Beijing Digital Telecom Co., Ltd. — Interim / Quarterly Report 2017

Aug 30, 2017

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Beijing Digital Telecom Co., Ltd. 北京迪信通商貿股份有限公司

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

(Stock Code: 6188)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2017

FINANCIAL HIGHLIGHTS

For the six months ended June 30, 2017:

Revenue of the Group was RMB7,691,322 thousand, representing an increase of 1.79% from the same period last year.

Net profit attributable to the equity holders of the Company was RMB149,539 thousand, representing a decrease of 3.98% from the same period last year.

Basic earnings of each Share was RMB0.22 per share, remaining stable compared with the same period last year.

The board of directors (the “ Board ”)/(the “ Director(s) ”) of Beijing Digital Telecom Co., Ltd. (the “ Company ”) is pleased to announce the unaudited consolidated results for the six months ended June 30, 2017 (the “ 2017 Interim Results ”) of the Company and its subsidiaries (the “ Group ”), together with comparable figures for the same period in 2016.

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2017

Notes Revenue 4 Cost of sales Gross profit Other income and gains 4 Selling and distribution costs Administrative expenses Other expenses Finance costs Share of profits/(losses) of associates and joint ventures Profit before tax 5 Income tax expense 6 PROFIT FOR THE PERIOD Attributable to: Owners of the parent Non-controlling interests EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic and diluted (RMB) 7

For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 7,691,322 7,555,713 (6,688,566) (6,639,243) 1,002,756 916,470 28,855 72,856 (552,070) (556,115) (160,621) (164,489) (48,314) (23,759) (85,437) (52,925) 785 (546) 185,954 191,492 (35,780) (36,391) 150,174 155,101 149,539 155,733 635 (632) 150,174 155,101 0.22 0.23

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Notes PROFIT FOR THE PERIOD OTHER COMPREHENSIVE INCOME Other comprehensive income to be reclassified to profit or loss in subsequent periods Share of other comprehensive loss of a joint venture OTHER COMPREHENSIVE INCOME FOR THE PERIOD, NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Attributable to: Owners of the parent Non-controlling interests	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 150,174 155,101 (2,380) – (2,380) – 147,794 155,101 147,159 155,733 635 (632) 147,794 155,101

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 June 2017

Notes NON-CURRENT ASSETS Property, plant and equipment 8 Goodwill Other intangible assets Investment in joint ventures Investments in associates Available-for-sale investments Deferred tax assets Loan receivable Total non-current assets CURRENT ASSETS Inventories 9 Properties under development Trade receivables 10 Prepayments, deposits and other receivables Due from related parties Pledged deposits 11 Cash and cash equivalents 11 Total current assets CURRENT LIABILITIES Interest-bearing bank borrowings 12 Trade and bills payable 13 Other payables and accruals Due to related parties Tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings 12 NET ASSETS EQUITY Equity attributable to owners of the parent: Issued capital 14 Reserves Non-controlling interests Total equity	30 June 2017 Unaudited RMB’000 143,077 57,476 563 69,734 12,829 15,075 38,566 33,827 371,147 2,379,606 365,062 2,012,961 1,446,278 52,124 963,191 470,502 7,689,724 3,141,498 282,910 429,468 18,761 255,138 4,127,775 3,561,949 3,933,096 595,832 3,337,264 666,667 2,590,136 3,256,803 80,461 3,337,264	31 December 2016 Audited Restated RMB’000 157,538 57,476 853 31,806 8,077 15,075 37,984 – 308,809 2,175,649 316,156 1,772,276 1,135,598 13,504 815,367 784,756 7,013,306 3,056,403 443,240 405,003 8,848 239,007 4,152,501 2,860,805 3,169,614 – 3,169,614 666,667 2,442,977 3,109,644 59,970 3,169,614

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2017

Six months ended 30 June 2017: As at 31 December 2016 (as previously reported) Retrospective adjustments of business combination under common control_(note 2.3)_ As at 31 December 2016 (as restated) Profit for the period Other comprehensive income for the period: Share of other comprehensive loss of a joint venture Total comprehensive income for the period Capital contribution by non-controlling shareholders As at 30 June 2017 (Unaudited)		Attributable to owners of theparent	Attributable to owners of theparent	Attributable to owners of theparent	Total Non- controlling interests RMB’000 RMB’000 3,109,696 59,983 (52) (13) 3,109,644 59,970 149,539 635 (2,380) – 147,159 635 – 19,856 3,256,803 80,461	Total equity RMB’000 3,169,679 (65) 3,169,614 150,174 (2,380) 147,794 19,856 3,337,264
	Issued capital RMB’000 666,667 – 666,667 – – – – 666,667	Capital reserve RMB’000 524,953 – 524,953 – – – – 524,953	Statutory reserve funds RMB’000 211,419 (7) 211,412 – – – – 211,412	Retained profits Exchange fluctuation reserve RMB’000 RMB’000 1,706,657 – (45) – 1,706,612 – 149,539 – – (2,380) 149,539 (2,380) – – 1,856,151 (2,380)

• As stated in note 2.3, in February 2017, the Group completed the acquisition of Beijing Dixin Alliance Technology Co., Ltd. which has been accounted for as business combination under common control.

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Six months ended 30 June 2016: As at 31 December 2015 (Audited) Total comprehensive income for the period Capital contribution by non-controlling shareholders Disposal of interest in a subsidiary As at 30 June 2016 (Unaudited)		Attributable to owners of theparent	Attributable to owners of theparent	Attributable to owners of theparent	Total RMB’000 2,753,286 155,733 – – 2,909,019	Non- controlling interests RMB’000 45,216 (632) 14,100 1 58,685	Total equity RMB’000 2,798,502 155,101 14,100 1
	Issued capital RMB’000 666,667 – – – 666,667	Capital reserve RMB’000 524,953 – – – 524,953	Statutory reserve funds RMB’000 175,711 – – – 175,711	Retained profits RMB’000 1,385,955 155,733 – – 1,541,688
							2,967,704

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2017

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs Interest Income from loan receivable and others Share of losses/(profits) of joint ventures and associates Provision for impairment of trade receivables Provision for impairment of due from related parties Provision for impairment of other receivables Provision for impairment of inventories Depreciation Amortisation of intangible assets Gain on disposal of a subsidiary Loss on disposal of property, plant and equipment Exchange differences on translation of foreign operations Decrease/(Increase)in trade receivables Increase in prepayments, deposits and other receivables Decrease/(Increase) in inventories Increase in properties under development Decrease in trade and bills payable Decrease/(Increase) in other payables and accruals Increase in due from related parties Increase in due to related parties Cash generated from/(used in) operations Income tax paid NET CASH FLOWS (USED IN)/FROM OPERATING ACTIVITIES

For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 185,954 191,492 85,437 52,925 (1,555) – (785) 546 11,987 292 1,928 – 2,571 50 26,686 22,152 33,547 46,122 290 302 – (1) 683 1,109 495 – (252,672) 18,542 (209,142) (64,050) (230,643) 188,923 (48,906) (25,468) (160,330) (104,417) 30,271 (51,321) (40,548) (5,571) 9,913 24,450 (554,819) 296,077 (20,231) (17,151) (575,050) 278,926

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CASH FLOWS FROM INVESTING ACTIVITIES Disposal of a subsidiary Purchases of items of property, plant and equipment Purchases of items of other intangible assets Proceeds from sale of property, plant and equipment Acquisition of interests of an associate and a joint venture Advances of loans to associates Interest received Purchase of a financial product by bank NET CASH FLOWS USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of bonds New bank loans Capital contribution from non-controlling shareholders Decrease/(Increase) in pledged deposits Repayment of bank loans Interest paid NET CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF PERIOD

For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 – (98) (19,798) (45,570) – (667) 29 – (23,177) – (19,329) – 150 – (135,000) – (197,125) (46,335) 595,500 – 3,655,243 3,364,251 – 14,100 (147,824) 292,935 (3,570,148) (3,917,101) (74,355) (52,925) 458,416 (298,740) (313,759) (66,149) 784,756 441,844 (495) – 470,502 375,695

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2017

1. CORPORATE INFORMATION

Beijing Digital Telecom Co., Ltd. (the “Company”) is a joint stock company with limited liability established in the People’s Republic of China (the “PRC”). The registered office of the Company is No.101, 4/F, C Yi’an Business Building, 18 Building Yi’an Jiayuan, Beiwa West, Haidian District, Beijing, the PRC.

The Group is principally engaged in the sale of mobile telecommunications devices and accessories and the provision of related services.

