ZhongruiYuehua Shen Zi [2009] No.05355
To CITIC Group:
We have audited the accompanying financial statements of CITIC Group (referred to as “the Group”), consisting of balance sheet and consolidated balance sheet as at 31 December 2008, income statement and consolidated income statement, statement of changes in owners’ equity and consolidated statement of changes in owners’ equity, cash flow statement and consolidated cash flow statement for the year then ended, and notes to the financial statements.
Management’s Responsibility for the Financial Statements
The Company’s Management is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises, the Accounting Regulations for Financial Enter- prises and the Accounting Regulations for Business Enterprises. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation of financial statements that are free from material misstatement, whether caused by fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibilities
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Chinese Auditing Standards for Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assur- ance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assess- ments of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but
66 CITIC Group AUDITORS’ REPORT CITIC Group
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements are in accordance with the Accounting Standards for Business
Enterprises, the Accounting Regulations for Financial Enterprises and the Accounting Regulations for Busi- ness Enterprises and, in all material respects, give a fair view of the Group’s financial position and con- solidated financial position as at 31 December 2008, the results of operations and consolidated results of operations, and cash flows and consolidated cash flows for the year then ended.
RSM China Certified Public Accountants Certified Public Accountants Beijing, China 30 April 2009 Name of CPA: Zhang Fugen Name of CPA: Dong Haitao
ANNUAL REPORT 2008 67 CONSOLIDATED BALANCE SHEET
As at 31 December 2008 Expressed in thousands of RMB
ASSETS Note 2008 2007
Current Assets:
Cash and deposits 5、(1) 297,237,517 168,507,235
Short-term loans 5、(2) 497,430,133 485,987,816
Receivables 5、(3) 38,473,543 27,824,450
Short-term investments 5、(4) 128,407,057 114,487,458
Other current assets 5、(5) 55,354,010 27,754,581
Total Current Assets 1,016,902,260 824,561,540
Long-term Assets:
Medium and long-term loans 5、(2) 305,428,879 276,110,566
Long-term investments 5、(4) 174,179,200 147,533,292
Fixed assets 5、(6) 105,128,669 61,976,491
Other long-term assets 5、(7) 29,948,325 8,579,395
Total Long-term Assets 614,685,073 494,199,744
Total Assets 1,631,587,333 1,318,761,284
68 CITIC Group CONSOLIDATED BALANCE SHEET CITIC GROUP
CONSOLIDATED BALANCE SHEET (Continued)
As at 31 December 2008 Expressed in thousands of RMB
LIABILITIES AND INVESTOR'S EQUITY Note 2008 2007
Current Liabilities:
Short-term deposits from customers 5、(8) 665,379,262 640,975,519
Short-term financing 5、(9) 45,246,340 35,493,796
Payables 5、(10) 81,510,485 54,785,243
Other current liabilities 5、(11) 12,631,904 5,430,567
Total Current Liabilities 804,767,991 736,685,125
Long-term Liabilities:
Long-term deposits from customers 5、(12) 453,465,289 322,184,633
Medium and long-term borrowings 92,090,827 47,112,860
Long-term bond payables 5、(13) 53,999,153 54,671,861
Other long-term liabilities 5、(14) 35,799,020 17,002,390
Total Long-term Liabilities 635,354,289 440,971,744
Total Liabilities 1,440,122,280 1,177,656,869
Equity
Capital 5、(15) 39,942,191 33,758,652
Reserves 5、(16) 55,247,676 48,848,702
Profit for the year 14,248,703 15,870,210
Equity Attributable to Shareholders of the Company 109,438,570 98,477,564
Minority interests 82,026,483 42,626,851
Total Investor's Equity 191,465,053 141,104,415
Total Liabilities and Investor's Equity 1,631,587,333 1,318,761,284
ANNUAL REPORT 2008 69 CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2008 Expressed in thousands of RMB
Note 2008 2007
Operating income 5、(17) 154,491,279 109,352,266
Operating costs 5、(18) 98,441,501 80,723,091
Operating expenses 5、(19) 22,420,853 15,327,715
Investment income 6,728,656 23,688,278
Business taxes and surcharges 4,154,647 3,309,665
Operating Profit 36,202,934 33,680,073
Add: non-operating income 646,490 715,456
Less: non-operating expenses 217,574 917,414
Profit before Provision for Impairment Losses 36,631,850 33,478,115
Less: provision for impairment losses 5、(20) 10,782,323 6,929,174
Profit after Provision for Impairment Losses 25,849,527 26,548,941
Less: income tax 5,695,728 7,204,353
Net Profit 20,153,799 19,344,588
Net profit attributable to shareholders of the company 14,248,703 15,870,210
Minority interests 5,905,096 3,474,378
70 CITIC Group
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ANNUAL REPORT 2008 71 CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2008 Expressed in thousands of RMB
Item Row Amount
1. Cash Flows from Operating Activities: Cash received from sales of goods or rendering of other services 1 67,044,118 Cash received from customers' savings and deposits from banks and other financial institutions 2 158,982,533 Net cash received from deposits with the central bank 3 - Cash received from all types of assurance 4 3,681,164 Cash received from interest, charges and commission 5 61,949,747 Net cash received from lending 6 323,374 Net cash received from buying back 7 60,347,413 Refund of taxes 8 639,011 Other cash received relating to operating activities 9 42,166,773 Sub-total of cash inflows 10 395,134,133 Cash paid for goods and services 11 58,939,120 Net cash paid for loans to customers 12 88,873,853 Net cash paid in deposits in banks and other financial institutions 13 9,777,770 Cash paid for all types of assurance 14 130,732 Cash paid for interest, charges and commission 15 20,914,163 Cash paid to and on behalf of employees 16 9,068,871 Cash paid for all types of taxes 17 12,890,495 Other cash paid relating to operating activities 18 57,757,213 Sub-total of cash outflows 19 258,352,217 Net cash flows from operating activities 20 136,781,916 2. Cash flows from investing activities: Cash received from disposal of equity investments 21 384,752,602 Cash received from return on investments 22 1,723,424 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 23 482,684 Net cash flows from disposal subsidiary and other operating unite 24 31,723,470 Other cash received relating to investing activities 25 862,814 Sub-total of cash inflows 26 419,544,994
72 CITIC Group CONSOLIDATED CASH FLOW STATEMENT CITIC GROUP
Cash paid to acquire fixed assets, intangible assets and other long-term assets 27 7,939,806 Cash paid on investments 28 453,367,529 Net cash paid on obtain subsidiary and other business units 29 5,322,960 Cash paid on other investing activities 30 1,681,703 Sub-total of cash outflows 31 468,311,998 Net cash flows from investing activities 32 -48,767,004
3. Cash flows from financing activities: Cash receivied from investors 33 7,896,350 Including：Cash received from minority shareholders of subsidiaries 34 64,300 Cash receivied from borrowings 35 58,587,026 Cash receivied from issuing bonds 36 - Cash receivied from other financing activities 37 4,692,455 Sub-total of cash inflows 38 71,175,831 Cash repayments of borrowings 39 33,832,177 Cash payments for distribution of dividends or profits 40 3,323,844 Including：Dividends or profit paid to minority shareholders of subsidiaries 41 39,471 Cash payments for interests 42 6,468,682 Cash payments on other financing activities 43 2,119,775 Sub-total of cash outflows 44 45,744,478 Net cash flows from financing activities 45 25,431,353 4. Effect of foreign exchange rate on cash 46 -2,964,069 5. Net increase in cash and cash equivalents 47 110,482,196 Add：cash and cash equivalents at the beginning of the year 48 108,456,627 6. Cash and cash equivalents at the end of the year 49 218,938,823
ANNUAL REPORT 2008 73 BALANCE SHEET
As at 31 December 2008 Expressed in thousands of RMB
ASSETS Note 2008 2007
Current Assets:
Cash and deposits 6、(1) 17,517,263 10,099,278
Short-term loans 6、(3) 767,209 858,850
Receivables 6、(2) 16,820,548 7,347,160
Short-term investments 6、(4) 7,275,009 14,743,686
Other current assets 6、(5) 14,808,844 8,511,866
Total Current Assets 57,188,873 41,560,840
Long-term Assets:
Medium and long-term loans 6、(3) 165,870 209,528
Long-term investments 6、(4) 138,108,064 133,479,469
Fixed assets 6、(6) 74,893 300,363
Other long-term assets 6、(7) 608,108 642,819
Total Long-term Assets 138,956,935 134,632,179
Total Assets 196,145,808 176,193,019
74 CITIC Group BALANCE SHEET CITIC GROUP
BALANCE SHEET (Continued)
As at 31 December 2008 Expressed in thousands of RMB
LIABILITIES AND INVESTOR’S EQUITY Note 2008 2007
Current Liabilities:
Short-term deposits from customers - -
Short-term financing 6、(8) 8,304,396 4,531,371
Payables 6、(9) 10,608,495 9,100,791
Other current liabilities 6、(10) - 105,000
Total Current Liabilities 18,912,891 13,737,162
Long-term Liabilities:
Long-term deposits from customers - -
Medium and long-term borrowings 30,623,326 35,333,569
Long-term bond payables 6、(11) 27,757,632 27,748,166
Other long-term liabilities 6、(12) 8,243,396 1,724,000
Total Long-term Liabilities 66,624,354 64,805,735
Total Liabilities 85,537,245 78,542,897
Investor’s Equity
Capital 6、(13) 39,942,191 33,758,652
Reserves 6、(14) 56,488,417 47,984,956
Profit for the year 14,177,955 15,906,514
Total Investor’s Equity 110,608,563 97,650,122
Total Liabilities and Investor’s Equity 196,145,808 176,193,019
ANNUAL REPORT 2008 75 INCOME STATEMENT
For the year ended 31 December 2008 Expressed in thousands of RMB
Note 2008 2007
Operating income 6、(15) 1,873,173 500,763
Operating costs 6、(16) 5,063,385 7,557,076
Operating expenses 703,806 580,153
Investment income 6、(17) 20,021,721 27,600,895
Business taxes and surcharges 82,837 16,698
Operating Profit 16,044,866 19,947,731
Add: non-operating income 15,049 13,083
Less: non-operating expenses 21,006 19,390
Profit before Provision for Impairment Losses 16,038,909 19,941,424
Less: provision for impairment losses 1,780,387 2,440,817
Profit after Provision for Impairment Losses 14,258,522 17,500,607
Less: income tax 80,567 1,594,093
Net Profit 14,177,955 15,906,514
76 CITIC Group
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ANNUAL REPORT 2008 77 CASH FLOW STATEMENT
For the year ended 31 December 2008 Expressed in thousands of RMB
Item Row Amount
1. Cash Flows from Operating Activities: Cash received from sales of goods or rendering of other services 1 - Cash received from customers' savings and deposits from banks and other financial institutions 2 - Net cash received from deposits with the central bank 3 - Cash received from all types of assurance 4 - Cash received from interest, charges and commission 5 1,628,323 Net cash received from lending 6 - Net cash received from buying back 7 - Refund of taxes 8 - Other cash received relating to operating activities 9 14,042,800 Sub-total of cash inflows 10 15,671,123 Cash paid for goods and services 11 - Net cash paid for loans to customers 12 - Net cash paid in deposits in banks and other financial institutions 13 - Cash paid for all types of assurance 14 - Cash paid for interest, charges and commission 15 5,223 Cash paid for all types of taxes 16 503,519 Other cash paid relating to operating activities 17 380,940 Sub-total of cash outflows 18 889,682 Net cash flows from operating activities 19 14,781,441 2. Cash flows from investing activities: 20 Cash received from disposal of equity investments 21 6,392,466 Cash received from return on investments 22 - Net cash received from disposal of fixed assets, intangible assets and other long term assets 23 450 Net cash flows from disposal subsidiary and other operating unite 24 - Other cash received relating to investing activities 25 - Sub-total of cash inflows 26 6,392,916
78 CITIC Group CASH FLOW STATEMENT CITIC GROUP
Cash paid to acquire fixed assets, intangible assets and other long-term assets 27 3,959 Cash paid on investments 28 21,305,820 Net cash paid on obtain subsidiary and other business units 29 - Cash paid on other investing activities 30 - Sub-total of cash outflows 31 21,309,779 Net cash flows from investing activities 32 -14,916,863
