IRC Limited - Interim / Quarterly Report 2014

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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(Stock Code: 488)

ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2014

RESULTS

The board of directors (the “ Board ”) of Lai Sun Development Company Limited (the “ Company ”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the “ Group ”) for the six months ended 31 January 2014 together with the comparative figures of the last corresponding period as follows:

Condensed Consolidated Income Statement

For the six months ended 31 January 2014

		Six months ended	Six months ended
		31 January
		2014	2013
		(Unaudited)	(Unaudited)
	Notes	*HK$’000*	HK$’000
TURNOVER	3	1,224,654	429,156
Cost of sales		(623,059)	(146,981)
		__	__
Gross profit		601,595	282,175
Other revenue		37,818	21,713
Selling and marketing expenses		(33,150)	(11,040)
Administrative expenses		(175,916)	(159,111)
Other operating expenses, net		(19,398)	(12,796)
Employee share option benefits		-	(50,413)
Fair value gains on investment properties		340,218	1,373,509
Provision for tax indemnity	4	(139,017)	(44,000)
		__	__
PROFIT FROM OPERATING ACTIVITIES	5	612,150	1,400,037
Finance costs	6	(122,489)	(39,219)
Share of profits and losses of associates		43,467	(9,944)
Share of profits and losses of joint ventures		49,151	522,356
Discount on acquisition of additional interest in an associate	7	99,382	134,930
		__	__
PROFIT BEFORE TAX		681,661	2,008,160
Tax	8	(44,986)	(22,863)
		__	__
PROFIT FOR THE PERIOD		636,675 __	1,985,297 __
		__	__
Attributable to:
Owners of the Company		622,028	1,964,744
Non-controlling interests		14,647	20,553
		__	__
		636,675 __	1,985,297 __
		__	__
EARNINGS PER SHARE ATTRIBUTABLE TO
OWNERS OF THE COMPANY	9
Basic		HK$0.031	HK$0.098
		__	__
		__	__
Diluted		HK$0.031	HK$0.097
		_ _	_ _

Condensed Consolidated Statement of Comprehensive Income For the six months ended 31 January 2014

	Six	months ended
		31 January
	2014	2013
	(Unaudited)	(Unaudited)
	*HK$’000*	HK$’000
PROFIT FOR THE PERIOD	636,675	1,985,297
	__	__
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit or loss:
Changes in fair value of available-for-sale financial assets	4,150	30,587
Exchange realignments	11,141	1,236
Share of other comprehensive income of an associate	59,380	26,541
	__	__
OTHER COMPREHENSIVE INCOME FOR THE PERIOD	74,671	58,364
	__	__
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	711,346 __	2,043,661 __
	__	__
Attributable to:
Owners of the Company	696,733	2,023,133
Non-controlling interests	14,613	20,528
	__	__
	711,346 _ _	2,043,661 _ _

Condensed Consolidated Statement of Financial Position As at 31 January 2014

As at 31 January 2014
		31 January	31 July
		2014	2013
		(Unaudited)	(Audited)
	Notes	*HK$’000*	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment		551,183	510,202
Prepaid land lease payments		23,468	23,982
Investment properties		11,232,186	10,736,496
Properties under development for sale		108,992	777,904
Interests in associates		3,742,141	3,378,850
Interests in joint ventures		5,830,074	5,688,684
Available-for-sale financial assets		1,202,470	1,198,321
Pledged bank balances and time deposits		171,678	134,692
Deposits paid and other receivables		17,997	23,500
		___	___
Total non-current assets		22,880,189	22,472,631
		___	___
CURRENT ASSETS
Completed properties for sale		1,021,612	765,591
Equity investments at fair value through profit or loss		6,324	7,489
Inventories		10,037	6,456
Debtors, deposits paid and other receivables	10(a)	181,745	122,348
Held-to-maturity debt investments		8,524	8,317
Cash and cash equivalents		3,297,629	3,123,631
		___	___
Total current assets		4,525,871	4,033,832
		___	___
CURRENT LIABILITIES
Creditors, deposits received and accruals	10(b)	319,891	336,278
Tax payable		99,374	77,634
Bank borrowings		425,877	417,286
		___	___
Total current liabilities		845,142	831,198
		___	___
NET CURRENT ASSETS		3,680,729	3,202,634
		___	___
TOTAL ASSETS LESS CURRENT LIABILITIES		26,560,918	25,675,265
		___	___
NON-CURRENT LIABILITIES
Bank borrowings		(2,585,537)	(2,661,322)
Guaranteed notes		(2,700,840)	(2,695,474)
Deferred tax		(107,689)	(105,694)
Provision for tax indemnity	4	(729,387)	(614,672)
Long term rental deposits received		(72,604)	(68,152)
		___	___
Total non-current liabilities		(6,196,057)	(6,145,314)
		___	___
		20,364,861 ___	19,529,951 ___
		___	___
EQUITY
Equity attributable to owners of the Company
Issued capital	11	200,629	200,629
Share premium account		7,429,332	7,429,332
Investment revaluation reserve		1,122,591	1,116,135
Share option reserve		64,622	64,622
Hedging reserve		1,343	(11,786)
Capital redemption reserve		1,200,000	1,200,000
General reserve	11	646,700	646,700
Other reserve		260,755	142,076
Special capital reserve	11	-	-
Exchange fluctuation reserve		152,061	96,941
Retained profits		8,865,256	8,243,123
		___	___
		19,943,289	19,127,772
Non-controlling interests		421,572	402,179
		___	___
		20,364,861 _ _	19,529,951 _ _

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

The unaudited condensed consolidated interim financial statements of the Group for the six months ended 31 January 2014 have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with Hong Kong Accounting Standard (“ HKAS ”) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants.

The condensed consolidated interim financial statements have not been audited by the Company’s auditors but have been reviewed by the Company’s audit committee.

2. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and basis of presentation used in the preparation of these interim financial statements are the same as those used in the Group’s audited consolidated financial statements for the year ended 31 July 2013.