In the opinion of the Directors, the ultimate controlling shareholders of the Company are Mr. Liu Songshan, Mr. Liu Donghai, Ms. Liu Hua, Ms. Liu Wencui and Ms. Liu Yongmei, who are brothers and sisters.

2. BASIS OF PRESENTATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

2.1 Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 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 for the year ended 31 December 2016.

The interim condensed consolidated financial statements have been prepared under the historical cost convention. The interim condensed consolidated financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

2.2 Revised standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2016, except for the adoption of revised standards effective as of 1 January 2017. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. Although these amendments apply for the first time in 2017, they do not have a material impact on the interim condensed consolidated financial statements of the Group. The nature and the impact of each amendment are described below:

Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative

The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendment, entities are not required to provide comparative information for preceding periods. The Group is not required to provide additional disclosures in its condensed interim consolidated financial statements, but will disclose additional information in its annual consolidated financial statements for the year ending 31 December 2017.

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Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

The Group applied the amendments retrospectively. However, their application has had no effect on the Group’s financial position and performance as the Group has no deductible temporary differences or assets that are in the scope of the amendments.

Annual Improvements Cycle 2014-2016

Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12

The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10–B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.

The amendments have had no significant impact on the Group as the Group has no interest in entities classified as held for sale.

2.3 Restatement of prior year financial statements as a result of business combination for the entity under common control

In February 2017, the Company completed the acquisition of 80% equity interest in Beijing Dixin Alliance Technology Co., Ltd. (“Alliance”), which was incorporated on 1 September 2016, at nil purchase consideration. After the completion of the acquisition, Alliance was accounted for as a subsidiary of the Group. Since the Company and Alliance were under common control of the ultimate controlling shareholders of the Company before and after the completion of the aforesaid acquisition, the business combination of Alliance has been accounted for under the pooling of interests method.

Business combinations arising from transfers of interests in entities that are under the control of the ultimate shareholders that controls the Group are accounted for as if the acquisitions had occurred at the beginning of the earliest date presented or, if later, at the date that common control was established. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the acquired entities’ financial statements.

Upon transfer of interest in an entity to another entity that is under the control of the ultimate shareholder that controls the Group, any difference between the Group’s interest in the carrying value of the assets and liabilities and the cost of transfer of interest in the entity is recognised directly in equity.

The consolidated statement of profit or loss and other comprehensive income includes the results of each of the combining entities from the earliest date presented or since the date when the combining entities first came under the common control, where this is a shorter period.

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All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full on consolidation.

The opening balances as at 1 January 2017 and comparative information as at 31 December 2016 have been restated in the interim condensed consolidated financial statements.

Restated consolidated statement of financial position as at 31 December 2016:

		Effect of
	As previously	prior year
	reported	adjustments	As restated
	RMB’000	RMB’000	RMB’000
Total non-current assets	308,809	–	308,809
Total current assets	7,011,502	1,804	7,013,306
Total current liabilities	4,150,632	1,869	4,152,501
Equity attributable to owners of
the parent	3,109,696	(52)	3,109,644
Non-controlling interests	59,983	(13)	59,970
Total equity	3,169,679	(65)	3,169,614

Details of the restated consolidated statement of financial position as at 31 December 2016 includes the following:

		Effect of
	As previously	prior year
	reported	adjustments	As restated
	RMB’000	RMB’000	RMB’000
Current assets
Inventories	2,175,606	43	2,175,649
Trade receivables	1,772,260	16	1,772,276
Prepayments, deposits and
other receivables	1,135,447	151	1,135,598
Due from related parties	13,582	(78)	13,504
Cash and cash equivalents	783,084	1,672	784,756
Current liabilities
Other payables and accruals	403,134	1,869	405,003

3. OPERATING SEGMENT INFORMATION

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

• (a) The mobile telecommunication devices segment mainly engages in the sale of mobile telecommunication devices and accessories.

• (b) The real estate segment mainly engages in the development and sale of real estate.

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/loss, which is a measure of adjusted profit/loss before tax.

Segment assets and segment liabilities are both managed separately by operating segments.

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The following tables present revenue and profit information for the Group’s operating segments for the six months ended 30 June 2017 and 2016, respectively.

For the six months ended 30 June 2017 Mobile telecommunication devices RMB’000 Segment revenue: Sales to external customers 7,691,322 Total revenue 7,691,322 Segment results 268,448 Reconciliation: Interest income 5,579 Finance costs (85,437) Profit/(loss) before tax 188,133 Other segment information: Impairment losses recognised in profit or loss 43,000 Depreciation and amortisation 33,828 For the six months ended 30 June 2016 Mobile telecommunication devices RMB’000 Segment revenue: Sales to external customers 7,555,713 Total revenue 7,555,713 Segment results 237,487 Reconciliation: Interest income 11,017 Finance costs (52,925) Profit/(loss) before tax 195,579 Other segment information: Impairment losses recognised in profit or loss 22,494 Depreciation and amortisation 46,358	Real estates RMB’000 – – (2,205) 26 – (2,179) 172 9 Real estates RMB’000 – – (4,092) 5 – (4,087) – 66	Total RMB’000 7,691,322 7,691,322 266,243 5,605 (85,437) 185,954 43,172 33,837 Total RMB’000 7,555,713 7,555,713 233,395 11,022 (52,925) 191,492 22,494 46,424

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The following table presents assets and liabilities information for the Group’s operating segments as at 30 June 2017 and 31 December 2016, respectively:

	Mobile
	telecommunication
	devices	Real estates	Total
	RMB’000	RMB’000	RMB’000
Segment assets
As at 30 June 2017 (Unaudited)	7,628,900	431,971	8,060,871
As at 31 December 2016 (Audited) (Restated)	6,956,809	365,306	7,322,115
Segment liabilities
As at 30 June 2017 (Unaudited)	4,402,113	321,494	4,723,607
As at 31 December 2016 (Audited) (Restated)	3,899,870	252,631	4,152,501

Information about major customers

During the reporting periods, the Group had no customer from whom the revenue earned individually accounted for more than 10% of the Group’s total revenue for the reporting period.

Geographical information

Since the Group solely operates in Mainland China and all of the non-current assets of the Group are located in Mainland China, no geographical segment information as required by IFRS 8 Operating Segments is presented.

Seasonality of operations

Due to the seasonal nature, higher revenues and operating profits are usually expected in the second half of the year rather than in the first six months. Higher sales during the period from July to the early of October are mainly attributed to the increased demand for mobile telecommunications devices and accessories during the holiday season, as well as in November and December, due to increased demand for new series of mobile telecommunications devices. This information is provided to allow for a better understanding of the results, however, management has concluded that the Group’s business is not ‘highly seasonal’ accordance to IAS 34.

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4. REVENUE, OTHER INCOME AND GAINS

Revenue represents the net invoiced value of goods sold and services rendered, after allowances for returns, trade discounts and various types of government surcharges, where applicable.

An analysis of revenue, other income and gains is as follows:

Revenue Sales of mobile telecommunications devices and accessories Including: Retail of mobile telecommunications devices and accessories Sales of telecommunications devices and accessories to franchisees Wholesale of mobile telecommunications devices and accessories Service income from mobile carriers Other service fee income Other income and gains Interest income Government grants_(note (a))_ Others	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 7,362,789 7,231,063 4,123,598 4,119,785 1,365,307 1,210,555 1,873,884 1,900,723 276,983 275,288 51,550 49,362 7,691,322 7,555,713 For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 5,605 11,022 21,843 59,706 1,407 2,128 28,855 72,856	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 7,362,789 7,231,063 4,123,598 4,119,785 1,365,307 1,210,555 1,873,884 1,900,723 276,983 275,288 51,550 49,362 7,691,322 7,555,713 For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 5,605 11,022 21,843 59,706 1,407 2,128 28,855 72,856
		72,856

Note (a): The amount represents grants received from local PRC government authorities by the Group’s subsidiaries in connection with certain financial subsidies and tax refunds to support local businesses. There are no unfulfilled conditions and other contingencies attached to the government grants.

