正荣地产(06158) - 2020 - 年度财报

Corporate Information Board of Directors and Committees This section outlines the company's governance structure, detailing the composition of its Board and key committees - The Board of Directors includes Mr Huang Xianzhi (Chairman), Mr Liu Weiliang (Vice Chairman), Mr Li Yang, and Mr Chan Wai Kin (Executive Directors); Mr Ou Guowei (Non-executive Director); and Dr Loke Hoi Lam, Mr Wang Chuanxu, and Mr Lin Hua (Independent Non-executive Directors)[7] - Dr Loke Hoi Lam chairs the Audit Committee, Mr Huang Xianzhi chairs the Nomination Committee, and Mr Wang Chuanxu chairs the Remuneration Committee[7][9] - The company's auditor is Ernst & Young[9] Corporate Contacts and Basic Information This section provides essential contact and registration details for the company - The company's stock code is 6158[11] - The company's official website is www.zhenrodc.com[11](index=11&type=chunk) - Principal bankers include Bank of China, BNP Paribas, and China CITIC Bank International Limited[11] Biographies of Directors and Senior Management Biographies of Executive Directors This section details the extensive real estate industry experience and leadership of the company's executive directors - Mr Huang Xianzhi (52), Executive Director, Chairman, and CEO, has over 20 years of experience in China's real estate industry and has served as Vice President of the China Real Estate Association since January 2021[16] - Mr Liu Weiliang (37), Executive Director and Vice Chairman, possesses over 13 years of experience in the real estate industry[21][23] - Mr Li Yang (36), Executive Director and Executive Vice President, is responsible for the group's daily operations and has nearly 10 years of real estate industry experience[27][28] - Mr Chan Wai Kin (40), Executive Director, Vice President, and CFO, has over 15 years of accounting and finance experience and is a member of the Hong Kong Institute of Certified Public Accountants[32][34] Biography of Non-executive Director This section introduces the background of the company's non-executive director - Mr Ou Guowei (32), Non-executive Director, is the son of the controlling shareholder Mr Ou Zongrong and has over 10 years of experience in China's real estate industry[37] Biographies of Independent Non-executive Directors This section highlights the extensive professional expertise of the independent non-executive directors - Dr Loke Hoi Lam (71), Independent Non-executive Director and Chairman of the Audit Committee, has over 40 years of experience in accounting, audit, corporate governance, and financial advisory[39] - Mr Wang Chuanxu (50), Independent Non-executive Director, has over 19 years of experience in China's financial industry and services for listed companies, holding a securities investment consulting qualification[41] - Mr Lin Hua (45), Independent Non-executive Director, has over 15 years of experience in asset securitization and REITs in China's financial industry and holds multiple industry expert positions[52][54] Biographies of Senior Management This section details the professional backgrounds of the company's joint company secretaries - Mr Chen Jian, Joint Company Secretary, joined the company in October 2015, has held various financial management positions, and obtained a bachelor's degree in finance in 2003[59]61 - Ms Kwong Yin Ping Yvonne, Joint Company Secretary, holds a bachelor's degree in accountancy and is a fellow member of The Hong Kong Chartered Governance Institute and The Chartered Governance Institute, with extensive experience in company secretarial and compliance services[62] Performance Summary Contracted Sales Overview The company achieved steady growth in contracted sales value and GFA in 2020, with an increased average selling price 2020 Contracted Sales Overview | Indicator | 2020 (RMB million) | 2019 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Contracted Sales Value | 141,901 | 130,708 | 8.6% | | Contracted GFA (sq.m.) | 8,897,450 | 8,439,482 | 5.4% | | Contracted ASP (RMB/sq.m.) | 15,949 | 15,488 | 3.0% | Financial Overview The company's financial performance improved in 2020, with enhanced financial stability reflected in key balance sheet metrics 2020 Financial Summary (RMB million) | Indicator | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | 36,126 | 32,558 | 11.0% | | Profit before tax | 5,827 | 5,032 | 15.8% | | Profit for the year | 3,559 | 3,094 | 15.0% | | Attributable to owners of the parent | 2,651 | 2,506 | 5.8% | | Non-controlling interests | 908 | 588 | 54.6% | | Core net profit | 3,304 | 2,779 | 18.9% | 2020 Balance Sheet and Liquidity Indicators (RMB million) | Indicator | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total assets | 221,386 | 169,219 | 30.8% | | Total liabilities | 183,783 | 138,159 | 33.0% | | Total equity | 37,603 | 31,060 | 21.1% | | Equity attributable to owners of the Company | 19,576 | 16,397 | 19.4% | | Cash and bank balances | 42,973 | 35,307 | 21.7% | | Total debt | 67,284 | 58,665 | 14.7% | | Current ratio | 1.5 | 1.6 | - | | Net debt to equity ratio | 64.7% | 75.2% | Decreased by 10.5 p.p. | | Cash to short-term debt ratio | 2.2x | 1.8x | Increased by 0.4x | | Short-term debt to total debt ratio | 29.1% | 34.2% | Decreased by 5.1 p.p. | Awards and Honors Awards for Corporate Strength and Brand Value The company received numerous prestigious awards in 2020, affirming its leading position in the real estate industry - Received awards such as "2020 Top 20 of China Real Estate Developers," "2020 Top 10 