Stock code :00081 Interim Report 2012 Robust Prosperity on SOLID FOUNDATION

Transcription

1 Stock code :00081 Interim Report 2012 Robust Prosperity on SOLID FOUNDATION

2 CONTENTS Board of Directors, Honourable Chairman and Committees 56 Corporate and Shareholders Information 57 Chairman s Statement 60 Management Discussion and Analysis 66 Condensed Consolidated Income Statement 67 Condensed Consolidated Statement of Comprehensive Income 68 Condensed Consolidated Statement of Financial Position 70 Condensed Consolidated Statement of Changes in Equity 71 Condensed Consolidated Statement of Cash Flows 72 Notes to the Condensed Financial Statements 99 Others 99 Interim Dividend 99 Share Capital 99 Model Code for Securities Transactions 100 Information on Share Option Scheme of the Company 101 Directors and Chief Executives Interests in Securities 103 Substantial Shareholders Interests in Securities 105 Corporate Governance 106 Disclosure Pursuant to Rule of the Listing Rules 106 Changes in Directors Information 107 Purchase, Sale or Redemption of the Company s Listed Securities 107 Shares Issued 108 Review of Interim Report by Audit Committee

3 BOARD OF DIRECTORS, HONOURABLE CHAIRMAN AND COMMITTEES 55 Honourable Chairman Kong Qingping # Chairman and Non-Executive Director Hao Jian Min Executive Directors Chen Bin Chief Executive Officer Yu Shangyou Xiang Hong Wang Man Kwan, Paul Non-Executive Director Yung Kwok Kee, Billy Vice Chairman Independent Non-Executive Directors Chung Shui Ming, Timpson Lam Kin Fung, Jeffrey Lo Yiu Ching, Dantes Audit Committee Chung Shui Ming, Timpson* Lam Kin Fung, Jeffrey Lo Yiu Ching, Dantes Remuneration Committee Lam Kin Fung, Jeffrey* Hao Jian Min Yung Kwok Kee, Billy Chung Shui Ming, Timpson Lo Yiu Ching, Dantes Nomination Committee Hao Jian Min* Chung Shui Ming, Timpson Lam Kin Fung, Jeffrey Lo Yiu Ching, Dantes # not a director of the Company * Committee Chairman Authorized Representatives Hao Jian Min Yu Shangyou Chen Bin Xiang Hong (Alternate Authorized Representative to Hao Jian Min) (Alternate Authorized Representative to Yu Shangyou)

4 56 CORPORATE AND SHAREHOLDERS INFORMATION Corporate Information Registered Office Suite 3012, 30/F, One Pacific Place 88 Queensway, Hong Kong Telephone : (852) Facsimile : (852) Website : Company Secretary Chong Wai Sang, Edmond Registrar Tricor Standard Limited 26/F., Tesbury Centre 28 Queen s Road East, Hong Kong Telephone : (852) Facsimile : (852) is-enquiries@hk.tricorglobal.com Legal Advisor Mayer Brown JSM Auditor BDO Limited Certified Public Accountants Principal Bankers (In Alphabetical Order) Bank of China Limited Bank of China (Hong Kong) Limited Bank of Communications Co., Ltd., Hong Kong Branch Bank of Shanghai Co. Ltd. China Construction Bank Corporation China Merchants Bank Co., Ltd. DBS Bank Ltd., Hong Kong Branch Hang Seng Bank Limited The Hong Kong and Shanghai Banking Corporation Limited Industrial and Commercial Bank of China Limited Wing Lung Bank Limited Shareholders Information Share Listing The Company s shares are listed on The Stock Exchange of Hong Kong Limited ( Stock Exchange ). Ordinary Shares (as at 30 June 2012) Shares outstanding 2,282,239,894 shares Nominal value HK$0.01 per share Stock Code Shares Stock Exchange : Bloomberg : 81:HK Reuters : 0081.HK Investor Relations For any enquiries, please contact: Mr. He Chen, Corporate Communications Department Telephone : (852) Facsimile : (852) chen_he@cohl.com Public Relations For any enquiries, please contact: Ms. Jane Kun, Corporate Communications Department Telephone : (852) Facsimile : (852) jane_kun@cohl.com

5 CHAIRMAN S STATEMENT 57 INTRODUCTION I am pleased to announce the unaudited interim results of the Company and its subsidiaries (collectively, the Group ) for the six months ended 30 June The Group s unaudited consolidated profit attributable to the owners of the Company for the first half year of 2012 surged to HK$1,300.6 million, an increase of 61.8% comparing with the same period last year. In March 2012, the Group has succeeded in issuing HK$2.2 billion 2.00% Guaranteed Convertible Bonds due 2017 (credit enhanced until 2015 with step down to zero coupon after 2015). That provides further powerful financial supports at highly competitive finance costs towards the Group s strengthening of the land bank and rolling out its future development projects. To recognize the Group s outstanding performance and excellent results, both of Morgan Stanley Capital International Index and Hang Seng Index have included the Company as their constituent indices under the MSCI China Small Cap Index, Hang Seng Global Composite Index and Hang Seng Composite Index (which includes Hang Seng Composite Industry Index Properties & Construction and Hang Seng Composite SmallCap Index) respectively. Inclusions in these well known benchmark indices clearly demonstrate the recognition of the operation scale, profitability and governance of the Company by both of the international and local investors. Meanwhile, in the last six months, the Group expanded into Ganzhou, the PRC with an intake of a gross floor area ( GFA ) of 1,402,000 square meter ( sq.m. ). As of 30 June 2012, total land bank of the Group in the PRC reached 7,501,600 sq.m.. RESULTS For the six months ended 30 June 2012, property sales was reported at HK$8,009.2 million for an aggregated sold area of 514,036 sq.m., representing an increase of 88.9% and 152.8% respectively against the same period last year. Meanwhile, the Group increased its turnover by HK$3,083.3 million or 150.1% to HK$5,137.5 million with profit attributable to the owners of the Company enhanced by HK$496.9 million or 61.8% to HK$1,300.6 million. Basic earnings per share was HK57.0 cents (2011 restated: HK38.8 cents).

