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Financials

Unaudited Financial Statements Announcement For The Second Quarter And Half Year Ended 30 June 2017

Financials Archive

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INCOME STATEMENT FOR THE FIRST QUARTER ENDED 30 JUNE 2017



STATEMENT OF COMPREHENSIVE INCOME FOR THE FIRST QUARTER ENDED 30 JUNE 2017



BALANCE SHEET



REVIEW OF GROUP PERFORMANCE

2Q2017 vs 2Q2016

Revenue

The Group achieved revenue of RMB945.8 million for the quarter ended 30 June 2017 (“2Q2017”), a increase of 137% or RMB547.2 million from RMB398.6 million in the same period in 2016. This is primarily due to an increase in the number of property units handed over. The aggregate Gross Floor Area (“GFA”) sold and recognized increased by approximately 114% or 74,604 square metres (“sqm”), from 65,520 sqm for the quarter ended 30 June 2016 (“2Q2016”) to 140,124 sqm for 2Q2017. Revenue for the projects sold and recognized was mainly attributable to Xuzhou Royal Palace and Shanghai Royal Palace, which contributed RMB647.3 million and RMB186.1 million respectively, or approximately 68% and 20% of the total revenue generated for 2Q2017. The average selling price (“ASP”) increased by 11% from RMB5,971 per sqm in 2Q2016 to RMB 6,650 per sqm 2Q2017, as projects sold and recognized in this quarter are from higher price projects like Suzhou Industrial Park Royal Mansion and Shanghai Royal Palace

Pre-Sales

The Group experienced sharp increase in its pre-sales activities for 2Q2017. The Group recorded pre-sales GFA of approximately 170,163 sqm with an aggregate consideration of approximately RMB2,555.9 million for the development properties projects in the People’s Republic of China (“PRC”) during 2Q2017. This represents an increase of GFA by 37%, or 46,267 sqm from 123,896 sqm, and an increase in aggregate consideration by 128%, or RMB1,437.0 million from RMB1,118.9 million, as compared to 2Q2016. Overall, the average selling price (“ASP”) of pre-sales increased from RMB 9,031 per sqm in 2Q2017 to RMB15,020 per sqm in 2Q2017, as the higher mix of projects from second tier cities.

In Australia, the Group also experienced improvements with its pre-sales activities for four of its property development projects. During 2Q2017, 92 units from these property development projects – Illumina, Marine's Hill, Uptown and Steller, were pre-sold, and 2 units from Vivir were sold with an aggregate consideration of AUD79.0 million (or RMB 409.1 million).

Note:
Revenue from property sales is recognised when the control and risk and rewards of the properties have been transferred to the buyer, i.e. when the legal title passes to the buyer or when the equitable interest in the property vests in the buyer upon signing of the property handover notice by the buyer, whichever is the earlier. Payments received from buyers prior to this stage (i.e. at pre-sales) are recorded as advances from customers for sale of properties and is classified as current liabilities. Please refer to the circular dated 10 June 2014 for more details on, amongst others, the policies and risks on the Company's pre-sales activities, as well as significant factors affecting the Company's results of operations.

Cost of sales and gross profit margin

In tandem with the increase in revenue, the Group’s cost of sales, which comprises mainly of land acquisition costs, construction costs, capitalized borrowing costs and indirect costs incurred on those development properties sold, increased by 127% or RMB456.1 million from RMB358.3 million in 2Q2016 to RMB814.4 million in 2Q2017.

Gross profit increased by 226% or RMB91.1 million, from RMB40.3 million in 2Q2016 to RM131.4 million in 2Q2017. Overall gross profit margin increased from 10.1% in 2Q2016 to 13.9% in 2Q2017. This was due mainly to higher profit margin contribution from revenue recognition of Xuzhou Royal Palace and Shanghai Royal Palace, which recorded a higher gross profit compared to the projects of last year.

Other income

Other income, which mainly comprised of gain on disposal of financial assets available-for-sale, foreign exchange gain, and gain on disposal of property, plant and equipment, decreased by 83% or RMB0.8 million from RMB0.9 million in 2Q2016 to RMB0.1 million in 2Q2017.

Selling and distribution expenses

Selling and distribution expenses comprised primarily of advertising and promotion expenses, sales commissions, sales offices rental expenses and maintenance costs. Selling and distribution expenses increased by 42% or RMB13.2 million from RMB31.2 million in 2Q2016 to RMB44.4 million in 2Q2017. This was due mainly to the increase in expenditure on new projects’ sales and marketing activities.