The Group has adopted the new and revised Hong Kong Financial Reporting Standards (“ HKFRSs ”, which also include HKASs and Interpretations) which are applicable to the Group and are effective in the current period. The adoption of these new and revised HKFRSs has had no material impact on the reported results or financial position of the Group.

3. SEGMENT INFORMATION

The following table presents revenue and results for the Group’s reportable segments:

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Six months ended 31 January (Unaudited)|
|Property|Property|Hotel and|
|development and sales|investment|restaurant operations|Others|Eliminations|Consolidated|
|2014|2013|2014|2013|2014|2013|2014|2013|2014|2013|2014|2013|
|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|
|Segment revenue:|
|Sales to external|
|customers|722,742|1,220|237,011|214,831|253,053|202,814|11,848|10,291|-|-|1,224,654|429,156|
|Intersegment sales|-|-|7,577|8,021|-|-|14,267|12,846|(21,844)|(20,867)|-|-|
|Other revenue|_ _ _ _ _ _ _ _ _ _ _ _|1,331|552|672|709|656|91|1,669|78|-|-|4,328|1,430|
|Total|_ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _|724,073|1,772|245,260|223,561|253,709|202,905|27,784|23,215|(21,844)|(20,867)|1,228,982|430,586|
|Segment results|_ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _|259,779|(12,490)|185,782|174,273|25,892|36,058|1,692|(737)|-|-|473,145|197,104|
|Interest income and|
|unallocated revenue|33,490|20,283|
|Fair value gains on|
|investment properties|-|-|340,218|1,373,509|-|-|-|-|-|-|340,218|1,373,509|
|Unallocated expenses|(95,686)|(146,859)|
|Provision for tax|
|indemnity|_ _|(139,017)|(44,000)|
|Profit from operating|
|activities|612,150|1,400,037|
|Finance costs|(122,489)|(39,219)|
|Share of profits and|
|losses of associates|15|19|-|-|(1,859)|(34)|-|-|-|-|(1,844)|(15)|
|Share of profits and|
|losses of associates|
|- unallocated|45,311|(9,929)|
|Share of profits and|
|losses of joint|
|ventures|6,106|61,001|43,045|461,355|-|-|-|-|-|-|49,151|522,356|
|Discount on acquisition|
|of additional interest|
|in an associate|_ _|99,382|134,930|
|Profit before tax|681,661|2,008,160|
|Tax|_ _|(44,986)|(22,863)|
|Profit for the period|_ _ _ _|636,675|1,985,297|

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The following table presents the total assets and liabilities for the Group’s reportable segments:

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||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|Property|Hotel and|
|development and sales|Property investment|restaurant operations|Others|Consolidated|
|31 January|31 July|31 January|31 July|31 January|31 July|31 January|31 July|31 January|31 July|
|2014|2013|2014|2013|2014|2013|2014|2013|2014|2013|
|(Unaudited)|(Audited)|(Unaudited)|(Audited)|(Unaudited)|(Audited)|(Unaudited)|(Audited)|(Unaudited)|(Audited)|
|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|HK$’000|
|Segment assets|1,240,563|1,576,095|11,273,659|10,782,490|885,515|847,642|94,683|69,849|13,494,420|13,276,076|
|Interests in associates|9,657|9,630|-|-|18,945|20,029|-|-|28,602|29,659|
|Interests in associates|
|- unallocated|3,713,539|3,349,191|
|Interests in joint ventures|1,437,381|1,426,038|4,392,693|4,262,646|-|-|-|-|5,830,074|5,688,684|
|Unallocated assets|[_]|4,339,425|[_]|4,162,853|
|Total assets|[_][_]|27,406,060|[_][_]|26,506,463|
|Segment liabilities|80,355|120,698|124,875|127,086|79,893|65,270|7,711|5,140|292,834|318,194|
|Bank borrowings|3,011,414|3,078,608|
|Guaranteed notes|2,700,840|2,695,474|
|Other unallocated liabilities|[_]|1,036,111|[_]|884,236|
|Total liabilities|[_][_]|7,041,199|[_][_]|6,976,512|

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4. PROVISION FOR TAX INDEMNITY

Pursuant to an indemnity deed (the “ Lai Fung Tax Indemnity Deed ”) dated 12 November 1997 entered into between the Company and Lai Fung Holdings Limited (“ Lai Fung ”), the Company has undertaken to indemnify Lai Fung in respect of certain potential income tax and land appreciation tax (“ LAT ”) of the People’s Republic of China (the “ PRC ”) payable or shared by Lai Fung in consequence of the disposal of any of the property interests attributable to Lai Fung through its subsidiaries and its associates as at 31 October 1997 (the “ Property Interests ”). These tax indemnities given by the Company apply in so far as such tax is applicable to the difference between (i) the value of the Property Interests in the valuation thereon by Chesterton Petty Limited (currently known as “ Knight Frank Petty Limited ”), independent chartered surveyors, as at 31 October 1997 (the “ Valuation ”); and (ii) the aggregate costs of such Property Interests incurred up to 31 October 1997, together with the amount of unpaid land costs, unpaid land premium and unpaid costs of resettlement, demolition and public utilities and other deductible costs in respect of the Property Interests. The Lai Fung Tax Indemnity Deed assumes that the Property Interests are disposed of at the values attributed to them in the Valuation, computed by reference to the rates and legislation governing PRC income tax and LAT prevailing at the time of the Valuation.

The indemnities given by the Company do not cover (i) new properties acquired by Lai Fung subsequent to the listing of the shares of Lai Fung on The Stock Exchange of Hong Kong Limited (the “ Listing ”); (ii) any increase in the relevant tax which arises due to an increase in tax rates or changes to the legislation prevailing at the time of the Listing; and (iii) any claim to the extent that provision for deferred tax on the revaluation surplus has been made in the calculation of the adjusted net tangible asset value of Lai Fung as set out in Lai Fung’s prospectus dated 18 November 1997.

