The principal activities of the Group are investment properties (“IP”) and development properties (“DP”) in Hong Kong and the Mainland, hotels and management, and logistics.
The Group's profit attributable to shareholders for the year ended 31-12-2018 amounted to HKD 6.62 billion, a decrease of 69.7% compared with previous corresponding period. Basic earnings per share was HKD 2.1822. A final dividend of HKD 0.4 per share was declared. Turnover amounted to HKD 21.06 billion, a decrease of 51.3% over the same period last year, gross profit margin down 1.2% to 54.0%. (Announcement Date: 07 Mar 2019)
Business Review - For the year ended December 31, 2018
HONG KONG PROPERTIES
The Group’s portfolio mainly comprises prime projects on the Peak, Kowloon Tong and the new CBD2 in Kowloon East.
Mount Nicholson was the dominant contributor to revenue and profitability during the year. Due to lower recognition, revenue decreased to HK$1,667 million and operating profit to HK$1,067 million on an attributable basis.
The Peak Portfolio
The Group''s Peak Portfolio redefines the concept of luxury living with a collection of the rarest and most prestigious residences, epitomising a unique and exclusive lifestyle at the most sought-after addresses in town.
Mount Nicholson, a 50:50 joint venture development, offers ultra-luxury residences with an enchanting uninterrupted view over Victoria Harbour. This collection of 19 ultra-luxury houses and 48 apartments nestled on the Peak was highly-acclaimed since its launch in early 2016. During the year, two houses and three apartments were sold for combined proceeds of HK$3.8 billion or an average of HK$125,000 per square foot.
Superstructure works for the re-development of 11 Plantation Road and 77 Peak Road were completed in 2017. These superb developments are set to provide seven houses (total GFA: 46,300 square feet) and eight houses (total GFA: 42,200 square feet), respectively.
The re-development of 1 Plantation Road is well underway and will feature 20 houses (total GFA: 91,000 square feet). Meanwhile, Chelsea Court and Strawberry Hill have been leasing well.
Kowloon East Waterfront Portfolio
The Government’s visionary “Energizing Kowloon East” initiative is gaining momentum with the injection of new developments, vibrancy and diversity into the Kowloon East area. With the driving force of office decentralization in the city, this is gradually emerging as another core business district. This vibrant transformation is providing a vast potential for the Group’s “Kowloon East Waterfront Portfolio”, represented by the Kowloon Godown and 15%-owned Yau Tong Bay joint-venture project.
Lying along the coastline with a spectacular Victoria Harbour view, Kowloon Godown comprises a warehouse and an open yard with an existing operating GFA of one million square feet. Different re-development options are under evaluation. General building plans for a revitalisation scheme for the warehouse was approved in June 2018. In addition, applications for lease modification for a commercial scheme at the open yard and warehouse sites were submitted in 2017. Yau Tong Bay is a harbourfront residential project with a compelling panoramic view of Victoria Harbour. Spanning a total GFA of four million square feet within accessible walking distance to the MTR station, the project is set to provide 6,300 residential units in Kowloon East. General building plans have been approved. Lease modification is under way
New land site in Kowloon Tong
This 436,000 square feet (total developable GFA) residential development site stands at the junction of Lion Rock Tunnel Road and Lung Cheung Road. Strategically located adjacent to the traditional luxury residential cluster of Beacon Hill, this exclusive location enjoys a spectacular view. With a proven track record in ultra-luxury residences, the Group is set to raise the bar of luxury and ultra-exclusive residences in the Kowloon Peninsula. Approval has been granted to build four blocks of 13-storey residential buildings.
The Group reported another year of good earnings with margin improvement. General cooling measures have done relatively little to dampen the underlying demand for quality properties, especially in the first- and second-tier cities.
Inclusive of joint ventures and associates on an attributable basis, revenue decreased by 21% to HK$22,236 million but operating profit increased by 19% to HK$7,949 million. Operating profit margin increased by 12 percentage points to 36%. 778,000 square metres of GFA were completed and recognised in 2018 (2017: 973,000 square metres).