Administrative expenses

Administrative expenses comprised of salaries and staff related expenses for general administrative staff, utilities expenses, telecommunication expenses, entertainment expenses, professional fees, travelling expenses and other general overheads expenses. The increase in administrative expenses by 25% or RMB7.6 million from RMB30.7 million in 2Q2016 to RMB38.3 million in 2Q2017, was attributable mainly to higher staff costs and other related expenses as a result of higher headcount, which was in line with the increase in business activities for new projects.

Net finance costs

Net finance costs were RMB31.6 million in 2Q2017, compared to RMB17.9 million in 2Q2016, an increase of 77% or RMB13.7 million. This was mainly due to an increase in finance costs that could not be capitalized in development projects during the current quarter.

Share of results of joint ventures and associate, net of tax

Share of results of joint ventures, net of tax was a loss of RMB1.2 million in 2Q2017, as compared to profit of RMB1.9 million in 2Q2016. The share of results of joint ventures and associate in 2Q2016 was attributed to the handover of the Group’s Vivir project in Australia, while the figure in 2Q2017 was mainly from UCCH, Suzhou Ruixin, Suzhou Xinglun and Shengeng Hongye which were at the beginning of construction.

Income tax expense

Income tax expenses comprises of enterprise income tax and land appreciation tax (“LAT”). The Group incurred a tax expense of RMB22.3 million in 2Q2017 and a significant increase of RMB 18.0 million or 420%, as compared to an income tax expense of RMB4.3 million in 2Q2016. The increase was in line with the increase in revenue for our projects.

Profit/Loss for the period

As a result of the foregoing, the Group reported a profit before tax of RMB14.6 million, compared to the loss of RMB38.2 million in 2Q2016. On an after-tax basis, the Group incurred a loss after tax of RMB7.7 million in 2Q2017, compared with the loss for the period in 2Q2016 was RMB42.5 million.

1H2017 vs 1H2016

Revenue

The Group achieved revenue of RMB1,262.9 million for the period ended 30 June 2017 (“1H2017”), an increase of 4% or RMB45.9 million from RMB1,217.0 million in the same period in 2016, primarily due to the increase in the number of property units handed over. As a result, the aggregate Gross Floor Area (“GFA”) sold and recognized increased by approximately 16% or 22,129 square metres (“sqm”), from 134,645 sqm for the period ended 30 June 2016 (“1H2016”) to 156,774 sqm for 1H2017. The increase in GFA sold and recognized was mainly attributable to the Xuzhou Royal Palace, which contributed RMB650.0 million, or approximately 51% of the total revenue generated for 1H2017. The increase was also attributable to Shanghai Royal Palace and Suzhou Industrial Park Royal Mansion, which contributed RMB236.8 million and RMB214.9 million, or 19% and 17% of the total revenue, respectively. Average selling price (“ASP”) decreased by 11% from RMB 8,941 per sqm in 1H2016 to RMB 7,913 per sqm 1H2017, as projects sold and recognized in this half year are mainly from lower price project like Xuzhou Royal Palace.

Pre-Sales

The Group also achieved sharp increase in pre-sales for 1H2017 with a total pre-sales GFA of approximately 278,329 sqm and aggregate consideration of approximately RMB4,170.6 million for the development properties projects in the People’s Republic of China (“PRC”). This represents an increase of 48% in GFA, or 90,196 sqm from 188,133 sqm, and an increase of 128% in aggregate consideration, or RMB2,344.3 million from RMB1,826.3 million in 1H2016.

The Group also presold four of its property development projects in Australia. During 1H2017, 128 units from these property development projects – Illumina, Marine's Hill, Uptown and Steller were pre-sold and 3 units from Vivir were sold with an aggregate consideration of AUD104.8 million (or RMB 542.9million).

Total pre-sales from both China and Australia reached RMB4,713.5 million, as at end of 1H17.

Cost of sales and gross profit margin

Despite the increase in revenue, the Group’s cost of sales, which comprises mainly of land acquisition costs, construction costs, capitalized borrowing costs and indirect costs, decreased by 3% or RMB36.4 million from RMB1,113.3 million in 1H2016 to RMB1,076.9 million in 1H2017.