After taking into account the Property Interests currently held by Lai Fung as at 31 January 2014 which are covered under the Lai Fung Tax Indemnity Deed and the prevailing tax rates and legislation governing PRC income tax and LAT, the total amount of tax indemnity given by the Company is estimated to be approximately HK$1,350,000,000 (31 July 2013: HK$1,350,000,000).

As at 31 January 2014, the directors of the Company, after taking into account the plan and status of the Property Interests and the prevailing tax rates and legislation governing PRC income tax and LAT, considered it is probable that an estimated amount of HK$753,689,000 (31 July 2013: HK$614,672,000) of the abovementioned tax indemnity given by the Company would be crystallised, of which HK$24,302,000 (31 July 2013: Nil) is included in creditors, deposits received and accruals and HK$729,387,000 (31 July 2013: HK$614,672,000) is included in provision for tax indemnity. Therefore, an additional provision for tax indemnity of HK$139,017,000 (Six months ended 31 January 2013: HK$44,000,000) is recognised in the condensed consolidated income statement for the six months ended 31 January 2014.

5. PROFIT FROM OPERATING ACTIVITIES

The Group’s profit from operating activities is arrived at after charging/(crediting):

	Six months ended	Six months ended
	31 January
	2014	2013
	(Unaudited)	(Unaudited)
	*HK$’000*	HK$’000
Depreciation#	15,592	11,946
Amortisation of prepaid land lease payments*	514	514
Loss on disposal of listed equity investments at fair value through
profit or loss*	-	385
Fair value loss/(gain) on listed equity investments at fair value through
profit or loss*	1,222	(17)
Interest income from bank deposits	(10,253)	(2,992)
Other interest income	(212)	(272)
Dividend income from listed equity investments at fair value through
profit or loss	(25)	(22)
Dividend income from unlisted available-for-sale financial assets	(23,000) _ _	(14,447) _ _

Depreciation charge of approximately HK$14,364,000 (Six months ended 31 January 2013: HK$10,664,000) for property, plant and equipment is included in “other operating expenses, net” on the condensed consolidated income statement.

These items are included in “other operating expenses, net” on the condensed consolidated income statement.

6. FINANCE COSTS

	Six	months ended
		31 January
	2014	2013
	(Unaudited)	(Unaudited)
	*HK$’000*	HK$’000
Interest on bank borrowings wholly repayable within five years	34,711	32,243
Interest on guaranteed notes wholly repayable within five years	79,552	4,784
Bank financing charges	9,453	8,096
	__	__
	123,716	45,123
Less: Amount capitalised in properties under development for sale	(1,227) (5,904)
	__	__
	122,489 _ _	39,219 _ _

7. DISCOUNT ON ACQUISITION OF ADDITIONAL INTEREST IN AN ASSOCIATE

During the period from November 2013 to December 2013, the Group acquired 1.33% additional interest in eSun Holdings Limited (“ eSun ”) from the public shareholders at a cost of approximately HK$18,545,000 and the Group’s interest in eSun was increased from 39.93% to 41.26%. A discount on acquisition of approximately HK$99,382,000 arose from this acquisition.

During the period from October 2012 to December 2012, the Group acquired 2% additional interest in eSun from the public shareholders at a cost of approximately HK$29,336,000 and the Group’s interest in eSun was increased from 37.93% to 39.93%. A discount on acquisition of approximately HK$134,930,000 arose from this acquisition.

8. TAX

Hong Kong profits tax has been provided at the rate of 16.5% (Six months ended 31 January 2013: 16.5%) on the estimated assessable profits arising in Hong Kong during the period.

Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the places in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

	Six months ended	Six months ended
	31 January
	2014	2013
	(Unaudited)	(Unaudited)
	*HK$’000*	HK$’000
Current tax
Hong Kong	34,914	13,061
Overseas	8,438	7,772
	__	__
	43,352	20,833
Deferred tax	1,634	2,030
	__	__
Tax charge for the period	44,986 _ _	22,863 _ _

9. EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY

	Six	months ended
		31 January
	2014	2013
	(Unaudited)	(Unaudited)
	*HK$’000*	HK$’000
Earnings
Earnings for the purpose of basic earnings per share	622,028	1,964,744
Effect of dilutive potential ordinary shares arising from adjustment to the
share of profit of an associate based on dilution of its earnings per share	(163) - __ ___
Earnings for the purpose of diluted earnings per share	621,865 __	1,964,744 ___
	__	___
	*’000*	’000
Number of shares
Weighted average number of ordinary shares for the purpose of basic
earnings per share	20,062,893	20,062,893
Effect of dilutive potential ordinary shares arising from share options	98,999	127,768
	___	___
Weighted average number of ordinary shares for the purpose of diluted
earnings per share	20,161,892 _ _	20,190,661 _ _

10. DEBTORS, DEPOSITS PAID AND OTHER RECEIVABLES/CREDITORS, DEPOSITS RECEIVED AND ACCRUALS

(a) The Group maintains various credit policies for different business operations in accordance with business practices and market conditions in which the respective subsidiaries operate. Sales proceeds receivable from the sale of properties are settled in accordance with the terms of the respective contracts. Rent and related charges in respect of the leasing of properties are receivable from tenants, and are normally payable in advance with rental deposits received in accordance with the terms of the tenancy agreements. Hotel and restaurant charges are mainly settled by customers on cash basis except for those corporate clients who maintain credit accounts with the respective subsidiaries, the settlement of which is in accordance with the respective agreements.

