Notes to the Consolidated Financial Statements

• 1. General information

  CITIC Limited (the “Company”) was incorporated in Hong Kong, the shares of which are listed on the Main Board of the Stock Exchange of Hong Kong Limited. The address of its registered office is 32nd Floor, CITIC Tower, 1 Tim Mei Avenue, Central Hong Kong.

  The Company and its subsidiaries (collectively referred to as the “Group”) are principally engaged in financial services, resources and energy, manufacturing, engineering contracting, real estate and other businesses.

  The parent and the ultimate holding company of the Company is CITIC Group Corporation (“CITIC Group”). As at 31 December 2017, the equity interests held by CITIC Group in the Company through its overseas whollyowned subsidiaries was 58.13% (31 December 2016: 58.13%).

• 2. Significant accounting policies

  (a) Basis of preparation

  These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRS”), which in collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKAS”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and accounting principles generally accepted in Hong Kong. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group is set out below.

  The HKICPA has issued a number of amendments to HKFRS that are first effective for the current accounting period of the Group. None of these had a significant effect on the consolidated financial statements of the Group.

  (i) Amendments to HKAS 7, Statement of cash flows

  The amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities.

  (ii) Amendments to HKAS 12, Income taxes

  The amendments clarify how to account for deferred tax assets related to debt instruments measured at fair value.

  (iii) Amendment to HKFRS 12, Disclosure of interest in other entities

  The amendment is part of the annual improvements to HKFRSs 2014-2016 cycle. It clarifies that the disclosure requirement of HKFRS 12 is applicable to interest in entities classified as held for sale except for summarised financial information (para B17 of HKFRS 12). Previously, it was unclear whether all other HKFRS 12 requirements were applicable for these interests.

  (b) Functional currency and presentation currency

  The functional currency of the Company is Hong Kong dollars (“HK$”). The functional currencies of subsidiaries are determined in accordance with the primary economic environment in which they operate, and are translated into HK$ for the preparation of the consolidated financial statements (see Note 2(h)). The financial statements of the Group are presented in HK$ and, unless otherwise stated, expressed in million of HK$.

  (c) Basis of measurement

  The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair values as explained in the accounting policies set out below:

  • investment properties (see Note 2(l));
  • financial assets and liabilities at fair value through profit or loss (including trading financial assets or trading financial liabilities) (see Note 2(i));
  • available-for-sale financial assets, except for those whose fair value cannot be measured reliably (see Note 2(i)); and
  • fair value hedged items (see Note 2((j)(i)).

  (d) Use of estimates and judgement

  The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results may differ from these estimates.

  Judgements made by management that have significant effect on the financial statements and estimates with a significant risk of material adjustment in subsequent period are described in Note 3. Revisions to accounting estimates are recognised in the period which the estimates are revised and in any future periods affected.

  (e) Subsidiaries and non-controlling interests

  (i) Business combinations involving entities under common control

  A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets acquired and liabilities assumed are measured based on their carrying amounts in the consolidated financial statements of the ultimate controlling party at the combination date. The difference between the carrying amount of the net assets acquired and the consideration paid for the combination (or the total face value of shares issued) is adjusted against the capital reserve. Any cost directly attributable to the combination is recognised in profit or loss when incurred. The combination date is the date on which one combining entity obtains control of other combining entities.

  (ii) Business combinations not involving entities under common control

  A business combination not involving entities under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination. Where (1) the aggregate of the acquisition date fair value of assets transferred (including the acquirer’s previously held equity interest in the acquiree), liabilities incurred or assumed, and equity securities issued by the acquirer, in exchange for control of the acquiree, exceeds (2) the acquirer’s interest in the acquisition date fair value of the acquiree’s identifiable net assets, the difference is recognised as goodwill. If (1) is less than (2), the difference is recognised in profit or loss for the current period. The costs of equity or debt securities as a part of the consideration for the acquisition are included in the carrying amounts of these equity or debt securities upon initial recognition. Other acquisition-related costs are expensed when incurred. Any difference between the fair value and the carrying amount of the assets transferred as consideration is recognised in profit or loss. The acquiree’s identifiable assets, liabilities and contingent liabilities, if the recognition criteria are met, are recognised by the Group at their acquisition date fair value. The acquisition date is the date on which the acquirer obtains control of the acquiree.

  The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components of noncontrolling interests are measured at their acquisition date fair value, unless another measurement basis is required by HKFRS.

  For a business combination not involving entities under common control and achieved in stages, the Group remeasures its previously-held equity interest in the acquiree to its fair value at the acquisition date. The difference between the fair value and the carrying amount is recognised as investment income for the current period; the amount recognised in other comprehensive income relating to the previously-held equity interest in the acquiree are transferred to investment income in the period in which the acquisition occurs.

  (iii) Consolidated financial statements

  The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the Company and its subsidiaries, as well as structured entities controlled by the Group.

  Subsidiaries are entities over which the Group has control. The Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

  When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

  An investment in a subsidiary is consolidated into the consolidated financial statements of the Group from the date that control commences until the date that control ceases.

  Where a subsidiary was acquired during the reporting period, through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the date the ultimate controlling party first obtained control. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary’s assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated statement of comprehensive income, respectively, based on their carrying amounts, from the date that common control was established. Net profit earned by the acquiree prior to the date of acquisition is separately disclosed.

  Where a subsidiary was acquired during the reporting period, through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into the consolidated financial statements from the date that control commences, based on the fair value of those identifiable assets and liabilities at the acquisition date.

  Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the ordinary shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the ordinary shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet in accordance with Note 2(i).

  When the amount of loss for the current period attributable to the non-controlling interest of a subsidiary exceeds the non-controlling interest’s portion of the opening balance of shareholders’ equity of the subsidiary, the excess is allocated against the non-controlling interests.

  When the accounting period or accounting policies of a subsidiary are different from those of the Group, the Group makes necessary adjustments to the financial statements of the subsidiary based on the Group’s own accounting period or accounting policies. Intra-group balances, transactions and cash flows, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are recognised fully in profit or loss when evidence of impairment of assets being provided.

  Where the Group acquires a non-controlling interest from a subsidiary’s non-controlling shareholders or disposes of a portion of an interest in a subsidiary without a change in control, the difference between the amount by which the non-controlling interests are adjusted and the amount of the consideration paid or received is adjusted to the reserve (capital reserve) in the consolidated balance sheet.

  When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss, and the Group derecognises assets, liabilities, non-controlling interests and other related items in shareholders’ equity in relation to that subsidiary. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(i)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (see Note 2(f)).

  (iv) Investment in subsidiaries

  In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see Note 2(t)(ii)).

  The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

  (f) Associates and joint ventures

  An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

  A joint venture is an arrangement whereby the Group and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.

  An investment in an associate or a joint venture is accounted for in the consolidated financial statements of the Group under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see Note 2(t)(ii)). Any acquisition-date excess of the Group’s share of the fair value of the investee’s identifiable net assets over cost, the Group’s share of the postacquisition, post-tax results of the investees and any impairment losses for the year are recognised in profit or loss, whereas the Group’s share of the post-acquisition, post-tax items of the investees’ other comprehensive income is recognised in other comprehensive income of the Group. The Group’s interest in associate or joint venture is included in the consolidated financial statements from the date that significant influence or joint control commences until the date that significant influence or joint control ends.

  When the Group’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture.

  Unrealised profits and losses resulting from transactions between the Group and its associate and joint venture are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

  If an investment in an associate becomes an investment in a joint venture or vice versa, retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method.

  In all other cases, when the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the cost on initial recognition of a financial asset (see Note 2(i)).

  In the Company’s balance sheet, investments in associates and joint ventures are stated at cost less impairment losses (see Note 2(t)(ii)).

  (g) Goodwill

  Goodwill represents the excess of the consideration transferred, including the amount of assets transferred (including the acquirer’s previously held equity interest in the acquiree), liabilities incurred or assumed, and the equity securities issued by the acquirer at the date of acquisition, over the fair value of the Group’s share of the identifiable net assets acquired, when the excess is positive, otherwise it’s recognised directly in profit or loss.

  Positive goodwill will be stated in the consolidated balance sheet as a separate asset or included within joint ventures and associates at cost less accumulated impairment losses and is subject to impairment testing at least annually. Impairment losses on goodwill are not reversed. Negative goodwill is recognised in profit or loss immediately on acquisition.

  (h) Translation of foreign currencies

  Foreign currency transactions are, on initial recognition, translated by applying the foreign exchange rates ruling at the transaction dates. Monetary items denominated in foreign currencies are translated at the foreign exchange rates ruling at the reporting date, the resulting exchange differences are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates ruling at the transaction dates. Non-monetary items that are measured at fair value in a foreign currency are translated using the foreign exchange rates ruling at the dates the fair value was determined. The exchange differences are recognised in profit or loss, except for the differences arising from the translation of available-for-sale equity investments, which is recognised in other comprehensive income.

  The financial statements of the Group’s subsidiaries with a foreign functional currency are translated into HK$ for the preparation of the Group’s consolidated financial statements. The assets and liabilities in these financial statements are translated into HK$ at the foreign exchange rates ruling at the reporting date. The equity items, except for “retained earnings”, are translated to HK$ at the foreign exchange rates at the dates on which such items arose.

  Income and expenses in the profit or loss are translated into HK$ at the foreign exchange rates or the rates that approximate the foreign exchange rates at the transaction dates. The resulting exchange differences are presented as “Reserves” (exchange reserve) in the consolidated balance sheet within the shareholder’s equity.

  Upon disposal of a foreign operation, the cumulative amount of the translation differences recognised in shareholders’ equity which relates to that foreign operation is transferred to profit or loss in the period in which the disposal occurs.

  (i) Financial instruments

  (i) Initial recognition

  The Group classifies its financial instruments into different categories at inception, depending on the purpose for which the assets were acquired or the liabilities were incurred, and on the contractual terms of the financial instruments. The categories are: financial assets or financial liabilities at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial liabilities.

  Financial instruments are measured initially at fair value, which normally will be equal to the transaction price plus, in case of a financial asset or financial liability not held at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset or issue of the financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately.

  The Group recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets and financial liabilities at fair value through profit or loss is recognised using trade date accounting. Other financial assets and financial liabilities are recognised using settlement date accounting. From these dates, any gains and losses arising from changes in fair value of the financial assets or financial liabilities at fair value through profit or loss are recorded.

  (ii) Categorisation

  Financial assets at fair value through profit or loss

  This category comprises financial assets held for trading, and those designated at fair value through profit or loss upon initial recognition, but excludes those investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured.

  A financial asset is classified as held for trading if it is: (i) acquired principally for the purpose of selling it in the near term; (ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profittaking; or (iii) a derivative. Derivatives that do not qualify for hedge accounting (Note 2(j)) are accounted for as trading instruments.

  Financial instruments are designated at fair value through profit or loss upon initial recognition when:

  • the assets are managed, evaluated and reported internally on a fair value basis;
  • the designation eliminates or significantly reduces an accounting mismatch in the gain and loss recognition arising from the difference in measurement bases of the financial assets which would otherwise arise;
  • the asset contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract; or
  • the separation of the embedded derivative(s) from the financial instrument is not prohibited.

  Financial assets under this category are carried at fair value. Changes in the fair value are included in profit or loss in the period in which they arise. Upon disposal, the difference between the net sale proceeds and the carrying value is included in profit or loss.

  Loans and receivables

  Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than (a) those that the Group intends to sell immediately or in the near term, which will be classified as held for trading; (b) those that the Group, upon initial recognition, designates as at fair value through profit or loss or as available-for-sale financial assets.

  Loans and receivables mainly comprise loans and advances to customers and other parties, deposits and placements with banks and non-bank financial institutions, financial assets held under resale agreements, investments classified as receivables, and trade and other receivables.

  Loans and receivables are carried at amortised cost using the effective interest method, less impairment losses, if any (see Note 2(t)(i)). Where the receivables are interest-free loans made to related parties without any fixed repayment term or the effect of discounting would be immaterial, the receivables are stated at cost less allowance for impairment of doubtful debts.

  Held-to-maturity investments

  Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity for which the Group has the positive intention and ability to hold to maturity, other than (a) those that the Group, upon initial recognition, designates as at fair value through profit or loss or as available-for-sale; and (b) those that meet the definition of loans and receivables.

  Held-to-maturity investments are carried at amortised cost using the effective interest method less impairment losses, if any (see Note 2(t)(i)).

  If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held-to-maturity, it shall be reclassified as available-for-sale and remeasured at fair value.

  Available-for-sale financial assets

  Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other three categories above. They include financial assets intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes in the market environment.

  Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes in the fair value are recognised in other comprehensive income and accumulated separately in equity, except for impairment losses and foreign exchange gains and losses on monetary items such as debt securities which are recognised in profit or loss. Dividend income from equity securities and interest income from debt securities calculated using the effective interest method are recognised in profit or loss in accordance with the policies set out in Note 2(w)(vii) and 2(w)(i) respectively.

  Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be measured reliably, and derivatives that are linked to and must be settled by delivery of such unquoted equity securities are carried at cost less impairment losses, if any (see Note 2(t)(i)).

  When the available-for-sale financial assets are sold, gains or losses on disposal include the difference between the net sale proceeds and the carrying value, and the accumulated fair value adjustments which are previously recognised in other comprehensive income shall be reclassified from equity to profit or loss.

  Financial liabilities at fair value through profit or loss

  Financial liabilities at fair value through the profit or loss include those classified as held for trading, and those designated by the Group upon recognition as at fair value through the profit or loss.

  A financial liability is classified as held for trading if it is: (i) acquired or incurred principally for the purpose of repurchasing it in the near term; (ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or (iii) a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

  Financial liabilities are designated at fair value through the profit or loss upon initial recognition when: (i) the financial liabilities or are managed, evaluated and reported internally on a fair value basis; (ii) the designation eliminates or significantly reduces an accounting mismatch in the gain and loss recognition arising from the difference in measurement bases of the financial liabilities; or (iii) a contract contains one or more embedded derivatives, i.e. an entire hybrid (combined) contract, unless: (i) the embedded derivative does not significantly modify the cash flows that otherwise would be required by the hybrid (combined) contract; or (ii) it is clear with little or no analysis when a similar hybrid (combined) instrument is first considered that separation of the embedded derivative is prohibited.

  Other financial liabilities

  Financial liabilities, other than trading liabilities and those designated at fair value through profit or loss, are measured at amortised cost using the effective interest method.

  Other financial liabilities mainly comprise borrowing from central banks, deposits from banks and non-bank financial institutions, placements from banks and non-bank financial institutions, trade and other payables, financial assets sold under repurchase agreements, banks and other loans, and debt instruments issued.

  (iii) Fair value measurement principles

  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

  If there is no publicly available latest traded price nor a quoted market price on a recognised stock exchange or a price from a broker/dealer for non-exchange-traded financial instruments, or if the market for it is not active, the fair value of the instrument is estimated using valuation techniques that provide a reliable estimate of prices which could be obtained in actual market transactions.

  Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is based on the relevant government yield curve as at the balance sheet date plus an adequate constant credit spread. Where other pricing models are used, inputs are based on market data at the balance sheet date.

  (iv) De-recognition

  A financial asset is derecognised when the contractual rights to receive the cash flows from the financial asset expire, or where the financial asset together with substantially all the risks and rewards of ownership, have been transferred.

  The Group derecognises a financial asset, if the part being considered for de-recognition meets one of the following conditions: (a) the contractual rights to receive the cash flows from the financial asset expire; or (b) the contractual rights to receive the cash flows of the financial asset have been transferred, and the Group transfers substantially all the risks and rewards of ownership of the financial asset; or (c) the Group retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to the eventual recipient in an agreement that meets all the conditions of de-recognition of transfer of cash flows (“pass through requirements”) and transfers substantially all the risks and rewards of ownership of the financial asset.

  Where a transfer of a financial asset in its entirety meets the criteria for de-recognition, the difference between the two amounts below is recognised in profit or loss:

  • the carrying amount of the financial asset transferred;
  • the sum of the consideration received from the transfer and any cumulative gain or loss that has been recognised directly in equity.

  If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability.

  As part of its operations, the Group securitises financial assets, generally through the sale of these assets to structured entities which issue securities to investors. Further details on prerequisites for de-recognition of financial assets are set out above. When the securitisation of financial assets that qualify for de-recognition, the relevant financial assets are derecognised in their entirety and a new financial asset or liabilities is recognised regarding the interest in the unconsolidated securitisation vehicles that the Group acquired. When the securitisation of financial assets that do not qualify for de-recognition, the relevant financial assets are not derecognised, and the consideration paid by third parties are recorded as a financial liability; when the securitisation of financial assets that partially qualify for de-recognition, where the Group has not retained control, it derecognises these financial assets and recognises separately as assets or liabilities any rights and obligations created or retained in the transfer. Otherwise the Group continues to recognise these financial assets to the extent of its continuing involvement in the financial asset.

  The de-recognition of financial assets sold on condition of repurchase is determined by the economic substance of the transaction. If a financial asset is sold under an agreement to repurchase the same or substantially the same asset at a fixed price or at the sale price plus a reasonable return, the Group will not derecognise the asset. If a financial asset is sold together with an option to repurchase the financial asset at its fair value at the time of repurchase (in case of transferor sells such financial asset), the Group will derecognise the financial asset.

  The financial liability is derecognised only when: (a) the underlying present obligation specified in the contracts is discharged/cancelled, or (b) an agreement between the Group and an existing lender to exchange the original financial liability with a new financial liability with substantially different terms, or a substantial modification of the terms of an existing financial liability is accounted for as an extinguishment of the original financial liability and recognition of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

  (v) Offsetting

  Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

  (vi) Derivatives

  The Group uses derivatives to hedge its exposure on risks. The Group adopts hedge accounting in accordance with Note 2(j) for derivatives designated as hedging instruments if the hedge is effective. Other derivatives are accounted for as trading financial assets or financial liabilities. Derivatives are recognised at fair value upon initial recognition. The positive fair value is recognised as assets while the negative fair value is recognised as liabilities. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.

  (vii) Embedded derivatives

  An embedded derivative is a component of a hybrid (combined) instrument that includes both the derivative and a host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. The embedded derivatives are separated from the host contract and accounted for as a derivative when (a) the economic characteristics and risks of the embedded derivative are not closely related to the host contract; and (b) the hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in profit or loss.

  When the embedded derivative is separated, the host contract is accounted for in accordance with Note 2(i)(ii) above.

  (j) Hedging

  Hedge accounting recognises the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item. The Group assesses and documents whether the financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items attributable to the hedged risks both at hedge inception and on an ongoing basis. The Group discontinues prospectively hedge accounting when (a) the hedging instrument expires or is sold, terminated or exercised; (b) the hedge no longer meets the criteria for hedge accounting; or (c) the Group revokes the designation.

  (i) Fair value hedge

  A fair value hedge seeks to offset risks of changes in the fair value of recognised asset or liability that will give rise to a gain or loss being recognised in profit or loss. The hedging instrument is measured at fair value, with fair value changes recognised in profit or loss. The carrying amount of the hedged item is adjusted by the amount of the changes in fair value of the hedging instrument attributable to the risk being hedged. This adjustment is recognised in profit or loss to offset the effect of the gain or loss on the hedging instrument.

