Shanghai Able Digital Science&Tech Co., Ltd. - Annual Report 2014

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Oil
Driving
TowarDs
2014 AnnuAl RepoRt 年報
Aluminium
Import and
Export of
Commodities
Coal
Manganese
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Oil
Driving
TowarDs
2014 AnnuAl RepoRt 年報
Aluminium
Import and
Export of
Commodities
Coal
Manganese
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Kazakhstan China Indonesia
Global Australia
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Coal

A 14% participating interest in the Coppabella and Moorvale coal mines joint venture (a major producer of low volatile pulverized coal injection coal in the international seaborne market) and certain interests in a number of coal exploration Global Australia operations in Australia with significant resource potential.

Import and Export of Commodities An import and export of commodities business, based on strong expertise and established marketing networks, with a focus on international trade.

Global Australia

Oil

Major income driver with steady production and development in oilfields located in Kazakhstan, China and Indonesia.

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Africa China
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Manganese Single largest shareholder of CItIC Dameng Holdings limited (SeHK: 1091), one of the largest vertically integrated manganese producers in the world.

Aluminium

A 22.5% participating interest in the portland Aluminium Smelter joint venture, one of the largest and most efficient aluminium smelting operations in the world. We also hold an equity interest in Alumina limited (ASX: AWC), one of Australia’s leading companies with significant global interests in bauxite mining and alumina refining operations.

Corporate Information

Chairman’s Statement Management’s Discussion and Analysis Board of Directors and Senior Management Corporate Governance Report Report of the Directors

Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Statement of Financial Position Notes to Financial Statements Five-Year Financial Summary Reserve Quantities Information

41 獨立核數師報告

43 綜合利潤表
44 綜合全面利潤表 45 綜合財務狀況報表
47 綜合權益變動表
49 綜合現金流量表
51 財務狀況報表
52 財務報表附註
150 五年財務資料概要 150 儲量資料

Corporate Information

Board of Directors

Executive Directors

Mr. Kwok Peter Viem (Chairman) Mr. Qiu Yiyong (Vice Chairman and Chief Executive Officer) Mr. Sun Yang (Vice Chairman) Mr. Guo Tinghu Ms. Li So Mui

Non-executive Directors

Mr. Wong Kim Yin Mr. Zeng Chen

Independent Non-executive Directors

Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Hu Weiping Mr. Shou Xuancheng

Audit Committee

Mr. Fan Ren Da, Anthony (Chairman) Mr. Gao Pei Ji Mr. Shou Xuancheng

Company Secretary

Ms. Li So Mui

Registered Office

Clarendon House 2 Church Street, Hamilton HM 11, Bermuda

Head Office and Principal Place of Business

Suites 3001-3006, 30/F, One Pacific Place 88 Queensway, Hong Kong

Telephone : (852) 2899 8200 Facsimile : (852) 2815 9723 E-mail : [email protected] Website : www.citicresources.com www.irasia.com/listco/hk/citicresources

Hong Kong Branch Share Registrar and Transfer Office

Tricor Tengis Limited Level 22, Hopewell Centre 183 Queen’s Road East, Hong Kong

Stock Code : 1205

Remuneration Committee

Mr. Gao Pei Ji (Chairman) Mr. Fan Ren Da, Anthony Mr. Shou Xuancheng Mr. Qiu Yiyong

Auditors

Ernst & Young Certified Public Accountants 22/F, CITIC Tower 1 Tim Mei Avenue, Central, Hong Kong

Nomination Committee

Mr. Kwok Peter Viem (Chairman) Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji

Principal Bankers

Bank of China (Hong Kong) Limited China CITIC Bank International Limited China Construction Bank (Asia) Corporation Limited China Development Bank Corporation Mizuho Bank, Ltd.

Chairman’s Statement

2014 was another challenging year for the Group.

Overall, poor sentiment and lower prices in the Group’s key commodities markets remained weak and weighed on the Group’s operating and financial performance during the year. Additional pressure resulted from a significant downturn in oil prices in 2H 2014 due to oversupply with Brent crude oil prices dropping to around US$60 a barrel in 4Q 2014, a level last seen in early 2009 during the financial crisis.

Inspite of the difficulties brought on by sliding commodities and energy prices and lacklustre energy and commodities markets, underlying EBIT of the Group increased significantly with oil production growing resulting in the Group achieving its highest production levels to date.

The ability of the Yuedong oilfield in China to make a major contribution to the Group’s revenue during the year following the full commissioning of its production system in 4Q 2013, and the Karazhanbas oilfield in Kazakhstan being able to obtain a preferential mineral extraction tax rate during the year helped mitigate market difficulties. In addition, the Group increased its efforts to further mitigate the impact of weaker commodities and energy prices on the Group by deploying working capital and resources more efficiently, reducing operating and capital expenditures, enhancing execution ability, as well as strengthening risk management. Also, through the redemption of the outstanding principal amount of its US$1,000,000,000 6.75% senior notes due 2014 (the “Notes”) at maturity, the Group improved its capital structure resulting in lower borrowing costs and improved gearing.

The Group remains committed to maintaining sustainable growth by utilising its inherent advantages derived from its position with 中國中信集團有限公司 (CITIC Group Corporation) (“CITIC Group”) to maximise shareholder value.

Financial Results

The Group recorded total revenue of HK$17,805.1 million, representing a decrease of 54.7% over 2013. Underlying EBIT, however, increased by 156.7% to HK$1,264.2 million. A profit attributable to shareholders of HK$223.8 million was recorded for the year. As at 31 December 2014, the Group’s total assets amounted to HK$22,780.2 million and equity attributable to shareholders was HK$10,867.1 million.

Business Review

The Group continues to position itself as an integrated provider of strategic natural resources and key commodities with businesses across energy, metals and the import and export of commodities sectors.

Crude oil

In 2014, total production from all of the Group’s oilfields, including the Karazhanbas oilfield, reached the highest levels to date achieved by the Group, with an average daily production of 48,100 barrels (100% basis), representing a 19% increase. The decline in oil prices in 2H 2014 nevertheless had an impact on the financial performance of the Group for the year.

Chairman’s Statement

Supported by the Group’s continued efforts to explore and adopt more effective oil recovery techniques to improve oilfield sustainability, the Karazhanbas oilfield remained the largest contributor to the Group’s overall oil production volume during the year, with an average daily production of 39,000 barrels (100% basis). Though adversely affected by the fall in oil prices, the oilfield managed to raise its gross profit margin for the year as a result of obtaining a preferential mineral extraction tax rate during the year. The Group also commenced active discussions with relevant governmental and regulatory authorities in Kazakhstan regarding the renewal of the Karazhanbas oilfield licence.

Following the full commissioning of its production system in 4Q 2013, the Yuedong oilfield became a major contributor to the Group’s revenue, with an average daily production of 6,300 barrels (100% basis). Platform C (the third artificial island) commenced production in 4Q 2014, which marked another significant milestone in the development of the oilfield. One key objective at the oilfield is to promote more effective oil recovery techniques to enhance production. To achieve this, thermal recovery will be employed in several production wells on a trial basis. Upon satisfactory results of this trial, the Group will seek to employ this technique on a more extensive scale within the oilfield to enhance production.

Following the successful drilling of two new development wells, production at the Seram Block in Indonesia went up steadily with an average daily production of around 2,800 barrels (100% basis). This additional production helps supplement the continuing natural decline of existing wells. The Group will continue to drill new wells to enhance production and carry out necessary maintenance works to enhance sustainability of existing wells. Further exploration activities will also be conducted to explore the reserves prospects particularly in the Lofin area.

Coal

The Group’s coal investments currently comprise a 14% participating interest in the Coppabella and Moorvale coal mines joint venture and certain interests in a number of coal exploration operations in Australia where the Group works together with a subsidiary of Peabody Energy Corporation.

Operating revenue from the coal segment remained stable but nevertheless a loss was recorded due to falling coal prices.

Metals

The Group’s strategic metal investments include interests in the Portland Aluminium Smelter joint venture, Alumina Limited (“AWC”) and CITIC Dameng Holdings Limited (“CDH”).

During the year, the Group’s aluminium smelting operations recorded a better gross profit as a result of ongoing cost saving efforts and a higher average selling price. As the global aluminium market has started to show moderate signs of recovery attributable to improved global demand and producer discipline, the Group expects to have a more efficient cost structure and a better return from this business going forward. With the world-class global portfolio of upstream mining and refining operations owned by AWC, the Group is positive about the prospects of this segment.

Although affected by softer prices for major products, CDH achieved an increase in revenue due to stronger sales during the year. As a result, the Group recorded a reduced share of loss with respect to its interest in CDH.

Chairman’s Statement

Import and export of commodities

The current challenges faced by the Group of cyclical market volatility and reduced sales opportunities are illustrated by the Group’s import and export of commodities business. Profit was hampered by the drop in commodity selling prices and reduced sales opportunities due to poorer demand resulting from persistent slow global economic recovery and the relative slowdown in the Chinese economy. Moreover, the export business suffered from a loss of business from a number of long standing customers in 2H 2014 which the Group attributes to an investigation commenced by the Chinese authorities into the allegedly fraudulent multiple use of warehouse receipts in respect of certain aluminium and copper products stored at Qingdao port, China (the “Investigation”). The Group is not the subject of the Investigation and as at the date of this report, the Group is not aware of the status or result of the Investigation.

As 223,270 tonnes of alumina and 7,486 tonnes of copper owned by CITIC Australia Commodity Trading Pty Limited (“CACT”), an indirect wholly-owned subsidiary of the Company, are stored in bonded warehouses at Qingdao port (the “Inventories”), and in light of the Investigation, CACT applied to the Qingdao Maritime Court (the “Court”) in June 2014 for asset protection orders to protect the Inventories and prevent their unauthorised removal from Qingdao port. The Court granted two asset protection orders for 99,824 tonnes of alumina and 7,486 tonnes of copper. The Court, however, did not grant an asset protection order in respect of 123,446 tonnes of alumina (the “Non-protected Alumina”).

In June 2014, CACT filed a claim (the “Claim”) with the Court against the operator of the bonded warehouses at Qingdao port (the “Operator”) requiring the Operator to confirm the Group’s ownership of the Inventories and to release and deliver all of the Inventories to the Group or, failing which, to compensate the Group in respect of the Inventories. There have been three hearings in respect of the Claim but no judgment has been issued by the Court in respect of the Claim so far. The Group intends to continue to take steps to recover all of the Inventories or otherwise to receive appropriate compensation including pursuing the Claim against the Operator.

As at 31 December 2014, the Inventories had a gross carrying value of HK$979.2 million. Since the Court did not grant an asset protection order in respect of the Non-protected Alumina and CACT has not been able to access the bonded warehouses due to the Investigation and due to the ongoing nature of the Claim, a provision of HK$319.8 million (before tax credit) was made at the end of the year in respect of the Non-protected Alumina on a prudent basis.

Through an announcement dated 15 August 2014 issued by Qingdao Port International Co., Ltd. and an announcement dated 27 August 2014 issued by 山煤國際能源集團股份有限公司 (Shanxi Coal International Energy Group Co., Ltd.), the Company became aware that ABN AMRO Bank, N.V., Singapore Branch and 山煤煤炭進出口有限公司 (Shanxi Coal Import & Export Co., Ltd.) had commenced legal proceedings in China against CACT (the “Potential Legal Proceedings”). Details of the Potential Legal Proceedings have been disclosed in the announcements of the Company dated 18 and 27 August 2014 respectively. CACT has not been served with the Potential Legal Proceedings so far and the Company is at present unable to consider or comment on the substance of the Potential Legal Proceedings.

The Group will continue to closely monitor the associated market risks arising from the Investigation, the Claim and the Potential Legal Proceedings.

Chairman’s Statement

Financial Management

To further strengthen its liquidity, during the year, the Group entered into a facility agreement with a syndicate of financial institutions as lenders in respect of an unsecured term loan facility of US$310 million. The response from the financial institutions has provided clear proof of the Group’s strong funding capacity and shown their confidence in the Group’s credibility and future growth.

The Group’s gearing ratio and capital structure were also improved by the full redemption of the outstanding principal amount of the Notes, being US$798.9 million (HK$6,231.4 million), in May 2014.

Outlook

The Group expects energy and commodities markets will be volatile in the near term as product prices continue to remain weak and recovery in major markets, such as Europe, fragile and in some cases stagnant amid excess market supply and adverse currency fluctuations.

The Group does not believe that the recent volatility in global energy and commodity prices, especially oil prices, represents the market trend in the long term. Taking account of prevailing market conditions, the Group will continue its efforts to implement effective measures to improve the productivity of its existing assets to help maximise investment returns when prices, in particular oil prices, recover and minimise discretionary and expansionary capital expenditure without adversely affecting its performance and prospects.

In a move to develop the Karazhanbas oilfield in a longer-term perspective, the Group will endeavor with the relevant governmental and regulatory authorities in Kazakhstan to extend the Karazhanbas oilfield licence for a further 15 years after its current expiry in 2020. At the same time, the Group will continue to further explore the use of enhanced oil recovery techniques in the Karazhanbas oilfield and the Yuedong oilfield to extract improved production and efficiency.

The Group will capitalise on its strong relationship and support from CITIC Group and continue to optimise its existing business portfolio and look for ways to enhance the value of its investments. Concurrently, the Group will continue to review potential investment opportunities to deliver economic benefits for shareholders consistent with the Group’s business development goals.

Board Members Changes

In March 2014, Mr. Zeng Chen became a non-executive director of the Company and ceased to act as the vice chairman and the chief executive officer of the Company, and Mr. Qiu Yiyong became an executive director and the chief executive officer of the Company. In the same month, the Company expressed its deep sorrow and grief over the passing away of Mr. Ngai Man who had been an independent non-executive director of the Company since 2006. The Board would like to thank the late Mr. Ngai for his wise counsel and invaluable contribution to the Company during his tenure of service.

Chairman’s Statement

In July 2014, Mr. Qiu agreed to be a vice chairman of the Board and of the Company, and Mr. Sun Yang was appointed an executive director of the Company and a vice chairman of the Board and of the Company. Meanwhile, Mr. Shou Xuancheng was appointed an independent non-executive director of the Company and Mr. Tian Yuchuan resigned from being a non-executive director of the Company. The Board would like to thank Mr. Tian for his efforts and invaluable contribution to the Company, and to express its warm welcome to Mr. Sun and Mr. Shou on their joining the Board.

The Group believes the new appointments will considerably benefit the Group and will allow it to draw on their substantial experience and expertise to help further develop its business.

Appreciation

I, on behalf of the Board, would like to express my deep thanks to my fellow directors, management and staff for their unremitting efforts and hard work for the business development of the Group. For myself and on behalf of the Board, I would like to express our sincere gratitude to our shareholders, customers, suppliers, bankers and business associates for their continued support.

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Kwok Peter Viem Chairman

Hong Kong, 13 February 2015

Management’s Discussion and Analysis

The board of directors (the “ Board ”) of CITIC Resources Holdings Limited (the “ Company ”) presents the 2014 annual results of the Company and its subsidiaries (collectively, the “ Group ”).

Financial Review

Group’s financial results:

HK$’000

Operating results and ratios

	Year ended 31 December	Year ended 31 December	Increase/
	2014	2013	(decrease)
Revenue	17,805,124	39,319,183	(54.7%)
Underlying EBIT1	1,264,168	492,402	156.7%
EBITDA2	1,983,074	880,873	125.1%
Profit/(loss) attributable to shareholders	223,830	(1,465,436)	N/A
Profit/(loss) per share (Basic)3	HK$2.84 cents	(HK$18.63 cents)	N/A
Gross profit margin4	5.3%	1.2%
EBITDA coverage ratio5	3.9 times	1.2 times

Financial position and ratios

	31 December
	2014	2013	Decrease
Cash and cash equivalents	3,246,421	6,994,039	(53.6%)
Total assets *	22,780,175	27,885,981	(18.3%)
Total debt6	9,229,890	13,689,009	(32.6%)
Net debt7	5,983,469	6,694,970	(10.6%)
Equity attributable to shareholders	10,867,117	11,667,692	(6.9%)
Current ratio8	1.5 times	1.5 times
Net debt to net total capital9	35.5%	36.5%
Net asset value per share10	HK$1.38	HK$1.48

1 profit before tax + finance costs + asset impairment losses

(2013: loss before tax + finance costs + asset impairment losses + one-off expense of HK$91,498,000 arising from

the partial repurchase of the Notes (as defined below))

2 underlying EBIT + depreciation + amortisation
3 profit/(loss) attributable to shareholders / weighted average number of ordinary shares in issue during the year
4 gross profit / revenue x 100%
5 EBITDA / finance costs
6 bank and other borrowings + finance lease payables + bond obligations
7 total debt – cash and cash equivalents
8 current assets / current liabilities
9 net debt / (net debt + equity attributable to shareholders) x 100%
10 equity attributable to shareholders / number of ordinary shares in issue at end of year
including capital expenditure in respect of exploration, development and mining production activities of HK$1,488,289,000 during the year (2013: HK$2,646,143,000)

Management’s Discussion and Analysis

The Group was operating in a difficult environment as global economic fundamentals were weak during the year. Commodity and energy prices remained depressed at low levels as output continued to outstrip demand. The Group recorded total revenue of HK$17,805.1 million, representing a decrease of 54.7% compared to 2013.

With the Yuedong oilfield contributing to the Group’s profit following the full commissioning of its production system in 4Q 2013 and the Group’s ongoing efforts to control operating costs, underlying EBIT increased by 156.7% to HK$1,264.2 million and profit attributable to shareholders was HK$223.8 million.

The following is a description of the Group’s operating activities in each of the business segments in 2014, with a comparison of their results against those in 2013.

Aluminium smelting

The Group holds a 22.5% participating interest in the Portland Aluminium Smelter joint venture (the “ PAS JV ”).

•	Revenue	HK$ 1,001.0 million	(2013: HK$	1,065.4 million)	▼	6%
	Segment results	HK$ 144.6 million	(2013: HK$	93.2 million)	▲	55%

Revenue for the year experienced a decrease of 6% compared to 2013. Average selling price increased by 4% while sales volume decreased by 9% when compared to 2013.

The curtailment program introduced in 3Q 2009 to reduce production by 15% will continue due to current market conditions.

Attributable to the effectiveness of ongoing cost saving efforts, production costs per tonne decreased by 3%, mainly of carbon materials, power and maintenance, which helped increase gross profit margin during the year.

The Group’s aluminium smelting business is a net United States dollar (“ US$ ”) denominated asset while certain costs are payable in Australian dollar (“ A$ ”). Fluctuations between A$ and US$ throughout the year caused a net exchange gain of HK$80.4 million (2013: a loss of HK$45.6 million).

There was no gain or loss arising from the revaluation of an embedded derivative for the year (2013: a gain of HK$114.5 million, which was included in “Other income and gains” in the consolidated income statement).

The pricing mechanism used in an electricity supply agreement signed between the Group and the State Electricity Commission of Victoria, Australia (the “ ESA ”) includes a component that is subject to the price of aluminium. In accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”), the component is considered to be an embedded derivative. The embedded derivative is revalued at the end of each reporting period based on future aluminium prices with its fair value gain or loss recognised in the consolidated income statement. On 31 December 2014, the valuation of the embedded derivative was materially consistent to that on 31 December 2013. Therefore, no unrealised gain or loss arising from the revaluation of the embedded derivative was recorded for the year.

The revaluation of the embedded derivative has no cash flow consequences for operations but the movement in valuation (if any) introduces volatility into the consolidated income statement.

In 2013, included in “Other income and gains” in the consolidated income statement was an exchange gain of HK$187.7 million arising from the prepayment of US$46.0 million under a term loan in respect of the Portland Aluminium Smelter (the “ PAS ”). The gain was realised from the hedging reserve.
On 1 March 2010, a base load electricity contract was signed between the Group (together with the other joint venture partners of the PAS JV) and Loy Yang Power (an independent electricity supplier) (the “ EHA ”). The EHA effectively allows the PAS to secure electricity supply from 2016 through 2036 when the ESA expires in 2016. The pricing mechanism used in the EHA includes a component that is subject to certain escalation factors which, in turn, are affected by the consumer price index, producer price index and labour costs.

Management’s Discussion and Analysis

Coal

The Group holds a 14% participating interest in the Coppabella and Moorvale coal mines joint venture (the “ CMJV ”) and certain interests in a number of coal exploration operations in Australia where the Group works together with Peabody Energy Australia PCI Pty Limited, a subsidiary of Peabody Energy Corporation. The CMJV is a major producer of low volatile pulverized coal injection coal in the international seaborne market.

•	Revenue	HK$743.2	million	(2013:	HK$735.4	million)	▲	1%
	Segment results	a loss of HK$175.0	million	(2013:	a loss of HK$104.7	million)		N/A

Revenue remained stable. After taking into account the result of the Group’s acquisition of an additional 7% participating interest in the CMJV in March 2013, sales volume increased by 23% when compared to 2013. Average selling price on the other hand decreased by 18% as a result of sluggish demand.
Gross profit margin during the year was greatly affected by a substantial drop in the average selling price, even though a decrease of 8% in production costs per tonne was achieved compared to 2013.

The Group’s coal business is a net US$ denominated asset while all costs are payable in A$. Fluctuations between A$ and US$ throughout the year caused a net exchange gain of HK$27.5 million (2013: a loss of HK$7.5 million).

During the year, due to current depressed coal prices, an impairment loss of HK$56.2 million (before tax credit) was provided in respect of the coal mining assets of the CMJV and charged to “Provision for impairment of other assets” in the consolidated income statement.

During 2013, an impairment loss of HK$23.2 million (before tax credit) was provided in respect of certain exploration and evaluation assets in the CMJV and charged to “Provision for impairment of other assets” in the consolidated income statement. It related to the Codrilla project, a greenfield prospect in the Bowen Basin, Queensland, Australia, where development has been suspended since late 2012.

Import and export of commodities

CITIC Australia Trading Pty Limited (“ CATL ”), an indirect wholly-owned subsidiary of the Company, conducts the Group’s import and export of commodities business.

Exported products include aluminium ingots, coal, iron ore, alumina and copper sourced from Australia and other countries for trade into China and other Asian countries. Imported products include steel, and vehicle and industrial batteries and tyres from China and other countries and regions into Australia.

•	Revenue	HK$	14,447.5	million	(2013: HK$	37,198.4	million)	▼	61%
	Segment results	HK$	193.0	million	(2013: HK$	397.3	million)	▼	51%

Revenue and profit were hampered by the drop in commodity selling prices and reduced sales opportunities due to poorer demand resulting from persistent slow global economic recovery and the relative slowdown in the Chinese economy. Moreover, the export business suffered from a loss of business from a number of long standing customers in 2H 2014 which the Group attributes to an investigation commenced by the Chinese authorities into the allegedly fraudulent multiple use of warehouse receipts in respect of certain aluminium and copper products stored at Qingdao port, China (the “ Investigation ”). The Group is not the subject of the Investigation and as at the date of this report, the Group is not aware of the status or result of the Investigation.

Management’s Discussion and Analysis

Due to softening in average selling prices and sales volume for most commodities and loss of key customers, revenue from exports decreased by 64% as compared to 2013.

Revenue of the imports division was comparable to that of 2013.

CATL’s performance was inevitably affected by reduced sales opportunities.

The Group’s import and export of commodities business is a net US$ denominated asset while certain costs are payable in A$. Fluctuations between A$ and US$ throughout the year caused a net exchange loss of HK$19.1 million (2013: a loss of HK$51.8 million).

• As 223,270 tonnes of alumina and 7,486 tonnes of copper owned by CITIC Australia Commodity Trading Pty Limited (“ CACT ”), a wholly-owned subsidiary of CATL, are stored in bonded warehouses at Qingdao port (the “ Inventories ”), and in light of the Investigation, CACT applied to the Qingdao Maritime Court (the “ Court ”) in June 2014 for asset protection orders to protect the Inventories and prevent their unauthorised removal from Qingdao port. The Court granted two asset protection orders for 99,824 tonnes of alumina and 7,486 tonnes of copper. The Court, however, did not grant an asset protection order in respect of 123,446 tonnes of alumina (the “ Non-protected Alumina ”).

In June 2014, CACT filed a claim (the “ Claim ”) with the Court against the operator of the bonded warehouses at Qingdao port (the “ Operator ”) requiring the Operator to confirm the Group’s ownership of the Inventories and to release and deliver all of the Inventories to the Group or, failing which, to compensate the Group in respect of the Inventories. There have been three hearings in respect of the Claim but no judgment has been issued by the Court in respect of the Claim so far. The Group intends to continue to take steps to recover all of the Inventories or otherwise to receive appropriate compensation including pursuing the Claim against the Operator. Further details are set out in the announcements of the Company dated 9 June, 17 June and 7 July 2014.

Through an announcement dated 15 August 2014 issued by Qingdao Port International Co., Ltd. and an announcement dated 27 August 2014 issued by 山煤國際能源集團股份有限公司 (Shanxi Coal International Energy Group Co., Ltd.), the Company became aware that ABN AMRO Bank, N.V., Singapore Branch and 山煤煤炭進出口有限公司 (Shanxi Coal Import & Export Co., Ltd.) had commenced legal proceedings in China against CACT (the “ Potential Legal Proceedings ”). Details of the Potential Legal Proceedings have been disclosed in the announcements of the Company dated 18 and 27 August 2014 respectively. CACT has not been served with the Potential Legal Proceedings so far and the Company is at present unable to consider or comment on the substance of the Potential Legal Proceedings.
The Group will continue to closely monitor the associated market risks arising from the Investigation, the Claim and the Potential Legal Proceedings.

Management’s Discussion and Analysis

Crude oil (the Seram Island Non-Bula Block, Indonesia)

CITIC Seram Energy Limited (“ CITIC Seram ”), an indirect wholly-owned subsidiary of the Company, owns a 51% participating interest in the production sharing contract which grants the right to explore, develop and produce petroleum from the Seram Island Non-Bula Block, Indonesia (the “ Seram Block ”) until 2019. CITIC Seram is the operator of the Seram Block.

As at 31 December 2014, the Seram Block had estimated proved oil reserves of 4.7 million barrels (2013: 6.1 million barrels) as determined in accordance with the standards of the Petroleum Resources Management System (the “ PRMS ”).

For the year, the segment results of CITIC Seram recorded a profit of HK$45.2 million (2013: HK$28.0 million), representing an increase of 61%. The following table shows a comparison of the performance of the Seram Block:

		2014	2013
		(51%)	(51%)	Change
Average benchmark Mean of
Platts Singapore (MOPS):
Platts HSFO 180 CST Singapore	(US$ per barrel)	86.3	95.2	▼	9%
Average crude oil realised price	(US$ per barrel)	81.3	91.7	▼	11%
Sales volume	(barrels)	483,000	430,000	▲	12%
Revenue	(HK$ million)	306.1	308.0	▼	1%
Total production	(barrels)	498,000	431,000	▲	16%
Daily production	(barrels)	1,370	1,180	▲	16%

Revenue decreased slightly compared to 2013. Although there was an increase in sales volume, the revenue was however offset by the impact of the lower oil realised price in 4Q 2014. Despite the continuing natural decline of existing wells, production volume increased by 16% when compared to 2013. This was attributable to the successful drilling of two new development wells in the Oseil area in 1H 2014 (the “ New Wells ”) which contributed 580 barrels per day on average (100% basis).

Production costs per barrel were 13% lower when compared to 2013. Depreciation, depletion and amortisation per barrel decreased by 12% as the proved developed reserves increased following the completion of the New Wells. Direct operating costs per barrel were 16% lower than that of 2013, which was attributable to the decline of Indonesia Rupiah against US$, and the lower transportation and maintenance expenses in the year.
Due to current depressed oil prices, it is uncertain whether the Seram Block will generate enough taxable profit in future to fully utilise the deferred tax asset arising from the unrecovered cost pool. As such, during the year, an impairment of HK$50.9 million was provided in respect of that deferred tax asset and charged to “Income tax expense” in the consolidated income statement.

During 2013, due to a change in the drilling plan, an impairment loss of HK$88.5 million (before tax credit) was provided in respect of certain oil and gas properties of CITIC Seram and charged to “Provision for impairment of items of property, plant and equipment” in the consolidated income statement.

Management’s Discussion and Analysis

Encouraged by the results of the New Wells, application has been submitted to the Indonesian government to drill seven new development wells in the Oseil area going forward. In January 2015, the first well was approved. Meanwhile, CITIC Seram will carry out necessary maintenance works to enhance sustainability of existing wells.

Exploration drilling in the Lofin area resumed in 4Q 2014 aimed at discovering new reserves. Results are anticipated to be available later in 2015.

The recent significant drop in global oil prices poses a major challenge for CITIC Seram in 2015. Therefore, a number of initiatives will be implemented to reduce the impact of lower oil prices. These include increase in production volume, minimisation of inventory level, reduction or postponement of some expenditure in 2015 which will not adversely affect existing operations.

Crude oil (the Hainan-Yuedong Block, China)

CITIC Haiyue Energy Limited (“ CITIC Haiyue ”), an indirect wholly-owned subsidiary of the Company, owns a 90% interest in Tincy Group Energy Resources Limited (“ Tincy Group ”).

Pursuant to a petroleum contract entered into with China National Petroleum Corporation (“ CNPC ”) in February 2004 as supplemented by an agreement signed in May 2010, Tincy Group holds the right to explore, develop and produce petroleum from the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province, China (the “ Hainan-Yuedong Block ”) until 2034. Tincy Group is the operator of the Hainan-Yuedong Block in cooperation with CNPC.

As at 31 December 2014, the Yuedong oilfield (the “ Yuedong oilfield ”), the principal field within the Hainan-Yuedong Block, had estimated proved oil reserves of 25.5 million barrels (2013: 22.4 million barrels) as determined in accordance with the standards of the PRMS.

For the year, the segment results of CITIC Haiyue recorded a profit of HK$458.0 million (2013: a loss of HK$173.7 million). The following table shows a comparison of the performance of the Yuedong oilfield:

		(Tincy Group’s	share)
		2014	2013		Change
Average benchmark quote:
Platts Dubai crude oil	(US$ per barrel)	96.6	105.3	▼	8%
Average crude oil realised price	(US$ per barrel)	95.2	100.0	▼	5%
Sales volume	(barrels)	1,775,000	15,000		N/A
Revenue	(HK$ million)	1,307.3	12.1		N/A
Total production	(barrels)	1,731,000	164,000		N/A
Daily production	(barrels)	4,740	2,870	▲	65%

2014 was the Yuedong oilfield’s first full year of production. Despite a decrease in oil realised prices, revenue significantly increased as oil production resumed following the full commissioning of the production system in 4Q 2013. The system connects Platform A (the first artificial island), Platform B (the second artificial island) and the onshore oil/water processing plant. Prior to this, oil production had been temporarily suspended since late 4Q 2012 to facilitate the construction and testing of the production system.

Management’s Discussion and Analysis

On Platform B, more new production wells were completed and brought on line during the year. In addition, in 4Q 2014, the construction and installation of production facilities on Platform C (the third artificial island) completed and production commenced. These have helped increase the production significantly resulting in CITIC Haiyue becoming a major contributor to the Group’s revenue.

At the end of 2013, following the release of lower probable and possible oil reserves estimates by an independent oil and gas consulting firm for the Yuedong oilfield, an impairment loss of HK$1,688.8 million (before tax credit) was provided in respect of certain oil and gas properties of CITIC Haiyue and charged to “Provision for impairment of items of property, plant and equipment” in the consolidated income statement.
Tincy Group is carrying out preparation work for the deployment of thermal recovery in several production wells on a trial basis. Upon satisfactory results of this trial, Tincy Group will seek to utilise this technique on a more extensive scale within the Yuedong oilfield to enhance production.

Tincy Group is actively prospecting potential exploration areas within the Bohai Bay Basin with the objective of increasing oil reserves.

Capital expenditure will continue to be applied in respect of the remaining development works of the Yuedong oilfield. Depending on the historical and future drilling data collected and the evaluation of the seismic data, adjustments may be made to the development plan.

Manganese

The Group has an interest in manganese mining and production through its 38.98% equity interest in CITIC Dameng Holdings Limited (“ CDH ”), a company listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) (Stock Code: 1091). CDH is an associate of the Group and the Group remains the single largest shareholder of CDH.

CDH owns a 100% interest in the Daxin manganese mine, the Tiandeng manganese mine and the Waifu manganese mine in Guangxi Province, China; a 64% interest in the Changgou manganese mine in Guizhou Province, China; and a 51% interest in the Bembélé manganese mine in Gabon, West Africa. CDH is one of the largest vertically integrated manganese producers in the world, engaged in the production and sale of manganese products at various stages of the production chain.

