E
CITIC Limited Annual Report 2014
Corporate Governance

Director's Report

The directors have pleasure in presenting to shareholders their report for the year ended 31 December 2014.

Very Substantial Acquisition

Acquisition of 100% of the total issued share capital of CITIC Corporation Limited (formerly known as CITIC Limited)

On 16 April 2014, the Company, CITIC Group Corporation (“CITIC Group”, the ultimate controlling shareholder of the Company) and Beijing CITIC Enterprise Management Co., Ltd. (“CITIC Enterprise Management”) entered into a share transfer agreement pursuant to which the Company conditionally agreed to acquire, and CITIC Group and CITIC Enterprise Management conditionally agreed to sell, 100% of the total issued share capital of CITIC Corporation Limited at a consideration of RMB226,995,660,900 (the “Acquisition”). The consideration of the Acquisition was satisfied partly by issuing new shares of the Company to CITIC Group’s designated wholly-owned subsidiaries (“Share Consideration”) and partly in cash raised by placing new shares of the Company to investors as well as from other internal resources (“Cash Consideration”). Details of the Acquisition are set out in the Company’s announcement dated 16 April 2014 and circular dated 14 May 2014.

After all the conditions having been satisfied, completion of the Acquisition took place on 25 August 2014 (“Completion”). On Completion, (i) 5,348,170,470 shares and 11,953,595,000 shares were allotted and issued at HK$13.48 per share to CITIC Glory Limited and CITIC Polaris Limited (both are wholly-owned subsidiaries of CITIC Group) respectively which constitute the Share Consideration portion; and (ii) a total of 3,952,114,000 shares were allotted and issued at the placing price of HK$13.48 per share to 27 investors pursuant to the respective share subscription agreements entered into between each investor and the Company. The proceeds raised from the share subscription together with other internal resources amounted to HK$53,357,554,905 were paid to CITIC Group as Cash Consideration. Details of the share subscription are set out in the Company’s announcements dated 14 May 2014, 17 June 2014 and 14 July 2014.

Upon Completion, CITIC Group’s controlling interest in the Company increased from approximately 57.508% to approximately 77.9%. Details of the completion of the Acquisition are set out in the Company’s announcement dated 25 August 2014.

Change of Company Name, Logo, Equity Stock Short Name and Company Website

Subsequent to the Completion and pursuant to the special resolution of the Company passed by the shareholders on 3 June 2014 and the issue of the Certificate of Change of Name by the Registrar of Companies on 26 August 2014, the name of the Company has been changed from CITIC Pacific Limited 中信泰富有限公司 to CITIC Limited 中國中信股份有限公司 with effect from 26 August 2014.

In connection with the change of the Company’s name, the shares of the Company have been traded on The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) under the new English equity stock short name of “CITIC” and the new Chinese equity stock short name of “中信股份” with effect from 1 September 2014. The equity stock code of the Company remains unchanged as “00267”. The stock short names and stock codes of the Company’s debt securities remain unchanged. The Company has also changed its logo to new logo and its website to www.citic.com. Further details are set out in the Company’s announcement dated 27 August 2014.

Principal Activities

After the acquisition of CITIC Corporation Limited, the Company has become China’s largest conglomerate. The principal activity of the Company is investment holding and its subsidiaries are engaged in financial services, resources and energy, manufacturing, engineering contracting, real estate and infrastructure as well as other businesses both in China and overseas.

Dividends

The directors declared an interim dividend of HK$0.015 per share for the year ended 31 December 2014 which was paid on 10 October 2014. The directors are recommending to shareholders at the forthcoming annual general meeting the payment of a final dividend of HK$0.20 per share in respect of the year ended 31 December 2014, payable on 19 June 2015 to shareholders on the Register of Members at the close of business on 10 June 2015. This represents a total distribution for the year of HK$5,355 million.

Share Premium and Reserves

Movements in the share premium and reserves of the Company and the Group during the year are set out in Note 45 to the consolidated financial statements.

Donations

Donations made by the Company and its subsidiary companies during the year are set out in the Environmental, Social and Governance Report.

Fixed Assets

Movements in fixed assets during the year are set out in Note 33 to the consolidated financial statements.

Major Customers and Suppliers

The aggregate percentage of purchases from the Company and its subsidiary companies’ five largest suppliers is less than 30%. The aggregate percentage of sales to the Company and its subsidiary companies five largest customers is less than 30%.

None of the directors, their associates nor any shareholders (which to the knowledge of the directors own more than 5% of the Company’s share capital) were interested at any time in the year in the above suppliers or customers.

Subsidiary Companies

The name of the principal subsidaries, the place of incorporation and shares issued are set out in Note 57 to the consolidated financial statements.

Borrowings, Debt Instruments Issued and Perpetual Capital Securities

Particulars of borrowings, debt instruments issued and perpetual capital securities of the Company and its subsidiary companies as at 31 December 2014 are set out in Notes 42, 43 and 45 to the consolidated financial statements.

