Earnings per share increased by 33% year-on-year to HK$2.53. Excluding the effect of the change in fair values of investment properties and buildings during the year, earnings per share increased by 10% year-on-year to HK$1.45. The Group declared a final dividend of HK50 cents per share, with a scrip dividend alternative.
PROPERTY DIVISION
During the year, the Group acquired a number of new property sites in Hong Kong and Mainland China. As at 31 December 2005, the Group maintained a portfolio (measured in gross floor area ("GFA")) comprising 16.17 million square feet (2004: 11.03 million square feet) of properties under development, 7.47 million square feet (2004: 7.48 million square feet) of investment properties and 0.22 million square feet (2004: 0.56 million square feet) of properties held for sale.
Mainland China
During the year, the Mainland China Property Division reported turnover of HK$1,012 million (2004: HK$1,351 million) and a net profit attributable to the Group of HK$372 million (2004: HK$548 million), after taking into account the increase in fair values of investment properties (after deferred taxation) of HK$77 million (2004: HK$107 million). The decrease in turnover and net profit in 2005 is mainly due to the decrease in the sales of properties in Mainland China compared with 2004. Nevertheless, during the year, the Group's portfolio of investment properties in Mainland China generated rental turnover and operating profit of HK$542 million and HK$428 million, respectively (2004: HK$493 million and HK$363 million, respectively).
The Group continues to focus on development of large-scale, mixed-use property projects in key locations. The cross-marketing effect between the various categories of a mixed-use project will inevitably enhance property values and rental rates.
As at 31 December 2005, the Group's investment property portfolio in Mainland China comprised an aggregate GFA of 3.33 million square feet (2004: 3.37 million square feet), with office, commercial and residential properties achieving occupancy rates of 95%, 92% and 72%, respectively (2004 : 97%, 97% and 72%, respectively).
In Shanghai, development and construction works for the mixed-use property project between the Group and Shangri-La Asia Limited in Jingan District are expected to commence in the fourth quarter of 2006. Completion of the 641,000 square-feet Central Residences Phase II, a luxury residential development in Changning District, is scheduled for the second quarter of 2006. With regard to the 1,576,000 square-feet mixed-use Kerry Everbright City Phase II development, the residential towers are expected to be completed in the second quarter of 2007.
In Shenzhen, development of the 807,000 square-feet grade-A office complex in Futian Central District is scheduled for completion in the third quarter of 2007. Meanwhile, development of a 323,000 square-feet site in Manzhouli, Inner Mongolia, is expected to be completed by 2009.
In November 2005, the Group announced its successful acquisition from the Hangzhou Bureau of Land Resources of a site in Xia Cheng District, Hangzhou, Zhejiang Province. The total developable GFA of 1,830,000 square feet will be earmarked for a mixed-use development comprising a hotel, apartments and a commercial shopping complex. It is scheduled for completion in 2009. Also in November 2005, the Group acquired a land site in Yangzhou, Jiangsu Province. The site offers a total developable GFA of 1,032,000 square feet for hotel and apartment devleopments, which are scheduled for completion in 2009.
In December 2005, the Group jointly announced with Shangri-La Asia Limited the acquisition of a 634,000 square-feet site in Pudong, Shanghai, to be developed into a mixed-use property. The site is expected to offer an above-ground GFA of 2,476,000 square feet, and is scheduled for completion in 2009. The Group has a 40.80% interest in this joint venture project, for which its maximum commitment is US$240,720,000 (approximately HK$1,877,616,000).
During the year, Beijing Kerry Centre Hotel generated turnover and operating profit of HK$321 million and HK$111 million, respectively (2004: HK$263 million and HK$84 million, respectively), and achieved an average occupancy rate of 79% (2004: 78%) with an increase in average room tariff by 16% compared with 2004.
