Wednesday, October 16, 2019
 
Columnist
Martin Hennecke
 
NEW WORLD DEV
HKEx Stock Code : 00017 
 
Corporate Profile
Principally engaged in property development and investment, contracting, provision of services (including property and facility management, transport and other services), infrastructure operations (including the operation of roads, power plants, water treatment, waste management plants, container handling, logistics and warehousing services), hotel and restaurant operations, department store operations, telecommunication services, and telecommunications, media, technology and strategic businesses.

Business Review - For the year ended June 30, 2012

Hong Kong Property Development

In order to ensure healthy and steady development of the property market, measures targeting the property market, including Special Stamp Duty and reduction of loan-to-value ratio, were introduced by the Hong Kong SAR Government and the Hong Kong Monetary Authority in 2010. As a result, market consolidation was experienced in the residential property sector. The lackluster global economy, however, has pushed various countries to launch bailout plans with focus on monetary easing, in a bid to stimulate economic recovery. Various banks therefore launched a number of preferential mortgage plans, which in turn has fueled the demand for home purchase.

According to the statistics on residential mortgages published by the Hong Kong Monetary Authority, substantial month-on-month increase was recorded for new mortgage drawdowns in the first quarter of 2012. For example, the newly approved loans in March 2012 increased by 95.5% to HK$28.1 billion from February 2012, while the new loan applications increased by 66.1% to 17,419 on a month-on-month basis. The recovery of the residential mortgage business indicates that the residential property market is stirring back to life. According to the information of The Land Registry, the transaction volume in residential property market saw a remarkable rebound after the Lunar New Year of 2012. The number of sale and purchase agreements for residential building units almost tripled in March 2012, increasing to 11,358 on a month-on-month basis.

With the signs of recovery of the market sentiment in the residential property sector, the Group launched its luxurious project, The Signature, in March 2012, providing a total of 62 typical units and four duplex units. The project, located in Tai Hang, a traditional prime housing location for high-end properties, boasts the spacious view of Happy Valley with fashionable, elegant and flexible designs catering for the needs of different buyers. The project has been well-received by a large number of upgraders in the district and long-term investors since its launch. The unit selling price hits record high, setting a new benchmark in the district. All typical units have been sold out, remaining only four duplex units still available for sale.

Riding on the excellent performance of The Signature, the Group launched The Riverpark, the first large-scale residential project of the Group in the market during year, in June 2012, providing a total of 937 standard units and 44 special units. The project is adjacent to Che Kung Temple MTR Station in Sha Tin, enjoying a convenient location just a bridge away from Sha Tin city centre. It also boasts the endless breathtaking view from Shing Mun River, Sha Tin to Tolo Harbour as well as the greenery of the Sha Tin Park. The diversified unit types and high quality of the project have attracted a number of first-time buyers and end-users. As at 25 September 2012, 748 units have been sold.

The Masterpiece, another luxurious project of the Group in Tsim Sha Tsui, has received overwhelming market response since its re-launch in 2011. Since the beginning of FY2012 and up to 25 September 2012, a total of 72 residential units were sold, including a number of special units with a price of over HK$100 million per unit. Currently, 31 residential units were still available for sale. The remaining units are mainly upper floor and large-sized residential units commanding spectacular views of the Victoria Harbour.

Double Cove, the Group's joint-venture residential project next to Wu Kai Sha MTR Station in Ma On Shan was launched in early September 2012. As at 25 September 2012, 436 units have been sold.

As at 25 September 2012, a total of 1,318 units of the above four residential projects have been sold since the beginning of FY2012.

In addition to residential property sales, after reviewing the asset portfolio during the year, the Group sold certain of its non-core assets, including retail shops and car parks in residential properties developed by the Group. Since the beginning of FY2012 and up to 25 September 2012, the Group's effective share of sales proceeds aggregated to approximately HK$700 million. Currently, the Group is actively negotiating with interested investors on a number of its non-core assets.

Given the lackluster global economy, US Federal Reserve began the third round of quantitative easing and reiterated its plan to keep interest rates ultra-low through mid-2015 to ensure sustainable economic recovery. Facing the risk of economic downturn, the Central Government is anticipated to continue with its eased monetary policies, which will be the focus of economic policies in the second half of the year. Under the two favourable factors above, and coupled with the limited supply of new residential units in the short run, the residential property sector in Hong Kong is expected to witness steady development.