3. Cash flows from financing activities: Cash receivied from investors 33 - Including：Cash received from minority shareholders of subsidiaries 34 - Cash receivied from borrowings 35 17,896,980 Cash receivied from issuing bonds 36 - Cash receivied from other financing activities 37 - Sub-total of cash inflows 38 17,896,980 Cash repayments of borrowings 39 6,759,930 Cash payments for distribution of dividends or profits 40 - Including：Dividends or profit paid to minority shareholders of subsidiaries 41 - Cash payments for interests 42 3,147,274 Cash payments on other financing activities 43 - Sub-total of cash outflows 44 9,907,204 Net cash flows from financing activities 45 7,989,776 4. Effect of foreign exchange rate on cash 46 -436,369 5. Net increase in cash and cash equivalents 47 7,417,985 Add：cash and cash equivalents at the beginning of the year 48 10,099,278 6. Cash and cash equivalents at the end of the year 49 17,517,263
ANNUAL REPORT 2008 79 NOTES TO FINANCIAL STATEMENTS
For the Year Ended 31 December 2008 Expressed in thousands of RMB 1. Company Status CITIC Group (referred to as “the Group”) is a multi-business group company, established in 1979 upon the approval of State Council of PRC. As at 31 December 2008, the registered capital of the CITIC Group Head office (referred to as “the Company”) is RMB 30 billion. The legal representative of the Company is Mr. Kong Dan. The registered address of the Company is 6 Xinyuannanlu, Chaoyang District, Beijing. The Group is comprised of financial services, investment holding, real estate and civil infrastructure, manufacturing, resources development, trading and services, information industry and project contracting business etc.
2. Basis of Preparation of Financial Statements The principal accounting policies adopted in the preparation of the financial statements are in conformity with the Accounting Standards for Business Enterprises, the Accounting Regulations for Financial Enterprises and the Accounting Regulations for Business Enterprises issued by the Ministry of Finance of the PRC (MOF).
3. Principal Accounting Policies and Estimates
(A) Accounting Year The accounting year of the Group is the calendar year from 1 January to 31 December. (B) Basis of Preparation The financial statements have been prepared on an accrual basis. (C) Reporting Currency The reporting currency of the Group, the Company and its subsidiaries in mainland of PRC is RMB. The reporting currency of the Company’s subsidiaries out of mainland of PRC is adopted in accordance with the local accounting standards. (D) Translation of Foreign Currency Transactions and Financial Statements Non-financial institution entities record foreign currency transactions in a unified ledger. Foreign currency transactions during the year are translated into RMB at the exchange rates ruling at the transaction dates. At year end, monetary assets and liabilities in foreign currencies are translated into RMB at the exchange rates, quoted by the People’s Bank of China (the “PBOC”), ruling at the balance sheet date. Financial institutions record foreign currency transactions in multi-currency ledgers. The ledgers denominated in foreign currencies are translated into USD at the exchange rates quoted in the London market, which is announced by the PBOC, ruling on the last day of the accounting year, and then translated from USD to RMB at the exchange rate quoted by the PBOC ruling on the same day.
80 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Except for the exchange gains or losses relating directly to the construction of fixed assets (see note 3(l)), exchange differences arising from foreign currency transactions and exchanges are dealt with as foreign exchange gains or losses for the current period. The financial statements of overseas subsidiaries are translated into RMB by current exchange rate method.Financial state- ments of foreign currencies are translated into RMB at year end exchange rates. Year end exchange rates are the exchange rates quoted in the London market, which is announced by the PBOC, ruling on the last day of the accounting year, and the exchange rate quoted by the PBOC ruling on the same day for the translation from USD to RMB. The exchange differences are recorded as differences from translation of financial statements denominated in foreign currencies. (E) Cash and Cash Equivalents Cash and cash equivalents include: cash, deposits, short-term inter-bank placements and highly liquid investments that are capable of being converted into known amounts of cash and are subject to an insignificant risk of change in value. (F) Provision for Bad Debts Provision for bad debts is estimated by management based on the general consideration of aging analysis, recoverability of receivables (including accounts receivable and other receivables), and individual measurements. (G) Loans, Provision for Loan Losses and Writing Off of Loans (1) Loan classification -Short-term, medium and long-term loans: loans are classified according to their original maturity terms. Loans originally maturing within one year (including one year) are classified as short-term loans, and loans originally maturing over one year are classified as medium and long-term loans. -Overdue loans: loans not repaid on maturity or rescheduled maturity dates; advances arising from discounted bills or bill ac- ceptances with insufficient collateralized deposits and not yet repaid until the due dates; overdue trade finance for inward and outward bills, and advances arising from off balance sheet credit facilities such as letters of credit and guarantees. -Discounted bills: not-yet-matured bills discounted by the Group for customers or other financial institutions; rediscounted received from the central bank, other inter-banks or financial institutions. (2) Loans are initially recognized at the amounts actually drawn. Discounted bills are initially recognized at the par value. Interest income from discounted bills is recognized on an accrual basis on amounts provided and at an applicable interest rate over the terms of the bills. As at the balance sheet date, the par value of the discounted bills and the relevant unrealized inter- est income are separately shown in the balance sheet.
ANNUAL REPORT 2008 81 (3) Provision for loan losses and writing off of loans. Loans are classified into five categories: normal, special-mention, substandard, doubtful and loss. When there is objective evidence that a loan is impaired, provision for loan losses is made based on the estimated loss covering specific losses, non-individually identified potential losses, and potential losses arising from sovereignty risk, geographic risk, industry risk, or particular types of loans. At the end of each year, the Group assesses the recoverability of each type of loans and estimates potential losses. The provision for loan losses is measured as the difference between the carrying amounts of the loan and its estimated recoverable amount. Provision for loan losses is made based on risk grading, while other factors such as the borrowers’ solvency, willingness to repay and past repayment records, market value of the collateral and support from the guarantors are also taken into account when assessing the overall risk and recoverability, and to determine whether a loan is im- paired and provision is properly made. When a borrower or guarantor fails to repay his loan principal or interest, and uses the collateral to settle the debt, the respec- tive loan principal together with the recognized interest, is transferred to repossessed assets with the corresponding provision for loan losses transferred to provision for impairment on repossessed assets at the same time. When a loan is considered uncollectable after the Group has completed all the necessary legal procedures, upon approval from managements, the loan is written off against the provision for loan losses. If in a subsequent period the loan previously written off is recovered, the provision for the loan losses against the loan in the amount of the recovery will be reversed. (H) Entrusted Loans and Investments Entrusted loans are funded by the customers who entrust the Group to grant loans to designated borrowers for specific purposes at terms (such as maturity period and interest rate) specified by the customers. The Group is responsible for granting and monitoring the usage and repayment of entrusted loans. Entrusted investments are also funded by the customers who entrust the Group to invest in accordance with the defined scopes. Balances of entrusted loans and entrusted investments are represented at the amounts granted or invested. (I) Derivative Financial Instruments The Group’s derivatives include spot foreign exchange, forward foreign exchange, currency swaps, interest rate swaps and options, which are undertaken in response to customers’ needs or for the Group’s risk management purposes. (J) Inventories nventories include assets held for sale in the ordinary course of business (goods or finished goods), assets in the production process for sale in the ordinary course of business (work in process), and materials and supplies that are consumed in pro- duction (raw materials).
82 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Inventories of the Group mainly consist of raw material, self-made semi finished products, low value consumables and packaging materials, merchandise inventory and consignment stock. They are stated at actual cost and managed by perpetual inventory system. (K) Investments (1) Short-term investments The initial cost of a short-term investment is the total consideration paid on acquisition of the investment, excluding cash dividends which have been declared but unpaid or unpaid interests on debentures which were due at the time of acquisition. Except for cash dividends which have been declared but unpaid at the time of acquisition and interest on debentures which is due but not yet paid at the time of acquisition, cash dividends and interest are set off against the carrying amount of short- term investments when actually received by the Group. Upon the disposal or recovery of a short-term investment, the differ- ence between the carrying amount and the actual amount received is recognized as profit or loss for the current period. Short-term investments are carried at the lower of their cost and market value, and a provision for diminution in value is made for any excess of the cost over the market value at the year end. (2) Long-term equity investments Where the Company controls, jointly controls or exercise significant influence over an investee enterprise, the long-term equity investment is accounted for under the equity method whereby the investment is initially recorded at cost and adjusted thereafter for any post- acquisition change in the Company’s share of the shareholders’ equity in the investee enterprise. Where the Group does not control, jointly control or exercise significant influence over an investee enterprise, the long-term equity investment is accounted for under the cost method by stating it at the initial investment cost. Investment income is recog- nized when the investee enterprise declares a cash dividend or distributes its earnings. Upon the disposal of long-term equity investments, the difference between the proceeds received and the carrying amount of the investments is recognized as profit or loss for the period. (3) Long-term debt investments The initial investment cost of a long-term debt investment is the total consideration amount paid for acquisition of the investment, but excludes any unpaid interest that was due at the time of acquisition. Such interest receivable is separately accounted for under receivables. Where the total consideration paid includes accrued interest that is not yet due at the time of acquisition, such interest is separately accounted for under long-term debt investments. The premium or discount on debentures represents the difference between the nominal value and the initial investment cost of the debenture after the deduction of relevant taxes and accrued interests which are not yet due for payments.
