a term of 3 years with ?
?????????. For details of rental expenses incurred during the year, please refer to Note
X. 5 (2). The Group estimated the annual rental for 2015 to be approximately RMB581,000.
(20) In March 2014, the Group entered into 2 lease agreements each for a term of 3 years with ?
?????????. For details of rental expenses incurred during the year, please refer to Note
X. 5 (2). The Group estimated the annual rental for 2015, 2016 and 2017 to be RMB5,500,000,
RMB5,500,000 and RMB1,029,000, respectively.
(21) In December 2012, the Group entered into 2 lease agreements each for a term of 3 years with
????????????. For details of rental expenses incurred during the year, please refer
to Note X. 5 (2). The Group estimated the annual rental for 2015 to be RMB97,000.
(22) In March 2014, the Group entered into 2 lease agreements each for a term of 3 years with ??
??????????. For details of rental expenses incurred during the year, please refer to Note
X. 5 (2). The Group estimated the annual rental for 2015, 2016 and 2017 to be RMB2,049,000,
RMB2,049,000 and RMB469,000, respectively.
(23) In December 2014, the Group entered into a lease agreement for a term of 3 years with Chongqing
Zhongxing Development Limited. For details of rental expenses incurred during the year, please
refer to Note X. 5 (2). The Group estimated the maximum annual rental for the years 2015-2017
to be RMB13,000,000.
ANNUAL REPORT 2014
283
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties
Item Name of related parties 2014 2013
Bills receivable ????????????????? 95,836 84,312
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 166 610
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 514 120
96,516 85,042
Trade receivables ???????????? 418,059 81,048
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 930 1,031
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 1,314 961
Xi’an Microelectronics Technology Research
Institute 9 9
??????????? 37 2,936
????????????????? 60,097 5,598
?????????????? 28 28
?????????????? 839 1,922
????????????? 1 1
??????(??)???? 2,928 8,631
?????????????? 2 —
?????????? 2,970 —
???????????? 86 —
???????????? 24 —
ZTE Software Technology (Nanchang)
Company Limited 116 —
????(??)???? 132 —
Shenzhen Zhongxing Information Company
Limited — 9
????????????? — 85
???????????? — 9
Mobi Antenna Technologies (Shenzhen)
Company Limited — 127
Zhongxing Development Company Limited — 52
?????????????? — 5
487,572 102,452
ZTE CORPORATION
284
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties (continued)
Item Name of related parties 2014 2013
Prepayment Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 445 493
?????????????? 100 —
?????????????? 2,250 —
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 283 —
Zhongxing Development Company Limited 14 —
Shenzhen Zhongxing Information Company
Limited — 229
?????????????? — 186
3,092 908
Dividend receivable Shenzhen Yuanxing Technology Co., Ltd*** — 400
Other receivables ??????????????? 2 2
???????????? 179 22
INTLIVE TECHNOLOGIES (PRIVATE) LIMITED 1,727 1,820
?????????? 304 304
?????????????? 30 —
?????????????? 174 —
?????????????? 5,840 —
??????(??)???? 5,534 —
?????????????? 29 —
Mobi Antenna Technologies (Shenzhen)
Company Limited 61 —
Shenzhen Zhongxing Information Company
Limited 38 —
???????????? 123 —
Zhongxing Development Company Limited 72 —
14,113 2,148
Bills payable ?????????????? 2,166 —
Mobi Antenna Technologies (Shenzhen)
Company Limited 449 —
????????????? 6,908 3,588
?????????????? 150 450
9,673 4,038
ANNUAL REPORT 2014
285
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties (continued)
Item Name of related parties 2014 2013
Trade payables Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 53,879 56,507
????????????? 17,251 6,649
Mobi Antenna Technologies (Shenzhen)
Company Limited 133,225 159,768
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 778 24,238
Shenzhen Zhongxing Xinzhou Complete
Equipment Company Limited 183 183
Shenzhen Zhongxing WXT Equipment
Company Limited 327 327
Shenzhen Zhongxing Information Company
Limited 5,632 4,531
Shenzhen Gaodonghua Communication
Technology Company Limited 176 176
???????????? 20,669 1,433
????????????????? 2,795 9,170
????(??)???????? 3,801 5,538
Shenzhen Aerospace Guangyu Industrial
Company Limited — 2,000
??????(??)???? 7,894 —
???????????? 5 —
Xi’an Microelectronics Technology Research
Institute 192 —
?????????????? — 150
?????????????? — 56
246,807 270,726
Advanced receipts ZTE Software Technology (Nanchang)
Company Limited 5,327 5,327
???????????? 4 1,048
Xi’an Microelectronics Technology Research
Institute 1,628 2
???????????? 155 155
?????????????? 7,821 352
????????????????? 33,909 4,858
??????(??)???? 3 3
?????????? 5,250 —
??????(??)???? 1,272 —
???????????? 310 —
ZTE Energy Co., Ltd. 1 —
??????????? 4 —
????(??)???? 450 —
?????????????? 138 —
Shenzhen Zhongxing Xindi
Telecommunications Equipment Company
Limited 18 —
56,290 11,745
ZTE CORPORATION
286
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
7. Balances of amounts due from/to related parties (continued)
Item Name of related parties 2014 2013
Other payables ????????????? 31 31
Shenzhen Zhongxing WXT Equipment
Company Limited 12 12
Shenzhen Zhongxing Information Company
Limited 48 48
Zhongxing Energy (Hubei) Company Limited 53 53
Zhongxing Development Company Limited 260 215
Shenzhen Zhongxingxin Telecommunications
Equipment Company Limited 310 1,308
??????????? 51 —
?????????????? 3 —
??????(??)???? 345 —
ZTE Energy Co., Ltd. 85 —
Huatong Technology Company Limited 227 —
?????????????? 4 —
???????????? 70 —
1,499 1,667
Amounts due from/to related parties were interest-free, unsecured and had no fixed term of repayment.
*** Following its disposal in December 2014, Shenzhen Yuanxing Technology Co., Ltd. (“Yuanxing”) was no longer a related party
of the Group. While there were balances in dividend receivable and other receivables as at the end of 2014, such amounts
were not amounts receivable from related parties and hence were presented as nil.
8. Deposit and lending services provided by ZTE Group Finance Company Limited to related
parties
(1) Customer deposits
2014 2013
Shenzhen Zhongxing Hetai Hotel Investment and
Management Company Limited 19,237 —
?????????????? 3,086 3,305
???????????????? 4,571 12,366
?????????????? 6,879 8,675
?????????????? — 51
33,773 24,397
ANNUAL REPORT 2014
287
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
8. Deposit and lending services provided by ZTE Group Finance Company Limited to related
parties (continued)
(2) Interest expenses
2014 2013
Wuxi Kaier Technology Company Limited ** — 24
?????????????? 39 34
???????????????? 120 132
?????????????? 137 11
?????????????? — 32
Shenzhen Zhongxing Hetai Hotel Investment Management
Company Limited 75 —
371 233
(3) Release of loans and advances — release of loans
2014 2013
?????????????? — 5,773
— 5,773
(4) Release of loans and advances — discounted bills
2014 2013
?????????????? — 491
?????????? 429 —
429 491
As at 31 December 2014, issuers of bills of approximately RMB429,000 (31 December 2013:
RMB491,000) were Group companies. Assets and liabilities arising therefrom have been set off
on consolidation of the Group account.
(5) Interest income from loans and bills discounting
2014 2013
Wuxi Kaier Technology Company Limited** — 4,224
?????????? 3 —
?????????????? 110 538
113 4,762
ZTE CORPORATION
288
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
X. RELATIONSHIPS AND TRANSACTIONS WITH RELATED PARTIES (continued)
8. Deposit and lending services provided by ZTE Group Finance Company Limited to related
parties (continued)
(6) Interest receivable
2014 2013
?????????????? — 13
— 13
(7) Interest payable
2014 2013
?????????????? 1 1
???????????????? 4 4
?????????????? 5 1
Shenzhen Zhongxing Hetai Hotel Investment Management
Company Limited 5 —
15 6
XI. SHARE-BASED PAYMENT
1. Overview
2014 2013
Total amount of employee service in consideration for which share
based payments were made 524,023 524,023
Equity-settled share-based payments are as follows:
2014 2013
Accumulated balance of equity-settled share-based payments
credited to capital reserves 201,097 22,856
Total costs of equity-settled share-based payments in the year 178,241 29,707
ANNUAL REPORT 2014
289
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XI. SHARE-BASED PAYMENT (continued)
2. Share option incentive scheme
On 22 July 2013, the “ZTE Corporation Share Option Incentive Scheme (Draft)” and its summary was
considered and approved at the Sixth Meeting of the Sixth Session of the Board of Directors and the
Fourth Meeting of the Sixth Supervisory Committee of the Company. On 20 August 2013, the Company
was notified that the opinion of the state-owned shareholders of the Company on the implementation
of the Share Option Incentive Scheme had been approved and filed by State-owned Assets Supervision
and Administration Commission of the State Council. On 23 August 2013, the Company was notified
that the Listed Companies’ Regulation Department I of CSRC had confirmed it had no objection to the
Company convening a general meeting to consider the share option incentive scheme in accordance
with the Administrative Measures on Share Incentives of Listed Company (Trial) (?????????
????(??)?). On 26 August 2013, the resolution on the “ZTE Corporation Share Option Incentive
Scheme (Revised Draft)” (hereinafter referred to as the “Share Incentive Scheme”) and its summary was
considered and approved at Eighth Meeting of the Sixth Session of the Board of Directors and the
Fourth Meeting of the Sixth Supervisory Committee. The Share Incentive Scheme was considered and
approved at Third Extraordinary General Meeting of 2013, the First A Shareholders’ Class Meeting of
2013 and the First H Shareholders’ Class Meeting of 2013 of the Company convened on 15 October
2013. On 31 October 2013, relevant resolutions were considered and passed at the Eleventh Meeting
of the Sixth Session of the Board of Directors and the Ninth Meeting of the Sixth Session of the
Supervisory Committee of the Company, pursuant to which the date of grant for the Share Option
Incentive Scheme of the Company has been set for 31 October 2013 Under the Share Incentive Scheme,
102.989 million share options were granted to 1,528 Participants. Each share option shall entitle its
holder to purchase one ZTE ordinary A share on any exercise date during the effective period of the
Scheme at the exercise price, subject to the conditions of exercise. The source of 2 shares under the
Scheme shall be shares of the Company issued to the Participants by the Company by way of placing.
The Scheme Participants of the Share Incentive Scheme were the directors and senior management
of the Company and key staff of the Company, excluding independent non-executive directors and
supervisors, principal shareholders holding 5% or more of the company’s shares or the actual controller
of the Company and their spouse or blood relative.
The share options shall be valid for a period of 5 years from the date of grant. The first exercise
period shall commence from the first trading day after expiry of the 24-month period from the date of
grant. The share options shall be exercisable separately in the subsequent 3 exercise periods, whose
percentages of options exercisable are 30%, 30% and 40% respectively, subject to the Company’s
performance as the conditions of exercise. The exercise price shall be RMB13.69/share. The share
options not exercisable due to failing to fulfill the Company’s performance as the conditions of exercise
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).
ZTE CORPORATION
290
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XI. SHARE-BASED PAYMENT (continued)
2. Share option incentive scheme (continued)
The calculation of the net profit used by the above indicators is based on the net profit before or
after extraordinary items whichever is lower. Net assets refer to the net assets attributable to the
shareholders of the listed company.
The detailed conditions for the exercise of the share options:
(1) Within the valid period of the Share Incentive Scheme, the net profit attributable to the shareholders
of the listed company and the net profit after extraordinary items attributable to the shareholders
of the listed company shall not be lower than the average of the three most recent accounting
years before the date of grant and shall not be a negative number;
(2) The conditions for the exercise of the granted share options:
Exercise period
Percentage
of options
exercisable Duration Conditions for exercise
First exercise period 30% From 1 November 2015
to 31 October 2016
ROE for the year 2014 not less than 6%; growth
rate of net profit for the year 2014 not less
than 20% compared to 2013
Second exercise
period
30% From 1 November 2016
to 31 October 2017
ROE for the year 2015 not less than 8%; growth
rate of net profit for the year 2015 not less
than 20% compared to 2014
Third exercise
period
40% From 1 November 2017
to 31 October 2018
ROE for the year 2016 not less than 10%; growth
rate of net profit for the year 2016 not less
than 44% compared to 2014
The fair value of the share options granted in 2014 amounted to RMB524,023,000, among which
the share options tariff confirmed by the Company in 2014 amounted to RMB178,241,000.
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) 0.18 0.18 0.18
Volatility (%) 40.25 39.69 43.18
Risk-free interest rate (%) 3.34 3.40 3.46
Demission rate Directors & senior management 5% 5% 5%
Key staff of the Company 5% 5% 5%
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.
ANNUAL REPORT 2014
291
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS
1. Material commitments
2014 2013
Capital commitments
Contracted but not provided of 214,356 264,314
Authorised by the Board but not yet contracted 21,897,474 21,566,513
22,111,830 21,830,827
Investment commitments
Contracted but performance not completed 8,323 17,304
2. Contingent events
2.1. In August 2006, a customer instituted arbitration against the Company to demand indemnity from
the Company in the amount of PKR762,984,000 (approximately RMB47,229,000). Meanwhile, the
Company instituted a counter-claim against the customer’s breach of contract to demand for
damages. In February 2008, the arbitration authority issued its award ruling that an indemnity of
PKR328,040,000 (approximately RMB20,306,000) is to be paid by the Company. On the balance
sheet date, the Company has made provisions for the amount. In accordance with local laws,
the Company had filed with the local court an objection against the arbitration award and a
claim against the customer’s breach of contract. Based on the legal opinion furnished by lawyers
engaged by the Company, the litigation is likely to continue for a prolonged period. As at the date
of approval of the financial statements, the Group had not made any payments of compensation
pursuant to the aforesaid judgement.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated. No additional provision in respect of the
litigation was made.
ZTE CORPORATION
292
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.2. In April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction
Fifth”), an engineering contractor of the Company, demanded the Company to increase the
contract amount on the grounds that raw material prices had increased, in connection with which
it launched first a slowdown in work, followed later by total suspension. In September 2008,
the Company instituted litigation with the Shenzhen Nanshan District People’s Court (“Nanshan
Court”), pleading for the revocation of the contract and court order of the evacuation of the
work sites by the defendant, as well as a penalty payment for work delay in the amount of
RMB24,912,000 and damages of RMB11,319,000 payable to the Company. The Nanshan Court
handed the first trial judgement in July 2009, ruling that the contract between the Company
and China Construction Fifth be revoked and a penalty payment for work delay in the amount
of RMB12,817,000 be payable by China Construction Fifth. China Construction Fifth filed an
appeal against the aforesaid judgement with Shenzhen Intermediate People’s Court (“Shenzhen
Intermediate Court”). Following the conclusion of court hearing for the second trial, Shenzhen
Intermediate Court ruled to suspend trial, pending the result of the final trial of China Construction
Fifth’s case with Shenzhen Intermediate Court below. As the Guangdong Provincial Higher
People’s Court (“Guangdong Higher Court”) handed down the final trial judgement for China
Construction Fifth’s case with Shenzhen Intermediate Court in May 2014, Shenzhen Intermediate
Court resumed trial of the case and made its second trial judgement in November 2014, ruling
that China Construction Fifth was not required to pay the penalty payment of RMB12.817 million
to the Company.
In October and November 2009, the Company further instituted two lawsuits with Nanshan
Court, demanding China Construction Fifth to undertake a penalty payment for work delay in the
amount of RMB30.615 million and the payment of RMB39.537 million, representing the amount
of work payments in excess of the total contract amount. Currently, the above cases are under
trial suspension.
ANNUAL REPORT 2014
293
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.2. (continued)
In July 2009, China Construction Fifth instituted a litigation with the Shenzhen Intermediate
People’s Court, demanding the Company to make a payment of RMB75,563,000 for raw materials
and staff deployment. The Shenzhen Intermediate People’s Court issued its first-trial judgement
in November 2012 which ruled contract amounts of approximately RMB14,497,000 together with
interest accrued thereon and losses incurred as a a result of work delay and suspension amounting
to approximately RMB953,000 to be paid by the Company to China Construction Fifth; while
RMB20,150,000 withheld by China Construction Fifth together with interest accrued thereon shall
be refunded by China Construction Fifth to the Company. Other claims of China Construction
Fifth were rejected. rejected. China Construction Fifth filed an appeal with Guangdong Higher
Court against the said judgement, and Guangdong Higher Court handed down a second trial
judgement in May 2014, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest and damages for work suspension of
approximately RMB2,869,400 to China Construction Fifth Division, while China Construction Fifth
should refund to the Company withheld payments in the amount of RMB20.15 million together
with accrued interest. Other claims of China Construction Fifth were rejected. Case admission fees
and authentication fees paid for the first trial and second trial relating to China Construction Fifth
amounted to RMB2.699 million, of which an amount of RMB654,000 was borne by the Company.
In July 2014, China Construction Fifth instituted a lawsuit with the Nanshan Court, demanding
the refund of RMB24.596 million together with interest of RMB9.118 million (tentatively accrued
to 10 July 2014, although it should be accrued to the date on which the contract work amounts
are settled in full), being indemnity claim amounts under a bank performance guarantee letter
withheld by the Company. Currently, the above case is under trial suspension.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ZTE CORPORATION
294
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.3 A lawsuit on breach of agreement and infringement of rights was instituted against the Company
and its wholly-owned subsidiary ZTE (USA), Inc. (“ZTE (USA)”) by Universal Telephone Exchange,
Inc. (UTE) at the district court of Dallas, Texas, the United States, alleging that the Company and
ZTE (USA) had violated a confidential agreement between UTE and ZTE (USA), for which UTE
was seeking compensation of USD20 million in actual damages. UTE further claimed that it had
lost a telecommunications project contract as a result of inappropriate actions of the Company
and ZTE (USA), for which UTE was seeking compensation of USD10 million in actual damages
and USD20 million in punitive damages. Upon receipt of the writ of summons from the court,
the Company has appointed an attorney to defend its case.
On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE’s
suit on the grounds that there was an arbitration clause under the confidential agreement. On 1
March 2012, the attorney representing UTE concurred with the Company’s application to subject
the case to the arbitration clause and executed an agreement with the Company. The agreement
has been submitted to the court. On 1 May 2012, UTE filed an application for arbitration to
the American Arbitration Association in respect of the case to demand compensation from the
Company and subsequently raised the amount of compensation claimed. On 19 September 2014,
the arbitration court declared court trial of the case closed. As at the end of the reporting period,
the arbitration court had yet to make a final ruling.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
2.4. On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business
Arbitration Tribunal of Guayaquil, Ecuador, claiming quality problems in the construction work
undertaken by the Company and demanding from the Company damages of USD23.35 million
in aggregate, comprising USD22.25 million for network reconstruction and USD1.10 million for
construction quality supervision and management in relation to the entire network. The attorney
engaged by the Company has submitted a defense in a timely manner to deny all allegations of
the carrier. Based on the legal opinion furnished by the legal counsel engaged by the Company
and the progress of the case, the Company has a valid defense against the allegation.
ANNUAL REPORT 2014
295
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.5. On 29 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR
Licensing, Inc. (all three of which being wholly-owned subsidiaries of InterDigital, Inc.) filed a
claim with United States International Trade Commission (“ITC”) and the Federal District Court
of Delaware alleging infringement upon their 3G patent rights by ZTE and ZTE USA. Defendants
in this case included other companies in the industry. In the ITC case, the three said companies
demanded the issue of a permanent exclusion and injunction order against certain of the
Company’s terminal products. In the case filed with the District Court, damages for losses and
payments of legal fees were also demanded of the defendants in addition to the plea for injunction
order, although no specific amount of compensation was named. The litigation procedure at the
District Court has been suspended. On 28 June 2013, ITC issued its initial determination in respect
of the case, ruling that one of the patents relating to the case was invalid, while the Company
and ZTE USA had not infringed upon the remaining patents relating to the case, and that Section
337 had not been violated. (Section 337 investigation commonly refers to the investigation of
unfair acts and unfair measures in the importation of articles into or subsequent sales of articles
in the United States). On 19 December 2013, ITC issued its final verdict on the case, ruling that
the Company and ZTE USA had not violated Section 337. The three companies filed an appeal
with the United States Court of Appeals for the Federal Circuit in respect of the final verdict. On
18 February 2015, the United States Court of Appeals for the Federal Circuit ruled to uphold the
final verdict of ITC.
On 2 January 2013, the three said companies and InterDigital Holdings, Inc. (also a wholly-owned
subsidiary of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware
alleging infringement upon their 3G patent rights by ZTE and ZTE USA. Defendants in this case
included other companies in the industry. In the ITC case, the four said companies demanded
the issue of a permanent exclusion and injunction order against certain of the Company’s terminal
products. In the case filed with the District Court, damages for losses and payments of legal fees
were also demanded of the defendants in addition to the plea for injunction order, although no
specific amount of compensation was named. On 13 June 2014, ITC issued its initial determination
in respect of the case, ruling that the Company and ZTE USA had not infringed upon the patents
relating to the case, and that Section 337 had not been violated. On 15 August 2014, ITC issued
its final verdict on the case, ruling that the Company and ZTE USA had not infringed upon the
patents relating to the case and had not violated Section 337. The three companies aforesaid and
InterDigital Holdings, Inc. filed an appeal with the United States Court of Appeals for the Federal
Circuit in respect of the said final verdict, and the appeal process has currently been suspended.
On 28 October 2014, the Federal District Court of Delaware issued its verdict which ruled that
the Company and ZTE USA had infringed upon three out of four patents involved. Court hearing
in respect of the remaining patent involved has been postponed to April 2015. The Company and
ZTE USA have engaged a legal counsel to conduct active defense of the case and will consider
whether to file an appeal based on the verdicts on the four patents involved in the litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ZTE CORPORATION
296
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.6. On 20 May 2013, ZTE Brazil received another notice of administrative penalty issued by the tax
bureau of Sao Paulo State of Brazil, alleging that ZTE Brazil was not entitled to register and
apply for ICMS output tax on the grounds that ZTE Brazil had committed non-compliant acts
such as revoking invoices in the course of sales to customers during the period from 2010 to
2011, and therefore was required to make a remedial payment of ICMS tax, accrued interest and
a penalty in the aggregate amount of approximately BRL96,448,400 (equivalent to approximately
RMB223 million). On 19 June 2013, ZTE Brazil submitted an administrative defense to the primary
administrative court under the tax bureau of Sao Paulo State, stating that ZTE Brazil’s entitlement
to the ICMS output tax was provable by existing invoices and customers’ statements. On the
grounds that the fiscal revenue of Sao Paulo State would not be reduced as a result, ZTE Brazil
pleaded for the penalty to be waived pursuant to Section 527.A of Law No. 45.490 of Sao Paulo
State. ZTE Brazil also pointed out that the administrative penalty should be rendered invalid by the
fact of duplicated calculation of the amount of fine based on the same rules. On 18 September
2013, ZTE Brazil was notified of the ruling by the primary administrative court under the tax
bureau of Sao Paulo State that supported the administrative penalty. On 18 October 2013, ZTE
Brazil filed an appeal with the secondary administrative court of the tax bureau of Sao Paulo
State. The case is awaiting judgement by the secondary administrative court of the tax bureau of
Sao Paulo State. As at the balance sheet date, the Company had made a provision of BRL5.22
million (equivalent to approximately RMB14.77 million) in respect of the said litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim can be reliably estimated. No additional provision in respect of the litigation
was made.
2.7. In May 2012, the U.S. Flashpoint Technology Inc. filed a claim with ITC and the Federal District
Court of Delaware, respectively, in the United States, alleging the Company and ZTE USA of
infringement upon its patent rights in image processing related technologies. Defendants in the
case included other companies. In the ITC case, the said company demanded the issue of a
limited exclusion and injunction order against the Company’s and ZTE USA’s products that had
allegedly infringed its patent rights. In the case filed with the Federal District Court of Delaware,
damages for losses and payments of legal fees were also demanded of the Company and ZTE
USA in addition to the plea for injunction order, although no specific amount of compensation was
named. The litigation procedure at the Federal District Court of Delaware has been suspended.
On 1 October 2013, ITC announced the preliminary decision on the case that the Company and
ZTE USA did not infringe upon the patent rights as stipulated in Section 337. On 14 March 2014,
ITC issued its final determination in respect of the case, ruling that the Company and ZTE USA
had not violated the patents relating to the case and had not violated Section 337.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ANNUAL REPORT 2014
297
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.8. In July 2012, Technology Properties Limited LLC filed a claim with ITC and the Federal District
Court of California, respectively, in the United States, alleging the Company and ZTE USA of
infringement upon its patent rights in chips. Defendants in the ITC case included other companies.
In the ITC case, the said U.S. company demanded the issue of a permanent exclusion and
injunction order against the Company’s and ZTE USA’s products that had allegedly infringed its
patent rights. In the case filed with the Federal District Court of California, damages for losses
and payments of legal fees were also demanded of the Company and ZTE USA. in addition to the
plea for injunction order, although no specific amount of compensation was named. The litigation
procedure at the Federal District Court of California has been suspended. On 6 September 2013,
ITC announced the preliminary decision on the case that the Company and ZTE USA did not
infringe upon the patent rights as stipulated in Section 337. On 19 February 2014, ITC announced
the final decision on the case that the Company and ZTE USA did not infringe upon Section 337.
Currently, the litigation procedure at the Federal District Court of California has been resumed.
There has been no substantial progress in the litigation process.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
2.9. In November 2012, ZTE Brazil, a wholly-owned subsidiary of the Company, filed an application
with 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 RMB72,530,000). On 7 February 2013, Civil Court of Brasilia ruled
that given that there was no obvious dispute over obligation between the said Brazilian company
and any other company and no sign of bankruptcy, the freeze on the assets was suspended.
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 alleging that ZTE Brazil had
committed fraud and negligence in the course of cooperation and demanded compensation for
direct and indirect losses in the aggregate amount of approximately BRL82,974,500 (equivalent
to approximately RMB192 million). The Company has appointed an external legal counsel to
conduct active defense in respect of the said case.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
ZTE CORPORATION
298
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.10. In February 2013, Vringo Germany GmbH (“Vringo Germany”) filed a patent litigation with the Court
of Mannheim, Germany against the Company and ZTE Deutschland GmbH (“ZTE Deutschland”), a
wholly-owned subsidiary of the Company, pleading for the UMTS products of the Company and
ZTE Deutschland with TSTD (Time Switched Transmitter Diversity) functions to be ruled to have
infringed upon the patent rights of Vringo Germany. In December 2013, the Court of Mannheim,
Germany handed down the first trial judgement, ruling that the Company and ZTE Deutschland
had infringed upon the patent rights and issuing an injunction order against the Company and
ZTE Deutschland in respect of the UMTS products with TSTD functions. The Company and ZTE
Deutschland filed an appeal to the aforesaid court in January 2014, pleading for the rejection of
the patent infringement claims of Vringo Germany and revocation of the injunction order. Vringo
Germany withdrew its litigation in October 2014. In December 2014, Vringo Germany filed a patent
litigation with the Court of Dusseldorf, Germany in respect of the patents involved against the
Company and ZTE Service GmbH (“ZTE Service”), a wholly-owned subsidiary of the Company.
As the UMTS products of the Company, ZTE Deutschland and ZTE Service sold in Germany do
not support TSTD functions, the injunction order will not have any impact on the business of the
Company, ZTE Deutschland and ZTE Service in Germany.
In February 2014, Vringo Infrastructure Inc. (“Vringo”) filed a patent litigation with the High Court
of Delhi, India against the Company and ZTE Telecom India Private Limited (“ZTE India”), a wholly-
owned subsidiary of the Company, pleading for the GSM products of the Company and ZTE India
supporting Macro to Micro Handover Algorithm functions to be ruled to have infringed upon the
patent rights of Vringo and applied for the issue of a provisional injunction order by the High Court
of Delhi, India. In February 2014, the High Court of Delhi, India issued a provisional injunction
order against the Company and ZTE India in respect of the GSM products with Macro to Micro
Handover Algorithm functions. In April 2014, the Company and ZTE India filed an application to
the High Court of Delhi, India for the revocation of the provisional injunction order. In August
2014, the High Court of Delhi, India revoked such provisional injunction order.
In April 2014, Vringo filed a patent litigation with the Court of Rio, Brazil against the Company and
ZTE Brazil, pleading for the UMTS and LTE products of the Company and ZTE Brazil supporting
RNC Relocation functions to be ruled to have infringed upon the patent rights of Vringo and
applied for the issue of a provisional injunction order by the Court of Rio, Brazil. In April 2014,
the Court of Rio, Brazil issued a provisional injunction order against the Company and ZTE Brazil
in respect of UMTS and LTE products supporting RNC Relocation functions. In April 2014, the
Company and ZTE Brazil filed an application to the Court of Rio, Brazil for the revocation of the
provisional injunction order. As of now, the Court of Rio, Brazil has yet to make a ruling. The
provisional injunction order affects only the UMTS and LTE products of the Company and ZTE
Brazil supporting RNC Relocation functions sold in Brazil.
ANNUAL REPORT 2014
299
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XII. COMMITMENTS AND CONTINGENT EVENTS (continued)
2. Contingent events (continued)
2.10. (continued)
In June 2014, Vringo filed a patent litigation with the Court of Bucharest, Romania against the
Company and ZTE Romania SRL (“ZTE Romania”), a wholly-owned subsidiary of the Company,
pleading for the LTE products of the Company and ZTE Romania supporting Circuit Switched Fall
Back functions to be ruled to have infringed upon the patent rights of Vringo and applied for the
issue of a provisional injunction order by the court. In September 2014, the Court of Bucharest
issued a provisional injunction order against ZTE Romania in respect of LTE products, and ZTE
Romania filed an appeal to the Court of Appeal of Bucharest. In October 2014, the Court of
Appeal of Bucharest ruled to suspend the provisional injunction order.
In March 2014, the Company filed an antitrust litigation with Shenzhen Intermediate Court against
the alleged abuse of market dominance of Vringo, and Shenzhen Intermediate Court has accepted
such filing; the Company also filed an application for antitrust investigation to the EU Commission
in April 2014 and the EU Commission has accepted such filing. Meanwhile, the Company has
also filed litigations in the PRC, Germany, India, Brazil and Romania against Vringo for its patent
claims to be ruled invalid.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate
outcome of this claim cannot be reliably estimated.
2.11. As at 31 December 2014, the Group had outstanding guarantees given to banks in respect of
performance bonds amounting to RMB7,458,959,000 (31 December 2013: RMB7,022,304,000).
2.12. As at 31 December 2014, the Group provided financial guarantee (including interests accruable)
to independent customers for a maximum amount of RMB63,701,000 (31 December 2013:
RMB46,311,000).