An ageing analysis of the trade debtors, based on payment due date, as at the end of the reporting period is as follows:

	31 January	31 July
	2014	2013
	(Unaudited)	(Audited)
	*HK$’000*	HK$’000
Trade debtors:
Not yet due or less than 30 days past due	9,025	6,575
31 - 60 days past due	2,358	1,946
61 - 90 days past due	937	394
Over 90 days past due	1,198	1,491
	__	__
	13,518	10,406
Other receivables	91,573	57,337
Deposits paid and prepayments	76,654	54,605
	__	__
	181,745 _ _	122,348 _ _

10. DEBTORS, DEPOSITS PAID AND OTHER RECEIVABLES/CREDITORS, DEPOSITS RECEIVED AND ACCRUALS (continued)

(b) An ageing analysis of the trade creditors, based on payment due date, as at the end of the reporting period is as follows:

	31 January	31 July
	2014	2013
	(Unaudited)	(Audited)
	*HK$’000*	HK$’000
Trade creditors:
Not yet due or less than 30 days past due	10,516	8,161
31 - 60 days past due	676	546
61 - 90 days past due	84	87
Over 90 days past due	28	236
	__	__
	11,304	9,030
Other payables and accruals	180,405	173,773
Deposits received and other provisions	128,182	153,475
	__	__
	319,891 _ _	336,278 _ _

11. SHARE CAPITAL

	31 January 2014	31 January 2014	31 July 2013	31 July 2013
	Number of	Nominal	Number of	Nominal
	shares	value	shares	value
	(Unaudited)	(Unaudited)	(Audited)	(Audited)
	*’000*	*HK$’000*	’000	HK$’000
Authorised:
Ordinary shares of HK$0.01 each	38,000,000 _ _	380,000	38,000,000 _ _	380,000
Preference shares of HK$1.00 each	1,200,000	1,200,000	1,200,000	1,200,000
	_ _	__	_ _	__
		1,580,000		1,580,000
		_ _		_ _
Issued and fully paid:
Ordinary shares of HK$0.01 each	20,062,893 _ _	200,629 _ _	20,062,893 _ _	200,629 _ _

Pursuant to a special resolution passed at an extraordinary general meeting of the Company held on 24 July 2006, and the subsequent Order of the High Court of Hong Kong granted on 17 October 2006, the Company effected a capital reduction (the “ Capital Reduction ”) which took effect on 18 October 2006. The paid-up capital on each of its issued ordinary shares of HK$0.50 was cancelled to the extent of HK$0.49 per share, and the nominal value of all of the ordinary shares of the Company, both issued and unissued, was reduced from HK$0.50 per share to HK$0.01 per share. A total credit of HK$6,245,561,000 had arisen as a result of the Capital Reduction. An amount of HK$5,619,000,000 of the total credit was credited to the accumulated losses of the Company and the remaining amount of HK$626,561,000 was credited to the share premium account of the Company.

11. SHARE CAPITAL (continued)

An undertaking in standard terms was given to the High Court by the Company in connection with the Capital Reduction. The undertaking is for the benefit of the Company’s creditors as at the effective date of the Capital Reduction. Pursuant to the undertaking, any receipts by the Company on or after 1 August 2005 in respect of the Company’s:

(1) 50% investment in Fortune Sign Venture Inc. (“ Fortune Sign ”), up to an aggregate amount of HK$1,556,000,000;
(2) 10% investment in Bayshore Development Group Limited (“ Bayshore ”), up to an aggregate amount of HK$2,923,000,000; and/or
(3) 100% investment in Furama Hotel Enterprises Limited, up to an aggregate amount of HK$1,140,000,000

shall be credited to a special capital reserve in the accounting records of the Company. While any debt of or claim against the Company as at 18 October 2006 (the effective date of the Capital Reduction) remains outstanding, and the person entitled to the benefit thereof has not agreed otherwise, the special capital reserve shall not be treated as realised profits and (for so long as the Company remains a listed company) shall be treated as an undistributable reserve pursuant to Section 79C of the Hong Kong Companies Ordinance.

The undertaking is subject to the following provisos:

(i) the amount standing to the credit of the special capital reserve may be applied for the same purposes as a share premium account may be applied or may be reduced or extinguished by the aggregate of any increase in the Company’s issued share capital or share premium account resulting from an issue of shares for cash or other new consideration upon a capitalisation of distributable reserves after 18 October 2006 and the Company shall be at liberty to transfer the amount of any such reduction to the general reserve of the Company and the same shall become available for distribution;
(ii) the aggregate limit in respect of the special capital reserve may be reduced after the disposal or other realisation of any of the assets being the subject of the undertaking (as referred to at (1) to (3) above) by the amount of the individual limit for the asset in question less such amount (if any) as is credited to the special capital reserve as a result of such disposal or realisation; and
(iii) in the event that the amount standing to the credit of the special capital reserve exceeds the limit thereof, after any reduction of such limit pursuant to proviso (ii) above, the Company shall be at liberty to transfer the amount of such excess to the general reserve of the Company and the same shall become available for distribution.

In prior years, an aggregate amount of HK$646,700,000, which comprised (i) the reversal of provision for impairment of the Company’s interest in Peakflow Profits Limited, a wholly-owned subsidiary of the Company which holds a 10% equity interest in Bayshore, to the extent of HK$372,072,000; and (ii) the recognition of dividend income from the Company’s investment in Fortune Sign of HK$274,628,000, was transferred from accumulated losses to the special capital reserve, and was further transferred to the general reserve of the Company.

The outstanding balance of the general reserve of the Company as at 31 January 2014 was approximately HK$646,700,000 (31 July 2013: HK$646,700,000). There was no remaining balance in the special capital reserve as at 31 January 2014 and 31 July 2013.

INTERIM ORDINARY DIVIDEND

The Board of the Company has resolved not to declare the payment of an interim ordinary dividend for the financial year ending 31 July 2014. No interim ordinary dividend was declared in respect of the last corresponding period.

As at 31 January 2014, the Company did not have any reserves available for distribution in accordance with the provisions of Section 79B of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong. The Companies Ordinance in Hong Kong has changed in early March 2014 and the process for restoring the reserves for distribution has been simplified and can be achieved by way of a unilateral declaration of solvency by the Board. The Board intends to make such declaration of solvency and is studying the changes in the Companies Ordinance and preparing for such approval process.

