Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

ZTE CORPORATION

中 興 通 訊 股 份 有 限 公 司

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 763)

2020 INTERIM REPORT SUMMARY AND RESULTS ANNOUNCEMENT

1. IMPORTANT

  1. The Board of Directors, Supervisory Committee and the Directors, Supervisors and senior management of ZTE Corporation ("ZTE" or the "Company") confirm that the contents of the 2020 Interim Report(the "Interim Report") are true, accurate and complete without any false information, misleading statements or material omissions, and accept individual and collective legal responsibility.
    The Interim Report containing all information required to be presented in interim reports in accordance with Appendix 16 to the Rules (the "Hong Kong Stock Exchange Listing Rules") Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") will be posted on the website of the Hong Kong Stock Exchange (www.hkexnews.hk) and the Company's website (www.zte.com.cn) in due course.
  2. There are no Directors, Supervisors or senior management who do not warrant or who dispute the truthfulness, accuracy and completeness of the contents of the Interim Report.
  3. The Interim Report has been considered and approved at the Twenty-second Meeting of the Eighth Session of the Board of Directors of the Company.
  4. The interim financial reports of ZTE and its subsidiaries ("the Group") for the six months ended 30 June 2020 were unaudited.

- 1 -

  1. Mr. Li Zixue, Chairman of the Company, Ms. Li Ying, Chief Financial Officer of the Company and Mr. Xu Jianrui, Head of Finance Division of the Company, hereby declare that they warrant the truthfulness, accuracy and completeness of the financial reports contained in the Interim Report.
  2. No profit distribution or conversion of capital reserves will be implemented in respect of the interim period of 2020.

2. CORPORATE PROFILE

2.1 Corporate information

Abbreviated name of stock

ZTE

Stock code

000063 (A Shares)

763 (H Shares)

Place of listing

Shenzhen Stock Exchange

The Stock Exchange of

Hong Kong Limited

Registered and office

ZTE Plaza, Keji Road South, Hi-Tech Industrial Park,

address

Nanshan District, Shenzhen, Guangdong Province,

the People's Republic of China

Postal code

518057

Principal place of business in

31/F, Tower Two, Times Square,1 Matheson Street,

Hong Kong

Causeway Bay, Hong Kong

Website

http://www.zte.com.cn

E-mail

IR@zte.com.cn

2.2 Contact persons and correspondence

Secretary to the Board

Authorized

of Directors/

Securities Affairs

representatives

Company Secretary

Representatives

Name

Gu Junying,

Ding Jianzhong

Xu Yulong

DingJianzhong

Address

No. 55, Keji Road South, Shenzhen,

Guangdong Province,

the People's Republic of China

Tel

+86 755 26770282

Fax

+86 755 26770286

E-mail

IR@zte.com.cn

- 2 -

3. SUMMARY OF THE COMPANY'S BUSINESS

3.1 Principal businesses

The Group is dedicated to the provision of ICT products and solutions that satisfy the needs of customers, integrating design, development, production, sales and services with a special focus on carriers' networks, government and corporate business and consumer business. There was no significant change to the principal businesses of the Group during the reporting period.

The carriers' network is focused on meeting carriers' requirements in network evolution with the provision of wireless access, wireline access, bearer networks, core networks, telecommunication software systems and services and other innovative technologies and product solutions.

The government and corporate business is focused on meeting requirements of government and corporate clients, providing informatization solutions for the government and corporations through the application of products such as communications networks, IOT, big data and cloud computing.

The consumer business is focused on bringing experience in smart devices to customers while also catering to the requirements of industry clients through the development, production and sales of products such as smart phones, mobile data terminals, home information terminals and innovative fusion terminals, as well as the provision of related software application and value-added services.

3.2 The industry in which we operates

The Company is a leading provider of integrated communication and information solutions in the world market, providing innovative technology and product solutions to customers in numerous countries and regions.

The Group owns a complete end-to-end products and integrated solutions in the telecommunications industry. Through a complete range of "wireless, wireline, cloud computing and terminal" products, we have the flexibility to fulfill differentiated requirements and demands for fast innovation on the part of different customers around the world.

In future, the Group will continue to focus on mainstream markets and mainstream products, enhancing customer satisfaction and market share in an ongoing effort and constantly strengthening its product competitiveness through persistent endeavours in proprietary innovation of core technologies, while forging closer cooperation with partners with a more open-minded approach to build a mutually beneficial industrial chain and embrace together the brilliant and best new era of "mobile smart interconnection of all things".

- 3 -

4. HIGHLIGHTS OF ACCOUNTING DATA AND FINANCIAL INDICATORS

WHETHER THE COMPANY HAS MADE RETROSPECTIVE ADJUSTMENTS TO OR RESTATEMENT OF ACCOUNTING DATA OF THE PREVIOUS YEAR BECAUSE OF CHANGES IN ACCOUNTING POLICIES OR FOR THE RECTIFICATION OF ACCOUNTING ERRORS

□ Yes √ No

4.1 Major accounting data and financial indicators of the Group prepared in accordance with PRC Accounting Standards for Business Enterprises ("PRC ASBEs")

Unit: RMB in thousands

Changes as at the

end of the

End of the

End of last year

reporting period

reporting period

(31 December

compared with the

Item

(30 June 2020)

2019)

end of last year

Total assets

165,432,364

141,202,135

17.16%

Owners' equity attributable to

holders of ordinary shares of

the listed company

41,156,116

28,826,868

42.77%

Share capital

(thousand shares) Note 1

4,613,435

4,227,530

9.13%

Net assets per share attributable

to holders of ordinary shares

of the listed company

(RMB/share)

8.92

6.82

30.79%

Increased by 0.12

Gearing ratio (%)

73.24%

73.12%

percentage point

- 4 -

Unit: RMB in thousands

Same period of

Reporting period

last year

Changes compared

(Six months ended

(Six months ended

with the same

Item

30 June 2020)

30 June 2019) period of last year

Operating revenue

47,199,373

44,609,219

5.81%

Operating profit

2,840,600

2,343,209

21.23%

Total profit

2,840,971

2,237,477

26.97%

Net profit attributable to holders

of ordinary shares of the listed

company

1,857,289

1,470,699

26.29%

Net profit after extraordinary

items attributable to holders

of ordinary shares of the listed

company

902,115

612,138

47.37%

Basic earnings per share

(RMB/share) Note 2

0.40

0.35

14.29%

Diluted earnings per share

(RMB/share) Note 3

0.40

0.35

14.29%

Basic earnings per share after

extraordinary items

(RMB/share) Note 2

0.20

0.15

33.33%

Weighted average return on

Decreased by 0.92

net assets

5.28%

6.20%

percentage point

Weighted average return on

net assets after extraordinary

Decreased by 0.02

items

2.56%

2.58%

percentage point

Net cash flows from operating

activities

2,040,770

1,266,617

61.12%

Net cash flows from operating

activities per share

(RMB/share)

0.44

0.30

46.67%

Note 1: The total share capital of the Company was increased from 4,227,529,869 shares to 4,613,434,832 shares following the non-public issue of 381,098,968 A shares by the Company and the exercise of 4,805,995 A share options by scheme participants under the 2017 Share Option Incentive Scheme of the Company during the reporting period.

Note 2: Basic earnings per share and basic earnings per share after extraordinary items for the reporting period and for the same period last year have been calculated on the basis of the weighted average number of ordinary shares in issue as at the end of the respective periods.

- 5 -

Note 3: As the 2017 share options granted by the Company have given rise to 22,143 thousand and 30,440 thousand potentially dilutive ordinary share for the six months ended 30 June 2020 and the six months ended 30 June 2019, respectively, dilutive earnings per share has been calculated on the basis of basic earnings per share taking into account the said factor.

4.2 Extraordinary gains or losses items and amounts prepared in accordance with PRC ASBEs

Unit: RMB in thousands

Extraordinary item

Amount

Non-operating income, other income and others

1,272,667

Gains/(Losses) from fair value change

(121,434)

Investment income

57,351

Less: Losses on disposal of non-current assets

26,618

Less: Other non-operating expenses

28,670

Less: Asset impairment loss

7,165

Less: Effect of income tax

171,920

Less: Effect of non-controlling interests (after tax)

19,037

Total

955,174

4.3 Major financial indicators prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs")

Six months

Six months

ended

ended

Item

30 June 2020

30 June 2019

Basic earnings per share (RMB/share) Note

0.40

0.35

Weighted average return on net assets

5.28%

6.20%

Weighted average return on net assets after

extraordinary items

2.56%

2.58%

30 June

31 December

Item

2020

2019

Net assets per share attributable to holders of

ordinary shares of the listed company

(RMB/share)

8.92

6.82

Note: Basic earnings per share for the reporting period and for the same period last year have been calculated on the basis of the weighted average number of ordinary shares in issue as at the end of the respective periods.

- 6 -

4.4 The amounts of net profit and shareholders' equity of the Group for the six months ended and as at 30 June 2020 calculated in accordance with PRC ASBEs are fully consistent with those calculated under HKFRSs.

5. SHAREHOLDINGS OF THE SHAREHOLDERS

5.1 Total number of shareholders, shareholdings of top ten shareholders and top ten holders that were not subject to lock-up as at the end of the reporting period

Total number of shareholders

As at 30 June 2020

There were 513,906 shareholders (comprising 513,585 holders of A shares and

321 holders of H shares)

Shareholdings of top 10 shareholders or shareholders holding 5% or above of the shares

Total number of

Increase/

Number of

shares held

Number of

Nature of

Percentage of

shares held as at the

decrease during

subject to

shares pledged

end of the reporting

Class of

the reporting

lock-up

or frozen

Name of shareholders

shareholders

shareholdings

period (shares)

shares

period (shares)

(shares)

(shares)

1.

Zhongxingxin Telecom

Domestic general

23.40%

1,079,569,700

A share

-69,279,900

-

Company Limited

corporation

2,038,000 Note 1

H share

-

-

("Zhongxingxin")

-

2.

HKSCC Nominees

Foreign

16.31%

752,327,016

H share

+15,630

Limited Note 3

shareholders

-3,998,471

-

3.

Hong Kong Securities

Overseas

1.38%

63,869,835

A share

Clearing Company

corporation

Limited Note 4

4.

NSSF Portfolio #101

Others

1.27%

58,524,205

A share

+42,204,567

42,204,567

5.

Bank of China Limited -

Others

1.27%

58,362,288

A share

+36,897,586

-

Huaxia Securities 5G

Themed Traded

Open-ended Index

Securities Fund

State-owned

1.14%

52,519,600

A share

-

-

6.

Central Huijin Asset

Management Co. Ltd.

corporation

7.

Shenzhen Huitong

State-owned

0.93%

43,032,108

A share

+43,032,108

43,032,108

Rongxin Investment

corporation

Co., Ltd.

Domestic general

0.93%

43,032,108

A share

+43,032,108

43,032,108

8.

Nanjing Xinchuangxing

Consulting and

corporation

Management

Partnership (Limited

Partnership)

Others

0.93%

43,032,108

A share

+43,032,108

43,032,108

9.

New China Life Insurance

Company Limited -

New Traditional

Products 2

10.

Shenzhen Investment

Others

0.93%

43,032,108

A share

+43,032,108

43,032,108

Holding Capital Co., Ltd.

  • Shenzhen Investment Holding Win-win Equity Investment Fund Partnership (Limited Partnership)

11. Guangdong Hengjian Others0.93% 43,032,108 A share +43,032,108 43,032,108 Asset Management

Co., Ltd. - Guangdong Henghui Equity Investment Fund (Limited Partnership)

98,667,983 Note 2

Nil

Unknown

Nil

Nil

Nil

Nil

Nil

Nil

Nil

Nil

Nil

- 7 -

Shareholdings of top 10 holders of shares that were not subject to lock-up

Number of shares

not subject to

Name of shareholders

lock-up (shares)

Class of shares

1.

Zhongxingxin

1,077,531,700

A share

2,038,000

H share

2.

HKSCC Nominees Limited

752,327,016

H share

3.

Hong Kong Securities Clearing Company

63,869,835

A share

Limited

4.

Bank of China Limited - Huaxia Securities

58,362,288

A share

5G Themed Traded Open-ended Index

Securities Fund

5.

Central Huijin Asset Management Co. Ltd.

52,519,600

A share

6.

Hunan Nantian (Group) Co., Ltd.

41,516,065

A share

7.

China Life Insurance Company Limited -

26,377,623

A share

Dividend - Personal Dividend -

005L-FH002 Shen

8.

China Mobile No. 7 Research Institute

19,073,940

A share

9.

China Construction Bank Corporation -

18,070,440

A share

China-Europe New Blue-chip Flexible

Allocation Hybrid Securities Fund

10. NSSF Portfolio #101

16,319,638

A share

Descriptions of any

1. Zhongxingxin was neither a connected party nor a party

connected party

of concerted action of any of the top ten shareholders

relationships or

and top ten holders of shares that were not subject to

concerted actions

lock-up set out in the table above.

among the above

2. Save for the above,

the Company is not

aware of any

shareholders

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

N/A

involvement in

financing and

securities lending

businesses of top 10

shareholders (if any)

Note 1: 2,038,000 H shares in the Company held by Zhongxingxin were held by HKSCC Nominees Limited as nominee.