Share of loss of an associate HK$10.5 million (2013: HK$108.2 million) N/A

The Group recorded a reduced share of loss for the year with respect to its interest in CDH and its subsidiaries (collectively, the “ CDH Group ”). The CDH Group’s performance continued to be affected by the economic environment in China. An ongoing decline in steel demand and oversupply in the market adversely impacted average selling prices and continued to hold down prices of steel related products. Correspondingly, the average selling prices of major manganese products further dropped as a consequence. Notwithstanding this, the CDH Group achieved an increase in revenue of 9.6% when compared to 2013 due to stronger sales during the year.

Attributable to reduced unit costs of material and power consumption by stringent cost control efforts and an improvement in production efficiency, gross profit margin improved for the year.

Detailed financial results of the CDH Group, including management discussion and analysis, are available on the websites of the Stock Exchange and CDH at http://www.hkexnews.hk and http://www.dameng.citic.com respectively.

Management’s Discussion and Analysis

Bauxite mining and alumina refining

The Group has an interest in a world-class global portfolio of upstream mining and refining operations in the aluminium sector through its 8.5482% equity interest in Alumina Limited (“ AWC ”), a leading Australian company listed on the Australian Securities Exchange (the “ ASX ”) (Stock Code: AWC). A subsidiary of CITIC Limited also has a 5.2174% equity interest in AWC.

AWC has significant global interests in bauxite mining and alumina refining operations through its 40% ownership of the Alcoa World Alumina and Chemicals joint venture, the world’s largest alumina producer.

As the Group had significant influence on AWC after it subscribed for its shares in AWC in February 2013, AWC was considered an associate of the Group. However, in 2014 during an annual review of the appropriateness of the accounting method applied to the Group’s investment in AWC, it was concluded that significant influence on AWC no longer exists and using the fair value to measure the Group’s current investment in AWC provides a more relevant and reliable basis to reflect its value and to assess its performance going forward. Therefore, the investment was reclassified as financial assets designated as at fair value through profit or loss. The shares held by the Group in AWC are measured at their fair value based on the closing share price of AWC at the end of each reporting period, and the difference between the fair value and the carrying value is recognised in the consolidated income statement. As a result, a pre-tax fair value gain of HK$412.0 million was recorded in “Other income and gains” in the consolidated income statement for the year.
Prior to the reclassification mentioned above, the Group accounted for its share of the profit/(loss) in AWC using the equity method and the Group recorded a share of loss for the year.

Share of loss of an associate HK$24.1 million (2013: a profit of HK$5.4 million) N/A

Detailed financial results of AWC are available on its website at http://www.aluminalimited.com .

Crude oil (the Karazhanbas oilfield, Kazakhstan)

CITIC Oil & Gas Holdings Limited (“ CITIC Oil & Gas ”), an indirect wholly-owned subsidiary of the Company, and JSC KazMunaiGas Exploration Production (“ KMG EP ”) through a joint venture, CITIC Canada Energy Limited (“ CCEL ”), own, manage and operate JSC Karazhanbasmunai (“ KBM ”) jointly. Effectively, the Group owns 50% of the issued voting shares of KBM (which represents 47.3% of the total issued shares of KBM).

KBM is engaged in the development, production and sale of oil and holds the right to explore, develop, produce and sell oil from the Karazhanbas Oil and Gas Field in Mangistau Oblast, Kazakhstan (the “ Karazhanbas oilfield ”) until 2020.

As at 31 December 2014, the Karazhanbas oilfield had estimated proved oil reserves of 250.3 million barrels (2013: 262.6 million barrels) as determined in accordance with the standards of the PRMS.

Share of profit of a joint venture HK$163.1 million (2013: HK$360.9 million) ▼ 55%

The Group accounts for its share of the consolidated results of CCEL using the equity method.

Management’s Discussion and Analysis

The following table shows a comparison of the performance of the Karazhanbas oilfield:

		2014	2013
		(50%)	(50%)	Change
Average benchmark end-market quotes:
Urals Mediterranean crude oil	(US$ per barrel)	98.0	108.3	▼	10%
Dated Brent crude oil	(US$ per barrel)	99.4	109.6	▼	9%
Average crude oil realised price	(US$ per barrel)	78.6	97.0	▼	19%
Sales volume	(barrels)	7,451,000	7,420,000	▲	0%
Revenue	(HK$ million)	4,539.9	5,584.8	▼	19%
Total production	(barrels)	7,120,000	6,853,000	▲	4%
Daily production	(barrels)	19,500	18,800	▲	4%

Revenue decreased as compared to 2013 due to a drop in oil realised prices of 19% during the year. Supported by KBM’s continued efforts to explore and adopt more effective oil recovery techniques to improve oilfield sustainability, oil production increased by 4% for the year.

In February 2014, Kazakhstan Tenge was devalued by about 19%. During the year, the average exchange rate of US$1 against Tenge was 179.3273 (2013: 152.1826). This provided a significant benefit to KBM’s accounts (of which Tenge is the functional currency) primarily in respect of its US$ denominated trade receivables and bank balances at the time Tenge was devalued. Consequently, a net exchange gain of HK$75.1 million (2013: Nil) was recorded.
At CCEL level, mineral extraction tax (“ MET ”) is charged at progressive rates based on production volume and charged to “Cost of sales” in the consolidated income statement. Rent tax is charged on export revenue while export duty is charged at a certain rate per tonne of oil exported, and both are charged to “Selling and distribution costs” in the consolidated income statement.

Cost of sales decreased by 19% when compared to 2013. During the year, average lifting costs increased to US$20.4 (2013: US$19.5) per barrel, representing a 5% increase, mainly caused by rising repairs and maintenance, and salaries and wages. MET significantly decreased by 95% as a result of obtaining a preferential rate during the year.

During the year, selling and distribution costs decreased by 18% when compared to 2013. Rent tax decreased by 31% as a result of lower export revenue whereas export duty increased by 21% due to an increase in the charge rate during the year. Export duty increased from US$40 to US$60 per tonne effective 1 May 2013, and further increased to US$80 per tonne effective 1 April 2014. Transportation costs decreased by 15%.

The Group has commenced active discussions with relevant governmental and regulatory authorities in Kazakhstan to extend the Karazhanbas oilfield licence for a further 15 years after its current expiry in 2020.

Management’s Discussion and Analysis

Liquidity, Financial Resources and Capital Structure

Cash

As at 31 December 2014, the Group had cash and cash equivalents of HK$3,246.4 million.

During the year, the Group made a drawdown of HK$2,418.0 million under the D Loan (as defined below) while it fully redeemed the outstanding principal amount of its US$1,000,000,000 6.75% senior notes due 2014 (the “ Notes ”), being US$798.9 million (HK$6,231.4 million).

Borrowings

As at 31 December 2014, the Group had total debt of HK$9,229.9 million, which comprised:

unsecured bank loans of HK$9,173.4 million; and
finance lease payables of HK$56.5 million.

Most transactions of CATL are debt funded which means CATL is highly geared. However, in contrast to term loans, CATL’s borrowings are self liquidating, transaction specific and of short durations, matching the term of the underlying trade. When sale proceeds are received at the completion of a transaction, the related borrowings are repaid accordingly.

In June 2012, the Company, as borrower, entered into a facility agreement with a syndicate of financial institutions as lenders in respect of an unsecured 3-year term loan facility of US$380 million (HK$2,964 million) (the “ A Loan ”) to refinance the final repayment (being US$140 million) of an unsecured term loan facility and to finance the general corporate funding requirements of the Company. The outstanding balance of the A Loan as at 31 December 2014 was US$380 million and matures in June 2015.

In September 2012, the Company, as borrower, entered into a facility agreement with a bank as lender in respect of an unsecured 5-year term loan facility of US$40 million (HK$312 million) (the “ B Loan ”) to finance the general corporate funding requirements of the Company. The outstanding balance of the B Loan as at 31 December 2014 was US$40 million.

In November 2012, the Company, as borrower, entered into a facility agreement with a syndicate of financial institutions as lenders in respect of an unsecured term loan facility of US$400 million (HK$3,120 million) (the “ C Loan ”) to finance the general corporate funding requirements of the Company. The C Loan has a tenor of five years commencing from the date of first utilisation, being 14 May 2013, subject to a put option requiring repayment on the date falling three years from such date. The outstanding balance of the C Loan as at 31 December 2014 was US$400 million.

In March 2014, the Company, as borrower, entered into a facility agreement with a syndicate of financial institutions as lenders in respect of an unsecured term loan facility (the “ D Loan ”) to finance the repayment of the Notes. The D Loan has a total facility amount of US$310 million (HK$2,418 million) and a tenor of three years commencing from the date of first utilisation, being 12 May 2014. The outstanding balance of the D Loan as at 31 December 2014 was US$310 million.

Further details of the bank and other borrowings are set out in note 31 to the financial statements.

Management’s Discussion and Analysis

The Group leases certain of its plant and machinery for its coal mine operation. The leases are classified as finance leases. Further details of the finance lease payables are set out in note 32 to the financial statements.

The bond obligations as at 31 December 2013 represented the outstanding amount of the Notes issued by CITIC Resources Finance (2007) Limited, a direct wholly-owned subsidiary of the Company. The Notes were fully redeemed in May 2014. Further details of the bond obligations are set out in note 33 to the financial statements.

As at 31 December 2014, the Group’s net debt to net total capital was 35.5% (2013: 36.5%). Of the total debt, HK$3,413.8 million was repayable within one year, including mainly the outstanding balance of the A Loan and trade finance.

Share capital

There was no movement in the share capital of the Company during the year.

Financial risk management

The Group’s diversified business is exposed to a variety of risks, such as market risks (including foreign currency risk, price risk, interest rate risk and inflation risk), credit risk and liquidity risk. The management of such risks is dictated by a set of internal policies and procedures designed to minimise potential adverse effects to the Group. The policies and procedures have proved effective.

The Group enters into derivative transactions, including principally forward currency contracts, forward commodity contracts, interest rate swap contracts, embedded derivatives and an electricity hedge agreement. Their purpose is to manage the foreign currency risk, price risk, interest rate risk and inflation risk arising from the Group’s operations and sources of finance.

Further details of the financial risk management objectives and policies are set out in note 47 to the financial statements.

New investment

There was no new investment concluded during the year.

Opinion

The Board is of the opinion that, after taking into account the existing available borrowing facilities and internal resources, the Group has sufficient resources to meet its foreseeable working capital requirements.

Management’s Discussion and Analysis

Employees and Remuneration Policies

As at 31 December 2014, the Group had around 530 full time employees, including management and administrative staff.

The Group’s remuneration policy seeks to provide fair market remuneration in a form and value to attract, retain and motivate high quality staff. Remuneration packages are set at levels to ensure comparability and competitiveness with other companies in the industry and market competing for a similar talent pool. Emoluments are also based on an individual’s knowledge, skill, time commitment, responsibilities and performance and by reference to the Group’s profits and performance. Rent-free quarters are provided to some employees in Indonesia.

The Group operates the following contribution retirement benefit schemes for its employees:

(a) a defined scheme under the Government Law No. 11/1992 of the Indonesian government for those employees in Indonesia who are eligible to participate;
(b) a defined scheme under the superannuation legislation of the Australian government for those employees in Australia who are eligible to participate; and
(c) a defined scheme under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees in Hong Kong who are eligible to participate.

Contributions are made based on a percentage of the employees’ basic salaries. The assets of the above schemes are held separately from those of the Group in independently administered funds. The Group’s employer contributions vest fully with the employees when contributed into these schemes.

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible persons.

Board of Directors and Senior Management

Directors

Mr. Kwok Peter Viem Chairman and Executive Director Mr. Qiu Yiyong Vice Chairman, Executive Director and Chief Executive Officer Mr. Sun Yang Vice Chairman and Executive Director Mr. Guo Tinghu Executive Director Ms. Li So Mui Executive Director Mr. Wong Kim Yin Non-executive Director Mr. Zeng Chen Non-executive Director Mr. Fan Ren Da, Anthony Independent Non-executive Director Mr. Gao Pei Ji Independent Non-executive Director Mr. Hu Weiping Independent Non-executive Director Mr. Shou Xuancheng Independent Non-executive Director

Directors – Biographies

Mr. Kwok Peter Viem , aged 66, joined in 2013 as the Chairman and an executive director of the Company, having previously held the same positions between 2000 and 2007. He is also a member of the nomination committee of the Company, a position which he also held between 2006 and 2007. He is also a director of several subsidiaries of the Company. He is responsible for the strategic planning and corporate development of the Group. Mr. Kwok holds a Bachelor of Arts Degree in Commerce from National Taiwan University, a Master of Philosophy Degree in Management Studies from The University of Hong Kong and a Doctoral Degree in Finance from University of California, Berkeley. He is a director of Cathay Financial Holding Co., Ltd. listed on the Taiwan Stock Exchange (Stock Code: 2882.TW). Mr. Kwok held senior positions with various international financial institutions and has over 38 years’ experience in banking and corporate finance. He is a member of the National Committee of the Chinese People’s Political Consultative Conference and a vice chairman of Committee for Liaison with Hong Kong, Macao, Taiwan and Overseas Chinese.

Mr. Qiu Yiyong , aged 58, was re-designated as an executive director and appointed the Chief Executive Officer of the Company in March 2014 and appointed a Vice Chairman of the Company in July 2014. He was also appointed a member of the remuneration committee of the Company in July 2014. He was an executive director of the Company between 2002 and 2010, and a non-executive director of the Company between 2010 and 2014. He is also a director of several subsidiaries of the Company. He is responsible for the strategic and corporate development, management and operations of the Group. Mr. Qiu holds a Bachelor of Economics Degree from Xiamen University and is a qualified senior statistician in China. He is a director of Keentech Group Limited, and the chairman and an executive director of CDH listed on the Main Board of the Stock Exchange (Stock Code: 1091). Prior to joining 中國中信集團有限公司 (CITIC Group Corporation) (“ CITIC Group ”) in 2000, Mr. Qiu was a director of two companies listed on the Main Board of the Stock Exchange. Mr. Qiu has over 33 years’ experience in investment management and the natural resources industry.

Mr. Sun Yang , aged 48, was appointed a Vice Chairman and an executive director of the Company in July 2014. He is also a director of a subsidiary of the Company. He is responsible for the strategic and corporate development, management and operations of the Group. Mr. Sun holds a Master’s Degree in Management from Renmin University of China. He is the president of CITIC Kazakhstan LLP, an independent director of JSC AB Bank of China Kazakhstan and a director of KBM. Mr. Sun has held senior positions in several subsidiaries of CITIC Group since 1995. Mr. Sun ceased to act as the chief representative of the Kazakhstan office of CITIC Group in September 2014. Mr. Sun has over 8 years’ experience in the oil and gas industry.

Mr. Guo Tinghu , aged 53, joined in 2011 as an executive director of the Company. He is also a director of several subsidiaries of the Company. He is responsible for the business development and operations of the Group. Mr. Guo holds a Bachelor of Engineering Degree from Northeastern University, Shenyang and a Master’s Degree in Engineering from Central Iron and Steel Research Institute, Beijing. He is the managing director of CITIC Australia Pty Limited (“ CA ”). Mr. Guo has over 26 years’ experience in business operations and trading in various commodities.

Board of Directors and Senior Management

Ms. Li So Mui , aged 60, joined in 2000 as an executive director and the Company Secretary of the Company. She is also a director of several subsidiaries of the Company. She is responsible for the financial management of the Group. Ms. Li holds a Master’s Degree in Business Administration and is a fellow member of the Association of Chartered Certified Accountants, the Hong Kong Institute of Certified Public Accountants and the Association of International Accountants. Ms. Li has over 37 years’ experience in the accounting and banking field.

Mr. Wong Kim Yin , aged 44, joined in 2008 as a non-executive director of the Company. Mr. Wong holds an Executive Master’s Degree in Business Administration from The University of Chicago Graduate School of Business. He is a director and the group chief executive officer of Singapore Power Limited. Prior to joining Singapore Power Limited in 2012, Mr. Wong was a senior managing director of Temasek Holdings (Private) Limited and was responsible for investment portfolios in transportation, industrials and energy industries between 2004 and 2011. He worked for The AES Corporation, a power company listed on the New York Stock Exchange (Stock Code: AES), between 1995 and 2002 and was responsible for investments across Asia Pacific.

Mr. Zeng Chen , aged 51, was re-designated as a non-executive director of the Company in March 2014. He was an executive director of the Company between 2004 and 2014, the President of the Company between 2010 and 2011, the Vice Chairman of the Company between 2011 and 2014 and the Chief Executive Officer of the Company between 2010 and 2014. He is also a director of several subsidiaries of the Company. Mr. Zeng holds a Master’s Degree in International Finance from Shanghai University of Finance and Economics. He is the chairman of CA, the chief executive officer of CITIC Pacific Mining Management Pty Ltd. and a non-executive director of AWC listed on the ASX (Stock Code: AWC). Mr. Zeng was an executive director of CITIC Limited, a company listed on the Main Board of the Stock Exchange (Stock Code: 267), between May 2014 and September 2014. Mr. Zeng ceased to act as a non-executive director of Marathon Resources Limited (listed on the ASX) (Stock Code: MTN) and CDH in January 2014 and December 2014 respectively. Mr. Zeng has over 26 years’ experience in business operations and development, project investment, asset restructuring and the natural resources industry.

Mr. Fan Ren Da, Anthony , aged 54, joined in 2000 as an independent non-executive director of the Company. He is also a member of the audit committee, remuneration committee and nomination committee of the Company. Mr. Fan holds a Master’s Degree in Business Administration from the United States of America. He is the chairman and managing director of AsiaLink Capital Limited. He is also an independent non-executive director of LT Commercial Real Estate Limited (formerly known as LT Holdings Limited) (Stock Code: 112), Uni-President China Holdings Ltd. (Stock Code: 220), Raymond Industrial Limited (Stock Code: 229), Shanghai Industrial Urban Development Group Limited (Stock Code: 563), China Development Bank International Investment Limited (Stock Code: 1062), Technovator International Limited (Stock Code: 1206), Guodian Technology & Environment Group Corporation Limited (Stock Code: 1296), Renhe Commercial Holdings Company Limited (Stock Code: 1387), CGN Meiya Power Holdings Co., Ltd. (Stock Code: 1811), Neo-Neon Holdings Limited (Stock Code: 1868), Hong Kong Resources Holdings Company Limited (Stock Code: 2882) and Tenfu (Cayman) Holdings Company Limited (Stock Code: 6868), all listed on the Main Board of the Stock Exchange. Mr. Fan ceased to act as an independent non-executive director of Shenzhen World Union Properties Consultancy Co., Ltd., a company listed on the Shenzhen Stock Exchange (Stock Code: 002285), in July 2012. Mr. Fan held senior positions with various international financial institutions.

Mr. Gao Pei Ji , aged 68, joined in 2011 as an independent non-executive director of the Company. He is also a member of the audit committee, remuneration committee and nomination committee of the Company. Mr. Gao holds a LL.M. Degree from the Law School of University of California, Berkeley. He has been admitted to practise law in China since 1984. He is a foreign legal consultant to Clifford Chance, Hong Kong office, providing advisory services to the firm on issues in relation to China. He is also an independent non-executive director of CGN Mining Company Limited listed on the Main Board of the Stock Exchange (Stock Code: 1164). He was a partner of Clifford Chance between 1993 and 2007. Mr. Gao has extensive and diversified experience in general practice, including banking and finance, direct investment, international trade, construction contracts, arbitration and litigation in relation to financial matters, and insolvency.

Board of Directors and Senior Management

Mr. Hu Weiping , aged 64, joined in 2012 as an independent non-executive director of the Company. Mr. Hu holds a Bachelor of Chemical Engineering Degree from Zhengzhou University. He is an independent director of GD Power Development Co., Ltd. listed on the Shanghai Stock Exchange (Stock Code: 600795); and an independent non-executive director of China Rongsheng Heavy Industries Group Holdings Limited listed on the Main Board of the Stock Exchange (Stock Code: 1101). Mr. Hu held senior positions with several departments of the National Development and Reform Commission of the People’s Republic of China (the “ NDRC ”) since 1991 and was a deputy director general of the Department of Oil & Natural Gas (National Oil Reserve Office), National Energy Administration of the NDRC between 2008 and 2011. Mr. Hu has over 36 years’ experience in chemical engineering and the natural resources industry.

Mr. Shou Xuancheng , aged 65, was appointed an independent non-executive director and a member of the audit committee and the remuneration committee of the Company in July 2014. He was a Vice Chairman and an executive director of the Company between 2005 and 2009. Mr. Shou holds a Master’s Degree and a Doctoral Degree in Engineering from Petroleum University of China. He is a vice president of Huili Resources (Group) Limited listed on the Main Board of the Stock Exchange (Stock Code: 1303). Mr. Shou ceased to act as a senior vice president of MIE Holdings Corporation listed on the Main Board of the Stock Exchange (Stock Code: 1555) in June 2014. Mr. Shou held senior positions in the CNPC group of companies between 1985 and 2004. Mr. Shou has over 44 years’ experience in the oil and gas industry.

Senior Management – Biographies

Mr. Bi Jingshuang , aged 43, was appointed a vice president of the Company in November 2014. He is responsible for mergers and acquisitions, and project management of the Group. Mr. Bi holds a LL.B. Degree from China University of Political Science and Law and a LL.M. Degree from the Law School of University of California, Berkeley. He was admitted to the New York Bar in 2009. Prior to joining the Company, Mr. Bi was engaged in the CNPC group of companies. Mr. Bi has over 20 years’ experience in the oil and gas industry.

Mr. Cha Johnathan Jen Wah , aged 50, joined in 2005 as the General Counsel of the Company. He is a solicitor admitted in Hong Kong and in England and Wales. Mr. Cha has over 24 years’ experience in mergers and acquisitions, corporate finance, regulatory and general commercial work.

Mr. Chung Ka Fai, Alan , aged 47, joined in 1997 as the Chief Accountant of the Company. He is a certified practising accountant of CPA Australia. Prior to joining the Company, Mr. Chung worked for various multi-national companies. Mr. Chung has over 24 years’ experience in the accounting field.

Mr. Wu Ying Ha , aged 51, was appointed a vice president of the Company in April 2014. He is responsible for human resources and administrative management of the Group. Mr. Wu holds a Master’s Degree in Business Administration from Southeastern University, Washington, D.C. Prior to joining the Company, Mr. Wu was engaged in a subsidiary of CITIC Group in Hong Kong. Mr. Wu has over 20 years’ experience in corporate management, especially in human resources and administration.

Mr. Yang Zaiyan , aged 56, joined in 2009 as a vice president of the Company. He is responsible for the management, planning and development of the Group’s oil investments and portfolio. Mr. Yang holds a Bachelor of Engineering Degree from Huadong Petroleum Institute and is a senior geologist. Prior to joining the Company, Mr. Yang was engaged in the CNPC and the Sinochem group of companies. Mr. Yang has over 32 years’ experience in the oil and gas industry.

Corporate Governance Report

The Company is committed to maintaining a good and sensible framework of corporate governance and to complying with applicable statutory and regulatory requirements with a view to assuring the conduct of management of the Company as well as protecting the interests of all shareholders. The Board assumes responsibility for leadership and control of the Company and is collectively responsible for promoting the success of the Company.

Compliance with the Corporate Governance Code

The Board is of the view that the Company has, for the year ended 31 December 2014, applied the principles and complied with the applicable code provisions, and also complied with certain recommended best practices, of the Corporate Governance Code (the “ CG Code ”) as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

Model Code for Securities Transactions by Directors

The Company has adopted a code of conduct for dealings in the securities of the Company by its directors (the “ Securities Dealings Code ”) that is based on the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules (or on terms no less exacting than the Model Code).

All directors have confirmed, following specific enquiry by the Company, that they have complied with the required standards set out in the Securities Dealings Code throughout the year.

Board of Directors

As at 13 February 2015, the Board comprised a total of 11 members, with five executive directors, two non-executive directors and four independent non-executive directors:

Executive Directors:

Mr. Kwok Peter Viem (Chairman) Mr. Qiu Yiyong (Vice Chairman and Chief Executive Officer) Mr. Sun Yang (Vice Chairman) Mr. Guo Tinghu Ms. Li So Mui

(re-designated on 1 March 2014) (appointed on 1 July 2014)

Non-executive Directors:

Mr. Tian Yuchuan Mr. Wong Kim Yin Mr. Zeng Chen

(resigned on 1 July 2014)

(re-designated on 1 March 2014)

Corporate Governance Report

Independent Non-executive Directors:

Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Hu Weiping Mr. Ngai Man (passed away on 16 March 2014) Mr. Shou Xuancheng (appointed on 1 July 2014)

The Board possesses a balance of skills, experience and diversity of perspective appropriate to the requirements of the business of the Company. Directors take decisions objectively in the interests of the Company. The directors, individually and collectively, are aware of their responsibilities and accountability to shareholders and for the manner in which the affairs of the Company are managed and operated.

The Group has diversity of management expertise in the energy resources and commodities sectors, including oil, aluminium, coal and manganese, and the accounting and banking field. The Board has the required knowledge, experience and capabilities to operate and develop the Group’s businesses and implement its business strategies.

On appointment, each new director is briefed by senior management on the Group’s corporate goals and objectives, activities and business, strategic plans and financial situations. A new director is also provided with a package of orientation materials in respect of the directors’ duties and responsibilities under the Listing Rules, the bye-laws of the Company (the “ Bye-laws ”), corporate governance and financial reporting standards. The company secretary is responsible for keeping all directors updated on the Listing Rules and other regulatory and reporting requirements.

All directors are subject to re-election at regular intervals. The Bye-laws provide that any director appointed by the Board to fill a casual vacancy or as an additional director shall hold office only until the general meeting of the Company or the annual general meeting of the Company (the “ AGM ”), whichever shall be the earlier, next following his/her appointment and such director shall be eligible for re-election at that meeting. In addition, every director is subject to retirement at least once every three years following his/her re-election with the result that, at each AGM, one-third of the directors shall retire from office by rotation.

To the best of the knowledge of the Company, there is no financial, business, family or other material or relevant relationship between board members or between the chairman and the chief executive officer.

Under the leadership of the chief executive officer, senior management is responsible for executing the Board’s strategy and implementing its policies through the day-to-day management and operations of the Group’s businesses.

The Board determines which functions are reserved to the Board and which are delegated to senior management. It delegates appropriate aspects of its management and administrative functions to senior management. It also gives clear directions as to the powers of senior management, in particular, with respect to the circumstances where senior management must report back and obtain prior approval from the Board before making decisions or entering into any commitments on behalf of the Company. These arrangements are reviewed periodically to ensure that they remain appropriate to the needs of the Company.

Important matters are reserved to the Board for its decision, including long term objectives and strategies, extension of the Group’s activities into new business areas, appointments to the Board and the board committees, annual internal controls assessment, annual budgets, material acquisitions and disposals, material connected transactions, material banking facilities, announcements of interim and final results and payment of dividends.

Corporate Governance Report

Chairman and Chief Executive Officer

The role of the chairman is separate from that of the chief executive officer so as to delineate their respective areas of responsibility, power and authority. The chairman focuses on the Group’s strategic planning while the chief executive officer has overall executive responsibility for the Group’s development and management. They receive significant support from the directors and the senior management team.

The chairman has a clear responsibility to ensure that the whole Board receives, in a timely manner, adequate information which must be accurate, clear, complete and reliable. The Board, led by the chairman, sets the overall direction, strategy and policies of the Company.

The chairman provides leadership for the Board to ensure that it works effectively, performs its responsibilities and acts in the best interests of the Company. He is also responsible for overseeing effective functioning of the Board and application of good corporate governance practices and procedures. The chairman seeks to ensure that all directors are properly briefed on issues arising at board meetings. He also encourages the directors to make full and active contributions to the Board’s affairs, to voice their concerns or different views and ensure that the decisions fairly reflect the consensus.

Non-executive Directors

The non-executive directors (including the independent non-executive directors) are seasoned individuals from diversified backgrounds and industries and one member has appropriate accounting and related financial management expertise as required by the Listing Rules. With their expertise and experience, they serve the relevant function of bringing independent judgement and advice on the overall management of the Company. The total number of non-executive directors represented more than half of the board members so that there is a strong independent element on the Board, which can effectively exercise independent judgement. The non-executive directors take the lead where potential conflicts of interests arise. Their responsibilities include maintaining a balance between the non-controlling interests and the Company as a whole.

All independent non-executive directors are invited to participate in board meetings so that they are able to provide at such meetings their experience and judgement on matters to be discussed in the meetings.

The non-executive directors are appointed for an initial term of one year and thereafter from year to year, subject to re-election at the general meeting of the Company or the AGM, whichever shall be the earlier, next following their appointment and thereafter retirement by rotation and re-election at the AGMs in accordance with the Bye-laws.

During the year, the chairman has held a meeting with the non-executive directors (including independent non-executive directors) without the presence of the executive directors.

Corporate Governance Report

Directors’ Continuous Professional Development

During the year, to develop and refresh their knowledge and skills, all directors have participated in appropriate continuous professional development training which covered updates on laws, rules and regulations and also directors’ duties and responsibilities. The following shows the training of each of the directors received during the year:

		Attending seminars /	Reading
		Briefings	materials
Executive Directors:
Mr. Kwok Peter Viem		—	3
Mr. Qiu Yiyong	(re-designated on 1 March 2014)	3	3
Mr. Sun Yang	(appointed on 1 July 2014)	—	3
Mr. Guo Tinghu		—	3
Ms. Li So Mui		3	3
Non-executive Directors:
Mr. Wong Kim Yin		—	3
Mr. Zeng Chen	(re-designated on 1 March 2014)	—	3
Independent Non-executive Directors:
Mr. Fan Ren Da, Anthony		—	3
Mr. Gao Pei Ji		—	3
Mr. Hu Weiping		—	3
Mr. Shou Xuancheng	(appointed on 1 July 2014)	—	3

Board Meetings

Meetings of the Board are held regularly and at least four times a year at about quarterly intervals to approve, among other things, the financial results of the Company. Regular board meetings are scheduled in advance to give the directors an opportunity to attend. Directors can attend board meetings either in person or by electronic means of communication.

There was satisfactory attendance for board meetings, which evidences prompt attention of the directors to the affairs of the Company. A total of five board meetings were held in 2014.

All directors are invited to include matters in the agenda for regular board meetings.

If a substantial shareholder or a director has a conflict of interest in a material matter, a board meeting will be held. Independent non-executive directors who, and whose associates, have no material interest in the transaction will be present at such board meeting.

Efforts are made to ensure that queries of the directors are dealt with promptly. All directors have access to the advice and services of the company secretary with a view to ensuring that board procedures and all applicable rules and regulations are followed. The directors also have separate and independent access to senior management to make further enquiries or to obtain more information where necessary.

Corporate Governance Report

Board Committees

The Board has established a remuneration committee, a nomination committee and an audit committee. They are each established with specific written terms of reference which deal clearly with their respective authority and responsibilities.

There was satisfactory attendance for meetings of the board committees during the year. The minutes of the committee meetings are circulated to all members of the Board unless a conflict of interest arises. The committees are required to report back to the Board on key findings, recommendations and decisions.

Remuneration Committee

The purpose of the committee is to make recommendations to the Board on the remuneration policy and structure for all directors and senior management of the Group and the remuneration of all directors of each member of the Group.

The committee is responsible for making recommendations to the Board on the establishment of a formal and transparent procedure for developing remuneration policy on all directors and senior management and for determining remuneration packages of individual executive directors and senior management. It also makes recommendations to the Board on the remuneration of non-executive directors (including independent non-executive directors).

The committee consults the chairman and/or the chief executive officer about their remuneration proposals for other executive directors.

Members of the committee are:

Mr. Gao Pei Ji (Independent Non-executive Director) (Chairman) Mr. Fan Ren Da, Anthony (Independent Non-executive Director) Mr. Ngai Man (Independent Non-executive Director) (passed away on 16 March 2014) Mr. Shou Xuancheng (Independent Non-executive Director) (appointed on 1 July 2014) Mr. Qiu Yiyong (Executive Director) (appointed on 1 July 2014)

Four meetings were held in the year. During the year, the committee approved the remuneration and director’s fee payable to the directors. Also, the committee reviewed and approved the performance-based remuneration package of each individual executive director and approved the salary payable.

Corporate Governance Report

Nomination Committee

The purpose of the committee is to lead the process for Board appointments and for identifying and nominating for the approval of the Board candidates for appointment to the Board.

In order to maintain its competitive advantage and achieve a sustainable and balanced development, the Company recognises the benefits of having a diverse Board. The Board adopted a diversity policy of the Board (the “ Policy ”) in August 2013 which sets out the approach by the Company to achieve diversity on the Board. According to the Policy, selection of candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background and professional experience.

