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Other income and gains

In 2014, our other income and gains were mainly interest income, gains from disposal of subsidiaries and government grants. The Group’s interest income (mainly interest on bank deposit), gains from disposal of subsidiaries and government grants in 2014 was RMB546 million, RMB1,112 million and RMB1,198 million respectively.

Financing costs

In 2014, our overall financing costs (including the capitalized interest) increased from RMB9,798 million in 2013 to RMB12,375 million in 2014, representing an increase of 26.30%, mainly due to the increase in loans and interest expenses as a result of the increasing demand for capital, which is in line with the expansion of the Company. In 2014, the financial costs of the Group was 7.51%, representing a decrease of 2.47%, or a decrease of 0.19 percentage point as compared with 2013. It is mainly due to our efforts to optimize loan structures, expand channels of financing, decrease trust loans, increase overseas loans and issue overseas bonds. Meanwhile, we are able to obtain funds on more favourable terms as we developed.

Income tax expenses

Our income taxes include current and deferred corporate income tax and LAT in China. In 2014, our income tax expenses amounted to RMB16,699 million, representing an increase of 0.54% as compared with 2013, roughly at the same level. Among the total income tax expenses, corporate income tax amounted to RMB9,413 million, representing a decrease of 0.01%, and LAT amounted to RMB7,286 million, representing an increase of 1.25%.

Our effective corporate income tax rate (calculated using the sum of current corporate income tax and deferred tax divided by profits before tax minus LAT) was 27.45% in 2013 and 27.27% in 2014, no material changes have been incurred in our income tax expenses.

Capital expenditure

In 2014, the Group’s capital expenditure amounted to RMB56,902 million, representing an increase of 58.03%

as compared with 2013, which mainly consists of the purchase and construction of investment properties, fixed assets and intangible assets, as well as long-term equity investment.

Debts

As at 31 December 2014, the Group’s total debts amounted to RMB180,969 million, representing an increase of 35.06% as compared with 2013. The Group’s debts are set out as follows:

Item 2014 2013

Amount Percentage Amount Percentage

(RMB million) (RMB million)

Domestic Bank loans

Loans for development 63,490 35.08% 43,824 32.71%

Loans for operation 55,734 30.80% 46,875 34.98%

Trust loans 42,463 23.46% 36,392 27.16%

Entrusted loans 7,690 4.25% 2,577 1.92%

Overseas borrowings 4,382 2.42% 650 0.49%

Bonds 7,210 3.99% 3,675 2.74%

Total 180,969 100.00% 133,993 100.00%

secured by sufficient and stable operating cashflow, property value and credit limit, thus ensuring risk-free repayment of principal and interest.

The Group’s trust loans were mainly used in property development. The percentage of the Group’s trust loans dropped from 27.16% in 2013 to 23.46% in 2014, in line with the Group’s debt structure adjustment.

The Group’s operational loans were secured by the investment properties held, with rental income as the source of fund for repayment of principal and interest.

The average term of the loans was about 10 years and on revolving basis. The rental income and property value of the investment properties in correspondence with the operational loans are constantly rising, the Group therefore enjoys greater credit limit under the revolving operational loans. The Group’s operational loans are

Business and Management Discussion and Analysis

As at 31 December 2014, the terms of maturity of the Group’s bank loans are as follows:

Term 2014 Percentage 2013 Percentage

(RMB million) (RMB million)

Within one year 36,464 20.99% 21,016 16.13%

1-2 years 48,276 27.78% 35,796 27.47%

2-5 years 42,028 24.19% 26,220 20.12%

Over 5 years 46,991 27.04% 47,286 36.28%

Total 173,759 100.00% 130,318 100.00%

Net gearing ratio

As at 31 December 2014, the Group’s net gearing ratio was 56.68%, representing an increase of 3.7 percentage points as compared with 52.98% in 2013. The net gearing ratio was calculated by dividing interest bearing bank and other borrowings plus bonds less cash, cash equivalents and restricted cash by total equity.

Credit rating

As at 31 December 2014, the Group received a BBB+

for its credit rating from Standard & Poor’s Financial Services LLC, a BBB+ from Fitch Ratings, Inc. and a Baa2 from Moody’s Investors Service, Inc., with all of the outlooks being stable.

Cash flow analysis

In 2014, the Group’s cash flows are as follows:

Unit: (RMB million)

2014 2013

Net cash flow generated from operating activities 8,832 6,807

Net cash flow used in investment activities (45,699) (23,783)

Net cash flow generated from financing activities 53,801 37,904

Net cash flow 16,934 20,928

In 2014, net cash inflow generated from the Group’s operating activities amounted to RMB8,832 million, representing an increase of 29.75% as compared with 2013, mainly due to an increase in cash received from sales of properties, investment properties leasing and property management; net cash outflow used in investment activities amounted to RMB45,699 million, representing an increase of 92.15% as compared with 2013. Among which, payment for purchase and construction of investment property, fixed assets, land use right and other intangible assets was RMB43,804 million, representing an increase of RMB21,578 million as compared with 2013, mainly due to the investment in the newly developed projects during the year. Net cash inflow generated from financing activities amounted to

RMB53,801 million, representing an increase of 41.94%

as compared with 2013, mainly due to the completion of the IPO of H Shares during the year as well as the new bank loans of RMB129,259 million.

Foreign exchange risk

Most of the Group’s investment properties and property sales projects are located in mainland China and the relevant transactions were dominated in RMB, with a small number of overseas projects settled in foreign currencies, and some deposits in banks, loans and bonds settled in Hong Kong dollars and US dollars. As at 31 December 2014, the Group’s operating cash flow and liquidity were not obviously affected by the changes in exchange rate.

Contingent liabilities

As at 31 December 2014, the Group’s guarantees provided in respect of the mortgage facilities granted by commercial banks to the purchasers of our properties were RMB44,406 million.

Major disposals

(1) On 16 October 2014, the Company entered into an equity transfer agreement pursuant to which our Company transferred the entire equity interests in Xishuangbanna International Resort Development C o . , L t d . ( “ X i s h u a n g b a n n a I n t e r n a t i o n a l Resort”) held by us to Wanda Cultural for a cash consideration of RMB2,144 million.

(2) On 22 October 2014, the Company entered into an equity transfer agreement, pursuant to which, our Company transferred the entire equity interests in Qingdao Wanda Yacht Industry Investment Co., Ltd. (“Qingdao Wanda Yacht”) held by us to Wanda Cultural for a cash consideration of RMB1,042 million.

(3) On 20 October 2014, the Company entered into an equity transfer agreement, pursuant to which, our Company transferred the entire equity interests in Dalian Jinshi Cultural Tourism Investment Co., Ltd.

(“Dalian Jinshi”) held by us to Wanda Cultural for a cash consideration of RMB949 million.

Employees, remuneration policies and