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5. PROFIT BEFORE TAX

Profit before tax is arrived at after charging:

Cost of inventories sold and services provided Depreciation Amortisation of intangible assets Lease payments under operating leases Auditors’ remuneration Employee benefit expense (including Directors’ remuneration) – Wages and salaries – Pension scheme contributions Provision for impairment of trade receivables Provision for impairment of amount due from related parties Provision for impairment of other receivables Provision for impairment of inventories Loss on disposal of property, plant and equipment	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 6,688,566 6,639,243 33,547 46,122 290 302 200,928 198,862 2,974 2,878 239,356 261,587 31,706 29,981 271,062 291,568 11,987 292 1,928 – 2,571 50 26,686 22,152 683 1,109	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 6,688,566 6,639,243 33,547 46,122 290 302 200,928 198,862 2,974 2,878 239,356 261,587 31,706 29,981 271,062 291,568 11,987 292 1,928 – 2,571 50 26,686 22,152 683 1,109
		291,568
		292 – 50 22,152 1,109

6. INCOME TAX

The provision for PRC current income tax is based on a statutory rate of 25% of the assessable profits of the Group as determined in accordance with the PRC Corporate Income Tax Law which became effective on 1 January 2008. The major components of income tax expense are as follows:

Current tax Income tax in the PRC for the reporting period Deferred tax	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 36,362 16,513 (582) 19,878 35,780 36,391	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 36,362 16,513 (582) 19,878 35,780 36,391
		36,391

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7. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of basic earnings per share amounts is based on the profit attributable to ordinary equity holders of the parent and the weighted average number of ordinary shares in issue during the reporting periods.

The Group had no potentially dilutive ordinary shares in issue during the reporting periods. The calculation of basic earnings per share is based on:

Earnings Profit attributable to ordinary equity holders of the parent used in the basic earnings per share calculation Shares Weighted average number of ordinary shares	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 149,539 155,733 666,667,000 666,667,000	For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 149,539 155,733 666,667,000 666,667,000
		666,667,000

8. PROPERTY, PLANT AND EQUIPMENT

Acquisitions and disposals

During the six months ended 30 June 2017, the Group acquired property, plant and equipment at a cost of RMB19,798 thousand (for the six months ended 30 June 2016: RMB45,570 thousand).

Property, plant and equipment with a net book value of RMB712 thousand were disposed of by the Group during the six months ended 30 June 2017 (for the six months ended 30 June 2016: RMB1,109 thousand), resulting in a net loss on disposal of RMB683 thousand (for the six months ended 30 June 2016: RMB1,109 thousand).

9. INVENTORIES

Merchandise for resale Consumable supplies Less: provision against inventories	30 June 2017 Unaudited RMB’000 2,406,080 212 2,406,292 (26,686) 2,379,606	31 December 2016 Audited Restated RMB’000 2,199,376 607
		2,199,983 (24,334)
		2,175,649

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10. TRADE RECEIVABLES

Trade receivables Less: impairment for trade receivables	30 June 2017 Unaudited RMB’000 2,118,266 (105,305) 2,012,961	31 December 2016 Audited Restated RMB’000 1,865,594 (93,318) 1,772,276

The Group grants different credit periods to customers. The Group’s retail sales to consumers are cash sales. Credit periods are offered to customers of volume sales of telecommunications devices and accessories. The credit period offered to unincorporated customers is considered on a case-by-case basis. The Group maintains strict control over and closely monitors its outstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade and bills receivables are unsecured and non-interest-bearing.

An aged analysis of the balance of trade receivable as at the end of the reporting period, based on the invoice date and net of provisions, is as follows:

Within 90 days 91 to 180 days 181 to 365 days Over 1 year	30 June 2017 Unaudited RMB’000 1,862,860 47,492 63,399 39,210 2,012,961	31 December 2016 Audited Restated RMB’000 1,672,871 38,874 30,608 29,923 1,772,276

An aged analysis of the trade receivables that are not individually nor collectively considered to be impaired is as follows:

Neither past due nor impaired Past due but not impaired Less than 90 days 91 to 180 days 181 to 365 days Over 1 year	30 June 2017 Unaudited RMB’000 1,699,207 203,729 44,593 35,002 30,430 2,012,961	31 December 2016 Audited Restated RMB’000 1,449,851 231,261 36,379 35,892 18,893 1,772,276

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

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11. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

For the purpose of the interim condensed statement of cash flows, cash and cash equivalents are comprised of the following:

Cash and bank balances Time deposits Less: pledged time deposits pledged for bank borrowings pledged for bank acceptance notes Cash and cash equivalents, denominated in RMB INTEREST-BEARING BANK AND OTHER BORROWINGS Notes Bank loans: (a) Unsecured, repayable within one year Secured, repayable within one year Current portion of long term bank loans – unsecured Corporate bond: (b) Non-current portion

For the six months ended 30 June 2017 2016 Unaudited Unaudited RMB’000 RMB’000 470,502 375,695 963,191 787,873 1,433,693 1,163,568 941,588 317,765 21,603 470,108 963,191 787,873 470,502 375,695 30 June 2017 31 December 2016 Unaudited Audited RMB’000 RMB’000 871,000 1,598,474 2,223,498 1,409,929 47,000 48,000 3,141,498 3,056,403 595,832 – 3,737,330 3,056,403

12. INTEREST-BEARING BANK AND OTHER BORROWINGS

Note (a): The bank loans bear interest at rates ranging from 0.79% to 6.90% (31 December 2016: 2.50% to 6.40%) per annum.

Note (b): On 5 April 2017, the Company issued a corporate bond with a maturity of three years in an aggregate amount of RMB600,000,000, which bear interest at 7.50% per annum. The interest is payable annually in arrears and the maturity date is 5 April 2020.

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13. TRADE AND BILLS PAYABLE

Trade payables Bill payables Within 90 days 91 to 180 days 181 to 365 days Over 1 year 14. ISSUED CAPITAL Registered, issued and fully paid: 666,667,000 ordinary shares of RMB1 each	30 June 2017 Unaudited RMB’000 275,336 7,574 282,910 30 June 2017 Unaudited RMB’000 248,974 19,024 10,892 4,020 282,910 30 June 2017 Unaudited RMB’000 666,667	31 December 2016 Audited Restated RMB’000 422,872 20,368 443,240 31 December 2016 Audited Restated RMB’000 408,350 18,214 12,319 4,357 443,240 31 December 2016 Audited RMB’000 666,667

15. ACQUISITION OF A SUBSIDIARY

Details of acquisition of a subsidiary accounted for as business combination under common control are set out in note 2.3.

16. COMMITMENTS

At the end of the reporting period, the Group had no significant capital commitments.

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17. RELATED PARTY TRANSACTIONS

• (a) The following table provides the total amount of transactions that have been entered into with related parties during the six months ended 30 June 2017 and 2016, as well as balances with related parties as at 30 June 2017 and 31 December 2016:

			Purchase	Amounts	Amounts
		Sales to	from	owed by	owed to
		related	related	related	related
		parties(i)	parties(i)	parties	parties
		RMB’000	RMB’000	RMB’000	RMB’000
Associates:
Shenzhen Dixinjuhe
Communications
Co., Ltd.1	2017	–	13,275	–	16,901
	2016	2,198	–	–	1,830
Shanxi Hartcourt
Intermediation Information
Technology Co., Ltd.2	2017	–	–	–	667
	2016	–	–	–	667
Shanghai Diju Information
Technology Co., Ltd.3	2017	19,966	–	15,626	–
	2016	–	–	–	–
Joint ventures:
Hollard-D.Phone (Beijing)
Technology Development
Co., Ltd.4	2017	–	13,693	4,782	84
	2016	–	29,825	50	6,264
Guangzhou Zhongqi Energy
Technology Co., Ltd.4	2017	28,022	5,022	26,890	973
	2016	–	–	7,919	–
Fellow subsidiary:
Beijing Dphone Communication
Services Co., Ltd.5	2017	91	–	4,239	136
	2016	63	–	4,806	87
A company significantly
influenced by the
controlling shareholders
Beijing Tianxingyuanjing
Technology Development
Co., Ltd.6	2017	2,267	–	587	–
	2016	3,774	41	729	–

– 20 –

• 1 The investment in the associate, Shenzhen Dixinjuhe Communications Co., Ltd. is directly held by the Company.

• 2 The investment in the associate, Shanxi Hartcourt Intermediation Information Technology Co., Ltd. is directly held by Shanghai Dixin Electronic Communication Technology Co., Ltd. which is a subsidiary of the Group.

• 3 The investment in the associated venture entity, Shanghai Diju Information Technology Co., Ltd. is directly held by Shanghai Chuanda Communication Technology Co., Ltd. which is a subsidiary of the Group.

• 4 The investments in the joint venture entities, Hollard-D.Phone (Beijing) Technology Development Co., Ltd. and Guangzhou Zhongqi Energy Technology Co., Ltd are directly held by the Company.

• 5 The investment in the fellow subsidiary, Beijing Dphone Communication Services Co., Ltd. is directly held by the controlling shareholder of the Company.

• 6 The investment in the entity, Beijing Tianxingyuanjing Technology Development Co., Ltd. is held by Mr. Liu Donghai and Mr. Jinxin, who are the controlling shareholder and CEO of the Company, respectively. They hold 25% equity interest aggregately and have significant influence over the entity.