XIII. EVENTS AFTER THE REPORTING PERIOD
Pursuant to the “Resolution on the Proposed Registration and Issue of Perpetual Medium Term Note of the
Company” considered and approved at the First Extraordinary General Meeting of 2014 of the Company
held on 15 October 2014, approval was granted to the Company for the issue of perpetual medium term
notes (“Medium Term Notes”) with an amount of no more than RMB9 billion. On 27 January 2015, the
issue of the 2015 first tranche of Medium Term Notes with an amount of RMB6 billion was completed. On
6 February 2015, the issue of the 2015 second tranche of Medium Term Notes with an amount of RMB1.5
billion was completed.
Pursuant to the profit distribution proposal recommended by the Board, cash dividend of RMB2 (before tax)
for every 10 shares held will be paid on the basis of the total share capital of the Company of 3,437,541,278
shares as at 31 December 2014, and 2 bonus shares will also be issued for every 10 shares held by
shareholders whose name appear in the register as at the Record Date through an increase in registered
capital by way of capitalisation of capital reserves. The profit distribution proposal is subject to approval by
the annual general meeting of the Company.
ZTE CORPORATION
300
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS
1. Leases
As lessee:
According to the lease contract signed with lessor, the group had total future minimum lease payments
under non-cancellable operating leases falling due as follows:
2014 2013
Within one year (including first year) 282,519 389,625
In the first to second years (including second year) 122,796 308,149
In the second to third years (including third year) 76,897 184,079
After the third year 36,648 205,126
518,860 1,086,979
2. Segment reporting
Operating segments
For management purposes, the Group is organised into business units based on their products and
services and has three reportable operating segments as follows:
(1) The networks (communication system) segment includes wireless communications, wireline switch
and access and optical and data communications;
(2) The handset terminals segment engages in the manufacture and sale of mobile phone handsets
and data card products;
(3) The telecommunications software systems, services and other products segment represent the
provision of telecommunications software systems such as operation support systems and the
provision of fee-based services.
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 profit before tax. The
adjusted profit before tax is measured consistently with the Group’s profit before tax except that
finance expenses, research and development costs, impairment losses, gain/(losses) from changes in
fair values, investment income as well as head office and corporate expenses are excluded from such
measurement.
Segment assets exclude deferred tax assets, cash, long-term equity investments, other receivables and
other unallocated head office and corporate assets as these assets are managed on a group basis.
ANNUAL REPORT 2014
301
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS (continued)
2. Segment reporting (continued)
Operating segments (continued)
Segment liabilities exclude derivative financial instruments, loans, other payables, bonds payables,
tax payable, deferred tax liabilities and other unallocated head office and corporate liabilities as these
liabilities are managed on a group basis.
Inter-segment sales and transfers are transacted with reference to the fair value prices used for sales
made to third parties.
2014
Network
(communication
systems)
Handset
terminals
Telecommunication
software systems,
services and other
products Total
Segment revenue
Revenue from telecommunications systems
contracts 46,768,231 — 11,553,352 58,321,583
Sales of goods and services — 23,117,090 32,602 23,149,692
Sub-total 46,768,231 23,117,090 11,585,954 81,471,275
Segment results 11,366,945 278,804 2,475,014 14,120,763
Unallocated revenue 3,787,643
Unallocated cost (12,364,446)
Finance costs (2,100,977)
Gain from changes in fair values 148,282
Investment loss from associates
and joint ventures (53,043)
Total profit 3,538,222
Income tax (810,492)
Net Profit 2,727,730
Total assets
Segment assets 36,161,825 17,874,444 8,958,415 62,994,684
Unallocated assets 43,219,512
Sub-total 106,214,196
Total liabilities
Segment liabilities 8,866,579 938,004 2,203,453 12,008,036
Unallocated liabilities 67,913,656
Sub-total 79,921,692
Supplemental information
Depreciation and amortization expenses 1,048,090 518,061 259,645 1,825,796
Capital expenditure 1,570,928 776,495 389,167 2,736,590
Asset impairment losses 690,136 341,128 170,968 1,202,232
ZTE CORPORATION
302
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS (continued)
2. Segment reporting (continued)
Operating segments (continued)
2013
Network
(communication
systems)
Handset
terminals
Telecommunication
software systems,
services and other
products Total
Segment revenue
Revenue from telecommunications systems
contracts 40,695,724 — 12,473,948 53,169,672
Sales of goods and services — 21,702,058 361,994 22,064,052
Sub-total 40,695,724 21,702,058 12,835,942 75,233,724
Segment results 9,208,655 17,946 1,797,837 11,024,438
Unallocated revenue 3,465,428
Unallocated cost (10,440,196)
Finance costs (2,460,303)
Gain from changes in fair values 204,010
Investment income from associates and
joint ventures 34,466
Total profit 1,827,843
Income tax (394,207)
Net profit 1,433,636
Total assets
Segment assets 33,992,931 10,767,784 10,721,797 55,482,512
Unallocated assets 44,596,985
Sub-total 100,079,497
Total liabilities
Segment liabilities 8,626,156 800,876 2,720,797 12,147,829
Unallocated liabilities 64,305,979
Sub-total 76,453,808
Supplemental information
Depreciation and amortization expenses 944,029 503,428 297,759 1,745,216
Capital expenditure 1,453,649 775,196 458,500 2,687,345
Asset impairment losses 859,791 458,506 271,189 1,589,486
ANNUAL REPORT 2014
303
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XIV. OTHER SIGNIFICANT MATTERS (continued)
2. Segment reporting (continued)
Group information
Geographic information
Revenue from external customers
2014 2013
The PRC 40,583,527 35,635,964
Asia (excluding the PRC) 12,131,576 13,849,495
Africa 6,174,187 5,866,115
Europe, America and Oceania 22,581,985 19,882,150
81,471,275 75,233,724
Revenue from external customers is analysed by geographic locations where the customers are located.
Total non-current assets
2014 2013
The PRC 11,812,310 11,486,177
Asia (excluding the PRC) 1,198,456 1,003,837
Africa 375,623 335,313
Europe, America and Oceania 1,130,718 896,663
14,517,107 13,721,990
Non-current assets are analysed by geographic locations where the assets (excluding long-term equity
investments, financial assets, deferred tax assets and other long-term receivables) are located.
Information of major customers
Operating revenue of RMB17,963,359,000 was derived from carriers’ network and handset terminal
revenue from one major customer (2013: RMB11,993,737,000 from one major customer).
3. Comparative data
As stated in Note II.2, the adoption of certain ASBEs with effect from 1 July 2014 resulted in the
revision of the accounting treatment and presentation of certain items and the adjustment of certain
amounts in the financial statements to comply with the new requirement. Certain data for the prior
year have also been restated accordingly.
ZTE CORPORATION
304
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS
1. Trade receivables
Aging analysis of trade receivables:
2014 2013
Within 1 year 27,795,706 24,930,582
1-2 years 5,042,898 6,126,670
2-3 years 2,788,914 2,553,484
Over 3 years 4,131,488 3,192,083
39,759,006 36,802,819
Less: bad debt provision for trade receivables 3,138,286 2,772,332
36,620,720 34,030,487
2014 2013
Book balance Bad debt provision Book balance Bad debt provision
Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%) Amount
Percentage
(%)
Individually significant and for
which bad debt provision
has been separately made 458,033 1 458,033 100 455,008 1 455,008 100
For which bad debt provision
has been collectively
made
0-6 months 23,497,793 59 — — 20,944,486 57 — —
7-12 months 4,297,913 11 160,968 4 3,986,096 11 138,797 3
13-18 months 3,631,313 9 311,189 9 4,292,764 12 544,511 13
19-24 months 1,411,584 4 430,435 30 1,831,038 5 326,279 18
2-3 years 2,786,001 7 834,942 30 2,521,816 7 423,080 17
Over 3 years 3,676,369 9 942,719 26 2,771,611 7 884,657 32
39,300,973 99 2,680,253 7 36,347,811 99 2,317,324 6
39,759,006 100 3,138,286 36,802,819 100 2,772,332
Movements in bad-debt provisions for trade receivables:
Decrease during the year
Opening
balance
Provision for
the year Write back Write off
Closing
balance
2014 2,772,332 414,061 — (48,107) 3,138,286
2013 2,034,184 841,840 — (103,692) 2,772,332
There was no write-back or recovery of individually significant trade receivables, for which bad debt
provision had been individually made in 2014 (2013: Nil).
Transfer of trade receivables that did not qualify for derecognition was separately classified as “Factored
trade receivables” and “Bank advances on factored trade receivables”.
ANNUAL REPORT 2014
305
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
2. Other receivables
The aging analysis of other receivables:
2014 2013
Within 1 year 379,947 7,176,627
1 to 2 years 2,962,180 2,218,545
2 to 3 years 2,068,545 818,400
Over 3 years 928,261 241,061
6,338,933 10,454,633
Other receivables are analysed as follows:
2014 2013
Staff loans 72,698 87,281
Transactions with third parties 6,266,235 10,367,352
6,338,933 10,454,633
3. Available-for-sale financial assets
2014 2013
Available-for-sale equity instruments
At cost 373,555 373,555
Available-for-sale financial assets at cost:
Book balance
Shareholding
percentage
Cash
dividend
for the
year
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance (%)
???????????? 201,734 — — 201,734 5% —
Others 171,821 — — 171,821 —
373,555 — — 373,555 —
ZTE CORPORATION
306
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
4. Long-term receivables
2014 2013
Loans granted to subsidiaries (Note 1) 5,234,574 4,151,237
Installment payments for the provision of telecommunication
system construction projects 296,620 416,717
Less: Bad debt provision for long-term receivables 50,949 50,098
5,480,245 4,517,856
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 year are as follows:
Decrease during the year
Opening
balance
Provision for
the year Write-back Write-off
Closing
balance
2014 50,098 851 — — 50,949
2013 51,647 — (1,549) — 50,098
The discount rates adopted for long-term receivables ranged from 6.16% to 17.56%.
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”.
5. Long-term equity investments
2014 2013
Equity method
Joint ventures (1) 55,721 55,005
Associates (2) 337,847 374,183
Cost method
Subsidiaries (3) 6,570,188 6,093,653
Less: Provision for impairment in long-term equity
investments (4) 79,345 92,315
6,884,411 6,430,526
ANNUAL REPORT 2014
307
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014
(1) Joint ventures
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under
equity
method
Other
comprehensive
income
Other
changes in
equity
Cash
dividend
declared
Provision
for
impairment
Closing
book value
Provision
for
impairment
at year-end
???????????? 46,005 — — 4,480 — — — — 50,485 —
?????????????? 9,000 — — (3,764) — — — — 5,236 —
55,005 — — 716 — — — — 55,721 —
(2) Associates
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under equity
method
Other
comprehensive
income
Other
changes
in equity
Cash
dividend
declared
Provision for
impairment
Closing
book
value
Provision for
impairment
at year-end
KAZNURTEL Limited Liability Company 2,477 — — — — — — — 2,477 —
????(??)?????? 19,501 — — 511 — — — — 20,012 —
?????????????? 24,851 — — (2,424) — — — — 22,427 —
ZTE Energy Co., Ltd 315,822 — — (50,116) — — — — 265,706 —
ZTE Software Technology (Nanchang)
Company Limited 973 — — (973) — — — — — —
Shenzhen Zhongxing Hetai Hotel
Investment Management
Company Limited 5,795 — — 1,221 — — — — 7,016 —
?????????????? 4,764 — — — — — — — 4,764 —
???????????? — 17,304 — (3,515) — — — — 13,789 —
?????????????? — 5,380 — (3,724) — — — — 1,656 —
374,183 22,684 — (59,020) — — — — 337,847 —
ZTE CORPORATION
308
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014 (continued)
(3) Subsidiaries
Investment
cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage
of
shareholding
Percentage of
voting rights
Cash dividend
for the year
Shenzhen Zhongxing Software Company Limited 263,293 263,293 — 263,293 100% 100% 2,000,000
ZTEsoft Technology Company Limited 89,921 89,921 — 89,921 80.10% 80.10% —
Shanghai Zhongxing Telecom Equipment Technology
Company Limited 37,382 37,382 — 37,382 90% 90% —
ZTE Kangxun Telecom Company Limited 580,000 580,000 — 580,000 100% 100% —
ZTE Microelectronics Technology Company Limited 102,174 102,174 — 102,174 100% 100% —
Anhui Wantong Posts and Telecommunication Company
Limited 11,329 11,329 — 11,329 51% 51% 3,172
ZTE Integration Telecom Limited 41,250 41,250 — 41,250 80% 80% —
Shenzhen ZTE Mobile Telecom Co., Ltd 321,407 321,407 — 321,407 90% 90% —
Shenzhen Zhongxing Telecom Equipment Technology &
Service Company Limited 45,000 45,000 — 45,000 100% 100% —
Xi’an Zhongxing Jing Cheng Communication Company
Limited 40,500 40,500 — 40,500 83% 83% —
Guangdong New Pivot Technology & Service Company
Limited 13,110 13,110 — 13,110 90% 90% 1,800
?????????????? 5,000 5,000 — 5,000 100% 100% —
Shenzhen Zhongliancheng Electronic Development
Company Limited 2,100 2,100 — 2,100 100% 100% —
Xi’an Zhongxing New Software Company Limited 600,000 600,000 — 600,000 100% 100% —
Shenzhen Zhongxing ICT Company Limited 157,019 157,019 — 157,019 90% 90% —
ZTE (Hangzhou) Company Limited 100,000 100,000 — 100,000 100% 100% —
??????????(??)???? 15,200 15,200 — 15,200 76% 76% —
Shenzhen Guoxin Electronics Development Company
Limited 29,700 29,700 — 29,700 100% 100% —
PT.ZTE Indonesia 15,275 15,275 — 15,275 100% 100% —
Telrise (Cayman) Telecom Limited 21,165 21,165 (21,165) — 100% 100% —
ZTE Wistron Telecom AB (Europe Research Institute) 2,137 2,137 — 2,137 100% 100% —
ZTE (Malaysia) CorporationSDN.BHD 496 496 — 496 100% 100% —
ZTE Holdings(Thailand) Co.,Ltd 10 10 — 10 100% 100% —
ZTE(Thailand) Co.,Ltd. 5,253 5,253 — 5,253 100% 100% —
ZTE(USA) Inc. 190,133 190,133 — 190,133 100% 100% —
ZTE Corporation Mexico S.DER.LDEC.V. 42 42 — 42 100% 100% —
ZTE DoBrasil LTDA 18,573 18,573 — 18,573 100% 100% —
ZTE Romania S.R.L 827 827 — 827 100% 100% —
ZTE Telecom India Private Ltd. 335,759 335,759 — 335,759 100% 100% —
ZTE-Communication Technologies,Ltd. 6,582 6,582 — 6,582 100% 100% —
Zhongxing Telecom Pakistan (Private) Ltd. 5,279 5,279 — 5,279 93% 93% —
ANNUAL REPORT 2014
309
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014 (continued)
(3) Subsidiaries (continued)
Investment
cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage
of
shareholding
Percentage of
voting rights
Cash dividend
for the year
Closed Joint Stock Company TK Mobile 16,871 16,871 — 16,871 51% 51% —
ZTE (H.K.) Limited 853,800 853,800 — 853,800 100% 100% —
Shenzhen ZTE Capital Management Company
Limited 16,500 16,500 — 16,500 55% 55% 6,317
ZTE (Heyuan) Company Limited 500,000 500,000 — 500,000 100% 100% —
Shenzhen Zhonghe Chunsheng No. 1 Equity
Investment Fund Partnership Enterprise 278,700 278,700 (21,300) 257,400 30% N/A —
ZTE Group Finance Co., Ltd 1,000,000 1,000,000 — 1,000,000 100% 100% —
??????????? 16,000 16,000 — 16,000 100% 100% —
Shenzhen Zhongxing Supply Chain Co., Ltd 28,500 28,500 — 28,500 95% 95% —
???????????? 159,341 159,341 — 159,341 100% 100% —
?????????????? 300 300 — 300 100% 100% —
????????????? 45,125 45,125 — 45,125 95% 95% —
???????????? 50,000 50,000 — 50,000 100% 100% —
???????????? 32,600 32,600 — 32,600 100% 100% —
??????????????? 30,000 30,000 — 30,000 100% 100% —
??????????? 10,000 10,000 37,500 47,500 95% 95% —
????????????? 42,500 — 42,500 42,500 85% 85% —
?????????????? 300,000 — 300,000 300,000 100% 100% —
?????????? 15,000 — 15,000 15,000 50% 50% —
?????????????? 9,000 — 9,000 9,000 100% 100% —
????????????? 15,000 — 15,000 15,000 100% 100% —
????????????? 100,000 — 100,000 100,000 30% N/A —
6,093,653 476,535 6,570,188 2,011,289
ZTE CORPORATION
310
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2014 (continued)
(4) Provision for long-term equity investments
Opening
balance
Increase/
decrease
during the
year
Closing
balance
ZTE (USA) Inc. 5,381 — 5,381
Telrise (Cayman) Telecom Limited 12,970 (12,970) —
Shenzhen Guoxin Electronics Development
Company Limited 23,767 — 23,767
Shenzhen ZTE Mobile Telecom Co., Ltd 17,657 — 17,657
ZTE DoBrasil LTDA 10,059 — 10,059
ZTE Integration Telecom Limited 4,591 — 4,591
Wistron Telecom AB (Europe Research
Institute) 2,030 — 2,030
ZTE Corporation Mexico S.DER.LDEC.V. 41 — 41
Zhongxing Telecom Pakistan (Private ) Ltd. 2,971 — 2,971
Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited 9,656 — 9,656
ZTE Holdings (Thailand) Co., Ltd 10 — 10
ZTE (Thailand) Co., Ltd. 205 — 205
ZTE Telecom India Private Ltd. 1,654 — 1,654
ZTE Romania S.R.L 827 — 827
ZTE (Malaysia) Corporation SDN. BHD 496 — 496
92,315 (12,970) 79,345
2013
(1) Joint ventures
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under equity
method
Other
comprehensive
income
Other
changes
in equity
Cash
dividend
declared
Provision
for
impairment
Closing
book
value
Provision for
impairment
at year-end
???????????? 44,559 — — 1,446 — — — — 46,005 —
?????????????? — 9,000 — — — — — — 9,000 —
44,559 9,000 — 1,446 — — — — 55,005 —
ANNUAL REPORT 2014
311
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(2) Associates
Change during the year
Opening
balance Increase Decrease
Investment
gain/loss
under equity
method
Other
comprehensive
income
Other
changes
in equity
Cash
dividend
declared
Provision for
impairment
Closing
book value
Provision for
impairment at
year-end
KAZNURTEL Limited
Liability Company 2,477 — — — — — — — 2,477 —
????(??)?????? 19,455 — — 46 — — — — 19,501 —
??????????
???? 12,152 — — 12,699 — — — — 24,851 —
ZTE Energy Co., Ltd 302,793 — — 22,490 — — (9,461) — 315,822 —
ZTE Software Technology
(Nanchang) Company
Limited 836 — — 137 — — — — 973 —
Shenzhen Zhongxing Hetai
Hotel investment
Management Company
Limited 5,548 — — 247 — — — — 5,795 —
??????????
???? 5,932 — — (1,168) — — — — 4,764 —
349,193 — — 34,451 — — (9,461) — 374,183 —
ZTE CORPORATION
312
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(3) Subsidiaries
Investment
Cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage of
shareholding
(%)
Percentage of
voting rights
(%)
Cash dividend
for the year
Shenzhen Zhongxing Software Company
Limited 263,293 263,293 — 263,293 100% 100% 1,000,000
ZTEsoft Technology Company Limited 89,921 89,921 — 89,921 80.10% 80.10% —
Shenzhen ZNV Technology Company Limited — 244,827 (244,827) — — — —
Shanghai Zhongxing Telecom Equipment
Technology Company Limited 37,382 37,382 — 37,382 90% 90% —
ZTE Kangxun Telecom Company Limited 580,000 580,000 — 580,000 100% 100% —
ZTE Microelectronics Technology Company
Limited 102,174 102,174 — 102,174 100% 100% —
Anhui Wantong Posts and Telecommunication
Company Limited 11,329 11,329 — 11,329 51% 51% 1,586
Wuxi Zhongxing Optoelectronics Technologies
Company Limited — 6,500 (6,500) — — — —
ZTE Integration Telecom Limited 41,250 41,250 — 41,250 80% 80% —
Shenzhen ZTE Mobile Telecom Co., Ltd 321,407 321,407 — 321,407 90% 90% —
Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited 45,000 45,000 — 45,000 100% 100% —
Xi’an Zhongxing Jing Cheng Communication
Company Limited 40,500 10,500 30,000 40,500 83% 83% —
Guangdong New Pivot Technology & Service
Company Limited 13,110 13,110 — 13,110 90% 90% —
?????????????? 5,000 5,000 — 5,000 100% 100% —
Shenzhen Zhongliancheng Electronic
Development Company Limited 2,100 2,100 — 2,100 100% 100% —
Xi’an Zhongxing New Software Company
Limited 600,000 600,000 — 600,000 100% 100% —
Shenzhen Zhongxing ICT Company Limited 157,019 157,019 — 157,019 90% 90% —
ZTE (Hangzhou) Company Limited 100,000 100,000 — 100,000 100% 100% —
??????????(??)???? 15,200 15,200 — 15,200 76% 76% —
Shenzhen Guoxin Electronics Development
Company Limited 29,700 29,700 — 29,700 100% 100% —
PT.ZTE Indonesia 15,275 15,275 — 15,275 100% 100% —
Telrise (Cayman) Telecom Limit 21,165 21,165 — 21,165 100% 100% —
ZTE Wistron Telecom AB (Europe Research
Institute) 2,137 2,137 — 2,137 100% 100% —
ZTE (Malaysia) CorporationSDN.BHD 496 496 — 496 100% 100% —
ZTE Holdings(Thailand) Co.,Ltd 10 10 — 10 100% 100% —
ZTE(Thailand) Co.,Ltd.(Thailand) 5,253 5,253 — 5,253 100% 100% —
ZTE(USA) Inc. 190,133 190,133 — 190,133 100% 100% —
ZTE Corporation MexicoS.DER.LDEC.V. 42 42 — 42 100% 100% —
ZTE DoBrasil LTDA 18,573 18,573 — 18,573 100% 100% —
ZTE Romania S.R.L 827 827 — 827 100% 100% —
ZTE Telecom India Private Ltd. 335,759 335,759 — 335,759 100% 100% —
ZTE-Communication Technologies,Ltd. 6,582 6,582 — 6,582 100% 100% —
ANNUAL REPORT 2014
313
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(3) Subsidiaries (continued)
Investment
Cost
Opening
balance
Increase/
decrease
during the
year
Closing
balance
Percentage of
shareholding
(%)
Percentage of
voting rights
(%)
Cash dividend
for the year
Zhongxing Telecom Pakistan (Private) Ltd. 5,279 5,279 — 5,279 93% 93% —
Closed Joint Stock Company TK Mobile 16,871 16,871 — 16,871 51% 51% —
ZTE (H.K.) Limited 853,800 853,800 — 853,800 100% 100% —
Shenzhen ZTE Capital Management Company
Limited 16,500 16,500 — 16,500 55% 55% —
ZTE (Heyuan) Company Limited 500,000 500,000 — 500,000 100% 100% —
Shenzhen Zhonghe Chunsheng No. 1 Equity
Investment Fund Partnership Enterprise 278,700 300,000 (21,300) 278,700 30% N/A —
ZTE Group Finance Co., Ltd 1,000,000 1,000,000 — 1,000,000 100% 100% —
??????????? 16,000 10,000 6,000 16,000 100% 100% —
Shenzhen Zhongxing Supply Chain Co., Ltd 28,500 28,500 — 28,500 95% 95% —
???????????? 159,341 159,341 — 159,341 100% 100% —
?????????????? 300 300 — 300 100% 100% —
????????????? 45,125 28,500 16,625 45,125 95% 95% —
???????????? 50,000 — 50,000 50,000 100% 100% —
???????????? 32,600 — 32,600 32,600 100% 100% —
??????????????? 30,000 — 30,000 30,000 100% 100% —
??????????? 10,000 — 10,000 10,000 95% 95% —
6,191,055 (97,402) 6,093,653 1,001,586
ZTE CORPORATION
314
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
5. Long-term equity investments (continued)
2013 (continued)
(4) Provision for long-term equity investments
Opening
balance
Increase/
decrease
during the
year
Closing
balance
ZTE (USA) Inc. 5,381 — 5,381
Telrise (Cayman) Telecom Limited 12,970 — 12,970
Shenzhen Guoxin Electronics Development
Company Limited 23,767 — 23,767
Shenzhen ZTE Mobile Telecom Co., Ltd 17,657 — 17,657
ZTE DoBrasil LTDA 10,059 — 10,059
ZTE Integration Telecom Limited 4,591 — 4,591
Wistron Telecom AB (Europe research institute) 2,030 — 2,030
ZTE Corporation Mexico S.DER.LDEC.V. 41 — 41
Zhongxing Telecom Pakistan (Private) Ltd. 2,971 — 2,971
Shenzhen Zhongxing Telecom Equipment
Technology & Service Company Limited 9,656 — 9,656
ZTE Holdings (Thailand) Co., Ltd 10 — 10
ZTE (Thailand) Co., Ltd. 205 — 205
ZTE TelecomIndia Private Ltd. 1,654 — 1,654
ZTE Romania S.R.L 827 — 827
ZTE (Malaysia) Corporation SDN. BHD 496 — 496
92,315 — 92,315
6. Operating revenue and costs
2014 2013
Revenue Cost Revenue Cost
Revenue 63,084,800 64,424,944 56,490,240 58,376,755
Other income 13,513,540 1,397 12,461,703 3,633
76,598,340 64,426,341 68,951,943 58,380,388
ANNUAL REPORT 2014
315
Notes to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
XV. EXPLANATORY NOTES TO MAJOR ITEMS IN THE FINANCIAL STATEMENTS (continued)
7. Investment income
2014 2013
Investment (loss)/income from long-term equity investment under
equity method (58,304) 35,898
Investment income from long-term equity investment under cost
method 2,025,896 1,012,506
Investment income/(loss) from financial assets at fair value through
profit and loss for the period of holding 56,907 (25,085)
Investment (loss)/income from the disposal of long-term equity
investment (6,852) 887,468
2,017,647 1,910,787
ZTE CORPORATION
316
Supplementary Information to Financial Statements
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
1. BREAKDOWN OF EXTRAORDINARY GAINS/LOSSES
Amount for 2014
Loss from the disposal of non-current assets (35,661)
Investment loss from disposal of long-term equity investment (4,181)
Profit of changes in fair value arising from trading financial assets and trading
financial liabilities except for valid straddle business relevant to normal business
of the company, as well as investment gain realised from disposal of trading
financial assets and trading financial liabilities 177,498
Gain from change in fair value of investment properties 130,306
Net amount of other non-operating income and expenses 392,726
Effect of income tax (99,103)
561,585
Note 1 The Group recognizes 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:
Amount for 2014 Reason
Refund of VAT on software products 2,481,772 In line with national policies and received on an ongoing basis
Refund of individual tax 15,075 In line with national policies and received on an ongoing basis
2. RETURN RATIO ON NET ASSETS AND EARNINGS PER SHARE
2014
Weighted average return
on net assets (%)
Earnings per share
Basic Diluted
Net profit attributable to ordinary shareholders of the
Company 11.10% RMB0.77 RMB0.77
Net profit after extraordinary items attributable to
ordinary shareholders of the Company 8.74% RMB0.60 RMB0.60
2013
Weighted average return
on net assets (%)
Earnings per share
Basic Diluted
Net profit attributable to ordinary shareholders of the
Company 6.17% RMB0.39 RMB0.39
Net profit after extraordinary items attributable to
ordinary shareholders of the Company 0.33% RMB0.02 RMB0.02
ANNUAL REPORT 2014
317
Supplementary Information to Financial Statements (continued)
(Prepared in accordance with PRC ASBEs)
(All amounts in RMB’000 unless otherwise stated)
(English translation for reference only)
3. RECONCILIATION OF DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER PRC
AND HONG KONG FINANCIAL REPORTING STANDARDS
There were no significant differences between financial statements prepared under PRC ASBEs and under
HKFRSs. Ernst & Young is the auditor for the Group and Company’s financial statements prepared under
HKFRSs.
ZTE CORPORATION
318
Independent Auditors’ Report
To the shareholders of ZTE Corporation
(Established in the People’s Republic of China with limited liability)
We have audited the consolidated financial statements of ZTE Corporation (the “Company”) and its subsidiaries
(together, the “Group”) set out on pages 320 to 439, which comprise the consolidated and company statements
of financial position as at 31 December 2014, and the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash
flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Directors’ responsibility for the consolidated financial statements
The directors of the Company are responsible for the preparation of consolidated financial statements that give a
true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute
of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for
such internal control as the directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our
report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or
accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute
of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation
of consolidated financial statements that give a true and fair view in order to design audit procedures that are
appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
ANNUAL REPORT 2014
319
Independent Auditors’ Report (continued)
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company
and of the Group as at 31 December 2014, and of the Group’s profit and cash flows for the year then ended in
accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with
the disclosure requirements of the Hong Kong Companies Ordinance.
Certified Public Accountants
22nd Floor, CITIC Tower
1 Tim Mei Avenue
Central, Hong Kong
25 March 2015
ZTE CORPORATION
320
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
REVENUE 5 81,471,275 75,233,724
Cost of sales (57,759,027) (54,775,081)
Gross profit 23,712,248 20,458,643
Other income and gains 5 4,561,228 4,905,336
Research and development costs (9,008,537) (7,383,892)
Selling and distribution expenses (10,391,579) (10,158,537)
Administrative expenses (2,138,123) (2,258,739)
Other expenses (1,582,298) (2,118,997)
Finance costs 7 (1,561,674) (1,650,437)
Share of profits and losses of:
Joint ventures 716 1,446
Associates (53,759) 33,020
PROFIT BEFORE TAX 6 3,538,222 1,827,843
Income tax expense 10 (810,492) (394,207)
PROFIT FOR THE YEAR 2,727,730 1,433,636
Attributable to:
Owners of the parent 11 2,633,571 1,357,657
Non-controlling interests 94,159 75,979
2,727,730 1,433,636
OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) to be reclassified to profit
or loss in subsequent periods:
Cash flow hedges — effective portion of changes in fair
value of hedging instruments arising during the year 3,965 5,784
Changes in fair value of available-for-sale investments (28,570) 169,639
Exchange differences on translation of foreign operations (295,834) (461,725)
Net other comprehensive loss to be reclassified to profit or
loss in subsequent periods (320,439) (286,302)
Other comprehensive income (loss) not to be reclassified to
profit or loss in subsequent periods:
Share of investee results in other comprehensive income
under the equity method which will not be reclassified to
profit or loss in subsequent periods upon fulfillment of
certain conditions 3,434 —
Actuarial gains (loss) on defined benefit plans (16,599) 7,040
Net other comprehensive income (loss) not to be reclassified
to profit or loss in subsequent periods (13,165) 7,040
OTHER COMPREHENSIVE LOSS FOR THE YEAR,
NET OF TAX (333,604) (279,262)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,394,126 1,154,374
Attributable to:
Owners of the parent 2,269,999 1,055,746
Non-controlling interests 124,127 98,628
2,394,126 1,154,374
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY
EQUITY HOLDERS OF THE PARENT 13
Basic RMB0.77 RMB0.39
Diluted RMB0.77 RMB0.39
Details of the dividends payable and proposed for the year are disclosed in note 12 to the financial statements.