ANNUAL REPORT 2008 83 The premium (discount) on investments in long-term debentures is amortized on a straight-line basis over the holding period, and is treated as an adjustment to the interest income. (L) Fixed Assets and Construction in Progress Fixes assets are assets with comparatively high unit values held by the Group for producing products or rendering service. They are expected to be used for more than one year. Fixed assets are stated in the balance sheet at cost less accumulated depreciation and provision for impairment. Construction in prog- ress is stated in the balance sheet at cost less provision for impairment. All direct and indirect costs that are related to the construction of fixed assets and incurred before the assets are ready for their intend- ed uses are capitalized as construction in progress. Those costs include borrowing costs (including foreign exchange differences arising from the loan principal and the related interests) of specific borrowings for the construction of the fixed assets during the construction period. Construction in progress is transferred to fixed assets when it is ready for its intended use. Fixed assets are depreciated by using the straight-line method over their estimated useful lives. The estimated useful lives and the esti- mated rates of net residual value on cost adopted for the Group’s fixed assets are as follows:
Classification Estimated useful Life Residual Value (% of cost) Land Use Rights Terms of the land lease - Plant and Buildings 15-40 years 3%-5% Transportation Equipment 6-8 years 3%-5% Machinery and Equipment 5-15 years 3%-5% Others 3-10 years 3%-5%
(M) Intangible Assets Intangible assets are long-lived assets that do not have physical appearance, held by the Group for producing products, rendering services, leasing, or operation management. Intangible assets are stated in the balance sheet at the actual cost incurred at the time of acquisition and are amortized on a straight-line basis over the beneficial periods.
84 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(N) Long-term Deferred Expenses Long-term deferred expenses represents expenses already paid but are amortized over a period of more than one year. Long-term deferred expenses are stated at the actual payments and subsequently amortized as follows: (1) Operating lease payments are amortized on a straight-line basis over the actual terms of the respective leases. (2) Other expenses paid are amortized on a straight-line basis over their respective beneficial periods. When the long-term deferred expenses which are unlikely to be able to bring economic benefit to the Group in the subsequent periods, the balances will be charged to the income statement upon recognition. (O) Pre-operating Expenses Except for the expenditure incurred for acquiring or constructing the fixed assets, other expenses incurred during the start-up period are aggregated in long-term deferred expenses and then fully charged to the income statement in the month operations commence. (P) Provision for Impairment of Assets The carrying amounts of assets (including entrusted loans, inventories, long-term investments, fixed assets, construction in progress, intangible assets and other assets) are reviewed regularly to determine whether their recoverable amounts have de- clined below their carrying amounts except loans (see note 3(g) ) and receivables(see note 3(f) ). The Group will perform an impairment test to determine whether there are signs indicating that the carrying amount of an asset is concerned to be dif- ficult to recover. When impairment has occurred, the carrying amount is reduced to the recoverable amount. The amount of deduction is recognized to be the impairment loss of the asset. The recoverable amount is the value of an asset treated as the greater of its net realizable value and the present value of the es- timated future cash flows obtainable from the asset’s continuous use including the disposal at the end of its useful life. Provision for impairment loss is measured on an item by item basis and recognized in the income statement for the current period. If there has been a change in the estimates used to determine the recoverable amount and as a result the estimated recoverable amount is greater than the carrying amount of the asset, the impairment loss recognized in prior years is reversed. Reversals of impairment losses are recognized in the income statement for the current period. Impairment losses are reversed to the ex- tent of the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. In respect of the reversal of an impairment loss for a long-term equity investment, the reversal starts with the impairment losses that had previously been recognized in the income statement and then the impairment losses that had been charged to the capital surplus.
ANNUAL REPORT 2008 85 (Q) Repossessed Assets (1) Repossessed assets are the assets repossessed by the Group through debt restructuring or effective control and the Group can legally realize through auction, transfer or any other procedures. (2) Repossessed assets are recorded at the value of the collateralized portion of the loan principal and the recognized interest income. At the same time, all the corresponding loan provisions are transferred to provisions for impairment on repossessed assets. (3) Provision for impairment on repossessed assets Repossessed assets are stated at the lower of their carrying amounts and recoverable amounts at the end of each accounting period. Provision for impairment is measured as the difference between the recoverable amounts and the carrying amounts of repossessed assets. (4) Disposal of repossessed assets If the proceeds from the disposal of repossessed assets exceed their carrying amounts, the difference will be recognized as non-operating revenue. If the amount is less than the carrying amount, the difference will be recognized as non-operating expenses. (R) Issued Bonds Issued bonds are recognized as liabilities at the total amount received upon issuance. The difference between the total amount of issuance and the total par value is treated as the bonds discount or premium, and is amortized on a straight-line basis throughout the terms of the bonds. Interest expenses are accrued based on the coupons. Interest expenses plus amortization of discount or premium and the issuance costs together, are charged to income statement as financial costs in the period incurred. (S) Income Tax Income tax is recognized by using the tax-effect accounting method. Income tax for the year consists of current tax paid and payable, and the movement of deferred tax assets and liabilities. Current tax is calculated by applicable tax rate on the taxable income. Deferred tax is measured for the differences between the accounting income and the taxable income arising from the timing differences in recognizing income, expenses or losses between the accounting and tax regulations. Income tax expense for the year is recorded into income statements; tax payable is provided by applicable tax rate on taxable income; deferred tax as- sets or liabilities are recorded at applicable tax rate on timing differences.
86 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
The Company and some of its subsidiaries have adopted a consolidated tax filing policy and calculated tax filing with 25% of taxable income. According to the Notice on Corporate Income Tax Paying for Key Group (Caishui [2008] No. 119) issued by Ministry of Finance People’s Republic of China and State Administration of Taxation, the Company and those subsidiaries mentioned above should continue the consolidated tax filing policy. All the subsidiaries, except those located in Beijing with the whole tax, should prepay the 60% of the income tax in local places. (T) Revenue Recognition When it is probable that the economic benefits will flow to the Group, the amount of revenue and relevant costs can be measured reliably, revenue is recognized as follows: (1) Interest income Interest income from loans is recognized on an accrual basis on the time-proportion with reference to the principal outstanding and the interest rates applicable. For loans overdue (including rescheduled loans) and not yet recovered for more than 90 days, or loans with interest overdue for more than 90 days, the accrual interest is discontinued and is accounted for as an off-balance sheet item. Recognized interest receivables of such loans set off against interest income in the income statement, and turn to be accounted for as an off-balance sheet item. Repayment for a non-accrual loan will be firstly set off against the outstanding loan principal. It is only when the loan principal is fully recovered that any excess amount received can be recognized as interest income for the period. (2) Rendering of services When the outcome of a transaction involving the rendering of services can be reliably measured, revenue is recognized in the income statement by reference to the completion stage of the transaction. When the outcome of the transaction involving the rendering of services cannot be reliably measured, revenue is recognized only to the extent of the costs incurred that are ex- pected to be recoverable. Income from property management service is recognized when the service is rendered; it is probable that the economic ben- efits will flow to the Group; and the revenue and costs can be reliably measured. (3) Insurance income Insurance income is recognized on an accrual basis, starting from the time when the related insurance obligation becomes effective in accordance with agreed terms of signed insurance contract. (4) Sale of goods Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods has been transferred to the buyer; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor
ANNUAL REPORT 2008 87 effective control over the goods sold; the economic benefits associated with the transaction will be received by the Group; and the relevant amount of revenue and costs can be reliably measured. Revenue from sale of properties is recognized when the construction is completed; the completion certificate is issued by the relevant government authorities; the sales agreement is signed; and the evidence of the customer payment in accordance with the term of the sales agreement is received. Usually, the evidence of the customer payment is the receipt of deposit of over 20% of the agreement amount or the payment schedule of the remaining amount being confirmed. (5) Revenue from Contracts of construction When the outcome of a construction contract can be reliably measured, revenue associated with the construction contract is recognized at the balance sheet date by using the percentage-of-completion method. When the outcome of a construc- tion contract cannot be reliably measured, revenue is recognized only to the extent of the contract costs incurred that are recoverable. (6) Other revenue Other revenue is recognized on an accrual basis. (U) Borrowing Costs Borrowing costs incurred on specific borrowings for the construction of fixed assets are capitalized into the cost of the fixed assets during the construction period until the fixed assets are ready for their intended uses, when expenditures for the assets are being incurred; borrowing costs are being incurred; and activities that are necessary to prepare the asset for their intend- ed uses are in progress. Except for the specific borrowings for the construction of fixed assets, other borrowings are recognized as expenses for the period and charged to the income statement as part of the financial costs. (V) Employee Benefits According to the relevant regulations in PRC, the Company and its domestic subsidiaries established basic pension schemes in 1998. For each employee, the basic pension cost is accrued based on 28% of the total salary, of which 8% is borne by the employee and 20% is borne by the Company and its domestic subsidiaries. By the end of 2008, the Company and its domes- tic subsidiaries have made adequate accrual for this basic pension. The Company and certain of its domestic subsidiaries also established annuity schemes, the related cost is accrued based on 8% of the total salary of an employee, of which 4% is borne by the employee and 4% is borne by the Company and these subsidiaries. By the end of 2008, the Company and these subsidiaries have made adequate accrual for the annuity. (W) Provisions and Contingent Liabilities
88 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Provisions are made when the Group has a present obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount of outflow can be reliably estimated. When the possibility of an outflow of economic benefits caused by the settlement of the above obligation is low, or the outflow amount cannot be reliably measured, this obligation is disclosed as a contingent liability. (X) Related Parties Two or more parties are considered to be related parties when at any time during the relevant financial period: if one party has the power, directly or indirectly, to control, jointly control or exercise significant influence over another party, or vice versa, or where one or more parties are subject to common control from another party, they are considered to be related parties. (Y) Segmental Reporting A segment is a distinguishable component of the Group that is engaged either in providing distinguished products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. During the represented period, the business segments of the Group include: financial services, real estate and civil infrastruc- ture, manufacturing, resources, trading and services, information industry, project contracting and unallocated.
