CITIC Limited — Annual Report 2011

Mar 9, 2012

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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CITIC Pacific Limited 中信泰富有限公司

(incorporated in Hong Kong with limited liability)

(Stock Code: 00267)

Consolidated Financial Statements and

Independent Auditor’s Report for the year ended 31 December 2011

As at 9 March 2012, the executive directors of CITIC Pacific Limited are Messrs Chang Zhenming (Chairman), Zhang Jijing, Carl Yung Ming Jie, Vernon Francis Moore, Liu Jifu, Milton Law Ming To and Kwok Man Leung; the non-executive directors of CITIC Pacific Limited are Messrs André Desmarais, Ju Weimin, Yin Ke and Peter Kruyt (alternate director to Mr André Desmarais); and the independent non-executive directors of CITIC Pacific Limited are Messrs Alexander Reid Hamilton, Gregory Lynn Curl and Francis Siu Wai Keung.

CITIC Pacific Limited

Contents of Financial Statements and Notes

F 2 Consolidated Profit and Loss Account

• F 3 Consolidated Statement of Comprehensive Income F 4 Consolidated Balance Sheet

• F 5 Balance Sheet

• F 6 Consolidated Cash Flow Statement F 8 Consolidated Statement of Changes in Equity

Notes to the Financial Statements

• F 10 1 Significant Accounting Policies F 23 2 Critical Accounting Estimates and Judgements F 26 3 Turnover and Revenue F 26 4 Other Income and Net Gains F 27 5 Segment Information F 30 6 Profit from Consolidated Activities F 32 7 Net Finance Charges F 33 8 Taxation F 34 9 Profit Attributable to Shareholders of the Company F 34 10 Dividends F 34 11 Earnings per Share F 35 12 Directors’ Emoluments F 36 13 Individuals with Highest Emoluments F 36 14 Retirement Benefits F 37 15 Fixed Assets and Properties under Development F 41 16 Subsidiary Companies F 42 17 Jointly Controlled Entities F 44 18 Associated Companies F 45 19 Other Financial Assets F 46 20 Intangible Assets F 47 21 Non-Current Deposits and Prepayment F 47 22 Other Assets Held for Sale F 48 23 Inventories F 48 24 Debtors, Accounts Receivable, Deposits and Prepayments F 49 25 Creditors, Accounts Payable, Deposits and Accruals F 50 26 Share Capital F 51 27 Perpetual Capital Securities F 52 28 Reserves F 56 29 Borrowings F 59 30 Financial Risk Management and Fair Values F 70 31 Capital Risk Management F 70 32 Derivative Financial Instruments F 72 33 Deferred Taxation F 74 34 Provisions and Deferred Income F 75 35 Capital Commitments F 76 36 Operating Lease Commitments F 76 37 Business Combinations, Acquisitions and Disposals F 79 38 Contingent Liabilities F 80 39 Material Related Party Transactions F 83 40 Ultimate Holding Company F 83 41 Comparative Figures F 83 42 Approval of Financial Statements F 84 43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies F 93 Independent Auditor’s Report

CITIC Pacific Limited F 1

Consolidated Profit and Loss Account

for the year ended 31 December 2011

for the year ended 31 December 2011	for the year ended 31 December 2011
in HK$ million Note 2011 As restated 2010
Revenue 3 100,086 70,614
Cost of sales (85,850) (59,662)
Gross profit 14,236 10,952
Other income and net gains 4 1,843 4,395
Distribution and selling expenses (2,854) (2,084)
Other operating expenses (5,101) (4,472)
Change in fair value of investment properties 1,835 1,294
Profit from consolidated activities 5 & 6 9,959 10,085
Share of results of Jointly controlled entities 5 3,080 2,000
Associated companies 5 914 673
Profit before net finance charges and taxation 13,953 12,758
Finance charges	(1,105) (704)
Finance income	695 356
Net finance charges 7 (410) (348)
Profit before taxation 13,543 12,410
Taxation 8 (2,560) (2,239)
Profit for the year 10,983 10,171
Attributable to: Ordinary shareholders of the Company 9 9,233 8,893
Holders of perpetual capital securities 331 –
Non-controlling interests 1,419 1,278
10,983 10,171
Dividends 10 (1,642) (1,642)
Earnings per share for profit attributable to shareholders of the Company during the year (HK$) 11 Basic 2.53 2.44
Diluted 2.53 2.44

F 2 CITIC Pacific Limited

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

for the year ended 31 December 2011
		As restated
in HK$ million	2011	2010
Profit for the year	10,983	10,171
Other comprehensive income, net of tax
Cash flow hedging reserves movement from interest rate swap
and foreign exchange contracts	(2,923)	(513)
Transfer from investment revaluation reserve to profit and loss account
on disposal of other financial assets	–	(1,232)
Fair value changes from other financial assets	(112)	761
Transfer to profit and loss account on impairment
of other financial assets	98	74
Surplus on revaluation of properties transferred from
self-use properties to investment properties	–	116
Share of other comprehensive income of associated companies and
jointly controlled entities	43	56
Exchange translation differences	2,488	2,346
Reserves released on disposal/dilution of interest in jointly controlled entities	(132)	(298)
Reserves released on disposal of interest in associated companies and
non-current assets held for sale	–	(421)
Reserve released upon disposal/liquidation of subsidiary companies	(109)	5
Total comprehensive income for the year	10,336	11,065
Total comprehensive income for the year attributable to
Ordinary shareholders of the Company	8,404	9,611
Holders of perpetual capital securities	331	–
Non-controlling interests	1,601	1,454
	10,336	11,065

CITIC Pacific Limited F 3

Consolidated Balance Sheet

as at 31 December 2011

in HK$ million Note	31 December 2011 As restated 31 December 2010 As restated 1 January 2010
Non–current assets Property,plant and equipment 15	85,132 63,334 40,032
Investmentproperties 15	15,270 13,579 11,164
Properties under development 15	6,628 9,881 9,065
Leasehold land – operatingleases 15	2,277 1,597 1,581
Jointlycontrolled entities 17	21,278 21,681 22,097
Associated companies 18	7,222 6,345 5,797
Other financial assets 19	345 448 2,198
Intangible assets 20	16,202 12,944 10,868
Deferred tax assets 33	1,647 763 603
Derivative financial instruments 32	928 1,854 748
Non–current deposits andprepayment 21	4,031 6,403 6,480
	160,960 138,829 110,633
Current assets
Properties under development 15	3,189 2,280 2,172
Properties held for sale	1,493 1,870 1,651
Other assets held for sale 22	2,388 298 1,765
Inventories 23	14,125 11,191 6,983
Derivative financial instruments 32	401 73 92
Debtors, accounts receivable, deposits andprepayments 24	16,253 14,070 11,082
Cash and bank deposits	30,930 24,558 21,553
	68,779 54,340 45,298
Current liabilities Bank loans, other loans and overdrafts
secured 29	1,329 598 105
unsecured 29	26,328 14,629 4,252
Creditors, accountspayable, deposits and accruals 25	30,577 26,911 19,992
Derivative financial instruments 32	159 55 167
Provision for taxation	1,514 936 243
	59,907 43,129 24,759
Net current assets	8,872 11,211 20,539
Total assets less current liabilities	169,832 150,040 131,172
Non–current liabilities
Longterm borrowings 29	71,050 68,456 61,318
Deferred tax liabilities 33	3,373 2,569 1,935
Derivative financial instruments 32	4,747 2,543 1,727
Provisions and deferred income 34	2,649 2,254 807
	81,819 75,822 65,787
Net assets 5	88,013 74,218 65,385
Equity Share capital 26	1,460 1,459 1,459
Perpetual capital securities 27	5,951 – –
Reserves 28	72,452 65,792 58,020
Proposed dividend	1,095 1,095 912
Total ordinary shareholders’ funds and perpetual capital securities	80,958 68,346 60,391
Non–controlling interests in equity	7,055 5,872 4,994
Total equity	88,013 74,218 65,385

Chang Zhenming Chairman

Zhang Jijing Managing Director

Group Finance Director

Vernon F. Moore

F 4 CITIC Pacific Limited

Balance Sheet

as at 31 December 2011

as at 31 December 2011
in HK$ million Note	2011 2010
Non-current assets Property, plant and equipment 15	10 7
Subsidiary companies 16	80,889 68,401
Jointly controlled entities 17	5,138 5,121
Associated companies 18	1,987 2,018
Derivative financial instruments 32	161 859
	88,185 76,406
Current assets
Derivative financial instruments 32	326 15
Amounts due from subsidiary companies 16	4,896 3,960
Debtors, accounts receivable, deposits and prepayments 24	193 188
Cash and bank deposits	10,715 7,781
	16,130 11,944
Current liabilities Bank loans, other loans and overdrafts
unsecured 29	13,936 1,949
Amounts due to subsidiary companies 16	6,223 9,647
Creditors, accounts payable, deposits and accruals 25	293 291
Derivative financial instruments 32	419 37
Provision for taxation	1 1
	20,872 11,925
Net current (liabilities)/assets	(4,742) 19
Total assets less current liabilities	83,443 76,425
Non-current liabilities
Long term borrowings 29	30,221 28,723
Derivative financial instruments 32	2,739 2,276
	32,960 30,999
Net assets	50,483 45,426
Equity Share capital 26	1,460 1,459
Perpetual capital securities 27	5,951 –
Reserves 28	41,977 42,872
Proposed dividend	1,095 1,095
Total ordinary shareholders’ funds and perpetual capital securities	50,483 45,426

Chang Zhenming Chairman

Zhang Jijing Managing Director

Vernon F. Moore Group Finance Director

CITIC Pacific Limited F 5

Consolidated Cash Flow Statement

for the year ended 31 December 2011

for the year ended 31 December 2011
		As restated
in HK$ million	Note 2011	2010
Cash flows from operating activities
Profit before taxation	13,543	12,410
Share of results of jointly controlled entities and associated companies	(3,994)	(2,673)
Net finance charges	410	348
Net exchange gain	(348)	(335)
Income from other financial assets	(7)	(53)
Depreciation and amortisation	2,180	1,630
Impairment losses	652	469
Net gain from sale of other financial assets	–	(1,228)
Provision for gas contract	109	468
Share-based payment	11	50
Gain on disposal of property, plant and equipment	–	(131)
Gain on disposal of investment properties	(296)	–
Change in fair value of investment properties	(1,835)	(1,294)
Net gain from disposal/deemed disposal of jointly controlled entities
and associated companies	(209)	(2,117)
Net gain on disposal of subsidiary companies	(230)	–
Operating profit before working capital changes	9,986	7,544
Decrease in properties held for sale	2,777	2,143
Increase in inventories	(2,468)	(4,208)
Increase in debtors, accounts receivable, deposits and prepayments	(2,182)	(1,075)
Increase in creditors, accounts payable, deposits and accruals	1,121	4,568
Effect of foreign exchange rate changes	470	102
Cash generated from operating activities	9,704	9,074
Income taxes paid	(1,770)	(1,058)
Cash generated from operating activities after income taxes paid	7,934	8,016
Payment for leveraged foreign exchange contracts	–	(107)
Interest received	647	361
Interest paid	(3,815)	(3,051)
Realised exchange gain	70	138
Other finance charges and financial instruments	(106)	(187)
Net cash from consolidated activities before increase of properties
under development	4,730	5,170
Increase in properties under development	(2,065)	(2,055)
Net cash generated from consolidated activities	2,665	3,115

F 6 CITIC Pacific Limited

in HK$ million	Note	2011 As restated 2010
Cash flows from investing activities Purchase of
Subsidiary companies (net of cash and cash equivalents acquired)	37	(185) –
Properties under development for own use		(1,070) (1,109)
Property, plant and equipment		(14,450) (19,833)
Leasehold land – operating leases		(67) (28)
Intangible assets		(2,112) (1,377)
Other financial assets		– (289)
Proceeds of Disposal of property, plant and equipment and investment properties		892 237
Sale of other financial assets		– 2,803
Disposal of interests in associated companies		– 2,797
Disposal of interests in jointly controlled entity		1,727 948
Disposal of subsidiary companies (net of cash and cash equivalents disposed)	37	1,799 –
Increase in bank deposits maturing after more than 3 months		(1,379) –
Increase in pledged deposits with banks		(1,243) (68)
Net payments for non-current deposits		(1,405) (1,836)
Investment in jointly controlled entities and associated companies		(94) (208)
Deposit paid for acquisition of a subsidiary company		– (66)
Repayment in loans to jointly controlled entities and associated companies		226 377
Dividend received from jointly controlled entities and associated companies		823 548
Income received from other financial assets		7 65
Deposits received from sale of business interest		– 298
Net cash used in investing activities		(16,531) (16,741)
Cash flows from financing activities
Issue of shares pursuant to the share option plan	28	16 –
New borrowings		41,420 33,967
Repayment of loans		(27,581) (15,914)
Decrease in non-controlling interests		(724) (393)
Dividends paid to shareholders of the Company		(1,642) (1,459)
Proceeds of issue of perpetual capital securities, net of transaction costs		5,782 –
Distribution made to holders of perpetual capital securities		(230) –
Net cash from financing activities		17,041 16,201
Net increase in cash and cash equivalents		3,175 2,575
Cash and cash equivalents at 1 January		24,237 21,303
Effect of foreign exchange rate changes		552 359
Cash and cash equivalents at 31 December		27,964 24,237
Analysis of the balances of cash and cash equivalents Cash and bank deposits		30,930 24,558
Bank deposits with maturities over 3 months		(1,379) –
Bank overdrafts and pledged deposits		(1,587) (321)
		27,964 24,237

CITIC Pacific Limited F 7

Consolidated Statement of Changes in Equity

for the year ended 31 December 2011

Attributable to ordinary shareholders of the Company and holders of perpetual capital securities

in HK$ million	Share capital Perpetual capital securities Other reserves Retained profits Total Non- controlling interests Total equity
Balance at 31 December 2010, as previously reported	1,459 – 44,581 22,242 68,282 5,853 74,135
Impact of adoption of HKAS12 (amendment)	– – (89) 153 64 19 83
Balance at 1 January 2011, as restated	1,459 – 44,492 22,395 68,346 5,872 74,218
Profit for the year	– 331 – 9,233 9,564 1,419 10,983
Other comprehensive income, net of tax, for the year Share of other comprehensive income of associated companies and jointly controlled entities	– – 122 (80) 42 1 43
Fair value changes of other financial assets	– – (112) – (112) – (112)
Transfer to profit and loss account on impairment of other financial assets	– – 98 – 98 – 98
Exchange translation differences	– – 2,307 – 2,307 181 2,488
Cash flow hedging reserves movement from interest rate swaps and foreign exchange contracts	– – (2,923) – (2,923) – (2,923)
Reserves released on disposal of a subsidiary	– – (109) – (109) – (109)
Reserves released on disposal/dilution of interest in jointly controlled entities	– – (95) (37) (132) – (132)
Total comprehensive income for the year	– 331 (712) 9,116 8,735 1,601 10,336
Transactions with owners
Acquisition of subsidiaries	– – – – – 284 284
Dilution/disposal of interest in subsidiary companies	– – 8 – 8 (1) 7
Dividends paid to shareholders of the Company	– – – (1,642) (1,642) – (1,642)
Dividends paid to non-controlling interests	– – – – – (623) (623)
Acquisition of interests from non-controlling interests	– – (64) – (64) (63) (127)
Distribution to holders of perpetual capital securities	– (230) – – (230) – (230)
Share-based payment	– – 7 – 7 4 11
Transfer from profits to general and other reserves	– – 322 (322) – – –
Issue of shares pursuant to the share option plan	1 – 15 – 16 – 16
Issuance of perpetual capital securities	– 5,850 – – 5,850 – 5,850
Capital contributed from non-controlling interests	– – – – – 48 48
Distribution to non-controlling interests	– – – – – (67) (67)
Transaction costs related to issuance of perpetual capital securities	– – – (68) (68) – (68)
	1 5,620 288 (2,032) 3,877 (418) 3,459
Balance at 31 December 2011	1,460 5,951 44,068 29,479 80,958 7,055 88,013

F 8 CITIC Pacific Limited

Attributable to ordinary shareholders of the Company and holders of perpetual capital securities

	Attributable to ordinary shareholders of the Company and holders of perpetual capital securities
in HK$ million	Share capital Perpetual capital securities Other reserves Retained profits Total Non- controlling interests Total equity
Balance at 1 January 2010, as previously reported	1,459 – 43,576 15,224 60,259 4,980 65,239
Impact of adoption of HKAS12 (amendment)	– – (43) 175 132 14 146
Balance at 1 January 2010, as restated	1,459 – 43,533 15,399 60,391 4,994 65,385
Profit for the year	– – – 8,893 8,893 1,278 10,171
Other comprehensive income, net of tax, for the year Share of other comprehensive income of associated companies and jointly controlled entities	– – 128 (72) 56 – 56
Fair value changes of other financial assets	– – 761 – 761 – 761
Transfer to profit and loss account on impairment of other financial assets	– – 74 – 74 – 74
Fair value released on disposal of other financial assets	– – (1,232) – (1,232) – (1,232)
Exchange translation differences	– – 2,170 – 2,170 176 2,346
Surplus on revaluation of properties transferred from self-use properties to investment properties	– – 116 – 116 – 116
Cash flow hedging reserves movement from interest rate swaps and foreign exchange contracts	– – (513) – (513) – (513)
Reserve released on disposal of an associated company and non-current assets held for sale	– – (338) (83) (421) – (421)
Reserve released on disposal of a jointly controlled entity	– – (298) – (298) – (298)
Reserve released upon liquidation of a subsidiary company	– – 5 – 5 – 5
Total comprehensive income for the year	– – 873 8,738 9,611 1,454 11,065
Transactions with owners
Partial disposal of an associated company to non-controlling interests	– – (253) – (253) (180) (433)
Dividends paid to shareholders of the Company	– – – (1,459) (1,459) – (1,459)
Dividends paid to non-controlling interests	– – – – – (438) (438)
Acquisition of interests from non-controlling interests	– – 1 – 1 (20) (19)
Capital injection by non-controlling interests	– – – – – 118 118
Capital refund to non-controlling interests	– – – – – (26) (26)
Dilution of interest in a subsidiary	– – 38 – 38 (38) –
Share-based payment	– – 17 – 17 8 25
Transfer from profits to general and other reserves	– – 283 (283) – – –
	– – 86 (1,742) (1,656) (576) (2,232)
Balance at 31 December 2010, as restated	1,459 – 44,492 22,395 68,346 5,872 74,218

CITIC Pacific Limited F 9

Notes to the Financial Statements

1 Significant Accounting Policies

a Basis of Preparation

The principal accounting policies applied in the preparation of these consolidated financial statements (“the Accounts”) of CITIC Pacific Limited (the “Company”) and its subsidiary companies (together the “Group”) are set out below. These policies have been consistently applied to each of the years presented, other than the adoption or early adoption of new or revised Hong Kong Financial Reporting Standards (“HKFRS”) in 2011 as set out below. The Accounts have been prepared in accordance with HKFRS, and under the historical cost convention, except as disclosed in the accounting policies below in (h) and (w). The following revised standards, amendments or interpretations which became effective in or after 2011 are relevant to the Group.

Standard No.	Title	Effect
HKAS 24 (Revised)	Related Party Disclosures	Note (i)
HKAS 12 (Amendment)	Deferred Tax: Recovery of Underlying Assets	Note (ii)
Improvements to HKFRS 2010		Insignificant

Adoption or early adoption of the above revised standards, amendments or interpretations/change in accounting policies does not have a significant impact on these Accounts except as stated below.

(i) HKAS 24 (Revised) clarifies and simplifies the definition of a related party. See note 39 to the Accounts for disclosures of material related party transactions.

(ii) The amendment introduces a presumption that an investment property measured at fair value is recovered entirely through sale. This presumption is rebutted if the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. Previously deferred taxation on investment properties at fair value is measured to reflect the tax consequences of recovering the carrying amounts of investment properties through use.