ANNUAL REPORT 2014
321
Consolidated Statement of Financial Position
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT ASSETS
Property, plant and equipment 15 7,664,442 7,697,841
Prepaid land lease payments 17 1,082,208 1,064,021
Intangible assets 18 3,741,514 3,081,233
Investment properties 16 2,004,465 1,855,246
Investments in joint ventures 21 67,607 66,891
Investments in associates 22 393,709 411,146
Available-for-sale investments 23 1,739,664 1,630,271
Long-term trade receivables 26 266,501 366,762
Factored long-term trade receivables 27 1,701,978 2,311,525
Deferred tax assets 38 1,284,493 1,353,033
Pledged deposits 30 3,744,472 3,396,897
Long-term prepayments, deposits and other receivables 19 273,158 415,700
Total non-current assets 23,964,211 23,650,566
CURRENT ASSETS
Prepaid land lease payments 17 24,478 23,649
Inventories 24 19,592,298 12,434,352
Amount due from customers for contract works 25 11,033,468 12,137,144
Trade and bills receivables 26 27,239,734 24,893,928
Factored trade receivables 27 3,160,705 3,338,801
Prepayments, deposits and other receivables 28 6,882,868 4,874,021
Derivative financial instruments 29 240,973 217,454
Pledged deposits 30 718,306 708,641
Time deposits with original maturity of over three months 30 167,428 76,120
Cash and cash equivalents 30 17,230,140 20,118,274
Total current assets 86,290,398 78,822,384
CURRENT LIABILITIES
Trade and bills payables 31 29,626,088 24,990,555
Amount due to customers for contract works 25 3,825,106 3,682,564
Other payables and accruals 32 15,598,327 15,311,007
Derivative financial instruments 29 70,604 67,779
Interest-bearing bank borrowings 33 11,041,149 15,342,957
Bank advances on factored trade receivables 27 3,175,432 3,377,374
Tax payable 489,141 557,059
Dividends payable 8,113 34,963
Bonds payable 34 6,131,185 —
Total current liabilities 69,965,145 63,364,258
NET CURRENT ASSETS 16,325,253 15,458,126
TOTAL ASSETS LESS CURRENT LIABILITIES 40,289,464 39,108,692
continued/…
ZTE CORPORATION
322
Consolidated Statement of Financial Position (continued)
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT LIABILITIES
Derivative financial instruments 29 881 4,286
Bonds payable 34 — 6,119,590
Interest-bearing bank borrowings 33 10,039,687 5,385,673
Bank advances on factored long-term trade receivables 27 1,701,978 2,311,525
Financial guarantee contract 44 3,689 3,689
Deferred tax liabilities 38 159,340 139,900
Provision for retirement benefits 35 115,450 95,806
Other non-current liabilities 36 1,975,935 1,422,534
Total non-current liabilities 13,996,960 15,483,003
Net assets 26,292,504 23,625,689
EQUITY
Equity attributable to owners of the parent
Issued capital 39 3,437,541 3,437,541
Reserves 41 20,753,525 18,991,981
Proposed final dividend 12 687,508 103,126
24,878,574 22,532,648
Non-controlling interests 1,413,930 1,093,041
Total equity 26,292,504 23,625,689
Hou Weigui Shi Lirong
Director Director
ANNUAL REPORT 2014
323
Consolidated Statement of Changes in Equity
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
Attributable to owners of the parent
Issued
capital
Capital
reserve
Hedging
reserve
Share
Incentive
Scheme
reserve
Statutory
reserves
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend Total
Non-
controlling
interests Total equity
Notes RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2013
As previously reported 3,440,078 9,369,499 (16,856) — 1,587,430 (582,699) 7,705,022 — 21,502,474 1,136,256 22,638,730
Prior year adjustments — (45,891) — — — — — — (45,891) — (45,891)
As restated 3,440,078 9,323,608 (16,856) — 1,587,430 (582,699) 7,705,022 — 21,456,583 1,136,256 22,592,839
Profit for the year — — — — — — 1,357,657 — 1,357,657 75,979 1,433,636
Other comprehensive income for the year:
Cash flow hedges, net of tax — — 5,784 — — — — — 5,784 — 5,784
Actuarial gains and losses on defined
benefit plans — 7,040 — — — — — — 7,040 — 7,040
Changes in fair value of available-for-sale
investments — 149,231 — — — — — — 149,231 20,408 169,639
Exchange differences on translation of
foreign operations — — — — — (463,966) — — (463,966) 2,241 (461,725)
Total comprehensive income/(loss) for
the year — 156,271 5,784 — — (463,966) 1,357,657 — 1,055,746 98,628 1,154,374
Disposal of subsidiaries — — — — — — — — — (110,224) (110,224)
Dividends declared to non-controlling
shareholders — — — — — — — — — (1,524) (1,524)
Capital contributions by non-controlling
shareholders — — — — — — — — — 18,895 18,895
Capital withdrawal by non-controlling
shareholders — — — — — — — — — (48,990) (48,990)
Share Incentive Scheme: 40
— Equity-settled share option expense (2,537) — — 22,856 — — — — 20,319 — 20,319
Proposed final 2013 dividend 12 — — — — — — (103,126) 103,126 — — —
Transfer from retained profits — — — — 25,765 — (25,765) — — — —
At 31 December 2013 3,437,541 9,479,879* (11,072)* 22,856* 1,613,195* (1,046,665)* 8,933,788* 103,126 22,532,648 1,093,041 23,625,689
ZTE CORPORATION
324
Consolidated Statement of Changes in Equity (continued)
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
Attributable to owners of the parent
Issued
capital
Capital
reserve
Hedging
reserve
Share
Incentive
Scheme
reserve
Statutory
reserves
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend Total
Non-
controlling
interests Total equity
Notes RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2014 3,437,541 9,479,879 (11,072) 22,856 1,613,195 (1,046,665) 8,933,788 103,126 22,532,648 1,093,041 23,625,689
Profit for the year — — — — — — 2,633,571 — 2,633,571 94,159 2,727,730
Other comprehensive income for the year:
Cash flow hedges, net of tax — — 3,965 — — — — — 3,965 — 3,965
Actuarial gains and losses on defined
benefit plans — (16,599) — — — — — — (16,599) — (16,599)
Changes in fair value of available-for-sale
investments — (40,800) — — — — — — (40,800) 12,230 (28,570)
Share of investee results in other
comprehensive income under the equity
method which will not be reclassified
to profit or loss in subsequent periods
upon fulfillment of certain conditions — 3,090 — — — — — — 3,090 344 3,434
Exchange differences on translation of
foreign operations of foreign operations — — — — — (313,228) — — (313,228) 17,394 (295,834)
Total comprehensive income/(loss) for
the year — (54,309) 3,965 — — (313,228) 2,633,571 — 2,269,999 124,127 2,394,126
Disposal of fractional shares — 812 — — — — — — 812 — 812
Dividends declared to non-controlling
shareholders — — — — — — — — — (7,748) (7,748)
Capital contributions by non-controlling
shareholders — — — — — — — — — 253,500 253,500
Capital withdrawal by non-controlling
shareholders — — — — — — — — — (48,990) (48,990)
Final 2013 dividend declared — — — — — — — (103,126) (103,126) — (103,126)
Share Incentive Scheme: 40 — —
— Equity-settled share option expense — — — 178,241 — — — — —
— Unlocking the lock-up shares — — — — — — — — 178,241 — 178,241
Proposed final 2014 dividend 12 — — — — — — (687,508) 687,508 — — —
Transfer from retained profits — — — — 155,817 — (155,817) — — — —
At 31 December 2014 3,437,541 9,426,382* (7,107)* 201,097* 1,769,012* (1,359,893)* 10,724,034* 687,508 24,878,574 1,413,930 26,292,504
* These reserve accounts comprise the consolidated reserves of approximately RMB 20,753,525,000 (2013: RMB18,991,981,000) in the
consolidated statement of financial position.
ANNUAL REPORT 2014
325
Consolidated Statement of Cash Flows
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 3,538,222 1,827,843
Adjustments for:
Finance costs 7 1,561,674 1,650,437
Share of profits and losses of joint ventures (716) (1,446)
Share of profits and losses of associates 53,759 (33,020)
Bank and other interest income 5 (433,604) (355,958)
Dividend income 5 (32,176) (22,240)
Loss on disposal of items of property, plant and equipment 6 35,661 18,066
Loss/(gain) on disposal of equity interests 6 4,181 (866,677)
Gain on disposal of available-for-sale investments 6 (13,483) (667)
Fair value loss on equity investments held for trading 6 — 9,523
Fair value gain on derivative instruments 6 (17,976) (174,829)
(Gain)/loss on disposal of derivative financial instruments 6 (146,039) 30,548
Gain on disposal of equity investment at fair value through
profit or loss 5 — (20,904)
Depreciation 15 975,691 967,593
Recognition of prepaid land lease payments 17 23,050 21,138
Amortisation of intangible assets 18 827,055 756,485
Write-down of inventories to net realisable value 6 523,950 479,704
Impairment of trade receivables 6 675,522 1,109,782
Impairment of property, plant and equipment 6 2,760 —
Equity-settled share option expense 6 178,241 29,707
Changes in fair value of investment properties 6 (130,306) (38,704)
7,625,466 5,386,381
Increase in inventories (7,681,897) (1,694,241)
Decrease in the amount due from customers for contract
works 1,103,676 1,322,264
Increase in trade and bills receivables (3,021,328) (183,277)
Decrease in long-term trade receivables 100,261 841,430
Decrease/(increase) in factored trade receivables 787,643 (31,355)
(Increase)/decrease in prepayments, deposits and other
receivables (2,344,183) 683,602
Increase/(decrease) in trade and bills payables 4,636,985 (4,200,710)
Increase in the amount due to customers for contract works 142,542 223,019
Increase/(decrease) in other payables and accruals 1,985,077 (104,266)
(Increase)/decrease in other non-current assets (7,583) 70,437
Increase in provision for retirement benefits 3,045 2,913
Cash generated from operations 3,329,704 2,316,197
continued/…
ZTE CORPORATION
326
Consolidated Statement of Cash Flows (continued)
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
Cash generated from operations 3,329,704 2,316,197
Interest received 421,190 341,563
Interest and other finance costs paid (1,720,785) (1,527,941)
Hong Kong profits tax paid (14,058) (6,160)
PRC taxes paid (260,896) (273,049)
Overseas taxes paid (515,569) (246,180)
Dividends paid (103,126) —
Dividends paid to non-controlling shareholders (34,598) (157,567)
Net cash flows from operating activities 1,101,862 446,863
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to prepaid land lease payments (42,066) (199,780)
Purchases of items of property, plant and equipment (1,007,144) (904,052)
Purchases of intangible assets (1,018,394) (1,233,094)
Proceeds from disposal of items of property, plant and
equipment 72,015 5,955
Acquisition of joint ventures — (18,631)
Capital contribution in associates (32,731) (22,155)
Purchases of available-for-sale investments (220,000) (486,556)
Purchases of convertible bonds — (168,329)
Proceeds from disposal of equity investment at fair value
through profit or loss — 56,309
Addition to other receivables 68,530 (144,613)
Disposal of subsidiaries 289,890 1,318,667
Acquisition of a subsidiary 71,876 —
Dividend received from associates — 9,461
Dividend received from available-for-sale investments 5,593 9,977
Proceeds from available-for-sale investments 88,642 —
Settlement of derivative financial instruments 154,240 (30,509)
(Increase)/decrease in time deposits with original maturity of
over three months (91,308) 10,488
(Increase)/decrease in pledged bank deposits (357,240) 431,719
(Increase)/decrease in other non-current assets (4,191) 194,169
Net cash flows used in investing activities (2,022,288) (1,170,974)
continued/…
ANNUAL REPORT 2014
327
Consolidated Statement of Cash Flows (continued)
(Prepared under Hong Kong Financial Reporting Standards)
Year ended 31 December 2014
2014 2013
Notes RMB’000 RMB’000
Net cash flows used in investing activities (2,022,288) (1,170,974)
CASH FLOWS FROM FINANCING ACTIVITIES
Disposal of fractional shares 812 —
Repayment of corporate bonds — (4,000,000)
Capital contribution by non-controlling shareholders 253,500 18,895
Acquisition of non-controlling interests (48,990) (48,990)
New bank loans 39,500,323 23,291,362
Repayment of bank loans (40,810,074) (20,372,924)
(Decrease)/increase in bank advances on factored trade
receivables (811,489) 66,510
Net cash flows used in financing activities (1,915,918) (1,045,147)
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,836,344) (1,769,258)
Cash and cash equivalents at beginning of year 20,118,274 22,659,635
Effect of foreign exchange rate changes, net (51,790) (772,103)
CASH AND CASH EQUIVALENTS AT END OF YEAR 30 17,230,140 20,118,274
ANALYSIS OF BALANCES OF CASH AND CASH
EQUIVALENTS
Unrestricted bank balances and cash 30 13,528,462 17,827,033
Time deposits with original maturity of less than three months 30 3,701,678 2,291,241
Cash and cash equivalents as stated in the statement of
financial position and the statement of cash flows 17,230,140 20,118,274
ZTE CORPORATION
328
Statement of Financial Position
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT ASSETS
Property, plant and equipment 15 4,515,175 4,816,730
Prepaid land lease payments 17 366,182 369,058
Intangible assets 18 986,515 739,638
Investment properties 16 1,597,919 1,496,338
Investments in subsidiaries 20 11,725,417 10,152,575
Investments in joint ventures 21 55,721 55,005
Investments in associates 22 287,200 265,232
Available-for-sale investments 23 373,555 373,555
Long-term trade receivables 26 245,671 366,619
Factored long-term trade receivables 27 1,287,954 1,968,052
Deferred tax assets 38 674,629 762,009
Pledged deposits 30 3,744,472 3,396,897
Long-term prepayments, deposits and other receivables 19 135,203 199,744
Total non-current assets 25,995,613 24,961,452
CURRENT ASSETS
Prepaid land lease payments 17 9,038 8,901
Inventories 24 12,353,923 7,056,518
Amount due from customers for contract works 25 7,799,190 7,029,635
Trade and bills receivables 26 38,494,719 36,881,669
Factored trade receivables 27 1,259,713 2,084,134
Prepayments, deposits and other receivables 28 12,004,220 14,444,035
Derivative financial instruments 29 53,390 69,300
Pledged deposits 30 310,122 406,892
Cash and cash equivalents 30 9,715,869 11,756,438
Total current assets 82,000,184 79,737,522
CURRENT LIABILITIES
Trade and bills payables 31 43,604,493 44,451,968
Amount due to customers for contract works 25 2,654,158 2,496,029
Other payables and accruals 32 24,402,769 21,691,193
Interest-bearing bank borrowings 33 8,418,581 8,375,865
Bank advances on factored trade receivables 27 1,274,440 2,122,707
Bonds payable 34 6,131,185 —
Derivative financial instruments 29 17,587 12,575
Tax payable 111,846 202,275
Dividends payable 156 152
Total current liabilities 86,615,215 79,352,764
NET CURRENT (LIABILITIES)/ASSETS (4,615,031) 384,758
TOTAL ASSETS LESS CURRENT LIABILITIES 21,380,582 25,346,210
continued/…
ANNUAL REPORT 2014
329
Statement of Financial Position (continued)
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
31 December
2014
31 December
2013
Notes RMB’000 RMB’000
NON-CURRENT LIABILITIES
Bonds payable 34 — 6,119,590
Interest-bearing bank borrowings 33 2,980,100 1,780,000
Bank advances on factored long-term trade receivables 27 1,287,954 1,968,052
Financial guarantee contract 44 3,689 3,689
Deferred tax liabilities 38 158,350 138,400
Provision for retirement benefits 35 115,450 95,806
Other long-term payables 1,344,787 1,426,820
Total non-current liabilities 5,890,330 11,532,357
Net assets 15,490,252 13,813,853
EQUITY
Issued capital 39 3,437,541 3,437,541
Reserves 41 11,365,203 10,273,186
Proposed final dividend 12 687,508 103,126
Total equity 15,490,252 13,813,853
Hou Weigui Shi Lirong
Director Director
ZTE CORPORATION
330
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
1. CORPORATE INFORMATION
ZTE Corporation (the “Company”) is a limited liability company established in the People’s Republic of China
(the “PRC”).
The registered office of the Company is located at ZTE Plaza, Keji Road South, Hi-Tech Industrial Park,
Nanshan District, Shenzhen 518057, the PRC.
During the year, the Company and its subsidiaries (collectively referred to as the “Group”) were principally
involved in the design, development, manufacture and sale of telecommunications system equipment and
solutions.
In the opinion of the directors, in accordance with Chapter 8 “Qualifications For Listing” of the Rules
Governing The Listing of Securities On The Stock Exchange of Hong Kong Limited (the “Listing Rules”), the
controlling shareholder of the Group is Shenzhen Zhongxingxin Telecommunications Equipment Company
Limited (“Zhongxingxin”), a limited liability company registered in the PRC.
2.1 BASIS OF PREPARATION
These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards
(“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards
(“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”),
and accounting principles generally accepted in Hong Kong. These financial statements also comply with
the applicable requirements of the Hong Kong Companies Ordinance relating to the preparation of financial
statements, which for this financial year and the comparative period continue to be those of the predecessor
Companies Ordinance (Cap. 32), in accordance with transitional and saving arrangements for Part 9 of the
Hong Kong Companies Ordinance (Cap. 622), “Accounts and Audit”, which are set out in sections 76 to 87
of Schedule 11 to that Ordinance. The financial statements have been prepared under the historical cost
convention, except for derivative financial instruments, investment properties and certain equity investments,
which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”) and
all values are rounded to the nearest thousand except when otherwise indicated.
Basis of consolidation
The consolidated financial statements include the financial statements of the Group for the year ended 31
December 2014. The financial statements of the subsidiaries are prepared for the same reporting period as
the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date
on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Profit or loss and each component of other comprehensive income are attributed to the owners of the parent
of the Group and to the non-controlling interests even if this results in the non-controlling interests having
a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
ANNUAL REPORT 2014
331
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.1 BASIS OF PREPARATION (continued)
Basis of consolidation (continued)
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control described in the accounting policy for subsidiaries
below. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.
If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities
of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation
differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value
of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of
components previously recognised in other comprehensive income is reclassified to profit or loss or retained
profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the
related assets or liabilities.
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
The Group has adopted the following revised standards and new interpretation for the first time for the
current year’s financial statements.
Amendments to HKFRS 10, HKFRS 12 and
HKAS 27 (2011)
Investment Entities
Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities
Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial Assets
Amendments to HKAS 39 Novation of Derivatives and Continuation of Hedge
Accounting
HK(IFRIC) — Int 21 Levies
Amendment to HKFRS 2 included in Annual
Improvements 2010–2012 Cycle
Definition of Vesting Condition
1
Amendment to HKFRS 3 included in Annual
Improvements 2010–2012 Cycle
Accounting for Contingent Consideration in a Business
Combination
1
Amendment to HKFRS 13 included in Annual
Improvements 2010–2012 Cycle
Short-term Receivables and Payables
Amendment to HKFRS 1 included in Annual
Improvements 2011–2013 Cycle
Meaning of Effective HKFRSs
1
Effective from 1 July 2014
Other than explained below regarding the impact of HKFRS 10, HKAS 32, HKAS 39,, HK(IFRIC)-Int 21, HKFRS
2, HKFRS 3, and HKFRS 13, the adoption of the above standards and interpretation has had no significant
financial effect on these financial statements.
ZTE CORPORATION
332
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(a) Amendments to HKFRS 10 include a definition of an investment entity and provide an exception to
the consolidation requirement for entities that meet the definition of an investment entity. Investment
entities are required to account for subsidiaries at fair value through profit or loss rather than consolidate
them. Consequential amendments were made to HKFRS 12 and HKAS 27 (2011). The amendments
to HKFRS 12 also set out the disclosure requirements for investment entities. The amendments have
had no impact on the Group as the Company does not qualify as an investment entity as defined in
HKFRS 10.
(b) The HKAS 32 Amendments clarify the meaning of “currently has a legally enforceable right to set off”
for offsetting financial assets and financial liabilities. The amendments also clarify the application of the
offsetting criteria in HKAS 32 to settlement systems (such as central clearing house systems) which
apply gross settlement mechanisms that are not simultaneous. The amendments have had no impact
on the Group as the Group does not have any offsetting arrangement.
(c) The HKAS 39 Amendments provide an exception to the requirement of discontinuing hedge accounting
in situations where over-the-counter derivatives designated in hedging relationships are directly or
indirectly, novated to a central counterparty as a consequence of laws or regulations, or the introduction
of laws or regulations. For continuance of hedge accounting under this exception, all of the following
criteria must be met: (i) the novations must arise as a consequence of laws or regulations, or the
introduction of laws or regulations; (ii) the parties to the hedging instrument agree that one or more
clearing counterparties replace their original counterparty to become the new counterparty to each of
the parties; and (iii) the novations do not result in changes to the terms of the original derivative other
than changes directly attributable to the change in counterparty to achieve clearing. The amendments
have had no impact on the Group as the Group has not novated any derivatives during the current
and prior years.
(d) HK(IFRIC)-Int 21 clarifies that an entity recognises a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. The interpretation also clarifies that a levy
liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in
accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold,
the interpretation clarifies that no liability should be recognised before the specified minimum threshold
is reached. The interpretation has had no impact on the Group as the Group applied, in prior years,
the recognition principles under HKAS 37 Provisions, Contingent Liabilities and Contingent Assets which
for the levies incurred by the Group are consistent with the requirements of HK(IFRIC)-Int 21.
(e) The HKFRS 2 Amendment clarifies various issues relating to the definitions of performance and service
conditions which are vesting conditions, including (i) a performance condition must contain a service
condition; (ii) a performance target must be met while the counterparty is rendering service; (iii) a
performance target may relate to the operations or activities of an entity, or to those of another entity
in the same group; (iv) a performance condition may be a market or non-market condition; and (v) if
the counterparty, regardless of the reason, ceases to provide service during the vesting period, the
service condition is not satisfied. The amendment has had no impact on the Group.
ANNUAL REPORT 2014
333
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)
(f) The HKFRS 3 Amendment clarifies that contingent consideration arrangements arising from a business
combination that are not classified as equity should be subsequently measured at fair value through
profit or loss whether or not they fall within the scope of HKFRS 9 or HKAS 39. The amendment has
had no impact on the Group.
(g) The HKFRS 13 Amendment clarifies that short-term receivables and payables with no stated interest
rates can be measured at invoice amounts when the effect of discounting is immaterial. The amendment
has had no impact on the Group.
2.3 NEW AND REVISED HKFRSs AND NEW DISCLOSURE REQUIREMENTS UNDER THE HONG KONG
COMPANIES ORDINANCE NOT YET ADOPTED
The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet
effective, in these financial statements.
HKFRS 9 Financial Instruments
4
Amendments to HKFRS 10 and
HKAS 28 (2011)
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
2
Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations
2
HKFRS 14 Regulatory Deferral Accounts
5
HKFRS 15 Revenue from Contracts with Customers
3
Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and
Amortisation
2
Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants
2
Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions
1
Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements
2
Annual Improvements 2010–2012 Cycle Amendments to a number of HKFRSs
1
Annual Improvements 2011–2013 Cycle Amendments to a number of HKFRSs
1
Annual Improvements 2012–2014 Cycle Amendments to a number of HKFRSs
2
1
Effective for annual periods beginning on or after 1 July 2014
2
Effective for annual periods beginning on or after 1 January 2016
3
Effective for annual periods beginning on or after 1 January 2017
4
Effective for annual periods beginning on or after 1 January 2018
5
Effective for an entity that first adopts HKFRSs for its annual financial statements beginning on or after 1 January 2016 and therefore
is not applicable to the Group
In addition, the Hong Kong Companies Ordinance (Cap. 622) will affect the presentation and disclosure of
certain information in the consolidated financial statements for the year ending 31 December 2015. The
Group is in the process of making an assessment of the impact of these changes.
ZTE CORPORATION
334
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.3 NEW AND REVISED HKFRSs AND NEW DISCLOSURE REQUIREMENTS UNDER THE HONG KONG
COMPANIES ORDINANCE NOT YET ADOPTED (continued)
Further information about those HKFRSs that are expected to be applicable to the Group is as follows:
In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the
financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard
introduces new requirements for classification and measurement, impairment and hedge accounting. The
Group expects to adopt HKFRS 9 from 1 January 2018. The Group expects that the adoption of HKFRS 9
will have an impact on the classification and measurement of the Group’s financial assets. Further information
about the impact will be available nearer the implementation date of the standard.
The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in
HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and
its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or
contribution of assets between an investor and its associate or joint venture constitutes a business. For a
transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction
is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that
associate or joint venture. The amendments are to be applied prospectively. The Group expects to adopt
the amendments from 1 January 2016.
The amendments to HKFRS 11 require that an acquirer of an interest in a joint operation in which the activity
of the joint operation constitutes a business must apply the relevant principles for business combinations in
HKFRS 3. The amendments also clarify that a previously held interest in a joint operation is not remeasured on
the acquisition of an additional interest in the same joint operation while joint control is retained. In addition,
a scope exclusion has been added to HKFRS 11 to specify that the amendments do not apply when the
parties sharing joint control, including the reporting entity, are under common control of the same ultimate
controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and
the acquisition of any additional interests in the same joint operation. The amendments are not expected to
have any impact on the financial position or performance of the Group upon adoption on 1 January 2016.
HKFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers.
Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS
15 provide a more structured approach for measuring and recognising revenue. The standard also introduces
extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue,
information about performance obligations, changes in contract asset and liability account balances between
periods and key judgements and estimates. The standard will supersede all current revenue recognition
requirements under HKFRSs. The Group expects to adopt HKFRS 15 on 1 January 2017 and is currently
assessing the impact of HKFRS 15 upon adoption.
ANNUAL REPORT 2014
335
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.3 NEW AND REVISED HKFRSs AND NEW DISCLOSURE REQUIREMENTS UNDER THE HONG KONG
COMPANIES ORDINANCE NOT YET ADOPTED (continued)
Amendments to HKAS 16 and HKAS 38 clarify the principle in HKAS 16 and HKAS 38 that revenue reflects
a pattern of economic benefits that are generated from operating business (of which the asset is part)
rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-
based method cannot be used to depreciate property, plant and equipment and may only be used in very
limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The
amendments are not expected to have any impact on the financial position or performance of the Group
upon adoption on 1 January 2016 as the Group has not used a revenue-based method for the calculation
of depreciation of its non-current assets.
The Annual Improvements to HKFRSs 2010–2012 Cycle issued in January 2014 sets out amendments to a
number of HKFRSs. Except for those described in note 2.2, the Group expects to adopt the amendments
from 1 January 2015. None of the amendments are expected to have a significant financial impact on the
Group. Details of the amendment most applicable to the Group are as follows:
HKFRS 8 Operating Segments: Clarifies that an entity must disclose the judgements made by management
in applying the aggregation criteria in HKFRS 8, including a brief description of operating segments that
have been aggregated and the economic characteristics used to assess whether the segments are similar.
The amendments also clarify that a reconciliation of segment assets to total assets is only required to be
disclosed if the reconciliation is reported to the chief operating decision maker.
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Subsidiaries
A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee (i.e., existing
rights that give the Group the current ability to direct the relevant activities of the investee).
When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an
investee, the Group considers all relevant facts and circumstances in assessing whether it has power over
an investee, including:
(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.
The results of subsidiaries are included in the Company’s statement of profit or loss to the extent of dividends
received and receivable. The Company’s investments in subsidiaries are stated at cost less any impairment
losses.
ZTE CORPORATION
336
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in associates and joint ventures
An associate is an entity, in which the Group has a long-term interest of generally not less than 20% of the
equity voting rights and over which it is in a position to exercise significant influence. Significant influence
is the power to participate in the financial and operating policy decisions of the investee, but is not control
or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. 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.
The Group’s investments in associates and joint ventures are stated in the consolidated statement of financial
position at the Group’s share of net assets under the equity method of accounting, less any impairment
losses. The Group’s share of the post-acquisition results and other comprehensive income of associates and
joint ventures is included in profit or loss and consolidated other comprehensive income, respectively. In
addition, when there has been a change recognised directly in the equity of the associate or joint venture,
the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in
equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint
ventures are eliminated to the extent of the Group’s investments in the associates or joint ventures, except
where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from
the acquisition of associates or joint ventures is included as part of the Group’s investments in associates
or joint ventures.
If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest
is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all
other cases, upon loss of significant influence over the associate or joint control over the joint venture, the
Group measures and recognises any retained investment at its fair value. Any difference between the carrying
amount of the associate or joint venture upon loss of significant influence or joint control and the fair value
of the retained investment and proceeds from disposal is recognised in profit or loss.
The results of associates or joint ventures are included in the Company’s statement of profit or loss to the
extent of dividends received and receivable. The Company’s investments in associates and joint ventures
are treated as non-current assets and are stated at cost less any impairment losses.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The consideration transferred is
measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets
transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the
equity interests issued by the Group in exchange for control of the acquiree. For each business combination,
the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership
interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair
value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-
controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.
ANNUAL REPORT 2014
337
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Business combinations and goodwill (continued)
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host
contracts of the acquiree.
If the business combination is achieved in stages, the previously held equity interest is remeasured at its
acquisition date fair value and any resulting gain or loss is recognised in profit or loss.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition
date. Contingent consideration classified as an asset or liability that is a financial instrument and within the
scope of HKAS 39 is measured at fair value with changes in fair value either recognised in profit or loss or
as a change to other comprehensive income. If the contingent consideration is not within the scope of HKAS
39, it is measured in accordance with the appropriate HKFRS. Contingent consideration that is classified as
equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred,
the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity
interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this
consideration and other items is lower than the fair value of the net assets acquired, the difference is, after
reassessment, recognised in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill
is tested for impairment annually or more frequently if events or changes in circumstances indicate that
the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31
December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units,
that are expected to benefit from the synergies of the combination, irrespective of whether other assets or
liabilities of the Group are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (or group of
cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating
unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part
of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill
disposed of in these circumstances is measured based on the relative value of the operation disposed of
and the portion of the cash-generating unit retained.
