Important Notice Important Notice I. The Board, the Supervisory Committee and its Directors, Supervisors and senior management warrant that the information contained herein is true, accurate and complete and there are no false representations, misleading statements contained in or material omissions from this annual report, and severally and jointly accept legal liability. II. All the Directors attended the Board meetings. III. The 2019 annual financial report of the Company, prepared in accordance with the China Accounting Standards for Business Enterprises (“CASBE”) and the International Financial Reporting Standards (“IFRS”), was audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu respectively, who each issued a standard unqualified audit report to the Company. Unless otherwise stated, all data included in this report are denominated in RMB. IV. Mr. Pan Xinjun, Chairman of the Company, Mr. Zhang Jianhui, the accounting chief, and Mr. You Wenjie, the person-in-charge of the accounting department (head of the accounting department), warrant the truthfulness, accuracy and completeness of the financial report set out in the annual report. V. The profit distribution proposal or proposal on transfer of capital reserve fund into share capital for the Reporting Period has been reviewed by the Board The profit distribution proposal of the Company for 2019: Based on the total share capital of 6,993,655,803 Shares (A Shares and H Shares) as at the end of 2019, a cash dividend of RMB1.50 (inclusive of tax) for every 10 Shares will be distributed by the Company to A Shareholders and H Shareholders whose names appear on the register of members of the Company on the record date, with a total cash dividend of RMB1,049,048,370.45. VI. Risk alerts regarding forward-looking statements Forward-looking statements, including future plans and development strategies, may be contained in this report. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Neither the Company nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information. Investors are advised to pay attention to such investment risks involved and not place undue reliance on forward-looking statements. VII. No appropriation of funds on a non-operating basis by the Company’s controlling shareholders or their respective related parties has occurred during the Reporting Period. VIII. The Company did not provide any external guarantee in violation of the decision-making procedures during the Reporting Period. Annual Report 2019 DFZQ 1 Important Notice IX. Material risk warnings The business of the Company is highly dependent on economic and market conditions in the PRC and other jurisdictions where it operates. General economic and political conditions, such as macroeconomic and monetary policies, laws and regulations on the financial and securities industries, upward and downward trends in the market, business and financial sectors, currency and interest rate fluctuations, availability of short-term and long-term market funding sources and financing cost, could affect the business of the Company. As a securities firm, the business of the Company is directly affected by the inherent risks associated with the securities markets, including market volatility, changes in investment sentiment, fluctuations in trading volume, liquidity changes, and the creditworthiness or the perceived creditworthiness of the securities industry in the marketplace. Downturns in general economic conditions and adverse market conditions could materially and adversely affect the Company’s business operation, business performance, financial conditions and development prospects in various ways, for example, the demand of its clients for securities trading could decrease, resulting in a decline in its revenue from the securities brokerage; the value and returns on financial assets the Company holds for securities trading and investment and the value of investment portfolio for the asset management products of the Company may be adversely affected by market volatility; the Company may face increased default risks that a client or counterparty may fail to perform his contractual obligations; the financing cost of the Company may increase due to the limited access to liquidity and the capital markets, and therefore restricting the Company’s ability to raise funds to develop its business; the Company may not be able to effectively implement its business plans and strategies. In addition to the extensive competition in the securities industry in the PRC, the Company also faces great impact from other financial institutions, such as commercial banks, fund management companies, insurance companies, trust companies, futures companies and asset management companies. Some of the competitors of the Company may have certain competitive advantages over it, including greater financial resources, stronger brand recognition, broader product and service offerings and wider branch network coverage. If the Company fails to effectively compete, the business operation, financial conditions, business performance and development prospects of the Company would be materially and adversely affected. The Company relies on bond issuances, banks and other external financing channels to fund the majority portion of its business operation. The financial conditions, liquidity and business operations of the Company will be adversely affected in the event that the Company is not able to service or repay its debts in a timely manner due to lack or unavailability of internal resources or inability to obtain alternative financing. Even if the Company is able to meet its debt service obligations, the amount of debt the Company borrows could also adversely affect it in a number of ways, for example, limiting the ability of the Company to obtain any necessary financing in the future for working capital, strategic investment, debt service requirement, or other purposes; rendering the Company lacking in flexibility planning the business or reacting to business changes; placing the Company at a competitive disadvantage relative to its competitors who have lower levels of debt; affecting the credit ratings of the Company and increasing its financing cost; making the Company more vulnerable to a downturn in its business or the overall economy; subjecting the Company to the risk of being forced to refinance at higher interest rates. The Company has described the risks such as market risk and credit risk in detail in this report. Please refer to the contents of the Potential Risks and Prevention Measures under the Discussion and Analysis on the Company’s Future Development in the section entitled Discussion and Analysis on Operation for details. X. Chinese and English versions of this report are provided by the Company. In the event of any discrepancy between the Chinese and English versions, the Chinese version shall prevail. XI. Unless otherwise stated, all analysis and explanations contained in this report are prepared on a consolidated basis. 2 DFZQ Annual Report 2019 Chairman’s Statement Chairman’s Statement Dear Shareholders: Looking back on 2019, amid nationwide celebrations for the 70th anniversary since the foundation of the new China, domestic economy and society continued the healthy development momentum and the capital market advanced towards deepening reform and opening up, while the Company recorded stable progress in various tasks with a significant increase in operating results. In 2019, the Company secured revenue and other income of RMB24.35 billion and net profit attributable to shareholders of the listed company of RMB2.435 billion. As of the end of 2019, the Company maintained total assets and net assets of RMB262.971 billion and RMB54.011 billion, representing an increase of 15.91% and 3.33%, respectively from the end of previous year. Success comes from painstaking efforts. During the year, we stood united with aggression and persistence to press forward with our six strategic tasks and enhance our core competitiveness. In the context of the deepening supply-side reform and pursuit of quality economic development, the Company consolidated its advantageous business, including asset management, fund management, proprietary trading and equity investment with active management capacity dominating the market, continuously boosted its basic business, such as wealth management, investment banking and international business to achieve enhanced customer service capacity from all aspects; strengthened empowerment and integration of financial technology with business to promote financial product innovation and financial service level through establishing digital platform; deepened the integration of industrial and financial capital and improved synergy within the Group to make remarkable achievements in external strategic cooperation and internal business collaboration; and practically implemented the principle of “Party building and corporate culture serve as the productivity”, to reinforce the sense of accomplishment, sense of belonging and sense of felicity of employees as well as the cohesion, execution and creativity of the Company and our “Happy Home” theme practice activity was appraised as “Shanghai State-owned Enterprise Party Building Brand (上海國企黨建品牌)”. Companies that proactively shoulder social responsibilities boast most competitiveness and vitality.