- 8 -

Note 2: Zhongxingxin pledged its holdings of 98,667,983 A shares in the Company for financing requirements on 20 December 2018. As a result of the expiry and renewal of the relevant financing agreement, Zhongxingxin released the aforesaid pledge and created a new pledge on 25 March 2020, which was subsequently released on 14 July 2020. For details, please refer to the "Overseas Regulatory Announcement Announcement on the Release of Pledge and Creation of New Pledge against Shares held by the Controlling Shareholder" and "Overseas Regulatory Announcement Announcement on the Release of Pledge on Shares held by the Controlling Shareholder" published by the Company on 26 March 2020 and 15 July 2020, respectively.

Note 3: Shares held by HKSCC Nominees Limited represented the sum of shares held in the accounts of the H shareholders of the Company traded on the trading platform of HKSCC Nominees Limited. To avoid repetition in counting, 2,038,000 H shares in the Company held by Zhongxingxin have been excluded from the number of shares held by HKSCC Nominees Limited.

Note 4: Shares held by Hong Kong Securities Clearing Company Limited represented the sum of A shares in the Company purchased through Shenzhen Hong Kong Stock Connect (Northbound).

Note 5: During the reporting period, 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 6: Shareholders holding 5% or above of the Company's shares - Zhongxingxin, holding 1,079,569,700 shares in the Company in aggregate, representing 23.40% of the total share capital of the Company as at the end of the reporting period, is the controlling shareholder of the Company. Changes in the shareholdings of the Zhongxingxin during the reporting period are as follows:

Number of shares

Number of shares not

Increase/decrease of

Number of shares

subject to lock-up

subject to lock-up

number of shares held

held at the end of the

held at the end of the

held at the end of the

Number of shares

Name of

during the reporting

reporting period

Class of

reporting period

reporting period

pledged or frozen

shareholder

period (shares)

(shares)

shares held

(shares)

(shares)

(shares)

Zhongxingxin

-69,279,900

1,077,531,700

A shares

0

1,077,531,700

98,667,983

0

2,038,000

H shares

0

2,038,000

Nil

Note: Zhongxingxin conducted a sell-down of 48,913,100 A shares in the Company through block trading at the stock exchange during the period from 2 April 2020 to 7 April 2020. On 22 June 2020, Zhongxingxin conducted a sell-down of 20,366,800 A shares in the Company through block trading at the stock exchange. As of 30 June 2020, Zhongxingxin held 1,079,569,700 shares in the Company in aggregate. On 1 July 2020, Zhongxingxin completed a sell-down of 44,089,500 A shares in the Company by way of block trading at the stock exchange. As at the date of the publication of this report, Zhongxingxin held 1,035,480,200 shares in the Company in aggregate, accounting for 22.44% of the Company's total share capital.

- 9 -

Whether top 10 shareholders and top 10 holders of shares that were not subject to lock-up of the Company conducted any transactions on agreed repurchases during the reporting period

  • Yes √ No

The Company had no preferential shares.

5.2 Changes in controlling shareholder and de facto controller

□ Applicable √ N/A

During the reporting period, there was no change to the controlling shareholder of the Company. There was no de facto controller of the Company.

5.3 Purchase, sale and redemption of securities

During the reporting period, the Company and its subsidiaries did not purchase, sell or redeem any listed securities of the Company.

- 10 -

6. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

6.1 Changes in the shareholdings and share options of the Company's Directors, Supervisors and senior management

Number of

Number of

A shares

Increase in

Decrease in

A shares

held at the

the number

the number

held at the

Term of

Term of

beginning of

of A shares

of A shares

end of the

office

office

the reporting

held during

held during

reporting

Status of

commencing

ending

period

the period

the period

period

Reasons for

No.

Name

Gender

Age

Title

office

on Note 1

on Note 1

(shares)

(shares)

(shares)

(shares)

changes

Directors of the Company

1

Li Zixue

Male

56

Chairman

Incumbent

3/2019

3/2022

-

-

-

-

-

2

Xu Ziyang

Male

48

Director

Incumbent

3/2019

3/2022

42,000

42,000

-

84,000

Note 3

President

4/2019

3/2022

3

Li Buqing

Male

48

Director

Incumbent

3/2019

3/2022

-

-

-

-

-

4

Gu Junying

Male

53

Director

Incumbent

3/2019

3/2022

-

-

-

-

-

Executive Vice

4/2019

3/2022

President

5

Zhu Weimin

Male

54

Director

Incumbent

3/2019

3/2022

-

-

-

-

-

6

Fang Rong

Female

56

Director

Incumbent

3/2019

3/2022

-

-

-

-

-

7

Cai Manli

Female

47

Independent

Incumbent

3/2019

3/2022

-

-

-

-

-

Non-executive

Director

8

Gordon Ng

Male

56

Independent

Incumbent

3/2019

3/2022

-

-

-

-

-

Non-executive

Director

9

Zhuang

Male

55

Independent

Incumbent

6/2020

3/2022

-

-

-

-

-

Jiansheng Note 2

Non-executive

Director

10

Yuming

Male

48

Independent

Resigned

3/2019

6/2020

-

-

-

-

-

Bao Note 2

Non-executive

Director

Supervisors of the Company

11

Xie Daxiong

Male

57

Chairman of

Incumbent

3/2019

3/2022

495,803

-

-

495,803

-

Supervisory

Committee

12

Xia Xiaoyue

Female

45

Supervisor

Incumbent

3/2019

3/2022

50,927

-

-

50,927

-

13

Li Quancai

Male

59

Supervisor

Incumbent

3/2019

3/2022

-

-

-

-

-

14

Shang Xiaofeng

Male

45

Supervisor

Incumbent

3/2019

3/2022

-

-

-

-

-

15

Zhang Sufang

Female

46

Supervisor

Incumbent

3/2019

3/2022

-

-

-

-

-

Senior Management of the Company

16

Wang Xiyu

Male

46

Executive Vice

Incumbent

4/2019

3/2022

41,500

45,966

-

87,466

Note 3

President

17

Li Ying

Female

42

Executive Vice

Incumbent

4/2019

3/2022

27,800

26,800

-

54,600

Note 3

President and

Chief Financial

Officer

18

Xie Junshi

Male

45

Executive Vice

Incumbent

9/2019

3/2022

-

-

-

-

-

President

19

Ding Jianzhong

Male

44

Secretary to the

Incumbent

7/2019

3/2022

-

-

-

-

-

Board of

Directors

-

Total

-

-

-

-

-

-

658,030

114,766

-

772,796

-

Note 1: The starting and ending dates of the term of office set out in this table are the starting and ending dates of the term of office of the Directors of the Eighth Session of the Board of Directors, Supervisors of the Eighth Session of the Supervisory Committee and senior management of the Company appointed by the Eighth Session of the Board of Directors.

- 11 -

Note 2: Mr. Yuming Bao resigned as Independent Non-executive Director of the Company on 10 April 2020, which resignation would become effective after the election of a new Independent Non-executive Director at the 2019 Annual General Meeting of the Company. At the 2019 Annual General Meeting of the Company held on 19 June 2020, Mr. Zhuang Jiansheng was elected Independent Non-executive Director of the Eighth Session of the Board of Directors of the Company for a term commencing on 19 June 2020 and ending on 29 March 2022.

Note 3: Exercise of 2017 A share options by the Directors and senior management of the Company during the reporting period.

Note 4: None of the Directors, Supervisors and senior management personnel in office as at the end of the year held any H shares in the issued share capital of the Company during the reporting period.

For details of the share options of A shares of the Company held by Directors and senior management of the Company during the reporting period, please refer to the section headed "Material Matters - (VIII) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME" in the Interim Report.

6.2 Interests of Directors, Supervisors and Chief Executive Officer of the Company in shares or debentures

The interests in shares of the Company held by Directors, Supervisors and Chief Executive Officer of the Company as at 30 June 2020 are set out in the section of this chapter headed "6.1 Changes in the shareholdings and share options of the Company's Directors, Supervisors and senior management".

Save as disclosed above, as at 30 June 2020, 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 30 June 2020, 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.

- 12 -

7. REPORT OF THE BOARD OF DIRECTORS

7.1 Review of business in the first half of 2020

(1) Overview of the domestic telecommunications industry for the first half of 2020

The domestic telecommunication industry sustained stable development during the first half of 2020. According to the data published by the Ministry of Industry and Information Technology of the PRC, the domestic telecommunications sector reported revenue of RMB692.7 billion for the first six months of 2020, representing year-on-year growth of 3.2%. Rapid growth was also sustained in domestic mobile Internet access traffic flow with an average mobile Internet access traffic volume (DOU) of 10.14 GB per user recorded for the month of June, representing year-on-year growth of 29.3% and 1.55 GB more per user compared to December last year.

During the first half of 2020, domestic carriers expedited the launch and completion of second-phase 5G tenders, taking the development of 5G network to the stage of large-scale deployment, which will usher in a new round of opportunities for development in sectors such as consumers electronics, industrial manufacturing, port operation, mining, energy, railway transport, education and new media, among others.

Note: Data derived from the "Economic Performance of the Telecommunications Industry in the First Half of 2020" published by the Ministry of Industry and Information Technology of the PRC.

(2) Overview of the global telecommunications industry for the first half of 2020

Investment in 5G was gaining pace around the world during the first half of 2020. According to the statistics of Global mobile Suppliers Association (GSA), 84 carriers in 36 countries or regions across the globe had launched 5G retail sales as at 30 June 2020. 5G terminals have been launched with growing variety in types and models, as an increasing number of users were signing up for 5G services.

The outbreak of COVID-19 has exerted a certain impact on the global telecommunications industry in the short term, as operations in technological exchange, business tender, project work and delivery in certain countries have been suspended or postponed. From a longer-term perspective, however, sound infrastructure facilities for communication and online applications (e.g., home office, online teaching) will play an increasingly crucial role in the control of the epidemic and protection of people's livelihood.

- 13 -

Underpinned by new technologies such as 5G, Cloud Computing, AI and Big Data, the ICT industry has continued to grow and expand, driving the digitalisation process in different industries and facilitating rapid development of the digital economy in various countries.

(3) Operating results of the Group for the first half of 2020

For the first half of 2020, the Group reported operating revenue of RMB47.199 billion, representing a year-on-year increase of 5.81%, reflecting primarily the year-on-year growth in revenue from carrier's network and government and corporate business. Net profit attributable to holders of ordinary shares of the listed company for the six months ended 30 June 2020 amounted to RMB1.857 billion, representing a year-on-year increase of 26.29%. Basic earnings per share amounted to RMB0.40.

A. By market

The domestic market

For the reporting period, the Group's operating revenue from the domestic market amounted to RMB31.751 billion, accounting for 67.27% of the Group's overall operating revenue. During the first half of 2020, the Group maintained a stable overall market share with optimised market positions in key cities. The deployment of new products such as data centre and edge computing was completed in a satisfactory manner, forming a solid foundation for nurturing long-term product competitiveness and making breakthrough in future market positions.

The international market

For the reporting period, the Group's operating revenue from the international market amounted to RMB15.448 billion, accounting for 32.73% of the Group's overall operating revenue. While the first half of 2020 was characterised by increasing uncertainties in the international market, the Group overcame various difficulties and persisted in the globalisation strategy with a consistent focus on the carriers of populous nations and leading multinational carriers, as it reported overall stability in its international operations with an optimised revenue mix and further improvements in turnover efficiency.

  1. By business segment

For the reporting period, the Group's operating revenue for carriers' networks, government and corporate business and consumer business amounted to RMB34.970 billion, RMB4.816 billion and RMB7.413 billion, respectively.

- 14 -

Carriers' networks

During the first half of 2020, the competitiveness of the Group's products in carriers' network was further enhanced, as it reported considerable breakthroughs in the international as well as domestic markets.

In connection with wireless products, the Group continued to command a pivotal role in the innovation of 5G technologies and applications as a first-quadrant player in terms of 5G industrialisation. The Group has secured 46 5G commercial contracts globally, covering major 5G markets such as China, Europe, Asia Pacific and the Middle East. The Group was actively involved in the second-phase 5G tendering of the big three domestic carriers, establishing itself firmly in the first quadrant in the domestic market. In connection with wireline products, the marketing of our proprietary specialised core chip featuring high integration density, high performance and low power consumption has significantly enhanced our competitiveness in wireline products, while we held a second-place global ranking in terms of the aggregate shipment volumes for PON, FTTx and 100G optical transmission networks. In connection with video and energy products, the Group offered a full range of products, such as video conference, video IOT and cloud computer, on the back of its technologies in video encoding/decoding, access, transmission and storage, which will form a new growth niche for carriers' network in the 5G era.