  When a hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting, or the Group revokes designation of the hedge relationship, any adjustment up to that point, to a hedged item for which the effective interest method is used, is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life.

  (ii) Cash flow hedge

  Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, or the foreign currency risk of a committed future transaction, the effective part of any gain or loss on remeasurement of the derivative financial instrument to fair value is recognised in other comprehensive income and accumulated separately in equity in the hedging reserve. The ineffective portion of any gain or loss is recognised immediately in profit or loss.

  If the hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated gain or loss is reclassified from equity to be included in the initial cost or other carrying amount of the non-financial asset or liability.

  If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gain or loss is reclassified from equity to the profit or loss in the same period or periods during which the asset acquired or liability assumed affects the profit or loss (such as when interest income or expense is recognised).

  For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is reclassified from equity to profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss.

  When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity until the transaction occurs and is recognised in accordance with the above policy. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is reclassified from equity to profit or loss immediately.

  (iii) Hedge effectiveness testing

  In order to qualify for hedge accounting, the Group carries out prospective effectiveness testing to demonstrate that it expects the hedge to be highly effective at the inception of the hedge and throughout its life. Actual effectiveness (retrospective effectiveness) is also demonstrated on an ongoing basis.

  The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed. The method which the Group adopts for assessing hedge effectiveness will depend on its risk management strategy.

  For fair value hedge relationships, the Group utilises the cumulative dollar offset method or regression analysis as effectiveness testing methodologies. For cash flow hedge relationships, the Group utilises the change in variable cash flow method or the cumulative dollar offset method using the hypothetical derivative approach.

  For prospective effectiveness, the hedging instrument must be expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness, the changes in fair value or cash flows must offset each other in the range of 80 per cent to 125 per cent for the hedge to be deemed effective.

  (k) Financial assets held/sold under resale/repurchase agreements

  Financial assets held under resale agreements are transactions that the Group acquires financial assets which will be resold at a predetermined price in the future date under resale agreements. Financial assets sold under repurchase agreements are transactions that the Group sells financial assets which will be repurchased at a predetermined price in the future date under repurchase agreements.

  The cash advanced or received is recognised as amounts held under the resale and repurchase agreements in the balance sheet. Assets held under resale agreements are recorded in memorandum accounts as off-balance sheet items. Assets sold under repurchase agreements continue to be recognised in the balance sheet.

  The difference between the resale and repurchase consideration, and that between the purchase and sale consideration, are amortised over the period of the respective transaction using the effective interest method and are included in interest income and interest expense respectively.

  (l) Investment properties

  Investment properties are interests in land and/or buildings which are held to earn rentals or for capital appreciation or both. These include land held for a currently undetermined future use. Land held under operating leases is classified and accounted for as investment property when the rest of the definition of investment property is met.

  Investment properties are stated in the balance sheet at fair values which are reviewed annually. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss.

  (m) Property, plant and equipment

  Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses (Note 2(t)(ii)).

  Assets in the course of construction for production, rental or administrative purposes are carried at cost, less any impairment losses. Cost includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of overheads.

  Construction-in-progress represents property, plant and equipment under construction and is transferred to fixed assets when ready for its intended use.

  No depreciation is provided in respect of construction in progress. Upon completion and commissioning for operation, depreciation will be provided at the appropriate rate specified below.

  Property, plant and equipment are depreciated at rates sufficient to write off their cost, less impairment losses, if any, to their estimated residual values, over their estimated useful lives on a straight line basis as follows:

  • Plant and buildings: 5 – 50 years
  • Machinery and equipment: 3 – 33 years
  • Office and other equipment, vehicles and vessels and others: 2 – 33 years

  Freehold land within the category of plant and buildings are not depreciated.

  Assets’ useful lives and residual values are reviewed, and adjusted if appropriate, at each balance sheet date.

  An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

  The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use.

  Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.

  (n) Land use rights

  Land use rights are stated at cost less accumulated amortisation and accumulated impairment losses (if any). Land use rights are amortised on a straight-line basis over the respective periods of grant, usually within 10 to 50 years.

  Impairment losses on land use rights are accounted for in accordance with the accounting policies as set out in Note 2(t)(ii).

  (o) Intangible assets (other than goodwill)

  Intangible assets acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see Note 2(t)(ii)).

  Amortisation of intangible assets with finite useful lives is charged to profit or loss over the assets’ estimated useful lives. The following intangible assets are amortised from the date they are available for use as follows:

  • Roads and tunnels operating rights: Over the estimated useful lives of 30 years
  • Mining assets: Over the estimated useful lives of the mines in accordance with the production plan of the entities concerned and the proven probable reserves of the mines using the unit-of-production method
  • Franchise right: Over the estimated useful lives of 20 years

  Both the period and method of amortisation are reviewed annually.

  Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

  (p) Inventories

  (i) Manufacturing, resources and energy segments

  Inventories of the manufacturing, and resources and energy segments are carried at the lower of cost and net realisable value.

  Cost is calculated using the first-in first-out, specific identification or weighted average cost formula as appropriate, and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

  Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

  When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised in profit or loss in the period in which the reversal occurs.

  (ii) Real estate segment

  Inventories in respect of property development activities under the real estate segment are carried at the lower of cost and net realisable value. Cost and net realisable values are determined as follows:

  • Property under development
    

    The cost of properties under development comprises specifically identified cost, including the acquisition cost of land, aggregate cost of development, materials and supplies, wages and other direct expenses, an appropriate proportion of overheads and borrowing costs capitalised (see Note 2(bb)). Net realisable value represents the estimated selling price less estimated costs of completion and costs to be incurred in selling the property.

  • Completed property held for sale
    

    In the case of completed properties developed by the Group, cost is determined by apportionment of the total development costs for that development project, attributable to the unsold properties. Net realisable value represents the estimated selling price less costs to be incurred in selling the property.

    The cost of completed properties held for sale comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

  (q) Construction contracts

  Construction contracts are contracts specifically negotiated with a customer for the construction of an asset or a group of assets, where the customer is able to specify the major structural elements of the design. The accounting policy for contract revenue is set out in Note 2(w)(v). When the outcome of a construction contract can be estimated reliably, contract costs are recognised as an expense by reference to the stage of completion of the contract at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

  Construction contracts in progress at the balance sheet date are recorded at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented in the balance sheet as “amount due from customers for contract work” or “amount due to customers for contract work”.

  (r) Operating leases

  Leases which do not transfer substantially all the risks and rewards of ownership to the lessee are classified as operating leases.

  Where the Group leases out assets under operating leases, the assets are included in the balance sheet according to their nature and, where applicable, are depreciated in accordance with the Group’s depreciation policies, as set out in Note 2(m) except where the asset is classified as an investment property. Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2(t)(ii). Revenue arising from operating leases is recognised in accordance with the Group’s revenue recognition policies, as set out in Note 2(w)(vi).

  Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

  The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property (see Note 2(l)).

  (s) Repossessed assets

  In the recovery of impaired loans and advances, the Group may take possession of assets held as collateral through court proceedings or voluntary delivery of possession by the borrowers. Where it is intended to achieve an orderly realisation of the impaired assets and the Group is no longer seeking repayment from the borrower, repossessed assets are reported in “other assets”.

  When the Group seizes assets to compensate for the losses of loans and advances and interest receivables, the repossessed assets are initially recognised at fair value, plus any taxes paid for the seizure of the assets, litigation fees and other expenses incurred for collecting the repossessed assets are included in the carrying value of repossessed assets. Repossessed assets are recognised at the carrying value, net of allowances for impairment losses.

  Impairment losses on initial recognition and on subsequent remeasurement are recognised in profit or loss.

  (t) Impairment of assets

  (i) Financial assets

  The carrying amounts of the Group’s financial assets other than those measured at fair value through profit and loss are reviewed at balance sheet date to determine whether there is objective evidence of impairment. Objective evidence that financial assets are impaired includes but not limited to one or more of the following loss events that occurred after the initial recognition of the asset and has an impact on the future cash flows on the assets that can be estimated reliably:

  • significant financial difficulty of the issuer or borrower;
  • a breach of contract, such as a default or delinquency in interest or principal payments;
  • the Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the Group would not otherwise consider;
  • it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
  • disappearance of an active market for financial assets because of financial difficulties;
  • observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the Group, including: adverse changes in the payment status of borrowers in the Group, an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices for mortgages in the relevant area, or adverse changes in industry conditions that affect the borrowers in the Group;
  • significant changes in the technological, market, economic or legal environment that have an adverse effect on the issuer;
  • a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost; and
  • other objective evidence indicating there is an impairment of a financial asset.

  If any such evidence exists, the carrying amount is reduced to the estimated recoverable amount by means of a charge to profit or loss.

  Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of loans and receivables and held-to-maturity investments, which are measured at amortised cost, whose recovery is considered doubtful but not remote. In this case, the impairment losses are recorded using an allowance account. When the Group is satisfied that recovery is remote after all the necessary legal or other proceedings are completed, the amount considered irrecoverable is written off against loans and receivables or held-to-maturity investments directly and any amounts held in the allowance account relating to that borrower/ investment are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

  Loans and receivables

  Impairment losses on loans and receivables are measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets). Receivables with a short duration are not discounted if the effect of discounting is immaterial.

  The total allowance for credit losses consists of two components: individual impairment allowances, and collective impairment allowances.

  The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

  The individual impairment allowance is based upon management’s best estimate of the present value of the cash flows which are expected to be received, discounted at the original effective interest rate. In estimating these cash flows, management makes judgements about the borrower’s financial situation and the net realisable value of any underlying collateral or guarantees in favour of the Group. Each impaired asset is assessed on its own merits.

  In assessing the need for collective loan loss allowances, management uses statistical modelling and considers historical trends of factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, the Group makes assumptions both to define the way the Group models inherent losses and to determine the required input parameters, based on historical experience and current economic conditions.

  The accuracy of the impairment allowances the Group makes depends on how well the Group can estimate future cash flows for individually assessed impairment allowances and the model assumptions and parameters used in determining collective impairment allowances. While this necessarily involves judgement, the Group believes that the impairment allowances on loans and advances to customers and other parties are reasonable and supportable.

  Any subsequent changes to the amounts and timing of the expected future cash flows compared to the prior estimates that can be linked objectively to an event occurring after the write-down, will result in a change in the impairment allowances on loans and receivables and be charged or credited to the income statement. A reversal of impairment losses is limited to the loans and receivables’ carrying amount that would have been determined had no impairment loss been recognised in prior years.

  When there is no reasonable prospect of recovery, the loan and the related interest receivables are written off.

  Loans and receivables with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Group has made concessions that it would not otherwise consider. Renegotiated loans and receivables are subject to ongoing monitoring to determine whether they remain impaired or past due.

  Held-to-maturity investments

  Impairment on held-to-maturity investments is considered at both an individual and collective level. The individual impairment allowance is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the asset’s original effective interest rate, where the effect of discounting is material.

  All significant assets found not to be individually impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets with similar risk characteristics.

  If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the income statement. A reversal of impairment losses shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

  Available-for-sale financial assets

  When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative loss that had been recognised in the fair value reserve is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

  For unquoted available-for-sale equity securities that are carried at cost, the impairment loss is measured as the difference between the carrying amount of the equity securities and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Such impairment losses are not reversed.

  Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised in other comprehensive income.

  Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss.

  (ii) Non-financial assets

  Internal and external sources of information are reviewed at balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

  • property, plant and equipment (other than properties carried at revalued amounts);
  • land use rights;
  • investments in subsidiaries, associates and joint ventures;
  • goodwill; and
  • intangible assets.

  If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill and intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

  Calculation of recoverable amount

  The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

  Recognition of impairment losses

  An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

  Reversals of impairment losses

  If, in a subsequent period, the amount of impairment loss of the non-financial asset except for goodwill decreases and the decrease can be linked objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the profit or loss. A reversal of impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior periods.

  An impairment loss in respect of goodwill is not reversable.

  (u) Employee benefits

  (i) Short-term employee benefits

  During the accounting period when an employee has rendered service to the Group, the Group recognises the undiscounted amount of short-term employee benefits as a liability and as an expense, unless another HKFRS requires or permits the inclusion of the benefits in the cost of an asset. Short-term employee benefits include wages, bonuses and social security contributions such as medical insurance, work-related injury insurance and maternity insurance, as well as housing provident funds, which are all calculated based on the regulated benchmark and ratio. Where the payment of liability is expected not to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services, and the effect would be material, these liabilities are stated at their present values in the balance sheet.

  (ii) Defined contribution retirement schemes

  Employees of the Group’s subsidiaries in Hong Kong are offered the option to enroll in one of the Mandatory Provident Fund (“MPF”) Master Trust Schemes under the CITIC Group MPF Scheme. The MPF Master Trust Schemes are defined contribution schemes and are administered in accordance with the terms and provisions of the respective trust deeds and are subject to the Mandatory Provident Fund Schemes Ordinance.

  Employees of the Group’s subsidiaries in the People’s Republic of China (the “PRC”) are required to participate in defined contribution retirement schemes and make contributions according to the respective regulations. Employees of the Group’s subsidiaries in the PRC are also eligible to participate in the enterprise annuity plan established by the Group according to the relevant requirements.

  Employees of the Group’s overseas subsidiaries are required to make contributions subject to the relevant regulations in the countries/jurisdiction in which the overseas subsidiaries operate.

  The contributions are charged to profit and loss for the current period on an accrual basis.

  (v) Financial guarantees issued, provisions and contingent liabilities

  (i) Financial guarantees issued

  Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

  Where the Group issues a financial guarantee, the fair value of the guarantee is initially recognised as deferred income within “other liabilities”. The fair value of financial guarantees issued at the time of issuance is determined by reference to fees charged in an arm’s length transaction for similar services, when such information is obtainable, or is otherwise estimated by reference to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

  The amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with Note 2(v)(iii) if and when: (1) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee; and (2) the amount of that claim on the Group is expected to exceed the amount currently carried in other liabilities in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.

  (ii) Contingent liabilities assumed in business combinations

  Contingent liabilities assumed in a business combination which are present obligations at the date of acquisition are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with Note 2(v)(iii). Contingent liabilities assumed in a business combination that cannot be reliably fair valued or were not present obligations at the date of acquisition are disclosed in accordance with Note 2(v)(iii).

  (iii) Other provisions and contingent liabilities

  Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors pertaining to a contingency such as the risks, uncertainties and time value of money are taken into account as a whole in reaching the best estimate. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

  Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

  (w) Revenue recognition

  Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

  (i) Interest income

  Interest income arising from the use of entity assets by others is recognised in profit or loss based on the duration and the effective interest rate. Interest income includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated on an effective interest rate basis.

  The effective interest method is a method of calculating the amortised cost of financial assets and liabilities and of allocating the interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial instrument. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, call and similar options) but does not consider future credit losses. The calculation includes all fees and interests paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

  Interest on the impaired financial assets is recognised using the rate of interest used to discount future cash flows (“unwinding of discount”) for the purpose of measuring the related impairment loss.

  (ii) Fee and commission income

  Fee and commission income is recognised when the corresponding service is provided.

  Origination or commitment fees received/paid by the Group which result in the creation or acquisition of a financial asset are deferred and recognised as an adjustment to the effective interest rate. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised.

  (iii) Sales of goods and services

  Revenue is recognised when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

  Service fee income is recognised when the services are rendered.

  (iv) Sales of properties

  Revenue from sales of properties is only recognised when the significant risks and rewards of ownership have been transferred to the buyer. The Group considers that the significant risks and rewards of ownership are transferred when the buildings contracted for sale are completed and the relevant permits essential for the delivery of the properties have been issued by the authorities.

  (v) Contract revenue

  When the outcome of a construction contract can be estimated reliably, revenue from a fixed price contract is recognised using the percentage of completion method.

  The Group measured the stage of completion by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract.

  When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable.

  (vi) Rental income from operating leases

  Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

  (vii) Dividend income

  Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

  (viii) Government grants

  Government grants are recognised in the balance sheet initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

  (x) Income tax

  Income tax for the year comprises current tax and deferred tax.

  The balance sheet liability method is adopted whereby deferred tax is recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; or in respect of those temporary differences which arise either from goodwill not deductible for tax purposes, or relating to investments in subsidiaries to the extent that the Group controls the timing of the reversal and it is probable that the temporary differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

  Provision for withholding tax that will arise on the remittance of retained earnings is only made where there is a current intention to remit such earnings.

  Deferred tax assets are recognised to the extent that their future utilisation is probable. Deferred tax arising from revaluation of investment properties is recognised on the rebuttable presumption that the recovery of the carrying amount of the properties would be through sale and calculated at the applicable tax rates.

  Current tax assets and liabilities are offset, and deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

  (y) Cash and cash equivalents

  Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

  (z) Related parties

  (a) A person, or a close member of that person’s family, is related to the Group if that person:

  (i) has control or joint control over the Group;

  (ii) has significant influence over the Group; or

  (iii) is a member of the key management personnel of the Group or the Group’s parent.

  (b) An entity is related to the Group if any of the following conditions applies:

  (i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

  (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

  (iii) Both entities are joint ventures of the same third party.

  (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity (one entity is an associate of a third entity and the Group is a joint venture of the third party).

  (v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

  (vi) The entity is controlled or jointly controlled by a person identified in (a).

  (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

  Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

  (aa) Segment reporting

  Reportable segments are identified based on operating segments which are determined based on the structure of the Group’s internal organisation, management requirements and internal reporting system. An operating segment is a component of the Group that meets the following respective conditions:

  • engages in business activities from which it may earn revenues and incur expenses;
  • whose operating results are regularly reviewed by the Group’s management to make decisions about resource to be allocated to the segment and assess its performance; and
  • for which financial information regarding financial position, results of operations and cash flows are available.

  Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of:

  • the nature of products and services;
  • the nature of production processes;
  • the type or class of customers;
  • the methods used to distribute the products or provide the services; and
  • the nature of the regulatory environment.

  Inter-segment revenues are measured on the basis of actual transaction price for such transactions for segment reporting, and segment accounting policies are consistent with those for the consolidated financial statements.

  (bb) Borrowing costs

  Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

  The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

  (cc) Disposal groups held for sale and discontinued operations

  Disposal groups are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Disposal groups (except for certain assets as explained below) are stated at the lower of carrying amount and fair value less costs to sell. Deferred tax assets, financial assets (other than investments in subsidiaries and associates) and investment properties, which are classified as held for sale, would continue to be measured in accordance with the policies set out else in Note 2.

  A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographic area of operations. Intra-group balances, transactions and cash flows between discontinued and continuing operations are eliminated in preparing these financial statements.