The Reach, the Group's joint-venture residential project located in the centre of Yuen Long is expected to be launched in the year. In 2013, the Group plans to launch ¡§COLLECTABLE RESIDENCES¡¨, comprising a series of high quality residential projects in Hong Kong Island, together with the high-end Austin Station Project next to the Hong Kong Terminal Station of Express Rail Link in West Kowloon and a number of new projects in diversified living communities in New Territories.

The Group has been pursuing to replenish its landbank through various means, including public auction, old building redevelopment, private acquisition and tendering as well as agricultural land conversion. Resources consumed in our current development were actively replenished to provide the Group with a steady pipeline of land supply in the coming years and to plan for property development and strategies in the long run. During the year, the Group successfully increased its landbank through agricultural land conversion, old building redevelopment and private acquisition.

In respect of agricultural land conversion, the Group paid a land premium of HK$6,640.3 million to the Government for land conversion of the residential land of Tai Po Tsai Project in Sai Kung in July 2011. The project covers a total site area of approximately 719,000 sq ft with total GFA of approximately 1,080,000 sq ft. The project is situated in the luxurious location at Clear Water Bay Road, Sai Kung and will be developed into a low-density and high-end residential community.

In February 2012, the Group successfully acquired a residential site at South Lane, Western District, Hong Kong Island through private acquisition. The project covers a total site area of 5,142 sq ft with total GFA of 41,134 sq ft. Surrounded by a number of prestigious educational institutions in the Central and Western District and in close proximity to the Hong Kong University Station of MTR West Island Line which is under construction, the project will be developed into a boutique residence.

For old building redevelopment in urban areas, in February 2012, the Group has further acquired 35% interest in the residential project situated at 1¡V15 New Eastern Terrace & 5¡V11 Dragon Road, Tin Hau, increasing its attributable interest from 50% to 85%. In June 2012, the Group completed amendments to land leases of the project with a land premium of HK$3,749 million. The Group's attributable GFA in this project is approximately 337,064 sq ft.

In September 2012, the Group won the tender from The Urban Renewal Authority for the development of Sai Yee Street Project in Mong Kok. The project, with a site area of about 26,673 sq ft, is bounded by parts of Sai Yee Street, Nelson Street and Fa Yuen Street and situated in or near the cluster of sports retail outlets in Mong Kok. Upon completion, it is expected to deliver a residential GFA of 186,712 sq ft. The project is also expected to yield a multi-level commercial portion with a GFA of about 53,346 sq ft.

As at 30 June 2012, the Group has a landbank of around 9.4 million sq ft total attributable GFA for immediate development, of which, over 50% is in the urban area. The Group's effective share of GFA for residential property development amounted to around 6.0 million sq ft. Meanwhile, the Group has a total of approximately 18.7 million sq ft of agricultural land reserve pending conversion, ranking it one of the developers with the largest agricultural land reserve in Hong Kong.

Hong Kong Property Investment

Harassed by the European sovereign debt crisis, international financial institutions further tightened resources and suspended expansion plans, and started to look for alternative work spaces suitable for back office in other new commercial districts with lower rental rates, there were adjustments to new lease of grade A offices in the core commercial districts of Hong Kong. However, as PRC companies and PRC financial institutions actively explore overseas market, commercial properties in Hong Kong served as an outlet for capital investment. Such demand has offset the downward pressure resulting from the move-out of some corporations from the core commercial districts with a view to lower operating cost, thus maintaining the overall occupancy level of grade A offices in Hong Kong.

Located in the traditional core commercial districts of Central, the grade A offices in Queen's Road Central occupy a prime location with diversified interior design and flexibility for changes, which are well-received by local and international corporation headquarters as well as specialised medical organisation and law firms with more stable business. The overall occupancy and rental level of such offices therefore remained stable. It is expected that under the continued limited supply and consistently low overall vacancy remained, the rental rates of grade A offices in core commercial districts of Hong Kong remain resilient to further decline.

Supported by various favourable factors such as stable local consumption demand and the growth of visitor arrivals to Hong Kong, the retail industry of Hong Kong has achieved satisfactory growth in recent years. According to The Census and Statistics Department, the total retail sales value of Hong Kong increased by 13.1% year-on-year in the first half of 2012, whereas the total sales volume increased by 9.0%. Mainland visitors are still the major growth driver of the local retail market. Despite that the figures released by The Hong Kong Tourism Board showing that the growth of local retail sales of high-value products has slowed down in recent months, international retail brands continue to set foot in the Hong Kong market. The demand for retail space in core retail and tourism districts such as Central and Tsim Sha Tsui is still strong.

