NEW NORMAL NEW EQUILIBRIUM 新常態 新平衡 annual report 2015 stock code: 165 SERVICE PHILOSOPHY MAKING WEALTH SIMPLE We adhere to our service philosophy with sound corporate governance, professionalism and tailored financial solutions, helping our clients create wealth and value with ease. COVER STORY Yoga focuses on breathing, meditation and thinking calm thoughts. Yoga helps its practitioners feel more relaxed, balanced and, more importantly, stronger. Faced with a complex external environment, CEL’s made structural readjustments and vigorously sought to optimize its business operations across various segments, with long-term perspective, achieving a much stronger “new balance” under the “new normal”. CONTENTS Company Overview 008 Corporate Strategy 009 2015 Results Highlights 010 2015 Review 014 Chairman’s Statement 020 Management Discussion and Analysis 022 Corporate Social Responsibility Report 050 Corporate Governance Report 062 Risk Management Report 084 Directors’ Report 092 Directors and Senior Management 104 Independent Auditor’s Report 108 Consolidated Statement of Profit or Loss 110 Consolidated Statement of Comprehensive Income 111 Consolidated Statement of Financial Position 112 Consolidated Statement of Changes in Equity 114 Consolidated Cash Flow Statement 115 Notes to the Financial Statements 117 Financial Summary 193 Particulars of Major Properties 194 Corporate Information Inside back cover DISCIPLINED Our disciplined approach and long-term perspective set the stage. We are sharply focused on delivering excellent performance in investment and fund management, being responsible stewards of our investors’ capital, managing risk and seeking new opportunities. PACE Global scale, optimal fundraising structure and diversity across real estate markets allow us to identify relative value and move capital to the most attractive opportunities, with a more elastic portfolio. NEW BALANCE A new balance gives us the opportunity to reassess and recalibrate, make structural readjustments, and maintain steady growth in times of opportunity and challenge. Through active transformation efforts in investment regions, dual currency assets, and a balance between fund management and principal investment, we have built an even stronger foundation for future growth. China Everbright Limited Annual Report 2015 COMPANY OVERVIEW CHINA EVERBRIGHT GROUP CHINA EVERBRIGHT LIMITED (165.HK) CHINA EVERBRIGHT EVERBRIGHT BANK SECURITIES (holding 3.37%) (holding 29.16%) CROSS-BORDER ASSET MANAGEMENT AND INVESTMENT PLATFORM FUND MANAGEMENT – PRINCIPAL INVESTMENT – FIVE DRIVERS FOUR PHILOSOPHIES Primary Investing in unlisted enterprises and Business Supporting investment teams at the market funds industries with long-term growth Incubator growth stage and incubate quality potential in China and overseas private equity funds Secondary Focusing on investment Co-investing Creating positive synergies between market funds opportunities in listed securities. fund management and principal Providing more options via fl exible investment asset allocation Mezzanine Seeking opportunities for fi nancing & Long-term Participating in and nurture fi nancial funds investments in the short-mid term Investment institutions that have the potential for long-term development Everbright A fund raising platform raising funds Liquidity Enhancing capital effi ciency and Prestige from HNW individuals onshore for improve cash fl ow through a treasury investment in CEL and third-party or wealth management model products Fund of As CEL’s fi rst multi-strategy alternative Funds investment fund, FoF can help diversify institutional investors’ portfolios 008 - 009 CORPORATE STRATEGY We strive to build a cross-border investment and asset management platform that combines our leading core competencies with high growth, high return and stable income Providing long-term returns for shareholders, and achieving sustainable growth in earnings per share and book value. Enhancing the opportunities presented Providing investors (LP) from Japan, the by China’s gradually opening financial US and Europe with opportunities, and market with a diversified product portfolio, cooperate with several global institutions we can provide tailored, one-stop asset OUR DISTINCTIVE (GP) to set up funds and invest in mainland management solutions to domestic DEVELOPMENT China market. investors to invest in global markets. STRATEGY With our own funds, we can either provide seed Our cross-border investment and asset funding or support project financing to drive the management platform, which covers the Chinese rapid development of our asset management market and the global developed market, has business. the ability to achieve sustainable stable income under complicated market conditions. History and