The Group has reassessed the measurement of deferred taxation by applying the presumption that the carrying amount of investment property will be recovered through sale.

amount of investment property will be recovered through sale.
Effect on consolidated balance sheet	31 December	31 December	1 January
in HK$ million	2011	2010	2010
Increase/(decrease) in deferred tax liabilities, net of deferred tax assets	256	101	(5)
Increase in associated companies	319	229	186
Increase in non-controlling interests	32	19	14
Decrease in goodwill	45	45	45
(Decrease)/increase in reserves	(14)	64	132

F 10 CITIC Pacific Limited

1 Significant Accounting Policies continued

a Basis of Preparation continued

Effect on consolidated profit and loss account and consolidated statement	For the year ended	For the year ended
of comprehensive income in HK$ million	2011	2010
Increase in income tax expense	134	61
Increase in share of profits less losses of associated companies	90	43
Decrease in profit attributable to the Company’s shareholders	57	23
Increase in profit attributable to the non-controlling interests	13	5
Decrease in other comprehensive income attributable to the Company’s shareholders	21	45

Notes:

i) Adoption of the above revised standard does not have a significant impact on basic and diluted earnings per share for both years.

ii) If the investment properties were acquired as part of a business combination which took place in prior years, the related deferred tax would be adjusted against goodwill.

The following new standards, amendments and interpretation which have been issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) as of 31 December 2011 may impact the Group in future years but are not yet effective for the year ended 31 December 2011:

		Applicable accounting
Standard No.	Title	period to the Group
HKAS 1 (Amendment)	Presentation of financial statements	2012
HKFRS 9	Financial instruments	2015
HKFRS 10	Consolidated financial statements	2013
HKFRS 11	Joint arrangements	2013
HKFRS 12	Disclosures of interest in other entities	2013
HKFRS 13	Fair value measurements	2013
HK (IFRIC) Int 20	Stripping costs in the production	2013
	phase of a surface mine
HKAS 32 (Amendment)	Financial instruments: presentation – offsetting	2014
	financial assets and financial liabilities
HKFRS 7 (Amendment)	Financial instruments: disclosures – offsetting	2013
	financial assets and financial liabilities

The above standards, amendments or interpretation will be adopted in the years listed and the Group is in the process of assessing their impact on future accounting periods.

b Basis of Consolidation

The consolidated financial statements incorporate the accounts of the Company and all its subsidiary companies made up to the balance sheet date. The results of subsidiary companies acquired or disposed of during the year are included as from the effective dates of acquisition or up to the effective dates of disposal respectively.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiary companies have been changed where necessary in the consolidated accounts to ensure consistency with the policies adopted by the Group.

CITIC Pacific Limited F 11

Notes to the Financial Statements

1 Significant Accounting Policies continued

c Goodwill

Goodwill arising on the acquisition of subsidiary companies, jointly controlled entities and associated companies represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree at the date of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Positive goodwill will be stated in the consolidated balance sheet as a separate asset or included within jointly controlled entities and associated companies 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 and loss account immediately on acquisition.

d Subsidiary Companies and Non-Controlling Interests

A subsidiary company is a company which is controlled by the Company through share ownership or otherwise. Control represents the power to govern the financial and operating policies of that company.

The acquisition method of accounting is used to account for the acquisition of subsidiary companies. The consideration transferred for the acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. There is a choice, on the basis of each acquisition to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

Non-controlling interest is the equity in a subsidiary which is not attributable, directly or indirectly, to a parent. The Group treats transactions with non-controlling interests (namely, acquisitions of additional interests and disposals of partial interests in subsidiaries that do not result in a loss of control) as transactions with equity owners of the Group, instead of transactions with parties not within the Group. For purchases of additional interests in subsidiaries from non-controlling shareholders, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of partial interests to non-controlling shareholders are also recorded in equity.

When control is lost, any remaining interest in the subsidiary company is re-measured to fair value and the difference between the fair value and the carrying value is recognised in the profit and loss account.

Investments in subsidiary companies are carried in the Company’s balance sheet at cost less any impairment. The results of subsidiary companies are accounted for by the Company on the basis of dividends received and receivable.

F 12 CITIC Pacific Limited

1 Significant Accounting Policies continued

e Jointly Controlled Entities

A jointly controlled entity is a joint venture in which the Group and other parties undertake an economic activity which is subject to joint control.

The consolidated profit and loss account includes the Group’s share of the results of the jointly controlled entities for the year, unless the jointly controlled entity is classified as held for sale (or included in a disposal group held for sale), and adjusted by impairment losses, if any. The consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities and goodwill on acquisition.

When the Group’s share of losses equals or exceeds its interest in the jointly controlled entity, including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the jointly controlled entity.

Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of an asset transferred.

Share of results of jointly controlled entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

In the Company’s balance sheet, the investments in jointly controlled entities are stated at cost less any impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.

f Associated Companies

Associated companies are companies, other than subsidiary companies and jointly controlled entities, in which the Group generally holds not more than 50 per cent of the equity share capital for the long term and over whose management it can exercise significant influence.

The consolidated profit and loss account includes the Group’s share of the results of associated companies for the year, unless the associated company is classified as held for sale (or included in a disposal group held for sale), and adjusted by impairment losses, if any. The consolidated balance sheet includes the Group’s share of net assets of the associated companies, after attributing fair values to the net assets at the date of acquisition.

When the Group’s share of losses in an associate equals or exceeds its interest in the associated company, including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated company.

Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of an asset transferred.

Share of results of associated entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

In the Company’s balance sheet, the investments in associated companies are stated at cost less any impairment. The results of associated companies are only reflected to the extent dividends are received or are receivable.

CITIC Pacific Limited F 13

Notes to the Financial Statements

1 Significant Accounting Policies continued

g Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment.

Property, plant and equipment include leasehold land classified as finance leases. Please refer to note 1(m) for the accounting policy on leasehold land classified as finance leases.

Assets in the course of construction for production, rental or administrative purposes are carried at cost, less any impairment. 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 in respect of the iron ore mining project includes expenditure such as bank charges, interest costs, equipment hire costs, consultants’ costs and depreciation costs. Such costs are capitalised until commencement of mine production and then amortised in accordance with note 1(o).

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 at the following annual rates:

Freehold land is not amortised.

•	Other buildings	2%-10% or the remaining lease
		period of the land where applicable
•	Plant and machinery	6%-20%
•	Other property, plant and equipment, comprising vessels,
	telecommunications equipment, traffic equipment,
	cargo lighters, computer installations, motor vehicles,
	furniture, fixture and equipment	4%-25%

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.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within Note 4, in the consolidated profit and loss account.

h 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 the consolidated profit and loss account.

F 14 CITIC Pacific Limited

1 Significant Accounting Policies continued

i Properties under Development

Properties under development consist of land for development and buildings under construction and development.

Properties under development for own use – investments in leasehold land are amortised over the lease term, and are stated at cost less accumulated amortisation and any accumulated impairment. Amortisation of leasehold land is capitalised as the cost of buildings during the construction period. The investments in buildings under construction and development are stated at cost less any accumulated impairment losses.

Properties under development for sale are carried at the lower of cost and the estimated net realisable value. Given the Group’s diverse portfolio of property development projects, there is presently not a uniform operating cycle and hence properties under development for sale with the development expected to be completed within one year from the balance sheet date are classified under current assets. Such development properties are transferred to investment property when and only when there is a change in use as evidenced by the commencement of an operating lease to another party.

Properties under development for investment purposes 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 account.

j Capitalisation of Development Costs

Property development expenditure, including borrowing costs and professional fees, is capitalised as cost of development.

Borrowing costs incurred on assets under development that take a substantial period of time to get ready for their intended use or sale are capitalised into the carrying value of the assets under development.

The capitalisation rate applied to funds borrowed for the development of assets is based on the attributable cost of funds to the Group.

All other borrowing costs are charged to the profit and loss account in the period in which they are incurred.

k Properties Held for Sale

Properties held for sale consisting of leasehold land and buildings are classified under current assets and stated at the lower of cost and net realisable value. Leasehold land is stated at cost less accumulated amortisation and any impairment. Building costs are stated at cost less any impairment.

l Other Assets Held for Sale

Other assets held for sale are stated at their carrying amount which is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use.

m Leasehold Land

Leasehold land under operating lease and finance lease arrangements is stated at cost less accumulated amortisation and impairment. Leasehold land is amortised on a straight-line basis over the lease term.

CITIC Pacific Limited F 15

Notes to the Financial Statements

1 Significant Accounting Policies continued

n Intangible Assets

Intangible assets are stated at cost less accumulated amortisation and impairment loss, if any. They comprise goodwill, expenditure on mining rights, car dealerships and a vehicular tunnel concessions. The accounting policies for goodwill and exploration, evaluation and development expenditure of mining rights are outlined in accounting policies 1(c) and 1(o).

Amortisation of the vehicular tunnel concession is based on the actual traffic volume in the year compared to the projected traffic volume for the remainder of the concession period.

o Mining Exploration, Evaluation and Development Expenditure

Mining exploration, evaluation and development expenditures incurred are capitalised and carried forward in respect of each identifiable area of interest where the rights to mine are current and:

• it is expected that the expenditure will be recouped by future development and commercial exploitation or sale; or,

• at the balance sheet date, exploration and evaluation activities have reached a stage, which permits a reasonable assessment of the existence of economically recoverable reserves, and active and significant operations are continuing.

Development costs represent costs accumulated for an area of interest where the decision has been made to develop the mine. Development costs include such costs as plant hire, contractor site labour costs and resource assessment costs. Exploration and evaluation assets are transferred to development costs when this decision has been made. Development costs are tested for impairment in accordance with Note 1(y).

Amortisation of costs carried forward is not charged until production commences. When production commences, capitalised expenditures on exploration, evaluation and development are amortised over the life of the area of interest to which they relate. Amortisation is recognised in the consolidated profit or loss on a unit of production method over the estimated useful lives of intangible assets from the date that they are available for use. Unamortised expenditure relating to that area of interest is written off in the period that abandonment is decided.

Provision for restoration costs is made at the time when the activities which give rise to the need for restoration occur, and would form part of the costs of property, plant and equipment. The need for a provision is assessed annually such that full provision is made by the end of the exploration life of each area.

The ultimate recoupment of costs carried forward for exploration, evaluation and development phases is dependent on the successful development and commercial exploitation of sale of the respective areas of interest. All costs carried forward are in respect of areas of interest in the exploration phase and accordingly, production has not commenced.

Subsequent to the commencement of mining production, expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in consolidated profit or loss when incurred.

Mining exploration, evaluation and development expenditure is written down to its recoverable amount if it is lower than its carrying amount.

F 16 CITIC Pacific Limited

1 Significant Accounting Policies continued

p Trade and Other Receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognised in the profit and loss account.

q 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 consolidated cash flow statement.

r Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

s Provisions

Provisions are made when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not made for future operating losses.

In respect of the Group’s iron ore mining operations:

i) Site restoration

In accordance with the iron ore mining group’s environmental policy and applicable legal requirements, the Group has an obligation to conduct rehabilitation works in respect of disturbed areas comprising the waste rock dumps, open areas, open pits and abandonment bunds. A non-current provision has been made for the site restoration commitment with the corresponding property, plant and equipment increased by an equivalent amount.

ii) Mining rights

In accordance with the mining rights/lease agreements entered into by two subsidiary companies of the Company, the Group is committed to pay a defined royalty if either of the two subsidiary companies’ production is less than 6 million tonnes by March 2013. A provision has been made for this commitment with the corresponding intangible assets increased by an equivalent amount.

CITIC Pacific Limited F 17

Notes to the Financial Statements

1 Significant Accounting Policies continued

t Share Capital

Share capital issued by the Company is recorded at the proceeds received, net of direct issue costs.

u Segment Reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Geographically, management considers separate segments as mainland China, Hong Kong, Australia and others. The performance of the operating segments is assessed on the profit attributable to the shareholders of the Company. Gain from leveraged foreign exchange contracts and net exchange gain are attributable to the corporate segment, as the cash position of the Group is managed centrally by the corporate treasury function.

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. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

v Revenue Recognition

i) Sales of goods

Revenue arising from the sales of goods is generally recognised on the delivery of goods to customers. Revenue is after deduction of any trade discounts.

Revenue arising from the sale of motor vehicles is recognised when the registration document is issued or on delivery of the vehicle, whichever is earlier. This 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 any government taxes and is after deduction of any trade discounts.

ii) Rendering of services

Commission income is recognised when the goods concerned are sold to customers.

Revenue arising from the rendering of repairing services is recognised when the relevant work is completed.

Revenue from the provision of telecommunications services is recognised upon delivery of the service.

(iii) Sales of properties under development and properties held for sale

Revenue from sales of properties under development 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.

Revenue from completed properties held for sale is recognised at the date when the sales agreement is signed.

iv) Toll income

Toll income is recognised as revenue when the service is provided.

F 18 CITIC Pacific Limited

1 Significant Accounting Policies continued

v Revenue Recognition continued

v) Rental income

Rental income is recognised as revenue on a straight-line basis over the period of the relevant lease.

vi) Dividend income

Dividend income is recognised when the right to receive the dividend is established.

Dividends proposed or declared after their balance sheet date by companies in which the Group has an investment are not recognised as revenue at the balance sheet date but on the date when the right to receive the dividend is established.

w Financial Instruments

The Group classifies its financial assets in the following categories: (i) financial assets at fair value through profit or loss, (ii) loans and receivables, (iii) available-for-sale financial assets and, (iv) derivative financial instruments. The classification depends on the purpose for which the financial asset was acquired. Management determines the classification of its financial assets on initial recognition and re-evaluates this designation at every reporting date.

Purchases and sales of all categories financial assets are recognised on their trade-date – the date on which the Group commits to purchase or sell the assets. Financial assets are initially recognised at fair value plus transaction costs except financial assets carried at fair value through profit or loss.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been legally transferred and the Group has transferred substantially all risks and rewards of ownership.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its cost is considered in determining whether the investments are impaired. Impairment losses recognised in the profit and loss account on equity instruments are not reversed through the profit and loss account.

i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this sub-category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

Realised and unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are included in the profit and loss account in the period in which they arise.

ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. They are included in current assets, unless maturity is greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in debtors, accounts receivable, deposits and prepayments in the balance sheet.

Loans and receivables and held-to-maturity investments are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost using the effective interest method.

CITIC Pacific Limited F 19

Notes to the Financial Statements

1 Significant Accounting Policies continued

w Financial Instruments continued

iii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Available-for-sale investments are carried at fair value, or cost less impairment loss if their fair value cannot be reliably measured. Gains and losses arising from changes in fair value are recognised in investment revaluation reserve. On the disposal of the investment or when an investment is determined to be impaired, the cumulative gain or loss previously recognised in investment revaluation reserve will be transferred to the profit and loss account.

iv) Derivative financial instruments

Derivatives are stated at fair value. The gain or loss on change in fair values is recognised in the profit and loss account unless the derivative qualifies for hedge accounting.

Cash flow hedges

Where a derivative qualifies for hedge accounting and is designated as a cash flow hedge, whether on 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 unrealised gain or loss on the instrument is recognised directly in hedging reserve and the ineffective part in the profit and loss account. The cumulative gain or loss associated with the effective part of the cash flow hedge recorded in hedging reserve will be recognised in the profit and loss account in the same period or periods during which the transaction it hedges is recognised in the profit and loss account. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory, or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, terminated or exercised, or the designation of the hedge relationship is revoked 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 it 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.

Hedge of net investments in foreign operations

The portion of the gain or loss on remeasurement to fair value of an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in other comprehensive income and accumulated separately in equity in the exchange reserve until the disposal of the foreign operation, at which time the cumulative gain or loss is reclassified from equity to profit and loss. The ineffective portion is recognised immediately in profit and loss.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 32. Movements on the hedging reserve in shareholders’ equity are shown in Note 28. When the remaining maturity of the hedged item is more than 12 months, the full fair value of a hedging derivative is classified as a non-current asset or liability.

x Operating Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable and receivable under operating leases are accounted for on a straight line basis over the respective periods of the leases.

F 20 CITIC Pacific Limited

1 Significant Accounting Policies continued

y Impairment of Assets

Assets that have an indefinite useful life are tested for impairment annually. Assets that are subject to amortisation are reviewed for impairment to determine whether there is any indication the carrying value of these assets may not be recoverable. If such assets are considered to be impaired, the impairment to be recognised in the profit and loss account is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (called cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

z Inventories

Inventories comprise mainly iron ore, scrap metal, steel, motor vehicles, spare parts, electrical appliances, food and other trading items. They are valued at the lower of cost and net realisable value. Cost represents the actual cost of purchase or production and is calculated on the first-in first-out, specific identification or weighted average basis as appropriate. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

aa Foreign Currencies

The consolidated and the Company’s accounts are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”).

Transactions in foreign currencies are translated into the functional currency at the rates ruling at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account, except when deferred in equity as a qualifying cash flow hedge or net investment hedge.

Assets and liabilities of subsidiary companies, jointly controlled entities and associated companies, together with all other monetary assets and liabilities expressed in foreign currencies, are translated into Hong Kong dollars at the rates of exchange at the balance sheet date. Results in foreign currencies are translated at the average rates of exchange ruling during the year. All resulting exchange differences are recognised as a separate component of equity – exchange fluctuation reserve.

Exchange differences arising from the translation of the net investment in foreign entities, and of financial instruments which are designated as hedges of such investment, are taken directly to the exchange fluctuation reserve. On the disposal of these investments, such exchange differences are recognised in the consolidated profit and loss account as part of the profit or loss on disposal.

When a gain or loss on a non-monetary item is recognised directly in equity, any translation difference on that gain or loss is recognised directly in equity. When a gain or loss on a non-monetary item is recognised in the profit and loss account any translation difference on that gain or loss is recognised in the profit and loss account.

Goodwill and fair value adjustments arising on acquisition of a foreign entity after 1 January 2005 are treated as assets and liabilities of the foreign entity and translated at the rate of exchange ruling at the balance sheet date. Such differences are taken directly to the exchange fluctuation reserve.

CITIC Pacific Limited F 21

Notes to the Financial Statements

1 Significant Accounting Policies continued

bb Deferred Taxation

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 subsidiary companies 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.

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.

cc Employee Benefits

i) Short-term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

ii) Share-based payments

The Group operates a share option scheme. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense over the vesting period with a corresponding increase in capital reserve. Fair values of share option awards, measured at the date of grant of the award, are calculated using a binomial lattice model methodology that is based on the underlying assumptions of the Black-Scholes model.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. The fair value excludes the impact of any non-market services and performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable and recognises the impact of the revision, if any, in the consolidated profit and loss account.

iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

F 22 CITIC Pacific Limited

2 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 assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

i) Investment properties

The fair values of investment properties are determined annually by independent qualified valuers on an open market value at the balance sheet date on an existing use basis calculated on the net income allowing for reversionary potential.

ii) Impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1(y). For the purposes of impairment testing, goodwill acquired has been allocated to individual cash-generating units which are reviewed for impairment based on forecast operating performance and cash flows. The recoverable amount of an asset or a cash-generating unit is determined based on value-in-use calculations. Cash flow projections are prepared on the basis of reasonable assumptions reflective of prevailing and future market conditions, and are discounted appropriately.

iii) Impairment of assets

The Group has made substantial investments in tangible and intangible assets. The Group considers impairment assessment as an area requiring extensive application of judgement and estimation. Assets that have an indefinite useful life are tested for impairment annually. Other assets are reviewed for impairment when there is an indication that the carrying value of these assets may not be recoverable. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Such impairment loss is recognised in the profit and loss account.

Mining operation

The Group’s mining operation is considered as a separate cash generating unit. Whenever events or circumstances indicate an impairment may have occurred, the Group tests whether assets attributable to the Group’s mining operations have suffered any impairment. The recoverable amount of the mining operation is determined based on fair value less costs to sell which is based on cashflow 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 costs, exchange rates and discount rates are particularly important; the determination of the recoverable amount is relatively sensitive to changes in these important assumptions.

CITIC Pacific Limited F 23

Notes to the Financial Statements

2 Critical Accounting Estimates and Judgements continued

iii) Impairment of assets continued

Property, plant and equipment

The Group reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of recoverable amount, which is based on the best information available. The Group derives the required cash flow estimates from historical experience and internal business plans. To determine recoverable amount, the Group uses cash flow estimates discounted at an appropriate discount rate, quoted market prices when available and independent appraisals, as appropriate.

Properties under development

The Group writes down properties under development to their recoverable amount based on the assessment of recoverability which takes into account cost to completion based on past experience and cash flow estimates discounted at an appropriate discount rate, quoted market prices when available and independent appraisals, as appropriate. Write downs are recorded where events or changes in circumstances indicate that the balances may not be fully realised. The identification of write downs requires the use of judgement and estimates. Where the expectation is different from the original estimate, the carrying value of properties under development is adjusted to profit and loss account in the period in which such estimate is changed.