The timing of sales launch continued to be dictated by local government approval to sell at full or close to full market price. Nevertheless, against the backdrop of a more flexible policy environment towards the end of the year, new launches increased and sales momentum was regained. Full year attributable contracted sales of RMB22.8 billion exceeded target by 4%. The net order book increased to RMB21.8 billion for 0.7 million square metres at year-end.
During the year, 12 sites in Suzhou, Hangzhou, Foshan and Guangzhou were acquired for RMB18.1 billion (GFA: 0.81 million square metres) on an attributable basis. The DP land bank at year-end amounted to 3.7 million square metres.
Location, product, critical mass and value-add management continued to drive this segment’s performance. Its unrivalled leadership in retail management is further solidified with the successful opening of Changsha International Finance Square (“IFS”) in May 2018. Resounding performance of the trend-setting and award-winning IFS series promises to fuel further growth in the years to come.
During the year, revenue increased by 30% to HK$3,429 million and operating profit by 28% to HK$1,872 million.
Located at the heart of the city, Changsha IFS enjoys a premier address in Furong District entertainment and business hub with underground linkage to the busy Wuyi Plaza Station (the interchange station for Metro Lines 1 and 2) and directly opposite to one of the busiest pedestrian streets – Huangxing Road, ensuring high connectivity and footfalls.
Impressive performance has been achieved since opening on 7 May 2018. Occupancy reached 98% and opening rate 96% by year-end, demonstrating retailers’ confidence in the mall’s success. Average monthly retail sales in 2018 surpassed RMB 300 million soon after business began, exceeding expectation.
The enormous 246,000-square-metre retail podium houses more than 370 brands with over 70 debut brands for Hunan Province, including Hermes, Dior, Saint Laurent Paris, Balenciaga, Valentino, Bulgari, Tiffany, and Cova, over 30 split-gender duplex flagships, including Louis Vuitton, Gucci, Prada, Dolce & Gabbana, Burberry, Moncler and Bottega Veneta, and over 100 brands who have made a foray into collaborating with Wharf in the Mainland, including Parkson Beauty, Tesla, and a league of premium internationalized local designers'' labels. Strategically calibrated trade mix helps to create critical mass in well-defined zones covering high-end luxury, affordable luxury, high street, internationalized Chinese designers’ labels, fast fashion, sportswear, kids, entertainment and F&B.
Changsha IFS is injecting new impetus in the central China region as it emerges as the community hub for the city, bringing a vast array of exhibitions, cultural activities, festivals, and art collaborations with famous artists such as KAWS, Tom Claassen and Steven Harrington. “The Magical Maze” by German architect Ben Busche became a new interactive check point for Changsha media and locals.
Exciting line up of promotion and events included National Holiday promotions, and an O2O promotion on 11 November Singles Day targeting online customers and youngsters. Moreover, the New Year’s Eve countdown party attracted unprecedented footfall, with Hunan TV’s 8-hour live
Office and Hotel
Two top-notch office towers include the 452-metre towering city icon, being the tallest building in the Hunan province. With the most-coveted address in the heart of the Wuyi CBD along lively Jiefang West Road, the office complexes are set to raise the bar of Grade A workplace for financial institutions and major corporations.
Soft-opened in late October 2018, Niccolo Changsha is central China’s tallest hotel, ushering in a new era of impeccable hospitality and effortless luxury. Niccolo Changsha houses 243 contemporary chic rooms and spectacular suites, offering sophisticated, international standards of hospitality for global travellers and local residents.
This iconic landmark in the western China metropolis continues its growth momentum during the year. Overall revenue grew by 27% to HK$1,568 million and operating profit by 59% to HK$783 million.
With exhilarating one-stop “retailtainment” and upscale experiences, Chengdu IFS continues to stand out from the Western China market in sales productivity. The extensive 204,000-square-metre flagship shopping mall reported full occupancy. Tenant sales witnessed a robust growth of 20% while foot traffic grew by 18%.
