LVGEM China Real Estate Investment : INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

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INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

RESULTS

The board (the "Board") of directors (the "Directors") of LVGEM (China) Real Estate Investment Company Limited (the "Company" or "LVGEM (China)") is pleased to announce the unaudited condensed consolidated interim results of the Company and its subsidiaries (collectively, the "Group") for the six months ended 30 June 2020, together with the comparative figures for the corresponding period in

2019 as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the six months ended 30 June 2020

		Six months ended 30 June
		2020			2019
	Notes	RMB'000	RMB'000
		(Unaudited)	(Unaudited)
Revenue	3	2,462,206			3,422,084
Cost of sales		(859,214)		(1,013,800)
Gross profit		1,602,992			2,408,284
Other income		54,455			48,791
Other gains and losses		(106,982)		37,633
Selling expenses		(26,862)		(51,179)
Administrative expenses		(198,573)		(161,296)
Fair value changes on investment properties		(174,081)		479,228
Fair value changes on derivative component of convertible bonds		53,849			(47,160)
Finance costs	4	(686,243)		(490,069)
Profit before tax	5	518,555			2,224,232
Income tax expense	6	(480,196)		(1,232,555)
Profit for the period		38,359			991,677
Profit (loss) for the period attributable to:
Owners of the Company		37,556			991,860
Non-controlling interests		803			(183)
		38,359			991,677
		RMB cents	RMB cents
		(Unaudited)	(Unaudited)
Earnings per share	8
- Basic		0.74			20.00
- Diluted		0.33			11.79
	- 1 -

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020

	Six months ended 30 June
	2020		2019
	RMB'000	RMB'000
	(Unaudited)	(Unaudited)
Profit for the period	38,359		991,677
Other comprehensive (expense) income
Item that may be subsequently reclassified to profit or loss:
Exchange differences arising on translation	(37,703)	(249)
Item that will not be reclassified to profit or loss:
Fair value changes on investment in equity instrument at fair value through other
comprehensive income, net of tax	(50,891)	21,712
Other comprehensive (expense) income for the period	(88,594)	21,463
Total comprehensive (expense) income for the period	(50,235)	1,013,140
Total comprehensive (expense) income attributable to:
Owners of the Company	(51,032)	1,013,336
Non-controlling interests	797		(196)
	(50,235)	1,013,140

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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 June 2020

		At 30 June		At 31 December
		2020	2019
	Notes	RMB'000		RMB'000
		(Unaudited)		(Audited)
Non-current assets		23,810,000
Investment properties		23,567,529
Property, plant and equipment		983,642	996,014
Goodwill		231,602	231,602
Interest in a joint venture		6,058	6,058
Interest in an associate		-		-
Amount due from a joint venture		522,318	522,318
Equity instrument at fair value through other comprehensive income		473,271	541,125
Deferred tax assets		443,620	565,713
Deposit paid		-	29,410
		26,470,511	26,459,769
Current assets
	9,453,861
Properties under development for sale		8,165,855
Properties held for sale		2,955,757	2,467,237
Other inventories		570	738
Accounts receivable	9	80,532	31,212
Deposits paid, prepayments and other receivables		1,740,799	3,230,928
Tax recoverable		27,792	33,562
Restricted bank deposits		2,804,435	2,804,061
Bank balances and cash		7,882,068	5,542,921
		24,945,814	22,276,514
Current liabilities
	824,529
Accounts payable	10	1,111,831
Contract liabilities		1,988,374	2,505,265
Accruals, deposits received and other payables		736,299	673,358
Lease liabilities		21,627	22,674
Dividend payables		282,672		-
Borrowings		6,510,295	4,306,274
Senior notes and bond		3,404,172	5,027,123
Debt component of convertible bonds		1,015,058	1,493,257
Derivative component of convertible bonds		31,922	222,207
Tax liabilities		2,616,048	2,398,675
		17,430,996	17,760,664
Net current assets		7,514,818	4,515,850
Total assets less current liabilities		33,985,329	30,975,619
Non-current liabilities
	14,467,857
Borrowings		15,149,805
Senior notes and bond		3,382,169		-
Debt component of convertible bonds		619,441		-
Derivative component of convertible bonds		52,118		-
Lease liabilities		88,772	95,380
Deferred tax liabilities		2,701,738	2,695,601
		21,312,095	17,940,786
Net assets		12,673,234	13,034,833
Capital and reserves
	42,180
Share capital		42,060
Reserves		12,559,654	12,885,799
Equity attributable to owners of the Company		12,601,834	12,927,859
Non-controlling interests		71,400	106,974
Total equity		12,673,234	13,034,833

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Notes:

1. BASIS OF PREPARATION
   The condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard ("HKAS") 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") as well as 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 "Stock Exchange").
   The condensed consolidated financial statements are presented in Renminbi ("RMB"), which is also the functional currency of the Company.
2. PRINCIPAL ACCOUNTING POLICIES
   The condensed consolidated financial statements have been prepared on the historical cost basis except for investment properties and certain financial instruments, which are measured at fair values.
   Other than additional accounting policies resulting from application of amendments to Hong Kong Financial Reporting Standards ("HKFRSs"), and application of certain accounting policies which became relevant to the Group, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2020 are the same as those presented in the Group's annual financial statements for the year ended 31 December 2019.
   Accounting policies newly applied by the Group
3. 1. Derecognition/Substantial modification of financial liabilities
      The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
      The Group accounts for an exchange with a lender of a financial liability with substantially different terms as an extinguishment of the original financial liability and the recognition of a new financial liability. A substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the Group) is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
      The Group considers that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. Accordingly, such exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. The exchange or modification is considered as non-substantial modification when such difference is less than 10 per cent.
      When the contractual terms of a convertible instrument are modified, such as extending the tenure, change in exercise price of the underlying options, the revised terms would result in a substantial modification from the original terms, after taking into account all relevant facts and circumstances including qualitative factors, such modification is accounted for as derecognition of the original financial liability and the recognition of new financial liability. The difference between the carrying amount of financial liability and derivatives derecognised and the fair value of consideration paid or payable, including any liabilities assumed and derivative components recognised, is recognised in profit or loss.
      For the purposes of applying the 10 per cent test on the modification of a convertible instrument, the Group considers that the terms are substantially different if the higher of (i) the fair value of the share settlement at the date of modification; and (ii) the discounted present value of the cash flows of the host contract under the new terms, is at least 10 per cent different from the sum of the discounted present value of the remaining cash flows of the original financial liability and the fair value of the derivative component under the original terms.
   2. Non-substantialmodifications of financial liabilities