milestones of China Everbright Limited 1997 – 1999 2005 – 2007 Striving to become the Expanding the 2011 – Now first offshore Chinese company’s investment Scaling growth and financial holding company fund operations platform integration 2000 – 2004 2008 – 2010 Entering into the field Nurturing a cross- of direct investment border macro asset management platform The Group has built a cross-border macro asset management platform based on its unique competitive advantages: • Trust from domestic and overseas investors as a state-owned enterprise under the Chinese government • Deeply established in the China investment market, investing in industries and projects with high potential • A Hong Kong-listed platform with international standards of operation • A market-driven incentive scheme that helps attract and retain the best domestic and overseas talent to help realise the Group’s “create value, share value” philosophy together • Solid capital and a strong balance sheet, allowing the Group to nurture and grow new funds with seed capital while using self-owned capital for market investment to create significant return on investment • A promising track record by offering customised products for investors that continuously generate rapid growth in assets under management as well as stable, sustainable income growth • A diversified product structure enabling flexible investment combination amid various market conditions China Everbright Limited Annual Report 2015 2015 RESULTS HIGHLIGHTS DISCIPLINED Cross-border platform strategy In a year of opportunities and challenges, CEL remained committed and disciplined to its own operational policy to develop a cross-border investment and asset management platform. Qualification for Cross-border Investment Business In January 2015, Everbright Prestige was granted provisional qualification as a QDIE by the Shenzhen Municipal Government’s Financial Development Services Office to further expand the business scope of its cross-border investments. Investment Funds The Group’s fund management business actively managed 31 funds, 7 more compared with end-2014. Total fundraising scale In 2015, a year of volatile market conditions, the total fundraising scale was HK$49.0 billion, a slight decrease of 2.6% compared to 31 December 2014. PACE First year following parent company post-restructuring China Everbright Group, the parent company post-restructuring, entered the Fortune Global 500 list for the first time and received recognition from the international community. Synergy across China Everbright Group Though CEL’s various funds products, CEL can create synergy with internal resources across China Everbright Group. Received an investment-grade credit rating In December 2015, CEL was awarded credit ratings of “Baa2” and “BBB” by Moody’s and Fitch Group respectively. It is the first time the Group received an investment-grade credit rating from international independent credit rating agencies. Business segments demonstrated increasingly balanced contributions CEL rigorously implemented the relevant regulations of the CSRC and delayed the exit plans for some investment projects, while the Secondary Market and Structured Financing and Investment teams still effectively reduced the impact of volatile market conditions on investment returns. NEW BALANCE Internal control mechanism became more balanced Commenced a middle office operation team and a uniform domestic sales and fundraising team, as well as improved the composition of CEL’s fund investment decision-making teams and decision-making standards. Better balanced in investment regions As at 31 December 2015, CEL invested in 16 post management projects outside of mainland China, accounting for 24.7% of its investment projects. More balanced fundraising structure The Group made changes to its fundraising structure through active transformation efforts, helping achieve better balance. More diversified Investment model CEL not only invested in several enterprises as a financial investor, but also by way of strategic investment and industry consolidation. 010 - 011 Operating income (in HK$ 100 million) 2015 2014 Change Operating income, mainly including: 21.3 16.9 26% Fund management fees 2.5 2.3 9% Consultancy fees 3.0 1.9 58% Interest income 6.0 4.5 33% Dividend income 8.4 7.2 17% – Contribution from China Everbright Bank (before tax) 3.7 3.5 6% Financial performance of CEL’s Direct operating business (in HK$100 million) 2015 2014 Change Pre-tax profit of Fund Management Business 10.9 12.3 -11.4% Pre-tax profit of Principal Investment Business 3.0 4.6 -34.8% Total expenditure 11.8 10.6 11.3% Total cost-to-income ratio 40.1% 35.5% +4.6pp Cost-to-income ratio (before interest) 28.6% 28.1% +0.5pp Gearing ratio 33.8% 23.9% +9.9pp Distribution of equity