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW AND OUTLOOK

The global economy is on a delicate recovery path with the United States leading the way through improving economic and employment conditions. However, a number of factors still shroud the horizon: the weak euro zone economy, adjustments to the macroeconomic policies of major economies, and geopolitical tensions. As a global financial centre, Hong Kong’s economic performance is clearly not immune from the challenges faced by the major economies around the world.

The property sector in Hong Kong could be described as a tale of two cities: retail market well supported by low unemployment and robust visitors trend with the office leasing market stabilising with some improvements, but the residential market continues to be quiet since the introduction of control measures in late 2012 and early 2013. It is very likely that these control measures, barring any unforeseen circumstances, are here to stay until land supply has caught up; which is likely to take some years notwithstanding the government’s emphasis and effort. Labour supply shortage in the construction industry drove wage inflation and continues to pose a challenge on the cost management side of the picture.

The Group performed admirably against this challenging environment: rental portfolio of approximately 1.5 million square feet generated steady rental income at high occupancy rates. Rental income increased through tenant mix adjustments, rental reversion and addition of the CCB Tower that is fully leased subsequent to the period end, rental proceeds of which was recognised as contributions from joint venture. Sale of Ocean One is substantially completed at the intended average selling price and boosted the revenue and profit of the Group compared to the same period last year.

The management believes it is paramount to prepare the Group for the challenges and opportunities ahead. The Group completed a series of corporate activities as part of the new strategy to improve funding sources, execution capabilities and overall coordination with the wider Lai Sun Group. Further to securing the Tseung Kwan O site in the same period last year, the Group participated in a number of government tenders to grow the pipeline. The Group was named the most preferred proponent by Ocean Park for the Ocean Park Hotel project in October 2013. We are working with Ocean Park to complete the government approval processes and expect to be awarded the project soon. The Ocean Park Hotel, to be operated by the Marriott group, will provide 495 rooms and approximately 366,000 square feet of rental space to the existing rental portfolio of approximately 1.5 million square feet. We are excited by the prospects of the Ocean Park Hotel project given the favourable supply and demand picture, which is underpinned by robust growth in visitor numbers and coinciding with the expansion of Ocean Park. The completion of the Observatory Road project will add an attributable rental gross floor area (“ GFA ”) of approximately 82,600 square feet in the prime Tsim Sha Tsui area of Hong Kong when it is completed in the third quarter of 2015. The Tai Hang Road project, with 9 luxury units located at one of the most sought after addresses in Hong Kong with attributable GFA of approximately 30,400 square feet, was completed in January 2014 and the Group is preparing for its sale currently. Construction of the Tseung Kwan O site has commenced and is on-track for completion in 2017.

The Group’s strong cash position of HK$3,469.3 million of cash on hand with a net debt to equity ratio of 11% as at 31 January 2014 provides the Group full confidence and the means to review opportunities more actively. However, the Group will continue its prudent and flexible approach in growing the landbank and managing its financial position.

OVERVIEW OF INTERIM RESULTS

For the six months ended 31 January 2014, the Group recorded turnover of HK$1,224.7 million (2013: HK$429.2 million) and a gross profit of HK$601.6 million (2013: HK$282.2 million), representing an increase of approximately 185% and 113%, respectively, over the same period last year. Turnover from rental income, sales of properties, hotel and restaurant and other operations during the period was HK$237.0 million (2013: HK$214.8 million), HK$722.7 million (2013: HK$1.2 million) and HK$265.0 million (2013: HK$213.2 million), respectively.

Profit before tax, excluding finance costs and property revaluations, was HK$360.7 million (2013: HK$156.5 million). Net profit attributable to owners of the Company was approximately HK$622.0 million (2013: HK$1,964.7 million), representing a decrease of approximately 68% over the same period of last year. Excluding the effect of property revaluations, net profit attributable to owners of the Company increased to approximately HK$178.5 million (2013: HK$73.8 million), primarily due to the successful sale of majority of units at Ocean One. Basic earnings per share including and excluding the effect of property revaluations was HK$0.031 (2013: HK$0.098) and HK$0.009 (2013: HK$0.004), respectively.

	Six months ended	Six months ended
	31 January
	2014	2013
Profit attributable to owners of the Company	HK$ million	HK$million
Reported	622.0	1,964.7
Adjustments in respect of revaluation gains of investment properties held by
- subsidiaries	(340.2)	(1,373.5)
- associates and joint ventures	(103.3)	(517.4)
Profit attributable to owners of the Company excluding revaluation gains of investmentproperties	178.5	73.8

Equity attributable to owners of the Company as at 31 January 2014 amounted to HK$19,943.3 million, up from HK$19,127.8 million as at 31 July 2013. Net asset value per share attributable to owners of the Company increased by 4% to HK$0.994 per share as at 31 January 2014 from HK$0.953 per share as at 31 July 2013, representing a discount of 80% to the share price of HK$0.195 as at 31 January 2014.

PROPERTY PORTFOLIO COMPOSITION

Approximate attributable GFA (in ’000 square feet) and car-parking spaces of the Group’s major properties as at 31 January 2014:

	Commercial/ Retail	Office	Industrial	Residential	Hotel	Total (excluding car-parking spaces & ancillary facilities)	No. of car-parking spaces attributable to the Group
Completed Properties Held for Rental1	433	872	63	-	-	1,368	965
Completed Hotel Properties	-	-	-	-	98	98	-
Properties Under Development2	131	-	-	229	-	360	172
Completed Properties Held for Sale3	18	-	-	69	-	87	41
Total GFA of major properties of the Group	582	872	63	298	98	1,913	1,178

1. Completed and rental generating properties

2. All properties under construction

3. Completed properties held for sale

The above table does not include GFA of properties held by Lai Fung.

PROPERTY INVESTMENT

Rental Income

During the period under review, the Group’s rental operations recorded a turnover of HK$237.0 million (2013: HK$214.8 million), representing a 10% increase over the same period last year. The increase was primarily due to continued management of tenant mix and rental reversion at major investment properties. CCB Tower, the 50:50 joint venture project, is fully leased subsequent to the period end and the rental proceeds was recognised as contributions from joint venture.