For non-substantial modifications of financial liabilities that do not result in derecognition, the carrying amount of the relevant financial liabilities will be calculated at the present value of the modified contractual cash flows discounted at the financial liabilities' original effective interest rate. Transaction costs or fees incurred are adjusted to the carrying amount of the modified financial liabilities and are amortised over the remaining term. Any adjustment to the carrying amount of the financial liability is recognised in profit or loss at the date of modification.

Application of amendments to HKFRSs

In the current interim period, the Group has applied the "Amendments to References to the Conceptual Framework" in HKFRS Standards and the amendments to HKFRSs issued by the HKICPA for the first time, which are mandatory effective for the annual period beginning on or after 1 January 2020 for the preparation of the Group's condensed consolidated financial statements.

The application of the "Amendments to References to the Conceptual Framework" in HKFRS Standards and the amendments to HKFRSs in the current interim period has had no material impact on the Group's financial positions and performance for the current and prior periods and/or on the disclosures set out in these condensed consolidated financial statements.

In addition, the Group has early applied the "Amendment to HKFRS 16 Covid-19-Related Rent Concessions". The impact was disclosed in note 5 of this announcement.

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3.	REVENUE AND SEGMENT INFORMATION
	An analysis of the Group's revenue for the period is as follows:
		Six months ended 30 June
		2020		2019
		RMB'000	RMB'000
		(Unaudited)	(Unaudited)
	Sales of properties	2,030,652		2,988,335
	Rental income	317,355		302,279
	Revenue from hotel operation, property management service and other services	114,199		131,470
	Total	2,462,206		3,422,084
	Timing of revenue recognition from contracts with customers
	At a point in time	2,030,652		2,988,335
	Over time	114,199		131,470

In identifying its operating segments, the executive directors of the Company, being the chief operating decision makers, generally follow the Group's service lines, which represent the main products and services provided by the Group. The Group has identified the following reportable segments under HKFRS 8:

• Real estate development and sales: sales of properties
• Commercial property investment and operations: lease of commercial properties, office premises and car parks
• Comprehensive services: hotel operation, property management service and other service income

Each of these operating segments is managed separately as each of these products and service lines requires different resources as well as marketing approaches.

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3. REVENUE AND SEGMENT INFORMATION (Continued)

Segment revenue and results

The following is an analysis of the Group's revenue and results by operating and reportable segment:

Six months ended 30 June 2020

Commercial

Real estate

property

development

investment and

Comprehensive

and sales

and operations

services

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenue:

From external customers

2,030,652

317,355

114,199

2,462,206

Inter-segment revenue

-

11,453

33,438

44,891

Total segment revenue

2,030,652

328,808

147,637

2,507,097

Reportable segment profit

1,275,573

304,147

23,272

1,602,992

Six months ended 30 June 2019

Commercial

Real estate

property

development

investment

Comprehensive

and sales

and operations

services

Total

RMB'000

RMB'000

RMB'000

RMB'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenue:

From external customers

2,988,335

302,279

131,470

3,422,084

Inter-segment revenue

-

5,096

32,784

37,880

Total segment revenue

2,988,335

307,375

164,254

3,459,964

Reportable segment profit

2,088,439

272,621

47,224

2,408,284

Inter-segment sales are at mutually agreed terms.

Reconciliations of reportable segment revenue, profit or loss

The Group does not allocate fair value changes on investment properties, fair value changes on derivative component of convertible bonds, other income, other gains and losses, depreciation, finance costs and corporate expenses to individual reportable segment profit or loss for the purposes of resource allocation and performance assessment by the chief operating decision makers while the investment properties are allocated to the segment of "commercial property investment and operations" for presenting segment assets.

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3. REVENUE AND SEGMENT INFORMATION (Continued)

The accounting policies adopted in preparing the reportable segment information are the same as the Group's accounting policies.

	Six months ended 30 June
	2020		2019
	RMB'000	RMB'000
	(Unaudited)	(Unaudited)
Revenue
Reportable segment revenue	2,507,097		3,459,964
Elimination of inter-segment revenue	(44,891)	(37,880)
Consolidated revenue	2,462,206		3,422,084
Profit
Reportable segment profit	1,602,992		2,408,284
Fair value changes on investment properties	(174,081)	479,228
Other income	54,455		48,791
Other gains and losses	(106,982)	37,633
Depreciation	(30,846)	(18,807)
Finance costs	(686,243)	(490,069)
Fair value changes on derivative component of convertible bonds	53,849		(47,160)
Corporate expenses	(194,589)	(193,668)
Consolidated profit before tax	518,555		2,224,232

Segment assets

The following is an analysis of the Group's assets by reportable and operating segment, no liabilities are presented as the information is not reportable to the chief operating decision makers in the resource allocation and assessment of performance:

Segment assets
	At 30 June		At 31 December
	2020	2019
	RMB'000		RMB'000
	(Unaudited)		(Audited)
Real estate development and sales	12,758,349	12,452,128
Commercial property investment and operations	23,879,836	23,591,289
Comprehensive services	353,215	362,963
Reportable segment assets	36,991,400	36,406,380
Goodwill	231,602	231,602
Equity instrument at fair value through other comprehensive income	473,271	541,125
Bank balances and cash (including restricted bank deposits)	10,686,503	8,346,982
Deferred tax assets	443,620	565,713
Interest in a joint venture and amount due from a joint venture	528,376	528,376
Interest in an associate	-		-
Corporate assets	2,061,553	2,116,105
Consolidated total assets	51,416,325	48,736,283

For the purpose of monitoring segment performance and allocating resources between segments, all assets are allocated to operating segments other than goodwill, equity instrument at fair value through other comprehensive income, bank balances and cash (including restricted bank deposits), deferred tax assets, interest in a joint venture and amount due from a joint venture, interest in an associate and corporate assets.

