(Expressed in millions of Hong Kong dollars)
1. Basis of preparation
The interim results are unaudited, but have been reviewed by the Audit Committee. The accounting policies adopted are consistent with those set out in the annual financial statements for the year ended 30th June 2000.
2. Turnover and profit from operations
The Group's turnover and contribution to profit from operations before finance cost by principal activities are analysed as follows:
Profit from operations
Turnover before finance cost
Six months ended Six months ended
31st December 31st December
---------------------- -----------------------
2000 1999 2000 1999
Property sales 6,388 13,088 2,860 2,963
Rental income 2,651 2,628 2,003 2,025
Property management 424 392 146 134
Hotel operation 307 272 108 74
Other business activities 696 754 44 240
------- ------- ------- -------
10,466 17,134 5,161 5,436
======= =======
Other revenue 208 157
Unallocated administrative
expenses (245) (211)
------- -------
5,124 5,382
======= =======
Turnover for the period ended 31st December 1999 has been restated to exclude interest income of HK$235 million on bank deposits, reclassified as finance income, and investment income of HK$2 million on securities investments, reclassified under other revenue, to conform with the new definition of the Group's turnover pursuant to the adoption of SSAP No. 1 (Revised) " Presentation of Financial Statements".
Turnover and contribution to profit from operations outside Hong Kong are immaterial.
3. Profit before taxation
During the period, depreciation charged in respect of the Group's fixed assets amounted to HK$125 million (1999: HK$91 million).
4. Taxation
Six months ended
31st December
---------------------------
2000 1999
Hong Kong
Group 322 425
Associates 58 22
Jointly controlled entities 22 35
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402 482
============ ============
Hong Kong profits tax is provided at the rate of 16% (1999: 16%) based on the estimated assessable profits for the period.
5. Earnings per share
The calculation of earnings per share is based on profit attributable to shareholders of HK$5,301 million (1999: HK$5,253 million) and on 2,401 million shares (1999: 2,401 million shares) in issue during the period.
No diluted earnings per share is presented for the six months ended 31st December 1999 and 2000 as the exercises of the share options outstanding during the periods have no dilutive effect on the earnings per share.
6. Contingent liabilities
Guarantees given to banks and financial institutions in respect of facilities drawn by an associate and jointly controlled entities amounted to approximately HK$1,463 million (as at 30th June 2000: HK$1,463 million) and HK$7,927 million (as at 30th June 2000: HK$4,651 million) respectively.
7. Comparative figures
The presentation and classification of items in the interim Consolidated Profit and Loss Account have been changed due to the adoption of the requirements of SSAP No.1 (Revised) "Presentation of Financial Statements". As a result, certain comparative figures have been reclassified to conform with current period's presentation.
(a) Review of Interim Results
The Group's profit attributable to shareholders for the six months ended 31st December 2000 was HK$5,301 million compared to HK$5,253 million for the corresponding period in the previous year. The turnover and profit from operations are analysed in Note 2 to the Consolidated Profit and Loss Account.
Development margin improved significantly during the period. Property sale revenue for the period under review was HK$6,388 million, compared to HK$13,088 million for the same period last year. Profits generated from property sales dropped slightly by 3.5% to HK$2,860 million. The decline in turnover was mainly due to the fact that about half of the volume of property developments completed for sale was engaged through joint venture companies whereby the sales were recognized under the share of results from jointly controlled entities and associates. The two major development profit contributors were Le Sommet and Chelsea Heights Phase 2, both of which achieved a high margin primarily due to the low land cost.
Performance of the Group's rental portfolio was satisfactory. Average occupancy levels stayed high and rental rates remained stable throughout the period. Gross rental income recorded a marginal increase of HK$23 million to HK$2,651 million. Net rental income was HK$2,003 million compared to HK$2,025 million for the same period last year. These figures have not included the rental contribution from jointly controlled entities. Including the Group's share of rental income from jointly controlled entities, total gross and net rental income would be HK$2,897 million and HK$2,192 million, up by 3.8% and 2.1% respectively. The growth was mainly due to the full six-month rental contribution from One International Finance Centre and Millennium City Phase 2.