Gross profit increased by 79% or RMB82.3 million, from RMB103.7 million in 1H2016 to RMB186.0 million in 1H2017, due to the increase in revenue. Overall gross profit margin increased from 8.5% in 1H2016 to 14.7% in 1H2017. This was due mainly to higher revenue contribution from the Suzhou Industrial Park Royal Mansion, which has a higher gross profit compared to the projects of last year.

Other income

Other income, which mainly comprise of gain on disposal of financial assets available-for-sale, foreign exchange gain, and gain on disposal of property, plant and equipment, increased by 275% or RMB10.4 million from RMB3.8 million in 1H2016 to RMB14.2 million in 1H2017. The increase was mainly due to foreign exchange gain of RMB9.8 million.

Selling and distribution expenses

Selling and distribution expenses comprised of primarily advertising and promotion expenses, sales commissions, sales offices rental expenses and maintenance costs. Selling and distribution expenses increased by 81% or RMB38.3 million from RMB47.5 million in 1H2016 to RMB85.8 million in 1H2017. This was due mainly to the increase in expenditure on sales and marketing activities for new projects.

Administrative expenses

Administrative expenses comprised of salaries and staff related expenses for general administrative staff, utilities expenses, telecommunication expenses, entertainment expenses, professional fees, travelling expenses and other general overheads expenses. The increase in administrative expenses by 14% or RMB10.1 million from RMB73.1 million in 1H2016 to RMB83.2 million in 1H2017, was attributable mainly to higher staff costs and bonus and other related expenses due to higher headcount, which was in line with the increase in business activities for new projects.

Net finance costs

Net finance costs were RMB48.0 million in 1H2017, compared to of RMB26.1 million in 1H2016. This was mainly due to an increase in finance costs that could not be capitalized in development projects during the current period.

Share of results of joint ventures, net of tax

Share of results of joint ventures, net of tax was a loss of RMB2.4 million in 1H2017, as compared to profit of RMB8.0 in 1H2016. The share of results of joint ventures and associate in 1H2016 was attributed to the handover of the Group’s Vivir project in Australia, while the figure in 1H2017 was mainly from UCCH, Suzhou Ruixin, Suzhou Xinglun and Shengeng Hongye which were at the beginning of construction.

Income tax expense

Income tax expenses comprises of enterprise income tax and land appreciation tax (“LAT”). The Group incurred a tax expense of RMB24.1 million in 1H2017 as compared to an income tax expense of RMB24.5 million in 1H2016. This was mainly due to tax expensed charged with profit recognized

Loss for the period

As a result of the foregoing, the Group reported a loss after tax of RMB45.0 million in 1H2017, while the loss for the period in 1H2016 was RMB57.6 million.

Statement of Financial Position

Non-current Assets

Non-current assets comprised property, plant and equipment, investment properties, interest in joint ventures, interest in associate and deferred tax assets. As at 30 June 2017, non-current assets amounted to RMB1,830.4 million as compared to RMB1,596.6 million as at 31 December 2016.

The increase in non-current assets of RMB233.8 million was due mainly to:

Current Assets

Current assets increased by RMB2,106.3 million from RMB13.72 billion as at 31 December 2016 to RMB15.83 billion as at 30 June 2017 due mainly to:

Contract work-in-progress refers to a contract that the Group has entered into with the Suzhou Municipal Government to develop an education park, with an approximate land area of 3,500,000 sqm, on behalf of the local government. The construction costs incurred were funded by advances from the Suzhou Municipal Government.

Contract work-in-progress is stated at construction costs incurred on behalf of the Suzhou Municipal Government. It is not intended for the Group to derive a profit from the development of the education park.

Non-current liabilities

As at 30 June 2017 non-current liabilities were RMB3,108.4 million as compared to RMB5,738.4 million as at 31 December 2016. The decrease in non-current liabilities of RMB2,630.0 million was due mainly to the decrease of RMB2,631.4 million in loans and borrowings, most of which were reclassified into current liabilities as their repayment due date is less than a year.

Current liabilities

Current liabilities as at 30 June 2017 amounted to RMB13.27 billion as compared to RMB8.09 billion as at 31 December 2016. The increase in current liabilities of RMB5,177.2 million was due mainly to the increase in loans and borrowings of RMB2,833.6 million reclassified from current liabilities as their repayment due date is less than a year, and the increase in advance receipts of RMB2,400.5 million due to the increase of proceeds from on-going projects.