4. Basis of Preparation of the Consolidated Financial Statements (A) The Group prepared its consolidated financial statements in accordance with related regulations. The consolidated financial statements are consolidated by the financial statements of the Company and all of its principal subsidiaries as at 31 December 2008. Subsidiaries are those entities controlled by the Company directly or indirectly: holding 50% or above equity shares directly or indirectly; carrying more than half of the voting rights; controlling the composition of the board of directors; or governing the financial and operating policies of an entity so as to obtain benefits from its activities. The investments in subsidiaries are accounted under equity method in the Company’s financial statements, and these subsidiaries are consolidated at the end of the accounting year. The consolidated financial statements of the Group are prepared base on the individual financial statements of the Company and its consolidated subsidiaries. Material intra-group transactions, including any intra-group unrealized profits and balances, are eliminated through the preparation of the Group’s consolidated financial statements.
ANNUAL REPORT 2008 89 (B) Principal subsidiaries (included in the consolidation of the Group for year 2008) are as follows:
Name Shares held (%) Registration location Principal activities Type
CITIC Holdings 100% Beijing Financial services Limited liabilities company China CITIC Bank Corporation Ltd. 67.26% Beijing Financial services Listed company CITIC Prudential Life Insurance Co., Ltd. 50% Guangzhou Financial services Limited liabilities company CITIC Trust & Investment Co., Ltd. 100% Beijing Financial services Limited liabilities company CITIC Asset Management Corporation Ltd. 100% Beijing Financial services Limited liabilities company CITIC Guoan Group 100% Beijing Investment holding Limited liabilities company CITIC Real Estate Co., Ltd. 88.37% Beijing Real estate and Listed company civil infrastructure CITIC East China Group 100% Shanghai Real estate and Limited liabilities company civil infrastructure CITIC Tianjin Investment Holding Co., Ltd. 100% Tianjin Real estate and Limited liabilities company civil infrastructure
CITIC Construction 100% Beijing Project contracting Limited liabilities company Central and Southern China Municipal 100% Wuhan Project contracting Limited liabilities company Engineering Design & Research Institute Wuhan Architectural Design Institute 100% Wuhan Project contracting Limited liabilities company CITIC Metal Co., Ltd 100% Beijing Resources Limited liabilities company
CITIC Inestment Holding Co.,Ltd 100% Beijing Manufacturing Limited liabilities company CITIC Heavy Industries Co., Ltd. 96.71% Luoyang Manufacturing Listed company CITIC Bohai Aluminium Industries Holding Co., Ltd. 100% Qinhuangdao Manufacturing Limited liabilities company CITIC Machinery Manufacturing Co., Ltd. 100% Beijing Manufacturing Limited liabilities company CITIC Networks Co., Ltd. 100% Shenzhen Information industry Limited liabilities company
90 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Name Shares held (%) Registration location Principal activities Type
Beijing Capital Mansion 100% Beijing Services Limited liabilities company Beijing CITIC Investment Co.,Ltd 100% Beijing Trading Limited liabilities company CITIC Automobile Co., Ltd. 100% Beijing Trading Limited liabilities company CITIC International Economic Consultants Co., Ltd. 100% Beijing Services Limited liabilities company CITIC Shenzhen Investment Group Co., Ltd. 100% Shenzhen Trading Limited liabilities company CITIC Ningbo Group 100% Ningbo Services Limited liabilities company CITIC Travel Co., Ltd. 100% Beijing Services Limited liabilities company China CITIC Press 100% Beijing Publishing Listed company China Zhonghaizhi Corporation 51.03% Shenzhen Services Limited liabilities company CITIC Heavy Machinery Co., Ltd. 100% Luoyang Services Limited liabilities company Beijing CITIC Enterprise Management Co., Ltd. 100% Beijing Services Limited liabilities company CITIC International Financial Holdings Limited 70.32% Hong Kong Financial services Limited liabilities company CITIC Hong Kong (Holdings) Ltd. 100% Hong Kong Investment holding Limited liabilities company Citic Pacific Ltd. 57.56% Hong Kong Investment holding Limited liabilities company CITIC USA Holding Inc. 100% USA Investment holding Limited liabilities company CITIC Power Investment Co., Ltd. 100% Hong Kong Real estate and Limited liabilities company civil infrastructure CITIC Australia Pty. Limited 100% Australia Resources Limited liabilities company CITIC United Asia Investments Ltd. 100% Hong Kong Resources Limited liabilities company Keentech Group Ltd. 100% British Virgin Islands Resources Limited liabilities company Macau Cement Manufacturing Co., Ltd. 77.89% Macau Manufacturing Limited liabilities company Sundance Forest Industries Ltd 100% Canada Manufacturing Limited liabilities company CITIC Asia Satellite Holding Company Ltd. 100% British Virgin Islands Information industry Limited liabilities company
ANNUAL REPORT 2008 91 5. Interpretation for Important Accounts of the Consolidated Financial Statements (1) Cash and Deposit 2008 2007 Deposits with the central bank 203,243,244 119,027,823 Cash and cash equivalents 53,434,282 22,187,612 Deposits with banks and other financial institutions 40,559,991 27,291,800 Total 297,237,517 168,507,235
(2) Loans to Customers 2008 2007 Short-term loans Short-term loans to customers 387,381,477 319,734,658 Securities held under resale agreements 43,567,760 33,777,853 Discounted bills 57,698,177 118,073,790 Trade finance for inward and outward bills 8,806,942 14,427,261 Less: provision for short-term loans 24,223 25,746 Total short-term loans 497,430,133 485,987,816 Medium and long-term loans Medium and long-term loans to customers 320,271,161 286,650,947 Less: provision for medium and long-term loans 14,842,282 10,540,381 Total medium and long-term loans to customers 305,428,879 276,110,566 Total loans to customers 802,859,012 762,098,383
(a) Analysis by categories (short-term loans to customers, medium and long-term loans to customers): Short-term loans to customers By nature: 2008 2007 Unsecured loans 156,191,978 183,552,492 Loans with guarantees 134,320,724 71,678,710 Loans secured by properties 66,422,594 44,813,165 Loans pledged by monetary assets 30,446,181 19,690,291 Total 387,381,477 319,734,658
92 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Medium and long-term loans By original maturity: 2008 By nature: 1-5 years over 5 years Total Unsecured loans 68,282,188 37,668,440 105,950,628 Loans with guarantees 40,324,792 17,176,169 57,500,961 Loans secured by properties 47,237,184 76,598,168 123,835,352 Loans pledged by monetary assets 13,280,444 19,703,776 32,984,220 Total 169,124,608 151,146,553 320,271,161
2007 1-5 years over 5 years Total Unsecured loans 41,695,640 37,701,235 79,396,875 Loans with guarantees 35,397,912 14,577,304 49,975,216 Loans secured by properties 55,047,854 65,954,609 121,002,463 Loans pledged by monetary assets 17,869,352 18,407,041 36,276,393 Total 150,010,758 136,640,189 286,650,947
(b) Analysis by risk grading (short-term loans to customers, medium and long-term loans to customers): 2008 2007 Normal 679,773,826 582,837,768 Special-mention 16,822,106 13,507,530 Total performing loans 696,595,932 596,345,298 Substandard 1,595,962 1,080,926 Doubtful 8,289,840 8,404,490 Loss 1,170,904 554,891 Total non-performing loans 11,056,706 10,040,307 Total 707,652,638 606,385,605
By the nature of non-performing loans: 2008 2007 Unsecured loans 3,076,438 2,303,658 Loans with guarantees 4,216,343 4,069,678 Loans secured by properties 3,331,338 3,301,153 Loans pledged by monetary assets 432,587 365,818 Total 11,056,706 10,040,307
ANNUAL REPORT 2008 93 (c) Analysis by industry (including short-term loans to customers, medium and long-term loans to customers and discounted bills): 2008 2007 Manufacturing 162,788,414 149,204,498 Transportation,storage and postal services 65,147,545 65,885,167 Production and supply of electric power, gas and water 57,777,818 44,765,590 Wholesale and retail 51,948,914 45,405,546 Property development 42,566,940 45,786,933 Water conservancy,environmental and public utility management 36,592,031 28,324,352 Leasing and commercial services 31,916,604 35,413,659 Construction 23,352,298 22,112,835 Public and social organizations 22,003,691 8,131,132 Finance 9,202,073 6,685,799 Others 120,762,208 78,107,587 Total corporate loans 624,058,536 529,823,098 Total individual loans 127,161,862 110,340,360 Gross amount of loans 751,220,398 640,163,458 Less: provision for loan losses 14,866,505 10,566,127 Net carrying amount of loans 736,353,893 629,597,331
(d) Analysis by geographical spread (including short-term loans to customers, medium and long-term loans to customers and discounted bills): 2008 2007 Domestic 696,108,851 587,521,120 Overseas 55,111,547 52,642,338 including: Hong Kong SAR 47,288,631 45,122,385 Others 7,822,916 7,519,953 Gross amount of loans 751,220,398 640,163,458 Less: provision for loan losses 14,866,505 10,566,127 Net carrying amount of loans 736,353,893 629,597,331
94 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(e) Provision for Loans Losses Total provision for impairment losses Movement Opening Recovery of Value of Closing Charge for Value recovery- due to other balance value Subtotal write-off balance the period written back reasons written off Provision for short-term 25,746 -2,115 - - -2,115 - 592 24,223 loans Provision for medium 10,540,381 6,797,754 968,075 139,469 5,690,210 1,328,988 -59,321 14,842,282 and long-term loans Total 10,566,127 6,795,639 968,075 139,469 5,688,095 1,328,988 -58,729 14,866,505
(3) Receivables 2008 2007 Accounts receivable 19,052,394 9,571,286 Other receivables 14,624,397 14,573,079 Less: provision for bad debts 7,303,983 4,730,384 Prepayments 7,122,074 4,178,261 Interests receivable 3,940,779 3,436,489 Notes receivable 782,398 600,052 Assurance receivable 184,022 150,273 Dividends receivable 71,462 45,394 Total 38,473,543 27,824,450
Provision for Bad Debts Total provision for impairment losses Movement Opening Recovery of Value of Closing Charge for Value recovery- due to other balance value Subtotal write-off balance the period written back reasons written off Provision for 4,730,384 2,845,917 61,016 42,650 2,742,251 165,949 -2,703 7,303,983 bad debts Total 4,730,384 2,845,917 61,016 42,650 2,742,251 165,949 -2,703 7,303,983
(4) Investments 2008 2007 Short-term investments 114,556,861 103,452,013 Non-current assets due within 1 year 13,850,196 11,035,445 Total short-term investments 128,407,057 114,487,458 Long-term debt investments 107,007,496 94,033,352 Long-term equity investments 67,171,704 53,499,940 Total long-term investments 174,179,200 147,533,292 Total investments 302,586,257 262,020,750
ANNUAL REPORT 2008 95 (a) Short-term investments 2008 Gross Provision Net Bonds issued by PBOC 53,089,768 - 53,089,768 Government bonds 17,710,664 - 17,710,664 Bonds issued by domestic financial institutions 1,436,608 - 1,436,608 Corporate bonds 25,884,733 - 25,884,733 Debt securities issued by PRC policy banks 4,780,869 - 4,780,869 Debt securities issued by international institutions - - - Total bonds 102,902,642 - 102,902,642 Fund 1,569,751 15,665 1,554,086 Entrusted investments 1,513,527 - 1,513,527 Others 9,268,522 681,916 8,586,606 Total 115,254,442 697,581 114,556,861
2007 Gross Provision Net Bonds issued by PBOC 39,482,418 - 39,482,418 Government bonds 14,083,056 - 14,083,056 Bonds issued by domestic financial institutions 30,826 - 30,826 Corporate bonds 15,896,702 - 15,896,702 Debt securities issued by PRC policy banks 6,666,755 - 6,666,755 Debt securities issued by international institutions 4,500,841 - 4,500,841 Total bonds 80,660,598 - 80,660,598 Fund 148,005 639 147,366 Entrusted investments 5,235,573 - 5,235,573 Others 17,520,554 112,078 17,408,476 Total 103,564,730 112,717 103,452,013
(i) The government bonds, the PBOC bills and the debt securities issued by PRC policy banks held by the Group are traded in the inter-bank bond market.