Note:

• (i) The transaction prices were determined based on prices the Group transacted with independent third party customers and suppliers.

• (b) Compensation of key management personnel of the Group:

	For the six months	For the six months
	ended 30 June
	2017	2016
	Unaudited	Unaudited
	RMB’000	RMB’000
Salaries, allowances, bonuses and other expenses	2,192	2,228

– 21 –

18. FINANCIAL INSTRUMENTS

The carrying amounts of each of the categories of financial instruments as at the end of each of the reporting periods are as follows:

Financial assets

Available-for-sale investments Other non-current assets Trade receivables Financial assets included in prepayments, deposits and other receivables Due from related parties Pledged deposits Cash and cash equivalents Available-for-sale investments Trade receivables Financial assets included in prepayments, deposits and other receivables Due from related parties Pledged deposits Cash and cash equivalents	As at 30 June 2017	As at 30 June 2017
	Loans and receivables Available- for-sale financial assets Total Unaudited Unaudited Unaudited RMB’000 RMB’000 RMB’000 – 15,075 15,075 33,827 – 33,827 2,012,961 – 2,012,961 345,617 – 345,617 52,124 – 52,124 963,191 – 963,191 470,502 – 470,502 3,878,222 15,075 3,893,297 As at 31 December 2016	Total Unaudited RMB’000 15,075 33,827 2,012,961 345,617 52,124 963,191 470,502
		3,893,297
	Loans and receivables Available- for-sale financial assets Audited Audited Restated RMB’000 RMB’000 – 15,075 1,772,276 – 177,317 – 13,504 – 815,367 – 784,756 – 3,563,220 15,075	Total Audited Restated RMB’000 15,075 1,772,276 177,317 13,504 815,367 784,756
		3,578,295

– 22 –

Financial liabilities

Trade and bills payable Financial liabilities included in other payables and accruals Due to related parties Interest-bearing bank and other borrowings	Financial liabilities at amortised cost 30 June 2017 31 December 2016 Unaudited Audited Restated RMB’000 RMB’000 282,910 443,240 94,636 125,844 18,761 8,848 3,737,330 3,056,403 4,133,637 3,634,335

19. FAIR VALUE AND FAIR VALUE HIERARCHY

The fair values of cash and cash equivalents, pledged deposits, trade and bills receivable, financial assets included in prepayments, deposits and other receivables, amount due from related parties, trade and bills payable, financial liabilities included in other payables and accruals, amount due to related parties approximate to their carrying amounts largely due to the short term maturities of these instruments.

The fair value of current portion of interest-bearing loans and other borrowings has been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The fair values of interest-bearing loans at the end of each of the reporting periods approximated to their corresponding carrying amount due to their short term maturities. The fair values of the non-current portion of interest-bearing bank and other borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.

As at 30 June 2017, the fair value information has not been disclosed for certain available-for-sale investments in equity instruments that do not have a quoted market price in an active market and are measured at cost less any impairment because their fair value cannot be measured reliably. The reason why the fair value cannot be measured reliably is because that the variability in the range of reasonable fair value estimates is significant for that investment or the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value. The carrying amount of these available-for-sale investments of the Group was RMB15,075 thousand (2016: RMB15,075 thousand) and that of the Company was RMB15,075 thousand (2016: RMB15,075 thousand), respectively. All of them are unlisted equity investments in Mainland China held by the Group.

20. DIVIDENDS

The Directors did not propose an interim dividend for the reporting period.

– 23 –

21. EVENTS AFTER THE REPORTING PERIODS

(a) Acquisition of a subsidiary

On 15 June 2016, the Board of the Company passed a resolution in relation to the acquisition of a 60% interest in Digitone Mobiles Private Limited (“Digitone Mobiles”) for the development in the India market. The purchase consideration was USD 2,500,000 in cash, paid up by the end of 2016. As at the date of the approval of the consolidated financial statements, the acquisition has not been completed. The acquisition will be accounted for using the acquisition method in the Company’s annual financial statements upon the completion of acquisition, anticipated to be in 2017.

(b) Acquisition of an associate

On 15 June 2016, the Board of the Company passed a resolution in relation to the proposed investment in Spice Online Retail Private Limited (“Spice Online”), an unlisted company incorporated in India that specialises in the sale of mobile telecommunications devices and accessories. The Company would acquire a 49% interest in Spice Online at a consideration of USD 2,400,000. Upon the completion, the Company would expand into the India market to further develop their business. As at the date of approval of the consolidated financial statements, the acquisition has not been completed. The acquisition will be accounted for using the acquisition method in the Company’s annual financial statements upon the completion of acquisition, anticipated to be in 2017.

22. COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to conform with the current period’s presentation and as stated in note 2.3 to the interim condensed consolidated financial statements, the comparative amounts have been restated to reflect the prior year adjustments.

In addition, as stated in note 3 to the interim condensed consolidated financial statements, the comparative segment information has been restated.

23. APPROVAL OF THE FINANCIAL STATEMENTS

The interim condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 30 August 2017.

– 24 –

MANAGEMENT DISCUSSION & ANALYSIS

I. BUSINESS REVIEW

For the six months ended 30 June 2017, the Group sold 5,095,860 sets of mobile phones, representing a decrease of 108,240 sets or 2.08% as compared with 5,204,100 sets for the same period of 2016. Operating revenue for the first half of 2017 amounted to RMB7,691,321,980, representing an increase of RMB135,609,080 or 1.79% from RMB7,555,712,900 for the same period of 2016. Net profit for the first half of 2017 amounted to RMB150,174,380, representing a decrease of RMB4,926,590 or 3.18% from RMB155,100,970 for the same period of 2016.

II. FINANCIAL POSITION AND OPERATING RESULTS

(i) Overview

For the six months ended 30 June 2017, the Group recorded a net profit of RMB150,174,380, representing a decrease of RMB4,926,590 or 3.18% from RMB155,100,970 for the same period of 2016. In particular, net profit attributable to equity owners of the Company for the period amounted to RMB149,539,400, representing a decrease of RMB6,194,010 or 3.98% from RMB155,733,410 for the same period of 2016.

– 25 –

(ii) Consolidated comprehensive income statement

The following table sets forth selected items in our consolidated comprehensive income statement for the periods indicated. Our operating results have fluctuated in the past and may continue to fluctuate in future. Therefore, direct comparison of our operating results for different periods may not be appropriate, and our past performance may not be a reliable indicator of our future operating results.

Item	For the six months	For the six months	ended 30 June
			Change of	Rate of
	2016	2017	amount	change
	RMB’000	RMB’000	RMB’000
Operating revenue	7,555,712.90	7,691,321.98	135,609.08	1.79%
Cost of sales	(6,639,242.79)	(6,688,565.98)	(49,323.19)	0.74%
Gross profit	916,470.11	1,002,756.00	86,285.89	9.42%
Other income and gains	72,855.70	28,855.68	(44,000.02)	(60.39%)
Selling and distribution
expenses	(556,114.65)	(552,069.60)	4,045.05	(0.73%)
Administrative expenses	(164,489.28)	(160,621.21)	3,868.07	(2.35%)
Other expenses	(23,758.88)	(48,314.70)	(24,555.82)	103.35%
Finance costs	(52,924.61)	(85,436.58)	(32,511.97)	61.43%
Investment gains	(545.97)	784.99	1,330.96	(243.78%)
Profit before tax	191,492.42	185,954.58	(5,537.84)	(2.89%)
Income tax expenses	(36,391.45)	(35,780.20)	611.25	(1.68%)
Total net profit for the year
after taxation	155,100.97	150,174.38	(4,926.59)	(3.18%)
Net Profit attributable to the
parent company	155,733.41	149,539.40	(6,194.01)	(3.98%)
Equity attributable to minority
shareholders	(632.44)	634.98	1,267.42	(200.40%)

– 26 –

1. Operating revenue

Operating revenue of the Group for the six months ended 30 June 2017 amounted to RMB7,691,321,980, representing an increase of RMB135,609,080 or 1.79% from RMB7,555,712,900 for the same period in 2016. Increase in revenue mainly resulted from an increase in income from sales of our franchise business which was mainly due to the increase in the number of franchisees. Our sales of mobile telecommunications devices and accessories included (i) sales of our retail business; (ii) sales of our franchised business; and (iii) sales of our wholesale business. Revenue from our retail business included revenue from sales of mobile telecommunications devices and accessories in our independently operated stores, instore shops, stores in cooperation with the mobile carriers, and online sales platforms. Revenue from our franchise business included revenue from sales of mobile telecommunications devices and accessories to our franchisees. Revenue from our wholesale business included revenue from sales of mobile telecommunications devices and accessories we distributed to mobile carriers and other third party retailers.