Hong Kong
During the year, the Division contributed turnover of HK$1,415 million (2004: HK$1,205 million) to the Group, representing an increase of 17% year-on-year. Net profit attributable to the Group also increased by 20% to HK$1,429 million (2004: HK$1,187 million) during the year, after taking into account the increase in fair values of investment properties (after deferred taxation) of HK$649 million (2004: HK$584 million).
Benefiting from a healthy Hong Kong property market, the rental and occupancy rates of the Group's investment properties in Hong Kong were sustained at high levels during the year, with sales of completed properties contributing to satisfactory profit margins for the Division.
As at 31 December 2005, the Group held an investment property portfolio in Hong Kong measuring an aggregate GFA of 1.8 million square feet, of which office, commercial and residential properties achieved occupancy rates of 96%, 94% and 93%, respectively (2004 : 93%, 89% and 97%, respectively).
Enterprise Square Five is a major grade-A retail, entertainment and office project in the Group's development blueprint. The development has a planned GFA of 1.6 million square feet, of which 1.1 million square feet have been assigned to accommodate "MegaBox", a proprietary family destination and the largest commercial mall in East Kowloon. With a scheduled completion date of mid-2007, Enterprise Square Five is expected to add further value to the Group's existing portfolio of quality properties in Kowloon Bay.
The Group's 155,000 square-feet high-end residential property project at 15 Homantin Hill Road, Kowloon, is scheduled for completion in the second quarter of 2006.
The redevelopment of No. 5 and No. 9 Yuk Yat Street in To Kwa Wan, Kowloon, progressed further with construction works expected to commence in the fourth quarter of 2006, and completion scheduled for the fourth quarter of 2009. The site has a developable GFA of 163,000 square feet and has been earmarked for residential and commercial purposes.
In July 2005, the Group acquired a site in Central Mid-Levels at No. 38 Shelley Street. A residential tower with commercial facilities, measuring an estimated developable GFA of 45,000 square feet, is planned for development on the site with scheduled completion at the end of 2007.
The Group has completed its site investigation work in respect of a site located at First Street/Second Street in Sai Ying Pun, Hong Kong. This 394,000 square-feet residential and commercial development, which is a joint development with the Urban Renewal Authority, is scheduled for completion in the fourth quarter of 2008.
In December 2005, the Group acquired a property with GFA measuring 37,000 square feet, located at 26-30 Des Voeux Road West, Hong Kong for redevelopment purposes.
During the year, the Group settled and paid the land premium for the 398,000 square-feet residential property development project in Kwok Shui Road, Tsuen Wan. With commencement of construction planned for the third quarter of 2006, the project is scheduled for completion by the second quarter of 2009. Furthermore, the Group also paid the land premium for the residential property development project in Ap Lei Chau, in which the Group has a 35% interest. The Group has an attributable share of GFA measuring 320,000 square feet in this development project, which is scheduled for completion by the second quarter of 2009.
Macau
The planning for the Group's residential development for a maximum GFA of 2,800,000 square feet is underway.
Overseas
During the year, the Overseas Property Division generated a net profit to the Group of HK$68 million (2004 : HK$27 million). As at 31 December 2005, the Group had an investment property portfolio of 2.34 million square feet (2004: 2.23 million square feet) in the Philippines, and a portfolio of properties held for development and for sale of 1.8 million square feet (2004: 1.8 million square feet) in Australia and the Philippines.
LOGISTICS NETWORK DIVISION
Kerry Logistics Network Limited ("Kerry Logistics") operates a portfolio of warehouses, logistics centres and port facilities of over 16 million square feet and a truck fleet of over 2,000 vehicles. The Division recorded a turnover of HK$5,541 million for the year ended 31 December 2005, which represents a strong growth of 121% year-on-year. Profit attributable to shareholders for the year amounted to HK$1,085 million (2004: HK$438 million). Excluding the effects of the increase in fair values of the warehouse properties, logistics centres and buildings (after deferred taxation) of HK$578 million (2004: nil), profit for the year attributable to operations amounted to HK$507 million which represents a growth of 16% year-on-year.