Directors

The directors of the Company as at the date of this report are:

Executive Directors
Mr Chang Zhenming (Chairman)

Mr Wang Jiong (Vice Chairman and President)
(appointed on 26 September 2014)
Mr Dou Jianzhong (Vice President)
(appointed on 26 September 2014)

Non-executive Directors

Mr Yu Zhensheng
(appointed on 26 September 2014)
Mr Yang Jinming
(appointed on 26 September 2014)
Ms Cao Pu
(appointed on 26 September 2014)
Mr Liu Zhongyuan
(appointed on 26 September 2014)
Mr Liu Yeqiao
(appointed on 19 December 2014)


Independent Non-executive Directors
Mr Alexander Reid Hamilton
Mr Francis Siu Wai Keung
Dr Xu Jinwu

Mr Anthony Francis Neoh
(appointed on 19 December 2014)
Ms Lee Boo Jin
(appointed on 19 December 2014)

Messrs Vernon Francis Moore, Liu Jifu and Zeng Chen resigned as executive directors of the Company with effect from 26 September 2014. Messrs Ju Weimin, Yin Ke and Carl Yung Ming Jie resigned as non-executive directors of the Company with effect from 26 September 2014. Mr Gregory Lynn Curl was re-designated from an independent non-executive director to a non-executive director with effect from 25 August 2014 and subsequently resigned on 26 September 2014. Mr André Desmarais retired as a non-executive director at the annual general meeting held on 14 May 2014. Mr Peter Kruyt also ceased to act as the alternate director to Mr André Desmarais accordingly.

Pursuant to Article 95 of the articles of association of the Company, Mr Wang Jiong, Mr Dou Jianzhong, Mr Yu Zhensheng, Mr Yang Jinming, Ms Cao Pu, Mr Liu Zhongyuan, Mr Liu Yeqiao, Mr Anthony Francis Neoh and Ms Lee Boo Jin who have been appointed during the year shall hold office only until the next following annual general meeting, or if earlier, the next following extraordinary general meeting of the Company and then shall be eligible for re-election at such meeting. All of the above directors were re-elected at the extraordinary general meeting held on 16 March 2015.

Pursuant to Article 104(A) of the Company’s articles of association, Messrs Chang Zhenming, Zhang Jijing, Alexander Reid Hamilton, Francis Siu Wai Keung and Dr Xu Jinwu shall retire by rotation at the forthcoming annual general meeting to be held on 2 June 2015 (“2015 AGM”). Except for Mr Alexander Reid Hamilton who will not seek re-election after his retirement at the 2015 AGM, all the other directors, being eligible, offer themselves for re-election at the 2015 AGM.

Biographical details of the existing directors are set out on pages 102 to 105.

Management Contract

The Company entered into a management agreement with CITIC Hong Kong (Holdings) Limited (“CITIC HK”) on 11 April 1991 but with retrospective effect from 1 March 1990 in which CITIC HK agreed to provide management services to the Company and its subsidiary companies for a management fee calculated on a cost basis to CITIC HK payable quarterly in arrears. The management agreement is terminable by two months’ notice by either party. Messrs Chang Zhenming, Wang Jiong and Zhang Jijing had indirect interests in the management agreement as they are directors of CITIC HK. A copy of the management agreement will be available for inspection at the 2015 AGM.

Directors’ Interests in Contracts of Significance

Save as disclosed in the sections headed “Connected Transactions” and “Non-exempt Continuing Connected Transactions” below and in the section headed “Material Related Party Transactions” in Note 49 to the consolidated financial statements, none of the directors of the Company has, or at any time during the year had, an interest which is or was material, either directly or indirectly, in any contract with the Company, any of its subsidiary companies, its holding company or any of its fellow subsidiary companies, which was significant in relation to the business of the Company, and which was subsisting at the end of the year or which had subsisted at any time during the year.

Related Party Transactions

The Company and its subsidiary companies entered into certain transactions in the ordinary course of business and on normal commercial terms which were “Related Parties Transactions”, the details of which are set out in Note 49 to the consolidated financial statements of the Company. Some of these transactions also constitute “Connected Transactions” and “Continuing Connected Transactions” under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) as summarised below.

Connected Transactions

Set out below is information in relation to certain connected transactions involving the Company and/or its subsidiaries, particulars of which were previously disclosed in the announcements of the Company and are required under the Listing Rules to be disclosed in the Annual Report and consolidated financial statements of the Company. The full text of each announcement can be found on http://www.citic.com/InvestorRelations/ Announcements.

  1. On 16 April 2014, the Company, CITIC Group Corporation (“CITIC Group”) and Beijing CITIC Enterprise Management Co., Ltd. entered into a share transfer agreement (“Share Transfer Agreement”) pursuant to which the Company conditionally agreed to acquire 100% of the total issued share capital of CITIC Corporation Limited (formerly known as CITIC Limited) (the “Acquisition”). The transfer consideration paid by the Company, as adjusted according to the Share Transfer Agreement, was RMB226,995,660,900 (approximately HK$286,585,353,400), which was satisfied through a combination of cash consideration (“Cash Consideration”) and share consideration (“Share Consideration”). The Cash Consideration was financed by the Company through internal resources and placing of new shares to investors. The Share Consideration was satisfied by the issue of new shares to CITIC Group’s designated wholly-owned subsidiaries.

    CITIC Group is the controlling shareholder of the Company and is therefore a connected person of the Company. The Acquisition constituted a connected transaction for the Company under the Listing Rules and was subject to the independent shareholders’ approval.

    The Acquisition was completed on 25 August 2014.

  2. On 16 May 2014, 揚州泰富港務有限公司 (Yangzhou Pacific Port Co., Ltd.,) (“Yangzhou Pacific”, a whollyowned subsidiary of the Company) entered into the EPC Main Contractor Contract (the “General Contract”) with 洛陽礦山機械工程設計研究院有限責任公司 (Luoyang Mining Machinery Engineering Design Institute Co., Ltd.) (“Luoyang Mining”, a wholly-owned subsidiary of CITIC Heavy Industries Co., Ltd., “CITIC Heavy Industries”)) as the main contractor for the entire design, purchasing, construction, project management and technical services in respect of the processing facility for three million tonnes of iron ore in Jiangdu District, Yangzhou City, Jiangsu Province, the People’s Republic of China. Yangzhou Pacific and Luoyang Mining also entered into the Design and Technical Services Contract, Facilities Construction, Purchase and Transportation Contract, Construction and Installation Project Contract, each of which formed part of the General Contract. The term of services provided under the General Contract was for 8 months from May 2014 to December 2014 and the total consideration was RMB356,000,000 (approximately HK$449,000,000).

