* Including joint ventures and associates
# Including subscribed property sales 15.2
PROPERTY DEVELOPMENT (CONTINUED)
The Group strives to expedite its development through joint ventures and mergers and acquisitions. Nevertheless, with the growth in its financial strength, the Group has been engaged in fewer joint venture projects in recent years. As at the end of December 2014, the Group’s investment interest in 16 joint ventures plus amounts due from and deducted amounts due to joint ventures decreased significantly to HK$8.98 billion. Sales from joint ventures reached HK$13.08 billion, and turnover amounting to HK$15.25 billion was recognised. Cash inflow from sales for the year amounted to approximately HK$15.61 billion. Pre-sales deposits amounted to HK$4.47 billion at the year end. All the joint ventures were financially sound. As at the end of the year, three projects owed outstanding loans of approximately HK$3.33 billion, while cash held by the joint ventures totalled HK$6.83 billion. As most major joint venture projects had entered into peak investment returns in the previous year, their profit contributions for the full year of 2014 decreased significantly, to approximately HK$1.10 billion. Furthermore, COGO, the Company’s major associate, is expected to effectively complement the business of China Overseas Property. COGO reported fair performance for the year, with net profit of approximately HK$1.45 billion. The Group recorded a net profit contribution of approximately HK$480 million from COGO.
On 5 August 2013, the Company announced the intention of the controlling shareholder, China State Construction Engineering Corporation Limited (“CSCECL”), to inject certain China property businesses into the Group.
Subsequently, on 28 January 2014, the Company announced the transitional arrangements for the operation and management of the businesses to be injected would be entrusted to the Company. The Board is pleased to a n n o u n c e t h a t n e g o t i a t i o n w i t h C S C E C L o n t h e implementation of the asset injection has been completed.
Please refer to the announcement dated 24 March 2015 on the acquisition by the Group of property portfolio from CSCECL and its subsidiaries and issue of the Company’s shares to China Overseas Holdings Limited, a wholly owned subsidiary of CSCECL and the immediate holding company of the Company.
In response to market changes, the Group accelerated construction of its property projects, completing a total GFA (including joint ventures) of about 10.77 million sq m. The value of sales recognised as the Group’s turnover in 2014 was HK$99.43 billion. Furthermore, the level of the Group’s sales of properties completed as at the end of 2013 was satisfactory, with about 720,000 sq m sold for approximately HK$16.82 billion. Hence, turnover for property development increased by 47.9% to HK$116.25 billion. The operating profit reached HK$36.10 billion. In pursuit of greater operating scale, the Group must accelerate the pace of its development and sales in all its projects. This will result in improved cash inflow, asset turnover and return on shareholders’ funds, but the gross profit margin of projects will inevitably be squeezed. Setting aside the effects of the affordable housing and the three projects repurchased from the real estate fund, the gross profit margin for property development projects of the Group remained at a satisfactory and industry-leading level.
At the end of the year, the Group had approximately 2.26 million sq m of properties held for sale, with book cost of approximately HK$29.39 billion. To a certain extent, the increase in properties held for sale reflected more difficult market conditions in 2014. Given its sound financial conditions, however, the Group did not need to lower the prices of its properties to drive sales as other developers had. Sales of properties on hand are expected to increase substantially next year and will help to increase the amount of sales recognised as turnover. In line with the Group’s emphasis on the collection of sales proceeds, cash inflow from sales for the Group and the joint ventures amounted to over HK$117.70 billion. Presales deposits amounted to HK$51.32 billion as at the end of the year.
In 2015, sentiment in the mainland China property market is expected to be stable. Hence, 2015 will be a challenging year for most developers. As an operationally and financially sound developer with a strong brand name, the Group is in a relatively advantageous position. The Group is confident of its performance in 2015, and sees sound opportunities to expand its market share, acquire prime sites and consolidate its market leadership. Prospects for the property markets in Hong Kong and Macau remain stable in 2015. The Group will dedicate its effort to marketing activities for projects on hand, and continue to expand its business in Hong Kong and Macau when appropriate.
PROPERTY DEVELOPMENT (CONTINUED)
GFA of Projects Completed (including joint ventures) in 2014 by Region (unit: ’000 sq m) GFA
PROPERTY DEVELOPMENT (CONTINUED)
In 2015, it is planned that the Group and the joint ventures together will commence development of an area of 13 million sq m, bringing the total area under development to over 30 million sq m at the peak time; projects with GFA of 12 million sq m will be completed in 2015.
GFA of Projects to be completed (including joint ventures) in 2015 by Region (unit: ’000 sq m)
Region GFA
Hua Nan Region Hua Dong Region Hua Bei Region Northern Region Western Region Hong Kong & Macau
2,646 3,350 1,113 2,912 1,895 84
(22.1%) (27.9%) (9.2%) (24.3%) (15.8%) (0.7%)
Total 12,000