In terms of organization, Hikvision provides shared functional department services to Hikvision. In addition, there are situations in which the Company and related parties pay employee salaries and expense reimbursement on behalf of each other, but these situations have been regulated since the reporting period. Some of the information systems used by the company are even Hikvision’s information systems, and the company says it has adopted isolation measures such as account isolation, data isolation, and leave management.

In addition, during the reporting period, the number of overlapping suppliers of the company and Hikvision increased from 278 to 466, and the procurement accounted for 6.3%, 20.62%, 59.26% and 62.45%, respectively, and the process continued to rise rapidly. During the reporting period, the number of overlapping customers between the company and the parent company increased from 323 to 583, accounting for 10.62%, 13.65%, 11.6% and 12.31% of overlapping customer revenue, respectively.

The second round of questioning, independence and connected transactions continue to be asked.

POWER UNIT

Previously, the company said that after the production line segmentation, the raw materials purchased from related parties are mainly integrated circuit products. However, from January to September in 2021 and 2022, the unit price of some integrated circuit products purchased by the company from related parties was higher than that purchased from non-affiliated suppliers, and the average difference rate of 10 types of integrated circuit products was 8.34%, and the company did not fully explain the reasons for the differences.

The Shenzhen Stock Exchange requires explanation of the reasons for the purchase of the same type of products from related parties and non-related parties at the same time, and the reasons and reasonableness of the purchase price from related parties is higher than that from non-related parties.

The explanation given by the Company is that, on the one hand, the products purchased from Hikvision and its subsidiaries are all in accordance with the pricing rules of related party transactions uniformly formulated within Hikvision Group, that is, the mark-up is carried out on the basis of the reasonable cost of the relevant raw materials purchased by the related party, and the mark-up rate is referred to the transfer pricing data of the related party issued by the professional organization every year.

On the other hand, with the increase of procurement volume during the reporting period, the Company continued to negotiate price reduction with integrated circuit suppliers, and the purchase unit price of the above-mentioned types of integrated circuits decreased. In addition, the overall appreciation trend of RMB from the beginning of 2020 to the end of 2021, and the average unit price during the comparison period is also affected by exchange rate fluctuations.