    As at the date of signing the General Contract, CITIC Heavy Industries was a subsidiary of CITIC Group (the controlling shareholder of the Company) and therefore Luoyang Mining was a connected person of the Company. After completion of the Acquisition as mentioned in item (1) above, CITIC Heavy Industries and thus Luoyang Mining became a subsidiary and wholly-owned subsidiary of the Company respectively and therefore the General Contract and similar transactions after that time did not constitute connected transactions under the Listing Rules.

  3. On 16 May 2014, Sino Iron Pty Ltd (“Sino Iron”), a wholly-owned subsidiary of the Company, entered into a contract (the “Equipment Supply Contract”) with CITIC Heavy Industries for the design optimisation and fabrication of a non-standard steel structure as well as autogenous mill and ball mill thunderbolt support for lines 3 to 6 of the Sino Iron Project by CITIC Heavy Industries at the total contract sum of US$10,563,765.6 (approximately HK$82,397,371.7).

    As at the date of signing the Equipment Supply Contract, CITIC Heavy Industries was a subsidiary of CITIC Group (the controlling shareholder of the Company) and therefore a connected person of the Company. After completion of the Acquisition as mentioned in item (1) above, CITIC Heavy Industries became a subsidiary of the Company and therefore similar transactions after that time did not constitute connected transactions under the Listing Rules.

  4. On 22 July 2014, Sino Iron entered into an agreement (the “Pinion Assembly Spares and VSD and E-house Contract”) with CITIC Heavy Industries for the procurement of Pinion Assembly Spares and VSD and E-house used for the construction of production lines 3 to 6 of the Sino Iron Project and optimization of production process in these production lines at the total contract sum of US$3,310,100 (approximately HK$25,818,780).

    As at the date of signing the Pinion Assembly Spares and VSD and E-house Contract, CITIC Heavy Industries was a subsidiary of CITIC Group (the controlling shareholder of the Company) and therefore a connected person of the Company. After completion of the Acquisition as mentioned in item (1) above, CITIC Heavy Industries became a subsidiary of the Company and therefore similar transactions after that time did not constitute connected transactions under the Listing Rules.

  5. On 20 January 2015, the Company, CITIC Group (the controlling shareholder of the Company), Chia Tai Bright Investment Company Limited (“CT Bright”), CPG Overseas Company Limited (“CPG”) and ITOCHU Corporation (“ITOCHU”) entered into a subscription agreement (the “Subscription Agreement”), pursuant to which, the Company agreed to allot and issue, and CT Bright agreed to subscribe for 3,327,721,000 fully paid convertible preferred shares of the Company for a total consideration of HK$45,922,549,800 (the “Subscription”). On the same date, CITIC Polaris Limited (a wholly-owned subsidiary of CITIC Group), CITIC Group, CT Bright, CPG and ITOCHU entered into a share purchase agreement (the “Share Purchase Agreement”), pursuant to which CITIC Polaris Limited agreed to sell and CT Bright agreed to purchase 2,490,332,363 shares of the Company, representing 10% of the total issued share capital of the Company as at the date of signing the Share Purchase Agreement, for a total consideration of HK$34,366,586,609 (the “Share Purchase”). Whilst CT Bright was not a connected person of the Company when it entered into the Subscription Agreement, completion of the Subscription is, amongst other things, conditional upon the completion of the Share Purchase. Accordingly, the proposed transaction contemplated under the Subscription Agreement was treated as a connected transaction for the Company and was subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

    Completion of the Share Purchase is expected to take place on the tenth business day after relevant conditions precedent having been satisfied or waived in accordance with the terms of the Share Purchase Agreement, and the Subscription is required to be completed on the 185th day after the completion of the Share Purchase or the tenth business day after relevant conditions precedent having been satisfied or waived in accordance with the terms of the Subscription Agreement (whichever occurs later).


Non-Exempt Continuing Connected Transactions

Set out below is information in relation to certain non-exempt continuing connected transactions involving the Company and/or its subsidiaries, particulars of which were previously disclosed in the announcements of the Company and are required under the Listing Rules to be disclosed in the Annual Report and Financial Statements of the Company. The full text of each announcement can be found on http://www.citic.com/InvestorRelations/Announcements.

  1. In the ordinary and usual course of business, the Company and its subsidiaries maintain bank balances with China CITIC Bank Corporation Limited (“CITIC Bank”) and China CITIC Bank International Limited (“China CITIC Bank International”) on normal commercial terms. On 6 May 2010, the Company entered into a master agreement with CITIC Bank and China CITIC Bank International setting out that the bank balances and deposits maintained by the Group with CITIC Bank and China CITIC Bank International would be no more than HK$1,400,000,000 in aggregate on any given day for the period from 31 May 2010 to 31 December 2010 and the two years ended 31 December 2011 and 31 December 2012.

    The Group continued with the bank deposit arrangements with CITIC Bank and its relevant subsidiaries after 31 December 2012. On 28 December 2012, the Company entered into a new master agreement with CITIC Bank for the period commencing on 1 January 2013 in respect of the continuing bank deposit arrangements with CITIC Bank and its relevant subsidiaries setting out that the aggregate maximum bank balance maintained by the Group with CITIC Bank and its relevant subsidiaries on any given day for the two years ended 31 December 2013 and 31 December 2014 and the year ending 31 December 2015 will not exceed HK$1,400,000,000.