ZTE CORPORATION
338
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurement
The Group measures its investment properties, derivative financial instruments and equity investments at fair
value at the end of each reporting period. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value measurement is based on the presumption that the transaction to sell the asset or transfer
the liability takes place either in the principal market for the asset or liability, or in the absence of a principal
market, in the most advantageous market for the asset or liability. The principal or the most advantageous
market must be accessible by the Group. The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximising the use of relevant observable inputs and minimising the
use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 — based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 — based on valuation techniques for which the lowest level input that is significant to the fair value
measurement is observable, either directly or indirectly
Level 3 — based on valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of
each reporting period.
ANNUAL REPORT 2014
339
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other
than inventories, construction contract assets, investment properties, deferred tax assets and financial
assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the
asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for
an individual asset, unless the asset does not generate cash inflows that are largely independent of those
from other assets or groups of assets, in which case the recoverable amount is determined for the cash-
generating unit to which the asset belongs.
An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense
categories consistent with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously
recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the
recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is
reversed only if there has been a change in the estimates used to determine the recoverable amount of that
asset, but not to an amount higher than the carrying amount that would have been determined (net of any
depreciation amortisation) had no impairment loss been recognised for the asset in prior years. A reversal
of such an impairment loss is credited to profit or loss in the period in which it arises.
Related parties
A party is considered to be related to the Group if:
(a) the party is a person or a close member of that person’s family and that person:
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;
ZTE CORPORATION
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Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Related parties (continued)
(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow
subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or
an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a); and
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity (or of a parent of the entity).
Property, plant and equipment and depreciation
Property, plant and equipment, other than construction in progress, are stated at cost less accumulated
depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its
purchase price and any directly attributable costs of bringing the asset to its working condition and location
for its intended use.
Expenditure incurred after items of property, plant and equipment have been put into operation, such
as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In
situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in
the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such parts as individual assets with specific
useful lives and depreciates them accordingly.
Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant
and equipment to its residual value over its estimated useful life. The estimated useful lives used for this
purpose are as follows:
Freehold land Not depreciated
Buildings 30 to 50 years
Leasehold improvements Over the shorter of the lease terms and 10 years
Machinery, computers and office equipment 5 to 10 years
Motor vehicles 5 to 10 years
ANNUAL REPORT 2014
341
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, plant and equipment and depreciation (continued)
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is
allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values,
useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial
year end.
An item of property, plant and equipment including any significant part initially recognised is derecognised
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss
on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference
between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress represents buildings, plant and machinery and other fixed assets under construction
or installation, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises
the direct costs of construction or installation during the period of construction. Construction in progress is
reclassified to the appropriate category of property, plant and equipment when completed and ready for use.
Investment properties
Investment properties are interests in land and buildings (including the leasehold interest under an operating
lease for a property which would otherwise meet the definition of an investment property) held to earn rental
income and/or for capital appreciation, rather than for use in the production or supply of goods or services
or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured
initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated
at fair value, which reflects market conditions at the end of the reporting period.
Gains or losses arising from changes in the fair values of investment properties are included in profit or loss
in the year in which they arise.
Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss
in the year of the retirement or disposal.
For a transfer from investment properties to owner-occupied properties or inventories, the deemed cost of
a property for subsequent accounting is its fair value at the date of change in use. If a property occupied
by the Group as an owner-occupied property becomes an investment property, the Group accounts for
such property in accordance with the policy stated under “Property, plant and equipment and depreciation”
up to the date of change in use, and any difference at that date between the carrying amount and the fair
value of the property is accounted for as a revaluation in accordance with the policy stated under “Property,
plant and equipment and depreciation” above. For a transfer from inventories to investment properties, any
difference between the fair value of the property at that date and its previous carrying amount is recognised
in profit or loss.
ZTE CORPORATION
342
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible
assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently
amortised over the useful economic life and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible
asset with a finite useful life are reviewed at least at each financial year end.
Technology know-how
Purchased technology know-how is stated at cost less accumulated amortisation and any impairment losses.
Amortisation is provided on the straight-line basis over its estimated useful life of not more than 10 years.
Computer software
Purchased computer software is stated at cost less accumulated amortisation and any impairment losses,
and is amortised on the straight-line basis over its estimated useful life of not more than 5 years.
Operating concession
Operating concession is stated at cost less accumulated amortisation and any impairment losses.
Amortisation is provided on the straight-line basis for 3 to 10 years, being the period that the operating
concession granted to the Group.
Research and development costs
All research costs are charged to 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, the availability of resources to complete the project and the ability to measure
reliably the expenditure during the development. Product development expenditure which does not meet
these criteria is expensed when incurred.
Deferred development costs are stated at cost less any impairment losses and are amortised using the
straight-line basis over the commercial lives of the underlying products not exceeding five years, commencing
from the date when the products are put into commercial production.
ANNUAL REPORT 2014
343
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than
legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased
asset is capitalised at the present value of the minimum lease payments and recorded together with the
obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised
finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease
terms and the estimated useful lives of the assets. The finance costs of such leases are charged to profit
or loss so as to provide a constant periodic rate of charge over the lease terms.
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are
accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating
leases are included in non-current assets, and rentals receivable under the operating leases are credited to
profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable
under operating leases are charged to profit or loss on the straight-line basis over the lease terms.
Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised
on the straight-line basis over the lease terms.
Investments and other financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments and available-for-sale financial investments, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised
initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the
financial assets, except in the case of financial assets recorded at fair value through profit or loss.
All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date
that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or
sales of financial assets that require delivery of assets within the period generally established by regulation
or convention in the marketplace.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as
held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless they are designated as effective hedging
instruments as defined by HKAS 39.
ZTE CORPORATION
344
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets (continued)
Financial assets at fair value through profit or loss (continued)
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair
value with positive net changes in fair value presented as other income and gains and negative net changes
in fair value presented as finance costs in the statement of profit or loss. These net fair value changes do
not include any dividends or interest earned on these financial assets, which are recognised in accordance
with the policies set out for “Revenue recognition” below.
Financial assets designated upon initial recognition as at fair value through profit or loss are designated at
the date of initial recognition and only if the criteria in HKAS 39 are satisfied.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value
if their economic characteristics and risks are not closely related to those of the host contracts and the host
contracts are not held for trading or designated as at fair value through profit or loss. These embedded
derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment
only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows
that would otherwise be required or a reclassification of a financial asset out of the fair value through profit
or loss category.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement, such assets are subsequently measured at amortised
cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated
taking into account any discount or premium on acquisition and includes fees or costs that are an integral
part of the effective interest rate. The effective interest rate amortisation is included in other income and
gains in profit or loss. The loss arising from impairment is recognised in profit or loss in finance costs for
loans and in other expenses for receivables.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held
to maturity when the Group has the positive intention and ability to hold them to maturity. Held-to-maturity
investments are subsequently measured at amortised cost using the effective interest rate method less any
allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest
rate amortisation is included in other income and gains in profit or loss. The loss arising from impairment
is recognised in profit or loss in other expenses.
ANNUAL REPORT 2014
345
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets (continued)
Available-for-sale financial investments
Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity
investments and debt securities. Equity investments classified as available for sale are those which are
neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities
in this category are those which are intended to be held for an indefinite period of time and which may be
sold in response to needs for liquidity or in response to changes in market conditions.
After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with
unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment
revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is
recognised in profit or loss in other income, or until the investment is determined to be impaired, when the
cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to profit or
loss in other gains or losses.
Interest and dividends earned whilst holding the available-for-sale financial investments are reported as
interest income and dividend income, respectively and are recognised in profit or loss as other income in
accordance with the policies set out for “Revenue recognition” below.
When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in
the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the
various estimates within the range cannot be reasonably assessed and used in estimating fair value, such
investments are stated at cost less any impairment losses.
The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near
term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets
due to inactive markets if management has the ability and intention to hold the assets for the foreseeable
future or until maturity.
For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the
date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that
has been recognised in equity is amortised to profit or loss over the remaining life of the investment using
the effective interest rate. Any difference between the new amortised cost and the maturity amount is also
amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently
determined to be impaired, then the amount recorded in equity is reclassified to profit or loss.
ZTE CORPORATION
346
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets)
is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation
to pay the received cash flows in full without material delay to a third party under a “pass-through”
arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the
asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-
through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership
of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, Group continues to recognise the transferred asset to the extent
of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated
liability. The transferred asset and the associated liability are measured on a basis that reflects the rights
and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the
lower of the original carrying amount of the asset and the maximum amount of consideration that the Group
could be required to repay.
Impairment of financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a financial
asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred
after the initial recognition of the asset have an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include
indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganisation and observable data indicating that there is a measurable decrease in the estimated future
cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses individually whether objective
evidence of impairment exists individually for financial assets that are individually significant, or collectively
for financial assets that are not individually significant. If the Group determines that no objective evidence
of impairment exists for an individually assessed financial asset, whether significant or not, it includes the
asset in a group of financial assets with similar credit risk characteristics and collectively assesses them
for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or
continues to be, recognised are not included in a collective assessment of impairment.
ANNUAL REPORT 2014
347
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets (continued)
Financial assets carried at amortised cost (continued)
The amount of any impairment loss identified is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that have not
yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s
original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a
variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the loss is
recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and
is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring
the impairment loss. Loans and receivables together with any associated allowance are written off when
there is no realistic prospect of future recovery and all collateral has been realised or has been transferred
to the Group.
If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because
of an event occurring after the impairment was recognised, the previously recognised impairment loss is
increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is
credited to other expenses in profit or loss.
Assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument
that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses
on these assets are not reversed.
Available-for-sale financial investments
For available-for-sale financial investments, the Group assesses at the end of each reporting period whether
there is objective evidence that an investment or a group of investments is impaired.
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any
principal payment and amortisation) and its current fair value, less any impairment loss previously recognised
in profit or loss, is removed from other comprehensive income and recognised in profit or loss.
ZTE CORPORATION
348
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets (continued)
Available-for-sale financial investments (continued)
In the case of equity investments classified as available for sale, objective evidence would include a significant
or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the
original cost of the investment and “prolonged” against the period in which the fair value has been below
its original cost. Where there is evidence of impairment, the cumulative loss — measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that investment previously
recognised in profit or loss — is removed from other comprehensive income and recognised in profit or loss.
Impairment losses on equity instruments classified as available for sale are not reversed through profit or
loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.
The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the
Group evaluates, among other factors, the duration or extent to which the fair value of an investment is
less than its cost.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or
loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of
directly attributable transaction costs.
The Group’s financial liabilities include trade and bills payables, bank advances on factored trade receivables,
interest-bearing bank borrowings, a financial guarantee contract, bonds cum warrants, bonds payable, other
payables and accruals, factoring costs payable and derivative financial instruments.
ANNUAL REPORT 2014
349
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial liabilities (continued)
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in
the near term. This category includes derivative financial instruments entered into by the Group that are not
designated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embedded
derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in profit or loss. The net fair value gain or loss
recognised in profit or loss does not include any interest charged on these financial liabilities.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at
the date of initial recognition and only if the criteria in HKAS 39 are satisfied.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost,
using the effective interest rate method unless the effect of discounting would be immaterial, in which case
they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised
as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or
costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included
in finance costs in profit or loss.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due
in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as
a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the
guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the
higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at
the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative
amortisation.
ZTE CORPORATION
350
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or
expires.
When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and a recognition of a new liability, and the difference
between the respective carrying amounts is recognised in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial
position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention
to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps,
to hedge its foreign currency risk and interest rate risk, respectively. These derivative financial instruments
are initially recognised at fair value on the date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and
as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss, except
for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later
reclassified to profit or loss when the hedged item affects profit or loss.
For the purpose of hedge accounting, hedges are classified as:
• fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or
liability or an unrecognised firm commitment; or
• cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognised asset or liability or a highly probable forecast transaction,
or a foreign currency risk in an unrecognised firm commitment; or
• hedges of a net investment in a foreign operation.
ANNUAL REPORT 2014
351
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative financial instruments and hedge accounting (continued)
Initial recognition and subsequent measurement (continued)
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship
to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for
undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item
or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s
effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the
hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective throughout the financial reporting periods
for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Fair value hedges
The change in the fair value of a hedging derivative is recognised in profit or loss as other expenses. The
change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the
carrying amount of the hedged item and is also recognised in profit or loss as other expenses.
For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised
through profit or loss over the remaining term of the hedge using the effective interest rate method. Effective
interest rate amortisation may begin as soon as an adjustment exists and shall begin no later than when
the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss.
When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change
in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability
with a corresponding gain or loss recognised in profit or loss. The changes in the fair value of the hedging
instrument are also recognised in profit or loss.
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognised directly in other
comprehensive income in the hedging reserve, while any ineffective portion is recognised immediately in
profit or loss as other expenses.
Amounts recognised in other comprehensive income are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when hedged financial income or financial expense is recognised
or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial
liability, the amounts recognised in other comprehensive income are transferred to the initial carrying amount
of the non-financial asset or non-financial liability.
ZTE CORPORATION
352
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative financial instruments and hedge accounting (continued)
Cash flow hedges (continued)
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part
of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the
criteria for hedge accounting, the amounts previously recognised in other comprehensive income remain in
other comprehensive income until the forecast transaction occurs or the foreign currency firm commitment
is met.
Current versus non-current classification
Derivative instruments that are not designated as effective hedging instruments are classified as current or
non-current or separated into current and non-current portions based on an assessment of the facts and
circumstances (i.e., the underlying contracted cash flows).
• Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge
accounting) for a period beyond 12 months after the end of the reporting period, the derivative is
classified as non-current (or separated into current and non-current portions) consistently with the
classification of the underlying item.
• Embedded derivatives that are not closely related to the host contract are classified consistently with
the cash flows of the host contract.
• Derivative instruments that are designated as, and are effective hedging instruments, are classified
consistently with the classification of the underlying hedged item. The derivative instruments are
separated into current portions and non-current portions only if a reliable allocation can be made.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted
average basis and, in the case of finished goods, comprises direct materials, direct labour, an appropriate
proportion of overheads and/or subcontracting fees. Net realisable value is based on estimated selling prices
less any estimated costs to be incurred to completion and disposal.
Construction contracts
Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders,
claims and incentive payments in respect of telecommunications system contracts. Contract costs incurred
comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable
and fixed construction overheads.
ANNUAL REPORT 2014
353
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Construction contracts (continued)
Revenue from fixed price telecommunications system contracts is recognised using the percentage of
completion method when the contract activities have progressed to a stage where an economic benefit can
be reasonably foreseen and is measured by reference to the proportion of costs incurred to date to the
estimated total cost of the relevant contract.
Provision is made for foreseeable losses as soon as they are anticipated by management.
Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings,
the surplus is treated as an amount due from customers for contract works.
Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses,
the surplus is treated as an amount due to customers for contract works.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash
on hand and demand deposits, and short-term highly liquid investments that are readily convertible into
known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity
of generally within three months when acquired.
For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand
and at banks, including term deposits, which are not restricted as to use.
Provisions
A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past
event and it is probable that a future outflow of resources will be required to settle the obligation, provided
that a reliable estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognised for a provision is the present value at
the end of the reporting period of the future expenditures expected to be required to settle the obligation.
The increase in the discounted present value amount arising from the passage of time is included in finance
costs in profit or loss.
Provision for warranties granted by the Group on handsets is recognised based on sales volume and past
experience of the level of repairs and returns.
A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently,
it is measured at the higher of (i) the amount that would be recognised in accordance with the general
guidance for provisions above; and (ii) the amount initially recognised less, when appropriate, cumulative
amortisation recognised in accordance with the guidance for revenue recognition.
ZTE CORPORATION
354
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or
loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations
and practices prevailing in the countries in which the Group operates.
Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting
period between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• when the deferred tax liability arises from the initial recognition of goodwill or 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; and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and
joint ventures, when 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, the carry forward of unused
tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences, the carryforward of
unused tax credits and unused tax losses can be utilised, except:
• when the deferred tax asset relating to the deductible temporary differences arises from 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; and
• in respect of deductible temporary differences associated with investments in subsidiaries, associates
and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
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.
ANNUAL REPORT 2014
355
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the
same taxation authority.
Government grants
Government grants are recognised at their fair value where there is reasonable assurance that the grant will
be received and all attaching conditions will be complied with. When the grant relates to an expense item,
it is recognised as income on a systematic basis over the period that the costs, which it is intended to
compensate, are expensed. Where the grant relates to an asset, the fair value is credited to other payables
or other long-term payable accounts and is released to profit or loss over the expected useful life of the
relevant asset by equal annual instalments.
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the
revenue can be measured reliably, on the following bases:
(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred
to the buyer, provided that the Group maintains neither managerial involvement to the degree usually
associated with ownership, nor effective control over the goods sold;
(b) from the telecommunications system contracts, on the percentage of completion basis, as further
explained in the accounting policy for “Construction contracts” above;
(c) from the rendering of services, when services are rendered;
(d) interest income, on an accrual basis using the effective interest method by applying the rate that exactly
discounts the estimated future cash receipts over the expected life of the financial instrument to the
net carrying amount of the financial asset;
(e) dividend income, when the shareholders’ right to receive payment has been established; and
ZTE CORPORATION
356
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition (continued)
(f) for contracts involving multiple deliverables, where the deliverables are governed by more than one
authoritative accounting standard, the Group generally evaluates each deliverable to determine whether
it represents a separate unit of accounting based on the following criteria: (i) whether the delivered
item has value to the customer on a stand-alone basis and (ii) whether the contract that includes a
general right of return relative to the delivered item, delivery or performance of the undelivered item(s)
is considered probable and substantially in the control of the Group. Arrangement consideration shall
be allocated at the inception of the arrangement to all deliverables on the basis of their relative selling
price (the relative selling price method). When applying the relative selling price method, the selling
price for each deliverable shall be determined using vendor-specific objective evidence of selling price,
if it exists; otherwise, third-party evidence of selling price. If neither vendor-specific objective evidence
nor third-party evidence of selling price exists for a deliverable, the Group shall use its best estimate
of the selling price for that deliverable when applying the relative selling price method. In deciding
whether the Group can determine vendor-specific objective evidence or third-party evidence of selling
price, the Group shall not ignore information that is reasonably available without undue cost and effort.
Employee benefits
Defined contribution pension schemes
The Company and certain of its subsidiaries established in the PRC have joined a number of defined
contribution pension schemes organised by the relevant provincial and municipal social insurance management
bodies of the PRC government for those employees who are eligible to participate in the schemes. The
Company, these subsidiaries and the employees are required to make monthly contributions to these plans
calculated as a percentage of the employees’ salaries during the year. The contributions payable are charged
as an expense to profit or loss as incurred. The assets of the schemes are held separately from those of
the Group in independently administered funds.
Defined benefit pension scheme
In addition, the Group provides certain employees, who joined the Group before 1 January 2002, with
post-retirement monthly pension payments. The cost of providing these benefits under the Group’s defined
benefit pension scheme is actuarially determined and recognised over the employees’ service period by
using the projected unit credit method. The Group makes monthly pension payments to eligible retirees and
no contribution has been made to fund future obligations since the commencement of the defined benefit
pension scheme. Therefore, there are no assets in respect of this scheme held separately from those of the
Group in independently administered funds and no actuarial valuation for the plan assets has been conducted.
Remeasurements arising from defined benefit pension plans, comprising actuarial gains and losses, the
effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are
recognised immediately in the consolidated statement of financial position with a corresponding debit or credit
to capital reserve through other comprehensive income in the period in which they occur. Remeasurements
are not reclassified to profit or loss in subsequent periods.
ANNUAL REPORT 2014
357
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
Defined benefit pension scheme (continued)
Past service costs are recognised in profit or loss at the earlier of:
• the date of the plan amendment or curtailment; and
• the date that the Group recognises restructuring-related costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The
Group recognises the following changes in the net defined benefit obligation under “cost of sales” and
“administrative expenses” in profit or loss by function:
• service costs comprising current service costs, past-service costs, gains and losses on curtailments
and non-routine settlements
• net interest expense or income
Share-based payments
The Company operates a share incentive scheme (the “Share Incentive Scheme”) for the purpose of providing
incentives and rewards to eligible participants who contribute to the success of the operations of the Group.
Employees (including directors) of the Group receive remuneration in the form of share-based payment
transactions, whereby employees render services as consideration for equity instruments (“equity-settled
transactions”).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date
at which they are granted. The fair value is determined by an external valuer using an appropriate pricing
model, further details of which are given in note 40 to the financial statements.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over
the period in which the performance and/or service conditions are fulfilled in employee benefit expense. 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. The charge or credit to profit or loss for a period
represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where
vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of
whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or
service conditions are satisfied.
ZTE CORPORATION
358
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Employee benefits (continued)
Share-based payments (continued)
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the
terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised
for any modification that increases the total fair value of the share-based payments, 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. This includes any award where
non-vesting conditions within the control of either the Group or the employee are not met. 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 cancelled and new awards are treated as if they were a modification of the original award,
as described in the previous paragraph.
The dilutive effect of the outstanding subject shares is reflected as additional share dilution in the computation
of earnings per share.
Termination benefits
Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those
benefits and when the Group recognises restructuring costs involving the payment of termination benefits.
Borrowing costs
Borrowing costs directly attributable to the acquisition or construction of qualifying assets, i.e., assets 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. The capitalisation of such borrowing costs ceases when the assets are
substantially ready for their intended use or sale. Investment income earned on the temporary investment
of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs
capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing
costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.
Dividends
Final dividends proposed by the directors are classified as a separate allocation of retained profits within
the equity section of the statement of financial position, until they have been approved by the shareholders
in a general meeting. When these dividends have been approved by the shareholders and declared, they
are recognised as a liability.
ANNUAL REPORT 2014
359
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
These financial statements are presented in Renminbi, which is the Company’s functional and presentation
currency. Each entity in the Group determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency. Foreign currency transactions recorded
by the entities in the Group are initially recorded using their respective functional currency rates prevailing at
the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated
at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on
settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in
a foreign currency are translated using the exchange rates at the date when the fair value was measured.
The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with
the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item
whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised
in other comprehensive income or profit or loss, respectively).
The functional currencies of certain overseas subsidiaries, joint ventures and associates are currencies other
than Renminbi. As at the end of the reporting period, the assets and liabilities of these entities are translated
into the presentation currency of the Company at the exchange rates prevailing at the end of the reporting
period and their statements of profit or loss are translated into Renminbi at the weighted average exchange
rates for the year.
The resulting exchange differences are recognised in other comprehensive income and accumulated in the
exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive
income relating to that particular foreign operation is recognised in profit or loss.
For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are
translated into Renminbi at the exchange rates ruling at the dates of the cash flows. Frequently recurring
cash flows of overseas subsidiaries which arise throughout the year are translated into Renminbi at the
weighted average exchange rates for the year.
ZTE CORPORATION
360
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group’s financial statements requires management to make judgements, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their
accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions
and estimates could result in outcomes that could require a material adjustment to the carrying amounts of
the assets or liabilities affected in the future.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements,
apart from those involving estimations, which have the most significant effect on the amounts recognised
in the financial statements:
Revenue recognition
The Group’s material revenue streams are the result of a wide range of activities, from custom design and
installation over a period of time to a single delivery of equipment to a customer. The Group’s networking
solutions also cover a broad range of technologies and are offered on a global basis. As a result, the Group’s
revenue recognition policies can differ depending on the level of customisation within the solution and the
contractual terms with the customer. Newer technologies within one of the Group’s, reporting segments
may also have different revenue recognition policies, depending on, among other factors, the specific
performance and acceptance criteria within the applicable contracts. Therefore, management must use
significant judgement in determining how to apply the current accounting standards and interpretations, not
only based on the networking solutions, but also within networking solutions based on reviewing the level
of customisation and contractual terms with the customer. As a result, the Group’s revenues may fluctuate
from period to period based on the mix of solutions sold and the geographic regions in which they are sold.
When a customer arrangement involves multiple deliverables which are governed by more than one
authoritative standard, the Group evaluates all deliverables to determine whether they represent separate
units of accounting based on the following criteria:
• whether the delivered item has value to the customer on a stand-alone basis; and
• whether the contract that includes a general right of return relative to the delivered item, delivery or
performance of the undelivered item(s) is considered probable and is substantially in the Group’s control.
The Group’s determination of whether deliverables within a multiple element arrangement can be treated
separately for revenue recognition purposes involves significant estimates and judgements, such as whether
delivered elements have stand-alone value to the customer. Changes to the Group’s assessment of the
accounting units in an arrangement and/or its ability to establish fair values could significantly change the
timing of revenue recognition.
ANNUAL REPORT 2014
361
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Judgements (continued)
Revenue recognition (continued)
Arrangement consideration shall be allocated at the inception of the arrangement to all deliverables on the
basis of their relative selling price (the relative selling price method). When applying the relative selling price
method, the selling price for each deliverable shall be determined using vendor-specific objective evidence
(“VSOE”) of selling price, if it exists; otherwise, third-party evidence of selling price. If neither vendor-specific
objective evidence nor third-party evidence of selling price exists for a deliverable, the vendor shall use its
best estimate of the selling price for that deliverable when applying the relative selling price method. In
deciding whether the vendor can determine vendor-specific objective evidence or third-party evidence of
selling price, the vendor shall not ignore information that is reasonably available without undue cost and effort.
For instance, the Group sells hardware and post-contract support services on a stand-alone basis and
therefore it has evidence to establish VSOE for both the sale of goods and post-contract support.
The Group’s assessment of which revenue recognition guidance is appropriate for accounting for a deliverable
also involves significant judgement. For instance, the determination of whether post-contract support services
is more than incidental to hardware can impact on whether the hardware is accounted for based on multiple-
element revenue recognition guidance or based on general revenue recognition guidance. This assessment
could significantly impact the amount and timing of revenue recognition.
For elements related to customised network solutions and certain network build-outs, revenues are recognised
under HKAS 11 Construction Contracts, generally using the percentage of completion method. In using the
percentage of completion method, revenues are generally recorded based on a measure of the percentage of
costs incurred to date on a contract relative to the estimated total expected contract costs. Profit estimates
on long-term contracts are revised periodically based on changes in circumstances and any losses on
contracts are recognised in the period that such losses become known. Generally, the terms of long-term
contracts that provide for progress billings are based on completion of certain phases of work. Contract
revenues recognised, based on costs incurred towards the completion of the project that are unbilled, are
accumulated in the contracts in progress account included in the amount due from customers for contract
works. Billings in excess of revenues recognised to date on long-term contracts are recorded as advance
billings in excess of revenues recognised to date on contracts within the amount due to customers for
contract works. Significant judgement is often required when estimating total contract costs and progress to
completion on these arrangements, as well as whether a loss is expected to be incurred on the contracts.
Management uses historical experience, project plans and an assessment of the risks and uncertainties
inherent in the arrangements to establish these judgements. Uncertainties include implementation delays or
performance issues that may or may not be within the control of the Group. Changes in these estimates
could result in a material impact on revenues and net earnings.
ZTE CORPORATION
362
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Judgements (continued)
Revenue recognition (continued)
Revenue for hardware that does not require significant customisation, and where any software is considered
incidental, is recognised under HKAS 18 Revenue, where revenue is recognised provided that the entity has
transferred to the buyer the significant risks and rewards of ownership of the goods; the entity retains neither
continuing managerial involvement to the degree usually associated with ownership nor effective control over
the goods sold; the entity retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it
is probable that the economic benefits associated with the transaction will flow to the entity; and the costs
incurred or to be incurred in respect of the transaction can be measured reliably.
For hardware, delivery is considered to have occurred upon shipment provided that the risk of loss, and
the title in certain jurisdictions have been transferred to the customer. For arrangements where the criteria
for revenue recognition have not been met because the legal title or risk of loss on products has not been
transferred to the buyer until final payment had been received or where delivery had not occurred, revenue
is deferred to a later period when the title or risk of loss passes either on delivery or on receipt of final
payment from the customer.
For further information on the Group’s revenue recognition policies relating to the Group’s material revenue
streams, please refer to note 2.4 to the financial statements.
Derecognition of financial assets
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-
through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing
involvement in the asset. Significant judgement is often required when the Group has neither transferred
nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, and
estimates the extent of the Group’s continuing involvement in the asset.
Recognition of deferred tax liability for withholding taxes
Deferred tax liability is recognised for withholding tax levied on dividends declared to foreign investors from
the foreign investment enterprises established in Mainland China. Significant management judgement is
required to determine the amount of deferred tax liabilities that can be recognised, based upon the likely
dividends declared. 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 these subsidiaries and it is not probable that
these subsidiaries will make such profit distribution in the foreseeable future. Therefore, the Group has not
recognised any deferred tax liability for withholding taxes. More details are set out in note 38.
ANNUAL REPORT 2014
363
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year, are described below.
Impairment of intangible assets and property, plant and equipment
The carrying amount of property, plant and equipment as at 31 December 2014 was approximately
RMB7,664,442,000 (2013: RMB7,697,841,000). The carrying amount of intangible assets as at 31 December
2014 was RMB3,741,514,000 (2013: RMB3,081,233,000). More details are set out in notes 15 and 18.
The Group assesses whether there are any indicators of impairment for all non-financial assets at the end of
each reporting period. Indefinite life intangible assets are tested for impairment annually and at other times
when such an indicator exists. Other non-financial assets are tested for impairment when there are indicators
that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset
or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to
sell and its value in use. The calculation of the fair value less costs of disposal is based on available data
from binding sales transactions in an arm’s length transaction of similar assets or observable market prices
less incremental costs for disposing of the asset. When value in use calculations are undertaken, management
must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable
discount rate in order to calculate the present value of those cash flows.
Impairment of trade receivables
The carrying amount of trade receivables as at 31 December 2014 was approximately RMB27,506,235,000
(2013: RMB25,260,690,000).
In determining whether there is objective evidence of an impairment loss, the Group takes into consideration
the estimation of future cash flows. The amount of the impairment loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e.,
the effective interest rate computed at initial recognition). Where the actual future cash flows are less than
expected, a material impairment loss may arise.
Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit
will be available against which the losses can be utilised. Significant management judgement is required to
determine the amount of deferred tax assets that can be recognised based upon the likely timing and level
of future taxable profits together with future tax planning strategies. The carrying value of deferred tax assets
relating to recognised tax losses at 31 December 2014 was RMB423,283,000 (2013: RMB591,006,000). The
amount of unrecognised tax losses at 31 December 2014 was RMB7,723,300,000 (2013:RMB6,937,787,000).
Further details are contained in note 38 to the financial statements.
ZTE CORPORATION
364
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
Estimation uncertainty (continued)
Deferred development costs
Deferred development costs are capitalised in accordance with the accounting policy for research and
development costs in note 2.4 to the financial statements. Determining the amounts to be capitalised requires
management to make assumptions regarding the expected future cash generation of the assets, discount
rates to be applied and the expected period of benefits. At 31 December 2014, the best estimate of the
carrying amount of capitalised development costs was RMB3,483,505,000 (2013: RMB2,932,148,000).