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4.	FINANCE COSTS
		Six months ended 30 June
		2020		2019
		RMB'000	RMB'000
		(Unaudited)	(Unaudited)
	Interest on:
	Bank and other borrowings	582,976		488,925
	Convertible bonds	147,518		78,652
	Senior notes and bonds	263,083		208,135
	Lease liabilities	5,457		6,126
	Less: Amount capitalised in investment properties under
	development and properties under development for sale*	(312,791)	(291,769)
		686,243		490,069

• The finance costs have been capitalised at rates ranging from 1.61% to 12.00% (six months ended 30 June 2019: 5.08% to 9.00%) per annum.

5. PROFIT BEFORE TAX

	Six months ended 30 June
	2020		2019
	RMB'000		RMB'000
	(Unaudited)		(Unaudited)
Profit before tax is arrived at after charging (crediting):
Cost of properties held for sale recognised as expense	755,079		899,896
Depreciation of property, plant and equipment
30,873			18,811
Less: Amount capitalised in investment properties under development and properties under
development for sale	(27)		(4)
	30,846		18,807
Gross rental income from investment properties	317,355			302,279
Outgoings in respect of investment properties that generated rental income during the period	(13,208)		(29,658)
	304,147		272,621
Expense relating to short-term leases	1,150		2,295
Covid-19-related rent concessions	935			-

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6. INCOME TAX EXPENSE

		Six months ended 30 June
		2020		2019
		RMB'000	RMB'000
		(Unaudited)	(Unaudited)
Current tax
PRC Enterprise Income Tax ("EIT")
- Current period	54,434		528,952
- Overprovision in prior period	(8,365)	-
		46,069		528,952
PRC Land Appreciation Tax ("LAT")
- Current period	288,933		947,954
- Overprovision in prior period	-	(7,778)
		288,933		940,176
Deferred taxation	145,194		(236,573)
Total income tax expense	480,196		1,232,555

7.	DIVIDENDS
		Six months ended 30 June
		2020	2019
		RMB'000		RMB'000
		(Unaudited)		(Unaudited)
	Dividends recognised as distribution during the period:
	2019 Final dividend - HK6.1 cents (equivalent to approximately RMB5.46 cents)	282,672		-
	2018 Final dividend - HK5.3 cents (equivalent to approximately RMB4.65 cents)	-	232,600

The dividends recognised as distribution for the year ended 31 December 2019 were subsequently paid on 31 July 2020.

No dividend for the six months ended 30 June 2020 and 30 June 2019 had been proposed by the directors of the Company.

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8. EARNINGS PER SHARE

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

	Six months ended 30 June
	2020		2019
	RMB'000		RMB'000
	(Unaudited)		(Unaudited)
Earnings
Earnings for the purpose of basic earnings per share	37,556		991,860
Effect of dilutive potential earnings in respect of - Convertible bonds	(8,901)		-
Earnings for the purpose of diluted earnings per share	28,655		991,860
	Number of shares
	2020		2019
Number of shares
Weighted average number of ordinary shares of the Company for
the purpose of basic earnings per share	5,062,873,832		4,959,644,839
Effect of dilutive potential ordinary shares in respect of
- Share options	58,022,113		57,168,548
- Convertible bonds	271,328,671			-
- Convertible preference shares	3,297,658,924		3,396,069,708
Weighted average number of ordinary shares of
the Company for the purpose of diluted earnings per share	8,689,883,540		8,412,883,095

The computation of diluted earnings per share for the periods ended 30 June 2020 and 2019 does not assume the conversion of certain outstanding convertible bonds of the Group as the conversion would result in an increase in earnings per share.

9. ACCOUNTS RECEIVABLE

Accounts receivable represent receivables arising from sales of properties, rental income from leasing properties and comprehensive services (including hotel operation and property management). For the receivables arising from sales of properties, they are due for settlement in accordance with the terms of the relevant sales and purchase agreements. For the receivables arising from rental income from leasing properties, monthly rents are normally received in advance and sufficient rental deposits are held to minimise credit risk. For accounts receivable generated from hotel operation, the credit term is payable on demand. For accounts receivable generated from property management, receivable generally have credit terms of 30 to 60 days.

The ageing analysis of the Group's accounts receivable, based on invoice dates for rental income from leasing properties and comprehensive services and the terms of relevant sales and purchases agreements for sales of properties, is as follows:

	At 30 June		At 31 December
	2020	2019
	RMB'000		RMB'000
	(Unaudited)		(Audited)
Within 1 month	15,337	22,333
1 to 12 months	61,733	6,873
13 to 24 months	1,641	919
Over 24 months	1,821	1,087
	80,532	31,212

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10. ACCOUNTS PAYABLE

Based on invoice dates, the ageing analysis of the Group's accounts payable is as follows:

	At 30 June		At 31 December
	2020	2019
	RMB'000		RMB'000
	(Unaudited)		(Audited)
Within 1 month	664,942	513,386
1 to 12 months	81,741	436,676
13 to 24 months	28,440	137,934
Over 24 months	49,406	23,835
	824,529	1,111,831

MANAGEMENT DISCUSSION AND ANALYSIS

Industry Review

During the first half of 2020, amidst the COVID-19 pandemic spreading across the globe, China took the lead in stabilizing the economy which is still closely connected with the global economic recovery. The geopolitical tension between China and the United States also imposed risks on the export and the investment in the manufacturing industry in China. In the second quarter of 2020, growth resumed as China successfully brought the pandemic under control. China achieved a turnaround in GDP from a year-on-year decrease of 6.8% in the first quarter to a year-on-year increase of 3.2% in the second quarter of 2020. At the same time, China's various major trade partners experienced a resurgence of COVID-19 pandemic and imposed lockdown measures once again, which had weakened the demand for China's goods and services and resulted in gradually steady but uneven domestic economic recovery in the second quarter. In June 2020, industrial output registered a year-on-year growth of 4.8% while retail sales contracted by 1.8%. During the first half of the year, fixed asset investment reduced by 3.1% while the economic output for the same period decreased by 1.6% over the corresponding period of 2019. Whilst COVID-19 continues to spread worldwide, it is still extremely difficult for economy and trade to recover generally, which is still a major constraint to the domestic economic recovery.

