SOCAM Development : INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

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瑞安建業有限公司*

SOCAM Development Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 983)

INTERIM RESULTS for the six months ended 30 June 2019

FINANCIAL HIGHLIGHTS

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KEY CORPORATE DEVELOPMENTS

Acquisition of Property Management Business in Hong Kong

SOCAM has been actively exploring investment opportunities that are beneficial to its long-term development. In April 2019, the Group acquired the property management business of the Shui On Private Group in Hong Kong for a cash consideration of HK$35 million.

Shui On Properties Management (SOPM) has been providing quality and customer-oriented property management services in Hong Kong for over 30 years. It is currently managing a diversified portfolio of premises in Hong Kong, embracing residential estates, grade-A office building, shopping centres and carparks. SOPM will contribute stable income and cash flow to the Group, and is well poised to expand its property management portfolio, as and when suitable opportunities arise.

Disposal of Partial Interests in Nanjing Jiangnan Cement

SOCAM announced on 14 May 2019 that the Group entered into the Sale and Purchase Agreement with a subsidiary of Shui On Land (SOL) for the disposal of the Group's 58 per cent equity interest in Great Market Limited for a consideration of approximately RMB147.9 million. Great Market Limited holds a 60 per cent equity interest in Nanjing Jiangnan Cement Co., Ltd (NJC), a joint venture that operates a cement grinding mill in Nanjing. Following the disposal, the Group will hold a 42 per cent equity interest in Great Market Limited and the effective equity interest in NJC was reduced from 60 per cent to 25.2 per cent. The disposal was duly completed on 28 June 2019, following the approval of independent shareholders of the Company at a Special General Meeting held on the same date.

In recent years, the Nanjing Municipal Government has planned to redevelop Qixia District, in which the cement grinding mill is located. The disposal will enable the Group to leverage SOL's expertise in land conversion and master planning for redevelopment of the plant site, while retaining 25.2 per cent effective equity interest in NJC to participate in the potential upside resulting from the land redevelopment.

Tender Offer for Purchase of Senior Notes

On 17 May 2019, SOCAM announced a tender offer to purchase for cash the 6.25 per cent senior notes due 2020 issued by the Company up to the maximum aggregate principal amount of US$80 million. The offer aims to allow the Group to control its balance sheet liabilities, optimise its debt structure and reduce its financing costs.

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Upon expiration of the tender offer on 31 May 2019, the Company accepted for purchase all the senior notes in an aggregate principal amount of approximately US$76.7 million that were validly tendered. Settlement of the tender offer took place on 10 June 2019, and the total purchase consideration for the senior notes accepted for purchase, plus accrued interest, amounted to approximately US$77.1 million.

Disposal of Commercial Property in Kwun Tong

On 19 July 2019, SOCAM announced that the Group entered into the Sale and Purchase Agreement for the disposal of the commercial building situated at No. 93 Wai Yip Street, Kwun Tong, Kowloon for a consideration of approximately HK$386.7 million. The disposal represents a good opportunity for the Group to realise its investment in this commercial property for an attractive return. Completion is expected to take place by October 2019.

Resumption Compensation for Kaili Cement Plant

SOCAM announced on 23 July 2019 that its subsidiary, Kaili Shui On Cement, entered into the Resumption Compensation Agreement with the Kaili Municipal Government, Guizhou pursuant to which the latter has agreed to compensate the subsidiary, an amount of approximately RMB171.0 million to resume the cement plant and its site and reimburse the costs and expenses incurred by the Group in having closed the operation of the cement plant since 2010 as a result of the Central Government's policy of phasing out of backward and energy-inefficient cement production capacity.

It is expected that the Kaili Municipal Government will redesignate the cement plant site for commercial and residential developments. The Kaili Municipal Government intends to put this cement plant site up for sale by way of a tender, auction or a listing-for-sale (Public Auction) after the land redesignation and has invited the Group to participate. The Group is prepared to participate in the Public Auction. The Company understands that the Kaili Municipal Government will use its reasonable endeavours to complete the Public Auction on or before 30 September 2019. If the cement plant site is successfully taken up by a party other than the Group, the compensation will be paid to Kaili Shui On Cement after completion of the disposal of the cement plant site under the Public Auction.

PROPERTY

Market Review

The residential property market in Mainland China weakened slightly in the first half of 2019. Although average new home prices in the major cities showed year-on-year growth, the sales area of residential property across the nation decreased slightly in the first half of 2019. With the Central Government determined to stabilise the housing market, each city is now allowed to adopt its own control policies and measures.