  When an operation is classified as discontinued, a single amount is presented in the income statement, which comprises the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

• 3. Critical accounting estimates and judgements

  Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

  The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and associated key assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

  (a) Impairment losses on loans and advances and investments classified as receivables

  Loans and advances to customers and other parties

  The Group reviews its loans and advances to customers and other parties to assess impairment on a periodic basis during the year. In determining whether an impairment loss should be recognised in the consolidated income statement, the Group makes estimates and judgements as to whether there is any observable data indicating that there is objective evidence of impairment and the extent, if any, to which it will have a measurable decrease in the estimated future cash flows related to individually assessed loans and advances or pools of loans and advances to customers and other parties with similar risk characteristics, as described in Note 2(t)(i) impairment of financial assets carried at amortised cost.

  Significant judgements are made in the determination of whether objective evidence of impairment exists in individually assessed loans and advances to customers and other parties or pools of loans and advances to customers and other parties with similar risk characteristics. Among other things, objective evidence of impairment includes deterioration in the financial condition of specific borrowers (or specific pools of borrowers) affecting their ability to meet their loan payment obligations, overdue status, financial position of guarantors, latest collateral valuations, concession the Group that would not otherwise be granted to borrowers for economic or legal reasons relating to their financial difficulties, as well as increasing industry sector over-capacity or obsolescence, or deterioration in national or regional economic conditions that are correlated to increasing loans and advances to customers and other parties defaults. These judgements are made both during management’s regular assessments of credit quality of loans and advances to customers and other parties and when other circumstances indicate the possibility that objective evidence of impairment may exist.

  Where it is determined that objective evidence of impairment exists, significant judgements and estimates are made in estimating the adverse impact on future cash flows related to individually assessed impaired loans and advances to customers and other parties. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Factors affecting these estimates include the availability and granularity of information related to specific borrowers; the results of regulatory reviews and the related portfolio analysis, and the clarity of the correlation between qualitative factors, such as industry sector performance or changes in regional economic conditions and loans and advances to customer’s defaults of related borrowers.

  Corporate loans and advances to customers and other parties not identified as impaired from individually assessments, together with all personal loans and advances to customers and other parties are included in in homogenous groups with similar credit risks characteristics for performance of impairment assessments on a collective basis. Migration model is used for corporate loans and roll rate models are used for personal loans considering the similarity of credit risks and applying key assumptions. Significant judgements are applied to the calculation of assessed impairment using these models. Critical factors affecting these judgements include modelling assumptions (e.g., loss given default) and levels of correlation between qualitative factors and loans and advances to customers and other parties default. The collective impairment loss is assessed after taking into account: (i) historical loss experience in portfolios of similar credit risk characteristics; (ii) the emergence period between a loss occurring and that loss being identified; (iii) high risk products and geographic locations; and (iv) the current economic and credit environments and whether in management’s experience these indicate that the actual level of inherent losses is likely to be greater or less than that suggested by historical experience. The Group considers the impact of the changes and uncertainty in the macro-economic environment, in which the Group operates when assessing the methodologies and assumptions used for loss estimation, makes adjustments where appropriate.

  Investments classified as receivables

  In determining whether an impairment loss should be recognised in the consolidated income statement, the Group makes significant estimates and judgements as to whether there is any observable data indicating that there is objective evidence of impairment and the extent, if any, to which it will have a measurable decrease in the estimated future cash flows related to investments classified as receivables by underlying assets or groups of underlying assets with similar risk characteristics, as described in Note 2(t)(i) Impairment of financial assets.

  Where it is determined that objective evidence of impairment exists, significant judgements and estimates are made in estimating the adverse impact on future cash flows based on the underlying assets related to individually significant impaired investment classified as receivables.

  Investments classified as receivables not identified as impaired from the individual assessment are included in groups with similar credit risk characteristics by underlying assets with the consideration of risk factors specific to different industries and different type of underlying assets, and assessed for impairment collectively. Significant judgements are applied to the calculation of collectively assessed impairment.

  (b) Impairment of available-for-sale equity investments

  For available-for-sale equity investments, a significant or prolonged decline in fair value below cost is considered to be objective evidence of impairment. Judgement is required when determining whether a decline in fair value has been significant or prolonged. In making this judgement, the Group considers historical data of market volatility and historical share price of the specific equity investment as well as other factors, such as sector performance, financial information regarding the investee and industry practice.

  (c) Provision for inventories

  The Group reviews the carrying amounts of inventories at each balance sheet date to determine whether the inventories are carried at lower of cost and net realisable value. The Group estimates the net realisable value, based on the current market situation and historical experience on similar inventories. Any change in the assumptions would increase or decrease the amount of inventories write-down or the related reversals of write-down. The change in the write-down would affect the Group’s profit or loss during the year.

  (d) Impairment of non-financial assets

  As described in Note 2(t)(ii), assets such as fixed assets and intangible assets are reviewed at each balance sheet date to determine whether the carrying amount exceeds the recoverable amount of the assets. If any such indication exists, an impairment loss is recognised.

  The recoverable amount of an asset (asset group) is the greater of its fair value less costs to sell and its present value of expected future cash flows. Since a market price of the asset (the asset group) cannot be obtained reliably, the fair value of the asset cannot be estimated reliably. In assessing value in use, significant judgements are exercised over the asset’s production, selling price, related operating expenses and discount rate to calculate the present value. All relevant materials which can be obtained are used for estimation of the recoverable amount, including the estimation of the production, selling price and related operating expenses based on reasonable and supportable assumptions.

  (e) Fair value of financial instruments

  For financial instruments without active market, the Group determines fair values using valuation techniques which include discounted cash flow models, as well as other types of valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and foreign currency exchange rates. Where discounted cash flow techniques are used, estimated cash flows are based on management’s best estimates and the discount rate used is a market rate at the end of each reporting period applicable for an instrument with similar terms and conditions. Where other pricing models are used, inputs are based on observable market data at the end of each reporting period. However, where market data are not available, management needs to make estimates on such unobservable market inputs based on assumptions. Changes in assumptions about these factors could affect the estimated fair value of financial instruments.

  (f) Depreciation

  Depreciation of operating assets constitutes a substantial operating cost for the Group. The cost of fixed assets is charged as depreciation expense over the estimated useful life of the respective assets using the straight-line method. Management periodically reviews changes in technology and industry conditions, asset retirement activity and residual values to determine adjustments to estimated remaining useful lives and depreciation rates.

  (g) Income taxes

  Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

  Deferred tax assets, which principally relate to tax losses and deductible temporary differences, are recognised when the future taxable profit will be available against such deferred tax assets. Hence, it requires formal assessment by management regarding the future profitability to utilise the deferred tax assets. The outcome of their actual utilisation may be different.

  (h) Assets acquired/liabilities assumed in business combination

  Assets acquired/liabilities assumed in business combination are recognised at fair value in connection with the Group’s acquisition of an entity. The fair values of the acquired assets/assumed liabilities are determined based on valuation methodologies and techniques that involved the use of a thirdparty valuation firm’s expertise. The judgements and assumptions used in that valuation of assets and liabilities along with the assumptions on the useful lives of acquired assets have an effect on the consolidated financial statements.

  (i) De-recognition of financial assets

  In its normal course of business, the Group transfers financial assets through various types of transactions including regular way sales and transfers, securitisation, financial assets sold under repurchase agreements and etc.. The Group applies significant judgement in assessing whether it has transferred these financial assets which qualify for a full or partial de-recognition.

  Where the Group enters into structured transactions by which it transferred financial asset to structured entities, the Group analyses whether the substance of the relationship between the Group and these structured entities indicates that it controls these structured entities to determine whether the Group needs to consolidate these structured entities. This will determine whether the following de-recognition analysis should be conducted at the consolidated level or at the entity level from which the financial assets was transferred.

  The Group analyses the contractual rights and obligations in connection with such transfers to determine whether the de-recognition criteria are met based on the following considerations:

  • whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer qualified for the “pass through” of those cash flows to independent third parties;
  • the extent to which the associated risks and rewards of ownership of the financial assets are transferred by using appropriate models. Significant judgement is applied in the Group’s assessment with regard to the parameters and assumptions applied in the models, estimated cash flows before and after the transfers, the discount rates used based on current market interest rates, variability factors considered and the allocation of weightings in different scenarios;
  • where the Group neither retained nor transferred substantially all of the risks and rewards associated with their ownership, the Group analyses whether the Group has relinquished its controls over these financial assets, and if the Group has continuing involvement in these transferred financial assets.

  (j) Consolidation of structured entities

  The Group makes significant judgement to assess whether or not to consolidate structured entities. When performing this assessment, the Group:

  • assesses its contractual rights and obligations in light of the transaction structures, and evaluates the Group’s power over the structured entities;
  • performs independent analyses and tests on the variable returns from the structured entities, including but not limited to commission income and asset management fees earned, retention of residual income, and, if any, liquidity and other support provided to the structured entities; and
  • assesses its ability to exercise its power to influence the variable returns assessed whether the Group acts as a principal or an agent through analysis of the scope of the Group’s decision-making authority, remuneration entitled, other interests the Group holds, and the rights held by other parties.

  (k) Metallurgical Corporation of China (“MCC”) claim

  MCC were appointed as the EPC (engineering, procurement and construction) contractor for the processing area and related facilities at the Group’s Sino Iron project in Western Australia (“Sino Iron Project”). The fixed price contract amount was US$3.4 billion.

  On 30 January 2013, MCC announced that it had incurred costs over the value of the contract and had provided additional funding of US$858 million to MCC Mining (Western Australia) Pty Ltd (“MCC WA”), its wholly owned subsidiary company responsible for delivering MCC’s obligations under the contract.

  As at the date of issuance of the consolidated financial statements, MCC has not claimed any additional costs from Sino Iron Pty Ltd (“Sino Iron”) or its subsidiary companies, other than minor contract variations in the normal course of operations, and the Group believes it has satisfied all of its obligations under the contract.

  Under the contract, the Group has a right to claim liquidated damages from MCC WA for certain delays in the completion of their project scope at a daily amount of 0.15% of the value of the main contract (approximately US$5 million per day, with a cap of approximately US$530 million in total). As at balance sheet date the cumulative days delay that has been incurred has resulted in the contractual cap to the liquidated damages being reached.

  As set out in the Company’s announcement dated 24 December 2013, Sino Iron and MCC WA entered into a supplemental contract pursuant to which Sino Iron will take over the management of the construction and commissioning of the remaining four production lines of the Sino Iron Project. An independent audit will opine on various matters including the contract price for the hand over pursuant to the supplemental contract and related fees and expenses, the value of the supporting services provided by Sino Iron to MCC WA in carrying out its responsibilities under the contract, the extent of the works completed by MCC WA in respect of the first two production lines, and the liability of MCC WA in respect of the extensive delays on completion of the works under the contract. By reference to such findings of the independent audit, Sino Iron and MCC WA expect to enter into further negotiations to determine the amount of liabilities to be borne between the parties. Outcomes are not yet known as at 31 December 2017.

  (l) Mineralogy Pty Ltd (“Mineralogy”) disputes

  Each of Sino Iron and Korean Steel Pty Ltd (“Korean Steel”), subsidiary companies of the Company, is a party to a Mining Right and Site Lease Agreement (“MRSLA”) with Mineralogy. Among other things, those agreements, together with other project agreements, provide Sino Iron and Korean Steel the right to construct and operate the Sino Iron Project and take two billion tonnes of magnetite ore.

  A number of disputes have arisen in relation to the MRSLAs and associated agreements, a number of which are described below. The Group intends to contest all claims vigorously.

  Option Agreement Dispute

  The Company is a party to an Option Agreement with Mineralogy and Mr. Clive Palmer, pursuant to which it has options to acquire up to four further companies, each holding the right to mine one billion tonnes of magnetite ore in the vicinity of the Sino Iron Project. The Company exercised the first option under the Option Agreement on 13 April 2012. Following the exercise of the first option, Mineralogy alleged that the Option Agreement had been repudiated by the Company, purported to accept that repudiation and stated that the Option Agreement was at an end.

  The Company (and its affected subsidiaries, Sino Iron and Korean Steel) (together referred to as the “CITIC Parties”) commenced a legal proceeding in the Supreme Court of Western Australia. On 30 September 2015, the Court made the declarations sought by the Company, including that the Company had not repudiated the Option Agreement as initially asserted by Mineralogy and Mr. Palmer.

  Notwithstanding the making of these declarations, Mineralogy has not taken the action necessary to permit completion of the transaction resulting from the Company’s exercise of the first option under the Option Agreement. On 31 March 2016, the CITIC Parties commenced a proceeding in the Supreme Court of Western Australia seeking orders compelling Mineralogy and Mr. Palmer to take the steps necessary under the Option Agreement to complete the transfer of a further company having the right to mine one billion tonnes of magnetite ore.

  On 26 February 2018, Justice Kenneth Martin granted leave for Cape Preston Resource Holdings Pty Ltd, a subsidiary of the Company, to be added as a plaintiff to the proceeding and for the writ to be amended for that purpose. Justice Kenneth Martin also made, inter alia, orders for the programming of any strike out application by the plaintiffs in respect of the defendants’ defence and any counterclaim.

  No trial date has been set for this proceeding.

  Royalty Component B Dispute

  The MRSLAs provide that Sino Iron and Korean Steel must pay a royalty to Mineralogy, a component of which (“Royalty Component B”) is payable on products produced and calculated by reference to ‘prevailing published annual FOB prices’ for certain iron ore products. Sino Iron and Korean Steel’s position was that, among other things, because this phrase refers to the Annual Benchmark Pricing System (“Benchmark”), which ceased to exist in early 2010, it is no longer possible to calculate Royalty Component B. Mineralogy’s position was that the phrase is not limited to a reference to the Benchmark and Royalty Component B is still ascertainable from other published data. Mineralogy commenced a proceeding in the Supreme Court of New South Wales that was transferred to the Supreme Court of Western Australia following a successful application by the CITIC Parties. In the proceeding transferred to the Supreme Court of Western Australia (“Proceeding CIV 1808/2013”), Mineralogy pursued a claim against Sino Iron and Korean Steel for payment of sums for Royalty Component B on products produced up to 31 March 2017, damages for alleged breaches of the MRSLAs and certain other relief.

  The trial in Proceeding CIV 1808/2013 commenced on 14 June 2017 and ran for 10 sitting days. On 24 November 2017, Justice Kenneth Martin delivered his reasons for decision in that proceeding, finding in favour of Mineralogy. In particular, his Honour found in favour of Mineralogy as to the proper construction of the relevant clauses of the MRSLAs and the calculation of Royalty Component B.

  Following delivery of the reasons for decision in Proceeding CIV 1808/2013, Mineralogy commenced a further proceeding in the Supreme Court of Western Australia against the CITIC Parties (“Proceeding CIV 3024/2017”) seeking the same relief as that sought in Proceeding CIV 1808/2013. On 18 December 2017, Justice Kenneth Martin ordered, among other things, that Proceeding CIV 1808/2013 and Proceeding CIV 3024/2017 be consolidated and that all claims be determined in the as consolidated proceeding.

  Also on 18 December 2017, Justice Kenneth Martin made final orders in the consolidated proceeding. His Honour ordered, among other things, that judgement be entered for Mineralogy:

  • (i) against each of Sino Iron and Korean Steel in the amount of US$82,409,227.91 (including US$7,702,492.91 interest); and
  • (ii) against the Company in the amount of US$153,859,032.00 (including US$4,445,562.00 interest), pursuant to the guarantee in the Fortescue Coordination Deed (“FCD”).

  Justice Kenneth Martin ordered that the obligations to pay the above amounts to Mineralogy be suspended until the close of business on 15 January 2018.

  Mineralogy could enforce the judgement against either Sino Iron and Korean Steel, on the one hand, or against the Company, on the other. However, it could not recover the judgement sums from Sino Iron/ Korean Steel and the Company.

  On 12 January 2018, Sino Iron paid to Mineralogy the judgement sums plus interest ordered by Justice Kenneth Martin on behalf of itself and Korean Steel. On the same day, Sino Iron paid Mineralogy the sum of US$113,332,300 in respect of payments of Royalty Component B for the quarters ended 30 June 2017, 30 September 2017 and 31 December 2017 in conformity with the judgement in Proceedings CIV 1808/2013 and CIV 3024/2017.

  The CITIC Parties have appealed the consolidation orders and final orders made by Justice Kenneth Martin on 18 December 2017. No date has been set for the hearing of the appeal.

  FCD Indemnity Disputes

  Mineralogy and Mr. Palmer have commenced and threatened to commence proceedings to pursue claims pursuant to an indemnity given by the Company under the FCD to Mineralogy and Mr. Palmer that extends to losses suffered by Mineralogy and Mr. Palmer in relation to failure by Sino Iron and Korean Steel to perform their obligations under the project agreements.

  (i) Queensland Nickel FCD Indemnity Claim

  On 29 June 2017, the final day of the trial of Proceeding CIV 1808/2013, Mr. Palmer commenced a proceeding against the Company in the Supreme Court of Western Australia claiming damages in the sum of AUD2.324 billion (now reduced by an amended statement of claim to AUD1.8065 billion). This amount is alleged to represent the reduction in the value of the assets of the Joint Venture business carried on by Queensland Nickel group of companies (“Queensland Nickel”) controlled by Mr. Palmer. The Joint Venture business was a nickel and cobalt refinery located at Yabulu in North Queensland.

  Mr. Palmer’s claim purports to be made pursuant to an indemnity given by the Company under the FCD to Mr. Palmer and Mineralogy, that extends to losses suffered by Mr. Palmer and Mineralogy in relation to failure by Sino Iron and Korean Steel to perform their obligations under the project agreements.

  Mr. Palmer claims that, in or around November 2015, Mineralogy agreed and/or determined to provide to Queensland Nickel Pty Limited, the manager of the Queensland Nickel joint venture, AUD28 million and such further funds as it might require for working capital, funded from the payment of Royalty Component B, to enable it to continue to manage and operate the Joint Venture business, while nickel prices remained low. As Sino Iron and Korean Steel had not paid amounts sought by Mineralogy on account of Royalty Component B, Mr. Palmer claims that Mineralogy did not, and was unable to, provide the funds to Queensland Nickel Pty Limited to enable it to continue managing and operating the Joint Venture business. Mr. Palmer alleges that Queensland Nickel Pty Limited was subsequently placed in administration, followed by liquidation, because it did not receive those funds from Mineralogy.

  On 5 February 2018, the Company filed and served its defence and counterclaim in the proceeding. The Company has pleaded a number of defences, including that there has been no breach of the project agreements, construction arguments, causation and mitigation.

  On 26 February 2018, Justice Kenneth Martin made, inter alia, orders adding Mineralogy (as a plaintiff) and Sino Iron and Korean Steel (as defendants) in the proceeding.

  No trial date has been set for this proceeding.

  (ii) Palmer Petroleum FCD Indemnity Claim

  On 16 February 2018, Mineralogy commenced another proceeding against the CITIC Parties in the Supreme Court of Western Australia, Proceeding CIV 1267/2018, in which it claims damages in the sum of AUD2.675 billion. The statement of claim pleads that Mineralogy had agreed to provide:

  (1) from December 2009, funding; and

  (2) in or about 2013, all future working capital,

  to its wholly owned subsidiary, Palmer Petroleum Pty Ltd (now named Aspenglow Pty Ltd) (“Palmer Petroleum”). As the CITIC Parties had not paid Royalty Component B from the fourth quarter of 2013 to the second quarter of 2016, it is claimed that Mineralogy did not, and was unable to, provide the funds to Palmer Petroleum.