The following table sets forth information relating to our operating revenue for the periods indicated:

Item (1) Sales of mobile telecommunications devices and accessories Including: Sales from retail of mobile telecommunications devices and accessories Sales of telecommunications devices and accessories to franchisees Wholesale of mobile telecommunications devices and accessories (2) Service income from mobile carriers (3) Other service fee income Total	For the six months ended 30 June 2016 2017 RMB’000 % of total revenue RMB’000 % of total revenue 7,231,062.68 95.71% 7,362,789.02 95.73% 4,119,784.91 54.53% 4,123,597.58 53.62% 1,210,555.49 16.02% 1,365,307.06 17.75% 1,900,722.28 25.16% 1,873,884.38 24.36% 275,287.83 3.64% 276,983.45 3.60% 49,362.39 0.65% 51,549.51 0.67% 7,555,712.90 100.00% 7,691,321.98 100.00%	Change of amount RMB’000 131,726.34 3,812.67 154,751.57 (26,837.90) 1,695.62 2,187.12 135,609.08	Rate of change 1.82% 0.09% 12.78% (1.41%) 0.62% 4.43%
			1.79%

The Group’s service income from mobile carriers amounted to RMB276,983,450 for the six months ended 30 June 2017, representing an increase of RMB1,695,620 or 0.62% from the service income from mobile carriers of RMB275,287,830 for the same period in 2016. The increase of the service income from mobile carriers was attributable to the improvement in the cooperation with the three major mobile carriers in 2017.

– 27 –

The following table sets forth our service income from each of the major mobile carriers for the first half of 2016 and the first half of 2017:

Item China Mobile China Unicom China Telecom Dixintong Telecommunications Services Total	For 2016 RMB’000 % of total revenue 109,801.22 39.89% 46,638.87 16.94% 118,818.28 43.16% 29.46 0.01% 275,287.83 100.00%	the six months ended 30 June 2017 Change of amount RMB’000 % of total revenue RMB’000 127,145.08 45.91% 17,343.86 24,826.25 8.96% (21,812.62) 124,972.44 45.12% 6,154.16 39.68 0.01% 10.22 276,983.45 100.00% 1,695.62	Rate of change 15.80% (46.77%) 5.18% 34.69% 0.62%

“Dixintong Telecommunications Services” refers to Beijing Dixintong Telecommunications Services Co., Ltd. (北京迪信通通信服務有限公司), a related party of the Company. For details of related party transactions, please refer to the sub-section headed “Related Party Transactions” in this section.

2. Cost of sales

The Group’s cost of sales for the six months ended 30 June 2017 amounted to RMB6,688,565,980, representing an increase of RMB49,323,190 or 0.74% from the cost of sales of RMB6,639,242,790 for the same period in 2016, which was mainly due to the growth in operating revenue.

The following table sets forth information relating to our cost of sales for the periods indicated:

Item For the six months ended 30 June 2016 2017 Change of amount RMB’000 % of total revenue RMB’000 % of total revenue RMB’000 (1) Sales of mobile telecommunications devices and accessories 6,583,440.30 99.16% 6,654,160.12 99.49% 70,719.82 Including: Sales from retail of mobile telecommunications devices and accessories 3,536,974.44 53.27% 3,505,073.72 52.41% (31,900.71) Sales of telecommunications devices and accessories to franchisees 1,184,807.72 17.85% 1,325,108.80 19.81% 140,301.08 Wholesale of mobile telecommunications devices and accessories 1,861,658.14 28.04% 1,823,977.60 27.27% (37,680.54) (2) Service income from mobile carriers 54,181.71 0.82% 32,913.27 0.49% (21,268.44) (3) Other service fee income 1,620.78 0.02% 1,492.59 0.02% (128.19) Total 6,639,242.79 100.00% 6,688,565.98 100.00% 49,323.19

Rate of change 1.07% (0.90%) 11.84% (2.02%) (39.25%) (7.91%)

0.74%

– 28 –

3. Gross profit and gross profit margin

Gross profit represents operating revenue net of cost of sales. The Group’s gross profit for the six months ended 30 June 2017 amounted to RMB1,002,756,000, representing an increase of RMB86,285,890 or 9.42%, from RMB916,470,110 for the same period in 2016. Our overall gross profit margins for the six months ended 30 June 2016 and 2017 were 12.13% and 13.04%, respectively. Increase in our overall gross profit margin as compared with the same period of 2016 was primarily driven by an increase in gross profit margin for sales of mobile telecommunications devices and accessories. The increase in our gross profit margin for sales of mobiles telecommunications devices and accessories was primarily attributable to the increase in the sales portion of mobiles from domestic manufactures, which has higher gross profit rate.

Item Gross profit RMB’000 (1) Sales of mobile telecommunications devices and accessories 647,622.38 Including: Sales from retail of mobile telecommunications devices and accessories 582,810.47 Sales of telecommunications devices and accessories to franchisees 25,747.77 Wholesale of mobile telecommunications devices and accessories 39,064.14 (2) Service income from mobile carriers 221,106.12 (3) Other service fee income 47,741.61 Total 916,470.11	For the six months ended 30 June 2016 2017 % of total gross profit Gross profit margin Gross profit % of total gross profit Gross profit margin RMB’000 70.66% 8.96% 708,628.90 70.67% 9.62% 63.59% 14.15% 618,523.86 61.68% 15.00% 2.81% 2.13% 40,198.26 4.01% 2.94% 4.26% 2.06% 49,906.78 4.98% 2.66% 24.13% 80.32% 244,070.18 24.34% 88.12% 5.21% 96.72% 50,056.92 4.99% 97.10% 100.00% 12.13% 1,002,756.00 100.00% 13.04%	Change of amount RMB’000 61,006.52 35,713.39 14,450.49 10,842.64 22,964.06 2,315.31 86,285.89	Rate of change 9.42% 6.13% 56.12% 27.76% 10.39% 4.85%
			9.42%

– 29 –

4. Sales volume and average selling price of mobile handsets

The following table sets forth information about our sales of mobile handsets, sales volume and average selling price of mobile handsets during the periods indicated:

Item Sales of mobile handsets (in RMB thousands) Sales volume (in handsets) Average selling price (RMB/per handset)	2016 6,893,293.64 5,204,102.00 1,324.59	For the six months ended 30 June 2017 Change of amount Rate of change 7,114,118.51 220,824.87 3.20% 5,095,861.00 (108,241.00) (2.08%) 1,396.06 71.47 5.40%

5. Other income and gains

Other income and gains include: (i) interest income; (ii) government grants; (iii) gain on disposal of a subsidiary; and (iv) others. The Group’s other income and gains for the six months ended 30 June 2017 amounted to RMB28,855,680, representing a decrease of RMB44,000,020 or 60.39% from RMB72,855,700 for the same period in 2016. The decrease in other income and gains was primarily attributable to a decrease in both interest income and government grants for the first half of 2017.

The following table sets forth information relating to other income and gains for the periods indicated:

Item Interest income Government grants Gain on disposal of a subsidiary Others Total	For the six months ended 30 June 2016 2017 Change of amount Rate of change RMB’000 RMB’000 RMB’000 11,022.40 5,605.19 (5,417.21) (49.15%) 59,705.68 21,843.05 (37,862.63) (63.42%) 1.14 – (1.14) (100.00%) 2,126.48 1,407.44 (719.04) (33.81%) 72,855.70 28,855.68 (44,000.02) (60.39%)

– 30 –

6. Selling and distribution expenses

Item Staff salaries Office expenses Travelling expenses Transportation expenses Business entertainment expenses Communication expenses Rentals and property management expenses Repair expenses Advertising and promotion expenses Depreciation expenses Amortization of long-term deferred expenses Amortization of low-cost consumables Market management fees Utilities Others Total	For the six months ended 30 June Selling and distribution expenses % of total expenses 2016 2017 2016 2017 RMB’000 RMB’000 217,790.17 225,934.95 39.17% 40.93% 5,832.00 6,029.57 1.05% 1.09% 3,828.99 3,693.73 0.69% 0.67% 8,183.69 8,121.32 1.47% 1.47% 2,009.73 1,752.83 0.36% 0.32% 1,590.18 1,726.73 0.29% 0.31% 191,594.74 194,685.29 34.45% 35.26% 2,353.45 2,566.21 0.42% 0.46% 41,748.49 41,749.28 7.51% 7.56% 4,010.55 3,806.02 0.72% 0.69% 36,200.75 22,640.78 6.51% 4.10% 1,845.43 1,673.55 0.33% 0.30% 10,662.12 10,809.45 1.92% 1.96% 16,205.17 16,393.21 2.91% 2.97% 12,259.19 10,486.68 2.20% 1.90% 556,114.65 552,069.60 100.00% 100.00%	Change of amount RMB’000 8,144.78 197.57 (135.26) (62.37) (256.90) 136.55 3,090.55 212.76 0.79 (204.53) (13,559.97) (171.88) 147.33 188.04 (1,772.51) (4,045.05)	Rate of change 3.74% 3.39% (3.53%) (0.76%) (12.78%) 8.59% 1.61% 9.04% 0.00% (5.10%) (37.46%) (9.31%) 1.38% 1.16% (14.46%)
			(0.73%)

Total selling and distribution expenses for the six months ended 30 June 2017 amounted to RMB552,069,600, representing a decrease of RMB4,045,050 or 0.73% from the total selling and distribution expenses of RMB556,114,650 for the same period in 2016, which was mainly due to the combined influence of a decrease in amortization of long-term deferred expenses and an increase in staff salaries.