Logistics and Distribution
During 2005, the volumes of both air and sea cargoes handled by Kerry Logistics have more than doubled in growth when compared with 2004.
In Hong Kong, the Division continues to be the single largest warehouse owner and operator with a portfolio of 13 warehouses occupying an aggregate GFA of 6.74 million square feet. The Division's warehouse portfolio in Hong Kong achieved an occupancy of 97% as at 31 December 2005 (2004: 96%).
The Division continued to secure large logistics contracts during the year, including an integrated logistics contract with one of the largest wine distributors in Hong Kong.
The trading arm of the Division, KerryFlex Supply Chain Solutions Limited ("KerryFlex"), demonstrated significant growth in its businesses during the year. In March 2006, KerryFlex completed the acquisition of a 100% interest in a Hong Kong local company which has been engaged in the business of import and distribution of non-perishable products for over 50 years.
Mainland China
In January 2005, Kerry Logistics completed the acquisition of a 70% equity stake in EAS International Transportation Ltd., now renamed Kerry EAS Logistics Limited ("KEAS"). The acquisition provides Kerry Logistics with a leading nationwide logistics operation network in Mainland China, serving over 1,100 cities in over 32 provinces with over 120 offices, 4,000 staff, 1,500 vehicles and over two million square feet of warehouse and logistics facilities.
The first year of operation following the establishment of KEAS has been a success, where the synergies between Kerry Logistics and KEAS begin to materialize. With more than 700 operating licenses in Mainland China, the strengthened China network of Kerry Logistics offers a comprehensive range of high-quality logistics solutions to its existing clients. KEAS also intends to expand to overseas markets and reinforce its business growth by tapping into Kerry Logistics' global network.
The construction of the 173,000 square-feet logistics centre in Tianjin's Free Trade Zone was completed in October 2005. This facility is the Division's biggest bonded facility in the Northern China region. Commencement of operation is scheduled in the second quarter of 2006. The construction of the 269,000 square-feet logistics centre in Shenzhen's Futian Free Trade Zone is in progress, and is scheduled to be completed by the first half of 2006. Meanwhile, the Division is also exploring the possibility to construct its own logistics facilities in other coastal cities in Mainland China, such as Shanghai and Xiamen.
Asia
In Thailand, Kerry Siam Seaport Limited ("KSSP") completed the construction of a 800,000 square-feet Inland Container Depot ("ICD") in Siam Seaport during the year. The ICD, together with the container berth expansion which is under construction and is scheduled for completion by late 2006, will enable KSSP to handle a maximum of seven ocean vessels at any point in time. 2005 also saw a significant growth of Kerry Logistics' freight forwarding and logistics operations in Singapore, Malaysia and Indonesia in which Kerry Logistics has a 66.67% interest.
Global
Kerry Logistics is steadily increasing its geographical presence in the European and the US markets through acquisitions and strategic alliances with key local players. During the year, Orion Shipping & Forwarding Limited ("Orion"), one of the leading export freight forwarders in the United Kingdom, joined Kerry Logistics' growing network of freight operation. Kerry Logistics also entered an exclusive contractual agreement with Lynden International ("Lynden"), a leading freight forwarding company in the United States, to establish a partnership which offers Kerry Logistics' customers a comprehensive trans-Pacific network of services covering Mainland China and various Asian countries.
Logistics Infrastructure and associated companies
During the year, Chiwan Container Terminal ("CCT") and Asia Airfreight Terminal ("AAT") contributed a steady source of recurrent earnings to the Division. AAT, in which Kerry Logistics has a 15% interest, handled an increased cargo volume throughput of 579,000 tons during the year (2004: 551,000 tons). 2005 was also a record year for CCT, in which Kerry Logistics has a 25% interest. With the construction of new berths and continuous improvement in its operational efficiency, CCT's volume throughput reached 3.6 million TEUs (Twenty-foot Equivalent Units) in 2005. During the year, the Division's equity share of profits after tax from CCT and AAT and other associated companies amounted to HK$215 million (2004: HK$188 million).