Government and corporate business

The Group is well-trusted by clients in the government and corporate business, having been involved in the segment for over a decade with in-depth development of the traditional key market sectors like energy, transportation, government affair and finance. Core products developed by the Group, such as server, video, digital communication, database and operating system, have enjoyed extensive applications in the government and corporate sector. During the first half of 2020, the Group was engaged in active efforts to develop new applications for the infrastructure and 5G sectors and popular new segments such as digital transformation and upgrade, while vigorously marketing its proprietary products to enhance the competitiveness of its two principal product types, namely, computing and connection, in an ongoing effort to optimise its market position.

Consumer business

The Group's consumer business involves handset, mobile data terminal, home information terminal and integrated innovative terminal. The handset business focuses on the 5G terminal in an active effort to explore the domestic and international carrier and consumer markets, while the mobile data terminal business was targeted at the carriers' market. We have been a consistent global leader in home information terminal and integrated innovative terminal, thanks to our

- 15 -

formidable strengths in R&D, customisation and delivery, as well as our longstanding intensive cooperation with upstream component manufacturers and downstream carriers along the industry chain.

7.2 Discussion and analysis of operations under PRC ASBEs

The financial data below are extracted from the Group's unaudited financial statements prepared in accordance with PRC ASBEs. The following discussion and analysis should be read in conjunction with the Group's financial statements and the accompanying notes as set out in the Interim Report.

7.2.1 Breakdown of indicators by industry, business segment and region and comparison with the same period last year

Unit: RMB in thousands

Year-on-year

increase/

Year-on-yearYear-on-year

decrease in

As a

increase/

increase/

gross profit

percentage of

decrease in

decrease in

margin

Operating

operating

Operating

Gross profit

operating

operating

(percentage

Revenue mix

revenue

revenue

costs

margin

revenue

costs

points)

I. By industry

Manufacturing of communication

equipment

47,199,373

100%

31,418,303

33.43%

5.81%

15.85%

(5.78)

Total

47,199,373

100%

31,418,303

33.43%

5.81%

15.85%

(5.78)

II. By business

Carriers' networks

34,969,589

74.09%

22,260,793

36.34%

7.65%

23.98%

(8.38)

Government and corporate business

4,816,598

10.20%

3,455,139

28.27%

2.48%

16.59%

(8.68)

Consumer business

7,413,186

15.71%

5,702,371

23.08%

(0.15%)

(8.03%)

6.60

Total

47,199,373

100%

31,418,303

33.43%

5.81%

15.85%

(5.78)

III. By region

The PRC

31,751,164

67.27%

21,910,519

30.99%

15.79%

33.80%

(9.29)

Asia (excluding the PRC)

6,923,102

14.67%

3,856,222

44.30%

(11.33%)

(14.72%)

2.21

Africa

2,522,750

5.34%

1,147,424

54.52%

(7.09%)

(24.17%)

10.25

Europe, Americas and Oceania

6,002,357

12.72%

4,504,138

24.96%

(9.93%)

(4.34%)

(4.39)

Total

47,199,373

100%

31,418,303

33.43%

5.81%

15.85%

(5.78)

- 16 -

(1) Analysis of change in revenue

The Group reported RMB47,199,373 thousand in operating revenue for the first six months of 2020, a 5.81% increase as compared to the same period last year. Operating revenue from domestic business amounted to RMB31,751,164 thousand, increasing by 15.79% as compared to the same period last year; operating revenue from international business amounted to RMB15,448,209 thousand, decreasing by 10.12% as compared to the same period last year.

Analysed by business segment, the Group reported year-on-year growth in operating revenue for the first half of 2020, reflecting mainly year-on-year growth in revenue from carriers' networks and government and corporate business. For the first half of 2020, the Group reported a 7.65% year-on-year growth in operating revenue from carriers' network, reflecting mainly year-on-year growth in revenue from 5G system equipment and core networks in the domestic market. For the first half of 2020, the Group reported a 2.48% year-on-year growth in operating revenue from government and corporate business, reflecting mainly year-on-year growth in revenue from optical transmission products in the international and domestic markets and servers and railway transportation systems integration in the domestic market.

  1. Changes in the scope of consolidation for the reporting period 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 thousands

Year-on-

year

Year-on-

Year-on-

increase/

year

year

decrease in

Six months ended 30 June 2020

Six months ended 30 June 2019 Note

increase/

increase/

gross profit

Gross

Gross

decrease in

decrease in

margin

Operating

Operating

profit

Operating

Operating

profit

operating

operating

(percentage

revenue

costs

margin

revenue

costs

margin

revenue

costs

points)

47,199,373

31,418,303

33.43%

44,561,890

27,086,193

39.22%

5.92%

15.99%

(5.79)

Note: Figures of operating revenue and operating costs for the six months ended 30 June 2019 are stated after exclusion of operating revenue and operating costs of subsidiaries deconsolidated for the six months ended 30 June 2020.

- 17 -

ZTE Singapore Pte Ltd, ZTE (Albania) Limited, ZICT (Nigeria) Limited, ZTE (Lithuania) Limited, Shenzhen Zhongrui Detection Technology Co., Ltd and Foshan Zhongxing Gaojian New Energy Technology Limited completed deregistration with industrial and commercial administration authorities on 6 January 2020, 20 January 2020, 27 February 2020, 10 March 2020, 9 May 2020 and 12 May 2020, respectively, and the aforesaid companies have been excluded from the consolidated financial statements of the Group as from the respective dates on which such deregistrations were completed.

Shenzhen Zhongxing New Energy Automobile Service Company Limited, a subsidiary of the Company, completed the disposal of 5.1% equity interests in Shenzhen Zhongxin New Energy Technology Company Limited on 4 March 2020. Shenzhen Zhongxin New Energy Technology Company Limited and its subsidiaries have been excluded from the consolidated financial statements of the Group as from 4 March 2020.

7.2.2 Reasons for substantial changes in the Group's principal business and its structure, profit mix and profitability during the reporting period

  1. There was no significant change in the principal business and its structure during the reporting period compared to the same period last year.
  2. Changes in the profit mix during the reporting period compared to the same period last year are set out as follows:
    For the first half of 2020, the Group reported operating profit of RMB2,840,600 thousand, a year-on-year increase by 21.23%, which was attributable mainly to the reduction in bad debt impairment loss of trade receivable; expenses for the period amounted to RMB13,475,930 thousand, a year-on-year decrease by 1.63%, which was attributable mainly to the effect of the epidemic and the Group's stronger effort in cost control; investment income amounted to RMB30,257 thousand, a year-on-year decrease by 90.41%, which was attributable mainly to the decrease in gains on disposal of listed equity interests by fund partnerships under ZTE Capital during the period; net non-operating income and expenses amounted to RMB371 thousand, representing a year-on-year increase of 100.35%, which reflected mainly to the payment of default penalty to Shenzhen Investment Holdings Co., Ltd. during the same period last year.
  3. Changes in the profitability (gross profit margin) of our principal business during the reporting period compared to the same period last year are set out as follows:
    The Group's gross profit margin for the first half of 2020 was 33.43%, a reduction of 5.78 percentage points compared to the same period last year, reflecting mainly the year-on-year decline in gross profit margins for the carriers'

- 18 -

networks and government and corporate business. The year-on-year decline in the gross profit margin of carriers' networks reflected the increase in revenue from low-margin domestic products as a percentage of total revenue, while the year-on-year decline in the gross profit margin of government and corporate business reflected decline in the gross profit margin of government and corporate business of domestic subsidiaries and the increase in revenue from domestic low-margin products as a percentage of total revenue.

7.3 Management discussion and analysis prepared under HKFRSs

The financial data below are extracted from the Group's unaudited financial statements prepared in accordance with HKFRSs. The following discussion and analysis should be read in conjunction with the Group's financial statements and the accompanying notes as set out in the Interim Report.

REVENUE

The following table sets out the revenue attributable to the major business segments of the Group for the periods indicated, in monetary amount and as a percentage of the total operating revenue:

Unit: RMB in millions

For the six months ended

For the six months ended

30 June 2020

30 June 2019

As a

As a

percentage of

percentage of

operating

operating

Business segment

Revenue

revenue

Revenue

revenue

Carriers' networks

34,969.6

74.1%

32,485.2

72.8%

Government and

corporate business

4,816.6

10.2%

4,700.0

10.5%

Consumer business

7,413.2

15.7%

7,424.0

16.7%

Total

47,199.4

100.0%

44,609.2

100.0%

- 19 -

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

For the six months ended

For the six months ended

30 June 2020

30 June 2019

As a

As a

percentage of

percentage of

operating

operating

Regions

Revenue

revenue

Revenue

revenue

The PRC

31,751.2

67.3%

27,421.7

61.5%

Asia (excluding the PRC)

6,923.1

14.7%

7,807.7

17.5%

Africa

2,522.7

5.3%

2,715.3

6.1%

Europe, the Americas and

Oceania

6,002.4

12.7%

6,664.5

14.9%

Total

47,199.4

100.0%

44,609.2

100.0%

The Group reported RMB47,199.4 million in operating revenue for the first six months of 2020, a 5.8% increase as compared to the same period last year. Operating revenue from domestic business amounted to RMB31,751.2 million, increasing by 15.8% as compared to the same period last year; operating revenue from international business amounted to RMB15,448.2 million, decreasing by 10.1% as compared to the same period last year.

Analysed by business segment, the Group reported year-on-year growth in operating revenue for the first half of 2020, reflecting mainly year-on-year growth in revenue from carriers' networks and government and corporate business. For the first half of 2020, the Group reported a 7.6% year-on-year growth in operating revenue from carriers' networks, reflecting mainly year-on-year growth in revenue from products such as 5G system equipment and core network in the domestic market. For the first half of 2020, the Group reported a 2.5% year-on-year growth in operating revenue from government and corporate business, reflecting mainly year-on-year growth in revenue from optical transmission products in international and domestic markets, server and railway transportation integration in the domestic market.

- 20 -

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

For the six months ended

For the six months ended

30 June 2020

30 June 2019

As a

As a

percentage of

percentage of

business

business

segment

segment

Business segment

Cost of sales

revenue

Cost of sales

revenue

Carriers' networks

22,547.2

64.5%

18,665.9

57.5%

Government and

corporate business

3,483.5

72.3%

3,059.9

65.1%

Consumer business

5,733.7

77.3%

6,332.5

85.3%

Total

31,764.4

67.3%

28,058.3

62.9%

Unit: RMB in millions

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Gross profit

Gross profit

Business segment

Gross profit

margin

Gross profit

margin

Carriers' networks

12,422.4

35.5%

13,819.3

42.5%

Government and

corporate business

1,333.1

27.7%

1,640.1

34.9%

Consumer business

1,679.5

22.7%

1,091.5

14.7%

Total

15,435.0

32.7%

16,550.9

37.1%

Cost of sales of the Group for the first half of 2020 increased by 13.2%, year-on-year, to RMB31,764.4 million, reflecting mainly year-on-year growth in the cost of carriers' network and government and corporate business. The Group's overall gross profit margin decreased by 4.4 percentage points to 32.7% for the first half of 2020, reflecting lower gross profit margin for carriers' network and the government and corporate business.

- 21 -

Cost of sales of the Group's carriers' networks for the first half of 2020 amounted to RMB22,547.2 million, a 20.8% increase compared to the same period last year. The relevant gross profit margin was 35.5%, compared to 42.5% for the same period last year. The lower gross profit margin for carriers' networks reflected mainly increase in revenue from low-margin domestic products as a percentage of total revenue.

Cost of sales of the Group's government and corporate business for the first half of 2020 amounted to RMB3,483.5 million, a 13.8% increase compared to the same period last year. The relevant gross profit margin was 27.7%, compared to 34.9% for the same period last year. The lower gross profit margin for the government and corporate business reflected mainly decline in gross profit margin of government and corporate business of domestic subsidiaries and the increase in revenue from domestic low-margin products as a percentage of total revenue.

Cost of sales of the Group's consumer business for the first half of 2020 amounted to RMB5,733.7 million, decreasing by 9.5% compared to the same period last year. The relevant gross profit margin was 22.7%, compared to 14.7% for the same period last year. The higher gross profit margin for the consumer business reflected mainly improved gross profit margin for handset products in the domestic market and home terminals in the international market.

OTHER INCOME AND GAINS

Other income and gains of the Group for the first half of 2020 amounted to RMB2,157.5 million, representing an 18.6% increase compared to RMB1,818.5 million for the same period last year, reflecting mainly the increase in the Group's interest income for the period.

RESEARCH AND DEVELOPMENT COSTS

The Group's research and development costs for the first half of 2020 increased by 2.6% to RMB6,637.4 million from RMB6,471.9 million for the same period last year as the Group's consistent investment in core technologies such as 5G wireless, core network, bearer, access and chips during the period. Research and development costs as a percentage of operating revenue decreased by 0.4 percentage point to 14.1%, as compared to 14.5% for the same period last year.