The Group wholly owns three major rental properties in Hong Kong, namely Cheung Sha Wan Plaza, Causeway Bay Plaza 2 and Lai Sun Commercial Centre. The Group also owns 50% of the CCB Tower.

Breakdown of rental turnover by major rental properties is as follows:

	Six months ended 31 January	Six months ended 31 January	% Change	Period end occupancy (%)
	2014 HK$ million	2013 HK$million
Cheung Sha Wan Plaza (includingcar-parkingspaces)	134.6	120.9	11	98.7
Causeway Bay Plaza 2 (includingcar-parkingspaces)	73.0	65.8	11	96.8
Lai Sun Commercial Centre (includingcar-parkingspaces)	24.1	25.1	-4	89.2
Others	5.3	3.0	77	N/A
Total:	237.0	214.8	10

Rental proceeds from joint venture project
CCB Tower (50% basis)	50.5	-	N/A	95.7

Review of major rental properties

Hong Kong Properties

Cheung Sha Wan Plaza

The asset comprises of an 8-storey and a 7-storey office tower erected on top of a retail podium which was completed in 1989. It is located on top of the Lai Chi Kok MTR station with a total GFA of approximately 689,500 square feet (excluding car-parking spaces). The arcade is positioned to serve the local communities nearby with major banks and recognised restaurants chains as the key tenants.

Causeway Bay Plaza 2

The asset comprises of a 28-storey commercial/office building with car parking facilities at basement levels which was completed in 1992. It is located at the heart of Causeway Bay with a total GFA of approximately 208,500 square feet (excluding car-parking spaces). Key tenants include a branch of HSBC, commercial offices and major restaurants.

Lai Sun Commercial Centre

The asset comprises a 13-storey commercial/carpark complex completed in 1987. It is located near the Lai Chi Kok MTR station with a total GFA of approximately 188,500 square feet (excluding car-parking spaces).

CCB Tower, 3 Connaught Road Central

The Group has a 50:50 interest with China Construction Bank Corporation (“ CCB ”) in the joint redevelopment project of the former Ritz-Carlton Hotel in Central. This office tower is a landmark property in Central featuring underground access to the MTR station in Central. The property has a total GFA of approximately 229,000 square feet (excluding car-parking spaces). CCB Tower was completed in 2013 and added approximately 115,000 square feet of attributable gross floor area to our rental portfolio. Subsequent to the period end, CCB Tower has been fully leased with 15 floors of the office floors and 2 banking hall floors leased by CCB for its Hong Kong operations and it is expected to contribute in the coming financial year.

Overseas Property

36 Queen Street, London EC4 1HJ, United Kingdom

In February 2011, the Group acquired an office building in the city in central London located at 36 Queen Street. Completed in 1986, it comprises gross internal area of approximately 61,000 square feet of office accommodation extending over basement, ground and six upper floors. Comprehensive refurbishment and renovation work has been completed and the building is currently being leased.

PROPERTY DEVELOPMENT

For the six months ended 31 January 2014, recognised turnover from sales of properties was HK$722.7 million (2013: HK$1.2 million), representing a significant increase over the same period last year. The exceptional performance was due to the sale of residential units in Ocean One.

Review of major projects for sale

Ocean One, 6 Shung Shun Street, Yau Tong

The Group wholly owns this development project, namely “Ocean One” located at No. 6 Shung Shun Street, Yau Tong, Kowloon. This property is a residential-cum-commercial property with a total GFA of about 122,000 square feet (excluding car-parking spaces) or 124 residential units and 2 commercial units. The estimated total development cost (including land cost and lease modification premium) is about HK$730 million.

As at 31 January 2014, the Group has sold 82 units out of a total of 124 residential units, of which the sale of 68 residential units were completed during the period under review. A total of HK$567.7 million was recognised during the period under review and the average selling prices based on net saleable area and GFA are approximately HK$13,600 per square foot and HK$10,200 per square foot, respectively. Subsequent to the period end and up to 28 February 2014, we have completed the sale of a further 4 residential units with total sales proceeds of HK$34.8 million.

335-339 Tai Hang Road, Hong Kong

The Group wholly owns the site located at 335-339 Tai Hang Road, Hong Kong. The Group is developing the site into a luxury residential property with a total GFA of about 30,400 square feet (excluding car-parking spaces). The total development cost (including land cost and lease modification premium) is estimated to be about HK$670 million. This project has been completed during the current period and the Group is preparing the sale of this project.

Review of major projects under development

2-12 Observatory Road

The Group completed the acquisition of a 50% interest in a project at Observatory Road, Kowloon with the buildings previously erected there known as Nos. 2-12, Observatory Road, Kowloon in November 2011. The joint venture partner is Henderson Land.

The site is being planned to be redeveloped into a multi-storey commercial building with a total GFA of approximately 165,200 square feet (excluding car-parking spaces). The total development cost is estimated to be approximately HK$2.3 billion including an estimated land value of approximately HK$1.8 billion. The new building is expected to be completed in the third quarter of 2015.

The Group reached an agreement with the Government to modify its land lease in relation to the relaxation of the development plot ratio and height restriction. Land premium of about HK$133.7 million was paid during the period.

Area 68A2, Tseung Kwan O

In November 2012, the Group successfully tendered for and secured a site located at Area 68A2, Tseung Kwan O, New Territories, through a 50% joint venture vehicle. The lot has an area of approximately 229,000 square feet with a permitted total GFA of approximately 556,100 square feet split into approximately 458,600 square feet for residential use and approximately 97,500 square feet for commercial use. The current intention is to develop the lot primarily into a residential project for sale, comprising residential towers as well as houses. Completion is expected to be in the second half of 2017.

HOTEL AND RESTAURANT OPERATIONS

For the six months ended 31 January 2014, hotel and restaurant operations contributed HK$253.1 million to the Group’s turnover (2013: HK$202.8 million), representing an increase of approximately 25% from the same period last year. Majority of the turnover from hotel and restaurant operations was derived from the Group’s operation of the Caravelle Hotel in Ho Chi Minh City, Vietnam.