Among the fashion apparel-orientated shoppers' boulevards around the world, the average rent per sq ft in Queen's Road Central, Central and Canton Road, Tsim Sha Tsui is just lower than the Fifth Avenue in New York, US, which has the highest rental rate per sq ft in the world. In fact, apart from the core retail and tourism districts, the increasing demand for provisions from Mainland visitors, coupled with the continuous strong exchange rate of Renminbi against the Hong Kong

During the year, the Group's gross rental income in Hong Kong amounted to HK$1,316.6 million, representing a year-on-year increase of 15.9%. All major projects in the Group's investment portfolio attained satisfactory occupancy. In particular, New World Tower and Manning House, located in the core commercial hub of Central, achieved satisfactory occupancies together with rental rates.

Benefited from the steady performance of the overall retail market in Hong Kong, and high visitors flow and their strong consumption power, the Group's K11 in Tsim Sha Tsui, Discovery Park Shopping Centre in Tsuen Wan and Pearl City Shopping Mall in Causeway Bay recorded high pedestrian flow and made increasing contributions to the property investment segment during the year. During the year, K11 in Tsim Sha Tsui, located in the core retail and tourism districts, delivered satisfactory leasing performance with average monthly pedestrian flow grew by 7.4% year-on-year.

To strengthen the contribution of the Group's Hong Kong investment property portfolio and enhance the quality of its project assets in order to achieve higher return on assets, the Group will undertake interior renovation and facilities upgrade in New World Tower and Manning House in Central, together with Pearl City in Causeway Bay. In response to the rising consumption demand both within the district and from Mainland China tourists, renovation of Discovery Park Shopping Centre in Tsuen Wan will also be undertaken in phases start at 4Q 2012.

The redevelopment project of New World Centre in the prime location of Tsim Sha Tsui promenade has commenced during the year. The demolition works of buildings have been completed and foundation levelling and reinforcement are currently in progress.

Hotel Operations

Notwithstanding uncertainties in the global economy, better economic performances achieved in Mainland China than other economies, coupled with the persistently strong exchange rates of most major currencies against the Hong Kong dollar, more visitors from various countries were encouraged to spend in Hong Kong, bringing great opportunities to Hong Kong's tourism and hotel business. Apart from the continuous increase in visitors from Mainland China, visitors from other emerging markets, such as Russia and India, also increased as a result of visa-free access arrangement and newly operated or more frequent direct flights. According to the statistics from The Hong Kong Tourism Board, visitor arrivals to Hong Kong reached 22.32 million in the first half of 2012, up 15.5% year-on-year. Amongst which, visitors from Mainland China increased by more than 20% and over 10 million visitors came to Hong Kong under the Individual Visit Scheme. Increase in visitor arrivals has provided strong support to local hotel business.

During the year , the Group's four major hotel projects in Hong Kong, namely, Grand Hyatt Hong Kong, Hyatt Regency Hong Kong, Tsim Sha Tsui, Hyatt Regency Hong Kong, Sha Tin and Renaissance Harbour View Hotel in Hong Kong, delivered strong business performances of continuous growth in average occupancies and average room rates. In particular, Grand Hyatt Hong Kong has made remarkable contributions to the Group's hotel operations with revenues growth of 10.3% year-on-year. Hyatt Regency Hong Kong, Tsim Sha Tsui and Hyatt Regency Hong Kong, Sha Tin, both commenced operations in 2009, achieved outstanding performances with average occupancy over 82%, average room rates year-on-year growth of 12.2% and 20.7% respectively.

During the year, Courtyard by Marriott Wuxi in Jiangsu Province ceased operations on 31 December 2011. In addition, the Group disposed its interests of Renaissance Kuala Lumpur Hotel, Malaysia in March 2012. As at 30 June 2012, the Group had a total of 16 hotels located in Hong Kong, Mainland China and Southeast Asia, providing 7,125 hotel rooms.

In July 2011, New World China Land Limited (¡§NWCL¡¨) acquired 100% interest in Rosewood Hotels & Resorts, L.L.C., (¡§Rosewood¡¨) and the intellectual property rights of the ¡§Carlyle¡¨, a hotel brand, for a consideration of HK$2,049.3 million. The acquisition was completed on 29 July 2011 and Rosewood became a wholly-owned subsidiary of NWCL. Rosewood currently manages 19 properties in eight countries. It is recognised as one of the most famous and luxurious hotel groups worldwide.