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The commercial sector presents a mixed picture. Retail sales in the first half of 2019 were stable and there was further rapid expansion of e-commerce, challenging traditional retail environments. However, new technologies such as big data, artificial intelligence and mobile internet, as well as mature logistics systems, are contributing to better integration of traditional retail stores and online platforms. Vacancy rates and rental growth for the retail and office sectors varied from city to city due to individual market dynamics.

Chengdu

The local government announced its "First-store Economy" Plan in 2019, and the retail market has continued to welcome international brands establishing their first store in Chengdu. According to Colliers International, both city-wide vacancy rates and average first-floor mall rents remained stable in the first half of 2019, while there was year-on-year growth in sales of consumer goods.

In the office sector, demand for office space decreased due to a significant fall in the number of companies entering Sichuan province compared to 2018. Slowing market demand pushed up the overall vacancy rate of Grade A offices, while rents remained stable in the first half of 2019.

Chongqing

With the number of brands entering Chongqing increasing, market demand picked up in the first half of 2019. As a result, the overall vacancy rate dropped, while city-wide average first-floor rents remained stable. Chongqing's growing consumer power and the accelerating online and offline linkages will remain conducive to the development of the city's retail market.

Nanjing

New home prices in Nanjing remained stable, with a slight increase of 2.85 per cent year-on-year in the first half of 2019, according to the National Bureau of Statistics. As the local government relaxed property-purchasing limitations in June 2019, the residential property market is expected to grow steadily.

Shenyang

Affected by intense competition among shopping malls and frequent tenant mix adjustments, city-wide vacancy rates increased slightly in the first half of 2019, according to JLL. Vacancy rates are poised to decline, as child-related, food and beverage and entertainment businesses continue to expand in community-focused malls.

Tianjin

Retail leasing demand remained stable in the first half of 2019, mainly driven by catering and child-related tenants, according to Savills. There was a slight fall in vacancy rates, while average first-floor rents were stable.

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Operating Performance

The Group's property business recorded a profit of HK$172 million, excluding foreign exchange losses of HK$8 million, on a turnover of HK$746 million for the first six months of 2019, as compared with the profit of HK$150 million, excluding the foreign exchange losses of HK$16 million, and turnover of HK$822 million in the same period of 2018.

As of 30 June 2019, the Group owned seven projects in Mainland China and Hong Kong, which are summarised in the table below. The Group's property portfolio in the Mainland comprised a total developable gross floor area (GFA) of 445,200 square metres, of which 433,600 square metres were attributable to the Group. Within this portfolio, 378,100 square metres were completed properties, and 67,100 square metres were currently under development.

• The GFA shown excludes sold and delivered areas. ** SOCAM has 90 per cent interest in this project.
  *** Disposal of the project is expected to complete in October 2019.

In the first six months of 2019, the Group recognised revenue of HK$673 million (1H 2018: HK$786 million) and profit of HK$113 million from property sales (1H 2018 : HK$137 million). The Group handed over 95 villas, with a total GFA of 26,970 square metres, and 29 car parking spaces in Nanjing Scenic Villa, as well as three SOHO units and 424 car parking spaces at Chengdu Centropolitan.

In addition, the Group contracted sales of 146 retail shops, with a total GFA of approximately 5,720 square metres in Phase 2 of Tianjin Veneto for a total sales amount of RMB193 million during the period, following the sales launch in January 2019.

On 12 July 2019, the Group entered into the Sale and Purchase Agreement for the disposal of the educational premises in Chengdu Centropolitan, with a total GFA of approximately 3,600 square metres, to EtonHouse Education Services for a consideration of RMB45.5 million. The premises are currently occupied by the purchaser's affiliate as tenant under a tenancy agreement signed previously.

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Major property sales by project during the period:

* VAT inclusive

For the first six months in 2019, total gross rental income before deduction of applicable taxes from the Group's retail and office properties in the Mainland was approximately RMB32 million, up from RMB22 million in the same period in 2018, mainly due to the leasing of the upper floors of the retail mall of Chengdu Centropolitan starting officially from August 2018, and improved operating performance of the office and retail premises following revamping and refurbishment. In Hong Kong, HK$1.4 million rental income was recorded for the first half of 2019.

Rental Income from Retail and Office Properties in Mainland China (stated before deduction of applicable taxes):

* Levels 2-6 were officially opened in August 2018.

Rental income from Office Property in Hong Kong:

^ Acquired in December 2018.

