CITIC LI M IT ED Annual Report 2017 CITIC LIMITED ANNUAL REPORT 2017 CITIC Limited Registered Office 32nd Floor, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong Tel +852 2820 2111 HTML Fax +852 2877 2771 www.citic.com Stock code : 00267 OUR COMPANY CITIC Limited (SEHK: 00267) is China’s largest conglomerate and a constituent of the Hang Seng Index. Among our diverse global businesses, we focus primarily on financial services, resources and energy, manufacturing, engineering contracting and real estate. As China’s economy matures and is increasingly weighted towards consumption and services, CITIC is building upon its existing consumer platform, expanding into complementary businesses that reflect these trends and opportunities. Tracing our roots to the beginning of China’s opening and reform, we are driven today by the same values on which we were founded: a pioneering spirit, a commitment to innovation and a focus on the long term. We embrace world- class technologies and aim for international best practice. We are guided by a strategy that is consumer-centric, commercially-driven, and far-sighted in the allocation of capital and resources. Our platform is unique in its diversity and scale, allowing CITIC to capture emerging opportunities in China and around the world. Guiding us as we grow is our fundamental commitment to create long-term value for all of our shareholders. OUR BUSINESSES Financial Services Resources & Energy CITIC Bank (65.97%) CITIC Resources (59.50%) CITIC Trust (100%) CITIC Mining International (100%) CITIC-Prudential (50%) CITIC Metal Group (100%) CITIC Securities (16.50%) Sunburst Energy (100%) Manufacturing Engineering Contracting CITIC Pacific Special Steel (100%) CITIC Construction (100%) CITIC Dicastal (100%) CITIC Engineering Design (100%) CITIC Heavy Industries (67.27%) Real Estate Others CITIC Pacific Properties (100%) CITIC Telecom International (60.08%) CITIC Urban Development & Dah Chong Hong (56.35%) Operation (100%) CITIC Industrial Investment (100%) CITIC Environment (100%) As at 28 February 2018 CONTENTS 2 Highlights 4 Chairman’s Letter to Shareholders OUR BUSINESSES 10 Financial Services 22 Resources and Energy 28 Manufacturing 36 Engineering Contracting 42 Real Estate 48 Others 54 Financial Review 67 Risk Management 73 Corporate Governance 102 Board of Directors 107 Senior Management 108 Report of the Directors 129 Environmental, Social and Governance Report 164 Past Performance and Forward Looking Statements FINANCIAL STATEMENTS 165 Contents of Financial Statements and Notes 166 Consolidated Income Statement 168 Consolidated Statement of Comprehensive Income 169 Consolidated Balance Sheet 171 Consolidated Statement of Changes in Equity 173 Consolidated Cash Flow Statement 175 Notes to the Consolidated Financial Statements 340 Independent Auditor’s Report 351 Corporate Information CITIC Limited Annual Report 2017 1 HIGHLIGHTS Year ended 31 December 2016 Increase/ HK$ million 2017 (Restated) (Decrease) Continuing operations Revenue 450,536 381,662 68,874 Profit before taxation 82,783 70,791 11,992 Profit/(loss) attributable to ordinary shareholders 43,902 43,146 756 – Continuing operations 43,902 32,809 11,093 – Discontinued operations – 10,337 (10,337) Basic earnings per share from (HK$): 1.51 1.48 0.03 – Continuing operations 1.51 1.13 0.38 – Discontinued operations – 0.35 (0.35) Diluted earnings per share from (HK$): 1.51 1.48 0.03 – Continuing operations 1.51 1.13 0.38 – Discontinued operations – 0.35 (0.35) Dividend per share (HK$) 0.36 0.33 0.03 Net cash generated from operating activities 107,133 280,664 (173,531) – Continuing operations 107,133 275,008 (167,875) – Discontinued operations – 5,656 (5,656) Capital expenditure 45,323 48,264 (2,941) As at As at 31 December 31 December 2016 Increase/ 2017 (Restated) (Decrease) Total assets 7,520,739 7,239,489 281,250 Total liabilities 6,727,098 6,542,816 184,282 Total ordinary shareholders’ funds and perpetual capital securities 550,951 491,002 59,949 Return on total assets (%) 1% 1% – Return on net assets (%) 9% 9% – Staff employed 243,036 127,610 115,426 Profit attributable to ordinary shareholders Revenue from from continuing Business assets continuing operations operations Year Year As at 31 ended 31 ended 31 Businesses December Increase/ December Increase/ December Increase/ HK$ million 2017 (Decrease) 2017 (Decrease) 2017 (Decrease) Financial services 6,925,076 195,174 190,028 2,494 39,506 1,100 Resources and energy 129,438 (7,899) 63,456 12,359 (9,900) (3,028) Manufacturing 130,381 34,269 97,432 35,082 3,318 1,578 Engineering contracting 46,127 9,331 14,653 3,630 1,731 56 Real Estate 159,664 16,068 3,227 (1,673) 7,660 5,886 Others 163,835 50,745 81,673 16,950 9,455 7,468 2 CITIC Limited Annual Report 2017 EARNINGS PERSHARE AND PERPETUAL CAPITAL SECURITIES CAPITAL AND PERPETUAL FUNDS