Upon completion of acquisition, New World Hospitality manages three unique hotel brands, namely, the premium and luxurious Rosewood Hotels & Resorts, the deluxe New World Hotel and the trendy and cosy pentahotel.

Mainland China Property Development and Investment

Since the outbreak of international financial crisis in 2008, the Central Government has been striking a balance between economic growth and various risks of inflation by adopting flexible administrative means and moderately adjusting monetary policies based on market conditions. As the property market is one of the important growth drivers of the Chinese economy, the Central Government emphasised that it will insist on strengthening property market control in recent years, so as to ensure execution and functioning of control policies. By facilitating sustainable and steady development based on a healthy property market, housing problems in various levels of the society may be alleviated. In 2011, home purchase restriction and credit control measures implemented in a number of major cities have already resulted in substantial adjustment to transaction volume and overall property prices. Such measures have proved successful in curbing speculative activities and bringing property prices back to reasonable levels.

In March 2012, the Central Government and the national financial institutions moderately adjusted control measures to increase market liquidity in response to external economic environment, domestic social development and property market trend. As concrete demand for new purchases and upgrades increased given the low probability for a new round of control measures, property market sentiment gradually picked up with higher transaction volume and stable property prices.

Given the current uncertainties in the global economic outlook, the Central Government lowered the full-year GDP growth target to 7.5% in early 2012, which was the first time since 2005. Pursuant to the requirements of ¡§maintain growth, adjust economic structure, benefit people's livelihood¡¨ and in response to the negative impacts from decreased foreign consumption due to the international financial crisis, it is anticipated that the Central Government will stimulate the economy by maintaining sufficient market liquidity with relaxed monetary policies, such as low interest rate and tax reduction. Meanwhile, sustainable economic development strategies will be implemented through the Central Government's strengthened support to infrastructure construction and community welfare undertakings, in a bid to reduce over reliance on exports, increase consumption power per capita, stimulate domestic consumption and spending growth. Such measures will be critical to the steady and healthy development of the property market.

In FY2012, NWCL recorded profit attributable to shareholders of HK$3,080.9 million, representing a year-on-year increase of 1.8%. Attributable operating profit before finance costs and taxation charge amounted to HK$4,584.1 million, representing a year-on-year increase of 6.7%.

Property market sentiment has been generally weak and construction progress has been adjusted since the introduction of home purchase restriction and a series of tightened monetary policies in 2011. Under the combined influence of the aforesaid international and domestic factors, NWCL recorded a decline in total GFA of both volume of newly completed properties and property sales. During the year, total GFA of newly completed properties decreased by 39% year-on-year to 828,153 sq m, and total GFA of property sales decreased by 26% year-on-year to 780,379 sq m.

Although sales volume declined as a result of the fall in number of completed property projects and the negative impacts arising from austerity measures, the inclusion of Central Park-view, a high-end residential project in Pearl River New Town, Guangzhou, and commercial properties with higher average price and gross profit in the property sales portfolio of NWCL, coupled with the different levels of increase in average selling price of residential projects in general during the year, gross sale proceeds were generally maintained at approximately RMB9.8 billion. Overall gross profit margin also increased significantly by 17 percentage points year-on-year to 50%.

As at 30 June 2012, NWCL has a total GFA of over 27 million sq m of properties under development or held for development spreading across more than 20 major cities or transportation hubs in Mainland China.

Benefitting from the increase in rental contribution from Beijing New World Centre shopping mall and Guangzhou Canton Residence, NWCL's rental operation recorded a year-on-year increase of 4% in contribution to HK$461.5 million in FY2012. However, contribution from Shanghai Hong Kong New World Tower declined due to full closure for overhaul renovation of its shopping arcade during the year, suppressing the overall growth of rental operation.

Infrastructure and Service

NWS Holdings Limited (¡§NWSH¡¨) achieved a profit attributable to shareholders of HK$5,251.1 million for FY2012, representing an increase of 13.5% as compared to FY2011. During FY2012, NWSH acquired 95% effective interest in Hangzhou Ring Road (¡§HZRR¡¨) and its performance stood out as the most significant contributor of the infrastructure segment. Moreover, Free Duty's tobacco and liquor retail business at various cross-boundary transportation terminals in Hong Kong continued to achieve outstanding results.

Road

In the Pearl River Delta Region, average daily traffic flow of Guangzhou City Northern Ring Road grew by 13%, as benefited from the repairs and maintenance being undertaken by a competing road during FY2012.