6 58 CHAIRMAN S STATEMENT (continued) PROSPECTS The Economy Global economy has not been recovered in the past six month if not worsen, with most of the bad news come from Europe, especially Greece. Due to globalization of market economy, China does not get immunity alone. With weakened exports coupled with tighter domestic policy, there were symptoms of economic slowdown in the PRC. Comparing with the GDP of 9.2% last year, the annual growth target of 2012 had been tuned down to 7.5% at the beginning of the year. In the PRC, inflation rate was currently tamed with CPI lowered to 2.2% in June 2012 year-on-year. This provides ample room to unveil monetary easing measures. The reserve requirement ratio was reduced twice to 20% in February and May 2012 and it was the first time to cut the interest rate by 0.25% in June 2012 since December As it is the government s priority to maintain steady economic growth, it is believed that more fiscal stimuli initiatives would be launched, including the speed up of infrastructure developments. Real Estate Development Since property development is a capital intensive industry, it is highly vulnerable to any monetary policy decision. Tightening of money supply and implementation of price control measures had triggered opportunities for industrial shakeout and merger/acquisitions. By promoting the capability of quality and resourceful players, it would help to ensure the long-term healthy development of the property development industry in China. With the implementation of macroscopic policy restrictions in property purchase, selling price and mortgage financing in the last two years to discourage investment and speculation behaviours, it would help to promote purchases from real end-users as well as core demands in accommodation needs.

7 CHAIRMAN S STATEMENT (continued) 59 PROSPECTS (continued) Group Strategy The Group management team had taken an interim review of its market positioning and execution strategies, as well as re-affirmed its vision. Despite the external economic turbulence, China remains relatively stable with encouraging economic outlooks. The pace of urbanization has led to the rapid development of the third-tier cities. This has promoted the business opportunities for the property development industry. There are huge growth opportunities for the Group to expand continuously into more middle to highend residential property markets in third-tier cities with best investment value and growth potentials. Faced with the challenges ahead, the Group would continue to launch the corporate strategies under the main theme of healthy, stable and swift development, with the supports of the human resources and financial resources assurance systems. In respect of the execution, the Group is in the process of formalizing and standardizing all internal control and operating procedures, establishing standard workflows and procedural guidelines, as well as the implementation of continuous cost savings initiatives over the development projects. The Group would also closely monitor the impacts from the external economic environment and national policy changes to the business operations. APPRECIATION I would like to take this opportunity to thank my fellow directors, our staff and our shareholders for their continued support. By order of the Board China Overseas Grand Oceans Group Limited Hao Jian Min Chairman and Non-executive Director Hong Kong, 2 August 2012

8 60 MANAGEMENT DISCUSSION AND ANALYSIS REVENUE AND OPERATING RESULTS Despite the weakened economic environment and reinstated policy restrictions over the period under review, the Group still secured revenue of HK$5,137.5 million and gross profit of HK$2,572.6 million for the six months ended 30 June 2012 upon scheduled completion and delivery of pre-sold properties. Revenue increased by 150.1% as compared with the corresponding period last year while gross profit increased by 139.1%. Profit margin remained comparable at 50.1% in the period versus 52.4% of the same period last year. Operating profit increased by HK$1,167.0 million or 85.8% against last period and reached HK$2,527.2 million for the period ended 30 June The significant improvement in result was mainly attributable to the strong sales revenue and stable profit margin. In respect of the overhead costs, the distribution and selling expenses increased in line with current period s turnover by 137.1% to HK$116.1 million while administrative expenses increased modestly by 52.2% to HK$135.8 million. Besides, there was an upward fair value gain of HK$187.4 million (2011: HK$157.7 million) of the investment properties. Finance costs lowered to HK$7.8 million from HK$12.9 million of last period, after capitalization of HK$149.6 million to the on-going development projects. For the half year ended 30 June 2012, profit attributable to equity shareholders of the Company increased significantly to HK$1,300.6 million, an increase of 61.8% against last corresponding period (2011: HK$803.7 million). LAND BANK Targeting at emerging third-tier cities in the PRC with best investment value and growth potential, the Group expanded into Ganzhou, the PRC during the period with an acquisition of a land parcel of an approximate GFA of 1,402,000 sq.m. for a consideration of approximately RMB1, million. The Group has an attributable interest of 88% in this project. As at 30 June 2012, total land bank of the Group is estimated available to build GFA of approximately 7,501,600 sq.m. (of which, 6,174,000 sq.m. are attributable to the Group, excluding non-controlling shareholders) in nine different cities in the PRC.

