CHINA EVERBRIGHT LIMITED LEADING 一路領前THE WAY ANNUAL REPORT 2016 | STOCK CODE : 165 ANNUAL REPORT 2016 REPORT ANNUAL CHINA EVERBRIGHT LIMITED 46/F, Far East Finance Centre, 16 Harcourt Road, Hong Kong Tel: (852) 2528 9882 Fax: (852) 2529 0177 www.everbright165.com LEADING THE WAY COVER STORY In 2016, Everbright not only saw groundbreaking growth in fundraising scale, results were also achieved in diversity, specialisation and product innovation to contribute to the successful development of core competence across different dimensions. We can speak with pride that Everbright, after 20 years of development, is now at the forefront of China’s cross-border asset management and investment scene. CONTENTS Company Overview 8 Corporate Strategy 9 2016 Results Highlights 10 2016 Review 14 Chairman’s Statement 22 Management Discussion and Analysis 24 Environmental, Social and Governance Report 42 Corporate Governance Report 66 Risk Management Report 88 Directors’ Report 96 Directors and Senior Management 109 Independent Auditor’s Report 113 Consolidated Statement of Profit or Loss 118 Consolidated Statement of Comprehensive Income 119 Consolidated Statement of Financial Position 120 Consolidated Statement of Changes in Equity 122 Consolidated Statement of Cash Flows 123 Notes to the Financial Statements 124 Financial Summary 203 Particulars of Major Properties 204 Corporate Information Inside back cover CORE COMPETENCE On the strength of its core competence, Everbright is well-placed to meet the demand for one-stop fund allocation among large corporations, laying a solid foundation for enhancing the Company’s fundraising scale and investment scope. CONVICTION In a relatively volatile market, we place a high value on developing fund-management and investment as our core operations, resulting in a significantly higher profit contribution that reflects the growing sophistication of CEL’s asset management platform. SYNERGY Everbright has not only created a system for generating synergy across the organization, but has also been working with its fellow subsidiaries and industry organisations with complementary strengths to expand business and build strong economies of scale to support their quick access to growth sectors. 008 COMPANY OVERVIEW CHINA EVERBRIGHT GROUP CHINA EVERBRIGHT LIMITED (165.HK) CHINA EVERBRIGHT EVERBRIGHT BANK SECURITIES (holding 3.37%) (holding 24.71%) CROSS-BORDER ASSET MANAGEMENT AND INVESTMENT PLATFORM FUND MANAGEMENT – FIVE DRIVERS PRINCIPAL INVESTMENT – FOUR PHILOSOPHIES Primary market Investing in unlisted enterprises and in Fund Support investment teams at the growth funds those industries with long-term growth Incubator stage and to incubate quality private potential in China and Overseas equity funds Secondary Focus on investment opportunities in Direct Create positive synergies between its fund market funds listed securities. Provide more options via investment & management and capital operations flexible asset allocation Co-investment Mezzanine Seek opportunities for financing & Long-term Participate in and nurture financial funds investments in the short-mid term industry institutions that have the potential for development long-term development Everbright A fund distribution platform, raising Liquidity Enhance its capital efficiency and improve Prestige funds from HNW individuals onshore cash flow through a treasury or wealth for investment in CEL and third-party management model products Fund of funds As CEL’s first multi-strategy alternative investment fund, FoF can help diversify institutional investors’ portfolios China Everbright Limited 009 CORPORATE STRATEGY We strive to build a cross-border asset management platform that combines our leading core competencies with high growth, high return and stable income We strive to provide long-term returns for shareholders, and to achieve sustained growth in earnings per share and book value. Facing the opportunities that Our cross-border investment China’s financial market is and asset management gradually opening, through platform, which covered our diversified product, we the Chinese market and the can provide tailored one-stop OUR global market, has the ability asset management solutions DISTINCTIVE to achieve sustained stable to domestic investors to invest DEVELOPMENT income under complicated in global markets. STRATEGY market conditions. We provide investors (LP) from Japan, With our own funds, we can either US and Europe with opportunities, provide seed funding or support the and cooperate with several global project financing, to drive the rapid institutions (GP) to explore and invest in development of asset management companies in Mainland China. business. History and milestones of China Everbright Limited 1997 – 1999 2000 – 2004 2005 – 2007 2008 – 2010 2011 – Now Strived to be the first Entering into the field Expand the company’s Nurturing a cross- Scale growth and offshore Chinese of direct investment investment fund border asset platform integration financial holding operations management platform company The Group has built a cross-border 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 potentials • A Hong Kong-listed platform with international standards of operations • 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 strength 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 and 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 Annual Report 2016 010 2016 RESULTS HIGHLIGHTS The domestic and overseas platforms play a strong financing role, helping the Company to successfully issue panda bonds in mainland China and continue to secure syndicated loans elsewhere. As a Chinese-funded financial institution operating in Hong Kong for 20 years, we CORE derive our competitive edge from a wealth of experience and a full spectrum COMPETENCE of cross-border business licences. The Company, with the capacity for long, short and medium term fund allocations, is best placed to meet customers’ diversified allocation needs in an investment cycle. The Company actively pursues industry consolidation, exiting projects through a combination of block trading, asset securitisation and fund replacement. The Company boasts well-rounded product lines that run the full gamut from venture capital, private equity investment and industry investment through secondary market investment to asset securitization. This diversity covers the full lifecycle of a corporation, enabling CEL to build its whole value chain capability. Committed to a development strategy of differentiation, CEL now relies on fund management and principal investment as its dual growth drivers. Fund management and investment business, CEL’s core operations, performed remarkably well posting a pre-tax profit of HK$5.6 billion, up 303% from last year. CONVICTION The total amount of fundraising reached HK$87.5 billion, an increase of 79% from last year. Recurrent income, including management fee, consultancy fee and interest income, accounts for over 14% of the Group’s total income. Other net income, derived mainly from investment business, reached HK$5.22 billion, up 546%. During the year, a number of investment projects went public, bringing the number of listed investee projects to 13. CEL utilises its own capital to expedite plans for expansion in the Internet, elderly care, education and other sectors with long-term growth potential. Working closely with China Everbright Group and its fellow subsidiaries, CEL has benefited from synergies in project collaboration, fundraising, and post- investment management. The establishment of Everbright-IDG Industrial Fund reflects CEL’s successful SYNERGY cooperation with IDG, a fund manager with a strong brand impact and a proven track record. CEL’s deep cooperation with Focus Media, a media industry leader, leads to the birth of a new industry investment fund – Everbright Zhongying Capital. The synergies developed across business teams grew significantly as CEL’s Secondary Market Fixed Income Team completed the asset securitisation project for CALC with Everbright Bank and China Aircraft Leasing. The value of CEL’s platform has been enhanced by the strong synergies created between its asset management and investment operations. China Everbright Limited 011 2016 RESULTS HIGHLIGHTS (CONTINUED) Operating income (in HK$ 100 million) 2016 2015 Change Operating income, mainly including: 21.7 21.3 2% Fund management fees 5.4 2.5 116% Consultancy fees 2.7 3.0 -10% Interest income 2.4 6.0 -60% Dividend income 10.7 8.4 27% – Contribution from China Everbright Bank (after tax) 3.2 3.3 -3% Financial performance of CEL’s direct operating business (in HK$ 100 million) 2016 2015 Change Pre-tax profit of Fund Management Business 53.0 10.9 386% Pre-tax profit of Principal Investment Business 3.0 3.0 – Total expenditure 13.3 11.8 12.7% Operating