Stock Code 127 Interim Report For The Six Months Ended 30th June, 2016
CONTENTS Corporate Information 1 Results Condensed Consolidated Statement of Comprehensive Income 3 Condensed Consolidated Statement of Financial Position 5 Condensed Consolidated Statement of Changes in Equity 8 Condensed Consolidated Statement of Cash Flows 11 Notes to the Condensed Consolidated Financial Statements 12 Interim Dividend 63 Closure of Register of Members 63 Financial Operation Review 63 Business Review 79 Other Information and Events after the Reporting Period 82 Prospects 84 Directors and Chief Executives Interests in the Securities of the Company and Associated Corporation 85 Substantial Shareholders Interests in the Securities of the Company 86 Share Award Scheme 87 Audit Committee Review 87 Corporate Governance 87 Model Code for Securities Transactions 88 Purchase, Sale or Redemption of the Company s Listed Securities 88 Disclosure of Change of Information of Directors under Rules 13.51B(1) and 13.51(2) of the Listing Rules 13.51B(1)13.51(2) 89 Appreciation 89 * Should there be any discrepancy between the English and Chinese versions, the English version shall prevail. Date of this report: 30th August, 2016
CORPORATE INFORMATION Directors Executive Directors: Chan, Sze-wan (Chief Executive Officer) Chan, Lok-wan Lam, Kwong-wai Non-executive Directors: Lau, Ming-wai (Chairman) Amy Lau, Yuk-wai Independent Non-executive Directors: Chan, Kwok-wai Phillis Loh, Lai-ping Ma, Tsz-chun Audit Committee Chan, Kwok-wai (Chairman) Phillis Loh, Lai-ping Ma, Tsz-chun Investment Committee Chan, Sze-wan (Chairman) Lam, Kwong-wai (Chief Investment Officer) Chan, Kwok-wai Ma, Tsz-chun Nomination Committee Phillis Loh, Lai-ping (Chairman) Chan, Kwok-wai Ma, Tsz-chun Remuneration Committee Chan, Kwok-wai (Chairman) Phillis Loh, Lai-ping Ma, Tsz-chun Special Committee Chan, Kwok-wai Phillis Loh, Lai-ping Ma, Tsz-chun Company Secretary Lam, Kwong-wai Solicitors Baker & McKenzie Sidley Austin Sit, Fung, Kwong & Shum Auditors HLB Hodgson Impey Cheng Limited Bankers (Listed in alphabetical order) Bank of China (Hong Kong) Limited Bank of Communications Co., Ltd. Chong Hing Bank Limited OCBC Wing Hang Bank Limited The Bank of East Asia, Limited, London Branch 1
CORPORATE INFORMATION (continued) Place of Incorporation Bermuda Registered Office Canon s Court, 22 Victoria Street Hamilton HM12, Bermuda Principal Office in Hong Kong 26th Floor, MassMutual Tower 38 Gloucester Road Wanchai, Hong Kong Principal Registrar and Transfer Office MUFG Fund Services (Bermuda) Limited The Belvedere Building, 69 Pitts Bay Road Pembroke HM08, Bermuda Branch Registrar and Transfer Office in Hong Kong Computershare Hong Kong Investor Services Limited Shops 1712-1716 17th Floor, Hopewell Centre 183 Queen s Road East Wanchai, Hong Kong Tel: (852) 2862 8555 Fax: (852) 2865 0990/(852) 2529 6087 Offices in the People s Republic of China Beijing Office: Room 202, Oriental Place No. 9 East Dongfang Road North Dongsanhuan Road Chaoyang District, Beijing, PRC Post Code: 100027 Tel: (8610) 6466 0638 Fax: (8610) 6466 0238 Shanghai Office: Room 303, Evergo Tower 1325 Central Huaihai Road Xuhui District, Shanghai, PRC Post Code: 200031 Tel: (8621) 6475 3979 Shenzhen Office: Rooms 1-3A, South Gong, 6th Floor Lowu Commercial Plaza 25 Railway Station Square Luohu District, Shenzhen Guangdong Province, PRC Post Code: 518001 Tel: (86755) 8234 7139 Fax: (86755) 8234 0012 Website http://www.chineseestates.com Stock Code 127 Board Lot 500 shares Investor Relations For enquiries relating to investor relations, please contact: Tel: (852) 2866 6999 Fax: (852) 2866 2822/(852) 2866 2833 E-mail: investor.relations@chineseestates.com Canon s Court, 22 Victoria Street Hamilton HM12, Bermuda 38 26 MUFG Fund Services (Bermuda) Limited The Belvedere Building, 69 Pitts Bay Road Pembroke HM08, Bermuda 183 17 1712 1716 (852) 2862 8555 (852) 2865 0990/(852) 2529 6087 9 202 100027 (8610) 6466 0638 (8610) 6466 0238 1325 303 200031 (8621) 6475 3979 25 6/F1-3A 518001 (86755) 8234 7139 (86755) 8234 0012 http://www.chineseestates.com 127 500 (852) 2866 6999 (852) 2866 2822/(852) 2866 2833 investor.relations@chineseestates.com 2
RESULTS The board of directors (the Board ) of Chinese Estates Holdings Limited (the Company ) would like to announce the unaudited consolidated interim results of the Company and its subsidiaries (together, the Group ) for the six months ended 30th June, 2016 (the Period ) together with the comparative figures for the corresponding period in 2015: CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30th June, 2016 Chinese Estates Holdings Limited Six months ended 30th June, 2016 2015 Notes (Unaudited) (Unaudited) Revenue 3 1,944,869 968,961 Cost of sales (588,462) (201,286) Gross profit 1,356,407 767,675 Other income 5 51,493 60,371 Investment income, net 6 1,170,183 181,529 Administrative expenses (192,835) (215,322) Other expenses (404) Gain (loss) on disposals of equipment, net 99 (1,646) Fair value changes on investment properties (891,210) (543,529) Finance costs 8 (89,415) (185,408) Other gains and losses, net 9 1,992,303 (97,018) Share of results of associates 117,739 132,305 Profit before tax 3,514,764 98,553 Income tax expense 10 (352,087) (215,788) Profit (loss) for the period 7 3,162,677 (117,235) Other comprehensive (expenses) income Items that will not be reclassified to profit or loss Fair value changes on financial assets measured at fair value through other comprehensive income Share of other comprehensive expenses of associates (2,336,029) (2) (2,336,031) 3