Jointly controlled entities and associated companies

The Group regularly reviews investments in jointly controlled entities and associated companies for impairment based on both quantitative and qualitative criteria. Such analysis typically includes various estimates and assumptions, the intent and ability to hold to maturity or until forecasted recovery, the financial health, cash flow projections and future prospects of the companies.

Debtors, accounts receivables, deposits and prepayments

Debtors, accounts receivables, deposits and prepayments are assessed and impairment provided based on regular review of the ageing analysis and evaluation of collectability. A considerable level of judgement is exercised by the management when assessing the credit worthiness and past collection history of each individual customer. An increase or decrease in the impairment loss would affect the profit in future years.

F 24 CITIC Pacific Limited

2 Critical Accounting Estimates and Judgements continued

iv) 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. The 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.

v) 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 in accordance with the accounting policy set out in Note 1(z). Management 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 and affect the Group’s profit and net asset value.

vi) Fair value of derivative financial instruments

The fair values of outstanding derivative transactions are based on independent valuations by Reval Inc., a derivative risk management and hedge accounting solutions firm, and are cross checked against fair values obtained from major financial institutions. Judgement is required in determining such valuations. Changes in the underlying assumptions could materially impact profit and loss or equity.

vii) Income taxes

The Group is subject to income taxes in numerous jurisdictions. 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.

Recognition of deferred tax assets, which principally relate to tax losses, depends on the management’s expectation that future taxable profit will be available against which the tax losses can be utilised. The outcome of their actual utilisation may be different.

CITIC Pacific Limited F 25

Notes to the Financial Statements

3 Turnover and Revenue

The principal activities of CITIC Pacific Limited are holding its subsidiary companies, jointly controlled entities and associated companies (collectively the “Investee Companies”), and raising finance. Revenue generating activities of the Group are conducted through the subsidiaries. The principal activities of the Investee Companies are set out in Note 43 to the financial statements.

Revenue of the Group comprises the total invoiced value of goods supplied net of government taxes where applicable, charges to telecommunication services, fees from services rendered to customers, gross proceeds from sale of properties, gross property rental and godown and cold storage income, and toll income analysed as follows:

in HK$ million	2011	Group	2010
Sale of goods	87,669		60,977
Telecommunications	3,196		2,966
Services rendered to customers	2,637		1,795
Properties sales	4,845		3,290
Rental income	869		800
Toll income	797		740
Others	73		46
	100,086		70,614

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

Further details regarding the Group’s principal activities are disclosed in the following notes to these financial statements.

4 Other Income and Net Gains

4 Other Income and Net Gains	4 Other Income and Net Gains
Group in HK$ million 2011 2010
Other income Commission income, subsidy income, rebates and others 753 531
Dividend income from other financial assets Listed shares 7 53
760 584
Net exchange gain(Note i) 348 335
Net gain from disposal/deemed disposal of jointly controlled entities and associated companies	209 2,117
Net gain from sale of other financial assets, mainly listed investments	– 1,228
Net gain from disposal of property, plant and equipment	– 131
Net gain from disposal of subsidiary companies	230 –
Net gain from disposal of investment properties	296 –
735 3,476
1,843 4,395

Notes:

i) The net exchange gain of HK$348 million (2010: HK$335 million) above mainly represents the net exchange gain on revaluation of monetary items in foreign currencies.

F 26 CITIC Pacific Limited

5 Segment Information

a Revenue and Profit Attributable to Ordinary Shareholders of the Company and Holders of Perpetual Capital Securities

in HK$ million Revenue*	Year ended 31 December 2011 Profit/(loss) from consolidated activities Share of results of jointly controlled entities Share of results of associated companies Finance income Finance charges Group total Segment allocations† Segment profit/(loss) Taxation Non- controlling interests Profit/(loss) attributable to ordinary shareholders of the Company
Special steel 44,043	2,926 142 28 317 (676) 2,737 (6) 2,731 (440) (297) 1,994
Iron ore mining 83	(256) – – – (188) (444) – (444) 21 – (423)
Property Mainland China 5,459	2,116 1,141 – 94 (14) 3,337 10 3,347 (853) (170) 2,324
Hong Kong 249	516 – 132 – – 648 86 734 (26) – 708
Energy 23	287 1,367 – 11 – 1,665 – 1,665 (77) – 1,588
Tunnels 797	539 198 – 2 – 739 – 739 (89) (132) 518
Dah Chong Hong 46,109	1,946 23 4 23 (248) 1,748 (90) 1,658 (513) (528) 617
CITIC Telecom 3,196	374 – 185 1 (1) 559 – 559 (65) (195) 299
Other investments 127	(55) 209 19 – – 173 – 173 (5) – 168
Change in fair value of investment properties –	1,835 – 546 – – 2,381 – 2,381 (393) (97) 1,891
Corporate General and administration expenses –	(441) – – – – (441) – (441) (40) – (481 )
Exchange gain –	172 – – – – 172 – 172 – – 172
Net finance charges –	– – – 247 22 269 – 269 (80) – 189
Total 100,086	9,959 3,080 914 695 (1,105) 13,543 – 13,543 (2,560) (1,419) 9,564 (331)
Profit attributable to: Holders of perpetual capital securities
	9,233

• Companies making up each reportable segment are set out in Note 43.

† Segment allocations arising from property leases between segments were carried out at arms’ length rentals.

CITIC Pacific Limited F 27

Notes to the Financial Statements

5 Segment Information continued

a Revenue and Profit Attributable to Ordinary Shareholders of the Company and Holders of Perpetual Capital Securities continued

in HK$ million Revenue*	Year ended 31 December 2010 (as restated) Profit/(loss) from consolidated activities Share of results of jointly controlled entities Share of results of associated companies Finance income Finance charges Group total Segment allocations† Segment profit/(loss) Taxation Non- controlling interests Profit/(loss) attributable to ordinary shareholders of the Company
Special steel 30,478	2,646 386 29 192 (355) 2,898 (7) 2,891 (522) (267) 2,102
Iron ore mining 27	(470) – – 1 – (469) – (469) 123 – (346)
Property Mainland China 3,791	987 – – 51 (31) 1,007 10 1,017 (379) (55) 583
Hong Kong 258	207 – 108 – – 315 85 400 (23) – 377
Energy –	966 1,043 – 11 – 2,020 – 2,020 (61) – 1,959
Tunnels 775	523 193 – – – 716 – 716 (86) (128) 502
Dah Chong Hong 32,211	1,885 50 21 15 (115) 1,856 (89) 1,767 (355) (637) 775
CITIC Telecom 2,966	355 – 108 1 – 464 1 465 (44) (173) 248
Other investments 108	2,092 328 69 2 (2) 2,489 – 2,489 (502) – 1,987
Change in fair value of investment properties –	1,294 – 338 – – 1,632 – 1,632 (316) (18) 1,298
Corporate General and administration expenses –	(511) – – – – (511) – (511) (34) – (545)
Exchange gain –	111 – – – – 111 – 111 – – 111
Net finance charges –	– – – 83 (201) (118) – (118) (40) – (158)
Total 70,614	10,085 2,000 673 356 (704) 12,410 – 12,410 (2,239) (1,278) 8,893 –
Profit attributable to: Holders of perpetual capital securities
	8,893

• Companies making up each reportable segment are set out in Note 43.

† Segment allocations arising from property leases between segments were carried out at arms’ length rentals.

F 28 CITIC Pacific Limited

5 Segment Information continued

a Revenue and Profit Attributable to Ordinary Shareholders of the Company and Holders of Perpetual Capital Securities continued

An analysis of the Group’s revenue by geographical area is as follows:

in HK$ million	2011	Group	2010
Mainland China	78,804		54,102
Hong Kong	12,547		11,574
Other countries	8,735		4,938
	100,086		70,614

b Assets and Liabilities

An analysis of the Group’s segment assets and liabilities by operating segment is as follows:

															Additions of	Additions of
															non-current
															assets*
															(other	than
			Investments												financial
			in jointly		Investments										instruments
	Segment		controlled		in associated			Total		Segment			Total		and deferred
	assets†		entities		companies			assets		liabilities†		net assets			tax assets)
	As		As			As	As	As	As	As		As	As		As
	restated		restated		restated		restated	restated	restated	restated	restated		restated	restated
	31 Dec 31 Dec		1 Jan 31 Dec	31 Dec	1 Jan 31 Dec	31 Dec	1 Jan	31 Dec 31 Dec	1 Jan	31 Dec 31 Dec		1 Jan 31 Dec	31 Dec		1 Jan 31 Dec	31 Dec
in HK$ million	2011 2010		2010 2011	2010	2010 2011	2010	2010	2011 2010	2010	2011 2010		2010 2011	2010		2010 2011	2010
By principal
activities
Special steel	53,175 45,243		34,271 2,872	2,923	4,291 226	185	148	56,273 48,351	38,710	(27,295) (23,409)		(18,146) 28,978	24,942		20,564 6,507	7,032
Iron ore mining	66,997 53,397		36,026 –	–	– –	–	–	66,997 53,397	36,026	(42,059) (38,678)	(25,977) 24,938		14,719		10,049 13,672	19,434
Property
Mainland China	33,304 31,733		24,218 7,048	5,677	5,465 –	–	–	40,352 37,410	29,683	(9,616) (10,332)		(7,428) 30,736	27,078		22,255 1,819	2,833
Hong Kong	7,685 6,959		6,438 –	–	– 6,319	5,534	4,890	14,004 12,493	11,328	(283) (293)		(280) 13,721	12,200		11,048 300	285
Energy	2,011 1,181		301 6,899	6,659	6,567 –	–	–	8,910 7,840	6,868	(352) (101)		(52) 8,558	7,739		6,816 4	–
Tunnels	956 972		980 1,021	991	948 –	–	–	1,977 1,963	1,928	(153) (181)		(194) 1,824	1,782		1,734 2	4
Dah Chong Hong	20,355 14,158		11,072 239	356	258 228	203	130	20,822 14,717	11,460	(12,347) (7,562)		(5,671) 8,475	7,155		5,789 2,088	888
CITIC Telecom	2,884 2,652		2,532 43	–	– 427	408	–	3,354 3,060	2,532	(1,153) (1,131)		(749) 2,201	1,929		1,783 320	330
Other investments	2,687 534		4,040 3,156	5,075	4,568 22	15	629	5,865 5,624	9,237	(571) (617)		(113) 5,294	5,007		9,124 –	300
Corporate	11,185 8,314		8,159 –	–	– –	–	–	11,185 8,314	8,159	(47,897) (36,647)	(31,936) (36,712)		(28,333)	(23,777) 7		1
Segment assets/
(liabilities)	201,239 165,143	128,037 21,278		21,681	22,097 7,222	6,345	5,797	229,739 193,169	155,931	(141,726) (118,951)	(90,546) 88,013		74,218		65,385 24,719	31,107

Corporate segment assets and liabilities mainly represent financial instruments, cash and bank deposits and borrowings which are managed centrally by the group treasury function and are not allocated to individually reportable segments.

• Non-current assets are amounts expected to be recovered more than twelve months after the year end.

• Segment assets and segment liabilities are presented with intercompany balances eliminated.

CITIC Pacific Limited F 29

Notes to the Financial Statements

5 Segment Information continued

b Assets and Liabilities continued

An analysis of the Group’s non-current assets (other than financial instruments and deferred tax assets) by geographical area is as follows:

		Group
		As restated	As restated
	31 December	31 December		1 January
in HK$ million	2011	2010		2010
Mainland China	75,103	68,327		59,087
Australia	62,017	48,798		30,215
Hong Kong	20,344	18,092		19,120
Other countries	576	995		860
	158,040	136,212		109,282

6 Profit from Consolidated Activities

6 Profit from Consolidated Activities
in HK$ million	Group 2011 2010
The profit from consolidated activities is arrived at after crediting Rental income from i) Investment properties
Gross Income	883 800
Less: direct outgoings	(50) (52)
	833 748
ii) Other operating leases	187 170

F 30 CITIC Pacific Limited

6 Profit from Consolidated Activities continued

in HK$ million	2011	Group	2010
And after charging
Cost of inventories/properties sold	70,835		48,087
The following expenses which are included in cost of sales, distribution
and selling expenses and other operating expenses
Staff costs	4,056		3,128
Depreciation of property, plant and equipment	1,994		1,456
Amortisation of leasehold land – operating lease	37		34
Amortisation of intangible assets	149		140
Other operating expenses	5,101		4,472
Auditor’s remuneration	53		52
Contributions to staff retirement schemes	140		105
Impairment losses provision on (Note)
Other financial assets	98		74
Property, plant and equipment	526		345
Trade and other receivables	28		18
Intangible assets	–		32
Operating lease rentals
Land and buildings	396		331
Note:
in HK$ million	2011		2010
Impairment losses by operating segment
Iron ore mining (Note a)	147		125
Special steel (Note b)	344		–
Property (Note c)	–		145
CITIC Telecom	13		14
Dah Chong Hong (Note d)	50		111
Other investments (Note e)	98		74
	652		469

• a. An impairment loss provision was made for the surplus project equipment for Iron Ore Mining segment.

• b. An impairment loss has been recognised for two blast furnaces, a converter and other facilities that have ceased their production due to certain environmental issue.

• c. An impairment provision for a property investment in the People’s Republic of China (“PRC”) was made in 2010 as its value in use based on its estimated discounted cashflows was below its carrying amount.

• d. Impairment loss of Dah Chong Hong was mainly related to fixed assets and other receivables.

• e. Impairment provision was made on other investments as the market values of certain listed shares were significantly below the purchase prices.

CITIC Pacific Limited F 31

Notes to the Financial Statements

6 Profit from Consolidated Activities continued

The Group’s total future minimum lease payments receivable under non-cancellable operating leases are as follows:

in HK$ million	2011	Group	2010
Within 1 year	796		768
After 1 year but within 5 years	776		701
After 5 years	81		45
	1,653		1,514

7 Net Finance Charges

in HK$ million	2011	Group	2010
Finance charges
Interest expense
Bank loans and overdrafts wholly repayable within five years	2,042		1,274
Bank loans not wholly repayable within five years	1,622		1,518
Other loans wholly repayable within five years	136		278
Other loans not wholly repayable within five years	267		31
	4,067		3,101
Amount capitalised	(2,891)		(2,335)
	1,176		766
Other finance charges	106		107
Other financial instruments
Fair value loss	98		51
Ineffectiveness on cash flow hedges	(275)		(220)
	1,105		704
Finance income
Interest income	(695)		(356)
	410		348

The capitalisation rates applied to funds borrowed are between 2.7% and 4.9% per annum (2010: 2.8% and 4.6% per annum).

F 32 CITIC Pacific Limited

8 Taxation

Hong Kong profits tax is calculated at the rate of 16.5% (2010: 16.5%) on the estimated assessable profit for the year. Tax outside Hong Kong is calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the Group operates. Tax provisions are reviewed regularly to take into account changes in legislation, practice and status of negotiations. Details are as follows:

		Group
		As restated
in HK$ million	2011	2010
a)Current taxation
Hong Kong profits tax	265	268
Tax outside Hong Kong	1,803	1,534
Deferred taxation(Note 33)
Changes in fair value of investment properties	390	316
Origination and reversal of other temporary differences	113	121
Effect of tax rate changes	(11)	–
	2,560	2,239
		Group
in HK$ million	2011	2010
b)Aggregate current and deferred tax relating to items credited to hedging reserve
Deferred tax relating to mining assets and others	759	26

Taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the Hong Kong profits tax rate as follows:

	Group
	As restated
in HK$ million 2011	2010
Profit before taxation 13,543	12,410
Less: share of results of jointly controlled entities (3,080)	(2,000)
associated companies (914)	(673)
9,549	9,737
Calculated at Hong Kong profits tax rate of 16.5% (2010: 16.5%) 1,576	1,607
Effect of different taxation rates in other jurisdictions 281	110
Effect of non-taxable income and non-deductible expenses (285)	(176)
Utilisation of tax losses previously unrecognised net of tax losses not recognised 71	(37)
Under provision in prior years 73	–
Effect of tax rate changes (11)	–
Withholding tax on interest income and undistributed profits of certain PRC operations 335	269
Others 520	466
Taxation 2,560	2,239

CITIC Pacific Limited F 33

Notes to the Financial Statements

9 Profit Attributable to Shareholders of the Company

The Group’s profit attributable to shareholders of the Company is recorded in the financial statements of the Company to the extent of a profit of HK$1,951 million (2010: HK$4,228 million).

10 Dividends

10 Dividends
in HK$ million	2011	2010
2010 Final dividend paid: HK$0.30 (2009: HK$0.25) per share	1,095	912
Interim
2011 Interim dividend paid: HK$0.15 (2010: HK$0.15) per share	547	547
Final
2011 Final dividend proposed: HK$0.30 (2010: HK$0.30) per share	1,095	1,095
	1,642	1,642
Dividend per share (HK$)	0.45	0.45

11 Earnings per Share

The calculation of basic earnings per share is based on the consolidated profit attributable to shareholders of the Company of HK$9,233 million (2010: HK$8,893 million). The calculation of diluted earnings per share is based on the consolidated profit attributable to shareholders of the Company adjusted for the effect of the conversion of dilutive potential ordinary shares of subsidiary companies, which the effect is not material to the Group.

The basic and diluted earnings per share are based on the weighted average number of 3,649,232,965 shares in issue during the year (2010: 3,648,688,160 shares in issue) as it is deemed that no potential additional ordinary shares would be issued at no consideration from the exercise of options because the exercise price was above the average market price of the Company’s shares for the year ended 31 December 2011.

F 34 CITIC Pacific Limited

12 Directors’ Emoluments

The remuneration of each director for the year ended 31 December 2011 is set out below:

		Salaries,
		allowances
in HK$ million		and benefits	Discretionary	Retirement 2011	2010
Name of Director	Fees	in kind	bonuses	benefits Total	Total
Chang Zhenming#	–	1.22	1.00	– 2.22	3.38
Zhang Jijing#	–	2.12	4.00	– 6.12	6.38
Carl Yung Ming Jie#	–	2.54	–	0.13 2.67	9.34
Vernon Francis Moore#	–	3.23	9.92	0.01 13.16	14.39
Liu Jifu#	–	1.05	6.95	0.01 8.01	9.43
Milton Law Ming To#	–	2.70	9.19	0.13 12.02	13.11
Steve Kwok Man Leung#	–	2.63	9.19	0.13 11.95	13.40
Alexander Reid Hamilton	0.50	–	–	– 0.50	0.35
André Desmarais	0.35	–	–	– 0.35	0.20
Ju Weimin	0.35	–	–	– 0.35	0.20
Yin Ke*	0.59	–	–	– 0.59	0.32
Gregory Lynn Curl	0.27	–	–	– 0.27	–
Francis Siu Wai Keung	0.36	–	–	– 0.36	–
Willie Chang	0.18	–	–	– 0.18	0.35
Hansen Loh Chung Hon	0.16	–	–	– 0.16	0.30
Norman Ho Hau Chong	0.14	–	–	– 0.14	0.25
Li Shilin	–	0.21	–	– 0.21	0.71
Wang Ande	–	0.86	–	– 0.86	11.24
Peter Lee Chung Hing	–	–	–	– –	1.31
	2.90	16.56	40.25	0.41 60.12	84. 66

Mr Gregory Lynn Curl and Mr Francis Siu Wai Keung have been appointed as Independent Non-executive Directors during the year.

Mr Willie Chang, Mr Hansen Loh Chung Hon and Mr Norman Ho Hau Chong resigned during the year.

Mr Li Shilin and Mr Wang Ande retired during the year.

The executive directors marked “[#] ” above are considered as key management personnel of the Group.

• Included fee of HK$ 0.18 million to a director from listed subsidiary companies of the Group.

CITIC Pacific Limited F 35

Notes to the Financial Statements

13 Individuals with Highest Emoluments

Of the five individuals with the highest emoluments, three (2010: three) are directors whose emoluments are disclosed in note 12.

The aggregate emoluments in respect of the other two individuals (2010: two) are as follows:

in HK$ million	2011	2010
Salaries and other emoluments	4.67	4.10
Discretionary bonuses	22.31	18.97
Retirement scheme contribution	0.36	0.34
Share based payment	–	4.32
	27.34	27.73

The numbers of these individuals with emoluments within the following bands were:

		2011	2010
HK$11,000,001	– HK$12,000,000	1	1
HK$15,000,001	– HK$16,000,000	1	1

14 Retirement Benefits

Hong Kong employees are offered the option to enrol in one of the MPF Master Trust Schemes under the CITIC Group MPF Scheme – the Fidelity Retirement Master Trust, the Hang Seng Mandatory Provident Fund and the RCM Mandatory Provident Fund. All these 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 mainland China and other locations are required to participate in defined contribution retirement schemes administered and operated by the respective local authorities and contributions are made according to the local mandatory requirements.