The committee is responsible for reviewing the structure, size and diversity (including without limitation, gender, age, cultural and educational background, skills, knowledge and professional experience) of the Board at least annually and making recommendations on any proposed changes to the Board to complement the Company’s corporate strategy, identifying individuals suitably qualified to become members of the Board and selecting or making recommendations to the Board on the selection of individuals nominated for directorships, and considering candidates on merit and against objective criteria with due regard to the Policy. The committee is also responsible for reviewing the Policy and the measurable objectives, the progress on achieving the objectives, assessing the independence of independent non-executive directors and making recommendations to the Board on the appointment or re-appointment of directors and succession planning for directors, in particular the chairman and the vice chairman and the chief executive officer of the Company.

The committee consults the chairman of the Board about his proposals relating to the process for Board appointments and for identifying and nominating candidates as members of the Board.

The criteria for the committee to select and recommend a candidate for directorship include the candidate’s skills, knowledge, experience and integrity and whether he/she can demonstrate a standard of competence commensurate with his/her position as a director of the Company.

Members of the committee are:

Mr. Ngai Man (Independent Non-executive Director) (Chairman) (passed away on 16 March 2014) Mr. Kwok Peter Viem (Executive Director) (Chairman) (elected chairman on 10 June 2014) Mr. Fan Ren Da, Anthony (Independent Non-executive Director) Mr. Gao Pei Ji (Independent Non-executive Director)

Three meetings were held in the year. During the year, the committee resolved to recommend to the Board the appointments of the vice chairmen, the chief executive officer, an executive director and an independent non-executive director. The committee also resolved to elect its chairman. Also, the committee reviewed the structure, size and diversity of the Board and opined that the Board possesses a balance of skills, experience, expertise and diversity of perspectives appropriate to the requirements of the business of the Company.

Corporate Governance Report

Audit Committee

The purpose of the committee is to establish formal and transparent arrangements to consider how the Board applies financial reporting and internal control principles and maintain an appropriate relationship with the Company’s external auditors and internal auditors.

The committee is responsible for making recommendations to the Board on the appointment, re-appointment and removal of the external auditors, and approving the remuneration and terms of engagement of the external auditors, and considering any questions of its resignation or dismissal.

The committee reports to the Board any suspected fraud and irregularities, failures of internal control or suspected infringements of laws, rules and regulations which come to its attention and are of sufficient importance to warrant the attention of the Board.

Members of the committee are:

Mr. Fan Ren Da, Anthony (Independent Non-executive Director) (Chairman) Mr. Gao Pei Ji (Independent Non-executive Director) Mr. Ngai Man (Independent Non-executive Director) (passed away on 16 March 2014) Mr. Shou Xuancheng (Independent Non-executive Director) (appointed on 1 July 2014)

The members of the committee possess appropriate professional qualifications and/or experience in financial matters. None of the committee members is or was a partner of the existing external auditors.

The committee meets as and when required to perform its responsibilities, and at least twice in each financial year of the Company. Two meetings were held in the year. During the year, the committee reviewed, together with senior management and the external auditors, the financial statements for the year ended 31 December 2013 and the financial statements for the six months ended 30 June 2014, the accounting principles and practices adopted by the Company, statutory compliance, other financial reporting matters, internal control systems and continuing connected transactions of the Company.

The committee has recommended to the Board (which endorsed the recommendation) that, subject to shareholders’ approval at the forthcoming AGM, Ernst & Young be re-appointed as the Company’s external auditors for 2015.

Corporate Governance Report

Attendance at Meetings of the Board and the Board Committees, and General Meetings

	Number of meetings held during the year Attended / Eligible to attend AGM SGM held on held on Remuneration Nomination Audit 27 June 27 June Board committee committee committee 2014 2014
Executive Directors: Mr. Kwok Peter Viem Mr. Qiu Yiyong (re-designated on 1 March 2014) Mr. Sun Yang (appointed on 1 July 2014) Mr. Guo Tinghu Ms. Li So Mui Non-executive Directors: Mr. Tian Yuchuan (resigned on 1 July 2014) Mr. Wong Kim Yin Mr. Zeng Chen (re-designated on 1 March 2014) Independent Non-executive Directors: Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Hu Weiping Mr. Ngai Man (passed away on 16 March 2014) Mr. Shou Xuancheng (appointed on 1 July 2014)	5 / 5 3 / 3 1 / 1 1 / 1 5 / 5 2 / 2 1 / 1 1 / 1 2 / 2 0 / 0 0 / 0 5 / 5 1 / 1 1 / 1 5 / 5 1 / 1 1 / 1 1 / 3 0 / 1 0 / 1 2 / 5 1 / 1 1 / 1 4 / 5 0 / 1 0 / 1 5 / 5 4 / 4 3 / 3 2 / 2 1 / 1 1 / 1 5 / 5 4 / 4 3 / 3 2 / 2 1 / 1 1 / 1 5 / 5 0 / 1 0 / 1 1 / 1 1 / 1 1 / 1 1 / 1 0 / 0 0 / 0 2 / 2 2 / 2 1 / 1 0 / 0 0 / 0

Number of meetings held during the year
Attended / Eligible to attend
AGM
SGM
held on
held on
Remuneration Nomination
Audit
27 June 27 June
Board
committee
committee committee
2014
2014

Executive Directors:
Mr. Kwok Peter Viem
Mr. Qiu Yiyong
(re-designated on 1 March 2014)
Mr. Sun Yang
(appointed on 1 July 2014)
Mr. Guo Tinghu
Ms. Li So Mui
Non-executive Directors:
Mr. Tian Yuchuan
(resigned on 1 July 2014)
Mr. Wong Kim Yin
Mr. Zeng Chen
(re-designated on 1 March 2014)
Independent Non-executive Directors:
Mr. Fan Ren Da, Anthony
Mr. Gao Pei Ji
Mr. Hu Weiping
Mr. Ngai Man
(passed away on 16 March 2014)
Mr. Shou Xuancheng (appointed on 1 July 2014)

5 / 5
3 / 3
1 / 1
1 / 1
5 / 5
2 / 2
1 / 1
1 / 1
2 / 2
0 / 0
0 / 0
5 / 5
1 / 1
1 / 1
5 / 5
1 / 1
1 / 1
1 / 3
0 / 1
0 / 1
2 / 5
1 / 1
1 / 1
4 / 5
0 / 1
0 / 1
5 / 5
4 / 4
3 / 3
2 / 2
1 / 1
1 / 1
5 / 5
4 / 4
3 / 3
2 / 2
1 / 1
1 / 1
5 / 5
0 / 1
0 / 1
1 / 1
1 / 1
1 / 1
1 / 1
0 / 0
0 / 0
2 / 2
2 / 2
1 / 1
0 / 0
0 / 0

Corporate Governance Functions

The Board has the following responsibilities:

(a) to develop and review the Company’s policies and practices on corporate governance; and to review the compliance with the CG Code and disclosures in the corporate governance report;
(b) to review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements;
(c) to review and monitor the training and continuous professional development of the directors and senior management; and
(d) to develop, review and monitor the code of conduct applicable to the directors and employees.

Corporate Governance Report

Financial Reporting

The directors acknowledge their responsibilities for preparing the financial statements for the Group. The directors are regularly provided with updates on the Company’s businesses, potential investments, financial objectives, plans and actions.

The Board aims at presenting a balanced, clear and comprehensive assessment of the Group’s performance, position and prospects. Senior management provides such explanation and information to the directors to enable the Board to make informed assessments of the financial and other matters put before the Board for approval.

The Board considers that, through a review made by the audit committee, the resources, staff qualifications and experience, training programmes and budget of the Company’s accounting and financial reporting function are adequate.

Internal Controls

The Board has overall responsibility for maintaining a sound and effective internal control system and for reviewing its effectiveness, particularly in respect of controls on financial, operational, compliance and risk management, to safeguard shareholders’ investment and the Group’s assets.

The internal control system is designed to provide reasonable, but not absolute, assurance. The system aims to eliminate, or otherwise manage, risks of failure in achieving the Company’s objectives.

The internal audit team assesses and reports on the adequacy and effectiveness of the internal control system by performing necessary reviews and testing.

The internal audit team reports to the audit committee once a year on key findings regarding internal controls. The audit committee, in turn, communicates any material issues to the Board.

During the year, the audit committee conducted a review of the effectiveness of the internal control system of the Group. The internal audit team reported that no serious deficiencies were identified. The Board therefore considered the internal control system of the Group effective and complied with the code provisions of the CG Code.

Auditors’ Remuneration

Ernst & Young were re-appointed by shareholders at the AGM held on 27 June 2014 as the Company’s external auditors until the next AGM. They are primarily responsible for providing audit services in connection with the financial statements of the Group for the year ended 31 December 2014.

For the year, Ernst & Young charged the Group HK$11,823,000 for the provision of audit services and HK$3,177,000 for the provision of non-audit services. The non-audit services included tax advice, preparation of tax returns and financial due diligence on a potential investment.

Corporate Governance Report

Shareholders’ Rights

Procedures for shareholders to convene a special general meeting

Shareholders holding at the date of the requisition not less than 10% of the paid-up capital of the Company carrying the right to vote at general meetings of the Company shall at all times have the right, by written requisition to the Board or the company secretary, to require a general meeting (the “ SGM ”) to be called by the Board for the transaction of any business specified in such requisition.

The requisitionists must state the purpose of the meeting and contact details in the requisition, sign and deposit the requisition at the principal place of business of the Company for the attention of the company secretary.

The SGM shall be held within two months from the deposit of the requisition. If the Board fails to proceed to convene the SGM within 21 days of such deposit, the requisitionists, or any of them representing more than 50% of the total voting rights of all of them, may convene the SGM by themselves in accordance with the provisions of section 74(3) of the Companies Act 1981 of Bermuda (as amended), but any SGM so convened shall not be held after the expiration of three months from the deposit of the requisition.

Procedures for putting forward proposals at general meetings

Shareholders holding not less than 5% of the total voting rights of all shareholders having a right to vote at the general meeting or not less than 100 shareholders can submit a written request stating a resolution to be moved at the AGM or a statement of not more than 1,000 words with respect to a matter referred to in any proposed resolution or the business to be dealt with at a particular general meeting.

The requisitionists must sign and deposit the written request or statement at the registered office of the Company and the principal place of business of the Company for the attention of the company secretary not less than six weeks before the AGM in the case of a requisition requiring notice of a resolution and not less than one week before the general meeting in the case of any other requisition.

If the written request is in order, the company secretary will ask the Board to include the resolution in the agenda for the AGM or, as the case may be, to circulate the statement for the general meeting, provided that the requisitionists have deposited a sum of money reasonably determined by the Board sufficient to meet the expenses in serving the notice of the resolution and/or circulating the statement submitted by the requisitionists in accordance with the statutory requirements to all the registered shareholders.

Procedures for directing shareholders’ enquiries to the Board

Shareholders may at any time send their enquiries and concerns with sufficient contact details to the Board at the principal place of business of the Company for the attention of the Investor Relations Department or e-mail to “[email protected]”.

Corporate Governance Report

Communication with Shareholders and Investor Relations

To enhance transparency, the Company endeavours to maintain open dialogue with shareholders through a wide array of channels such as the AGMs and other general meetings. Shareholders are encouraged to participate in these meetings.

The Board will whenever it thinks fit and as required under the Bye-laws and the Listing Rules call general meetings for the purpose of asking shareholders to consider and, if thought fit, approving resolutions proposed by the Board; notably in relation to notifiable and/or connected transactions. In addition, the Company communicates with shareholders through the issue of announcements and press releases.

A separate resolution is proposed for each substantially separate issue at a general meeting by the chairman of that meeting, including the election and re-election of a director.

The chairman of the Board, the chairman or member of each of the board committees and external auditors attend and answer questions at the AGM.

The chairman of the independent board committee is available to answer questions at any general meeting to approve a connected transaction or any other transaction that is subject to independent shareholders’ approval.

The Company ensures compliance with the requirements about voting by poll contained in the Listing Rules and the Bye-laws. The representative of the share registrar of the Company is normally appointed as scrutineer of the votes cast by way of a poll. In relation to votes taken by way of a poll, their results are subsequently published on the websites of the Stock Exchange and the Company at http://www.hkexnews.hk and http://www.irasia.com/listco/hk/citicresources respectively.

The Company is committed to providing clear and reliable information on the performance of the Group to shareholders through interim and annual reports. The website of the Company offers timely and updated information of the Group.

The Company keeps contact with the media and holds briefings with investment analysts from time to time including following the announcement of financial results. Senior management also participates in investor conferences, one-on-one meetings, forums, luncheons, conference calls and non-deal road shows which enable the Company to better understand investors’ concerns and expectations.

The Company maintains effective two-way communications with shareholders and other investors whose feedback is valuable to the Company in enhancing corporate governance, management and competitiveness. Comments and suggestions are welcome and can be sent to the principal place of business of the Company for the attention of the Investor Relations Department or e-mailed to “[email protected]”.

Report of the Directors

The directors present their report and the audited financial statements of the Group and of the Company for the year ended 31 December 2014.

Principal Activities

The principal activity of the Company is investment holding. Details of the principal activities of its subsidiaries are set out in notes 1 and 17 to the financial statements. During the year, there were no significant changes in the nature of the Group’s principal activities.

Segment Information

An analysis of the Group’s revenue and results by principal operating activities and the Group’s revenue and non-current assets by geographical area of operations for the year ended 31 December 2014 is set out in note 4 to the financial statements.

Results and Dividends

The Group’s profit for the year ended 31 December 2014 and the state of affairs of the Group and of the Company at that date are set out in the financial statements on pages 43 to 149.

The directors do not recommend the payment of any dividend in respect of the year.

Summary of Financial Information

A summary of the results and of the assets, liabilities and non-controlling interests of the Group for the past five financial years, as extracted from the published audited financial statements and restated/reclassified as appropriate, is set out on page 150. This summary does not form part of the audited financial statements.

Property, Plant and Equipment

Details of movements in the property, plant and equipment of the Group and of the Company during the year are set out in note 13 to the financial statements.

Share Capital and Share Options

There were no movements in the Company’s share capital or share options during the year.

Report of the Directors

Pre-emptive Rights

There are no provisions for pre-emptive rights under the bye-laws of the Company (the “ Bye-laws ”) or the laws of Bermuda which would oblige the Company to offer new shares on a pro rata basis to existing shareholders.

Purchase, Redemption or Sale of Listed Securities of the Company

Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities during the year.

Reserves

Details of movements in the reserves of the Company and of the Group during the year are set out in note 38(b) to the financial statements and in the consolidated statement of changes in equity, respectively.

Distributable Reserves

As at 31 December 2014, the Company had no reserves available for cash distribution. In accordance with the Companies Act 1981 of Bermuda (as amended), the contributed surplus of the Company is available for distribution or payment of dividends to shareholders provided that the Company is able to pay off its debts as and when they fall due. The Company’s share premium account, with a balance of HK$9,721,915,000 as at 31 December 2014, may be distributed in the form of fully paid bonus shares.

Charitable Contributions

During the year, the Group made charitable contributions totalling HK$346,000 (2013: HK$31,000).

Major Customers and Major Suppliers

In the year under review, sales to the Group’s five largest customers accounted for 50.8% of the total sales for the year and sales to the largest customer included therein amounted to 16.2%. Purchases from the Group’s five largest suppliers accounted for 77.1% of the total purchases for the year and purchases from the largest supplier included therein amounted to 65.6%.

None of the directors or any of their associates or any shareholders (which, to the best of the knowledge of the directors, own more than 5% of the Company’s issued share capital) had any beneficial interest in the Group’s five largest customers or suppliers.

Report of the Directors

Directors

The directors of the Company during the year and up to the date of this report are as follows:

Executive Directors:

Mr. Kwok Peter Viem Mr. Qiu Yiyong (re-designated on 1 March 2014) Mr. Sun Yang (appointed on 1 July 2014) Mr. Guo Tinghu Ms. Li So Mui

Non-executive Directors:

Mr. Tian Yuchuan (resigned on 1 July 2014) Mr. Wong Kim Yin Mr. Zeng Chen (re-designated on 1 March 2014)

Independent Non-executive Directors:

Mr. Fan Ren Da, Anthony Mr. Gao Pei Ji Mr. Hu Weiping Mr. Ngai Man (passed away on 16 March 2014) Mr. Shou Xuancheng (appointed on 1 July 2014)

The non-executive directors, including independent non-executive directors, of the Company are appointed for an initial term of one year and thereafter from year to year and all of the directors, including executive directors, are subject to retirement by rotation and re-election in accordance with the Bye-laws.

In accordance with Bye-law 86(2), Mr. Sun and Mr. Shou will retire and, being eligible, will offer themselves for re-election at the forthcoming annual general meeting of the Company (“ AGM ”).

In accordance with Bye-laws 87(1) and 87(2), Mr. Qiu, Mr. Wong, Mr. Zeng and Mr. Hu will retire by rotation and, being eligible, will offer themselves for re-election at the forthcoming AGM.

The Company has received an annual confirmation of independence from each of the independent non-executive directors. The Company is of the view that all of the independent non-executive directors meet the guidelines for assessing independence as set out in rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and, as at the date of this report, still considers them to be independent.

Directors’ Service Contracts

No director proposed for re-election at the forthcoming AGM has a service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

Report of the Directors

Directors’ Remuneration

Directors’ remuneration is determined by the Board with reference to the recommendations made by the remuneration committee. The Group’s remuneration policy seeks to provide fair market remuneration in a form and value to attract, retain and motivate high quality staff. Remuneration packages are set at levels to ensure comparability and competitiveness with other companies in the industry and market competing for a similar talent pool. Emoluments are also based on an individual’s knowledge, skill, time commitment, responsibilities and performance and by reference to the Group’s profits and performance.

Directors’ Interests in Contracts

During the year, no director had an interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party.

Save as disclosed herein and so far as is known to the directors, as at 31 December 2014, none of the directors or their respective associates was materially interested in any subsisting contract or arrangement which is significant in relation to the businesses of the Group taken as a whole.

Directors’ Competing Interests

So far as is known to the directors, as at 31 December 2014, none of the directors or their respective associates had any interest in a business apart from the businesses of the Group which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

Directors’ and Chief Executive’s Interests in Shares and Underlying Shares

As at 31 December 2014, the interests and short positions of the directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “ SFO ”)) which are required to be notified to the Company and The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to have under such provisions of the SFO), or which are required pursuant to section 352 of the SFO to be entered in the register referred to therein, or which are required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 to the Listing Rules to be notified to the Company and the Stock Exchange are as follows:

Report of the Directors

Long positions in shares and underlying shares of the Company

			Number of	Percentage of
		Number of	underlying shares	the total issued
		ordinary shares of	pursuant to	share capital of
Name of director	Nature of interest	HK$0.05 each held	share options	the Company
Mr. Kwok Peter Viem	Directly beneficially owned	11,568,000	400,000,000	5.23
Mr. Sun Yang	Directly beneficially owned	4,000	—	—
Ms. Li So Mui	Directly beneficially owned	2,388,000	—	0.03
Mr. Shou Xuancheng	Directly beneficially owned	3,900,000	—	0.05

Long positions in share options of the Company

	Number of share options
Name of director	directly beneficially owned
Mr. Kwok Peter Viem	400,000,000

Long positions in shares and underlying shares of associated corporations of the Company

			Number of		Percentage of
			shares /		the total issued
	Name of	Shares /	equity		share capital of
	associated	equity	derivatives		the associated
Name of director	corporation	derivatives	held	Nature of interest	corporation
Mr. Qiu Yiyong	CITIC Dameng	Share options	15,000,000	Directly beneficially owned	0.50
	Holdings Limited
Mr. Sun Yang	CITIC Limited	Ordinary shares	117,000	Directly beneficially owned	—
Ms. Li So Mui	CITIC Dameng	Ordinary shares	3,154	Directly beneficially owned	—
	Holdings Limited
Mr. Gao Pei Ji	CITIC Limited	Ordinary shares	20,000	Directly beneficially owned	—

In addition to the above, one of the directors has non-beneficial shareholding interests in certain subsidiaries held for the benefit of the Company solely for the purpose of complying with the minimum company membership requirements.

Save as disclosed herein and in the section headed “Substantial Shareholders’ and Other Persons’ Interests in Shares and Underlying Shares” below, and so far as is known to the directors, as at 31 December 2014:

(a) none of the directors or the chief executive of the Company had an interest or a short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to have under such provisions of the SFO), or which are required pursuant to section 352 of the SFO to be entered in the register referred to therein, or which are required pursuant to the Model Code to be notified to the Company and the Stock Exchange; and
(b) none of the directors was a director or employee of a company which had an interest or a short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Report of the Directors

Directors’ Rights to Acquire Shares or Debentures

Save as disclosed in the section headed “Directors’ and Chief Executive’s Interests in Shares and Underlying Shares” above and in the section headed “Share Option Scheme” below, at no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the directors of the Company or their respective spouses or children under 18 years of age to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate of the Group.

Share Option Scheme

The share option scheme adopted by the Company on 30 June 2004 (the “ Old Scheme ”) for a term of ten years expired on 29 June 2014. The share options that have been granted under the Old Scheme and remained outstanding as at the date of expiration remain valid and exercisable subject to and in accordance with the terms of the Old Scheme.

To enable the Company to continue to grant share options as an incentive or reward to eligible persons, a new share option scheme was adopted by the Company on 27 June 2014 (the “ New Scheme ”). Further details of the New Scheme are disclosed in note 37 to the financial statements. Up to the date of this report, no share option has been granted under the New Scheme.

The following table discloses movements in the Company’s share options, which were granted under the Old Scheme, during the year:

Category and name of eligible person	Number of share options At At Exercise 1 January 31 December Date of price 2014 2014(1) grant Exercise period per share HK$
Director Mr. Kwok Peter Viem	200,000,000 200,000,000 06-11-2013 06-11-2014 to 05-11-2018 1.770 200,000,000 200,000,000 06-11-2013 06-11-2015 to 05-11-2018 1.770
	400,000,000 400,000,000 (2)

Notes:

(1) No share option was granted, exercised, lapsed or cancelled during the year.

(2) The share options are subject to the following vesting conditions:

(i) 50% of the share options shall vest and be exercisable with effect from the first anniversary of the date of grant; and

(ii) the remaining 50% of the share options shall vest and be exercisable with effect from the second anniversary of the date of grant.

Report of the Directors

Substantial Shareholders’ and Other Persons’ Interests in Shares and Underlying Shares

As at 31 December 2014, the interests and short positions of the substantial shareholders and other persons in the shares or underlying shares of the Company, as recorded in the register required to be kept under section 336 of the SFO, were as follows:

		Number of
		ordinary shares of	Percentage of
		HK$0.05 each	the total issued
	Nature of	held as	share capital of
Name of shareholder	interest	long positions	the Company
中國中信集團有限公司	Corporate	4,675,605,697(1)	59.42
CITIC Polaris Limited	Corporate	4,675,605,697(2)	59.42
CITIC Limited	Corporate	4,675,605,697(3)	59.42
CITIC Corporation Limited	Corporate	4,675,605,697(4)	59.42
CITIC Projects Management (HK) Limited	Corporate	3,895,083,904(5)	49.50
Keentech Group Limited	Corporate	3,895,083,904(6)	49.50
CITIC Australia Pty Limited	Corporate	750,413,793(7)	9.54
Temasek Holdings (Private) Limited	Corporate	901,909,243(8)	11.46
Temasek Capital (Private) Limited	Corporate	576,247,750(9)	7.32
Seletar Investments Pte. Ltd.	Corporate	576,247,750(10)	7.32
Baytree Investments (Mauritius) Pte. Ltd.	Corporate	576,247,750(11)	7.32

Notes:

(1) The figure represents an attributable interest of 中國中信集團有限公司 (CITIC Group Corporation) (“ CITIC Group ”) through its interest in CITIC Polaris Limited (“ CITIC Polaris ”) and CITIC Glory Limited (“ CITIC Glory ”). CITIC Group is a company established in China.
(2) The figure represents an attributable interest of CITIC Polaris through its interest in CITIC Limited (formerly known as CITIC Pacific Limited). CITIC Polaris, a company incorporated in the British Virgin Islands (the “ BVI ”), is a direct wholly-owned subsidiary of CITIC Group.
(3) The figure represents an attributable interest of CITIC Limited through its interest in CITIC Corporation Limited (formerly known as 中國中信股份有限公司 (CITIC Limited)) (“ CITIC Corporation ”). CITIC Limited, a company incorporated in Hong Kong and listed on the Main Board of the Stock Exchange (Stock Code: 267), is owned as to 48.0% by CITIC Polaris and 29.9% by CITIC Glory. CITIC Glory, a company incorporated in the BVI, is a direct wholly-owned subsidiary of CITIC Group.
(4) The figure represents an attributable interest of CITIC Corporation through its interest in CITIC Projects Management (HK) Limited (“ CITIC Projects ”), CITIC Australia Pty Limited (“ CA ”) and Extra Yield International Ltd. (“ Extra Yield ”) which holds 30,108,000 shares representing 0.38% of the total issued share capital of the Company. CITIC Corporation, a company established in China, is a direct wholly-owned subsidiary of CITIC Limited. Extra Yield, a company incorporated in the BVI, is an indirect wholly-owned subsidiary of CITIC Corporation.
(5) The figure represents an attributable interest of CITIC Projects through its interest in Keentech Group Limited (“ Keentech ”). CITIC Projects, a company incorporated in the BVI, is a direct wholly-owned subsidiary of CITIC Corporation. Mr. Qiu Yiyong is a director of CITIC Projects.
(6) Keentech, a company incorporated in the BVI, is a direct wholly-owned subsidiary of CITIC Projects. Mr. Qiu Yiyong is a director of Keentech.
(7) CA, a company incorporated in Australia, is a direct wholly-owned subsidiary of CITIC Corporation. Mr. Zeng Chen is the chairman of CA and Mr. Guo Tinghu is the managing director of CA.
(8) The figure represents an attributable interest of Temasek Holdings (Private) Limited (“ Temasek Holdings ”) through its interest in Temasek Capital (Private) Limited (“ Temasek Capital ”) and Ellington Investments Pte. Ltd. (“ Ellington ”) which holds 325,661,493 shares representing 4.14% of the total issued share capital of the Company. Temasek Holdings is a company incorporated in Singapore. Ellington, a company incorporated in Singapore, is an indirect wholly-owned subsidiary of Temasek Holdings.

Report of the Directors

(9) The figure represents an attributable interest of Temasek Capital through its interest in Seletar Investments Pte. Ltd. (“ Seletar ”). Temasek Capital, a company incorporated in Singapore, is a direct wholly-owned subsidiary of Temasek Holdings.
(10) The figure represents an attributable interest of Seletar through its interest in Baytree Investments (Mauritius) Pte. Ltd. (“ Baytree ”). Seletar, a company incorporated in Singapore, is a direct wholly-owned subsidiary of Temasek Capital.
(11) Baytree, a company incorporated in Mauritius, is a direct wholly-owned subsidiary of Seletar.

Save as disclosed herein and so far as is known to the directors, as at 31 December 2014, no person had an interest or a short position in the shares or underlying shares of the Company required to be recorded in the register to be kept under section 336 of the SFO.

Continuing Connected Transactions

On 11 October 2013, CITIC Australia Commodity Trading Pty Limited (“ CACT ”) entered into a cooperation agreement (the “ 2014 Cooperation Agreement ”) with 中信金屬有限公司 (CITIC Metal Company Limited) (“ CITIC Metal ”), a wholly-owned subsidiary of CITIC Limited, which provides a framework to enable CACT to continue with the sale of iron ore and coal, and to engage in the sale of alumina and other commodities, to CITIC Metal during the three years ending 31 December 2016, and in each case in accordance with the terms of the 2014 Cooperation Agreement and subject to the annual caps. The prices payable by CITIC Metal in respect of its purchase of iron ore, coal, alumina and other commodities from CACT are determined on an arm’s length basis and with reference to applicable prevailing market prices.

CACT is an indirect wholly-owned subsidiary of the Company. CITIC Metal is a connected person of the Company. The transactions under the 2014 Cooperation Agreement constitute continuing connected transactions of the Company. Details of the 2014 Cooperation Agreement, transactions and annual caps for the three years ending 31 December 2016 are set out in the announcement of the Company dated 11 October 2013 and the circular of the Company dated 4 November 2013.

During the year, no transaction was entered into between CACT and CITIC Metal.

The independent non-executive directors have reviewed and confirmed that no continuing connected transaction was entered into between CACT and CITIC Metal during the year.

The Board has received a letter from the auditors of the Company confirming that no continuing connected transaction was entered into between CACT and CITIC Metal during the year.

The Company has complied with the applicable requirements under Chapter 14A of the Listing Rules in respect of continuing connected transactions engaged in by the Group.

The related party transactions are set out in note 44 to the financial statements. Apart from the continuing connected transactions disclosed above, all the other related party transactions did not fall under the scope of “Connected Transactions” or “Continuing Connected Transactions” under Chapter 14A of the Listing Rules that are required to comply with any of the reporting, announcement or independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Report of the Directors

Specific Performance Obligations on Controlling Shareholder of the Company

The following disclosures are made in compliance with the disclosure requirements under rule 13.21 of the Listing Rules.

In September 2012, the Company, as borrower, entered into a facility agreement with a bank as lender in respect of an unsecured 5-year term loan facility of US$40,000,000 (HK$312,000,000) (the “ B Loan ”).

In November 2012, the Company, as borrower, entered into a facility agreement with a syndicate of financial institutions as lenders in respect of an unsecured term loan facility of US$400,000,000 (HK$3,120,000,000) (the “ C Loan ”). The C Loan has a tenor of five years commencing from the date of first utilisation, being 14 May 2013, subject to a put option requiring repayment on the date falling three years from such date.

In March 2014, the Company, as borrower, entered into a facility agreement with a syndicate of financial institutions as lenders in respect of an unsecured term loan facility (the “ D Loan ”). The D Loan has a total facility amount of US$310,000,000 (HK$2,418,000,000) and a tenor of three years commencing from the date of first utilisation, being 12 May 2014.

Pursuant to the provisions of each of the above facility agreements, if CITIC Group ceases to remain (directly or indirectly) the single largest shareholder of the Company or ceases to beneficially (directly or indirectly) own at least 35% of the entire issued share capital of the Company, then (a) in respect of each of the A Loan, the C Loan and the D Loan, the lenders holding 66-2/3% or more of the respective loan then outstanding may require mandatory prepayment of that loan together with all other sums due; and (b) in respect of the B Loan, the lender may require mandatory prepayment of the B Loan together with all other sums due.

Sufficiency of Public Float

Based on information that is publicly available to the Company and within the knowledge of the directors, at least 25% of the Company’s total issued share capital is held by the public as at the date of this report.

Audit Committee

The Company has an audit committee which was established in compliance with rule 3.21 of the Listing Rules for the purpose of reviewing and providing supervision over the Group’s financial reporting process and internal controls. The audit committee comprises three independent non-executive directors.

The audit committee has reviewed the financial statements with senior management and the external auditors of the Company.

Auditors

Ernst & Young shall retire, and a resolution for their re-appointment as auditors of the Company will be proposed, at the forthcoming AGM.

On behalf of the Board Kwok Peter Viem Chairman

Hong Kong, 13 February 2015

Independent Auditors’ Report

==> picture [88 x 69] intentionally omitted <==

To shareholders of CITIC Resources Holdings Limited

(Incorporated in Bermuda with limited liability)

We have audited the consolidated financial statements of CITIC Resources Holdings Limited (the “ Company ”) and its subsidiaries (together, the “ Group ”) set out on pages 43 to 149, which comprise the consolidated and company statements of financial position as at 31 December 2014, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows 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 disclosure requirements of 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.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our report is made solely to you, as a body, in accordance with section 90 of the Bermuda Companies Act 1981, 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 auditors’ 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 auditors consider internal control relevant to the entity’s preparation of 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.

Independent Auditors’ Report

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 2014, 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 disclosure requirements of the Hong Kong Companies Ordinance.

Emphasis of Matter

Without qualifying our opinion, we draw attention to note 25 to the financial statements, in which the directors provide a summary of the Group’s position around the inventories located at Qingdao port. The financial statements detail the amount of the inventories and extent of provision the directors believe is appropriate to recognise.

We note that as the matter is still before the Qingdao Maritime Court, the Group has not been able to access the bonded warehouses, and the investigation by the Chinese authorities is still ongoing. In consideration of the above, there is material inherent uncertainty as to the carrying amount of the inventories. Adjustments either to increase or decrease the carrying amount of the inventories may be necessary subject to the resolution of the matter.