The real estate market in China rebounded rapidly following a temporary halt in February. During the first half of the year, the investment in real estate development in China amounted to RMB6,270 billion, representing a year-on-year increase of 1.9%, realizing a successful turnaround from the downward trend in the first five months. In terms of sales, according to the National Bureau of Statistics, from January to June this year, the sales area of commodity housing in China amounted to 694.04 million square meters, down by 8.4% and 3.9 percentage points lower than that from January to May, among which sales areas of residential units and office buildings decreased by 7.6% and 26.5%, respectively. The sales amount of commodity housing amounted to RMB6,689.5 billion, down by 5.4% and 5.2 percentage points lower than that from January to May, among which sales amount of residential units and office buildings decreased by 2.8% and 28.0%, respectively. The sales of residential units recovered faster mainly because the demand which was suppressed following the outbreak of the pandemic was released. In addition, certain local governments promulgated loose housing policies to alleviate the impact of the pandemic on the economy as well as supporting the economy, including, among others, granting rights for approving the use of land, alleviating the pressure of the enterprises in funding land purchase, optimizing the market-oriented distribution of factors of production and accelerating the transformation of old urban communities so as to unleash the mid-to-long-term development momentum of the real estate industry. Meanwhile, as the central government implemented the positioning of "no speculation on residential properties", since July, China Banking and Insurance Regulatory Commission reiterated that non-compliant fund investment in the real estate sector should be prohibited so as to facilitate the stable operation of the real estate market.

- 11 -

In particular, the trade in the real estate market in Shenzhen had been increasingly active since April, which has drawn broad attention. To strengthen the keynote of "no speculation on residential properties" and "maintaining stability" for the property market, Shenzhen has upgraded its control policies for the property market. Based on the principle of "one policy for one city" and "one strategy for one city", on 15 July, Shenzhen promulgated eight measures to precisely control the property market, covering, among others, administration, finance and taxation, prioritizing the satisfaction of demand for essentials so as to effectively curb speculation of properties. Economic means such as finance and taxation were applied to ensure accurate policy implementation, while regulation on the real estate market was strengthened, with a view to enabling a return to a rational real estate market. In terms of building a long-term management mechanism for the real estate market, maintaining a steady and healthy growth in the real estate market shall play an active role. In addition, on 20 July, the official website of the Standing Committee of Shenzhen People's Congress published the Urban Renewal Ordinance of Shenzhen Special Economic Zone (Request for Comments), pursuant to which, in Shenzhen, where urban renewal is increasingly becoming a major source of commodity housing supply, the transformation of old urban communities shall be accelerated to facilitate the progress of urban renewal projects.

LVGEM (China) has been consistently focusing on the development of core districts of the Greater Bay Area and has long benefited from the urban development in Shenzhen and the rapid growth of the Greater Bay Area. Leveraging on its extensive urban renewal experiences of more than three decades and a well-established operation team, and with the distinctive way of acquisition of land reserve resources and the valuable strategic layout of project locations, the Group has secured its industrial position in the urban renewal segment. During the period, the Group continued to push forward the urban renewal projects in, among others, Shenzhen, Zhuhai, Hong Kong and Dongguan. The Baishizhou Urban Renewal Project and Liguang Urban Renewal Project in Shenzhen as well as Zhuhai Dongqiao Urban Renewal Project have been progressing steadily. Projects on sale, namely LVGEM Amazing Plaza in Shenzhen, LVGEM Joyful Town (formerly known as "Kaiwei" Project) in Zhuhai and LVGEM International Garden in Huazhou, also registered satisfactory performances.

Meanwhile, based on the urban renewal model that has been successful over the years, the Group incorporated smart technology into its operation through strategic partnership with operators and telecommunication service providers. In particular, the Group incorporated the "technology + property" strategy into the planning design and implementation of urban renewal projects so as to develop new smart cities and districts, serve the communities and enhance urban value, with the aim of creating social, environmental and economic benefits. During the period, the Group promoted the cooperation with Huawei and China Unicom in full swing in the area of smart technology and strived to develop the smart city benchmark by integrating with the Baishizhou urban construction and application platform. The Group made use of its own strengths in strategic layout and resources in a bid to establishing itself as a benchmark for new smart city developers and operators that are dedicated to the construction of the Guangdong-HongKong-Macao Greater Bay Area.

Results

For the six months ended 30 June 2020, the results of the Group have basically reflected the unfavorable factors of the macro economy during the first half of 2020 and key financial indicators were substantially in line with the expectations.

During the period, the Group achieved total revenue of approximately RMB2,462.2 million (six months ended 30 June 2019: RMB3,422.1 million), representing a decrease of approximately 28.0% year-on-year. Gross profit was RMB1,603.0 million (six months ended 30 June 2019: RMB2,408.3 million), representing a decrease of approximately 33.4% year-on-year.

During the period, core profit was RMB261.9 million (six months ended 30 June 2019: RMB569.0 million), representing a decline of approximately 53.9% year-on-year. Profit attributable to owners of the Company was RMB37.6 million (six months ended 30 June 2019: RMB991.9 million), representing a decline of approximately 96.2% year-on-year. Basic earnings per share was RMB0.74 cents (six months ended 30 June 2019: RMB20 cents), representing a decline of approximately 96.3% year-on-year.