9 MANAGEMENT DISCUSSION AND ANALYSIS (continued) 61 SEGMENT INFORMATION Property Sales and Development Sales performance of the Group was prominent alongside the marketing of a quality driven brand name. The Group s products continued to receive positive feedbacks from middle to high income level end-users of residential properties market. With the various development projects of the Group in the penetrated cities started their sales programs respectively, property sales of the Group for the first half year increased tremendously against last corresponding period by HK$3,768.5 million to a new record of HK$8,009.2 million, that surpassed 2011 s annual sales of HK$7,687.0 million. This represented a saleable GFA of 514,036 sq.m. (2011: 203,319 sq.m.). Property sales from major projects during the six months ended 30 June 2012: City Name of project Saleable GFA Amount (sq.m.) (HK$ Million) Guangzhou The Oakwood 76,325 2,254.4 Beijing Lagoon Manor 63,790 1,988.6 Hohhot Royal East 35, The Arch 94, Dragon Cove 14, Hefei The Great Hill 79, Yinchuan International Community 69, Jilin Royal East 36, Royal Waterfront 7, Guilin/Nanning The Chief Palace/ The Green Peak 29,

10 62 MANAGEMENT DISCUSSION AND ANALYSIS (continued) SEGMENT INFORMATION (continued) Property Sales and Development (continued) As at 30 June 2012, 348,500 sq.m. of construction sites were completed (2011: 119,940 sq.m.) with about 80% of these sold out. Coupled with stock sales, recognized revenue increased to HK$5,047.5 million (2011: HK$1,981.0 million) while segment result soared to HK$2,327.3 million (2011: HK$1,168.4 million) as well mainly due to increase in sales volume and the stable profit margin. Recognized revenue from major projects during the six months ended 30 June 2012: City Name of project Saleable GFA Amount (sq.m.) (HK$ Million) Guangzhou The Oakwood 141,294 3,840.9 Banyan Bay 2, Beijing Lagoon Manor 33,118 1,011.4 Jilin Royal East 10, In addition to the above, The Arch in Lanzhou had commenced the construction work during the period. At period end date, properties under construction and stock of completed properties amounted to 2,071,473 sq.m. and 84,221 sq.m. respectively, totaling 2,155,694 sq.m.. Properties of 507,820 sq.m. had been contracted for sales and were pending for completion of the transactions upon handover. Property Leasing For the period ended 30 June 2012, with increased rental rate for expired leases and thus a higher average rental rate, rental income increased to HK$57.3 million (2011: HK$48.0 million) with a segment profit of HK$225.0 million (2011: HK$190.2 million). The improvement includes a further upside fair value gain of HK$187.4 million (2011: HK$157.7 million) in respect of the investment properties and contribution from the jointly controlled entities of HK$1.8 million (2011: HK$1.2 million).

11 MANAGEMENT DISCUSSION AND ANALYSIS (continued) 63 SEGMENT INFORMATION (continued) Property Leasing (continued) At period end, China Overseas International Center in Xicheng District, Beijing was 87% let while the occupancy rate for the scientific research office building in Zhang Jiang High-tech Zone in Shanghai was about 96%. The Group owns 100% and 65% of these projects respectively. ISSUANCE OF BONUS SHARES The Group issued 760,746,631 bonus shares in June 2012 on the basis of issuance of one bonus share for every two existing shares after the approval at the annual general meeting held on 30 May The number of shares of the Company in issue has increased to 2,282,239,894 at period end. FINANCIAL RESOURCES AND LIQUIDITY As a Hong Kong incorporated and listed entity, the Company and its subsidiaries have multiple accesses to funds from both investors and financial institutions in the PRC and international market through Hong Kong as a leading international financial center. In March 2012, the Group completed the issuance of HK$2.2 billion 2.00% Guaranteed Convertible Bonds due 2017 (credit enhanced until 2015 with step down to zero coupon after 2015) that was listed in the Singapore Exchange Securities Trading Limited (the Convertible Bonds ). Besides, the Group had obtained additional unsecured credit facilities of approximately HK$1,719.2 million during the period from the financial institutions. While drawdowns of HK$695.2 million from the credit facilities were largely offset by the repayments during the period, total borrowings (exclude the Convertible Bonds) remained comparable at HK$4,016.9 million against last year end. Interest of such borrowings was charged at floating rates with a weighted average of 5.23% per annum. About 31.5% of such borrowings is repayable within one year. Coupled with significant sales achieved during the period, cash and cash equivalents plus restricted cash and deposits were 146.9% higher at a total of HK$6,979.5 million compared with the last financial year end (HK$2,826.4 million). Accordingly, the Group was at a net cash position as at 30 June 2012 (net gearing ratio as at 31 December 2011: 22.9%).

12 64 MANAGEMENT DISCUSSION AND ANALYSIS (continued) FINANCIAL RESOURCES AND LIQUIDITY (continued) On the other hand, net working capital amounted to HK$10,560.1 million as of 30 June 2012, (31 December 2011: HK$7,101.8 million) with a quick ratio of 0.8 (31 December 2011: 0.5). Taking into consideration of the unutilized bank credit facilities available to the Group of HK$1,802.3 million, the Group s total available funds (including restricted cash and deposits of HK$2,219.6 million) reached HK$8,781.8 million as at 30 June The Group would regularly re-evaluate its operational and investment status and endeavour to improve its cash flow and minimize its financial risks. FOREIGN EXCHANGE EXPOSURE As at 30 June 2012, about 46.6% and 53.4% of the Group s total borrowings (including the liability component of the Convertible Bonds) were denominated in Renminbi and Hong Kong Dollar respectively. As the Group conducted its sales, receivables and payables, expenditures and part of the borrowings in Renminbi for its PRC property development business, the management considered that a natural hedge mechanism existed. While the Group would closely monitor the volatility of the Renminbi exchange rate, the management assessed that the Group s risk exposure to foreign exchange rate fluctuations remained at acceptable range. CAPITAL COMMITMENTS AND GUARANTEE As at 30 June 2012, the Group had capital commitments totaling HK$8,539.7 million which related mainly to property development and construction works. In addition, the Group issued guarantees to banks amounting to HK$3,414.0 million (equivalent to RMB2,783.0 million), mainly for facilitating end-user mortgages in connection with its PRC property sales as a usual commercial practice.