  Mineralogy alleges that as a result, Palmer Petroleum was wound up in insolvency. The statement of claim pleads that Palmer Petroleum subsequently lost rights to a Papua New Guinea exploration licence and suffered a diminution in value, equivalent to the sale value of oil that allegedly would have been recoverable under the exploration licence. Mineralogy claims that it suffered a loss equivalent to the diminution in value of its shareholding in Palmer Petroleum.

  This proceeding is still in its early stages. On 26 February 2018, Justice Kenneth Martin suspended the obligations of the CITIC Parties under the Court Rules to file any defence and counterclaim, to bring a strikeout application or to apply for summary judgement pending further orders or directions in this proceeding.

  (iii) Other Threatened FCD Indemnity Claims

  Mr. Palmer and Mineralogy have also foreshadowed further claims under the indemnity in the FCD relating to other losses alleged to have been suffered by various other entities controlled by Mr. Palmer.

  Minimum Production Royalty Dispute

  On 21 December 2017, Mineralogy commenced another proceeding against the CITIC Parties in the Supreme Court of Western Australia, Proceeding CIV 3166/2017, in which it revived its claim for the minimum production royalty. Mineralogy seeks, among other things, payment by Sino Iron and Korean Steel each of US$97,802,036, and payment by the Company of US$195,604,070 pursuant to the guarantee and indemnity in the FCD.

  The MRSLAs required each of Sino Iron and Korean Steel to produce a minimum of six million tonnes of product by 21 March 2013, unless prevented from doing so by factors outside their control. If Sino Iron and Korean Steel failed to do so, they were each required, within one month of that date, to pay Mineralogy the equivalent of the Mineralogy Royalty on six million tonnes of product.

  Mineralogy has applied to join Mr. Palmer (as a plaintiff) and the Company (as a defendant) to this proceeding. Mineralogy has also indicated to the CITIC Parties that Mineralogy proposes to plead the following additional claims in an amended statement of claim:

  (i) that Mineralogy is entitled to recover loss suffered as a result of the CITIC Parties’ unconscionable conduct, under section 21 of the Australian Consumer Law; and

  (ii) that Mr. Palmer is entitled to recover loss suffered in relation to the CITIC Parties’ failure to pay the minimum production royalty, pursuant to the indemnity in the FCD.

  A hearing date has been set for 26 June 2018 for CITIC Parties’ application that the proceeding be permanently stayed or dismissed, or the statement of claim be struck out, and Mineralogy’s application to join Mr. Palmer (as a plaintiff) and the Company (as a defendant).

  No trial date has been set for this proceeding.

  Port Dispute

  Sino Iron and Korean Steel, through their agent CITIC Pacific Mining Management Pty Ltd, have developed port infrastructure at the Port of Cape Preston to be used to export product from the Sino Iron Project. In 2013, Mineralogy commenced a proceeding in the Federal Court of Australia seeking declarations that the port terminal facilities had vested in it, that it was entitled to possession, control and ownership of that infrastructure and that the Facilities Deeds between the parties, which regulate usage of the port infrastructure, have been terminated by it. The Federal Court refused to grant any of the relief sought by Mineralogy.

  Mineralogy appealed the decision at first instance. The Full Court of the Federal Court of Australia dismissed the appeal on all grounds raised by Mineralogy. The Full Court found that Sino Iron and Korean Steel, and not Mineralogy, were solely responsible for the operation and maintenance of the port terminal facilities.

  Mineralogy applied for special leave to appeal the decision of the Full Court to the High Court of Australia. On 15 September 2017, the High Court refused Mineralogy’s application for special leave to appeal. A decision to refuse special leave is final and cannot be appealed. Accordingly, this proceeding is now at an end, save for the recovery by the CITIC Parties of their costs.

• 4. Taxation

  The statutory income tax rate of the Company and its subsidiaries located in Hong Kong for the year ended 31 December 2017 is 16.5% (2016: 16.5%).

  Except for the preferential tax treatments, the income tax rate applicable to the Group’s other subsidiaries in Mainland China for the year ended 31 December 2017 is 25% (2016: 25%).

  Taxation for other overseas subsidiaries is charged at the rates of taxation prevailing in the countries/ jurisdiction in which the overseas subsidiaries operate.

• 5. Revenue

  As a multi-industry conglomerate, the Group is principally engaging in financial services, resources and energy, manufacturing, engineering contracting, real estate and other businesses.

  For financial services segment, revenue mainly comprises net interest income, net fee and commission income and net trading gain (Notes 5(a), 5(b) and 5(d)). For non-financial services segment, revenue mainly comprises total invoiced value of sales of goods, services rendered to customers and revenue from construction contracts (Note 5(c)).

  The Group’s customer base is diversified and there is no single customer with which transactions have exceeded 10% of the Group’s revenue.

  (a) Net interest income

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Interest income arising from:
  Deposits with central banks, banks and non-bank financial institutions	12,589	11,179
  Placements with banks and non-bank financial institutions	7,173	4,363
  Financial assets held under resale agreements	1,391	1,078
  Investments classified as receivables	41,484	54,275
  Loans and advances to customers and other parties	163,317	155,248
  Investments in debt securities	30,034	25,274
  Others	120	6
  	256,108	251,423
  Interest expenses arising from:
  Borrowing from central banks	(7,088)	(3,143)
  Deposits from banks and non-bank financial institutions	(42,534)	(38,172)
  Placements from banks and non-bank financial institutions	(3,478)	(1,721)
  Financial assets sold under repurchase agreements	(3,103)	(1,007)
  Deposits from customers	(60,936)	(64,577)
  Debt instruments issued	(22,113)	(16,438)
  Others	(174)	(446)
  	(139,426)	(125,504)
  Net interest income	116,682	125,919

  (b) Net fee and commission income

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million
  Consultancy and advisory fees	4,904	6,821
  Bank card fees	35,107	22,561
  Settlement and clearing fees	1,400	1,633
  Commission for wealth management services	6,382	8,323
  Agency fees and commission	5,094	7,197
  Guarantee fees	2,422	2,790
  Trustee commission and fees	8,980	7,997
  Others	508	874
  	64,797	58,196
  Fee and commission expenses	(5,617)	(3,618)
  Net fee and commission income	59,180	54,578

  (c) Sales of goods and services

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Sales of goods	217,333	157,372
  Services rendered to customers	26,382	26,895
  Revenue from construction contracts	16,766	9,869
  	260,481	194,136

  (d) Other revenue

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million
  Net trading gain (note (i))	7,580	4,153
  Net gain on investment assets under financial services segment	3,580	2,022
  Others	3,033	854
  	14,193	7,029

  (i) Net trading gain

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million
  Trading profit:
  – debt securities and certificates of deposits	3,187	1,358
  – foreign currencies	1,932	2,705
  – derivatives	2,461	90
  	7,580	4,153

• 6. Costs of sales and services

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Costs of goods sold	191,752	139,840
  Costs of services rendered	17,402	18,172
  Costs of construction contracts	13,715	8,311
  	222,869	166,323

• 7. Other net income

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Net gain on disposal/deemed disposal of subsidiaries, associates and joint ventures	9,005	2,483
  Net gain on financial assets under non-financial services segment	3,523	1,889
  Net foreign exchange gain and others	2,068	2,929
  	14,596	7,301

• 8. Impairment losses

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Impairment losses (reversed from)/charged on:
  – deposits and placements with banks and non-bank financial institutions	(37)	40
  – trade and other receivables	7,499	6,706
  – amounts due from customers for contract work	(923)	(795)
  – inventories	16	585
  – loans and advances to customers and other parties (Note 25(d))	58,167	53,603
  – available-for-sale financial assets	895	416
  – held-to-maturity investments	(2)	2
  – investments classified as receivables	1,520	1,068
  – interests in associates	166	2
  – interests in joint ventures	(54)	11
  – fixed assets (note)	10,683	10,255
  – intangible assets (note)	254	742
  – others	741	953
  	78,925	73,588

  Note: Iron Ore Project

  The Group’s Iron Ore Project comprises the Sino Iron Project in Australia and its associated marketing operation in Singapore. Whenever events or circumstances indicate impairment may have occurred, the Group tests whether assets attributable to the Group’s Iron Ore Projects have suffered any impairment.

  The recoverable amount of the Sino Iron Project is based on the fair value less costs of disposal methodology which is based on cash flow projections that incorporate best estimates of selling prices, ore grades, exchange rates, production rates, future capital expenditure and production costs over the life of the mine. In line with normal practice in the mining industry, the cash flow projections are based on long term mine plans covering the expected life of the operation. Therefore, the projections cover periods well in excess of five years. Assumptions about selling prices, operating and capital costs, exchange rates, quantity of resources and discount rates are particularly important; the determination of the recoverable amount is relatively sensitive to changes in these important assumptions.

  In accordance with the Group’s accounting policy, management has identified one CGU, the Sino Iron Project. For the purposes of testing for impairment, the carrying amount of the Sino Iron Project is compared with its recoverable amount. Impairment is recognised when the carrying amount of the project exceeds its recoverable amount. The Group has identified indicators of impairment at 31 December 2017, including forecast discounted cash flows being lower than the carrying value.

  In the model a discount rate of 10.3% is used. Iron ore price (including base price, premium on product grade and adjustment on freight) and AU$:US$ exchange rate assumptions are estimated by management with reference to external market forecasts sourced from a range of industry experts. The operating expenditure and capital expenditure for years 2018 to 2020 are forecast based on management’s best estimates of costs and expenditures. Beyond the above three-year forecast period, operating expenditure and capital expenditure are forecast to remain relatively stable increasing primarily with inflation.

  The impairment testing carried out at 31 December 2017 resulted in a total impairment charge of US$921 million (approximately HK$7,184 million) (2016: US$1,302 million (approximately HK$10,152 million)) being recognised in the consolidated income statement, reflecting changes in the key assumptions mentioned above. The impairment charge was allocated as follows:

  • Property, plant & equipment US$891 million (approximately HK$6,950 million) (2016: US$1,208 million (approximately HK$9,417 million))
  • Intangible assets US$30 million (approximately HK$234 million) (2016: US$94 million (approximately HK$735 million))

  
  

  Also included in property, plant & equipment was a write-off of US$61 million (approximately HK$476 million) (2016: Nil).

  The fair value of CGU must be estimated for recognition and measurement or for disclosure purposes.

  The disclosure is based on the following fair value measurement hierarchy:

  • Quoted prices (unadjusted) in active markets for identical or similar CGU (level 1);
  • Inputs other than quoted prices included within level that are observable for the CGU, either directly (as prices) or indirectly (derived from prices) (level 2); and
  • Inputs for the CGU that are not based on observable market data (unobservable inputs)(level 3 inputs).

  
  

  The CGU’s fair value hierarchy is Level 3.

• 9. Net finance charges

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Finance costs
  – Interest on bank loans and other loans	5,125	3,504
  – Interest on debt instruments issued and other interest expenses	6,316	5,718
  	11,441	9,222
  Less: interest expense capitalised*	(361)	(576)
  	11,080	8,646
  Other finance charges	417	62
  	11,497	8,708
  Finance income	(1,412)	(1,575)
  	10,085	7,133

  * Capitalisation rates applied to funds borrowed are 1.29% – 5.70% per annum for the year ended 31 December 2017 (2016: capitalisation rate of 1.30% – 5.70%).

• 10. Profit before taxation

  Profit before taxation is arrived at after charging below costs and expenses in cost of sales and services and other operating expenses:

  (a) Staff costs

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Salaries and bonuses	40,572	34,038
  Contributions to defined contribution retirement schemes	4,322	4,326
  Others	7,622	7,773
  	52,516	46,137

  (b) Other items

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Amortisation	2,407	2,691
  Depreciation	11,764	9,601
  Operating lease charges: minimum lease payments	6,453	5,424
  Tax and surcharges	2,368	5,948
  Property management fees	1,421	1,290
  Non-operating expenses	949	1,366
  Professional fees (other than auditors’ remuneration)	981	997
  Auditors’ remuneration
  – Audit services	162	156
  – Non-audit services	52	56
  	26,557	27,529

• 11. Income tax expense

  (a) Income tax expense in the income statement

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Current tax – Mainland China
  Provision for enterprise income tax	23,475	22,345
  Land appreciation tax	48	328
  	23,523	22,673
  Current tax – Hong Kong
  Provision for Hong Kong profits tax	2,075	1,524
  Current tax – Overseas
  Provision for the year	367	310
  	25,965	24,507
  Deferred tax
  Origination and reversal of temporary differences	(8,278)	(6,103)
  	17,687	18,404

  The particulars of the applicable income tax rates are disclosed in Note 4.

  (b) Reconciliation between tax expense and accounting profit at applicable tax rates

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Profit before taxation	82,783	70,791
  Less: Share of profits of
  – associates	(7,564)	(2,323)
  – joint ventures	(5,889)	(2,876)
  	69,330	65,592
  Notional tax on profit before taxation calculated at statutory tax rate of 16.5%	11,439	10,823
  Effect of different tax rates in other jurisdictions	5,608	4,483
  Tax effect of unused tax losses not recognised	3,140	400
  Tax effect of non-deductible expenses	2,358	3,054
  Tax effect of non-taxable income	(5,056)	(1,688)
  Others	198	1,332
  Actual tax expense	17,687	18,404

• 12. Benefits and interests of directors

  (a) Directors’ emoluments

  Emoluments paid or receivable in respect of a person’s services as a director, whether of the Company or its subsidiary undertaking for the year ended 31 December 2017 are set out as follows:

  

  Notes:

  (i) The emoluments for the year ended 31 December 2017 in respect of Mr. Chang Zhenming, Mr. Wang Jiong, Ms. Li Qingping and Mr. Pu Jian have not been finalised in accordance with the regulations of the relevant local authorities. Further disclosure of which will be made as and when the relevant approval is obtained. Besides the emoluments mentioned above, the Company’s Remuneration Committee agrees the executive directors are entitled to allowances for working overseas and cross-border commuting: HK$0.375 million for Mr. Chang Zhenming, HK$0.375 million for Mr. Wang Jiong, HK$0.338 million for Ms. Li Qingping, and HK$0.338 million for Mr. Pu Jian.

  (ii) Changes in directors during the year ended 31 December 2017:

  (1) Mr. Yang Jinming resigned from the position as non-executive director in June 2017.

  (2) Mr. Liu Zhuyu was appointed as non-executive director in August 2017.

  Emoluments paid or receivable in respect of a person’s services as a director, whether of the Company or its subsidiary undertaking for the year ended 31 December 2016 are set out as follows:

  

  Notes:

  (i) The emoluments for the year ended 31 December 2016 in respect of Mr. Chang Zhenming, Mr. Wang Jiong, Ms. Li Qingping and Mr. Pu Jian were finalised in accordance with the regulations of the relevant local authorities. Besides the emoluments mentioned above, the Company’s Remuneration Committee agrees the executive directors are entitled to allowances for working overseas and cross-border commuting: HK$0.375 million for Mr. Chang Zhenming, HK$0.375 million for Mr. Wang Jiong, HK$0.338 million for Ms. Li Qingping, and HK$0.338 million for Mr. Pu Jian.

  (ii) Changes in directors during the year ended 31 December 2016:

  (1) Ms. Cao Pu retired from the position as non-executive director in March 2016.

  (2) Mr. Song Kangle and Mr. Li Rucheng were appointed as non-executive directors, and Mr. Paul Chou Man Yiu was appointed as an independent non-executive director in March 2016.

  (3) Ms. Yan Shuqin was appointed as a non-executive director, and Mr. Yu Zhensheng resigned from the position as nonexecutive director in April 2016.

  (4) Mr. Li Rucheng resigned from the position as non-executive director in December 2016.

  (iii) Emoluments of newly appointed and former directors were paid by the Company for the period in which they served as directors.

  (b) Other benefits and interests

  For the year ended 31 December 2017, no retirement benefits, payments or benefits in respect of termination of directors’ services were paid or made, directly or indirectly, to the directors; nor are any payable (2016: None). No consideration was provided to or receivable by third parties for making available directors’ services (2016: None). There are no loans, quasi-loans or other dealings in favour of the directors, their controlled bodies corporate and connected entities (2016: None).

  No director of the Company had a material interest, directly or indirectly, in any significant transactions, arrangements and contracts in relation to the Company’s business to which the Company was or is a party that subsisted at the end of the year or at any time during the year ended 31 December 2017 (2016: None).

• 13. Individuals with highest emoluments

  For the year ended 31 December 2017, none of the five highest paid individuals are directors (2016: None) whose emoluments are disclosed in Note 12. The aggregate of the emoluments in respect of these five individuals (2016: five) are as follows:

  

  The emoluments of the five individuals (2016: five) with the highest emoluments are within the following bands:

  

• 14. Dividends

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million
  2016 Final dividend paid: HK$0.23 (2015: HK$0.20) per share	6,691	5,818
  2017 Interim dividend paid: HK$0.11 (2016: HK$0.10) per share	3,200	2,909
  2017 Final dividend proposed: HK$0.25 (2016: HK$0.23) per share	7,273	6,691

• 15. Earnings per share

  The calculation of basic earnings per share and diluted earnings per share are based on the profit attributable to ordinary shareholders of the Company of HK$43,902 million for the year ended 31 December 2017 (2016: HK$43,146 million), calculated as follows:

  For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Profit attributable to ordinary shareholders of the Company arising from:
  – Continuing operations	43,902	32,809
  – Discontinued operations	-	10,337
  	43,902	43,146
  Weighted average number of ordinary shares (in million)	29,090	29,090

  Diluted earnings per share for the year ended 31 December 2017 and 2016 are same with basic earnings per share. As at 31 December 2017, there are no share options or other equity securities of the Company in issue which if exercised would have a dilutive effect on the issued ordinary share capital as at 31 December 2017 (31 December 2016: Nil).

• 16. Other comprehensive income/(loss)

  (a) Tax effects relating to each component of other comprehensive income/(loss)

  

  (b) Components of other comprehensive income/(loss), including reclassification adjustments

  

• 17. Segment reporting

  The Group has presented six reportable operating segments which are financial services, resources and energy, manufacturing, engineering contracting, real estate and others. Reportable segments are identified based on operating segments which are determined based on the structure of the Group’s internal organisation, management requirements and internal reporting system. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose financial performance is regularly reviewed by the board of directors to make decisions about resource to be allocated to the segment and assess its performance, and for which financial information regarding financial position, financial performance and cash flows is available. The details of these six reportable segments are as follows:

  • Financial services: this segment includes banking, trust, asset management, securities and insurance services.
  • Resources and energy: the major businesses in this segment include exploration, processing and trading of resources and energy products, including crude oil, coal and iron ore.
  • Manufacturing: this segment includes manufacturing of special steels, heavy machineries, aluminium wheels and other products.
  • Engineering contracting: this segment provides contracting and design services for infrastructure, real estate and industrial projects, etc.
  • Real estate: this segment includes development, sale and holding of properties.
  • Others: others include various businesses including investment and operation of infrastructures, telecommunication services, motor and food and consumer products business, commercial aviation services, publication services and others.