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Occupancy Rates of Retail and Office Properties in Mainland China:

The Group operates four shopping malls in the Mainland, with a combined developable GFA of 189,800 square metres. Over the last two years, the Group strove to revamp, re-position and refurbish its retail properties to enhance turnover, footfall and rentals and compete in the current market, in which consumers value family-focused outlets that provide an all-round shopping, dining and entertainment experience.

Retail Properties Average Monthly Footfall:

* Levels 2-6 were officially opened in August 2018.

Chengdu Centropolitan

Completed in 2017, Chengdu Centropolitan is a mixed-use development, comprising residential, SOHO and office, retail space and car parks. All residential and SOHO units have been sold. It had a total GFA of approximately 168,600 square metres as at 30 June 2019.

Leasing activity for the office tower progressed well, buoyed by demand for high quality office space in the district. As at 30 June 2019, the tower was 93 per cent let, compared with 91 per cent as at 31 December 2018. In July, it was fully let. Major tenants primarily came from the insurance and finance sectors.

Sales of car parking spaces at the project were launched in March 2019 after the title certificate for the basement was obtained. As at 30 June 2019, contracts for the sales of 426 car parking spaces, involving sales revenue of RMB70 million, were signed.

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The integrated shopping mall of the project occupies approximately 43,000 square metres GFA. The basement and ground floor opened in December 2017, while levels 2 to 6 officially opened in August 2018. As at 30 June 2019, the occupancy rate of the mall was 85 per cent, compared with 83 per cent as at 31 December 2018.

Chongqing Creative Concepts Center

Located in Chongqing's Central Business District close to the busy Jiefangbei Square, the development was fully completed in 2013. Its office and residential portions have been sold, and the Group retains the 21,000 square metres GFA shopping mall and around 200 car parking spaces.

The mall was revamped in 2018 and re-positioned with a greater emphasis on lifestyle elements, including education and food & beverage. In the first half, the Group rented out a net leasable GFA of approximately 2,900 square metres to a health clinic. The mall achieved an occupancy rate of 93 per cent as at 30 June 2019, same level as at 31 December 2018.

Nanjing Scenic Villa

Scenic Villa is a residential development located in Nanjing's Jiangning District with a developable GFA of approximately 35,200 square metres as at 30 June 2019, comprising completed properties of approximately 18,300 square metres and those under development of approximately 16,900 square metres.

Construction works on Phase 2 were completed by June 2019. Construction of the basement structure of Phase 3, which will consist of six commercial blocks with a total developable GFA of approximately 17,000 square metres, was completed in May 2019, and superstructure works will commence according to the market situation.

Up to 30 June, nearly all of the villas and 24 car parking spaces in Phase 1 were sold and handed over to buyers, with 3 villas and 28 car parking spaces remain unsold. 213 villas and 25 car parking spaces, out of a total of 230 villas and 70 car parking spaces in Phase 2 were also sold or subscribed. Turnover on property sales recognised in the first half of 2019 amounted to RMB541 million, comprising 95 villas with a total GFA of 26,970 square metres in Phase 2 as well as 29 car parking spaces in Phases 1 and 2.

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Shenyang Project Phase I

Completed in 2013, the residential and office portions of this project have been substantially sold. The Group currently holds Shenyang Tiandi, a 62,200 square metre shopping mall, office units of 1,800 square metres GFA and 389 car parking spaces in the city's commercial hub. The mall is undergoing an extensive revamp to re-position it as a 'destination point' for food and beverages and early child education to attract consumers from Shenyang's growing middle class.

During the first half of 2019, the Group continued to make steady progress in improving the tenant mix. As at 30 June 2019, the occupancy rate stood at 79 per cent, slightly lower than the 80 per cent as at 31 December 2018.

Tianjin Veneto

The Veneto is a European-style mall with a total GFA of 113,000 square metres in a prime location near Tianjin's Wuqing Station.

• Phase 1 Shopping Mall

The substantial revamp of Phase 1, covering 63,600 square metres GFA, which began in 2016, has improved the tenant mix and enhanced the visitor experience. As at 30 June 2019, Phase 1 recorded an occupancy rate of 74 per cent, compared with 83 per cent as at 31 December 2018, mainly due to the termination of certain short term leases and under-performed tenancies. Average monthly rental income for the first half of 2019 was 36 per cent higher than the corresponding period in 2018.