13 MANAGEMENT DISCUSSION AND ANALYSIS (continued) 65 CAPITAL EXPENDITURE AND CHARGES ON ASSETS The Group had capital expenditures totaling HK$4.7 million approximately during this period, mainly referred to additions in motor vehicles, furniture, fixtures and office equipment. On the other hand, as at 30 June 2012, certain property assets and trade receivables with an aggregate carrying value of HK$2,066.2 million in the PRC were pledged to obtain HK$429.3 million (equivalent to RMB350.0 million) of secured borrowings from certain PRC banks for the development projects. EMPLOYEES As at 30 June 2012, the Group has approximately 579 employees (31 December 2011: 403). The pay levels of these employees are commensurate with their responsibilities, performance and the prevailing market condition.

14 66 CONDENSED CONSOLIDATED INCOME STATEMENT The unaudited condensed consolidated results of the Group for the six months ended 30 June 2012 and the comparative figures for the corresponding period in 2011 are as follows: Six months ended 30 June (Unaudited) (Unaudited) Notes HK$ 000 HK$ 000 Revenue 4 5,137,466 2,054,172 Cost of sales and services provided (2,564,863) (978,282) Gross profit 2,572,603 1,075,890 Other income 6 18,026 14,093 Distribution and selling expenses (116,139) (48,987) Administrative expenses (135,803) (89,198) Other operating expenses (246) (815) Other gains, net Fair value gain on reclassification of inventories of properties to investment properties 157,657 Fair value gain on investment properties 187,359 Reversal of impairment on assets, net 1,413 22,329 Gain on disposal of a subsidiary ,340 Others 15,915 Operating profit 2,527,213 1,360,224 Finance costs 7 (7,829) (12,882) Share of results of jointly controlled entities 1,784 1,100 Profit before income tax 8 2,521,168 1,348,442 Income tax expense 9 (1,177,202) (547,912) Profit for the period 1,343, ,530 Profit/(Loss) for the period attributable to: Owners of the Company 1,300, ,707 Non-controlling interests 43,347 (3,177) 1,343, ,530 HK Cents HK Cents (Restated) Earnings per share 11 Basic Diluted

15 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 67 Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Profit for the period 1,343, ,530 Other comprehensive income Exchange difference arising on translation subsidiaries (41,561) 80,976 jointly controlled entities (409) 5,342 (41,970) 86,318 Reclassification from assets revaluation reserve to profit or loss upon sales of inventories of properties (4,360) (8,305) Tax effect 1,553 3,125 (2,807) (5,180) Other comprehensive income for the period, net of tax (44,777) 81,138 Total comprehensive income for the period 1,299, ,668 Total comprehensive income attributable to: Owners of the Company 1,257, ,458 Non-controlling interests 41, ,299, ,668

16 68 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 June 2012 (Unaudited) 31 December 2011 (Audited) Notes HK$ 000 HK$ 000 Non-current assets Investment properties 2,060,006 1,883,563 Property, plant and equipment 12 38,858 27,847 Prepaid lease rental on land 5,467 1,970 Goodwill 46,903 70,475 Other intangible assets 34,482 37,065 Interests in jointly controlled entities 74,667 73,292 Deferred tax assets 379, ,656 2,639,663 2,388,868 Current assets Inventories of properties 13,265,886 12,392,881 Other inventories Trade and other receivables, prepayments and deposits 13 1,529,366 1,903,391 Prepaid lease rental on land Amounts due from jointly controlled entities 45,388 49,340 Amounts due from non-controlling interests 11,899 11,965 Tax prepaid 91, ,290 Restricted cash and deposits 2,219, ,204 Cash and cash equivalents 4,759,911 2,021,223 21,924,866 17,293,225

17 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) June 2012 (Unaudited) 31 December 2011 (Audited) Notes HK$ 000 HK$ 000 Current liabilities Trade and other payables 14 2,381,876 2,172,589 Sales deposits received 4,156,225 3,786,608 Amount due to a jointly controlled entity Amount due to non-controlling interests 712, ,172 Consideration payable for acquisition of a subsidiary 78,327 Taxation liabilities 2,849,736 2,193,409 Borrowings 15 1,263,983 1,387,066 11,364,787 10,191,417 Net current assets 10,560,079 7,101,808 Total assets less current liabilities 13,199,742 9,490,676 Non-current liabilities Borrowings 15 2,752,879 2,615,641 Convertible bonds 16 1,603,352 Deferred tax liabilities 1,476,264 1,443,005 5,832,495 4,058,646 Net assets 7,367,247 5,432,030 Capital and reserves Share capital 17 22,822 15,215 Reserves 6,886,234 5,130,792 Equity attributable to owners of the Company 6,909,056 5,146,007 Non-controlling interests 458, ,023 Total equity 7,367,247 5,432,030

