Year 2016

The Group’s results for the year ended 31 December 2016 were mainly derived from its business in property development and investment.

According to the information of the National Bureau of Statistics of China, the preliminary figure of the national gross domestic product (“GDP”) for 2016 has a year-on-year increase of approximately 6.7%, and the nominal disposable income per capita increased by 8.4% as compared to that of last year. This coupled with the decrease in lending rate by the People’s Bank of China in 2015 and a relative high growth rate of money supply, the property prices in the PRC generally recorded a certain increase in 2016. According to the price index of newly built residential properties in 70 large to mid-sized cities in December 2016, the residential price index of Guangzhou had an increase of approximately 24.1% and that of Shenzhen had an increase of approximately 23.5% as compared to the same month of last year.

Results


The consolidated revenue of the Group for 2016 amounted to HK$1,092 million (2015: HK$858 million), representing an increase of approximately 27.3% from last year. The increase in revenue was mainly derived from the satisfactory sale results of the Ruyingju Project in 2016, with an increase in both gross floor area sold and average selling price. During the year under review, the Group’s profit attributable to owners of the Company was HK$17.73 million (2015: HK$175 million), representing a decrease of approximately 89.9% from last year.

Reference is made to the Company’s 2015 annual report, where it was disclosed that the Group recorded a combined gain in an aggregate amount of approximately HK$319 million due to three non-operating gain items, comprising (i) the acquisition of the 100% equity interest in Triumphant Success Limited and its subsidiaries, resulting in the recognition of a gain on bargain purchase of approximately HK$234 million; (ii) a foreign exchange gain on the release of exchange reserve of approximately HK$48 million upon settlement of inter-company balances between the Company and a subsidiary; and (iii) the imputed interest income arising from long-term receivables of approximately HK$37 million. If the combined effect of the abovementioned three non-operating gain items was excluded, the Group would have recorded a loss attributable to owners of the Company of approximately HK$144 million for the year ended 31 December 2015. The non-operating gains under items (i) and (ii) above were of a one-off nature. Further, as mentioned in the Management Discussion and Analysis section in the Company’s 2015 annual report, the said imputed interest income (i.e. item (iii) above) would not occur in 2016. For the year ended 31 December 2016, the Group did not record the above-mentioned three non-operating gains.

Business Review

The Buxin Project


The Group holds a 100% interest in the Buxin Project, which is a multi-functional commercial complex with jewellery as the main theme, located in Buxin Area, Luohu, Shenzhen, the PRC. In June 2016, the Group entered into land use right transfer agreements with the Shenzhen City Luohu District Urban Renewal Authority with an aggregate consideration of approximately RMB2,267 million (equivalent to approximately HK$2,683 million). The total site area of such land amounted to approximately 66,526 sq. m., and the gross floor area included in the calculation of plot ratio amounted to approximately 432,051 sq. m. In addition, an underground area of 30,000 sq. m. will be developed for commercial use. Please refer to the circular of the Company dated on 22 June 2016 for details.

The construction permit for the land pile works of the Northwestern Land of the Buxin Project within the first phase of the development was obtained in December 2016, and the construction commenced at the end of 2016. During the year under review, the Group continued identifying and visiting potential customers taking into consideration of the market positioning of the Buxin Project with a view to preparing for the introduction of customers when the properties are available.

As at 31 December 2016, the cumulative development costs and fees of the Buxin Project amounted to approximately HK$2,666 million (2015: HK$97 million), representing a net increase of approximately HK$2,569 million during the period under review. The net increase was mainly attributable to the land premium incurred for the relevant land use rights under the Buxin Project during the year under review. As at 31 December 2016, approximately HK$1,634 million and HK$1,032 million were attributable to the “Properties under development” under the current assets and the “Investment properties” under the non- current assets, respectively.

The Ruyingju Project


The Group holds an 80% interest in the Ruyingju Project, which is located in Panyu, Guangzhou, the PRC, with the gross floor area of approximately 127,597 sq. m. The Ruyingju Project including residential units and car-parking spaces was completed in November 2015. For the year ended 31 December 2016, sale contracts of residential units under the Ruyingju Project with an aggregate gross floor area of approximately 30,962 sq. m. were signed (2015: approximately 55,013 sq. m.), representing a decrease of 43.7% from last year. The accumulated gross floor area of sale contracts signed represented approximately 91.4% of the total saleable area of the residential units.

For the year ended 31 December 2016, the Group delivered the residential units with the gross floor area of approximately 45,959 sq. m. (2015: 39,257 sq. m.), representing an increase of 17.1% from last year. The accumulated gross floor area of the units sold represented approximately 90.6% of the total saleable area of the residential units.

During the year under review, in respect of delivered residential units, the average contract selling price in Renminbi increased by approximately 15.6% over that of 2015. The sales performance of the Ruyingju Project was satisfactory, which contributed to the Group’s consolidated revenue and results.