in Operational Efficiency of China Real Estate Developers," and "2020 Top 20 in Comprehensive Strength of China Listed Real Estate Companies"[68] - Recognized as "2020 Top 20 in Brand Value of China Real Estate Developers" and "TOP 100 of China Real Estate Human Capital Value"[68] - Awarded "2020 TOP 10 in Comprehensive Strength of Mainland China Real Estate Companies Listed in Hong Kong" and "2020 TOP 10 in Wealth Creation of Mainland China Real Estate Companies Listed in Hong Kong"[68] Awards for Product Competitiveness and Employer Brand The company gained high recognition for its product design and employer brand building - Honored with "2020 TOP 10 of China Real Estate Enterprises with Excellent Product Competitiveness" and "TOP 20 of China Real Estate Enterprises with Super Product Competitiveness"[68] - Named "Kincentric Best Employer in China 2020" by Kincentric[70] - The "Zhenro Top Residence" project was awarded "TOP 10 in Brand Value of China Real Estate Residential Projects"[68] Awards for Investor Relations and Sustainable Capital Markets The company demonstrated excellence in investor relations and sustainable capital markets - Received "Best in Information Disclosure Award 2020," "Quamnet Outstanding Investor Relations Awards 2019," and "Most Progress in Investor Relations Award"[70] - Recognized as "Asia's Best CEO (Investor Relations)" and "Best Investor Relations Company (China)"[70] - Awarded "The Asset Triple A Sustainable Capital Markets Awards 2020 – Best Green Bond (Real Estate)" and "The Asset Triple A Sustainable Capital Markets Awards 2020 – Best Corporate Issuer"[70] Awards for Project Design and Quality Multiple company projects won professional awards for their outstanding design and quality - Xi'an Zhenro Top Residence won the "CREDAWARD (Shortlisted for China Public Construction Projects)" and "2020 New Architectural Landmark of China's Top 100 Cities"[73] - Wuhan Zhenro Top Residence and Xiangyang Binjiang Zhenro Residence won the "CREDAWARD (Shortlisted for China Landscape Design)"[74][76] - Hefei Beicheng Zhenro Residence and Fuzhou Zhenro Sanjiang Yunlu won the "CREDAWARD (Shortlisted for China Residential Projects)" and "Meishang Award (Silver Award for Architectural Design)"[78] - Changsha Meixi Zhenro Top Residence won the "Meishang Award (Most Collectible Value Excellence Award)," and Quanzhou Zhenro Baojia Jiangbin Residence won the "Meishang Award (Excellence Award for Space Design)"[81][82] Land Bank Schedule Land Bank Overview and Regional Distribution The company's substantial land bank is strategically concentrated in first- and second-tier cities across key economic regions 2020 Land Bank Overview | Indicator | Value | | :--- | :--- | | Number of Projects | 216 | | Total Land Bank | 28.45 million sq.m. | | Attributable Land Bank | 15.08 million sq.m. | | Percentage in Tier 1 & 2 Cities | 82% | | Average Land Cost | RMB 4,919/sq.m. | | Equity Ratio | 58% | 2020 Land Bank Regional Distribution | Region | Total Land Bank (million sq.m.) | Attributable Land Bank (million sq.m.) | Average Land Cost (RMB/sq.m.) | Percentage | | :--- | :--- | :--- | :--- | :--- | | Yangtze River Delta | 10.10 | 5.08 | 6,131 | 36% | | Western Taiwan Straits | 7.89 | 5.39 | 3,634 | 28% | | Central China | 5.07 | 3.33 | 3,463 | 18% | | Bohai Rim | 3.03 | 1.17 | 7,216 | 11% | | Western China | 1.68 | 1.23 | 4,240 | 6% | | Pearl River Delta | 0.69 | 0.31 | 7,886 | 2% | - Land bank status distribution: 77% under construction, 16% for future development, and 7% completed[110] Details of Land Bank for Properties Developed by Subsidiaries This section lists 150 property projects developed by the company's subsidiaries across numerous cities in China - The total GFA of land bank developed by subsidiaries is 18.42 million sq.m., with an attributable GFA of 13.54 million sq.m.[185][186] - Projects are widely distributed across cities including Shanghai, Jiaxing, Nanjing, Suzhou, Hefei, Wuhan, Changsha, Xi'an, Chengdu, Tianjin, Fuzhou, and Nanchang[120][132][140][141][151][159] - The primary planned use is residential (R) and residential/retail (R/RE), with some projects including SOHO and office (S&O) uses[120][132][140][141][151][159] Details of Land Bank for Properties Developed by Joint Ventures and Associates This section details 66 property projects developed by the company's joint ventures and associates in various Chinese cities - The total GFA of land bank developed by joint ventures and associates is 10.03 million sq.m., with an attributable GFA of 2.98 million sq.m.[238][239] - Projects are located in cities such as Shanghai, Nanjing, Suzhou, Hefei, Zhengzhou, Wuhan, Chongqing, Tianjin, Jinan, Fuzhou, and Nanchang[196][211][218][220][229][237] - The primary planned use is residential (R) and residential/retail (R/RE), with some projects including SOHO and office (S&O) uses[196][211][218][220][229][237] Chairman's Statement 2020 Performance and Business Review The Chairman reviews the company's solid performance in 2020, highlighting its strategic execution amid market challenges - In 2020, revenue increased by 11.0% to RMB 36.13 billion; profit grew by 15.0% to RMB 3.56 billion; core net profit rose by 18.9% to RMB 3.30 billion; and profit attributable to owners of the parent increased by 5.8% to RMB 2.65 billion[246][248] - The company proactively managed the COVID-19 pandemic, achieving a 100% project resumption rate within 45 days and realizing RMB 141.9 billion in contracted sales through integrated online and offline marketing[252][255] - In