Chairman's Letter to Shareholders

Dear Shareholders,

My last letter to you in August 2014 came on the heels of our purchase of CITIC Group’s businesses and our transformation into CITIC Limited. We brought in many new investors, both domestic and international, including most recently Charoen Pokphand Group of Thailand and ITOCHU Corporation of Japan, two of Asia’s leading conglomerates. At the time, I described the reasons for this historic change, the many tasks ahead, and our commitment to you to create value from our expanded range of businesses.

Joined by senior managers who have served alongside me at both CITIC Group and CITIC Pacific, we approached these tasks as a team with shared vigour and values. These values include innovation, reform and openness, as well as a determined pursuit of commercial opportunities and optimal capital allocation.

Quite understandably, our stakeholders have been asking important questions such as “how are you getting on with the integration?”, “what does the CP-ITOCHU investment mean for the company?”, and “what will CITIC look like five years from now?”

At the beginning of the transition, our employees were asking whether it was the Hong Kong team leading the Beijing team or vice versa. As we start to feel more like one team in two locations, those distinctions and any initial concerns are fading. The organisation’s integration is well advanced. But we face cultural and intangible challenges. No one should assume that just because we are merging Chinese assets, companies and people, it will be a quick and easy process. Hong Kong and Beijing approach certain things differently.

Cultural integration means that we have to find a middle ground. In today’s corporate world, companies need leaders and employees who understand that corporate cultures are multi-faceted, organic and open to outside influence. Our CITIC culture is also in a state of dynamic change. We want our valuable “CITIC” brand to reflect this emerging culture, which will only increase our brand value.

I like the term “third culture”, which was first coined by researchers John and Ruth Useem in the 1950s to describe expatriate families. The fundamental concept is that when people come from one culture and live and work in another, especially early in life or their careers, an amalgamation of cultures is created — a third culture — that does not match either their origin or destination.

My objective is to develop a third way, a CITIC way that is neither designed by an individual nor created by edict or a mission statement, but shaped over time by the actions, behaviours, and ideas of our diverse group of employees.

In the last six months, we have been mapping out our longer-term strategy and improving our corporate governance and market transparency. We are busy both acting as a steward of our current businesses and scanning the horizon for new investments and ways to generate value for you. We are ambitious.

I am grateful to our shareholders and employees for bearing with us as we knit our businesses and people into one cohesive company and plan for the next phase of our corporate journey. The scale of the change in twelve short months is remarkable. Our total headcount is now around 125,000 compared with 36,500 when we were CITIC Pacific. Net assets are HK$575.5 billion, over four times bigger than a year ago.

In this letter, I will report on our progress, in particular how we are advancing our business strategy and solidifying our conglomerate’s equity value and future returns. We want to showcase the building blocks of our company through this annual report, our website and ongoing communications so you can see how the story of CITIC Limited is coming together. I will begin with a summary of the financial performance of the new CITIC Limited in 2014.

Financial Performance

Profit attributable to ordinary shareholders was HK$39.8 billion in 2014, HK$8.6 billion less than 2013. This was after a HK$13.7 billion after tax non-cash impairment charge related to the Sino Iron project in Australia. Excluding this impairment, profit increased 10% due primarily to the solid performance of the financial services sector, with CITIC Bank representing a large portion of that contribution. Businesses in the nonfinancial sectors did less well. The significant decline in commodity prices as well as a subdued property market affected our bottom line in these sectors.

The financial position of CITIC Limited has been greatly enhanced, and the rating agencies have upgraded our credit rating, which reduces our cost of funds in the public markets and widens the market for our bond and other issues. We have sufficient financial resources and flexibility to execute our investment plans.

Our board recommends a final dividend of HK$0.20 per share to shareholders, giving a total dividend of HK$0.215 per share for the year 2014.

Governance

One of our key immediate tasks, post-transaction, was to extend our strong governance approach to the newly-acquired businesses. This is well advanced, and we have applied a systematic method of governance to ensure that our enlarged company complies with all rules and regulations. We started by developing a comprehensive system to identify connected party and reportable transactions.

Through this means, the market can be fully informed. In this spirit, we have made disclosures above and beyond mandatory requirements. For example, our joint investment alongside KKR in Singapore-listed United Envirotech Ltd was explained in detail, even though such disclosure was not formally required. The Sino Iron impairment was another example. It is important that our stakeholders, including minority investors and the public, feel that the lines of communication are always open with the company.

Business Strategy and Key Priorities

There has been a lot of change in a short period of time, which is evidence of our ambition, proactivity and commitment to continuous improvement. As Winston Churchill once said: “To improve is to change; to be perfect is to change often.”

Since the founding of CITIC over 35 years ago, CITIC has evolved in an entrepreneurial manner alongside major reforms and changes in the Chinese economy. We have identified, created and seized various opportunities at home, not to mention in Hong Kong, Australia, Africa, North America and elsewhere. Today, as China’s largest multi-industry enterprise, we have the unique ability to build on this success. This moment in our history allows us to reflect on the past and decide how to better steer the company into the future.

In April, I outlined our high level strategy for CITIC Limited, which is to

• be the best in what we do and a leader in the fields in which we operate;
• deliver shareholder value through disciplined allocation of capital;
• create value through timely mergers, acquisitions, and disposals; and
• invest in areas that align with China’s growth.

In practice, this means that we need to focus onreviewing our businesses with an eye on profitabilityand forward-planning.

Broadly speaking, our multi-sector business modelwill not change. We enjoy the advantages of scale,an extensive network of businesses, and the financialstability and flexibility that come with being aconglomerate of global significance. Our challenge isto maximise these advantages.