    As at the date of signing the master agreement and the new master agreement, CITIC Bank was a subsidiary of CITIC Group (the controlling shareholder of the Company) and therefore a connected person of the Company prior to the acquisition of 100% of the total issued share capital of CITIC Corporation Limited (formerly known as CITIC Limited) on 25 August 2014. After completion of such acqusition, CITIC Bank became a subsidiary of the Company and therefore the bank deposit arrangements with CITIC Bank and its relevant subsidiaries after that time did not constitute continuing connected transactions under the Listing Rules. The compliance report is therefore reporting on the transactions with CITIC Bank for the year 2014 prior to completion of the aforesaid acquisition.

    The aggregate bank balances maintained by the Group with CITIC Bank and its relevant subsidiaries totalled approximately HK$1,054,000,000 for the period from 1 January 2014 to 24 August 2014. This sum did not include the sum of RMB496,000,000 (equivalent to approximately HK$624,000,000) which was received in escrow account maintained with CITIC Bank for receiving funds in respect of the disposal of a property located in the Shanghai World Expo site to CITIC Bank as set out in the Company’s announcement dated 29 October 2013 (which was a separate transaction).

  2. On 30 September 2014, the Company entered into the following framework agreements (collectively the “Framework Agreements”) with CITIC Group (the controlling shareholder of the Company) setting out the basis upon which members of the Group continue to carry out the transactions contemplated under the Framework Agreements with CITIC Group and/or its associates upon completion of the acquisition of 100% of the total issued share capital of CITIC Corporation Limited on 25 August 2014. CITIC Group, being the controlling shareholder of the Company, is a connected person of the Company under the Listing Rules and therefore the entering into of the Framework Agreements by the Company and the transactions contemplated under the Framework Agreements constitute continuing connected transactions of the Company under the Listing Rules.
    1. Sales Framework Agreement (“Sales FA”) – sale of manganese ore by the Group to CITIC Group and/or its associates
    2. The Sales FA has a term commencing from 25 August 2014 and ending on 31 December 2016. The annual caps for the transactions under the Sales FA for the year ended 31 December 2014 and two years ending 31 December 2015 and 31 December 2016 are set at RMB600,000,000, RMB660,000,000 and RMB720,000,000 respectively.

    3. Advertising and Promotion Framework Agreement (“Advertising and Promotion FA”) – provision of advertising and promotion services by the Group to CITIC Group and/or its associates
    4. The Advertising and Promotion FA has a term commencing from 25 August 2014 and ending on 31 December 2014. The annual cap for the transactions under the Advertising and Promotion FA for the year ended 31 December 2014 is set at RMB400,000,000.

    5. Financial Assistance Framework Agreement (“Financial Assistance FA”) – financial assistance provided by the Group to CITIC Group and/or its associates
    6. The Financial Assistance FA has a term commencing from 25 August 2014 and ending on 31 December 2016. The annual caps for the financial assistance under the Financial Assistance FA for the year ended 31 December 2014 and two years ending 31 December 2015 and 31 December 2016 are set at RMB1,900,000,000, RMB2,400,000,000 and RMB2,700,000,000 respectively.

    The transaction amounts under the Sales FA, the Advertising and Promotion FA and the Financial Assistance FA for the year ended 31 December 2014 were approximately RMB355,490,521.81, RMB315,000,000.00 and RMB1,100,000,000.00 respectively.

    The independent non-executive directors of the Company have reviewed the aforesaid continuing connected transactions for the year ended 31 December 2014 (the “Transactions”) and confirm that

    1. the Transactions have been entered into in the ordinary and usual course of business of the Group;
    2. the Transactions have been entered into on normal commercial terms or better; and
    3. the Transactions were entered into according to the relevant agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.

    The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor issued an unqualified letter containing findings and conclusions in respect of the continuing connected transactions disclosed by the Group on pages 112 to 113 of the annual report in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditor’s letter has been provided by the Company to the Hong Kong Stock Exchange.



    Share Option Plan Adopted by the Company

    CITIC Pacific Share Incentive Plan 2000

    The Company adopted the CITIC Pacific Share Incentive Plan 2000 (the “Plan 2000”) on 31 May 2000 which expired on 30 May 2010. The major terms of the Plan 2000 are as follows:
    1. The purpose of the Plan 2000 is to promote the interests of the Company and its shareholders by (i) providing the participants with additional incentives to continue and increase their efforts in achieving success in the business of the Company, and (ii) attracting and retaining the best available personnel to participate in the on-going business operation of the Company.
    2. The participants of the Plan 2000 are any director, executive or employee of the Company or its subsidiaries as invited by the board.
    3. The maximum number of shares over which options may be granted under the Plan 2000 shall not exceed 10% of (i) the Company’s shares in issue from time to time or (ii) the Company’s shares in issue as at the date of adopting the Plan 2000, whichever is the lower.
    4. The total number of shares issued and to be issued upon exercise of the options granted to each participant (including both exercised and outstanding options) in any 12-month period must not exceed 1% of the shares of the Company in issue.
    5. The exercise period of any option granted under the Plan 2000 must not be more than ten years commencing on the date of grant.
    6. The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee.
    7. The exercise price determined by the board will be at least the higher of (i) the closing price of the Company’s shares as stated in the daily quotations sheet of the Hong Kong Stock Exchange on the date of grant; (ii) the average closing price of the Company’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant and (iii) the nominal value of the Company’s shares.
    8. The life of the Plan 2000 is ten years.

    The Plan 2000 ended on 30 May 2010.

    During the period between the adoption of the Plan 2000 and its expiry, the Company has granted six lots of share options:

    All options granted and accepted under the Plan 2000 can be exercised in whole or in part within 5 years from the date of grant.