The Group acquired the equity interest in the Ruyingju Project in April 2015. As a result, the Group recorded a gain on bargain purchase of HK$234 million in 2015. Most of the gain on acquisition of the Ruyingju Project was recognised under the gain on bargain purchase in the consolidated statement of profit or loss for 2015. As the acquisition price paid was determined with reference to the then market value of the Ruyingju Project (but at a discount), the carrying value (and future selling cost) of the Ruyingju properties consists of its development costs and the fair value increases as of the completion date of acquisition.

Other Business


In respect of the completion of the transactions related to the disposal of the equity interests in nine previous subsidiaries that engaged in the brewery business in 2013, the Group received the remaining balances of the consideration for the disposal transactions of the equity interests according to the relevant agreement during the year under review.

During the year under review, the Group recorded an aggregate gain of HK$4.82 million (2015: HK$36.45 million, including the gain from the sale of assets held for sale) from the disposal of certain property, plant and equipment, including staff quarters.

Financial Review

Key Financial Ratios


The key financial ratios mainly reflect the Group’s results and the annual rate of return on equity during the year under review, and the net assets at the end of the reporting date. Comparative ratios in the last year were provided.

   

Year ended 31 December

 

Note

2016

2015

Change

Profit attributable to owners of the Company, in HK$’000

 

17,734

174,773

-89.9%

Return on equity,%  

1

0.4%

4.0%

-90.0%

   

2016
31 December

2015
31 December

 

Net assets, in million HK$

 

4,333

4,610

-6.0%


Note: 1. Return on equity = Profit attributable to owners of the Company / Average equity attributable to owners of the Company

During the year under review, due to the lack of non-operating income items, the profit attributable to owners of the Company and the return on equity decreased from last year. If the aggregate effect of the three non-operating income items mentioned in the “Results” of approximately HK$319 million recorded in 2015 were removed, the Group’s two key financial ratios for 2016, being the profit attributable to owners of the Company and return on equity, were better than that of the last year. The Group’s business and most of its assets are denominated in Renminbi. The depreciation of Renminbi against Hong Kong dollar in 2016 was the main reason for the decrease in the Group’s net assets presented in HK$.

Operating Income, Expenses and Finance Costs


During the year under review, the Group recorded an aggregate interest income from bank and an available-for-sale financial asset of HK$73.44 million (2015: HK$136 million), representing a decrease of approximately 46.0% from last year. The decrease in interest income in 2016 was mainly due to the decrease in the Renminbi deposit interest rate and bank deposits of the Group.

The consolidated financial statements of the Group were presented in Hong Kong dollar and the changes in the exchange rate of Hong Kong dollar against the Renminbi would affect foreign exchange differences upon currency revaluation. The foreign exchange differences in respect of the Group’s Renminbi deposit placed in Hong Kong were recognised in the statement of profit or loss when incurred. During the year under review, the Group recorded an exchange loss of HK$32.31 million (2015: HK$214 million), representing a decrease of approximately 84.9% from last year. In 2016, the amount of net foreign exchange losses recorded decreased significantly year-on-year as the Group injected most of its RMB deposits previously held in Hong Kong into its subsidiary in the PRC which is responsible for the development of the Buxin Project, which reduced the impact of the change in exchange rate to the Group’s consolidated statement of profit or loss. Following the development of the Group’s Buxin Project, the Group will further inject funds into the project. It is expected that the impact of the change in exchange rate of Hong Kong dollar against Renminbi on the Group’s consolidated statement of profit or loss will be gradually reduced.

The Group’s selling and distribution expenses for 2016 amounted to HK$13.55 million (2015: HK$10.14 million), representing an increase of approximately 33.6% from the last year, associated with the sale of the Ruyingju residential properties. The Group’s administrative expenses for 2016 amounted to HK$72.73 million (2015: HK$69.46 million), representing an increase of approximately 4.7% from the last year. The increase in the administrative expenses was mainly due to the rise in wage costs and related expenses in the year.

During the year under review, the Group did not record any financing costs for borrowing any bank loans. In last year, a subsidiary of the Company had bank loans from banks, the interest on which of HK$7.73 million was all capitalized. Therefore, the Group did not have any financing cost during the last year.

Capital Expenditure


The Group’s general capital expenditure paid in 2016 was approximately HK$480 million (2015: HK$4.31 million). The increase was mainly due to the acquisition transactions of land use rights of the Buxin Project.

Financial Resources and Liquidity


As at 31 December 2016, the equity attributable to owners of the Company was HK$4.19 billion (2015: HK$4.43 billion), representing a decrease of approximately 5.4% over that in 2015. Based on the number of shares in issue as at 31 December 2016, the net asset value per share of the Company at the end of the year was HK$2.45 (2015: HK$2.59) per share, representing a decrease of approximately 5.4% over that in 2015.

As at 31 December 2016, the Group had cash and bank balances of HK$2.97 billion (2015: HK$3.68 billion), representing a year-on-year decrease of approximately 19.3%. The aforementioned amount included restricted bank balances of HK$563 million (2015: HK$470 million) principally associated with an amount received from the sales but yet delivery of the Ruyingju Project. Of the Group’s cash and bank balances as at 31 December 2016, 94.0% was in RMB, 5.9% was in USD and 0.1% in HKD. Net cash flows used in operating activities for the year were HK$278 million (2015: Net cash flows generated from operating activities of HK$532 million).

