FINANCIAL REVIEW

Overview

Profit attributable to ordinary shareholders

In 2019, the Group achieved a net profit attributable to ordinary shareholders of HK$53,903 million, an increase of HK$3,664 million, or 7.3%. Excluding the effect of currency translation arising from the depreciation of the RMB exchange rate, the year-on-year increase would be 12%.

The financial services business recorded net profit attributable to ordinary shareholders of HK$ 42,845 million, an increase of 2.7%. Excluding the currency translation effect, the corresponding increase would be 6.9%. Our banking business showed rapid growth with a year-on-year increase in net profit attributable to the bank’s shareholders of 7.9%. Benefiting from the recovery of the capital market, our securities and insurance businesses recorded significant increases in investment income. Our trust business continued to maintain a leading position in the market.

In the non-financial businesses, Sino Iron Project achieved a turn from loss to profit driven by higher average iron ore prices and on-going cost control measures, our resources and energy business recorded a net profit attributable to ordinary shareholders of HK$ 3,015 million, with an increase of 43%. The manufacturing business recorded a net profit attributable to ordinary shareholders of HK$ 7,553 million, an increase of 26%, mainly due to the gains from the CITIC Dicastal’s introduction of strategic investors and the increase in profit of the special steel business significantly driven by its higher production volumes and lower costs. The engineering contracting business recorded a net profit attributable to ordinary shareholders of HK$ 1,867 million, a decrease of 9.1%, which was mainly due to a tax gain following the adjustment in the PRC’s income tax policy on overseas projects in previous year. In the real estate business, a net profit attributable to ordinary shareholders of HK$ 4,347 million was recorded, representing a year-on-year decrease of 19%. Considering the factors such as the performance of the share price of COLI, the company made a provision for impairment of the investment. The profit of other businesses, such us international telecommunications and publishing maintained steady growth during the year.

Profit attributable to ordinary shareholders

Financial Review

Earnings per share and dividends

Earnings per share of profit attributable to ordinary shareholders was HK$1.85 in 2019, an increase of 7.3% from HK$1.73 in 2018. As at 31 December 2019, the number of ordinary shares outstanding was 29,090,262,630.

At the forthcoming annual general meeting, the Board will recommend a final dividend of HK$0.285 per share to ordinary shareholders. Together with the interim dividend of HK$0.18 per share paid in September 2019, the total ordinary dividend will be HK$0.465 (2018: HK$0.41 per share). This equates to an aggregate cash distribution of HK$13,527million.

 

Profit/(loss) and assets by segment

 

Net profit/(loss) attributable to ordinary shareholders

 

Financial services

In 2019, the financial services business recorded a net profit attributable to ordinary shareholders of HK$42,845 million, a year-on-year increase of HK$1,141 million, or 2.7%. Excluding the effect of currency translation, the year-on-year increase was 6.9%.

As CITIC Bank actively expanded customer channels, the scale of deposits and loans recorded steady growth, which contributed to a year-on-year increase of 7.9% to RMB48,015 million in net profit attributable to the bank’s shareholders. Moreover, its retail business showed effects of transformation with the proportion of its profit contribution increasing by 4.1 percentage points year-on-year to 34.7%. Besides, the quality of assets was improved with the non-performing loan ratio decreasing by 0.12 percentage points from the beginning of the year to 1.65% and the allowance coverage ratio increasing by 17 percentage points to 175%. Benefiting from the recovery of capital market and the increase in investment income, CITIC Securities’ net profit recorded a year-on-year increase of 30% to about RMB12,229 million and each of its main businesses continued to lead the industry. CITIC-Prudential’s expansion into the bancassurance channel promoted the growth of its sales of insurance. And the rapid rise in premium income, the size of invested assets and investment returns contributed to a year-on-year increase in net profit of 63% to RMB1,794 million. As CITIC Trust continued to strengthen its abilities in active management, its net profit recorded a year-on-year increase of 7% to RMB3,593 million, and indicators such as assets under management, net profit, revenue and trust fee income still ranked first in the industry.