Average daily traffic flow of Beijing-Zhuhai Expressway (Guangzhou-Zhuhai Section) and Shenzhen-Huizhou Expressway increased by 7% and 9% respectively when compared to FY2011. Phase two of Guangzhou-Zhaoqing Expressway, which was completed in September 2010, has greatly enhanced the project competitiveness in the Pearl River Delta Region and reported a traffic growth of 17% in FY2012.

After the completion of the fourth stage of acquisition of HZRR in January 2012, NWSH owns 95% effective interest in the project. This 103.4km long expressway boasted a daily traffic volume of over 100,000 vehicles and contributed significantly to the road business in FY2012. To capture the high rate of economic growth in Tianjin Binhai New Area, the entire Tangjin Expressway (Tianjin North Section) will be expanded to six driving lanes. Partial closure of the expressway began in June 2012 to pave way for the expansion works. Its average daily traffic flow in FY2012 was maintained at a similar level as FY2011.

Energy

Surging coal price continued to put pressure on the profitability of power producers in FY2012. Due to system upgrade and overhaul works carried out during FY2012, Zhujiang Power Plants registered a decrease in electricity sales of 5%. Electricity sales of Chengdu Jintang Power Plant grew by 6% when compared with FY2011. The on-grid tariff increase in December 2011 mitigated the impact of high fuel costs.

Trading revenue of Guangzhou Fuel Company grew by 17% but its profitability was under pressure as a result of lower gross margin and higher finance costs in relation to the investment in a coal mine in Mainland China. Electricity sales of Macau Power reported a healthy growth of 9% with more entertainment and hotel facilities commencing operations during FY2012.

Water

During FY2012, sales volume of Chongqing Water Plant and Sanya Water Plant were increased by 6% and 8% respectively. Waste water treated by Chongqing Tangjiatuo Waste Water Plant reported a growth of 13%. Apart from a healthy increase of 13% in water sales revenue, the tax refund obtained by Shanghai SCIP Water Treatment Plants after the project was certified as a hi-tech enterprise also contributed to the growth. Meanwhile, water sales volume in Macau Water Plant rose by 6% when compared to FY2011.

Moreover, the new Chongqing CCIP Water Treatment Plants commenced operation in September 2011.

Ports and Logistics

The throughput of Xiamen New World Xiangyu Terminals Co., Ltd. rose by 29% to 1,000,000 TEUs due to additional shipping routes obtained in FY2012. The throughput of Tianjin Five Continents International Container Terminal Co., Ltd. and Tianjin Orient Container Terminals Co., Ltd grew by 10% and 3% respectively in FY2012.

In Hong Kong, ATL Logistics Centre continued to make stable contribution. Average occupancy rate increased from 96% to 98% in FY2012. The entire newly completed NWS Kwai Chung Logistics Centre has been leased out and is expected to generate a steady contribution and cash flow.

The eight operating rail terminals of China United International Rail Containers Co., Ltd. reported a throughput growth of 20% to 1,508,000 TEUs during FY2012, which was mainly due to the increase in business volume of Kunming and Chongqing terminals and full-period effect of operations of several terminals.

Facilities Management

Hong Kong Convention and Exhibition Centre (¡§HKCEC¡¨) continued to benefit from the growth of exhibition and convention industry in FY2012. During the year, 1,224 events were held at HKCEC with total patronage of approximately 5.6 million.

Strong patronage of affluent travellers from Mainland China contributed to the significant growth of Free Duty's tobacco and liquor retail business at various cross-boundary transportation terminals in Hong Kong. Expanded liquor sales have successfully offset the drop in tobacco sales resulting from high cigarette duty.

Construction and Transport

The contribution from construction business recognised a 15% increase from FY2011. As at 30 June 2012, the gross value of contracts on hand for the construction business was approximately HK$21.4 billion.

The transport business recorded a 27% increase in profit over FY2011. This was mainly attributable to the gain on the disposals of the Macau ferry operation and the bus operation in Kunming, the PRC. Two new 10-year franchises were granted to New World First Bus Services Limited and Citybus Limited's Airport and North Lantau Bus Network (Franchise 2) during the year and took effect when the current franchises expired on 1 July 2013 and 1 May 2013 respectively.