96 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(ii) Analysis by market value 2008 2007 Net book value Market value Net book value Market value Bonds issued by PBOC 53,089,768 53,089,768 39,482,418 39,460,659 Government bonds 17,710,664 17,710,664 14,083,056 14,072,741 Bonds issued by domestic financial institutions 1,436,608 1,436,608 30,826 30,826 Corporate bonds 25,884,733 25,884,733 15,896,702 15,896,702 Debt securities issued by PRC policy banks 4,780,869 4,780,869 6,666,755 6,669,686 Debt securities issued by international institutions - - 4,500,841 4,500,841 Total bonds 102,902,642 102,902,642 80,660,598 80,631,455 Fund 1,554,086 1,554,086 147,366 147,366 Entrusted loans and investments 1,513,527 1,513,527 5,235,573 5,235,573 Others 8,586,606 8,694,820 17,408,476 18,438,958 Total 114,556,861 114,665,075 103,452,013 104,453,352
(b) Long-term debt investments 2008
Gross Provision Net Bonds issued by domestic financial institutions 17,312,471 - 17,312,471 Debt securities issued by international institutions 10,101,199 - 10,101,199 Government bonds 19,136,777 - 19,136,777 Debt securities issued by PRC policy banks 24,456,515 - 24,456,515 Corporate bonds 5,571,595 793,704 4,777,891 Bonds issued by PBOC 21,876,115 - 21,876,115 Others 9,347,328 800 9,346,528 Total 107,802,000 794,504 107,007,496
2007 Gross Provision Net Bonds issued by domestic financial institutions 17,566,336 - 17,566,336 Debt securities issued by international institutions 33,530,019 7,277 33,522,742 Government bonds 16,256,837 - 16,256,837 Debt securities issued by PRC policy banks 19,493,031 - 19,493,031 Corporate bonds 5,775,798 70,030 5,705,768 Bonds issued by PBOC 537,845 - 537,845 Others 952,751 1,958 950,793 Total 94,112,617 79,265 94,033,352
ANNUAL REPORT 2008 97 (c) Long-term equity investments 2008 2007 Investments in: Listed companies 29,002,024 36,227,859 Unlisted companies 46,542,576 26,577,421 Total 75,544,600 62,805,280 Less: provision for impairment 8,372,896 9,305,340 Net carrying amount 67,171,704 53,499,940
(d) Provision for investments Total provision for impairment losses Movement Opening Recovery of Value of Closing Charge for Value recovery- due to other balance value writ- Subtotal write-off balance the period written back reasons ten off Provision for short-term 112,717 586,080 - - 586,080 - -1,216 697,581 investments Provision for long-term 79,265 734,467 257 - 734,210 - -18,971 794,504 debt investments Provision for long-term eq- 9,305,340 -684,550 - 2,934 -687,484 -11,603 -256,563 8,372,896 uity investments Total 9,497,322 635,997 257 2,934 632,806 -11,603 -276,750 9,864,981
(5) Other Current Assets 2008 2007 Inventories 47,630,198 23,748,853 Less: provision for inventories 943,821 128,483 Derivative financial instruments 6,252,932 2,049,879 Entrusted loans 976,115 1,479,701 Less: provision for entrusted loans 399,298 517,131 Other current assets 1,837,884 1,121,762 Total 55,354,010 27,754,581
(a) Analysis of inventories by usage 2008 2007 Products in process 17,300,040 8,809,199 Merchandise inventory 9,818,531 4,230,911 Raw materials 4,304,050 1,881,989 Self-made semi finished products 761,901 434,285 Low value consumables and Packaging materials 57,505 64,074 Consignment stock 46,184 39,535 Others 15,341,987 8,288,860 Total 47,630,198 23,748,853 Less:provision for inventories 943,821 128,483 Net carrying amount 46,686,377 23,620,370
98 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(b) Analysis of inventories by industry 2008 2007 Real estate and civil infrastructure 31,917,077 17,819,134 Manufacturing 8,731,302 3,404,867 Resources 3,831,413 2,022,396 Trading and services 2,936,648 304,245 Information industry 184,913 165,812 Project contracting 11,121 27,697 Unallocated 17,724 4,702 Total 47,630,198 23,748,853 Less: provision for inventories 943,821 128,483 Net carrying amount 46,686,377 23,620,370
(c) Provision for entrusted loans and inventories Total provision for impairment losses Movement Opening Recovery of Value of Closing Charge for Value recovery- due to other balance value writ- Subtotal write-off balance the period written back reasons ten off Provision for 517,131 - 77 1,000 -1,077 - -116,756 399,298 entrusted loans Provision for inventories 128,483 828,562 15,333 - 813,229 647 2,756 943,821 Total 645,614 828,562 15,410 1,000 812,152 647 -114,000 1,343,119
(6) Fixed Assets 2008 2007 Fixed assets 117,941,707 65,634,862 Less: accumulated depreciation: 21,076,884 11,568,863 Fixed assets value 96,864,823 54,065,999 Less: provision for impairment 653,823 58,869 Fixed assets net 96,211,000 54,007,130 Construction in progress 8,417,469 7,440,973 Less: provision for construction in progress 14,196 16,388 Construction in progress net 8,403,273 7,424,585 Material for construction 496,142 527,187 Disposal of Fixed assets 18,254 17,589 Total 105,128,669 61,976,491
ANNUAL REPORT 2008 99 Costs of the fixed assets: Opening balance Additions Disposals Closing balance Land use rights 2,102,393 2,758,450 55,652 4,805,191 Plant and buildings 21,169,371 38,647,464 1,068,977 58,747,858 Transportation equipment 3,132,527 1,986,025 550,592 4,567,960 Machinery & equipment 33,232,322 11,900,815 967,857 44,165,280 Others 5,998,249 3,304,165 3,646,996 5,655,418 Total 65,634,862 58,596,919 6,290,074 117,941,707
Accumulated depreciation: Opening balance Additions Written back Closing balance Land use rights 2,207 513,306 12,433 503,080 Plant and buildings 2,710,252 2,167,166 416,868 4,460,550 Transportation equipment 798,688 589,511 152,372 1,235,827 Machinery & equipment 6,984,024 5,603,630 485,703 12,101,951 Others 1,073,692 2,100,045 398,261 2,775,476 Total 11,568,863 10,973,658 1,465,637 21,076,884
Provision for impairment: Total provision for impairment losses Movement Opening Recovery Value of Closing Charge for Value recovery- due to other balance of value Subtotal write-off balance the period written back reasons written off Provision for fixed assets 58,869 600,602 - 1,070 599,532 4,578 - 653,823 Including: Plant and buildings 22,568 13,903 - 1,070 12,833 4,296 - 31,105 Machinery & equipment 126 35 - - 35 - - 161 Transportation equipment 851 583,912 - - 583,912 - - 584,763 Others 35,324 2,752 - - 2,752 282 - 37,794 Provision for construction 16,388 - 2,758 - -2,758 - 566 14,196 in progress Total 75,257 600,602 2,758 1,070 596,774 4,578 566 668,019
(7) Other Long-term Assets 2008 2007 Intangible assets 12,913,967 3,240,447 Less: provision for intangible assets 354 354 Intangible assets net 12,913,613 3,240,093 Deferred tax assets 5,064,054 1,874,167 Long-term deferred expenses 1,871,962 1,263,435 Repossessed assets 982,083 992,973 Less: provision for repossessed assets 391,769 318,231 Repossessed assets net 590,314 674,742 Long-term receivable 185,401 16,214 Less: provision for long-term receivable 1,971 2,018 Long-term receivable net 183,430 14,196 Right to trade in preciously non-tradable shares 129,518 130,733 Less: provision for right to trade in preciously non-tradable shares 1,295 1,307 Right to trade in preciously non-tradable shares net 128,223 129,426 Other long-term assets 9,196,729 1,383,336 Total 29,948,325 8,579,395
100 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Provision for impairment: Total provision for impairment losses Movement Opening Recovery of Value of Closing Charge for Value recovery- due to other balance value writ- Subtotal write-off balance the period written back reasons ten off Provision for 318,231 103,049 13,606 - 89,443 - -15,905 391,769 repossessed assets Provision for 2,018 ------47 1,971 long-term receivable provision for right to trade in preciously 1,307 - 12 - -12 - - 1,295 non-tradable shares Provision for 354 ------354 intangible assets Total 321,910 103,049 13,618 - 89,431 - -15,952 395,389
(8) Short-term Deposits from Customers 2008 2007 Short-term deposits 416,565,318 384,172,939 Short-term savings deposits 146,133,852 158,561,941 Deposits from banks and other financial institutions 102,680,092 98,240,639 Total 665,379,262 640,975,519
(9) Short-term Financing 2008 2007 Short-term loans 35,873,522 16,071,366 Current portion of long-term liabilities 8,049,289 3,804,293 Amounts of securities sold under repurchase agreements 1,027,219 15,234,145 Interbank borrowing 150,362 - Short-term bonds payable 145,948 383,992 Total 45,246,340 35,493,796
(10) Payables 2008 2007 Accounts payable 24,305,109 15,097,195 Receipts in advance 18,049,437 8,598,796 Other payables 17,225,839 15,188,928 Interest payable 7,284,443 4,512,224 Salary and compensation of employees payable 6,745,067 4,017,529 Tax payable 5,992,517 5,854,815 Bills payable 1,380,174 1,356,700 Dividend payable 415,373 67,609 Reinsurance and policy dividend payable 112,526 91,447 Total 81,510,485 54,785,243
ANNUAL REPORT 2008 101 (11) Other Current Liabilities 2008 2007 Derivative financial instruments 8,262,167 1,714,178 Accrued expenses 379,016 425,392 Estimated liability 128,723 121,060 Entrusted savings 20,004 1,349 Other current liabilities 3,841,994 3,168,588 Total 12,631,904 5,430,567
(12) Long-term Deposits from Customers 2008 2007 Long-term deposits 344,345,434 255,079,208 Long-term savings deposits 109,119,855 67,105,425 Total 453,465,289 322,184,633
(13) Long-term Bond Payables 2008 2007 Total long-term bond payables 53,999,153 54,671,861 Inc: the Company 26,871,283 26,810,957 China CITIC Bank Corporation Ltd. 12,000,000 12,000,000 CITIC Resources Holdings Ltd. 6,692,970 7,146,518 CITIC International Financial Holdings Limited 5,521,358 5,854,229 CITIC Guoan Group 2,913,542 2,860,157 ※ The internal transaction of the long-term bond payables of the Group has been offset during consolidation
(14) Other Long-term Liabilities 2008 2007 Derivative financial instruments 14,136,068 - Deferred tax liabilities 10,178,536 10,004,776 Long-term reserves 6,098,973 4,348,363 Long-term payables 4,143,707 1,637,578 Other long-term liabilities 1,241,736 1,011,673 Total 35,799,020 17,002,390
102 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Deferred tax assets and liabilities: Deferred tax assets Deferred tax liabilities 2008 2007 2008 2007 Amount formed by: Provision for loans and reserves 1,849,381 945,182 30 - Compensation for tax loss 732,350 - -95,684 1,341 Provision for bad debts 247,347 67,193 -20,504 25 Provision for impairment of 120,068 1,875 - - long-term investments Changes in fair value 165,572 24,150 1,113,080 1,419,882 Provision for inventories 73,426 19,996 - - Tax deductible 978,690 303,250 - - Provision for impairment of fixed assets -14,386 9,846 17 21 Accumulated depreciation: 1,558 - 1,054,071 771,830 Others 910,048 502,675 8,127,526 7,811,677 Total 5,064,054 1,874,167 10,178,536 10,004,776
(15) Capital Increase in Decrease in Opening balance Closing balance Note current year current year Capital 33,758,652 6,183,539 - 39,942,191 ※ ※ This item represents the paid-in capital contributed by the Ministry of Finance of the People’s Republic of China (MOF).The increased amount of RMB 6,183,539 thou- sand in the current year represents the transferred capital, including 6,102,973 thousand obtained from profits according to the Document Cai [2008]No.132 and 80,567 obtained from tax make-up for investing income abroad.