The Group's key financial indicators for the six months ended 30 June 2020 were as follows:

	2020	2019	Change
	(RMB million)	(RMB million)
Revenue	2,462.2	3,422.1	-28.0%
Gross profit	1,603.0	2,408.3	-33.4%
Profit from core business*	261.9	569.0	-53.9%
Profit attributable to owners of the Company	37.6	991.9	-96.2%
Basic earnings per share (RMB cents)	0.74	20.00	-96.3%
Gross profit margin (%)	65.1	70.4	-5.3 percentage points

• Profit from core business represents profit attributable to owners of the Group less fair value changes on investment properties and related deferred tax, exchange loss, fair value changes on derivative component of convertible bonds and certain non-cash and non-core business transactions (including gain on substantial modification of convertible bonds and loss on non-substantial modification of senior notes).

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	As at 30 June	As at 31 December
	2020	2019	Change
	(Unaudited)	(Audited)
Bank balances and cash (including restricted bank deposits)
(RMB million)	10,687	8,347	+28.0%
Average finance costs (%) *	6.9%	6.3%	+0.6 percentage points
Debt ratio (%)	75.4%	73.3%	+2.1 percentage points

• Average finance costs are derived by dividing the total finance costs for the period (including convertible bonds but excluding finance cost derived from lease liabilities) by average total borrowings which is calculated by adding up of average balances of total borrowings (including debt component of convertible bonds but excluding lease liabilities) for the period.

Business Review

During the first half of 2020, the Group continued to adhere to the "dual-core" strategy of "Focusing on Core Cities and Cities' Core Areas" for its project layout, identify land resources of low cost but high value through the two-way expansion model which comprised urban renewal and, to a lesser extent, market auctions, and develop its real estate projects that were deployed mainly in the core cities and core districts of the Greater Bay Area such as Shenzhen, Zhuhai and Hong Kong. During the period, the urban renewal projects participated by the Group included: Shenzhen Baishizhou Urban Renewal Project, Shenzhen Liguang Urban Renewal Project and Zhuhai Dongqiao Urban Renewal Project. Among them, the Shenzhen Baishizhou Urban Renewal Project, the so-called "Grand Urban Renewal Project in Shenzhen", is located at the center of the Super Headquarters in Nanshan District, Shenzhen, with a prestigious geographical value and a scale of development in terms of a capacity area of up to 3.58 million square meters. On 28 October 2019, 25% of the equity interests in the project was injected into the Group. It is planned that the majority of the remaining equity interests will be injected in the second half of 2020, which will further consolidate the Group's asset value and growth potential.

In terms of land reserve resources, in order to eliminate the uncertainties in the preliminary stage of urban renewal projects, the Group acquired projects mainly by the mode of collaboration with the controlling shareholder and better distributed the profit sharing with shareholders and investors. The controlling shareholder was mainly responsible for the efforts in primary development such as negotiations with the suburban people and resource integration. Project injection into the listed company was only being made until the uncertainties were eliminated subject to satisfaction of all the conditions. As of 30 June 2020, the Group has land reserves of approximately 4.14 million square meters, approximately 65% of which are located in major cities in the Greater Bay Area such as Shenzhen, Hong Kong, Zhuhai and Dongguan. Moreover, the scale of land reserves in which the controlling shareholders have control was approximately 10.39 million square meters, including projects in Shenzhen, Zhuhai and Zhang Mu Tou, Dongguan, all of which are located at core locations in Guangdong- Hong Kong-Macao Greater Bay Area. The Group has ample and valuable land reserves which will be able to satisfy the Company's needs for steady expansion and long-term development.

During the period, with the progress of urban renewal projects, the Group gradually expanded the area of the commercial properties, aiming to create stable rental income and considerable revenue for the Group with the "two-pronged" model of "residence + business" and by holding and operating commercial properties located in the core areas of core cities of the Greater Bay Area represented by NEO Urban Commercial complex and Zoll Shopping Centre. During the period, the Group continued to actively explore financing channels, take the initiative to manage due debts and continuously optimise capital and shareholder structure through cross-border facility platform between Hong Kong and the PRC. As the pioneer in Shenzhen's urban renewal, LVGEM (China) will continue to benefit from the rising trend and capital advantage of urban renewal in the Greater Bay Area and gradually release long-term value growth with the upcoming injection of assets.

Real Estate Development and Sales

During the period, despite the adoption of the special commercial model of concentrating on the development and operation of urban renewal projects, the Group still witnessed uneven cyclical fluctuation in its sales and carried-forward projects each year. For the six months ended 30 June 2020, the real estate development and sales of the Group generated revenue of approximately RMB2,030.7 million (six months ended 30 June 2019: RMB2,988.3 million), representing a decrease of approximately 32.0% year-on-year, mainly due to a greater base arising from recognition of revenue of approximately RMB2.75 billion from Shenzhen LVGEM Mangrove Bay No. 1 in the corresponding period last year, while the launch for the year will mainly be in the second half of the year. The total contracted sales amounted to approximately RMB2,463.0 million (six months ended 30 June 2019: RMB4,087.1 million), mainly attributable to the sales of Shenzhen LVGEM Amazing Plaza, the LVGEM Joyful Town in Zhuhai and LVGEM International Garden in Huazhou (contracted sales of RMB3.37 billion of LVGEM Mangrove Bay No. 1 in the corresponding period last year).

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During the period, the Group steadily pushed forward its urban renewal projects with high potential, including LVGEM Liguang Project in Shenzhen, Baishizhou Project in Shenzhen, Phase II of Shenzhen LVGEM Mangrove Bay No. 1 and Zhuhai Dongqiao Urban Renewal Project. In the future, the Group will continue to focus on the development in the Greater Bay Area and strive for excellence in developing new benchmark smart cities by implementing the "technology + property" strategy, in order to empower and add values to cities and develop an upgraded and excellent residential and living community with unique and quality design, thereby driving the continued steady growth of cost-effectiveness and business scale of the Group.