Business Outlook - For the year ended June 30, 2012

Global economic recovery faced challenges. Eurozone and EU economy saw a negative quarter-on-quarter growth in the second quarter of 2012, pushing some EU countries towards deep recession and resulting in a potential double dip in the Europe economy. US economic recovery was at a sluggish pace with employment and consumer spending remained stagnant. Under the background of global economic downturn, larger-scale withdrawal of foreign investment in emerging economies was expedited, slowing down economic growth in emerging economies due to currency depreciation and weak export. As one of the emerging economies driving the recovery of global economy, China was also under the pressure of economic downturn. According to preliminary estimates of the National Bureau of Statistics of China, annual GDP growth was 7.8% during the first half of 2012 and the growth in the second quarter was slower compared to the first quarter.

Being an externally-oriented economy, Hong Kong is also adversely affected by the fragile global economy. According to The Census and Statistics Department of Hong Kong, real GDP growth in Hong Kong rose slightly by 1.1% year-on-year in the first half of 2012. On a seasonally adjusted quarter to quarter comparison GDP recorded a decline of 0.1% in the second quarter of 2012 and goods exports decreased by 3.7% year-on-year, which are the main reasons to the sluggish economic growth. Private consumption grew by 3.7% year-on-year, but slower than the growth of 6.5% in the first quarter of 2012. As at June 2012, unemployment rate stood at 3.2%, reflecting a state of full employment. Development of the European sovereign debt crisis and the weak performances of major economies, however, may affect business environment and recruitment intentions, bringing uncertainties to the outlook in the job market. Amidst the current circumstances, the HKSAR government further cut its full-year forecast of economic growth for 2012 from 1-3% to 1-2%.

The property market of Hong Kong is, to a certain extent, affected by the various uncertainties in the outlook of external economic environment. Grade A offices in the waterfront of Central witnessed a substantial fall in overall occupancies and rental rates as international financial institutions cut resources and some enterprises moved their back offices to new emerging commercial districts with lower rental rates. Fortunately, a large portion of the vacant office space was taken up by Mainland Chinese financial institutions which set up their headquarters and branches in Hong Kong in line with the ¡§going out¡¨ development strategy from the Central Government. Absorption of grade A office space in prime locations is anticipated to be benefited with a neutralising and balancing effect from such new demand. According to the statistics from The Rating and Valuation Department, grade A office space forecast completions in 2012 will be around 150,000 sq m, while completions in 2013 will decline. Around 73% of the new supply in 2012 would be found in non-core areas, while the percentage in 2013 will rise to 90%. Limited new supply of grade A office space in core areas, particularly the traditional prime areas in Queen's Road Central, also created favourable market environment.

In early 2012, the Central Government has adopted a slightly eased monetary policy, which has stimulated the residential mortgage business of banks in Hong Kong. Coupled with the launch of a number of quality projects, the Hong Kong residential property sector has gained growth momentum. Transaction volume of projects with geographical advantages was encouraging, with overall transaction volume picked up gradually. For instance, The Signature and The Riverpark, two new residential projects launched by the Group in 2012, were well received by local purchasers and foreign investors because of its prime location and superior quality, thereby has achieved satisfactory sales performance. The new Chief Executive of the HKSAR Government reiterated on increasing in residential housing supply so as to alleviate the shortage in residential housing, resulting in market concerns about the government's property market policies. Despite the foregoing, under the current situation, the government tends to moderately increase supply with an aim to developing the property market steadily and healthily, provide Hong Kong citizens with good living environment and mitigate risks arising from market fluctuations, rather than to hinder natural development of the property market through vigorous administrative means. Such measures are welcomed by property developers.

Given the lackluster global economy, US Federal Reserve began the third round of quantitative easing and reiterated its plan to keep interest rates ultra-low through mid-2015, as well as expressed that it will take additional measures, if necessary, to ensure sustainable economic recovery. Facing the risk of economic downturn, the Central Government is generally anticipated to continue with its eased monetary policies which will be the overall focus of policy regulation in the second half of the year. As the former is anticipated to keep Hong Kong's interest rate low, which will be favourable to the property market, and the latter will be beneficial to the property market in terms of capital inflow, it would be more good than bad to the Hong Kong society with over 50% of population living in private housing at present. Meanwhile, concrete demand for new purchases and upgrades were boosted by the significant increase in personal income level, as well as the continual rise in newly married and newborn population in Hong Kong in the recent years. As such, stable demand is expected to provide further support to the residential property market.