(16) Reserves 2008 2007 Capital reserves 46,566,066 48,475,321 Surplus reserves 9,464,283 8,666,961 Opening balance of retained earnings -561,111 -9,308,594 Difference from translation of financial statements dominated in foreign currencies -221,562 1,015,014 Total 55,247,676 48,848,702
Retained earnings: Amount Closing balance of 2007 (without the net profit of 2007) -9,380,595 Add: adjustments of opening balance 72,001 Other adjustment - Opening balance of 2008 (without the net profit of 2007) -9,308,594 Add: the net profit of 2007 15,870,210 Opening balance of 2008 6,561,616 Add: Transferred from net profit of 2008 14,248,703 Gain and losses recognized directly in equity -341,647 Less: appropriations for surplus reserve 678,108 Paid-in capital increased by retained earnings transfer 6,102,973 Closing balance of 2008 13,687,591
ANNUAL REPORT 2008 103 (17) Operating Income 2008 2007 Operating income of non-financial services 80,553,302 59,330,713 Interest income 62,795,830 43,515,239 Fee and commission 5,472,016 3,359,288 Insurance income 3,714,159 3,011,666 Other operating income 1,955,972 135,360 Total 154,491,279 109,352,266
(18) Operating Cost 2008 2007 Operating cost of non-financial services 65,953,268 47,327,378 Interest expenses 28,000,390 25,626,198 Commission 1,207,872 312,555 Cost of insurance business 2,245,734 3,152,420 Exchange losses 1,034,237 4,304,540 Total 98,441,501 80,723,091
(19) Operating Expenses 2008 2007 Staff costs 10,811,111 7,369,484 Depreciation 1,486,845 1,145,691 Entertainment expense 1,143,945 768,594 Rental charge 959,016 659,245 Transportation expenses 917,290 534,001 Amortisation 597,596 423,533 Advertisement expenses 595,696 482,446 Sundry expenses 507,899 213,021 Publicizing expenses 397,002 389,638 Postage expenses 374,132 273,935 Other operating expenses 4,630,321 3,068,127 Total 22,420,853 15,327,715
104 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(20) Provisions for Impairment Losses Charge for Value recovery- Recovery of value Total provision the period written back written off for 2008 Provision for shor-term investments 586,080 - - 586,080 Provision for bad debts 2,845,917 61,016 42,650 2,742,251 Provision for inventories 828,562 15,333 - 813,229 Provision for loan losses 6,795,639 968,075 139,469 5,688,095 Provision for entrusted loans - 77 1,000 -1,077 Provision for long-term investments 49,917 257 2,934 46,726 Provision for fixed assets 600,602 - 1,070 599,532 Provision for construction in process - 2,758 - -2,758 Provision for intangible assets - - - - Provision for repossessed assets 103,049 13,606 - 89,443 Provision for other long-term assets - 12 - -12 Writing off of non-performing assets 220,814 - - 220,814 Total 12,030,580 1,061,134 187,123 10,782,323
(21) Supplemental Information of Cash Flow Statements (a) Reconciliation of net profit to cash flows from operating activities. Item Amount 1.Reconcliliation of net profit to cash flows from operating activities Net profit 20,153,799 Add: provision for impairment loss of assets -10,782,323 Depreciation of fixed assets 4,252,817 Amortization of intangible assets 177,924 Amortization of long-term deferred expenses 688,700 Decrease in prepaid expenses(deduct:increase) 1,467 Increase in accrued expenses (deduct:decrease) 120,641 Losses on disposal of fixed assets, intangible assets and other long-term assets(deduct:gains) 1,351,172 Losses on scrapping of fixed assets 156,322 Financial expenses (deduct:gains) 3,070,493 Losses from investments (deduct:gains) -6,728,656 Deferred tax Credits (decuct:decrease) -3,016,127 Decrease in inventories (or decuct: increase) -23,881,346 Decrease in operating receivables (deduct:increase) 78,711,439 Increase in operating payables (deduct:decrease) 68,082,866 Others 4,422,728 Net cash flows from operating activities 136,781,916
ANNUAL REPORT 2008 105 2.Investing and financing activities that do not affect cash receipt and payment Liabilities converted to capital - Reclassify convertible bonds to be expired within one year as current liablity - Fixed assets financed by finance leases - 3.Net increase/ decrease in cash and cash equivalents: Cash at the end of the year 210,478,549 Including: cash on hand 4,684,891 Deposit at bank which can be paid at any time 31,584,333 Other monetary assets which can be paid at any time 8,086,846 Deposits with the central bank 108,074,849 Deposits from banks and other financial institutions 34,650,858 Inter-bank placements 23,396,772 Cash equivalents at the end of the year 8,460,274 Including: short-term bonds investment (maturity within 3 months) 7,750,937 Less: cash at the beginning of the year 81,609,681 Less: cash equivalents at the beginning of the year 26,846,946 Net increase/ decrease in cash and cash equivalents 110,482,196
(b) Cash and Cash Equivalents 2008 2007 Amount of cash and cash equivalents in balance sheet: Deposits with central bank 107,676,937 33,545,000 Cash and deposits (excluding deposits with central bank) 92,271,368 37,771,835 Inter-bank placements 18,987,409 10,364,000 Short-term investments 3,108 26,775,792 Total 218,938,822 108,456,627 Corresponding amount in balance sheet: Deposits with central bank 203,243,244 119,027,823 Cash and deposits (excluding deposits with central bank) 93,994,273 49,479,412 Inter-bank placements 19,053,591 11,053,496 Short-term investments 114,556,861 103,452,013 Total 430,847,969 283,012,744 Less: short-term investments (maturity more than 3 months) 211,909,147 174,556,117 Cash and cash equivalents 218,938,822 108,456,627
106 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
6. Interpretation for Important Accounts of the Company’s Financial Statements (1) Cash and Deposit 2008 2007 Deposit at bank 16,927,241 9,180,464 Other monetary assets 590,022 918,814 Total 17,517,263 10,099,278
(2) Receivables 2008 2007 Dividends receivable 389,557 3,565,020 Interests receivable 62,034 40,924 Other receivables 22,074,702 7,360,564 Less: provision for bad debts 5,705,745 3,619,348 Total 16,820,548 7,347,160
(3) Loans 2008 2007 Short-term loans 771,132 864,296 Less: provision for short-term loans 3,923 5,446 Total short-term loans 767,209 858,850 Medium and long-term loans 996,393 1,143,480 Less: provision for medium and long-term loans 830,523 933,952 Total medium and long-term loans 165,870 209,528 Total loans 933,079 1,068,378 ※ The loans mentioned above are capitalized loans to internal subsidiaries, which were formed before the re-organization. The loans issued after the re-organization are accounted as short-term investments in the form of entrusted loans
(a) Analysis by categories (short-term loans, medium and long-term loans): Short-term loans 2008 2007 Unsecured loans 771,132 864,296 Total 771,132 864,296
ANNUAL REPORT 2008 107 Medium and long-term loans By nature and original maturity: 2008 1-5 years over 5 years Total Unsecured loans 97,623 749,415 847,038 Loans with guarantees - 33,775 33,775 Loans secured by properties - 60,767 60,767 Loans pledged by monetary assets 54,813 - 54,813 Total 152,436 843,957 996,393
2007 1-5 years over 5 years Total Unsecured loans 189,531 756,020 945,551 Loans with guarantees - 76,269 76,269 Loans secured by properties - 63,077 63,077 Loans pledged by monetary assets 58,583 - 58,583 Total 248,114 895,366 1,143,480
(b) Provision for Loans Losses
Total provision for impairment losses Movement Opening Value of Closing Charge for Other due to other balance Subtotal write-off balance the period reasons reasons Provision for 5,446 - -2,115 -2,115 - 592 3,923 short-term loans Provision for medium and 933,952 73,277 38,431 -34,844 57,968 -10,617 830,523 long-term loans Total 939,398 73,277 36,316 -36,959 57,968 -10,025 834,446
(4) Investments 2008 2007 Short-term investments 7,275,009 14,743,686 Long-term investments 138,108,064 133,479,469 Total investments 145,383,073 148,223,155
108 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(a) Short-term investments 2008 2007 Delegated management assets 4,236,709 10,174,775 Stocks 300,000 878,693 Bonds - 1,578 Fund 1,566,497 63,840 Other investments 1,230,000 3,730,000 Total short-term investments 7,333,206 14,848,886 Less: Provision for short-term investments 58,197 105,200 Total 7,275,009 14,743,686 ※ The market value of the short term investments in 2008 is 7,275,010 thousand, and in 2007 is 15,040,070 thousand
(b) Long-term equity investments 2008 2007 Investments in: Listed companies 75,803,398 66,140,895 Unlisted special companies which hold the shares of the listed companies 30,165,386 27,744,383 Other unlisted companies 39,160,320 47,850,692 Others 80,000 195,750 Total 145,209,104 141,931,720 Less: provision for long-term investments 7,101,040 8,452,251 Net carrying amount 138,108,064 133,479,469 ※ As at 31 December 2008, the market value of listed companies directly held by the Company and indirectly held through unlisted special companies by the Company is RMB 158,532,400 thousand; while as at 31 December 2007 the market value is RMB 356,001,580 thousand.