Offering an exceptional shopping experience, Chengdu IFS showcases an extensive collection of over 600 top-tier international brands, with over 100 debuts in China. Tenant mix refinement is an ongoing initiative to provide a captivating experience for all shoppers. New additions included 7 For All Mankind, adidas Originals, Chaumont, Goyard, Heytea Black, Mr & Mrs Italy and Sunglass Hut. In addition to compelling entertainment offerings including an IMAX movie theatre and an ice skating rink, the 7,700-square-metre Sculpture Garden is the landmark urban public space to enrich the city’s cultural life by hosting diverse art exhibitions and cultural activities.
Exciting and innovative events and promotion are in place throughout the year to surprise the consumers, including “MAGIC WONDERLAND” with installation of 3D Holographic Projection Technology and Christmas market themed desserts pop up, Chengdu International Fashion Week 2018, “Midnight in Paris” VIP Christmas Ball and Nature Connects Art with LEGO Bricks.
Office, Hotel and IFS Residences
Commitment rate at the three premium Grade A office towers climbed to 77% with rental rates standing among the highest in the city. Selective tenant portfolio includes multinationals, financial institutions and major corporations in China West.
Niccolo Chengdu remained the city’s market leader in room yield with room occupancy increasing to 85% and revenue per available room (“RevPAR”) growing by 28%. Meanwhile, IFS Residences was recognised as the “2018 Most Influential Serviced Apartment” by Chengdu Daily.
Officially opened in September 2017, Chongqing IFS is located at Jiangbeizui CBD, an emerging financial hub for south-western China. Standing on top of the 109,000-square-metre world-class retail podium, the iconic 300-metre towering landmark comprises Grade A offices and Niccolo Chongqing with spectacular view along riverbanks of the Yangtze River and Jialing River.
Featuring the largest cluster of first-tier brands in Chongqing, the IFS mall is home to over 170 brands, among which nearly 30 brands are exclusive or debut in the city. One-stop lifestyle experiences also include delectable international cuisines, a real-ice skating rink and a high-end cinema. Occupancy reached 98% at year-end.
Successfully positioning itself as a prestigious luxury brand in the city, Niccolo Chongqing ranked among the city’s top hotels in room yield since its soft opening in September 2017 and started to report an impressive operating margin in its first full year of operation.
In addition to the direct linkage to the interchange station (Jiangbei Town Station) for metros Line 6 and Line 9 (under construction), various infrastructures have been commenced to enhance the connectivity of the surrounding areas. A bridge between Chongqing IFS and financial city was opened in mid-December of 2018, providing additional option of vehicle traffic to the complex.
Shanghai Wheelock Square
The iconic skyscraper in prime location of Puxi, a compelling office addresses for multinationals and major corporations, maintained a high occupancy rate of 95% with lease renewal retention rate standing firm at 90%.
Shanghai Times Square
With a prestigious location in the heart of Huaihai Zhong Road shopping, entertainment and business hub, Shanghai Times Square is a prominent retail destination and ideal office choice for multinational enterprises. Retail space maintained at full occupancy. Offices were 93% leased. Times Square Apartments overall commitment rate was 90%.
Times Outlets Chengdu
Times Outlets Chengdu witnessed a solid growth for retail sales of 11% and ranks among the most visited outlet destinations nationwide.
Currently, the Group manages 17 hotels in the Asia Pacific region under the Marco Polo flag and the luxury Niccolo flag, a collection of contemporary chic hotels with the most desirable, highly prized addresses. During the year, Niccolo Hotels celebrated the opening of its third and fourth properties, respectively The Murray, Hong Kong and Niccolo Changsha.
The Murray, Hong Kong has rapidly garnered multiple notable accolades since inauguration in January 2018, including “World’s Greatest Places 2018” – Places to Stay by TIME Magazine, “The Hot List” – The Best New Hotels in the World 2018 and “Readers’ Choice Awards 2018” – Top Hotels in China by Conde Nast Traveler, “Big Sleep Awards 2018” – City Slicker by National Geographic Traveller, “The Best New Business Hotel in Asia 2018” by Bloomberg and “The Luxe List 2018” – Best New Hotels in the Asia-Pacific Region by DestinAsian Magazine.