Total staff salaries for the six months ended 30 June 2017 amounted to RMB225,934,950, representing an increase of RMB8,144,780 or 3.74% from the total staff salaries of RMB217,790,170 for the same period in 2016. Such increase was attributable to the increase in the number of marketing staffs for our business expansion and development in the average salaries and benefits for them.

Total amortization of long-term deferred expenses for the six months ended 30 June 2017 amounted to RMB22,640,780, representing a decrease of RMB13,559,970 or 37.46% from the total amortization of long-term deferred expenses of RMB36,200,750 for the same period in 2016. Such decrease was attributable to the increased decoration expenses assumed by the handsets manufacturers in line with the increased number of brand zones in our stores for them.

– 31 –

7. Administrative expenses

Item Staff salaries Tax expenses Office expenses Depreciation expenses Amortization of intangible assets Amortization of long-term deferred expenses Amortization of low-cost consumables Travelling expenses Rental and property management fees Business entertainment expenses Communication expenses Agency fees Transportation expenses Financial institution charges Others Total	For the six months ended 30 June Administrative expenses % of total expenses 2016 2017 2016 2017 RMB’000 RMB’000 73,777.44 72,060.94 44.85% 44.86% 3,809.70 – 2.32% 0.00% 4,317.02 4,258.97 2.62% 2.65% 5,098.27 6,351.34 3.10% 3.95% 302.11 290.46 0.18% 0.18% 813.32 747.98 0.49% 0.47% 2,470.68 2,236.98 1.50% 1.39% 7,393.72 6,761.39 4.49% 4.21% 7,266.84 6,242.60 4.42% 3.89% 4,352.19 3,627.06 2.65% 2.26% 2,136.28 1,878.68 1.30% 1.17% 13,845.12 8,714.23 8.42% 5.43% 8,456.63 6,782.56 5.14% 4.22% 20,824.48 31,155.32 12.66% 19.40% 9,625.48 9,512.70 5.86% 5.92% 164,489.28 160,621.21 100.00% 100.00%	Change of amount RMB’000 (1,716.50) (3,809.70) (58.05) 1,253.07 (11.65) (65.34) (233.70) (632.33) (1,024.24) (725.13) (257.60) (5,130.89) (1,674.07) 10,330.84 (112.78) (3,868.07)	Rate of change (2.33%) (100.00%) (1.34%) 24.58% (3.86%) (8.03%) (9.46%) (8.55%) (14.09%) (16.66%) (12.06%) (37.06%) (19.80%) 49.61% (1.17%)
			(2.35%)

The Group’s total administrative expenses for the six months ended 30 June 2017 amounted to RMB160,621,210, representing a decrease of RMB3,868,070 or 2.35% from RMB164,489,280 for the same period in 2016. Such decrease in administrative expenses was primarily attributable to the following fluctuations:

For the six months ended 30 June 2017, total staff salaries amounted to RMB72,060,940, representing a decrease of RMB1,716,500, or 2.33% as compared to the total staff salaries of RMB73,777,440 for the corresponding period in 2016. The decrease was due to the reduction of the number of the back-office staff members.

For the six months ended 30 June 2017, total rents and property management fees amounted to RMB6,242,600, representing a decrease of RMB1,024,240, or 14.09% as compared to the total rents and property management fees of RMB7,266,840 for the corresponding period in 2016. The decrease was due to the rental reduction for the offices, as more branches of the Group shared the offices.

– 32 –

For the six months ended 30 June 2017, total agency fees amounted to RMB8,714,230, representing a decrease of RMB5,130,890, or 37.06% as compared to the total agency fee of RMB13,845,120 for the corresponding period in 2016. During the first half of 2016, the Group assumed a large amount of expenses for the consultations for the preparation of issuance of bonds and investment in Indian companies. In the first half of 2017, with the completion of issuance of bonds and great progress in the investment in Indian companies, the consultation fee sharply decreased.

Total financial institution charges for the six months ended 30 June 2017 amounted to RMB31,155,320, representing an increase of RMB10,330,840 or 49.61% from RMB20,824,480 for the same period in 2016. The increase was mainly attributable to an increase in handling fee resulting from an upsurge in popularity of payment methods such as WeChat Payment and Alipay.

8. Finance costs

Item Finance costs – interest expense	For 2016 RMB’000 52,924.61	the six months ended 30 June 2017 Change of amount Rate of change RMB’000 RMB’000 85,436.58 32,511.97 61.43%

The Group’s total finance costs for the six months ended 30 June 2017 amounted to RMB85,436,580, representing an increase of RMB32,511,970 or 61.43% from RMB52,924,610 for the same period in 2016. Such increase in finance costs was primarily attributable to the increase in interest rate on the current short-term borrowings, increase in the current short-term borrowings and increase in interest payment for the bonds issued in the current period.

As of 30 June 2017, the Group has short-term borrowings with fixed interest of RMB3,102,330,320.

– 33 –

9. Other expenses

Other expenses included impairment losses on assets, non-operating expenses and exchange losses. For the six months ended 30 June 2016 and 2017, other expenses of the Company amounted to RMB23,758,880 and RMB48,314,700, respectively.

Item Impairment losses on assets Non-operating expenses Exchange losses Total	For the six months ended 30 June 2016 2017 Change of amount Rate of change RMB’000 RMB’000 RMB’000 22,493.94 43,171.41 20,677.47 91.92% 1,264.94 4,076.37 2,811.43 222.26% – 1,066.92 1,066.92 – 23,758.88 48,314.70 24,555.82 103.35%

The Group’s total other expenses for the six months ended 30 June 2017 amounted to RMB48,314,700, representing an increase of RMB24,555,820, or 103.35% from RMB23,758,880 for the same period in 2016, which was mainly attributable to an increase in impairment losses on assets resulting from an increase in balance of inventory, trade and other receivables for the current period. Loss from closure of unprofitable shops for the current period has increased our non-operating expenses.

10. Income tax expense

Our income tax expenses for the stated periods included PRC Enterprise Income Tax and deferred income tax for the year. The following table sets forth information relating to our income tax expenses for the periods indicated:

Item Current tax: Income tax in the PRC for the year Deferred tax Total	For the six months ended 30 June 2016 2017 Change of amount Rate of change RMB’000 RMB’000 RMB’000 16,513.40 36,362.04 19,848.64 120.20% 19,878.05 (581.84) (20,459.89) (102.93%) 36,391.45 35,780.20 (611.25) (1.68%)

– 34 –

The Group’s total income tax for the six months ended 30 June 2017 amounted to RMB35,780,200, representing a decrease of RMB611,250 or 1.68% as compared with RMB36,391,450 for the same period of 2016. Such decrease was primarily attributable to a decrease in profit before tax.

11. Indebtedness – bank and other borrowings

As of 30 June 2017, our bank borrowings were primarily short term in nature, repayable within one year, and other borrowings repayable within three years. The following table sets forth our outstanding borrowing as of the dates indicated:

Bank loans: Unsecured, repayable within one year Secured, repayable within one year Current portion of long term bank loans – unsecured Corporate bond: Non-current portion The bank loans bear interest at rates per annum in the range of	31 December 2016 RMB’000 1,598,473.59 1,409,928.95 48,000.00 3,056,402.54 – 3,056,402.54 2.50% – 6.40%	30 June 2017 RMB’000 871,000.00 2,223,498.51 47,000.00
		3,141,498.51 595,831.81
		3,737,330.32
		0.79% – 6.90%

As of 30 June 2017, we entered into various loan agreements with banks to finance our business operations and expansion. These bank loans were repayable within one year or on demand. These bank loans were variable-rate bank loans which carried interest at the People’s Bank of China benchmark rate plus a premium. We mainly used these bank loans to purchase mobile telecommunication devices and accessories.