Write-down of inventories to net realisable value
The Group, pursuant to the accounting policy for inventories, writes down inventories from cost to net
realisable value and makes provision against obsolete and slow-moving items by using the lower of cost
and net realisable value rule. The assessment of the write-down required involves management’s judgement
and estimates. Where the actual outcome or expectation in future is different from the original estimate,
the differences will have an impact on the carrying amounts of inventories and the write-down/write-back
of inventories in the period in which the estimate has been changed. At 31 December 2014, the carrying
amount of inventories was RMB19,592,298,000 (2013: RMB12,434,352,000).
Estimation of 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. Further details, including the key assumptions used for fair value measurement and a sensitivity
analysis, are given in note 16 to the financial statements. The carrying amount of investment properties at
31 December 2014 was RMB2,004,465,000 (2013: RMB1,855,246,000).
Provision for warranties
Provision for warranties granted by the Group on handsets is recognised based on sales volume and past
experience of the level of repairs and returns. The carrying amount of provision for warranties at 31 December
2014 was RMB580,476,000 (2013: RMB490,417,000).
ANNUAL REPORT 2014
365
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on their products and services
and has three reportable operating segments as follows:
(a) The networks (communication system) segment includes wireless communications, wireline switch and
access and optical and data communications.
(b) The handset terminals segment engages in the manufacture and sale of mobile phone handsets and
data card products.
(c) The telecommunications software systems, services and other products segment represent the provision
of telecommunications software systems such as operation support systems and the provision of fee-
based services.
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 profit before tax. The adjusted profit
before tax is measured consistently with the Group’s profit before tax except that interest income, finance
costs, research and development costs, impairment losses, dividend income, share of profits and losses of
associates and joint ventures, fair value gains/(losses) from the Group’s financial instruments as well as head
office and corporate expenses are excluded from the measurement.
Segment assets exclude derivative financial instruments, deferred tax assets, pledged deposits, cash and
cash equivalents, investments in joint ventures and associates, other receivables, other unallocated head
office and corporate assets as these assets are managed on a group basis.
Segment liabilities exclude derivative financial instruments, interest-bearing bank borrowings, other payables,
bonds payable, tax payable, deferred tax liabilities, provision for retirement benefits and other unallocated
head office and corporate liabilities as these liabilities are managed on a group basis.
ZTE CORPORATION
366
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION (continued)
Year ended
31 December 2014 Networks
Handset
terminals
Telecommunications
software systems,
services and other
products Total
RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue:
Telecommunications system
contracts 46,768,231 — 11,553,352 58,321,583
Sale of goods and services — 23,117,090 32,602 23,149,692
46,768,231 23,117,090 11,585,954 81,471,275
Segment results 11,366,945 278,804 2,475,014 14,120,763
Bank and other interest
income 433,604
Dividend income and
unallocated gains 4,127,624
Corporate and other
unallocated expenses (13,529,052)
Finance costs (1,561,674)
Share of profits and losses
of associates and joint
ventures (53,043)
Profit before tax 3,538,222
Segment assets 36,161,825 17,874,444 8,958,415 62,994,684
Investments in joint ventures 67,607
Investment in associates 393,709
Corporate and other
unallocated assets 46,798,609
Total assets 110,254,609
Segment liabilities 8,866,579 938,004 2,203,453 12,008,036
Corporate and other
unallocated liabilities 71,954,069
Total liabilities 83,962,105
Other segment information:
Impairment losses recognised
in profit or loss 690,136 341,128 170,968 1,202,232
Depreciation and amortisation 1,048,090 518,061 259,645 1,825,796
Capital expenditure* 1,570,928 776,495 389,167 2,736,590
* Capital expenditure consists of additions to property, plant and equipment, intangible assets, prepaid land lease payments and
investment properties.
ANNUAL REPORT 2014
367
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION (continued)
Year ended
31 December 2013 Networks
Handset
terminals
Telecommunications
software systems,
services and other
products Total
RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue:
Telecommunications system
contracts 40,695,724 — 12,473,948 53,169,672
Sale of goods and services — 21,702,058 361,994 22,064,052
40,695,724 21,702,058 12,835,942 75,233,724
Segment results 9,208,655 17,946 1,797,837 11,024,438
Bank and other interest income 355,958
Dividend income and
unallocated gains 4,549,378
Corporate and other unallocated
expenses (12,485,960)
Finance costs (1,650,437)
Share of profits and losses of
associates and joint ventures 34,466
Profit before tax 1,827,843
Segment assets 33,992,931 10,767,784 10,721,797 55,482,512
Investments in joint ventures 66,891
Investment in associates 411,146
Corporate and other unallocated
assets 46,512,401
Total assets 102,472,950
Segment liabilities 8,626,156 800,876 2,720,797 12,147,829
Corporate and other unallocated
liabilities 66,699,432
Total liabilities 78,847,261
Other segment information:
Impairment losses recognised in
profit or loss 859,791 458,506 271,189 1,589,486
Depreciation and amortisation 944,029 503,428 297,759 1,745,216
Capital expenditure* 1,453,649 775,196 458,500 2,687,345
ZTE CORPORATION
368
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
4. OPERATING SEGMENT INFORMATION (continued)
Geographical information
(a) Revenue from external customers
2014 2013
RMB’000 RMB’000
The PRC (place of domicile) 40,583,527 35,635,964
Asia (excluding the PRC) 12,131,576 13,849,495
Africa 6,174,187 5,866,115
Europe, Americas and Oceania 22,581,985 19,882,150
81,471,275 75,233,724
The revenue information above is based on the locations of the customers.
(b) Non-current assets
2014 2013
RMB’000 RMB’000
The PRC (place of domicile) 11,812,310 11,497,243
Asia (excluding the PRC) 1,198,456 990,114
Africa 375,623 328,789
Europe, Americas and Oceania 1,130,718 882,195
14,517,107 13,698,341
The non-current asset information above is based on the locations of the assets and excludes financial
instruments, deferred tax assets, investments in joint ventures and investments in associates.
Information about major customers
Revenue from telecommunications systems contracts and terminals from one single customer individually
accounted for more than 10% of the Group’s consolidated revenues for 2014 in the amount of RMB17,963
million (2013: one single customer individually accounted for more than 10% of the Group’s consolidated
revenues for 2013 in the amount of RMB11,994 million).
ANNUAL REPORT 2014
369
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
5. REVENUE, OTHER INCOME AND GAINS
Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold, after allowances
for returns and trade discounts; an appropriate proportion of contract revenue of construction contracts and
the value of services rendered during the year. All significant intra-group transactions have been eliminated
on consolidation.
An analysis of revenue, other income and gains is as follows:
2014 2013
Note RMB’000 RMB’000
Revenue
Telecommunications system contracts 58,321,583 53,169,672
Sale of goods 23,117,090 21,702,058
Rendering of services 32,602 361,994
81,471,275 75,233,724
Other income
VAT refunds and other tax subsidies
#
2,496,847 2,314,547
Dividend income 32,176 22,240
Bank and other interest income
##
433,604 355,958
Others
###
1,290,797 1,150,880
4,253,424 3,843,625
Gains
Gain on disposal of equity investment at fair value through
profit or loss — 20,904
Gain on disposal of available-for-sale investments 13,483 667
Gain on disposal of subsidiaries — 866,677
Derivative instruments 164,015 134,759
Fair value gains on investment properties 130,306 38,704
307,804 1,061,711
4,561,228 4,905,336
#
Refund of VAT on software products represents the refund upon payment of VAT according to the portion of any effective VAT
rate in excess of 3% in respect of software product sales of the Group, pursuant to the principles of the State Council document
entitled “Certain Policies to Encourage the Development of Software Enterprise and the IC Industry” and the approval reply of the
state taxation authorities.
##
The bank and other interest income for the year ended 31 December 2014 includes the interest income generated from ZTE Group
Finance Company Ltd amounted to RMB177,289,000 (2013: RMB151,666,000).
###
Others mainly represent gains on government grants, contract penalty income and other miscellaneous income.
ZTE CORPORATION
370
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
6. PROFIT BEFORE TAX
The Group’s profit before tax is arrived at after charging/(crediting):
2014 2013
Notes RMB’000 RMB’000
Cost of goods and services 48,363,247 39,205,492
Depreciation 15 975,691 967,593
Amortisation of land lease payments 17 23,050 21,138
Amortisation of intangible assets other than deferred
development costs 18 86,262 210,671
Research and development costs:
Deferred development costs amortised 18 740,793 545,814
Current year expenditure 9,559,894 7,869,106
Less: Deferred development costs (1,292,150) (1,031,028)
9,008,537 7,383,892
Fair value (gains)/losses, net*:
Derivative instruments 29 (17,976) (174,829)
Equity investments held for trading — 9,523
Investment properties (130,306) (38,704)
Impairment of trade receivables* 26 675,522 1,109,782
Provision for warranties 37 718,075 808,942
Write-down of inventories to net realisable value** 523,950 479,704
Impairment of items of property, plant and equipment 15 2,760 —
Minimum lease payments under operating leases on land
and buildings 705,114 586,059
Contingent rental income in respect of operating leases 46(a) (79,403) (114,309)
Auditors’ remuneration 6,674 6,962
Staff costs (including directors’, chief executives’ and
supervisors’ remuneration in note 8):
Wages, salaries, bonuses, allowances and welfare 11,550,588 9,652,692
Equity-settled share option expense 178,241 29,707
Retirement benefit scheme contributions:
Defined benefit pension scheme 35 4,466 4,178
Defined contribution pension schemes 927,972 881,361
12,661,267 10,567,938
ANNUAL REPORT 2014
371
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
6. PROFIT BEFORE TAX (continued)
The Group’s profit before tax is arrived at after charging/(crediting): (continued)
2014 2013
Notes RMB’000 RMB’000
Foreign exchange loss* 590,085 864,721
Loss on disposal of items of property, plant and
equipment* 35,661 18,066
Gain on disposal of equity investment at fair value
through profit or loss — (20,904)
Loss/(gain) on disposal of subsidiaries* 4,933 (866,677)
Gain on deemed disposal of interest in an associate (752) —
(Gain)/loss on disposal of derivative financial instruments (146,039) 30,548
Gain on disposal of available-for-sale investments (13,483) (667)
* The fair value losses, impairment of trade receivables, foreign exchange loss, loss on disposal of items of property, plant and
equipment and loss/gain on disposal of subsidiaries are included in “Other expenses” on the face of the consolidated statement
of profit or loss and other comprehensive income.
** Write-down of inventories to net realisable value are included in “Cost of sales” on the face of the consolidated statement of profit
or loss and other comprehensive income.
7. FINANCE COSTS
An analysis of finance costs is as follows:
Group
2014 2013
Note RMB’000 RMB’000
Interest on bank loans wholly repayable within five years 769,871 767,697
Interest on bank loans wholly repayable over five years 2,849 —
Interest on bonds cum warrants — 13,866
Interest on bonds payable 34 263,595 263,597
Total interest expense on financial liabilities not at fair
value through profit or loss 1,036,315 1,045,160
Other finance costs:
Finance costs on trade receivables factored and bills
discounted 525,359 605,277
1,561,674 1,650,437
ZTE CORPORATION
372
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
8. DIRECTORS’, CHIEF EXECUTIVES’ AND SUPERVISORS’ REMUNERATION
Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the Listing Rules and section
78 of Schedule 11 to the Hong Kong Companies Ordinance (Cap. 622), with reference to section 161 of the
predecessor Hong Kong Companies Ordinance (Cap. 32), is as follows:
Group
2014 2013
RMB’000 RMB’000
Fees — —
Other emoluments of directors, chief executives and supervisors:
Salaries, bonuses, allowances and welfare 5,224 4,799
Performance-related bonuses* 8,142 1,661
Equity-settled share option expense — —
Retirement benefit scheme contributions 29 17
13,395 6,477
* Certain executive directors of the Company are entitled to bonus payments which are determined based on their work performance.
(a) Independent non-executive directors
The salaries, bonuses, allowances and welfare paid to independent non-executive directors during the
year were as follows:
2014 2013
RMB’000 RMB’000
Qu Xiaohui 130 130
Wei Wei 130 130
Chen Naiwei 130 130
Tan Zhenhui 130 130
Timothy Alexander Steinert — 65
Zhang Xike 130 65
650 650
There were no other emoluments payable to the independent non-executive directors during the year
(2013: Nil).
ANNUAL REPORT 2014
373
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
8. DIRECTORS’, CHIEF EXECUTIVES’ AND SUPERVISORS’ REMUNERATION (continued)
(b) Executive directors, non-executive directors, chief executives and supervisors
Fees
Salaries,
bonuses,
allowances
and welfare
Performance-
related
bonuses
Share
Incentive
Scheme
Retirement
benefit scheme
contributions Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2014
Executive directors:
Yin Yimin — 457 450 — 9 916
Shi Lirong — 730 3,091 — 7 3,828
He Shiyou — 630 — — 5 635
— 1,817 3,541 — 21 5,379
Non-executive
directors:
Hou Weigui — 383 2,018 — — 2,401
Xie Weiliang — 100 — — — 100
Zhang Junchao — 100 — — — 100
Wang Zhanchen — 100 — — — 100
Dong Lianbo — 100 — — — 100
Zhang Jianheng — 100 — — — 100
— 883 2,018 — — 2,901
— 2,700 5,559 — — 8,280
Supervisors:
Xie Daxiong — 605 2,018 — 2 2,625
He Xuemei — 368 150 — 2 520
Zhou Huidong — 409 215 — 2 626
Xu Weiyan — 492 200 — 2 694
— 1,874 2,583 — 8 4,465
ZTE CORPORATION
374
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
8. DIRECTORS’, CHIEF EXECUTIVES’ AND SUPERVISORS’ REMUNERATION (continued)
(b) Executive directors, non-executive directors, chief executives and supervisors (continued)
Fees
Salaries,
bonuses,
allowances
and welfare
Performance-
related
bonuses
Share
Incentive
Scheme
Retirement
benefit
scheme
contributions Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
2013
Executive directors:
Yin Yimin — 376 400 — 3 779
Shi Lirong — 570 100 — 3 673
He Shiyou — 556 100 — 3 659
— 1,502 600 — 9 2,111
Non-executive
directors:
Hou Weigui — 327 475 — — 802
Xie Weiliang — 100 — — — 100
Zhang Junchao — 100 — — — 100
Wang Zhanchen — 100 — — — 100
Dong Lianbo — 100 — — — 100
Zhang Jianheng — 100 — — — 100
827 475 — — 1,302
— 2,329 1,075 — 9 3,413
Supervisors:
Zhang Taifeng — 327 119 — — 446
Xie Daxiong — 535 356 — 2 893
He Xuemei — 264 10 — 2 276
Zhou Huidong — 325 11 — 2 338
Wang Yan — — — — — —
Xu Weiyan — 369 90 — 2 461
Chang Qing — — — — — —
— 1,820 586 — 8 2,414
There was no arrangement under which the directors, chief executives or supervisors waived or agreed
to waive any remuneration during the year.
ANNUAL REPORT 2014
375
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
9. FIVE HIGHEST PAID EMPLOYEES
The five highest paid employees during the year included no (2013: Nil) directors, chief executives or
supervisors, details of whose remuneration are set out in note 8 above. Details of the remuneration for
the year of the five (2013: five) highest paid employees who are neither a director nor chief executive or a
supervisor of the Company are as follows:
Group
2014 2013
RMB’000 RMB’000
Salaries, bonuses, allowances and welfare 5,141 11,935
Performance-related bonuses 20,670 8,928
Retirement benefit scheme contributions — —
25,811 20,863
The number of non-director, non-supervisor, non-chief executive and highest paid employees whose
remuneration fell within the following bands is as follows:
Number of employees
2014 2013
RMB2,000,001 to RMB3,000,000 — 2
RMB3,000,001 to RMB4,000,000 — 1
RMB4,000,001 to RMB5,000,000 4 —
RMB5,000,001 to RMB6,000,000 — 1
RMB6,000,001 to RMB7,000,000 — 1
RMB7,000,001 to RMB8,000,000 1 —
5 5
During the year, no director, chief executive or supervisor waived or agreed to waive any emolument, and no
emoluments were paid by the Group to the directors, chief executives, supervisors or any of the five highest
paid employees as an inducement to join or upon joining the Group or as compensation for loss of office.
10. INCOME TAX
2014 2013
RMB’000 RMB’000
Group:
Current — Hong Kong 105,473 50,586
Current — Mainland China 461,709 402,177
Current — Overseas 155,330 75,872
Deferred (note 38) 87,980 (134,428)
Total tax charge for the year 810,492 394,207
ZTE CORPORATION
376
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
10. INCOME TAX (continued)
Hong Kong profits tax has been provided at the rate of 16.5% (2013: 16.5%) on the estimated assessable
profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated
at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation,
interpretations and practices in respect thereof.
Under the new enterprise income tax law of the PRC effective from 1 January 2008, the tax rate applicable
to domestic-invested enterprises and foreign-invested enterprises has been standardised at 25%.
As a hi-tech enterprise in Shenzhen, the Company has obtained the certificate as a national-grade hi-tech
enterprise, with which the Company enjoyed an enterprise income tax rate of 15% for the years from 2014
to 2016.
Major subsidiaries operating in Mainland China that enjoyed preferential tax rates are as follows:
Xi’an Zhongxing New Software Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important Software Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Nanjing Zhongxingxin Software Company Limited, recognised as a software enterprise in December 2009,
has been entitled to enterprise income tax exemption in the first and second profitable years and a 50%
reduction in enterprise income tax from the third to the fifth years pursuant to Document Cai Shui (2008)
No. 1. The current year is its fifth profitable year and a 50% reduction in the enterprise income tax rate of
25% is applicable.
Shenzhen Zhongxing ICT Company Limited, was subject to an enterprise income tax rate of 15% from 2013
to 2015 as a national-grade hi-tech enterprise.
Shenzhen Zhongxing Software Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important Software Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Shenzhen Zhongxing Mobile Technology Company Limited was subject to an enterprise income tax rate
of 15% from 2014 to 2016 as a national-grade hi-tech enterprise registered in Shenzhen Nanshan Hi-tech
Industrial Park.
ZTE Microelectronics Technology Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important IC Design Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Shanghai Zhongxing Telecom Equipment Technology & Service Company Limited was subject to an enterprise
income tax rate of 15% from 2014 to 2016 as a national-grade hi-tech enterprise in the Shanghai Pudong
New Area.
ANNUAL REPORT 2014
377
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
10. INCOME TAX (continued)
Shanghai Zhongxing Software Company Limited, recognised as a national-grade hi-tech enterprise, was
granted an Important Software Enterprise under the National Planning Layout for the years from 2013 to
2014. The enterprise income tax rate applied in 2014 was 10%.
Nanjing Zhongxing Software Company Limited was subject to an enterprise income tax rate of 15% from
2014 to 2016 as a national-grade hi-tech enterprise.
ZTEsoft Technology Company Limited, recognised as a national-grade hi-tech enterprise, was granted an
Important Software Enterprise under the National Planning Layout for the years from 2013 to 2014. The
enterprise income tax rate applied in 2014 was 10%.
Xi’an Zhongxing Software Company Limited was subject to an enterprise income tax rate of 15% from 2012
to 2014 as a national-grade hi-tech enterprise.
Xi’an Zhongxing Jing Cheng Communication Company Limited was subject to an enterprise income tax rate
of 15% in 2014 as a national-encouraged industry enterprise.
Nanjing ZTEsoft Software Technology Company Limited was subject to an enterprise income tax rate of 15%
from 2013 to 2015 as a national-grade hi-tech enterprise.
A reconciliation of the tax expense applicable to profit before tax at the statutory rate for the jurisdiction
in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective
tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax rate, are
as follows:
2014 2013
RMB’000 % RMB’000 %
Profit before tax 3,538,222 1,827,843
Tax at the statutory tax rate 884,556 (25.0) 456,961 25.0
Lower tax rate for specific provinces or
enacted by local authority (260,192) (7.4) (428,015) (23.4)
Adjustments in respect of current tax of
previous periods 66,171 1.9 (51,790) (2.8)
Profits and losses attributable to associates
and joint ventures 13,164 0.4 (8,708) (0.5)
Income not subject to tax (165,899) (4.7) (336,735) (18.4)
Expenses not deductible for tax 172,618 4.9 120,598 6.6
Tax losses utilised from previous years (57,029) (1.6) (59,620) (3.3)
Tax losses of subsidiaries not recognised 157,103 4.4 701,516 38.4
Tax charge at the Group’s effective rate 810,492 22.9 394,207 21.6
The share of tax attributable to associates amounting to RMB408,000 (2013: RMB18,732,000) is included in
“Share of profits and losses of associates” on the face of the consolidated statement of profit or loss and
other comprehensive income.
ZTE CORPORATION
378
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
11. PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT
The consolidated profit attributable to owners of the parent for the year ended 31 December 2014 includes a
profit of approximately RMB1,616,476,000 (2013: RMB340,024,000) which has been dealt with in the financial
statements of the Company (note 41(b)).
12. DIVIDEND
2014 2013
RMB’000 RMB’000
Proposed final - RMB0.2(2013: RMB0.03) per ordinary share 687,508 103,126
Details of proposed final dividend for the year are set out in Note 53, the profit distribution proposal is
subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.
13. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
The basic earnings per share amount is computed by dividing the profit for the year attributable to ordinary
equity holders of the parent by the weighted average number of ordinary shares of 3,437,541,000 (2013:
3,437,541,000) in issue during the year.
The calculation of the diluted earnings per share amount is based on the profit for the year 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 year, as used in the basic earnings per share calculation,
and the weighted average number of ordinary shares assumed to have been issued at no consideration on
the deemed exercise of all dilutive potential ordinary shares into ordinary shares.
The calculations of basic and diluted earnings per share are as follows:
2014 2013
RMB’000 RMB’000
Earnings
Profit for the year attributable to ordinary equity holders of the parent 2,633,571 1,357,657
Number of shares
2014 2013
’000 ’000
Shares
Weighted average number of ordinary shares in issue during the year as
used in the basic earnings per share calculation 3,437,541 3,437,541
Share options 2,543 1,767
Adjusted weighted average number of ordinary shares in issue 3,440,084 3,439,308
ANNUAL REPORT 2014
379
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
14. DISTRIBUTION OF PROFIT
In accordance with the Company Law of the PRC and the articles of association, the Company and certain of
its subsidiaries are required to allocate 10% of their profit after tax, as determined in accordance with PRC
accounting standards and regulations applicable to these companies, to their respective statutory surplus
reserves (the “SSR”) until this reserves reach 50% of the registered capital of these companies. Part of the
SSR may be capitalised as these companies’ share capital, provided that the remaining balances after the
capitalisation are not less than 25% of the registered capital of these companies.
15. PROPERTY, PLANT AND EQUIPMENT
Group
Land and
buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
At 31 December 2013 and
at 1 January 2014:
Cost 5,597,110 38,699 6,432,249 312,797 177,423 12,558,278
Accumulated depreciation and
impairment (739,006) (17,749) (3,938,410) (165,272) — (4,860,437)
Net carrying amount 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
At 1 January 2014, net of
accumulated depreciation and
impairment 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
Additions 148,717 34,365 875,457 21,708 284,966 1,365,213
Disposals (15,056) (18,217) (151,859) (7,164) (194,462) (386,758)
Depreciation provided during the
year (167,286) (12,007) (766,475) (29,923) — (975,691)
Transfers — — 5,449 — (5,449) —
Exchange realignments (11,397) (432) (21,341) (618) 385 (33,403)
Impairment — — (2,760) — — (2,760)
At 31 December 2014, net of
accumulated depreciation and
impairment 4,813,082 24,659 2,432,310 131,528 262,863 7,664,442
At 31 December 2014:
Cost 5,714,487 29,592 6,720,548 301,683 262,863 13,029,173
Accumulated depreciation and
impairment (901,405) (4,933) (4,288,238) (170,155) — (5,364,731)
Net carrying amount 4,813,082 24,659 2,432,310 131,528 262,863 7,664,442
ZTE CORPORATION
380
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Group
Land and
buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2013
At 31 December 2012 and
at 1 January 2013:
Cost 4,713,201 88,155 6,392,844 348,045 824,387 12,366,632
Accumulated depreciation and
impairment (610,901) (49,563) (3,528,152) (166,988) — (4,355,604)
Net carrying amount 4,102,300 38,592 2,864,692 181,057 824,387 8,011,028
At 1 January 2013, net of
accumulated depreciation and
impairment 4,102,300 38,592 2,864,692 181,057 824,387 8,011,028
Additions 52,390 8,059 443,924 14,770 529,369 1,048,512
Disposals (89,472) (11,270) (53,259) (11,289) (54,528) (219,818)
Transfer to investment property
(note 16) — — — — (130,384) (130,384)
Depreciation provided during the
year (140,814) (13,717) (777,315) (35,747) — (967,593)
Transfers 955,158 — 35,622 — (990,780) —
Exchange realignments (21,458) (714) (19,825) (1,266) (641) (43,904)
At 31 December 2013, net of
accumulated depreciation and
impairment 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
At 31 December 2013:
Cost 5,597,110 38,699 6,432,249 312,797 177,423 12,558,278
Accumulated depreciation and
impairment (739,006) (17,749) (3,938,410) (165,272) — (4,860,437)
Net carrying amount 4,858,104 20,950 2,493,839 147,525 177,423 7,697,841
ANNUAL REPORT 2014
381
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Company
Buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
At 31 December 2013 and
at 1 January 2014:
Cost 3,778,233 4,850 4,035,205 239,209 14,393 8,071,890
Accumulated depreciation and
impairment (628,487) (3,961) (2,502,411) (120,301) — (3,255,160)
Net carrying amount 3,149,746 889 1,532,794 118,908 14,393 4,816,730
At 1 January 2014, net of
accumulated depreciation and
impairment 3,149,746 889 1,532,794 118,908 14,393 4,816,730
Additions — 6,388 466,293 18,230 7,141 498,052
Disposals — (6,388) (54,283) (4,693) (9,625) (74,989)
Transfer to investment property
(note 16) — — (4,725) — — (4,725)
Transfers to subsidiaries — — (28,767) (804) — (29,571)
Depreciation provided during the
year (111,955) (889) (553,089) (24,389) — (690,322)
Transfers — — — — — —
At 31 December 2014, net of
accumulated depreciation and
impairment 3,037,791 — 1,358,223 107,252 11,909 4,515,175
At 31 December 2014:
Cost 3,778,233 — 4,118,779 234,461 11,909 8,143,382
Accumulated depreciation and
impairment (740,442) — (2,760,556) (127,209) — (3,628,207)
Net carrying amount 3,037,791 — 1,358,223 107,252 11,909 4,515,175
ZTE CORPORATION
382
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
15. PROPERTY, PLANT AND EQUIPMENT (continued)
Company
Buildings
Leasehold
improvements
Machinery,
computers
and office
equipment
Motor
vehicles
Construction
in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2013
At 31 December 2012 and at 1
January 2013:
Cost 3,733,107 4,850 3,907,081 259,588 54,714 7,959,340
Accumulated depreciation and
impairment (526,601) (2,991) (2,110,108) (123,887) — (2,763,587)
Net carrying amount 3,206,506 1,859 1,796,973 135,701 54,714 5,195,753
At 1 January 2013, net of
accumulated depreciation and
impairment 3,206,506 1,859 1,796,973 135,701 54,714 5,195,753
Additions 26,128 — 333,636 10,127 69,257 439,148
Disposals — — (20,683) (4,487) — (25,170)
Transfer to investment property
(note 16) — — — — (57,975) (57,975)
Transfers to subsidiaries — — (17,694) (174) — (17,868)
Depreciation provided during the
year (101,886) (970) (592,116) (22,259) — (717,231)
Transfers 18,998 — 32,678 — (51,603) 73
At 31 December 2013, net of
accumulated depreciation and
impairment 3,149,746 889 1,532,794 118,908 14,393 4,816,730
At 31 December 2013:
Cost 3,778,233 4,850 4,035,205 239,209 14,393 8,071,890
Accumulated depreciation and
impairment (628,487) (3,961) (2,502,411) (120,301) — (3,255,160)
Net carrying amount 3,149,746 889 1,532,794 118,908 14,393 4,816,730
As at 31 December 2014, none of the Group’s buildings (2013: RMB683,394,000) were pledged to secure
bank borrowings granted to the Group (note 33).
As at 31 December 2014, the Group was in the process of obtaining the real estate title certificates for
buildings located in Nanjing, Shenzhen, Shanghai, Xi’an and Hengyang, the PRC, with net carrying values
of approximately RMB658,489,000 (2013: RMB 670,505,000), RMB1,841,137,000 (2013: RMB1,869,263,000),
RMB199,201,000 (2013: RMB203,160,000), RMB861,494,000 (2013: RMB875,696,000) and RMB55,863,000
(2013: RMB63,141,000), respectively.
ANNUAL REPORT 2014
383
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
16. INVESTMENT PROPERTIES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Fair value
Carrying amount at 1 January 1,855,246 1,686,158 1,496,338 1,381,593
Addition 18,913 — 4,725 —
Transfer from owner-occupied
properties Property, plant and
equipment (note 15) — 130,384 — 57,975
Net gain from a fair value adjustment
(note 6) 130,306 38,704 96,856 56,770
Carrying amount at 31 December 2,004,465 1,855,246 1,597,919 1,496,338
Completed investment properties 2,004,465 1,855,246 1,597,919 1,496,338
Investment properties under construction — — — —
2,004,465 1,855,246 1,597,919 1,496,338
The Group’s investment properties are situated in Mainland China and are held under a medium term lease.
The Group’s investment properties consist of five commercial properties in Mainland China. The Group’s
investment properties were revalued on 31 December 2014 based on valuations performed by ??????
????????????, an independent professionally qualified valuer, at RMB2,004,465,000. Each year,
the Group’s property manager and the chief financial officer decide, after approval from the audit committee,
to appoint which external valuer to be responsible for the external valuations of the Group’s properties.
Selection criteria include market knowledge, reputation, independence and whether professional standards
are maintained. The Group’s property manager and the chief financial officer have discussions with the valuer
on the valuation assumptions and valuation results twice a year when the valuation is performed for interim
and annual financial reporting.
The investment properties are leased to a related party, Shenzhen Zhongxing Hetai Hotel Investment and
Management Company Limited (“Zhongxing Hetai”) and third parties under operating leases, further summary
details of which are included in note 48 to the financial statements.
ZTE CORPORATION
384
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
16. INVESTMENT PROPERTIES (continued)
Fair value hierarchy
The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:
Fair value measurement as at 31 December 2014 using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurement for:
Commercial properties — — 2,004,465 2,004,465
Fair value measurement as at 31 December 2013 using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Recurring fair value measurement for:
Commercial properties — — 1,855,246 1,855,246
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no
transfers into or out of Level 3.
Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:
Commercial
properties
RMB’000
Carrying amount at 1 January 2013 1,686,158
Additions 130,384
Net gain from a fair value adjustment recognised in other income and
gains in profit or loss 38,704
Carrying amount at 31 December 2013 1,855,246
Carrying amount at 1 January 2014 1,855,246
Additions 18,913
Net gain from a fair value adjustment recognised in other income and
gains in profit or loss 130,306
Carrying amount at 31 December 2014 2,004,465
ANNUAL REPORT 2014
385
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
16. INVESTMENT PROPERTIES (continued)
Below is a summary of the valuation techniques used and the key inputs to the valuation of investment
properties:
Valuation
techniques
Significant unobservable
inputs Range or weighted average
2014 2013
Commercial
properties
Discounted cash
flow method
Estimated rental value
(per sq. m. and per month)
RMB24 to
RMB477
RMB24 to
RMB477
Rent growth (p.a.) 1% to 5% 1% to 5%
Long-term vacancy rate 5% 5%
Discount rate 6% 6%
Valuations were based on either: (i) the direct comparison approach assuming sale of each of these
properties in its existing state with the benefit of vacant possession by making reference to comparable sales
transactions as available in the relevant market; or (ii) the residual method of valuation which is common in
valuing development sites by establishing the market value of the properties on an “as-if” completed basis
with appropriate deduction on construction costs, professional fees and interest payments to be incurred as
well as developer’s profits; or (iii) the capitalisation of net rental income derived from the existing tenancies
with allowance for the reversionary income potential of the properties, using discount rates that reflect current
market assessments of the uncertainty in the amount and timing of the cash flows. The resultant figures are
adjusted back to present values to reflect the existing state of the properties on the balance sheet date.
Under the discounted cash flow method, fair value is estimated using assumptions regarding the benefits
and liabilities of ownership over the asset’s life including an exit or terminal value. This method involves the
projection of a series of cash flows on a property interest. A market-derived discount rate is applied to the
projected cash flow in order to establish the present value of the income stream associated with the asset.
The exit yield is normally separately determined and differs from the discount rate.
The duration of the cash flows and the specific timing of inflows and outflows are determined by events
such as rent reviews, lease renewal and related reletting, redevelopment or refurbishment. The appropriate
duration is driven by market behaviour that is a characteristic of the class of property. The periodic cash flow
is estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives,
maintenance costs, agent and commission costs and other operating and management expenses. The series
of periodic net operating income, along with an estimate of the terminal value anticipated at the end of the
projection period, is then discounted.
A significant increase/(decrease) in the estimated rental value and the market rent growth rate per annum
in isolation would result in a significant increase/(decrease) in the fair value of the investment properties. A
significant increase/(decrease) in the long-term vacancy rate and the discount rate in isolation would result
in a significant decrease/(increase) in the fair value of the investment properties. Generally, a change in the
assumption made for the estimated rental value is accompanied by a directionally similar change in the rent
growth per annum and the discount rate and an opposite change in the long-term vacancy rate.
ZTE CORPORATION
386
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
17. PREPAID LAND LEASE PAYMENTS
Group
2014 2013
RMB’000 RMB’000
Carrying amount at 1 January 1,087,670 909,028
Additions during the year 45,558 209,671
Disposals (3,492) (9,891)
Recognised during the year (23,050) (21,138)
Carrying amount at 31 December 1,106,686 1,087,670
Current portion (24,478) (23,649)
Non-current portion 1,082,208 1,064,021
All the leasehold lands are held under medium term leases and are situated in Mainland China.
Company
2014 2013
RMB’000 RMB’000
Carrying amount at 1 January 377,959 385,464
Additions during the year 6,846 1,720
Recognised during the year (9,585) (9,225)
Carrying amount at 31 December 375,220 377,959
Current portion (9,038) (8,901)
Non-current portion 366,182 369,058
All the leasehold lands are held under medium term leases and are situated in Mainland China.
As at 31 December 2014, the Group was in the process of obtaining the land use right certificate of land
blocks located in Shenzhen, Sanya, Nanjing and Xi’an in the PRC, with a net carrying value of approximately
RMB565,604,000 (2013: RMB647,083,000).
As at 31 December 2014, a subsidiary of the Group pledged its land use right with a net carrying value of
RMB79,963,000 (2013: RMB23,650,000) as security for a bank loan (note 33).
ANNUAL REPORT 2014
387
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
18. INTANGIBLE ASSETS
Group
Technology
know-how
Computer
software Franchise
Deferred
development
costs Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
Cost at 1 January 2014, net of
accumulated amortisation and
impairment 4,837 137,612 6,636 2,932,148 3,081,233
Additions 1,650 149,658 76,439 1,391,830 1,619,577
Retirements and disposals — (32,561) — (99,680) (132,241)
Amortisation provided during the
year (1,101) (70,760) (14,401) (740,793) (827,055)
At 31 December 2014 5,386 183,949 68,674 3,483,505 3,741,514
At 31 December 2014:
Cost 8,255 484,992 409,022 5,864,735 6,767,004
Accumulated amortisation and
impairment (2,869) (301,043) (340,348) (2,381,230) (3,025,490)
Net carrying amount 5,386 183,949 68,674 3,483,505 3,741,514
31 December 2013
Cost at 1 January 2013, net of
accumulated amortisation and
impairment 5,858 126,043 46,109 2,446,934 2,624,944
Additions 1,906 148,863 109,678 1,168,715 1,429,162
Retirements and disposals (1,677) (77,024) — (137,687) (216,388)
Amortisation provided during the
year (1,250) (60,270) (149,151) (545,814) (756,485)
At 31 December 2013 4,837 137,612 6,636 2,932,148 3,081,233
At 31 December 2013:
Cost 6,605 464,168 332,583 4,572,586 5,375,942
Accumulated amortisation and
impairment (1,768) (326,556) (325,947) (1,640,438) (2,294,709)
Net carrying amount 4,837 137,612 6,636 2,932,148 3,081,233
ZTE CORPORATION
388
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
18. INTANGIBLE ASSETS (continued)
Company
Computer
software Franchise
Deferred
development
costs Total
RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014
Cost at 1 January 2014, net of
accumulated amortisation and
impairment 73,988 — 665,650 739,638
Additions 49,568 76,580 425,073 551,221
Retirements and disposals (2,617) — — (2,617)
Amortisation provided during the year (43,840) (13,789) (244,098) (301,727)
At 31 December 2014 77,099 62,791 846,625 986,515
At 31 December 2014:
Cost 335,421 401,377 1,662,761 2,399,559
Accumulated amortisation and
impairment (258,322) (338,586) (816,136) (1,413,044)
Net carrying amount 77,099 62,791 846,625 986,515
31 December 2013
Cost at 1 January 2013, net of
accumulated amortisation and
impairment 99,704 44,696 595,205 739,605
Additions 31,769 104,009 218,680 354,458
Retirements and disposals (9,036) — — (9,036)
Amortisation provided during the year (48,449) (148,705) (148,235) (345,389)
At 31 December 2013 73,988 — 665,650 739,638
At 31 December 2013:
Cost 364,971 324,796 1,237,689 1,927,456
Accumulated amortisation and
impairment (290,983) (324,796) (572,039) (1,187,818)
Net carrying amount 73,988 — 665,650 739,638
19. LONG-TERM PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Deposits for purchase of property,
plant and equipment 223,158 217,270 135,203 199,744
Other long-term receivable 50,000 198,430 — —
273,158 415,700 135,203 199,744
ANNUAL REPORT 2014
389
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
20. INVESTMENTS IN SUBSIDIARIES
Company
2014 2013
RMB’000 RMB’000
Unlisted shares, at cost 6,570,188 6,093,653
Less: Impairment
#
(79,345) (92,315)
Loans to subsidiaries 5,234,574 4,151,237
11,725,417 10,152,575
#
An impairment was recognised for certain unlisted investments in subsidiaries, with a carrying amount of RMB995,866,000 (before
deducting the impairment loss) (2013: RMB1,017,031,000) because the respective subsidiaries were loss-making.
The Company’s balances of trade and bills receivables, other receivables, trade and bills payables and
other payables with the subsidiaries are disclosed in notes 26, 28, 31 and 32 to the financial statements,
respectively. The amounts due from/to subsidiaries are unsecured, interest-free and are repayable on demand.
The amounts advanced to the subsidiaries included in the investments in subsidiaries above are unsecured,
interest-free and have no fixed terms of repayment. In the opinion of the directors, these advances are
considered as part of the Company’s investments in its subsidiaries.
ZTE CORPORATION
390
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
20. INVESTMENTS IN SUBSIDIARIES (continued)
Particulars of the principal subsidiaries are as follows:
Name
Place of
incorporation/
registration and
business
Nominal value of
issued ordinary/
registered share
capital
Percentage of equity
attributable to the
Company
Direct Indirect Principal Activities
ZTE Kangxun Telecom Company
Limited
#
(i)
(?????????????)
The PRC/Mainland
China
RMB1,755,000,000 100 — Manufacture and sale of electronic
components
ZTEsoft Technology Company
Limited
#
(ii)
(????????????)
The PRC/Mainland
China
RMB300,000,000 80.1 — Sale and development of business
operation support systems
Zhongxing Software Company Limited
(“Zhongxing Software”)
#
(i)
(?????????????)
The PRC/Mainland
China
RMB51,080,000 100 — Development of telecommunications
software systems and provision
of related consultancy services
Xi’an Zhongxing New Software Company
Limited (“Xi’an Zhongxing New
Software”)
#
(i) (iii)
(?????????????)
The PRC/Mainland
China
RMB600,000,000 100 — Development of telecommunications
software systems and provision
of related consultancy services
ZTE (Hangzhou) Company Limited
#
(i)
(iii) (????(??)??????)
The PRC/Mainland
China
RMB100,000,000 100 — Telecommunications and related
equipment manufacturing
ZTE Mobile Tech Company Limited
#
(i)
(iii) (?????????????)
The PRC/Mainland
China
RMB79,166,000 90 — Development, manufacture and sale
of telecommunications related
products
ZTE (H.K.) Limited
(????(??)????)
Hong Kong HK$995,000,000 100 — Marketing and sale of
telecommunications system
equipment and provision of
management services
Shenzhen Zhongxing ICT Company
Limited
#
(i) (iii)
(????????????)
The PRC/Mainland
China
RMB60,000,000 90 — Design and sale of corporate
management hard/software
products
ZTE Technology & Service Company
Limited
#
(i)
(?????????????????)
The PRC/Mainland
China
RMB50,000,000 90 10 Development, manufacture and sale
of telecommunications related
products
Shanghai Zhongxing Telecom Equipment
Technology & Service Company
Limited
#
(i) (iii)
(??????????????)
The PRC/Mainland
China
RMB10,000,000 90 — Development, manufacture and
sale of computer software and
telecommunications system
equipment
ZTE Group Finance Company
Limited
#
(i) (iii)
(????????????)
The PRC/Mainland
China
RMB1,000,000,000 100 — Financing and consulting
(i) These subsidiaries are registered as limited companies under PRC law.
(ii) These subsidiaries are registered as foreign-invested enterprises under PRC law.
(iii) The statutory financial statements of these subsidiaries are not audited by Ernst & Young, Hong Kong or another member firm of
the Ernst & Young global network.
#
The English names of these subsidiaries are directly translated from their Chinese names.
ANNUAL REPORT 2014
391
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
20. INVESTMENTS IN SUBSIDIARIES (continued)
The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally
affected the results for the year or formed a substantial portion of the net assets of the Group. To give
details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.
21. INVESTMENTS IN JOINT VENTURES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Unlisted investments, at cost — — 55,721 55,005
Share of net assets 44,202 39,587 — —
Goodwill on acquisition 23,405 27,304 — —
67,607 66,891 55,721 55,005
The Group’s balances of trade receivables with joint ventures are disclosed in note 26 to the financial
statements. The amounts due from joint ventures are unsecured and interest-free.
Particulars of the Group’s joint ventures are as follows:
Percentage of
Name
Place of
incorporation/
registration and
business
Nominal value of
issued and paid-up
capital/registered
capital
Ownership
interest
Voting
power
Profit
Sharing Principal activities
Bestel Communications
Limited (“Bestel”)
Republic of Cyprus EUR446,915 50 50 50 Provision of
telecommunications
solutions and related
consultancy services
Puxing Mobile Tech
Company Limited#
(????????
????)
The PRC/Mainland
China
RMB128,500,000 34 50 50 Provision of
telecommunications
solutions and related
consultancy services
Jiangsu Zhongxing
Weitong Information
and Technology
Company Limited
(?????????
?????)
The PRC/Mainland
China
RMB18,000,000 50 50 50 Provision of
telecommunications
solutions and related
consultancy services
Pengzhong Xingsheng Republic of
Uzbekistan
USD3,160,000 50 50 50 Sale of telecommunications
related products
#
The English name of this joint venture is directly translated from its Chinese name.
The investments in Bestel and Pengzhong Xingsheng are held by a wholly-owned subsidiary of the Company.
They have no operating activities in 2014.
ZTE CORPORATION
392
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
21. INVESTMENTS IN JOINT VENTURES (continued)
The following table illustrates the aggregate financial information of the Group’s joint ventures:
2014 2013
RMB’000 RMB’000
Share of the joint ventures’ assets and liabilities:
Assets 386,169 125,818
Liabilities 341,967 86,231
Net assets 44,202 39,587
Share of the joint ventures’ results:
Revenue 349,533 123,465
Profit before tax 716 1,446
Tax — —
Profit after tax 716 1,446
22. INVESTMENTS IN ASSOCIATES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Unlisted shares, at cost — — 296,974 275,006
Share of net assets 393,709 411,146 — —
393,709 411,146 296,974 275,006
Provision for impairment — — (9,774) (9,774)
393,709 411,146 287,200 265,232
The Group’s balances of trade receivables and trade payables with associates are disclosed in notes 26 and
31 to the financial statements, respectively.
ANNUAL REPORT 2014
393
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
22. INVESTMENTS IN ASSOCIATES (continued)
Particulars of the principal associates are as follows:
Name
Place of
registration and
business
Nominal value
of issued and
paid-up capital/
registered capital
Percentage
of ownership
interest
attributable to
the Group Principal activities
ZTE Energy Co., Ltd.
#
*
(????????)
The PRC/Mainland
China
RMB1,290,000,000 23.26 Research, development and sale
of biological energy and new
energy
Sizhuo Zhongxing Hangzhou
Technology Co., Ltd.
#
*
(????(??)??????)
The PRC/Mainland
China
USD7,000,000 49.00 Research and sale of
communication device
Shenzhen Zhongxing Hetai Hotel
Investment and Management
Co., Ltd.
#
*
(?????????????
????)
The PRC/Mainland
China
RMB30,000,000 18.00 Hotel management service
Xingtian Communication
Technology (Tianjin) Co., Ltd.
#
* (??????(??)????)
The PRC/Mainland
China
RMB20,000,000 30.00 Research and sale of
communication devices
#
The English names of these associates are directly translated from their Chinese names.
* Not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.
The above table lists the associates of the Group which, in the opinion of the directors, principally affected
the results for the year or formed a substantial portion of the net assets of the Group. To give details of
other associates would, in the opinion of the directors, result in particulars of excessive length.
The year end date of the financial statements of the above associates is coterminous with that of the Group.
All the above associates have been accounted for using the equity method in the consolidated financial
statements.
The following table illustrates the aggregate financial information of the Group’s associates extracted from
their management accounts:
2014 2013
RMB’000 RMB’000
Assets 5,324,735 4,493,255
Liabilities 3,459,004 2,510,576
Revenues 1,540,577 1,235,129
Profit (234,475) 118,190
ZTE CORPORATION
394
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
23. AVAILABLE-FOR-SALE INVESTMENTS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Listed equity investment, at market value 319,470 364,479 — —
Unlisted equity investments, at cost 1,420,194 1,265,792 373,555 373,555
1,739,664 1,630,271 373,555 373,555
The above investments consist of investments in equity securities which have been designated as available-
for-sale financial assets and have no fixed maturity date or coupon rate.
As at 31 December 2014, the above listed equity investment with a carrying amount of RMB319,470,000
(2013: RMB364,479,000) was stated at market value. During the year, the gross loss in respect of the Group’s
available-for-sale investments recognised in other comprehensive income amounted to RMB28,570,000 (2013:
gain of RMB169,639,000). Certain unlisted equity investments with a carrying amount of RMB1,420,194,000
(2013: RMB1,265,792,000) were stated at cost less impairment because the range of reasonable fair value
estimates is so significant that the directors are of the opinion that their fair value cannot be measured
reliably. The Group does not intend to dispose of them in the near future.
24. INVENTORIES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Raw materials 2,889,256 3,472,053 106,936 934,485
Work in progress 1,268,544 897,061 773,570 324,204
Finished goods 4,031,086 2,563,775 1,887,617 794,848
Contract works in progress 11,403,412 5,501,463 9,585,800 5,002,981
19,592,298 12,434,352 12,353,923 7,056,518
ANNUAL REPORT 2014
395
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
25. TELECOMMUNICATIONS SYSTEM CONTRACTS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Amount due from customers for contract
works 11,033,468 12,137,144 7,799,190 7,029,635
Amount due to customers for contract
works (3,825,106) (3,682,564) (2,654,158) (2,496,029)
7,208,362 8,454,580 5,145,032 4,533,606
Contract costs incurred plus recognised
profits 64,203,987 41,905,232 44,324,433 26,109,712
Less: Recognised losses to date 340,199 105,908 204,058 18,066
Less: Progress billings 56,655,426 33,344,744 38,975,343 21,558,040
7,208,362 8,454,580 5,145,032 4,533,606
26. TRADE AND BILLS RECEIVABLES/LONG-TERM TRADE RECEIVABLES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Trade and bills receivables 31,902,826 29,094,859 41,929,625 40,070,718
Impairment (4,396,591) (3,834,169) (3,189,235) (2,822,430)
27,506,235 25,260,690 38,740,390 37,248,288
Current portion (27,239,734) (24,893,928) (38,494,719) (36,881,669)
Long-term portion 266,501 366,762 245,671 366,619
Progress payment for telecommunications system contracts is normally made in accordance with the agreed
payment schedule. The Group’s trading terms with its major customers are mainly on credit, except for new
customers, where payment in advance is normally required. The credit period is generally 90 days and is
extendable up to one year depending on customers’ creditworthiness except for certain overseas customers.
The credit terms for major customers are reviewed regularly by senior management. The Group seeks to
maintain strict control over its outstanding receivables and has a credit control department to minimise credit
risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned, there
is no significant concentration of credit risk.
ZTE CORPORATION
396
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
26. TRADE AND BILLS RECEIVABLES/LONG-TERM TRADE RECEIVABLES (continued)
An aged analysis of the trade and bills receivables as at the end of the reporting period, based on the
invoice date and net of provision, is as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Within 6 months 22,660,674 19,962,075 25,617,463 24,162,287
7 to 12 months 3,004,833 2,695,215 4,136,945 3,301,829
1 to 2 years 1,619,968 2,407,100 4,301,273 5,798,481
2 to 3 years 220,760 196,300 1,951,059 2,098,737
Over 3 years — — 2,733,650 1,886,954
27,506,235 25,260,690 38,740,390 37,248,288
Current portion of trade and bills
receivables (27,239,734) (24,893,928) (38,494,719) (36,881,669)
Long-term portion 266,501 366,762 245,671 366,619
The movements in the provision for impairment of trade and bills receivables are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 3,834,169 2,979,412 2,822,430 2,085,831
Impairment losses recognised (note 6) 758,331 1,167,414 414,912 840,290
Amount written off as uncollectible (113,100) (255,025) (48,107) (103,691)
Impairment losses reversed (note 6) (82,809) (57,632) — —
At 31 December 4,396,591 3,834,169 3,189,235 2,822,430
Included in the above provision for impairment of trade and bills receivables is a provision for individually
impaired trade receivables of RMB588,727,000 (2013: RMB RMB590,288,000) with a carrying amount before
provision of RMB588,727,000 (2013:RMB590,288,000). The individually impaired trade receivables relate to
customers that were in financial difficulties and are not expected to be recovered. The Group does not hold
any collateral or other credit enhancements over these balances. Trade receivables are non-interest-bearing.
An aged analysis of the trade and bills receivables that are not considered to be impaired is as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Neither past due nor impaired 2,799,769 3,933,387 4,056,186 5,301,870
Less than one year past due 22,720,064 19,590,411 22,623,878 17,444,113
25,519,833 23,523,798 26,680,064 22,745,983
ANNUAL REPORT 2014
397
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
26. TRADE AND BILLS RECEIVABLES/LONG-TERM TRADE RECEIVABLES (continued)
Receivables that were neither past due nor impaired relate to a large number of diversified customers for
whom there was no recent history of default.
Receivables that were past due but not impaired relate to a number of independent customers that have
a good track record with the Group. Based on past experience, the directors of the Company are of the
opinion that no provision for impairment is necessary in respect of these balances as there has not been a
significant change in credit quality and the balances are still considered fully recoverable.
The balances due from subsidiaries, the controlling shareholder, joint ventures, associates and other related
companies included in the above are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Subsidiaries — — 26,778,531 25,020,281
The controlling shareholder 1,096 1,031 — —
Joint ventures 418,061 81,048 417,976 80,971
Associates 6,963 10,553 2,770 —
Other related companies 157,968 94,862 142,027 89,928
584,088 187,494 27,341,304 25,191,180
The balances are unsecured, non-interest-bearing and on credit terms similar to those offered to the major
customers of the Group.
The Group has not pledged trade receivables, but has pledged bills receivables of RMB44,028,000 (2013:
RMB750,000,000 and RMB102,000,000) to secure the bank borrowings (note 33).
27. FACTORED TRADE RECEIVABLES/FACTORED LONG-TERM TRADE RECEIVABLES
As part of its normal business, the Group entered into some trade receivables factoring arrangements (the
“Arrangements”) and transferred certain trade receivables to banks. Some of the trade receivables are not
derecognised in their entirety and some of them were derecognised in their entirety but for which the Group
retains continuing involvement. More details are set in note 42.
ZTE CORPORATION
398
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
27. FACTORED TRADE RECEIVABLES/FACTORED LONG-TERM TRADE RECEIVABLES (continued)
In 2008, the Company entered into a contract of a telecommunications system project (the “Project”) with an
African telecommunications operator with a total contract amount of USD1,500,000,000. The related accounts
receivable are to be settled by promissory notes issued by the telecommunications operator with maturity
dates ranging from 3 to 13 years. In 2009, two government strategic banks in the PRC have agreed to factor
these promissory notes pursuant to the receivable purchase agreements (the “Agreements”), which stipulate
the factoring conditions based on the future performance of the African telecommunications operator. During
the financing period, the banks will charge interest to the Company and the telecommunications operator. If
there is any delay in the payment by the telecommunications operator, the Company is not responsible for
the related penalties. If there is default in the payment, the Company would bear the first 20% of default
losses on the factored amount unless the Company breaches the Agreements or the factoring conditions
are not satisfied. As at 31 December 2014, under the above arrangements, accounts receivable due from
the customer amounted to RMB6,559,107,000 (2013: RMB6,837,218,000) among which RMB5,247,286,000
(2013: RMB5,469,775,000) has been derecognised from the consolidated statement of financial position as
these receivables have fulfilled the derecognition conditions as stipulated in HKAS 39. An associated liability
of RMB1,311,821,000 (2013: RMB1,367,443,000) has been recognised in the consolidated statement of
financial position to the extent of the Company’s continuing involvement.
28. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Prepayments 682,778 751,405 66,692 29,328
Deposits and other receivables 6,008,637 3,798,163 3,931,324 2,170,516
Due from subsidiaries — — 5,519,076 10,273,927
Dividends receivable — 62,518 2,487,128 1,970,264
Interest receivable 28,068 15,654 — —
Advances and loans 2,913 246,281 — —
Other receivables* 160,472 — — —
6,882,868 4,874,021 12,004,220 14,444,035
* On 15 January 2013, ZTE (HK) Limited (“ZTE HK”), a wholly-owned subsidiary of ZTE subscribed a convertible bond of
HKD201,500,000, which is matured on 15, January 2015. The other receivable represents amortized cost of the convertible bond.
None of the above assets is either past due or impaired. The financial assets included in the above balances
relate to receivables for which there was no recent history of default.
ANNUAL REPORT 2014
399
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
28. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES (continued)
The balances due from subsidiaries, associates and other related companies included in the above are as
follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Subsidiaries — — 9,752,035 12,992,908
Associates 13,832 6,208 5,842 —
Other related companies 3,373 3,199 12,993 —
17,205 9,407 9,770,870 12,992,908
The amounts due from subsidiaries and other related companies are unsecured, non-interest-bearing and
are repayable on demand.
29. DERIVATIVE FINANCIAL INSTRUMENTS
Group
2014 2013
Assets Liabilities Assets Liabilities
RMB’000 RMB’000 RMB’000 RMB’000
Forward currency contracts 186,858 (64,904) 173,263 (61,659)
Conversion right on convertible notes 54,115 — 44,191 —
Interest rate swaps — (6,581) — (10,406)
240,973 (71,485) 217,454 (72,065)
Portion classified as non-current:
Interest rate swaps — (881) — (4,286)
Current portion 240,973 (70,604) 217,454 (67,779)
Company
2014 2013
Assets Liabilities Assets Liabilities
RMB’000 RMB’000 RMB’000 RMB’000
Forward currency contracts 53,390 (17,587) 69,300 (12,575)
Forward currency contracts
The carrying amounts of forward currency contracts were the same as their fair values. The above transactions
involving derivative financial instruments were with various well-known banks in Mainland China and Hong
Kong with A- or above credit ratings.
The Group has entered into these contracts to manage its exchange rate exposure. These forward currency
contracts are not designated for hedge purposes and are measured at fair value through profit or loss.
Gains on the fair value amounting to RMB17,976,000 (2013: RMB174,829,000) were recognised in profit or
loss during the year.
ZTE CORPORATION
400
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
29. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Conversion right on convertible notes
On 15 January 2013, ZTE HK subscribed for 112,000,000 ordinary shares and convertible bonds of
HKD201,500,000. The conversion right on convertible notes represents the fair value of the convertible right.
Interest rate swaps — cash flow hedges
Interest rate swaps are designated as hedging instruments in respect of expected interest payments for
floating rate debts incurred by the Group.
The terms of the interest rate swaps have been negotiated to match the terms of the debts. The cash
flow hedges relating to expected interest payments were assessed to be highly effective and a net gain of
RMB3,965,000 was included in the hedging reserve as follows:
Group
2014 2013
RMB’000 RMB’000
Total fair value gain 3,965 5,784
Net gain on cash flow hedges 3,965 5,784
30. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Cash and bank balances 21,860,346 24,299,932 13,770,463 15,560,227
Less:
Pledged deposits — non-current (3,744,472) (3,396,897) (3,744,472) (3,396,897)
Pledged deposits — current (718,306) (708,641) (310,122) (406,892)
Time deposits with original maturity of over
three months (167,428) (76,120) — —
Cash and cash equivalents 17,230,140 20,118,274 9,715,869 11,756,438
Time deposits with original maturity of less
than three months (3,701,678) (2,291,241) — —
Unrestricted bank balances and cash 13,528,462 17,827,033 9,715,869 11,756,438
At the end of the reporting period, the cash and bank balances of the Group denominated in Renminbi
amounted to approximately RMB9,915,647,000 (2013: RMB9,707,024,000). The Renminbi is not freely
convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and
Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to
exchange Renminbi for other currencies through banks authorised to conduct foreign exchange business.
ANNUAL REPORT 2014
401
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
30. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS (continued)
Pledged deposits included the deposits as at 31 December 2014 of RMB377,959,000 (2013: RMB288,821,000)
with the People’s Bank of China, at a statutory reserve of 15% (2013: 15%) for RMB on customer deposits
held by ZTE Group Finance Company Limited.
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits
are made for varying periods of between seven days and three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term time deposit rates. The bank
balances and pledged deposits are deposited with creditworthy banks with no recent history of default.
31. TRADE AND BILLS PAYABLES
An aged analysis of the trade and bills payables as at the end of the reporting period, based on the invoice
date, is as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Within 6 months 29,175,980 24,351,477 43,182,819 44,153,242
7 to 12 months 298,251 144,334 175,837 96,562
1 to 2 years 14,258 181,730 169,714 191,386
2 to 3 years 114,309 258,957 71,765 5,217
Over 3 years 23,290 54,057 4,358 5,561
29,626,088 24,990,555 43,604,493 44,451,968
The balances due to subsidiaries, the controlling shareholder, joint ventures, associates and other related
companies included in the above are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Subsidiaries — — 35,431,654 38,271,764
The controlling shareholder 53,879 56,507 — —
Joint ventures 20,669 1,433 — —
Associates 2,171 56 — —
Other related companies 179,761 216,768 1,741 1,515
256,480 274,764 35,433,395 38,273,279
The balances are unsecured, non-interest-bearing and are repayable on demand.
The trade payables are non-interest-bearing and are normally settled on 180-day terms.
ZTE CORPORATION
402
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
32. OTHER PAYABLES AND ACCRUALS
Group Company
Note 2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Receipts in advance 3,305,520 2,776,366 3,411,519 2,896,512
Other payables 7,885,871 8,890,302 4,477,869 7,437,198
Factoring costs payable 71,233 84,084 71,233 84,084
Advance receipts for staff
housing scheme 66,168 66,168 66,168 66,168
Accruals 3,687,565 3,002,003 1,504,679 1,193,723
Provision for warranties 37 580,476 490,417 357,109 317,404
Due to the controlling
shareholder 888 1,308 308 308
Due to subsidiaries — — 14,513,331 9,695,474
Due to other related companies 606 359 553 322
15,598,327 15,311,007 24,402,769 21,691,193
The other payables are non-interest-bearing and have an average term of three months. The balances due
to the controlling shareholder, subsidiaries and other related companies are unsecured, non-interest-bearing
and are repayable on demand.