As most of the transactions from the Group’s PRC daily operations are denominated in Renminbi, currency exposure from these transactions is low. During the year under review, the Group did not perform currency hedge for such transactions.

As at 31 December 2016, the Group did not have any outstanding bank loan. Given the construction works of the Northwestern Land of the Buxin Project within the first phase of the development will be in full swing in 2017, the Group will review its funding needs according to progress of business development from time to time so as to ensure that adequate financial resources will be available to support its business development.

None of the assets of the Group was pledged to any creditors at the end of 2016. Except for the disclosure in note 27 to the financial statements regarding the guarantees made to certain banks in relation to the mortgage of the sold property of approximately HK$914 million (2015: HK$536 million) at the end of 2016 and undertakings made in the master sales agreement relating to the disposal of brewery subsidiaries, there was no material contingent liability recorded as at the end of 2016.

Risks and Uncertainties


Given that the Group is engaged in property development and investment in Mainland China, risks and uncertainties of its business are principally associated with property market and property prices in Mainland China, and the Group’s revenue in the future will be directly affected by such risks and uncertainties. Property market in Mainland China is affected by a number of factors which include, inter alia, economic environment, property supply and demand, fiscal and monetary and taxation policies of the PRC government and austerity measures of real estate sector, etc. The GDP of Mainland China has maintained a year-on-year growth though the growth rate has been slowed down gradually. Currently, the property projects of the Group are all located in tier-1 cities with different categories and usage, effectively diversifying operational risks.

The Buxin Project in Shenzhen has a relatively prolonged development period, and the Company may seek external fund to partially finance its development. As such, the financing channels and financing costs will be subject to the prevailing market conditions, loan interest rate level and the Group’s financial position. As at 31 December 2016, the Group did not have any outstanding interest-bearing loan.

As property development business has a relatively long product life cycle, the Group’s future profit and cash flow will be highly volatile.

Relationship with Customers and Suppliers


For the interest of every customer, the Group provided trainings to its sales staff members on a regular basis. The Group also provided its customers adequate information about its products and responds to any issue and question raised by customers or potential customers regarding the products offered with an aim to further build up customers’ confidence in the products of the Company.

The property business of the Group involves suppliers and constructors for design and construction of properties. Tender procedure for selecting appropriate suppliers of major projects of the Group is conducted under general principle of “openness, fairness and impartiality”. In addition, the Group has observed and emphasised industrial safety and has established effective communication channel with its major suppliers to ensure construction processes are in compliance with relevant local laws and regulations.

Policy and Performance on Environmental Protection


The Group strictly complies with the laws and regulations enacted by the Mainland China and Hong Kong Governments, including those in relation to environmental protection, social and governance. The Company’s internal management for environmental, social and governance integrates the views of various stakeholders and is supported by staff members from all levels and departments of the Company, especially for the important areas in relation to environmental, social and governance. Staff members jointly implement and execute relevant internal policies and promptly respond to the expectations of stakeholders.

In furtherance of on-going fine-tuning on the environmental, social and governance policies, the Group actively communicated with stakeholders in the last year. Through surveys, group discussions and interviews with employees, customers, business partners, investors and governmental authorities, the Group identified important topics to envisage the changes in operational environment, and consequently achieving the goals of sustainable development and proper risk management.

The Group participates in the real estate business and it is very important to strictly comply with environmental laws and regulations on construction works. Any failure to observe the relevant environmental laws and regulations may result in rejection of the applications for construction projects by the relevant authorities. The Group has strictly abided by the relevant environmental laws and regulations at the construction site of each project, including but not limited to environmental protection, sewage treatment and environmental noise control, and engaged the professional greening company to transplant the trees near the site, sparing no efforts to contribute to the environmental protection. In addition to environmental protection, the Group also participated in the “Spring Thunder Hope Student Assistance Activities” (希望春雷助學活動) and poverty alleviation activities of Dongbei Village to shoulder the social responsibility during the year.

The Company is currently in the process of preparing the environmental, social and governance reports for the year ended 31 December 2016. The information contained in this report is based solely on the Company’s environmental, social and governance policies and performance and internal management information. As at the date of this report, the environmental, social and governance information of the Group for the year ended 31 December 2016 has not yet been finalised and may subject to necessary adjustments. Such information, which may differ from the information contained in this report, is expected to be published in June 2017.

Human Resources


The Group had 229 (2015: 297) employees as at the end of 2016. The total employee remuneration and provident fund contributions (excluding Directors’ remuneration) in 2016 was HK$68.65 million (2015: HK$55.92 million). The Group carried out a staff redundancy plan continuously during 2016 and, as a result, the total number of employees of the Group gradually dropped to 229 at the end of 2016.

Various basic benefits were provided to the Group’s staff with an incentive policy which was designed to remunerate staff by combined references to the Group’s operating results as well as the performance of the individual staff member. There was no share option scheme of the Company in operation during the year. The Group offers various training to its employees. Emoluments payable to the Directors of the Company are determined by reference to their job responsibilities and prevailing market conditions.