Advance receipts from government amounted to RMB442.5 million as at 31 March 2017 and RMB439.9 million as at 31 December 2016. The amount was provided by the government to fund the contract work-in-progress as aforementioned in the paragraph above entitled “Current assets”.

Total equity

As at 30 June 2017, total equity was RMB1,279.8 million as compared to RMB1,487.4 million as at 31 December 2016. Please refer to the section 1(d)(i) for the movement of total equity as presented in the statement of changes in equity.

Cash flow statement

2Q2017 vs 2Q2016

During 2Q2017, the Group had a net cash outflow from operating activities of RMB530.6 million comprising operating cash inflows before movements in working capital of RMB43.4 million, net working capital outflows of RMB408.1 million and income tax payment of RMB165.8 million. The net working capital outflows were mainly due to the increase in development properties of RMB3122.3 million, partially offset by a decrease in trade receivables, receivables and advance payments of RMB1,644.7 million, and an increase in trade payables, other payables and advance receipts of RMB1070.0 million.

The Group recorded a net cash inflow from investing activities of RMB107.2 million due mainly to decrease of RMB210.8 million due from non-controlling interests, non-trade, partially offset by net of cash acquired from acquisition of a subsidiary of RMB84.3 million.

The Group recorded a net cash inflow from financing activities of RMB199.4 million during 2Q2017. This was due mainly to net proceeds of borrowings from financial institution of RMB 474.6 million, partially offset by interest paid of RMB 187.2 million and capital reduction in respect of noncontrolling shareholders of RMB101.7 million.

Overall, the Group's cash and cash equivalents has decreased RMB 224.1million during 2Q2017.

1H2017 vs 1H2016

During 1H2017, the Group had a net cash inflow from operating activities of RMB194.4 million comprising operating cash outflows before movements in working capital of RMB9.7 million, net working capital inflows of RMB432.9 million and income tax payment of RMB248.2 million. The net working capital inflows were mainly due to the decrease in trade receivables, other receivables and advance payments of RMB1,952.5 million, and increase in trade payables, other payables and advance receipt of RMB2,465.8 million, partially offset by an increase in development properties of RMB3,983.2 million.

The Group recorded a net cash outflow from investing activities of RMB299.1 million due mainly to the an increase of RMB197.3 million in investment in joint venture and an acquisition of a subsidiary of RMB84.3 million during 1H2017.

The Group recorded a net cash outflow from financing activities of RMB674.8 million during 1H2017. This was due mainly to increase in restricted cash of RMB420.0 million, and interest paid of RMB334.5 million.

Overall, the Group's cash and cash equivalents has decreased RMB 779.5million during 2Q2017.

Commentary

The Group is currently at the peak of its project development activities, with another six projects slated for launch in the second half of 2017, comprising four projects in Suzhou and two projects in the Rest of China market – one project in Xuancheng and one project in Wuhan.

In addition, the Group is advancing the delivery of its Uptown@Roseville to 3QFY2017 and is expected to deliver three other projects by end of 2017. This comprises two projects in Suzhou and one in the Rest of China market, Xuancheng.

Overall, the Group remains cautiously optimistic of its performance in its key markets, China and Australia.

The Group continues to scale in China, supported by strong underlying demand for housing driven by higher net urbanisation and a dynamic economy. This is evident in the Group’s strong pre-sales of RMB4.2 billion for 1HFY2017, despite the cooling measures. Against this backdrop, the Group is confident and on track to achieving its RMB10.0 billion pre-sales receipts target for FY2017.

The Group will also continue to exercise prudence when participating in land bids, amid the strong competition for land. In Tier-3 and 4 cities where price growth is outpacing those in Tier-1 and 2 cities, the Group has earmarked Changsha and Chengdu as part of its expansion plans in addition to Wuhan.

In Australia, the Group expects to deliver its second project, Uptown@Roseville, in 3QFY2017 which would contribute positively to the Group’s 3QFY2017 results. In addition, the Group is marketing the sale of its Parramatta project. This divestment will allow the Group to recycle the capital to prospect for opportunities that will enhance shareholder value.

Concurrently, the Group remains focused to expand its fund management business beyond China to develop a diversified stream of revenue and earnings as it seeks to transform into an integrated property player. Towards this end, the Group is exploring related opportunities in Singapore and Australia.

Barring unforeseen circumstances, the Group expects to be profitable for FY2017.

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