Our bank loans and other borrowings as of 30 June 2017 amounted to RMB3,737,330,320, representing an increase of RMB680,927,780 or 22.27% from RMB3,056,402,540 as of 31 December 2016. Such increase was primarily due to the enhanced financing demands resulted from the development of our business.

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We are subject to certain customary restrictive covenants pursuant to our loan agreements with the banks. Subject to certain exceptions and waivers, these covenants may restrict our ability to (i) incur additional indebtedness; (ii) make major change to our corporate structure, such as to undertake or encourage joint venture, mergers and acquisitions, consolidations, reduction of registered share capital and reorganisations or make other changes such as liquidation or dissolution; (iii) sell, transfer or dispose of material assets; and (iv) make investments and engage in certain transactions with affiliates or subsidiaries.

On 5 April 2017, we issued a corporate bond with a maturity of three years in an aggregate amount of RMB600,000,000, which bear interest at 7.50% per annum. The interest is payable annually in arrears and the maturity date is 5 April 2020.

Our Directors confirmed that as of 30 June 2017 and up to the date of this announcement, we did not have any material default in payment of trade and non-trade payables and bank borrowings, nor did we breach any financial covenants. Save as disclosed herein, the agreements under our banking borrowings do not contain any covenant that will have a material adverse effect on our ability to make additional borrowings or issue debt or equity securities in the future. Except as disclosed in “Financial Information – Indebtedness” above, we did not have outstanding mortgages, charges, debentures, loan capital, bank overdrafts, loans, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding as of 30 June 2017, being the latest practicable date for our indebtedness statement.

(iii) Current assets and financial position

As of 30 June 2017, the Group had cash and cash equivalents in an amount of RMB470,502,110, representing a decrease of RMB314,253,150 or 40.04% as compared to RMB784,755,260 as of 31 December 2016.

As of 30 June 2017, the Group had bank and other borrowings in an amount of RMB3,737,330,320, representing an increase of RMB680,927,780 or 22.27% as compared to RMB3,056,402,540 as of 31 December 2016.

(iv) Capital expenditure

For the six months ended 30 June 2017, the Group’s capital expenditure amounted to RMB19,798,520, which primarily included costs in relation to purchase and construction of fixed assets and decoration costs in connection with the opening of new outlets and the renovation of old ones.

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(v) Related party transactions

The following table provides the total amount of transactions that have been entered into with related parties during the six months ended 30 June 2017 and 2016, as well as balances with related parties as at 30 June 2017 and 31 December 2016:

				Amounts	Amounts
		Sales to	Purchase	owed by	owed to
		related	from related	related	related
		parties(i)	parties(i)	parties	parties
		RMB’000	RMB’000	RMB’000	RMB’000
Associates:
Shenzhen Dixinjuhe Communications	2017	–	13,274.62	–	16,901.63
Co., Ltd.1	2016	2,198.00	–	–	1,830.58
Shanxi Hartcourt Intermediation	2017	–	–	–	666.60
Information Technology Co., Ltd2	2016	–	–	–	666.60
Shanghai Diju Information	2017	19,965.85	–	15,625.93	–
Technology Co., Ltd.3	2016	–	–	–	–
Joint ventures:
Hollard-D.Phone (Beijing)	2017	–	13,692.94	4,782.07	83.94
Technology Development	2016	–	29,825.00	49.95	6,264.10
Co., Ltd.4
Guangzhou Zhongqi Energy	2017	28,021.57	5,022.34	26,890.50	972.77
Technology Limited Company4	2016	–	–	7,919.31	–
Fellow subsidiary:
Beijing Dphone Communication	2017	91.33	–	4,239.34	136.41
Services Co., Ltd.5	2016	63.00	–	4,806.47	87.60
A company significantly influenced
by the controlling shareholders
Beijing Tianxingyuanjing Technology	2017	2,267.31	–	586.84	–
Development Co., Ltd.6	2016	3,774.00	41.00	728.55	–

1 The investment in the associated venture entity, Shenzhen Dixinjuhe Communications Co., Ltd. is directly held by the Company.

• 2 The investment in the associated venture entity, Shanxi Hartcourt Intermediation Information Technology Co., Ltd. is directly held by Shanghai Dixin Electronic Communication Technology Co., Ltd. which is a subsidiary of the Group.

• 3 The investment in the associated venture entity, Shanghai Diju Information Technology Co., Ltd. is directly held by Shanghai Chuanda Communication Technology Co., Ltd. which is a subsidiary of the Group.

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• 4 The investments in the joint venture entities, Hollard-D.Phone (Beijing) Technology Development Co., Ltd. and Guangzhou Zhongqi Energy Technology Co., Ltd are directly held by the Company.

• 5 The investment in the fellow subsidiary entity, Beijing Dphone Communication Services Co., Ltd. is directly held by the controlling shareholder of the Company.

• 6 The investment in the entity, Beijing Tianxingyuanjing Technology Development Co., Ltd. is held by Mr. Liu Donghai and Mr. Jinxin, who are the controlling shareholder and CEO of the Company, respectively. They hold 25% equity interest aggregately and have significant influence over the entity.

The Board is of opinion that such related party transactions were based on normal commercial terms and conducted on an arm’s length basis.

(vi) Key financial ratios

The following table sets out our current ratios, debt-to-equity ratios and gearing ratio as of the dates indicated:

Item 31 December 2016 Current ratio 1.69 Gearing ratio 41.75% Net debt-to-equity ratio 71.67%	30 June 2017 1.86 49.47% 97.89%	Change 0.17 7.72% 26.22%	Rate of change 10.06% 18.49% 36.58%

Current ratio is calculated by our current assets divided by our current liabilities at the end of each financial period. Our current ratio was 1.86 as at 30 June 2017, representing an increase of 0.17, or 10.06%, as compared to 1.69 as at 31 December 2016.

Gearing ratio is calculated by net debt divided by net debt plus total equity as of the end of each financial period and multiplied by 100%. Net debt includes interest-bearing bank loans and other borrowings, less cash and cash equivalents. As of 30 June 2017, the gearing ratio of the Group increased by 7.72 percentage points from 41.75% as of 31 December 2016 to 49.47%, representing an increase of 18.49%, which was mainly due to the successful issuance of corporate bonds in the first half of 2017.

Net debt-to-equity ratio equals to net debt divided by total equity as of the end of the period and multiplied by 100%. Our net debt-to-equity ratio increased by 26.22 percentage points from 71.67% as of 31 December 2016 to the net debt-to-equity ratio of 97.89% as of 30 June 2017, representing an increase of 36.58%, which was mainly due to the successful issuance of bonds in the first half of 2017.

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(vii) Material acquisitions and disposals

For details of the Group’s material acquisitions for the six months ended 30 June 2017, please refer to sub-section headed “(xii) Material Investments” in this section.

(viii) Contingent liabilities

As of 30 June 2017, the Group had no material contingent liabilities.

(ix) Use of proceeds

As of 30 June 2017, we had completed the global offering of 166,667,000 H shares at an offer price of HK$5.30 per share in Hong Kong in 2014, raising proceeds with an aggregate amount of HK$883,335,100. The raised proceeds has been placed in a special account.

The following table sets forth details of funds in the special account for the raised proceeds as of 30 June 2017:

		Account
Account holder	Banker	number	Balance
			HK$’000
Beijing Digital Telecom	Standard Chartered Bank
Co., Ltd.	(Hong Kong) Limited	44717867377	6,979.01

As of 30 June 2017, HK$876,356,080 out of the net proceeds had been utilized. As of 30 June 2017, the balance of the special account for raised proceeds amounted to HK$6,979,010 (including interest accruing on the special account of HK$10,370).

In order to regulate the management of raised proceeds and protect investors’ interests, the Company has formulated the “Regulations for the Management of Issues Proceeds of Beijing Digital Telecom Co., Ltd.” to set out specific provisions for the deposit, utilization, management of fund application and supervision of use.