F 36 CITIC Pacific Limited

15 Fixed Assets and Properties under Development

a Group

in HK$ million	Fixed assets Property, plant and equipment Leasehold land – finance leases and self-use properties (Note ii) Plant and machinery (Note ii) Construction in progress (Note i, ii & iii) Others (Note iv) Sub-total Investment properties Leasehold land – operating leases (Note v) Properties under development (Note i, ii & v) Total
Cost or valuation
At 1 January 2011	11,398 19,209 38,514 4,056 73,177 13,579 1,769 10,072 98,597
Exchange adjustments	383 759 289 70 1,501 366 75 342 2,284
Additions (Note vii)	308 499 15,646 777 17,230 1 86 1,976 19,293
Acquisition of subsidiary companies	91 89 12 157 349 – 16 – 365
Disposals	(161) (637) (27) (192) (1,017) (511) (10) (1,746) (3,284)
Change in fair value of investment properties	– – – – – 1,835 – – 1,835
Transfer upon completion	2,010 3,549 (5,763 ) 2,387 2,183 – 509 (2,692) –
Transfer to investment properties/properties under development classified under current assets/inventories	– – (77) (30) (107) 190 – (1,408) (1,325)
Transfer from properties held for sale	– – – – – – – 246 246
Transfer from non-current deposits	– – 2,118 1,787 3,905 – – – 3,905
Reclassification	(359) 4 – 494 139 (190) 51 – –
At 31 December 2011	13,670 23,472 50,712 9,506 97,360 15,270 2,496 6,790 121,916
Accumulated depreciation, amortisation and impairment
At 1 January 2011	2,110 5,040 150 2,543 9,843 – 172 191 10,206
Exchange adjustments	77 236 1 36 350 – 11 – 361
Acquisition of subsidiary companies	19 37 – 66 122 – 1 – 123
Charge for the year (Note ix)	365 1,120 – 509 1,994 – 37 1 2,032
Depreciation capitalised to construction in progress	52 183 – 21 256 – – – 256
Written back on disposals	(139) (563) (26) (111) (839) – (2) (30) (871)
Impairment loss	95 250 148 33 526 – – – 526
Transfer to investment properties/current assets	– 1 – (25) (24) – – – (24)
Reclassification	(193) – – 193 – – – – –
At 31 December 2011	2,386 6,304 273 3,265 12,228 – 219 162 12,609
Net book value At 31 December 2011	11,284 17,168 50,439 6,241 85,132 15,270 2,277 6,628 109,307
Represented by Cost	13,670 23,472 50,712 9,506 97,360 – 2,496 6,790 106,646
Valuation	– – – – – 15,270 – – 15,270
	13,670 23,472 50,712 9,506 97,360 15,270 2,496 6,790 121,916

CITIC Pacific Limited F 37

Notes to the Financial Statements

15 Fixed Assets and Properties under Development continued

a Group continued

in HK$ million	Fixed assets Property, plant and equipment Leasehold land – finance leases and self-use properties (Note ii) Plant and machinery (Note ii) Construction in progress (Note i, ii & iii) Others (Note iv) Sub-total Investment properties Leasehold land – operating leases (Note v) Properties under development (Note i, ii & v) Total
Cost or valuation
At 1 January 2010	8,857 13,824 21,738 3,384 47,803 11,164 1,714 9,236 69,917
Exchange adjustments	279 545 295 76 1,195 324 70 451 2,040
Additions (Note vii)	170 354 21,622 541 22,687 – – 2,805 25,492
Disposals	(51) (266) (52) (153) (522) – (29) (3) (554)
Change in fair value of investment properties	– – – – – 1,294 – – 1,294
Transfer upon completion	2,515 4,603 (7,082) 217 253 – 14 (267) –
Transfer to investment properties/current assets	(282) 4 – (35) (313) 797 – (2,280) (1,796)
Transfer from non-current deposits	– – 2,074 – 2,074 – – 130 2,204
Reclassification	(90) 145 (81) 26 – – – – –
At 31 December 2010	11,398 19,209 38,514 4,056 73,177 13,579 1,769 10,072 98,597
Accumulated depreciation, amortisation and impairment
At 1 January 2010	1,635 3,941 24 2,171 7,771 – 133 171 8,075
Exchange adjustments	63 193 1 37 294 – 6 12 312
Charge for the year (Note ix)	290 796 – 370 1,456 – 34 8 1,498
Depreciation capitalised to construction in progress	16 143 – 88 247 – – – 247
Written back on disposals	(21) (38) – (106) (165) – (2) – (167)
Impairment loss	206 – 125 13 344 – 1 – 345
Transfer to investment properties/current assets	(79) – – (25) (104) – – – (104)
Reclassification	– 5 – (5) – – – – –
At 31 December 2010	2,110 5,040 150 2,543 9,843 – 172 191 10,206
Net book value At 31 December 2010	9,288 14,169 38,364 1,513 63,334 13,579 1,597 9,881 88,391
Represented by Cost	11,398 19,209 38,514 4,056 73,177 – 1,769 10,072 85,018
Valuation	– – – – – 13,579 – – 13,579
	11,398 19,209 38,514 4,056 73,177 13,579 1,769 10,072 98,597

F 38 CITIC Pacific Limited

15 Fixed Assets and Properties under Development continued

a Group continued

Notes:

• i) During the year, interest capitalised in properties under development and construction in progress amounted to HK$453 million (2010: HK$398 million) and HK$1,935 million (2010: HK$1,691 million) respectively.

• ii) As at 31 December 2011, certain of the Group’s property, plant and equipment and properties under development with an aggregate carrying value of HK$43,323 million (2010: HK$32,311 million) were pledged to secure loan and banking facilities granted to certain subsidiary companies.

• iii) As at 31 December 2011, construction in progress comprised of the development of an iron ore mine in Western Australia amounted to HK$42,072 million (2010: HK$31,709 million), expansion of the Group’s special steel mills amounted to HK$8,479 million (2010: HK$6,567 million) and others of HK$161 million (2010: HK$238 million).

• iv) Other property, plant and equipment mainly comprise vessels, hotels, traffic equipment, cargo lighters, computer installations, telecommunications equipment, motor vehicles and furniture, fixtures and equipment.

• v) As at 31 December 2011 and 2010, certain of the Group’s properties under development were in the process of applying for certificates of land use rights in the PRC.

• vi) Commitments of the Group in respect of additions to fixed assets and properties under development:

	in HK$ million	2011	2010
	Authorised but not contracted for
	property, plant and equipment, properties under development
	and leasehold land classified as operating leases	602	2,353
	Contracted but not provided for
	property, plant and equipment, properties under development
	and leasehold land classified as operating leases	11,954	12,039
	Additions to fixed assets and properties under development by operating segment:
	in HK$ million	2011	2010
	Special steel	5,436	5,195
	Iron ore mining	10,413	16,633
	Property	2,010	2,845
	Tunnels	2	4
	Dah Chong Hong	1,233	654
	CITIC Telecom	187	159
	Other investments	12	2
		19,293	25,492
	Additions to fixed assets and properties under development by geographical area:
	in HK$ million	2011	2010
	Mainland China	8,249	8,448
	Hong Kong	591	384
	Overseas	10,453	16,660
		19,293	25,492
	Depreciation and amortisation charge for the year by segment:
	in HK$ million	2011	2010
	Special steel	1,421	1,037
	Iron ore mining	24	1
	Property	92	84
	Tunnels	5	6
	Dah Chong Hong	366	258
	CITIC Telecom	118	107
	Other investments	6	5
		2,032	1,498

vii) Additions to fixed assets and properties under development by operating segment:

viii) Additions to fixed assets and properties under development by geographical area:

ix) Depreciation and amortisation charge for the year by segment:

CITIC Pacific Limited F 39

Notes to the Financial Statements

15 Fixed Assets and Properties under Development continued

b Company

in HK$ million	Motor vehicles, equipment, furniture and fixtures 2011 2010
Cost
At 1 January	104 105
Additions	7 1
Disposals	(1) (2)
At 31 December	110 104
Accumulated depreciation
At 1 January	97 95
Charge for the year	4 4
Written back on disposals	(1) (2)
At 31 December	100 97
Net book value, at cost At 31 December	10 7

c The tenure of the properties of the Group is as follows:

	Leasehold land –	Leasehold land –
	finance leases				Properties
	and	self-use	Investment		under		Leasehold land –
	properties		properties		development* operating leases Total
in HK$ million	2011	2010	2011	2010 2011			2010 2011	2010 2011	2010
Leasehold properties held
In Hong Kong
Leases of over 50 years	37	23	845	865 –			– –	– 882	888
Leases of between
10 to 50 years	1,982	1,876	5,420	4,634 441			24 –	– 7,843 6,534
Leases of less than
10 years	12	12	–		– –		– –	– 12	12
In mainland China
Leases of over 50 years	119	476	1,998	1,766 2,500		3,302 510		– 5,127 5,544
Leases of between
10 to 50 years	11,092	8,652	6,589	5,873 3,849		6,746 1,976		1,759 23,506 23,030
Leases of less than
10 years	159	91	–		– –		– –	– 159	91
Properties held overseas
Freehold	229	228	418	441 –			– –	– 647	669
Leases of between
10 to 50 years	40	40	–		– –		– 10	10 50	50
Leases of less than
10 years	–	–	–		– –		– –	– –	–
	13,670	11,398	15,270	13,579 6,790		10,072 2,496		1,769 38,226 36,818

• The total amount includes properties under development for sale classified as non-current assets of HK$4,662 million (2010: HK$7,936 million) and the remaining balance represents properties under development for own use.

F 40 CITIC Pacific Limited

15 Fixed Assets and Properties under Development continued

d Property Valuation

Investment properties were revalued at 31 December 2011 by the following independent, professionally qualified valuers.

Properties located in	Valuers
Hong Kong and Shanghai	Knight Frank Petty Limited
Japan	Network Real Estate Appraisal Co Ltd

e Fixed assets and properties held for sale under current assets of the Group let under operating leases to generate rental income are as follows:

		Leasehold
		land –
		finance
		leases and	Other	Fixed	Properties
	Investment	self-use	fixed	assets	held for
in HK$ million	properties	properties	assets	total	sale
Cost or valuation	15,270	184	318	15,772	–
Accumulated depreciation/impairment	–	(19)	(162)	(181)	–
Net book value at 31 December 2011	15,270	165	156	15,591	–
Depreciation charges/amortisation charges for the year	–	5	47	52	–
Cost or valuation	13,579	182	266	14,027	310
Accumulated depreciation/impairment	–	(14)	(136)	(150)	(70)
Net book value at 31 December 2010	13,579	168	130	13,877	240
Depreciation charges/amortisation charges for the year	–	4	33	37	3

16 Subsidiary Companies

in HK$ million	Company 2011	2010
Non-current
Unlisted shares, at cost less impairment losses	1,996	1,822
Amounts due from subsidiary companies (Note)	78,893	66,579
	80,889	68,401
Current
Amounts due from subsidiary companies (Note)*	4,896	3,960
Amounts due to subsidiary companies (Note)*	(6,223)	(9,647)
	(1,327)	(5,687)

Particulars of the principal subsidiary companies are shown in Note 43.

Note: Amounts due from/to subsidiary companies are unsecured and interest bearing at market rates except for amounts due from subsidiary companies of approximately HK$42,886 million (2010: HK$44,095 million) and amounts due to subsidiary companies of approximately HK$6,179 million (2010: HK$6,159 million), which are non-interest bearing. The non-current amounts due from subsidiary companies are not repayable within 12 months from the balance sheet date, and the current amounts due from/to subsidiary companies have no fixed repayment terms. The amounts were not in default or impaired except for a provision for impairment loss of HK$485 million which was made in 2011 (2010: HK$281 million).

• These amounts approximate their fair value.

CITIC Pacific Limited F 41

Notes to the Financial Statements

17 Jointly Controlled Entities

in HK$ million	Group 2011 2010
Share of net assets	15,746 15,902
Goodwill and intangible assets At 1 January
	2,018 2,184
Acquisition during the year	29 –
Disposal	(63) (213)
Amortisation	(48) (36)
Exchange differences	75 83
At 31 December	2,011 2,018
	17,757 17,920
Loans due from jointly controlled entities (Note b)	3,522 3,762
Loans due to jointly controlled entities (Note b)	(1) (1)
	21,278 21,681
in HK$ million	Company 2011 2010
Unlisted shares, at cost	4,244 4,244
Loans due from jointly controlled entities	894 877
	5,138 5,121

Note:

• a. Jointly controlled entities include the Western Harbour Tunnel Company Limited (“WHTCL”) whose year end is 31 July which is not coterminous with the Group’s year end. The results of certain jointly controlled entities (including WHTCL) have been equity accounted for based on their unaudited financial statements for the years ended 31 December 2011 and 2010.

• b. Loans due from jointly controlled entities and loans due to jointly controlled entities are interest bearing at market rates except for loans to jointly controlled entities of approximately HK$1,317 million (2010: HK$1,488 million), which are non-interest bearing. These loans are not repayable within 12 months from the balance sheet date and were not in default or impaired, and the carrying amounts approximate their fair value.

F 42 CITIC Pacific Limited

17 Jointly Controlled Entities continued

c. The following amounts represent the Group’s share of the assets and liabilities, and revenue and results of jointly controlled entities and are included in the consolidated balance sheet and the consolidated profit and loss account using the equity method and after adjusting for goodwill and amortisation:

goodwill and amortisation:
in HK$ million	2011 2010
Assets Non-current assets	17,537 21,025
Current assets	15,746 20,313
	33,283 41,338
Liabilities Non-current liabilities
	(7,509) (11,523)
Current liabilities	(9,477) (13,761)
	(16,986) (25,284)
Net assets	16,297 16,054
Revenue	28,468 19,861
Expenses	(24,361) (17,386)
	4,107 2,475
Taxation	(853) (413)
Profit for the year	3,254 2,062
Share of jointly controlled entities’ capital commitments (Note i) authorised but not contracted for	346 386
contracted but not provided for	1,147 1,520

Note:

i) The Group has fully contributed its attributable portion of capital and loans to the respective jointly controlled entities. ii) There are no material contingent liabilities for 2011 and 2010 to be shared by the Group.

d. Particulars of the principal jointly controlled entities are shown in Note 43.

CITIC Pacific Limited F 43

Notes to the Financial Statements

18 Associated Companies

		Group
		As restated	As restated
	31 December	31 December	1 January
in HK$ million	2011	2010		2010
Share of net assets	4,922	4,156		3,619
Goodwill	65	65		65
Loans due from associated companies (Note b)	2,243	2,132		2,122
Loans due to associated companies (Note b)	(8)	(8)		(9)
	7,222	6,345		5,797
Investment at cost
Unlisted shares	2,879	2,822		2,673
in HK$ million		2011	Company	2010
Investment at cost
Unlisted shares		53		53
Loans due from associated companies		1,942		1,973
Loans due to associated companies		(8)		(8)
		1,987		2,018

Dividend income from associated companies during the year is as follows:

in HK$ million	2011	Group	2010
Unlisted associated companies	166		544

Note:

• a. Associated companies include the Hong Kong Resort Company Limited (“HKR”) whose year end is 31 March which is not coterminous with the Group’s year end. The results of certain associated companies including HKR have been equity accounted for based on their unaudited financial statements for the years ended 31 December 2010 and 2011.

b. Loans due from associated companies and loans due to associated companies are interest bearing at market rates except for loans due to associated companies of approximately HK$8 million (2010: HK$8 million), which are non-interest bearing. These loans are not repayable within 12 months from the balance sheet date and were not in default or impaired except for a provision for impairment loss of HK$24 million made in 2007 for the loans due from an associated company. The carrying amounts of the loans approximate their fair value.

• c. Particulars of the principal associated companies are shown in Note 43.

F 44 CITIC Pacific Limited

18 Associated Companies continued

Summarised financial information of the associated companies on a gross basis:

		Group
		As restated	As restated
	31 December	31 December	1 January
in HK$ million	2011	2010	2010
Assets	24,516	21,227	19,616
Liabilities	14,760	13,536	13,590
Revenue	9,416	7,770
Profit	1,579	1,484
Capital commitments
authorised but not contracted for	261	190
contracted but not provided for	561	651
Contingent liabilities	125	114

19 Other Financial Assets

19 Other Financial Assets
in HK$ million	2011	Group	2010
Available for sale financial assets
Listed investments, at fair value
Shares listed in Hong Kong	252		377
	252		377
Others
Unlisted investments
Shares, at cost	13		13
Investment fund, at fair value	80		58
	345		448

Other financial assets are denominated in the following currencies:

in HK$ million	2011	Group	2010
Hong Kong dollars	264		390
Other currencies	81		58
	345		448

CITIC Pacific Limited F 45

Notes to the Financial Statements

20 Intangible Assets

in HK$ million	Goodwill	Other intangible assets Mining assets Vehicular tunnel Others Total
Cost At 31 December 2010, as previously reported	1,258	10,820 2,000 361 14,439
Impact of adoption of HKAS12 (amendment)	(45)	– – – (45)
At 1 January 2011, as restated	1,213	10,820 2,000 361 14,394
Exchange adjustment	7	(14) – 21 14
Additions	–	2,700 – 21 2,721
Acquisition of subsidiary companies	190	– – 485 675
At 31 December 2011	1,410	13,506 2,000 888 17,804
Accumulated amortisation and impairment losses
At 1 January 2011	54	21 1,320 55 1,450
Exchange adjustments	–	– – 3 3
Charge for the year	–	– 112 37 149
At 31 December 2011	54	21 1,432 95 1,602
Net book value At 31 December 2011	1,356	13,485 568 793 16,202*
Cost At 31 December 2009, as previously reported	1,249	8,611 2,000 329 12,189
Impact of adoption of HKAS 12 (amendment)	(45)	– – – (45)
At 1 January 2010, as restated	1,204	8,611 2,000 329 12,144
Exchange adjustment	9	16 – 15 40
Additions	–	2,193 – 17 2,210
At 31 December 2010, as restated	1,213	10,820 2,000 361 14,394
Accumulated amortisation and impairment losses
At 1 January 2010	25	21 1,204 26 1,276
Exchange adjustments	–	– – 2 2
Charge for the year	–	– 116 24 140
Impairment loss	29	– – 3 32
At 31 December 2010	54	21 1,320 55 1,450
Net book value At 31 December 2010, as restated	1,159	10,799* 680 306 12,944

• Including mining rights provision of HK$1,648 million (2010: HK$1,511 million), which consists of a non-current portion of HK$1,524 million (2010: HK$1,511 million). For details see Note 34.

The amortisation charge for the year is included in ‘other operating expenses’ in the consolidated profit and loss account.

As at 31 December 2011, the remaining amortisation period of the vehicle tunnel is 5 years, whilst the mining assets are currently under construction and will be amortised on a unit of production basis on completion of construction and when the mine is in production. The Group estimates that it will mine a total of 2 billion tonnes of iron ore over a period of approximately 25 years.

F 46 CITIC Pacific Limited

20 Intangible Assets continued

Analysed by:

in HK$ million		31 December 2011 Other intangible assets Mining assets Vehicular tunnel* Others		As restated 31 December 2010 Other intangible assets Mining assets Vehicular tunnel* Others	As restated 1 January 2010 Goodwill
	Goodwill		Goodwill
Special steel	265	– – 2	237	– – –	231
Iron ore mining	23	13,485 – –	23	10,799 – –	25
Property Mainland China	277	– – 1	278	– – –	278
Tunnels	7	– 568 –	7	– 680 –	7
CITIC Telecom	437	– – 80	354	– – 36	351
Dah Chong Hong	347	– – 710†	260	– – 270†	287
	1,356	13,485 568 793	1,159	10,799 680 306	1,179

• The vehicular tunnel rights represent a franchise to operate the Eastern Harbour Crossing for the period ending 7 August 2016. At the end of the franchise period, the assets of the franchise will be vested in the franchisor, the Hong Kong government, for no compensation other than for certain plant, machinery and equipment as specified under the terms of the franchise.