18 70 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to owners of the Company Capital Convertible Assets Noncontrolling Share Share redemption bonds equity Translation revaluation Statutory Other Retained Total capital premium reserve reserve reserve reserve reserve reserve profits Total interests equity HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 At 1 January , ,584 44, ,924 55,997 70, , ,938 2,675, ,865 2,798,279 Net profit/(loss) for the period 803, ,707 (3,177) 800,530 Other comprehensive income 82,931 (5,180) 77,751 3,387 81,138 Total comprehensive income for the period 82,931 (5,180) 803, , , final dividend paid (note 10) (101,433) (101,433) (101,433) Conversion of consideration payable for acquisition of non-controlling interests 557, , ,669 Issue of new shares (note 17(i)) 2,468 1,236,721 (1,239,189) Share issue expenses (note 17(i)) (63) (63) (63) Contribution from non-controlling interests of a new subsidiary 46,329 46,329 Transactions with owners 2,468 1,236,658 (681,520) (101,433) 456,173 46, ,502 At 30 June 2011 (Unaudited) 10,143 1,919,242 44, ,855 50,817 70, ,345 1,519,212 4,013, ,404 4,182,449 At 1 January ,215 1,914,012 44, ,412 59, , ,345 2,294,562 5,146, ,023 5,432,030 Net profit for the period 1,300,619 1,300,619 43,347 1,343,966 Other comprehensive income (39,852) (2,807) (42,659) (2,118) (44,777) Total comprehensive income for the period (39,852) (2,807) 1,300,619 1,257,960 41,229 1,299, final dividend paid (note 10) (76,075) (76,075) (76,075) Issue of Convertible Bonds (note 16) 581, , ,196 Bonus Share Issue 2012 (note 17(iii)) 7,607 (7,607) Share issue expenses (note 17(iii)) (32) (32) (32) Contribution from non-controlling interests of subsidiaries 130, ,939 Transactions with owners 7,607 (7,639) 581,196 (76,075) 505, , ,028 At 30 June 2012 (Unaudited) 22,822 1,906,373 44, , ,560 56, , ,345 3,519,106 6,909, ,191 7,367,247

19 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS 71 Six months ended 30 June (Unaudited) (Unaudited) Notes HK$ 000 HK$ 000 Net cash generated from operating activities 1,979, ,080 Investing activities Interest received 15,277 13,390 Settlement of consideration payable on acquisition of a subsidiary (78,327) Purchase of property, plant and equipment 12 (4,735) (2,908) Proceeds on disposal of property, plant and equipment 23,519 Proceeds on disposal of investment properties 11,264 Proceeds on disposal of a subsidiary ,340 Increase in restricted cash and deposits (1,418,829) (549,312) Net cash used in investing activities (1,486,614) (290,707) Financing activities Increase in amounts due to non-controlling interests 142, ,119 New bank borrowings and other loan 695,248 1,579,725 Repayment of bank borrowings and other loan (665,995) (719,095) Dividends paid (76,075) (101,433) Proceeds from issue of convertible bonds, net 16 2,139,614 Interest paid (112,506) (133,728) Share issue expenses 17(i) and (iii) (32) (63) Contributions from non-controlling interests of subsidiaries 130,939 46,329 Net cash generated from financing activities 2,253,904 1,040,854 Net increase in cash and cash equivalents 2,746,702 1,522,227 Cash and cash equivalents at beginning of period 2,021,223 1,890,555 Effect of foreign exchange rate change, on cash held (8,014) 39,005 Cash and cash equivalents at end of period 4,759,911 3,451,787

20 72 NOTES TO THE CONDENSED FINANCIAL STATEMENTS 1. GENERAL INFORMATION China Overseas Grand Oceans Group Limited (the Company ) is a limited liability company incorporated in the Hong Kong Special Administrative Region ( Hong Kong ), the People s Republic of China (the PRC ) and its shares are listed on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). The address of the Company s registered office and principal place of business is Suite 3012, 30th Floor, One Pacific Place, 88 Queensway, Hong Kong. The principal activities of the Company and its subsidiaries (collectively, the Group ) mainly comprise property investment and development, property leasing and investment holding. The Group s business activities are principally carried out in Beijing, Guangzhou, Ganzhou, Guilin, Hefei, Hohhot-Inner Mongolia, Jilin, Lanzhou, Nanning, Yinchuan and other regions in the PRC. The unaudited condensed consolidated financial statements for the six months ended 30 June 2012 (the Interim Financial Statements ) have been prepared in accordance with Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ) and the applicable disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange. The Interim Financial Statements do not include all of the information required for annual financial statements and thereby they should be read in conjunction with the Group s annual financial statements for the year ended 31 December The Interim Financial Statements are unaudited, but have been reviewed by the Audit Committee of the Company. The Interim Financial Statements were approved for issue on 2 August PRINCIPAL ACCOUNTING POLICIES The Interim Financial Statements have been prepared under the historical cost convention except for investment properties which are stated at fair values.