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued) For the six months ended 30th June, 2016 Six months ended 30th June, 2016 2015 Notes (Unaudited) (Unaudited) Other comprehensive (expenses) income (continued) Items that may be reclassified subsequently to profit or loss Fair value changes on available-for-sale investments Exchange differences on translation of foreign operations Reclassification adjustment related to foreign operation disposed of during the period Share of other comprehensive (expenses) income of associates (11,533) (265,049) 23,868 9,053 (2,419) 1,325 (258,415) 13,660 Other comprehensive (expenses) income for the period (net of tax) (2,594,446) 13,660 Total comprehensive income (expenses) for the period 568,231 (103,575) Profit (loss) for the period attributable to: Owners of the Company 2,931,016 (115,384) Non-controlling interests 231,661 (1,851) 3,162,677 (117,235) Total comprehensive income (expenses) for the period attributable to: Owners of the Company 336,570 (101,724) Non-controlling interests 231,661 (1,851) 568,231 (103,575) Earnings (loss) per share (HK$) 12 Basic and diluted 1.537 (0.061) 4
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 30th June, 2016 30th June, 2016 31st December, 2015 Notes (Unaudited) (Audited) Non-current assets Investment properties 13 12,487,131 21,941,263 Property, plant and equipment 48,261 50,540 Intangible assets Goodwill 14 322,938 322,938 Interests in associates 15 2,059,036 3,770,476 Advances to associates 16 78,732 55,482 Available-for-sale investments 17 743,649 Financial assets designated as at fair value through profit or loss 798,489 Financial assets measured at fair value through profit or loss 18 463,741 Financial assets measured at fair value through other comprehensive income 19 5,421,490 Advances to investee companies 423,584 413,579 Advance to a non-controlling shareholder 14,908 14,908 Other receivables 20 7,344,707 3,998,358 Deferred tax assets 3,715 4,280 Pledged deposits 72,666 24,557 28,740,909 32,138,519 Current assets Stock of properties 2,181,865 2,595,987 Available-for-sale investment 17 67,625 Investments held-for-trading 39,337 364,244 Financial assets designated as at fair value through profit or loss 10,270,781 Financial assets measured at fair value through profit or loss 18 9,229,940 Financial assets measured at fair value through other comprehensive income 19 53,801 Inventories 2,293 2,533 Debtors, deposits, other receivables and prepayments 20 5,798,622 3,366,415 Securities trading receivables and deposits 263,032 86,175 Tax recoverable 3,956 3,955 Pledged deposits 994,394 178,193 Time deposits, bank balances and cash 1,898,509 2,849,807 Sales proceeds held by stakeholders 454,057 1,891,712 20,919,806 21,677,427 Assets classified as held for sale 21 10,681,698 9,239,271 31,601,504 30,916,698 5
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) At 30th June, 2016 30th June, 2016 31st December, 2015 Notes (Unaudited) (Audited) Current liabilities Creditors and accruals 22 379,039 1,081,746 Securities trading and margin payable 6,589,452 11,181 Deposits and receipts in advance 677,033 2,106,924 Tax liabilities 332,603 239,906 Borrowings 23 7,609,428 8,651,773 Provisions 467 1,249 Liabilities directly associated with assets classified as held for sale 15,588,022 12,092,779 21 4,870,102 1,857,996 20,458,124 13,950,775 Net current assets 11,143,380 16,965,923 Total assets less current liabilities 39,884,289 49,104,442 Equity attributable to owners of the Company Share capital 24 190,762 190,762 Properties revaluation reserve 98,162 98,162 Securities investments reserve 16,044 Financial assets measured at fair value through other comprehensive income reserve (2,222,594) Statutory reserve 668 24,028 Other reserve (2,407) (2,407) Special reserve 2,499,685 2,499,685 Capital redemption reserve 138,062 138,062 Translation reserve (413,608) (155,193) Amounts recognised in other comprehensive income and accumulated in equity relating to non-current assets held for sale Retained profits 127,054 declared/proposed dividends 10,186,686 19,076 others 26,433,386 37,292,327 36,908,802 40,247,600 Non-controlling interests 249,423 77,762 Total equity 37,158,225 40,325,362 6
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) At 30th June, 2016 30th June, 2016 31st December, 2015 Notes (Unaudited) (Audited) Non-current liabilities Borrowings 23 2,416,381 5,880,000 Amounts due to associates 25 119,819 1,789,647 Amounts due to investee companies 25 27,085 Amounts due to non-controlling shareholders 25 99,003 523,768 Deferred tax liabilities 90,861 558,580 2,726,064 8,779,080 39,884,289 49,104,442 7
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30th June, 2016 Share capital Attributable to owners of the Company Properties revaluation reserve Securities investments reserve Financial assets measured at fair value through other comprehensive income reserve Statutory reserve (note (i)) (note (i)) (note (ii)) (i) (i) (ii) At 1st January, 2015 (audited) 190,762 225,216 41,022 53,650 Loss for the period Other comprehensive (expenses) income for the period (11,533) Total comprehensive (expenses) income for the period (11,533) PRC statutory reserve 41 Final dividend for 2014 paid Special interim dividend for 2015 declared and paid subsequently At 30th June, 2015 (unaudited) 190,762 225,216 29,489 53,691 Profit (loss) for the period Other comprehensive (expenses) income for the period (127,054) (13,445) Total comprehensive (expenses) income for the period (127,054) (13,445) PRC statutory reserve 2,546 Release of reserve upon disposals of subsidiaries (32,209) Interim dividend for 2015 paid Special interim dividend for 2015 paid At 31st December, 2015 and 1st January, 2016 (originally stated) (audited) Effect on early adoption of Hong Kong Financial Reporting Standard 9 (2014) (net of tax) 190,762 98,162 16,044 24,028 9 (2014 (16,044) 113,437 At 1st January, 2016 (restated) 190,762 98,162 113,437 24,028 Profit for the period Other comprehensive expenses for the period (2,336,031) Total comprehensive (expenses) income for the period (2,336,031) Release of reserves upon disposals of subsidiaries (23,360) Dividend paid to a non-controlling shareholder Final dividend for 2015 paid Special interim dividend for 2016 paid At 30th June, 2016 (unaudited) 190,762 98,162 (2,222,594) 668 8