† Others mainly include car dealership of Dah Chong Hong group amounting to HK$660 million (2010: HK$251 million).

21 Non-Current Deposits and Prepayment

in HK$ million 2011	Group	2010
Non-current deposits represent deposit payments for Construction of vessels 2,728		3,956
Acquisition and construction of other property, plant and equipment mainly in relation to the Group’s steel plant new phases and the Australian iron ore mining project 1,194		2,276
Acquisition of a subsidiary company –		66
Prepayment for rental of certain telecommunication facilities 109		105
4,031		6,403

22 Other Assets Held for Sale

As at 31 December 2011, interests in a jointly controlled entity (see Note 39 (c)) and certain properties located in PRC were classified as other assets held for sale.

As at 31 December 2010, certain properties located in PRC and Hong Kong were classified as other assets held for sale.

CITIC Pacific Limited F 47

Notes to the Financial Statements

23 Inventories

in HK$ million	2011	Group	2010
Raw materials	3,845		4,677
Work-in-progress	1,711		1,388
Finished goods	7,987		4,722
Others	582		404
	14,125		11,191

An amount of HK$121 million (2010: HK$46 million) for write-down and HK$28 million (2010: HK$35 million) for reversal of write-down of inventories to net realisable value have been included in cost of sales in the profit and loss account.

24 Debtors, Accounts Receivable, Deposits and Prepayments

in HK$ million	2011	Group	Company 2010 2011	2010
Trade debtors and bills receivable aged
Within 1 year	7,375		5,002 –	–
Over 1 year	48		178 –	–
	7,423		5,180 –	–
Accounts receivable, deposits and prepayments	8,830		8,890 193	188
	16,253		14,070 193	188

Notes:

i) Trade debtors are net of provision and the ageing is classified based on invoice date.

ii) Each business unit has its own defined credit policy.

iii) The carrying amounts of debtors, accounts receivable, deposits and prepayments approximate their fair value.

iv) Accounts receivable, deposits and prepayments include amounts due from jointly controlled entities of HK$185 million (2010: HK$227 million) and dividend receivable from jointly controlled entities of HK$1,738 million (2010: HK$1,077 million) which are unsecured, interest free and recoverable on demand, and amounts due from associated companies of HK$138 million (2010: HK$95 million) which are unsecured, interest free and recoverable on demand.

As of 31 December 2011, trade receivables of HK$332 million (2010: HK$182 million) were past due but not impaired. These relate to a number of independent customers which have no recent history of default. The ageing analysis of these trade receivables based on invoice date is as follows:

in HK$ million	2011	2010
Less than 3 months	274	153
3 to 6 months	35	22
Over 6 months	23	7
	332	182

F 48 CITIC Pacific Limited

24 Debtors, Accounts Receivable, Deposits and Prepayments continued

Movements on the provision for impairment of trade receivables are as follows:

in HK$ million	2011	2010
At 1 January	123	127
Exchange adjustments	3	4
Provision for impairment loss during the year	22	18
Receivables written off during the year	(6)	(17)
Provision written back during the year	(14)	(9)
At 31 December	128	123

The creation and release of provision for impairment losses has been included in other operating expenses in the consolidated profit and loss account. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

As of 31 December 2011, trade receivables of HK$187 million (2010: HK$100 million) were individually determined to be impaired. The individually impaired receivables mainly relate to customers which are in an unexpected difficult economic situation. It was assessed that a portion of such receivables is expected to be recovered. Consequently, specific provision for impairment loss of HK$44 million (2010: HK$35 million) was recognised against the receivables. The Group does not hold any collateral over these balances.

Accounts receivable, deposits and prepayments do not contain impaired assets.

25 Creditors, Accounts Payable, Deposits and Accruals

in HK$ million	2011	Group	Company 2010 2011	2010
Trade creditors and bills payable aged
Within 1 year	13,173		9,744 –	–
Over 1 year	204		456 –	–
	13,377		10,200 –	–
Accounts payable, deposits and accruals	17,200		16,711 293	291
	30,577		26,911 293	291

Note: The carrying amounts of creditors, accounts payable, deposits and accruals approximate their fair value.

CITIC Pacific Limited F 49

Notes to the Financial Statements

26 Share Capital

	Number of shares of HK$0.40 each	HK$ million
Authorised
At 31 December 2010 and 2011	6,000,000,000	2,400
Issued and fully paid
At 1 January 2010 and 31 December 2010	3,648,688,160	1,459
At 1 January 2011	3,648,688,160	1,459
Issue of shares pursuant to the Plan 2000	756,000	1
At 31 December 2011	3,649,444,160	1,460

Share Option Plan:

During the period between the adoption of the CITIC Pacific Share Incentive Plan 2000 (“the Plan 2000”) on 31 May 2000 and its expiry on 30 May 2010, the Company has granted six lots of share option:

Grant date Number of options granted Percentage of the issued share capital Exercise price HK$ Closing price before grant date HK$	Outstanding balance At 31 December 2011 At 31 December 2010
28 May 2002 11,550,000 0.32% 18.20 18.10	- -
1 November 2004 12,780,000 0.35% 19.90 19.90	- -
20 June 2006 15,930,000 0.44% 22.10 22.50	- 5,596,000
16 October 2007 18,500,000 0.51% 47.32 47.65	11,800,000 12,100,000
19 November 2009 13,890,000 0.38% 22.00 21.40	12,650,000 12,800,000
14 January 2010 880,000 0.02% 20.59 19.98	880,000 880,000

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

The share options at the exercise price of HK$18.20 per share, HK$19.90 per share and HK$22.10 per share expired at the close of business on 27 May 2007, 31 October 2009 and 19 June 2011 respectively.

Other than the Plan 2000, certain of the Company’s subsidiary companies 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.

As the Plan 2000 expired on 30 May 2010, the Company adopted a new plan, the CITIC Pacific Share Incentive Plan 2011 (“the Plan 2011”) on 12 May 2011, 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, consultant or representative of any member of the Group who shall make payment of HK$1 to the Company on acceptance. The exercise price determined by the board will be at least the higher of (i) the nominal value of the Company’s shares; (ii) the closing price of the Company’s shares as stated in the daily quotations sheet of the Stock Exchange 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 for the five business days immediately preceding the date of offer of the grant. The maximum number of the Company’s shares which may be issued upon exercise of all share options to be granted under the Plan 2011 must not exceed 10% of the Company’s shares in issue as at the date of adopting the Plan 2011 (i.e. as at 31 December 2011, the maximum 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 2011.

F 50 CITIC Pacific Limited

26 Share Capital continued

a Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

	2011	2010
	Average exercise	Average exercise
	price in HK$	price in HK$
	per share Options	per share	Options
At 1 January	31,376,000		33,486,000
Granted	– –	20.59	880,000
Exercised	22.10 (756,000)	–	–
Lapsed	23.53 (5,290,000)	31.76	(2,990,000)
At 31 December	25,330,000		31,376,000
Weighted average remaining contractual life	1.92 years		2.47 years

Details of share options exercised during the year:

Exercise price
HK$	Number of shares
22.10	756,000	–
	756,000	–

The related weighted average share price at the time of exercise in 2011 was HK$23.56 (2010: HK$0) per share.

27 Perpetual Capital Securities

In April 2011, the Company issued perpetual subordinated capital securities (the “perpetual capital securities”) with a nominal amount of US$750 million (approximately HK$5,850 million) for cash. These securities are perpetual and the distribution payments can be deferred at the discretion of the Company. Therefore, perpetual capital securities are classified as equity instruments and recorded in equity in the consolidated balance sheet. The amount as at 31 December 2011 included the accrued distribution payments.

CITIC Pacific Limited F 51

3rd page proof 9 March 2012

Notes to the Financial Statements

28 Reserves

a Group

			Capital			Investment	Exchange		General
		Share	redemption	Capital	Goodwill	revaluation	fluctuation	Hedging	and other	Retained
in HK$ million		premium	reserve	reserve	(Note)	reserve	reserve	reserve	reserves	profits	Total
At 31 December 2010, as previously reported		36,515	29	1,030	(1,655)	156	6,762	403	1,341	22,242	66,823
Effect of adoption of HKAS 12 (amendment)		–	–	–	–	–	(89)	–	–	153	64
At 1 January 2011, as restated		36,515	29	1,030	(1,655)	156	6,673	403	1,341	22,395	66,887
Share of reserves of associated companies
and jointly controlled entities		–	–	(5)	–	–	121	7	(1)	(80)	42
Exchange translation differences		–	–	–	–	–	2,307	–	–	–	2,307
Reserves released on disposal of
a jointly controlled entity		–	–	(10)	37	–	(122)	–	–	(37)	(132)
Reserves released upon disposal of
a subsidiary company		–	–	–	–	–	(109)	–	–	–	(109)
Cash flow hedges
	Fair value loss in the year	–	–	–	–	–	–	(2,716)	–	–	(2,716)
	Transfer to construction in progress	–	–	–	–	–	–	(1,631)	–	–	(1,631)
	Transfer to net finance charges	–	–	–	–	–	–	665	–	–	665
	Tax effect	–	–	–	–	–	–	759	–	–	759
		–	–	–	–	–	–	(2,923)	–	–	(2,923)
Fair value loss of other financial assets		–	–	–	–	(112)	–	–	–	–	(112)
Transfer to profit and loss account on
impairment of other financial assets		–	–	–	–	98	–	–	–	–	98
Dilution of interest in a subsidiary company		–	–	–	–	–	–	–	8	–	8
Acquisition of interests from
non-controlling interests		–	–	–	–	–	–	–	(64)	–	(64)
Issue of shares pursuant to the share option plan		18	–	(3)	–	–	–	–	–	–	15
Share-based payments		–	–	7	–	–	–	–	–	–	7
Transfer from profits to general and other reserves		–	–	–	–	–	–	–	322	(322)	–
Profit attributable to shareholders of the Company		–	–	–	–	–	–	–	–	9,233	9,233
Dividends (Note 10)		–	–	–	–	–	–	–	–	(1,642)	(1,642)
Transaction costs related to issuance of
perpetual capital securities		–	–	–	–	–	–	–	–	(68)	(68)
At 31 December 2011		36,533	29	1,019	(1,618)	142	8,870	(2,513)	1,606	29,479	73,547
Representing
At 31 December 2011 after proposed
final dividend											72,452
2011 Final dividend proposed											1,095
											73,547
Retained by
Company and subsidiary companies		36,533	29	922	(1,618)	130	8,074	(2,514)	1,581	20,524	63,661
Jointly controlled entities		–	–	26	–	5	332	1	25	5,824	6,213
Associated companies		–	–	(5)	–	–	18	–	–	2,115	2,128
Non-current assets held for sale		–	–	76	–	7	446	–	–	1,016	1,545
		36,533	29	1,019	(1,618)	142	8,870	(2,513)	1,606	29,479	73,547

F 52 CITIC Pacific Limited

3rd page proof 9 March 2012

28 Reserves continued

a Group continued

			Capital			Investment	Exchange		General
		Share	redemption	Capital	Goodwill	revaluation	fluctuation	Hedging	and other	Retained
	in HK$ million	premium	reserve	reserve	(Note)	reserve	reserve	reserve	reserves	profits	Total
	At 31 December 2009, as previously reported	36,515	29	1,022	(1,738)	563	5,125	913	1,147	15,224	58,800
	Effect of adoption of HKAS 12 (amendment)	–	–	–	–	–	(43)	–	–	175	132
	At 1 January 2010, as restated	36,515	29	1,022	(1,738)	563	5,082	913	1,147	15,399	58,932
	Share of reserves of associated companies and
	jointly controlled entities	–	–	19	–	(10)	107	3	9	(72)	56
	Exchange translation differences	–	–	–	–	–	2,170	–	–	–	2,170
	Partial disposal of an associated company
	to non-controlling interests	–	–	–	–	–	–	–	(253)	–	(253)
	Reserves released on disposal of a jointly
	controlled entity	–	–	–	–	–	(298)	–	–	–	(298)
	Reserves released on disposal of associated
	companies and assets held for sale	–	–	(28)	83	–	(393)	–	–	(83)	(421)
	Reserves released upon liquidation of
	a subsidiary company	–	–	–	–	–	5	–	–	–	5
	Surplus on revaluation of properties
	transferred from self-use properties
	to investment properties	–	–	–	–	–	–	–	116	–	116
	Cash flow hedges
	Fair value gain in the year	–	–	–	–	–	–	292	–	–	292
	Transfer to construction in progress	–	–	–	–	–	–	(1,116)	–	–	(1,116)
	Transfer to net finance charges	–	–	–	–	–	–	285	–	–	285
	Tax effect	–	–	–	–	–	–	26	–	–	26
		–	–	–	–	–	–	(513)	–	–	(513)
Fair value gain on other financial assets		–	–	–	–	761	–	–	–	–	761
Transfer to profit and loss account on
impairment of other financial assets		–	–	–	–	74	–	–	–	–	74
Fair value released on disposal of
other financial assets		–	–	–	–	(1,232)	–	–	–	–	(1,232)
Dilution of interest in a subsidiary company		–	–	–	–	–	–	–	38	–	38
Acquisition of interests from
non-controlling interests		–	–	–	–	–	–	–	1	–	1
Transfer from profits to general and other reserves		–	–	–	–	–	–	–	283	(283)	–
Profit attributable to shareholders of the Company		–	–	–	–	–	–	–	–	8,893	8,893
Dividends (Note 10)		–	–	–	–	–	–	–	–	(1,459)	(1,459)
Share-based payment		–	–	17	–	–	–	–	–	–	17
At 31 December 2010, as restated		36,515	29	1,030	(1,655)	156	6,673	403	1,341	22,395	66,887
Representing
At 31 December 2010 after proposed
final dividend, as restated											65,792
2010 Final dividend proposed											1,095
											66,887
Retained by
Companyand subsidiarycompanies		36,515	29	918	(1,655)	144	6,444	409	1,315	16,399	60,518
Jointlycontrolled entities		–	–	112	–	12	211	(6)	26	4,616	4,971
Associated companies		–	–	–	–	–	18	–	–	1,380	1,398
		36,515	29	1,030	(1,655)	156	6,673	403	1,341	22,395	66,887

CITIC Pacific Limited F 53

Notes to the Financial Statements

28 Reserves continued

b Company

			Capital
		Share	redemption	Capital	Hedging	Retained
	in HK$ million	premium	reserve	reserve	reserve	profits	Total
	At 1 January 2011	36,515	29	883	(1,338)	7,878	43,967
	Issue of shares pursuant to
	the share option plan	18	–	(3)	–	–	15
	Cash flow hedges
	Fair value loss in the year	–	–	–	(1,728)	–	(1,728)
	Transfer to net finance charges	–	–	–	577	–	577
		–	–	–	(1,151)	–	(1,151)
	Profit attributable to shareholders
	of the Company (Note 9)	–	–	–	–	1,951	1,951
	Dividends (Note 10)	–	–	–	–	(1,642)	(1,642)
	Transaction costs related to issuance
	of perpetual capital securities	–	–	–	–	(68)	(68)
	At 31 December 2011	36,533	29	880	(2,489)	8,119	43,072
	Representing
	At 31 December 2011 after proposed
	final dividend						41,977
	2011 Final dividend proposed						1,095
							43,072
	At 1 January 2010	36,515	29	878	(886)	5,109	41,645
	Share-based payment	–	–	5	–	–	5
	Cash flow hedges
	Fair value loss in the year	–	–	–	(924)	–	(924)
	Transfer to net finance charges	–	–	–	472	–	472
		–	–	–	(452)	–	(452)
	Profit attributable to shareholders
	of the Company (Note 9)	–	–	–	–	4,228	4,228
	Dividends (Note 10)	–	–	–	–	(1,459)	(1,459)
	At 31 December 2010	36,515	29	883	(1,338)	7,878	43,967
	Representing
	At 31 December 2010 after proposed
	final dividend						42,872
	2010 Final dividend proposed						1,095
							43,967

F 54 CITIC Pacific Limited

28 Reserves continued

c Nature and Purpose of Reserves

i) Share premium and capital redemption reserve

The application of the share premium account and the capital redemption reserve is governed by sections 48B and 49H respectively of the Hong Kong Companies Ordinance.

ii) Capital reserve

The capital reserve comprises the portion of the grant date fair value of unexercised share options granted to employees.

iii) Goodwill

The Goodwill reserve is as a result of goodwill arising on acquisitions prior to year 2001 which under the then prevailing Accounting Standards was reflected in reserves rather than as a separate asset.

iv) Investment revaluation reserve

The investment revaluation reserve comprises the cumulative net change in the fair value of available-for-sale securities held at the balance sheet date.

v) Exchange fluctuation reserve

The exchange fluctuation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations as well as the effective portion of any foreign exchange differences arising from hedges of the net investment in these foreign operations.

vi) 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 hedges pending subsequent recognition of the hedged cash flow.

vii) General and other reserves

General and other reserves comprise reserves of the mainland China subsidiaries appropriated according to the articles of association of the relevant subsidiaries and the mainland China rules and regulations used for specific purposes before distribution of dividend, and reserves arising from assets revaluation and transactions with non-controlling interests.

viii) Distributable reserves

At 31 December 2011, the aggregate amount of reserves available for distribution to equity shareholders of the Company was HK$4,836 million (2010: HK$5,800 million).

CITIC Pacific Limited F 55

Notes to the Financial Statements

29 Borrowings

a

in HK$ million	Group Company 2011 2010 2011 2010
Short term borrowings Bank loans unsecured
	7,815 4,193 1,000 –
secured	757 278 – –
	8,572 4,471 1,000 –
Other loans secured	189 166 – –
	189 166 – –
Current portion of long term borrowings	18,896 10,590 12,936 1,949
Total short term borrowing	27,657 15,227 13,936 1,949
Long term borrowings Bank loans unsecured	69,900 60,830 36,875 29,507
secured	13,124 12,935 – –
	83,024 73,765 36,875 29,507
Other loans unsecured	6,922 5,281 6,282 1,165
Less: current portion of long term borrowings	(18,896) (10,590) (12,936) (1,949)
Total long term borrowings	71,050 68,456 30,221 28,723
Total borrowings	98,707 83,683 44,157 30,672
Analysed into unsecured	84,637 70,304 44,157 30,672
secured	14,070 13,379 – –
	98,707 83,683 44,157 30,672

F 56 CITIC Pacific Limited

29 Borrowings continued

a continued

Note:

• i) On 1 June 2001, CITIC Pacific Finance (2001) Limited, a wholly owned subsidiary of the Company, issued and sold a total of USD450 million principal amount of 7.625% guaranteed notes due 2011 (“Guaranteed Notes”) to investors pursuant to purchase agreements dated 24 May 2001 and 1 June 2001. The Guaranteed Notes were fully repaid at maturity and none remained outstanding at 31 December 2011.

• ii) On 26 October 2005, CITIC Pacific Finance (2005) Limited, a wholly owned subsidiary of the Company, issued and sold JPY8.1 billion in aggregate principal amount of guaranteed floating rate notes due 2035 (“JPY Notes”) to investors for general corporate purposes pursuant to the subscription agreement dated 26 October 2005. Each noteholder will have the right at such noteholder’s option to require the issuer to redeem all of such noteholder’s JPY Notes on 28 October 2015 at 81.29% of the principal amount of such JPY Notes. All of the JPY Notes remained outstanding at 31 December 2011.

• iii) On 16 August 2010, the Company issued and sold a total of USD150 million principal amount of 6.9% notes due 2022 (“USD Notes”), to an investor pursuant to the purchase agreement dated 11 August 2010. All of the USD Notes remained outstanding at 31 December 2011.

• iv) On 15 April 2011, the Company issued and sold a total of US$500 million principal amount of 6.625% notes due 2021 (“USD Bond”) to investors under the USD2 billion medium term note programme established on 6 April 2011 pursuant to the subscription agreement dated 8 April 2011. All of the USD Bond remained outstanding at 31 December 2011.

• v) On 3 August 2011, the Company issued and sold a total of CNY1 billion principal amount of 2.7% notes due 2016 (“CNY Bond”) to investors under the USD2 billion medium term note programme established on 6 April 2011 pursuant to the subscription agreement dated 27 July 2011. All of the CNY Bond remained outstanding at 31 December 2011.

• vi) Bank loans and other loans, other than the JPY Notes, are fully repayable on or before 2032 and bear interest mainly at the prevailing market rates.