land investment, the company added 46 new land parcels with an estimated total GFA of approximately 7.14 million sq.m., with 77% located in first- and second-tier cities and an attributable equity ratio of about 70% for new acquisitions[257][260] - Financial structure was continuously optimized, with the net debt to equity ratio at 64.7% and the cash to short-term debt ratio at approximately 2.2 times as of year-end 2020, while the weighted average financing cost decreased to 6.5%[267] - The company deepened its product strategy by releasing white papers for its Top and Yue series and launching the "Zhenro Oasis Community Plan," winning over forty industry awards[270][271] - Management systems were optimized to enhance project development efficiency, shortening the average cycle from land acquisition to product positioning to less than one month and achieving an average initial launch sell-through rate of over 70%[275] Corporate Governance and ESG Management The company emphasizes strong corporate governance and ESG management, achieving notable progress and recognition - The company engaged in over 150 meetings and communicated with more than 2,000 investors in 2020, pioneering online reverse roadshows[277][279] - It received multiple investor relations awards, including "Best in Information Disclosure Award 2020" and "Asia's Best CEO (Investor Relations)"[282][284] - The company actively fulfilled its corporate social responsibilities, leading to an upgrade of its MSCI ESG rating to BB in December 2020[285] - In green development, seven projects received two- or three-star China Green Building certifications, and the company issued two tranches of green senior notes[286] - It upgraded its "Happy Strivers, Great Career" employer brand value, earning accolades like "Kincentric Best Employer in China" and establishing a RMB 12 million fund for COVID-19 prevention and control[289][290] 2021 Outlook and Acknowledgements The company sets a sales target of RMB 150 billion for 2021, focusing on core cities and efficiency to conclude its "New Three-Year Strategy" - In 2021, the company will continue to focus on first- and second-tier cities and their metropolitan areas, exploring investment opportunities through diversified channels[292][294] - A contracted sales target of RMB 150 billion has been set for 2021, supported by high-quality and sufficient saleable resources[293][295] - The company will continue to strengthen its management structure, talent development, and incentive mechanisms, guided by "cash flow and profit" management to improve credit ratings and reduce costs[293][295] Management Discussion and Analysis Real Estate Development Business The company's real estate development business demonstrated strong performance in 2020 with growth in sales and revenue - Contracted sales amounted to RMB 141,901.4 million in 2020, an increase of 8.6% year-on-year, driven by increased saleable GFA in first- and second-tier cities[302][303] - Contracted GFA was approximately 8.9 million sq.m., a 5.4% increase, while the contracted average selling price rose by 3.0% to approximately RMB 15,949/sq.m[304] 2020 Contracted Sales by Region | Region | Percentage of Contracted Sales | | :--- | :--- | | Yangtze River Delta Region | 38.6% | | Western Taiwan Straits Region | 33.2% | | Bohai Rim Region | 10.4% | | Central China Region | 9.5% | | Western China Region | 6.5% | | Pearl River Delta Region | 1.8% | - Recognized revenue from property sales was RMB 35,601.4 million in 2020, a 10.6% increase, accounting for 98.6% of total revenue[309][310] - The recognized average selling price decreased by 18.2% to approximately RMB 12,295/sq.m., due to a larger proportion of delivered GFA from projects with lower average selling prices[309][310] - As of December 31, 2020, completed properties held for sale were RMB 7,870.9 million, a 3.2% increase, while properties under development were RMB 117,686.7 million, a 36.2% increase[317][319][324] Property Investment and Land Bank The company maintained a significant investment property portfolio and continued to strategically expand its land bank in 2020 - Rental income in 2020 was approximately RMB 118.9 million, a decrease of 11.5% mainly due to the impact of the COVID-19 pandemic[320][325] - As of December 31, 2020, the company held 14 investment properties with a total GFA of approximately 826,228 sq.m., of which seven had commenced leasing[321][326] - In 2020, the company acquired 46 new land parcels with a total site area of approximately 2.5 million sq.m. and an estimated total GFA of approximately 7.1 million sq.m[322][327] - The total contracted land price for new acquisitions was approximately RMB 47,220.9 million, with an average cost of approximately RMB 6,616/sq.m[327] Financial Review The company's total revenue grew by 11.0% in 2020, driven by property sales, though gross profit margin slightly declined 2020 Revenue Composition (RMB thousand) | Revenue Source | 2020 Revenue | % of Total | 2019 Revenue | % of Total | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales of properties | 35,601,372 | 98.6% | 32,184,576 | 98.9% | 10.6% | | Rental income | 118,916 | 0.3% | 134,298 | 0.4% | (11.5%) | | Management services income | 239,980 | 0.7% | 153,294 | 0.5% | 56.5% | | Property management income | 88,118 | 0.2% | 85,492 | 0.3% | 3.1% | | Sales of materials income | 77,703 | 0.2% | — | — | — | | Total | 36,126,089 | 100.0% | 32,557,660 | 100.0% | 11.0% | - Cost of sales increased by 12.1% to RMB 29,222.2 million