    All share options at the exercise price of HK$18.20 per share, HK$19.90 per share, HK$22.10 per share, HK$47.32 per share, HK$22.00 per share and HK$20.59 per share expired at the close of business on 27 May 2007, 31 October 2009, 19 June 2011, 15 October 2012, 18 November 2014 and 13 January 2015 respectively.

    None of the share options granted under the Plan 2000 were exercised or cancelled, but options for 12,180,000 shares have lapsed during the year ended 31 December 2014. A summary of the movements of the share options under the Plan 2000 during the year ended 31 December 2014 is as follows:

    A. Directors

    B. Employees working under continuous contracts (as defined in the Employment Ordinance), other than the directors

    C. Others

    CITIC Pacific Share Incentive Plan 2011

    As the Plan 2000 expired on 30 May 2010, the Company adopted a new plan, the CITIC Pacific Share Incentive Plan 2011 (the “Plan 2011”) on 12 May 2011. The major terms of the Plan 2011 are as follows:
    1. The purpose of the Plan 2011 is to promote the interests of the Company and its shareholders by (i) providing the eligible participants with additional incentives to continue and increase their efforts in achieving success in the business of the Group, and (ii) attracting and retaining the best available personnel to participate in the on-going business operation of the Group.
    2. The eligible participants of the Plan 2011 are any employee, executive director, non-executive director, independent non-executive director or officer, consultant or representative of any member of the Company as the board may in its discretion select.
    3. The total number of shares which may be issued upon exercise of all options to be granted under the Plan 2011 must not in aggregate exceed 10% of the shares in issue as at the date of adopting the Plan 2011. As at 24 March 2015, the total number of shares available for issue under the Plan 2011 is 364,944,416 shares.
    4. The total number of shares issued and to be issued upon exercise of options (whether exercised or outstanding) in any 12-month period granted to each participant must not exceed 1% of the shares of the Company in issue. Where any further grant of options to a participant would result in the shares issued and to be issued upon exercise of all options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the shares of the Company in issue, such further grant shall be subject to separate approval by the shareholders of the Company in general meeting.
    5. The exercise period of any option granted under the Plan 2011 must not be more than ten years commencing on the date of offer of the grant.
    6. The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee.
    7. The subscription price determined by the board will be at least the higher of (i) the nominal value of the Company’s shares; (ii) the closing price of the Company’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheet on the date of offer of the grant; and (iii) the average of the closing prices of the Company’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of offer of the grant.
    8. The Plan 2011 shall be valid and effective until 11 May 2021.

    No share options were granted under the Plan 2011 during the year ended 31 December 2014.

    Share Option Plan Adopted by Subsidiaries of the Company

    CITIC Telecom International Holdings Limited (“CITIC Telecom”) (became a subsidiary of the Company with effect from 25 August 2014)

    CITIC Telecom adopted a share option plan (the “CITIC Telecom Share Option Plan”) on 17 May 2007. The major terms of the CITIC Telecom Share Option Plan are as follows:
    1. The purpose of the CITIC Telecom Share Option Plan is to attract and retain the best quality personnel for the development of CITIC Telecom’s businesses; to provide additional incentives to CITIC Telecom Directors and CITIC Telecom Employees (both as defined here below); and to promote the long term financial success of CITIC Telecom by aligning the interests of grantees to shareholders of CITIC Telecom.
    2. The grantees of the CITIC Telecom Share Option Plan are any person employed by CITIC Telecom or any of its subsidiaries (the “CITIC Telecom Employees”) and any person who is an officer or director (whether executive or non-executive) of CITIC Telecom or any of its subsidiaries (the “CITIC Telecom Directors”) as the board of CITIC Telecom may, in its absolute discretion, select.
    3. The total number of shares of CITIC Telecom (the “CITIC Telecom Shares”) issued and to be issued upon exercise of options (whether exercised or outstanding) in any 12-month period granted to each grantee must not exceed 1% of the CITIC Telecom Shares in issue. Where any further grant of options to a grantee would result in the CITIC Telecom Shares issued and to be issued upon exercise of all options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the CITIC Telecom Shares in issue, such further grant shall be subject to separate approval by the shareholders of CITIC Telecom in general meeting.
    4. The exercise period of any option granted under the CITIC Telecom Share Option Plan must not be more than ten years commencing on the date of grant.
    5. The acceptance of an offer of the grant of the options must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee.
    6. The subscription price determined by the board of CITIC Telecom will not be less than the higher of (i) the closing price of CITIC Telecom’s shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant; and (ii) the average closing price of CITIC Telecom’s shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant.
    7. The CITIC Telecom Share Option Plan shall be valid and effective till 16 May 2017.

    As approved at the annual general meeting of CITIC Telecom held on 25 April 2014, the mandate limit is refreshed so that taking into account the overriding limit of the CITIC Telecom Share Option Plan, the total number of the CITIC Telecom Shares which may be issued upon the exercise of all options to be granted under the CITIC Telecom Share Option Plan, together with all outstanding options granted and yet to be exercised under the CITIC Telecom Share Option Plan, shall not exceed 333,505,276 CITIC Telecom Shares, being 10% of the number of the CITIC Telecom Shares in issue as at the date of approval of the refreshment of the mandate limit. As at 24 March 2015, the maximum number of CITIC Telecom Shares available for issue under the CITIC Telecom Share Option Plan is 130,445,919, representing approximately 3.89% of the CITIC Telecom Shares in issue.