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the six months ended 30th June, 2016 Attributable to owners of the Company Other reserve Special reserve Capital redemption reserve Translation reserve Amounts relating to non-current assets held for sale Retained profits Total Noncontrolling interests Total equity (note (iii)) (note (iv)) (note (v)) (iii) (iv) (v) (2,435) 2,499,685 138,062 1,026,504 37,394,888 41,567,354 85,239 41,652,593 (115,384) (115,384) (1,851) (117,235) 10 25,183 13,660 13,660 10 25,183 (115,384) (101,724) (1,851) (103,575) (41) (19,076) (19,076) (19,076) (4,959,810) (4,959,810) (4,959,810) (2,425) 2,499,685 138,062 1,051,687 32,300,577 36,486,744 83,388 36,570,132 7,842,592 7,842,592 (5,626) 7,836,966 18 (1,206,880) 127,054 (1,220,307) (1,220,307) 18 (1,206,880) 127,054 7,842,592 6,622,285 (5,626) 6,616,659 (2,546) 32,209 (572,286) (572,286) (572,286) (2,289,143) (2,289,143) (2,289,143) (2,407) 2,499,685 138,062 (155,193) 127,054 37,311,403 40,247,600 77,762 40,325,362 61,553 158,946 158,946 (2,407) 2,499,685 138,062 (155,193) 127,054 37,372,956 40,406,546 77,762 40,484,308 2,931,016 2,931,016 231,661 3,162,677 (258,415) (2,594,446) (2,594,446) (258,415) 2,931,016 336,570 231,661 568,231 (127,054) 150,414 (60,000) (60,000) (19,076) (19,076) (19,076) (3,815,238) (3,815,238) (3,815,238) (2,407) 2,499,685 138,062 (413,608) 36,620,072 36,908,802 249,423 37,158,225 9
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the six months ended 30th June, 2016 Notes: (i) The carrying amount of the loss on fair value change of listed equity investment included in financial assets measured at fair value through other comprehensive income reserve was approximately HK$2,314,494,000 as at 30th June, 2016 (31st December, 2015: in securities investments reserve of nil). (i) 2,314,494,000 (ii) The statutory reserve of the Group refers to the People s Republic of China ( PRC ) statutory reserve fund. Appropriations to such reserve fund are made out of profit after tax as recorded in the statutory financial statements of the PRC subsidiaries. The amount should not be less than 10% of the profit after tax as recorded in the statutory financial statements unless the aggregate amount exceeds 50% of the registered capital of the PRC subsidiaries. The statutory reserve can be used to make up prior year losses, if any, and can be applied in conversion into the PRC subsidiaries capital by means of capitalisation issue. (iii) The movement of other reserve for the period represented the release of the negative reserve held by an associate of the Group upon the disposals of the relevant properties. (iv) Special reserve represented the difference arising from the aggregate of the share capital and premium amount of the former holding company and the Company upon redomicile of the holding company as a Bermuda Company in 1989 and is non-distributable. (v) Amount represented Amount recognised in other comprehensive income and accumulated in equity relating to non-current assets held for sale. (ii) 10% 50% (iii) (iv) (v) 10
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30th June, 2016 Six months ended 30th June, 2016 2015 Note (Unaudited) (Unaudited) Net cash generated from operating activities 3,858,693 2,630,000 Net cash generated from investing activities (Increase) decrease in pledged deposits (951,819) 203,104 Contributions to available-for-sale investments (564,287) Partial payment for purchase of a financial asset measured at fair value through other comprehensive income (346,308) Purchases of investment properties (3,554,052) Net cash inflow on disposals of subsidiaries 26 3,696,330 2,206,293 Deferred consideration received in respect of disposals of subsidiaries in prior year 1,562,500 Other investing activities 520,545 199,935 927,196 2,045,045 Net cash used in financing activities Bank loans and other loans repaid, net (1,265,152) (2,323,690) Dividends paid (3,834,314) (2,298,749) Other financing activities (632,359) (240,450) (5,731,825) (4,862,889) Net decrease in cash and cash equivalents (945,936) (187,844) Cash and cash equivalents at 1st January 2,862,041 4,742,903 Effect of foreign exchange rate changes (1,341) 3,665 Cash and cash equivalents at 30th June 1,914,764 4,558,724 Analysis of the balances of cash and cash equivalents Time deposits, bank balances and cash 1,898,509 4,513,606 Bank balances and cash included in assets classified as held for sale 16,255 45,118 1,914,764 4,558,724 11
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30th June, 2016 1. Basis of Preparation These unaudited condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). These unaudited condensed consolidated financial statements have been prepared under the historical cost basis, except for certain properties and financial instruments, which are measured at their fair values. 2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) The accounting policies adopted in these unaudited condensed consolidated financial statements for the Period are consistent with those followed in the preparation of the Group s consolidated financial statements for the year ended 31st December, 2015 except as described below. In the current period, the Group has applied, for the first time, the following amendments to existing HKFRSs ( Amendments ) issued by the HKICPA, which are effective for current accounting period of the Group. The Amendments adopted by the Group in these unaudited condensed consolidated financial statements are set out below: 1. 16 34 2. HKFRSs (Amendments) HKFRS 10, HKFRS 12 and HKAS 28 (2011) (Amendments) HKFRS 11 (Amendments) HKAS 1 (Amendments) Annual Improvements to HKFRSs 2012-2014 Cycle Investment Entities: Applying the Consolidation Exception Accounting for Acquisitions of Interests in Joint Operations Disclosure Initiative 10 12 282011 11 1 20122014 12