• vii) As at 31 December 2011, certain of the Group’s inventories, deposits, accounts receivable, properties under development, leasehold land and self-use properties with an aggregate carrying value of HK$1.7 billion (2010: HK$1.3 billion) were pledged to secure loans and banking facilities granted to certain subsidiary companies of the Group. In addition, assets of HK$53 billion (2010: HK$41.6 billion) of the iron ore mining project were pledged under project finance arrangement. This amount included cash and bank balances of HK$1.3 billion (2010: HK$0.3 billion). Shipbuilding contracts of HK$3.4 billion (2010: HK$5.0 billion) for the 8 ships being built (2010: 12 ships) and 4 completed ships (2010: Nil) with carrying value of HK$1.8 billion (2010: Nil) to transport iron ore were also pledged as security for the ships financing. The aggregate values of assets pledged for various facilities amounted to approximately HK$59.9 billion (2010: HK$47.9 billion).

• viii) Bank loans of the Group and the Company not wholly repayable within five years amounted to HK$39.9 billion (2010: HK$38.2 billion) and HK$6.5 billion (2010: HK$ 6.6 billion) respectively. Other loans of the Group and the Company not wholly repayable within five years amounted to HK$5.1 billion (2010: HK$1.2 billion) and HK$5.1 billion (2010: HK$1.2 billion) respectively.

b The maturity of the Group’s and the Company’s long term borrowings is as follows:

in HK$ million	Group Company 2011 2010 2011 2010
Bank loans are repayable
in the first year	18,896 7,080 12,936 1,949
in the second year	11,268 12,175 5,940 7,544
in the third to fifth years inclusive	21,170 22,315 11,476 13,394
after the fifth year	31,690 32,195 6,523 6,620
	83,024 73,765 36,875 29,507
Other loans are repayable
in the first year	– 3,510 – –
in the third to fifth years inclusive	1,871 606 1,231 –
after the fifth year	5,051 1,165 5,051 1,165
	6,922 5,281 6,282 1,165
	89,946 79,046 43,157 30,672

CITIC Pacific Limited F 57

Notes to the Financial Statements

29 Borrowings continued

c The exposure of the Group’s and the Company’s total borrowings to interest-rate changes is as follows:

in HK$ million	2011	Group	Company 2010 2011	2010
Total borrowings	98,707		83,683 44,157	30,672
Borrowing at fixed rates for more than one year
(from balance sheet date)	(6,382)		(1,248) (6,382)	(1,248)
Interest rate swaps converting floating to fixed	(27,790)		(26,891) (19,365) (18,866)
Borrowings subject to interest-rate changes	64,535		55,544 18,410	10,558

The effective interest rate per annum on the Group’s and the Company’s borrowings after considering the impact of interest rate swaps (converting floating to fixed rates of interest) was as follows:

	2011	Group	Company 2010 2011	2010
Total borrowings	4.0%		3.8% 3.7%	3.7%

d The fair value of borrowings is HK$97,101 million (2010: HK$82,526 million). The fair values are estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments. These fair values, as compared to the carrying values, would have reflected an unrealised gain of HK$1,606 million (2010: HK$1,157 million). This unrealised gain has not been recorded in the financial statements as the borrowings were not held for trading purposes, and accordingly have been accounted for at amortised cost.

e The carrying amounts of the total borrowings are denominated in the following currencies:

in HK$ million	2011	Group	Company 2010 2011	2010
Hong Kong dollar	20,696		16,323 18,279	15,198
US dollar	58,012		50,611 24,647	15,474
Renminbi	18,873		15,817 1,231	–
Other currencies	1,126		932 –	–
	98,707		83,683 44,157	30,672

The Group has the following undrawn borrowing facilities:

in HK$ million	2011	Group	Company 2010 2011	2010
Floating rate
expiring within one year	4,382		2,506 1,723	1,073
expiring beyond one year	14,295		18,444 13,660	16,330
	18,677		20,950 15,383	17,403

F 58 CITIC Pacific Limited

30 Financial Risk Management and Fair Values

Financial Risk Factors

The Group is exposed to a variety of financial risks and manages them through a combination of financial instruments.

An Asset and Liability Management Committee (“ALCO”) was set up by the board in October 2008 to oversee and monitor the exposures of the Group and it meets on a monthly basis.

Financial risk management is centralised at head office level but execution and monitoring of specific risks and raising finance may be delegated to business units.

a Exposure to Interest Rate Fluctuations

The Group aims to maintain a suitable mixture of fixed rate and floating rate borrowings in order to stabilise interest costs over time despite rate movements. The Group uses interest rate swaps and other instruments to modify the interest rate characteristics of its borrowings. As at 31 December 2011, HK$34.2 billion (2010: HK$28.1 billion) of the Group’s total borrowings were effectively paying fixed rates and the remaining were effectively paying a floating rate of interest. In addition, HK$2 billion forward starting swaps was outstanding that had not become effective as of 31 December 2011 (2010: nil).

At 31 December 2011, if interest rates had been 0.5% higher/lower, with all other variables held constant, the hypothetical impact is summarised as follows:

			Group
	0.5%	higher	0.5%	lower
		Hypothetical		Hypothetical
	Hypothetical	impact on	Hypothetical	impact on
	impact on	equity increase/	impact on	equity increase/
in HK$ million	profit/(loss)	(decrease)	profit/(loss)	(decrease)
Bank borrowings	(165)	–	165	–
Cash and bank deposits	154	–	(154)	–
Derivatives	44	916	(40)	(948)
		Company
	0.5%	higher	0.5%	lower
		Hypothetical		Hypothetical
	Hypothetical	impact on	Hypothetical	impact on
	impact on	equity increase/	impact on	equity increase/
in HK$ million	profit/(loss)	(decrease)	profit/(loss)	(decrease)
Bank borrowings	(93)	–	93	–
Cash and bank deposits	54	–	(54)	–
Derivatives	44	542	(46)	(551)

CITIC Pacific Limited F 59

Notes to the Financial Statements

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

a Exposure to Interest Rate Fluctuations continued

At 31 December 2010, if interest rates had been 0.6% higher/lower, with all other variables held constant, the hypothetical impact is summarised as follows:

			Group
	0.6%	higher	0.6%	lower
		Hypothetical		Hypothetical
	Hypothetical	impact on	Hypothetical	impact on
	impact on	equity increase/	impact on	equity increase/
in HK$ million	profit/(loss)	(decrease)	profit/(loss)	(decrease)
Bank borrowings	(233)	–	233	–
Cash and bank deposits	147	–	(147)	–
Derivatives	12	1,045	(8)	(1,088)
		Company
	0.6%	higher	0.6%	lower
		Hypothetical		Hypothetical
	Hypothetical	impact on	Hypothetical	impact on
	impact on	equity increase/	impact on	equity increase/
in HK$ million	profit/(loss)	(decrease)	profit/(loss)	(decrease)
Bank borrowings	(64)	–	64	–
Cash and bank deposits	47	–	(47)	–
Derivatives	51	611	(56)	(622)

The Group holds AUD/USD plain vanilla forward contracts with an aggregate notional amount of AUD 0.7 billion outstanding at 31 December 2011 (2010: AUD1.4 billion). These derivatives qualify and are accounted for as hedges against movements in the AUD/USD spot exchange rate. Therefore changes in the fair value of the derivatives as a result of movements in the AUD/USD spot exchange rate are recognised in the hedging reserve whilst the residual changes in fair value of these derivatives largely reflecting movements in the differential between Australian and US interest rates are recorded in the profit and loss. At 31 December 2011, a 1% increase/ (decrease) in the differential between Australian and US interest rates could give rise to a hypothetical impact of approximately HK$37 million (2010: HK$115 million) (decrease)/increase on profit.

b Exposure to Foreign Currency Fluctuations

CITIC Pacific is based in Hong Kong and has determined that its functional currency is the Hong Kong Dollar. CITIC Pacific conducts its business mainly in Hong Kong, mainland China and Australia. Therefore it is subject to the risk of changes in the foreign exchange rates of the US Dollar, Renminbi and Australian Dollar and to a lesser extent, Japanese Yen and Euro. To minimise currency exposure, non-HK Dollar assets are usually financed by borrowings in the same currency as the asset or cash flow from it. Achieving this objective is not always possible due to limitations in financial markets and regulatory constraints, particularly on investment into mainland China as the Renminbi is currently not a freely convertible currency. In addition, regulations in mainland China require “registered capital’, which usually accounts for at least one third of the total investment amount for projects in mainland China to be paid in foreign currency. As the Group’s investment in mainland China expands, CITIC Pacific has an increasing exposure to the Renminbi.

The future revenue from the Group’s Australian iron ore mining project is denominated in USD and this is its functional currency for accounting purposes. A substantial portion of its development and operating expenditure are denominated in Australian Dollars.

F 60 CITIC Pacific Limited

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

b Exposure to Foreign Currency Fluctuations continued

As of 31 December 2011 the plain vanilla forward contracts had a notional amount of AUD733 million (2010: AUD1,363 million).

CITIC Pacific has funded the iron ore mining project and the acquisition of bulk cargo vessels by USD loans to match the future cash flow of these assets. The Company’s investments in the iron ore mining project and bulk cargo vessels (whose functional currency is in USD) have been designated as an accounting hedge against other USD loans at the corporate level. USD net investment hedges are employed to hedge 58% (2010: 55%) of the currency exposure arising from other USD loans and a JPY/HKD cross currency swap was employed to minimise currency exposure for JPY Notes.

Sensitivity analysis

The following table indicates the approximate change in the Group’s profit/(loss) and equity in response to reasonably possible changes in the foreign exchange rates to which the Group has significant exposure at the balance sheet date.

The sensitivity analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date, and that all other variables, in particular interest rates, remain constant.

			Group	Group
	Hypothetical			Hypothetical
	increase in		Effect on	decrease in		Effect on
	foreign		equity	foreign		equity
	exchange	Effect on	increase/	exchange	Effect on	increase/
in HK$ million	rates	profit/(loss)	(decrease)	rates	profit/(loss)	(decrease)
2011
USD	1%	(234)	–	1%	234	–
RMB	1%	51	–	1%	(51)	–
AUD	15%	(32)	877	15%	32	(877)
YEN	10%	(10)	–	10%	14	–
Pound Sterling	10%	(153)	–	10%	153	–
EURO	10%	4	–	10%	(4)	–

			Company	Company
	Hypothetical			Hypothetical
	increase in		Effect on	decrease in		Effect on
	foreign		equity	foreign		equity
	exchange	Effect on	increase/	exchange	Effect on	increase/
in HK$ million	rates	profit/(loss)	(decrease)	rates	profit/(loss)	(decrease)
2011
USD	1%	(237)	–	1%	237	–
RMB	1%	(9)	–	1%	9	–
AUD	15%	–	–	15%	–	–
YEN	10%	–	–	10%	–	–
EURO	10%	–	–	10%	–	–

CITIC Pacific Limited F 61

Notes to the Financial Statements

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

b Exposure to Foreign Currency Fluctuations continued

			Group	Group
	Hypothetical			Hypothetical
	increase in		Effect on	decrease in		Effect on
	foreign		equity	foreign		equity
	exchange	Effect on	increase/	exchange	Effect on	increase/
in HK$ million	rates	profit/(loss)	(decrease)	rates	profit/(loss)	(decrease)
2010
USD	1%	(167)	–	1%	167	–
RMB	4%	140	149	4%	(140)	(149)
AUD	10%	39	599	10%	(39)	(599)
YEN	7%	34	–	7%	(28)	–
Pound Sterling	2%	(12)	–	2%	12	–
EURO	3%	2	–	3%	(2)	–

			Company	Company
	Hypothetical			Hypothetical
	increase in		Effect on	decrease in		Effect on
	foreign		equity	foreign		equity
	exchange	Effect on	increase/	exchange	Effect on	increase/
in HK$ million	rates	profit/(loss)	(decrease)	rates	profit/(loss)	(decrease)
2010
USD	1%	(146)	–	1%	146	–
RMB	4%	163	–	4%	(163)	–
AUD	10%	–	–	10%	–	–
YEN	7%	–	–	7%	–	–
EURO	3%	–	–	3%	–	–

c Price Risk

The Group is exposed to equity securities price risk because investments held by the Group are classified on the consolidated balance sheet as available-for-sale. At 31 December 2011, if there had been a 5% increase/decrease in the market value of available-for-sale securities with all other variables held constant, the Group’s equity would have increased/(decreased) by HK$13 million (2010: HK$19 million).

The Group is subject to commodity price risks such as iron ore and coal, and price risks associated with input costs and costs of goods sold. The Group has not entered into derivatives to manage such exposures.

F 62 CITIC Pacific Limited

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

d Credit Exposure

The Group’s credit risk is primarily related to deposits placed with banks and the continued ability of the banks to deliver on foreign exchange and derivatives. Operating businesses have trade and accounts receivables.

The Group’s cash and deposits with banks are placed with major financial institutions. Counterparty limits are closely monitored for all financial institutions with whom the Group is doing business. The Group only deals with international financial institutions with an investment grade credit rating except for leading PRC financial institutions that do not have an international credit rating. The amount of counterparties’ lending exposure to the Group is an important consideration as a means to control credit risk.

Trade receivables are presented net of allowances for bad and doubtful debts. Credit risk in respect of trade and accounts receivables is dispersed since the customers are large in number and spread across different industries and geographical areas. Accordingly, the Group has no significant concentration of such credit risk. Each core operating business has a policy of credit control in place under which credit evaluations are performed on all customers requiring credit over a certain amount. Trade receivables are due within 15 to 90 days from the date of billing. Normally, the Group does not obtain collateral from customers.

e Liquidity Risk

Liquidity risk is managed by maintaining substantial undrawn committed credit facilities, money market lines and cash deposits so as to avoid over reliance on any one source of funds. Refinancing is allocated such that there is a reasonable amount coming due in any one period. In addition, the Company has established co-operative agreements with major PRC banks.

The Group’s liquidity management procedures involve regularly projecting cashflows in major currencies, and considering the level of liquid assets and new financings necessary to meet these cash flow requirements.

The Group seeks to secure financing from a diversified set of counterparties on the most competitive terms in the market. At the end of 2011 CITIC Pacific had multiple borrowing relationships with financial institutions in Hong Kong, PRC and other markets. The Group diversifies its funding mix through bank borrowings and accessing the capital markets and seeks to maintain a mix of short-and long-term borrowings to stagger maturities and minimise financing risk. In 2012 and 2013, the funding requirements of the Group are expected to continue be met through cash flows generated from operating activities, drawdown of undrawn borrowing facilities, roll-over of existing facilities as well as arrangement of new facilities. Based on the Group’s history of its ability to obtain external financing, its operating performance and its expected future working capital requirements, management believes that there are sufficient financial resources available to the Group to meet its liabilities as and when they fall due.

CITIC Pacific Limited F 63

Notes to the Financial Statements

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

e Liquidity Risk continued

The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to their maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, based on floating interest rate or exchange rates (where applicable) prevailing at the balance sheet date.

			Group
	Less than	Between	Between
in HK$ million	1 year	1 and 2 years	2 and 5 years	Over 5 years
At 31 December 2011
Bank and other borrowings	(30,606)	(13,479)	(28,217)	(48,794)
Derivative financial instruments	(921)	(781)	(1,744)	(1,821)
Trade creditors and accounts payable	(30,104)	(427)	(46)	–
At 31 December 2010
Bank and other borrowings	(17,682)	(14,185)	(28,437)	(48,479)
Derivative financial instruments	(957)	(813)	(854)	17
Trade creditors and accounts payable	(26,851)	(58)	–	(2)
		Company
	Less than	Between	Between
in HK$ million	1 year	1 and 2 years	2 and 5 years	Over 5 years
At 31 December 2011
Bank and other borrowings	(15,057)	(6,769)	(14,170)	(14,968)
Derivative financial instruments	(592)	(463)	(947)	(925)
Trade creditors and accounts payable	(293)	–	–	–
Amounts due to subsidiary companies	(6,223)	–	–	–
Financial guarantee*	(13,653)	(10,477)	(8,386)	(811)
At 31 December 2010
Bank and other borrowings	(2,745)	(8,219)	(14,464)	(9,886)
Derivative financial instruments	(603)	(508)	(409)	26
Trade creditors and accounts payable	(291)	–	–	–
Amounts due to subsidiary companies	(9,647)	–	–	–
Financial guarantee*	(5,585)	(10,397)	(18,904)	(869)

• These amounts are financial guarantees from the Company to its subsidiaries representing the hypothetical payment should the guarantees be crystalised, however based on the operating results, the Company does not expect them to be crystalised.

F 64 CITIC Pacific Limited

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

e Liquidity Risk continued

The table below analyses the Group’s derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, based on interest or exchange rates (where applicable) prevailing at the balance sheet date.

			Group
	Less than	Between	Between
in HK$ million	1 year	1 and 2 years	2 and	5 years	Over 5 years
At 31 December 2011
Forward foreign exchange contracts – cash flow hedges
outflow	(3,961)	(720)		–	–
inflow	4,901	884		–	–
Forward foreign exchange contracts – not qualified for
hedge accounting
outflow	(2,887)	(6)		(30)	(670)
inflow	2,814	3		13	1,147
		Company
	Less than	Between	Between
in HK$ million	1 year	1 and 2 years	2 and	5 years	Over 5 years
At 31 December 2011
Forward foreign exchange contracts – cash flow hedges
outflow	–	–		–	–
inflow	–	–		–	–
Forward foreign exchange contracts – not qualified for
hedge accounting
outflow	–	–		–	–
inflow	–	–		–	–

			Group
	Less than	Between	Between
in HK$ million	1 year	1 and 2 years	2 and	5 years	Over 5 years
At 31 December 2010
Forward foreign exchange contracts – cash flow hedges
outflow	(4,015)	(3,961)		(720)	–
inflow	5,000	4,931		889	–
Forward foreign exchange contracts – not qualified for
hedge accounting
outflow	(2,529)	(6)		(44)	(801)
inflow	2,517	3		15	1,136

CITIC Pacific Limited F 65

Notes to the Financial Statements

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

e Liquidity Risk continued

		Company	Company
	Less than	Between	Between
in HK$ million	1 year	1 and 2 years	2 and	5 years	Over 5 years
At 31 December 2010
Forward foreign exchange contracts – cash flow hedges
outflow	–	–		–	–
inflow	–	–		–	–
Forward foreign exchange contracts – not qualified for
hedge accounting
outflow	(1,106)	–		–	–
inflow	1,109	–		–	–

The foreign exchange forward contracts that are not qualified for hedge accounting as at 31 December 2011 consist of forward exchange contracts and cross currency swap contracts for hedging USD debt and JPY Notes as well as trade flows in foreign currencies. The gains and losses in the fair market value of these contracts are reflected in the profit and loss account.

f Fair Value Estimation

i) The fair value of outstanding derivative transactions is generated from software provided by Reval Inc., (“Reval”) a derivative risk management and hedge accounting solutions firm and are cross checked against price quotations obtained from major financial institutions. The fair value of loans receivable is estimated as the present value of future cash flows, discounted at the current market interest rates for similar financial instruments.

The fair value of borrowings is disclosed in note 29(d). The fair values are estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

ii) The carrying values less impairment provisions of trade and other receivables and trade and other payables are a reasonable approximation of their fair values. The fair values of financial liabilities for disclosure purposes are estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

iii) Certain financial instruments that fail to demonstrate, either at inception or throughout the life of the hedge, that the hedge is highly effective, do not meet hedging requirements and are evaluated at fair values at period ends with movements thereon dealt with in the profit and loss account.

F 66 CITIC Pacific Limited

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

f Fair Value Estimation continued

iv) Financial instruments are carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in HKFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument recognised 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 prices (unadjusted) in active markets for identical financial instruments

• Level 2: fair values measured using quoted prices in active markets 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

in HK$ million	Group Level 1 Level 2 Level 3 Total	Company Level 1 Level 2 Level 3 Total
2011 Assets Available-for-sale financial assets Listed	252 – – 252	– – – –
Unlisted	– – 80 80	– – – –
Derivative financial instruments Interest rate swaps	– 279 – 279	– – – –
Forward exchange contracts	– 1,050 – 1,050	– 487 – 487
Liabilities Derivative financial instruments Interest rate swaps	– 4,842 – 4,842	– 2,671 – 2,671
Forward exchange contracts	– 64 – 64	– 487 – 487
in HK$ million	Group Level 1 Level 2 Level 3 Total	Company Level 1 Level 2 Level 3 Total
2010 Assets Available-for-sale financial assets Listed	377 – – 377	– – – –
Unlisted	– – 58 58	– – – –
Derivative financial instruments Interest rate swaps	– 279 – 279	– 44 – 44
Forward exchange contracts	– 1,648 – 1,648	– 830 – 830
Liabilities Derivative financial instruments Interest rate swaps	– 2,583 – 2,583	– 1,487 – 1,487
Forward exchange contracts	– 15 – 15	– 826 – 826

During the year there were no significant transfers between instruments in Level 1 and Level 2.