    Since the adoption of the CITIC Telecom Share Option Plan, CITIC Telecom has granted the following share options:
    Upon completion of the rights issue of CITIC Telecom on 7 June 2013, the exercise price and the number of shares to be allotted and issued upon full exercise of the subscription rights attaching to the outstanding share options of CITIC Telecom as at 6 June 2013 have been adjusted (the “Adjustments”) in the following manner:
    The grantees were CITIC Telecom Directors or CITIC Telecom Employees. None was granted to the directors, chief executive or substantial shareholders of the Company.

    All options granted were accepted except for options for 115,000 shares granted on 17 September 2009, options for 200,000 shares granted on 19 August 2011 and options for 660,000 shares granted on 26 June 2013. The share options granted on 23 May 2007 have expired at the close of business on 22 May 2012. The remaining options granted and accepted under the CITIC Telecom Share Option Plan can be exercised in whole or in part within 5 years from the date of commencement of the exercise period.

    During the year ended 31 December 2014, options for 32,432,054 shares were exercised and options for 599,587 shares have lapsed, but save as disclosed above, none of the options granted was cancelled.

    In addition, as announced by CITIC Telecom, on 24 March 2015, options to subscribe for a total of 87,512,500 shares were granted under the CITIC Telecom Share Option Plan. The exercise price is HK$2.612 per share. The first 50% of the options granted and accepted is exercisable in whole or in part from 24 March 2016 to 23 March 2021 and the remaining 50% of the options granted and accepted is exercisable in whole or in part from 24 March 2017 to 23 March 2022. Such offer shall remain open for acceptance by the relevant grantees for a period of 28 days from the date of the offer.

    Dah Chong Hong Holdings Limited (“DCH Holdings”)

    DCH Holdings adopted a share option scheme (the “DCHH Scheme”) on 28 September 2007. The major terms of the DCHH Scheme are as follows:
    1. The purpose of the DCHH Scheme is to attract and retain the best quality personnel for the development of DCH Holdings’ businesses; to provide additional incentives to the employees of the DCH Holdings group and to promote the long term financial success of DCH Holdings by aligning the interests of grantees to DCH Holdings’ shareholders.
    2. The participants of the DCHH Scheme are any employee of the DCH Holdings group as the board of DCH Holdings may in its absolute discretion select.
    3. The maximum number of shares over which share options may be granted under the DCHH Scheme and any other schemes of DCH Holdings shall not in aggregate exceed 10% of (i) the shares of DCH Holdings in issue immediately following the commencement of dealings in DCH Holdings’ shares on the Hong Kong Stock Exchange or (ii) the shares of DCH Holdings in issue from time to time, whichever is the lower. As at 24 March 2015, the maximum number of shares available for issue under the DCHH Scheme is 105,550,000, representing approximately 5.76% of the issued shares of DCH Holdings. Share options lapsed in accordance with the terms of the DCHH Scheme or any other schemes of DCH Holdings will not be counted for the purpose of calculating the 10% limit.
    4. The total number of shares issued and to be issued upon exercise of share options (whether exercised or outstanding) in any 12-month period granted to each grantee must not exceed 1% of the shares of DCH Holdings in issue.
    5. The exercise period of any share option granted under the DCHH Scheme must not be more than 10 years commencing on the date of grant.
    6. The acceptance of an offer of the grant of the share option must be made within 28 days from the date of grant with a non-refundable payment of HK$1 from the grantee.
    7. The subscription price determined by the board of DCH Holdings will not be less than whichever is the higher of (i) the closing price of DCH Holdings’ shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets on the date of grant; and (ii) the average closing price of DCH Holdings’ shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the 5 business days immediately preceding the date of grant.
    8. The DCHH Scheme shall be valid and effective till 27 September 2017, after which no further share options will be granted.
    Since the adoption of the DCHH Scheme, DCH Holdings has granted the following share options:

    The share options granted on 7 July 2010 were accepted and fully vested on the date of grant and are then exercisable in whole or in part within 5 years from the date of grant. The closing price of the shares of DCH Holdings immediately before the grant on 7 July 2010 was HK$4.69 per share. The remaining contractual life of the share options is 0.5 year.

    The share options granted on 7 July 2010 were accepted and fully vested on the date of grant and are then exercisable in whole or in part within 5 years from the date of grant. The closing price of the shares of DCH Holdings immediately before the grant on 7 July 2010 was HK$4.69 per share. The remaining contractual life of the share options is 0.5 year.

    Of the share options granted on 30 April 2014, 27,850,000 were accepted and 350,000 were not as at the latest date of acceptance pursuant to the scheme rules (i.e. 28 May 2014). The share options granted are subject to a vesting scale. 25% of the options granted will vest on the first anniversary of the date of grant. A further 25% will vest on the second anniversary of the date of grant and the remaining 50% of the share options granted will vest on the third anniversary of the date of grant. The vested options are exercisable in whole or in part within 5 years from the date of grant. The closing price of the shares of DCH Holdings immediately before the grant on 30 April 2014 was HK$4.91 per share. The remaining contractual life of the share options is 4.3 years.

    The grantees were directors or employees of DCH Holdings group working under continuous contracts (as defined in the Employment Ordinance). None were granted to the directors, chief executives or substantial shareholders of the Company.

    A summary of the movements of share options under the DCHH Scheme during the year ended 31 December 2014 is as follows:

    The average fair value of the share options granted under the DCHH Scheme during the year ended 31 December 2014 measured at the date of grant on 30 April 2014 was HK$1.37 per share option based on the following assumptions using the Binomial Lattice Model:
    – Share price at the grant date
    HK$4.93
    – Exercise price
    HK$4.93
    – Expected volatility of DCH Holdings’ share price
    40% per annum
    – Share option life
    5 years
    – Expected dividend yield
    3.0% per annum
    – Average risk-free interest rate (based on Hong Kong Exchange Fund Notes)
    1.22% per annum
    – Early exercise assumption
    Option holders will exercise when the share price is at least 160% of the exercise price
    – Rate of leaving service during the exercise period
    0.5% per annum
    The volatility rate of the share price of DCH Holdings was determined with reference to the movement of DCH Holdings’ historical share price as well as the trend of the volatility rate over recent years.