  (a) Segment results, assets and liabilities

  For the purposes of assessing segment performance and allocating resources among segments, the board of directors monitors the results, assets and liabilities, revenue and expenses attributable to each reportable segment on the following bases:

  Segment assets are those assets that are attributable to a segment, and segment liabilities are those liabilities that are attributable to a segment.

  Revenue and expenses are allocated to the reportable segments with reference to revenue generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation of assets attributable to those segments.

  The measure used for reporting segment profit is “profit for the year”. To arrive at segment results, the Group’s profit is further adjusted for items not specifically attributed to individual segments, such as share of results of associates and joint ventures.

  Inter-segment pricing is based on similar terms as those available to other external parties.

  Information regarding the Group’s reportable segments as provided to the board of directors for the purposes of resources allocation and assessment of segment performance for the years ended 31 December 2017 and 2016 is set out below:

  	For the year ended 31 December 2017
  	Financial services	Resources and energy	Manufacturing	Engineering contracting	Real estate	Others	Operation management	Elimination	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Continuing operations
  Revenue from external customers	190,028	63,456	97,432	14,653	3,227	81,673	67	-	450,536
  Inter-segment revenue	(266)	3,215	268	476	134	1,221	-	(5,048)	-
  Reportable segment revenue	189,762	66,671	97,700	15,129	3,361	82,894	67	(5,048)	450,536
  Share of profits of associates, net of tax	2,352	1,275	25	12	3,836	57	7	-	7,564
  Share of profits/(losses) of joint ventures, net of tax	415	1,698	(9)	-	3,181	604	-	-	5,889
  Finance income (Note 9)	-	285	408	215	534	151	948	(1,129)	1,412
  Finance costs (Note 9)	-	(2,033)	(1,311)	(113)	(512)	(1,758)	(6,799)	1,029	(11,497)
  Depreciation and amortisation (Note 10(b))	(3,262)	(3,225)	(4,153)	(152)	(233)	(3,090)	(56)	-	(14,171)
  Impairment losses (Note 8)	(65,889)	(8,402)	(2,025)	(872)	(344)	(1,393)	-	-	(78,925)
  Profit/(loss) before taxation	69,464	(8,879)	3,942	2,002	9,034	12,892	(5,732)	60	82,783
  Income tax	(11,885)	(605)	(418)	(273)	(1,093)	(1,847)	(1,554)	(12)	(17,687)
  Profit/(loss) for the year from continuing operations	57,579	(9,484)	3,524	1,729	7,941	11,045	(7,286)	48	65,096
  Profit for the year from discontinued operations	-	-	-	-	-	-	-	-	-
  Profit/(loss) for the year	57,579	(9,484)	3,524	1,729	7,941	11,045	(7,286)	48	65,096
  Attributable to:
  – Ordinary shareholders of the Company	39,506	(9,900)	3,318	1,731	7,660	9,455	(7,908)	40	43,902
  Continuing operations	39,506	(9,900)	3,318	1,731	7,660	9,455	(7,908)	40	43,902
  Discontinued operations	-	-	-	-	-	-	-	-	-
  – Non-controlling interests and holders of perpetual capita
  securities	18,073	416	206	(2)	218	1,590	622	8	21,194
  Continuing operations	18,073	416	206	(2)	218	1,590	622	8	21,194
  Discontinued operations	-	-	-	-	-	-	-	-	-

  	As at 31 December 2017
  	Financial services	Resources and energy	Manufacturing	Engineering contracting	Real estate	Others	Operation management	Elimination	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Reportable segment assets	6,925,076	129,438	130,381	46,127	159,664	163,835	177,797	(211,579)	7,520,739
  Including:
  Interests in associates	35,567	14,524	951	370	36,150	9,959	1,123	-	98,644
  Interests in joint ventures	6,362	4,995	177	-	19,929	5,955	-	-	37,418
  Reportable segment liabilities	6,362,774	170,212	77,721	33,626	94,851	95,165	188,253	(295,504)	6,727,098
  Including:
  Bank and other loans	7,176	43,900	28,130	1,267	7,898	41,934	34,605	(22,468)	142,442
  Debt instruments issued	529,238	598	2,632	-	-	5,175	115,728	-	653,371

  	For the year ended 31 December 2016 (Restated)
  	Financial services	Resources and energy	Manufacturing	Engineering contracting	Real estate	Others	Operation management	Elimination	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Continuing operations
  Revenue from external customers	187,534	51,097	62,350	11,023	4,900	64,723	35	-	381,662
  Inter-segment revenue	(320)	3,527	271	315	111	1,039	6	(4,949)	-
  Reportable segment revenue	187,214	54,624	62,621	11,338	5,011	65,762	41	(4,949)	381,662
  Share of profits/(losses) of associates, net of tax	2,198	218	79	41	768	(986)	5	-	2,323
  Share of profits of joint ventures, net of tax	809	657	-	-	858	552	-	-	2,876
  Finance income (Note 9)	-	422	225	248	375	132	2,521	(2,348)	1,575
  Finance costs (Note 9)	-	(2,110)	(716)	(95)	(335)	(1,476)	(6,425)	2,449	(8,708)
  Depreciation and amortisation (Note 10(b))	(3,187)	(2,342)	(3,547)	(157)	(250)	(2,755)	(54)	-	(12,292)
  Impairment losses (Note 8)	(61,845)	(10,536)	(831)	775	(556)	(595)	-	-	(73,588)
  Profit/(loss) before taxation	71,691	(9,175)	2,343	1,969	3,676	4,947	(4,249)	(411)	70,791
  Income tax	(16,193)	2,710	(1,033)	(296)	(1,412)	(1,729)	(449)	(2)	(18,404)
  Profit/(loss) for the year from continuing operations	55,498	(6,465)	1,310	1,673	2,264	3,218	(4,698)	(413)	52,387
  Profit for the year from discontinued operations	-	-	-	-	10,309	-	-	-	10,309
  Profit/(loss) for the year	55,498	(6,465)	1,310	1,673	12,573	3,218	(4,698)	(413)	62,696
  Attributable to:
  – Ordinary shareholders of the Company	38,406	(6,872)	1,740	1,675	12,111	1,987	(5,488)	(413)	43,146
  Continuing operations	38,406	(6,872)	1,740	1,675	1,774	1,987	(5,488)	(413)	32,809
  Discontinued operations	-	-	-	-	10,337	-	-	-	10,337
  – Non-controlling interests and holders of perpetual capital securities	17,092	407	(430)	(2)	462	1,231	790	-	19,550
  Continuing operations	17,092	407	(430)	(2)	490	1,231	790	-	19,578
  Discontinued operations	-	-	-	-	(28)	-	-	-	(28)

  	As at 31 December 2016 (Restated)
  	Financial services	Resources and energy	Manufacturing	Engineering contracting	Real estate	Others	Operation management	Elimination	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Reportable segment assets	6,729,902	137,337	96,112	36,796	143,596	113,090	150,506	(167,850)	7,239,489
  Including:
  Interests in associates	32,128	11,719	950	465	31,832	6,959	72	-	84,125
  Interests in joint ventures	3,999	2,906	-	-	9,149	3,333	-	-	19,387
  Reportable segment liabilities	6,237,647	161,579	49,474	26,579	94,244	70,059	167,944	(264,710)	6,542,816
  Including:
  Bank and other loans	2,964	41,759	15,088	1,276	10,721	32,863	21,749	(13,295)	113,125
  Debt instruments issued	432,579	1,453	4,242	-	-	4,682	100,937	-	543,893

  (b) Geographical information

  An analysis of the Group’s revenue and total assets by geographical area are as follows:

  	Revenue from external customers For the year ended 31 December		Reportable segment assets As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)	2017 HK$ million	2016 HK$ million (Restated)
  Mainland China	347,203	325,242	6,902,597	6,684,245
  Hong Kong and Macau	58,134	26,996	505,686	447,065
  Overseas	45,199	29,424	112,456	108,179
  	450,536	381,662	7,520,739	7,239,489

• 18. Cash and deposits

  	As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Cash	8,150	8,867
  Bank deposits	56,367	50,386
  Balances with central banks (note (i)):
  – Statutory deposit reserve funds (note (ii))	555,449	520,751
  – Surplus deposit reserve funds (note (iii))	106,815	65,795
  – Fiscal deposits (note (iv))	4,884	3,989
  – Foreign exchange reserves (note (v))	6,515	21,090
  Deposits with banks and non-bank financial institutions	186,404	256,544
  Less: allowance for impairment losses on deposits with banks and non-bank financial institutions (Note 45)	-	(40)
  	924,584	927,382

  Notes:

  (i) The balances with central banks represent deposits placed with central banks by China CITIC Bank Corporation Limited (“CITIC Bank”) and CITIC Finance Company Limited (“CITIC Finance”).

  (ii) CITIC Bank and CITIC Finance place statutory deposit reserves with the People’s Bank of China and overseas central banks where they have operations. The statutory deposit reserves are not available for use in their daily business.

  As at 31 December 2017, the statutory deposit reserve placed by CITIC Bank with the People’s Bank of China was calculated at 15% (31 December 2016: 15%) of eligible RMB deposits for domestic branches of CITIC Bank and at 15% (31 December 2016: 15%) of eligible RMB deposits from overseas financial institutions respectively. In addition, CITIC Bank is required to deposit an amount equivalent to 5% (31 December 2016: 5%) of its foreign currency deposits from domestic branch customers as statutory deposit reserve as at 31 December 2017.

  As at 31 December 2017, the statutory RMB deposit reserve rate applicable to Zhejiang Lin’an CITIC Rural Bank Corporation Limited, a subsidiary of CITIC Bank, was at 9% (31 December 2016: 9%).

  The amounts of statutory deposit reserve funds placed with the central banks of overseas countries are determined by respective jurisdictions. The statutory deposit reserve funds are interest bearing except for the foreign currency reserve funds deposits placed with the People’s Bank of China.

  As at 31 December 2017, the statutory deposit reserve placed by CITIC Finance with the People’s Bank of China was calculated at 7% (31 December 2016: 7%) of eligible RMB deposits from the customers of CITIC Finance. As at 31 December 2017, CITIC Finance is also required to deposit an amount equivalent to 5% (31 December 2016: 5%) of its foreign currency deposits from the customers as statutory deposit reserve.

  (iii) The surplus deposit reserve funds are maintained with the People’s Bank of China for the purposes of clearing.

  (iv) Fiscal deposits placed with the People’s Bank of China are not available for use in the Group’s daily operations, and are non-interest bearing.

  (v) The foreign exchange reserve is maintained with the People’s Bank of China in accordance with the related notice issued by the People’s Bank of China on 31 August 2015. The reserve is payable on a monthly basis at 20% (31 December 2016: 20%) of the total contract amount of customers driven forward transactions in the previous month. Such foreign exchange reserve is non-interest bearing and will be repayable in 12 months. According to the notice issued by the People’s Bank of China on 11 September 2017, the rate of the foreign exchange reserve for forward transactions has been reduced to 0%. The foreign exchange reserve remained in the account will be released on maturity.

  (vi) In addition to the statutory deposit reserve funds, fiscal deposits and foreign exchange reserves, HK$1,601 million (31 December 2016: HK$5,517 million) included in cash and deposits as at 31 December 2017 were restricted in use. They mainly include guaranteed deposits.

• 19. Placements with banks and non-bank financial institutions

  	As at 31 December
  	2017 HK$ million	2016 HK$ million
  Banks	63,410	32,335
  Non-bank financial institutions	141,937	154,601
  	205,347	186,936
  placeholder
  Less: allowance for impairment losses (Note 45)	(1)	(9)
  	205,346	186,927
  Analysed by remaining maturity:
  – Within 1 month	139,348	64,619
  – Between 1 month and 1 year	65,998	122,281
  – Over 1 year	-	27
  	205,346	186,927

• 20. Financial assets at fair value through profit or loss

  

  The remaining term to maturity of financial assets at fair value through profit or loss does not represent the Group’s intended holding period.

  (a) Debt trading financial assets

  

  (b) Certificates of interbank deposit

  

  (c) Investment funds

  

  (d) Trading equity investments

  

  (e) Financial assets designated at fair value through profit or loss

  

• 21. Derivative financial instruments

  The Group’s subsidiaries under the financial services segment act as an intermediary to offer derivative products including forwards and swap of interest rate and currency to its customers. These derivative positions are managed through entering back-to-back deals with external parties to ensure the remaining exposures are within acceptable risk levels. Meanwhile, derivatives are also used for proprietary trading purposes.

  Subsidiaries under non-financial services segment of the Group enter into forward and swap contracts to hedge their exposure to fluctuations in foreign exchange rates, commodity prices and interest rates.

  The following tables and notes provide an analysis of the nominal amounts of derivatives and the corresponding fair values as at the balance sheet date. The nominal amounts of the derivatives indicate the volume of transactions outstanding as at the balance sheet date; they do not represent amounts at risk. Hedging instruments are derivatives qualified for hedge accounting, and non-hedging instruments are derivatives not qualified for hedge accounting.

  

  (a) Nominal amount analysed by remaining maturity

  

  The remaining term to maturity of derivatives does not represent the Group’s intended holding period.

  (b) Credit risk weighted amounts

  The credit risk weighted amounts are solely in connection with the derivatives held by CITIC Bank, and have been computed in accordance with “Regulation Governing Capital of Commercial Banks (provisional)” promulgated by the China Banking Regulatory Commission in the year of 2012, and depends on the status of the counterparties and the maturity characteristics of the instruments including those customer-driven back-to-back transactions. As at 31 December 2017, the credit risk weighted amount for counterparty was HK$84,001 million (31 December 2016: HK$41,513 million).

  (c) Derivatives designated as hedging instruments

  (i) Fair value hedge

  Fair value hedge is adopted to hedge the risk that a financial instrument’s fair value will fluctuate because of changes in market interest rates or foreign exchange rates by using interest rate swaps or foreign currency forward contracts.

  (ii) Cash flow hedge

  Cash flow hedge is adopted to hedge the risk that a financial instrument’s cash flows will fluctuate because of changes in market interest rates, foreign exchange rates or commodity price by using foreign currency forward contracts, commodity forward contracts or interest rate swaps.

• 22. Trade and other receivables

  	As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Trade and bills receivables (note (a))	39,106	33,186
  Interest receivables (note (b))	39,672	37,579
  Prepayments, deposits and other receivables (note (c))	70,426	68,401
  	149,204	139,166

  As at 31 December 2017, the amount of the Group’s prepayments, deposits and other receivables expected to be recovered or recognised as expense after more than one year is HK$9,356 million (31 December 2016: HK$14,243 million). The remaining trade and other receivables are expected to be recovered or recognised as expense within one year.

  (a) Trade and bills receivables

  (i) Ageing analysis

  As at the balance sheet date, the ageing analysis of trade and bills receivables of the Group based on invoice date and net of allowance for impairment losses is as follows:

  	As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Within 1 year	36,173	29,251
  Over 1 year	5,919	5,370
  	42,092	34,621
  Less: allowance for impairment losses (Note 45)	(2,986)	(1,435)
  	39,106	33,186

  Each business unit has its own defined credit policy that is specific to the respective business environment and market practice.

  (ii) Impairment of trade and bills receivables

  The movements in the allowance for impairment losses on trade and other receivables during the years ended 31 December 2017 and 2016 are disclosed in Note 45.

  As at 31 December 2017, the Group’s trade and bills receivables of HK$1,917 million (31 December 2016: HK$103 million) were individually determined to be impaired. These receivables mainly relate to customers which were in financial difficulties. It is assessed that a portion of such receivables is expected to be recovered. Consequently, specific allowance for impairment losses is recognised.

  (iii) Trade and bills receivables that are not impaired

  The ageing analysis of past due trade and bills receivables that are neither individually nor collectively considered to be impaired is as follows:

  	As at 31 December
  	2017 HK$ million	2016 HK$ million
  Less than 1 year past due	1,740	1,298
  Over 1 year past due	376	383
  	2,116	1,681

  Receivables that are past due but not impaired are related to a number of third-party customers that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered to be fully recoverable.

  (b) Interest receivables

  	As at 31 December
  	2017 HK$ million	2016 HK$ million
  Interest receivables	44,444	41,949
  Less: allowance for impairment losses (Note 45)	(4,772)	(4,370)
  	39,672	37,579

  (c) Prepayments, deposits and other receivables

  	As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Prepayments, deposits and other receivables	72,367	69,953
  Less: allowance for impairment losses (Note 45)	(1,941)	(1,552)
  	70,426	68,401

• 23. Inventories

  	As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Raw materials	6,629	4,332
  Work-in-progress	5,749	4,333
  Finished goods	18,643	15,106
  Properties:
  – Properties under development	18,635	16,684
  – Properties held-for-sale	5,423	5,472
  – Others	1,402	1,391
  Others	2,071	1,682
  	58,552	49,000

  The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows:

  	For the year ended 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Carrying amount of inventories sold	191,752	149,113
  Write-down of inventories (Note 45)	709	1,035
  Reversal of write-down of inventories (Note 45)	(693)	(485)
  	191,768	149,663

  As at 31 December 2017, the Group’s inventories included an amount of HK$20,417 million expected to be recovered after more than one year (31 December 2016: HK$18,515 million).

• 24. Financial assets held under resale agreements

  

• 25. Loans and advances to customers and other parties

  (a) Loans and advances

  

  (b) Loans and advances to customers and other parties analysed by type of security

  

  (c) Assessment method of allowance for impairment losses

  

  (d) Movements of allowance for impairment losses

  

  (e) Overdue loans by overdue period

  

  Overdue loans represent loans of which the principal or interest are overdue one day or more.

• 26. Available-for-sale financial assets

  

  The remaining term to maturity of available-for-sale financial assets does not represent the Group’s intended holding period.

  (a) Debt securities

  

  (b) Certificates of deposit and certificates of interbank deposit

  

  (c) Wealth management products issued by financial institutions

  

  (d) Equity investments

  

  (e) Investment funds

  

  Note:

  Debt securities traded on the China Domestic Inter-bank Bond Market are included in “Listed outside Hong Kong”.

• 27. Held-to-maturity investments

  

• 28. Investments classified as receivables

  

  As at 31 December 2017, certain of the Group’s investments with an aggregate amount of HK$116,069 million (31 December 2016: HK$164,894 million) were managed by certain subsidiaries and related parties of the Group.

  The underlying assets of investments classified as receivables primarily include interbank assets and wealth management products issued by other banks, credit assets and rediscounted bills.

• 29. Subsidiaries

  The particulars of the principal subsidiaries are set out in Note 58.

  The following table lists out the information relating to CITIC Bank, CITIC Heavy Industries Co., Limited (“CITIC Heavy Industries”), CITIC Telecom International Holdings Limited (“CITIC Telecom International”) and CITIC Resources Holdings Limited (“CITIC Resources”), which are listed subsidiaries of the Group and have material non-controlling interests. The summarised financial information below is before elimination of inter-group transactions and balances:

  

• 30. Interests in associates

  

  Summarised financial information of the material associates are disclosed below:

  

  Aggregate information of associates that are not individually material:

  

• 31. Interests in joint ventures

  

  The principals of the principal joint ventures are set out in Note 58.