For Hong Kong retail property market, large number of visitors from Mainland China and buoyant local consumption demand created inexhaustible momentum for the retail industry of Hong Kong in 2011. Entering the first half of 2012, risks of the Mainland economy have hampered Mainland visitors' consumer spending on luxury goods in Hong Kong. Sales volume of jewellery, watches and clocks, and valuable gifts, which used to be the favourites of Mainland visitors, fell by 2.9% year-on-year in May 2012, tapering off the growth in value of total retail sales in Hong Kong. Visitor arrivals from Mainland China maintained at a relatively high level and visitors from emerging markets increased, however, are beneficial to the development of the Hong Kong retail and retail property leasing markets as the weak exchange rate of the Hong Kong dollars has boosted overall consumption. The strong demand from the international and local brands for retail space in prime locations at present and the limited new supply of retail space in core shopping districts such as Tsim Sha Tsui and Central in the short run have accelerated the rise in occupancies and rental rates of retail property in those areas.

Hong Kong's hotel industry experienced a remarkable growth in 2011. New highs were recorded in both occupancy and average room rate. Visitor arrivals from Mainland China and emerging markets kept growing and provided a strong support to the development of Hong Kong's hotel industry as a whole. However, high operating costs of the hotel industry and peak overall property prices in Hong Kong are impairing the competitive advantages of the hotel industry of Hong Kong compared with its surrounding counterparts. In fact, other major Asian countries, including Singapore, Japan and Korea, are upgrading their tourism destinations and introducing preferential policies so as to boost visitor arrivals. Direct flights between Mainland China and Taiwan also undermined the role of Hong Kong as a transit hub for cross-strait travelling. Mainland Chinese travellers changing their destinations to Europe and US for new shopping and travelling experience together with decreasing number of long haul business travellers from Europe and US as a result of corporations' tightening budgets on international conference and travelling expenses due to challenging economic environment in those countries have exerted downward pressure on the Hong Kong hotel industry as a whole.

With regard to the property market in Mainland China, the Central Government aim to mitigate risks and impacts arising from economic downturn by implementing a series of stimulating measures and adjusting economic development strategies. The Central Government is gradually shifting from the previous focus of rapid economic growth to new growth models and benefits from sound economic system and policies. Following a dual model, sufficient market liquidity is maintained by adopting relaxed monetary policies, such as low interest rate, to stimulate the economy, while sustainable economic development strategies are implemented through the Central Government's strengthened support to infrastructure construction and community welfare undertakings, in a bid to reduce over reliance on exports, increase consumption power per capita, stimulate domestic consumption and spending growth.

Wen Jiaobao, Premier of the State Council reiterated that the Central Government will continue to put efforts on property market regulation and low-income housing construction in the 2012 government's work report. Provided that quality is ensured, five million units of low-income housing will be completed and seven million units will commence construction. Low-income housing construction, allocation, administration and exit systems will be further optimised. Effective measures will be adopted to increase ordinary commodity housing supply, reform the property taxation system and promote steady and healthy development of the property market in the long run. On such development basis, the property and real estate markets in Mainland China are expected to undergo further consolidation. On the supply chain front, less competitive small-to-medium-sized enterprises will be eliminated, providing the market with solid foundation and outstanding enterprises with more room for development. On the demand chain front, low-income individuals will be given opportunities to move up to the middle-income class through low-income housing, nurturing new driving forces for the property market. Both of the foregoing will benefit market development in the long run.

In March 2012, the Central Government and the national financial institutions moderately adjusted control measures to increase market liquidity in response to community development and property market trend. As concrete demand for new purchases and upgrades increased given the low probability for a new round of control measures, the property market sentiment gradually picked up with higher transaction volume and stable property prices. Under the current global market conditions, it is generally anticipated that the Central Government, around the convening of the 18th National People's Congress, will adhere to its stable principle on economic development so as to prevent overheating and volatility in the market. Through eased relaxed monetary policies and persistent attitude towards the property market, initiatives will be taken to intensify and adjust macroeconomic measures already introduced in a timely manner. Efforts will also be put to boost domestic consumption and consumer demand, and actively promote trade balance, in a bid to maintain the stable development momentum of the overall economy and the overall focus to ensure healthy and steady development of the property market.

Since September 2012, Hang Seng Indexes Company Limited has moved New World Development from the Hang Seng Commerce and Industry Sub-index to the Hang Seng Properties Sub-index, and changed its industry classification from ¡§Conglomerates¡¨ to ¡§Properties and Construction¡¨. The indicative move of reclassifying New World Development from conglomerates category to property and construction category has demonstrated the Group's achievements in property development in Hong Kong over time and once again confirmed our determination of being a major property developer in Hong Kong.