※ Analysis by industry: 2008 2007 Financial services 97,157,118 83,938,612 Resources 8,086,737 19,974,580 Investment holding 24,631,650 23,943,871 Real estate and civil infrastructure 4,037,740 3,639,395 Manufacturing 4,729,914 4,794,242 Information industry 3,960,162 4,322,367 Trading and services 1,663,950 870,659 Project contracting 941,833 447,994 Total long-term equity investments 145,209,104 141,931,720 Less: provision for long-term investments 7,101,040 8,452,251 Net carrying amount of long-term equity investments 138,108,064 133,479,469
ANNUAL REPORT 2008 109 (c) Provision for investments
Total provision for impairment losses Movement Opening Value of Closing Charge for Other due to other balance Subtotal write-off balance the period reasons reasons Provision for 105,200 - -47,003 -47,003 - - 58,197 short-term investments Provision for medium and 8,452,251 2,934 -1,223,794 -1,226,728 -14,368 -138,851 7,101,040 long-term loans Total 8,557,451 2,934 -1,270,797 -1,273,731 -14,368 -138,851 7,159,237
(5) Other Current Assets 2008 2007 Entrusted loans 15,664,703 8,806,194 Less: provision for entrusted loans 862,517 294,328 Swap 6,658 - Total 14,808,844 8,511,866
(c) Provision for investments
Total provision for impairment losses Movement Opening Value of Closing Charge for Other due to other balance Subtotal write-off balance the period reasons reasons provision for 294,328 1,000 569,189 568,189 - - 862,517 entrusted loans Total 294,328 1,000 569,189 568,189 - - 862,517
(6) Fixed Assets Costs of the fixed assets: Opening balance Additions Disposals Closing balance Plant and buildings 21,828 - 1,545 20,283 Transportation equipment 21,225 11 2,756 18,480 Machinery & equipment 870,509 5 3,438 867,076 Others 47,791 3,942 102 51,631 Total 961,353 3,958 7,841 957,470
110 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
Accumulated depreciation: Opening balance Additions Written back Closing balance Plant and buildings 10,711 1,109 1,143 10,678 Transportation equipment 11,101 1,465 1,743 10,822 Machinery & equipment 604,456 222,493 3,270 823,679 Others 34,722 2,774 98 37,398 Total 660,990 227,841 6,254 882,577
(7) Other Long-term Assets 2008 2007 Intangible assets 1,162 2,557 Long-term deferred expenses 157,843 176,888 Repossessed assets 125,758 134,172 Long-term receivable 195,124 199,777 Right to trade in preciously non-tradable shares 128,221 129,425 Total 608,108 642,819 ※ The long-term deferred expenses represents the costs of issuing bonds.
(8) Short-term Financing 2008 2007 Short-term loans 4,399,190 3,919,190 Current portion of long-term liabilities 3,905,206 612,181 Total 8,304,396 4,531,371
(9) Payables 2008 2007 Accounts payable 201,731 186,076 Other payables 2,459,340 1,047,214 Consigned investments 7,946,735 7,330,138 Tax payable 689 537,363 Total 10,608,495 9,100,791
ANNUAL REPORT 2008 111 (10) Other Current Liabilities 2008 2007 Profit receipts in advance - 54,036 Swap - 50,964 Total - 105,000
(11) Long-term Bond Payables
Closing balance Closing balance Cut-off Date Interest rate (%) ( in RMB) ( in Original currency)
YEN 96 Samurai Sep.19,1996—Sep.19,2016 4.95 10,000,000 757,632 RMB 01 CITIC Dec.19,2001—Dec.19,2011 3.98 3,500,000 3,500,000 02 CITIC Sep.26,2002—Sep.26,2017 4.08 4,500,000 4,500,000 03 CITIC 4 billion Dec.12,2003—Dec.12,2013 4.5 4,000,000 4,000,000 03 CITIC 6 billion Dec.12,2003—Dec.12,2023 5.1 6,000,000 6,000,000
05 CITIC 5 billion Dec.9,2005—Dec.9,2015 Basic interest rate +1.48 5,000,000 5,000,000
05 CITIC 4 billion Dec.9,2005—Dec.9,2025 4.6 4,000,000 4,000,000 Total 27,757,632 ※ Repayment projection: 01 CITIC, 02 CITIC and 05 CITIC 4 billion are designated to pay the interests annually and to pay the principle at the maturity date. 03 CITIC, 05 CITIC 5 billion and 96 Samurai are designated to pay the interests semi-annually and to pay the principle at the maturity date.
(12) Other Non-current Liabilities 2008 2007 Derivative financial instruments 8,243,396 - Long-term payables - 1,724,000 Total 8,243,396 1,724,000
112 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(13) Capital Increase in Decrease in Opening balance Closing balance Note current year current year Capital 33,758,652 6,183,539 39,942,191 ※ ※ This item represents the paid-in capital contributed by the Ministry of Finance of the People’s Republic of China (MOF).The increased amount of RMB 6,183,539 thousand in the current year represents the transferred capital, including 6,102,973 thousand obtained from profits according to the Document Cai [2008]No.132 and 80,567 obtained from tax make-up for investing income abroad.
(14) Reserves 2008 2007 Note Capital surplus 46,908,472 48,370,660 ※1 Surplus reserves 9,464,283 8,666,961 Opening balance of retained earnings 61,522 -9,130,306 ※2 Difference from translation of financial statements dominated 54,140 77,640 in foreign currencies Total 56,488,417 47,984,955 ※ (i) The movements of the capital surplus represents the Company’s adjustments along with the changes of its invested companies’ capital surplus according to the equity method. The amount is RMB1,462,188 thousand. ※ (ii) Movements of retained earnings: Amount Closing balance of 2007 6,781,081 Add: adjustments of opening balance -4,872 Other adjustment -6,714,687 Opening balance of 2008 61,522 Transferred from net profit of 2008 14,177,955 Closing balance of 2008 14,239,477
(15) Other Non-current Liabilities 2008 2007 Interests 65,659 99,316 Fee and commission 43,327 38,079 Other operating income 1,764,187 363,368 Total 1,873,173 500,763
ANNUAL REPORT 2008 113 (16) Operating Cost 2008 2007 Interest expenses 3,238,969 3,066,154 Exchange losses 1,799,056 4,283,945 Commission 5,440 27,493 Other operating costs 19,920 179,484 Total 5,063,385 7,557,076
(17) Investment Income 2008 2007 IIncome from short-term investments 885,036 452,550 Income from long-term investments 19,136,685 27,148,345 Including: recognized income(loss) according to equity method 19,033,895 18,540,544 Income from stock transfer 281,594 8,626,581 Dividends from invested companies 40,896 58,821 Others -219,700 -77,601 Total 20,021,721 27,600,895
114 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
7. Segmental Reporting (a) Business segments 2008 Real estate Financial and civil Project Resources Manufacturing Information Trading and Head Unallocated Elimination Total services infrastructure contracting industry services office
Operating income 75,029,809 4,703,073 10,757,960 40,492,574 13,512,085 2,773,605 6,697,834 1,873,173 700,438 -2,049,272 154,491,279
Operating costs 28,313,341 2,682,061 9,757,600 35,418,395 11,899,519 2,303,563 5,355,520 5,063,385 293,231 -2,645,114 98,441,501
Operating -51,509 expenses 15,702,513 742,756 322,042 1,466,819 1,364,254 726,094 1,283,328 703,806 160,750 22,420,853 Investment income 482,565 1,180,513 98,398 141,861 713,719 605,603 218,024 20,021,721 1,547,234 -18,280,982 6,728,656 Business taxes and surcharges 2,980,951 646,537 157,481 82,519 41,780 73,050 89,492 82,837 - - 4,154,647 Operating profit 28,515,569 1,812,232 619,235 3,666,702 920,251 276,501 187,518 16,044,866 1,793,691 -17,633,631 36,202,934 Add: non-opera ting income 242,666 43,289 20,929 107,960 100,183 14,207 72,168 15,049 30,039 - 646,490 Less: non-opera ting expenses 90,356 16,002 5,726 -4,574 18,620 10,856 56,710 21,006 2,872 - 217,574 Profit before provision for 28,667,879 1,839,519 634,438 3,779,236 1,001,814 279,852 202,976 16,038,909 1,820,858 -17,633,631 36,631,850 impairment losses Less: provision for impairment losses 7,427,882 51,246 -326 1,258,651 91,351 10,592 162,540 1,780,387 - - 10,782,323 Profit after provi- sion for impair- 21,239,997 1,788,273 634,764 2,520,585 910,463 269,260 40,436 14,258,522 1,820,858 -17,633,631 25,849,527 ment losses Less: income tax 5,695,728
Net Profit 20,153,799 Net profit at- tributable to shareholders of 14,248,703 the company Minority interests 5,905,096
2008
Real estate Financial and civil Project Resources Manufacturing Information Trading and Head office Unallocated Elimination Total services infrastructure contracting industry services
Assets 1,320,355,225 91,221,576 16,414,434 82,382,187 48,036,299 19,115,347 41,114,938 196,145,808 28,539,200 -211,737,681 1,631,587,333
Liabilities 1,200,302,944 46,735,602 15,314,018 57,673,216 28,772,391 7,827,961 18,097,039 85,537,245 53,861,154 -73,999,292 1,440,122,278
ANNUAL REPORT 2008 115 2007 Real estate Financial and civil Project Resources Manufacturing Information Trading and Head Unallocated Elimination Total services infrastructure contracting industry services office
Operating income 55,350,388 5,389,135 7,580,832 22,525,789 11,415,756 2,601,794 5,215,726 500,763 509,476 -1,737,393 109,352,266
Operating costs 25,455,683 3,107,467 6,949,838 19,958,420 9,830,496 2,099,262 3,936,756 7,557,076 724,046 1,104,047 80,723,091