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In accordance with the plan for the public offering, proceeds from the public offering of shares will be applied as to approximately 54% in the expansion of our retail and distribution network, approximately 14% in the repayment of bank loans, approximately 6% in the upgrading of information systems for further enhancement of our management ability, approximately 4% in the upgrading of existing outlets and establishment of new call centers and new after-sales services system in the PRC, approximately 5% in multi-functional mobile internet projects and approximately 9% as working capital and for other general corporate purpose. The applications of our raised proceeds as of 30 June 2017 are set out in the following table:

Item Expansion of retail and distribution network Repayment of bank borrowings Upgrade of information system to further improve management capability Upgrade of existing outlets and establishment of new call centers and new after-sales services system in the PRC Undertaking multi-functional mobile internet projects Working capital and other general corporate purpose Payment of listing agency fees Total	Amount paid HK$’000 472,414.94 118,703.28 55,584.09 34,472.32 44,060.18 79,457.73 71,663.54 876,356.08	Percentage 53.91% 13.54% 6.34% 3.93% 5.03% 9.07% 8.18%
		100.00%

(x) Foreign exchange rate risks

The Group is not exposed to risks in connection with fluctuations of exchange rates and relevant hedging.

(xi) Pledge of assets

As at 30 June 2017, the Group did not have any charge on assets.

(xii) Material investments

As of 30 June 2017, the Group did not have any material investment.

(xiii) Equity arrangements

For the six months ended 30 June 2017, no equity subscription was conducted by the Group. As of the date of this announcement, no equity scheme was made by the Group.

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(xiv) Capital

No material change occurred in the capital structure of the Company since its listing date.

(xv) Future material investment

On 17 April, 2017, a resolution relating to “The Formation of a Wholly-owned Subsidiary, Guangzhou Dichengtong Internet Micro Loan Co., Ltd. ( 廣州市迪誠 通網絡小額貸款有限公司) (hereinafter referred as “Dicheng Micro Loan”)” was considered and approved at the 27th meeting of the second session of the Board of the Company. The registered capital of Dicheng Micro Loan will be RMB300 million and the principal business of the company is to provide small loans including consumer loans, supply chain financing, and lines of credit. The potential clients will mainly be the end consumers within the Beijing Digital’s chain ecosystem for mobile handsets, the staff members of Beijing Digital and small and medium enterprises. The registered capital of Dicheng Micro Loan was funded from the Group’s internal resources.

(xvi) Employees and remunerations policies

As of 30 June 2017, the Group had 7,354 employees. Salary costs and employees’ benefit expenses were approximately RMB297,995,890 for the six months ended 30 June 2017. Remunerations for our existing employees include salaries, performance-based bonus, social insurance and housing provident fund. The Company also has various trainings for our employees, including professional qualities training, product and business information training, and management skills training, conducted mainly through online learning, conferences and skillspecific training programmes.

BUSINESS OUTLOOK FOR THE SECOND HALF OF 2017

For the year of 2017, 4G communication market will substantially be stable. While attracting new customers, the carriers will also put more focus on retaining their existing customers. Domestic handset manufacturers increasingly value the importance of opening physical outlets and the competition among various brands has become keener. Facing such changes in the market, we have to enhance the Company’s performances with the focus on the following aspects:

(1) To prioritize the improvement on the profitability of the physical retail outlets

On the one hand, we shall increase the profitability in existing outlets by provision of training to our staff members, negotiation for rent reduction with the landlords and cooperation with the manufacturers. On the other hand, we shall open more self-owned shops in suitable cities at county level in order to increase our market shares.

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• (2) To develop our physical outlets steadily and at the same time continue to increase the proportion of our online business in order to further realize the integration of our online to offline (“OTO”) business

In 2017, we shall take advantage of the competitive edges of our extensive geographical coverage to generate more business to our physical outlets by using such online resources as our official website, mobile stores, credit card shopping, television shopping channels and Tmall’s flagship stores to realize the synergy effect of OTO.

(3) To enhance our cooperation with three major mobile carriers on product supply and expand into a new market

On the one hand, we shall jointly operate our outlets with the mobile carriers, and on the other hand, take advantage of the business opportunities brought by the growth of 4G business to increase our supply to the mobile carriers. Through our mobile points of sale, we shall go to the communities and enter wholesale market to conclude more contracts with potential customers, sell more mobile handsets and accessories and provide more communication services for the convenience of the public.

To support China Mobile Group’s “IOT” (Internet of Things) strategy, we shall vigorously develop and apply new business and expand the sale of unmanned flying vehicles and other services.

(4) To continue enhancing our brand value

In 2017, with reliance on the sales and distribution ability of the network of our own self-owned shops and franchisees, we shall vigorously develop our own brands in order to realize the growth in scale and efficiency.

(5) To improve our services and increase the influence of our brand

In 2016, we introduced customer service hotline to help our end users to solve the problems they might face. Our concept of “full-hearted loyalty” has been well received by our customers and has accumulated a large number of fans of Beijing Digital. In 2017, we shall continue to eagerly pursue the “full-hearted loyalty” concept in order to enhance our prestige and reputation through high-quality customer services, so as to enhance the Group’s brand influence and ultimately increase sales.

(6) To continue expanding into oversea retail markets of mobile handsets

In 2016, the Group commenced the preparation of entering to India market and cooperated with Transsion to expand into African market. During the first half of 2017, we performed well in African market and steady growth is expected for the second half of 2017.

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• (7) To introduce revolutionary retail concept in the mobile telecommunications devices industry by providing customers new shopping experience

During the first half of 2017, we opened the brand new D. Phone UP+ stores in a number of cities, such as Beijing and Shanghai. Unlike the traditional retail stores, the new concept stores provide customers unrivaled shopping experience through innovative, personalized and ingenious intelligent products as well as cozy interior design for interaction.

INTERIM DIVIDEND

The Board does not recommend any interim dividend for the six months ended 30 June 2017.

CORPORATE GOVERNANCE PRACTICES

The Company has adopted the Corporate Governance Code and Corporate Governance Report (the “ CG Code ”) contained in Appendix 14 to the Listing Rules as its own code of corporate governance. During the six months ended 30 June 2017, save as disclosed in this announcement, the Company has complied with all the code provisions of the CG Code and adopted most of the best practice set out therein.

Under code provision A.2.1 of the CG Code, the roles of chairman and chief executive officer should be separate and performed by different individuals, but due to Mr. Liu Donghai’s background, qualifications and experience in the Company, he is considered the most suitable person to take both roles under the current circumstances. The Board is of the view that it is appropriate and in the best interests of the Company that Mr. Liu Donghai holds both positions at the current stage, as it helps to maintain the continuity of the policies and the stability and efficiency of the operations of the Company. The Board also meets regularly on a quarterly basis to review the operations of the Company led by Mr. Liu Donghai. Accordingly, the Board believes that this arrangement will not affect the balance of power and authorizations between the Board and the management of the Company. The Company will continue to review and enhance its corporate governance practices to ensure compliance with the CG Code.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code as set out in Appendix 10 to the Listing Rules as its code of conduct regarding Directors’ and Supervisors’ securities transactions. Specific enquiries have been made to all Directors and Supervisors, all of the Directors and Supervisors has confirmed that they have complied with the standard requirements set out in the Model Code during the six months ended 30 June 2017.

During the six months ended 30 June 2017, the Company has also adopted its own code of conduct regarding employees’ securities transactions on terms no less exacting than the standards set out in the Model Code for the compliance by its relevant employees who are likely to be in possession of unpublished inside information of the Company in respect of their dealings in the Company’s securities.

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PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES

During the six months ended 30 June 2017, neither the Company nor its subsidiaries has purchased, redeemed or sold any of the Company’s listed securities.

AUDIT COMMITTEE

The Board has established an audit committee (the “ Audit Committee ”) which comprises three Independent Non-executive Directors, namely Mr. Vincent Man Choi, Li (the chairman), Mr. Bian Yongzhuang and Mr. Lv Tingjie.

The Audit Committee, together with the management of the Company and the external auditor, has reviewed the unaudited condensed consolidated interim results of the Group for the six months ended 30 June 2017.

PUBLICATION OF INTERIM RESULTS AND INTERIM REPORT

This interim results announcement is published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.dixintong.com). The Company’s 2017 interim report containing all the information required under the Listing Rules will be dispatched to the shareholders of the Company and will be published on the respective websites of the Stock Exchange and the Company in due course.

By order of the Board Beijing Digital Telecom Co., Ltd. LIU Donghai Chairman and executive Director

Beijing, August 30, 2017

As at the date of this announcement, the executive Directors are Mr. LIU Donghai, Mr. LIU Yajun, Mr. LIU Songshan and Ms. LIU Wencui; the non-executive Director are Mr. QI Xiangdong and Ms. ZHANG Yunfei; and the independent non-executive Directors are Mr. LV Tingjie, Mr. BIAN Yongzhuang and Mr. Vincent Man Choi, LI.

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