    Taking into account the probability of leaving employment and early exercise behaviour, the expected life of the grant was estimated to be about 4.3 years.

    The total expense recognised in DCH Holdings’ income statement for the year ended 31 December 2014 in respect of the grant of the aforesaid 28,200,000 share options for the shares of DCH Holdings is approximately HK$13.8 million.

    CITIC Resources Holdings Limited (“CITIC Resources”)

    CITIC Resources adopted a share option scheme on 30 June 2004 (the “Old Scheme”) which expired on 29 June 2014. CITIC Resources had 400,000,000 share options outstanding under the Old Scheme, which represented 5.08% of CITIC Resources’s shares in issue as at 13 February 2015. To enable CITIC Resources to continue to grant share options as an incentive or reward to eligible persons, a new share option scheme was adopted by CITIC Resources on 27 June 2014 (the “New Scheme”).

    Pursuant to the New Scheme, CITIC Resources may grant options to eligible participants to subscribe for shares in CITIC Resources subject to the terms and conditions stipulated therein. A summary of the New Scheme is as follows:

    1. Purpose

      To allow CITIC Resources (a) to be competitive and to be able to attract, retain and motivate appropriate personnel to assist the CITIC Resources group attain its strategic objectives by offering share options to enhance general remuneration packages; (b) to align the interests of the directors and employees of the CITIC Resources group with the performance of CITIC Resources and the value of the shares; and (c) to align the commercial interests of business associates, customers and suppliers of the CITIC Resources group with the interests and success of the CITIC Resources group.
    2. Eligible participants

      Being employees or directors of CITIC Resources or any of its subsidiaries (including their respective executive and non-executive directors), business associates and advisers who will provide or have provided services to the CITIC Resources group.

    3. Total number of shares available for issue under the New Scheme

      The total number of shares which may be issued upon the exercise of all outstanding options granted and yet to be exercised under the New Scheme shall not exceed 30% of the total number of shares of CITIC Resources in issue.

    4. Maximum entitlement of each eligible participant

      The total number of shares issued and to be issued upon exercise of the options granted to each eligible participant (including exercised, cancelled and outstanding options) in any 12-month period up to and including the date of grant shall not exceed 1% of the total number of shares of CITIC Resources in issue at the date of grant.

    5. Period during which the shares must be taken up under an option

      The period during which an option may be exercised is determined by the board of directors of CITIC Resources at its absolute discretion, except that no option may be exercised after 10 years from the date of grant.

    6. Minimum period for which an option must be held before it can be exercised

      The minimum period for which an option must be held before it can be exercised is one year.

    7. Basis of determining the exercise price

      The exercise price payable in respect of each share must be at least the higher of (i) the closing price of the shares of CITIC Resources on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) as stated in the Stock Exchange’s daily quotations sheet on the date of grant (which must be a business day); (ii) the average closing prices of the shares of CITIC Resources on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the share.

    8. Remaining life of the New Scheme

      The New Scheme remains in force until 26 June 2024 unless otherwise terminated in accordance with the terms stipulated therein.

    Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

    During the years ended 31 December 2013 and 2014, the movement of share options was as follows:
    The exercise prices and exercise periods of the share options outstanding as at 31 December 2014 were as follows:
    The grantees were directors or employees of CITIC Resources group. None were granted to the directors, chief executives or substantial shareholders of the Company.

    Directors’ Interests in Securities

    As at 31 December 2014, the interests of the directors of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which were notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under section 352 of the SFO were as follows:

    1. Shares in associated corporation of the Company

    CIAM Group Limited

    2. Share options in the Company

    The interests of the directors of the Company in the share options (being regarded as unlisted physically settled equity derivatives) of the Company are stated in detail in the preceding section headed “Share Option Plan Adopted by the Company”.

    3. Share options in associated corporation of the Company

    CIAM Group Limited

    Save as disclosed above, as at 31 December 2014, none of the directors of the Company were, under Divisions 7 and 8 of Part XV of the SFO, taken to be interested or deemed to have any other interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations, that were required to be entered into the register kept by the Company pursuant to section 352 of the SFO or were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in the Listing Rules.

    Other than as stated above, at no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or of any other body corporate.

    Substantial Shareholders

    As at 31 December 2014, substantial shareholders of the Company (other than directors of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under section 336 of the SFO were as follows:
    On 20 January 2015, the Company entered into a subscription agreement with CITIC Group, Chia Tai Bright Investment Company Limited (“CT Bright”), CPG Overseas Company Limited (“CPG”) and ITOCHU Corporation (“ITOCHU”), details of which are set out in the Company’s announcement dated 20 January 2015. The following parties have filed the notice to the Company and the Hong Kong Stock Exchange on 23 January 2015 in respect of their interests as required to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

    Shareholding Statistics

    Based on the share register records of the Company, set out below is a shareholding statistics chart of the registered shareholders of the Company as at 31 December 2014:

    As at 31 December 2014, the total number of shares in issue of the Company was 24,903,323,630 and based on the share register records of the Company, HKSCC Nominees Limited held 5,007,070,558 shares in entities ranging from 1,000 to 100,000,000 shares and representing 20.106% of the total number of shares in issue of the Company.