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) 2. HKAS 16 and HKAS 38 (Amendments) HKAS 16 and HKAS 41 (Amendments) HKAS 27 (2011) (Amendments) Clarification of Acceptable Methods of Depreciation and Amortisation Agriculture: Bearer Plants Equity Method in Separate Financial Statements 16 38 16 41 272011 Amendments to HKAS 1 Disclosure Initiative Amendments to HKAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify: the materiality requirements in HKAS 1; that specific line items in the statement of comprehensive income and the statement of financial position may be disaggregated; that entities have flexibility as to the order in which they present the notes to financial statements; and that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss. Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of comprehensive income. The application of the Amendments had no material effect on how the results and financial position for the current or prior accounting periods are prepared and presented. Accordingly, no prior period adjustment has been required. HKFRS 9 Financial Instruments During the Period, the Group has early adopted HKFRS 9 (2014) that is effective for annual periods beginning on or after 1st January, 2018. The Group has chosen 1st January, 2016 as its date of initial application. 1 1 1 9 92014 13
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) HKFRS 9 Financial Instruments (continued) Accounting policies applied from 1st January, 2016 HKFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. The final version of HKFRS 9 was issued in September 2014. It replaces the guidance in HKAS 39 Financial Instruments: Recognition and Measurement that relates to the classification and measurement of financial instruments. HKFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income ( FVTOCI ) and fair value through profit or loss ( FVTPL ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial assets. Investments in equity instruments (that are not held-for-trading) are measured at fair values with an irrevocable election at inception to present changes in fair value in other comprehensive income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in HKAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at FVTPL. HKFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually uses for risk management purposes. Financial Assets 2. 9 9 9 39 9 39 9 (i) Classification (i) From 1st January, 2016, the Group classifies its financial assets in the following measurement categories: those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and those to be measured at amortised cost. The classification depends on the entity s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investments (that are not held-for-trading) at FVTOCI. The Group reclassifies debt investments when and only when its business model for managing those assets changes. 14
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) HKFRS 9 Financial Instruments (continued) Accounting policies applied from 1st January, 2016 (continued) Financial Assets (continued) (ii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets measured at FVTPL are recognised in profit or loss. Debt instruments Subsequent measurement of debt instruments depends on the Group s business model for managing the assets and the cash flow characteristics of the assets. There are three measurement categories into which the Group classifies its debt instruments: Amortised cost: Assets that are held for collection of contractual cash flows, where the assets cash flows represent solely payments of principal and interest, are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in investment income using the effective interest rate method. FVTOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets cash flows represent solely payments of principal and interest, are measured at FVTOCI. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, interest income and foreign exchange gains or losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and recognised in investment income/expenses. Interest income from these financial assets is included in investment income using the effective interest rate method. FVTPL: Assets that do not meet the criteria for amortised cost or FVTOCI are measured at FVTPL. A gain or loss on a debt investment that is subsequently measured at FVTPL and is not part of a hedging relationship is recognised in profit or loss and presented net in the consolidated statement of comprehensive income within investment income/expenses in the period in which it arises. Interest income from these financial assets is included in investment income. 2. 9 (ii) 15