Ernst & Young Certified Public Accountants

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

13 February 2015

HK$’000

Year ended 31 December

Consolidated Income Statement

	Notes	2014	2013
REVENUE	5	17,805,124	39,319,183
Cost of sales		(16,867,056)	(38,835,582)
Gross profit		938,068	483,601
Other income and gains	5	788,054	616,790
Selling and distribution costs		(177,786)	(26,210)
General and administrative expenses		(339,675)	(369,749)
Other expenses, net		(73,030)	(561,580)
Finance costs	9	(504,059)	(731,087)
Share of profit/(loss) of:
Associates		(34,562)	(102,839)
A joint venture		163,099	360,891
		760,109	(330,183)
Provision for impairment of items of
property, plant and equipment	13	—	(1,777,308)
Provision for impairment of other assets	16	(56,160)	(23,233)
Provision for impairment of inventories	25	(319,800)	—
PROFIT/(LOSS) BEFORE TAX	6	384,149	(2,130,724)
Income tax credit/(expense)	10	(113,734)	527,870
PROFIT/(LOSS) FOR THE YEAR		270,415	(1,602,854)
ATTRIBUTABLE TO:
Shareholders of the Company	11	223,830	(1,465,436)
Non-controlling interests		46,585	(137,418)
		270,415	(1,602,854)
EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS OF THE COMPANY	12	HK cents	HK cents
Basic		2.84	(18.63)
Diluted		2.84	(18.63)

HK$’000

Year ended 31 December

Consolidated Statement of Comprehensive Income

	Notes	2014	2013
PROFIT/(LOSS) FOR THE YEAR		270,415	(1,602,854)
OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss) to be reclassified to
profit or loss in subsequent periods:
Available-for-sale investment:
Changes in fair value		(87)	696
Reclassification adjustment for gains included in
the consolidated income statement – gain on disposal	5	—	(9,524)
Income tax effect		26	3,586
		(61)	(5,242)
Cash flow hedges:
Effective portion of changes in fair value of
hedging instruments arising during the year	27	(689,583)	(92,180)
Reclassification adjustment for gains included in
the consolidated income statement	27	(84,145)	(198,038)
Income tax effect	27	191,949	83,109
		(581,779)	(207,109)
Exchange differences on translation of foreign operations		(456,619)	97,771
Net other comprehensive loss to be reclassified to
profit or loss in subsequent periods		(1,038,459)	(114,580)
Other comprehensive income/(loss) not to be reclassified to
profit or loss in subsequent periods:
Re-measurement gain/(loss) on defined benefit plan:
Changes in fair value	34	(8,651)	28,904
Income tax effect		2,595	(8,671)
Net other comprehensive income/(loss) not to be reclassified to
profit or loss in subsequent periods		(6,056)	20,233
OTHER COMPREHENSIVE LOSS FOR THE YEAR,
NET OF TAX		(1,044,515)	(94,347)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR		(774,100)	(1,697,201)
ATTRIBUTABLE TO:
Shareholders of the Company	11	(807,665)	(1,572,347)
Non-controlling interests		33,565	(124,854)
		(774,100)	(1,697,201)

HK$’000

31 December

Consolidated Statement of Financial Position

	Notes	2014	2013
NON-CURRENT ASSETS
Property, plant and equipment	13	7,481,970	6,732,880
Prepaid land lease payments	14	20,963	22,822
Goodwill	15	24,682	24,682
Other assets	16	808,312	992,643
Investments in associates	20	1,735,275	4,060,832
Investment in a joint venture	21	2,074,226	2,231,903
Financial assets at fair value through profit or loss	22	2,754,717	—
Available-for-sale investment	23	1,733	1,820
Prepayments, deposits and other receivables	24	306,407	440,414
Deferred tax assets	35	192,363	174,610
Total non-current assets		15,400,648	14,682,606
CURRENT ASSETS
Inventories	25	1,276,271	1,300,099
Trade receivables	26	793,338	2,039,010
Prepayments, deposits and other receivables	24	2,036,336	2,612,248
Financial assets at fair value through profit or loss	22	3,029	3,029
Derivative financial instruments	27	23,759	38,817
Other assets	16	373	184,215
Tax recoverable		—	31,918
Cash and cash equivalents	28	3,246,421	6,994,039
Total current assets		7,379,527	13,203,375
CURRENT LIABILITIES
Accounts payable	29	640,563	958,307
Accrued liabilities and other payables	30	777,059	826,255
Derivative financial instruments	27	24,505	—
Bank and other borrowings	31	3,400,173	883,032
Finance lease payables	32	13,650	15,614
Bond obligations	33	—	6,187,321
Provisions	34	53,008	76,812
Total current liabilities		4,908,958	8,947,341
NET CURRENT ASSETS		2,470,569	4,256,034
TOTAL ASSETS LESS CURRENT LIABILITIES		17,871,217	18,938,640

HK$’000

31 December

Consolidated Statement of Financial Position

	Notes	2014	2013
TOTAL ASSETS LESS CURRENT LIABILITIES		17,871,217	18,938,640
NON-CURRENT LIABILITIES
Bank and other borrowings	31	5,773,191	6,548,423
Finance lease payables	32	42,876	54,619
Deferred tax liabilities	35	—	66,840
Derivative financial instruments	27	727,390	97,305
Provisions	34	319,918	464,007
Other payables		113,470	46,064
Total non-current liabilities		6,976,845	7,277,258
NET ASSETS		10,894,372	11,661,382
EQUITY
Equity attributable to
shareholders of the Company
Issued capital	36	393,426	393,426
Reserves	38(a)	10,473,691	11,274,266
		10,867,117	11,667,692
Non-controlling interests		27,255	(6,310)
TOTAL EQUITY		10,894,372	11,661,382

Qiu Yiyong Director

Li So Mui Director

Consolidated Statement of Changes in Equity


			Share
		Issued	premium	Contributed	Capital
	Notes	capital	account	surplus	reserve
				(note 38(a))	(note 38(a))
At 1 January 2013
As previously reported		393,287	9,718,600	72,688	(38,579)
Prior year adjustments		—	—	—	—
As restated		393,287	9,718,600	72,688	(38,579)
Loss for the year		—	—	—	—
Other comprehensive income/(loss) for the year :
Changes in fair value of available-for-sale investment, net of tax		—	—	—	—
Cash flow hedges, net of tax		—	—	—	—
Exchange differences on translation of foreign operations		—	—	—	—
Re-measurement gain on defined benefit plan, net of tax		—	—	—	—
Total comprehensive income/(loss) for the year		—	—	—	—
Issue of shares upon exercise of share options	36	139	3,315	—	—
Transfer of share option reserve upon lapse of share options		—	—	—	—
Equity-settled share option arrangements	37	—	—	—	—
Share of other reserve movements of an associate		—	—	—	—
At 31 December 2013		393,426	9,721,915*	72,688*	(38,579)*
At 1 January 2014		393,426	9,721,915	72,688	(38,579)
Profit for the year		—	—	—	—
Other comprehensive loss for the year :
Changes in fair value of available-for-sale investment, net of tax		—	—	—	—
Cash flow hedges, net of tax		—	—	—	—
Exchange differences on translation of foreign operations		—	—	—	—
Re-measurement loss on defined benefit plan, net of tax		—	—	—	—
Total comprehensive income/(loss) for the year		—	—	—	—
Equity-settled share option arrangements	37	—	—	—	—
Share of other reserve movements of an associate		—	—	—	—
At 31 December 2014		393,426	9,721,915*	72,688*	(38,579)*

These reserve accounts comprise the consolidated reserves of HK$10,473,691,000 (2013: HK$11,274,266,000) in the consolidated statement of financial position.

HK$’000

Attributable to	shareholders of the Company	shareholders of the Company
	Available-
	for-sale
Exchange	investment		Share				Non-
fluctuation	revaluation	Hedging	option	Reserve	Retained		controlling	Total
reserve	reserve	reserve	reserve	funds	profits	Sub-total	interests	equity
				(note 38(a))
(3,566)	3,471	295,756	62,730	18,823	2,811,571	13,334,781	405,839	13,740,620
—	—	—	—	—	(106,611)	(106,611)	(287,295)	(393,906)
(3,566)	3,471	295,756	62,730	18,823	2,704,960	13,228,170	118,544	13,346,714
—	—	—	—	—	(1,465,436)	(1,465,436)	(137,418)	(1,602,854)
—	(5,242)	—	—	—	—	(5,242)	—	(5,242)
—	—	(207,109)	—	—	—	(207,109)	—	(207,109)
85,207	—	—	—	—	—	85,207	12,564	97,771
—	—	—	—	—	20,233	20,233	—	20,233
85,207	(5,242)	(207,109)	—	—	(1,445,203)	(1,572,347)	(124,854)	(1,697,201)
—	—	—	(614)	—	—	2,840	—	2,840
—	—	—	(23,212)	—	23,212	—	—	—
—	—	—	1,080	—	—	1,080	—	1,080
—	—	—	7,283	573	93	7,949	—	7,949
81,641*	(1,771)*	88,647*	47,267*	19,396*	1,283,062*	11,667,692	(6,310)	11,661,382
81,641	(1,771)	88,647	47,267	19,396	1,283,062	11,667,692	(6,310)	11,661,382
—	—	—	—	—	223,830	223,830	46,585	270,415
—	(61)	—	—	—	—	(61)	—	(61)
—	—	(581,779)	—	—	—	(581,779)	—	(581,779)
(443,599)	—	—	—	—	—	(443,599)	(13,020)	(456,619)
—	—	—	—	—	(6,056)	(6,056)	—	(6,056)
(443,599)	(61)	(581,779)	—	—	217,774	(807,665)	33,565	(774,100)
—	—	—	6,840	—	—	6,840	—	6,840
—	—	—	(3,098)	(5,267)	8,615	250	—	250
(361,958)*	(1,832)*	(493,132)*	51,009*	14,129*	1,509,451*	10,867,117	27,255	10,894,372

HK$’000

Year ended 31 December

Consolidated Statement of Cash Flows

	Notes	2014	2013
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax		384,149	(2,130,724)
Adjustments for:
Interest income	5	(76,439)	(119,663)
Gain on disposal of available-for-sale investment	5	—	(9,524)
Depreciation	6	606,534	287,849
Amortisation of other assets	6	111,065	98,848
Amortisation of prepaid land lease payments	6	1,307	1,774
Equity-settled share option expense	6	6,840	1,080
Provision for long term employee benefits	6	11,276	10,639
Loss on disposal/write-off of items of
property, plant and equipment, net	6	2,529	702
Write-down/(write-back) of inventories to
net realisable value	6	(1,340)	2,393
Provision for impairment of items of
property, plant and equipment	6	—	1,777,308
Provision for impairment of other assets	6	56,160	23,233
Provision for impairment of inventories	6	319,800	—
Reversal of impairment of trade receivables, net	6	(1,615)	(3,874)
Fair value gains on derivative financial instruments		(13,941)	(225,781)
Fair value gains on cash flow hedges, net
(transferred from equity)	6	(84,145)	(198,038)
Fair value gains on financial assets at fair value
through profit or loss	5	(411,997)	—
Finance costs	9	504,059	731,087
Share of loss of associates		34,562	102,839
Share of profit of a joint venture		(163,099)	(360,891)
Loss on repurchase of fixed rate senior notes	6	—	91,498
Loss on purchase of fixed rate senior notes	6	—	2,052
		1,285,705	82,807
Increase in inventories		(296,817)	(466,705)
Decrease/(increase) in trade receivables		1,247,287	(206,083)
Decrease/(increase) in prepayments, deposits and
other receivables		(12,509)	16,329
Increase/(decrease) in accounts payable		(364,803)	100,180
Increase/(decrease) in accrued liabilities and other payables		49,474	(106,847)
Decrease in provisions		(116,978)	(98,164)
Cash generated from/(used in) operations		1,791,359	(678,483)
Australian income tax refund/(paid)		28,608	(133,181)
Net cash flows from/(used in) operating activities		1,819,967	(811,664)

HK$’000

Year ended 31 December

Consolidated Statement of Cash Flows

	Notes	2014	2013
Net cash flows from/(used in) operatingactivities		1,819,967	(811,664)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received		121,883	136,974
Purchases of items of property, plant and equipment		(1,182,479)	(1,336,272)
Acquisition of a contractual arrangement	39	(22,043)	(845,553)
Acquisition of an associate		—	(2,304,929)
Acquisition of financial assets at fair value
through profit or loss		(9,001)	—
Additions to other assets	16	(24,517)	(23,189)
Additions to prepaid land lease payments	14	—	(1,112)
Proceeds from disposal of items of
property, plant and equipment		8,101	19,637
Proceeds from disposal of available-for-sale investment		—	32,552
Net proceeds from disposal of partial investment in
the Codrilla project		7,892	60,604
Repayment of loans from a joint venture		561,952	638,224
Proceeds from disposal of derivative financial instruments		13,941	108,886
Decrease/(increase) in non-pledged time deposits with
original maturityof over three months when acquired		1,562,832	(1,562,832)
Net cash flows from/(used in) investingactivities		1,038,561	(5,077,010)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of shares	36	—	2,840
New bank and other borrowings		9,565,717	13,081,118
Repayment of bank and other borrowings		(7,830,498)	(7,955,591)
Capital element of finance lease payables		(22,150)	(13,702)
Interest paid		(535,971)	(711,934)
Repurchase of fixed rate senior notes, net		—	(1,509,719)
Purchase of fixed rate senior notes		—	(38,431)
Repayment of fixed rate senior notes		(6,195,197)	—
Finance chargespaid		—	(1,041)
Net cash flows from/(used in) financingactivities		(5,018,099)	2,853,540
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,159,571)	(3,035,134)
Cash and cash equivalents at beginning of year		5,431,207	8,387,248
Effect of foreign exchange rate changes, net		(25,215)	79,093
CASH AND CASH EQUIVALENTS AT END OF YEAR		3,246,421	5,431,207
ANALYSIS OF BALANCES OF
CASH AND CASH EQUIVALENTS
Cash and bank balances	28	738,877	2,696,366
Non-pledged time deposits	28	2,507,544	4,297,673
Cash and cash equivalents as stated in
the consolidated statement of financial position		3,246,421	6,994,039
Non-pledged time deposits with original maturity of
over three months when acquired		—	(1,562,832)
Cash and cash equivalents as stated in
the consolidated statement of cash flows		3,246,421	5,431,207

HK$’000

31 December

Statement of Financial Position

	Notes	2014	2013
NON-CURRENT ASSETS
Property, plant and equipment	13	547	1,037
Investments in subsidiaries	17	12,938,645	10,074,809
Total non-current assets		12,939,192	10,075,846
CURRENT ASSETS
Prepayments, deposits and other receivables	24	1,064,473	11,567
Cash and cash equivalents	28	2,489,989	4,199,646
Total current assets		3,554,462	4,211,213
CURRENT LIABILITIES
Accrued liabilities and other payables	30	3,659	4,042
Bank borrowings	31	2,948,867	—
Total current liabilities		2,952,526	4,042
NET CURRENT ASSETS		601,936	4,207,171
TOTAL ASSETS LESS CURRENT LIABILITIES		13,541,128	14,283,017
NON-CURRENT LIABILITIES
Bank borrowings	31	5,773,191	6,291,024
NET ASSETS		7,767,937	7,991,993
EQUITY
Issued capital	36	393,426	393,426
Reserves	38(b)	7,374,511	7,598,567
TOTAL EQUITY		7,767,937	7,991,993

Qiu Yiyong Director

Li So Mui Director

Year ended 31 December 2014

Notes to Financial Statements

1. Corporate Information

CITIC Resources Holdings Limited is a limited liability company incorporated in Bermuda. The head office and principal place of business of the Company is located at Suites 3001-3006, 30/F, One Pacific Place, 88 Queensway, Hong Kong.

The principal activity of the Company is investment holding.

During the year, the Company and its subsidiaries (the “ Group ”) were principally engaged in the following businesses:

(a) the operation of the Portland Aluminium Smelter (the “ PAS ”) which sources alumina and produces aluminium ingots in Australia;
(b) the operation of coal mines and the sale of coal in Australia;
(c) the export of various commodity products such as aluminium ingots, coal, iron ore, alumina and copper; and the import of other commodity products and manufactured goods such as steel, and vehicle and industrial batteries and tyres in Australia;
(d) the exploration, development, production and sale of oil from the Seram Island Non-Bula Block, Indonesia (the “ Seram Block ”); and
(e) the exploration, development, production and sale of oil from the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province, China (the “ Hainan-Yuedong Block ”).

In the opinion of the directors, the ultimate holding company of the Company is 中國中信集團有限公司 (CITIC Group Corporation), a company established in China.

2.1 Basis of Preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“ HKASs ”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements have been prepared under the historical cost convention, except for derivative financial instruments and certain equity investments which have been measured at fair value. These financial statements are presented in Hong Kong dollar (“ HK$ ”) and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Group for the year ended 31 December 2014. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Year ended 31 December 2014

Notes to Financial Statements

2.1 Basis of Preparation (continued)

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Total comprehensive income is attributed to shareholders of the Company and also to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries below. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interests, and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained, and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

2.2 Changes in Accounting Policy and Disclosures

The Group has adopted the following revised standards and new interpretation for the first time for the current year’s financial statements.

Amendments to HKFRS 10, Investment Entities HKFRS 12 and HKAS 27 (2011) Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities Amendments to HKAS 39 Novation of Derivatives and Continuation of Hedge Accounting HK(IFRIC) – Int 21 Levies Amendment to HKFRS 2 Definition of Vesting Condition[1] included in Annual Improvements 2010 – 2012 Cycle Amendment to HKFRS 3 Accounting for Contingent Consideration in included in Annual Improvements a Business Combination[1] 2010 – 2012 Cycle Amendment to HKFRS 13 Short-term Receivables and Payables included in Annual Improvements 2010 – 2012 Cycle Amendment to HKFRS 1 Meaning of Effective HKFRSs included in Annual Improvements 2011 – 2013 Cycle

1 Effective from 1 July 2014

Year ended 31 December 2014

Notes to Financial Statements

2.2 Changes in Accounting Policy and Disclosures (continued)

Except for the amendment to HKFRS 1 which is only relevant to an entity’s first set of HKFRS financial statements, the nature and the impact of each amendment and interpretation are described below:

Amendments to HKFRS 10 include a definition of an investment entity and provide an exception to the consolidation requirement for entities that meet the definition of an investment entity. Investment entities are required to account for subsidiaries at fair value through profit or loss rather than consolidate them. Consequential amendments were made to HKFRS 12 and HKAS 27 (2011). The amendments to HKFRS 12 also set out the disclosure requirements for investment entities. The amendments have had no impact on the Group as the Company does not qualify as an investment entity as defined in HKFRS 10.

The HKAS 32 Amendments clarify the meaning of “currently has a legally enforceable right to set-off” for offsetting financial assets and financial liabilities. The amendments also clarify the application of the offsetting criteria in HKAS 32 to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments have had no impact on the Group as the Group does not have any offsetting arrangement.

The HKAS 39 Amendments provide an exception to the requirement of discontinuing hedge accounting in situations where over-the-counter derivatives designated in hedging relationships are, directly or indirectly, novated to a central counterparty as a consequence of laws or regulations, or the introduction of laws or regulations. For continuance of hedge accounting under this exception, all of the following criteria must be met: (i) the novations must arise as a consequence of laws or regulations, or the introduction of laws or regulations; (ii) the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties; and (iii) the novations do not result in changes to the terms of the original derivative other than changes directly attributable to the change in counterparty to achieve clearing. The amendments have had no impact on the Group as the Group has not novated any derivatives during the current and prior years.

HK(IFRIC) – Int 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. The interpretation also clarifies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time in accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognised before the specified minimum threshold is reached. This interpretation has had no impact on the Group as the Group has applied, in prior years, the recognition principles under HKAS 37 Provisions, Contingent Liabilities and Contingent Assets for the levies incurred by the Group, which are consistent with the requirements of HK(IFRIC) – Int 21.

The HKFRS 2 Amendment clarifies various issues relating to the definitions of performance and service conditions which are vesting conditions, including (i) a performance condition must contain a service condition; (ii) a performance target must be met while the counterparty is rendering service; (iii) a performance target may relate to the operations or activities of an entity, or to those of another entity in the same group; (iv) a performance condition may be a market or non-market condition; and (v) if the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied. The amendment has had no impact on the Group.

Year ended 31 December 2014

Notes to Financial Statements

2.2 Changes in Accounting Policy and Disclosures (continued)

The HKFRS 3 Amendment clarifies that contingent consideration arrangements arising from a business combination that are not classified as equity should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of HKFRS 9 or HKAS 39. The amendment has had no impact on the Group.

The HKFRS 13 Amendment clarifies that short-term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. The amendment has had no impact on the Group.

2.3 New and Revised HKFRSs and New Disclosure Requirements under the Hong Kong Companies Ordinance not yet adopted

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet adopted, in these financial statements.

HKFRS 9 Financial Instruments[4] Amendments to HKFRS 10 Sale or Contribution of Assets between an Investor and its and HKAS 28 (2011) Associate or Joint Venture[2] Amendments to HKFRS 10, Investment Entities: Applying the Consolidation Exception[2] HKFRS 12 and HKAS 28 (2011) Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations[2] HKFRS 14 Regulatory Deferral Accounts[5] HKFRS 15 Revenue from Contracts with Customers[3] Amendments to HKAS 1 Disclosure initiative[2] Amendments to HKAS 16 Clarification of Acceptable Methods of Depreciation and and HKAS 38 Amortisation[2] Amendments to HKAS 16 Agriculture: Bearer Plants[2] and HKAS 41 Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions[1] Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements[2] Annual Improvements Amendments to numbers of HKFRSs[1] 2010 – 2012 Cycle Annual Improvements Amendments to numbers of HKFRSs[1] 2011 – 2013 Cycle Annual Improvements Amendments to numbers of HKFRSs[2] 2012 – 2014 Cycle

1 Effective for annual periods beginning on or after 1 July 2014 2 Effective for annual periods beginning on or after 1 January 2016 3 Effective for annual periods beginning on or after 1 January 2017 4 Effective for annual periods beginning on or after 1 January 2018 5 Effective for an entity that will first adopt HKFRSs for its annual financial statements beginning on or after 1 January 2016 and therefore is not applicable to the Group

In addition, the Hong Kong Companies Ordinance (Cap. 622) will affect the presentation and disclosure of certain information in the consolidated financial statements for the year ending 31 December 2015. The Group is in the process of making an assessment of the impact of these changes.

Year ended 31 December 2014

Notes to Financial Statements

2.3 New and Revised HKFRSs and New Disclosure Requirements under the Hong Kong Companies Ordinance not yet adopted (continued)

Further information about those HKFRSs that are expected to be applicable to the Group is as follows:

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt HKFRS 9 on 1 January 2018. The Group expects that the adoption of HKFRS 9 will have an impact on the classification and measurement of the Group’s financial assets. Further information about the impact will be available nearer the implementation date of the standard.

The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements under HKFRS 10 and HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The Group expects to adopt the amendments on 1 January 2016.

In December 2014, the HKICPA issued amendments to HKFRS 10, HKFRS 12 and HKAS 28 (2011). The amendments to HKFRS 10 clarify that an investment entity needs not present the consolidated financial statements if it meets specific conditions. The amendments to HKFRS 12 clarify that an investment entity which prepares the financial statements in which all of its subsidiaries are measured at fair value through profit or loss shall present the disclosures relating to the investment entities required by HKFRS 12. The amendments to HKAS 28 clarify that an entity needs not apply the equity method to its investment in an associate or a joint venture if the entity is a parent exempt from preparing the consolidated financial statements. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1 January 2016.

The amendments to HKFRS 11 require that an acquirer of an interest in a joint operation in which the activity of the joint operation constitutes a business must apply the relevant principles for business combinations in HKFRS 3. The amendments also clarify that a previously held interest in a joint operation is not re-measured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exception has been added to HKFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interest in the same joint operation. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1 January 2016.

HKFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. The Group expects to adopt HKFRS 15 on 1 January 2017 and is currently assessing the impact of HKFRS 15 upon adoption.

Year ended 31 December 2014

Notes to Financial Statements

2.3 New and Revised HKFRSs and New Disclosure Requirements under the Hong Kong Companies Ordinance not yet adopted (continued)

The amendments to HKAS 1 clarify the existing requirements under HKAS 1. They provide additional guidance to assist entities to apply judgement when meeting the presentation and disclosure requirements under HKFRSs, including requirements in the application of the concept of materiality in practice, the information to be presented in the statement of financial position and the income statement, the reporting of comprehensive income and the disclosure structure and so on. These amendments do not affect recognition and measurement. They should not result in the reassessment of the judgements about presentation and disclosure made in periods prior to the application of these amendments. The Group expects to adopt the amendments on 1 January 2016.

The amendments to HKAS 16 and HKAS 38 clarify the principle in HKAS 16 and HKAS 38 that revenue reflects a pattern of economic benefits that are generated from operating business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1 January 2016 as the Group has not used a revenue-based method for the calculation of depreciation and amortisation of its non-current assets.

The amendments to HKAS 19 apply to contributions from employees or third parties to defined benefit plans. The amendments simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. If the amount of the contributions is independent of the number of years of employee service, an entity is permitted to recognise such contributions as a reduction of service cost in the period in which the related service is rendered. The Group expects to adopt the amendments on 1 January 2015.

The Annual Improvements to HKFRSs 2010 – 2012 Cycle issued in January 2014 sets out amendments to a number of HKFRSs. Except for those described in note 2.2, the Group expects to adopt the amendments on 1 January 2015. None of the amendments are expected to have a significant financial impact on the Group. Details of the amendment which is most applicable to the Group are as follows:

HKFRS 8 Operating Segment: Clarifies that an entity must disclose the judgements made by management in applying the aggregation criteria in HKFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics used to assess whether the segments are similar. The amendment also clarifies that a reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker.

The Annual Improvements to HKFRSs 2011 – 2013 Cycle issued in January 2014 sets out amendments to a number of HKFRSs. The Group expects to adopt the amendments on 1 January 2015. None of the amendments are expected to have a significant financial impact on the Group. Details of the amendments are as follows:

(a) HKFRS 3 Business Combinations: Clarifies that joint arrangements but not joint ventures are outside the scope of HKFRS 3 and the scope exception applies only to the accounting in the financial statements of the joint arrangement itself. The amendment is to be applied prospectively.

Year ended 31 December 2014

Notes to Financial Statements

2.3 New and Revised HKFRSs and New Disclosure Requirements under the Hong Kong Companies Ordinance not yet adopted (continued)

(b) HKFRS 13 Fair Value Measurement: Clarifies that the portfolio exception in HKFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of HKFRS 9 or HKAS 39 as applicable. The amendment is to be applied prospectively from the beginning of the annual period in which HKFRS 13 was initially applied.
(c) HKAS 40 Investment Property: Clarifies that HKFRS 3, instead of the description of ancillary service in HKAS 40 which differentiates between investment property and owner-occupied property, is used to determine if the transaction is a purchase of an asset or a business combination. The amendment is to be applied prospectively for acquisition of investment properties.

The Annual Improvement to HKFRSs 2012 – 2014 Cycle issued in October 2014 sets out amendments to a number of HKFRSs. The Group expects to adopt the amendments on 1 January 2016. None of the amendments are expected to have a significant financial impact on the Group. Details of the amendments are as follows:

(a) HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Clarifies that changes to a plan of sale or plan of distribution to owners should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. Accordingly, there is no change in the application of the requirements under HKFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification of the non-current assets or disposal group held for sale. The amendment is to be applied prospectively.
(b) HKFRS 7 Financial Instruments – Disclosures: Clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and arrangement against the guidance for continuing involvement as set out in HKFRS 7 in order to assess whether the HKFRS 7 disclosures are required.
(c) HKFRS 7 Financial Instruments – Disclosures: Clarifies that the disclosures requirements in respect of the offsetting of financial assets and financial liabilities under HKFRS 7 are not required in the condensed interim financial statements, except where the disclosures provide a significant update to the information reported in the most recent annual report, in which case the disclosures should be included in the condensed interim financial statements.
(d) HKAS 19 Employee Benefits: Clarifies that market depth of high quality corporate bonds used for discounting the post-employment benefit obligation for defined benefit plans is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. In case there is no deep market for high quality corporate bonds in that currency, government bond rates must be used.
(e) HKAS 34 Interim Financial Reporting: Clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report. The amendments also specify that the information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies

Subsidiaries

A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (being the existing rights that give the Group ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s investments in subsidiaries which are not classified as held for sale in accordance with HKFRS 5 are stated at cost less any impairment losses.

Investments in associates and a joint venture

An associate is an entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s investments in associates and a joint venture are stated in the consolidated statement of financial position at the Group’s share of net assets using the equity method, less any impairment losses.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

The Group’s share of the post-acquisition results and other comprehensive income of associates and a joint venture is included in the consolidated income statement and consolidated statement of comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of its associates or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint venture are eliminated to the extent of its investments in the associates or joint venture, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates or a joint venture is included as part of the Group’s investments in associates or a joint venture.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments in associates and a joint venture (continued)

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not re-measured. Instead, the investment continues to be accounted for using the equity method. In all other cases, upon loss of significant influence over its associates or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of its associates or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in the consolidated income statement.

When an investment in an associate or a joint venture is classified as held for sale, it is accounted for in accordance with HKFRS 5.

Contractual arrangements that do not give rise to joint control or control

The Group has interests in certain contractual arrangements that do not give rise to joint control or control. Despite not having joint control or control, the Group has rights to, and obligations for, the underlying assets and obligations of these arrangements. Therefore, the Group accounts for its rights and obligations arising from these contracts by applying each HKFRSs as appropriate.

Interests in joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group recognises in relation to its interest in a joint operation:

its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue from the sale of its share of the output arising from the joint operation;
its share of the revenue from the sale of the output by the joint operation; and
its expenses, including its share of any expenses incurred jointly.

The assets, liabilities, revenues and expenses relating to the Group’s interest in a joint operation are accounted for in accordance with the HKFRSs applicable to the particular assets, liabilities, revenues and expenses.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivative in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in the consolidated income statement.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration that is classified as an asset or liability as a financial instrument and within the scope of HKAS 39 is measured at fair value with changes in fair value either recognised in profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of HKAS 39, it is measured in accordance with the appropriate HKFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after assessment, recognised in the consolidated income statement as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in this circumstance is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Fair value measurement

The Group measures its derivative financial instruments and financial assets at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure the fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which the fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Impairment of non-financial assets (continued)

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the consolidated income statement in the reporting period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the consolidated income statement in the reporting period in which it arises.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person,
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a); and
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Property, plant and equipment and depreciation

Property, plant and equipment, other than oil and gas properties, capital works and construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the consolidated income statement in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. Plant and machinery, which include the furnace, water system, pot room and ingot mill, and buildings and structures used in the PAS, are estimated to have a useful life up to 2030.

Other property, plant and equipment are estimated to have the following useful lives:

Leasehold improvements	10 to 12 years or over the unexpired lease terms, whichever is shorter
Motor vehicles, plant, machinery,
tools and equipment	5 to 19 years
Furniture and fixtures	4 to 5 years
Buildings and structures	10 to 30 years

Freehold land is not depreciated.

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment, including any significant part initially recognised, is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss on disposal or retirement recognised in the consolidated income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents buildings and structure under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Property, plant and equipment and depreciation (continued)

Oil and gas properties

For oil and gas properties, the successful effort method of accounting is adopted. The Group capitalises initial acquisition costs of oil and gas properties. Impairment of initial acquisition costs is recognised based on exploratory experience and management judgement. Upon discovery of commercial reserves, acquisition costs are transferred to proved properties. The costs of drilling and equipping successful exploratory wells are all classified as development costs, including those renewals and betterment which extend the economic lives of the assets. The costs of unsuccessful exploratory wells and all other exploration costs are expensed as incurred.

Exploratory wells are evaluated for economic viability within one year of completion. Exploratory wells that discover potential economic reserves in areas where major capital expenditure will be required before production could begin and when the major capital expenditure depends upon successful completion of further exploratory work remain capitalised, and are reviewed periodically for impairment.

Oil and gas properties are stated at cost less accumulated depreciation and depletion, and any impairment losses. The depreciation and depletion of oil and gas properties with a life longer than or equal to the licence life is estimated on a unit-of-production basis, in the proportion of actual production for the period to the total estimated remaining reserves of the oilfield. The remaining reserves figure is the amount estimated up to the licence expiration date plus the production for the period. Costs associated with significant development projects are not depleted until commercial production commences and the reserves related to those costs are excluded from the calculation of depletion.

Capitalised acquisition costs of proved properties are amortised by the unit-of-production method on a property-by-property basis computed based on the total estimated units of proved reserves.

The Group estimates future dismantlement costs for oil and gas properties with reference to the estimates provided from either internal or external engineers after taking into consideration the anticipated method of dismantlement required in accordance with the current legislation and industry practices. The associated cost is capitalised and the liability is discounted. An accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised. No market-risk premium has been included in the calculation of asset retirement obligation balances since no reliable estimate can be made.