    Share Capital

    On 25 August 2014, the Acquisition as mentioned in the preceding section “Very Substantial Acquisition” was completed whereby a total of 3,952,114,000 shares (“Placing Shares”) were allotted and issued at the placing price of HK$13.48 per share to 27 investors pursuant to the respective share subscription agreements entered into between each investor and the Company. The gross and net proceeds raised from the placing were approximately HK$53.274 billion and HK$53.042 billion respectively, and an aggregate of 17,301,765,470 shares (“Consideration Shares”) was allotted and issued at HK$13.48 per share to CITIC Glory Limited and CITIC Polaris Limited, both being wholly-owned subsidiaries of CITIC Group. The proceeds raised from the allotment and issue of Placing Shares and Consideration Shares were used to settle part of the consideration for the Acquisition.

    Details of movements in the share capital of the Company during the year are set out in Note 45 to the consolidated financial statements.

    Purchase, Sale or Redemption of the Company’s Listed Securities

    Neither the Company nor any of its subsidiary companies have purchased or sold or redeemed any of the Company’s listed securities during the year ended 31 December 2014.

    Directors’ Service Contracts

    None of the directors proposed for re-election at the forthcoming annual general meeting has a service contract with the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

    Continuing Disclosure Requirements Pursuant to the Listing Rules

    Rules 13.18 and 13.21 of the Listing Rules in relation to loan agreement with covenants relating to specific performance of the controlling shareholder

    In September 2014, Shine Surplus Limited (“Shine Surplus” or the “Borrower”), an indirect wholly-owned subsidiary of the Company, as borrower, and CITIC Corporation Limited, as guarantor (the “Guarantor”, a direct wholly-owned subsidiary of the Company), entered into a facility agreement (the “Facility Agreement”) and related finance documents (including a guarantee from the Guarantor in favour of the facility agent for and on behalf of the syndicate) for a US$1,000,000,000 equivalent dual tranche term loan facility (the “Loan Facility”) with a syndicate of banks. The Loan Facility has a term of 36 months and 60 months, respectively, commencing from the utilisation date for each tranche.

    Pursuant to the Facility Agreement, it shall be an event of default if (i) the government of the People’s Republic of China (the “PRC”) is not or ceases to be (directly or indirectly through its subsidiaries) the beneficial owner of more than 50% of the issued share capital of the Guarantor; or (ii) the government of the PRC is not or ceases to maintain ultimate control of the Guarantor, and control for this purpose means the power to direct the management and the policies of the Guarantor whether through the ownership of voting capital, by contract or otherwise.

    If an event of default under the Facility Agreement occurs, the facility agent may, and must if so instructed by the majority of the lenders, by notice to Shine Surplus: (i) cancel all or part of the total commitments; and/or (ii) declare that all or part of the loans, together with accrued interest, and all other amounts accrued or outstanding under the Facility Agreement and the related finance documents be immediately due and payable; and/or (iii) declare that all or part of the loans, together with accrued interest, and all other amounts accrued or outstanding under the Facility Agreement and the related finance documents be payable on demand by the facility agent acting on the instructions of the majority of the lenders. In case of an event of default under the Facility Agreement and if the Borrower or the Guarantor cannot successfully remedy or settle the default to the satisfaction of the majority of the lenders, it will trigger cross default under the existing loan agreements and guarantees of the Company (excluding the Guarantor and its subsidiaries) and the existing loan agreements and guarantees of the Guarantor.

    As at 31 December 2014, there was no breach of the aforesaid covenants.

    Sufficiency of Public Float

    The Hong Kong Stock Exchange has granted a waiver (the “Waiver”) to the Company from strict compliance with the minimum public float of 25% upon completion of the Acquisition as described in the preceding section headed “Very Substantial Acquisition”. Pursuant to the Waiver, the Company has complied with the public float requirement which is at the higher of such a percentage (being 21.87%) of shares held by the public immediately after the completion of the Acquisition. Based on the information that is publicly available to the Company and within the knowledge of the directors as at the date of this annual report, the Company has maintained the prescribed public float under the Waiver.

    Significant Subsequent Event

    On 20 January 2015, the Company entered into a subscription agreement and agreed to allot and issue to Chia Tai Bright Investment Company Limited (“CT Bright”) 3,327,721,000 fully paid convertible preferred shares of the Company for a total consideration of HK$45,922,549,800 (the “Subscription”). The Company’s Articles of Association will be amended in light of the proposed creation of preferred shares of the Company. On the same day, CITIC Polaris Limited, a wholly-owned subsidiary of CITIC Group and one of the controlling shareholders of the Company, entered into a share purchase agreement and agreed to sell 2,490,332,363 fully paid shares of the Company to CT Bright for a total consideration of HK$34,366,586,609 (the “Share Purchase”). Completion of the Subscription is conditional upon the completion of the Share Purchase. Further details are set out in the Company’s announcement dated 20 January 2015.

    At the extraordinary general meeting of the Company held on 16 March 2015, the proposed Subscription and the amendment to the Company’s Articles of Association were approved by the Company’s shareholders.

    At the date of this annual report, both the Share Purchase and the Subscription have not yet been completed as a number of other conditions precedent remain to be satisfied.

    Auditor

    The accounts for the year have been audited by Messrs KPMG, Certified Public Accountants, who will retire as auditor of the Company upon expiration of its term of office at the annual general meeting to be held on 2 June 2015 (“2015 AGM”). The board proposed to appoint, subject to approval of the shareholders at the 2015 AGM, Messrs PricewaterhouseCoopers, Certified Public Accountants, as auditor of the Company to hold office until the conclusion of the next annual general meeting.



    By Order of the Board,
    Chang Zhenming
    Chairman
    Hong Kong, 24 March 2015