Operating -2,650,551 expenses 11,894,322 670,801 262,798 845,937 1,222,775 564,369 1,188,067 580,153 749,043 15,327,715 Investment income 1,534,994 2,299,413 153,311 1,126,316 875,001 1,044,686 992,156 27,600,895 3,446,205 -15,384,699 23,688,278 Business taxes and surcharges 2,116,645 820,696 118,329 27,358 43,879 65,640 100,420 16,698 - - 3,309,665 Operating profit 17,418,732 3,089,583 403,177 2,820,389 1,193,606 917,210 982,639 19,947,731 2,482,593 -15,575,589 33,680,073 Add: non-opera ting income 190,237 113,511 8,251 21,460 121,731 7,113 224,154 13,083 15,915 - 715,456 Less: non-opera ting expenses 80,281 21,878 6,231 288 44,353 20,447 723,430 19,390 1,117 - 917,414 Profit before provision for 17,528,688 3,181,217 405,197 2,841,562 1,270,984 903,876 483,364 19,941,424 2,497,392 -15,575,588 33,478,115 impairment losses Less: provision for impairment losses 3,000,120 218,602 28,323 15,456 98,707 75,333 252,917 2,440,817 798,899 - 6,929,174 Profit after provi- sion for impair- 14,528,567 2,962,615 376,874 2,826,106 1,172,278 828,542 230,446 17,500,607 1,698,492 -15,575,588 26,548,941 ment losses Less: income tax 7,204,353
Net Profit 19,344,588 Net profit at- tributable to shareholders of 15,870,210 the company Minority interests 3,474,378
2007
Real estate Financial and civil Project Resources Manufacturing Information Trading and Head Unallocated Elimination Total services infrastructure contracting industry services office
Assets 1,132,739,212 45,778,779 10,693,941 48,089,208 21,655,791 14,469,256 28,292,950 176,193,019 35,483,492 -194,634,365 1,318,761,284
Liabilities 1,032,007,865 28,831,936 10,593,931 28,716,190 13,206,462 7,415,838 13,157,330 78,542,897 35,167,735 -69,983,317 1,177,656,869
116 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
(b) Geographical segments 2008 2007 HongKong HongKong Domestic SAR Others Elimination Total Domestic SAR Others Elimination Total Operating income 117,258,935 36,881,162 995,153 -643,971 154,491,279 85,714,484 23,164,866 1,214,790 -741,874 109,352,266
Operating costs 70,677,027 27,656,289 752,156 -643,971 98,441,501 60,611,423 19,698,306 948,071 -534,709 80,723,091
Operating expenses 20,303,602 2,002,334 166,426 -51,509 22,420,853 12,743,017 2,439,930 161,044 -16,276 15,327,715
Investment income 11,297,764 1,433,048 42,975 -6,045,131 6,728,656 24,254,500 6,507,176 47,517 -7,120,915 23,688,278 Business taxes and surcharges 4,105,673 48,974 - - 4,154,647 3,307,146 2,519 - - 3,309,665 Operating profit 33,470,397 8,606,613 119,546 -5,993,622 36,202,934 33,307,398 7,531,287 153,192 -7,311,804 33,680,073 Add: non-operating income 581,027 65,463 - - 646,490 619,306 91,620 4,530 - 715,456 Less: non-operating expenses 219,672 -2,098 - - 217,574 917,387 27 - - 917,414 Profit before provision for 33,831,752 8,674,174 119,546 -5,993,622 36,631,850 33,009,317 7,622,880 157,722 -7,311,804 33,478,115 impairment losses
Less: provision for impairment losses 8,476,009 2,297,540 8,774 - 10,782,323 6,783,083 146,091 - - 6,929,174
Profit after provision for 25,355,743 6,376,634 110,772 -5,993,622 25,849,527 26,226,234 7,476,789 157,722 -7,311,804 26,548,941 impairment losses Less: income tax 5,695,728 7,204,353
Net Profit 20,153,799 19,344,588
Net profit attribut- able to sharehold- 14,248,703 15,870,210 ers of the company
Minority interests 5,905,096 3,474,378
2008 2007 HongKong HongKong Domestic SAR Others Elimination Total Domestic SAR Others Elimination Total
Assets 1,414,744,383 314,099,190 3,350,310 -100,606,550 1,631,587,333 1,189,421,565 212,205,620 6,052,629 -88,918,530 1,318,761,284
Liabilities 1,255,092,466 217,272,339 927,477 -33,170,002 1,440,122,280 1,055,411,987 150,875,044 1,553,636 -30,183,798 1,177,656,869
8. Related Party Transactions The transactions with related parties of the Group in 2007 included transactions in operating activities with those associates and joint ventures of the Group. These transactions were in terms of normal business contracts and lines, and traded at market prices. All the intra- group transactions of the Group are not disclosed since they have been eliminated in the preparation of the consolidated financial state- ments. (a) Transactions with related parties (income statement items)
ANNUAL REPORT 2008 117 With related parties Total amount incurred As percentage of in 2007 in 2007 the total amount (%) (1) (2) (1)/(2) Operating income 84,185 154,491,279 0.05% Operating cost 963,183 98,441,501 0.98%
(b) Balances of receivables and payables arising from related parties (balance sheet items) 2008 2007 As percentage As percentage With related Total balance in With related par- Total balance in of the total of the total parties balance sheet ties balance sheet amount (%) amount (%) (1) (2) (1)/(2) (3) (4) (3)/(4) Assets: Deposits from banks and 11,059,954 40,559,991 27.27% - 27,291,800 - other financial institutions Account receivables 19,776 19,052,394 0.10% 47,369 9,571,286 0.49% Interests receivable 3,910 3,940,779 0.10% - 3,436,489 - Other receivables 85,121 14,624,397 0.58% 51,631 14,573,079 0.35% Short-term investments 179,347 115,254,442 0.16% - 103,564,729 - Short-term loans to customers 744,382 387,381,477 0.19% - 319,734,658 - Medium and long-term loans 975,000 320,271,160 0.30% - 286,650,946 - Liabilities: Shor-term deposits 309,316 416,565,318 0.07% - 384,172,939 - Account payables 21,970 24,305,109 0.09% 49,804 15,097,195 0.33% Accured expenses 49,522 379,016 13.07% 64,455 425,392 15.15% Receipts in advance 314 18,049,437 0.00% - 8,598,796 - Other payables 38,422 17,225,839 0.22% 42,046 15,188,928 0.28% Long-term deposits 171,546 344,345,434 0.05% - 255,079,208 -
9. Contingencies (1) Commitments 2008 2007 Consolidated The Company Consolidated The Company I Loan Commitment Loan guarantee 50,191,129 - 19,993,881 - Issuing a L/G 71,254,781 21,772,870 53,200,520 8,864,610 Issuing a L/C 32,617,799 - 38,713,521 - Acceptance Bills 222,157,900 - 174,580,962 - Credit card commitment 38,740,884 - 22,682,388 - Debt guarantee 2,549,097 11,190,120 7,094,534 12,918,350 Subtotal 417,511,590 32,962,990 316,265,806 21,782,960 II Capital commitment Approved but not signed contracts 22,448,143 - 200,072 - Contracts signed but not paid 491,056 - 398,879 - Subtotal 22,939,199 - 598,951 -
118 CITIC Group NOTES TO FINANCIAL STATEMENTS CITIC GROUP
III Operating lease commitment Within 1 year (include 1 year) 1,017,812 - 606,417 - More than 1 year and less than 5 years 2,357,491 - 1,412,145 - (includes 5 years) More than 5 years 1,201,018 - 953,088 - Subtotal 4,576,321 - 2,971,650 - Total 445,027,110 32,962,990 319,836,407 21,782,960 ※ The internal commitment of the Group has been offset during consolidation.
(2) Derivative financial instruments Derivative financial instruments are off-balance sheet instruments, including forward, swaps, and option contracts conducted in exchange and interest market. The following tables provide the nominal amounts and the fair value of derivatives of the Group and the nominal amounts are analyzed at the balance sheet date. The nominal amounts of the derivatives indicate the volume of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
2008 2007
Nominal Fair value Nominal Fair value amount Assets Liabilities amount Assets Liabilities Interest rate contracts 263,136,647 3,995,843 8,364,684 166,844,706 1,246,366 680,952 Exchange contracts 225,571,142 2,893,603 6,286,411 164,896,908 1,635,514 2,054,350 Credit contracts 1,157,346 13,000 62,000 456,000 9,000 2,000 Total 489,865,135 6,902,446 14,713,095 332,197,614 2,890,880 2,737,302
(3) Outstanding litigations As at 31 December 2008, the Group was the defendant in certain pending litigations. The total amount involved in these litigations was approximately RMB 319,030 thousand.
10. Comparative figures 1. The 17 subsidiaries of the Group such as CITIC Trust & Investment Co., Ltd., have started to implement new Accounting Standard on January 1, 2008, which increases the assets RMB1,467,650 thousand, liabilities RMB 353,410 thousand and the owners’ equity RMB1,114,240 thousand on December 31, 2007. 2. The subsidiary CITIC Real Estate Co.,Ltd. referred to the listing case upon corporate-reform assessment adjustment of the state-owned companies such as China Railway Group Limited and China Railway Construction Corporation. The statements of the parent company are on the basis of evaluation, but the consolidated statements are still prepared on the book-value basis. Compared to the year 2007, the subsidiary decreases the asset RMB 5,169,690 thousand, increases liabilities RMB 13,340 thousand and decreases the owners’ equity RMB5,183,030 thousand on December 31, 2007. 3. Due to the assets evaluation and prior year accounting errors and other prior year adjustments, the Group has increased the asset RMB 734,130 thousand, liabilities RMB 76,420 thousand and the owners’ equity RMB657,710 thousand on December 31, 2007.
ANNUAL REPORT 2008 119