In fact, satisfactory sales performance, as well as quality, design, sales and marketing of our projects, have proved the Group and the new management team's success in striving for improvement and optimizing the important procedures of property development. In addition, we take a step forward and actively review various procedures and operations of property development, strengthening and enhancing work efficiency of key procedures by formulating different indicators and strategies, thereby lifting our product value and brand image and fully putting into practice our philosophy of ¡§We offer unique and we offer better ones¡¨.

Going forward, resources will be primarily invested in property operations in Hong Kong and Mainland China to develop ¡§New Word¡¨ as a quality brand of major local property developer and maintain the strong growth momentum created through joint efforts of the new management team and all of the staff over time.

With respect to property development, the Group, as a property developer providing the public with quality housing, will diversify product types according to market needs, exercise strict control on product quality and design and cater to the needs of different home buyers with excellent products and superior services. Furthermore, the Group will keep a steady pace of property launch and sales, and timely launch projects according to its original schedule and market conditions, in a bid to ensure contributions from the property development segment to the Group's results, maintain sound stability and increase stakeholders' confidence on the New World property development brand.

The Group has planned to launch ¡§COLLECTABLE RESIDENCES¡¨, a series of new and high quality residential projects in Hong Kong Island in 2013, including South Lane Project in Western District and Kwai Fong Street Project in Happy Valley. Together with Austin Station Project, situated at the core location of high-end residences in West Kowloon and adjacent to Hong Kong Terminal Station of Guangzhou-Shenzhen-Hong Kong Express Rail Link, and a number of diversified living communities in New Territories, several new projects to be launched in the market. Diversified product types and a layout focusing on projects in urban area are anticipated to make substantial contribution.

In order to ensure sufficient land supply for its property development and strategies planning in the long run, the Group will actively and seriously consider every opportunity to replenish its landbank. Whether through public auction, private acquisition or agricultural land conversion upon negotiation with the government, the Group will carry out in-depth research to moderately increase residential projects with good development potential and in line with the Group's development direction, thereby enhancing the strengths of the Group in respect of future development.

The Group has been pursuing to replenish its landbank through various means. For instance, three projects launched during the year, namely, The Signature, The Riverpark and Double Cove, were developed by way of old building redevelopment, joint development with MTRC and agricultural land conversion, respectively. Since land is valuable resource to property developers, the Group will adhere to its diversified land acquisition development model with equal emphasis on old building redevelopment, public auction and agricultural land conversion, so as to maintain a steady and quality pipeline of land banks to support property development and grow the property operations in Hong Kong.

With respect to value enhancement, the Group will strive to raise profit contributions from the Hong Kong property portfolio by reviewing its assets portfolio and gradually optimising the quality and services of its investment properties, in a bid to generate better return on assets. Taking Discovery Park Shopping Mall in the prime location in Tsuen Wan as an example, our team formulated an upgrade plan immediately after acquisition of the remaining 50% interest in the Shopping Mall in 2011, with an aim to upgrading the project and enhancing rental return through renovation and reorganisation of tenant mix. Besides, we actively reviewed our assets portfolio in recent years and sold non-core assets to raise capital for future property development. These initiatives have undoubtedly exerted positive effects on the Group's results and brand building.

With respect to property development in Mainland China, NWCL, the Group's flagship enterprise in property development in Mainland China, will continue to develop property operations in Mainland China by adopting diversified property development concepts, closely monitoring overall environment at home and abroad and adhering to our prudent management principle and innovative ideas. We will focus on development of our existing landbank, expedite development progress, improve production flow and strictly control costs through product standardisation and centralised regional procurement and timely adjust development plans based on market changes, so as to achieve rapid sales and high turnover. We will offer unit types catering to the actual needs of the market and the mass public, as well as deluxe, superior and multi-functional products catering to the lifting lifestyle in Mainland China.

The Group is committed to optimising its property development operations in Hong Kong and Mainland China. In a bid to grasp opportunities and overcome challenges ahead, we will come up with new concepts and equip ourselves on an ongoing basis as well as adopt flexible means, create innovative ideas and set clear objectives. The new management team and our staff are working well with mutual understanding after a period of cooperation. In the coming future, we will fully leverage on our team spirit, work diligently with clear objectives and move forward with the Group hand in hand to build New World as a renowned brand for superior property development.

Source: New World Dev (00017) Annual Results Announcement
Chairman CHENG KAR-SHUN, HENRY Issued Capital (shares) 6,312M
Par Value HKD 1 Market Capitalisation (HKD) 69,428M
 
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