SELLING AND DISTRIBUTION EXPENSES

The Group's selling and distribution expenses for the first half of 2020 decreased by 2.1% to RMB3,940.6 million from RMB4,025.7 million for the same period last year, attributable primarily to the impact of the epidemic and the Group's stronger effort in control over selling expenses during the period. Selling and distribution expenses as a percentage of operating revenue decreased by 0.7 percentage point to 8.3%, compared to 9.0% for the same period last year.

- 22 -

ADMINISTRATIVE EXPENSES

Administrative expenses of the Group for the first half of 2020 decreased by 10.6% to RMB2,474.7 million, as compared to RMB2,767.0 million for the same period last year. Such decrease reflected mainly the decrease in staff cost for the period. Administrative expenses as a percentage of operating revenue decreased by 1.0 percentage point to 5.2%, compared to 6.2% for the same period last year.

CREDIT IMPAIRMENT LOSS

Credit impairment loss of the Group for the first half of 2020 amounted to RMB279.1 million, representing a decrease of 80.3% compared to RMB1,416.1 million for the same period last year, which was mainly attributable to the decrease in the Group's provision for trade receivables and bad debts for the period.

LOSS FROM DERECOGNITION OF FINANCIAL ASSETS AT AMORTISED COST

Loss from derecognition of financial assets at amortised cost of the Group for the first half of 2020 amounted to RMB69.8 million, representing a decrease of 17.0% compared to RMB84.1 million for the same period last year, reflecting mainly the decrease in the Group's international factored interest without recourse for the period.

OTHER EXPENSES

Other expenses primarily include non-operating expenses, loss on fair value changes and exchange loss. Other expenses of the Group for the first half of 2020 was RMB438.2 million, representing an increase of 13.5% from RMB386.0 million for the same period last year, which was attributable primarily to the increase in the Group's exchange loss for the period.

PROFIT FROM OPERATING ACTIVITIES

The Group's profit from operating activities for the first half of 2020 amounted to RMB3,752.8 million, increasing by 16.6% as compared to RMB3,218.7 million for the same period last year, attributable mainly to the decrease in the Group's provision for trade receivables and bad debts for the period. Operating profit margin was 8.0%, improving by 0.8 percentage point compared to 7.2% for the same period last year.

- 23 -

FINANCE COSTS

Finance costs of the Group for or the first half of 2020 amounted to RMB847.9 million, increasing by 3.0% compared to RMB823.1 million for the same period last year, which was attributable mainly to the Group's higher interest expenses in line with the increase in finance for the period.

INCOME TAX EXPENSE

The Group's income tax expense for the first half of 2020 was RMB517.6 million, increasing by 25.4% compared to RMB412.9 million for the same period last year, 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 the first half of 2020 amounted to RMB449.9 million, increasing by 148.6% compared to RMB181.0 million for the same period last year, which was attributable mainly to the increase in profit for the Group's subsidiaries with a higher level of minority interests for the period.

OTHER COMPREHENSIVE INCOME

Other comprehensive income of the Group for the first half of 2020 amounted to RMB-115.5 million, compared to RMB51.1 million for the same period last year, reflecting mainly the Group's loss on translation of statements denominated in foreign currencies owing to exchange rate fluctuations for the period versus gain on translation of statements denominated in foreign currencies owing to exchange rate fluctuations for the same period last year.

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 the first half of 2020 was 52.2%, increasing by 1.9 percentage points as compared to 50.3% for 2019, attributable mainly to the issue of super and short-term commercial papers ("SCPs") by the Group during the period.

- 24 -

CASH FLOW DATA

Unit: RMB in millions

For the six

For the six

Item

months ended

months ended

30 June 2020

30 June 2019

Net cash outflow from operating activities

(663.5)

(625.1)

Net cash outflow from investing activities

(6,100.7)

(4,637.9)

Net cash inflow from financing activities

15,087.4

10,687.6

Net increase in cash and cash equivalents

8,323.2

5,424.6

Cash and cash equivalents at the end of the

36,975.0

period

26,636.7

Cash and cash equivalents of the Group as of 30 June 2020 amounted to RMB36,975.0 million, which were mainly denominated in RMB and to a smaller extent in USD, EUR, INR and other currencies.

OPERATING ACTIVITIES

The Group reported net cash outflow from operating activities of RMB663.5 million for the first half of 2020, compared to RMB625.1 million for the same period last year, reflecting mainly year-on-year increase in cash received from sales of goods and provision of services by RMB8,132.5 million, decrease in tax refund received by RMB883.1 million, decrease in other cash receipts relating to operating activities by RMB226.2 million, increase in cash paid for the purchase of goods and services by RMB6,371.2 million, increase in cash payments to and on behalf of employees by RMB2,272.2 million, decrease in payments of tax expenses by RMB1,746.4 million, and decrease in other cash payments relating to operating activities by RMB648.0 million.

INVESTING ACTIVITIES

The Group's net cash outflow from investing activities was RMB6,100.7 million for the first half of 2020, compared to RMB4,637.9 million for the same period last year, reflecting mainly the inclusion of the increase in the Group's term deposits of three months or above in cash paid for investment for the period.

- 25 -

FINANCING ACTIVITIES

The Group's net cash inflow from financing activities for the first half of 2020 was RMB15,087.4 million, compared to RMB10,687.6 million for the same period last year, reflecting mainly the combined effect of the increase in cash received for the Group's non-public issue of A shares and issue of SCPs and the payment for perpetual instruments during the period.

INDEBTEDNESS

Unit: RMB in millions

Item

30

June 2020 31 December 2019

Secured bank loans

229.5

252.2

Unsecured bank loans

38,510.8

36,530.9

Unit: RMB in millions

Item

30

June 2020 31 December 2019

Short-term bank loans

16,905.2

26,738.0

Long-term bank loans

21,835.1

10,045.1

Credit facilities available to the Group included long-term and short-term bank loans, which were mainly used as working capital. As at 30 June 2020, the Group's RMB short-term and long-term bank loans subject to fixed interest rates amounted to RMB6,935.7 million and RMB1,084.5 million respectively. Short-term bank loans and long-term bank loans in TRY and EUR subject to fixed interest rates amounted to the equivalent of approximately RMB273.3 million and RMB214.7 million, respectively. Short-term USD bank loans subject to fixed interest rates amounted to the equivalent of approximately RMB1,203.3 million. The remaining RMB, USD, EUR and TRY loans were subject to floating interest rates. The Group's borrowings were mainly denominated in USD and EUR, apart from certain RMB loans.

The Group's bank loans as at 30 June 2020 increased by RMB1,957.2 million as compared to 31 December 2019, which were mainly applied to replenish its working capital.

- 26 -

CONTRACTUAL OBLIGATIONS

Unit: RMB in millions

30 June 2020

Less than

More than

Item

Total

1 year

2-5 years

5 years

Bank loans

38,740.3

16,905.2

21,795.3

39.8

CAPITAL COMMITMENTS

The Group had the following capital commitments as of the dates indicated:

Unit: RMB in millions

Item

30 June 2020

31 December 2019

Land and buildings:

Contracted, but not provided for

3,196.3

3,097.0

Investment in associates:

Contracted, but not provided for

28.2

48.7

DETAILS OF MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES OF THE GROUP

During the first half of 2020, no material acquisitions and disposals of subsidiaries, associates and joint ventures of the Group occurred.

Disclosure required under the Hong Kong Listing Rules

In accordance with paragraph 40(2) of Appendix 16 to the Hong Kong Listing Rules, the Company confirms that, save as disclosed herein, there has been no material change in the current information regarding the Company from the information disclosed in the 2019 Annual Report of the Company in relation to matters set out in paragraph 32 of Appendix 16.

- 27 -

  1. 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
  2. Business outlook for the second half of 2020 and risk exposures

7.5.1 Business outlook for the second half of 2020

The 5G era has dawned upon us. Global 5G development is expected to roll out in full gear in the next 5 years, underpinned by a rapidly maturing industry chain and vigorous supply of innovative applications driving a new boom for the communications industry. First of all, 5G will continue to benefit from the volume of mobile data, as new applications such as ultra-HD video and AR/VR are poised to provide supreme experience to users, while mobile data consumption is expected to sustain robust growth. Meanwhile, the integration of infrastructure for the intelligent Internet of Everything built on the back of 5G, in a development no less significant than the birth of the global Internet in the 1990s, is expected to come initially into shape in the next 5 years. The industrial applications of 5G, such as automated driving and intelligent manufacturing to name but a few, will give rise to new businesses, models and growth opportunities in the ICT sector.

In connection with carriers' networks, global 5G investment is approaching its apex, as global carriers are estimated to splash out capital expenditure of USD1,100 billion from 2020 to 2025, 78% of which will be committed to 5G, according to GSMA (Global System for Mobile Communications Association). Firmly established as a first-quadrant 5G player, the Group will continue to play a pivotal role in the innovation of 5G technologies and applications with greater investment in core technologies such as chip, algorithm and network architecture to maintain its technological edge and facilitate the provision of end-to-end solutions that would enable carriers to build highly competitive 5G networks in a speedy manner. Meanwhile, we will work with industry leaders of various sectors to develop innovative 5G applications as part of a mutually beneficial 5G business ecosphere built through cooperation.

- 28 -

In connection with the government and corporate business, the Group will seize opportunities presented by applications in new 5G infrastructure and vertical 5G sectors with a strong focus on the traditional key market sectors of energy, transportation, government affair and finance, incubating business channels to assist in further digital transformation in various industries.

In connection with the consumer business, the Group will leverage opportunities in the markets for 5G terminals and multi-format terminals. We will enhance our brand promotion effort in key country markets, while making efforts to unveil, innovate, consolidate, explore and broaden major pathways for the generation of commercial value through cooperation with upstream as well as downstream partners along the industry chain, with a view to building a full-scenario smart experience and value chain for consumers.

The Group will be committed to the attainment of qualitative growth. In terms of corporate business operation, we will maintain revenue growth, sound profitability, ample liquidity and a reasonable gearing ratio to ensure healthy operation. In terms of the optimisation of market profile, we will focus on high-worth countries and markets and seek to increase our market shares therein. In terms of product R&D, we will remain committed to the investment in core products, such as 5G and bearer products, and chips to establish our leading position in key technologies and enhance product safety for the benefit of business sustainability, while expediting digital transformation of the corporation and bolstering the incubation of innovative businesses. In terms of management processes, compliance control and internal governance will be enhanced to facilitate regulated operations, so as to foster a positive image in the international market and win greater trust among domestic and overseas clients. In terms of corporate value, we will strive for greater trust on the part of shareholders and actively seek to expand financing channels, so as to facilitate stable growth in corporate value by enhancing value management.

- 29 -

7.5.2 Risk Exposures

(1) Country risks

Given the complex nature of international economic and political conditions and the presence of the Group's business and branch organisations in over 100 countries and regions, as well as the differences in macro-economy, policy and regulation and political and social backgrounds among the countries where the Group's businesses are operated, the Group will continue to be exposed to risks relating to legal compliance, taxation, exchange rates and political developments (such as war and domestic unrest), which might affect the operations of the Group. The Group ensures compliance primarily through the establishment of a complete compliance management regime to identify and comply with trade and taxation policy requirements in these countries (including export control and GDPR (General Data Protection Regulation)); we also work with independent professional organisations to analyse and identify country risks. We take out necessary export insurance for businesses in regions with higher evaluated risks, and we also resort to financing to avoid possible losses.

(2) Risk associated with intellectual property rights

The Group has always attached great importance to product technology research and development as well as the protection and management of intellectual property rights. Trademarks of the Group's products and services are all registered, and such products and services are all protected under relevant patent rights. While the Group has adopted highly stringent measures to protect its intellectual property rights, potential disputes over intellectual property rights between the Group and other telecommunications equipment manufacturers, franchisee companies and carriers under partnerships with the Group cannot be totally ruled out. The Group will continue to drive the solution of related issues with an open-minded, cooperative and mutually beneficial approach.

(3) Exchange rate risks

The Group's consolidated financial statements are expressed in RMB. The exchange rate risk of the Group arises mainly from foreign exchange exposures associated with the sales, purchases and financing settled in currencies other than RMB and the volatility of exchange rates, which might affect the operations of the Group. The Group adopts ongoing measures to strengthen foreign exchange risk management based on the whole process of business and seeks to minimise exposures through initiatives such as business strategic guidance, internal settlement management, financing mix design and value-protected derivative exchange instruments. The Group has also strengthened liquidity risk management in countries practicing exchange control and endeavoured to facilitate RMB pricing and settlement for overseas projects to lower its exchange risks in the long term.

- 30 -

(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 total amount and structure of its interest bearing liabilities. Control over the total amount of interest-bearing liabilities is mainly achieved by improving the cash turnover efficiency and increasing the free cash flow of the Group. Structured management of interest-bearing liabilities is achieved mainly through portfolio control of a mixture of long-term/short-term domestic and overseas loans denominated in RMB or foreign currencies with fix or floating interests, complemented by derivative instruments such as interest rate swaps, sought from a diverse range of low-cost financing channels in the global market taking into account the trends of market changes.