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) HKFRS 9 Financial Instruments (continued) Accounting policies applied from 1st January, 2016 (continued) Financial Assets (continued) (ii) Measurement (continued) Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group s management has elected to present fair value gains and losses on equity investments (that are not held-for-trading) in other comprehensive income/expenses, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends from such investments continue to be recognised in profit or loss as investment income when the Group s right to receive payments is established. Changes in the fair value of financial assets measured at FVTPL are recognised in investment income/expenses in the consolidated statement of comprehensive income as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVTOCI are not reported separately from other changes in fair value. (iii) Impairment The Group assesses on a forward looking basis the expected credit losses associated with its assets measured at amortised cost and FVTOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. In accordance with HKFRS 9, the Group did not restate prior periods and the cumulative effect of initially applying the standard as an adjustment was recognised in either retained earnings or an appropriate equity reserve as of the opening balance as at 1st January, 2016. 2. 9 (ii) (iii) 9 16
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) HKFRS 9 Financial Instruments (continued) Accounting policies applied from 1st January, 2016 (continued) Financial Assets (continued) The following summarises the classification and measurement changes for the Group s financial assets on 1st January, 2016, the Group s date of initial application of HKFRS 9: 2. 9 9 (i) Unlisted equity securities previously classified as available-forsale investments (i) The Group elected to present in other comprehensive income changes in the fair value of all its unlisted equity securities previously classified as available-for-sale investments because these investments are not held-fortrading. As a result, the financial assets were reclassified from available-for-sale investments with original carrying amount of approximately HK$794,693,000 to financial assets measured at FVTOCI and were remeasured at fair value of approximately HK$891,653,000. Fair value gain of approximately HK$16,044,000 was reclassified from the securities investments reserve to the financial assets measured at FVTOCI reserve and additional fair value gain of approximately HK$97,393,000 (including share of other comprehensive income of associates of approximately HK$433,000) was recognised in the financial assets measured at FVTOCI reserve upon remeasurement on 1st January, 2016. 794,693,000 891,653,000 16,044,000 97,393,000 433,000 (ii) Club debentures previously classified as available-for-sale investments The Group elected to present in profit or loss changes in the fair value of all its club debentures previously classified as available-for-sale investments because the Group considered their investment purpose at the date of initial application of HKFRS 9. As a result, the financial assets were reclassified from available-for-sale investments with original carrying amount of approximately HK$16,581,000 to financial assets measured at FVTPL and were remeasured at fair value of approximately HK$78,134,000. Fair value gain of approximately HK$61,553,000 was recognised in retained profits upon remeasurement on 1st January, 2016. (iii) Bonds previously classified as financial assets designated as at fair value through profit or loss The Group reclassified the financial assets designated as at fair value through profit or loss to financial assets measured at FVTPL and no change in their measurement on 1st January, 2016. (ii) 9 16,581,000 78,134,000 61,553,000 (iii) 17
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) The Group has not early adopted the following new HKFRSs and amendments to existing HKFRSs ( new and amended HKFRSs ) that have been issued but are not yet effective. 2. HKFRS 10 and HKAS 28 (2011) (Amendments) HKFRS 15 HKFRS 16 Leases 3 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4 Revenue from Contracts with Customers 2 HKAS 7 (Amendments) Disclosure Initiative 1 HKAS 12 (Amendments) Recognition of Deferred Tax Assets for Unrealised Losses 1 10 28 2011 15 16 7 12 4 2 3 1 1 1 Effective for annual periods beginning on or after 1st January, 2017 2 Effective for annual periods beginning on or after 1st January, 2018 3 Effective for annual periods beginning on or after 1st January, 2019 4 Effective for annual periods beginning on or after a date to be determined Amendments to HKFRS 10 and HKAS 28 (2011) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in 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. 1 2 3 4 10 28 2011 10 28 2011 10 282011 18
2. Application of New and Amended Hong Kong Financial Reporting Standards ( HKFRSs ) (continued) HKFRS 15 Revenue from Contracts with Customers HKFRS 15 establishes a new five-step model to account for 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 judgments and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In September 2015, the HKICPA issued an amendment to HKFRS 15 regarding a one-year deferral of the mandatory effective date of HKFRS 15 to 1st January, 2018. HKFRS 16 Leases HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. It distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Subject to limited exceptions for short-term leases and low value assets, distinctions of operating and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees. However, the standard does not significantly change the accounting of lessors. The directors of the Company ( Directors ) are in the process of assessing the potential impact of the new and amended HKFRSs but are not yet in a position to determine whether the new and amended HKFRSs will have a significant impact on how the Group s results of operations and financial position are prepared and presented. The new and amended HKFRSs may result in changes in the future as to how the results and financial position are prepared and presented. 2. 15 15 15 15 15 15 16 16 19