As one of the pioneers in Shenzhen's urban redevelopment sector, the Group have prepared and planned for Baishizhou Urban Renewal Project for years. Baishizhou Urban Renewal Project, the so-called "Grand Urban Renewal Project" in the industry in Shenzhen, is located on Shennan Avenue, Nanshan District, Shenzhen City and in proximity to Science Park and the sub-district of Overseas Chinese Town, which is a prestigious geographical location. With a capacity area of approximately 3.58 million square meters, the above project is a mega- large complex development project in the core areas of Shenzhen, which is fast growing with scarcity of land resources. Its development is in 3 phases according to the project plan. The entire project development is scheduled to complete in coming 8 to 10 years. On 28 October 2019, the Group indirectly acquired approximately 25% equity interests in Baishizhou Urban Renewal Project. It is planned that the majority of the remaining equity interests will be injected in the second half of 2020, which will foster a huge growth potential of the Group by then. On 15 March 2020, the Company also entered into a strategic cooperation agreement with two technological companies, pursuant to which the parties agreed to use the Baishizhou Urban Renewal Project as a base to cooperate in the development of technical support and services for the project.

LVGEM Mangrove Bay No. 1 is the most iconic urban renewal project of the Group in recent years. The project comprises three quality residential buildings and a high quality complex of Grade A offices, hotels and apartments. The project is located in the southeast corner of the intersection of Shazui Road and Jindiyi Road in the central business district of Futian District, Shenzhen. Having easy access to public transport and strategically located in the proximity to Futian Port, Huanggang Port, Beijing-HongKong-Macao Expressway and Metro Lines 3, 4 and 7, Phase I of the project occupies a site area of 24,424 square meters and a planned total gross floor area of 305,450 square meters, among which, the residential portion has a gross floor area of approximately 119,400 square meters. The project was launched for sale for the first time in October 2018. In April 2019, the first batch of completed residential units of Tower B recorded hot sale, contributing contracted sales of RMB3,370 million and recognised sales revenue of RMB2,750 million in the first half of 2019, which accounted for 82.5% and 92.0% of contracted sales and revenue in the first half of 2019.

LVGEM Amazing Plaza is another urban upgrade and redevelopment project of the Group, which is strategically located in the sub-district of Overseas Chinese Town with rich scenic resources. As an integrated modelling zone for new mixed-use industrial town, this project will be mainly used for industrial research and development, as well as apartment and commercial purposes. The project is located at the north of Qiaoxiang Road, south of Beihuan Road, east of the intersection of Qiaoxiang Road and Beihuan Road as well as west of Qiaochengfang in Shenzhen. The project occupies a site area of 10,862 square meters and a total gross floor area of 97,214 square meters. The project was launched for the first time in September 2019. The brand-newshow-flats were further launched with hot sale in April 2020 and the first batch of flats was occupied in June. The project contributed contracted sales of approximately RMB1,325 million and recognised sales revenue of approximately RMB1,256 million during the period.

LVGEM Liguang Project is another urban renewal project of the Group in Shenzhen, which is a residential, commercial and industrial high-end industrial park complex. The project is located in Liguang Village, Guanlan Town, Lunghua District, Shenzhen City and adjacent to the Mid Valley Clubhouse of the Mission Hills Golf Club, and possesses prestigious scenic view of the natural environment. This project occupies a site area of approximately 85,333 square meters and a total gross floor area of approximately 382,139 square meters. Taking into consideration the surrounding environment and the living needs of the community, the project plan includes the development of a special commercial district at the west side of the region, as well as the Liguang Ecological Park at the east side which is covered with grassland. The project is currently at the preliminary stage of preparation ahead of construction.

Zhuhai Dongqiao Urban Renewal Project is a strategic project of urban renewal for this round among the first batch of projects that have officially commenced construction in Zhuhai City. On 12 July 2019, the Group has officially become the operating entity of the renewal project for the old village in Dongqiaocheng and obtained all necessary administrative approvals. This project marks an important milestone of the Group in terms of the urban renewal development and operation in Zhuhai. On 12 January 2020, the groundbreaking ceremony for commencement of construction of the project was held in Dongqiao Village, Zhuhai. The project is currently under construction and is expected to be launched in the second half of 2021. Located in the sub-district of Nanwan, Zhuhai City, the project is in a well-established area where traditional luxury residences and street-level commercial region are located. It is positioned as the No. 1 bay-area cultural and arts community in Zhuhai, comprising high-end residences, featured hotels, street-level cultural regions and other industrial functions. The project occupies a total site area of approximately 207,550 square meters with a planned total gross floor area of approximately 743,767 square meters, which is intended to be developed into Dongqiao Smart City and District adopting an IOC (Integrated operation and control centre) to real-time manage and control all the dynamic situations of the entire district. The development involves 27 construction projects of up to level 3 standard, comprising a total of 106 applied scenarios. It will provide overall solutions and services for multi-scenario and multi-dimension, safe and intelligent urban management under the Dongqiao Project.

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LVGEM Joyful Town (formerly known as "Kaiwei" Project) is located in the former Dongda Kaiwei Science Park, which is west of Mingzhu Station of the urban railway on Mingzhu North Road in Xiangzhou District, Zhuhai City. With a total gross floor area of 445,292 square meters, the project is positioned to comprise an international grade A office building, apartment (hotel-serviced offices), residential and commercial complex. The project was launched for sale for the first time in September 2019. The online sales department was established in early February 2020, while two rounds of re-launch were held in April and June with hot sale. For the six months ended 30 June 2020, contracted sales of the project amounted to RMB3.83 million.

LVGEM International Garden is located in Huazhou, Maoming, Guangdong Province. Situated in a well-developed core district's residential area with rich natural resources, it is in proximity to the Juzhou Park and embraced by Xihu of 232 mu. It is well-served by a public transport network and is only approximately 20-minutes' drive from Yuexi International Airport. The project occupies a site area of approximately 729,420 square meters and a planned total gross floor area of approximately 2,248,298 square meters. Leveraging on the advantages such as excellent geographical location, ecological environment, established brand reputation and ancillary educational facilities, phase 4 of Lakeview Mansion in B4 zone of LVGEM International Garden Bolin Mansion was launched in the market in June 2020 for the first time, while the residential units of D1 and D2 zones in the region were re-launched with hot sale during the period after yielding hot sale upon launch in 2019. For the six months ended 30 June 2020, the total contracted sales of LVGEM International Garden amounted to RMB467.7 million and recognised sales revenue was approximately RMB90.1 million. The gross floor area pending development of the project remained approximately 1.075 million square meters and it is estimated that the project will be launched at a value of approximately RMB1 billion each year in the future.