Capital works

Capital works represent development expenditure in relation to the Group’s mining activities, which are carried forward to the extent that such costs are expected to be recouped through successful development and production of the areas or by their sale.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Other assets

Other assets represent the Group’s interest in an electricity supply agreement signed between the Group and the State Electricity Commission of Victoria, Australia (the “ ESA ”), exploration and evaluation assets, mining assets and the carbon emission units (the “ Emission Units ”) received by the Group.

The ESA

The ESA provides steady electricity supply at a fixed tariff to the PAS for a period to 31 October 2016. The ESA is stated at cost less accumulated amortisation, provided on a straight-line basis over the term of the base power contract, and any impairment losses.

Exploration and evaluation assets

Exploration and evaluation assets are stated at cost less any impairment losses. Exploration and evaluation assets include costs that are directly attributable to conducting topographical and geological surveys, exploratory drilling, sampling and trenching, and activities in relation to commercial and technical feasibility studies, and expenditure incurred to secure further mineralisation in existing ore bodies and to expand the capacity of a mine. Exploration expenditure incurred prior to acquiring legal rights to explore an area is written off as incurred. When the technical feasibility and commercial viability of extracting the ore are demonstrable, exploration and evaluation assets are amortised using the unit-of-production method.

If any project is abandoned during the evaluation stage, the total expenditures thereon will be written off. If an indication of impairment arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

Mining assets

Mining rights, including exploration and evaluation assets, are stated at cost less accumulated amortisation and any impairment losses. Mining assets are amortised over the estimated useful lives of the mines in accordance with the production plan of the entities concerned and the proven and probable reserves of the mines using the unit-of-production method.

The Emission Units

The accounting policy in respect of the Emission Units is set out in “Government grant” below.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Other assets (continued)

Stripping costs

As part of its mining operations, the Group incurs stripping (waste removal) costs both during the development phase and production phase of its operations. Stripping costs incurred during the development phase of a mine, before the production phase commences (development stripping), are capitalised and subsequently amortised over its useful life using the unit-of-production method. The capitalisation of development stripping costs ceases when the mine/component is commissioned and ready for use as intended by management.

Stripping costs incurred during the production phase of a mine are generally considered to create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where the benefits are realised in the form of improved access to ore to be mined in the future, the costs are recognised as a non-current asset, referred to as a stripping activity asset, if the following criteria are met:

(a) future economic benefits (being improved access to the ore body) are probable;
(b) the component of the ore body for which access will be improved can be accurately identified; and
(c) the costs associated with the improved access can be reliably measured.

If all of the criteria are not met, the production stripping costs are charged to the consolidated income statement as operating costs as they are incurred.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial investments, or derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus attributable transaction costs on acquisition, except in the case of financial assets recorded at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, being the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments and other financial assets (continued)

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.

Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by HKAS 39.

Financial assets at fair value through profit or loss are carried in the consolidated statement of financial position at fair value with net changes in fair value recognised in the consolidated income statement. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated as at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the consolidated income statement. Reassessment only occurs if there is either a change in the terms of the host contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the consolidated income statement. The loss arising from impairment is charged to the consolidated income statement as finance costs for loans and as other expenses for receivables.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments and other financial assets (continued)

Subsequent measurement (continued)

Available-for-sale financial investments

Available-for-sale financial investments are non-derivative financial assets in listed equity investments. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss.

After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised in the consolidated statement of comprehensive income as the available-for-sale investments revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the consolidated income statement as other income, or until the investment is determined to be impaired, at which time the cumulative gain or loss is reclassified from the available-for-sale investments revaluation reserve to the consolidated income statement in other gains or losses. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively, and are recognised in the consolidated income statement as other income in accordance with the policies set out for “Revenue recognition” below.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over its remaining life using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated income statement.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised or removed from the Group’s consolidated statement of financial position when:

the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a “pass-through” arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises the associated liability of the transferred asset. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Investments and other financial assets (continued)

Derecognition of financial assets (continued)

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after initial recognition of the asset has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

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

The amount of any impairment loss identified is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (without taking into account any future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the original effective interest rate in financing the financial asset (that is, the rate computed at initial recognition).

The carrying amount of the asset is reduced either directly or through the use of an allowance account and the loss is charged to the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is subsequently recovered, the recovery is credited to other expenses in the consolidated income statement.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Impairment of financial assets (continued)

Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously charged to the consolidated income statement, is removed from the consolidated statement of comprehensive income and recognised in the consolidated income statement.

In the case of investments in equity instruments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously charged to the consolidated income statement – is removed from the consolidated statement of comprehensive income and recognised in the consolidated income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the consolidated income statement. Increases in their fair value after impairment are recognised directly in the consolidated statement of comprehensive income.

The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Financial liabilities (continued)

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by HKAS 39.

Gains or losses on liabilities held for trading are recognised in the consolidated income statement. The net fair value gain or loss recognised in the consolidated income statement does not include interest charged on these financial liabilities.

Financial liabilities designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the consolidated income statement.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another one from the same lender but on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amount is recognised in the consolidated income statement.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as forward currency contracts, forward commodity contracts, interest rate swap contracts, embedded derivatives and an electricity hedge agreement to manage its foreign currency risk, price risk, interest rate risk and inflation risk. These derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The fair value of commodity purchase contracts that meet the definition of a derivative as defined by HKAS 39 is charged to the consolidated income statement as cost of sales. Commodity contracts that are entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Group’s expected purchase, sale or usage requirements are held at cost.

Any gains or losses arising from changes in fair value of derivatives are taken directly to the consolidated income statement, except for the effective portion of cash flow hedges, which is recognised in the consolidated statement of comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.

For the purpose of hedge accounting, hedges of the Group are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the reporting periods for which they are designated.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Derivative financial instruments and hedge accounting (continued)

Initial recognition and subsequent measurement (continued)

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

The effective portion of the gain or loss on the hedging instrument is recognised directly in the consolidated statement of comprehensive income as the hedging reserve, while any ineffective portion is recognised immediately in the consolidated income statement as other expenses.
Amounts recognised in the consolidated statement of comprehensive income are transferred to the consolidated income statement when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognised in the consolidated statement of comprehensive income are transferred to the initial carrying amount of the non-financial asset or non-financial liability.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, the amounts previously recognised in the consolidated statement of comprehensive income remain in other comprehensive income until the forecast transaction occurs or the foreign currency firm commitment is met.

Current versus non-current classification

Derivative instruments that are not designated as effective hedging instruments are separated into current and non-current portions based on an assessment of the facts and circumstances, including the underlying contracted cash flows.

Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the end of the reporting period, the derivative is classified as non-current or separated into current and non-current portions consistent with the classification of the underlying hedged item.
Embedded derivatives that are not closely related to the host contract are classified consistently with the cash flows of the host contract.

Derivative instruments that are designated as effective hedging instruments are classified consistent with the classification of the underlying hedged item. The derivative instruments are separated into current and non-current portions only if a reliable allocation can be made.

Inventories

Inventories are stated at the lower of cost and net realisable value. Except for the costs of exported goods held for re-sale which are determined on the first-in first-out basis, costs are determined on the weighted average basis. In the case of work in progress and finished goods, costs comprise direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash subject to an insignificant risk of changes in value and having a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated and company statements of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the consolidated income statement.

Provision for long term employee benefits represents the estimated future payments in respect of past services provided by employees. Consideration is given to expected future wages and salary levels, past record of employee departure and period of service. Expected future payments are discounted using market yields at the reporting date and currency that match, as closely as possible, the estimated future cash flows.

Provision for rehabilitation cost represents the estimated costs of rehabilitation relating to the areas disturbed during the operation of the PAS and the coal mines in Australia. The Group is required to return the sites to the Australian authorities in their original condition. The Group has estimated and provided for the expected costs of removal and clean-up on a periodical basis, based on the estimates provided by the environmental authorities when they reviewed the sites.

Provision for abandonment cost represents the estimated costs of abandoning oil and gas properties. The provision for abandonment cost has been classified as non-current liabilities. The associated cost is capitalised and the liability is discounted. An accretion expense is recognised using the credit-adjusted risk-free interest rate in effect when the liability is initially recognised.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration the interpretations and practices prevailing in the countries in which the Group operates.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Income tax (continued)

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

when the deferred tax liability arises from initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assets are realised or the liabilities are settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

Dividend income derived from the Group’s subsidiaries in China is subject to withholding tax under the prevailing tax rules and regulations.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
(b) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts over the expected life of the financial instruments or a shorter period, when appropriate, to the net carrying amount of the financial assets;
(c) handling service fee, when the services have been rendered; and
(d) dividend income, when the shareholders’ right to receive payment has been established.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance lease, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the consolidated income statement so as to provide a constant periodic rate of charge over the lease terms.

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under operating leases are charged to the consolidated income statement on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Employee benefits

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible persons who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (the “ equity-settled transactions ”).

The cost of equity-settled transactions with employees for grants after 7 November 2002 is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using the binomial model.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, in employee benefit expense over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the consolidated income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award substitutes a cancelled award and is designated as a replacement award on the date of grant, the cancelled and new awards are treated as if they were a modification of the original award as described in the previous paragraph.

When the share options lapsed after the vesting date or are still not exercised at the expiry date, the amount previously recognised in the share option reserve is transferred to the retained profits.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Other employee benefits

Pension schemes

The Group operates a defined scheme under the Hong Kong Mandatory Provident Fund Schemes Ordinance (the “ MPF Scheme ”) for those employees in Hong Kong who are eligible to participate. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the consolidated income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries which operate in China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the consolidated income statement as they become payable in accordance with the rules of the central pension scheme.

The Group provides employee benefits on retirement, disability or death to its employees in the PAS located in Australia. The benefit has a defined benefit plan and defined contribution plan. The defined benefit plan provides defined lump sum benefits based on years of service and final average salary. The defined contribution plan receives fixed contributions from the joint venture manager, and joint venture manager’s legal or constructive obligation is limited to these contributions. A liability in respect of defined benefit plan is recognised in the consolidated statement of financial position, and is measured as the present value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligations is based on expected future payments which arise from membership of the fund to the reporting date, calculated annually by independent actuaries using the projected unit credit method. Contributions to defined contribution plan are recognised as an expense as they become payable.

In addition, the Group also operates a defined benefit plan for those employees in Indonesia who are eligible to participate. The Group uses an actuarial technique, the projected unit credit method, to determine the present value of its defined benefit obligations. The discount rate is determined by reference to market yields at the end of the reporting period based on local government bonds that have maturity dates approximating the terms of the Group’s defined benefit obligations. The calculation is performed by a qualified actuary.

Re-measurements arising from defined benefit plans, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest), are recognised immediately in the consolidated statement of financial position with a corresponding debit or credit to retained profits through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

Paid leave carried forward

The Group provides paid leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, any paid leave that remains untaken as at the end of the reporting period is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the end of the reporting period for the expected future cost of such paid leave earned during the year by the employees of the Group and carried forward.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (being those that necessarily take a substantial period of time to get ready for their intended use or sale) are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Government grant

Government grant is recognised at its fair value where there is a reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the period that the costs, which it is intended to compensate, are expensed.

The Group is a liable entity under the Australian Carbon Pricing Mechanism, which commenced on 1 July 2012. The Group receives the Emission Units from the Australian government as a result of the Clean Energy Legislation Package. The number of the Emission Units is calculated in accordance with clauses 6.2 and 10.1 of the EHA (as defined in note 27 to the financial statements). The Emission Units take into account the granted carbon units and the purchased carbon units. For the first three years, the price of the Emission Units is fixed by the Australian government. Thereafter, the price is determined by the secondary market. The granted carbon units are received twice annually and in return the Group is required to surrender the Emission Units equal to its actual emission over the compliance period.

The Group has adopted the carrying value method whereby the provision is based on the carrying amount of the Emission Units it already owns to account for the Emission Units. The Emission Units received are classified as other assets and carried at cost. The granted carbon units are initially recognised at fair value at their date of grant with a corresponding entry of a deferred income. The purchased carbon units are measured at cost upon initial recognition. A provision relating to the Group’s obligations to surrender the Emission Units is recognised as emission incurs. The emission costs are included in cost of sales in the consolidated income statement whereas the deferred income is deducted from cost of sales to match against the emission costs incurred. The purchased carbon units are not amortised but impairment testing is required when a triggering event has occurred.

Year ended 31 December 2014

Notes to Financial Statements

2.4 Summary of Significant Accounting Policies (continued)

Foreign currencies

The financial statements are presented in HK$ which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially translated using their respective functional currency rates of exchange prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated using the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the consolidated income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item. In other words, the translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively.

The functional currencies of certain overseas subsidiaries, joint ventures, joint operations and associates are currencies other than the HK$. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates prevailing at the end of the reporting period and their income statements are translated into HK$ at the weighted average exchange rates for the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component in the consolidated statement of comprehensive income relating to that particular foreign operation is recognised in the consolidated income statement.

For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries and joint operations are translated into HK$ at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries and joint operations which arise throughout the year are translated into HK$ at the weighted average exchange rates for the year.

Year ended 31 December 2014

Notes to Financial Statements

3. Significant Accounting Judgements and Estimates

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Tax

Determining income tax provisions requires the Group to make judgements on the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly. In addition, deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. This requires significant judgement on the tax treatment of certain transactions and also assessment on the probability that adequate future taxable profits will be available to recover the deferred tax assets.

Employee benefits – share-based payments

The valuation of the fair value of share options granted requires judgement in determining the expected volatility of the share price, the dividends expected on the shares, the risk-free interest rate during the life of the options and the number of share options that are expected to become exercisable. Where the actual outcome of the number of exercisable options is different from the previously estimated number of exercisable options, such difference will have an impact on the consolidated income statement in the remaining vesting period of the relevant share options.

Fair value of financial instruments

Where fair value of financial assets and financial liabilities cannot be derived from active markets, they are determined using valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Year ended 31 December 2014

Notes to Financial Statements

3. Significant Accounting Judgements and Estimates (continued)

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also a suitable discount rate to calculate the present value of those cash flows. Further details are set out in note 15 to the financial statements.

Oil and gas reserves and mining reserves

The most significant estimates in the oil and gas and mining operations pertain to the volumes of oil and gas reserves and mining reserves and the future development, purchase price allocation, provision for rehabilitation cost and abandonment cost, as well as estimates relating to certain oil and gas reserves and mining revenues and expenses. Actual amounts could differ from those estimates and assumptions. Further details are set out in notes 13 and 34 to the financial statements.

Impairment of non-financial assets (other than goodwill)

The Group assesses whether there are any indicators of impairment for all non-financial assets at the end of each reporting period. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions at arm’s length of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cash-generating unit and chooses a suitable discount rate to calculate the present values of those cash flows. Further details are set out in notes 13, 20 and 21 to the financial statements.

Impairment of loans and receivables

The Group assesses at the end of each reporting period whether there is any objective evidence that a loan/receivable is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. Further details are set out in note 26 to the financial statements.

Net realisable value of inventories

The Group performs regular review of the carrying amounts of its inventories with reference to aged analyses of the Group’s inventories and projections of expected future saleability of goods, and also based on management’s experience and judgement. Based on this review, write-down of inventories is made when the estimated net realisable values of inventories decline below their carrying amounts. Due to changes in the technological, market and economic environment and customers’ preference, actual saleability of goods may be different from estimation, and profit or loss could be affected by differences in this estimation. As at 31 December 2014, impairment losses of HK$4,786,000 (2013: HK$6,125,000) have been recognised to write down the carrying amounts of inventories to the estimated net realisable value.

Year ended 31 December 2014

Notes to Financial Statements

3. Significant Accounting Judgements and Estimates (continued)

Estimation uncertainty (continued)

Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Management’s judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are set out in note 35 to the financial statements.

4. Operating Segment Information

For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows:

(a) the aluminium smelting segment comprises the operation of the PAS which sources alumina and produces aluminium ingots in Australia;
(b) the coal segment comprises the operation of coal mines and the sale of coal in Australia;
(c) the import and export of commodities segment comprises the export of various commodity products such as aluminium ingots, coal, iron ore, alumina and copper; and the import of other commodity products and manufactured goods such as steel, and vehicle and industrial batteries and tyres in Australia; and
(d) the crude oil segment comprises the operation of oilfields and the sale of oil in Indonesia and China.

Management monitors the results of the Group’s operating segments separately for the purposes of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of adjusted profit/(loss) before tax. The adjusted profit/(loss) before tax is measured consistently with the Group’s profit/(loss) before tax except that interest income, finance costs, share of profit/(loss) of associates and a joint venture, and impairment on assets as well as head office and corporate expenses are excluded from such measurement.

Segment assets exclude investments in associates, investment in a joint venture, available-for-sale investment, deferred tax assets, financial assets at fair value through profit or loss, tax recoverable, cash and cash equivalents, and other unallocated head office and corporate assets as these assets are managed on a group basis.

Segment liabilities exclude bank and other borrowings, finance lease payables, bond obligations, deferred tax liabilities, and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis.

HK$’000

Year ended 31 December

Notes to Financial Statements

4. Operating Segment Information (continued)

2014 Import and Aluminium export of smelting Coal commodities Crude oil
	Total
Segment revenue: Sales to external customers 1,001,026 743,206 14,447,495 1,613,397 Other income 8,264 2,677 30,704 13,722	17,805,124 55,367
1,009,290 745,883 14,478,199 1,627,119	17,860,491
Segment results 144,627 (175,040) 192,961 503,162 R ___ econciliation: Interest income and unallocated gains Provision for impairment of other assets Provision for impairment of inventories Unallocated expenses Unallocated finance costs Share of profit/(loss) of: Associates A joint venture Profit before tax Segment assets 1,136,712 1,562,174 1,385,825 6,841,543 _R ________ econciliation: Investment in an associate Investment in a joint venture Unallocated assets Total assets Segment liabilities 1,135,695 386,267 229,691 827,493 R _____ econciliation: Unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation 96,848 106,884 766 507,025 Unallocated amounts Impairment losses reversed in the consolidated income statement — — (1,615) — Capital expenditure 14,626 26,334 1,247 1,432,582 Unallocated amounts	665,710 732,687 (56,160) (319,800)# (262,766) (504,059) (34,562) 163,099*
	384,149
	10,926,254 1,735,275 2,074,226 8,044,420
	22,780,175
	2,579,146 9,306,657
	11,885,803
	711,523 7,383
	718,906
	(1,615)
	1,474,789 13,500
	1,488,289 **

Provision for impairment of other assets related to the coal segment

Provision for impairment of inventories related to the import and export of commodities segment

**[ Capital expenditure consists of additions to property, plant and equipment and other assets.]

HK$’000

Year ended 31 December

Notes to Financial Statements

4. Operating Segment Information (continued)

2013 Import and Aluminium export of smelting Coal commodities Crude oil	Total
Segment revenue: Sales to external customers 1,065,424 735,350 37,198,353 320,056 Other income 152,866 8,060 50,562 5,104	39,319,183 216,592
1,218,290 743,410 37,248,915 325,160	39,535,775
Segment results 93,186 (104,675) 397,326 (145,684) R ___ econciliation: Interest income and unallocated gains Provision for impairment of items of property, plant and equipment Provision for impairment of other assets Unallocated expenses Unallocated finance costs Share of profit/(loss) of: Associates A joint venture Loss before tax Segment assets 1,280,489 1,711,497 2,742,037 6,117,463 _R ________ econciliation: Investments in associates Investment in a joint venture Unallocated assets Total assets Segment liabilities 596,611 362,648 703,931 617,444 R _____ econciliation: Unallocated liabilities Total liabilities Other segment information: Depreciation and amortisation 95,133 96,026 703 193,736 Unallocated amounts Impairment losses reversed in the consolidated income statement — — (3,874) — Capital expenditure 16,275 1,021,465 697 1,593,673 Unallocated amounts	240,153 400,198 (1,777,308) * (23,233)# (497,499) (731,087) (102,839) 360,891
	(2,130,724)
	11,851,486 4,060,832 2,231,903 9,741,760
	27,885,981
	2,280,634 13,943,965
	16,224,599
	385,598 2,873
	388,471
	(3,874)
	2,632,110 14,033
	2,646,143 **

Provision for impairment of items of property, plant and equipment related to the crude oil segment # Provision for impairment of other assets related to the coal segment
**[ Capital expenditure consists of additions to property, plant and equipment, prepaid land lease payments and other assets ] (but excluding the Emission Units).

HK$’000

Year ended 31 December

Notes to Financial Statements

4. Operating Segment Information (continued)

Geographical information

(a) Revenue from external customers

	2014	2013
China	13,235,457	33,109,633
Australia	1,640,443	1,522,259
Europe	617,779	1,157,921
America	—	24,908
Other Asian countries	2,268,126	3,497,645
Others	43,319	6,817
	17,805,124	39,319,183

The revenue information above is based on the location of the customers.

(b) Non-current assets

	2014	2013
Hong Kong	3,852	4,925
China	7,522,712	6,829,751
Australia	4,165,030	3,786,320
Kazakhstan	2,087,664	2,250,652
Other Asian countries	618,982	641,885
	14,398,240	13,513,533

The non-current assets information above is based on the location of the assets which exclude other assets, available-for-sale investment and deferred tax assets.

Information about a major customer

Revenue of HK$2,884,230,000 (2013: HK$5,110,400,000) was derived from sales by the import and export of commodities segment to a single customer, representing more than 10% of the Group’s revenue.

HK$’000

Year ended 31 December

Notes to Financial Statements

5. Revenue, Other Income and Gains

Revenue, which is also the Group’s turnover, represents the net invoiced value of goods sold during the year, after allowances for returns and trade discounts.

An analysis of the Group’s revenue, other income and gains is as follows:

	Notes	2014	2013
Revenue
Sale of goods:
Aluminium smelting		1,001,026	1,065,424
Coal		743,206	735,350
Import and export of commodities		14,447,495	37,198,353
Crude oil		1,613,397	320,056
		17,805,124	39,319,183
Other income and gains
Interest income		76,439	119,663
Handling service fees		30,202	48,049
Fair value gains on:
Available-for-sale investment
(transferred from equity on disposal)	23	—	9,524
Cash flow hedge (transferred from equity)		113,888	187,742
Derivative financial instruments		98,531	225,781
Financial assets at fair value through profit or loss	20	411,997	—
Sale of scrap		5,364	6,751
Others		51,633	19,280
		788,054	616,790
		18,593,178	39,935,973

HK$’000

Year ended 31 December

Notes to Financial Statements

6. Profit/(Loss) before Tax

The Group’s profit/(loss) before tax was arrived at after charging/(crediting):

	Notes	2014	2013
Cost of inventories sold *		16,867,056	38,835,582
Depreciation	13	606,534	287,849
Amortisation of other assets	16	111,065	98,848
Amortisation of prepaid land lease payments	14	1,307	1,774
Exploration and evaluation costs **		5,668	799
Minimum lease payments under
operating leases on land and buildings		28,280	30,842
Auditors’ remuneration		11,823	13,237
Employee benefit expenses
(including directors’ remuneration (note 7)):
Wages and salaries		410,685	370,714
Equity-settled share option expense	37, 38(b)	6,840	1,080
Pension scheme contributions		3,450	3,053
Provision for long term employee benefits	34	11,276	10,639
		432,251	385,486
Loss on disposal/write-off of items of
property, plant and equipment, net **		2,529	702
Exchange losses/(gains), net **		(15,688)	352,789
Write-down/(write-back) of inventories to
net realisable value		(1,340)	2,393
Reversal of impairment of trade receivables, net **	26	(1,615)	(3,874)
Fair value gains on cash flow hedges, net
(transferred from equity)	27	(84,145)	(198,038)
Provision for impairment of items of
property, plant and equipment	13	—	1,777,308
Provision for impairment of other assets	16	56,160	23,233
Provision for impairment of inventories	25	319,800	—
Gain on disposal of available-for-sale investment	23	—	(9,524)
Loss on repurchase of fixed rate senior notes **	33	—	91,498
Loss on purchase of fixed rate senior notes **	33	—	2,052

Cost of inventories sold for the year included an aggregate amount of HK$911,884,000 (2013: HK$490,182,000) which comprised an employee benefit expense, provision for inventories, depreciation and amortisation of the ESA. This amount was also included in the respective expense items disclosed above.
** These amounts were included in “Other expenses, net” in the consolidated income statement.

HK$’000

Year ended 31 December

Notes to Financial Statements

7. Directors’ Remuneration

Directors’ remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and section 78 of Schedule 11 to the Hong Kong Companies Ordinance (Cap. 622), with reference to section 161 of the predecessor Hong Kong Companies Ordinance (Cap. 32), was as follows:

	Group
	2014	2013
Fees:
Executive directors and non-executive directors	600	635
Independent non-executive directors	1,479	1,385
	2,079	2,020
Other emoluments of executive directors:
Salaries, allowances and benefits in kind	15,166	10,442
Bonuses	14,539	11,441
Equity-settled share option expense	6,840	1,080
Pension scheme contributions	129	227
	36,674	23,190
	38,753	25,210

In 2013, in respect of his service to the Group, a director was granted share options under the share option scheme adopted by the Company on 30 June 2004 (the “ Old Scheme ”). The Old Scheme expired on 29 June 2014 and the Company adopted a new share option scheme. Further details of the new share option scheme are set out in note 37 to the financial statements. The fair value of the share options granted under the Old Scheme, which has been charged to the consolidated income statement over the vesting period, was determined as at the date of grant, and the amount taken into account in the current year’s financial statements was included in the above disclosure.

(a) Independent non-executive directors

The fees paid to the independent non-executive directors during the year were as follows:

	2014	2013
Fan Ren Da, Anthony	470	395
Gao Pei Ji	440	370
Hu Weiping	300	250
Ngai Man1	89	370
Shou Xuancheng2	180	—
	1,479	1,385

1 Passed away on 16 March 2014

2 Appointed on 1 July 2014

There were no other emoluments payable to the independent non-executive directors during the year (2013: Nil).

HK$’000

Year ended 31 December

Notes to Financial Statements

7. Directors’ Remuneration (continued)

(b) Executive directors and non-executive directors

		Salaries,
		allowances		Equity-settled	Pension
		and benefits		share option	scheme	Total
	Fees	in kind	Bonuses	expense	contributions	remuneration
2014
Executive directors:
Kwok Peter Viem	—	1,260	2,000	6,840	37	10,137
Qiu Yiyong4	40	4,300	6,300	—	39	10,679
Sun Yang7	—	1,920	3,600	—	8	5,528
Guo Tinghu	—	2,703	—	—	—	2,703
Li So Mui	—	2,861	2,639	—	41	5,541
	40	13,044	14,539	6,840	125	34,588
Non-executive directors:
Tian Yuchuan6	120	—	—	—	—	120
Wong Kim Yin	240	—	—	—	—	240
ZengChen5	200	2,122	—	—	4	2,326
	560	2,122	—	—	4	2,686
	600	15,166	14,539	6,840	129	37,274
2013
Executive directors:
Kwok Peter Viem2	—	528	—	1,080	8	1,616
Zeng Chen	—	4,202	5,134	—	15	9,351
Guo Tinghu	—	2,946	3,975	—	189	7,110
Li So Mui	—	2,766	2,332	—	15	5,113
	—	10,442	11,441	1,080	227	23,190
Non-executive directors:
Ju Weimin1	125	—	—	—	—	125
Qiu Yiyong	170	—	—	—	—	170
Tian Yuchuan	170	—	—	—	—	170
Wong Kim Yin	170	—	—	—	—	170
ZhangJijing 3	—	—	—	—	—	—
	635	—	—	—	—	635
	635	10,442	11,441	1,080	227	23,825

1 Resigned on 22 July 2013

2 Appointed on 22 July 2013

3 Resigned on 18 September 2013

4 Re-designated as an executive director on 1 March 2014

5 Re-designated as a non-executive director on 1 March 2014

6 Resigned on 1 July 2014

7 Appointed on 1 July 2014

HK$’000

Year ended 31 December

Notes to Financial Statements

7. Directors’ Remuneration (continued)

(b) Executive directors and non-executive directors (continued)

During the year ended 31 December 2013, Mr. Zhang Jijing elected not to receive any fee from the Group and Mr. Ju Weimin elected not to receive the fee from the Group for the period from 1 July 2013 to 21 July 2013 inclusive. Save as aforesaid, there was no arrangement under which a director waived or agreed to waive any remuneration in 2013 and 2014.

8. Five Highest Paid Employees

The five highest paid employees during the year included four (2013: three) directors and one (2013: two) senior management personnel. Details of the remuneration of these directors are set out in note 7 to the financial statements and details of the remuneration of these senior management personnel are as follows:

	2014	2013
Salaries, allowances and benefits in kind	2,682	4,039
Bonuses	1,341	2,755
Pension scheme contributions	41	244
	4,064	7,038

9. Finance Costs

An analysis of finance costs is as follows:

	Group
	2014	2013
Interest expense on bank and other borrowings	324,224	273,781
Interest expense on fixed rate senior notes, net	157,789	429,528
Interest expense on finance leases	8,443	4,872
Total interest expense on financial liabilities
not at fair value through profit or loss	490,456	708,181
Amortisation of fixed rate senior notes	6,899	18,860
	497,355	727,041
Other finance charges:
Increase in discounted amounts of provisions arising from
the passage of time (note 34)	6,704	3,005
Others	—	1,041
	504,059	731,087

HK$’000

Year ended 31 December

Notes to Financial Statements

10. Income Tax

	Group
	2014	2013
Current – Hong Kong	—	—
Current – Elsewhere
Charge for the year	346	50,396
Underprovision in prior years	378	4,021
Deferred (note 35)	113,010	(582,287)
Total tax expense/(credit) for the year	113,734	(527,870)

The statutory rate of Hong Kong profits tax was 16.5% (2013: 16.5%) on the estimated assessable profits arising in Hong Kong during the year. No provision for Hong Kong profits tax was made as the Group had no assessable profits arising in Hong Kong during the year (2013: Nil).

Taxes on profits assessable elsewhere were calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Australia: The Group’s subsidiaries incorporated in Australia were subject to Australian income tax at a rate of 30% (2013: 30%).

Indonesia: The corporate tax rate applicable to the subsidiary which is operating in Indonesia was 30% (2013: 30%). The Group’s subsidiary owning a participating interest in the oil and gas properties in Indonesia was subject to branch tax at the effective tax rate of 14% (2013: 14%).

China: The Group’s subsidiaries registered in China were subject to corporate income tax at a rate of 25% (2013: 25%). No provision (2013: Nil) for China corporate income tax was made as the Group had tax losses brought forward which can be used to offset the taxable profits arising in China during the year.

According to HKAS 12 Income Taxes, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.

A reconciliation of the tax expense/(credit) applicable to profit/(loss) before tax at the Hong Kong statutory tax rate to the tax expense/(credit) at the Group’s effective tax rate is as follows:

	Group
	2014	2013
Profit/(loss) before tax	384,149	(2,130,724)
Tax at the Hong Kong statutory tax rate of 16.5% (2013: 16.5%)	63,385	(351,570)
Higher tax rates on profits arising elsewhere	84,225	(158,331)
Adjustments in respect of current tax of previous periods	378	4,021
Provision for impairment of deferred tax assets	50,887	—
Profits and losses attributable to associates and a joint venture	(17,955)	(42,579)
Income not subject to tax	(53,053)	(153,002)
Expenses not deductible for tax	102,141	150,602
Tax losses utilised from previous periods	(118,374)	—
Tax losses not recognised	2,100	22,989
Tax expense/(credit) at the Group’s effective rate	113,734	(527,870)

HK$’000

Year ended 31 December

Notes to Financial Statements

10. Income Tax (continued)

The share of tax attributable to associates and a joint venture, amounting to HK$210,305,000 (2013: HK$142,046,000), was included in “Share of profit/(loss) of associates and a joint venture” in the consolidated income statement.

The Group has unrecognised deferred tax assets from tax losses arising in Hong Kong and China in an aggregate amount of HK$330,311,000 (2013: HK$378,346,000) that are available for offsetting against future taxable profits of the companies in which the losses arose. In respect of tax losses arising in China, the losses are available for offsetting against future taxable profits for a maximum period of five years. Deferred tax assets have not been recognised in respect of these tax losses because they have arisen in companies that have been loss-making for some years and it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

11. Profit/(Loss) attributable to Shareholders of the Company

Of the Group’s profit attributable to shareholders of the Company of HK$223,830,000 (2013: a loss of HK$1,465,436,000), a loss of HK$210,648,000 (2013: HK$1,295,427,000) has been dealt with in the financial statements of the Company (note 38(b)).