21 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) PRINCIPAL ACCOUNTING POLICIES (continued) Save as described below and in note 3 Adoption of new and revised HKFRSs, the accounting policies used in preparing the Interim Financial Statements are consistent with those of the annual financial statements for the year ended 31 December 2011, as described in those annual financial statements. Convertible Bonds The convertible bonds of HK$2,200 million issued by the Group contain liability and conversion option. As the convertible bonds can be converted to equity share capital at the option of the bondholders, where the number of share that would be issued on conversion and the value of consideration would be received at that time do not vary, they accounted for as compound financial instruments. On initial recognition, allocation of the total proceeds between the liability and conversion option are made on relative fair value basis. The liability component of the convertible bonds is determined using a market rate for an equivalent non-convertible bond with bondholder s redemption option. The equity component of the convertible bonds is then the residual after deducting fair value of liability from the proceeds allocated to the convertible bonds. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds. The liability component is subsequently carried as a long-term liability on the amortized cost basis until extinguished on conversion or redemption. Interest expenses recognized in profit or loss (save as otherwise capitalized as stipulated under HKAS 23 (Revised) Borrowing Cost ) on the liability component are calculated using effective interest method. The equity component is recognized in convertible bond equity reserve until either the convertible bonds are converted or redeemed. If the convertible bonds are converted, the convertible bond equity reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the convertible bonds are redeemed, the convertible bond equity reserve is released directly to retained profits.

22 74 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 3. ADOPTION OF NEW AND REVISED HKFRSs There are no amended standards or interpretations that are effective for the first time for this interim period that could be expected to have a material impact on this Group. New/Revised HKFRSs that have been issued but not yet effective The following new standards and amendments to standards, potentially relevant to the Group s financial statements, have been issued, but are not yet effective for the financial year beginning 1 January 2012 and have not been early adopted by the Group. HKFRS 9 Financial instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2015 but is available for early adoption. The new requirements affect the accounting for financial assets and also the financial liabilities that are designated at fair value through profit or loss. The derecognition rules have been transferred from HKAS 39 Financial instruments: Recognition and measurement and have not been changed. HKFRS 10 Consolidated financial statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. HKFRS 12 Disclosure of interests in other entities integrates and makes consistent the disclosures requirements about interests in subsidiaries, associates and joint arrangements. It also introduces new disclosure requirements, including those related to unconsolidated structured entities. The general objective of the standard is to enable users of financial statements to evaluate the nature and risks of a reporting entity s interests in other entities and the effects of those interests on the reporting entity s financial statements.

23 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) ADOPTION OF NEW AND REVISED HKFRSs (continued) HKFRS 13 Fair value measurements provides a single source of guidance on how to measure fair value when it is required or permitted by other standards. The standard applies to both financial and non-financial items measured at fair value and introduces a fair value measurement hierarchy. The definitions of the three levels in this measurement hierarchy are generally consistent with HKFRS 7 Financial Instruments: Disclosures. HKFRS 13 Fair value measurements defines fair value as 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 (i.e. an exit price). The standard removes the requirement to use bid and ask prices for financial assets and liabilities quoted in an active market. Rather the price within the bid-ask spread that is most representative of fair value in the circumstances should be used. It also contains extensive disclosure requirements to allow users of the financial statements to assess the methods and inputs used in measuring fair values and the effects of fair value measurements on the financial statements. HKFRS 13 can be adopted early and is applied prospectively. The Group is in the process of making an assessment of the potential impact of these new/revised HKFRSs. 4. REVENUE The principal activities of the Group are disclosed in note 1. Turnover of the Group is the revenue from these activities. Revenue from the Group s principal activities recognized during the period is as follows: Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Sales of properties 5,047,489 1,981,034 Property rental income 57,336 47,980 Property management fee income 32,641 25,158 Total revenue 5,137,466 2,054,172

24 76 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 5. SEGMENT INFORMATION The operating segments are reported in a manner consistent with the way in which information is reported internally to the Group s most senior management for the purposes of resource allocation and assessment of segment performance. The Group has identified the following reportable segments for its operating segments: Property investment and development Property leasing Other segment This segment constructs commercial and residential properties in the PRC for external customers. This segment leases commercial units located in the PRC to generate rental income and gain from appreciation in the properties values in the long term. Part of the business is carried out through a jointly controlled entity. This segment provides management services to certain housing estate in the PRC and generates property management fee income. Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments. Segment profit/loss includes the Group s share of profit/loss arising from the activities of the Group s jointly controlled entities. Reportable segment profit/loss excludes corporate income and expenses from the Group s profit/loss before income tax. Corporate income and expenses are income and expenses incurred by corporate headquarters which are not allocated to the operating segments. Each of the operating segments is managed separately as the resources requirement of each of them is different. Segment assets include all assets with the exception of corporate assets, including bank balances and cash and other assets which are not directly attributable to the business activities of operating segments as these assets are managed on a group basis. Information regarding the Group s reportable segments including reportable segment revenue, the reconciliation of reportable segment profit to profit before income tax and total assets, are as follows:

25 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) SEGMENT INFORMATION (continued) Property investment and development Property leasing Other segment Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 Six months ended 30 June 2012 (Unaudited) Reportable segment revenue* 5,047,489 57,336 32,641 5,137,466 Reportable segment profit/(loss) 2,327, ,963 (2,136) 2,550,112 Corporate income 3,399 Corporate expenses (32,343) Profit before income tax 2,521,168 Six months ended 30 June 2011 (Unaudited) Reportable segment revenue* 1,981,034 47,980 25,158 2,054,172 Reportable segment profit 1,168, , ,359,633 Corporate income 227 Corporate expenses (11,418) Profit before income tax 1,348,442 As at 30 June 2012 (Unaudited) Reportable segment assets 19,586,272 2,657,315 33,656 22,277,243 Corporate assets 2,287,286 Total consolidated assets 24,564,529 As at 31 December 2011 (Audited) Reportable segment assets 16,939,871 2,232,440 64,169 19,236,480 Corporate assets 445,613 Total consolidated assets 19,682,093 * This represents sales from external customer and there were no inter-segment sales between different business segments.