(5) Customer credit risk

The Group provides one-stop communications solutions to its customers. With the rapid expansion of its business, the Group is serving a large customer base with differing credit status, and its business will inevitably be affected by the varied credit profiles of these customers. The Group seeks to mitigate the aforesaid impact mainly by identifying and managing credit risks through the adoption of internal credit management measures, such as customer credit search, customer credit rating, customer credit limit management, overall risk control and credit control against customers with faulty payment records, and by transferring credit risks through the purchase of credit insurance and appropriate financial instruments.

8. COMPLIANCE OF THE CORPORATE GOVERNANCE CODE AND OTHER MATTERS

8.1 Compliance of the Corporate Governance Code

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 30 June 2020, save for the deviation described in the below.

Code Provision A.1.3 stipulates that a notice of at least 14 days should be given of a regular board meeting to give all directors an opportunity to attend.

Such requirement for the length of notice of meeting was waived, upon the unanimous approval of all Directors on the Board of Directors of the Company, in respect of the notice sent by the Company to the Directors on 15 April 2020 to convene the Sixteenth Meeting of the Eighth Session of the Board of Directors on 24

- 31 -

April 2020 for the purpose of considering and approving the first quarter 2020 results of the Group and its announcement. The Directors' attendance at the meeting has not been affected by the said waiver.

8.2 Securities transactions by Directors and Supervisors

The Directors and Supervisors of the Company confirmed that the Company had adopted the Model Code as set out in Appendix 10 to the Hong Kong Listing Rules. Having made due enquiries with all Directors and Supervisors of the Company, the Company was not aware of any information that reasonably suggested that the Directors and Supervisors had not complied with the requirements in the Model Code during the reporting period.

9. FINANCIAL REPORTS

9.1 The Audit Committee

The Audit Committee of the Company has discussed with the management the accounting standards and practices adopted by the Group, and has also discussed and reviewed the Interim Report, including the financial statements of the Group for the six months ended 30 June 2020.

  1. Audit opinion
    √  Unaudited  □Audited
  2. Comparative financial statements

9.3.1 Financial statements prepared in accordance with PRC ASBEs (Unaudited) (Please see Appendix I)

9.3.2 Financial statements prepared in accordance with HKAS 34 (Unaudited) and notes thereto (Please see Appendix II)

  1. Explanatory statement on changes in the accounting policies, accounting estimates, and auditing methods for the reporting period in comparison with the previous annual financial report
    • Applicable √ N/A
  3. Explanatory statement on rectification of significant accounting errors for the reporting period requiring retrospective restatement.
    • Applicable √ N/A

- 32 -

9.6 Explanation statement on changes to the scope of consolidated financial statement in comparison with the previous annual financial report.

Subsidiaries deregistered during the reporting period included: tier-one subsidiaries Shenzhen Zhongrui Detection Technology Co., Ltd; tier-two subsidiaries ZTE (Albania) Limited, ZTE (Lithuania) Limited, Foshan Zhongxing Gaojian New Energy Technology Limited and tier-three subsidiaries ZTE Singapore Pte Ltd and ZICT (Nigeria) Limited.

Shenzhen Zhongxing New Energy Automobile Service Company Limited, a subsidiary of the Company, completed the disposal of 5.1% equity interests in Shenzhen Zhongxin New Energy Technology Company Limited on 4 March 2020. Shenzhen Zhongxin New Energy Technology Company Limited and its subsidiaries have been excluded from the consolidated financial statements of the Group as from 4 March 2020.

For details of changes to the scope of consolidated financial statement in comparison with the annual financial report for the previous year, please refer to Note VI to the financial report prepared under PRC ASBEs in the Interim Report.

By Order of the Board

Li Zixue

Chairman

Shenzhen, the PRC

28 August 2020

As at the date of this announcement, the Board of Directors of the Company comprises three executive directors, Li Zixue, Xu Ziyang, Gu Junying; three non-executive directors, Li Buqing, Zhu Weimin, Fang Rong; and three independent non-executive directors, Cai Manli, Gordon Ng, Zhuang Jiansheng.

- 33 -

APPENDIX I: FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH PRC ASBES (UNAUDITED)

CONSOLIDATED BALANCE SHEET

RMB'000

30 June

31 December

Assets

2020

2019

(unaudited)

(audited)

Current assets

Cash

45,867,997

33,309,347

Trading financial assets

1,066,532

560,662

Derivative financial assets

31,147

106,065

Trade receivables

16,898,230

19,778,280

Receivable financing

3,987,386

2,430,389

Factored trade receivables

252,220

308,710

Prepayments

445,058

402,525

Other receivables

891,418

1,023,271

Inventories

37,179,092

27,688,508

Contract assets

10,203,533

9,537,850

Other current assets

8,430,637

7,421,567

Total current assets

125,253,250

102,567,174

Non-current assets

Long-term receivables

3,110,970

2,819,606

Factored long-term receivables

310,393

200,671

Long-term equity investments

2,292,452

2,327,288

Other non-current financial assets

1,530,232

1,594,254

Investment properties

1,960,864

1,957,242

Fixed assets

10,314,505

9,383,488

Construction in progress

845,174

1,171,716

Right-of-use assets

986,362

1,063,781

Intangible assets

8,257,755

7,718,820

Development costs

1,829,046

1,876,409

Goodwill

186,206

186,206

Deferred tax assets

2,472,641

2,511,372

Other non-current assets

6,082,514

5,824,108

Total non-current assets

40,179,114

38,634,961

TOTAL ASSETS

165,432,364

141,202,135

- 34 -

CONSOLIDATED BALANCE SHEET (CONTINUED)

RMB'000

30 June

31 December

Liabilities

2020

2019

(unaudited)

(audited)

Current liabilities

Short-term loans

16,619,177

26,645,966

Bank advances on factored trade receivables

254,444

310,024

Derivative financial liabilities

131,527

126,223

Bills payable

8,659,782

9,372,940

Trade payables

26,907,622

18,355,610

Short-term bonds payable

8,000,000

-

Contract liabilities

14,562,034

14,517,057

Salary and welfare payables

8,169,854

8,954,005

Taxes payable

851,788

888,848

Other payables

5,101,267

4,621,118

Provisions

2,008,730

1,966,464

Non-current liabilities due within one year

718,638

612,261

Total current liabilities

91,984,863

86,370,516

Non-current liabilities

Long-term loans

21,835,076

10,045,093

Bank advances on factored long-term trade receivables

310,727

200,858

Lease liabilities

660,325

645,294

Provision for retirement benefits

142,296

144,505

Deferred income

3,107,353

2,656,024

Deferred tax liabilities

139,938

172,060

Other non-current liabilities

2,974,991

3,013,487

Total non-current liabilities

29,170,706

16,877,321

Total liabilities

121,155,569

103,247,837

- 35 -

CONSOLIDATED BALANCE SHEET (CONTINUED)

RMB'000

30 June

31 December

Shareholder's equity

2020

2019

(unaudited)

(audited)

Shareholder's equity

Share capital

4,613,435

4,227,530

Capital reserves

23,272,245

12,144,432

Other comprehensive income

(2,120,052)

(2,000,980)

Surplus reserve

2,775,521

2,775,521

Retained profits

12,614,967

11,680,365

Total equity attributable to holders of ordinary shares

of the parent

41,156,116

28,826,868

Other equity instruments

-

Including: perpetual capital instruments

6,252,364

Non-controlling interests

3,120,679

2,875,066

Total shareholders' equity

44,276,795

37,954,298

TOTAL LIABILITIES AND

SHAREHOLDERS' EQUITY

165,432,364

141,202,135

Legal Representative

Chief Financial Officer

Head of Finance Division

Li Zixue

Li Ying

Xu Jianrui

- 36 -

CONSOLIDATED INCOME STATEMENT

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

Operating revenue

47,199,373

44,609,219

Less: Operating costs

31,418,303

27,119,296

Taxes and surcharges

311,846

595,289

Selling and distribution costs

3,940,595

4,025,746

Administrative expenses

2,265,126

2,538,508

Research and development costs

6,637,376

6,471,866

Finance costs

632,833

662,809

Including:

Interest expense

847,922

823,053

Interest income

581,860

322,233

Add: Other income

860,171

860,800

Investment income

30,257

315,397

Including:

Share of losses of associates and

(63,816)

joint ventures

(158,146)

Losses from derecognition of

(69,797)

(84,063)

financial assets at amortised cost

Gains/(losses) from changes in fair values

377,724

(142,604)

Credit impairment losses

(279,143)

(1,416,091)

Impairment losses

(141,703)

(469,998)

Operating profit

2,840,600

2,343,209

Add: Non-operating income

55,659

74,308

Less: Non-operating expenses

55,288

180,040

Total profit

2,840,971

2,237,477

Less: Income tax

517,590

412,914

Net profit

2,323,381

1,824,563

Analysed by continuity of operations

2,323,381

Net profit from continuing operations

1,824,563

Analysed by ownership

1,857,289

Holders of ordinary shares of the parent

1,470,699

Holders of perpetual capital instruments

16,236

172,867

Non-controlling interests

449,856

180,997

- 37 -

CONSOLIDATED INCOME STATEMENT (CONTINUED)

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

Other comprehensive income, net of tax

(115,505)

51,077

Other comprehensive income attributable to holders of

(119,072)

ordinary shares of the parent company, net of tax

51,829

Other comprehensive income that cannot be reclassified to

profit or loss

Change in net assets arising from the re-measurement of

-

-

defined benefit plans

-

-

Other comprehensive income that will be reclassified to

profit or loss

(119,072)

Exchange differences on translation of foreign operations

51,829

(119,072)

51,829

Other comprehensive income attributable to non-controlling

3,567

interests, net of tax

(752)

Total comprehensive income

2,207,876

1,875,640

Attributable to:

1,738,217

Holders of ordinary shares of the parent

1,522,528

Holders of perpetual capital instruments

16,236

172,867

Non-controlling interests

453,423

180,245

Earnings per share (RMB/share)

RMB0.40

Basic

RMB0.35

Diluted

RMB0.40

RMB0.35

- 38 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

RMB'000

Six months ended 30 June 2020 (Unaudited)

Other equity

Equity attributable to holders of ordinary shares of the parent

instruments

Including:

Other

Perpetual

Non-

Total

Share

Capital

comprehensive

Surplus

Retained

capital

controlling

shareholders'

capital

reserves

income

reserve

profits

Sub-total

instruments

interests

equity

  1. Previous period's closing

balance

4,227,530

12,144,432

(2,000,980)

2,775,521

11,680,365

28,826,868

6,252,364

2,875,066

37,954,298

  1. Changes during the period
    1. Total comprehensive

income

-

-

(119,072)

-

1,857,289

1,738,217

16,236

453,423

2,207,876

  1. Shareholder's capital injection and capital reduction
    1. Capital injection from

shareholders

385,905

11,203,859

-

-

-

11,589,764

-

15,098

11,604,862

2.

Equity settled

share expenses

charged to

equity

-

5,252

-

-

-

5,252

-

-

5,252

3.

Capital reduction

by shareholders

-

-

-

-

-

-

-

(90,574)

(90,574)

4. Acquisition of non-controlling

interests

-

(1,298)

-

-

-

(1,298)

-

(5,212)

(6,510)

5. Redemption of perpetual capital

instruments

-

(80,000)

-

-

-

(80,000)

(5,920,000)

-

(6,000,000)

  1. Profit appropriation 1. Distribution to

shareholders

-

-

-

-

(922,687)

(922,687)

(348,600)

(127,122)

(1,398,409)

III. Current period's closing

balance

4,613,435

23,272,245

(2,120,052)

2,775,521

12,614,967

41,156,116

-

3,120,679

44,276,795

- 39 -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

RMB'000

Six months ended 30 June 2019 (Unaudited)

Other equity

Equity attributable to holders of ordinary shares of the parent

instruments

Non-

Total

Other

Including:

Capital

comprehensive

Surplus

Retained

Perpetual capital

controlling

shareholders'

Share capital

reserves

income

reserve

profits

Sub-total

instruments

interests

equity

  1. Previous period's closing

balance

4,192,672

11,444,456

(2,047,561)

2,324,748

6,983,261

22,897,576

6,252,364

3,810,735

32,960,675

  1. Changes during the period
    1. Total comprehensive

income

-

-

51,829

-

1,470,699

1,522,528

172,867

180,245

1,875,640

  1. Shareholder's capital injection and capital reduction
    1. Capital injection

from shareholders

-

43,434

-

-

-

43,434

-

111,917

155,351

2.

Equity settled

share expenses

charged to equity

-

150,266

-

-

-

150,266

-

-

150,266

3.