Hong Kong Lau Fau Shan Project is the Group's first real estate development project in Hong Kong, which marks a new milestone of the internationalisation of the "LVGEM" brand. The project is located at Deep Bay Road, Lau Fau Shan, Hong Kong. It occupies a site area of approximately 82,400 square meters, comprising approximately 116 low density waterfront villas, each of which has a gross floor area of approximately 2,000 to 3,000 square feet. Embracing prime sea view and overlooking Deep Bay, the project is geographically prestigious and adjacent to Shenzhen with easy access to and from mainland China. Further, it is located at the vicinity of Hung Shui Kiu development area.

Commercial Property Investment and Operations

The "two-pronged" business model of "residential + commercial" is an integral part of the Group's development pattern. During the year, the Group holds 28 quality commercial property projects comprising a total gross floor area of approximately 678,285 square meters, mainly represented by two commercial brands, namely "NEO" and "Zoll", including Shenzhen NEO Urban Commercial Complex, Hong Kong LVGEM NEO, LVGEM Zoll Chanson Shopping Mall, LVGEM 1866 Zoll Shopping Mall, LVGEM Zoll Hongwan Shopping Mall, LVGEM Zoll Mangrove Bay No.1 Shopping Mall, LVGEM Zoll International Garden Shopping Mall, LVGEM Zoll Jinhua Shopping Mall, LVGEM Zoll Yuexi Shopping Mall, Dongguan LVGEM Zoll Shopping Mall and other shops and investment properties. The Group's commercial property development projects are mainly independent commercial projects as well as complex projects that comprise commercial features. Among them, the ancillary services of commercial properties under complex projects significantly increase the overall value of individual residential projects among the real estate development business.

As of 30 June 2020, the revenue from commercial property investment and operations of the Group amounted to approximately RMB317.4 million (30 June 2019: RMB302.3 million), representing an increase of 5.0% year-on-year.

NEO Urban Commercial Complex is elected as "one of the ten major landmarks of Shenzhen". It is strategically located in the western region of central Futian District of the core central business district in Shenzhen. It is a key urban and commercial landmark in Shenzhen. It has easy access to public transport locating at the intersection of four Metro Lines 1, 7, 9 and 11. NEO Urban Commercial Complex has a total gross floor area of approximately 252,539 square meters and a total lettable area of approximately 121,236 square meters. The high-quality corporate tenants of Grade A office building comprise offices and branches of various Fortune Global 500 companies, banks, telecommunication corporations and other state-owned enterprises. As of 30 June 2020, the overall occupancy rate of NEO Urban Commercial Complex was about 83% (as of 30 June 2019: 88%).

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Hong Kong LVGEM NEO is located in "Kowloon East CBD 2", the new central business district in Hong Kong, occupying a site area of approximately 4,500 square meters and a planned total gross floor area of approximately 55,390 square meters. As a new smart city operator proactively developing the business layout over the Greater Bay Area, the Group acquired 8 Bay East, the full seaview grade-A commercial building located in 123 Hoi Bun Road, Kwun Tong for HK$9 billion at the end of 2017, and renaming it as the "NEO". It is positioned as a financial and technological centre which integrates health, green, humanity and scenarios. In July 2019, the handover of Hong Kong LVGEM NEO was completed and the operation officially commenced on 8 November 2019. The project received overwhelming responses since it was launched for leasing. As of 30 June 2020, the occupancy rate of the property was close to 50%. Anchor tenants include insurance groups, financial or innovation and technological enterprises and virtual bank, thereby aligning with its positioning as a "full seaview smart financial centre in Kowloon East". Following the phased commencement of operation of Shatin to Central Link in the 1st quarter of 2020, leveraging the support of various ancillary facilities, it is expected that the growth in asset value will significantly increase, thus bringing stable rental income and long-term return on capital for the Group at the same time. Highlighted the strategic significance of the project to tapping into Hong Kong property market by the Group, the project will facilitate consolidation of the leading position of LVGEM (China) in commercial property market as well as its market position and brand influence in the Greater Bay Area.

Zoll Shopping Mall is a famous fashion and comprehensive shopping centre. As of 30 June 2020, the Group owns and operates LVGEM Zoll Chanson Shopping Mall, LVGEM 1866 Zoll Shopping Mall, LVGEM Zoll Hongwan Shopping Mall, LVGEM Zoll International Garden Shopping Mall, LVGEM Zoll Jinhua Shopping Mall and LVGEM Zoll Yuexi Shopping Mall. As at 30 June 2020, the overall occupancy rate was about 94%. In the second half of the year, B4 zone of LVGEM Zoll International Garden Shopping Mall is planned to launch its opening, while Dongguan LVGEM Zoll Shopping Mall will commence operation upon obtaining necessary government approvals, which is expected to contribute increasing rental revenue to the Group. Dongguan LVGEM Zoll Shopping Mall, occupying a total site area of approximately 20,137 square meters and a total gross floor area of approximately 58,928 square meters, is a site located in Zhang Mu Tou Town, Dongguan for commercial use, which was acquired by the Group at a total consideration of RMB8 million on 21 May 2019.

Comprehensive Services

The Group provided comprehensive services to customers and tenants of its residential and commercial properties, including property management services, hotel operations and others. For the six months ended 30 June 2020, the comprehensive services of the Group generated revenue of RMB114.2 million (as of 30 June 2019: RMB131.5 million), representing a decrease of approximately 13.1% year-on- year.

The Group provided comprehensive property management services for most of its property development projects, including security services, property maintenance and management of ancillary facilities, property brokerage business, online platform and e-shops for lifestyle services, which comprised a total gross floor area of approximately 2.6 million square meters. "Meilin flagship shop", the real estate agency business, provided new property agency, entrusted property management, property banking and other businesses. "Ordinary living" app, our online platform for lifestyle services, launched cleaning of air-conditioners and other businesses and gained wide recognition from property owners. Shenzhen LVGEM Property Management Co., Ltd. obtained the ISO9001:2008 certification for its quality system of property management services and the level A property management qualification. As the property management services and value-added services become more mature, it is expected that the property management company will contribute sustainable revenue growth for the Group in the future.