in 2020, mainly due to an increase in the number of completed and delivered properties[349][352] - Gross profit increased by 6.2% to RMB 6,903.9 million, while the gross profit margin decreased from 20.0% to 19.1%, primarily due to an increased proportion of properties with lower average selling prices[350][353] - Other income and gains increased by 106.3% to RMB 971.8 million, mainly due to higher interest income from bank deposits[355] - Administrative expenses decreased by 6.3% to RMB 1,138.3 million, mainly due to cost control measures and reduced travel expenses during the pandemic[357] - Finance costs increased by 4.3% to RMB 504.8 million, primarily due to an increase in interest-bearing liabilities[357] - Share of profits of joint ventures decreased to RMB 33.9 million, while share of profits of associates increased to RMB 545.3 million, reflecting changes in project delivery schedules[359][362][363] - Profit for the year increased by 15.0% to RMB 3,558.9 million in 2020[361][366] Liquidity, Financial, and Capital Resources The company maintained a healthy cash position and improved its financial stability in 2020 - As of December 31, 2020, cash and cash equivalents were approximately RMB 35,477.9 million, a year-on-year increase of 25.0%[370][372] - As of December 31, 2020, total borrowings were RMB 67,284.4 million, a year-on-year increase of 14.7%[375][376] Maturity Profile of Total Borrowings (RMB thousand) | Maturity | 2020 | 2019 | | :--- | :--- | :--- | | Within one year | 19,548,555 | 20,040,443 | | In the second year | 22,230,132 | 19,554,347 | | In the third to fifth years | 24,453,188 | 18,207,193 | | Over five years | 1,052,494 | 863,486 | | Total | 67,284,369 | 58,665,469 | - The weighted average cost of debt financing was 6.5% in 2020, a decrease of 1.0 percentage point from 7.5% in 2019, due to debt structure optimization and enhanced bargaining power[379][380] - As of December 31, 2020, assets totaling RMB 73,920.5 million, including investment properties and properties under development, were pledged as collateral for secured borrowings[383] - As of December 31, 2020, the attributable cash balance of joint ventures and associates was approximately RMB 2.74 billion[383] Key Financial Ratios and Contingent Liabilities The company's key financial ratios improved in 2020, and contingent liabilities decreased, indicating enhanced risk control - As of December 31, 2020, the current ratio was 1.5 (2019: 1.6)[385] - As of December 31, 2020, the net debt to equity ratio was 64.7% (2019: 75.2%), remaining at an industry-average level[385][387] - As of December 31, 2020, guarantees provided for customer mortgage loans amounted to approximately RMB 32,161.3 million, a decrease of 11.9%[389] - As of December 31, 2020, guarantees provided for borrowings of joint ventures and associates amounted to approximately RMB 2,604.5 million, a decrease of 45.4%[393] Bonds, Senior Notes Offerings, and Subsequent Events The company actively managed its capital structure through various debt offerings and redemptions in 2020 and early 2021 - From January to November 2020, the company issued multiple tranches of USD and RMB senior notes with interest rates ranging from 5.60% to 8.35%, including two green senior notes[395][397] - In May 2020, the company conducted a tender offer and redeemed its 2020 Notes with an aggregate principal amount of US$400 million[395] - In June and September 2020, the company completed the put option for its domestic corporate bonds and redeemed certain senior notes in September and December[395][397] - In January and February 2021, the company continued to issue green senior notes with principal amounts of US$400 million and US$300 million, and interest rates of 6.63% and 6.70%, respectively[401] - In March 2021, the company redeemed senior notes with a principal amount of US$310 million and an interest rate of 9.15%[401] Use of Proceeds from Initial Public Offering The company has fully utilized the net proceeds from its initial public offering as of December 31, 2020 - The net proceeds of approximately HK$4,392.3 million from the initial public offering have been fully utilized[418][419] - Approximately RMB 902.1 million was used to repay maturing borrowings, RMB 377.5 million for general working capital, and RMB 3,112.7 million for property project construction and development[419] Report of the Directors Principal Business and Risks The company's principal activities are real estate development, property leasing, and commercial property management - The company's principal businesses are real estate development, property leasing, and commercial property management[421] - The company is primarily exposed to foreign exchange rate risk but faces no significant credit or liquidity risks[427] Environmental Policy and Social Responsibility The company is committed to sustainable development and environmental protection while fostering strong stakeholder relationships - The company is dedicated to promoting sustainable development and environmental protection, complying with applicable environmental laws and prioritizing energy conservation in project design[431] - In 2020, the company received no material fines or penalties related to violations of environmental laws or regulations[431] - The company values its relationships with employees, suppliers, and customers, using incentives to attract talent, building long-term partnerships, and focusing on customer satisfaction[434][437][440][441] Financial and Dividend Policy The Board has