12. Earnings/(Loss) per Share attributable to Ordinary Shareholders of the Company

The calculation of the basic earnings/(loss) per share amount was based on the profit for the year attributable to ordinary shareholders of the Company of HK$223,830,000 (2013: a loss of HK$1,465,436,000) and the weighted average number of ordinary shares in issue during the year, which was 7,868,527,149 (2013: 7,867,380,574) shares.

The calculation of the diluted earnings per share amount is based on the profit for the year attributable to ordinary shareholders of the Company. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

No adjustment was made to the basic loss per share amount presented for the year ended 31 December 2013 in respect of a dilution as the share options outstanding during 2013 had an anti-dilutive effect on the basic loss per share amount presented.

The calculations of basic and diluted earnings per share amounts for the year ended 31 December 2014 were based on:

The calculations of basic and diluted earnings per share amounts for the year ended 31 based on:	December 2014 were
Earnings
Profit attributable to ordinary shareholders of the Company
used in the basic earningsper share calculation	223,830
	Number of shares
Shares
Weighted average number of
ordinary shares in issue during the year used in
the basic earnings per share calculation	7,868,527,149
Effect of dilution – weighted average number of
ordinary shares:share options	— *
	7,868,527,149

There was no dilutive potential ordinary shares arising from share options as the average share price of the Company during the year did not exceed the exercise price of the outstanding share options.

HK$’000

Notes to Financial Statements

13. Property, Plant and Equipment

Group

2014					Motor vehicles,
					plant,
					machinery,	Furniture	Buildings
		Oil and gas	Freehold	Leasehold	tools and	and	and	Capital	Construction
	Notes	properties	land	improvements	equipment	fixtures	structures	works	in progress	Total
Cost:
At 1 January		7,407,571	25,122	4,369	1,841,537	17,711	703,381	173,854	708,239	10,881,784
Change in provision for
abandonment cost	34	(194)	—	—	—	—	—	—	—	(194)
Additions		116,150	—	149	26,859	1,386	4,313	—	1,314,915	1,463,772
Disposals/write-off		(2,586)	—	—	(9,530)	—	(418)	—	(3,706)	(16,240)
Transfers		577,890	—	—	—	—	41,194	(41,194)	(577,890)	—
Transfer from exploration
and evaluation assets	16	—	33,058	—	—	—	—	—	—	33,058
Exchange realignment		(110,195)	—	—	(897)	—	(5,871)	—	(23,010)	(139,973)
At 31 December		7,988,636	58,180	4,518	1,857,969	19,097	742,599	132,660	1,418,548	12,222,207
Accumulated depreciation and
impairment:
At 1 January		2,592,500	—	4,053	1,101,722	15,709	423,220	11,700	—	4,148,904
Depreciation provided
during the year	6	502,765	—	251	67,729	1,099	34,690	—	—	606,534
Disposals/write-off		—	—	—	(5,353)	—	(257)	—	—	(5,610)
Exchange realignment		(5,775)	—	—	(688)	—	(3,128)	—	—	(9,591)
At 31 December		3,089,490	—	4,304	1,163,410	16,808	454,525	11,700	—	4,740,237
Net carrying amount:
At 31 December		4,899,146	58,180	214	694,559	2,289	288,074	120,960	1,418,548	7,481,970

As at 31 December 2014, the net carrying amount of the Group’s property, plant and equipment included plant and machinery of HK$79,170,000 (2013: HK$85,690,000) held under finance leases.

Freehold land of the Group is located in Australia.

HK$’000

Notes to Financial Statements

13. Property, Plant and Equipment (continued)

Group

2013					Motor vehicles,
					plant,
					machinery,	Furniture	Buildings
		Oil and gas	Freehold	Leasehold	tools and	and	and	Capital	Construction
	Notes	properties	land	improvements	equipment	fixtures	structures	works	in progress	Total
Cost:
At 1 January (restated)		4,734,424	25,122	4,278	1,678,497	16,295	546,125	140,113	1,669,861	8,814,715
Change in provision for
abandonment cost		(8,144)	—	—	—	—	—	—	—	(8,144)
Additions		160,016	—	47	27,889	1,416	40,185	11,274	1,431,043	1,671,870
Acquisition of a
contractual arrangement	39	—	—	—	142,061	—	117,792	71,593	—	331,446
Disposals/write-off		(597)	—	—	(2,093)	—	—	(49,126)	—	(51,816)
Transfers		2,432,348	—	—	(5,438)	—	—	—	(2,426,910)	—
Exchange realignment		89,524	—	44	621	—	(721)	—	34,245	123,713
At 31 December		7,407,571	25,122	4,369	1,841,537	17,711	703,381	173,854	708,239	10,881,784
Accumulated depreciation and
impairment:
At 1 January (restated)		622,405	—	3,780	988,855	13,656	317,974	11,700	—	1,958,370
Depreciation provided
during the year	6	189,945	—	236	63,248	2,053	32,367	—	—	287,849
Acquisition of a
contractual arrangement	39	—	—	—	50,351	—	73,281	—	—	123,632
Disposals/write-off		—	—	—	(1,137)	—	—	—	—	(1,137)
Provision for impairment	6	1,777,308	—	—	—	—	—	—	—	1,777,308
Exchange realignment		2,842	—	37	405	—	(402)	—	—	2,882
At 31 December		2,592,500	—	4,053	1,101,722	15,709	423,220	11,700	—	4,148,904
Net carrying amount:
At 31 December		4,815,071	25,122	316	739,815	2,002	280,161	162,154	708,239	6,732,880

As at 31 December 2013, there was a significant year-on-year decrease in the commercial reserves of the Hainan-Yuedong Block in a reserves report issued by an independent oil and gas consulting firm. Accordingly, the Group has assessed that the recoverable amounts of the oil and gas properties as at 31 December 2013 have reduced. As a result, the carrying amount of these assets was written down to their recoverable amounts of HK$4,892,650,000 and an impairment loss of HK$1,688,770,000 was charged to the consolidated income statement for the year ended 31 December 2013. The estimates of recoverable amounts were based on these assets’ value in use, using a discounted cash flow model. The future cash flows were adjusted for risks specific to these assets and discounted using a pre-tax discount rate of 13.22%.

Besides, due to a change in the drilling plan, the Group had fully written off certain oil and gas properties of the Seram Block, amounting to HK$88,538,000, and charged to the consolidated income statement for the year ended 31 December 2013. The estimates of recoverable amounts were based on these assets’ value in use, using a discounted cash flow model. The future cash flows were adjusted for risks specific to these assets and discounted using a pre-tax discount rate of 14.55%.

HK$’000

Notes to Financial Statements

13. Property, Plant and Equipment (continued)

In assessing whether impairment is required for the carrying value of a potentially impaired asset, its carrying value is compared with its recoverable amount. Assets are tested for impairment either individually or as part of a cash-generating unit. The recoverable amount is the higher of the asset’s fair value less cost of sales and value in use. Given the nature of the Group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers are taking place. Consequently, unless indicated otherwise, the recoverable amount used in assessing the impairment charges described above is value in use.

Company

	Leasehold	Motor vehicles
	improvements	and equipment	Total
2014
Cost:
At 1 January and 31 December	1,378	4,091	5,469
Accumulated depreciation:
At 1 January	1,195	3,237	4,432
Depreciation provided during the year	124	366	490
At 31 December	1,319	3,603	4,922
Net carrying amount:
At 31 December	59	488	547
2013
Cost:
At 1 January	1,339	3,329	4,668
Additions	39	762	801
At 31 December	1,378	4,091	5,469
Accumulated depreciation:
At 1 January	1,017	2,774	3,791
Depreciation provided during the year	178	463	641
At 31 December	1,195	3,237	4,432
Net carrying amount:
At 31 December	183	854	1,037

HK$’000

Notes to Financial Statements

14. Prepaid Land Lease Payments

	Group
	2014	2013
Carrying amount at 1 January	24,152	24,111
Addition	—	1,112
Amortisation provided during the year (note 6)	(1,307)	(1,774)
Exchange realignment	(586)	703
Carrying amount at 31 December	22,259	24,152
Current portion included in prepayments, deposits and
other receivables (note 24)	(1,296)	(1,330)
Non-current portion	20,963	22,822

The leasehold land is situated in Liaoning Province, China and is held under a medium-term lease.

15. Goodwill

	Group
	2014	2013
Cost:
At 1 January and 31 December	341,512	341,512
Accumulated impairment:
At 1 January and 31 December	316,830	316,830
Net carrying amount:
At 31 December	24,682	24,682

Impairment testing of goodwill

As at 31 December 2014 and 2013, the net carrying amount of the Group’s goodwill related to the import and export of commodities cash-generating unit which is a reportable segment.

The recoverable amount of the import and export of commodities cash-generating unit was determined based on a value in use calculation, using cash flow projections based on financial budgets covering a five-year period approved by management. The cash flows beyond the five-year period were extrapolated using a growth rate of 2%, which was determined with reference to the long term Customer Price Index of Australia and the nature of the business. The pre-tax discount rate applied to the cash flow projections was 15.89% (2013: 16.35%).

HK$’000

Notes to Financial Statements

16. Other Assets

Group

Non-current assets

2014				Exploration
				and
			Mining	evaluation
	Notes	ESA	assets	assets	Total
Cost:
At 1 January		1,039,777	770,577	249,885	2,060,239
Change in provision for
rehabilitation cost	34	—	—	(8,565)	(8,565)
Additions		—	3,096	21,421	24,517
Transfer		—	16,778	(16,778)	—
Transfer to freehold land	13	—	—	(33,058)	(33,058)
At 31 December		1,039,777	790,451	212,905	2,043,133
Accumulated amortisation and
impairment:
At 1 January		893,196	149,991	24,409	1,067,596
Amortisation provided
during the year	6	51,793	59,272	—	111,065
Impairment during the year	6	—	56,160	—	56,160
At 31 December		944,989	265,423	24,409	1,234,821
Net carrying amount:
At 31 December		94,788	525,028	188,496	808,312

Due to the current challenging economic environment, the persistent weak global demand for steel and an oversupply of metallurgical coal, coal prices continued to decrease during the year. An impairment assessment was carried out to determine the recoverable amount of the Group’s coal cash-generating unit (the “ Coal CGU ”). An impairment of HK$56,160,000 was identified, allocated to the mining assets and recorded in the consolidated income statement for the year. The recoverable amount of the Coal CGU was determined based on a value in use calculation, using a discounted cash flow model. The future cash flows were adjusted for risks specific to the Coal CGU and discounted using a pre-tax discount rate of 13.57%.

HK$’000

100

Notes to Financial Statements

16. Other Assets (continued)

Group (continued)

Non-current assets (continued)

2013				Exploration
				and
			Mining	evaluation
	Notes	ESA	assets	assets	Total
Cost:
At 1 January		1,039,777	82,362	150,681	1,272,820
Change in provision for
rehabilitation cost		—	—	(7,608)	(7,608)
Acquisition of
a contractual arrangement	39	—	661,845	109,993	771,838
Additions		—	6,101	17,088	23,189
Transfers		—	20,269	(20,269)	—
At 31 December		1,039,777	770,577	249,885	2,060,239
Accumulated amortisation and
impairment:
At 1 January		841,392	73,267	1,176	915,835
Acquisition of
a contractual arrangement	39	—	29,680	—	29,680
Amortisation provided
during the year	6	51,804	47,044	—	98,848
Impairment duringtheyear	6	—	—	23,233	23,233
At 31 December		893,196	149,991	24,409	1,067,596
Net carrying amount:
At 31 December		146,581	620,586	225,476	992,643

Due to the poor economic environment in 2013, the weak global demand for steel and an oversupply of metallurgical coal, coal price had decreased. Accordingly, the mining plan of the Coppabella and Moorvale coal mines joint venture (the “ CMJV ”) was changed. As a result, the Group had impaired certain exploration and evaluation assets, amounting to HK$23,233,000, and charged to the consolidated income statement for the year ended 31 December 2013. The recoverable amounts of these assets were determined based on a value in use calculation, using a discounted cash flow model. The future cash flows were adjusted for risks specific to the CMJV and discounted using a pre-tax discount rate of 13.36%.

Current asset

The Emission Units

	2014	2013
Cost:
At 1 January	184,215	194,970
Additions	—	329,690
Amount utilised during the year	(183,842)	(340,445)
At 31 December	373	184,215

HK$’000

31 December

101

Notes to Financial Statements

17. Investments in Subsidiaries

	Company
	2014	2013
Unlisted shares, at cost	173,133	173,133
Due from subsidiaries	18,526,564	15,057,663
Due to subsidiaries	(3,381,574)	(2,776,509)
	15,318,123	12,454,287
Impairment	(2,379,478)	(2,379,478)
	12,938,645	10,074,809

The amounts advanced to the subsidiaries included in the investments in subsidiaries above are unsecured, interest free and have no fixed terms of repayment. In the opinion of the directors, these advances are considered as part of the Company’s investments in the subsidiaries.

Particulars of the subsidiaries of the Company as at 31 December 2014 were as follows:

	Place of	Issued	Percentage of
	incorporation /	ordinary share /	equity interest
	registration and	paid-up	attributable to	Principal
Name	operations	capital	the Company	activities
Directly held
SEA Wood Investment	British Virgin Islands	US$10,000	100	Investment
Holdings Limited	(“BVI”) / Hong Kong			holding
Starbest Venture	BVI / Hong Kong	US$1	100	Investment
Limited				holding
Star Elite Venture	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC Resources	BVI / Hong Kong	US$1	100	Financing
Finance (2007) Limited
(“CR Finance”)
Indirectly held
Feston Manufacturing	BVI / Hong Kong	US$10,000	100	Dormant
Limited
Nusoil Manufacturing	BVI / Hong Kong	US$100	100	Investment
Limited				holding
Wing Lam (International)	Hong Kong	HK$60,000,000	100	Dormant
Timber Limited

31 December 2014

102

Notes to Financial Statements

17. Investments in Subsidiaries (continued)

	Place of	Issued	Percentage of
	incorporation /	ordinary share /	equity interest
	registration and	paid-up	attributable to	Principal
Name	operations	capital	the Company	activities
Indirectly held (continued)
Global Enterprises (HK)	Hong Kong	HK$2	100	Provision of
Limited				management
				services
Maxpower Resources	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC New Highland	BVI / Hong Kong	US$1	100	Investment
Petroleum Limited				holding
Toplight Resources	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC Resources Australia	State of Victoria,	A$377,650,000	100	Investment
Pty Limited	Australia			holding
CITIC Portland Holdings	State of Victoria,	A$196,791,454	100	Investment
Pty Limited	Australia			holding
CITIC Australia (Portland)	State of Victoria,	A$45,675,119	100	Aluminium
Pty Limited	Australia			smelting
CITIC Portland Surety	State of Victoria,	A$1	100	Investment
Pty Limited	Australia			holding
CITIC Nominees	State of Victoria,	A$2	100	Investment
Pty Limited	Australia			holding
CITIC Portland Finance 1	State of Victoria,	A$2	100	Financing
Pty Limited	Australia
CITIC (Portland) Nominees I	State of Victoria,	A$2	100	Investment
Pty Limited *	Australia			holding
CITIC (Portland) Nominees II	State of Victoria,	A$2	100	Investment
Pty Limited *	Australia			holding
CITIC Nominees	State of Victoria,	A$6,693,943	100	Investment
Pty Limited Partnership	Australia			holding

31 December 2014

103

Notes to Financial Statements

17. Investments in Subsidiaries (continued)

	Place of	Issued	Percentage of
	incorporation /	ordinary share /	equity interest
	registration and	paid-up	attributable to	Principal
Name	operations	capital	the Company	activities
Indirectly held (continued)
CITIC Australia Coal	State of Victoria,	A$220,605,959	100	Investment
Pty Limited	Australia			holding
CITIC Australia Coppabella	State of Victoria,	A$5,000,002	100	Mining and
Pty Limited	Australia			production of
				coal
CITIC Australia Coal	State of Victoria,	A$2,845,375	100	Exploration,
Exploration Pty Limited	Australia			development of
				coal mines and
				mining of coal
CITIC Bowen Basin	State of Victoria,	A$378,353	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC West Rolleston	State of Victoria,	A$196,390	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Moorvale West	State of Victoria,	A$108,333	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Olive Downs	State of Victoria,	A$99,958	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC West Walker	State of Victoria,	A$91,812	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC West / North Burton	State of Victoria,	A$34,238	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Capricorn	State of Victoria,	A$9,549	100	Exploration and
Pty Limited	Australia			development of
				coal mines
CITIC Mining Equipment	State of Victoria,	A$1	100	Equipment
Pty Limited	Australia			lease holding

31 December 2014

104

Notes to Financial Statements

17. Investments in Subsidiaries (continued)

	Place of	Issued	Percentage of
	incorporation /	ordinary share /	equity interest
	registration and	paid-up	attributable to	Principal
Name	operations	capital	the Company	activities
Indirectly held (continued)
CITIC Australia Trading	State of Victoria,	A$4,710,647	100	Investment
Pty Limited (“CATL”)	Australia			holding
CATL Sub-holdings	State of Victoria,	A$1	100	Investment
Pty Limited	Australia			holding
CITIC Australia Commodity	State of Victoria,	A$500,002	100	Import and
Trading Pty Limited	Australia			export of
(“CACT”)				commodities and
				manufactured
				goods
CITIC Autoparts	State of Victoria,	A$100	100	Import of
Pty Limited	Australia			tyres and
				batteries
Tyre Choice	State of Victoria,	A$1	100	Dormant
Pty Limited	Australia
CITIC Batteries	State of Victoria,	A$2	100	Dormant
Pty Limited	Australia
CITIC Nickel	State of Victoria,	A$2	100	Investment
Pty Limited	Australia			holding
CITIC Nickel Australia	State of Victoria,	A$2	100	Exploration and
Pty Limited	Australia			development of
				nickel mines
CITIC Nickel International	State of Victoria,	A$2	100	Exploration and
Pty Limited	Australia			development of
				nickel mines
北京千泉投資顧問有限公司 # +	China	RMB1,243,173	100	Consulting
(Beijing Springs Investment
Consultants Co. Limited)
北京怡信美城商務信息諮詢	China	RMB500,000	100	Consulting
有限公司 # +
(Beijing Yi Xin Mei Cheng
Commercial Information
Consulting Co. Ltd.)

31 December 2014

105

Notes to Financial Statements

17. Investments in Subsidiaries (continued)

	Place of	Issued	Percentage of
	incorporation /	ordinary share /	equity interest
	registration and	paid-up	attributable to	Principal
Name	operations	capital	the Company	activities
Indirectly held (continued)
Cogent Assets Limited	BVI / Hong Kong	US$2	100	Investment
				holding
CITIC Petrochemical	BVI / Hong Kong	US$1	100	Investment
Holdings Limited				holding
CITIC Petrochemical	BVI / Hong Kong	US$1	100	Investment
Investments Limited				holding
Group Smart Resources	BVI / Hong Kong	US$1	100	Investment
Limited				holding
Highkeen Resources	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC Indonesia Energy	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC Seram Energy	BVI / Indonesia	US$1	100	Exploration,
Limited				development and
				operation of
				oilfields
CITIC Haiyue Energy	BVI / Hong Kong	US$1	100	Investment
Limited				holding
Tincy Group Energy	Hong Kong /	HK$10,000,000	90	Exploration,
Resources Limited	China			development and
				operation of
				oilfields
CITIC Liaobin Investments	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC Liaobin Energy (HK)	Hong Kong	HK$1	100	Investment
Limited				holding

31 December 2014

106

Notes to Financial Statements

17. Investments in Subsidiaries (continued)

	Place of	Issued	Percentage of
	incorporation /	ordinary share /	equity interest
	registration and	paid-up	attributable to	Principal
Name	operations	capital	the Company	activities
Indirectly held (continued)
CITIC Oil & Gas Holdings	BVI / Hong Kong	US$100	100	Investment
Limited				holding
Renowned Nation	BVI / Hong Kong	US$1	100	Investment
Limited				holding
KBM Energy Limited	BVI / Hong Kong	US$1	100	Investment
				holding
CITIC Netherlands Energy	Netherlands /	EUR100	100	Investment
Coöperatief U.A.	Hong Kong			holding
Perfect Vision Investments	BVI / Hong Kong	US$1	100	Investment
Limited				holding
KAZCITIC Investment LLP	Kazakhstan	KZT682,705,099	100	Property
				holding
Ample Idea Investments	BVI / Hong Kong	US$1	100	Investment
Limited				holding
中信石油技術開發（北京）	China	US$100,000	100	Oil technology
有限公司 # +				development
(CITIC Petroleum
Technology Development
(Beijing) Limited)
CITIC PNG Investments	BVI / Hong Kong	US$1	100	Investment
Limited				holding
CITIC PNG Energy Limited	BVI / Hong Kong	US$1	100	Investment
				holding
Splendor Venture Limited	BVI / Hong Kong	US$1	100	Investment
				holding

These two companies jointly own CITIC Nominees Pty Limited Partnership which owns the interest in the Portland Aluminium Smelter joint venture (the “ PAS JV ”).

The statutory financial statements were not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.

- Limited liability company registered under China law

107

Notes to Financial Statements

18. Investments in Joint Operations

As at 31 December 2014, the Group had interests in the following joint operations:

(a) 51% participating interest in the production sharing contract relating to the Seram Block; and
(b) the petroleum contract (as supplemented) for the exploration, development and production of petroleum from the Hainan-Yuedong Block.

19. Interests in Other Contractual Arrangements

As at 31 December 2014, the Group had interests in the following contractual arrangements:

(a) 22.5% participating interest in the PAS operations, the principal activity of which is aluminium smelting;
(b) 14% participating interest in the CMJV operations, the principal activities of which are the mining and sale of coal;
(c) 50% participating interest in the CB Exploration operations, the principal activity of which is the exploration of coal;
(d) 15% participating interest in the Bowen Basin Coal operations, the principal activity of which is the exploration of coal;
(e) 10% participating interest in the West Rolleston operations, the principal activity of which is the exploration of coal;
(f) 10% participating interest in the Moorvale West operations, the principal activity of which is the exploration of coal;
(g) 10% participating interest in the Olive Downs operations, the principal activity of which is the exploration of coal;
(h) 15% participating interest in the West Walker operations, the principal activity of which is the exploration of coal;
(i) 13.335% participating interest in the West / North Burton operations, the principal activity of which is the exploration of coal; and
(j) 15% participating interest in the Capricorn operations, the principal activity of which is the exploration of coal.

The contractual arrangements stated in (a) and (c) above were not audited by Ernst & Young, Hong Kong or another member firm of the Ernst & Young global network.

In 2013, the Group acquired an additional 7% participating interest in the CMJV, further details of which are set out in note 39 to the financial statements.

HK$’000

31 December

108

Notes to Financial Statements

19. Interests in Other Contractual Arrangements (continued)

The Group’s interests in the net assets employed in the PAS JV were included in the consolidated statement of financial position under the classification shown below:

	2014	2013
Non-current assets	2,011,585	2,050,409
Current assets	88,237	100,277
Current liabilities	(116,935)	(139,292)
Non-current liabilities	(281,101)	(331,898)
Proportionate share of net assets employed in the PAS JV	1,701,786	1,679,496

The Group’s interests in the combined net assets employed in the remaining contractual arrangements were included in the consolidated statement of financial position under the classification shown below:

	2014	2013
Non-current assets	849,441	855,777
Current assets	229,779	192,668
Current liabilities	(148,812)	(136,672)
Non-current liabilities	(68,376)	(87,032)
Proportionate share of net assets employed in
the remaining contractual arrangements	862,032	824,741

20. Investments in Associates

	Group
	2014	2013
Share of net assets	2,147,467	4,188,574
Goodwill on acquisition	1,089,808	1,374,258
	3,237,275	5,562,832
Impairment	(1,502,000)	(1,502,000)
	1,735,275	4,060,832
Market value of listed shares	636,660	2,518,578

Particulars of the Group’s associate as at 31 December 2014 were as follows:

			Percentage of
	Place of		equity interest
	incorporation /	Issued ordinary	attributable to	Principal
Name	operation	share capital	the Group	activity
CITIC Dameng Holdings	Bermuda /	HK$302,479,500	38.98	Investment holding
Limited (“CDH”)	Hong Kong

HK$’000

31 December

109

Notes to Financial Statements

20. Investments in Associates (continued)

CDH is an investment holding company and its subsidiaries are engaged in manganese mining, ore processing and downstream processing operations in China. CDH is considered a material associate of the Group and accounted for using the equity method. The following table summarises the financial information of CDH and its subsidiaries and also illustrates the reconciliation to the carrying amount in the Group’s consolidated financial statements:

	2014	2013
Current assets	4,022,042	3,639,985
Non-current assets	7,175,753	7,100,267
Current liabilities	(3,965,584)	(2,935,845)
Non-current financial liabilities, excluding
accounts payable, other payables and provisions	(1,882,335)	(2,289,926)
Non-current liabilities	(769,046)	(804,687)
Net assets	4,580,830	4,709,794
Non-controlling interests	(129,125)	(218,979)
	4,451,705	4,490,815
Reconciliation to the Group’s investment in the associate:
Proportion of the Group’s ownership	38.98%	38.98%
Group’s share of net assets of the associate and
carrying amount of the investment	1,735,275	1,750,520

	Year ended 31 December	Year ended 31 December
	2014	2013
Revenue	3,194,517	2,915,756
Loss for the year attributable to:
Shareholders of CDH	(26,834)	(277,632)
Non-controlling interests of CDH	(98,209)	(74,443)
Other comprehensive income/(loss) attributable to:
Shareholders of CDH	(12,920)	66,062
Non-controlling interests of CDH	307	(1,913)

HK$’000

31 December

110

Notes to Financial Statements

20. Investments in Associates (continued)

As at 31 December 2013, the Group held a 8.4014% interest in Alumina Limited (“ AWC ”). AWC, a leading Australian company listed on the Australian Securities Exchange (the “ ASX ”), has significant global interests in bauxite mining and alumina refining operations.

In 2013 when the shares of AWC were first acquired, it was considered that the Group had significant influence on its investment in AWC because the Group is the single largest shareholder of AWC and a then executive director of the Company is also a director of AWC. However, during an annual review of the appropriateness of continued accounting of the Group’s investment in AWC as an investment in an associate, it was reassessed and concluded that significant influence on AWC no longer exists. In addition, it was considered that the fair value adopted to measure the Group’s investment in AWC provides a more relevant and reliable basis to reflect its value and to assess its performance going forward. Accordingly, the investment was reclassified from an associate to financial assets designated as at fair value through profit or loss in 2014.

Up to the date of reassessment, the Group has continued to equity account for its share of results in AWC and has recorded a share of loss of HK$24,102,000 for the year. On the date of reassessment, the Group’s investment in AWC was measured at its fair value based on the closing share price of AWC on that date. A pre-tax fair value gain of HK$411,997,000, being the difference between the fair value and the carrying value, was recognised in the consolidated income statement for the year (note 5).

The following table summarises the financial information of AWC and its subsidiaries and also illustrates the reconciliation to the carrying amount in the Group’s consolidated financial statements for the year ended 31 December 2013:

	2013
Current assets	372,840
Non-current assets	25,075,248
Current liabilities	(478,920)
Non-current financial liabilities, excluding accounts payable, other payables and provisions	(847,080)
Non-current liabilities	(4,680)
Net assets	24,117,408
Reconciliation to the Group’s investment in the associate:
Proportion of the Group’s ownership	8.4014%
Group’s share of net assets of the associate (excluding goodwill)	2,025,862
Goodwill on acquisition	284,450
Carrying amount of the investment	2,310,312
	2013 *
Revenue	2,340
Profit	64,071
Other comprehensive income	—
Total comprehensive income	64,071

* Representing the operating results of AWC for the period from the date on which the Group could exercise significant influence on AWC to 31 December 2013

HK$’000

31 December

111

Notes to Financial Statements

21. Investment in a Joint Venture

	Group
	2014	2013
Share of net assets	3,474,161	3,631,838
Impairment	(1,399,935)	(1,399,935)
	2,074,226	2,231,903

Particulars of the Group’s joint venture as at 31 December 2014 were as follows:

	Place of		Percentage of
	Incorporation	Issued	equity interest
	and	ordinary	attributable to	Principal
Name	operation	share capital	the Group	activity
CITIC Canada Energy	Canada	US$1	50	Investment holding
Limited(“CCEL”)

The Group’s investment in CCEL is indirectly held by the Company. CCEL is an investment holding company and its subsidiaries are principally engaged in the exploration, development, production and sale of oil and provision of oilfield related services in Kazakhstan.

The following table summarises the financial information of CCEL and its subsidiaries and also illustrates the reconciliation to the carrying amount in the Group’s consolidated financial statements:

	2014	2013
Cash and cash equivalents	1,625,909	536,341
Other current assets	2,259,424	3,020,501
Current assets	3,885,333	3,556,842
Non-current assets	11,387,007	13,082,367
Financial liabilities, excluding accounts payable and other payables	(3,882,957)	(6,323,141)
Other current liabilities	(1,025,283)	(1,686,191)
Current liabilities	(4,908,240)	(8,009,332)
Non-current financial liabilities, excluding
accounts payable, other payables and provisions	(2,381,567)	(304,244)
Non-current liabilities	(3,390,153)	(3,331,365)
Net assets	4,592,380	4,994,268
Non-controllinginterests	(443,928)	(530,462)
	4,148,452	4,463,806
Reconciliation to the Group’s investment in a joint venture:
Proportion of the Group’s ownership	50%	50%
Group’s share of net assets of a joint venture and
carrying amount of the investment	2,074,226	2,231,903

HK$’000

31 December

112

Notes to Financial Statements

21. Investment in a Joint Venture (continued)

	Year ended 31 December	Year ended 31 December
	2014	2013
Revenue	9,079,883	11,169,635
Interest income	3,389	3,732
Depreciation and amortisation	(1,966,877)	(2,128,714)
Interest expense	(119,363)	(92,307)
Income tax	(408,561)	(286,176)
Profit for the year attributable to:
Shareholders of CCEL	326,198	721,782
Non-controllinginterests of CCEL	15,385	40,213
Other comprehensive loss attributable to:
Shareholders of CCEL	(641,552)	(107,634)
Non-controllinginterests of CCEL	(33,685)	(5,655)

22. Financial Assets at Fair Value through Profit or Loss

Designated as such upon initial recognition

	Group
	2014	2013
Non-current investment:
Listed equityinvestment in Australia,at fair value	2,754,717	—

The fair value of the above investment was based on quoted market prices. Details of the investment are set out in note 20 to the financial statements.

Held for trading

	Group
	2014	2013
Current investments:
Unlisted investments in Australia and China,at fair value	3,029	3,029

The above investments were classified as held for trading for both years.

23. Available-for-sale Investment

	Group
	2014	2013
Non-current investment:
Listed equityinvestment in Australia,at fair value	1,733	1,820

The fair value of the above investment was based on quoted market price.

During the year, no gain or loss (2013: a gain of HK$9,524,000) (note 5) in respect of the Group’s available-for-sale investment was reclassified from the consolidated statement of comprehensive income to the consolidated income statement.

HK$’000

31 December

113

Notes to Financial Statements

24. Prepayments, Deposits and Other Receivables

	Group		Company
	2014	2013	2014	2013
Prepayments	157,188	247,172	152	149
Current portion of
prepaid land lease payments (note 14)	1,296	1,330	—	—
Deposits and other receivables	2,184,259	2,804,160	1,064,321	11,418
	2,342,743	3,052,662	1,064,473	11,567
Portion classified as current assets	(2,036,336)	(2,612,248)	(1,064,473)	(11,567)
Non-current portion	306,407	440,414	—	—

Included in the Group’s other receivables was an amount due from CCEL of HK$1,786,743,000 (2013: HK$2,348,695,000) which was interest free and repayable on demand.

Included in the Company’s other receivables was an amount due from a subsidiary of HK$1,052,360,000 (2013: Nil) which was interest free and repayable on demand or within one year.

None of the above assets was either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

25. Inventories

	Group
	2014	2013
Raw materials	179,689	176,160
Work in progress	13,985	14,010
Finished goods	1,082,597	1,109,929
	1,276,271	1,300,099

During the year, the Chinese authorities commenced an investigation into the allegedly fraudulent multiple use of warehouse receipts in respect of certain aluminium and copper products stored at Qingdao port, China (the “ Investigation ”). The Group is not the subject of the Investigation and as at the date of this report, the Group is not aware of the status or result of the Investigation.

As 223,270 tonnes of alumina and 7,486 tonnes of copper owned by CACT, an indirect wholly-owned subsidiary of the Company, are stored in bonded warehouses at Qingdao port (the “ Inventories ”), and in light of the Investigation, CACT applied to the Qingdao Maritime Court (the “ Court ”) in June 2014 for asset protection orders to protect the Inventories and prevent their unauthorised removal from Qingdao port. The Court granted two asset protection orders for 99,824 tonnes of alumina and 7,486 tonnes of copper. The Court, however, did not grant an asset protection order in respect of 123,446 tonnes of alumina (the “ Non-protected Alumina ”).