26 78 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 5. SEGMENT INFORMATION (continued) During the six months ended 30 June 2012, the Group recognized a fair value gain on investment properties of HK$187,359,000 (for the six months ended 30 June 2011, the Group reclassified certain inventories of properties with carrying value of HK$95,715,000 as investment properties and recognized a fair value gain of HK$157,657,000 on the date of reclassification). The fair value gain is reported under the segment of Property leasing. 6. OTHER INCOME Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Interest income on: Bank deposits 13,860 11,812 Amounts due from a jointly controlled entity 1,417 1,578 Total interest income on financial assets not at fair value through profit or loss 15,277 13,390 Sundry income 2, ,026 14,093

27 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) FINANCE COSTS Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Interest charges on: Bank borrowings and overdrafts 106,231 67,440 Other loans 6,275 14,422 Imputed interest expense on consideration payable for acquisition of non-controlling interests 51,866 Imputed interest expense on Convertible Bonds (note 16) 44,934 Total interest expense on financial liabilities not at fair value through profit or loss 157, ,728 Less: Amount capitalized in properties under development (149,611) (120,846) 7,829 12,882

28 80 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 8. PROFIT BEFORE INCOME TAX Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Profit before income tax is arrived at after charging/(crediting): Amortization: Prepaid lease rental on land Other intangible assets # 2,385 2,306 Depreciation of property, plant and equipment 3,196 2,343 Total amortization and depreciation 5,607 4,686 Reversal of impairment on financial assets: Loans and receivables* (8,233) (12,814) Impairment/(Reversal of impairment loss) on non-financial assets: Goodwill* (note) 19,122 Other assets* (12,302) (9,515) Net foreign exchange loss/(gain)** (1,377) 1,301 # included in Cost of sales and services provided in the condensed consolidated income statement * included in Reversal of impairment on assets, net in the condensed consolidated income statement ** included in Administrative expenses in the condensed consolidated income statement Note: As at 30 June 2012, due to the properties of relevant project companies are nearly sold out and the management has no future plan on these project companies, the recoverable amount of these project companies as separate cash-generating units fell below their carrying amounts. Based on the results of the impairment testing, impairment loss of HK$19,122,000 (six months ended 30 June 2011: Nil) was recognized for the project companies and the entire amounts of the impairment loss are fully allocated to the goodwill attributed to that cash-generating units.

29 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) INCOME TAX EXPENSE Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Income tax expense comprise: Current tax for the period PRC Enterprise income tax ( EIT ) 587, ,609 PRC Land appreciation tax ( LAT ) 634, ,150 1,222, ,759 Under provision in prior year PRC EIT 1,612 Deferred tax (45,231) 31,541 1,177, ,912 For the six months ended 30 June 2012, no Hong Kong profits tax has been provided as the Group did not derive any estimated assessable profits in Hong Kong for the period (six months ended 30 June 2011: Nil). EIT arising from other regions of the PRC is calculated at 25% on the estimated assessable profits (six months ended 30 June 2011: 10% to 25%). PRC LAT is levied at progressive rates from 30% to 60% (six months ended 30 June 2011: 30% to 60%) on the appreciation of land value, being the proceeds of sales of properties less deductible expenditure including cost of land use rights and development and construction expenditure.

30 82 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 10. DIVIDENDS The Board has declared that an interim dividend of HK$0.05 (six months ended 30 June 2011: Nil) per share, amounting to HK$114,112,000 (six months ended 30 June 2011: Nil), will be paid to the shareholders of the Company whose names appear in the Register of Members on 28 August During the period, a dividend of HK$0.05 (six months ended 30 June 2011: HK$0.10 in respect of the financial year ended 31 December 2010) per share, amounting to HK$76,075,000 (six months ended 30 June 2011: HK$101,433,000) was paid to shareholders as the final dividend for the financial year ended 31 December EARNINGS PER SHARE The calculations of basic earnings per share and diluted earnings per share attributable to owners of the Company are based on the following data: Earnings Six months ended 30 June (Unaudited) (Unaudited) HK$ 000 HK$ 000 Earnings used in calculating basic earnings per share 1,300, ,707 Adjustment to the profit of the Group imputed interest on Convertible Bonds (2011: imputed interest on consideration payable for acquisition of non-controlling interests) 345 4,550 Earnings used in calculating diluted earnings per share 1,300, ,257

31 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) EARNINGS PER SHARE (continued) Weighted average number of ordinary shares (note) Six months ended 30 June (Unaudited) (Unaudited) (Restated) Weighted average number of ordinary shares used in calculating basic earnings per share 2,282,240 2,071,437 Effect of dilutive potential ordinary shares issuance of shares for conversion of Convertible Bonds (2011: for acquisition of non-controlling interests) 147, ,803 Weighted average number of ordinary shares used in calculating diluted earnings per share 2,429,830 2,282,240 Note: The weighted average number of ordinary shares used in calculating the basic earnings per share and diluted earnings per share is adjusted for the Bonus Share Issue 2011 and the Bonus Share Issue 2012 (as defined and disclosed in note 17(ii) and (iii) respectively) as if both of the bonus share issues had occurred on 1 January PROPERTY, PLANT AND EQUIPMENT During the six months ended 30 June 2012, the Group incurred capital expenditure of approximately HK$3,275,000 (six months ended 30 June 2011: HK$886,000) in motor vehicles and approximately HK$1,460,000 (six months ended 30 June 2011: HK$2,022,000) in furniture, fixtures and office equipment. In addition, the Group transferred certain inventories of properties with carrying value of HK$9,606,000 (six months ended 30 June 2011: Nil) to land and buildings under property, plant and equipment.