• Construction and Sales of Phase 2

Construction work on the Phase 2 expansion, involving 49,400 square metres GFA of retail and SOHO spaces, is underway, with completion targeted at 2020. Strata-title sales of around 300 retail shops, out of a total of 486 units, were launched in stages since January 2019 after the pre-sale permits were obtained. As at 30 June 2019, sales of 146 shops with a total GFA of approximately 5,720 square metres were contracted for a total sales amount at around RMB193 million.

Guangzhou Parc Oasis

During the first six months, three car parking spaces were sold, generating revenue of around RMB1 million. The remaining 384 car parking spaces are currently held for leasing.

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CONSTRUCTION

Market Review

The Hong Kong economy expanded worse than expected, by 0.5 per cent year-on-year in the first half of 2019, after growth of 2.05 per cent in the preceding half. Faced with a likely deceleration in global economic expansion and increasing uncertainties in the external environment, in August 2019 the HKSAR Government lowered its forecast of Hong Kong's economic growth for 2019 from 2-3 per cent to 0-1 per cent.

Amidst the trade tensions between China and the United States, the biggest issue confronting Hong Kong since June 2019 has been the large-scale demonstrations arising from the proposed extradition bill. These have resulted in citywide chaos, negatively impacting business investment and overall economic activity. Meanwhile, significant delays in approval funding in the Legislative Council (Legco) of the HKSAR has led to a slowdown in the tendering and award of government projects.

The shortage of land and housing is another serious challenges faced by Hong Kong. In December 2018, the HKSAR Government revised its long-term housing strategy, raising the target for the proportion of public housing in the overall housing supply from 60 per cent to 70 per cent to address the strong housing demand. The Government also updated its target to provide a total of 315,000 public housing units during the ten-year period from 2019-20 to 2028-29. Notwithstanding that the HKSAR Government has yet to secure all the sites needed to meet the public housing supply target, it has pledged to adopt a multi-pronged approach to secure more housing land, auguring well for a steady flow of public housing contracts from the Hong Kong Housing Authority in the coming years.

Macau's GDP contracted by 3.2 per cent year-on-year in the first quarter of 2019 and by 1.8 per cent in the second quarter. The gaming industry remains weighed down by the slowdown in the Mainland economy and registered declines in both quarters. However, tourism recovered in the second quarter and the revamps and rolling refurbishments of the casino hotels are expected to proceed as planned.

In both markets, the construction sectors are facing a number of challenges in terms of both manpower and rising costs. The ageing population has led to a shortage of skilled and unskilled workers in the industry, and the situation is expected to deteriorate further. The tight conditions of the labour market, coupled with high construction materials prices and rising operating costs, have contributed to the third highest construction costs in the world.

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Riding on SOCAM's solid presence in the market, the Group has expanded its order book. During the first six months of 2019, 27 new construction, renovation and fit-out contracts in Hong Kong and Macau worth a total of HK$2,069 million were secured, compared with the HK$456 million achieved in the same period of 2018. SOBC won HK$1,559 million new contracts, while PDL was awarded HK$510 million of new projects, primarily in Hong Kong.

As at 30 June 2019, the gross value of contracts on hand was HK$15.5 billion and the value of outstanding contracts to be completed was HK$7.8 billion, compared with HK$14.1 billion and HK$7.3 billion respectively as at 31 December 2018.

Progress of Existing Projects

During the first six months of 2019, the Group's construction projects continued apace and on schedule, including the public housing project at Shek Kip Mei Estate Phases 3, 6 and 7, the design and build project at the Junior Police Officers Married Quarters at Fan Garden, the Central Market Revitalisation Project for the Urban Renewal Authority (URA), and a number of maintenance works term contracts and fitting out / renovation contracts.

Projects Completed

A number of construction projects were completed during the first six months of 2019, which included, among others:

• Design and construction of the Hong Kong Garden at the Beijing International Horticultural Exhibition 2019
• Fitting out / refurbishment contracts for the Skycity Marriott Hotel and the Clifford C F Wong Secondary Library in Hong Kong and Altira in Macau.

Shui On Building Contractors Limited (SOBC)

SOBC is a leading building contractor in public housing construction in Hong Kong. Since 1981, it has completed numerous public housing units as well as shopping centres and public amenities in government estates, often pioneering new town developments. Its subsidiary, Pacific Extend Limited, which was established in 2000, principally undertakes maintenance and minor works for government organisations and public utilities.