ANNUAL REPORT 2014
403
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
33. INTEREST-BEARING BANK BORROWINGS
Group
2014 2013
Effective interest
rate (%) Maturity RMB’000
Effective interest
rate (%) Maturity RMB’000
Current
Bank loans — unsecured 1.4436–7.2000 2015 4,007,770 1.8707–14.25 2014 10,392,010
Bank loans — unsecured 3MLIBOR+2.90 2015 930,075 Libor/Hibor+1.9 2014 508,644
Bank loans — unsecured 6MLIBOR+1.80-3.45 2015 3,664,496 Libor+1–4 2014 818,169
Bank loans — guaranteed* — — — 2 2014 2,132,563
Bank loans — guaranteed — — — 3 2014 609,168
Bank loans — secured 3 2015 544,028 3-5 2014 120,291
Bank loans — unsecured COF+2.1 2015 155,012 Sibor+2.2 2014 152,422
Bank loans — unsecured Libor+1.5–1.8 2015 1,219,166 3MLibor+2 2014 609,690
Bank loans — unsecured LRP+5 2015 500,000 — — —
Bank loans — unsecured — 2015 2,000 — — —
Bank loans — secured :ibor+4 2015 18,602 — — —
11,041,149 15,342,957
Non-current
Bank loans — secured 6.77 2021 44,000 6.65 2015 269,500
Bank loans — secured — — — 6.65 2015 500,500
Bank loans — guaranteed* Libor+1.95 2016 2,779,037 — — —
Bank loans — guaranteed* Libor+2.25 2018 2,736,550 3 2016 2,725,977
Bank loans — guaranteed 5 2016 1,500,000 — — —
Bank loans — unsecured 6MLIBOR+3.6 2017 1,240,100 — 2015 2,000
Bank loans — unsecured 5.5350–6.1500 2016 1,740,000 Libor+Margin1.5 2016 107,696
Bank loans — unsecured — — — 5.53-5.85 2016 1,780,000
10,039,687 5,385,673
21,080,836 20,728,630
* Excludes the effects of related interest rate swaps as further detailed in note 29 to the financial statements.
Company
2014 2013
Effective interest
rate (%) Maturity RMB’000
Effective interest
rate (%) Maturity RMB’000
Current
Bank loans — unsecured 2.05–6.30 2015 3,324,010 2.34–6.6 2014 8,375,865
Bank loans — unsecured 3MLIBOR+2.90 2015 930,075 — — —
Bank loans — unsecured 6MLIBOR+1.80–3.45 2015 3,664,496 — — —
Bank loans — unsecured LRP+5 2015 500,000 — — —
8,418,581 8,375,865
Non-current
Bank loans — unsecured 5.535–6.1500 2016 1,740,000 4.2–6.15 2016 1,780,000
Bank loans — unsecured 6MLIBOR+3.6 2017 1,240,100 — — —
2,980,100 1,780,000
11,398,681 10,155,865
ZTE CORPORATION
404
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
33. INTEREST-BEARING BANK BORROWINGS (continued)
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Analysed into:
Bank loans repayable:
Within one year or on demand 11,041,149 15,342,957 8,418,581 8,375,865
In the second year 6,019,037 772,000 1,740,000 —
In the third to fifth years, inclusive 3,976,650 4,613,673 1,240,100 1,780,000
Over five years 44,000 — — —
21,080,836 20,728,630 11,398,681 10,155,865
Notes:
Except for bank loans of approximately RMB7,962,393,000 (2013: RMB7,369,950,000) which are denominated in Renminbi, all the Group’s
and the Company’s borrowings are in United States dollars and other foreign currencies.
Except for bank loans with a carrying amount of RMB7,837,798,000 (2013: RMB5,462,393,000), all borrowings of the Group bear interest
at floating interest rates.
The Group’s secured bank loans and banking facilities are secured by:
Group
2014 2013
RMB’000 RMB’000
Real estate properties — 683,394
Land use rights 79,963 23,650
Pledged bank deposits 4,462,778 4,105,538
Trade receivables — 750,000
Bills receivable* 544,028 102,000
5,086,769 5,664,582
* Bills receivables of RMB500,000,000 were issued by the Company.
Certain of the Group’s bank loans are guaranteed by:
Group
2014 2013
RMB’000 RMB’000
Entities within the Group 7,015,587 5,467,708
ANNUAL REPORT 2014
405
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
33. INTEREST-BEARING BANK BORROWINGS (continued)
The carrying amounts of the Group’s and the Company’s borrowings approximate to their fair values which
have been calculated by discounting the expected future cash flows at the prevailing interest rates.
ZTE (H.K.) Limited (“ZTE HK”), a subsidiary of the Company, entered into a syndicated loan agreement (“Loan
Agreement”) with an aggregate amount of USD900 million with 10 international banks, including Bank of
China (Hong Kong) Limited, in 2011. The loans were guaranteed by the Company. Balances and outstanding
terms of the loans as at the end of the current year are set out as follows:
Drawdown
date Due date Currency Interest rate 31 December 2014 31 December 2013
(%)
Foreign
currency
RMB
equivalent
Foreign
currency
RMB
equivalent
Bank of China 2011.8.15 2016.8.15 USD Approx. 3% 448,196 2,779,037 447,109 2,725,977
Bank of China 2011.7.20 2014.7.20 USD Approx. 2% — — 349,778 2,132,563
Bank of China 2014.8.13 2018.7.18 USD Approx. 2% 441,343 2,736,550 99,914 609,168
34. BONDS PAYABLE
Opening
balance
Increase
during the
year
Decrease
during the
year
Closing
balance
RMB’000 RMB’000 RMB’000 RMB’000
31 December 2014 6,119,590 263,595 (252,000) 6,131,185
31 December 2013 6,107,993 263,597 (252,000) 6,119,590
On 13 June 2012, the Company issued 3-year unsecured corporate bonds for a total amount of RMB6
billion. The corporate bonds carry a coupon interest rate of 4.2% with bond interest payable annually on
13 June. As at the issue date, the net book value of the liabilities amounted to RMB5,965,212,000 after the
deduction of issue expenses of RMB 34,788,000.
2014 2013
RMB’000 RMB’000
Carrying amount at 1 January 6,119,590 6,107,993
Increase during the year — —
Interest expense (note 7) 263,595 263,597
Interest paid (252,000) (252,000)
Carrying amount at 31 December 6,131,185 6,119,590
ZTE CORPORATION
406
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
35. PROVISION FOR RETIREMENT BENEFITS
The Group and the Company provide certain of the eligible staff with post-retirement benefits pursuant to a
retirement benefit plan. The plan is funded solely by the Group on an actual payment basis.
The latest actuarial valuation of the plan was conducted as at 31 December 2014 in accordance with HKAS
19 Employee Benefits. The present values of defined benefit obligations and current service costs are
determined actuarially based on the projected unit credit method.
The principal actuarial assumptions used as at the end of the reporting period are as follows:
2014 2013
Discount rate (%) 4.00% 4.75%
Expected rate of salary increases (%) 5.50% 5.50%
A quantitative sensitivity analysis for significant assumptions as at 31 December 2014 is shown below:
Increase in
rate %
Increase/
(decrease) in
net defined
benefit
obligation
Decrease in
rate %
Increase/
(decrease) in
net defined
benefit
obligation
Discount rate 0.25% (4,019) 0.25% 4,197
Future salary increase 1.00% 13,854 1.00% (12,700)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on
net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end
of the reporting period.
The total expenses recognised in profit or loss in respect of the plan is follows:
2014 2013
RMB’000 RMB’000
Interest cost 4,466 4,178
Net benefit expenses 4,466 4,178
Recognised in administrative expenses 4,466 4,178
ANNUAL REPORT 2014
407
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
35. PROVISION FOR RETIREMENT BENEFITS (continued)
The movements in the present value of the defined benefit obligations are as follows:
2014 2013
RMB’000 RMB’000
At 1 January 95,806 99,932
Interest cost 4,466 4,178
Pension payments made (1,421) (1,264)
Benefit expenses recognised in other comprehensive income 16,599 (7,040)
At 31 December 115,450 95,806
The movements in the defined benefit obligations and the fair value of plan assets are as follows:
2014
1 January
2014 Net interest
Sub-total
included in
profit or loss Benefit paid
Actuarial
changes
arising from
changes
in financial
assumptions
Experience
adjustments
Sub-total
included
in other
comprehensive
income
31 December
2014
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Defined benefit obligations 95,806 4,466 4,466 (1,421) 11,555 5,044 16,599 115,450
Benefit liability 95,806 4,466 4,466 (1,421) 11,555 5,044 16,599 115,450
2013
1 January
2013 Net interest
Sub-total
included in
profit or loss Benefit paid
Actuarial
changes
arising from
changes
in financial
assumptions
Experience
adjustments
Sub-total
included
in other
comprehensive
income
31 December
2013
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Defined benefit obligations 99,932 4,178 4,178 (1,264) (7,422) 382 (7,040) 95,806
Benefit liability 99,932 4,178 4,178 (1,264) (7,422) 382 (7,040) 95,806
36. OTHER NON-CURRENT LIABILITIES
Group
2014 2013
RMB’000 RMB’000
Factoring costs payable 204,435 257,540
Deferred income for staff housing scheme 1,140,351 1,164,994
Other non-current liabilities 631,149 —
1,975,935 1,422,534
ZTE CORPORATION
408
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
37. PROVISION FOR WARRANTIES
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 490,417 246,692 317,404 127,805
Additional provision 718,075 808,942 620,088 661,866
Amounts utilised during the year (628,016) (565,217) (580,383) (472,267)
At 31 December 580,476 490,417 357,109 317,404
In respect of handsets, the Group and the Company generally provide a one-year warranty to their customers
under which faulty products will be repaired or replaced. The amount of provision for warranties is estimated
based on sales volume and past experience of the level of repairs and returns. The estimation basis is
reviewed on an ongoing basis and revised where appropriate.
38. DEFERRED TAX
The movements in deferred tax assets and liabilities during the year are as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Deferred tax assets and liabilities:
At 1 January 1,213,133 1,078,705 623,609 443,107
Deferred tax credited/(charged) to profit or
loss during the year (note 10) (87,980) 134,428 (107,330) 180,502
Deferred tax credited to other
comprehensive income — — — —
At 31 December 1,125,153 1,213,133 516,279 623,609
ANNUAL REPORT 2014
409
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
38. DEFERRED TAX (continued)
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Deferred tax assets:
Unrealised profits arising on consolidation 126,540 117,100 — —
Provision against inventories 123,081 131,522 44,783 49,442
Foreseeable contract losses 30,609 18,232 30,609 2,710
Amortisation of intangible assets 130,897 87,447 41,558 24,969
Provision for warranties 98,325 66,064 58,349 52,395
Provision for retirement benefits 17,348 14,370 17,318 14,370
Undeducted payables 153,361 166,264 — —
Equity-settled share options 31,192 4,456 31,192 4,456
Tax losses 423,283 591,006 300,963 457,095
Overseas tax 149,857 156,572 149,857 156,572
1,284,493 1,353,033 674,629 762,009
Deferred tax liabilities:
Revaluation gain on owner-occupied
properties (159,340) (139,900) (158,350) (138,400)
1,125,153 1,213,133 516,279 623,609
Deferred tax assets have not been recognised in respect of the following item:
2014 2013
RMB’000 RMB’000
Tax losses 7,723,300 6,937,787
The tax losses that have not been recognised as deferred tax assets will expire as follows:
2014 2013
RMB’000 RMB’000
2014 — 20,328
2015 — —
2016 1,265,245 1,265,245
After 2016 6,458,055 5,652,214
7,723,300 6,937,787
Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries
that have been loss-making for some time and it is not considered probable that taxable profits will be
available against which the tax losses can be utilised.
ZTE CORPORATION
410
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
39. ISSUED CAPITAL
2014 2013
RMB’000 RMB’000
Restricted shares
Senior management shares 6,771 7,226
6,771 7,226
Unrestricted shares
RMB ordinary shares 2,801,185 2,800,730
Overseas listed foreign shares 629,585 629,585
3,430,770 3,430,315
3,437,541 3,437,541
40. SHARE OPTION INCENTIVE SCHEME
On 22 July 2013, the “ZTE Corporation Share Option Incentive Scheme (Draft)” and its summary was
considered and approved at the Sixth Meeting of the Sixth Session of the Board of Directors and the
Fourth Meeting of the Sixth Supervisory Committee of the Company. On 20 August 2013, the Company
was notified that the opinion of the state-owned shareholders of the Company on the implementation of
the Share Option Incentive Scheme had been approved and filed by the State-owned Assets Supervision
and Administration Commission of the State Council. On 23 August 2013, the Company was notified that
the resolution of the Share Option Incentive Scheme at the General Meeting convened in accordance with
the Administrative Measures on Share Incentives of Listed Company (Trial) had been recognised with no
objection by the China Securities Regulatory Commission. On 26 August 2013, the resolution on the “ZTE
Corporation Share Option Incentive Scheme (Revised Draft)” (hereinafter referred to as the “Share Incentive
Scheme”) and its summary was considered and approved at the Eighth Meeting of the Sixth Session of the
Board of Directors. The Share Incentive Scheme was considered and approved at the Third Extraordinary
General Meeting of 2013 convened on 15 October 2013. On 31 October 2013, relevant resolutions were
considered and passed at the Eleventh Meeting of the Sixth Session of the Board of Directors and the
Ninth Meeting of the Sixth Session of the Supervisory Committee of the Company, pursuant to which the
date of grant for the Share Option Incentive Scheme of the Company has been set for 31 October 2013.
Under the Share Incentive Scheme, 102.989 million share options were granted to 1,528 Participants. Each
share option shall entitle its holder to purchase one ZTE ordinary A share on any exercise date during the
effective period of the scheme at the exercise price, subject to the conditions of exercise. The source of
two shares under the scheme shall be shares of the Company issued to the participants by the Company
by way of placing. The scheme participants of the Share Incentive Scheme were the directors and senior
management of the Company and key staff of the Company, excluding independent non-executive directors
and supervisors, principal shareholders holding 5% or more of the company’s shares or the actual controller
of the Company and their spouse or blood relative.
ANNUAL REPORT 2014
411
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
40. SHARE OPTION INCENTIVE SCHEME (continued)
The share options shall be valid for a period of five years from the date of grant. The first exercise period
shall commence from the first trading day after expiry of the 24-month period from the date of grant. The
share options shall be exercisable separately in the subsequent three exercise periods, whose percentages
of options exercisable are 30%, 30% and 40% respectively, subject to the Company’s performance as the
conditions of exercise. The exercise price shall be RMB13.69 per share. The share options not exercisable due
to failure to fulfill the Company’s performance as the conditions of exercise 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 the shareholders of the listed company (The growth rate of
net profit).
The calculation of the net profit used by the above indicators is based on the net profit before or after
extraordinary items whichever is lower. Net assets refer to the net assets attributable to the shareholders
of the listed company.
The detailed conditions for the exercise of the share options:
(1) Within the valid period of the Share Incentive Scheme, the net profit attributable to the shareholders of
the listed company and the net profit after extraordinary items attributable to the shareholders of the
listed company shall not be lower than the average of the three most recent accounting years before
the date of grant and shall not be a negative number;
(2) The conditions for the exercise of the granted share options:
Exercise
period
Percentage
of options
exercisable Duration Conditions for exercise
First exercise
period
30% From 1 November
2015 to
31 October 2016
ROE for the year 2014 not less than 6%;
growth rate of net profit for the year
2014 not less than 20% compared to
2013
Second
exercise
period
30% From 1 November
2016 to
31 October 2017
ROE for the year 2015 not less than 8%;
growth rate of net profit for the year
2015 not less than 20% compared to
2014
Third exercise
period
40% From 1 November
2017 to
31 October 2018
ROE for the year 2016 not less than 10%;
growth rate of net profit for the year
2016 not less than 44% compared to
2014
ZTE CORPORATION
412
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
40. SHARE OPTION INCENTIVE SCHEME (continued)
The fair value of the share options granted in 2014 amounted to RMB524,023,000, among which the share
option expenses recognised by the Company in 2014 amounted to RMB178,241,000.
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
Proposed dividend (RMB) 0.18 0.18 0.18
Volatility (%) 40.25 39.69 43.18
Risk-free interest rate (%) 3.34 3.40 3.46
Demission rate
Directors and senior
management 5% 5% 5%
Key staff of the Company 5% 5% 5%
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.
41. RESERVES
(a) Group
The amounts of the Group’s reserves and the movements therein for the current and prior years are
presented in the consolidated statement of changes in equity on pages 323 and 324 of the financial
statements.
The capital reserve of the Group includes the non-distributable reserves of the Company and its
subsidiaries created in accordance with accounting and financial regulations in the PRC.
In accordance with the PRC Company Law and the Company’s articles of association, the Company and
its subsidiaries registered in the PRC are required to appropriate a certain percentage of the statutory
profit after tax to the statutory reserve fund. Subject to certain restrictions set out in the relevant PRC
regulations and in the subsidiaries’ articles of association, the statutory reserve fund may be used
either to offset losses, or for capitalisation issue by way of paid-up capital. The fund cannot be used
for purposes other than those for which they are created and are not distributable as cash dividends.
The Share Incentive Scheme reserve was created for the Share Incentive Scheme launched by
the Company that provides incentives and rewards to certain employees of the Company and its
subsidiaries.
ANNUAL REPORT 2014
413
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
41. RESERVES (continued)
(b) Company
Notes
Issued
capital
Capital
reserve
Statutory
reserves
Exchange
fluctuation
reserve
Retained
profits
Proposed
final
dividend Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December 2012 and 1 January 2013 3,440,078 9,277,002 925,674 (17,138) (178,203) — 13,447,413
Final 2012 dividend declared — — — — — —
Total comprehensive income for the year 11 — 7,040 — (943) 340,024 — 346,121
Share Incentive Scheme: 40 —
— Equity-settled share option expense (2,537) 22,856 — — — — 20,319
— Unlocking the lock-up shares — — — — — — —
Proposed final 2013 dividend — — — — (103,126) 103,126 —
Transfer from retained profits — — 25,765 — (25,765) — —
At 31 December 2013 and 1 January 2014 3,437,541 9,306,898 951,439 (18,081) 32,930 103,126 13,813,853
Final 2013 dividend declared — — — — — (103,126) (103,126)
Total comprehensive income for the year 11 — (16,599) — 595 1,616,476 — 1,600,472
Share Incentive Scheme: 40
— Equity-settled share option expense — 178,241 — — — — 178,241
— Unlocking the lock-up shares — — — — — — —
Disposal of fractional share — 812 — — — — 812
Proposed final 2014 dividend — — — — (687,508) 687,508 —
Transfer from retained profits — — 155,817 — (155,817) — —
At 31 December 2014 3,437,541 9,469,352 1,107,256 (17,486) 806,081 687,508 15,490,252
42. TRANSFERS OF FINANCIAL ASSETS
Bills receivable
Financial assets that are derecognised in their entirety
Bills discount
At 31 December 2014, certain bills receivable were discounted by banks in the PRC (the “Discounted Bills”)
with a carrying amount of RMB294,779,000. In the opinion of the directors, the Group has transferred
substantially all risks and rewards relating to the Discounted Bills. Accordingly, it has derecognised the
full carrying amounts of the Discounted Bills. The maximum exposure to loss from the Group’s continuing
involvement in the Discounted Bills and the undiscounted cash flows to repurchase these Discounted Bills
is equal to their carrying amounts. In the opinion of the directors, the fair values of the Group’s continuing
involvement in the Discounted Bills are not significant.
ZTE CORPORATION
414
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
42. TRANSFERS OF FINANCIAL ASSETS (continued)
Bills receivable (continued)
Financial assets that are derecognised in their entirety (continued)
Bills discount (continued)
During the year ended 31 December 2014, the Group has not recognised any gain or loss on the date
of transfer of the Discounted Bills (2013: Nil). No gains or losses were recognised from the continuing
involvement, both during the year or cumulatively.
Trade receivables factoring
As part of its normal business, the Group entered into some trade receivables factoring arrangements (the
“Arrangements”) and transferred certain trade receivables to banks. Some of the trade receivables are not
derecognised in their entirety and some of them were derecognised in their entirety but for which the Group
retains continuing involvement.
Transferred trade receivables that are not derecognised in their entirety
According to some factoring arrangements, the Group is exposed to default risks of the trade debtors after
the transfer and accordingly, it continued to recognise the full carrying amounts of the trade receivables. The
original carrying value of trade receivables transferred under the Arrangements that have not been settled
as at 31 December 2014 amounted to RMB2,915,814,000.
Transferred financial assets that are derecognised in their entirety but for which the Company retains
continuing involvement
According to some factoring arrangements, the Group may be required to reimburse the banks for loss of
a certain proportion of the principal ranging from 0% to 25% if any trade debtors default and to reimburse
interest if any trade debtors have late payment up to 180 days. The Group is not exposed to significant
default risks of the trade debtors after the transfer. Subsequent to the transfer, the Group does not retain any
rights on the use of the trade receivables, including sale, transfer or pledge of the trade receivables to any
other third parties. The original carrying value of trade receivables transferred under the Arrangements that
have not been settled as at 31 December 2014 amounted to RMB9,547,043,000. The continuing involvement
and associated liabilities are summarised as follows:
RMB’000
Carrying amount of assets that continue to be recognised 1,946,869
Carrying amount of liabilities that continue to be recognised 1,961,596
ANNUAL REPORT 2014
415
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES
(a) At the end of the reporting period, contingent liabilities not provided for in the financial statements
were as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Guarantees given to banks in
connection with borrowings to
customers 63,701 46,311 7,609,189 6,143,211
Guarantees given to banks in
respect of performance bonds 7,458,959 7,022,304 7,458,959 7,022,304
7,522,660 7,068,615 15,068,148 13,165,515
(b) In August 2006, a customer instituted arbitration against the Company and demanded indemnity in the
amount of PKR762.98 million (equivalent to approximately RMB47,229,000). Meanwhile, the Company
instituted a counter-claim against the customer’s breach of contract demanding for damages and
payment of outstanding contract amounts. In February 2008, the arbitration authorities issued their
award ruling that an indemnity of PKR328.04 million (equivalent to approximately RMB20,306,000) be
paid by the Company. As at the balance sheet date, the Company had made provisions in respect of
the amount. In accordance with local laws, the Company had filed with the local court an objection
against the arbitration award and a claim against the customer’s breach of contract. Based on the
legal opinion furnished by the legal counsel engaged by the Company, the case will likely stand a
prolonged period of litigation. As at the date of approval of the financial statements, the Group had
not made any payments of compensation pursuant to the aforesaid judgement.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated. No additional provision in respect of the litigation was made.
ZTE CORPORATION
416
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(c) In April 2008, China Construction Fifth Engineering Division Corp., Ltd. (“China Construction Fifth”), an
engineering contractor of the Company, demanded the Company to increase the contract amount on the
grounds that raw material prices had increased, in connection with which it launched first a slowdown in
work, followed later by total suspension. In September 2008, the Company instituted litigation with the
Shenzhen Nanshan District People’s Court (“Nanshan Court”), pleading for the revocation of the contract
and court order of the evacuation of the work sites by the defendant, as well as a penalty payment for
work delay in the amount of RMB24,912,000 and damages of RMB11,319,000 payable to the Company.
The Nanshan Court handed the first trial judgement in July 2009, ruling that the contract between the
Company and China Construction Fifth be revoked and a penalty payment for work delay in the amount
of RMB12,817,000 be payable by China Construction Fifth. China Construction Fifth filed an appeal
against the aforesaid judgement with the Shenzhen Intermediate People’s Court (“Shenzhen Intermediate
Court”). Following the conclusion of court hearing for the second trial, Shenzhen Intermediate Court
ruled to suspend trial, pending the result of the final trial of China Construction Fifth Division’s case
with the Shenzhen Intermediate Court below. As the Guangdong Provincial Higher People’s Court
(“Guangdong Higher Court”) handed down the final trial judgement for China Construction Fifth’s case
with the Shenzhen Intermediate Court in May 2014, the Shenzhen Intermediate Court resumed trial of
the case and made its second trial judgement in November 2014, ruling that China Construction Fifth
was not required to pay the penalty payment of RMB12.817 million to the Company.
In October and November 2009, the Company further instituted two lawsuits with the Nanshan Court,
demanding China Construction Fifth Division to undertake a penalty payment for work delay in the
amount of RMB30.615 million and the payment of RMB39.537 million, representing the amount of work
payments in excess of the total contract amount. Currently, the above cases are under trial suspension.
In July 2009, China Construction Fifth instituted a lawsuit with the Shenzhen Intermediate Court in
respect of the aforementioned work, demanding the Company to make a payment of RMB75.563 million
for raw materials and staff deployment. The Shenzhen Intermediate Court handed down a first trial
judgement in November 2012, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest, damages for work suspension of approximately
RMB953,000 to China Construction Fifth, while China Construction Fifth should refund to the Company
withheld payments in the amount of RMB20.15 million together with accrued interest. Other claims of
China Construction Fifth were rejected. China Construction Fifth filed an appeal with the Guangdong
Higher Court against the said judgement, and Guangdong Higher Court handed down a second trial
judgement in May 2014, ruling that the Company should make work payments of approximately
RMB14.497 million together with accrued interest and damages for work suspension of approximately
RMB2,869,400 to China Construction Fifth, while China Construction Fifth should refund to the
Company withheld payments in the amount of RMB20.15 million together with accrued interest. Other
claims of China Construction Fifth were rejected. Case admission fees and authentication fees paid
for the first trial and second trial relating to China Construction Fifth amounted to RMB2.699 million,
of which an amount of RMB654,000 was borne by the Company.
ANNUAL REPORT 2014
417
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(c) (continued)
In July 2014, China Construction Fifth instituted a lawsuit with the Nanshan Court, demanding the
refund of RMB24.596 million together with interest of RMB9.118 million (tentatively accrued to 10 July
2014, although it should be accrued to the date on which the contract work amounts are settled in full),
being indemnity claim amounts under a bank performance guarantee letter withheld by the Company.
Currently, the above case is under trial suspension.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
(d) A lawsuit on breach of agreement and infringement of rights was instituted against the Company and
its wholly-owned subsidiary ZTE (USA), Inc. (“ZTE USA”) by Universal Telephone Exchange, Inc. (UTE)
at the district court of Dallas, Texas, the United States, alleging that the Company and ZTE USA had
violated a confidential agreement between UTE and ZTE USA, for which UTE was seeking compensation
of USD20 million in actual damages. UTE further claimed that it had lost a telecommunications project
contract as a result of inappropriate actions of the Company and ZTE USA, for which UTE was seeking
compensation of USD10 million in actual damages and USD20 million in punitive damages. Upon receipt
of the writ of summons from the court, the Company has appointed an attorney to defend its case
On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE’s suit
on the grounds that there was an arbitration clause under the confidential agreement. On 1 March
2012, the attorney representing UTE concurred with the Company’s application to subject the case to
the arbitration clause and executed with the Company an agreement which was then submitted to the
court. On 1 May 2012, UTE filed an application for arbitration to the American Arbitration Association in
respect of the case to demand compensation from the Company. UTE subsequently raised the amount
of compensation claimed. On 19 September 2014, the arbitration court declared court trial of the case
closed. As at the end of the reporting period, the arbitration court had yet to make a final ruling.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
(e) On 5 April 2011, a certain carrier of Ecuador filed an application for arbitration with the Business
Arbitration Tribunal of Guayaquil, Ecuador, claiming quality problems in the construction work
undertaken by the Company and demanding from the Company damages of USD23.35 million in
aggregate, comprising USD22.25 million for network reconstruction and USD1.10 million for construction
quality supervision and management in relation to the entire network. The attorney engaged by the
Company has submitted a defense in a timely manner to deny all allegations of the carrier. Based on
the legal opinion furnished by the legal counsel engaged by the Company and the progress of the
case, the Company has a valid defense against the allegation.
ZTE CORPORATION
418
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(f) On 29 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR
Licensing, Inc. (all three of which being wholly-owned subsidiaries of InterDigital, Inc.) filed a claim with
the United States International Trade Commission (“ITC”) and the Federal District Court of Delaware
alleging infringement upon their 3G patent rights by ZTE and ZTE USA. a wholly-owned subsidiary
of ZTE. Defendants in this case included other companies in the industry. In the ITC case, the three
said companies demanded the issue of a permanent exclusion and injunction order against certain of
the Company’s terminal products. In the case filed with the District Court, damages for losses and
payments of legal fees were also demanded of the defendants in addition to the plea for injunction
order, although no specific amount of compensation was named. The litigation procedure at the
District Court has been suspended. On 28 June 2013, ITC issued its initial determination in respect of
the case, ruling that one of the patents relating to the case was invalid, while the Company and ZTE
USA had not infringed upon the remaining patents relating to the case, and that Section 337 had not
been violated. (Section 337 investigation commonly refers to the investigation of unfair acts and unfair
measures in the importation of articles into or subsequent sales of articles in the United States). On
19 December 2013, ITC issued its final verdict on the case, ruling that the Company and ZTE USA
had not violated Section 337. The three companies filed an appeal with the United States Court of
Appeals for the Federal Circuit in respect of the final verdict. On 18 February, 2015, the United States
Court of Appeals for the Federal Circuit upheld the ITC’s final results.
On 2 January 2013, the three said companies and InterDigital Holdings, Inc. (also a wholly-owned
subsidiary of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware
alleging infringement upon their 3G and 4G patent rights by ZTE and ZTE USA. Defendants in this
case included other companies in the industry. In the ITC case, the four said companies demanded
the issue of a permanent exclusion and injunction order against certain of the Company’s terminal
products. In the case filed with the District Court, damages for losses and payments of legal fees
were also demanded of the defendants in addition to the plea for injunction order, although no specific
amount of compensation was named. On 13 June 2014, ITC issued its initial determination in respect
of the case, ruling that the Company and ZTE USA had not infringed upon the patents relating to the
case, and that Section 337 had not been violated. On 15 August 2014, ITC issued its final verdict on
the case, ruling that the Company and ZTE USA had not infringed upon the patents relating to the
case and had not violated Section 337. The three companies aforesaid and InterDigital Holdings, Inc.
filed an appeal with the United States Court of Appeals for the Federal Circuit in respect of the said
final verdict, and the appeal process has currently been suspended. On 28 October 2014, the jury
of the Federal District Court of Delaware issued its verdict which ruled that the Company and ZTE
USA had infringed upon three out of four patents involved. Court hearing in respect of the remaining
patent involved has been postponed to April 2015. The Company and ZTE USA have engaged a legal
counsel to conduct active defense of the case and will consider whether to file an appeal based on
the verdicts on the four patents involved in the litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
ANNUAL REPORT 2014
419
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(g) On 20 May 2013, ZTE Brazil received another notice of administrative penalty issued by the tax bureau
of Sao Paulo State of Brazil, alleging that ZTE Brazil was not entitled to register and apply for ICMS
output tax on the grounds that ZTE Brazil had committed non-compliant acts such as revoking invoices
in the course of sales to customers during the period from 2010 to 2011, and therefore was required
to make a remedial payment of ICMS tax, accrued interest and a penalty in the aggregate amount of
approximately BRL96,448,400 (equivalent to approximately RMB223 million). On 19 June 2013, ZTE
Brazil submitted an administrative defense to the primary administrative court under the tax bureau of
Sao Paulo State, stating that ZTE Brazil’s entitlement to the ICMS output tax was provable by existing
invoices and customers’ statements. On the grounds that the fiscal revenue of Sao Paulo State would
not be reduced as a result, ZTE Brazil pleaded for the penalty to be waived pursuant to Section 527.A
of Law No. 45.490 of Sao Paulo State. ZTE Brazil also pointed out that the administrative penalty should
be rendered invalid by the fact of duplicated calculation of the amount of fine based on the same rules.