proposed a final dividend of HK$0.15 per share for 2020 - The Board recommended a final dividend of HK$0.15 per share (approximately RMB 0.13), totaling approximately HK$655.2 million (approximately RMB 551.3 million), representing about 15.5% of the 2020 net profit[448][450] - As of December 31, 2020, the company's reserves available for distribution to shareholders amounted to approximately RMB 8,402.6 million[549] - As of December 31, 2020, the company had outstanding bank and other borrowings of RMB 41,761.3 million and a carrying amount of domestic corporate bonds and senior notes of approximately RMB 25,523.1 million[550][554] - The company has fully utilized the net proceeds of approximately HK$4,392.3 million from its initial public offering for debt repayment, working capital, and project development[418][419] Directors' and Shareholders' Interests This section discloses the interests of directors and substantial shareholders in the company's shares - As of December 31, 2020, Mr Huang Xianzhi held 4,569,000 shares (0.11%), and Mr Ou Guowei held 217,140,000 shares (4.97%) through a controlled corporation[501] - The substantial shareholder, Mr Ou Zongrong, held 2,384,957,000 shares (54.60%) through controlled corporations, with his spouse, Ms Lin Shuying, deemed to have the same interest[508][511][514] - The controlling shareholders have confirmed their compliance with the non-competition undertaking to the Board[558][563] Continuing Connected Transactions The company engaged in continuing connected transactions with an associate of the controlling shareholder on normal commercial terms - The company entered into pre-delivery property management and management services agreements with Zhenro Services Group, an associate of the controlling shareholder[569][573] - In 2020, the company paid RMB 16.1 million for pre-delivery property management services and RMB 232.1 million for management services, both within the annual caps[569][573] - The independent non-executive directors confirmed that these transactions were conducted in the ordinary course of business, on normal commercial terms, and were in the best interests of shareholders[576] - The external auditor confirmed that the continuing connected transactions were approved by the Board, followed the agreement terms, and did not exceed the annual caps[577][581] Corporate Governance Report Corporate Governance Framework and the Board of Directors The company is committed to high standards of corporate governance, with a diverse and experienced Board overseeing its affairs - The company adheres to the Corporate Governance Code, with the exception of code provision A.2.1, as the roles of Chairman and CEO are both held by Mr Huang Xianzhi[585][592] - The Board possesses a balanced mix of skills and experience and has adopted a board diversity policy considering factors such as gender, age, culture, and educational background[585] - In 2020, the company held 4 Board meetings and 1 annual general meeting, considering 23 proposals[610][611] - Total remuneration paid to directors in 2020 was approximately RMB 25.67 million[595] - The company has three independent non-executive directors, meeting Listing Rules requirements, and has received their independence confirmations[597][599] - Company Secretaries Mr Chen Jian and Ms Kwong Yin Ping Yvonne each completed no less than 15 hours of professional training[600][605] Operation of Board Committees The company's Audit, Nomination, and Remuneration committees operate effectively in accordance with their terms of reference - The Audit Committee, chaired by Dr Loke Hoi Lam, held 2 meetings in 2020 to review the financial reporting system, internal controls, and risk management[617][622] - The Nomination Committee, chaired by Mr Huang Xianzhi, held 2 meetings in 2020 to review nomination and board diversity policies and assess the independence of INEDs[627][630] - The Remuneration Committee, chaired by Mr Wang Chuanxu, held 2 meetings in 2020 to discuss and review the remuneration policies for directors and senior management[630][632] - All directors confirmed their compliance with the Model Code for Securities Transactions by Directors in 2020[633] Accountability, Audit, and Shareholders' Rights The company ensures financial statement integrity and protects shareholder rights through robust accountability and audit processes - The directors are responsible for overseeing the preparation of financial statements to ensure they give a true and fair view, applying appropriate accounting policies and making reasonable estimates[641] - The Board has reviewed the effectiveness of the internal control and risk management systems and considers them adequate and effective, particularly in financial reporting and compliance[645] - The company has adopted a continuous disclosure compliance policy to ensure fair and timely public disclosure of inside information[647][649] - Shareholders have the right to convene general meetings and nominate persons for election as directors in accordance with the Articles of Association[648][650][653] Independent Auditor's Report Audit Opinion and Basis The independent auditor issued an unqualified opinion on the company's 2020 consolidated financial statements - The auditor expressed an unqualified opinion, stating that the consolidated financial statements give a true and fair view of the company's financial position as of December 31, 2020, and of its financial performance and cash flows for the year, in accordance with IFRSs[656] - The