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New contracts secured by SOBC during the first half of 2019 totalled HK$1,559 million, which included:

• Construction of a public housing development in Chai Wan for the Hong Kong Housing Authority
• A 3-year term contract for minor works for Kowloon West Cluster, awarded by Hong Kong's Hospital Authority
• A 2-year term contract for minor works at various premises in Shatin Racecourses for the Hong Kong Jockey Club

During the first half of 2019, SOBC's construction projects continued to progress well, including the public housing project at Shek Kip Mei Estate Phases 3, 6 and 7, which will provide 1,543 housing units upon completion in 2019, the term contract for the design and construction of fitting out works for the Architectural Services Department (ASD), the minor works term contract for the Education Bureau, the architectural and building works term contract for the MTR Corporation Limited, and the term contract for design and construction of minor building and civil engineering works for CLP Group.

Shui On Construction Company Limited (SOC)

SOC has extensive experience in the construction of commercial and institutional projects for government and major clients, including luxury hotels, office buildings, hospitals, universities and recreational parks.

During the first six months of 2019, SOC continued to make progress on its contract from the ASD for the design and construction of the Junior Police Officers Married Quarters at Fan Garden, which will provide 1,184 flats upon completion in 2020, as well as the Central Market Revitalisation Project for the URA.

SOC completed the contract for the design and construction of the Hong Kong Garden at the Beijing International Horticultural Exposition 2019.

In the first half, SOC submitted tenders to the ASD for the design and construction contracts, worth over HK$8 billion, for the Redevelopment of Kwai Chung Hospital (Phase 2), Private Residential Care Homes for the Elderly at Kwu Tung North, and an office building for the Drainage Services Department. The award of these contracts is subject to the funding approval of the Finance Committee of the Legco, which is expected to resume meetings in October 2019. We are cautiously optimistic about our chances of securing some of these contracts.

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Pat Davie Limited (PDL)

PDL is recognised as a market leader in fast-track, high quality interior fitting out for large clients, including corporate offices, hotels, banks, clubs, retail outlets and shopping arcades.

PDL continues to be very active in the fit-out and refurbishment markets of both Hong Kong and Macau. In the first six months of 2019, it secured a total of 22 new contracts with an aggregate value of HK$510 million primarily in the commercial sector in Hong Kong. The major contracts secured during the period were the fitting out of the new Incubation Centre and SME Offices in the Hong Kong Science Park and the builders works for the data centre of PCCW in Fotan.

PDL has executed well on the projects it secured. During the first half of 2019, contracts worth a total of HK$206 million and HK$54 million were completed in Hong Kong and Macau respectively. These included the fitting out and refurbishment works on the Skycity Marriott Hotel and the Clifford C F Wong Secondary Library in Hong Kong, and the Megstar restaurant in Altira Macau.

OUTLOOK

The second half of 2019 looks set to remain challenging for our businesses, with the risk of a global recession or even a financial crisis as China-US tensions escalate. Amidst the trade tensions, tariffs on a further US$300 billion of Chinese exports announced in August 2019 and a weakening of the Renminbi cause volatility in global financial markets. Combined with global economic uncertainty, this will exert further downward pressure on Chinese exports, although the domestic economy is expected to remain firm. In Mainland China, ongoing control policies in the residential sector should help to keep the market stable. Robust consumer spending is expected to support retail sales, which were resilient during the first half of 2019 although the malls operation faces competition from online players.

Despite the uncertain environment, SOCAM will continue to execute on its plans. The Group's asset enhancement strategy has made good progress so far in 2019 and in addition to completing the disposal of the Kaili cement plant and the Kwun Tong commercial building we will consider further acquisition and disposal opportunities as they arise. In addition, riding on the positive market response, the Group will conduct further strata-title sales of retail and commercial units at Tianjin Veneto Phase 2 and advance the en-bloc disposal of our property assets. In the retail sector, the Group's investment in its portfolio of malls in Mainland China to bring a 'lifestyle experience' based on innovative leisure and food & beverage offerings will enable it to meet the challenge of the changing retail environment as e-commerce continues to grow. Further refinement of the tenant mix will target higher rental rates.

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The economies of both Hong Kong and Macau will continue to feel the effect of the slowdown in the Mainland China's economy and the trade tensions, while Hong Kong faces the urgent need to resolve the social turbulence and rebuild confidence. Construction material costs somewhat stablised in recent months, and we foresee a downward trend going forward. The political wrangling in Legco over funding that has led to unpredictable workload peaks and troughs for government projects will also continue to pose industry-wide challenges.