On 18 September 2013, ZTE Brazil was notified of the ruling by the primary administrative court under
the tax bureau of Sao Paulo State that supported the administrative penalty. On 18 October 2013, ZTE
Brazil filed an appeal with the secondary administrative court of the tax bureau of Sao Paulo State.
The case is awaiting judgement by the secondary administrative court of the tax bureau of Sao Paulo
State. The Company had made a provision of BRL5.22 million (equivalent to approximately RMB14.77
million) in respect of the said litigation.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim can be reliably estimated. No additional provision in respect of the litigation was made.
(h) In May 2012, the U.S. Flashpoint Technology Inc. filed a claim with ITC and the Federal District Court
of Delaware, respectively, in the United States, alleging the Company and ZTE USA of infringement
upon its patent rights in image processing. Defendants in the ITC case included other companies. In
the ITC case, the said U.S. company demanded the issue of a limited exclusion and injunction order
that would prevent the Company’s product that had allegedly infringed its patent rights from entering
the United States. In the case filed with the District Court, damages for losses and payments of legal
fees were also demanded of the defendants in addition to the plea for injunction order, although no
specific amount of compensation was named. The litigation procedure at the District Court has been
suspended. On 1 October 2013, ITC announced the preliminary decision on the case that the Company
and ZTE USA did not infringe upon the patent rights as stipulated in Section 337. On 14 March 2014,
ITC issued its final determination in respect of the case, ruling that the Company and ZTE USA had
not violated the patents relating to the case and had not violated Section 337.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
ZTE CORPORATION
420
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(i) In July 2012, Technology Properties Limited LLC, a U.S. company, filed a claim with ITC and the
Federal District Court of California, respectively, in the United States, alleging the Company and ZTE
USA of infringement upon its patents in chips. Defendants in the ITC case included other companies
in the industry. In the ITC case, the said U.S. company demanded the issue of a permanent exclusion
and injunction order that would prevent the Company’s product that had allegedly infringed its patent
rights from entering the United States. In the case filed with the Federal District Court, damages for
losses and payments of legal fees were demanded of the defendants, although no specific amount of
compensation was named. The litigation procedure at the Federal District Court has been suspended.
On 6 September 2013, ITC issued its initial determination in respect of the case, ruling that the Company
and ZTE USA had not infringed upon the patents relating to the case, and that Section 337 had not
been violated. On 19 February 2014, ITC issued its final determination in respect of the case, ruling
that the Company and ZTE USA had not infringed upon the patents relating to the case and had not
violated Section 337. Currently, the litigation procedure at the Federal District Court of California has
been resumed. There has been no substantial progress in the litigation process.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
(j) 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 RMB72,530,000). 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.
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 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 RMB192 million).
The Company has appointed a legal counsel to conduct active defense in respect of the said case.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
ANNUAL REPORT 2014
421
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(k) In February 2013, Vringo Germany GmbH (“Vringo Germany”) filed a patent litigation with the Court
of Mannheim, Germany against the Company and ZTE Deutschland GmbH (“ZTE Deutschland”), a
wholly-owned subsidiary of the Company, pleading for the UMTS products of the Company and ZTE
Deutschland with TSTD (Time Switched Transmitter Diversity) functions to be ruled to have infringed
upon the patent rights of Vringo Germany. In December 2013, the Court of Mannheim, Germany handed
down the first trial judgement, ruling that the Company and ZTE Deutschland had infringed upon the
patent rights and issuing an injunction order against the Company and ZTE Deutschland in respect of
the UMTS products with TSTD functions. The Company and ZTE Deutschland filed an appeal to the
aforesaid court in January 2014, pleading for the rejection of the patent infringement claims of Vringo
Germany and revocation of the injunction order. Vringo Germany withdrew its litigation in October 2014.
In December 2014, Vringo Germany filed a patent litigation with the Court of Dusseldorf, Germany
in respect of the patents involved against the Company and ZTE Service GmbH (“ZTE Service”), a
wholly-owned subsidiary of the Company. As the UMTS products of the Company, ZTE Deutschland
and ZTE Service sold in Germany do not support TSTD functions, the injunction order will not have
any impact on the business of the Company, ZTE Deutschland and ZTE Service in Germany.
In February 2014, Vringo Infrastructure Inc. (“Vringo”) filed a patent litigation with the High Court of
Delhi, India against the Company and ZTE Telecom India Private Limited (“ZTE India”), a wholly-owned
subsidiary of the Company, pleading for the GSM products of the Company and ZTE India supporting
Macro to Micro Handover Algorithm functions to be ruled to have infringed upon the patent rights of
Vringo and applied for the issue of a provisional injunction order by the High Court of Delhi, India. In
February 2014, the High Court of Delhi, India issued a provisional injunction order against the Company
and ZTE India in respect of the GSM products with Macro to Micro Handover Algorithm functions. In
April 2014, the Company and ZTE India filed an application to the High Court of Delhi, India for the
revocation of the provisional injunction order. In August 2014, the High Court of Delhi, India revoked
such provisional injunction order.
In April 2014, Vringo filed a patent litigation with the Court of Rio, Brazil against the Company and
ZTE Brazil, pleading for the UMTS and LTE products of the Company and ZTE Brazil supporting RNC
Relocation functions to be ruled to have infringed upon the patent rights of Vringo and applied for the
issue of a provisional injunction order by the Court of Rio, Brazil. In April 2014, the Court of Rio, Brazil
issued a provisional injunction order against the Company and ZTE Brazil in respect of UMTS and LTE
products supporting RNC Relocation functions. In April 2014, the Company and ZTE Brazil filed an
application to the Court of Rio, Brazil for the revocation of the provisional injunction order. As of now,
the Court of Rio, Brazil has yet to make a ruling. The provisional injunction order affects only the UMTS
and LTE products of the Company and ZTE Brazil supporting RNC Relocation functions sold in Brazil.
In June 2014, Vringo filed a patent litigation with the Court of Bucharest, Romania against the Company
and ZTE Romania SRL (“ZTE Romania”), a wholly-owned subsidiary of the Company, pleading for the
LTE products of the Company and ZTE Romania supporting Circuit Switched Fall Back functions to
be ruled to have infringed upon the patent rights of Vringo and applied for the issue of a provisional
injunction order by the court. In September 2014, the Court of Bucharest issued a provisional injunction
order against ZTE Romania in respect of LTE products, and ZTE Romania filed an appeal to the Court
of Appeal of Bucharest. In October 2014, the Court of Appeal of Bucharest ruled to suspend the
provisional injunction order.
ZTE CORPORATION
422
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
43. CONTINGENT LIABILITIES (continued)
(k) (continued)
In March 2014, the Company filed an antitrust litigation with Shenzhen Intermediate Court against
the alleged abuse of market dominance of Vringo, and Shenzhen Intermediate Court has accepted
such filing; the Company also filed an application for antitrust investigation to the EU Commission in
April 2014 and the EU Commission has accepted such filing. Meanwhile, the Company has also filed
litigations in the PRC, Germany, India, Brazil and Romania against Vringo for its patent claims to be
ruled invalid.
The Company, based on the advice from the Group’s legal counsel, believes that the ultimate outcome
of this claim cannot be reliably estimated.
44. FINANCIAL GUARANTEE CONTRACT
The Group has recognised a financial guarantee contract of RMB3,689,000 for an independent customer
with a maximum amount of RMB63,701,000 including the corresponding interest.
In accordance with HKAS 39, this financial guarantee contract is accounted for as a financial liability and
subsequently measured at the higher of: (i) the amount of the best estimate of the expenditure required to
settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less,
when appropriate, cumulative amortisation.
45. PLEDGE OF ASSETS
Details of the Group’s bank loans, which are secured by the assets of the Group, are included in note 33
to the financial statements.
46. OPERATING LEASE ARRANGEMENTS
(a) As lessor
The Group is entitled to share a portion of the profit generated from the telecommunications network
up to year 2014. During the year, approximately operating lease rental income of RMB79,403,000 (2013:
RMB114,309,000) has been recognised under this arrangement.
(b) As lessee
The Group leases certain of its offices under operating lease arrangements, with leases negotiated for
terms ranging from 1 to 48 years.
ANNUAL REPORT 2014
423
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
46. OPERATING LEASE ARRANGEMENTS (continued)
(b) As lessee (continued)
At 31 December 2014, the Group had total future minimum lease payments under non-cancellable
operating leases falling due as follows:
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Within one year 282,519 389,625 90,346 187,978
In the second to fifth years, inclusive 234,178 639,658 28,460 305,514
After five years 2,163 57,696 2,163 14,466
518,860 1,086,979 120,969 507,958
47. COMMITMENTS
Group Company
2014 2013 2014 2013
RMB’000 RMB’000 RMB’000 RMB’000
Contracted, but not provided for:
Land and buildings 214,356 264,314 50,278 27,714
Investments in associates 5,223 17,304 — —
219,579 281,618 50,278 27,714
Authorised, but not contracted for:
Land and buildings 21,897,474 21,566,513 — —
ZTE CORPORATION
424
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS
(I) Transactions with related parties
In addition to the transactions and balances detailed elsewhere in these financial statements, the Group
had the following material related party transactions during the year:
2014 2013
Notes RMB’000 RMB’000
The controlling shareholder:
Purchases of raw materials (a) 260,991 227,609
Sales of finished goods (b) 3,800 2,658
Rental expense (c) 8,827 8,827
Associates:
Purchases of raw materials (a) 74,309 71,445
Sales of finished goods (b) 52,564 17,250
Rental income (e) 12,804 4,533
Interest expense (f) 75 56
Interest income (f) 110 4,762
Joint ventures:
Purchases of raw materials (a) 21,111 —
Sales of finished goods (b) 530,684 109,868
Rental income (e) 258 85
Entities significantly influenced by key
management personnel of the Group:
Purchases of raw materials (a) 782,107 447,549
Sales of finished goods (b) 61 105
Rental expense (d) 42,931 44,221
Rental income (e) 2,146 2,146
Entities controlled by the controlling shareholder:
Purchases of raw materials (a) 279,823 266,301
Sales of finished goods (b) 2,930 6,970
Rental income (e) 780 696
The substantial shareholder of the controlling
shareholder:
Purchases of raw materials (a) 164 —
In the opinion of the directors, the above transactions were conducted in the ordinary course of
business.
Notes:
(a) The purchases of raw materials were made in accordance with published prices and conditions similar to those offered by
the suppliers to their major customers.
(b) The sales of finished goods were made in accordance with published prices and conditions offered to major customers of
the Group.
ANNUAL REPORT 2014
425
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS (continued)
(I) Transactions with related parties (continued)
Notes: (continued)
(c) The rental expense was charged at rates of RMB40 per square metre and RMB200 per car parking space.
(d) The rental expense was charged at rates ranging from RMB130 to RMB500 per square metre.
(e) The rental income was earned from RMB12.74 to RMB150 per square metre.
(f) The interest rates for deposits, loans and bills discounting were determined with reference to the interest rates adopted by
financial institutions as regulated by the People’s Bank of China.
(II) Commitments with related parties
(i) The Group leases certain of its office premises from related parties under non-cancellable
operating lease arrangements. The Group expected the lease payments to related parties under
non-cancellable operating leases falling due as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
The controlling shareholder 2,575 — —
Entities significantly influenced by key
management personnel of the Group 11,704 — —
(ii) A subsidiary of the Group entered into a series of agreements with related parties to purchase
raw materials for the Group’s future production. The maximum amounts of total purchases from
related parties in the following year were expected as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
The controlling shareholder 1,100,000 — —
An entity significantly influenced by key
management personnel of the Group 900,000 — —
Associates 121,192 63,000 79,000
ZTE CORPORATION
426
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS (continued)
(II) Commitments with related parties (continued)
(iii) The Group leases certain of its office premises to related parties under non-cancellable operating
lease arrangements. The Group expected the lease receivables from related parties under non-
cancellable operating leases falling due as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
Associates 42,018 164 —
Joint ventures 258 258 258
Entities significantly influenced by key
management personnel of the Group 2,146 — —
The substantial shareholder of the controlling
shareholder 1,129 1,129 470
(iv) A subsidiary of the Group entered into a series of agreements with related parties to sell products
and services. The maximum amount of total sale to related parties in the following year was
expected as follows:
Within
one year
In the
second year
In the
third year
RMB’000 RMB’000 RMB’000
Associates 29,000 30,000 31,000
(III) Outstanding balances with related parties
(i) Details of the Group’s trade balances with the controlling shareholder, joint ventures, associates
and other related parties as at the end of the reporting period are disclosed in notes 26 and 31
to the financial statements.
(ii) Details of the Group’s balances of receivables and payables which are not trade in nature with
the controlling shareholder, associates and other related parties as at the end of the reporting
period are disclosed in notes 28 and 32 to the financial statements.
(IV) Compensation of key management personnel of the Group
2014 2013
RMB’000 RMB’000
Short-term employee benefits 46,157 19,022
Post-employment benefits 6 40
Equity-settled share option expense — —
Total compensation paid to key management personnel 46,163 19,062
ANNUAL REPORT 2014
427
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
48. RELATED PARTY TRANSACTIONS (continued)
(IV) Compensation of key management personnel of the Group (continued)
The related party transactions in respect of purchases of raw materials amounting to approximately
RMB541 million (2013: RMB494 million) constitute continuing connected transactions as defined in
Chapter 14A of the Listing Rules. For details, please refer to the section of the Annual Report headed
“Material Matters (IX) Significant Connected Transactions of the Group (2) Continuing Connected
Transactions under the Hong Kong Listing Rules” of the Annual Report.
49. FINANCIAL INSTRUMENTS BY CATEGORY
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows:
2014 Group
Financial assets
Financial
assets at
fair value
through
profit or loss
Loans and
receivables
Available-
for-sale
financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 1,739,664 1,739,664
Trade and bills receivables/long-term trade
receivables — 27,506,235 — 27,506,235
Factored trade receivables/factored long-
term trade receivables — 4,862,683 — 4,862,683
Financial assets included in prepayments,
deposits and other receivables — 2,209,677 — 2,209,677
Pledged deposits — 4,462,778 — 4,462,778
Time deposits with original maturity of
over three months — 167,428 — 167,428
Cash and cash equivalents — 17,230,140 — 17,230,140
Derivative financial instruments 240,973 — — 240,973
240,973 56,438,941 1,739,664 58,419,578
ZTE CORPORATION
428
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2014 Group
Financial liabilities
Financial
liabilities at
fair value
through
profit or loss
Financial
liabilities at
amortised cost
Derivatives
designated
as hedging
instruments
in effective
hedges
Other
financial
liabilities Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade and bills payables — 29,626,088 — — 29,626,088
Bank advances on factored trade
receivables/bank advances on
factored long-term trade receivables — 4,877,410 — — 4,877,410
Financial liabilities included in other
payables and accruals — 6,342,602 — — 6,342,602
Interest-bearing bank borrowings — 21,080,836 — — 21,080,836
Financial guarantee contract — — — 3,689 3,689
Bonds payable — 6,131,185 — — 6,131,185
Factoring costs payable — 204,435 — — 204,435
Derivative financial instruments 64,904 — 6,581 — 71,485
64,904 68,262,556 6,581 3,689 68,337,730
2013 Group
Financial assets
Financial assets
at fair value
through profit
or loss
Loans and
receivables
Available-for-
sale financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 1,630,271 1,630,271
Trade and bills receivables/long-term trade receivables — 25,260,690 — 25,260,690
Factored trade receivables/factored long-term trade
receivables — 5,650,326 — 5,650,326
Financial assets included in prepayments, deposits and
other receivables — 1,865,075 — 1,865,075
Equity investment at fair value through profit or loss — — — —
Pledged deposits — 4,105,538 — 4,105,538
Time deposits with original maturity of over three months — 76,120 — 76,120
Cash and cash equivalents — 20,118,274 — 20,118,274
Derivative financial instruments 217,454 — — 217,454
217,454 57,076,023 1,630,271 58,923,748
ANNUAL REPORT 2014
429
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2013 Group
Financial liabilities
Financial
liabilities at fair
value through
profit or loss
Financial
liabilities at
amortised cost
Derivatives
designated
as hedging
instruments
in effective
hedges
Other financial
liabilities Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Trade and bills payables — 24,990,555 — — 24,990,555
Bank advances on factored trade
receivables/bank advances on
factored long-term trade receivables — 5,688,899 — — 5,688,899
Financial liabilities included in other
payables and accruals — 7,791,444 — — 7,791,444
Interest-bearing bank borrowings — 20,728,630 — — 20,728,630
Financial guarantee contract — — — 3,689 3,689
Bonds payable — 6,119,590 — — 6,119,590
Factoring costs payable — 257,540 — — 257,540
Derivative financial instruments 61,659 — 10,406 — 72,065
61,659 65,576,658 10,406 3,689 65,652,412
2014 Company
Financial assets
Financial
assets at
fair value
through
profit or loss
Loans and
receivables
Available-
for-sale
financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 373,555 373,555
Trade and bills receivables/long-term trade
receivables — 38,740,390 — 38,740,390
Factored trade receivables/factored long-
term trade receivables — 2,547,667 — 2,547,667
Financial assets included in prepayments,
deposits and other receivables — 9,450,398 — 9,450,398
Derivative financial instruments 53,390 — — 53,390
Pledged deposits — 4,054,594 — 4,054,594
Cash and cash equivalents — 9,715,869 — 9,715,869
53,390 64,508,918 373,555 64,935,863
ZTE CORPORATION
430
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2014 Company
Financial liabilities
Financial
liabilities at
amortised
cost
Other
financial
liabilities Total
RMB’000 RMB’000 RMB’000
Trade and bills payables 43,604,493 — 43,604,493
Bank advances on factored trade receivables/bank
advances on factored long-term trade receivables 2,562,394 — 2,562,394
Financial liabilities included in other payables and
accruals 22,474,813 — 22,474,813
Interest-bearing bank borrowings 11,398,681 — 11,398,681
Financial guarantee contract — 3,689 3,689
Bonds payable 6,131,185 — 6,131,185
Factoring costs payable 204,435 — 204,435
Derivative financial instruments 17,587 — 17,587
86,393,588 3,689 86,397,277
2013 Company
Financial assets
Financial
assets at fair
value through
profit or loss
Loans and
receivables
Available- for-
sale financial
assets Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments — — 373,555 373,555
Trade and bills receivables/long-term trade
receivables — 37,248,288 — 37,248,288
Factored trade receivables/factored long-
term trade receivables — 4,052,186 — 4,052,186
Financial assets included in prepayments,
deposits and other receivables — 12,444,443 — 12,444,443
Derivative financial instruments 69,300 — — 69,300
Pledged deposits — 3,803,789 — 3,803,789
Cash and cash equivalents — 11,756,438 — 11,756,438
69,300 69,305,144 373,555 69,747,999
ANNUAL REPORT 2014
431
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
49. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period
are as follows: (continued)
2013 Company
Financial liabilities
Financial
liabilities at
amortised
cost
Other
financial
liabilities Total
RMB’000 RMB’000 RMB’000
Trade and bills payables 44,451,968 — 44,451,968
Bank advances on factored trade receivables/bank
advances on factored long-term trade receivables 4,090,759 — 4,090,759
Financial liabilities included in other payables and
accruals 20,180,066 — 20,180,066
Interest-bearing bank borrowings 10,155,865 — 10,155,865
Financial guarantee contract — 3,689 3,689
Bonds payable 6,119,590 — 6,119,590
Factoring costs payable 257,540 — 257,540
Derivative financial instruments 12,575 — 12,575
85,268,363 3,689 85,272,052
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The carrying amounts of the Group’s and the Company’s financial instruments approximate to their fair values.
Management has assessed that the fair values of cash and cash equivalents, the current portion of pledged
deposits, trade and bills receivables, trade and bills payables, financial assets included in prepayments,
deposits and other receivables, financial liabilities included in other payables and accruals, amounts due
from/to subsidiaries, an amount due to the ultimate holding company and loans from associates approximate
to their carrying amounts largely due to the short-term maturities of these instruments.
The Group’s finance department headed by the finance manager is responsible for determining the policies
and procedures for the fair value measurement of financial instruments. The finance department reports
directly to the chief financial officer and the audit committee. At each reporting date, the finance department
analyses the movements in the values of financial instruments and determines the major inputs applied in
the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process
and results are discussed with the audit committee twice a year for interim and annual financial reporting.
The fair values of the financial assets and liabilities are included at the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The
following methods and assumptions were used to estimate the fair values:
ZTE CORPORATION
432
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)
The fair values of the non-current portion of pledged deposits, trade receivables, deposits and other
receivables and interest-bearing bank borrowings have been calculated by discounting the expected future
cash flows using rates currently available for instruments with similar terms, credit risk and remaining
maturities. The Group’s own non-performance risk for interest-bearing bank and other borrowings as at 31
December 2014 was assessed to be insignificant. The fair value of the liability portion of the convertible
bonds is estimated by discounting the expected future cash flows using an equivalent market interest rate
for a similar convertible bond with consideration of the Group’s own non-performance risk.
The fair value of a listed equity investment is based on quoted market prices.
The Group enters into derivative financial instruments with various counterparties, principally financial
institutions with A- or above credit ratings. Derivative financial instruments, including forward currency
contracts and interest rate swaps are measured using valuation techniques similar to forward pricing and swap
models, using present value calculations. The models incorporate various market observable inputs including
the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. The
carrying amounts of forward currency contracts and interest rate swaps are the same as their fair values.
Fair value hierarchy
The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:
Assets measured at fair value:
Group
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 319,470 — — 319,470
Derivative financial instruments — 240,973 — 240,973
319,470 240,973 — 560,443
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 364,479 — — 364,479
Derivative financial instruments — 217,454 — 217,454
364,479 217,454 — 581,933
ANNUAL REPORT 2014
433
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)
Fair value hierarchy (continued)
Assets measured at fair value: (continued)
Company
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — 53,390 — 53,390
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — 69,300 — 69,300
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no
transfers into or out of Level 3 for financial assets (2013: Nil).
Liabilities measured at fair value:
Group
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (71,485) — (71,485)
ZTE CORPORATION
434
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
50. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)
Fair value hierarchy (continued)
Liabilities measured at fair value: (continued)
Group (continued)
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (72,065) — (72,065)
Company
As at 31 December 2014 Fair value measurement using
Quoted
prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (17,587) — (17,587)
As at 31 December 2013 Fair value measurement using
Quoted prices
in active
markets
Significant
observable
inputs
Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
Derivative financial instruments — (12,575) — (12,575)
During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no
transfers into or out of Level 3 for financial liabilities (2013: Nil).
ANNUAL REPORT 2014
435
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk,
credit risk and liquidity risk. Generally, the Group introduces conservative strategies on its risk management.
The Group also enters into derivative transactions to manage the interest rate and currency risks arising
from the Group’s operations and its sources of finance, but is forbidden to engage in speculative activities
for profit-making. The board of directors reviews and agrees policies for managing each of these risks and
they are summarised as follows:
Interest rate risk
At 31 December 2014, the bank loans of the Group and the Company included fixed and variable rate debts.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-
term debt obligations with floating interest rates.
The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. As the Group
borrowed a USD900 million floating interest rate loan, the Group entered into and will enter into interest
rate swaps with a nominal principal amount of not more than USD900 million at an appropriate timing, in
which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate
interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are
designated to hedge underlying debt obligations. At 31 December 2014, after taking into account the effect
of the interest rate swaps, approximately 40% (2013: 30%) of the Group’s interest-bearing borrowings bore
interest at fixed rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all
other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings)
and the Group’s equity.
Increase/
(decrease) in
basis points
Increase/
(decrease) in
profit before
tax
Increase/
(decrease) in
equity *
2014 0.25% (31,557) 5,591
(0.25%) 31,557 (5,591)
2013 0.25% (36,641) 4,065
(0.25%) 36,641 (4,065)
* Excluding retained profits
ZTE CORPORATION
436
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Foreign currency risk
The Group has transactional currency exposures. These exposures arise from sales or purchases by operating
units in currencies other than the units’ functional currencies, where the revenue is predominately in USD,
EUR and a certain portion of the bank loans is denominated in USD. The Group entered into forward currency
contracts and tends to accept foreign currency exchange risk avoidance or allocation terms when arriving
at purchase and sale contracts to minimise its transactional currency exposures. The Group takes a rolling
forecast on foreign currency revenue and expenses and matches the currency and amount incurred, so as
to alleviate the impact on business due to exchange rate fluctuation.
The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible
change in the USD and EUR exchange rate, with all other variables held constant, of the Group’s profit
before tax (due to changes in the fair value of monetary assets and liabilities). There would be no change
in other components of equity.
Increase/
(decrease)
in exchange
rate
Increase/
(decrease) in
profit before tax
% RMB’000
2014
If RMB weakens against USD 3% 38,204
If RMB strengthens against USD (3%) (38,204)
If RMB weakens against EUR 5% 136,696
If RMB strengthens against EUR (5%) (136,696)
Increase/
(decrease) in
exchange rate
Increase/
(decrease) in profit
before tax
% RMB’000
2013
If RMB weakens against USD 3% 37,160
If RMB strengthens against USD (3%) (37,160)
If RMB weakens against EUR 5% 185,118
If RMB strengthens against EUR (5%) (185,118)
Credit risk
The Group trades only 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 and the Group’s exposure to bad debts is not significant.
ANNUAL REPORT 2014
437
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Credit risk (continued)
The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, other
receivables and derivative instruments, arises from default of the counterparty, with a maximum exposure
equal to the carrying amounts of these instruments. The Group is also exposed to credit risk through the
granting of financial guarantees.
Since the Group trades only with recognised and creditworthy third parties, there is no requirement for
collateral. Concentrations of credit risk are managed by analysis, by counterparty, by geographical region and
by industry sector. There are no significant concentrations of credit risk within the Group as the customer
bases of the Group’s trade receivables are widely dispersed in different sectors and industries.
Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are
disclosed in note 26 to the financial statements.
Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers
the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash
flows from operations.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use
of bank loans and other interest-bearing loans. In addition, banking facilities have been put in place for
contingency purposes. Except for the non-current portion of interest-bearing bank borrowings, all borrowings
of the Group mature in less than one year.
The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the
contractual undiscounted payments, is as follows:
2014 Group
On demand Within 1 year 1 to 2 years 2 to 3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Interest-bearing bank borrowings — 11,193,023 6,431,576 1,368,816 3,048,910 22,042,325
Trade and bills payables 19,244,400 10,381,688 — — — 29,626,088
Bank advances on factored trade
receivables/bank advances
on factored long-term trade
receivables — 3,254,431 638,663 389,151 735,447 5,017,692
Other payables 6,342,602 — — — — 6,342,602
Bonds payable — 6,252,000 — — — 6,252,000
Factoring costs payable — — 73,327 63,889 189,065 326,281
Derivative financial instruments — 71,175 896 — — 72,071
Financial guarantee contract 50,000 — — — — 50,000
25,637,002 31,152,317 7,144,462 1,821,856 3,973,422 69,729,059
ZTE CORPORATION
438
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
51. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Liquidity risk (continued)
2013 Group
On demand Within 1 year 1 to 2 years 2 to 3 years Over 3 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Interest-bearing bank borrowings — 15,508,467 839,379 5,023,976 — 21,371,822
Trade and bills payables 16,492,534 8,498,021 — — — 24,990,555
Bank advances on factored trade
receivables/bank advances
on factored long-term trade
receivables — 3,377,374 729,055 546,622 1,120,002 5,773,053
Other payables 7,707,360 84,084 — — — 7,791,444
Bonds payable — 252,000 6,252,000 — — 6,504,000
Factoring costs payable — — 73,327 63,889 189,065 326,281
Derivative financial instruments — 67,779 4,270 46 — 72,095
Financial guarantee contract 50,000 — — — — 50,000
24,249,894 27,787,725 7,898,031 5,634,533 1,309,067 66,879,250
Capital management
The primary objectives of the Group’s capital management are 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 manages its capital structure and makes adjustments to it in light of changes in economic
conditions. 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 years ended 31 December 2014 and 31 December 2013.
The Group monitors capital using a gearing ratio, which are interest-bearing liabilities divided by the sum
of total equity and interest-bearing liabilities. The gearing ratios as at the end of the reporting periods were
as follows:
Group
2014 2013
RMB’000 RMB’000
Interest-bearing borrowings 21,080,836 20,728,630
Bonds payable 6,131,185 6,119,590
Bank advances on factored trade receivables and long-term trade
receivables 4,877,410 5,688,899
Total interest-bearing liabilities 32,089,431 32,537,119
Total equity 26,292,504 23,625,689
Total equity and interest-bearing liabilities 58,381,935 56,162,808
Gearing ratio 55.0% 57.9%
ANNUAL REPORT 2014
439
Notes to Financial Statements
(Prepared under Hong Kong Financial Reporting Standards)
31 December 2014
52. MAJOR NON-CASH TRANSACTIONS
During the year, the acquisition of property, plant and equipment of RMB358,069,000 (2013: RMB144,460,000)
is by assuming directly related liabilities.
53. EVENTS AFTER THE REPORTING PERIOD
Pursuant to the “Resolution on the Proposed Registration and Issue of Perpetual Medium Term Note of the
Company” considered and approved at the First Extraordinary General Meeting of 2014 of the Company
held on 15 October 2014, approval was granted to the Company for the issue of perpetual medium term
note (hereinafter referred to as the “Medium Term Note”) with a size of not more than RMB9 billion. On 27
January 2015, the issue of the 2015 first tranche Medium Term Notes with an amount of RMB 6 billion was
completed. On 6 February 2015, the issue of the 2015 second tranche Medium Term Notes with an amount
of RMB1.5 billion was completed.
Pursuant to the profit distribution proposal recommended by the Board, cash dividend of RMB2 (before tax)
for every 10 shares held will be paid on the basis of the total share capital of the Company of 3,437,541,278
shares as at 31 December 2014, and 2 bonus shares will also be issued for every 10 shares held by
shareholders whose name appear in the register as at the Record Date through an increase in registered
capital by way of capitalisation of capital reserves. The profit distribution proposal is subject to approval by
the annual general meeting of the Company.
54. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the board of directors on 25 March 2015.
ZTE CORPORATION
440
Documents Available for Inspection
(I) Text of the 2014 annual report signed by the Chairman of the Board of Directors;
(II) Original copies of the Group’s audited financial reports and consolidated financial statements for the year
ended 31 December 2014 prepared in accordance with the PRC ASBEs and HKFRSs duly signed by the
Company’s legal representative, Chief Financial Officer and Head of Finance Division;
(III) Original copy of the auditors’ report affixed with seal of the accountants’ firm and duly signed under the
hand and seal of the certified public accountants;
(IV) Original copies of all of the Company’s documents and announcements published in China Securities Journal,
Securities Times and Shanghai Securities News and posted on http://www.cninfo.com.cn during the year;
and
(V) Articles of Association.
By order of the Board
Hou Weigui
Chairman
26 March 2015
www.zte.com.cn
stock code : 000063.SZ 763.HK
2014
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doc_962564394.pdf