audit was conducted in accordance with Hong Kong Standards on Auditing, and the auditor remained independent of the Group and fulfilled professional ethics responsibilities[658][660] Key Audit Matters The audit focused on the valuation of investment properties and the provision for land appreciation tax as key audit matters - The valuation of investment properties was identified as a key audit matter due to the significant judgment required in fair value measurement and the potential for material differences from different valuation techniques and assumptions[665][668] - The auditor assessed the competence and independence of the external valuer and engaged internal valuation specialists to assist in evaluating the valuation methodologies and assumptions[667][669] - The provision for Land Appreciation Tax (LAT) was identified as a key audit matter because it is material to the financial statements and involves significant management judgment and interpretation of tax laws[673][674] - The auditor engaged internal tax specialists to assist in reviewing the LAT status and re-calculating the tax outcomes[675][676][678] Directors' and Auditor's Responsibilities This section outlines the respective responsibilities of the directors and the auditor in the financial reporting process - The directors are responsible for preparing consolidated financial statements that give a true and fair view in accordance with IFRSs and for implementing necessary internal controls to prevent material misstatement[681][684] - 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, and to issue an auditor's report that includes their opinion[688][689] - The auditor exercises professional judgment, maintains professional skepticism, identifies and assesses risks of material misstatement, and obtains sufficient appropriate audit evidence[689] Consolidated Statement of Profit or Loss 2020 Consolidated Profit or Loss Performance The company achieved growth in revenue, gross profit, and profit for the year in 2020 2020 Consolidated Statement of Profit or Loss Highlights (RMB thousand) | Indicator | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | 36,126,089 | 32,557,660 | | Cost of sales | (29,222,208) | (26,059,803) | | Gross profit | 6,903,881 | 6,497,857 | | Other income and gains | 971,825 | 471,131 | | Selling and distribution expenses | (1,159,713) | (972,294) | | Administrative expenses | (1,138,328) | (1,214,481) | | Fair value gains on investment properties | 323,960 | 326,507 | | Finance costs | (504,796) | (484,091) | | Share of profits of joint ventures | 33,887 | 357,503 | | Share of profits of associates | 545,272 | 163,429 | | Profit before tax | 5,826,905 | 5,031,631 | | Income tax expense | (2,267,971) | (1,937,647) | | Profit for the year | 3,558,934 | 3,093,984 | | Attributable to owners of the parent | 2,650,744 | 2,506,405 | | Non-controlling interests | 908,190 | 587,579 | | Basic and diluted earnings per share | RMB 0.61 | RMB 0.59 | Consolidated Statement of Comprehensive Income 2020 Consolidated Comprehensive Income Performance The company's total comprehensive income grew by 37.0% in 2020, reaching RMB 4.11 billion 2020 Consolidated Statement of Comprehensive Income Highlights (RMB thousand) | Indicator | 2020 | 2019 | | :--- | :--- | :--- | | Profit for the year | 3,558,934 | 3,093,984 | | Exchange differences on translation of foreign operations | 549,623 | (94,964) | | Total comprehensive income for the year, net of tax | 4,108,557 | 2,999,020 | | Attributable to owners of the parent | 3,200,367 | 2,411,441 | | Non-controlling interests | 908,190 | 587,579 | - A positive exchange difference on the translation of foreign operations in 2020 significantly contributed to the growth in total comprehensive income[701] Consolidated Statement of Financial Position 2020 Consolidated Financial Position Overview The company's total assets grew by 30.8% to RMB 221.39 billion by the end of 2020, maintaining a solid financial structure 2020 Consolidated Statement of Financial Position Highlights (RMB thousand) | Indicator | 2020 | 2019 | | :--- | :--- | :--- | | Total non-current assets | 22,145,787 | 17,701,352 | | Total current assets | 199,239,714 | 151,517,858 | | Total current liabilities | 132,258,549 | 96,445,950 | | Total non-current liabilities | 51,523,998 | 41,713,271 | | Net assets | 37,602,954 | 31,059,989 | | Equity attributable to owners of the parent | 19,576,267 | 16,396,527 | | Non-controlling interests | 16,607,980 | 13,223,952 | - As of December 31, 2020, total assets were RMB 221,386 million, a year-on-year increase of 30.8%[64] - As of December 31, 2020, total liabilities were RMB 183,783 million, a year-on-year increase of 33.0%[64] - Properties under development constituted the largest component of current assets, amounting to RMB 117,686,697 thousand[703] - Contract liabilities were the largest component of current liabilities, amounting to RMB 60,866,676 thousand[705] Consolidated Statement of Changes in Equity 2020 Consolidated Changes in Equity The company's total equity increased by 21.1% to RMB 37.60 billion in 2020, driven by profits and capital contributions 2020 Consolidated Changes in Equity Highlights (RMB thousand) | Item | 2020 Change | | :--- | :--- | | Profit for the year (attributable to owners of the parent) | 2,650,744 | | Exchange differences on translation of foreign operations | 549,623 | | Capital contribution from non-controlling shareholders of subsidiaries | 8,164,100 | | Acquisition of non-controlling interests | (4,717,957) | | Dividends paid to owners of the parent | (396,763) | | Dividends paid to holders of perpetual capital securities | (155,846) | | Dividends paid to non-controlling shareholders of subsidiaries | (426,720) | | Total equity as at 31 December 2020 | 37,602,954 | - As of December 31, 2020, reserves attributable to the owners of the parent amounted to RMB 19,575,985 thousand[709][715] Consolidated Statement of Cash Flows 2020 Consolidated Cash Flow Overview The company generated strong cash inflow from financing activities, resulting in a net increase in cash of RMB 7.57 billion 2020 Consolidated Statement of Cash Flows Highlights (RMB thousand) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | (3,017,541) | (14,063,640) | | Net cash used in investing activities | (1,838,876) | (2,210,817) | | Net cash from financing activities | 12,430,342 | 21,973,130 | | Net increase in cash and cash equivalents | 7,573,925 | 5,698,673 | | Cash and cash equivalents at end of year | 35,477,942 | 28,368,571 | - The net cash outflow from operating activities narrowed significantly, mainly due to an increase in contract liabilities and a decrease in interest paid[722] - Cash inflow from financing activities was primarily driven by capital contributions from non-controlling shareholders, proceeds from borrowings, and issuance of senior notes[726] - Cash and bank balances at year-end totaled RMB 42,972,503 thousand, including restricted cash of RMB 6,884,988 thousand and pledged deposits of RMB 609,573 thousand[728] Notes to the Financial Statements Corporate and Group Information This section provides fundamental information about the company's registration, business activities, and group structure - The company was incorporated in the Cayman Islands, with its principal businesses being property development, property leasing, and commercial property management; its holding company is RoYue Limited[730][732] - A comprehensive list of major directly and indirectly held subsidiaries is provided, with attributable equity interests ranging from 17.34% to 100%, primarily engaged in property development and investment holding[734][831] - As of December 31, 2020, the Group had pledged the equity interests of certain subsidiaries to trust financing companies as collateral, while retaining control over these entities[836][841] Basis of Preparation and Changes in Accounting Policies This section outlines the basis for financial statement preparation and details the adoption of new accounting policies in 2020 - The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the IASB, under the historical cost convention, with certain assets measured at fair value[846][848] - The consolidated financial statements include the company and its subsidiaries, with control determined by exposure to variable returns and the ability to affect those returns[847][849] - In 2020, the company adopted the 2018 Conceptual Framework and amendments to IFRSs, including IFRS 3, IFRS 9, IAS 39, IFRS 7, IFRS 16, IAS 1, and IAS 8[859] - The COVID-19-Related Rent Concessions amendment to IFRS 16 was early adopted, with the company electing not to apply lease modification accounting, resulting in a negligible impact[867][870] Issued but not yet Effective International Financial Reporting Standards This section lists new and amended IFRSs that have been issued but are not yet effective - Several amendments to IFRSs have been issued but are not yet effective, covering areas such as the definition of a business, interest rate benchmark reform, classification of liabilities, and property, plant and equipment[873] - Most amendments will become effective for annual periods beginning on or after January 1, 2021, 2022, or 2023, with early application permitted for some[875] - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 address financial reporting issues arising from interest rate benchmark reform, providing practical expedients for hedge accounting[882][883] - The amendment to IAS 16 prohibits deducting proceeds from selling items produced from the cost of property, plant and equipment, which is not expected to have a material impact on the Group's financial statements[891][893] Summary of Significant Accounting Policies This section details the specific accounting treatments applied by the company across various financial reporting areas - Investments in associates and joint ventures are accounted for using the equity method and are remeasured at fair value upon loss of significant influence or joint control[907][909] - Business combinations are accounted for using the acquisition method, with goodwill measured at cost less accumulated impairment losses and tested for impairment annually[910][914] - Investment properties are measured at fair value with changes recognized in profit or loss; properties under development and completed properties held for sale are stated at the lower of cost and net realizable value[945][947] - Leases are recognized as a right-of-use asset and a lease liability for lessees, while lessors classify leases as either operating or finance leases[950][951][960] - Financial assets are classified as measured at amortized cost, fair value through other comprehensive income, or fair value through profit or loss, with expected credit loss provisions recognized for all debt instruments[964][965][970] - Revenue is recognized when control of an asset is transferred to the customer; revenue from property management and management consulting services is recognized on a monthly basis[989][990][1038][1039] - Perpetual