Capital reduction

by shareholders

-

-

-

-

-

-

-

(584,836)

(584,836)

4. Acquisition of non-controlling

interests

-

(93,494)

-

-

-

(93,494)

-

(24,790) (118,284)

  1. Profit appropriation 1. Distribution to

shareholders

-

-

-

-

-

-

(348,599)

(273,581)

(622,180)

III. Current period's closing

balance

4,192,672

11,544,662

(1,995,732)

2,324,748

8,453,960

24,520,310

6,076,632

3,219,690

33,816,632

- 40 -

CONSOLIDATED CASH FLOW STATEMENT

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

I.

Cash flows from operating activities

Cash received from sale of goods or rendering of

51,930,178

services

43,797,682

Refunds of taxes

1,970,019

2,853,112

Cash received relating to other operating activities

2,686,249

2,912,413

Sub-total of cash inflows

56,586,446

49,563,207

Cash paid for goods and services

36,597,288

30,226,065

Cash paid to and on behalf of employees

11,013,040

8,740,820

Cash paid for various types of taxes

3,543,500

5,289,879

Cash paid relating to other operating activities

3,391,848

4,039,826

Sub-total of cash outflows

54,545,676

48,296,590

Net cash flows from operating activities

2,040,770

1,266,617

II.

Cash flows from investing activities

1,342,817

Cash received from sale of investments

1,227,875

Cash received from return on investment

214,682

101,557

Net cash received from the disposal of fixed assets,

7,898

intangible assets and other long-term assets

14,593

Net cash received from the disposal of subsidiaries and

377

other operating units

445,907

Cash received relating to other investing activities

245,000

-

Sub-total of cash inflows

1,810,774

1,789,932

Cash paid to acquisition of fixed asset, intangible

2,722,869

assets and other long-term assets

4,263,060

Cash paid for acquisition of investments

6,702,118

194,901

Other cash paid in relation to investing activities

33,709

2,200,000

Sub-total of cash outflows

9,458,696

6,657,961

Net cash flows from investing activities

(7,647,922)

(4,868,029)

- 41 -

CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

III. Cash flows from financing activities

Cash received from capital injection

11,557,524

4,570

Including: Capital injection into subsidiaries by

minority shareholders

12,000

4,570

Cash received from borrowings

35,976,266

23,776,919

Other cash received in relation to financing activities

3,000

26,280

Sub-total of cash inflows

47,536,790

23,807,769

Cash repayment of borrowings

26,178,820

12,468,044

Cash payments for perpetual capital instruments

6,000,000

-

Cash payments for distribution of dividends, profits

and for interest expenses

1,157,063

1,661,520

Including: Distribution of dividends, profits by

subsidiaries to minority shareholders

141,424

273,581

Other cash paid relating to financing activities

270,570

652,159

Sub-total of cash outflows

33,606,453

14,781,723

Net cash flows from financing activities

13,930,337

9,026,046

IV. Effect of changes in foreign exchange rate on cash and

cash equivalents

146,027

77,915

V. Net increase in cash and cash equivalents

8,469,212

5,502,549

Add: cash and cash equivalents at beginning of period

28,505,800

21,134,111

VI. Net balance of cash and cash equivalents

at the end of period

36,975,012

26,636,660

- 42 -

BALANCE SHEET

RMB'000

30 June

31 December

Assets

2020

2019

(unaudited)

(audited)

Current assets

Cash

28,823,194

13,001,412

Derivative financial assets

27,151

103,889

Trade receivables

20,417,335

24,893,537

Receivable financing

3,690,373

1,980,798

Factored trade receivables

229,167

230,035

Prepayments

17,095

7,559

Other receivables

30,506,245

32,126,268

Inventories

24,867,246

19,692,914

Contract assets

5,098,868

4,460,977

Other current assets

4,172,733

3,516,370

Total current assets

117,849,407

100,013,759

Non-current assets

Long-term trade receivables

8,174,674

7,736,877

Factored long-term trade receivables

252,084

200,671

Long-term equity investments

12,216,466

12,270,582

Other non-current financial assets

725,501

725,125

Investment properties

1,565,182

1,562,380

Fixed assets

6,090,347

5,717,601

Construction in progress

243,835

154,636

Right-of-use assets

516,598

534,988

Intangible assets

3,079,006

3,064,383

Development costs

479,319

479,320

Deferred tax assets

1,018,329

1,063,838

Other non-current assets

4,959,003

4,749,554

Total non-current assets

39,320,344

38,259,955

TOTAL ASSETS

157,169,751

138,273,714

- 43 -

BALANCE SHEET (CONTINUED)

RMB'000

30 June

31 December

Liabilities and shareholders' equity

2020

2019

(unaudited)

(audited)

Current liabilities

9,426,546

Short-term loans

11,729,902

Bank advances on factored trade receivables

229,438

230,323

Derivative financial liabilities

123,319

115,811

Bills payable

12,773,708

19,363,815

Trade payables

38,226,034

29,734,983

Short-term bonds payable

8,000,000

-

Contract liabilities

8,808,085

9,347,162

Salary and welfare payables

4,189,957

5,223,312

Taxes payable

219,484

97,735

Other payables

20,542,385

21,362,474

Provisions

1,790,902

1,786,167

Non-current liabilities due within one year

199,692

309,489

Total current liabilities

104,529,550

99,301,173

Non-current liabilities

16,449,709

Long-term loans

7,550,990

Bank advances on factored long-term trade receivables

252,418

200,858

Lease liabilities

356,393

337,764

Provision for retirement benefits

142,296

144,505

Deferred income

706,980

849,320

Other non-current liabilities

2,376,825

2,393,468

Total non-current liabilities

20,284,621

11,476,905

Total liabilities

124,814,171

110,778,078

Shareholders' equity

4,613,435

Share capital

4,227,530

Capital reserves

21,125,836

9,996,674

Other comprehensive income

696,439

696,467

Surplus reserve

2,113,765

2,113,765

Retained profits

3,806,105

4,208,836

Shareholders' equity attributable to holders of ordinary

32,355,580

shares

21,243,272

Other equity instruments

-

Including: perpetual capital instruments

6,252,364

Total shareholders' equity

32,355,580

27,495,636

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

157,169,751

138,273,714

- 44 -

INCOME STATEMENT

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

Operating revenue

43,309,434

39,475,276

Less:

Operating costs

37,477,589

32,290,242

Taxes and surcharges

95,051

344,033

Selling and distribution costs

2,256,304

2,138,680

Administrative expenses

1,884,914

2,071,946

Research and development costs

553,072

1,935,014

Finance costs

389,750

542,245

Including:

Interest expense

601,126

475,331

Interest income

261,988

108,109

Add:

Other income

218,101

27,253

Investment income

80,218

113,190

Including:

Share of losses of associates and

joint ventures

(56,186)

(98,657)

Losses from derecognition of

financial assets at amortised cost

(7,504)

(21,067)

Losses from changes in fair values

(85,498)

(82,272)

Credit impairment losses

(117,831)

(1,330,901)

Impairment losses

(116,972)

(392,017)

Operating profit/(loss)

630,772

(1,511,631)

Add: Non-operating income

35,546

38,226

Less: Non-operating expenses

20,785

106,330

Total profit/(loss)

645,533

(1,579,735)

Less: Income tax

109,341

(58,586)

Net profit/(loss)

536,192

(1,521,149)

Including: net profit/(loss) from continuing operations

536,192

(1,521,149)

Analysed by ownership

Attributable to holders of ordinary shares

519,956

(1,694,016)

Attributable to holders of perpetual capital instruments

16,236

172,867

- 45 -

INCOME STATEMENT (CONTINUED)

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

Other comprehensive income, net of tax

(28)

(1,067)

Other comprehensive income that cannot be reclassified to

profit and loss

Change in net assets arising from the re-measurement of

-

defined benefit plans

-

Other comprehensive income will be reclassified to profit

and loss

Exchange differences on translation of foreign operations

(28)

(1,067)

Total comprehensive profit/(loss)

536,164

(1,522,216)

Attributable to:

Holders of ordinary shares

519,928

(1,695,083)

Holders of perpetual capital instruments

16,236

172,867

- 46 -

STATEMENT OF CHANGES IN EQUITY

RMB'000

Six months ended 30 June 2020 (unaudited)

Other equity

Total equity

instruments

Other

of holders of

- Perpetual

Total

Share

Capital

comprehensive

Surplus

Retained

ordinary

capital

shareholders'

capital

reserves

income

reserve

profits

shares

instruments

equity

I. Closing balance of previous

period

4,227,530

9,996,674

696,467

2,113,765

4,208,836

21,243,272

6,252,364

27,495,636

II. Changes during the period

-

-

-

(I) Total comprehensive income

(28)

519,956

519,928

16,236

536,164

  1. Shareholder's capital injection and capital reduction

1. Shareholders' capital

-

-

-

-

contribution

385,905

11,203,910

11,589,815

11,589,815

2. Equity settled share expenses charged to

equity

-

5,252

-

-

-

5,252

-

5,252

3.

Redemption of perpetual

-

-

-

-

capital instruments

(80,000)

(80,000)

(5,920,000)

(6,000,000)

(III) Profit appropriation

1.

Distribution to

-

-

-

-

shareholders

(922,687)

(922,687)

(348,600)

(1,271,287)

III. Current period's closing balance

4,613,435

21,125,836

696,439

2,113,765

3,806,105

32,355,580

-

32,355,580

  1. Closing balance of previous period
  1. Changes during the period
    1. Total comprehensive income
    1. Shareholder's capital injection and capital reduction
      1. Equity settled share expenses charged to equity
    1. Profit appropriation
      1. Distribution to shareholders

III. Current period's closing balance

RMB'000

Six months ended 30 June 2019 (unaudited)

Other equity

Total equity

instruments

Other

of holders of

- Perpetual

Total

Share

Capital

comprehensive

Surplus

Retained

ordinary

capital

shareholders'

capital

reserves

income

reserve

profits

shares

instruments

equity

4,192,672

9,244,984

704,686

1,662,992

(3,101,864)

12,703,470

6,252,364

18,955,834

-

-

(1,067)

-

(1,694,016)

(1,695,083)

172,867

(1,522,216)

-

150,266

-

-

-

150,266

-

150,266

- - - - - - (348,599) (348,599)

4,192,672 9,395,250 703,619 1,662,992 (4,795,880) 11,158,653 6,076,632 17,235,285

- 47 -

CASH FLOW STATEMENT

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

I.

Cash flows from operating activities

Cash received from sale of goods or rendering of

services

46,987,381

44,767,563

Refunds of taxes

1,449,017

2,072,501

Cash received relating to other operating activities

807,272

973,060

Sub-total of cash inflows

49,243,670

47,813,124

Cash paid for goods and services

45,214,325

34,880,732

Cash paid to and on behalf of employees

3,479,049

2,659,160

Cash paid for various types of taxes

924,655

2,366,021

Cash paid relating to other operating activities

2,235,172

2,588,942

Sub-total of cash outflows

51,853,201

42,494,855

Net cash flows from operating activities

(2,609,531)

5,318,269

II.