HK$’000

31 December

114

Notes to Financial Statements

25. Inventories (continued)

Due to the unresolved nature of the Claim and the Investigation, CACT has not been able to access the bonded warehouses and therefore, there is material inherent uncertainty regarding the Inventories.

As at 31 December 2014, the Inventories had a gross carrying amount of HK$979,212,000. Since the Court did not grant an asset protection order in respect of the Non-protected Alumina and CACT has not been able to access the bonded warehouses due to the Investigation and due to the ongoing nature of the Claim, a provision of HK$319,800,000 (before tax credit) was made at the end of the year in respect of the Non-protected Alumina on a prudent basis.

The Group is confident in the merits of the Claim and no further adjustment is considered necessary for the time being to the carrying value of the Inventories.

26. Trade Receivables

	Group
	2014	2013
Trade receivables	802,749	2,050,036
Impairment	(9,411)	(11,026)
	793,338	2,039,010

The Group normally offers credit terms of 30 to 120 days to its established customers.

An aged analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of provisions, was as follows:

	Group
	2014	2013
Within one month	288,734	1,034,139
One to two months	118,953	161,329
Two to three months	103,528	448,547
Over three months	282,123	394,995
	793,338	2,039,010

HK$’000

31 December

115

Notes to Financial Statements

26. Trade Receivables (continued)

The movements in the provision for impairment of trade receivables were as follows:

	Group
	2014	2013
At 1 January	11,026	14,902
Impairment losses recognised (note 6)	9,412	11,042
Amount written back (note 6)	(11,027)	(14,916)
Exchange realignment	—	(2)
At 31 December	9,411	11,026

Included in the above provision for impairment of trade receivables is a provision for individually impaired trade receivables of HK$9,411,000 (2013: HK$11,026,000) with an aggregate carrying amount before provision of HK$9,411,000 (2013: HK$11,026,000). The individually impaired trade receivables relate to customers that were in financial difficulties and the receivables are not expected to be recovered.

An aged analysis of the trade receivables that were not considered to be impaired was as follows:

	Group
	2014	2013
Neither past due nor impaired	674,950	2,028,247
Less than one month past due	27,214	8,728
One to three months past due	88,031	863
Over three months past due	3,143	1,172
	793,338	2,039,010

Receivables that were neither past due nor impaired relate to a large number of diversified customers in respect of whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

HK$’000

31 December

116

Notes to Financial Statements

27. Derivative Financial Instruments

		Group
	2014		2013
	Assets	Liabilities	Assets	Liabilities
Forward currency contracts	13,440	24,505	36,982	—
Forward commodity contracts	10,319	—	1,835	—
Derivative financial instrument –
embedded derivative	—	81,439	—	81,439
EHA (as defined below)	—	645,951	—	15,866
	23,759	751,895	38,817	97,305
Portion classified as non-current portion:
Derivative financial instrument –
embedded derivative	—	(81,439)	—	(81,439)
EHA (as defined below)	—	(645,951)	—	(15,866)
Non-current portion	—	(727,390)	—	(97,305)
Current portion	23,759	24,505	38,817	—

Certain members of the Group entered into derivative financial instruments in the normal course of business in order to hedge their exposure to fluctuations in foreign exchange rates, commodity prices and inflation.

Forward currency contracts – cash flow hedges

The Group has transactional currency exposures. Such exposures primarily arise from sales or purchases by the Group’s import and export of commodities segment in currencies other than the functional currencies of the related entities in that segment. Therefore, to enable the Group to manage such business operations, forward currency contracts are entered into to hedge current and anticipated future sales and purchases.

The terms of the forward currency contracts were negotiated to match the terms of related purchases and sales commitments. Forward currency contracts described above are considered to be cash flow hedges and are accounted for in accordance with the accounting policies set out in note 2.4 to the financial statements.

As at 31 December, the terms of the outstanding forward currency contracts held by the Group were as follows:

		2014		2013
		Weighted		Weighted
		average	Contractual	average	Contractual
		exchange rate	amount	exchange rate	amount
Forward currency contracts:
(a)	Sell A$ / Buy US$
	Within three months	0.8706	219,648	0.9362	925,548
(b)	Buy A$ / Sell US$
	Within three months	0.8514	212,191	0.9120	357,357
	Three to twelve months	0.8413	378,979	—	—

The amounts disclosed above were measured at the contracted rates.

HK$’000

117

Notes to Financial Statements

27. Derivative Financial Instruments (continued)

Forward currency contracts – cash flow hedges (continued)

The portion of gain or loss on the hedging instruments that is determined to be an effective hedge is recognised directly in the consolidated statement of changes in equity. When a cash flow occurs, the Group adjusts the initial measurement of the component recognised in the consolidated statement of financial position by the related amount in the consolidated statement of changes in equity.

Forward commodity contracts – cash flow hedges

The Group has also committed to the following contracts in order to protect the Group from adverse movements in aluminium prices.

Forward commodity contracts are normally settled other than by physical delivery of the underlying commodities and hence are classified as financial instruments. On maturity, the forward price is compared to the spot price and the difference is applied to the contracted quantity in calculating the gain or loss of the Group under such contract.

Aluminium forward contracts are entered into for the purpose of hedging the volatility of future aluminium prices. The contracts are considered to be cash flow hedges and are accounted for in accordance with the accounting policies set out in note 2.4 to the financial statements.

As at 31 December, the terms of the Group’s outstanding forward commodity contracts were as follows:

		2014			2013
	Quantity	Average price	Contractual	Quantity	Average price	Contractual
	hedged	per tonne	amount	hedged	per tonne	amount
	tonnes	HK$		tonnes	HK$
Aluminium
forward contracts (sold):
Within three months	1,500	16,146	24,219	—	—	—
Three to twelve months	8,375	16,184	135,541	3,400	14,890	50,630

The terms of the forward commodity contracts were negotiated to match those of the underlying commitments.

HK$’000

Year ended 31 December

118

Notes to Financial Statements

27. Derivative Financial Instruments (continued)

Electricity hedge agreement – cash flow hedges

In 2010, a base load electricity contract was signed between the Group (together with the other joint venture partners of the PAS JV) and Loy Yang Power (an independent electricity supplier) (the “ EHA ”). The EHA effectively allows the PAS to secure electricity supply from 2016 through 2036 when the ESA expires in 2016. The pricing mechanism used in the EHA includes a component that is subject to certain escalation factors which, in turn, are affected by the consumer price index, producer price index and labour costs.

The cash flow hedges of expected future sales and purchases, and the EHA described above were assessed to be highly effective and a net loss of HK$581,779,000 (2013: HK$207,109,000), net of deferred tax, was included in the hedging reserve as follows:

	2014
Total fair value loss included in the hedging reserve	(689,583)
Reclassified from the consolidated statement of comprehensive income and
recognised in the consolidated income statement (note 6)	(84,145)
Deferred tax	191,949
Net loss on cash flow hedges	(581,779)

Forward commodity contracts – provisional pricing arrangements

In 2014, the Group has entered into new pricing arrangement in relation to its aluminium sales. The aluminium sale agreements provide for provisional pricing of sales at the time or after shipment, with final pricing to be based on the monthly average aluminium price of the London Metal Exchange (the “ LME ”) for specified future periods. This normally ranges from one month to five months after shipment.

The gains or losses from the mark-to-market of open sales are recognised through adjustments in the consolidated income statement and to trade receivables or payables on the consolidated statement of financial position. The Group determines the mark-to-market prices using forward prices at the end of each reporting period. As at 31 December 2014, there were 5,370 tonnes of aluminium which had been shipped and remained open as to price. The embedded derivative arising from these open sales has been recognised as a derivative financial instrument as at 31 December 2014.

The Group also enters into aluminium forward contracts to swap the floating selling price of its aluminium sold under the provisional pricing arrangements (described above) to a fixed selling price. For aluminium forward contracts that are entered into prior to the physical shipments of the aluminium, they are treated as cash flow hedges from the dates of entering into these contracts until the respective shipment dates. Thereafter, any gains or losses from these contracts (if not settled in the month of each shipment) are recognised in the consolidated income statement. For aluminium forward contracts that are entered into after the physical shipments of the aluminium, any gains or losses from these contracts are recognised directly in the consolidated income statement.

Derivative financial instrument – embedded derivative

The pricing mechanism used in the ESA includes a component that is subject to the price of aluminium. It has been determined that an embedded derivative exists and that the derivative component has been separated from its host agreement. The embedded derivative is revalued at the end of each reporting period based on future aluminium prices with its fair value gain or loss recognised in the consolidated income statement.

HK$’000

31 December

119

Notes to Financial Statements

28. Cash and Cash Equivalents

	Group		Company
	2014	2013	2014	2013
Cash and bank balances	738,877	2,696,366	27,633	8,142
Time deposits	2,507,544	4,297,673	2,462,356	4,191,504
Cash and cash equivalents *	3,246,421	6,994,039	2,489,989	4,199,646

As at 31 December 2014, the Group had a balance of HK$1,373,000 (2013: HK$20,877,000) at China CITIC Bank International Limited (“ CITIC Bank Int’l ”) and HK$1,015,000 (2013: HK$1,278,000) at China CITIC Bank Corporation Limited (“ CITIC Bank ”) while the Company had a balance of HK$356,000 (2013: HK$199,000) at CITIC Bank Int’l and HK$86,000 (2013: HK$364,000) at CITIC Bank.

Cash at banks earns interest at the rates quoted by the banks. Time deposits are placed for periods ranging from one day to three months depending on the cash requirements of the Group, and earn interest at deposit rates prevailing from time to time. The bank balances and time deposits are deposited with creditworthy banks with no recent history of default.

At the end of the reporting period, the cash and bank balances and time deposits of the Group and of the Company denominated in Renminbi (“ RMB ”) amounted to HK$1,138,310,000 (2013: HK$1,055,146,000) and HK$967,212,000 (2013: HK$989,873,000), respectively, and the cash and bank balances and time deposits of the Group denominated in Kazakhstan Tenge (“ KZT ”) amounted to HK$265,000 (2013: HK$8,952,000). Although RMB and KZT are not freely convertible into other currencies, the Group is permitted to exchange RMB and KZT for other currencies through those banks which are authorised to conduct foreign exchange business under the foreign exchange control regulations of Mainland China and Kazakhstan.

29. Accounts Payable

An aged analysis of the accounts payable as at the end of the reporting period, based on the invoice date, was as follows:

	Group
	2014	2013
Within one month	615,656	935,078
One to three months	—	—
Over three months	24,907	23,229
	640,563	958,307

The accounts payable are non-interest-bearing and are normally settled on terms of 30 to 90 days.

30. Accrued Liabilities and Other Payables

	Group		Company
	2014	2013	2014	2013
Other payables	103,135	203,822	18	9
Accruals	668,959	532,297	3,641	4,033
Deferred income	4,965	90,136	—	—
	777,059	826,255	3,659	4,042

Other payables are non-interest-bearing and have an average term of three months.

HK$’000

31 December

120

Notes to Financial Statements

30. Accrued Liabilities and Other Payables (continued)

In 2013, included in the total amount of accrued liabilities and other payables was an interest expense of HK$1,732,000 payable on a loan advanced by CITIC New Horizon Limited (“ CITIC New Horizon ”), a subsidiary of the Company’s ultimate holding company. As at 31 December 2013, the outstanding amount of the loan was US$35,000,000 (HK$273,000,000) (note 31(b)). The loan was fully prepaid during the year.

31. Bank and Other Borrowings

		Group		Company
	Notes	2014	2013	2014	2013
Bank loans – unsecured *	(a)	9,173,364	7,158,455	8,722,058	6,291,024
Other loan – unsecured *	(b)	—	273,000	—	—
		9,173,364	7,431,455	8,722,058	6,291,024

Floating rate

Notes:

(a) The unsecured bank loans include:

(i) trade finance totalling A$70,543,000 (HK$451,306,000), which is interest-bearing at the London interbank offered rates (“ LIBOR ”) (or cost of funds) plus margin; and

(ii) loans totalling US$1,118,213,000 (HK$8,722,058,000), which are interest-bearing at LIBOR plus margin and include US$14,923,000 (HK$116,403,000) from CITIC Bank Int’l.

(b) The unsecured other loan was obtained from CITIC New Horizon, which was interest-bearing at LIBOR plus 2.2% p.a. The loan was fully prepaid during the year.

	Group		Company
	2014	2013	2014	2013
Bank loans repayable:
Within one year or on demand	3,400,173	867,431	2,948,867	—
In the second year	3,086,330	2,918,612	3,086,330	2,918,612
In the third to fifth years, inclusive	2,686,861	3,372,412	2,686,861	3,372,412
	9,173,364	7,158,455	8,722,058	6,291,024
Other loan repayable:
Within one year	—	15,601	—	—
In the second year	—	15,601	—	—
In the third to fifth years, inclusive	—	241,798	—	—
	—	273,000	—	—
Total bank and other borrowings	9,173,364	7,431,455	8,722,058	6,291,024
Portion classified as current liabilities	(3,400,173)	(883,032)	(2,948,867)	—
Non-current portion	5,773,191	6,548,423	5,773,191	6,291,024

HK$’000

31 December

121

Notes to Financial Statements

32. Finance Lease Payables

The Group leases certain of its plant and machinery for its coal mine operation. The leases are classified as finance leases and have remaining lease terms ranging from one to seven years.

At the end of the reporting period, the total future minimum lease payments under finance lease payables and their present values were as follows:

Minimum lease payments 2014 2013	Present values of minimum lease payments 2014 2013
Amounts payable: Within one year 17,072 19,798 In the second year 16,505 16,955 In the third to fifth years, inclusive 30,545 41,790 Beyond five years 600 3,782	13,650 15,614 14,002 13,711 28,305 37,262 569 3,646
Total minimum finance lease payments 64,722 82,325 Future finance charges (8,196) (12,092)	56,526 70,233

Total net finance lease payables 56,526 70,233 Portion classified as current liabilities (13,650) (15,614)
Non-current portion 42,876 54,619

33. Bond Obligations

	2014	2013
Fixed rate senior notes, listed in Singapore	—	6,187,321

On 17 May 2007, CR Finance, a direct wholly-owned subsidiary of the Company, issued US$1,000,000,000 6.75% senior notes due 2014 (the “ Notes ”) at the issue price of 99.726% with interest payable semi-annually. The obligations of CR Finance under the Notes were guaranteed by the Company.

In 2013, CR Finance repurchased Notes in the principal amount of US$201,080,000 (HK$1,568,424,000) at an aggregate consideration of US$213,061,000 (HK$1,661,876,000) plus accrued interest. The Notes repurchased were cancelled and the repurchase of the Notes resulted in a one-off expense of HK$91,498,000 (note 6). In 2013, the Group also purchased certain Notes in the principal amount of US$4,664,000 (HK$36,379,000) at the prevailing market prices and recorded a loss of HK$2,052,000 in total (note 6).

On 15 May 2014, CR Finance fully redeemed the outstanding principal amount of the Notes, being US$798,920,000 (HK$6,231,576,000).

HK$’000

122

Notes to Financial Statements

34. Provisions

Group

		Provision for
		long term
		employee	Provision for	Provision for
		benefits	rehabilitation	abandonment
	Notes	and others	cost	cost	Total
At 1 January 2014		212,858	299,201	28,760	540,819
Provisions	6, 13, 16	11,276	(8,565)	(194)	2,517
Amounts utilised during the year		(120,904)	—	—	(120,904)
Re-measurement loss on
defined benefit plan		8,651	—	—	8,651
Increase in discounted amounts
arising from the passage of time	9	—	4,881	1,823	6,704
Exchange realignment		—	(64,861)	—	(64,861)
At 31 December 2014		111,881	230,656	30,389	372,926
Portion classified as current liabilities		(48,043)	(4,965)	—	(53,008)
Non-current portion		63,838	225,691	30,389	319,918

The provisions were based on estimates of future payments made by management and discounted at rates in the range of 3.3% to 4.4%. Changes in assumptions could significantly affect these estimates.

The provision for long term employee benefits represents the estimated future payments in respect of past services provided by employees. Consideration was given to expected future wages and salary levels, past record of employee departures and period of service. Expected future payments were discounted using market yields at the reporting date and currency that matched, as closely as possible, the estimated future cash flows.

The provision for rehabilitation cost represents the estimated costs of rehabilitation relating to the areas disturbed during the operation of the PAS and the coal mines in Australia at the end of their useful lives up to 2030. The Group has estimated and provided for the expected costs of removal and clean-up on a periodical basis, based on the estimates provided by the environmental authorities when they reviewed the sites.

The provision for abandonment cost represents the estimated costs of abandoning oil and gas properties. These costs are expected to be incurred upon abandoning wells and removal of equipment and facilities, as the case may be.

HK$’000

123

Notes to Financial Statements

35. Deferred Tax

The movements in the Group’s deferred tax liabilities and assets during the year were as follows:

2014

Deferred tax liabilities		Change in
	Depreciation	fair value of
	allowance	financial
	in excess of	instruments
	related	and defined
	depreciation	benefit plan	Total
At 1 January	75,748	(8,908)	66,840
Deferred tax charged to
the consolidated income statement
during the year (note 10)	32,539	—	32,539
Deferred tax credited to equity during the year	—	(194,570)	(194,570)
Exchangerealignment	(3,033)	—	(3,033)
At 31 December	105,254	(203,478)	(98,224)
Deferred tax assets		Losses available for
		offsetting against
		future	taxable profits
At 1 January			174,610
Deferred taxcharged to the consolidatedincome	statement during the year(note10)		(80,471)
At 31 December			94,139
Net deferred tax assets at 31 December			192,363
2013

Deferred tax liabilities		Change in
	Depreciation	fair value of
	allowance	financial
	in excess of	instruments
	related	and defined
	depreciation	benefit plan	Total
At 1 January (restated)	605,571	69,116	674,687
Deferred tax credited to
the consolidated income statement
during the year (note 10)	(529,823)	—	(529,823)
Deferred taxcredited to equity during the year	—	(78,024)	(78,024)
At 31 December	75,748	(8,908)	66,840
Deferred tax assets		Losses available for
			offsetting against
		future taxable profits
At 1 January			122,146
Deferred tax credited to the consolidated income	statement duringtheyear (note 10)		52,464
At 31 December			174,610
Net deferred tax assets at 31 December			107,770

HK$’000

31 December

124

Notes to Financial Statements

35. Deferred Tax (continued)

Pursuant to China Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in China. The requirement was effective from 1 January 2008 and is applied to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is an applicable tax treaty between China and the jurisdiction of the foreign investors. The Group is therefore liable for withholding tax on dividends declared by its subsidiaries established in China in respect of earnings generated from 1 January 2008 onwards.

There are no income tax consequences attaching to the payment of dividends of the Company to its shareholders.

36. Share Capital

	2014	2013
Authorised:
10,000,000,000 (2013: 10,000,000,000)
ordinary shares of HK$0.05 each	500,000	500,000
Issued and fully paid:
7,868,527,149 (2013: 7,868,527,149)
ordinary shares of HK$0.05 each	393,426	393,426

In 2013, pursuant to the exercise of share options at an exercise price of HK$1.018 per share, the Company issued a total of 2,790,000 ordinary shares of HK$0.05 each for a total cash consideration of HK$2,840,000 (before expenses). An amount of HK$614,000 was transferred from the share option reserve to the share premium account upon the exercise of the share options. The new shares rank pari passu in all respects with the then existing shares of the Company.

Share options

Details of the new share option scheme of the Company and the share options that have been granted under the Old Scheme and remained outstanding as at the end of the reporting period are set out in note 37 to the financial statements.

125

Notes to Financial Statements

37. Share Option Scheme

The Old Scheme expired on 29 June 2014. To enable the Company to continue to grant share options as an incentive or reward to eligible persons, a new share option scheme was adopted by the Company on 27 June 2014 (the “ New Scheme ”).

Pursuant to the New Scheme, the Company may grant options to eligible persons to subscribe for shares of the Company subject to the terms and conditions stipulated therein. A summary of some of the principal terms of the New Scheme is as follows:

(a) Purpose: To allow the Company (i) to be competitive and to be able to attract, retain and motivate appropriate personnel to assist the Group attain its strategic objectives by offering share options to enhance general remuneration packages; (ii) to align the interests of the directors and employees of the Group with the performance of the Company and the value of the shares; and (iii) to align the commercial interests of business associates, customers and suppliers of the Group with the interests and success of the Group.
(b) Eligible persons: The eligible persons include employees or directors of the Company or any of its subsidiaries (including their respective executive and non-executive directors), business associates and advisers who will provide or have provided services to the Group.
(c) Total number of shares available for issue: The total number of shares which may be issued upon the exercise of all outstanding options granted under the New Scheme and any other schemes of the Company shall not exceed 10% of the total number of shares of the Company in issue as at the date of adoption of the New Scheme.
(d) Maximum entitlement of each eligible person: The total number of shares issued and to be issued upon the exercise of the options granted to each eligible person (including any exercised, cancelled and outstanding options) in any 12-month period up to and including the date of grant shall not exceed 1% of the total number of shares of the Company in issue at the date of grant.
(e) Exercise period: The period during which an option may be exercised is determined by the board of directors of the Company (the “ Board ”) at its absolute discretion, except that no option may be exercised after 10 years from the date of grant.
(f) Vesting period: The minimum period for which an option must be held before it can be exercised is one year.
(g) Exercise price: The exercise price payable in respect of each share of the Company shall be not less than the greater of (i) the closing price of the shares of the Company on The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) as stated in the Stock Exchange’s daily quotations sheet on the date of grant (which must be a business day); (ii) the average closing price of the shares of the Company on the Stock Exchange as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the shares of the Company.
(h) Remaining life: The New Scheme remains in force until 26 June 2024 unless otherwise terminated in accordance with the terms stipulated therein.

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

126

Notes to Financial Statements

37. Share Option Scheme (continued)

During the years ended 31 December 2014 and 2013, the movement of share options that have been granted under the Old Scheme was as follows:

	2014	2014	2013
	Weighted average		Weighted average
	exercise price	Number of	exercise price	Number of
	per share	share options	per share share options
	HK$		HK$
At 1 January	1.770	400,000,000	1.015	35,058,779
Granted	—	—	1.770	400,000,000
Exercised	—	—	1.018	(2,790,000)
Lapsed	—	—	1.015	(32,268,779)
At 31 December	1.770	400,000,000	1.770	400,000,000

The exercise prices and exercise periods of the share options that have been granted under the Old Scheme and remained outstanding as at the end of the reporting period were as follows:

	Number of share options	Exercise price per share *	Exercise period
		HK$
2014	200,000,000	1.770	06-11-2014 to 05-11-2018
	200,000,000	1.770	06-11-2015 to 05-11-2018
	400,000,000
2013	200,000,000	1.770	06-11-2014 to 05-11-2018
	200,000,000	1.770	06-11-2015 to 05-11-2018
	400,000,000

The exercise price of the share options is subject to adjustment in case of a rights issue or bonus issue, or other similar changes in the share capital of the Company.

On 6 November 2013, the Company granted to Mr. Kwok Peter Viem, a director of the Company, share options to subscribe for 400,000,000 ordinary shares of the Company at an exercise price of HK$1.770 per share under the Old Scheme. The share options are subject to the following vesting conditions:

(i) 50% of the share options shall vest and be exercisable with effect from the first anniversary of the date of grant; and
(ii) the remaining 50% of the share options shall vest and be exercisable with effect from the second anniversary of the date of grant.

The fair values of the share options granted in 2013 were HK$2,400,000 (HK$0.012 each) and HK$9,600,000 (HK$0.048 each), respectively, based on different vesting periods. The Group recognised an equity-settled share option expense of HK$6,840,000 (2013: HK$1,080,000) during the year (note 6).

127

Notes to Financial Statements

37. Share Option Scheme (continued)

The fair values of equity-settled share options granted in 2013 were estimated as at the date of grant, using a binomial model, taking into account the terms and conditions upon which the share options were granted. The following table lists the inputs to the model used:

Dividend yield (%)	—
Expected volatility (%)	29.84
Historical volatility (%)	29.84
Risk-free interest rate (%)	2.10 – 2.63
Expected life of share options (year)	1 – 2
Weighted average share price (HK$ per share)	1.07

The expected life of the share options is not necessarily indicative of the exercise patterns that they may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the share options granted was incorporated into the measurement of fair value.

At the end of the reporting period, the Company had 400,000,000 share options outstanding under the Old Scheme. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 400,000,000 additional ordinary shares of the Company, additional share capital of HK$20,000,000 and share premium of HK$688,000,000 (before expenses).

At the date of approval of the financial statements, the Company had 400,000,000 share options outstanding under the Old Scheme, which represented 5.08% of the Company’s shares in issue as at that date.

38. Reserves

(a) Group

Movements in the Group’s reserves for the current and prior years are presented in the consolidated statement of changes in equity on pages 47 and 48 of the financial statements.

The contributed surplus of the Group represents the excess of the nominal value of the share capital of the holding company of the Group acquired by the Company pursuant to the Group reorganisation prior to the listing of the Company’s shares over the nominal value of the share capital of the Company issued in exchange therefor.

The capital reserve arose from the acquisition of shares from non-controlling shareholders of CATL.

Reserve funds represented the Group’s share of the statutory reserve and safety fund of the subsidiaries of CDH which are registered in China.

HK$’000

128

Notes to Financial Statements

38. Reserves (continued)

(b) Company

		Share		Exchange		Share
		premium	Contributed	fluctuation	Hedging	option	Accumulated
	Notes	account	surplus	reserve	reserve	reserve	losses	Total
At 1 January 2013		9,718,600	172,934	1,571	—	23,826	(1,024,083)	8,892,848
Loss for the year	11	—	—	—	—	—	(1,295,427)	(1,295,427)
Other comprehensive
income/(loss) for the year :
Cash flow hedges, net of tax		—	—	—	(2,890)	—	—	(2,890)
Exchange differences on
translation of foreign operations		—	—	255	—	—	—	255
Total comprehensive
income/(loss) for the year		—	—	255	(2,890)	—	(1,295,427)	(1,298,062)
Issue of shares
upon exercise of share options	36	3,315	—	—	—	(614)	—	2,701
Transfer of share option reserve
upon lapse of share options		—	—	—	—	(23,212)	23,212	—
Equity-settled
share option arrangements	6, 37	—	—	—	—	1,080	—	1,080
At 31 December 2013 and
1 January 2014		9,721,915	172,934	1,826	(2,890)	1,080	(2,296,298)	7,598,567
Loss for the year	11	—	—	—	—	—	(210,648)	(210,648)
Other comprehensive loss
for the year :
Cash flow hedges, net of tax		—	—	—	(20,012)	—	—	(20,012)
Exchange differences on
translation of foreign operations		—	—	(236)	—	—	—	(236)
Total comprehensive loss
for the year		—	—	(236)	(20,012)	—	(210,648)	(230,896)
Equity-settled
share option arrangements	6, 37	—	—	—	—	6,840	—	6,840
At 31 December 2014		9,721,915	172,934	1,590	(22,902)	7,920	(2,506,946)	7,374,511

The contributed surplus of the Company represents the excess of the then combined net assets of the subsidiaries acquired pursuant to the Group reorganisation detailed in note (a) above, over the nominal value of the share capital of the Company issued in exchange therefor. In accordance with the laws of Bermuda, the contributed surplus of the Company may be distributed in cash or in specie in certain prescribed circumstances.

The share option reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in share-based payments in the accounting policies set out in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or lapse.

HK$’000

129

Notes to Financial Statements

39. Acquisition of a Contractual Arrangement

On 28 March 2013, the Group completed the acquisition of an additional 7% participating interest in the CMJV from Winview Pty Limited. Subsequent to this acquisition, the Group holds a 14% participating interest in the CMJV. The total consideration of A$107,057,000 (HK$865,095,000) was settled in cash in 2013 with a final payment of A$3,000,000 (HK$19,188,000) payable when the titles of certain mining tenements have been successfully transferred. During the year, the final payment had been settled.

The fair values of the identifiable assets and liabilities employed in the contractual arrangement of the additional 7% participating interest in the CMJV as at 28 March 2013 were as follows:

		Fair value
		recognised on
	Notes	acquisition
Property, plant and equipment	13	207,814
Other assets	16	742,158
Inventories		39,596
Trade receivables		19,273
Other receivables		124,024
Cash and cash equivalents		354
Accounts payable		(16,004)
Accrued liabilities and other payables		(51,060)
Provisions		(201,060)
Total identifiable net assets at fair value		865,095
Satisfied by cash		865,095

The fair values of trade receivables and other receivables as at the acquisition date amounted to HK$19,273,000 and HK$124,024,000, respectively. The gross contractual amounts of trade receivables and other receivables were HK$19,273,000 and HK$124,024,000, respectively. No other receivables were expected to be uncollectible.

An analysis of the cash flows in respect of the acquisition of a contractual arrangement was as follows:

Cash consideration	(865,095)
Cash and bank balances acquired	354
Unpaid balance	19,188
Net outflow of cash and cash equivalents included in cash flows used in investing activities	(845,553)

Subsequent to the acquisition, the additional 7% participating interest in the CMJV contributed HK$316,321,000 to the Group’s revenue but increased the Group’s consolidated loss for the year ended 31 December 2013 by HK$41,473,000.

If such acquisition had taken place at the beginning of 2013, the Group’s revenue and the consolidated loss for the year ended 31 December 2013 would have been HK$39,421,226,000 and HK$1,620,267,000, respectively.

130

Notes to Financial Statements

40. Litigations

In addition to the litigation detailed in note 25 to the financial statements, the Group also had the following litigation during the year.

In 2011, the Kazakhstan tax authorities (the “ Tax Authorities ”) completed a tax inspection on JSC Karazhanbasmunai (“ KBM ”), a subsidiary of CCEL, for the three years from 2006 to 2008. As a result, the Tax Authorities issued a tax assessment for KZT3,149,314,000 (HK$133,619,000) on KBM, representing underpaid taxes (primarily corporate income tax (“ CIT ”) and excess profit tax (“ EPT ”)) of KZT1,688,666,000 (HK$71,647,000), administration penalty of KZT880,961,000 (HK$37,377,000) and interest on late payment of KZT579,687,000 (HK$24,595,000).

The directors, based on the advice from KBM’s legal counsel, believe KBM has justifiable arguments for its tax position. Accordingly, KBM made several appeals to the courts in 2012 and 2013 regarding this claim. As the outcome of this dispute was uncertain due to different interpretations of certain tax rules and regulations, KBM made provisions in 2011 for part of the underpaid taxes, administration penalty and interest on late payment of KZT540,379,000 (HK$22,927,000), KZT270,190,000 (HK$11,464,000) and KZT182,046,000 (HK$7,724,000), respectively.

In 2013, KBM lodged a final appeal to the Supervisory Board of the Supreme Court of Kazakhstan (the “ Supreme Court ”) and the appeal was concluded on 18 December 2013 with a favourable decision for KBM. The Supreme Court reduced the claim amount for underpaid CIT to KZT265,374,000 (HK$11,259,000). In the meantime, it ordered the Tax Department of Mangistau Region to reconsider KBM’s request to cancel the tax claim on underpaid EPT, administration penalty and interest on late payment. Accordingly, KBM wrote back a prior year overprovision on CIT of KZT330,645,000 (HK$14,029,000) in 2013.

In 2014, the claim amounts for underpaid EPT, administration penalty and interest on late payment were reduced to KZT101,608,000 (HK$4,311,000), KZT50,804,000 (HK$2,156,000) and KZT46,329,000 (HK$1,966,000), respectively. Accordingly, KBM wrote back a prior year overprovision on EPT, administration penalty and interest on late payment of KZT166,363,000 (HK$7,194,000) during the year. The case closed with final judgment from the Supreme Court in July 2014.

41. Contingent Liabilities

(a) During the year, the Tax Authorities completed a tax inspection on KBM in respect of transfer pricing for the five years from 2008 to 2012. As a result, the Tax Authorities issued a tax assessment for KZT12,263,596,000 (HK$520,320,000) on KBM, representing underpaid taxes (CIT and EPT) of KZT7,410,558,000 (HK$314,415,000), administration penalty of KZT3,705,279,000 (HK$157,208,000) and interest on late payment of KZT1,147,759,000 (HK$48,697,000).

The directors, based on the advice from KBM’s legal counsel, believe KBM has justifiable arguments for its tax position. Accordingly, KBM has applied to the State Revenue Committee of Ministry of Finance of Kazakhstan (the “ MOF ”) requesting a reconsideration. Up to the date of this report, the result was unknown. Neither KBM nor the Group has provided for any claim arising from this allegation during the year.