SHAREHOLDERS’ ORDINARY TOTAL BUSINESS ASSETS BY 2013 2013 2013 Non-financial businesses services Financial Ordinary funds shareholders’ 1.94 securities capital Perpetual 371,776 13,838 624 4,691 2014 2014 2014 1.60 (Restated) 418,126 13,834 614 5,323 2015 2015 2015 1.58 (Restated) (Restated) 479479,4309,43430 13,836 (Restated) 628 6,211 2016 2016 2016 1.48 HK$ million HK$ billion 483483,1293,12129 7,873 527 6,730 2017 2017 2017 1.51 HK$ 543,078543 078 7,873 629 6,925 ASSETS OFNON-FINANCIALBUSINESSES ORDINARY TO PROFITATTRIBUTABLE PER SHARE FUNDS SHAREHOLDERS’ ORDINARY DIVIDEND PERSHARE 2013 2013 2013 Interim dividendpershare Others Real estate Engineering contracting Manufacturing andenergy Resources 14.93 dividendpershare Final 0.25 0.10 86 230 43 100 165 2014 2014 2014 16.79 0.20 0.015 98 215 44 109 148 2015 2015 2015 16.47 (Restated) 0.20 0.10 (Restated) 114 233 42 97 142 2016 2016 2016 16.61 HK$ billion 0.23 0.10 113 144 37 96 137 2017 2017 2017 HK$ 18.67 HK$ 0.25 0.11 164 160 46130 129 SHAREHOLDERS CITIC Limited 2013 48,430 2014 39,834 Annual Report 2017 2015 41,812 (Restated) 2016 43,146 HK$ million 2017 43,902 3 CHAIRMAN’S LETTER TO SHAREHOLDERS Dear Shareholders, For the year 2017, CITIC Limited recorded a profit offerings with innovative products and services, attributable to ordinary shareholders of HK$43.9 such as its Eco-Financial Cloud platform and a billion compared with HK$43.1 billion in 2016. blockchain-based letter of credit system. CITIC- A non-cash impairment charge of HK$7.2 billion Prudential’s profit increased 50%, driven by on the Sino Iron project in Western Australia growth in premium income. CITIC Trust and CITIC negatively impacted the company’s profit. Securities also registered double digit profit growth in 2017. The board recommends a final dividend payment of HK$0.25 per share, giving shareholders a total In the non-financial sector, profit from our dividend of HK$0.36 per share for the year 2017, manufacturing business grew substantially as a 9% more than last year. result of continued strong performance at CITIC Pacific Special Steel and CITIC Dicastal. In 2017, Review of Business Results our special steel business achieved a record Our financial services segment registered profit of HK$2.1 billion, a 9% year-on-year HK$39.5 billion in profit, 3% more than 2016. increase. During the year, the quality of our CITIC Bank’s profit rose 2% compared with 2016. special steel products continued to improve, Over the last year, the bank focused on asset and with 47% of total production now being in the liability management. The interbank business was high-end category and increasingly chosen for reduced while more resources were allocated to import substitution. In October, we completed the bank’s traditional lending business. During the acquisition of Qingdao Special Steel which the year, the bank further enhanced its fintech took our total annual production capacity to 12 4 CITIC Limited Annual Report 2017 million tonnes. This also expanded our special Our high-grade product continues to gain steel manufacturing footprint in Northern favour due to its low-impurity, exothermic China, enabling us to serve our customers characteristics. This is evident in the higher there more efficiently. premium our product commands in the market. Sino Iron is now the largest seaborne supplier CITIC Dicastal’s profit grew 17% to RMB1.0 billion of magnetite concentrate into China. We expect due to strong demand for both its aluminium demand to grow as national efforts to curb wheels and casting products. Dicastal’s success carbon emissions and reduce pollution take hold. rests on its ability to continually improve its operating efficiency through technology However, as I wrote in my mid-2017 letter to innovation. Its smart production system you, we face other issues that are threatening significantly reduced manufacturing costs and Sino Iron’s future viability. In late January, we improved productivity. CITIC Heavy Industries commenced an appeal against the Supreme Court recorded a profit in 2017, driven by the strong of Western Australia’s judgment concerning Royalty performance of its specialty robotics business Component B. The financial implications of the and improvement in its heavy machinery judgment as it currently stands, along with the need business. for cooperation to secure vital life-of-mine approvals and land access, are serious. The risks to the long- Higher commodity prices benefited our energy term future of the project remain real. and resources businesses. At CITIC Resources profit rose 43%, driven by rising oil prices and The performance of our engineering and management’s continued focus on cost control contracting business division remained stable. and productivity enhancement. CITIC Metal’s CITIC Construction continued to make inroads earnings grew 70%, compared with 2016.