Cash flows from investing activities

Cash received from sale of investments

861,230

611,851

Cash received from return on investments

3,792,067

240,311

Net cash received from the disposal of fixed assets,

intangible assets and other long-term assets

5,586

10,258

Cash received relating to other investing activities

3,125,000

-

Sub-total of cash inflows

7,783,883

862,420

Cash paid to acquisition of fixed asset, intangible

assets and other long-term assets

1,039,365

3,065,420

Cash paid for acquisition of investments

4,040,600

70,735

Other cash paid in relation to investing activities

6,050,000

2,200,000

Sub-total of cash outflows

11,129,965

5,336,155

Net cash flows from investing activities

(3,346,082)

(4,473,735)

- 48 -

CASH FLOW STATEMENT (CONTINUED)

RMB'000

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

III. Cash flows from financing activities

Cash received from capital injection

11,545,524

-

Cash received from borrowings

27,079,645

12,387,166

Sub-total of cash inflows

38,625,169

12,387,166

Cash repayment of borrowings

12,664,267

9,468,566

Cash payment for perpetual capital instruments

6,000,000

-

Cash payments for distribution of dividends and

profits or for interest expenses

856,609

818,775

Other cash paid in relation to financing activities

71,492

61,378

Sub-total of cash outflows

19,592,368

10,348,719

Net cash flows from financing activities

19,032,801

2,038,447

IV. Effect of changes in foreign exchange rate on cash and

cash equivalents

85,535

(18,497)

V. Net increase in cash and cash equivalents

13,162,723

2,864,484

Add: cash and cash equivalents at the beginning

of the period

10,032,692

10,147,946

VI. Net balance of cash and cash equivalents

at the end of the period

23,195,415

13,012,430

- 49 -

APPENDIX II: FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH HKAS 34 (UNAUDITED) AND NOTES THERETO

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

RMB'000

RMB'000

REVENUE

47,199,373

44,609,219

Cost of sales

(31,764,345)

(28,058,303)

Gross profit

15,435,028

16,550,916

Other income and gains

2,157,517

1,818,453

Research and development costs

(6,637,376)

(6,471,866)

Selling and distribution expenses

(3,940,595)

(4,025,746)

Administrative expenses

(2,474,729)

(2,766,954)

Impairment losses on financial and contract assets, net

(279,143)

(1,416,091)

Loss on disposal of financial assets measured at amortised

cost

(69,797)

(84,063)

Other expenses

(438,196)

(385,973)

Finance costs

(847,922)

(823,053)

Share of profits and losses of:

Joint ventures

(8,461)

(3,363)

Associates

(55,355)

(154,783)

PROFIT BEFORE TAX

2,840,971

2,237,477

Income tax

(517,590)

(412,914)

Profit for the period

2,323,381

1,824,563

Attributable to:

Ordinary equity holders of the parent

1,857,289

1,470,699

Perpetual capital instruments

16,236

172,867

Non-controlling interests

449,856

180,997

2,323,381

1,824,563

- 50 -

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)

Six months

Six months

ended

ended

30 June 2020

30 June 2019

(unaudited)

(unaudited)

RMB'000

RMB'000

OTHER COMPREHENSIVE (LOSS)/INCOME

Other comprehensive (loss)/income to be reclassified to

profit or loss in subsequent periods:

Exchange differences on translation of foreign operations

(115,505)

51,077

Net other comprehensive (loss)/income to be reclassified to

profit or loss in subsequent periods

(115,505)

51,077

OTHER COMPREHENSIVE (LOSS)/INCOME FOR

THE PERIOD, NET OF TAX

(115,505)

51,077

TOTAL COMPREHENSIVE INCOME FOR THE

PERIOD

2,207,876

1,875,640

Attributable to:

Ordinary equity holders of the parent

1,738,217

1,522,528

Perpetual capital instruments holders

16,236

172,867

Non-controlling interests

453,423

180,245

2,207,876

1,875,640

EARNINGS PER SHARE ATTRIBUTABLE TO

ORDINARY EQUITY HOLDERS OF THE PARENT

Basic

RMB0.40

RMB0.35

Diluted

RMB0.40

RMB0.35

- 51 -

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 June

31 December

2020

2019

(unaudited)

(audited)

RMB'000

RMB'000

NON-CURRENT ASSETS

Property, plant and equipment

11,159,679

10,555,204

Investment properties

1,960,864

1,957,242

Right-of-use assets

3,551,894

3,468,949

Goodwill

186,206

186,206

Other intangible assets

7,521,269

7,190,061

Investments in joint ventures

106,054

114,515

Investments in associates

2,186,398

2,212,773

Financial assets at fair value through profit or loss

1,530,232

1,594,254

Long-term trade receivables

3,110,970

2,819,606

Factored long-term trade receivables

310,393

200,671

Deferred tax assets

2,472,641

2,511,372

Pledged deposits

3,108,302

2,928,810

Long-term prepayments, deposits and other receivables

2,974,212

2,895,298

Total non-current assets

40,179,114

38,634,961

CURRENT ASSETS

Inventories

37,179,092

27,688,508

Contract assets

10,203,533

9,537,850

Trade receivables

16,898,230

19,778,280

Factored trade receivables

252,220

308,710

Prepayments, deposits and other receivables

9,767,113

8,847,363

Financial assets at fair value through profit or loss

1,066,532

560,662

Derivative financial instruments

31,147

106,065

Debt investments at fair value through other

comprehensive income

3,987,386

2,430,389

Pledged deposits

2,116,777

3,343,511

Time deposits with original maturity of over three months

6,776,208

1,460,036

Cash and cash equivalents

36,975,012

28,505,800

Total current assets

125,253,250

102,567,174

- 52 -

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

30 June

31 December

2020

2019

(unaudited)

(audited)

RMB'000

RMB'000

CURRENT LIABILITIES

Trade and bills payables

35,567,404

27,728,550

Contract liabilities

14,562,034

14,517,057

Other payables and accruals

12,775,433

14,059,625

Provision

2,008,730

1,966,464

Derivative financial instruments

131,527

126,223

Short-term bonds payables

8,000,000

-

Interest-bearing bank borrowings

16,905,177

26,738,019

Bank advances on factored trade receivables

254,444

310,024

Dividend payables

924,012

5,222

Tax payable

423,464

399,124

Current portion of lease liabilities

432,638

520,208

Total current liabilities

91,984,863

86,370,516

NET CURRENT ASSETS

33,268,387

16,196,658

TOTAL ASSETS LESS CURRENT LIABILITIES

73,447,501

54,831,619

NON-CURRENT LIABILITIES

Interest-bearing bank borrowings

21,835,076

10,045,093

Bank advances on factored long-term trade receivables

310,727

200,858

Deferred tax liabilities

139,938

172,060

Provision for retirement benefits

142,296

144,505

Lease liabilities

660,325

645,294

Other non-current liabilities

6,082,344

5,669,511

Total non-current liabilities

29,170,706

16,877,321

Net assets

44,276,795

37,954,298

- 53 -

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

30 June

31 December

2020

2019

(unaudited)

(audited)

RMB'000

RMB'000

EQUITY

Equity attributable to ordinary equity holders of the parent

Issued capital

4,613,435

4,227,530

Reserves

36,542,681

24,599,338

41,156,116

28,826,868

Perpetual capital instruments

-

6,252,364

Non-controlling interests

3,120,679

2,875,066

Total equity

44,276,795

37,954,298

Li Zixue

Xu Ziyang

Director

Director

- 54 -

  1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
  1. Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with HKAS 34: Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2019.

1.2 Changes in accounting policies and disclosures

The accounting policies adopted in the preparation of the interim condensed consolidated financial information are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019, except for the adoption of the following revised Hong Kong Financial Reporting Standards("HKFRSs") for the first time for the current period's financial information.

Amendments to HKFRS 3

Definition of a Business

Amendments to HKFRS 9,

Interest Rate Benchmark Reform

HKAS 39 and HKFRS 7

Amendments to HKAS 16

Covid-19-Related Rent Concessions

(early adopted)

Amendments to HKAS 1 and

Definition of Material

HKAS 8

The nature and impact of the new and revised HKFRSs are described below:

  1. Amendments to HKFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. The Group has applied the amendments prospectively to transactions or other events that occurred on or after 1 January 2020. The amendments did not have any impact on the financial position and performance of the Group.

- 55 -

  1. Amendments to HKFRS 9, HKAS 39 and HKFRS 7 address the effects of interbank offered rate reform on financial reporting. The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The amendments did not have any impact on the financial position and performance of the Group as the Group does not have any interest rate hedge relationships.
  2. Amendment to HKFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before 30 June 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective retrospectively for annual periods beginning on or after 1 June 2020 with earlier application permitted.
    During the period ended 30 June 2020, certain monthly lease payments for the leases of the Group's office buildings have been reduced or waived by the lessors as a result of the covid-19 pandemic and there are no other changes to the terms of the leases. The Group has early adopted the amendment on 1 January 2020 and elected not to apply lease modification accounting for all rent concessions granted by the lessors as a result of the covid-19 pandemic during the period ended 30 June 2020. The amendments did not have any impact on the Group's interim condensed consolidated financial information.
  3. Amendments to HKAS 1 and HKAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information. The amendments did not have any impact on the Group's interim condensed consolidated financial information.

- 56 -

2. OPERATING SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their customers and products and has three reportable operating segments as follows:

  1. The Carriers' Network is focused on meeting carriers' requirements in network evolution with the provision of wireless access, wireline access, bearer networks, core networks, telecommunication software systems and services and other innovative technologies and product solutions.
  2. The Consumer Business is focused on bringing experience in smart devices to customers while also catering to the requirements of industry clients through the development, production and sales of products such as smart phones, mobile data terminals, home information terminals and innovative fusion terminals, as well as the provision of related software application and value-added services.
  3. The Government and Corporate business is focused on meeting requirements of government and corporate clients, providing informatization solutions for the government and corporations through the application of products such as communications networks, IOT, big data and cloud computing.

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 such measurement.

Segment assets exclude derivative financial instruments, deferred tax assets, pledged deposits, cash and cash equivalents, investments in a 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.

- 57 -

An analysis of the Group's revenue and profit by operating segment is set out in the following table:

Government

Carriers'

Consumer

& Corporate

Networks

Business

Business

Total

RMB'000

RMB'000

RMB'000

RMB'000

Six months ended 30 June 2020

Segment revenue:

34,969,589

7,413,186

4,747,816

47,130,591

Sales to external customers

Rental income

-

-

68,782

68,782

34,969,589

7,413,186

4,816,598

47,199,373

Segment results

9,558,202

1,042,922

927,505

11,528,629

Bank and other interest income

581,860

Dividend income and unallocated

1,575,657

gains

Unallocated expenses

(9,978,398)

Finance costs

(802,961)

Share of profits and losses of:

(8,461)

Joint ventures

Associates

(55,355)

Profit before tax

2,840,971

30 June 2020

Segment assets

54,150,990

10,332,253

7,458,581

71,941,824

Investment in joint ventures

106,054

Investment in associates

2,186,398

Unallocated assets

91,198,088

Total assets

165,432,364

Segment liabilities

11,768,197

1,738,095

1,620,913

15,127,205

Unallocated liabilities

106,028,364

Total liabilities

121,155,569

Six months ended 30 June 2020

Other segment information:

Impairment losses recognised in

(104,986)

(22,256)

(14,461)

(141,703)

profit or loss

Impairment losses on financial and

(206,815)

(43,843)

(28,485)

(279,143)

contract assets

Depreciation and amortisation

1,263,094

267,763

450,140

1,980,997

Capital expenditure*

2,213,218

469,179

454,903

3,137,300

  • Capital expenditure included the increase in property, plant and equipment, intangible assets, prepaid land lease payments and investment properties.

- 58 -

Government

Carriers'

Consumer & Corporate

Networks

Business

Business

Total

RMB'000

RMB'000

RMB'000

RMB'000

Six months ended 30 June 2019

Segment revenue:

Sales to external customers

32,485,158

7,424,030

4,549,262

44,458,450

Rental income

-

-

150,769

150,769

32,485,158

7,424,030

4,700,031

44,609,219

Segment results

11,164,485

454,661

1,249,742

12,868,888

Bank and other interest income

322,233

Dividend income and unallocated

gains

1,496,220

Unallocated expenses

(11,468,665)

Finance costs

(823,053)

Share of profits and losses of:

Joint ventures

(3,363)

Associates

(154,783)

Profit before tax

2,237,477

31 December 2019

Segment assets

46,843,989

9,479,379

6,440,646

62,764,014

Investment in joint ventures

114,515

Investment in associates

2,212,773

Unallocated assets

76,110,833

Total assets

141,202,135

Segment liabilities

11,511,610

1,933,582

1,582,747

15,027,939

Unallocated liabilities

88,219,898

Total liabilities

103,247,837

Six months ended 30 June 2019

Other segment information:

Impairment losses recognised in

profit or loss

342,260

78,219

49,519

469,998

Impairment losses on financial and

contract assets

1,031,221

235,671

149,199

1,416,091

Depreciation and amortisation

979,104

223,761

352,569

1,555,434

Capital expenditure*

2,171,090

496,173

585,376

3,252,639

- 59 -

Geographical information

(a) Revenue from external transactions

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

The PRC (place of domicile)

31,751,164

27,421,729

Asia (excluding the PRC)

6,923,102

7,807,728

Africa

2,522,750

2,715,340

Europe, Americas and Oceania

6,002,357

6,664,422

Total

47,199,373

44,609,219

Information on revenue set out above is analysed by geographical locations where the customers are located.

(b) Non-current assets

30 June

31 December

2020

2019

RMB'000

RMB'000

The PRC (place of domicile)

18,253,766

17,439,577

Asia (excluding the PRC)

1,705,524

1,651,432

Africa

539,127

562,167

Europe, Americas and Oceania

143,395

49,331

Total

20,641,812

19,702,507

Figures for non-current assets set out above is based on the locations of the assets and excludes financial instruments, deferred tax assets, goodwill, investments in joint ventures, investments in associates and other non-current assets.