Improve profitability and raise returns

It is clear that there is a big difference in the return on equity among our businesses. Right now, it is a fact that most of our profit comes from financial services, with CITIC Bank being a major contributor. Of course, I am pleased that we own a successful, profit-making bank. However, in the longer-term we aim to have more balance between our financial and non-financial businesses.

To achieve this, improving the profitability of our nonfinancial businesses and investing in areas with higher returns and significant growth prospects are priorities.

Taking stock of the performance of each of our businesses is very important to ensure improvement and ongoing success. To this end, we have begun a root-and-branch review of our current business segments by sector. This is a big job, and we are starting with our property interests.

Our property business currently has two arms — CITIC Real Estate and CITIC Pacific Properties. The land bank of both arms holds a lot of potential, and we need to examine ways of unlocking greater value over a shorter time period. It also makes sense to reduce duplication through a more efficient management structure. At the same time, we are evaluating the potential of this business in the context of the market and our company. Throughout this process, our decisions will be driven by our guiding philosophy of being the best in our field and delivering shareholder value. I look forward to reporting back to you on the progress we make.

In the resources sector, we own oil fields, iron ore and coal mines, metal investments and resources trading businesses. Yet these are owned and operated by a number of different entities — some large, some small, some public, some private, some 100%-owned and some [to maintain the power of the repetition of “some”] as passive investments. At the very least, it is incumbent upon us to better organise them and identify potential for greater synergy.

Some of our other businesses have established themselves as market leaders and consistent performers. Examples include CITIC Special Steel, CITIC Heavy Industries and CITIC Dicastal. However, even for these businesses we must challenge ourselves by asking the tough questions. How do we maintain market leadership? Should we acquire and consolidate within the industry to become even bigger? How can we develop today the products and services that meet the needs of tomorrow? In answering these questions, we are thinking about opportunities to augment the value of these market-leading businesses by developing downstream products and services and strengthening our research and development capabilities.

Invest in areas that align with China’s growth

As a company whose growth story is entwined with China’s economic development, we are well suited to invest in areas that are not only of value to our shareholders but strategic to China’s growth. Sectors that are consumption-driven, environmental, or in other “new economy” industries are particularly opportune. Where we can, we will seek partners to create value.

An example of a strategic and forward-looking investment with excellent growth potential is our purchase of a majority stake in Singapore-listed United Envirotech (UEL), a water treatment business. UEL is a strategic business opportunity that fits with our other environmental investments. CITIC Vice Chairman and President Mr Wang Jiong has emphasised that UEL is ripe for further expansion into China, and this will strengthen our foothold in the environmental protection industry. Another example is Longping High-tech, an A-share listed hybrid seed company founded by Yuan Longping.

Through this lens, it is also naturally evident why we would partner with CP Group and ITOCHU, two of Asia’s leading businesses. By combining their industry expertise with CITIC’s strong brand and extensive network in China, strategic opportunities in China, Asia, and abroad that none of us may have otherwise pursued on our own can now be exploited for mutual benefit. We will be on the lookout for such business opportunities as well as good assets that can be integrated into CITIC to create value for you.

Deliver shareholder value

Investors are looking for us to deploy capital efficiently and to deliver healthy returns.

Neither sentimentality nor historic connection is reason enough to hold onto assets when value can be realised for our shareholders by redeploying capital. Let me give you an example. In 1995, we invested RMB300 million to establish CITIC Securities, which now has a market value of over RMB300 billion. It is the leading securities company in China today and a great success story. At opportune moments, we have lowered our holdings to capture value. We have the flexibility to do so, while also insisting upon justification and strategic value in our decisions. As mentioned earlier, our approach must always align with our guiding principles and be in the interest of our shareholders.

SOE Reform and Social Responsibility

The acquisition of CITIC Group’s businesses and the further diversification of our ownership base are major steps in our efforts to be a world-class company and a leader in state-owned enterprise reform. Not only were these decisions the right ones for our company and our shareholders, they were also a positive development for corporate China and a vote of confidence in Hong Kong’s capital markets and community.

We are truly rooted here in Hong Kong, literally and figuratively. We are a key constituent of the Hang Seng Index. We operate tunnels that are the main arteries connecting Hong Kong Island to Kowloon, and CITIC Tower is a key part of the Hong Kong skyline. We have been an active member of the local corporate community for thirty years. In short, we are one of the anchors of corporate life in Hong Kong, and we are proud of that.

We also want to be open and humble and challenge ourselves to do more for Hong Kong. The CITIC approach is that wherever we operate, we have a responsibility to that community. The geographic spread of our interests and projects is vast — from the bustling streets of Hong Kong to the remote country towns fringing the Australian outback. Our positive commitment to these communities has been consistent.

In Closing

We are a vanguard for China, and we strive to set a good example to other Chinese companies — especially stateowned enterprises — which are also in the process of globalising. We are a financially-savvy, diverse business with a truly international, ambitious and commercially successful culture. We are fully committed to delivering value for shareholders.

The diverse corporate backgrounds of our new board members, including those with expertise across international markets, will greatly benefit CITIC in its push to become a significant global corporate player. The diversity and breadth of our new board has been enhanced by the appointments of two veteran businesswomen as directors.

Many thanks are owed to those who left the board — who in many cases have served us over very long periods of time. They played a critical role in CITIC Pacific’s evolution into such a strong company and paved the way for our transformation into CITIC Limited.

The foundation of our success has been built by our hard-working and innovative employees, who continue to express pride in our major corporate milestones and, naturally, are excited about CITIC’s future. I thank them for their dedication.

Without the capital provided by shareholders and lenders, our business could not grow. I also thank them for their confidence and support.

As your chairman, I am humbled by how far we have come and how far we have yet to go. I am honoured to be leading the expanded company as we travel together on what will be a rewarding journey for our company, CITIC Limited.

Chang Zhenming
Chairman
Hong Kong, 24 March 2015