  Summarised financial information of the material joint ventures are disclosed below:

  

  Aggregate information of joint ventures that are not individually material:

  

• 32. Fixed assets

  

  As at 31 December 2017, the Group was in the process of applying the ownership certificates in respect of certain premises and land use rights of HK$6,616 million (31 December 2016: HK$4,862 million). The Group anticipates that there would be no significant issues and costs in completing such procedures.

  (a) The tenure of the plant and buildings, land use rights and investment properties is as follows:

  

  (b) Fair value measurement of investment properties

  (i) Property valuation

  Investment properties were revalued as at 31 December 2017 and 2016 by the following independent professionally qualified valuers. Management of the Group had discussions with the surveyors on the valuation assumptions and valuation results when the valuation is performed at each balance sheet date.

  

  (ii) Fair value hierarchy

  The following table presents the fair value of the Group’s properties measured at the balance sheet dates on a recurring basis, categorised into the three-level hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

  Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date;

  Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available;

  Level 3 valuations: Fair value measured using significant unobservable inputs.

  

  The Group’s policy is to recognise transfers between levels of fair value hierarchy at the balance sheet date in which they occur. During the year ended 31 December 2017, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3 (2016: Nil).

  (iii) Valuation techniques and inputs used in Level 3 fair value measurements

  The fair value of investment properties located in Mainland China is determined by using income capitalisation approach and depreciated replacement cost approach under the circumstances.

  The income capitalisation approach is the sum of the term value and the reversionary value by discounting the contracted annual rent at the capitalisation rate over the existing lease period; and the sum of average unit market rent at the capitalisation rate after the existing lease period.

  Depreciated replacement cost values a property by taking into account of its current cost of replacement or reproduction, less deduction for physical deterioration and all relevant forms of obsolescence and optimisation. The fair value measurement is based on an estimate of the market value for the existing use of the land, plus the depreciated replacement cost.

  The fair value of certain of investment properties located in Hong Kong is determined using market comparison approach by reference to recent sales price of comparable properties on a price per square foot basis, adjusted for a premium or a discount specific to the quality of the Group’s buildings compared to the recent sales. Higher premium for higher quality buildings will result in a higher fair value measurement.

  The fair value of certain other investment properties located in Hong Kong is determined by using income capitalisation approach and with reference to sales evidence as available in the market.

• 33. Intangible assets

  	For the year ended 31 December
  	Roads operating rights	Mining assets	Franchise right	Others	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Cost:
  At 1 January 2017 (Restated)	10,617	19,270	-	10,366	40,253
  Exchange adjustments	744	-	-	500	1,244
  Additions	8	53	-	1,516	1,577
  Business combination (Note 51(a))	-	-	3,022	931	3,953
  Disposals of subsidiaries	-	-	-	(483)	(483)
  Disposals	(11)	-	-	(406)	(417)
  At 31 December 2017	11,358	19,323	3,022	12,424	46,127
  Accumulated amortisation and impairment losses:
  At 1 January 2017 (Restated)	(914)	(16,670)	-	(3,347)	(20,931)
  Exchange adjustments	(71)	-	-	(240)	(311)
  Disposals of subsidiaries	-	-	-	202	202
  Business combination (Note 51(a))	-	-	(54)	(13)	(67)
  Charge for the year	(204)	(69)	(63)	(863)	(1,199)
  Written back on disposals	-	-	-	154	154
  Impairment losses (Note 45)	-	(232)	-	(22)	(254)
  At 31 December 2017	(1,189)	(16,971)	(117)	(4,129)	(22,406)
  Net book value:
  At 31 December 2017	10,169	2,352	2,905	8,295	23,721

  	For the year ended 31 December
  	Roads operating rights	Mining assets	Others	Total
  	HK$ million	HK$ million	HK$ million	HK$ million
  Cost:
  At 1 January	11,324	19,211	10,337	40,872
  Exchange adjustments	(717)	-	(445)	(1,162)
  Additions	10	84	1,853	1,947
  Disposal of subsidiaries	-	-	(41)	(41)
  Disposals	-	(25)	(1,338)	(1,363)
  At 31 December 2016 (Restated)	10,617	19,270	10,366	40,253
  Accumulated amortisation and impairment losses:
  At 1 January 2016 (Restated)	(768)	(15,870)	(3,662)	(20,300)
  Exchange adjustments	57	-	130	187
  Disposal of subsidiaries	-	-	22	22
  Charge for the year	(203)	(65)	(1,026)	(1,294)
  Written back on disposals	-	-	1,196	1,196
  Impairment losses (Note 45)	-	(735)	(7)	(742)
  At 31 December 2016 (Restated)	(914)	(16,670)	(3,347)	(20,931)
  Net book value:
  At 31 December 2016 (Restated)	9,703	2,600	7,019	19,322

  Amortisation charge is included in “cost of sales and services” and “other operating expenses” in the consolidated income statement.

• 34. Goodwill

  

  Goodwill is allocated to the Group’s cash-generating units identified in segments as follows:

  

  Based on management’s impairment assessment, no impairment was recognised for the year ended 31 December 2017 (2016: HK$63 million).

• 35. Income tax in the balance sheet

  (a) Current income tax in the balance sheet represents:

  As at 31 December
  	2017 HK$ million	2016 HK$ million (Restated)
  Income tax payable	13,446	10,002

  (b) Deferred tax assets/(liabilities) recognised:

  The components of deferred tax assets recognised in the consolidated balance sheet and the movements during the years ended 31 December 2017 and 2016, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:

  	Tax losses	Accrued expenses	Impairment loss on assets other than fixed assets and intangible assets	Fair value changes of financial instruments	Fixed assets and intangible assets	Others	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Deferred tax assets
  At 1 January 2016 (Restated)	11,796	1,574	12,037	715	2,827	2,052	31,001
  Credit/(charged) to profit or loss	1,650	464	4,247	(20)	1,771	(469)	7,643
  (Charged)/credit to other comprehensive income	-	(1)	1	(343)	-	(281)	(624)
  Disposal of subsidiaries	(244)	(118)	(41)	-	-	(220)	(623)
  Exchange adjustments and others	87	(91)	(934)	(1)	50	(63)	(952)
  At 31 December 2016 (Restated)	13,289	1,828	15,310	351	4,648	1,019	36,445
  (Charged)/credit to profit or loss	(1,276)	925	5,256	199	1,909	488	7,501
  Credit/(charged) to other comprehensive income	-	3	-	3,282	-	(57)	3,228
  Business combination (Note 51(a))	6	12	2	-	49	30	99
  Exchange adjustments and others	18	123	1,229	134	105	280	1,889
  At 31 December 2017	12,037	2,891	21,797	3,966	6,711	1,760	49,162

  
  
  

  	Fair value changes of financial instruments	Temporary differences on fixed assets and intangible assets	Revaluation of investment properties	Others	Total
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Deferred tax liabilities
  At 1 January 2016	(2,750)	(630)	(3,232)	(3,607)	(10,219)
  Charged to profit or loss	(593)	(233)	(527)	(328)	(1,681)
  Credit/(charged) to other comprehensive income	2,452	－	(57)	39	2,434
  Disposal of subsidiaries	102	－	182	743	1,027
  Exchange adjustments and others	85	(88)	219	(102)	114
  At 31 December 2016	(704)	(951)	(3,415)	(3,255)	(8,325)
  (Charged)/credit to profit or loss	(229)	77	(117)	1,046	777
  (Charged)/credit to other comprehensive income	(81)	－	(52)	59	(74)
  Business combination (Note 51(a))	－	(1,140)	－	(282)	(1,422)
  Exchange adjustments and others	(52)	(42)	(248)	(629)	(971)
  At 31 December 2017	(1,066)	(2,056)	(3,832)	(3,061)	(10,015)

  (c) Deferred tax assets not recognised

  The Group has not recognised any deferred tax assets in respect of the following items:

  	As at 31 December
  	2017 HK$ million	2016 HK$ million
  Deductible temporary differences	3,044	2,196
  Tax losses	27,548	11,424
  	30,592	13,620

  It is not probable that future taxable profits against which the above deductible temporary differences and tax losses can be utilised by the Group. As at 31 December 2017, tax losses amounting to HK$10,036 million (31 December 2016: HK$6,892 million) that can be carried forward against future taxable income are expiring within 5 years.

  (d) Deferred tax liabilities not recognised

  As at 31 December 2017 and 31 December 2016, the Group has not recognised any temporary differences relating to the undistributed profits of certain subsidiaries as the Group does not intend to have these subsidiaries making any profit distribution in the foreseeable future.

• 36. Deposits from banks and non-bank financial institutions

  

• 37. Placements from banks and non-bank financial institutions

  

• 38. Trade and other payables

  

  At the balance sheet date, the ageing analysis of the Group’s trade and bills payable based on the invoice date is as follows:

  

• 39. Financial assets sold under repurchase agreements

  

  The Group did not derecognise financial assets transferred as collateral in connection with repurchase agreements. As at 31 December 2017, legal title of these collateral pledged has not been transferred to counterparties.

• 40. Deposits from customers

  (a) Types of deposits from customers

  

  (b) Deposits from customers include pledged deposits for the following items:

  

• 41. Bank and other loans

  (a) Types of loans

  

  (b) Maturity of loans

  

  (c) Bank and other loans are denominated in the following currency

  

  (d) As at 31 December 2017, the Group’s bank and other loans of HK$40,485 million (31 December 2016 HK$25,349 million) are pledged with cash and deposits, inventories, trade and other receivables, fixed assets and intangible assets with an aggregate carrying amount of HK$149,665 million (31 December 2016: HK$86,627 million), the equity interest of certain subsidiary and the claim right of shareholders’ loans of certain entities.

  (e) All of the Group’s banking facilities are subject to the fulfilment of covenants relating to balance sheet ratios or ownership of a minimum shareholding in certain entities of the Group, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in Note 47(b). As at 31 December 2017, none of the covenants relating to drawn down facilities have been breached (31 December 2016: Nil).

• 42. Debt instruments issued

  

  The Group did not have any defaults of principal, interest or other breaches with respect to its debt instruments issued during the year ended 31 December 2017 (2016: Nil).

  Notes:

  (a) Corporate bonds issued

  

  (i) Details of corporate bonds issued by the Company

  

  (ii) Details of corporate bonds issued by CITIC Corporation

  

  (iii) Details of corporate bonds issued by CITIC Telecom International

  

  (iv) Details of corporate bonds issued by CITIC Heavy Industries

  

  (v) Details of corporate bonds issued by CITIC Pacific’s subsidiaries

  

  (vi) Details of corporate bonds issued by CITIC Environment’s subsidiaries

  

  (b) Notes issued

  

  (i) Details of notes issued by CITIC Corporation

  

  (ii) Details of notes issued by CITIC Bank

  

  (iii) Details of notes issued by CITIC Offshore Helicopter Company Limited

  

  (iv) Details of notes issued by CITIC Trust Co., Ltd.

  

  (c) Subordinated bonds issued

  The balance represents the subordinated debts issued by CITIC Bank or CITIC Bank International Limited (“CBI”), a subsidiary of CITIC Bank. The carrying amount of subordinated debts is as follows:

  

  (d) Certificates of deposit issued

  These certificates of deposit were issued by CBI with interest rate ranging from 0.70% to 3.62% per annum (31 December 2016: 0.46% to 3.62% per annum).

  (e) Certificates of interbank deposit issued

  As at 31 December 2017, CITIC Bank issued certain certificates of interbank deposit with a total value of RMB270,096 million (approximately HK$323,116 million) (31 December 2016: RMB269,923 million (approximately HK$301,755 million)). The yield ranges from 4.00% to 5.35% per annum (31 December 2016: 2.68% to 3.75% per annum). The original expiry terms are between 3 month to 1 year (31 December 2016: between 1 month to 2 years).

• 43. Provisions

  

• 44. Share capital, perpetual capital securities and reserves

  (a) Share capital

  As at 31 December 2017, the number of ordinary shares in issue of the Company was 29,090,262,630 (31 December 2016: 29,090,262,630).

  (b) Share based payment

  Share Option Plan

  Other than the Plan 2000, certain of the Company’s subsidiaries have issued equity-settled share-based payments to certain of their employees. The aggregate amount of the share-based payments recognised by these companies is not material to the Group.

  The CITIC Pacific Share Incentive Plan 2000 adopted by the Company on 31 May 2000 for a term of ten years 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, pursuant to which the board may at its discretion offer to grant share options to any eligible participant including any employee, executive director, non-executive director, independent non-executive director or officer, consultant or representative of any member of the Group who shall make payment of HK$1 to the Company on acceptance. The subscription price determined by the board shall not be less than 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 daily quotations sheet of The Stock Exchange of Hong Kong Limited on the date of offer the grant; and (iii) the average of the closing prices of the Company’s shares as stated in the daily quotations sheet of The Stock Exchange of Hong Kong Limited for the five business days immediately preceding the date of offer of the grant. The total number of the Company’s 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 Company’s shares in issue as at the date of adopting the Plan 2011 (i.e. as at 31 December 2017, the total number of shares available for issue under the Plan 2011 is 364,944,416 shares).

  No share options were granted under the Plan 2011 during the year ended 31 December 2017 (2016: Nil).

  (c) Perpetual capital securities

  In April 2011 and May 2013, the Company issued perpetual subordinated capital securities (the “perpetual capital securities”) with a nominal amount of US$750 million (approximately HK$5,850 million) and US$1,000 million (approximately HK$7,800 million), respectively. These securities are perpetual and the distribution payments can be deferred at the discretion of the Company. Therefore, the perpetual capital securities are classified as equity instruments and recorded in equity in the consolidated balance sheet. On 15 April 2016, the perpetual capital securities of US$750 million were redeemed by the Company. The amounts as at 31 December 2017 and 2016 included the accrued distribution payments.

  (d) Nature and purpose of reserves

  (i) Capital reserve

  Considerations paid to acquire subsidiaries under common control, for instance, in 2014, a total consideration of HK$286,585 million paid by the Company to acquire the shares of CITIC Corporation, are debited against the capital reserve in the Group’s consolidated financial statements. In addition, the potential cash payments related to put options issued in conjunction with business combination and gains or losses from transactions with non-controlling interests are directly debited or credited to the capital reserve in the Group’s consolidated financial statements.

  (ii) Hedging reserve

  The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedge pending subsequent recognition of the hedged cash flow in accordance with the accounting policy adopted for cash flow hedge in Note 2(j)(ii).

  (iii) Investment related reserves

  The investment related reserves comprise the cumulative net change in the fair value of available-for-sale financial assets until the financial assets are derecognised and share of other comprehensive income of associates and joint ventures, and are dealt with in accordance with the accounting policies set out in Note 2(i)(ii) and Note 2(f) respectively.

  (iv) General reserve

  Pursuant to the relevant notices issued by regulatory bodies, certain subsidiaries in the financial services segment in the Mainland China are required to set aside a general reserve to cover potential losses.

  (v) Exchange reserve

  The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of overseas operations as well as the effective portion of any foreign exchange differences arising from hedges of the net investment in these operations. The reserve is dealt with in accordance with the accounting policies set out in Note 2(h).

  (e) Capital management

  The Group’s primary objectives when managing capital are to safeguard the Group’s stability and growth, so that it can continue to provide returns for shareholders.

  The Group actively and regularly reviews and manages its capital structure, with reference to such financial ratios like debt (total of debt instruments issued and bank and other loans) to total equity ratio, to maintain a balance between the higher shareholders’ returns that might be possible with of borrowings obtained and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

  Certain subsidiaries under the financial services segment are subject to capital adequacy requirements imposed by the external regulators. There was no non-compliance of capital requirements as at 31 December 2017 (31 December 2016: Nil).

• 45. Movement of allowances for impairment losses

  	For the year ended 31 December
  	At 1 January	Charge for the year	Reversal for the year	Recovery of write-off/ (write-off)	Business combination	Disposal of subsidiaries	Exchange differences and others	At 31 December
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  				(Note 51(a) and Note 51(b))
  Deposits and placements with banks and non-bank financial institutions (Note 18 and 19)	49	-	(37)	-	-	-	(11)	1
  Trade and other receivables (Note 22)	7,357	9,078	(1,579)	(4,711)	27	(858)	385	9,699
  Amounts due from customers for contract work	905	-	(923)	(10)	-	-	28	-
  Inventories (Note 23)	2,513	709	(693)	(164)	321	-	52	2,738
  Loans and advances to customers and other parties (Note 25)	88,610	63,568	(5,401)	40,696)	-	-	7,240	113,321
  Available-for-sale financial assets (Note 26)	863	1,013	(118)	(183)	-	(2)	80	1,653
  Held-to-maturity investments (Note 27)	2	-	(2)	-	-	-	-	-
  Investment classified as receivables (Note 28)	2,134	1,865	(345)	-	-	-	410	4,064
  Interests in associates (Note 30)	2,315	172	(6)	-	-	-	42	2,523
  Interests in joint ventures (Note 31)	1,507	-	(54)	-	-	-	1	1,454
  Fixed assets (Note 32)	36,936	10,698	(15)	(74)	33	(51)	79	47,606
  Intangible assets (Note 33)	16,403	254	-	(30)	40	-	6	16,673
  Other assets	4,432	837	(96)	(996)	-	(66)	368	4,479
  	164,026	88,194	(9,269)	(46,864)	421	(977)	8,680	204,211

  
  
  

  	For the year ended 31 December 2016 (Restated)
  	At 1 January	Charge for the year	Reversal for the year	Recovery of write-off/ (write-off)	Disposal of subsidiaries	Exchange differences and others	At 31 December
  	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
  Deposits and placements with banks and nonbank financial institutions (Note 18 and 19)	10	40	-	1	-	(2)	49
  Trade and other receivables (Note 22)	5,080	8,240	(722)	(3,930)	(1,130)	(181)	7,357
  Amounts due from customers for contract work	1,777	10	(805)	－	－	(77)	905
  Inventories (Note 23)	2,435	1,035	(485)	(73)	(393)	(6)	2,513
  Loans and advances to customers and other parties (Note 25)	76,286	56,882	(3,279)	(36,212)	-	(5,067)	88,610
  Available-for-sale financial assets (Note 26)	853	810	(8)	(349)	(423)	(20)	863
  Held-to-maturity investments (Note 27)	49	2	-	(48)	-	(1)	2
  Investment classified as receivables (Note 28)	1,190	1,631	(564)	(1)	-	(122)	2,134
  Interests in associates (Note 30)	2,431	5	-	(82)	(3)	(36)	2,315
  Interests in joint ventures (Note 31)	1,497	11	-	(1)	-	-	1,507
  Fixed assets (Note 32)	26,612	10,255	-	(53)	(95)	217	36,936
  Intangible assets (Note 33)	15,814	742	-	(154)	(3)	4	16,403
  Other assets	3,965	2,249	(82)	(339)	(1,213)	(148)	4,432
  	137,999	81,912	(5,945)	(41,241)	(3,260)	(5,439)	164,026

• 46. Contingent liabilities and commitments

  (a) Credit commitments

  Credit commitments in connection with the financial services segment of the Group take the form of loan commitments, credit card commitments, financial guarantees, letters of credit and acceptances.