32 84 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 13. TRADE AND OTHER RECEIVABLES, PREPAYMENTS AND DEPOSITS 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Trade receivables 3,209 15,953 Less: Impairment of trade receivables (642) (8,777) Trade receivables, net 2,567 7,176 Other receivables 123,242 94,456 Prepayments and deposits 1,403,557 1,801,759 1,529,366 1,903,391 The ageing analysis of the trade receivables (based on invoice date) net of impairment allowance is as follows: 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ days or below 4, days 2,526 2, days 41 2,567 7,176 The credit terms in connection with sales of properties granted to the buyers are set out in the sale and purchase agreements and vary for different agreements. Rentals receivable from tenants and service income receivable from customers are payable on presentation of invoices. Other than these, the Group generally allows a credit period of not exceeding 60 days to customers.

33 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) TRADE AND OTHER RECEIVABLES, PREPAYMENTS AND DEPOSITS (continued) In general, trade receivables that are aged below one year are not considered impaired based on management s historical experience and management would consider allowance for impairment of trade receivables which are aged one year or above. The Group has minimal trade receivables balances which are past due but not impaired as at the reporting date. In determining the recoverability of trade receivables, the Group also considers any change in the credit quality of the trade receivables from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no credit provision required as at the end of the reporting period. Certain amount of trade receivable are pledged as further detailed in note TRADE AND OTHER PAYABLES 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Trade payables 1,906,989 1,772,625 Other payables and accruals 370, ,191 Deposit received 104,822 54,773 2,381,876 2,172,589

34 86 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 14. TRADE AND OTHER PAYABLES (continued) The ageing analysis of trade payables (based on invoice date) is as follows: 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ days or below 436, , days 237, , days 33,814 21, days 592, , days 445, ,528 Over 360 day 160, ,399 1,906,989 1,772, BORROWINGS 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Current liabilities Bank borrowings 1,263,983 1,066,356 Other loan 320,710 1,263,983 1,387,066 Non-current liabilities Bank borrowings 2,752,879 2,615,641 2,752,879 2,615,641 4,016,862 4,002,707

35 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) BORROWINGS (continued) 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Analysis into: Bank borrowings (note (i)) Secured (note 19) 429, ,725 Unsecured 3,587,517 3,250,272 4,016,862 3,681,997 Other loan (note (ii)) Unsecured 320,710 4,016,862 4,002,707 The movement of bank borrowings and other loan is as follows: 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Carrying amount at the beginning of the period/year 4,002,707 2,247,500 Translation adjustment (15,098) 122,781 New bank borrowings raised 695,248 2,943,792 Repayment of bank borrowings and other loan (665,995) (1,311,366) Carrying amount at the end of the period/year 4,016,862 4,002,707

36 88 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) 15. BORROWINGS (continued) Notes: (i) Bank borrowings The maturity profile of bank borrowings is as follows: 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Current liabilities Portion of term loans due for repayment within one year 1,263,983 1,066,356 Non-current liabilities Term loans due for repayment after one year After one year but within two years 1,512,247 1,429,861 After two year but within five years 1,105,695 1,019,258 After five years 134, ,522 2,752,879 2,615,641 4,016,862 3,681,997 The bank borrowings as at 30 June 2012 were arranged at floating rates of 1.90% to 7.59% per annum (at 31 December 2011: 1.88% to 7.76% per annum). (ii) Other loan Other loan as at 31 December 2011 represented a loan obtained from a financial institution in the PRC, which was arranged at the floating rate of 6.40% per annum and was fully repaid during the six months ended 30 June As at 31 December 2011, other loan was classified as current liabilities in the condensed consolidated statement of financial position and was wholly due for repayment within one year.

37 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (continued) BORROWINGS (continued) Notes: (continued) (iii) The carrying amounts of the bank borrowings and other loan are denominated in the following currencies: 30 June 2012 (Unaudited) HK$ December 2011 (Audited) HK$ 000 Hong Kong Dollar 1,400,000 1,150,000 Renminbi ( RMB ) 2,616,862 2,852,707 4,016,862 4,002,707 In the opinion of the directors, the carrying amounts of the Group s current and non-current borrowings approximate their fair values. The fair values of the non-current borrowings are calculated by discounting their expected future cash flows at market rate. 16. CONVERTIBLE BONDS On 13 March 2012, the Company and China Overseas Grand Oceans Finance (Cayman) Limited, a wholly owned subsidiary of the Company incorporated in the Cayman Islands (the Issuer ) entered into a subscription agreement (the Subscription Agreement ) with lead managers, under which the lead managers conditionally agreed severally to subscribe and pay for the convertible bonds to be issued by the Issuer in an aggregate principal amount of HK$2,200,000,000 (the Convertible Bonds ). The completion of the Subscription Agreement took place and the Convertible Bonds were issued on 21 March The Convertible Bonds will have the benefit of an irrevocable standby letter of credit issued in favour of the trustee, on behalf of the bondholders, by a bank. The Company, as a guarantor with reference to the letter of credit facility agreement, irrevocably and unconditionally undertakes with the bank for any amount incurred in relation to the standby letter of credit (note 21). Subject to certain exceptions, the irrevocable standby letter of credit shall expire on the date falling three years and thirty days after 21 March 2012.