Resources and energy

In 2019, the resources and energy business recorded net profit attributable to ordinary shareholders of HK$3,015 million, with a year-on-year increase of HK$913 million, or 43%.

The increase in earnings was mainly contributed by the Sino Iron Project. Due to the increase in average iron ore prices and continuous cost control measures, the Sino Iron Project achieved an annual profit for the first time after it commenced operation with both its annual production and sales volume of iron ore concentrate exceeding 20 million wet metric tonnes, which both hit record highs. The average iron ore grade remained above 65%.

Net profit of CITIC Metal Group decreased by 43% on a year on-year basis to HK$963 million, which was mainly due to the decline in earnings of the metal trade business caused by significant fluctuations in commodity prices in the half year in 2019 and the decrease in profits contributed by the Las Bambas copper mine in Peru as the mine’s product deliveries were frequently interrupted by road blockages. Owing to the drop in crude oil prices and a decrease in sales volume, the crude oil business of CITIC Resources recorded a decrease of 12% in earnings. As for CITIC Pacific Energy, its net profit was decreased by 6.9% to approximately HK$1,500 million, as its power generation business recorded decrease in earnings resulting from decreases in both volumes and prices, while Xin Julong coal mine invested recorded a year-on-year increase of 24% in net profits resulting from increases in both sales volume and prices of coal.

Manufacturing

In 2019, the manufacturing business recorded a net profit attributable to ordinary shareholders of HK$7,553 million, representing a year-on-year increase of HK$1,545 million, or 26%. Of this, HK$1.4 billion was after-tax gains on a 57.89% equity transfer of CITIC Dicastal to introduced strategic investors.

In the face of double pressures from prices of steels and iron ore raw materials, CITIC Pacific Special Steel focused on cost control and adjustments to product and customer structures, increasing the sales of special steel by 10% to over 13 million tonnes and its net profit increased to approximately RMB5,400 million, creating its best performance in history. As for CITIC Discastal, due to its reinforced expansion efforts in the market of mainland China, sales volumes of aluminium wheels and castings both recorded year-on-year increases. Affected by the imposition of tariffs by the United States and the downturn in the automobile market, sales prices of CITIC Dicastal’s aluminium wheels and castings decreased by 2% and 7.4%, respectively, leading to a decrease of net profit of 20% to RMB968 million. With new order increasing by 35% during the year, the performance of CITIC Heavy Industries’ heavy machinery and auxiliary engineering businesses improved, and its main profit was still contributed by the robotics and intelligent equipment business.

Engineering contracting

The engineering contracting business recorded a net profit attributable to ordinary shareholders of HK$1,867 million in 2019, a decrease of HK$186 million, or 9.1%, over 2018.

The net profit of CITIC Construction decreased by 9.4% from 2018 to RMB1,232 million, which was mainly due to a tax gain following the adjustment in the PRC’s income tax policy on overseas projects in the previous year. The net profit of CITIC Engineering increased by 2.5% on year-on-year basis to RMB616 million due to the sustained growth of both its EPC projects and survey and design business.

Real Estate

The real estate business recorded a net profit attributable to ordinary shareholders of HK$4,347 million in 2019, a year-on-year decrease of HK$1,006 million, or 19%. In addition to the shared profit from COLI, the net profit for the current year came mainly from the Chengdu Tianfu New Area project, and Shanghai Lujiazui Harbour City Project. Moreover, considering factors such as the performance of the share price of COLI, the company made a provision for impairment of the investment.

Others

The net profit attributable to ordinary shareholders in 2019 amounted to HK$2,556 million, an increase of HK$507 million, or 25%, as compared with the previous year. This was mainly due to profit growth from CITIC Telecom International, CITIC Press and CITIC Offshore Helicopter.

The net profit of CITIC Press increased by 22% to RMB250 million as compared with the previous year. While maintaining its leading position in the traditional publication business in relation to economy and management, academy and culture-related books, CITIC Press maintained rapid growth in the children’s book publication business. CITIC Environment recorded a decrease in the settlement of EPC projects and an increase in financial expense, lending to a decrease in operating profit of 33% as compared with the previous year. McDonald’s recorded a decrease in net profit as a result of the adoption of new lease standards.