Awards
In November 2005, Kerry Logistics was the winner of two major awards in the first Logistics Awards Hong Kong 2005 - namely, the Local (Hong Kong) Logistics Award and the Mainland Logistics (non-SME) Award, organized by the Hong Kong Trade Development Council and four other renowned local trade associations.
In Mainland China, KEAS was also the winner of several awards in 2005 in recognition of its outstanding performance in air freight, express and logistics services. KEAS was also certified as a "5A" Integrated Logistics Services Company by China Federation of Logistics & Purchasing. KEAS now ranks 7th amongst the top 100 international freight forwarding companies in Mainland China, and ranks 9th amongst the top 50 logistics companies in Mainland China (in terms of turnover in 2004).
INFRASTRUCTURE DIVISION
During the year, the Division generated net profit attributable to the Group of HK$38 million (2004: HK$31 million). Out of this, the Group's share of net profits from its 15% interest in the Western Harbour Crossing and the Cross Harbour Tunnel management contract amounted to HK$41 million (2004: HK$31 million).
The Group's joint venture water treatment project in Hohhot Municipality, Inner Mongolia Autonomous Region commenced commercial operation in October 2005. In February 2005, the Group tendered for a greenfield project to build and operate the first solid waste management facilities in Changzhou, Jiangsu Province. In August 2005, the Group invested a 25% interest in REDtone Telecommunications (China) Limited ("REDtone China"), which carries out the business operations in Mainland China of REDtone International Bhd., a leading discount telecommunication calls provider in Malaysia.
OUTLOOK
Property Division
The Group will maintain its strategy in the development of high-end mixed-use properties in the primary and secondary cities in Mainland China. "The Group's investments in the mixed-use property development projects in Shanghai's Pudong Lujiazui, Hangzhou and Yangzhou are in line with the Group's core business strategy of developing large scale mixed-use properties, catering to the needs of the increasingly affluent consumers in Mainland China", says Mr Ang Keng Lam, Chairman of the Company. "The introduction of the State Council's Land Tender policies has meant increased transparency and better accessibility for foreign investors to acquire land in Mainland China. With a positive economic environment in Mainland China, we expect strong liquidity and increased affordability, fuelling the local demand for luxury properties."
"Our outlook for Hong Kong's economy for 2006 remains positive; this is primarily due to a sustainable economic growth of Mainland China, Hong Kong's niche in the trade and financial services sector and its booming tourism industry. The market's expectation of an end to the interest rate hikes will also have a positive effect on the property sector", says Mr Ang. The Group will continue to explore development opportunities of high-end properties to uphold the Group's status as a leading developer of premium properties. As part of its ongoing marketing strategy, the Group will continue to leverage its KERRY RESIDENCETM brand to cover its existing and future luxury property portfolio.
Logistics Network Division
Kerry Logistics will continue to reinforce its logistics competitiveness in Mainland China operating under KEAS, by extending its supply chain management services, further exploring the import and export markets, strengthening its infrastructure, developing its information system and operational expertise, and consolidating the operations of KEAS in Mainland China with Kerry Logistics' overseas agency network. "We aim to widen Kerry Logistics' global client base and to enhance its international profile. We will continue to venture into new markets such as India, the Middle East and other parts of Europe, in search of strategic alliances and investments to expand our business network", says Mr Ang.
Infrastructure Division
Going forward, the Division will continue to focus on investment opportunities in the utilities, energy recycling and environmental protection-related sectors in Mainland China which will generate strong recurrent income for the Group.
About Kerry Properties Limited
Kerry Properties Limited is a company listed on the Main Board of The Stock Exchange of Hong Kong Limited. The principal business activities of Kerry Properties Limited and its subsidiaries are (i) property development and investment in Hong Kong, Mainland China and the Asia Pacific region; (ii) the provision of independent third party logistics, freight services and warehouse operations; (iii) investments in infrastructure projects in Hong Kong and Mainland China; and (iv) hotel ownership and operations in Mainland China.