Niccolo Changsha ushers in a new era of hospitality, following the footsteps of its sister hotels, The Murray, Hong Kong, and Niccolo hotels in Chengdu and Chongqing. Commanding scenic views of the Changsha skyline and Xiang River, Niccolo Changsha offers 243 contemporary chic rooms and spectacular suites, and three sky-high dining and social destinations: Niccolo Kitchen, the Tea Lounge and BAR 93.
Niccolo Suzhou is the newest addition under development and is scheduled to open in the first quarter of 2020.
The logistics industry is facing headwinds from growing global protectionism, economic slowdown and geopolitical uncertainties. During the year, segment revenue from Modern Terminals (“MTL”) and Hong Kong Air Cargo Terminals (“HACTL”) decreased by 4% to HK$2,616 million and operating profit by 9% to HK$597 million.
Intensifying regional competition is challenging Hong Kong’s role as a major hub and gateway to the world. South China’s container throughput was consistent with last year, with Shenzhen’s throughput increasing by 3% and that of Kwai Tsing decreasing by 5%, respectively. Market shares of Shenzhen and Kwai Tsing were 62% and 38% respectively.
Throughput handled by MTL in Hong Kong recorded a mild growth of 2% to 5.3 million TEUs. In Shenzhen, throughput at DaChan Bay Terminals (MTL’s stake: 65%) was down by 7% to 1.2 million TEUs, at Shekou Container Terminals (MTL’s stake: 20%) up by 7% to 5.6 million TEUs and at Chiwan Container Terminal (MTL’s stake: 8%) increased to 2.4 million TEUs.
Driven by continued change in throughput trend with more barge and transshipment in the volume mix, consolidated revenue decreased to HK$2,606 million (2017: HK$2,703 million). Operating profit decreased to HK$587 million (2017: HK$649 million).
The uncertainties and volatilities from trade tensions and regional competition continued to squeeze Hong Kong’s port industry. In response to the fast changing industry dynamics and growing competition from other ports in the region, the Group is proactively taking all necessary actions to rebuild the competitiveness of Hong Kong’s port business. In January 2019, MTL entered into a Joint Operating Agreement with three other terminal operators to form Hong Kong Seaport Alliance to jointly operate 23 berths in the Kwai Tsing Container Terminals to achieve higher efficiency and to provide a higher standard of service to customers.
HONG KONG AIR CARGO TERMINALS
HACTL, a leading air cargo terminal operator in Hong Kong with four decades of operational experience, is 20.8% owned by the Group. Total cargo handled in 2018 dropped slightly to 1.65 million tonnes.
CME2 is the Group’s long-term investment, representing a strategic initiative in new economy infrastructure to re-invest the capital and profit released from the earlier exit from CME1 in Hong Kong in a progressive CME2 arena that covers much larger markets with greater growth potential.
With a combined book value of HK$16 billion, CME2 is still at a formative stage. Additions to the position during the year were insignificant and no disposal was reported.
Business Outlook - For the year ended December 31, 2018
Macroeconomic risks move into sharper focus as global growth appears to lose momentum in the advanced economies. Sino-US trade tension further dampened confidence in investment and economic development.
Industrial production and new export orders have moderated in China. In view of the slowdown in economic growth, Central Government is implementing policy measures, including further cuts to the bank reserve requirement ratio, tax cuts and infrastructure spending, with the aim of stabilising economic momentum and supporting domestic consumption.
In the meantime, China continues to shine on the world stage with bold plans such as the Belt and Road Initiative and Greater Bay Area Development. With its well-established position as a superb international business and service platform, Hong Kong is poised to benefit. Following the newly-added major cross-border transport infrastructure, which constitutes increasing social and economic ties with the rest of southern China, massive capital inflow and domestic demand may continue to foster a growth path in the long run.
Leveraging the Group’s solid foundation and track record in successfully navigating cycles in the past, our professional team will continue to demonstrate proven management and execution capabilities. We remain confident in seizing the opportunities amidst the challenging climate.
Source: Wharf (Holdings) (00004) Annual Results Announcement