CITIC Pacific Limited F 67

Notes to the Financial Statements

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

f Fair Value Estimation continued

iv) Financial instruments are carried at fair value continued

The movement during the year in the balance of Level 3 fair value measurements is as follows:

		Group
	Unlisted available-for-sale	Interest rate swap of derivative
in HK$ million	equity securities	financial instruments
At 1 January 2010	13	178
Purchase	19	–
Settlements	(14)	–
Net gains or losses recognised in other comprehensive
income during the year	31	–
Net gains or losses recognised in profit and loss account
during the year	9	1
Transfer out of Level 3*	–	(179)
At 31 December 2010	58	–
Total gains or losses for the year included in profit or loss
for assets held at the balance sheet date	9	1
Total gains or losses recognised in other comprehensive
income during the year	31	–
At 1 January 2011	58	–
Purchase	11	–
Net unrealised gains or losses recognised in other
comprehensive income during the year	11	–
At 31 December 2011	80	–
Total gains or losses recognised in other comprehensive
income during the year	11	–

• A Japanese Yen cross currency swap was transferred out of Level 3 to Level 2 in 2010. This was due to the change in valuation methodology, which incorporated new market observable data on the correlation of Japanese Yen to USD, that had recently become available.

F 68 CITIC Pacific Limited

30 Financial Risk Management and Fair Values continued

Financial Risk Factors continued

f Fair Value Estimation continued

v) Fair values of financial instruments carried at other than fair value

The carrying amounts of the Group’s and the Company’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2011 and 2010 except as follows:

2011 Carrying	Carrying	2010
in HK$ million amount Fair value	amount		Fair value
The Group Bank loans 91,785 90,257	78,402		77,183
Global bonds (USD Notes/Bond) 3,885 3,669	3,510		3,575
Private placement (USD Notes, JPY Notes & RMB Bond) 3,037 3,175	1,771		1,768
The Company Bank loans 37,875 36,470	29,507		28,378
USD Bond 3,885 3,669	–		–
Private placement (USD Notes & RMB Bond) 2,397 2,514	1,165		1,141

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

vi) Securities

Fair value for the listed securities is based on quoted market prices at the balance sheet date without any deduction for transaction costs. Fair values for the unquoted equity investments are estimated using the applicable price/earnings ratios for similar listed companies adjusted for the specific circumstances of the issuer.

vii) Derivatives

Forward exchange contracts are valued using the software provided by Reval, which uses a discounted cashflow model with independently sourced market data. Forward rates are used to convert future cashflows back to the functional currency. These cashflows are then discounted back to the valuation date to arrive at the fair market value.

Interest rate swap agreements are valued using a discounted cashflow model mainly based on independently sourced market data. Future cashflows for floating rate indices are implied from market curves. All future cashflows are then discounted back to the valuation date to arrive at the fair market value.

viii) Interest-bearing loans and borrowings

The fair value is estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

ix) Interest rates used for determining fair value

The Group uses the appropriate market yield curve or benchmark rate as of 31 December 2011 plus an appropriate constant credit spread to calculate the fair value of its interest bearing debt.

CITIC Pacific Limited F 69

Notes to the Financial Statements

31 Capital Risk Management

The Group’s primary objective when managing capital is to safeguard the Group’s ability to provide returns for shareholders and to support the Group’s stability and growth. The Group regularly reviews and manages its capital structure to maintain a balance between the higher shareholders’ returns that might be possible with higher levels of borrowings and the advantages and security afforded by a strong shareholders’ equity position, and makes adjustments to the capital structure in light of changes in economic conditions.

The Group’s leverage ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and bank deposits. Total capital is total ordinary shareholders’ funds and perpetual capital securities, as shown in the consolidated balance sheet, plus net debt.

The leverage ratios at 31 December 2011 and 2010 were as follows:

		As restated
in HK$ million	2011	2010
Total borrowings	98,707	83,683
Less: Cash and bank deposits	30,930	24,558
Net debt	67,777	59,125
Total ordinary shareholders’ funds and perpetual capital securities	80,958	68,346
Total capital	148,735	127,471
Leverage ratio	46%	46%

CITIC Pacific has developed a set of standard loan covenants to facilitate the management of its loan portfolio and debt compliance and cover most of CITIC Pacific’s loan portfolio. The financial covenants that are effective at 31 December 2011 are generally limited to three categories, namely, a minimum net worth undertaking where the Group has to maintain a net worth of greater or equal to HK$25 billion, a maximum ratio of total borrowings to net worth where the consolidated borrowings of the Group cannot exceed 1.5 times consolidated net worth and a limit of pledged assets to 30% or below as a ratio of the Group’s consolidated total assets. CITIC Pacific monitors these ratios on a regular basis and was in compliance with these loan covenants as at 31 December 2011.

32 Derivative Financial Instruments

in HK$ million	Group 2011 2010 Assets Liabilities Assets Liabilities
Qualified for hedge accounting – cash flow hedges Interest-rate instruments	– 4,566 33 2,379
Forward foreign exchange instruments	1,047 – 1,635 –
	1,047 4,566 1,668 2,379
Not qualified for hedge accounting
Interest-rate instruments	279 276 246 204
Forward foreign exchange instruments	3 64 13 15
	282 340 259 219
	1,329 4,906 1,927 2,598
Less: current portion
Interest-rate instruments	73 95 60 40
Forward foreign exchange instruments	328 64 13 15
	401 159 73 55
	928 4,747 1,854 2,543

F 70 CITIC Pacific Limited

32 Derivative Financial Instruments continued

in HK$ million	Company 2011 2010 Assets Liabilities Assets Liabilities
Qualified for hedge accounting – cash flow hedges Interest-rate instruments	– 2,397 33 1,286
Forward foreign exchange instruments	487 487 826 826
	487 2,884 859 2,112
Not qualified for hedge accounting
Interest-rate instruments	– 274 11 201
Forward foreign exchange instruments	– – 4 –
	– 274 15 201
	487 3,158 874 2,313
Less: current portion
Interest-rate instruments	– 93 11 37
Forward foreign exchange instruments	326 326 4 –
	326 419 15 37
	161 2,739 859 2,276

i) Forward foreign exchange instruments

The notional amount of the outstanding forward foreign exchange instruments at 31 December 2011 was HK$7,552 million (2010: HK$10,409 million).

The effective portions of gains and losses on forward foreign exchange contracts associated with highly probable forecast underlying transactions denominated in foreign currency expected to occur at various dates within the next 16 months are recognised in the hedging reserve in equity as of 31 December 2011 and will be recognised in the profit and loss account in the period or periods during which the underlying hedged transactions affect the profit and loss account.

ii) Interest rate instruments

The notional amount of outstanding interest rate swap contracts at 31 December 2011 was HK$29,790 million (2010: HK$32,351 million). In addition, the Group had cross currency interest rate swap contracts with an aggregate notional amount of HK$400 million (2010: HK$1,195 million). At 31 December 2011, the fixed interest rates under interest rate swaps varied from 0.84% to 5.24% per annum (2010: 0.84% to 7.23% per annum). The effective portion of gains and losses on interest rate swap contracts qualifying for hedge accounting as of 31 December 2011 are recognised in the hedging reserve in equity and are released to the profit and loss account to match relevant interest payments which are mainly calculated using Hong Kong Interbank offered rate (HIBOR) or London Interbank offered rate (LIBOR).

CITIC Pacific Limited F 71

Notes to the Financial Statements

33 Deferred Taxation

a Group

Deferred taxation is calculated in full on temporary differences under the liability method using the tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred taxation is realised or settled. The components of deferred tax assets and (liabilities) recognised in the consolidated balance sheet and the movements during the year are as follows:

in HK$ million	Deferred tax arising from Depreciation allowances in excess of related depreciation Losses Revaluation of investment properties and valuation of other properties Mining assets and others Total 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010
At 1 January, as previously reported	(508) (519) 2,300 1,975 (1,451) (1,174) (2,046) (1,619) (1,705) (1,337)
Effect of adoption of HKAS 12 (amendment)	93 93 (19) (19) (175) (69) – – (101) 5
At 1 January, as restated	(415) (426) 2,281 1,956 (1,626) (1,243) (2,046) (1,619) (1,806) (1,332)
Exchange adjustment	(2) (5) (1) 7 (77) (67) (31) – (111) (65)
Credited to reserve	– – – – – – 759 26 759 26
Effect of tax rate change	6 – – – 7 – (2) – 11 –
(Charged)/credited to consolidated profit and loss account	2 15 783 318 (390) (316) (898) (454) (503) (437)
Others	– 1 – – – – (76) 1 (76) 2
At 31 December	(409) (415) 3,063 2,281 (2,086) (1,626) (2,294) (2,046) (1,726) (1,806)

		Group
		As restated	As restated
	31 December	31 December	1 January
in HK$ million	2011	2010	2010
Net deferred tax assets recognised on the consolidated balance sheet	1,647	763	603
Net deferred tax liabilities recognised on the consolidated balance sheet	(3,373)	(2,569)	(1,935)
	(1,726)	(1,806)	(1,332)

F 72 CITIC Pacific Limited

33 Deferred Taxation continued

b Deferred Tax Assets Unrecognised

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

		Group
		As restated	As restated
	31 December	31 December	1 January
in HK$ million	2011	2010		2010
Deductible temporary differences	22	27		35
Tax losses	4,006	3,712		3,360
Taxable temporary differences	(814)	(638)		(198)
	3,214	3,101		3,197
in HK$ million		2011	Company	2010
Deductible temporary differences		18		22
Tax losses		757		678
		775		700

Note: Tax losses in certain tax jurisdictions of HK$554 million (2010: HK$701 million) will expire within the next five years. The remaining amounts do not expire under current tax legislation.

c Deferred Tax Liabilities not Recognised

At 31 December 2011, temporary differences relating to the undistributed profits of subsidiary companies amounted to HK$2,425 million (2010: HK$2,193 million). Deferred tax liabilities of HK$124 million (2010: HK$245 million) have not been recognised in respect of the tax that would be payable on the distribution of these retained profits as the Group controls the dividend policy of these subsidiary companies and it has been determined that it is probable that profits will not be distributed in the foreseeable future.

CITIC Pacific Limited F 73

Notes to the Financial Statements

34 Provisions and Deferred Income

in HK$ million	Site restoration	Mining rights	Gas contract	Deferred income	Total
Balance at 1 January 2011	338	1,511	302	103	2,254
Provisions made during the year	123	13	187	72	395
Balance at 31 December 2011	461	1,524	489	175	2,649
Balance at 1 January 2010	101	706	–	–	807
Provisions made during the year	237	805	302	103	1,447
Balance at 31 December 2010	338	1,511	302	103	2,254

Site restoration

A provision of HK$123 million (2010: HK$237 million) was made during the year ended 31 December 2011 in respect of a subsidiary’s obligation to rectify environmental damage with a corresponding increase in property, plant and equipment. Amortisation of this asset will occur from the production date, using the units of production method.

Mining rights

In accordance with the mining right/lease agreements entered into by two subsidiary companies of the Group, the Group is committed to pay a defined royalty if either of the two subsidiary companies’ production is less than 6 million tonnes by March 2013. A provision has been made for this commitment with a corresponding increase in intangible mining assets. Amortisation of this asset will occur from the production date, using the units of production method.

Gas contract

In accordance with the Group’s contracted gas purchases, the Group is obligated to pay and/or take delivery of set levels of gas commencing on October 2011. Such gas contracts have liquidated damages clauses requiring damages be paid should the set levels of gas purchased not be adhered to. Due to the potential mismatch of the gas delivery under contracts and the production schedule, utilisation of such gas levels is projected to be at a lower rate at certain points in time and therefore a provision for the estimated damages payable has been accrued based on a combination of liquidated damages and losses from the on-sale of surplus gas. The Group has mitigated any potential liquidated damages in the short term through amendments in agreements with the gas supplier and is currently in favourable discussions to mitigate the potential longer term liquidated damages payable.

Deferred income

The amount includes mainly deferred revenue arising from an advance receivable from a customer for certain telecommunication service.

F 74 CITIC Pacific Limited

35 Capital Commitments

in HK$ million	Group 2011	2010
Authorised but not contracted for (Note a)	792	2,399
Contracted but not provided for (Note b)	13,009	13,848
in HK$ million	Company 2011	2010
Contracted but not provided for	–	–

Note a

in HK$ million	2011	Group	2010
Authorised but not contracted for
Analysis by operating segment
Special Steel	270		815
Dah Chong Hong	446		291
CITIC Telecom	66		46
Property – mainland China	10		1,247
	792		2,399

Note b

in HK$ million	2011	Group	2010
Contracted but not yet paid nor accrued
Analysis by operating segment
Special steel	3,225		3,843
Iron ore mining	7,696		5,107
Property
Mainland China	1,866		4,455
Hong Kong	29		11
Dah Chong Hong	117		129
CITIC Telecom	44		260
Other investments	32		43
	13,009		13,848

CITIC Pacific Limited F 75

Notes to the Financial Statements

36 Operating Lease Commitments

The future aggregate minimum lease payments under non-cancellable operating leases as at 31 December were as follows:

in HK$ million	Group Company 2011 2010 2011 2010
Properties commitments
Within 1 year	420 280 49 20
After 1 year but within 5 years	728 536 65 –
After 5 years	830 450 – –
	1,978 1,266 114 20
Other commitments
Within 1 year	91 75 – –
After 1 year but within 5 years	202 218 – –
After 5 years	374 421 – –
	667 714 – –
	2,645 1,980 114 20

37 Business Combinations, Acquisitions and Disposals

a Purchase of Subsidiary Companies

During the year ended 31 December 2011, the subsidiaries of the Group completed several business acquisitions. The major acquisitions are as follows:

i) On 1 January 2011, a subsidiary gained control over Shenzhen Shenye Shiye Limited (“Shenye”) through obtaining a casting vote in all shareholders’ meetings as stated in the equity transfer agreement with no further transfer of consideration. As a result, Shenye Group changed from jointly controlled entities to subsidiaries of the Group. Shenye Group is engaged in sales of motor vehicles and spare parts, provision of after-sales services and conducting customer surveys for the manufacturers or suppliers.

ii) In November 2011, a subsidiary acquired a 49% equity interest in Smart Joint Investment Limited and its subsidiaries and together with a 50% equity interest in each of Power Success Management Limited and Smartways Limited and their subsidiaries (collectively known as “Target Group”) and the related shareholders’ loans. The Target Group is engaged in sales of motor vehicles and spare parts, provision of after-sales services and conducting customer surveys for the manufacturers or suppliers.

iii) On 2 September 2010, a subsidiary entered into the Framework Agreement with CITIC Group Corporation, CE-SCM Network Technology Co., Ltd. (“CE-SCM”), Information Centre of State-owned Assets Supervision & Administration Commission of the State Council (“SASACIC”) and China Enterprise Communications Ltd. (“CEC”), pursuant to which the Group will acquire the entire equity interest of China Enterprise Netcom Corporation Limited (“CEC-HK”) from China Enterprise Communication Technology (Holding) Limited. The Group completed the acquisitions of CEC-HK on 29 July 2011. CEC-HK is engaged in the provision of telecommunications leasing and technology services.

iv) In August 2011, a subsidiary of the Group acquired 55% equity interest in 湖北新冶鋼汽車零部件有限公司 (“新冶鋼零部件”). 新冶鋼零部件 is engaged in production and sale of auto parts. In October 2011, the subsidiary increased its equity interest in 新冶鋼零部件 to 80%.

F 76 CITIC Pacific Limited

37 Business Combinations, Acquisitions and Disposals continued

b The acquired companies contributed an aggregate revenue of HK$3,743 million and aggregate net profit of HK$259 million to the Group for the period from the date of acquisition to 31 December 2011.

If these business combination had occurred on 1 January 2011, the Group’s turnover and profit for the year would have been approximately HK$101,353 million and approximately HK$11,018 million respectively. These amounts have been calculated by adopting the Group’s accounting policies and adjusting the results of the relevant subsidiaries to reflect the additional amortisation and depreciation that would have been charged assuming the fair value adjustments to intangible assets, property, plant and equipment and leasehold land – operating lease had been applied from 1 January 2011, together with the consequential tax effects.

The acquisitions completed during the year ended 31 December 2011 had the following effect on the Group’s assets and liabilities on their respective dates of acquisitions:

in HK$ million	2011
Net assets acquired
Property, plant and equipment	227
Leasehold land-operating lease	15
Intangible assets	485
Inventories	451
Debtors, accounts receivable, deposits and prepayments	1,011
Deferred tax assets	2
Cash and bank deposits	308
Creditors, accounts payable, deposits and accruals	(1,162)
Bank loans and other loans	(364)
Taxation	(10)
Deferred tax liabilities	(82)
Less: previously held interests in jointly controlled entities	(174)
Less: loss on disposal of jointly controlled entities	2
Fair value of net assets acquired	709
Goodwill (Note)	190
Non-controlling interests arising from acquisitions of subsidiaries	(284)
	615
Less: consideration payable	(52)
Less: deposit for acquisition of a subsidiary	(66)
Less: consideration satisfied by property, plant and equipment	(4)
Consideration paid, satisfied in cash	493
Less: cash acquired	(308)
Net cash outflow	185

Note: Goodwill arose from the acquisitions represents the control premium paid, the benefits of expected synergies to be achieved from integrating the subsidiaries into the Group’s existing businesses, future market development and the acquired workforce. None of the goodwill recognised is expected to be deductible for income tax purposes.

CITIC Pacific Limited F 77

Notes to the Financial Statements

37 Business Combinations, Acquisitions and Disposals continued

c Disposal of Subsidiary Companies

c Disposal of Subsidiary Companies
in HK$ million	2011
Net assets disposed
Properties under development	1,716
Debtors, accounts receivable, deposits and prepayments	1
Cash and bank deposits	34
Creditors, accounts payable, deposits and accruals	(39)
	1,712
Gain on disposal	230
Release of reserve	(109)
Consideration	1,833
Satisfied by
Cash	1,833
Analysis of the net inflow of cash and cash equivalents in respect of the disposal
of subsidiary companies
Cash consideration	1,833
Cash and bank deposits disposed of	(34)
	1,799

Subsidiary companies disposed during the year mainly represent a company holding a property in Shanghai.

F 78 CITIC Pacific Limited

38 Contingent Liabilities

in HK$ million	Company 2011	2010
The Company provided guarantees in respect of bank facilities as follows:
Subsidiary companies	34,744	36,882
Associated company	35	35
Other performance guarantees and potential penalties
Subsidiary companies (Note i)	4,577	4,582
	39,356	41,499

Note:

• i) The Company has provided guarantees to its subsidiary companies to support their performance or obligations under construction or procurement contracts.

• ii) In the normal course of the Group’s business, there are a number of claims now outstanding by or against the Group. While the outcome of such claims cannot be readily predicted, management believes that they will be resolved without material adverse financial effect on the consolidated financial position or liquidity of the Group.

• iii) The Group is subject to ever stricter environmental laws and regulations concerning its operations and products. These laws may require the Group to take remedial action and rehabilitation works to reduce the effects on the environment of previous actions by the Group. The ultimate requirement for remedial action and rehabilitation works and its cost are inherently difficult to predict but the estimated cost of undisputed environmental obligations has been provided for in these accounts. Whilst the amount of future costs could be significant and material to the Group’s results in the period they are recognised, it is not possible to estimate the amounts involved, although management does not expect these costs to have a material adverse financial effect on the consolidated financial position or liquidity of the Group.

• iv) Following CITIC Pacific’s announcement of a foreign exchange related loss, on 22 October 2008, the Hong Kong Securities and Futures Commission (“SFC”) announced that it had commenced a formal investigation into the affairs of CITIC Pacific. 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.

• On 18 November 2009, the Acting Secretary for the Financial Services and the Treasury said that the SFC’s investigation has been completed while the Police’s investigation is still ongoing.

In the absence of the findings of these investigations being made available to CITIC Pacific 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.