131

Notes to Financial Statements

41. Contingent Liabilities (continued)

(b) During the year, the Tax Authorities completed an integrated tax inspection on KBM for the four years from 2009 to 2012. As a result, the Tax Authorities issued a tax assessment for KZT4,492,047,000 (HK$190,589,000) on KBM, representing underpaid taxes (CIT and EPT) of KZT2,510,515,000 (HK$106,516,000), administration penalty of KZT1,260,597,000 (HK$53,485,000) and interest on late payment of KZT720,935,000 (HK$30,588,000). During the year, KBM made provision for the amounts it agreed on underpaid taxes, administration penalty and interest on late payment, in an aggregate amount of KZT633,851,000 (HK$27,409,000).

The directors, based on the advice from KBM’s legal counsel, believe KBM has justifiable arguments for its tax position. Accordingly, KBM has applied to the MOF requesting a reconsideration on the remaining unresolved claim amounts. Up to the date of this report, the result was unknown. During the year, neither KBM nor the Group has made provision in respect of the remaining unresolved claim amounts arising from this allegation.

(c) The Group has noted from an announcement issued by Qingdao Port International Co., Ltd. on 15 August 2014 (the “ Qingdao Port Announcement ”) that a legal complaint dated 14 July 2014 (the “ Legal Proceedings ”) had been issued by ABN AMRO Bank N.V., Singapore Branch (“ ABN AMRO ”), as plaintiff, against CACT, as defendant.

According to the Qingdao Port Announcement, among other things, ABN AMRO had issued the Legal Proceedings alleging that CACT had taken wrongful preservative measures in respect of cargo over which ABN AMRO claims it had been granted a pledge (the “ Subject Cargo ”) and is seeking an order that (i) CACT compensate ABN AMRO for a loss of RMB1,000,000 (HK$1,249,000), (ii) CACT withdraw its asset protection order over the Subject Cargo, and (iii) CACT bear all fees and legal costs of the Legal Proceedings.

As at 31 December 2014 and the date of this report, CACT has not been served with the Legal Proceedings and is, therefore, unable to consider or comment on the substance of the Legal Proceedings at the date of this report. No adjustment has been made in the financial statements with respect to the Legal Proceedings.

(d) The Group has noted from an announcement issued by 山煤國際能源集團股份有限公司 (Shanxi Coal International Energy Group Co., Ltd.) (“ Shanxi Coal International ”) on 27 August 2014 (the “ Shanxi Coal Announcement ”) that:
(i) 山煤煤炭進出口有限公司 (Shanxi Coal Import & Export Co., Ltd.) (“ Shanxi Coal I/E ”), a wholly-owned subsidiary of Shanxi Coal International, had filed a claim in 山西省高級人民法院 (Shanxi High People’s Court) against, amongst others, CACT (the “ Shanxi Coal Claim ”); and
(ii) under the Shanxi Coal Claim, Shanxi Coal I/E had claimed from CACT (i) the sum of US$89,755,000 (HK$700,089,000) plus interest for breach of contract resulting from the non-delivery of certain aluminium ingots by CACT to Shanxi Coal I/E, and (ii) costs in respect of the Shanxi Coal Claim.

The Group has also noted from the Shanxi Coal Announcement that, in connection with the Shanxi Coal Claim, Shanxi Coal I/E had obtained an asset protection order over a certain quantity of CACT’s alumina and copper stored in bonded warehouses at Qingdao port.

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Notes to Financial Statements

41. Contingent Liabilities (continued)

(d) (continued)

As at 31 December 2014 and the date of this report, CACT has not been served with the Shanxi Coal Claim and is, therefore, not in a position to assess the Shanxi Coal Claim based on the disclosures in the Shanxi Coal Announcement. However, CACT is of the view that it has performed all of its obligations under its sales contracts entered into with Shanxi Coal I/E and the Shanxi Coal Claim is without merit. Accordingly, no adjustment has been made in the financial statements with respect to the Shanxi Coal Claim.

42. Operating Lease Commitments

As at 31 December 2014 and 2013, the Group had total future minimum lease payments under non-cancellable operating leases in respect of plant and machinery, and land and buildings falling due as follows:

	Group
	2014	2013
Within one year	205,448	203,122
In the second to fifth years, inclusive	479,539	633,570
Beyond five years	99,859	190,668
	784,846	1,027,360

43. Commitments

In addition to the operating lease commitments detailed in note 42 above, as at 31 December 2014 and 2013, the Group’s share of the capital expenditure commitments was as follows:

	Group
	2014	2013
Contracted, but not provided for:
Capital expenditure in respect of infrastructure and
acquisition of items of property, plant and equipment	1,726,217	2,799,953

In prior years, a subsidiary of the Company entered into a turnkey contract for the provision of integrated drilling in the Hainan-Yuedong Block with a total contract amount of RMB3,496,000,000 (HK$4,366,854,000), of which RMB2,130,640,000 (HK$2,661,382,000) had been settled up to 31 December 2014. The contract amount is subject to the actual work confirmed by the Group and the contractor.

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Notes to Financial Statements

43. Commitments (continued)

In addition, the Group’s share of a joint venture’s capital expenditure commitments was as follows:

	Group
	2014	2013
Contracted, but not provided for:
Capital expenditure in respect of infrastructure and
acquisition of items of property, plant and equipment	93,392	58,746
Authorised, but not contracted for:
Minimum work programme	333,212	247,112

As at 31 December 2014, the Company did not have any significant commitments.

44. Related Party Transactions and Connected Transactions

In addition to the transactions and balances disclosed elsewhere in the consolidated financial statements, the Group had the following material transactions with its related parties during the year:

(a)	Group Notes 2014 2013
	Ultimate holding company: Rental expense (i) 2,412 2,341 Subsidiaries of the ultimate holding company: Rental expense (i) 3,788 3,934 Interest expense (ii) 8,443 7,827 Sale of products (iii) — 520,709 A joint venture: Rental income (iv) 5,212 3,072 Service fees income (v) 23,890 —

Notes:

(i) The rental expense was based on mutually agreed terms.
(ii) The interest expense was charged on a US$ loan at 2.2% p.a. (2013: 1.5% p.a.) over LIBOR.
(iii) The sales were made on normal commercial terms and conditions offered to the independent customers of the Group.
(iv) The rental income was based on mutually agreed terms.
(v) The service fees income was based on mutually agreed terms.

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Notes to Financial Statements

44. Related Party Transactions and Connected Transactions (continued)

(b) Details of directors’ remuneration are set out in note 7 to the financial statements.

Compensation paid to senior management personnel of the Group during the year was as follows:

	2014	2013
Salaries, allowances and benefits in kind	7,624	6,036
Bonuses	4,197	2,584
Pension scheme contributions	219	137
	12,040	8,757
Number of executives by remuneration bands:
Below HK$2,000,000	2	2
HK$2,000,001 – HK$4,000,000	2	2
HK$4,000,001 – HK$6,000,000	1	—
	5	4

(c) On 1 October 2011, the Group entered into two 5-year lease agreements with CITIC House Pty Limited, a subsidiary of the Company’s ultimate holding company, for the leasing of office premises.

On 27 December 2014, the Group entered into two 1-year lease agreements with its ultimate holding company for the leasing of office premises.

As at 31 December 2014 and 2013, the Group had total future minimum lease payments under non-cancellable operating leases with related parties falling due as follows:

	2014	2013
Within one year	5,877	6,056
In the second to fifth years, inclusive	2,735	6,848
	8,612	12,904

Except for the rental income and service fees income from a joint venture of the Group, the related party transactions disclosed above also constituted connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. Other than the sale of products to a subsidiary of the Company’s ultimate holding company, the others were fully exempted connected transactions or the fully exempted continuing connected transactions.

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Notes to Financial Statements

45. Financial Instruments by Category

The carrying amount of each of the categories of financial instruments as at the end of the reporting period were as follows:

Group – 2014

Financial assets	Financial assets at fair value through profit or loss Designated Available- as such for-sale upon initial Held for Loans and financial
	recognition trading receivables assets Total
Financial assets at fair value through profit or loss Available-for-sale investment Financial assets included in prepayments, deposits and other receivables Derivative financial instruments Trade receivables Cash and cash equivalents	2,754,717 3,029 — — 2,757,746 — — — 1,733 1,733 — — 2,016,632 — 2,016,632 — 23,759 — — 23,759 — — 793,338 — 793,338 — — 3,246,421 — 3,246,421
	2,754,717 26,788 6,056,391 1,733 8,839,629

Financial liabilities	Financial liabilities
	at fair value
	through profit or loss	Financial liabilities
	– held for trading	at amortised cost	Total
Accounts payable	—	640,563	640,563
Financial liabilities included in
accrued liabilities and
other payables	—	872,274	872,274
Derivative financial instruments	751,895	—	751,895
Bank and other borrowings	—	9,173,364	9,173,364
Finance lease payables	—	56,526	56,526
	751,895	10,742,727	11,494,622

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Notes to Financial Statements

45. Financial Instruments by Category (continued)

Group – 2013

Financial assets	Financial assets		Available-
	at fair value		for-sale
	through profit or loss	Loans and	financial
	– held for trading	receivables	assets	Total
Available-for-sale investment	—	—	1,820	1,820
Financial assets included in
prepayments, deposits and
other receivables	—	2,675,995	—	2,675,995
Derivative financial instruments	38,817	—	—	38,817
Trade receivables	—	2,039,010	—	2,039,010
Financial assets at fair value
through profit or loss	3,029	—	—	3,029
Cash and cash equivalents	—	6,994,039	—	6,994,039
	41,846	11,709,044	1,820	11,752,710
Financial liabilities	Financial liabilities
	at fair value	Financial liabilities
	through profit or loss	at amortised
	– held for trading		cost	Total
Accounts payable	—		958,307	958,307
Financial liabilities included in
accrued liabilities and
other payables	—		656,708	656,708
Derivative financial instruments	97,305		—	97,305
Bank and other borrowings	—		7,431,455	7,431,455
Finance lease payables	—		70,233	70,233
Bond obligations	—		6,187,321	6,187,321
	97,305		15,304,024	15,401,329

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Notes to Financial Statements

45. Financial Instruments by Category (continued)

Company

Financial assets	Loans and receivables	Loans and receivables
	2014	2013
Financial assets included in
prepayments, deposits and other receivables	1,064,321	11,418
Cash and cash equivalents	2,489,989	4,199,646
	3,554,310	4,211,064
Financial liabilities	Financial liabilities at amortised cost
	2014	2013
Due to subsidiaries	3,381,574	2,776,509
Financial liabilities included in
accrued liabilities and other payables	2,526	2,882
Bank borrowings	8,722,058	6,291,024
	12,106,158	9,070,415

46. Fair Value and Fair Value Hierarchy of Financial Instruments

The carrying amounts and fair values of the Group’s and the Company’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, were as follows:

Group	Carrying	amounts	Fair	values
	2014	2013	2014	2013
Financial assets
Financial assets at fair value
through profit or loss	2,757,746	3,029	2,757,746	3,029
Available-for-sale investment	1,733	1,820	1,733	1,820
Derivative financial instruments	23,759	38,817	23,759	38,817
	2,783,238	43,666	2,783,238	43,666
Financial liabilities
Derivative financial instruments	751,895	97,305	751,895	97,305
Bank and other borrowings	9,173,364	7,431,455	9,171,371	7,444,412
Finance lease payables	56,526	70,233	53,851	67,263
Bond obligations	—	6,187,321	—	6,299,536
	9,981,785	13,786,314	9,977,117	13,908,516

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Notes to Financial Statements

46. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

Company	Carrying	amounts	Fair values
	2014	2013	2014	2013
Financial liabilities
Bank borrowings	8,722,058	6,291,024	8,720,065	6,305,863

The fair values of cash and cash equivalents, trade receivables, financial assets included in prepayments, deposits and other receivables, accounts payable, financial liabilities included in accrued liabilities and other payables approximate to their carrying amounts largely due to the short term maturities of these instruments.

The Company and each of its principal subsidiaries are responsible for their own fair value measurement of financial instruments. The finance team of the Company is responsible for the review and calibration of the parameters of the valuation processes. The valuation processes and results are discussed with the chief financial officer twice a year for interim and annual financial reporting purposes.

The fair values of the financial assets and liabilities are stated in the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values.

(a) The fair values of listed equity investments and listed debt instruments were determined based on quoted prices in active markets as at the end of each reporting period without any deduction of transaction costs.
(b) The fair values of bank and other borrowings as well as finance lease payables were calculated by discounting the expected future cash flows using rates currently available for instruments which had similar terms, credit risk and remaining maturities. The Group’s own non-performance risk for bank and other borrowings as well as finance lease payables as at 31 December 2014 was assessed to be insignificant.
(c) The Group enters into derivative financial instruments with various counterparties, principally financial institutions with high credit quality. Derivative financial instruments, including forward currency contracts, forward commodity contracts, embedded derivatives in provisional pricing arrangements and the ESA, and the EHA, are measured using valuation techniques similar to forward pricing and discounted cash flow model, which means using present value calculations. These valuation techniques use both observable and unobservable market inputs. The fair values of forward currency contracts, forward commodity contracts, embedded derivatives in provisional pricing arrangements and the ESA, and the EHA were the same as their carrying amounts.
(i) The fair values of forward currency contracts, forward commodity contracts and embedded derivative in provisional pricing arrangements were based on valuation techniques using significant observable market inputs and insignificant unobservable market inputs.
(ii) The fair values of the ESA, the EHA and other investments that did not have an active market were based on valuation techniques using significant unobservable market inputs.

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Notes to Financial Statements

46. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

Below is a summary of significant unobservable inputs to the valuation of financial instruments together with a quantitative sensitivity analysis as at 31 December 2014 and 2013:

Derivative financial Instruments
	Significant
	unobservable	Range
Valuation techniques	inputs	2014	2013	Sensitivity of fair value to the changes in input
Embedded derivative – ESA
Discounted cash flow method	Weighted average	2.88%	4.94%	1% increase (decrease) in WACC would result in
	cost of capital	to	to	a decrease (an increase) in fair value by
	(“WACC”)	4.88%	6.94%	HK$887,000 (HK$908,000)
				(2013: HK$1,464,000 (HK$1,838,000))
EHA
Discounted cash flow method	WACC	5.69%	7.17%	1% increase (decrease) in WACC would result in
		to	to	a decrease (an increase) in fair value by
		7.69%	9.17%	HK$28,707,000 (HK$36,954,000)
				(2013: HK$92,465,000 (HK$30,211,000))
	Inflation rate	1.54%	1.50%	1% increase (decrease) in inflation rate would result in
		to	to	a decrease (an increase) in fair value by
		3.54%	3.50%	HK$22,222,000 (HK$14,543,000)
				(2013: HK$108,114,000(HK$23,126,000))

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:

Assets measured at fair value:

Group

	Fair value measurement using quoted prices significant significant in active observable unobservable markets inputs inputs
	(Level 1) (Level 2) (Level 3) Total
2014 Financial assets at fair value through profit or loss Available-for-sale investment: Listed equity investment Derivative financial instruments	2,757,746 — — 2,757,746 1,733 — — 1,733 — 23,759 — 23,759
	2,759,479 23,759 — 2,783,238
2013 Financial assets at fair value through profit or loss Available-for-sale investment: Listed equity investment Derivative financial instruments	3,029 — — 3,029 1,820 — — 1,820 — 38,817 — 38,817
	4,849 38,817 — 43,666

The Company did not have any financial assets measured at fair value as at 31 December 2014 and 2013.

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Notes to Financial Statements

46. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

Fair value hierarchy (continued)

Liabilities measured at fair value:

Group

	Fair value measurement using quoted prices significant significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total

2014 Derivative financial instruments	— 24,505 727,390 751,895
2013 Derivative financial instruments	— — 97,305 97,305

The movements in fair value measurements in Level 3 during the year were as follows:

Derivative financial instruments	2014	2013
At 1 January	97,305	195,907
Total gains recognised in the consolidated income statement	—	(114,468)
Total losses recognised in
the consolidated statement of comprehensive income	630,085	15,866
At 31 December	727,390	97,305

Company

The Company did not have any financial liabilities measured at fair value as at 31 December 2014 and 2013.

During the year, the Group did not have any transfer of fair value measurements between Level 1 and Level 2 nor any transfers into or out of Level 3 for both financial assets and financial liabilities (2013: Nil).

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Notes to Financial Statements

46. Fair Value and Fair Value Hierarchy of Financial Instruments (continued)

Fair value hierarchy (continued)

Liabilities for which fair values are disclosed:

Group

	Fair value measurement using quoted prices significant significant in active observable unobservable markets inputs inputs
	(Level 1) (Level 2) (Level 3) Total
2014 Bank and other borrowings Finance lease payables	— 9,171,371 — 9,171,371 — 53,851 — 53,851
	— 9,225,222 — 9,225,222
2013 Bank and other borrowings Finance lease payables Bond obligations	— 7,444,412 — 7,444,412 — 67,263 — 67,263 6,299,536 — — 6,299,536
	6,299,536 7,511,675 — 13,811,211

Company

	Fair value measurement using quoted prices significant significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total

2014 Bank borrowings	— 8,720,065 — 8,720,065
2013 Bank borrowings	— 6,305,863 — 6,305,863

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Notes to Financial Statements

47. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments, other than derivatives, comprise bank and other borrowings, finance lease payables, bond obligations, and cash and cash equivalents. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities, such as trade receivables and accounts payable, which arise directly from its operations.

The Group also enters into derivative transactions, including principally forward currency contracts, forward commodity contracts, embedded derivatives in provisional pricing arrangements and the ESA, and the EHA. Their purpose is to manage the foreign currency risk, price risk and inflation risk arising from the Group’s operations and its sources of finance. Details of the derivative financial instruments are set out in note 27 to the financial statements.

It is, and has been throughout the year, the Group’s policy that trading in financial instruments shall be undertaken with due care.

The main risks arising from the Group’s financial instruments are foreign currency risk, price risk, interest rate risk, inflation risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. The Group assesses the respective exposures of each of its operating units and enters into forward currency contracts of appropriate amounts to hedge those exposures. The forward currency contracts must be in the same currency as that of the hedged item. It is the Group’s policy not to enter into forward contracts until a firm commitment is in place.

It is the Group’s policy to negotiate the terms of hedge derivatives to match the terms of the hedged item to maximise the effectiveness of the hedge.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in exchange rates to which the Group had significant exposure (with all other variables held constant).

	Increase /	Increase /	Increase /
	(decrease) in	(decrease) in	(decrease) in
	US$ rate	profit before tax	equity
	%
2014
If US$ weakens against A$	(10)	275,293	308,763
If US$ strengthens against A$	10	(275,293)	(317,983)
	Increase /	Decrease /	Increase /
	(decrease) in	(increase) in	(decrease) in
	US$ rate	loss before tax	equity
	%
2013
If US$ weakens against A$	(10)	255,583	248,399
If US$ strengthens against A$	10	(255,583)	(248,188)

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Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Price risk

The Group is exposed to share price risk and commodity price risk.

Listed investments

As at 31 December 2013, the Group had an equity interest in Toro Energy Limited listed on the ASX. As at 31 December 2014, besides this, the Group also had an equity interest in AWC listed on the ASX. At the end of each reporting period, these listed investments are required to be marked to fair value.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in share prices of the Group’s listed investments (with all other variables held constant).

	Increase /	Increase /	Increase /
	(decrease) in	(decrease) in	(decrease) in
	listed share prices	profit before tax	equity
	%
2014
Available-for-sale investment	(10)	—	(172)
Available-for-sale investment	10	—	172
Financial assets at fair value
through profit or loss	(10)	(275,472)	(275,472)
Financial assets at fair value
through profit or loss	10	275,472	275,472
	Increase /	Decrease /	Increase /
	(decrease) in	(increase) in	(decrease) in
	listed share prices	loss before tax	equity
	%
2013
Available-for-sale investment	(10)	—	(179)
Available-for-sale investment	10	—	179

Aluminium

Aluminium is a globally traded base metal. The Group enters into sale and supply contracts with its customers where the prices are negotiated by referencing and linking to the aluminium prices traded on the LME. Aluminium prices quoted on the LME are determined by market forces. The Group is therefore exposed to price risk influenced by changing market conditions. The Group mitigates such risk by entering into commodity derivatives to hedge against future adverse price changes. These financial instruments are considered to be cash flow hedges.

Management actively reviews the market sentiment and trend with references to expert views and forecasts. At management’s discretion and judgement, derivatives are entered into to lock in favourable prices to hedge portions of the Group’s future sales and thus to mitigate adverse price risks.

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Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Price risk (continued)

Aluminium (continued)

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in market prices of aluminium (with all other variables held constant).

	Increase /	Increase /	Increase /
	(decrease) in	(decrease) in	(decrease) in
	LME aluminium price	profit before tax	equity
	%
2014
Forward commodity contracts	(10)	(70)	8,455
Forward commoditycontracts	10	70	(8,408)

	Increase /	Decrease /	Increase /
	(decrease) in	(increase) in	(decrease) in
	LME aluminium price	loss before tax	equity
	%
2013
Forward commodity contracts	(10)	—	507
Forward commoditycontracts	10	—	(507)

Embedded derivatives

The pricing mechanism used in the ESA includes a component that is subject to the price of aluminium. The component is considered an embedded derivative. The embedded derivative is revalued at the end of each reporting period based on future aluminium prices.

Besides, the Group’s new provisional pricing arrangements over the sales of aluminium also contain an embedded derivative which is required to be separated from the host contract. The host contract is the sale of aluminium at the provisional invoice price and the embedded derivative is the forward contract for which the provisional sale is subsequently adjusted.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in market prices of aluminium (with all other variables held constant).

	Increase /	Increase /	Increase /
	(decrease) in	(Decrease) in	(decrease) in
	LME aluminium price	profit before tax	equity
	%
2014
Embedded derivatives	(10)	46,979	46,979
Embedded derivatives	10	(49,561)	(49,561)

	Increase /	Decrease /	Increase /
	(decrease) in	(increase) in	(decrease) in
	LME aluminium price	loss before tax	equity
	%
2013
Embedded derivative	(10)	67,267	67,267
Embedded derivative	10	(66,791)	(66,791)

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Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Interest rate risk

The Group’s exposure to the risk of changes in interest rates relates primarily to the Group’s floating rate United States dollar (“ US$ ”) debts.

The Group’s policy is to manage its interest expenses using a mix of fixed and floating rate debts with respect to the prevailing interest rate environment. To manage this mix in a cost-effective manner, the Group may enter into interest rate swap contracts, in which the Group agrees to exchange, at specified intervals, the difference between fixed and floating rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swap contracts are designated to hedge the underlying debt obligations.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity as well as the Company’s equity in response to changes in interest rates of the Group’s floating rate US$ debts (with all other variables held constant).

	Group Increase / Increase / Increase / (decrease) in (decrease) in (decrease) in interest rate profit before tax equity basis points	Company Increase / Increase / (decrease) in (decrease) in interest rate equity basis points

2014 US$ debts US$ debts	(100) 88,140 88,140 100 (88,140) (88,140)	(100) 88,140 100 (88,140)

	Group Increase / Decrease / Increase / (decrease) in (increase) in (decrease) in interest rate loss before tax equity basis points	Company Increase / Increase / (decrease) in (decrease) in interest rate equity basis points
2013 US$ debts US$ debts	(100) 73,886 70,908 100 (73,886) (70,908)	(100) 63,960 100 (63,960)

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Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Inflation risk

The Group entered into the EHA to secure a stable supply of electricity to the PAS from 2016 through 2036. The pricing mechanism used in the EHA includes a component that is subject to certain escalating factors which, in turn, are affected by the consumer price index, producer price index and labour costs. Therefore, the Group is exposed to inflation risk.

The following table demonstrates the sensitivity of the Group’s profit/(loss) before tax and equity in response to changes in inflation rate (with all other variables held constant).

	Increase /	Increase /	Increase /
	(decrease) in	(decrease) in	(decrease) in
	inflation rate	profit before tax	equity
	%
2014
EHA	(1)	—	22,222
EHA	1	—	(14,547)
	Increase /	Decrease /	Increase /
	(decrease) in	(increase) in	(decrease) in
	inflation rate	loss before tax	equity
	%
2013
EHA	(1)	—	23,127
EHA	1	—	(108,116)

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the head of credit control.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, available-for-sale investment, certain other receivables and derivative financial instruments, arises from default of the counterparties with a maximum exposure equal to the carrying amount of these instruments.

Since the Group trades only with recognised and creditworthy third parties, collateral is usually not required. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed in different sectors and industries.

Quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables is set out in note 26 to the financial statements.

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Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g. trade receivables) and projected cash flows from operations.

The Group’s objectives are to maintain an optimal balance of cash holding and funding through the use of bank loans and other interest-bearing loans, to maintain liquidity and to maximise return to shareholders. As at 31 December 2014, 37.0% (2013: 51.8%) of the Group’s debts would mature within one year based on the carrying value of the debts reflected in the financial statements.

The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, was as follows:

Group

	On	Less than	3 to 12	Over
	demand	3 months	months	1 year	Total
2014
Accounts payable	24,907	615,656	—	—	640,563
Financial liabilities included in
accrued liabilities and other payables	1,124	—	755,459	113,469	870,052
Derivative financial instruments	—	21,612	2,893	727,390	751,895
Bank and other borrowings	—	—	3,620,231	6,049,921	9,670,152
Finance lease payables	—	—	17,072	47,650	64,722
	26,031	637,268	4,395,655	6,938,430	11,997,384
2013
Accounts payable	23,229	935,078	—	—	958,307
Financial liabilities included in
accrued liabilities and other payables	1,124	—	552,363	46,064	599,551
Derivative financial instruments	—	—	—	97,305	97,305
Bank and other borrowings	—	878,336	181,812	6,889,819	7,949,967
Finance lease payables	—	—	19,798	62,527	82,325
Bond obligations	—	—	6,441,896	—	6,441,896
	24,353	1,813,414	7,195,869	7,095,715	16,129,351

HK$’000

31 December

148

Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Liquidity risk (continued)

Company

	On	Less than	3 to 12	Over
	demand	3 months	months	1 year	Total
2014
Due to subsidiaries	3,381,574	—	—	—	3,381,574
Financial liabilities included in
accrued liabilities and other payables	2,526	—	—	—	2,526
Bank borrowings	—	—	3,157,462	6,049,921	9,207,383
	3,384,100	—	3,157,462	6,049,921	12,591,483
2013
Due to subsidiaries	2,776,509	—	—	—	2,776,509
Financial liabilities included in
accrued liabilities and other payables	2,882	—	—	—	2,882
Bank borrowings	—	2,578	161,203	6,611,993	6,775,774
	2,779,391	2,578	161,203	6,611,993	9,555,165

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its businesses and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

The Group monitors capital with the inclusion of the parameter of liquidity by using the ratio of net debt to net total capital. Net debt is total debt less cash and cash equivalents while net total capital is equity attributable to shareholders of the Company plus net debt. The Group’s current objective is to maintain this ratio at a reasonable level.

HK$’000

31 December

149

Notes to Financial Statements

47. Financial Risk Management Objectives and Policies (continued)

Capital management (continued)

The ratio of net debt to net total capital as at the end of the reporting period was as follows:

	2014	2013
Bank and other borrowings	9,173,364	7,431,455
Finance lease payables	56,526	70,233
Bond obligations	—	6,187,321
Less: Cash and cash equivalents	(3,246,421)	(6,994,039)
Net debt	5,983,469	6,694,970
Equity attributable to shareholders of the Company	10,867,117	11,667,692
Add: Net debt	5,983,469	6,694,970
Net total capital	16,850,586	18,362,662
Net debt to net total capital	35.5%	36.5%

48. Approval of the Financial Statements

The financial statements were approved and authorised for issue by the Board on 13 February 2015.

150

Five-Year Financial Summary

A summary of the results and of the assets, liabilities and non-controlling interests of the Group for the past five financial years, as extracted from the published audited financial statements and restated/reclassified as appropriate, is set out below. This summary does not form part of the audited financial statements.

Results HK$’000

		Year	ended 31 December	ended 31 December
	2014	2013	2012	2011	2010
			Restated	Restated	Restated
Revenue	17,805,124	39,319,183	42,747,432	33,160,471	28,661,263
Profit/(loss) before tax	384,149	(2,130,724)	(1,095,686)	3,269,418	1,260,762
Income tax credit/(expense)	(113,734)	527,870	(205,263)	(1,184,842)	(103,988)
Profit/(loss)for theyear	270,415	(1,602,854)	(1,300,949)	2,084,576	1,156,774
Attibutable to:
Shareholders of the Company	223,830	(1,465,436)	(1,283,923)	2,099,223	1,101,660
Non-controllinginterests	46,585	(137,418)	(17,026)	(14,647)	55,114
	270,415	(1,602,854)	(1,300,949)	2,084,576	1,156,774

Assets, Liabilities and Non-controlling Interests

HK$’000

			31 December
	2014	2013	2012	2011	2010
			Restated	Restated	Restated
Non-current assets	15,400,648	14,682,606	11,661,540	12,151,903	14,207,429
Current assets	7,379,527	13,203,375	14,645,972	17,762,946	9,976,040
Total assets	22,780,175	27,885,981	26,307,512	29,914,849	24,183,469
Current liabilities	4,908,958	8,947,341	2,652,164	5,026,669	2,444,627
Non-current liabilities	6,976,845	7,277,258	10,308,634	10,469,074	11,425,276
Total liabilities	11,885,803	16,224,599	12,960,798	15,495,743	13,869,903
Non-controllinginterests	27,255	(6,310)	118,544	132,830	135,920
Equity attributable to
shareholders of the Company	10,867,117	11,667,692	13,228,170	14,286,276	10,177,646

Reserve Quantities Information

Proved Oil Reserves Estimates (unaudited)

million barrels

2014	Indonesia	China	Kazakhstan	Total
	(51%)	(100%)	(50%)
At 1 January	3.1	22.4	131.3	156.8
Revision	(0.2)	5.4	0.9	6.1
Production	(0.5)	(2.3)	(7.1)	(9.9)
At 31 December	2.4	25.5	125.1	153.0

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Investor Relations Contact

Suites 3001-3006, 30/F, One Pacific Place, 88 Queensway, Hong Kong Attention : Investor Relations Department Telephone : (852) 2899 8200 Facsimile : (852) 2815 9723 E-mail : [email protected]

投資者關係聯絡

香港金鐘道 88 號太古廣場一座 30 樓 3001-3006 室聯絡 : 投資者關係部電話 : (852) 2899 8200 傳真 : (852) 2815 9723 電郵 : [email protected]

http://www.citicresources.com

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http://www.irasia.com/listco/hk/citicresources

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AI assistant

Shanghai Able Digital Science&Tech Co., Ltd. — Annual Report 2014

50757_rns_2015-03-30_966cc225-a38d-4b12-82fa-386e6f77b29f.pdf

Coal

Oil

Aluminium

Contents

目錄

41 獨立核數師報告

Corporate Information

Board of Directors

Executive Directors

Non-executive Directors

Independent Non-executive Directors

Audit Committee

Company Secretary

Registered Office

Head Office and Principal Place of Business

Hong Kong Branch Share Registrar and Transfer Office

Remuneration Committee

Auditors

Nomination Committee

Principal Bankers

Chairman’s Statement

Financial Results

Business Review

Crude oil

Chairman’s Statement

Coal

Metals

Chairman’s Statement

Import and export of commodities

Chairman’s Statement

Financial Management

Outlook

Board Members Changes

Chairman’s Statement

Appreciation

Management’s Discussion and Analysis

Financial Review

Group’s financial results:

HK$’000

Operating results and ratios

Financial position and ratios

Management’s Discussion and Analysis

Aluminium smelting

Management’s Discussion and Analysis

Coal

Import and export of commodities

Management’s Discussion and Analysis

Management’s Discussion and Analysis

Crude oil (the Seram Island Non-Bula Block, Indonesia)

Management’s Discussion and Analysis

Crude oil (the Hainan-Yuedong Block, China)

Management’s Discussion and Analysis

Manganese

Management’s Discussion and Analysis

Bauxite mining and alumina refining

Crude oil (the Karazhanbas oilfield, Kazakhstan)

Management’s Discussion and Analysis

Management’s Discussion and Analysis

Liquidity, Financial Resources and Capital Structure

Cash

Borrowings

Management’s Discussion and Analysis

Share capital

Financial risk management

New investment

Opinion

Management’s Discussion and Analysis

Employees and Remuneration Policies

Board of Directors and Senior Management

Directors

Directors – Biographies

Board of Directors and Senior Management

Board of Directors and Senior Management

Senior Management – Biographies

Corporate Governance Report

Compliance with the Corporate Governance Code

Model Code for Securities Transactions by Directors

Shanghai Able Digital Science&Tech Co., Ltd. Annual Report 2014