Hong Kong has undergone many upheavals in its history, but each time emerges stronger than before. We remain confident regarding our business development in Hong Kong. With more than HK$2 billion of new contracts won in the first six months of 2019 and with HK$15.5 billion gross value of contracts on hand, the Group's construction business is expected to perform well in the second half. Over the slightly longer term, the HKSAR Government's decision to raise the proportion of public housing to 70 per cent and provide 315,000 more public housing units by 2028-29 should see a steady flow of public housing contracts, while HK$200 billion is earmarked for hospital development. SOBC and SOC are well placed to compete for and secure some of these projects including those we have tendered recently. In Macau, despite a slow-down in the economy and the gaming sector, programmes already in place to refurbish hotels and restaurants will yield further opportunities for PDL.

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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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1. Basis of preparation (continued)

HKFRS 16 Leases (continued)

The Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. Lease payments on short-term leases are recognised as expense on a straight line basis over the lease term. The Group also elected to account for operating leases with a remaining lease term of less than 12 months on transition as short-term lease.

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. However, the Group elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component.

Right-of-use assets

The Group recognises a right-of-use asset at the lease commencement date. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, and adjusted for any remeasurement of the lease liability.

The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life and the lease term.

The Group presents right-of-use assets as a separate line item on the condensed consolidated statement of financial position.

Lease liabilities

The Group recognises a lease liability at the lease commencement date at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.

The lease payments include fixed payments and variable lease payments (depend on an index or a rate).

For the classification of cash flows, the Group previously presented upfront prepaid lease payments as investing cash flows in relation to leasehold lands classified as investment properties while other operating lease payments were presented as operating cash flows. Upon application of HKFRS 16, lease payments in relation to lease liability are allocated into a principal and an interest portion which is presented as financing cash flows of the Group.

The Group elected the practical expedient to apply HKFRS 16 to contracts that were previously identified as leases. Contracts that were not identified as leases under HKAS 17 and HK(IFRIC)-Int 4 were not reassessed. Therefore, the definition of a lease under HKFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

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2. Segment information

For management reporting purposes, the Group is currently organised into three operating divisions based on business nature. These divisions are the basis on which the Group reports information to its chief operating decision makers, who are the Executive Directors of the Company, for the purposes of resource allocation and assessment of segment performance.

The Group's reportable and operating segments under HKFRS 8 "Operating Segments" are as follows:

1. Property - property development for sale in the People's Republic of China ("PRC") and property investment and provision of property management services in Hong Kong and the PRC
2. Construction and building maintenance - construction, interior fit-out, renovation and maintenance of building premises mainly in Hong Kong
3. Other businesses - venture capital investment and others

An analysis of the Group's reportable segment revenue and segment results by reportable and operating segment is as follows:

For the six months ended 30 June 2019

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3. Taxation

Hong Kong Profits Tax is calculated at 16.5% (2018: 16.5%) on the estimated assessable profits for the period.

PRC Enterprise Income Tax is calculated at 25% (2018: 25%) on the estimated assessable profits for the period.

PRC Land Appreciation Tax is levied at progressive rates ranging from 30% to 60% on the appreciation of land value, being the proceeds from sales of properties less deductible expenditure including amortisation of land use rights, borrowing costs and all property development expenditure.

4. Dividends

The Board does not recommend the payment of an interim dividend (2018: nil) for the six months ended 30 June 2019.

5. Earnings (loss) per share

The calculation of the basic and diluted earnings (loss) per share attributable to the owners of the Company is based on the following data:

The computation of the diluted earnings per share for the six months ended 30 June 2019 does not assume the exercise of the Company's share options, of which the relevant exercise price was higher than the average market price of shares of the Company for the period when those options were outstanding.

The computation of the diluted loss per share for the six months ended 30 June 2018 did not assume the exercise of the Company's share options, because this would result in a decrease in the loss per share.

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6. Debtors, deposits and prepayments

The Group maintains a defined credit policy. The general credit term ranges from 30 to 90 days.

Included in debtors, deposits and prepayments are debtors, net of allowance for doubtful debts, with an aged analysis (based on the repayment terms set out in the sale and purchase agreements or invoice date, as appropriate) at the end of the reporting period as follows:

Notes:

1. Included in the trade debtors are receivables of HK$1 million (31 December 2018: HK$2 million), which are aged over 180 days, based on the date on which revenue was recognised.
2. The balances carry interest at 15% per annum.
3. Included in prepayments, deposits and other receivables at 30 June 2019 are receivables of HK$477 million (31 December 2018: HK$469 million) due from China Central Properties Limited's former subsidiaries (the "Debtor"), which hold a property interest in the PRC and were disposed of in 2008. The amounts are repayable on demand and out of the total outstanding balance, an amount of HK$136 million (31 December 2018: HK$137 million) carries interest at prevailing market rates. A court in the PRC issued notices to attach the aforesaid property interest to cause the Debtor to settle part of the outstanding receivable in the amount of approximately RMB276 million (approximately HK$314 million) (31 December 2018: RMB140 million (approximately HK$160 million)) and its related interest. In addition to these receivables, the Company has provided a guarantee in relation to a loan granted to the Debtor (see note 9). Given that there have been continued positive outcomes in the legal disputes in relation to the property interest and recovery of the outstanding receivables, including the successful registration of title deed of the property under the name of the Debtor in May 2015, the Directors of the Company believe that these receivables will be fully settled and the guarantee provided by the Company will be fully released either through public auction of the aforesaid property interest or the sale of the equity interest of the entity holding the property interest, which is expected to take place within twelve months from the end of the reporting period.

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7. Creditors and accrued charges

The aged analysis of creditors (based on invoice date) of HK$172 million (31 December 2018: HK$435 million), which are included in the Group's creditors and accrued charges, is as follows:

8. Business combination

On 18 April 2019, the Group entered into a sale and purchase agreement with an indirect wholly-owned subsidiary of Shui On Company Limited to acquire the entire issued share capital of Shui On Properties Management Services Limited ("SOPMSL"). SOPMSL and its wholly-owned subsidiary, Shui On Properties Management Limited ("SOPML"), principally engage in the provision of property management services in Hong Kong. The transaction was completed on 30 April 2019 and SOPMSL and SOPML became the indirect wholly-owned subsidiaries of the Company. The Group selects the acquisition method to account for the business combination involving a business under common control. Details of the transaction are set out in an announcement of the Company dated 18 April 2019.

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9. Contingent liabilities

At 30 June 2019, the Group had the following contingent liabilities, which have not been provided for in the condensed consolidated financial statements:

In 2007, the Company issued a guarantee (the "Guarantee") in favour of a bank for a loan granted to an entity which was a wholly-owned subsidiary of China Central Properties Limited ("CCP") at that time (the "Former Subsidiary"). Subsequently, the Former Subsidiary was sold by CCP in 2008, but the Company remained as the guarantor for the bank loan following the disposal (see note 6(c) for details of receivables due from the Former Subsidiary arising from such disposal). In October 2011, the Company received a notice from the aforesaid bank that it had entered into an agreement to sell all its rights and interests, including the Guarantee, to a new lender (the "New Lender"). At the same time, the Company entered into a restructuring deed with the New Lender, which was subsequently supplemented by supplemental restructuring deeds, whereby the New Lender agreed not to demand fulfilment of the Company's obligations under the Guarantee to October 2019, subject to extension after further discussions. The outstanding principal amount of the loan under the Guarantee amounting to RMB542 million (HK$616 million) at 30 June 2019 (31 December 2018: RMB542 million (HK$619 million)) and the related interest amounting to RMB514 million (HK$584 million) (31 December 2018: RMB481 million (HK$549 million)) are secured by a property interest in the PRC held by the Former Subsidiary. Both of the parent company of the acquirer and the acquirer of the Former Subsidiary have agreed to procure the repayment of the loan and agreed unconditionally to undertake and indemnify the Group for all losses as a result of the Guarantee.

In the opinion of the Directors of the Company, the fair values of the financial guarantee contracts of the Group are insignificant at initial recognition and at the end of the reporting period after taking into consideration the possibility of the default of the parties involved and the collateral of the loan. Accordingly, no value has been recognised in the condensed consolidated statement of financial position.

10. Events after the reporting period

1. On 12 July 2019, the Group entered into an agreement with an independent third party for the disposal of an investment property in Chengdu for a consideration of approximately RMB46 million (HK$52 million). The transaction has not yet been completed up to the date of this report. Details of the transaction are set out in an announcement of the Company dated 12 July 2019.
2. On 19 July 2019, the Group entered into an agreement with an independent third party for the disposal of the entire issued share capital of Profit Point Development Limited (an indirect wholly-owned subsidiary of the Company), which directly owns a commercial building in Hong Kong, for an aggregate consideration of approximately HK$387 million. The transaction has not yet been completed up to the date of this report. Details of the transaction are set out in an announcement and a circular of the Company dated 19 July 2019 and 15 August 2019 respectively.
3. On 23 July 2019, the Group entered into a resumption compensation agreement with the Kaili Municipal People's Government of Guizhou Province of the PRC for resuming the cement plant owned by Kaili Shui On Cement Co. Ltd. ("Kaili Shui On Cement", an indirect wholly-owned subsidiary of the Company) and reimbursing the costs and expenses incurred by Kaili Shui On Cement for closing its operation for an amount of approximately RMB171 million (HK$194 million), in aggregate. The transaction has not yet been completed up to the date of this report. Details of the transaction are set out in an announcement of the Company dated 23 July 2019.