CITIC Pacific Limited F 79

Notes to the Financial Statements

39 Material Related Party Transactions

Where one party has the ability to control the other party or exercise significant influence in making financial and operating decisions of another party, they are considered to be related. Parties are also considered to be related if one party is subject to control and another party is subject to control, joint control or significant influence both by the same third party.

a Transactions with State-Owned Enterprises (Other than Companies within the CITIC Group Corporation)

CITIC Pacific Limited is controlled by CITIC Group Corporation which owns 57.5% of the Company’s shares. CITIC Group Corporation is subject to the control of the PRC Government which also controls a significant portion of the productive assets and entities in the PRC (collectively referred as “state-owned enterprises“). Therefore, transactions with state-owned enterprises are regarded as related party transactions.

For the purpose of related party disclosure, the Group has identified to the extent practicable whether its customers and suppliers are state-owned enterprises. Many state-owned enterprises have multi-layered corporate structures and the ownership structures change over time as a result of transfers and privatisation programs. The Group has certain transactions with other state-owned enterprises including but are not limited to sales and purchases of goods and services, payments for utilities, acquisition of property interests, depositing and borrowing money and entering into derivative financial instruments. In the ordinary course of the Group’s businesses, transactions occur with state-owned enterprises.

The more significant transactions with state-owned enterprises are as follows:

i) As at 31 December 2011, there were derivative liabilities of HK$3,894 million (2010: HK$1,840 million) in relation to outstanding financial instrument transactions with state-owned banks. They are included in the balances disclosed in Note 32.

ii) Balances (other than derivatives) with state-owned banks

in HK$ million	2011	2010
Bank balances and deposits	18,945	16,799
Bank loans	73,319	64,134

iii) Transactions with China Metallurgical Group

On 24 January 2007, Sino Iron Pty Ltd., a wholly owned subsidiary of the Company, (“Sino Iron”) entered into a general construction contract (“the Contract”) with China Metallurgical Group Corp., a state-owned enterprise (“MCC”). Pursuant to the Contract, MCC is responsible for the procurement of mining equipment, design, construction and installation of the primary crushing plant, concentrator, pellet plant, material handling system, camp and other auxiliary infrastructure facilities (“the Works to be conducted by MCC”) at an amount not exceeding US$1,106 million (approximately HK$8,630 million). The price for the Works to be conducted by MCC is capped and no increase to the contract sum can be made unless otherwise agreed by both parties. On 20 August 2007, Sino Iron entered into supplemental agreements with MCC in relation to, amongst other things, the adjustment to the scope of the works to be conducted by MCC to extend to the second 1 billion tonnes of iron ore to be extracted and the revision of the contract sum to US$1,750 million (approximately HK$13,650 million). On 11 May 2010, Sino Iron and MCC entered into a supplemental contract to increase the contract sum by US$835 million to US$2,585 million due to the changes in the cost structure of the industry.

F 80 CITIC Pacific Limited

39 Material Related Party Transactions continued

a Transactions with State-Owned Enterprises (Other than Companies within the CITIC Group Corporation) continued

iii) Transactions with China Metallurgical Group continued

Sino Iron and MCC also agreed that the remaining works (other than works to be conducted by MCC) shall be contracted out to third parties directly by Sino Iron and such works shall be managed by MCC. Sino Iron agreed to pay 1% of the relevant contract price (excluding any fee for training, interest, transportation, insurance and tax expenses) to MCC as management fees for the MCC managed works.

On 30 December 2011, Sino Iron and MCC entered into a supplemental contract to increase the contract sum by US$822 million to US$3,407 million due to the failure by MCC to take into consideration the full impact of the increase in the construction costs related to mining projects, including labour shortages, higher costs of equipment and construction materials as well as foreign exchange volatility.

in HK$ million	2011	2010
Balances with MCC
Trade, other receivables and prepayment	7,484	5,895
Trade payable and other payable to MCC	(1,813)	(1,395)
Deposit received from MCC for the acquisition of 20% interest in Sino Iron	(2,130)	(2,130)
Transaction with MCC
Incurred costs on the Contract	5,937	4,783

On 20 August 2007, a wholly owned subsidiary of the Company, and MCC entered into an agreement for MCC to purchase 20% of Sino Iron for a consideration equivalent to 20% of all the funds provided to Sino Iron by CITIC Pacific for the development of the iron ore project up to the date of completion, plus interest. As at 31 December 2011, the Group received a deposit of HK$2,130 million (31 December 2010: HK$2,130 million) from MCC for the sale of 20% interest in Sino Iron which had not been completed as at 31 December 2011.

The Group holds 2.13% of MCC shares acquired at MCC’s initial public offering.

iv) In 2010, the Group disposed its 65% interest in Shijiazhuang Iron & Steel Co., Ltd., a jointly controlled entity to a state-owned enterprise, for a consideration of approximately HK$1.8 billion. The required consents and approvals for the share transfer were obtained and the outstanding consideration of HK$1.4 billion as at 31 December 2010 was received in current year.

CITIC Pacific Limited F 81

Notes to the Financial Statements

39 Material Related Party Transactions continued

b Transactions with Other Related Parties

The Group also had the following significant transactions and balances with other related parties:

in HK$ million	2011	2010
Transactions with jointly controlled entities
(i) Recurring transactions
Interest income	270	171
Dividend income	1,312	1,143
Sales	418	306
Service income	20	2
	2,020	1,622
Purchases	303	1,336
Service charges	79	51
	382	1,387
Transactions with associated companies
(i) Recurring transactions
Interest income	–	7
Dividend income	166	537
Sales	733	518
Service income	15	18
	914	1,080
Purchases	69	–
Rental charge	69	85
Service charge	7	6
	145	91

F 82 CITIC Pacific Limited

39 Material Related Party Transactions continued

c Transactions with CITIC Group Corporation

c Transactions with CITIC Group Corporation
in HK$ million 2011	2010
Balances with fellow subsidiary companies within CITIC Group Corporation (i) Bank balances 632	305
(ii) Bank loans 553	474
(iii) Trade and other payables 260	106
Transactions with fellow subsidiary and associated companies within CITIC Group Corporation (i) Sales 102	–
(ii) Service fee paid 139	–

On 2 September 2010, a subsidiary company of the Group proposed to acquire from CITIC Group Corporation (i) a 8.23% equity interest in China Enterprise Communications Ltd. (“CEC”), a then 53.32% owned subsidiary of CITIC Group Corporation, (ii) a 100% equity interest in China Enterprise Netcom Corporation Limited, a then wholly owned subsidiary of CEC, and (iii) the right to purchase an additional 45.09% interest in CEC. Total consideration for the proposed acquisition amounted to HK$167 million. The acquisition of the 100% equity interest in China Enterprise Netcom Corporation Limited was completed on 29 July 2011, but the remaining transaction has not yet been completed.

On 15 July 2011, a subsidiary company of the Group entered into a Sale and Purchase Agreement with a subsidiary company of CITIC Group Corporation to dispose of its 50% non-controlling interest in CITIC Guoan Co, Ltd at a profit. The consideration for the disposal is RMB3,511 million (equivalent to approximately HK$4,213 million). The transaction was not yet completed as at 31 December 2011.

40 Ultimate Holding Company

The Directors regard CITIC Group Corporation (formerly known as CITIC Group), a state-owned company established under the laws of the PRC, as being the ultimate holding company of the Company.

41 Comparative Figures

Certain comparative figures for 2010 have been adjusted to conform with the current accounting standards described in Note 1a(ii) to the Accounts. In accordance with accounting standard, HKAS1 – Presentation of Financial Statements, an additional balance sheet and the relevant notes as at the beginning of the comparative year are also presented.

42 Approval of Financial Statements

The financial statements were approved by the Board of Directors on 1 March 2012.

CITIC Pacific Limited F 83

Notes to the Financial Statements

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies

The following are the principal subsidiary companies, jointly controlled entities and associated companies which in the opinion of the directors, principally affect the results and net assets of the Group. To give full details of all companies would in the opinion of the directors result in particulars of excessive length.

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Special Steel Subsidiary companies Daye Special Steel Co., Ltd. People’s Republic of China (Sino-foreign joint stock limited company) 58.13	– 58.13	449,408,480 RMB1 Steel making
Hubei Xin Yegang Steel Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Steel making
Jiangsu CP Xingcheng Special Steel Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Steel making
Jiangyin CP Xingcheng By-products Recycling Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Processing and recycling of metal slag and sale of its related recycled products
Jiangyin CP Xingcheng Industry Gas Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Production and sale of oxygen, liquefied oxygen, nitrogen and argon
Jiangyin Xingcheng Metalwork Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Developing and production of alloy and metal hardware
Jiangyin Xingcheng Special Steel Works Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Steel making
Jiangyin Xingcheng Steel Products Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Steel making
Jiangyin Xingcheng Storage and Transportation Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Loading and unloading business

F 84 CITIC Pacific Limited

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Tongling Xin Yaxing Coking & Chemical Co., Ltd. People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Production and sale of coal gas, coke and chemical related products
Wuxi Xingcheng Steel Products Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Production and sale of ferrous metal materials
中信泰富特鋼經貿有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Wholesale, retail and import/export of steel products, relevant materials and technology
江陰泰富興澄特種材料有限公司 People’s Republic of China (Sino-foreign equity joint venture) 100	– 100	N/A N/A Production and sale of hot iron and the related products
江陰澄東爐料有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A General sales of scrap steel, alloys and coke
湖北中特新化能科技有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Production and sale of coal gas, coke and chemical related products
湖北新冶鋼特種鋼管有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Production of seamless steel tube
銅陵新亞星港務有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Port construction, operation and related service
湖北新冶鋼汽車零部件有限公司 People’s Republic of China (Sino-foreign equity joint venture) 80	– 80	N/A N/A Production and sale of auto parts like shaft
Associated company 湖北中航冶鋼特種鋼銷售 有限公司 People’s Republic of China (Sino-foreign equity joint venture) 40	– 40	N/A N/A Sale of steel
Jointly controlled entity# 中信泰富工程技術(上海) 有限公司 People’s Republic of China (Sino-foreign equity joint venture) 70	– 70	N/A N/A Engineering service for metallurgy and mining

CITIC Pacific Limited F 85

Notes to the Financial Statements

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Iron Ore Mining Subsidiary companies CITIC Pacific Mining Management Pty Ltd Australia 100	– 100	1 N/A Management services and mine planning works services
Korean Steel Pty Ltd Australia 100	– 100	10,000 N/A Mining extraction and processing of magnetite
Loreto Maritime Pte. Ltd. Singapore 100	– 100	3 N/A Build and own transshipment vessels and related facilities and equipment for iron ore product
MetaGas Pty Ltd Australia 100	– 100	5,000,010 N/A Gas procurement and trading
Pacific Resources Trading Pte. Ltd. Singapore 100	– 100	280,001 N/A General trading and related business
Pastoral Management Pty Ltd Australia 100	– 100	5,000,010 N/A Pastoral lease management
Sino Iron Pty Ltd Australia 100	– 100	11,526 N/A Construction of major plant and machinery to facilitate the magnetite iron ore project. Holder of 1 billion tonne magnetite iron ore mining right
Sino Iron Holdings Pty Ltd Australia 100	– 100	1,272,140,410 N/A Parent company of Sino Iron Pty Ltd and Balmoral Iron Holdings Pty Ltd No active trading
Bolein Corp. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Burgeon Investments Ltd. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Cobikin Corp. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Cosmos Light Holdings Corp. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Silver Bliss Enterprises Inc. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Tridot Enterprises Inc. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Winrich Investments Holdings Ltd. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Bright Treasure Assets Holdings Inc. British Virgin Islands 100	– 100	1 US$1 Vessel owning

F 86 CITIC Pacific Limited

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Long Glory Assets Limited British Virgin Islands 100	– 100	1 US$1 Vessel owning
Master Champ Assets Ltd. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Palesto Holdings Inc. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Parmigan Corp. British Virgin Islands 100	– 100	1 US$1 Vessel owning
Cheng Xin Chartering Pte. Ltd. Singapore 100	– 100	1 N/A Chartering of vessels
Transshipment Leasing Pte. Ltd. Singapore 100	– 100	1 N/A Leasing of transshipment assets
Cheng Xin Shipmanagement Pte. Ltd. Singapore 100	– 100	1 N/A Management of vessels
Property People’s Republic of China Subsidiary companies CITIC Pacific (Yangzhou) Properties Co., Ltd. People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
Shanghai Super Property Co., Ltd. People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property investment and management
上海中信泰富廣場有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property investment and management
上海老西門新苑置業有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 100	– 100	N/A N/A Property development
上海珠街閣房地產開發有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	84.52 15.48	N/A N/A Property development
上海利通置業有限公司 People’s Republic of China (Sino-foreign equity joint venture) 100	96.93 3.07	N/A N/A Property development
中信泰富(上海)物業管理 有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property management
江陰興澄置業有限公司 People’s Republic of China (Sino-foreign equity joint venture) 70	– 70	N/A N/A Property development
無錫太湖景發展有限公司 People’s Republic of China (Sino-foreign equity joint venture) 70	– 70	N/A N/A Sports related services
無錫太湖苑置業有限公司 People’s Republic of China (Sino-foreign equity joint venture) 70	– 70	N/A N/A Property investment and development

CITIC Pacific Limited F 87

Notes to the Financial Statements

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
中信泰富萬寧發展有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
中信泰富萬寧(聯合)開發 有限公司 People’s Republic of China (Limited liability company) 80	– 80	N/A N/A Property development
海南中泰物業服務有限公司 People’s Republic of China (Limited liability company) 100	– 100	NA N/A Property management
萬寧中意發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧中榮發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧中宏發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧仁和發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧仁信發展有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
萬寧百納發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧金信發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧金誠發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
萬寧創遠發展有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
中信泰富萬寧瑞安發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development
中信泰富萬寧天富發展有限公司 People’s Republic of China (Sino-foreign co-operative joint venture) 99.9^	– 99.9	N/A N/A Property development

F 88 CITIC Pacific Limited

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
寧波信富置業有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
上海嘉頤房地產開發有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
上海嘉逸房地產開發有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
上海嘉諧房地產開發有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
紀亮(上海)房地產開發有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
尊創(上海)賓館有限公司 People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Property development
Jointly controlled entities# 上海瑞明置業有限公司 People’s Republic of China (Sino-foreign equity joint venture) 50	50 –	– – Property development – – Property development – – Property development 2 HK$10 Property investment
上海瑞博置業有限公司 ‡ People’s Republic of China (Sino-foreign equity joint venture) 50	50 –
中船置業有限公司 ‡ People’s Republic of China (Sino-foreign equity joint venture) 50	50 –
Hong Kong Subsidiary companies Borgia Limited Hong Kong 100	– 100
Famous Land Limited Hong Kong 100	– 100	2 HK$1 Property investment
Glenridge Company Limited Hong Kong 100	– 100	2 HK$10 Property investment
Hang Luen Chong Investment Company, Limited Hong Kong 100	– 100	80,000 HK$100 Property investment
Hang Luen Chong Property Management Company, Limited Hong Kong 100	– 100	2 HK$1 Property management
Hang Wah Chong Investment Company Limited Hong Kong 100	– 100	50,000 HK$100 Property investment
Lindenford Limited Hong Kong 100	– 100	2 HK$10 Property investment

CITIC Pacific Limited F 89

Notes to the Financial Statements

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Neostar Investment Limited Hong Kong 100	– 100	2 HK$1 Property investment
Pacific Grace Limited Hong Kong 100	– 100	2 HK$1 Property investment
Tendo Limited Hong Kong 100	– 100	2 HK$10 Property investment
Associated companies CITIC Tower Property Management Company Limited Hong Kong 40	– 40	– – Property management
Goldon Investment Limited Hong Kong 40	– 40	– – Property investment
Hong Kong Resort Company Limited‡ Hong Kong 50	– 50	– – Property development
Konorus Investment Limited‡ Hong Kong 15	– 15	– – Property investment and development
Shinta Limited‡ Hong Kong 20	– 20	– – Property investment
Energy Subsidiary company Sunburst Energy Development Co., Ltd. People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Investment holding
Jointly controlled entities# Huaibei Go-On Power Company Ltd. People’s Republic of China (Sino-foreign equity joint venture) 12.5	– 12.5	– – Building, possession and operation of power plant and sale of electricity
Inner Mongolia Electric Power (Holdings) Company Limited People’s Republic of China (Sino-foreign equity joint venture) 35	– 35	– – Coal-fired power station operation and management
Jiangsu Ligang Electric Power Company Limited People’s Republic of China (Sino-foreign equity joint venture) 65.05	– 65.05	– – Electric power plant construction and operation
Jiangyin Ligang Electric Power Generation Company Limited‡ People’s Republic of China (Foreign investment stock company) 71.35	– 71.35	1,170,000,000 RMB1 Electric power plant construction and operation
Widewin Investments Limited‡ British Virgin Islands 37.5	– 37.5	– – Investment holding
山東新巨龍能源有限責任公司 People’s Republic of China (Sino-foreign equity joint venture) 30	– 30	N/A N/A Coal ores construction and sales

F 90 CITIC Pacific Limited

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Civil Infrastructure Tunnels Subsidiary company New Hong Kong Tunnel Company Limited Hong Kong 70.8	– 70.8	75,000,000 HK$10 Tunnel operation
Jointly controlled entity# Western Harbour Tunnel Company Limited‡ Hong Kong 35	– 35	– – Franchise to construct and operate the Western Harbour Crossing
Environmental Jointly controlled entities# Changzhou CGE Water Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 24.01	– 24.01	– – Production and supply of tap water
Ecoserve Limited Hong Kong 50	– 50	– – Design, construction and operation of refuse transfer station
Veolia Water (Kunming) Investment Limited Hong Kong 25	– 25	– – Investment holding
Associated companies Green Valley Landfill, Limited Hong Kong 30	– 30	– – Landfill construction and operation – – Design, construction and operation of transfer station 2,385,992,870 HK$0.10 Investment holding
South China Transfer Limited Hong Kong 30	– 30
CITIC Telecom International Holdings Limited (Listed In Hong Kong)§ Hong Kong 60.59	– 60.59
Dah Chong Hong Holdings Limited (Listed In Hong Kong)§ Hong Kong 55.94	– 55.94	1,821,148,000 HK$0.15 Investment holding

CITIC Pacific Limited F 91

Notes to the Financial Statements

43 Principal Subsidiary Companies, Jointly Controlled Entities and Associated Companies continued

Name Place of incorporation/ principal place of operation (kind of legal entity) Attributable to the Group %	Interest in equity shares held by Company % Subsidiary %	Particulars of issued shares† No. of shares Par value Principal activities
Other Investments Subsidiary companies CITIC Pacific China Holdings Limited People’s Republic of China (Wholly foreign-owned enterprise) 100	– 100	N/A N/A Investment holding
CITIC Pacific Communications Limited Bermuda 100	– 100	100,000 HK$1 Investment holding
CITIC Pacific Finance (2005) Limited British Virgin Islands 100	100 –	1 US$1 Financing
Dah Chong Hong (Engineering) Limited Hong Kong 100	– 100	1,551,000 HK$100 Engineering services
Jointly controlled entities# CITIC Capital Holdings Limited Hong Kong 27.5	– 27.5	– – Investment holding
CITIC Guoan Co., Ltd. People’s Republic of China (Sino-foreign equity joint venture) 50	– 50	– – Investment holding
上海國睿生命科技有限公司 People’s Republic of China (Sino-foreign equity joint venture) 24.94	24.94 –	– – Research and development of tissue engineering products
Associated company Cheer First Limited‡ Hong Kong 40	– 40	– – Financing

Note:

† Represents ordinary shares, unless otherwise stated.

‡ Affiliates which have been given financial assistance by the Company or its subsidiaries at 31 December 2011.

§ Subsidiaries separately listed on the main board of the Hong Kong Stock Exchange and including their respective group companies.

In accordance with the respective joint venture agreements, none of the participating parties has unilateral control over the economic activity.

^ Under the terms of the co-operative joint venture contract, the Company is entitled to 80% of the distributable profit of the joint venture.

F 92 CITIC Pacific Limited

Independent Auditor’s Report

To the shareholders of CITIC Pacific Limited

(incorporated in Hong Kong with limited liability)

We have audited the consolidated financial statements of CITIC Pacific Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages F2 to F92, which comprise the consolidated and company balance sheets as at 31 December 2011, and the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2011, and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 1 March 2012

CITIC Pacific Limited F 93