3. Revenue Revenue represents the aggregate amounts received and receivable from property rental income, sales of properties held for sale, gain/ loss on sales of investments held-for-trading, hotel operation income, commission from brokerage, settlement charges from brokerage and cosmetic goods sold less returns, analysed as follows: 3. Six months ended 30th June, 2016 2015 Property rental income 482,046 760,380 Sales of properties held for sale 1,480,363 146,981 (Loss) gain on sales of investments held-for-trading (24,351) 9,989 Hotel operation income 41,724 Brokerage and cosmetic income 6,811 9,887 1,944,869 968,961 4. Operating Segments The Group determines its operating segments based on the reports reviewed by the chief operating decision-makers that are used to make strategic decisions. The Group has six reportable segments (i) property development and trading; (ii) property leasing for retail; (iii) property leasing for non-retail; (iv) listed equity investments at FVTOCI (2015: listed available-for-sale equity investments); (v) listed investments heldfor-trading and treasury products; and (vi) unlisted investments, investment holding and brokerage. The segmentations are based on the information about the operation of the Group that management of the Group uses to make decisions. Principal activities are as follows: Property development and Property development and sales of trading properties trading Property leasing Retail Property leasing from retail properties Non-retail Property leasing from non-retail properties Listed equity investments at FVTOCI Listed equity securities at FVTOCI (2015: listed equity securities in available-for-sale (2015: listed available-for- investments) sale equity investments) Listed investments held-for-trading and treasury products Unlisted investments, investment holding and brokerage Listed securities investments in investments heldfor-trading, over-the-counter trading and structured products Unlisted securities investments, trading and brokerage 4. (i) (ii)(iii)(iv) (v) (vi) 20
4. Operating Segments (continued) The Group evaluates performance on the basis of profit or loss from operations after tax expense and non-controlling interests but not including the major non-cash items. The major non-cash items are unrealised fair value changes on investment properties and other properties together with their, if applicable, respective deferred tax. No intersegment revenue is accounted for as the intersegment revenue is mainly the rental income for administrative purpose. Unallocated corporate assets mainly comprised leasehold land and building for own use, deposit paid in respect of a property, advance to a non-controlling shareholder, deferred tax assets, tax recoverable and deferred considerations in respect of disposals of subsidiaries. Unallocated corporate liabilities mainly comprised tax liabilities, bank loans (excluding a bank loan originated in the United Kingdom), amounts due to associates, amounts due to investee companies, amounts due to non-controlling shareholders and deferred tax liabilities (31st December, 2015: also included deposit received in respect of disposal of a subsidiary). The Group s measurement methods used to determine reported segment profit or loss remain unchanged from 2015. The Group s reportable segments are strategic business units that operate different activities. They are managed separately because each business unit has different markets and requires different marketing strategies. Further, the business units are also managed to operate in different countries separately. Revenue and result are attributed to countries on the basis of the property or asset location. There were two major customers (2015: nil) who individually accounted for over 10% of the Group s revenue. Revenue of approximately HK$377,836,000 and HK$333,909,000 (2015: nil) were derived from property development and trading segment from each of the two customers in Hong Kong. 4. 10% 377,836,000 333,909,000 21
4. Operating Segments (continued) Operating segment information is presented below: Condensed Consolidated Statement of Comprehensive Income For the six months ended 30th June, 2016 4. Property development and trading Property leasing Retail Non-retail Listed equity investments at FVTOCI Listed investments held-fortrading and treasury products Unlisted investments, investment holding and brokerage All other segments Consolidated Major cash items excluding in revenue Hong Kong 6,014,754 6,014,754 Other countries 1,346,222 1,346,222 7,360,976 7,360,976 Revenue Revenue from external customers Hong Kong 1,480,363 165,786 169,641 (24,351) 1,989 4,822 1,798,250 Mainland China 23,834 19,036 42,870 United Kingdom 6,344 97,405 103,749 1,480,363 195,964 286,082 (24,351) 1,989 4,822 1,944,869 Revenue from external customers after non-controlling interests 1,036,254 195,390 285,867 (24,351) 1,989 4,822 1,499,971 Attributable property sales from associates Hong Kong 635 635 Attributable rental revenue from associates/investee company Hong Kong 10,170 20,056 30,226 Mainland China 34,411 4,309 38,720 1,036,889 239,971 310,232 (24,351) 1,989 4,822 1,569,552 Result Segment result Hong Kong 929,352 164,757 176,814 189,653 348,001 491,901 12,415 2,312,893 Mainland China 21,276 16,637 2,648 40,561 United Kingdom 5,880 93,800 88 99,768 Other countries 84,266 84,266 929,352 191,913 287,251 189,653 432,267 494,637 12,415 2,537,488 Share of results of associates Attributable property sales, net Hong Kong 528 528 Attributable gross income Hong Kong 9,662 19,463 1,132 30,257 Mainland China 34,411 4,309 38,720 Attributable operating cost Hong Kong (328) (3,611) (3,939) Mainland China (14,742) (1,525) (16,267) Non-controlling interests (272,020) (504) (189) (272,713) 657,860 220,412 305,698 189,653 432,267 494,637 13,547 2,314,074 22