- 60 -

3. REVENUE, OTHER INCOME AND GAINS

Revenue 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:

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

Revenue

Revenue from contracts with customers

47,130,591

44,458,450

Rental income

68,782

150,769

47,199,373

44,609,219

- 61 -

Revenue from contracts with customers

  1. Disaggregated revenue information Six Months ended 30 June 2020

Government

and

Carriers'

Consumer

Corporate

Segments

Networks

Business

Business

Total

RMB'000

RMB'000

RMB'000

RMB'000

Type of goods or services

Sale of goods

2,977,565

7,278,988

2,284,177

12,540,730

Sale of services

5,625,640

134,198

517,812

6,277,650

Telecommunication system

-

construction contracts

26,366,384

1,945,827

28,312,211

Total revenue from

contracts with customers

34,969,589

7,413,186

4,747,816

47,130,591

Geographical markets

The PRC (place of

domicile)

26,428,281

2,877,740

2,376,361

31,682,382

Asia (excluding the PRC)

5,078,163

1,140,121

704,818

6,923,102

Africa

1,767,785

296,463

458,502

2,522,750

Europe, Americas and

Oceania

1,695,360

3,098,862

1,208,135

6,002,357

Total revenue from

contracts with customers

34,969,589

7,413,186

4,747,816

47,130,591

Timing of revenue

recognition

Transferred at a point

in time

29,343,949

7,278,988

4,230,004

40,852,941

Transferred over time

5,625,640

134,198

517,812

6,277,650

Total revenue from

contracts with customers

34,969,589

7,413,186

4,747,816

47,130,591

- 62 -

Six months ended 30 June 2019

Government

and

Carriers'

Consumer

Corporate

Segments

Networks

Business

Business

Total

RMB'000

RMB'000

RMB'000

RMB'000

Type of goods or services

Sale of goods

4,666,095

7,352,068

2,071,498

14,089,661

Sale of services

6,372,364

71,962

830,937

7,275,263

Telecommunication system

construction contracts

21,446,699

-

1,646,827

23,093,526

Total revenue from

contracts with customers

32,485,158

7,424,030

4,549,262

44,458,450

Geographical markets

The PRC (place of

domicile)

21,663,736

3,526,101

2,081,123

27,270,960

Asia (excluding the PRC)

6,195,497

673,751

938,480

7,807,728

Africa

2,011,499

228,684

475,157

2,715,340

Europe, Americas and

Oceania

2,614,426

2,995,494

1,054,502

6,664,422

Total revenue from

contracts with customers

32,485,158

7,424,030

4,549,262

44,458,450

Timing of revenue

recognition

Transferred at a point in

time

26,015,071

7,351,694

3,694,971

37,061,736

Transferred over time

6,470,087

72,336

854,291

7,396,714

Total revenue from

contracts with customers

32,485,158

7,424,030

4,549,262

44,458,450

- 63 -

The following table shows the amounts of revenue recognised in the current reporting period that were included in the contract liabilities at the beginning of the reporting period and recognised from performance obligations satisfied in previous periods:

Six months

ended

30 June 2020

RMB'000

Revenue recognised that was included in contract liabilities at the

beginning of the reporting period:

6,643,607

(ii) Performance obligations

Information about the Group's performance obligations is summarised below:

Sale of hardware products

The performance obligation is satisfied upon delivery of the hardware products and payment is generally due within 60 to 120 days from delivery.

Installation services

The performance obligation is satisfied when the services are rendered and accepted by customer.

A bundle of sales of equipment and installation services

The sale of equipment and installation services are highly interdependent, thus, customers cannot benefit from the equipment or installation services either on their own or together with other resources that are readily available to the customer. A bundle of sales of equipment and installation services is accounted for as a single performance obligation. The performance obligation is satisfied upon the completion of equipment and installation and acceptance.

Maintenance services

Revenue from the provision of maintenance services is recognised over the scheduled period on a straight-line basis because the customer simultaneously receives and consumes the benefits provided by the Group.

- 64 -

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

Other income

Bank interest income

448,939

295,065

Finance income on the net investment in a lease

32,897

-

Interest income arising from revenue contracts

100,024

27,168

VAT refunds and other tax subsidies#

526,169

730,378

Dividend income from equity investments at fair

value through profit or loss

5,769

9,972

Others##

389,661

204,730

1,503,459

1,267,313

Gains

Gain on disposal of financial assets at fair value

through profit or loss

100,596

407,010

Gain on disposal of derivative financial

instruments

70,475

49,382

Gain on disposal of equity interests

-

90,772

Fair value gains, net:

Equity investments at fair value through profit

or loss

479,365

-

Wealth management products

-

656

Fair value gains on investment properties

3,622

3,320

654,058

551,140

2,157,517

1,818,453

  • VAT refund for software products represents tax payments by subsidiaries of the Group on any effective VAT rate in excess of 3% in respect of software product sales which are immediately refundable upon payment 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.
  • "Others" included other income, contract penalty income and other miscellaneous income.

- 65 -

4. PROFIT BEFORE TAX

The Group's profit before tax is arrived at after charging/(crediting)：

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

Cost of goods and services

28,596,539

24,638,913

Depreciation of property, plant and equipment

648,956

602,416

Depreciation of right-of-use assets charged to profit

or loss

293,837

287,365

Amortisation of intangible assets other than deferred

development costs

246,930

162,529

Research and development costs:

Deferred development costs amortised

791,274

562,157

Current period expenditure

6,958,795

6,926,255

Less: Deferred capitalised development costs

(1,112,693)

(1,016,546)

6,637,376

6,471,866

Fair value losses/(gains), net*:

Derivative instruments

80,671

23,278

Investment properties

(3,622)

(3,320)

Equity investments at fair value through profit or

loss

(454,850)

122,832

Wealth management products

77

(186)

Impairment of financial and contract assets, net:

Impairment of short-term trade receivables

205,715

1,074,003

Impairment of long-term trade receivables

4,738

(1,172)

Impairment of contract assets, net

4,382

341,058

Impairment of other receivables

63,165

2,974

Impairment of debt investments at fair value

through other comprehensive income

1,013

204

Impairment of factored trade receivables

(17)

(778)

Impairment of factored long-term trade receivables

147

(198)

Dividend income from equity investments at fair

value through profit or loss

(5,769)

(9,972)

Provision for onerous contract**

1,712,320

434,513

- 66 -

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

Provision for warranties**

66,456

86,132

Provision for legal obligation*

2,504

22,737

Write-down of inventories to net realisable value**

134,538

469,998

Impairment of investments in associates*

7,165

-

Lease payments not included in the measurement of

lease liabilities

98,266

177,029

Contingent rental income in respect of operating

leases

(843)

(1,623)

Auditors' remuneration

700

700

Staff costs (including directors', chief executives' and

supervisors' remuneration):

Wages, salaries, bonuses, allowances and welfare

9,786,762

9,344,178

Equity-settled share option expense

52,162

150,266

Retirement benefit scheme contributions:

Defined contribution pension schemes

304,766

614,065

10,143,690

10,108,509

Foreign exchange loss*

257,510

59,823

Loss on disposal of items of property, plant and

equipment*

26,618

16,975

Loss/(gain) on disposal of subsidiaries*

12,970

(90,772)

Gain on disposal of derivative financial instruments

(70,475)

(49,382)

Gain on disposal of financial assets at fair value

through profit or loss

(100,596)

(407,010)

Loss on disposal of financial assets measured at

amortised cost

69,797

84,063

  • The fair value losses, provision for legal obligation, the impairment of investments in associates, foreign exchange loss, loss on disposal of items of property, plant and equipment, and loss on disposal of subsidiaries are included in "Other expenses" on the face of the consolidated statement of profit or loss and other comprehensive income.
  • The provision for onerous contract, provision for warranties and 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.

- 67 -

5.

FINANCE COSTS

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

Interest on bank loans and other loans

611,904

557,399

Interest on lease liabilities

44,961

32,669

Interest on other non-current liabilities

31,643

-

Interest on short-term bonds payable

23,414

-

Finance costs on trade receivables factored and bills

discounted

136,000

232,985

Total interest expense on financial liabilities not at

fair value through profit or loss

847,922

823,053

6.

INCOME TAX

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

The Group:

Current - Hong Kong

1,271

2,807

Current - Mainland China

307,145

296,650

Current - Overseas

202,565

229,677

Deferred

6,609

(116,220)

Total tax charge for the period

517,590

412,914

Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%) on the estimated assessable profits arising in Hong Kong during the period. 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 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%.

- 68 -

The Company was subject to an enterprise income tax rate of 15% for the years of 2017 to 2019 as a national-gradehi-tech enterprise incorporated in Shenzhen, the application for national-gradehi-tech enterprise certificate for 2020 to 2022 is still ongoing and will be completed before year 2020's tax filing, hence the company applied enterprise income tax rate of 15% from January 2020 to June 2020.

  1. DIVIDEND
    During the six months ended 30 June 2020, a dividend of RMB0.2 per share totalling RMB922,687,000 (2019:nil), was declared by the Company to its shareholders as the final dividend for the year ended 31 December 2019.
    The Directors do not recommend any payment of interim dividend for the six months ended 30 June 2020 (six months ended 30 June 2019: nil).
  2. 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 period attributable to holders of ordinary shares of the Company by the weighted average number of ordinary shares in issue.
    The calculation of the diluted earnings per share amount is based on the profit for the period attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at 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:

Six months

Six months

ended

ended

30 June 2020

30 June 2019

RMB'000

RMB'000

Earnings

Profit for the period attributable to ordinary equity

holders of the parent

1,857,289

1,470,699

- 69 -

Six months

Six months

ended

ended

30 June 2020

30 June 2019

000 shares

000 shares

Shares

Weighted average number of ordinary shares in issue

during the period as used in the basic earnings per

share calculation

4,612,335

4,192,672

Effect of dilution - weighted average number of

ordinary shares:

22,143

30,440

Adjusted weighted average number of ordinary shares

in issue

4,634,478

4,223,112

The 2017 share options granted by the Company gave rise to 22,143,000 potential dilutive ordinary shares during the reporting period.

9. TRADE RECEIVABLES/LONG-TERM TRADE RECEIVABLES

30 June

31 December

2020

2019

RMB'000

RMB'000

Trade receivables

30,332,956

35,766,089

Impairment

(10,323,756)

(13,168,203)

20,009,200

22,597,886

Current portion

(16,898,230)

(19,778,280)

Long-term portion

3,110,970

2,819,606

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 normally 90 days, and is extendable up to one year depending on customers' creditworthiness 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.

- 70 -

An aged analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of provision, is set out as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

Within 6 months

16,864,375

18,838,561

6

to 12 months

1,742,643

2,331,934

1

to 2 years

1,157,884

1,061,611

2

to 3 years

244,298

365,780

20,009,200

22,597,886

Less: Current portion of trade

(16,898,230)

(19,778,280)

Long-term portion

3,110,970

2,819,606

The movements in the provision for impairment of trade receivables are as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

At beginning of year

13,168,203

12,412,280

Impairment losses, net

210,453

1,817,629

Amount written off as uncollectible

(3,174,252)

(1,359,859)

Fluctuation in exchange

119,352

298,153

Closing balance

10,323,756

13,168,203

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., by geographical region, product type, customer type and rating, and coverage by letters of credit or other forms of credit insurance). The calculation reflects the probability- weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if past due for more than one year and are not subject to enforcement activity.

- 71 -

Set out below is the information about the credit risk exposure on the Group's trade receivables using a provision matrix:

As at 30 June 2020

Past due

Within 6

6 to 12

1 to 2

2 to 3

Over 3

months

months

years

years

years

Total

Expected credit loss

rate

8%

15%

47%

92%

100%

34%

Gross carrying

amount

18,281,519

2,044,401

2,170,856

3,113,691

4,722,489

30,332,956

Expected credit losses

1,417,144

301,758

1,012,972

2,869,393

4,722,489

10,323,756

As at 31 December 2019

Past due

Within 6

6 to 12

Over 3

months

months

1 to 2 years

2 to 3 years

years

Total

Expected credit loss

rate

11%

13%

76%

81%

100%

37%

Gross carrying

amount

21,102,244

2,675,234

4,353,567

1,956,298

5,678,746

35,766,089

Expected credit losses

2,263,683

343,300

3,291,956

1,590,518

5,678,746

13,168,203

The balances due from the controlling shareholder, joint ventures, associates and other related companies included in the above are analysed as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

The controlling shareholder

-

33

Joint ventures

9,513

17,772

Associates

275,134

339,276

Other related companies

10,143

10,494

294,790

367,575

The balances are unsecured, non-interest-bearing, repayable on demand and on credit terms similar to those offered to the major customers of the Group.

- 72 -

10. TRADE AND BILLS PAYABLES

An aged analysis of the trade and bills payable as at the end of the reporting period, based on the invoice date, is set out as follows:

30 June

31 December

2020

2019

RMB'000

RMB'000

Within 6 months

34,460,284

26,928,446

6

to 12 months

499,655

398,107

1

to 2

years

303,096

194,548

2

to 3

years

232,982

166,176

Over 3 years

71,387

41,273

Total

35,567,404

27,728,550

The balances due to the controlling shareholder, joint ventures, associates and other related companies included in the above are analysed as follow:

30 June

31 December

2020

2019

RMB'000

RMB'000

The controlling shareholder

2,199

6,494

Joint ventures

-

30

Associates

661,967

772,207

Other related companies

65,393

86,840

Total

729,559

865,571

The balances are unsecured, non-interest-bearing and repayable on demand.

Trade payables are non-interest-bearing and are normally settled on within 180 days.

- 73 -

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ZTE Corporation published this content on 28 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 August 2020 10:53:00 UTC