capital securities are classified as part of equity if there is no contractual obligation to repay the principal or pay distributions[1001] Significant Accounting Judgements and Estimates This section outlines the key judgments and estimates made in preparing the financial statements - In classifying property leases, the company judges that it retains substantially all risks and rewards of ownership, accounting for them as operating leases[1003] - Determining the lease term for contracts with renewal options requires judgment, considering all relevant economic incentives[1003] - The classification between investment properties and owner-occupied properties involves judging whether a property generates cash flows largely independently of other assets[1006] - Provisions for properties under development and completed properties held for sale are based on estimates of selling prices, completion costs, and selling expenses, which significantly impact net realizable value[1015] - Estimating the incremental borrowing rate involves using observable inputs and making entity-specific estimates, which is a significant judgment[1015] - Provisions for PRC corporate income tax and land appreciation tax involve management's interpretation of tax regulations, and final tax outcomes may differ from estimates[1017][1018] - The fair value estimation of investment properties is based on various data sources, including market prices and discounted cash flow projections, using discount rates that reflect market uncertainty[1019][1020] Operating Segment Information The company's operations are aggregated into a single reportable operating segment due to similar economic characteristics - Management monitors business performance by project location, but all locations are aggregated into one reportable segment due to similar economic characteristics, business nature, processes, and customer types[1023][1026] - All revenue from external customers is derived from Mainland China, and no non-current assets are located outside Mainland China[1024][1027] Revenue, Other Income and Gains The company's total revenue in 2020 was RMB 36.13 billion, predominantly from property sales 2020 Revenue Composition (RMB thousand) | Revenue Source | 2020 Revenue | 2019 Revenue | | :--- | :--- | :--- | | Revenue from contracts with customers | 36,007,173 | 32,423,362 | | Gross rental income from operating leases of investment properties | 118,916 | 134,298 | | Total | 36,126,089 | 32,557,660 | 2020 Disaggregated Revenue Information (RMB thousand) | Type of goods or services | 2020 | 2019 | | :--- | :--- | :--- | | Sales of properties | 35,601,372 | 32,184,576 | | Sales of goods | 77,703 | — | | Property management services | 88,118 | 85,492 | | Management consulting services | 239,980 | 153,294 | | Total revenue from contracts with customers | 36,007,173 | 32,423,362 | | Property or goods transferred at a point in time | 35,679,075 | 32,184,576 | | Services transferred over time | 328,098 | 238,786 | 2020 Other Income and Gains (RMB thousand) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Interest income | 578,680 | 373,261 | | Foreign exchange gains | 64,351 | 4,866 | | Government grants | 14,986 | 14,891 | | Gain on disposal of subsidiaries | 100,077 | 54,961 | | Gain on bargain purchase | 21,751 | — | | Gain on remeasurement of previously held interests in joint ventures and associates upon business combination | 166,329 | — | | Total | 971,825 | 471,131 | Profit Before Tax and Finance Costs The company's profit before tax reached RMB 5.83 billion in 2020 2020 Profit Before Tax Composition (RMB thousand) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Cost of inventories sold | 29,015,470 | 26,140,970 | | Impairment losses recognised on properties under development | 118,646 | 66,456 | | Depreciation of items of property, plant and equipment | 57,309 | 57,679 | | Depreciation of right-of-use assets | 47,865 | 44,224 | | Amortisation of other intangible assets | 3,023 | 4,906 | | Auditor's remuneration | 11,238 | 10,717 | | Net impairment losses on financial assets | 5,087 | 482 | | Employee benefit expense | 676,978 | 660,486 | | Profit before tax | 5,826,905 | 5,031,631 | 2020 Finance Costs Analysis (RMB thousand) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Interest on interest-bearing bank and other borrowings, corporate bonds, senior notes and asset-backed securities | 4,996,793 | 4,500,931 | | Interest expense arising from revenue contracts | 598,976 | 558,799 | | Interest on lease liabilities | 6,619 | 6,591 | | Less: Interest capitalised | (5,097,592) | (4,582,230) | | Total | 504,796 | 484,091 | Directors' and Highest Paid Employees' Remuneration The total remuneration for directors and the highest-paid employees in 2020 was RMB 25.67 million 2020 Total Directors' Remuneration (RMB thousand) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Fees | 900 | 900 | | Salaries, allowances and benefits in kind | 16,407 | 20,438 | | Performance-related bonuses | 8,143 | 6,698 | | Pension scheme contributions and social welfare | 220 | 474 | | Total | 25,670 | 28,510 | 2020 Independent Non-executive Directors' Fees (RMB thousand) | Independent Non-executive Director | 2020 Fees | | :--- | :--- | | Mr Loke Hoi Lam | 300 | | Mr Wang Chuanxu | 300 | | Mr Lin Hua | 300 | | Total | 900 | - The five highest-paid employees in 2020 included three directors, with the other two non-director employees earning annual remuneration between HK$5,000,001 and HK$6,500,000[1060][115]