The Group's property management business has been growing steadily with gradual expansion in the property management portfolio. The profit contribution from property management business increased by 9% to HK$146 million.
The substantial increase in contribution from the hotel operation, by 46% to HK$108 million, was the combined result of increased average occupancy rates and room rates. The hotel business achieved higher operating efficiency as well as a greater profit margin.
Total profits generated from other business activities declined by HK$196 million to HK$44 million, mainly due to the operating loss (before interest income) incurred by its subsidiary, SUNeVision.
Net finance cost for the period increased by 20% to HK$675 million as a result of an increase in average net debt.
The Group recorded a profit of HK$282 million from disposal of investments, comprising mainly listed shares originally held for long-term investment.
Total net profit contributions from associates and jointly controlled entities increased by HK$870 million to HK$981 million. The increase was mainly due to profits generated from joint venture development projects including The Belcher's Phase 1, Royal Peninsula and Ocean Shores Phase 1 (Blocks 5 & 6). Share of profit from KMB increased by 22% to HK$141 million whereas share of loss from SmarTone reduced significantly to HK$31 million from HK$104 million.
(b) Financial Resources and Liquidity
Total shareholders' funds as at 31st December 2000 increased by HK$3,765 million to HK$124,669 million, representing an increase of 3.1% compared to the previous year end. The increase was attributable to the profits retained during the period.
All the Group's borrowings are unsecured. Maturity profile of the Group's debt at 31st December 2000 is set out as follows :
31/12/2000 30/6/2000
------------ ------------
HK$M HK$M
Repayable within one year 6,647 4,584
After one year but within two years 12,440 12,868
After two years but within five years 8,028 9,522
After five years 3,786 1,415
------------ ------------
Total borrowings 30,901 28,389
============ ============
Bank deposits and balances 9,037 10,414
============ ============
Net debt 21,864 17,975
============ ============
During the period under review, the Group's net debt increased by HK$3,889 million as a result of the increased expenditures for land acquisitions, including the land premium for the Airport Railway Kowloon Station Development Packages 5, 6 & 7. Net debt to shareholders' funds ratio at 31st December 2000 was 17.5% (at 30th June 2000 : 14.9%).
Interest coverage for the period, measured by the ratio of profit from operations to net interest expenses before capitalisation, remained high at 5.4 times (1999 : 8.9 times). The reduction of interest coverage was primarily caused by higher net interest expenses.
All the Group's funding and treasury activities are centrally managed and controlled at the corporate level. There is no significant change in respect of treasury and financing policies from the information disclosed in the Group's latest annual report.
The Group has no significant exposure to foreign exchange rate fluctuations. About 95% of the Group's borrowings is denominated in Hong Kong dollars, with the balance in US dollars and Reminbi to fund property projects on the Mainland.
Apart from cash and bank deposits, the Group also has substantial committed undrawn credit facilities from its relationship banks, providing the Group with strong financing flexibility, ample financial resources and liquidity to meet its funding needs and on-going working capital requirements.
At 31st December, 2000, the Group had about 17,000 employees. The Group provides competitive remuneration packages to employees commensurable to the level and market trend of pay in the businesses in which the Group operates, with incentive schemes composed of discretionary bonus and other merit payments to reward employees on the basis of individual performance. The Group also provides retirement schemes, medical benefit and training programs for all staff. Details of share option schemes were disclosed in the 1999/2000 annual report.
The Directors declared an interim dividend of HK$0.55 per share (1999: HK$0.55 per share) payable in cash on 12th April 2001 to shareholders on the Register of Members as at 12th April 2001.
The Register of Members will be closed from 4th April, 2001 to 12th April, 2001, both days inclusive. In order to qualify for the interim dividend, all transfer forms accompanied by the relevant share certificates must be lodged with the Company's Registrars, Central Registration Hong Kong Limited, Hopewell Centre, 17th Floor, 183 Queen's Road East, Hong Kong for registration not later than 4:00 p.m. on 3rd April, 2001.
The interim report containing all the information required by the Listing Rules of The Stock Exchange of Hong Kong Limited will be published on the Exchange's website and printed copies will be sent to shareholders before the end of March 2001.
By Order of the Board
Ernest H.K. Lai
Secretary
Hong Kong, 16th March, 2001
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