REVIEW OF OPERATIONS Financial Review TURNOVER PROFIT ATTRIBUTABLE TO SHAREHOLDERS Turnover for the Group for the year ended 31 HK$ MILLION December 2001 increased by 58% to HK$5,036 1,575 million (2000: HK$3,196 million). Turnover from both 1,600 rental and sales registered increases during the year. 1,400 Gross property sales income increased from 1,203 1,233 HK$1,664 million in 2000 to HK$3,159 million in 1,200 2001. Property rental income also increased to 1,000 HK$885 million (2000: HK$820 million) whilst 728 income from warehouse and logistics amounted to 800 HK$744 million (2000: HK$481 million). The 600 396 Group’s hotel operations contributed HK$204 million 400 to turnover during the year (2000: HK$176 million). 200 BREAKDOWN OF KPL’S TOTAL TURNOVER 0 HK$ MILLION 1997 1998 1999 2000 2001 5,500 5,036 decrease in the Group’s earnings in 2001 is due to losses incurred from the sales of Ocean Pointe, Kerry 5,000 Everbright City, Yuen Long 2 warehouse and a 4,500 specific provision of HK$360 million in respect of its 3,159 Constellation Cove project in Tai Po Kau. The Group’s 4,000 75% share of the provision amounted to HK$270 3,500 3,054 3,196 million. The Group also recorded a profit of 2,907 approximately HK$112 million from the disposal of 3,000 its 19.6% interest in the Hu-Ning Expressway in 1,664 2,500 2,342 December 2001. 1,921 1,747 2,000 44 FUNDING AND FINANCING 1,238 426 1,500 55 In order to achieve better control of treasury 410 318 74 47 operations and lower the average cost of funds, KPL 1,000 63 71 204 176 402 410 356 has centralised funding for all its operations at the 11 35 500 Group level. Financing is generally arranged at the 668 665 666 820 885 Group level where foreign exchange exposure will 0 1997 1998 1999 2000 2001 also be reviewed and monitored. The Group considers Proceeds from sale of Logistics income that foreign exchange exposure does not pose a properties Development consultancy Hotel revenue significant risk given that the level of foreign currency and project management fees Warehouse income Rental income exposure is small relative to its total asset base. As at 31 December 2001, US$ borrowings including PROFIT ATTRIBUTABLE TO SHAREHOLDERS convertible bonds amounted to US$295 million whilst Profit attributable to shareholders decreased by Renminbi (RMB) borrowings amounted to RMB796 45.6% to HK$396 million compared with HK$728 million. The Group’s US$ exposure is also expected million achieved in 2000. The main reason for the to be substantially reduced in March 2002 upon 28 KERRY PROPERTIES LIMITED ANNUAL REPORT 2001 REVIEW OF OPERATIONS KPL’S RECURRENT INCOME BASE from the original HK$3,000 million due to the facility HK$ MILLION being oversubscribed by approximately 138%. Total commitments secured for this loan was HK$7,150 1,877 2,000 million. 44 1,800 Subsequent to the year end in January 2002, the 1,532 426 1,600 Group signed another 5 year unsecured syndicated loan facility amounting to HK$4,500 million. This 55 1,400 loan was used to refinance an existing HK$4,205 1,133 1,160 410 318 million syndicated loan which pays a higher interest 1,200 1,104 63 74 margin. Total commitments of HK$7,150 million were 711 402 410 47 71 1,000 204 again received from the banks for this facility but the 356 176 Group decided to maintain the facility amount at 800 HK$4,500 million. 32 11 35 355 600 69 462 190 With these two new financings, the Group has 636 400 successfully extended the maturity profile of its debt 596 476 465 and at the same time lowered its borrowing costs. 200 423 0 Both facilities were self-arranged by the Group. The 1997 1998 1999 2000 2001 successful completion of the two syndicated loans is Development consultancy Hotel revenue and project management fees evidence of the strong support for the Group amongst PRC rental income Warehouse income the banking community and the great confidence of Hong Kong rental Logistics income income the banks in its strong credit quality. The majority of the Group’s borrowings are subject redemption of the US$ convertible bonds if to floating interest rates except for certain loans in bondholders exercise the put option on the bonds. the PRC and the convertible bonds which are fixed interest loans. In order to lock in lower interest rates During the year, the Group has continued to seek in the current low interest environment, during the RMB funding to finance its development projects in year, the Group has entered into the following interest the PRC and has secured RMB facilities amounting to rate swap contracts: RMB230 million. Notional Average HIBOR In addition, the Group secured new HK$ facilities Period Duration Amount Fixed Rate amounting to approximately HK$6,300 million during HK$M % the year 2001, including a HK$6,000 million 5 year unsecured syndicated loan facility which was signed in June 2001. The loan was used to refinance an From 9-10/2001 1 year 2,340 2.5350 existing syndicated loan which was due to mature in to 9-10/2002 September 2001. This HK$6,000 million loan facility is the largest syndicated loan raised by the Group From 10/2001 3 years 2,200 3.7145 since its listing and the loan amount was increased to 10/2004 KERRY PROPERTIES LIMITED ANNUAL REPORT 2001 29 REVIEW OF OPERATIONS Subsequent to the year end, the Group entered into approximately HK$7.9 billion, resulting in net another four 3-year forward fixed interest rate swap repayments amounting to approximately HK$1.3 contracts effective from 30 September 2002 with a billion in 2001. total notional amount of HK$1,560 million and HIBOR interest rates fixed at an average of 5.1025% per At the year end, total net borrowings including annum. The interest rate swap contracts will ensure convertible bonds amounted to HK$7,315 million the Group will have a more stable interest rate profile resulting in a gearing ratio of approximately 33%. in future years. The Group will continue with its financial strategy of maintaining a prudent gearing ratio and consider Total borrowings including convertible bonds steps to reduce its borrowings as appropriate. amounted to HK$9,607 million at 31 December 2001. Approximately 34% of this debt is repayable PROFILE OF KPL’S BORROWINGS AT THE YEAR END within one year. At 31 December 2001, the Group (INCLUDING CONVERTIBLE BONDS) – BY MATURITY had total undrawn facilities of approximately HK$6,882 million and net cash on hand of approximately HK$2,292 million. These available cash resources together with the strong recurring 34% HK$3,241m cashflows from the Group’s core investment property 50% portfolio and the anticipated cash inflows from the HK$4,800m sale of properties in the coming year will enable the 12% Group to fund its debt repayments without difficulties. HK$1,153m 4% The Group will also be in a strong financial position HK$413m to take advantage of new attractive investment opportunities that may arise. Due within 1 year Due within the 2nd year Due within the 3rd year Due within the 5th year The Group is continually reviewing its financing requirements and will consider any unsecured bank PROFILE OF KPL’S BORROWINGS AT THE YEAR END financing and/or secured project financing as and (INCLUDING CONVERTIBLE BONDS) – BY SECURITY when the need arises. Whenever possible, the Group intends to always obtain financing on a fully unsecured basis. During the year, the Group 22% continued to maintain most of its borrowings on an HK$2,077m unsecured basis. As at 31 December 2001, unsecured debt comprised of 78% of total borrowings. 78% HK$7,530m In order to refinance existing facilities, finance developments and pay for new investments, the Group had made drawdowns on new loans amounting to approximately HK$6.6 billion during the year. Loan Secured Unsecured repayments during the year amounted to 30 KERRY PROPERTIES LIMITED ANNUAL REPORT 2001 Opposite page: Apartments of Constellation Cove and club house area REVIEW OF OPERATIONS KERRY PROPERTIES LIMITED ANNUAL REPORT 2001 31 REVIEW OF OPERATIONS Hong Kong Property Division The Hong Kong economy and the property market continues to be weak after the 11 September 2001 incident in New York although there was a slight rebound in activity in the fourth quarter of the year. Despite historic low interest rates and numerous incentive schemes offered by property developers, the Group remains cautious in its outlook for the property sector. The Group will continue to offer properties and facilities of the highest quality to our tenants and customers whilst making use of the latest high tech features to add values to its developments and services. SALES OF PROPERTIES Sales of Ocean Pointe in Sham Tseng commenced in The total gross proceeds from sales of properties in March 2001. The unique half-moon designed Hong Kong amounted to HK$2,387 million in 2001 development received an overwhelming response from (2000: HK$1,223 million). The increase was mainly the public and has enjoyed good sales at favourable derived from the sales of Ocean Pointe and Enterprise prices. During the year, the Group held a series of Square 2 during the year under review. sales campaigns to market the units and has provided buyers with various attractive payment packages as HONG KONG PROPERTY PORTFOLIO BY GROSS FLOOR incentives for purchasing the units.