Caravelle Hotel is a leading international 5-star hotel in the centre of the business, shopping and entertainment district in Vietnam. It is an elegant 24-storey tower with mixture of French colonial and traditional Vietnamese style and has 335 superbly appointed rooms, suites, exclusive Signature Floors, Signature Lounge, specially equipped room for the disabled. Total GFA attributable to the Group is approximately 98,400 square feet.

The restaurant operation includes the Group’s interests in 11 restaurants in Hong Kong and Mainland China, including the Michelin 3 star Italian restaurant 8[½] Otto e Mezzo BOMBANA Hong Kong, Michelin 2 star Japanese restaurant Wagyu Takumi, 8[½] Otto e Mezzo BOMBANA Shanghai, CIAK - In The Kitchen at Landmark (opened in the fourth quarter in 2013), Wagyu Kaiseki Den, Gin Sai, Rozan, Kowloon Tang, Island Tang, Chiu Tang and China Tang Hong Kong at Landmark (opened in the fourth quarter in 2013).

The hotel and restaurant operations have extensive experience in providing consultancy and management services to hotels in Mainland China, Hong Kong and other Asian countries. The division’s key strategy going forward will continue to focus on providing management services, particularly to capture opportunities arising from the developments of Lai Fung in Shanghai, Guangzhou and Zhongshan. The hotel division will manage Lai Fung’s serviced apartments in Shanghai, Guangzhou and Zhongshan under the “STARR” brand. STARR Resort Residence Zhongshan soft opened in August 2013 and comprises two 16-storey blocks with 90 fully furnished serviced apartment units located in the Palm Lifestyle complex in Zhongshan Western district at Cui Sha Road, opposite to the new Zhongshan traditional Chinese medical centre. STARR Hotel Shanghai soft opened in November 2013 and is a 17-storey hotel with 287 fully furnished and equipped hotel units with kitchenette located in the Mayflower Lifestyle complex right in the heart of the Zhabei inner ring road district, within walking distance to Lines 1, 3 and 4 of the Shanghai Metro Station with easy access to major motorways. The Guangzhou “STARR Xin Hotel”, located at the junction of Da Sha Tou Road and Yan Jiang Dong Road in Yuexiu District is expected to soft-open in the fourth quarter of 2014.

INTERESTS IN ASSOCIATES (eSun)

During the period under review, the Group’s interest in eSun increased from 39.93% to 41.26%.

Film production and distribution and media and entertainment divisions improved across the board. Turnover substantially improved and losses narrowed. The acquisition of Intercontinental Group Holdings Limited bolstered its cinema network and film distribution capability. Lai Fung’s results were encouraging given the challenging operating environment in the property sector in Mainland China.

As a result, the contribution from eSun increased from a loss to a profit of HK$45.3 million (2013: loss of HK$9.9 million).

INTERESTS IN JOINT VENTURES

During the period under review, contribution from joint ventures decreased to HK$49.2 million (2013: HK$522.4 million). This is primarily due to lower revaluation gains of CCB Tower and the Observatory Road project.

LIQUIDITY AND FINANCIAL RESOURCES

As at 31 January 2014, cash and bank balances and undrawn facilities held by the Group amounted to HK$3,469.3 million and HK$1,258.2 million, respectively.

The Group’s sources of funding comprise mainly internal funds generated from the Group’s business operations, loan facilities provided by banks and guaranteed notes issued to investors.

As at 31 January 2014, the Group had bank borrowings of approximately HK$3,011.4 million and guaranteed notes of approximately HK$2,700.8 million. The net debt to equity ratio expressed as a percentage of the total outstanding net debt (being the total outstanding bank borrowings and guaranteed notes less the pledged and unpledged bank balances and time deposits) to consolidated net assets attributable to owners of the Company was approximately 11%. As at 31 January 2014, the maturity profile of the bank borrowings of HK$3,011.4 million was spread over a period of less than 5 years with HK$425.9 million repayable within 1 year, HK$1,285.4 million repayable in the second year and HK$1,300.1 million repayable in the third to fifth years. All the Group’s borrowings carried interest on a floating rate basis except for the United States dollar guaranteed notes issued in January 2013 which has a fixed rate of 5.7% per annum.

As at 31 January 2014, certain investment properties with carrying amounts of approximately HK$11,075.3 million, certain completed properties for sale of approximately HK$682.2 million, and certain bank balances and time deposits with banks of approximately HK$171.7 million were pledged to banks to secure banking facilities granted to the Group. In addition, certain shares in subsidiaries held by the Group were also pledged to banks to secure loan facilities granted to the Group. The shares of a joint venture held by the Group were pledged to a bank to secure a loan facility granted to a joint venture of the Group. The shares of an investee company held by the Group were pledged to a bank to secure a loan facility granted to this investee company. The Group’s secured bank borrowings were also secured by floating charges over certain assets held by the Group.

The Group’s major assets and liabilities and transactions were denominated in Hong Kong dollars and United States dollars. Considering that Hong Kong dollars are pegged against United States dollars, the Group believes that the corresponding exposure to exchange rate risk arising from United States dollars is nominal. In addition, the Group has an investment in United Kingdom with the assets and liabilities denominated in Pounds Sterling. The investment was partly financed by bank borrowings denominated in Pounds Sterling in order to minimise the net foreign exchange exposure. The net investment amounted to approximately HK$227.2 million which only accounted for an insignificant portion of the consolidated net assets of the Group as at 31 January 2014. Other than the abovementioned, the remaining monetary assets and liabilities of the Group were denominated in Renminbi and Vietnamese Dong which were also insignificant as compared with the Group’s total assets and liabilities. No hedging instruments were employed to hedge for the foreign exchange exposure. The Group manages its foreign currency risk by closely reviewing the movement of the foreign currency rate and considers hedging significant foreign currency exposure should the need arise.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

During the six months ended 31 January 2014, the Company did not redeem any of its shares listed and traded on The Stock Exchange of Hong Kong Limited (“ Stock Exchange ”) nor did the Company or any of its subsidiaries purchase or sell any of such shares.