4. Operating Segments (continued) Condensed Consolidated Statement of Comprehensive Income (continued) For the six months ended 30th June, 2016 4. Property development and trading Property leasing Retail Non-retail Listed equity investments at FVTOCI Listed investments held-fortrading and treasury products Unlisted investments, investment holding and brokerage All other segments Consolidated Finance (costs) income (1,278) (45,272) 1,579 (44,971) Other gains and losses, net (6,085) (60) (6,145) Share of results of associates income tax and others (84) (16,622) (3,247) (254) (20,207) Income tax expense (19,117) (19,117) 651,691 202,452 257,179 170,536 433,846 494,637 13,293 2,223,634 Unallocated items Unallocated corporate expenses, net (152,141) Unallocated finance costs (44,444) Gain on disposals of subsidiaries 1,998,448 Income tax expense (335,278) Unallocated non-controlling interests 41,052 Operating profit for the period attributable to owners of the Company 3,731,271 Major non-cash items Unrealised fair value changes on investment properties (including share of results of associates) (802,563) Deferred tax credit 2,308 Profit for the period attributable to owners of the Company 2,931,016 Core profit (excluding major non-cash items) Operating profit for the period attributable to owners of the Company Major accumulated realised fair value changes together with their respective deferred tax on disposals of investment properties in current period (including fair value changes recognised in properties revaluation reserve) Recognised in prior years 8,682,033 3,731,271 Core profit for the period attributable to owners of the Company 12,413,304 23
4. Operating Segments (continued) Condensed Consolidated Statement of Financial Position At 30th June, 2016 4. Property development and trading Property leasing Retail Non-retail Listed equity investments at FVTOCI Listed investments held-fortrading and treasury products Unlisted investments, investment holding and brokerage All other segments Consolidated Assets Segment assets Hong Kong 3,161,770 4,160,791 3,648,757 4,782,210 8,255,473 518,059 43,753 24,570,813 Mainland China 385,609 28,730 6,561 420,900 United Kingdom 1,636,118 5,669,478 7,305,596 Other countries 11 1,847,207 670,831 2,518,049 Interests in associates Hong Kong 119,776 372,917 1,382,932 2,117 4,943 1,882,685 Mainland China 114,648 61,703 176,351 Advances to associates Hong Kong 1,248 218 5 1,141 2,612 Mainland China 49,512 26,608 76,120 Reportable segment assets 3,282,794 6,719,606 10,818,426 4,782,210 10,102,680 1,191,012 56,398 36,953,126 Assets classified as held for sale 10,681,698 Unallocated corporate assets 12,707,589 Consolidated total assets 60,342,413 Liabilities Segment liabilities Hong Kong 807,105 29,970 62,917 6,579,858 109 12,267 9,544 7,501,770 Mainland China 12,388 9 11 12,408 United Kingdom 81,798 2,512,353 2,594,151 Other countries 1 4,959,878 6 4,959,885 Reportable segment liabilities 807,105 124,157 2,575,279 6,579,858 4,959,987 12,273 9,555 15,068,214 Liabilities directly associated with assets classified as held for sale 4,870,102 Unallocated corporate liabilities 3,245,872 Consolidated total liabilities 23,184,188 Additions to non-current assets (other than financial instruments and deferred tax assets) 328 1,686,876 1,877,761 45 24
4. Operating Segments (continued) Other Material Items For the six months ended 30th June, 2016 4. Reportable segments total Adjustments for unallocated Adjustments for major non-cash items Condensed consolidated statement of comprehensive income total Interest income 928,087 928,087 Finance costs (44,971) (44,444) (89,415) Net income (expenses) 883,116 (44,444) 838,672 Depreciation (5,795) (5,795) Fair value changes on investment properties (891,210) (891,210) Share of results of associates 29,092 88,647 117,739 Income tax (expense) credit (19,117) (335,278) 2,308 (352,087) Non-controlling interests (272,713) 41,052 (231,661) Condensed Consolidated Statement of Comprehensive Income For the six months ended 30th June, 2015 Property development and trading Property leasing Retail Non-retail Listed availablefor-sale equity investments Listed investments held-fortrading and treasury products Unlisted investments, investment holding and brokerage All other segments Consolidated Major cash items excluding in revenue Hong Kong 681,646 681,646 Other countries 4,275,946 4,275,946 4,957,592 4,957,592 Revenue Revenue from external customers Hong Kong 46,909 390,014 221,986 9,989 4,844 5,043 678,785 Mainland China 100,072 31,861 23,550 41,724 197,207 United Kingdom 2,553 90,416 92,969 146,981 424,428 335,952 9,989 4,844 46,767 968,961 Revenue from external customers after non-controlling interests 135,254 423,832 335,736 9,989 4,844 46,767 956,422 Attributable property sales from associates Hong Kong 5,864 5,864 Mainland China 89,279 89,279 Attributable rental revenue from associates/investee company Hong Kong 9,880 18,952 28,832 Mainland China 35,625 43,319 78,944 230,397 469,337 398,007 9,989 4,844 46,767 1,159,341 25