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In December 2017, the Group completed the disposal of its 22 per cent interest in Dalian Tiandi for a consideration of RMB1.3 billion. As of 30 June 2019, the outstanding consideration payable was approximately RMB163 million. Interest income calculated at the rate of 15 per cent per annum on the overdue outstanding amount payable to the Group, amounting to HK$20 million, was recognised in the current interim period. In the previous interim period, a one-offwrite-back of approximately HK$32 million for fees payable relating to the Dalian Tiandi project was included.

Construction

Notwithstanding the decrease in turnover, the construction business posted higher profit for the current interim period. Average net profit before tax margin was 5.5 per cent of turnover, which was above the 3.6 per cent margin in the previous interim period, largely due to a sizable profit recognised in this interim period for the final account settlement of the project of Home Ownership Scheme at Kai Tai Site, which was completed in 2018.

Net finance costs

Total net finance costs of the Group remained stable for the first half of both 2019 and 2018. Since September 2018, the Company repurchased approximately US$98.4 million of its 6.25 per cent senior notes due May 2020, reducing the outstanding amount to approximately US$181.6 million as at 30 June 2019.

Foreign exchange losses

In the first six months of 2017, SOCAM took out several short-term foreign currency contracts to partially hedge against the risk of possible further depreciation of Renminbi so as to reduce the potential foreign exchange loss on the Group's Renminbi-denominated assets. The last hedging contract matured in May 2018 and a hedging loss of HK$57 million was incurred, due to the appreciation of the Renminbi against the United States dollar.

During the current interim period, the Renminbi registered a 0.4 per cent depreciation against the Hong Kong dollar, while the United States dollar registered a 0.3 per cent depreciation against the Hong Kong dollar. These resulted in net foreign exchange losses totalling HK$24 million for the current interim period, of which HK$7 million and HK$17 million were recognised in the condensed consolidated statement of profit or loss and the condensed consolidated statement of financial position respectively, comparing with the foreign exchange losses of HK$24 million and HK$35 million respectively for the same period last year.

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In June 2019, the Company bought back a total of 584,000 shares on the Stock Exchange for an aggregate consideration of approximately HK$1.19 million. The highest and lowest prices paid for buying back the shares were HK$2.09 per share and HK$1.95 per share respectively. All the shares bought back by the Company were cancelled in August 2019.

Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities during the six months ended 30 June 2019.

CORPORATE GOVERNANCE

The Company is committed to maintaining a high standard of corporate governance through its continuous effort in improving its corporate governance practices.

The Audit Committee has reviewed the Group's unaudited condensed consolidated financial statements for the six months ended 30 June 2019, including the accounting principles and practices adopted by the Group. It has also considered selected accounting, internal control and financial reporting matters of the Group, in conjunction with the Company's external auditor.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

Throughout the six months ended 30 June 2019, the Company has complied with all the code provisions of the Corporate Governance Code (the "CG Code") set out in Appendix 14 to the Listing Rules, except for the deviations explained below.

Code provision B.1.2 of the CG Code provides that the terms of reference of the Remuneration Committee should include, among others, the responsibilities to (i) determine or make recommendations to the Board on the remuneration packages of individual Executive Director and senior management; (ii) review and approve compensation payable to Executive Directors and senior management for any loss or termination of office or appointment; and (iii) review and approve the remuneration proposals for management with reference to the Board's corporate goals and objectives. The Remuneration Committee has reviewed its functions and considered that these responsibilities in relation to the remuneration and compensation of management should be vested in the Executive Directors who have a better understanding of the level of expertise, experience and performance expected of the management in the daily business operations of the Group. The Remuneration Committee would continue to be primarily responsible for the review and determination of the remuneration package of individual Executive Director. After due consideration, the Board adopted the revised terms of reference of the Remuneration Committee with the said responsibilities in relation to the remuneration and compensation of management excluded from its scope of duties, which deviates from code provision B.1.2. Notwithstanding such deviation, the Remuneration Committee is still responsible for reviewing, approving and making recommendations to the Board on the guiding principles applicable to the determination of the remuneration packages of senior management.

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