  Loan commitments represent the undrawn amount of approved loans with signed contracts. Credit card commitments represent the credit card overdraft limits authorised by the Group. Financial guarantees and letters of credit represent guarantee provided by the Group to guarantee the performance of customers to third parties. Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be settled simultaneously with the reimbursement from the customers.

  The contractual amounts of credit commitments by category as at the balance sheet date are set out below. The amounts disclosed in respect of loan commitments and credit card commitments assume that amounts are fully drawn down. The amounts of guarantees, letters of credit and acceptances represent the maximum potential loss that would be recognised as at the balance sheet date if counterparties failed to perform as contracted.

  

  (b) Credit commitments analysed by credit risk weighted amount

  

  Note:
  (i) The above credit risk weighted amount is solely in connection with the credit commitments held by CITIC Bank under the financial services segment of the Group.
  (ii) As at 31 December 2017 and 2016, the credit risk weighted amount refers to the amount as computed in accordance with the rules set out by the China Banking Regulatory Commission and depends on the status of counterparties and the maturity characteristics. The risk weighting used is ranging from 0% to 150%.

  
  

  (c) Redemption commitment for treasury bonds

  As an underwriting agent of PRC treasury bonds, CITIC Bank has the responsibility to buy back those bonds sold by it should the holders decide to early redeem the bonds held. The redemption price for the bonds at any time before their maturity dates is based on the nominal value plus any interest unpaid and accrued up to the redemption date. Accrued interest payables to the treasury bond holders are calculated in accordance with relevant rules of the Ministry of Finance and the People’s Bank of China. The redemption price may be different from the fair value of similar instruments traded at the redemption date.

  The redemption obligations below represent the nominal value of treasury bonds underwritten and sold by CITIC Bank, but not yet matured at the balance sheet date:

  

  As at 31 December 2017, the original maturities of these bonds vary from one to five years (31 December 2016: one to five years). Management of the Group expects the amount of redemption before maturity dates of these bonds will not be material. The Ministry of Finance will not provide funding for the early redemption of these bonds on a back-to-back basis, but will settle the principal and interest upon maturity.

  (d) Guarantees provided

  Except for guarantees that have been recognised as liabilities, the guarantees issued by the Group at the balance sheet date are as follows:

  

  The relationship of related parties is disclosed in Note 48(a).

  Included in the above table, the Group’s counter guarantees issued to related parties and third parties at the balance sheet date are as follows:

  

  (e) Outstanding litigation and disputes

  The Group is involved in a number of current and pending legal proceedings. The Group provided for liabilities arising from those legal proceedings in which the outflow of economic benefit is probable and can be reliably estimated in the consolidated balance sheet. The Group believes that these accruals are reasonable and adequate.

  (i) Investigation into 2008 forex incident

  Following the Company’s announcement of a foreign exchange related loss, on 22 October 2008, the Hong Kong Securities and Futures Commission (the “SFC”) announced that it had commenced a formal investigation into the affairs of the Company. On 3 April 2009, the Commercial Crime Bureau of the Hong Kong Police Force began an investigation of suspected offences relating to the same matter.

  The SFC announced on 11 September 2014 that it has commenced proceedings in the Court of First Instance of the High Court of Hong Kong (the “High Court”) and the Market Misconduct Tribunal (the “MMT”), respectively, against the Company and five of its former executive directors.

  The SFC alleged that the Company and the former directors had engaged in market misconduct involving the disclosure of false or misleading information about the Company’s financial position in connection with losses that the Company had suffered through its investment in the leveraged foreign exchange contracts.

  In the action instigated by the SFC at the MMT, the SFC asked the MMT to (i) determine whether any market misconduct has taken place, and (ii) identify persons who had engaged in such misconduct. In the event that the MMT makes determinations of market misconduct against either the Company or the former directors, it is understood that the SFC will seek from the High Court orders against those who have been found to have engaged in market misconduct to restore affected investors to their pre-transaction positions or to compensate affected investors for their losses.

  The MMT hearing was completed in July 2016. On 10 April 2017, the MMT handed down its decision determining that, in the publication of the Company’s circular on 12 September 2008, no market misconduct within the meaning of section 277 (1) of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) took place. The time limits for appeal of the MMT decision have expired and the SFC has discontinued the proceedings in the High Court by consent.

  On 15 October 2014, the Secretary for the Financial Services and the Treasury said that the Police’s investigation into the CITIC matters on aspects outside the subject matters of the SFC’s actions are still ongoing.

  In the absence of the findings of these investigations being made available to the Company and due to the inherent difficulties involved in attempting to predict the outcome of such investigations and in assessing the possible findings, the directors do not have sufficient information to reasonably estimate the fair value of contingent liabilities (if any) relating to such investigations, the timing of the ultimate resolution of those matters or what the eventual outcome may be. However, based on information currently available, the directors are not aware of any matters arising from the above investigations that might have a material adverse financial impact on the consolidated financial position or liquidity of the Group.

  (ii) There are a number of disputes with Mineralogy, and their details are disclosed in Note 3(l).

  (iii) CITIC Resources Litigation

  (1) In August 2014, 山煤煤炭進出口有限公司 (Shanxi Coal Import & Export Co., Ltd.) (“Shanxi Coal I/E”), a wholly-owned subsidiary of 山煤國際能源集團股份有限公司 (Shanxi Coal International Energy Group Co., Ltd.), commenced a claim in 山西省高級人民法院 (the Shanxi High People’s Court) (the “Shanxi Court”) against, amongst others, CITIC Australia Commodity Trading Pty Limited (“CACT”), an indirect wholly-owned subsidiary of the Company (“Shanxi Claim A”). In connection with Shanxi Claim A, Shanxi Coal I/E obtained an asset protection order from the Shanxi Court over a certain quantity of the inventories (the “Shanxi APO”).
  
  In January 2017, pursuant to a civil ruling of the Shanxi Court, Shanxi Claim A was transferred to the Public Security Bureau for determination in accordance with China’s criminal procedures. As a result, Shanxi Claim A terminated and Shanxi Coal I/E has no further recourse or rights against CACT in respect of Shanxi Claim A.
  
  In February 2017, the Shanxi Court ordered the lifting of the Shanxi APO.

  (2) In the second half of 2015, CACT received an arbitration request notice from the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) in respect of an arbitration application by Shanxi Coal I/E pursuant to which, Shanxi Coal I/E is (i) alleging that CACT has entered into two contracts for the supply of, and has failed to deliver, copper cathodes to Shanxi Coal I/E (the “Contracts”); and (ii) claiming an amount of US$27,890,000 (HK$217,542,000) as the aggregate purchase price Shanxi Coal I/E alleges it has paid to CACT under the Contracts, plus interest (“Shanxi Claim B”).
  
  CACT has not entered into the Contracts as alleged by Shanxi Coal I/E and considers Shanxi Claim B to be baseless. Accordingly, no provision was made in respect of Shanxi Claim B.
  
  Pursuant to the final award of the ICC of 28 September 2017, the ICC has determined that it did not have jurisdiction over CACT and Shanxi Coal I/E for the purposes of arbitrating the Claim B.

  (iv) There are some issues in dispute with MCC, and their details are disclosed in Note 3(k).

  (f) Capital commitments

  As at the balance sheet date, the Group had the following capital commitments not provided for in these consolidated financial statements:

  

  (g) Operating lease commitments

  The Group leases certain of its properties and fixed assets under operating leases. As at the balance sheet date, the Group’s future minimum lease payments under non-cancellable operating leases are as follows:

  

• 47. Financial risk management and fair values

  Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the business of the Group. The Group has established policies and procedures to identify and analyse these risks, to set appropriate risk limits and controls, and to constantly monitor the risks and limits by means of reliable and up-to-date management information systems. The Group regularly updates and enhances its risk management policies and systems to reflect changes in markets, products and best practice risk management processes. Internal auditors also perform regular audits to ensure compliance with policies and procedures.

  The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

  (a) Credit risk

  Credit risk represents the potential loss that may arise from a customer or counterparty’s failure to meet its obligation when due. For loan business, the Group identifies and manages the credit risk through its target markets definitions, credit approval process, post-disbursement monitoring and remedial management procedures. In respect of treasury businesses, credit risk mainly represents impairment losses of different types of investments due to default by issuers or counterparties, and inability of derivative counterparties in fulfilling their obligations. The Group sets credit limits for treasury activities and monitors them regularly with reference to the fair values of the relevant financial instruments.

  The Group is also confronted with credit risk resulting from receivables that arising from sale of goods and rendering of services within the non-financial services segments. The relevant subsidiaries have established a credit policy under which individual credit evaluations are performed on all customers to determine the credit limit and terms applicable to the customers. These evaluations focus on the customers’ financial position, the external ratings of the customers and their bank credit records where available.

  (i) Maximum credit risk exposure

  The maximum exposure to credit risk as at the balance sheet date without taking into consideration of any collateral held or other credit enhancement is represented by the net balance of each type of financial assets in the balance sheet after deducting any impairment allowance. A summary of the maximum exposure is as follows:

  

  (ii) Distribution by credit exposure is as follows:

  

  Notes:
  (1) Collateral and other credit enhancements for overdue but not impaired loans and advances:
  
  As at 31 December 2017, the loans and advances of the Group which were overdue but not impaired were HK$48,419 million (31 December 2016: HK$54,622 million). As at 31 December 2017, the secured portion of these loans and advances were HK$28,564 million (31 December 2016: HK$37,435 million), and the remaining loans and advances were unsecured.<
  
  The fair value of collateral held against these loans and advances amounted to HK$40,057 million as at 31 December 2017 (31 December 2016: HK$45,991 million).
  
  The fair value of collateral was estimated by management based on the latest available external valuations, if any, adjusted by taking into account the current realisation experience as well as market situation.
  
  (2) The balances represent collectively assessed allowance of impairment losses

  (iii) Loans and advances to customers and other parties analysed by industry sector:

  

  (iv) Loans and advances to customers and other parties analysed by geographical sector:

  

  (v) Rescheduled loans and advances to customers and other parties

  Rescheduled loans and advances are those loans and advances which have been restructured or renegotiated because of deterioration in the financial position of the borrower, or of the inability of the borrower to meet the original repayment schedule and for which the revised repayment terms are a concession that the Group would not otherwise consider.

  

  (vi) Offsetting

  Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

  As at 31 December 2017, the Group did not enter into significant enforceable master netting arrangements with counterparties and therefore there were no significant offsettings of any assets and liabilities in the consolidated balance sheet (31 December 2016: Nil).

  (b) Liquidity risk

  Liquidity risk arises when there is mismatch between amounts and maturity dates of financial assets and financial liabilities.

  Each of the Group’s operating entity formulates liquidity risk management policies and procedures within the Group’s overall liquidity risk management framework and takes into consideration of the business and regulatory requirements applicable to individual entity.

  The Group manages liquidity risk by holding liquid assets (including deposits, other short term funds and securities) of appropriate quality and quantity to ensure that short term funding requirements are covered within prudent limits. Adequate standby facilities are maintained to provide strategic liquidity to meet unexpected and material demand for payments in the ordinary course of business.

  The following tables indicate the analysis by remaining maturities of the Group’s financial assets and liabilities:

  

  The table below presents the undiscounted cash flows of the Group’s financial assets and liabilities:

  

  Credit Commitments include loan commitments, acceptances, credit card commitments, guarantees, letters of credit and others. The tables below summarise the amounts of credit commitments by remaining contractual maturity.

  

  (c) Interest rate risk

  Each of the Group’s operating entities has formulated its own interest risk management policies and procedures covering identification, measurement, monitoring and control of risks. The Group manages interest rate risk to control potential loss from interest rate risk at an acceptable level.

  (i) Asset-liability gap

  Interest rate risk arises from mismatch between repricing dates of financial assets and liabilities affected by market interest rate volatility.

  

  (ii) Effective interest rate

  

  (iii) Sensitivity analysis

  The Group uses sensitivity analysis to measure the potential effect of changes in interest rates on the Group’s profit or loss. As at 31 December 2017, it is estimated that a general increase or decrease of 100 basis points in interest rates, with all other variables held constant, the Group’s profit before taxation would decrease or increase by HK$12,916 million (31 December 2016: decrease or increase by HK$9,395 million).

  This sensitivity analysis is based on a static interest rate risk profile of the Group’s financial assets and financial liabilities and certain simplified assumptions. The analysis only measures the impact of changes in the interest rates within one year, showing how annualised interest income would have been affected by repricing of the Group’s financial assets and financial liabilities within the one-year period. The analysis is based on the following assumptions: (1) all assets and liabilities that reprice or mature within three months and after three months but within one year reprice or mature at the beginning of the respective periods; (2) there is a parallel shift in the yield curve and in interest rates; and (3) there are no other changes to the portfolio, all positions will be retained and rolled over upon maturity. The analysis does not take into account the effect of risk management measures taken by management. Because of its hypothetical nature with the assumptions adopted, actual changes in the Group’s profit before taxation resulting from increases or decreases in interest rates may differ from the results of this sensitivity analysis.

  (d) Currency risk

  Currency risk arises from the changes in exchange rates on the Group’s foreign currency denominated assets and liabilities. The Group measures its currency risk with foreign currency exposures, and manages currency risk by entering into spot foreign exchange transactions, use of derivatives (mainly foreign forwards and swaps), and matching its foreign currency denominated assets with corresponding liabilities in the same currency.

  The revenue from the Group’s Sino Iron Project is denominated in US$, which is also the functional currency for this entity. A substantial portion of its development and operating expenditure are denominated in Australian Dollars. The Group entered into plain vanilla forward contracts to manage the foreign currency risks.

  The Group funded the Sino Iron Project and the acquisition of bulk cargo vessels by borrowing US$ loans to match the future cash outflows of these assets. The Group’s investments in the Sino Iron Project and bulk cargo vessels (whose functional currency is in US$) have been designated as an accounting hedge against other US$ loans.

  The exposure to currency risk arising from the financial assets and financial liabilities at the balance sheet dates is as follows (expressed in HK$ million):

  

  The Group uses sensitivity analysis to measure the potential effect of changes in foreign currency exchange rates on the Group’s net profit or loss.

  Assuming all other risk variables remained constant, a 100 basis points strengthening or weakening of HK$ against US$, RMB and other currencies as at 31 December 2017 would decrease or increase the Group’s profit before taxation by HK$3,515 million (31 December 2016: decrease or increase by HK$3,023 million).

  This sensitivity analysis is based on a static foreign exchange exposure profile of financial assets and financial liabilities and certain simplified assumptions. The analysis is based on the following assumptions: (1) the foreign exchange sensitivity is the gain and loss recognised as a result of 100 basis points fluctuation in the foreign currency exchange rates against HK$; (2) the exchange rates against HK$ for all foreign currencies change in the same direction simultaneously and do not take into account the correlation effect of changes in different foreign currencies; and (3) the foreign exchange exposures calculated include both spot foreign exchange exposures, forward foreign exchange exposures and options, and all positions will be retained and rolled over upon maturity. The analysis does not take into account the effect of risk management measures taken by management. Because of its hypothetical nature with the assumptions adopted, actual changes in the Group’s profit before taxation resulting from increases or decreases in foreign exchange rates may differ from the results of this sensitivity analysis.

  (e) Fair values

  (i) Financial instruments carried at fair value

  The following table presents the carrying amounts of financial instruments measured at fair value as at the balance sheet date across the three levels of the fair value hierarchy defined in HKFRS 13, Fair value measurement, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

  • Level 1 (highest level): fair values measured using quoted market for similar active markets for identical financial instruments;
  • Level 2: fair values measured using quoted prices in active market for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data;
  • Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

  The fair value of the Group’s financial assets and financial liabilities are determined as follows:

  • If traded in active markets, fair values of financial assets and financial liabilities with standard terms and conditions are determined with reference to quoted market bid prices and ask prices, respectively;
  • If not traded in active markets, fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models or discounted cash flow analysis using prices from observable current market transactions for similar instruments. If there were no available observable current market transactions prices for similar instruments, quoted prices from counterparty is used for the valuation, and management performs analysis on these prices. Discounted cash flow analysis using the applicable yield curve for the duration of the instruments is used for derivatives other than options, and option pricing models are used for option derivatives.

  

  For the year ended 31 December 2017, there were no significant transfers between instruments in different levels (2016: Nil) and no significant changes in valuation techniques for determining the fair values of the instruments (2016: Nil).

  The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy:

  

  (ii) Fair value of other financial instruments (carried at other than fair value)

  The carrying amounts and fair values of the Group’s financial assets and liabilities, other than those with carrying amounts that reasonably approximate to their fair values, are as follows:

  

  (iii) Estimation of fair values

  As at the balance sheet date, the Group adopted the following major methods and assumptions in estimating the fair value of financial instruments.

  Debt securities and equity investments

  Fair value is based on quoted market prices as at the balance sheet date for trading financial assets and liabilities (excluding derivatives), available-for-sale financial assets, and held-to-maturity investments if there is an active market. If an active market does not exist for available-for-sale financial assets, the fair value is determined using valuation techniques.

  Loans and advances to customers and other parties, bank and other loans

  Loans and advances to customers and other parties, and bank and other loans are repriced at market rates at least annually. Accordingly, their carrying amounts approximate to their fair values.

  Placements with banks and non-bank financial institutions, financial assets held/sold under resale/repurchase agreements

  Placements with banks and non-bank financial institutions, financial assets held/sold under resale/ repurchase agreements are mainly priced at market interest rates and mature within one year. Accordingly, the carrying amounts approximate to their fair values.

  Derivatives

  The fair values of foreign currency and interest rate contracts are either based on their listed market prices or by discount cash flow model at the measurement date.

  Financial guarantees

  The fair values of financial guarantees are determined by reference to fees charged in an arm’s length transaction for similar services, when such information is obtainable, or is otherwise estimated by reference to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that the lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made.

• 48. Material related parties

  (a) Relationship of related parties

  (i) In addition to subsidiaries, related parties include parent company, holding company’s fellow entities, associates and joint ventures of the Group.

  (ii) CITIC Group, the parent and the ultimate controlling shareholder of the Group, is a state-owned company established in Beijing in 1979.

  (b) Related party transactions

  (i) Transaction amounts with related parties

  

  (ii) Outstanding balances with related parties

  

  (c) Transactions with other state-owned entities in the PRC

  In addition to these related party transactions disclosed in Note 48(b), transactions with other stateowned entities include but are not limited to the following:

  • sales and purchases of goods and provision of services;
  • purchase, sale and leases of property and other assets;
  • lending and deposit taking;
  • taking and placing of inter-bank balances;
  • derivative transactions;
  • entrusted lending and other custody services;
  • insurance and securities agency, and other intermediary services;
  • sale, purchase, underwriting and redemption of bonds issued by other state-owned entities; and
  • rendering and receiving of utilities and other services.

  (d) Key management personnel remuneration

  For the year ended 31 December 2017, the aggregate amount of the remuneration before tax paid to directors and executive officers of the Company amounted to HK$9.97 million (2016: HK$8.84 million).

• 49. Structured entities

  (a) The principal guaranteed wealth management products issued and managed by the Group

  The principal guaranteed wealth management products issued and managed by CITIC Bank, a subsidiary of the Group, represent products to which CITIC Bank has guaranteed the investor’s principal investment. The investments of the wealth management products and the corresponding source of funding are categorised as financial assets and financial liabilities in accordance with the accounting policies.

  (b) Structured entities sponsored by third party institutions in which the Group holds an interest

  The Group holds an interest in some structured entities sponsored by third party institutions through investments in debt securities issued by these structured entities. Such structured entities include wealth management products, investment management products, trust investment plans, asset-backed securities and investment funds and the Group does not consolidate these structured entities.

  The following table sets out an analysis of the carrying amounts of interests held by the Group as at the balance sheet date in the structured entities sponsored by third party institutions, as well as an analysis of the line items in the balance sheet in which the relevant assets are recognised:

  

  (c) Structured entities sponsored by the Group which the Group does not consolidate but holds an interest

  The investments issued by unconsolidated structured entities sponsored by the Group are primarily wealth management products and trust plans without principal and/or return guarantee. The nature and purpose of these structured entities are for the Group to generate fees from managing assets on behalf of investors. These structured entities are financed through the issuance of products to investors. Interest held by the Group includes fees charged by providing management services and investment made by the Group.

  Wealth management products and trust plans

  As at 31 December 2017, the aggregate amount of assets held by the unconsolidated non-principalguaranteed wealth management products and trust plans which are sponsored by the Group was HK$3,731,749 million (31 December 2016: HK$2,662,231 million).

  As at 31 December 2017, the carrying amounts of management fee receivables being recognised in the balance sheet were HK$871 million (31 December 2016: HK$601 million).

  As at 31 December 2017, the amount of placements and financial assets held under resale agreements from the Group with non-principal-guaranteed wealth management products sponsored by the Group was HK$84,325 million (31 December 2016: HK$69,312 million).

  The aggregate amount of the non-principal-guaranteed wealth management products sponsored and issued by the Group after 1 January 2017 but matured before 31 December 2017 was HK$713,765 million (2016: HK$829,515 million).

  During the year ended 31 December 2017, the maximum exposure of the placements and financial assets held under resale agreements from the Group with non-principal guaranteed wealth management products sponsored by the Group was HK$86,579 million (2016: HK$64,170 million). In the opinion of management, the transactions were conducted in the ordinary course of business under normal terms and conditions and at market rates.

  During the year ended 31 December 2017, the amount of fee and commission income recognised from the abovementioned structured entities sponsored by the Group was HK$11,620 million (2016: HK$12,711 million).

  Securitisation transactions and loan transfers

  For the year ended 31 December 2017, the Group entered into transactions which involved transfers of financial assets including securitisation transactions, transfers of loans including non-performing loans, and financial assets sold under repurchase agreements. Details of the financial assets sold under repurchase agreements are set forth in Note 39. Details of securitisation and loan transfer transactions conducted by the Group for the year ended 31 December 2017 totalled HK$210,072 million are set forth below (2016: HK$133,175 million).

  During the year ended 31 December 2017, the Group entered into securitisation transactions backed by financial assets transferred with book value before impairment of HK$152,254 million (2016: HK$54,952 million), of which HK$151,220 million (2016: HK$49,922 million) were qualified for full de-recognition. The balance of HK$1,035 million (2016: HK$5,030 million) was in respect of non-performing loans transferred.

  The Group concluded that it had continuing involvement in these assets as at 31 December 2017 based on the related criteria set forth in Note 2(i) and Note 3. As at 31 December 2017, the Group continued to recognise assets of HK$920 million (31 December 2016: HK$771 million) under loans and advances to customers together with assets and liabilities of the same amount under other assets and other liabilities, respectively, arising from such continuing involvement (Note 25).

  During the year ended 31 December 2017, the Group also through other types of transactions transferred loans of book value before impairment of HK$57,817 million (2016: HK$78,223 million), of which HK$46,336 million represented non-performing loans (2016: HK$60,396 million). The Group carried out assessment based on the criteria as detailed in Note 2(i) and Note 3 and concluded that these transferred assets qualified for full de-recognition (Note 25(d)).

• 50. Discontinued operations

  On 14 March 2016, the Company, CITIC Pacific and CITIC Corporation entered into an agreement with China Overseas to sell the Group’s interest in certain residential real estate projects in the PRC to one of the affiliates of China Overseas. Completion of the transaction took place in September 2016.

  The aggregate results of the discontinued operations were as follows:

  

• 51. Major business combinations

  (a) Acquisition of a controlling interest in McDonald’s Mainland China and Hong Kong businesses

  On 31 July 2017, the Company, CITIC Capital China Partners III, L.P. (“CITIC Capital”) and Carlyle Asia Partner IV, L.P. (“Carlyle”) acquired from McDonald’s China Holding Ltd. (“MCHL”) and Golden Arches Investment Ltd. (“GAIL” together with MCHL, the “Sellers”) a controlling interest in McDonald’s Mainland China and Hong Kong businesses (the “Acquisition”) through Grand Foods Investment Holdings Limited (the “Purchaser”, an indirect non-wholly owned subsidiary of the Company). The Purchaser acquired the entire issued share capital of McDonald’s China Management Company Limited (“Target Company”) at a total consideration of US$1,832 million (approximately HK$14,313 million). The consideration for the Acquisition was settled partly by way of cash and partly by way of new shares in Grand Foods Holdings Limited, being the intermediate holding company of the Purchaser issued to GAIL.

  Upon the completion of the Acquisition, the Target Company was owned by Fast Food Holdings Limited (which is in turn indirectly owned as to approximately 61.54% and 38.46% by the Company and CITIC Capital with a capital injection of US$309 million (approximately HK$2,411 million) and US$193 million (approximately HK$1,509 million) respectively), Carlyle and GAIL as to 52%, 28% and 20%, respectively. The goodwill of HK$945 million arising from the Acquisition is attributable to acquired customer base and economies of scale expected from combining the operations.

  The following table summarises the consideration paid for the Acquisition of a controlling interest in McDonald’s Mainland China and Hong Kong businesses, the fair values of assets acquired, liabilities assumed and the non-controlling interests at the acquisition date.

  

  (b) Business combinations under common control - acquisition of Qingdao Special Iron and Steel Co., Ltd. (“Qingdao Special Steel”)

  On 15 May 2017, CITIC Group acquired 100% equity interest in Qingdao Special Steel from Qingdao Steel Holding Group Co., Ltd. On 24 October 2017, Jiangyin Xingcheng Special Steel Works Co., Ltd. (“Xingcheng Special Steel”), an indirect wholly-owned subsidiary of the Company, entered into an equity transfer agreement with CITIC Group through the public tender process on the China Beijing Equity Exchange, pursuant to which Xingcheng Special Steel (as the sole bidder) agreed to acquire 100% equity interest in Qingdao Special Steel held by CITIC Group at a consideration of RMB127 million (approximately HK$150 million). On 24 October 2017, the equity transfer was completed and Qingdao Special Steel became an indirect wholly-owned subsidiary of the Company with net asset of HK$109 million.

  The acquisition represents a business combination under common control as Qingdao Special Steel and the Company were ultimately controlled by CITIC Group both before and after the acquisition, and that control is not transitory. The financial statements of Qingdao Special Steel are included in the Group’s consolidated financial statements as if the combination had occurred from the date when the ultimate controlling shareholder first obtained control.

  

  (c) Business combinations under common control – acquisition of Star Thrive Investment Limited (“Star Thrive”)

  On 29 September 2017, CITIC Metal Group Limited (“CITIC Metal”), an indirect wholly-owned subsidiary of the Company, and Star Thrive, an indirect wholly-owned subsidiary of CITIC Group (which is a special purpose vehicle holding 76.37% equity interest in Jinzhou Titanium Industry Co., Ltd.), entered into the New Share Subscription Agreement, pursuant to which CITIC Metal agreed to subscribe for 60% of the enlarged share capital of Star Thrive at a consideration of HK$1,326 million. On 29 September 2017, the transaction under the New Share Subscription Agreement was completed. The Group’s share of the net asset of Star Thrive was HK$1,198 million.

  The acquisition represents a business combination under common control as Star Thrive and the Company were ultimately controlled by CITIC Group both before and after the acquisition, and that control is not transitory. The financial statements of Star Thrive are included in the Group’s consolidated financial statements as if the combination had occurred from the date when the ultimate controlling shareholder first obtained control. Therefore, the opening balances and the comparative figures of the consolidated financial statements are restated.

  The following is a reconciliation of the effect arising from the acquisition of Star Thrive which is accounted for under common control combination on the consolidated financial statements.

  

• 52. Supplementary information to the consolidated cash flow statement

  (a) Cash and cash equivalents held by the Group are as follows:

  

  (b) Disposal of subsidiaries

  

  (c) Reconciliation of financing liabilities

  

• 53. Major transactions with non-controlling interests

  Dilution of interests in a subsidiary without loss of control

  In September 2017, CBI issued new shares to five investors, raising HK$9,053 million in total. Upon the issuance of new shares, equity interests indirectly owned by CITIC Bank in CBI reduced from 100% to 75%. The Group recognised an increase in non-controlling interests of HK$8,794 million and an increase in equity attributable to shareholders of the Company of HK$259 million.

  The effect of changes in the ownership interest of CBI on the equity attributable to shareholders of the Company during the year is summarised as follows:

  

• 54 Balance sheet and reserve movement of the Company

  

  The balance sheet of the Company was approved and authorised for issue by the board of directors on 28 March 2018.

  Director: Chang Zhenming

  Director: Wang Jiong

  (a) Reserve movement of the Company

  

• 55 Post balance sheet events

  (a) On 24 November 2017, the Supreme Court of Western Australia issued a judgement in the Royalty Component B proceeding (CIV 1808 of 2013) (the “Judgement”) brought by Mineralogy (Note 3(l)). The CITIC parties concerned have filed an appeal notice in respect of the Judgement with the Court of Appeal of the Supreme Court of Western Australia on 29 January 2018.

• 56 Approval of the consolidated financial statements

  The consolidated financial statements were approved and authorised for issue by the board of directors on 28 March 2018.

• 57 Possible impact of amendments, new standards and interpretations issued but not yet adopted

  The Group has not applied the following amendments to standards and new standards which are effective for the financial year beginning after 1 January 2017 and which have not been early adopted in these consolidated financial statements.

  (1) Effective for the annual periods beginning on or after 1 January 2018

  (2) Effective for the annual periods beginning on or after 1 January 2019.

  (3) Originally effective for annual periods beginning on or after 1 January 2016. The effective date has now been deferred/removed.

  The Group is in the process of making an assessment of the impact of the above new standards and amendments to standards. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below:

  HKFRS 9, Financial instruments

  The new standard addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

  HKFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income in which case the accumulated fair value changes in other comprehensive income will not be recycled to the profit or loss in the future. For financial liabilities there were no changes to classification and measurement, except for the recognition of changes in own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss.

  The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under HKAS 39. It applies to financial assets classified at amortised cost, debt instruments measured at fair value through other comprehensive income (“FVOCI”), contract assets under HKFRS 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts.

  The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach.

  The impact of the adoption of HKFRS 9 on the consolidated financial statements of the Group is an overall reduction to the total ordinary shareholders’ equity of the Company as at 1 January 2018 of approximately HK$4,711 million, attributable to the adoption of ECL partially offset by classification and measurement changes.

  HKFRS 15, Revenue from contracts with customers

  The HKICPA has issued a new standard for the recognition of revenue. This will replace HKAS 18 which covers contracts for goods and services and HKAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption.

  The Group made an assessment on the impact of this new standard, and concluded that it did not have a significant impact on the consolidated financial statements of the Group as at 1 January 2018.

  HKFRS 16, Leases

  HKFRS 16 will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

  The accounting for lessors will not significantly change.

  The standard will affect primarily the accounting for the Group’s operating leases. As at 31 December 2017, the Group has non-cancellable operating lease commitments of HK$27,237 million (Note 46(g)). The Group has not yet determined to what extent these commitments will result in the recognition of right-of-use assets and liabilities for future payments and how this will affect the Group’s profit and classification of cash flows. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under HKFRS 16.

  The standard will affect primarily the accounting for the Group’s operating leases. As at 31 December 2017, the Group has non-cancellable operating lease commitments of HK$27,237 million (Note 46(g)). The Group has not yet determined to what extent these commitments will result in the recognition of right-of-use assets and liabilities for future payments and how this will affect the Group’s profit and classification of cash flows. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under HKFRS 16.

• 58 Principal subsidiaries, associates and joint ventures

  (a) Principal subsidiaries

  

  				Proportion of ownership interest
  Name of company	Place of incorporation	Principal activity	Shares issued	Attributable to the Group	Held by the Company	Held by subsidiaries
  CITIC Corporation Limited 中國中信有限公司	Mainland China	Investment holding	N/A	100%	100%	0%
  CITIC Pacific Limited 中信泰富有限公司	British Virgin Islands	Investment holding	49,881	100%	100%	0%
  Jiangsu CP Xingcheng Special Steel Co., Ltd. 江蘇泰富興澄特殊鋼有限公司	Mainland China	Manufacturing	N/A	100%	0%	100%
  Daye Special Steel Co., Ltd. 大冶特殊鋼股份有限公司	Mainland China	Manufacturing	449,408,480	58.13%	0%	58.13%
  Dah Chong Hong Holdings Limited 大昌行集團有限公司	Hong Kong	Investment holding	1,847,038,804	56.07%	0%	56.07%
  CITIC Mining International Ltd. 中信礦業國際有限公司	Cayman Islands	Resources and energy	1	100%	100%	0%
  CITIC Telecom International Holdings Limited 中信國際電訊集團有限公司	Hong Kong	Telecom services	3,544,163,580	60.08%	100%	60.08%
  M China Management Limited 金拱門中國管理有限公司	Hong Kong	Service	N/A	32.00%	0%	100%
  China CITIC Bank Corporation Limited 中信銀行股份有限公司	Mainland China	Financial services	48,934,796,573	65.97%	0%	65.97%
  CITIC International Financial Holdings Limited 中信國際金融控股有限公司	Hong Kong	Financial services	7,459,172,916	65.97%	0%	100%
  CITIC Trust Co., Ltd. 中信信託有限責任公司	Mainland China	Financial services	N/A	100%	0%	100%
  CITIC Finance Company Limited 中信財務有限公司	Mainland China	Financial services	N/A	100%	0%	100%
  CITIC Metal Group Ltd. 中信金屬集團有限公司	Hong Kong	Resources and energy	11,800,000,000	100%	0%	100%
  CITIC Resources Holdings Limited 中信資源控股有限公司	Bermuda	Resources and energy	7,857,727,149	59.50%	0%	59.50%
  CITIC Australia Pty Limited 中信澳大利亞有限公司	Australia	Resources and energy	85,882,017	100%	0%	100%
  CITIC Kazakhstan LLP 中信哈薩克斯坦有限公司	Kazakhstan	Resources and energy	N/A	100%	0%	100%
  CITIC Heavy Industries Co., Ltd. 中信重工機械股份有限公司	Mainland China	Manufacturing	4,339,419,293	67.27%	0%	67.27%
  CITIC Dicastal Co., Ltd. 中信戴卡股份有限公司	Mainland China	Manufacturing	1,377,962,404	100%	0%	100%
  CITIC Construction Company Limited 中信建設有限責任公司	Mainland China	Engineering contracting	N/A	100%	0%	100%
  CITIC Engineering Design and Construction Company Limited 中信工程設計建設有限公司	Mainland China	Engineering contracting	N/A	100%	0%	100%
  CITIC Urban Development & Operation Co., Ltd. 中信城市開發運營有限責任公司	Mainland China	Real estate	N/A	100%	0%	100%
  CITIC Heye Investment Co., Ltd. 中信和業投資有限公司	Mainland China	Real estate	N/A	100%	0%	100%
  CITIC Asset Operation Co.,Ltd. 中信資產運營有限公司	Mainland China	Real estate	N/A	100%	0%	100%
  CITIC Capital Mansion Co., Ltd. 中信京城大廈有限責任公司	Mainland China	Real estate	N/A	100%	0%	100%
  CITIC Building Property Management Co., Ltd. 北京中信國際大廈物業管理有限公司	Mainland China	Real estate	N/A	100%	0%	100%
  CITIC Industrial Investment Group Corp., Ltd. 中信興業投資集團有限公司	Mainland China	Infrastructure	N/A	100%	0%	100%
  CITIC Environment Investment Group Co., Limited 中信環境投資集團有限公司	Mainland China	Energy saving and environmental protection	N/A	100%	0%	100%
  China Zhonghaizhi Corporation 中國中海直有限責任公司	Mainland China	General aviation	N/A	51.03%	0%	51.03%
  CITIC Investment Holdings Limited 中信投資控股有限公司	Mainland China	Investment holding	N/A	100%	0%	100%
  CITIC Asia Satellite Holding Company Limited 中信亞洲衛星控股有限公司	British Virgin Islands	Information industry	60,524,465	100%	0%	100%
  CITIC Press Corporation 中信出版集團股份有限公司	Mainland China	Publishing	142,613,636	88%	0%	88%
  CITIC Holdings Co., Ltd. 中信控股有限責任公司	Mainland China	Service	N/A	100%	0%	100%
  CITIC Tourism Group Co., Ltd. 中信旅遊集團有限公司	Mainland China	Service	N/A	100%	0%	100%

  (b) Principal associates

  Details of the Group’s interest in principal associates, which are accounted for using the equity method in the consolidated financial statements of the Group are as follows:

  

  				Proportion of ownership interest
  Name of company	Place of incorporation	Principal activity	Shares issued	Attributable to the Group	Held by the Company	Held by subsidiaries
  China Overseas Land & Investment Ltd. 中國海外發展有限公司	Hong Kong	Real estate	10,956,201,535	10%	0%	10%
  CITIC Securities Co., Ltd. 中信證券股份有限公司	Mainland China	Securities related services	12,116,908,400	16.50%	0%	16.50%
  MMG South America Management Co., Ltd.	Hong Kong	Resources and energy	1,200	15%	0%	15%

  (c) Principal joint ventures

  Details of the Group’s interest in principal joint ventures, which are accounted for using the equity method in the consolidated financial statements of the Group are as follows:

  

  				Proportion of ownership interest
  Name of company	Place of incorporation	Principal activity	Shares issued	Attributable to the Group	Held by the Company	Held by subsidiaries
  CITIC Prudential Life Insurance Co., Ltd. 中信保誠人壽保險有限公司	Mainland China	Insurance and reinsurance	N/A	50%	0%	50%
  上海瑞博置業有限公司	Mainland China	Real estate	N/A	50%	0%	50%
  山東新巨龍能源有限責任公司	Mainland China	Resources and energy	N/A	30%	0%	30%