4. Operating Segments (continued) Condensed Consolidated Statement of Comprehensive Income (continued) For the six months ended 30th June, 2015 4. Property development and trading Property leasing Retail Non-retail Listed availablefor-sale equity investments Listed investments held-fortrading and treasury products Unlisted investments, investment holding and brokerage All other segments Consolidated Result Segment result Hong Kong 30,461 363,679 211,694 (51,181) 24,720 10,703 590,076 Mainland China 31,354 27,187 13,057 16,596 (14,296) 73,898 United Kingdom 2,486 88,057 17 90,560 Other countries 203,964 203,964 61,815 393,352 312,808 152,783 41,333 (3,593) 958,498 Share of results of associates Attributable property sales, net Hong Kong 3,762 3,762 Mainland China 4,322 4,322 Attributable gross income Hong Kong 9,315 18,349 1,056 28,720 Mainland China 35,625 43,319 78,944 Attributable operating cost Hong Kong (525) (2,997) (3,522) Mainland China (15,098) (7,695) (22,793) Non-controlling interests (7,616) (535) (194) (8,345) 62,283 422,134 363,590 152,783 41,333 (2,537) 1,039,586 Other income and expenses, net 3,671 768 14 4,453 Finance costs (1,387) (49,133) (2,818) (53,338) Other gains and losses, net 217 217 Share of results of associates Income tax and others (6,937) (19,296) (19,340) (147) (45,720) 59,017 402,436 295,117 149,965 41,347 (2,684) 945,198 Unallocated items Unallocated corporate expenses, net (170,748) Unallocated finance costs (132,070) Loss on disposals of subsidiaries (97,235) Income tax expense (61,766) Unallocated non-controlling interests 10,196 Operating profit for the period attributable to owners of the Company 493,575 Major non-cash items Unrealised fair value changes on investment properties (including share of results of associates) Deferred tax expense (454,937) (154,022) Loss for the period attributable to owners of the Company (115,384) Core profit (excluding major non-cash items) Operating profit for the period attributable to owners of the Company Major accumulated realised fair value changes on disposal of investment properties in current period Recognised in prior years 8,507,756 493,575 Core profit for the period attributable to owners of the Company 9,001,331 26
4. Operating Segments (continued) Condensed Consolidated Statement of Financial Position At 31st December, 2015 4. Property development and trading Property leasing Retail Non-retail Listed availablefor-sale equity investments Listed investments held-fortrading and treasury products Unlisted investments, investment holding and brokerage All other segments Consolidated Assets Segment assets Hong Kong 5,006,542 10,607,954 8,230,890 8,624,769 333,733 41,915 32,845,803 Mainland China 975,946 828,809 6,654 1,811,409 United Kingdom 116,573 4,319,308 4,435,881 Other countries 11 3,088,898 725,873 3,814,782 Interests in associates Hong Kong 142,755 357,486 1,365,871 1,722 5,029 1,872,863 Mainland China 131,621 1,765,992 1,897,613 Advances to associates Hong Kong 7,208 181 2 1,126 8,517 Mainland China 30,575 16,390 46,965 Reportable segment assets 5,156,505 12,220,166 16,527,441 11,713,667 1,061,330 54,724 46,733,833 Assets classified as held for sale 9,239,271 Unallocated corporate assets 7,082,113 Consolidated total assets 63,055,217 Liabilities Segment liabilities Hong Kong 1,533,734 140,762 153,900 210 14,006 6,273 1,848,885 Mainland China 19,086 12,667 19 31,772 United Kingdom 73,862 2,748,353 2,822,215 Other countries 1 5,389,995 6 5,390,002 Reportable segment liabilities 1,533,734 233,711 2,914,920 5,390,205 14,012 6,292 10,092,874 Liabilities directly associated with assets classified as held for sale 1,857,996 Unallocated corporate liabilities 10,778,985 Consolidated total liabilities 22,729,855 Additions to non-current assets (other than financial instruments and deferred tax assets) 219,801 16,451 933,700 38,927 27
4. Operating Segments (continued) Other Material Items For the six months ended 30th June, 2015 4. Reportable segments total Adjustments for unallocated Adjustments for major non-cash items Condensed consolidated statement of comprehensive income total Interest income 235,043 235,043 Finance costs (53,338) (132,070) (185,408) Net income (expenses) 181,705 (132,070) 49,635 Depreciation (41,718) (41,718) Fair value changes on investment properties (543,529) (543,529) Share of results of associates 43,713 88,592 132,305 Income tax expense (61,766) (154,022) (215,788) Non-controlling interests (8,345) 10,196 1,851 5. Other Income 5. Six months ended 30th June, 2016 2015 Included in other income are: Building management fee income 50,978 96,525 Building management fee expenses (40,080) (87,231) 10,898 9,294 Rental services income 11,220 12,996 Property management services, leasing administration services and property administration services income 17,091 9,761 Asset management and maintenance services income 2,120 9,101 Advisory and consultancy services income 277 937 Exchange gain, net 1,320 Reversal of impairment in respect of other receivable and interest thereon 3,717 Forfeiture of deposits received on sales of stock of properties 12 28
6. Investment Income, Net 6. Six months ended 30th June, 2016 2015 Financial assets at fair value through profit or loss classified as held-for-trading: Unrealised loss arising on change in fair value (14,154) (104,515) Financial assets measured at fair value through profit or loss (2015: financial assets designated as at fair value through profit or loss): (89,713) 65,008 Unrealised (loss) gain arising on change in fair value of bonds Realised gain (loss) arising on change in fair value of bonds Change in fair value 87,057 (35,185) Exchange component of change 8,716 (5,775) Net gain arising on change in fair value of bonds 6,060 24,048 Other investment income, net 14,358 13,098 Dividend income on: Listed investment 191,167 Unlisted investments 45,306 15,840 Interest income 927,446 233,058 1,170,183 181,529 Included in interest income are interests from bonds of approximately H K$448,785,000 (2015: H K$210,163,000) and imputed interest income from deferred considerations of approximately HK$474,001,000 (2015: nil). 448,785,000 210,163,000 474,001,000 29