CORPORATE GOVERNANCE

The Company has complied with all the code provisions set out in the Corporate Governance Code (“ CG Code ”) contained in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange throughout the six months ended 31 January 2014 save for the deviations from code provisions A.4.1, A.5.1 and E.1.2.

Under code provision A.4.1, non-executive directors should be appointed for a specific term and subject to re-election.

None of the existing non-executive directors (“ NEDs ”, including the independent non-executive Directors (“ INEDs ”)) of the Company is appointed for a specific term. However, all directors of the Company (“ Directors ”) are subject to the retirement provisions of the Articles of Association of the Company (“ Articles of Association ”), which require that the Directors for the time being shall retire from office by rotation once every three years since their last election by shareholders of the Company (“ Shareholders ”) and the retiring Directors are eligible for re-election. In addition, any person appointed by the Board as an additional Director (including a NED) will hold office only until the next annual general meeting of the Company (“ AGM ”) and will then be eligible for re-election. Further, in line with the relevant code provision of the CG Code, each of the Directors appointed to fill a casual vacancy would/will be subject to election by the Shareholders at the first general meeting after his/her appointment. In view of these, the Board considers that such requirements are sufficient to meet the underlying objective of the said code provision A.4.1 and, therefore, does not intend to take any remedial steps in this regard.

Under code provision A.5.1, a nomination committee comprising a majority of the independent non-executive directors should be established and chaired by the chairman of the board or an independent non-executive director.

The Company has not established a nomination committee whose functions are assumed by the full Board. Potential new Directors will be recruited based on their knowledge, skills, experience and expertise and the requirements of the Company at the relevant time and candidates for the INEDs must meet the independence criterion. The process of identifying and selecting appropriate candidates for consideration and approval by the Board has been, and will continue to be, carried out by the executive Directors (“ EDs ”). As the above selection and nomination policies and procedures have already been in place and the other duties of the nomination committee as set out in the CG Code have long been performed by the full Board effectively, the Board does not consider it necessary to establish a nomination committee at the current stage.

Under code provision E.1.2, the chairman of the board should attend the annual general meeting.

Due to other pre-arranged business commitments which must be attended to by him, Dr. Lam Kin Ngok, Peter, the Chairman, was not present at the AGM held on 22 November 2013. However, Mr. Chew Fook Aun, the Deputy Chairman and an ED present at that AGM took the chair of that AGM pursuant to Article 71 of the Articles of Association to ensure an effective communication with the Shareholders thereat.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 January 2014, the Group employed a total of approximately 1,300 employees. The Group recognises the importance of maintaining a stable staff force in its continued success. Under the Group’s existing policies, employee pay rates are maintained at competitive levels whilst promotion and salary increments are assessed on a performance-related basis. Discretionary bonuses are granted to employees based on their merit and in accordance with industry practice. Other benefits including share option scheme, mandatory provident fund scheme, free hospitalisation insurance plan, subsidised medical care and sponsorship for external education and training programmes are offered to eligible employees.

INVESTOR RELATIONS

To ensure our investors have a better understanding of the Company, our management engages in a pro-active investor relations programme. Our Executive Directors and Investor Relations Department communicate with research analysts and institutional investors on an on-going basis and meet with research analysts and the press after our results announcements, attend major investors’ conferences and participate in international non-deal roadshows to communicate the Company’s financial performance and global business strategy.

The Company has met with a number of research analysts and investors, attended conferences as well as non-deal roadshows as follows:

Month Event	Organizer Location
August 2013 Investors luncheon	Bank of China International Hong Kong
October 2013 Post full year results non-deal roadshow	UBS Hong Kong
October 2013 Post full year results non-deal roadshow	UOB Kay Hian Singapore
October 2013 Post full year results non-deal roadshow	DBS New York/Los Angeles/ Denver/San Francisco
October 2013 Post full year results non-deal roadshow	UBS Paris/London
November 2013 Post full year results non-deal roadshow	CIMB Kuala Lumpur
November 2013 Post full year results non-deal roadshow	UOB Kay Hian Taipei
December 2013 Post full year results non-deal roadshow	UBS Sydney
January 2014 The Pulse of Asia Conference	DBS Singapore
February 2014 Investors luncheon	China Merchants Securities Hong Kong

During the period under review, the Company also had research reports published as follows:

Firm	Analyst	Publication Date
UOB Kay Hian	Cynthia CHAN, Sylvia WONG	10 September 2013
DBS	Allen CHAN, Jeff YAU	10 October 2013

The Company is keen on promoting investor relations and enhancing communication with the Shareholders and potential investors. It welcomes suggestions from investors, stakeholders and the public who may contact the Investor Relations Department by phone on (852) 2853 6116 during normal business hours, by fax at (852) 2853 6651 or by e-mail at [email protected].

REVIEW OF INTERIM RESULTS

The audit committee of the Company (“ Audit Committee ”) currently comprises two INEDs, Mr. Leung Shu Yin, William and Mr. Lam Bing Kwan and a NED, Dr. Lam Kin Ming. The Audit Committee has reviewed the unaudited interim results (including the unaudited condensed consolidated financial statements) of the Company for the six months ended 31 January 2014.

By Order of the Board Lam Kin Ngok, Peter Chairman

Hong Kong, 25 March 2014

As at the date of this announcement, the Board comprises the following members:

Executive Directors: Dr. Lam Kin Ngok, Peter (Chairman) and Messrs. Chew Fook Aun (Deputy Chairman), Lau Shu Yan, Julius (Chief Executive Officer) and Lam Hau Yin, Lester;

Non-Executive Directors: Dr. Lam Kin Ming and Madam U Po Chu; and

Independent Non-Executive Messrs. Lam Bing Kwan, Leung Shu Yin, William and Ip Shu Kwan, Stephen. Directors: