绿景中国地产(00095) - 2018 - 年度财报

Corporate Information Directors and Committee Composition The company's board of directors comprises executive, non-executive, and independent non-executive directors, with executive, audit, nomination, and remuneration committees - Board members include 5 executive directors, 1 non-executive director, and 3 independent non-executive directors[5] - Mr. Zhu Jiusheng resigned as independent non-executive director, Chairman of the Audit Committee, and other committee members on April 8, 2019[6][7] - Mr. Mo Fan was appointed as independent non-executive director and member of several committees on April 8, 2019[5][6][7] - Ms. Hu Jingying was appointed as Chairman of the Audit Committee on April 8, 2019[6][7] Company Contact and Legal Information The company is registered in the Cayman Islands, with its principal place of business in Hong Kong and domestic offices in Shenzhen and Suzhou, and Deloitte Touche Tohmatsu serves as its auditor - Registered office in Cayman Islands, principal place of business in Hong Kong's Everbright Centre, Wan Chai[7][10] - Domestic offices in NEO Building, Futian District, Shenzhen, and Jinhe International Center, Suzhou New District[10][12] - Deloitte Touche Tohmatsu is the company's auditor[7][8] - Company stock code is HKEx: 95, with a trading unit of 2,000 shares, and 8.5% senior notes due 2020 have been issued[11][13] Chairman's Statement 2018 Macroeconomic and Real Estate Market Review In 2018, China's economy grew steadily, with the real estate market under strict regulation guided by the "houses are for living in, not for speculation" policy, aiming to curb rapid price increases and land market overheating - China's economy developed steadily in 2018, with the real estate market prospering as a pillar industry[15][19] - The state adhered to the "houses are for living in, not for speculation" policy, introducing multiple control measures to curb rapid price increases and land market overheating[15][16][19] - Shenzhen government issued "three-price linkage" and "7.31" new policies, along with housing supply and guarantee policies, further regulating the real estate market[16][19] Lvjing China's Strategic Positioning and Core Advantages Lvjing China leverages over 20 years of urban renewal experience to establish advantages in core Greater Bay Area cities, acquiring land resources through a "dual-core layout" and "two-way expansion" model, aiming to become a benchmark smart new city developer and operator in collaboration with Huawei - Lvjing China has over 20 years of urban renewal experience, with a strong advantage in core Greater Bay Area cities[17][20] - The company adopts a urban renewal and limited market bidding "two-way expansion" model to acquire land reserves, possessing a cost advantage[17][20] - Proposed the strategy "Focus on Greater Bay Area Urban Renewal, Build Smart New Cities," aiming to become a benchmark smart new city developer and operator in the Guangdong-Hong Kong-Macao Greater Bay Area[18][21] - Established a strategic partnership with Huawei Technologies Co., Ltd., introducing an innovative development model integrating technology into real estate[17][18][20][21] 2018 Business Highlights In 2018, Lvjing China achieved excellent results across its three segments: property development and sales, commercial property investment and operation, and integrated services, with multiple projects seeing strong sales, high occupancy rates for commercial brands NEO and ZuoLin, and the Hong Kong NEO Tower topping out and commencing leasing - Property development and sales segment adheres to a Greater Bay Area "dual-core" layout, with over 90% of projects and land reserves located there[24][27] - Lvjing International Flower City achieved sales contract value of RMB 1.176 billion in 2018, with cumulative transaction area of 166,473 square meters[24][27] - Shenzhen Lvjing Hongshuwan No. 1 achieved approximately 70% sell-through rate on opening day, attracting high market attention[24][27] - Through collaboration with the controlling shareholder, increased equity in a Zhuhai Xiangzhou District urban renewal project by RMB 20 million, with an estimated total GFA of 794,300 square meters[25][28] - Commercial property brands "NEO" and "ZuoLin" maintained comprehensive occupancy rates above 95%, providing stable cash flow[26][29] - Hong Kong Lvjing NEO Tower topped out in May 2018, commenced leasing in November 2018, with an expected occupancy rate exceeding 60% by end of 2019[26][29] - Integrated services segment generated RMB 308.2 million in revenue in 2018, with Lvjing Jinjiang Hotel achieving an average occupancy rate of 75%[31][34] - Signed a smart city strategic cooperation agreement with Huawei, applying the smart city concept to urban renewal projects[30][33] Future Outlook Lvjing China will continue to consolidate its position as an urban renewal pioneer, strategically upgrading to a smart new city developer and operator, focusing on urban renewal in the Greater Bay Area, and collaborating with Huawei to create replicable smart city benchmarks - Will consolidate its position as an urban renewal pioneer, strategically upgrading to a smart new city developer and operator[32][34] - Focus on the strategy "Focus on Greater Bay Area Urban Renewal, Build Smart New Cities," seeking breakthroughs in urban renewal[32][34] - Collaborate with Huawei to apply the smart city concept to existing and future urban renewal projects, creating replicable benchmarks[30][33] - Aim to become "the most respected urban value creator," delivering long-term sustainable returns to shareholders and investors[32][34] Management Discussion and Analysis Industry Review In 2018, China's economy improved steadily, and the real estate market became more rational under the "houses are for living in, not for speculation" policy, with slower growth in sales and a decrease in unsold inventory, while the Greater Bay Area Development Plan Outline brings significant potential - In 2018, China's commercial housing sales area increased by 1.3% year-on-year, and sales value increased by 12.2% year-on-year, with growth rates slowing by 1.5 percentage points from the previous year[38][41] - As of the end of 2018, national commercial housing unsold area decreased by 11.0% year-on-year[38][41] - Shenzhen's new home residential transactions reached 29,396 units, a 13.85% year-on-year increase; transaction area was 2.9242 million square meters, a 12.78% year-on-year increase[39][42] - The release of the "Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area" will bring significant benefits to real estate companies within the Greater Bay Area[45][47] - Lvjing China has been deeply rooted in core Greater Bay Area cities for decades, possessing numerous high-quality land reserves, highly aligned with policy planning[45][47] Performance Overview For FY2018, Lvjing China's total revenue increased by 52.2% to RMB 4.5157 billion, gross profit increased by 38.6% to RMB 2.6862 billion, and profit attributable to company shareholders increased by 19.5% to RMB 1.2372 billion, with basic earnings per share of RMB 25.21 cents 2018 Financial Highlights | Indicator | 2018 (RMB million) | 2017 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Revenue | 4,515.7 | 2,967.8 | 52.2% | | Gross Profit | 2,686.2 | 1,937.9 | 38.6% | | Profit attributable to core business | 765.3 | 649.8 | 17.8% | | Profit attributable to company shareholders | 1,237.2 | 1,035.4 | 19.5% | | Basic earnings per share (RMB cents) | 25.21 | 22.06 | 14.3% | | Gross profit margin (%) | 59.5 | 65.3 | -5.8% | 2018 Balance Sheet Indicators | Indicator | December 31, 2018 (RMB million) | December 31, 2017 (RMB million) | | :--- | :--- | :--- | | Bank balances and cash (including restricted bank deposits) | 7,589.9 | 6,092.7 | | Average financing cost (%) | 6.2 | 6.6 | | Debt-to-asset ratio (%) | 73.7 | 72.6 | | Return on capital (%) | 10.9 | 10.5 | - The board recommended a final dividend of HKD 5.3 cents (equivalent to approximately RMB 4.65 cents) per ordinary share for the year ended December 31, 2018[56] Business Review Lvjing China achieved steady business growth and multiple awards in 2018, continuing to deepen its presence in the Greater Bay Area, with outstanding performance in property development and sales, commercial property investment and operation, and integrated services, particularly in urban renewal projects and commercial brands - Received multiple industry awards in 2018, including "Most Investable Listed Company in Shenzhen-Hong Kong Stock Connect" and "Top Ten Comprehensive Strength in Shenzhen Real Estate Development Industry"[62][66] - Over 90% of the Group's projects and land reserves are located in the Greater Bay Area, primarily centered on "Shenzhen-Hong Kong," strategically positioned in core areas of core cities[64][67] - Adopted a urban renewal and limited market bidding "two-way expansion" model to acquire high-quality land reserve resources at costs superior to auction prices[65][67] - Through collaboration with the controlling shareholder, increased equity in a Zhuhai Xiangzhou District urban renewal project by RMB 20 million, acquiring 90.1% equity in Houyi Holdings Limited, with a total land area of approximately 207,200 square meters and an estimated total GFA of 794,400 square meters[70][73] Property Development and Sales Property development and sales is the Group's core business, accounting for 81.2% of total revenue, with revenue increasing by 73.3% to RMB 3.6643 billion in 2018, driven by strong sales from key projects like Lvjing Hongshuwan No. 1 and Lvjing International Flower City - Property development and sales accounted for 81.2% of the Group's total revenue, with revenue of approximately RMB 3,664.3 million in 2018, a 73.3% year-on-year increase[71][74] - Total GFA of properties sold in 2018 was approximately 296,300 square meters, significantly exceeding 55,500 square meters in 2017[146][147] - Lvjing Hongshuwan No. 1 project achieved contract sales of RMB 2.35 billion in 2018, with RMB 1.52 billion recognized as sales revenue in the same year, and remaining inventory value of RMB 7.6 billion[76][80] - Lvjing International Flower City achieved sales contracts of RMB 1.18 billion in 2018, with cumulative transaction area of 166,473 square meters, and over 1 million square meters of saleable area remaining[77][81] - Lvjing Kaiwei project has obtained all "four certificates," with foundation work commenced, expected to be a major contributor to performance in the next two years[86][90] Commercial Property Investment and Operation The Group adopts a "dual-driven" model combining property development with commercial property operation, steadily operating its "NEO" and "ZuoLin" commercial brands, which generated approximately RMB 543.2 million in revenue in 2018 with high occupancy rates - Revenue from commercial property investment and operation was approximately RMB 543.2 million, a 9.0% year-on-year increase[88][91] - "NEO" and "ZuoLin" commercial brands maintained comprehensive occupancy rates above 95%[88][91] - NEO urban commercial complex had an average occupancy rate of approximately 94% (2017: 99%)[89][92] - Hong Kong Lvjing NEO Tower topped out in May 2018, commenced leasing in November 2018, with an expected occupancy rate of over 60% by end of 2019[93][96] - Lvjing ZuoLin International Flower City Shopping Center achieved an opening rate of 85%, and Lvjing ZuoLin Yuexi Shopping Center achieved an occupancy rate of 93%[95][97] Integrated Services The integrated services segment generated RMB 308.2 million in revenue for the Group in 2018, a 13.2% year-on-year decrease, primarily from property management and hotel operation services, with Lvjing Jinjiang Hotel achieving a 75% average occupancy rate - Integrated services revenue was RMB 308.2 million, a 13.2% year-on-year decrease[100][106] - Lvjing Jinjiang Hotel had an average occupancy rate of approximately 75% (2017: 77%)[102][107] - Vanllee Hotel in Covina, California, USA, is expected to complete renovation in 2019, which will bring stable hotel operating revenue[103][107] Financial Financing In 2018, Lvjing China leveraged Hong Kong's international capital platform to consolidate financial resources through various channels, including equity financing and convertible bond issuance, resulting in a decrease in the Group's average financing cost from 6.6% in 2017 to 6.2% in 2018 - In February 2018, issued 132,564,669 new convertible preference shares and 132,564,669 ordinary shares to two qualified investors, with net proceeds of approximately HKD 1 billion[105][108] - On May 11, 2018, issued USD 100 million 4% convertible bonds due 2023[110] - On September 16, 2018, issued USD 50 million 5% secured convertible bonds due 2023[111] - On October 3, 2018, extended the maturity date of USD 90 million 5.5% convertible bonds due 2018 to 2020[112] - Average financing cost in 2018 was 6.2%, a decrease of 0.4 percentage points from 6.6% in 2017[113][117] Future Strategy Lvjing China will undergo a comprehensive strategic upgrade, guided by "Focus on Greater Bay Area Urban Renewal, Build Smart New Cities," prioritizing urban renewal projects in the Greater Bay Area, including the Baishizhou urban renewal project, and collaborating deeply with Huawei to create replicable smart city benchmarks - Will implement a comprehensive strategic upgrade to become a benchmark smart new city developer and operator in the Guangdong-Hong Kong-Macao Greater Bay Area[119][126] - Prioritize the Baishizhou urban renewal project, having completed collective property compensation agreements and property surveys, and obtained special planning approval (planned GFA of 3.58 million square meters)[115][119] - Signed a smart city strategic cooperation agreement with Huawei, integrating technology into real estate to assist with top-level design, construction, and operation of the Baishizhou urban renewal project[122][125] - Aim to create convenient, technologically advanced, and replicable smart new city benchmarks, enhancing urban value and economic vibrancy[122][123][125][126] Significant Corporate Events In 2018, Lvjing China undertook several significant corporate events, including the conversion of convertible bonds, issuance of new convertible preference shares and ordinary shares for equity financing, and issuance of multiple convertible bonds, alongside signing a smart city strategic cooperation agreement with Huawei and increasing equity in the Zhuhai Xiangzhou District urban renewal project - On January 17, 2018, Chance Talent converted USD 10 million convertible bonds, and the company issued 28,794,063 ordinary shares[128][134] - On February 7, 2018, issued 132,564,669 new convertible preference shares to Silver Sure and 132,564,669 new ordinary shares to Leadon International Investments Real Estate Limited[129][130][134][135] - On February 8, 2018, placed 80 million ordinary shares to QDII funds of Essence Securities and Guosen Securities through a "placing of existing shares followed by subscription of new shares" arrangement[131][136] - On May 10, 2018, issued USD 100 million 4% secured convertible bonds due 2023[132][136] - On July 23, 2018, signed a smart city strategic cooperation agreement with Huawei[133][137] - On September 16, 2018, issued USD 50 million 5% secured convertible bonds due 2023[140][144] - On October 3, 2018, extended the maturity date of 5.5% convertible bonds to 2020[141][144] - On December 28, 2018, subscribed for 90.1% equity in Houyi Holdings Limited for RMB 20 million, increasing its interest in the Zhuhai Xiangzhou District urban renewal project[142][144] Financial Review In 2018, Lvjing China's total revenue increased by 52.2% to RMB 4.5157 billion, primarily driven by property sales, while gross profit increased by 38.6%, though gross margin slightly decreased due to project mix, and income tax expense significantly rose due to increased land appreciation tax provision 2018 Revenue Composition | Revenue Source | 2018 (RMB thousand) | 2017 (RMB thousand) | Change (%) | | :--- | :--- | :--- | :--- | | Property development and sales | 3,664,328 | 2,114,289 | 73.3 | | Commercial property investment and operation | 543,176 | 498,295 | 9.0 | | Integrated services | 308,181 | 355,167 | (13.2) | | Total | 4,515,685 | 2,967,751 | 52.2 | - Gross profit increased by 38.6% to RMB 2.6862 billion, with gross margin decreasing from 65.3% in 2017 to 59.5%, mainly due to the Huazhou project[150][155] - Selling expenses increased by 96.4% year-on-year to RMB 133 million, primarily due to an increase in projects launched in 2018[151][156] - Administrative expenses increased by 8% year-on-year to RMB 390.4 million, mainly due to increased staff costs[152][157] - Fair value gain on investment properties was RMB 323.5 million (2017: RMB 478.4 million)[153][158] - Financing costs increased by 7.2% year-on-year to RMB 658 million, but the average financing cost of interest-bearing loans decreased from 6.6% in 2017 to 6.2%[161][162][168] - Income tax expense increased by 101.6% year-on-year to RMB 925.1 million, primarily due to an increase in land appreciation tax provision (RMB 523.4 million)[163][169] - Profit attributable to company shareholders was approximately RMB 1.2372 billion, a 19.5% year-on-year increase[164][170] - Bank balances and cash (including restricted bank deposits) were approximately RMB 7.5899 billion[165][171] - Net current assets increased from RMB 4.492 billion at the end of 2017 to RMB 7.5509 billion, mainly due to the extension of convertible bond maturity dates[167][172] - Total assets were approximately RMB 43.4121 billion, total liabilities approximately RMB 31.9732 billion, and debt-to-asset ratio approximately 73.7% (2017: 72.6%)[173][179] - Contingent liabilities (related to mortgage financing guarantees) were approximately RMB 1.163 billion, but directors believe it is unlikely to result in a loss[176][178][181][182] Employee Information As of December 31, 2018, the Group had 1,612 employees, with 1,589 in mainland China and 23 in Hong Kong, and employee compensation is consistent with market trends, including basic salaries, bonuses, retirement plans, and long-term incentives such as share options - As of December 31, 2018, the Group employed 1,612 staff (2017: 1,779 staff)[188][191] - Of these, 1,589 employees were based in mainland China, and 23 employees were based in Hong Kong[188][191] - Employee compensation includes basic salaries, bonuses, retirement plans, and long-term incentives such as share options[188][191] Biographical Details of Directors and Senior Management Executive Directors The company's executive directors, including Chairman Ms. Huang Jingshu and CEO Mr. Tang Shouchun, are responsible for key functions such as overall business development, corporate investment and financing, project development and management, financial and tax management, and brand and investment property management, each possessing extensive industry experience - Ms. Huang Jingshu (Chairman): 31 years old, responsible for overall business development, holds a Master's degree in Accounting and Finance, daughter of controlling shareholder Mr. Huang Kangjing[193][196] - Mr. Tang Shouchun (CEO): 56 years old, responsible for corporate investment and financing, holds a doctoral degree, previously served as Deputy General Manager of Yuexiu Enterprise Group[194][197] - Mr. Ye Xing'an: 55 years old, responsible for overall project development and management, previously held various positions at China Vanke Co., Ltd[195][198] - Ms. Deng Chengying: 58 years old, responsible for overall financial and tax management, internal control, and compliance management, holds an intermediate accounting professional technical qualification certificate[199][202] - Mr. Huang Haoyuan: 28 years old, responsible for corporate brand and investment property management, son of controlling shareholder Mr. Huang Kangjing[200][203] Non-Executive Director Ms. Li Lihong is the company's non-executive director, with over 23 years of experience in the banking and finance industry, currently serving as Risk Director of Ping An Bank's Real Estate Finance Business Unit - Ms. Li Lihong: 46 years old, has over 23 years of experience in the banking and finance industry, currently serves as Risk Director of Ping An Bank's Real Estate Finance Business Unit[201][204] Independent Non-Executive Directors The company's independent non-executive directors, including Mr. Wang Jing, Ms. Hu Jingying, and Mr. Mo Fan, are responsible for providing independent judgment and reviewing company performance, each possessing extensive experience in business, accounting, and finance - Mr. Wang Jing: 51 years old, currently an independent director of Cyberspace Technology (Beijing) Co., Ltd., with extensive experience in the commercial property industry[205][207] - Ms. Hu Jingying: 60 years old, has over 24 years of accounting and finance experience, a member of the Hong Kong Institute of Certified Public Accountants and the American Institute of Certified Public Accountants[206][208] - Mr. Mo Fan: 36 years old, appointed on April 8, 2019, has over 12 years of financial financing experience, currently Chief Partner of Overseas Capital Business at China Vanke Co., Ltd[210][213] Senior Management The company's senior management includes Vice Presidents Ms. Hu Yong and Mr. Ren Hongbing, who are responsible for financial financing and project construction development, respectively, both possessing extensive industry experience - Ms. Hu Yong: 56 years old, Vice President of the Group, responsible for financial financing, with extensive financial and accounting experience[211][214] - Mr. Ren Hongbing: 51 years old, Vice President of the Group, responsible for project construction development, holds an MBA degree[212][214] Directors' Report Business Review and Outlook The Directors' Report reviews the Group's 2018 business performance and discusses future business development, potential risks, and significant events, noting that the Group is primarily engaged in property development and investment - The Group is primarily engaged in property development and property investment businesses[219][226] - Details of business review, future development, risks, etc., are contained in the "Chairman's Statement" and "Management Discussion and Analysis" sections[217][218][224][225] Results and Dividends The Group's 2018 results are presented in the consolidated financial statements, and the board recommended a final dividend of HKD 5.3 cents (approximately RMB 4.65 cents) per ordinary share for the year ended December 31, 2018 - The board recommended a final dividend of HKD 5.3 cents (equivalent to approximately RMB 4.65 cents) per ordinary share for the year ended December 31, 2018[220][227] - As of December 31, 2018, the company's distributable reserves were approximately RMB 306.3 million, of which approximately RMB 229.8 million has been declared as final dividends[223][230] Share Capital and Bond Movements In 2018, the company issued 248,058,732 ordinary shares and 132,564,669 convertible preference shares, and issued multiple convertible bonds for project development, debt refinancing, and general corporate purposes, with no listed securities redeemed during the year - In 2018, the company issued a total of 248,058,732 ordinary shares and 132,564,669 convertible preference shares[237][242] 2018 Details of Share Capital Securities Issued | Announcement Date | Description | Net Proceeds Raised (HKD) | Intended Use of Proceeds | Actual Use | Reason for Issuance | | :--- | :--- | :--- | :--- | :--- | :--- | | February 7, 2018 | Placing of 132,564,669 convertible preference shares and 132,564,669 new shares | 778,940,000 | General corporate purposes and financing new property projects | Used for intended purposes | Opportunity to raise capital, broaden shareholder base and capital base | | February 8, 2018 | Placing of 80,000,000 shares on a "placing of existing shares followed by subscription of new shares" basis | 233,160,000 | General corporate purposes and financing new property projects | Used for intended purposes | To raise additional funds, broaden shareholder base and capital base | | May 10, 2018 | Issuance of USD 100 million 4.00% secured convertible bonds due 2023 | 769,385,000 | Project development and debt refinancing/general corporate purposes | Fully used for intended purposes | To raise additional funds | | September 16, 2018 | Issuance of USD 50 million 5.00% secured convertible bonds due 2023 | 383,667,000 | Project development and debt refinancing/general corporate purposes | Fully used for intended purposes | To raise additional funds | - The company did not redeem any listed securities during the year[248][249] Directors' and Major Shareholders' Interests As of December 31, 2018, the company's directors and chief executives held interests in the company's shares, related shares, and bonds, with controlling shareholder Mr. Huang Kangjing and his family trust holding a significant number of shares and convertible preference shares, alongside other major shareholders Interests of Directors and Chief Executives in the Company's Shares | Director Name | Capacity | Number of Shares Held | Number of Underlying Shares Held (Share Options) | Total Interests | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | :--- | :--- | | Ms. Huang Jingshu | Beneficiary of a trust | 2,400,000,000 | – | 2,400,000,000 | 48.56% | | Ms. Huang Jingshu | Personal interest | – | 4,500,000 | 4,500,000 | 0.09% | | Mr. Tang Shouchun | Personal interest | – | 10,000,000 | 10,000,000 | 0.20% | | Mr. Ye Xing'an | Personal interest | – | 10,000,000 | 10,000,000 | 0.20% | | Ms. Deng Chengying | Personal interest | – | 8,500,000 | 8,500,000 | 0.17% | | Mr. Huang Haoyuan | Beneficiary of a trust | 2,400,000,000 | – | 2,400,000,000 | 48.56% | | Mr. Huang Haoyuan | Personal interest | – | 4,500,000 | 4,500,000 | 0.09% | | Mr. Zhu Jiusheng | Personal interest | – | 3,000,000 | 3,000,000 | 0.06% | | Mr. Wang Jing | Personal interest | – | 3,000,000 | 3,000,000 | 0.06% | | Ms. Hu Jingying | Personal interest | – | 3,000,000 | 3,000,000 | 0.06% | Major Shareholders' Long Positions in the Company's Ordinary Shares | Shareholder Name | Capacity | Number of Shares Held | Number of Underlying Shares Held | Total Interests | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | :--- | :--- | | China Lvjing Property Holdings Limited | Beneficial owner | 1,050,230,583 | – | 1,050,230,583 | 21.25% | | Mr. Huang Kangjing | Settlor of a trust | 2,400,000,000 | – | 2,400,000,000 | 48.56% | | China Vanke Co., Ltd. | Interest of controlled corporation | 300,000,000 | – | 300,000,000 | 6.07% | | China Construction Bank Corporation | Interest of controlled corporation | 6,454,000 | 412,772,976 | 419,226,976 | 8.48% | Major Shareholders' Long Positions in the Company's Convertible Preference Shares | Shareholder Name | Capacity | Number of Convertible Preference Shares Held | Approximate Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | China Lvjing | Beneficial owner | 3,215,646,936 | 90.68% | | Mr. Huang Kangjing | Interest of controlled corporation | 3,215,646,936 | 90.68% | Employees and Remuneration Policy The Group provides compensation and benefits to employees in line with industry practice, including discretionary bonuses, retirement plans, and share options, with retirement plans encompassing China's state-managed scheme and Hong Kong's Mandatory Provident Fund - The Group provides compensation and benefits to employees in accordance with current industry practice and awards discretionary bonuses based on the Group's financial performance and individual employee performance[288][294] - Share options may be granted to eligible employees under the company's share option scheme[288][294] - The Group participates in state-managed retirement benefit schemes for mainland China employees and the Mandatory Provident Fund scheme for Hong Kong employees[289][295] Major Suppliers and Customers The Group's largest supplier accounted for 15% of purchases, and the top five suppliers combined accounted for 31%, while the largest customer accounted for 0.4% of sales, and the top five customers combined accounted for 1.7%, with no directors or major shareholders holding beneficial interests in these top entities Percentage of Purchases and Sales from Major Suppliers and Customers | Purchase Amount | Percentage | | :--- | :--- | | Largest supplier | 15% | | Top five suppliers combined | 31% | | Sales Amount | | | Largest customer | 0.4% | | Top five customers combined | 1.7% | - No directors, their associates, or shareholders holding more than 5% of the company's share capital had beneficial interests in the top five suppliers and customers[293][299] Connected Transactions In 2018, the Group engaged in several connected transactions, including the subscription for new shares in Houyi Holdings Limited and a continuing connected transaction with Shenzhen Fu'an Security System Co., Ltd., all of which complied with Listing Rules and were confirmed by independent non-executive directors to be on normal commercial terms - On December 28, 2018, subscribed for 90.1% equity in Houyi Holdings Limited for RMB 20 million, constituting a connected transaction[303][304][309] - Signed a security services agreement with Shenzhen Fu'an Security System Co., Ltd. to provide security products and services; no fees were collected in 2018, within the annual cap of RMB 30 million[305][306][307][310][311] - Independent non-executive directors confirmed that the connected transactions were in the ordinary and usual course of business, entered into on normal commercial terms, and fair and reasonable[313][318] Directors' Interests in Competing Businesses As of the end of the reporting period, no director had any interest in a business that directly or indirectly competes or may compete with the Group's business - No director had any interest in a business that directly or indirectly constitutes or may constitute competition with the Group's business, as required to be disclosed under Rule 8.10(2) of the Listing Rules[315][320] Changes in Directors' Information and Auditor During the reporting period, there were changes in the board of directors, including the resignation of Mr. Zhu Jiusheng and the appointment of Mr. Mo Fan, and Deloitte Touche Tohmatsu, having audited the 2018 consolidated financial statements, will retire but is eligible for re-appointment Changes in Directors' Information | Director Name | Change Details | | :--- | :--- | | Mr. Zhu Jiusheng | Resigned as independent non-executive director, Chairman of the Audit Committee, and other committee members effective April 8, 2019 | | Mr. Mo Fan | Appointed as independent non-executive director and member of several committees effective April 8, 2019 | | Ms. Hu Jingying | Appointed as Chairman of the Audit Committee effective April 8, 2019 | - Deloitte Touche Tohmatsu has audited the 2018 consolidated financial statements and will retire but is eligible and willing to be re-appointed[328][330] Corporate Governance Report Corporate Governance Practices For the year ended December 31, 2018, the Group complied with all code provisions of the Hong Kong Stock Exchange's Corporate Governance Code and will continue to monitor and review its corporate governance practices - For the year ended December 31, 2018, the Group complied with all code provisions of the Hong Kong Stock Exchange's Corporate Governance Code[334][339] - The Board will continue to monitor and review the Group's corporate governance practices to ensure compliance with the Code[334][339] Board of Directors The Board comprises five executive directors, one non-executive director, and three independent non-executive directors, with separate roles for Chairman and CEO to ensure independence, and is responsible for major matters such as corporate strategy, performance review, and risk management, with good attendance at seven meetings held in 2018 - The Board comprises five executive directors, one non-executive director, and three independent non-executive directors, complying with Listing Rules requirements[335][337][340][342] - The roles of Chairman and Chief Executive Officer are separated to ensure their respective independence, accountability, and responsibility[345][348] - The Board is responsible for corporate strategy, annual and interim results, succession planning, risk management, significant acquisitions, disposals, and capital transactions[346][349] - All independent non-executive directors have submitted annual confirmations of independence, complying with Listing Rules guidelines[347][349] - Seven Board meetings were held in 2018, with good attendance by directors, ensuring timely discussion of important matters[348][350][351][352] - The company has arranged appropriate directors' and officers' liability insurance for its directors[355][361] - All directors participate in continuous professional development activities to update their knowledge and skills[357][362] - The company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers, and directors confirmed compliance with the required standards[358][363] Board Committees The company has an Audit Committee, Remuneration Committee, Nomination Committee, and Executive Committee, each with clear terms of reference and sufficient resources to oversee specific affairs, including financial reporting, internal controls, director appointments, remuneration, and daily operations - The company has an Audit Committee, Remuneration Committee, Nomination Committee, and Executive Committee, whose terms of reference are available on the company's website and the Stock Exchange's website[359][364] - The Audit Committee is composed of independent non-executive directors and is responsible for reviewing and approving financial reporting procedures, risk management, and internal control systems[366][367][368][369] - The Nomination Committee comprises one executive director and two independent non-executive directors, responsible for making recommendations on director appointments and removals, and board succession matters[375][377] - The company has adopted a nomination policy and a board diversity policy to ensure the board possesses the necessary skills, experience, and diverse perspectives[379][383][384] - The Remuneration Committee includes one executive director and two independent non-executive directors, responsible for reviewing and determining the remuneration and benefits of directors and senior management[385][389][391][393] - The Executive Committee is authorized by the Board to handle the Group's operational matters and is responsible for developing, reviewing, and monitoring corporate governance policies and practices[398][399][403] Risk Management and Internal Control The Board has overall responsibility for the Group's risk management and internal control systems and is committed to implementing effective and sound internal control systems, supported by an internal audit department that reports directly to the Audit Committee to monitor policy compliance and control effectiveness - The Board has overall responsibility for the Group's risk management and internal control systems and is committed to implementing effective and sound internal control systems[401][406] - The company has established an internal audit department that reports directly to the Audit Committee to monitor policy compliance and the effectiveness of internal controls[402][406] Dividend Policy and Shareholders' Rights The company has adopted a dividend policy, where the Board considers financial performance, cash flow, and shareholder equity when deciding on dividend distribution, and shareholders have the right to convene extraordinary general meetings, propose resolutions, nominate directors, and make written inquiries to the Board - The company has adopted a dividend policy, and the Board will consider financial performance, cash flow, shareholder equity, business conditions, and other factors when deciding on dividend distribution[407][408][411] - Shareholders holding not less than one-tenth of the paid-up share capital may request to convene an extraordinary general meeting[410][413] - Shareholders may nominate individuals for election as directors, requiring submission of nomination forms within a specified period[416][417][421][422] - Shareholders have the right to make written inquiries to the Board[418][423] Communication with Shareholders and Investor Relations The company encourages shareholders to attend annual general meetings and is committed to maintaining high transparency in communication with shareholders and the investment community, ensuring effective, clear, and accurate communication through briefings, meetings, and timely business updates - The company encourages shareholders to attend annual general meetings, and the Chairman of the Board and chairmen of various committees will attend[419][424] - The company is committed to maintaining high transparency in communication with shareholders and the investment community and provides investors with the latest business information in a timely manner[429][432] - All corporate communications are handled by executive directors with the assistance of an independent corporate communications firm, ensuring effectiveness, clarity, and accuracy[429][432] Directors' and Auditor's Responsibilities for Consolidated Financial Statements Directors are responsible for preparing true and fair consolidated financial statements and ensuring their compliance with accounting standards and the going concern principle, while the auditor's responsibility is to express an independent opinion based on the audit results, with 2018 auditor's remuneration at RMB 2.341 million and non-audit services at RMB 0.85 million - Directors are responsible for preparing true and fair consolidated financial statements and ensuring their compliance with Hong Kong Financial Reporting Standards and the going concern principle[434][438][440] - The auditor's responsibility is to express an independent opinion on the consolidated financial statements based on the audit results[437][440] 2018 Auditor's Remuneration | Service Type | 2018 (RMB thousand) | 2017 (RMB thousand) | | :--- | :--- | :--- | | Audit services | 2,341 | 2,612 | | Non-audit services | 850 | 2,509 | Independent Auditor's Report Opinion Independent auditor Deloitte Touche Tohmatsu believes that Lvjing China's consolidated financial statements for the year ended December 31, 2018, truly and fairly reflect the Group's consolidated financial position, financial performance, and cash flows in accordance with Hong Kong Financial Reporting Standards, and have been properly prepared - The auditor believes that the consolidated financial statements truly and fairly reflect the Group's consolidated financial position, financial performance, and cash flows in accordance with Hong Kong Financial Reporting Standards[445][448] - The auditor has complied with the Hong Kong Institute of Certified Public Accountants' Code of Ethics for Professional Accountants, independent of the Group[446][449] Key Audit Matters The auditor identified four key audit matters: investment property valuation, net realizable value assessment of properties held for sale and under development, revenue recognition from property sales, and land appreciation tax provision, all involving significant judgment and estimation, for which targeted audit procedures were performed - Valuation of investment properties: Accounts for 51% of the Group's total assets, involving significant judgment in fair value determination; the auditor assessed the qualifications of the valuers, valuation methods, and appropriateness of key input data[453][454][455][456][458] - Assessment of net realizable value of properties held for sale and properties under development for sale: Involves significant judgment in determining net realizable value; the auditor performed sensitivity analysis and assessed the appropriateness of estimated future selling prices and construction costs[459][460][461][462][463] - Revenue recognition from property sales: Revenue has a material impact on the consolidated statement of profit or loss, and timing of recognition involves judgment; the auditor reviewed sales agreement terms and obtained evidence of property completion and delivery[465][466][469][470] - Provision for land appreciation tax: The implementation and settlement vary across different tax jurisdictions in Chinese cities, involving significant judgment; the auditor assessed the accuracy of land appreciation value calculation and the reasonableness of management's estimates[467][468][478] Directors' and Auditor's Responsibilities Directors are responsible for preparing true and fair consolidated financial statements and ensuring effective internal controls, while the auditor's responsibility is to obtain reasonable assurance that the financial statements are free from material misstatement, exercising professional judgment and skepticism, and evaluating the appropriateness of accounting policies and going concern assumptions - Directors are responsible for preparing consolidated financial statements in accordance with Hong Kong Financial Reporting Standards and implementing necessary internal controls[474][477] - The auditor's objective is to obtain reasonable assurance that the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error[481][484] - The auditor exercises professional judgment, maintains professional skepticism, identifies and assesses risks of material misstatement, and evaluates the appropriateness of accounting policies and estimates[485][493] Consolidated Statement of Profit or Loss In 2018, Lvjing China's total revenue was RMB 4.5157 billion, a 52.2% year-on-year increase, with gross profit at RMB 2.6862 billion, an 38.6% increase, and profit attributable to company shareholders at RMB 1.2372 billion, resulting in basic earnings per share of RMB 25.21 cents 2018 Key Data from Consolidated Statement of Profit or Loss | Indicator | 2018 (RMB thousand) | 2017 (RMB thousand) | | :--- | :--- | :--- | | Revenue | 4,515,685 | 2,967,751 | | Cost of sales | (1,829,515) | (1,029,862) | | Gross Profit | 2,686,170 | 1,937,889 | | Fair value change of investment properties | 323,461 | 478,423 | | Financing costs | (657,995) | (613,592) | | Profit before tax | 2,155,500 | 1,497,374 | | Income tax expense | (925,097) | (458,811) | | Profit for the year | 1,230,403 | 1,038,563 | | Profit for the year attributable to company shareholders | 1,237,167 | 1,035,392 | | Basic earnings per share (RMB cents) | 25.21 | 22.06 | Consolidated Statement of Profit or Loss and Other Comprehensive Income In 2018, Lvjing China's profit for the year was RMB 1.2304 billion, with net other comprehensive expenses of RMB 25.013 million primarily due to translation differences, resulting in a total comprehensive income for the year of RMB 1.2054 billion, of which RMB 1.2119 billion was attributable to company shareholders 2018 Key Data from Consolidated Statement of Profit or Loss and Other Comprehensive Income | Indicator | 2018 (RMB thousand) | 2017 (RMB thousand) | | :--- | :--- | :--- | | Profit for the year | 1,230,403 | 1,038,563 | | Translation differences arising from foreign exchange | (59,930) | 50,415 | | Fair value change of equity instruments at fair value through other comprehensive income | 34,917 | – | | Other comprehensive expenses for the year | (25,013) | (37,177) | | Total comprehensive income for the year | 1,205,390 | 1,001,386 | | Total comprehensive income for the year attributable to company shareholders | 1,211,876 | 1,001,397 | Consolidated Statement of Financial Position As of December 31, 2018, Lvjing China's total assets were RMB 43.4121 billion, an increase from 2017, with non-current assets primarily investment properties, and significant increases in properties under development for sale and properties held for sale within current assets, resulting in total liabilities of RMB 31.9732 billion and net assets of RMB 11.4389 billion 2018 Key Data from Consolidated Statement of Financial Position | Indicator | December 31, 2018 (RMB thousand) | December 31, 2017 (RMB thousand) | | :--- | :--- | :--- | | Non-current assets | | | | Investment properties | 22,117,251 | 19,650,677 | | Current assets | | | | Properties under development for sale | 7,407,278 | 5,621,635 | | Properties held for sale | 3,302,382 | 729,206 | | Bank balances and cash (including restricted bank deposits) | 7,589,868 | 6,092,684 | | Current liabilities | | | | Borrowings | 3,232,448 | 3,615,042 | | Contract liabilities | 2,268,288 | – | | Non-current liabilities | | | | Borrowings | 13,309,348 | 9,343,235 | | Senior notes and bonds | 2,809,060 | 5,250,854 | | Total assets | 43,412,104 | 36,796,820 | | Total liabilities | 31,973,161 | 26,727,617 | | Net assets | 11,438,943 | 10,069,203 | | Total equity | 11,438,943 | 10,069,203 | Consolidated Statement of Changes in Equity As of December 31, 2018, equity attributable to company shareholders increased from RMB 9.8361 billion at the beginning of the year to RMB 11.3314 billion, driven by profit for the year, equity-settled share-based payments, convertible bond conversions, and new share issuances, partially offset by exchange differences and dividends paid 2018 Key Data from Consolidated Statement of Changes in Equity | Item | 2018 (RMB thousand) | 2017 (RMB thousand) | | :--- | :--- | :--- | | Balance at beginning of year (attributable to company shareholders) | 9,836,062 | 8,964,512 | | Profit for the year (attributable to company shareholders) | 1,237,167 | 1,035,392 | | Translation differences arising from foreign exchange | (60,208) | 53,597 | | Fair value change of equity instruments at fair value through other comprehensive income | 34,917 | – | | Equity-settled share-based payments | 21,959 | 80,408 | | Conversion of convertible bonds | 70,385 | – | | Issuance of ordinary shares | 497,620 | 956 | | Issuance of convertible preference shares | 287,047 | – | | Dividends declared and paid | (201,740) | (211,211) | | Balance at end of year (attributable to company shareholders) | 11,331,448 | 9,836,062 | Consolidated Statement of Cash Flows In 2018, Lvjing China's net cash generated from operating activities was RMB 2.7556 billion, net cash used in investing activities was RMB 6.419 billion, and net cash generated from financing activities was RMB 3.539 billion, resulting in a net decrease in cash and cash equivalents of RMB 124.4 million, with year-end cash and cash equivalents totaling RMB 3.2319 billion 2018 Key Data from Consolidated Statement of Cash Flows | Item | 2018 (RMB thousand) | 2017 (RMB thousand) | | :--- | :--- | :--- | | Net cash generated from operating activities | 2,755,593 | 1,228,056 | | Net cash used in investing activities | (6,418,990) | (6,335,363) | | Net cash generated from financing activities | 3,538,973 | 5,858,568 | | Net (decrease) increase in cash and cash equivalents | (124,424) | 751,261 | | Cash and cash equivalents at end of year | 3,231,909 | 3,350,234 | Notes to the Consolidated Financial Statements General Information Lvjing China is incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange, operating as an investment holding company with its ultimate controlling party being Mr. Huang Kangjing, and its consolidated financial statements are presented in RMB - The company is incorporated in the Cayman Islands, with its shares listed on the Main Board of the Hong Kong Stock Exchange[511][514] - The ultimate controlling party is Mr. Huang Kangjing, father of the company's Chairman Ms. Huang Jingshu and Executive Director Mr. Huang Haoyuan[511][514] - The consolidated financial statements are presented in RMB, which is also the functional currency of the company[512][515] Application of New and Revised Hong Kong Financial Reporting Standards In 2018, the Group first applied HKFRS 15 (Revenue from Contracts with Customers) and HKFRS 9 (Financial Instruments), leading to reclassifications of prepayments to contract liabilities and available-for-sale investments to equity instruments at fair value through other comprehensive income, and expects HKFRS 16 (Leases) to result in the recognition of right-of-use assets and corresponding liabilities - First applied HKFRS 15 (Revenue from Contracts with Customers), retrospectively applied to contracts not completed as of January 1, 2018[518][519][522] - HKFRS 15 resulted in the reclassification of previously included prepayments for pre-sold properties of RMB 922.1 million to contract liabilities[527][528] - First applied HKFRS 9 (Financial Instruments), introducing new requirements for financial asset classification, measurement, and Expected Credit Loss (ECL)[533][537] - HKFRS 9 resulted in the reclassification of equity investments (RMB 444.3 million) previously classified as available-for-sale investments to equity instruments at fair value through other comprehensive income[542] - The application of HKFRS 16 (Leases) is expected to result in the recognition of right-of-use assets and corresponding liabilities; irrevocable operating lease commitments at the end of 2018 were RMB 209.5 million[550][555][559] Significant Accounting Policies The Group's consolidated financial statements are prepared in accordance with Hong Kong Financial Reporting Standards, using the historical cost basis, except for investment properties and certain financial instruments measured at fair value, with key policies covering consolidation, revenue recognition, leases, foreign currency, borrowing costs, retirement benefits, share-based payments, taxation, property, plant and equipment, investment properties, properties under development for sale, properties held for sale, other inventories, tangible asset impairment, and financial instrument classification, measurement, and derecognition - Consolidated financial statements are prepared in accordance with Hong Kong Financial Reporting Standards, using the historical cost basis, but investment properties and certain financial instruments are measured at fair value[564][565][570] - Revenue from customer contracts (property sales) is recognized when the customer obtains control of the completed property; hotel operations and property management services revenue is recognized over time[864][870][874] - Investment properties are initially measured at cost and subsequently at fair value, with changes in fair value recognized in profit or loss[703][704][707][708] - Properties under development for sale and properties held for sale are stated at the lower of cost and net realizable value[709][711][717][719] - Financial assets are classified under HKFRS 9 as measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss, and an Expected Credit Loss (ECL) model is introduced for impairment assessment[730][731][733][745][748] - Convertible bonds comprise debt and derivative components; the debt component is measured at amortized cost, and the derivative component is measured at fair value, with changes recognized in profit or loss[817][820] Critical Accounting Judgments and Key Sources of Estimation Uncertainty The Group's application of accounting policies involves several critical judgments and estimates, including deferred tax treatment for investment properties, provision for income tax (especially land appreciation tax), and assessment of net realizable value for properties held