In respect of hotel operations, the Group operates and manages two hotels in Shenzhen and the United States. These hotels are the LVGEM Hotel which is located in the central business district of Futian District, Shenzhen, and the Vanllee Hotel in Covina, California, the United States which was acquired in 2017. Excluding the days of suspension due to the COVID-19 pandemic, the average occupancy rate of LVGEM Hotel was approximately 45% as at 30 June 2020 (as at 30 June 2019: 75%). Against the backdrop of a challenging economic environment, LVGEM Hotel proactively explored new directions for marketing during the period, attempting to develop a two-pronged strategy for growth in both room occupancy and dining services, thereby obtaining new growth points by expanding new businesses and sales channels. Such efforts led to improving results month by month and the occupancy rate in June resumed to 64%. Vanllee Hotel occupies a site area of 22,652 square meters and its renovation was completed in 2019. As at 30 June 2020, its occupancy rate was approximately 18%.

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Financing

The Group adopted diverse financing channels at home and abroad in their highest and best use during the period. Under the demanding capital market environment, it seized the market opportunities to successfully complete the refinancing in the short to medium term by actively managing its debts. In February and March 2020, the Group launched and completed the complex and well-structured US dollar bond exchange and issuance scheme successively as a preparation of fund for the US$50 million private bond due to expire in June 2020 and the US$400 million public bond due to expire in August 2020. In June 2020, the Group agreed with the bondholder to make amendments to the terms and conditions of the guaranteed convertible bonds ("Convertible Bonds") originally due in 2023 with an interest rate of 4.00% per annum. The principal amount of the Convertible Bonds remained at US$100 million. With reference to the capital market environment, the parties agreed to extend the put option date to 17 May 2022 or after (originally on 17 May 2020). With effective and active debt management, the overall finance cost remained at a healthy level of 6.9% in the first half of 2020, representing a slight increase of 0.6 percentage point as compared to 6.3% in 2019.

In the second half of the year, the Group will continue to further explore financing channels, consolidate its financial strength, enrich its cash flow and improve the operational efficiency of the Company through domestic and overseas financing, while making use of domestic and overseas financing platforms flexibly and improving the efficiency in use of funds, thereby further supporting the rapid business expansion and development and achieving stable growth of results of the Group.

Future Prospect

Since the beginning of 2020, the COVID-19 pandemic has spread across the globe. China has adopted strong measures to contain the spread of the COVID-19 pandemic, leading to gradual resumption of economic order. In respect of fiscal policy, China has adopted active and flexible monetary policy with a view to maintaining the growth of the real estate industry through adjustment and control and fostering the resumption of healthy and sustainable development at the same time. Meanwhile, China has further promoted the implementation of specific measures under the "Outline Development Plan for the Guangdong-HongKong-Macao Greater Bay Area", in order to accelerate its development into a strong economic driver for China. Among which, the encouraging measures regarding the promotion of urban renewal projects are of great importance to the Group. As a pioneer in the field of urban renewal, the Group has focused on the development of key areas in core cites of the Greater Bay Area. It is expected that the Group will continue to benefit from the growth of the Greater Bay Area, thereby achieving sustainable and significant value growth.

In the future, the Group will continue to adopt a prudent approach by closely monitoring the changes in the macro environment and adjusting its specific business development strategies. Adhering to the strategic guideline of "focusing on urban renewal in the Greater Bay Area and developing a brand new smart city", the Group will focus on its development in the key areas of core cities of the Greater Bay Area. In terms of facilitating the urban renewal projects in the Greater Bay Area, the Group will continue to follow the national strategic plans, with a focus on facilitating various large-scale urban renewal projects held by the Group and its controlling shareholder. While putting committed efforts in urban renewal, the Group will step up its endeavors in creating an outstanding business operation model, aiming to create higher brand- added value for the Group, bring better life experience to the residents, infuse vitality to the city's renewal and development and deliver substantial returns to the investors. By studying the projects introduced by the controlling shareholder in the future that include the planning of industrial parks and centralised commercial clusters, the Group intends to develop a business model integrating industries and cities, continue to develop quality projects in the key areas of core cities, develop industrial properties (industrial park operation and industrial investment) and operate smart commercial cities. With the unique positioning and brand-new perspective, the Group will develop "unique properties, resources-linked properties and smart properties".

Looking ahead, the Group will seize the tremendous opportunities arising from the development of the Greater Bay Area, striving to develop the Company into a new smart city developer and operator that is dedicated to the construction of the Guangdong-HongKong-Macao Greater Bay Area. Adhering to the corporate mission of "continuously enhancing the value of cities", the Group will make sustained efforts towards the vision and goal of "being the most respected city value-creator in the PRC".

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Financial Review

Revenue

The Group's revenue mainly comprised of revenue from sales of properties held for sale, leasing of investment properties and comprehensive services. The Group's revenue for the six months ended 30 June 2020 was approximately RMB2,462.2 million (six months ended 30 June 2019: RMB3,422.1 million), representing a decrease of approximately 28.0% as compared to the corresponding period last year, which was mainly attributable to the decrease in revenue from sales of properties.

	Six months ended 30 June	Increase/
	2020	2019	(decrease)
	RMB'000	RMB'000	RMB'000	%
Real estate development and sales	2,030,652	2,988,335	(957,683)	(32.0)
Commercial property investment and operations	317,355	302,279	15,076	5.0
Comprehensive services	114,199	131,470	(17,271)	(13.1)
Total	2,462,206		3,422,084	(959,878)	(28.0)

For the six months ended 30 June 2020, the revenue from sales of properties was approximately RMB2,030.7 million (six months ended 30 June 2019: RMB2,988.4 million), representing a decrease of approximately 32.0% as compared to the corresponding period last year, which mainly includes the sales of LVGEM Amazing Plaza and LVGEM Mangrove Bay No. 1. The Group's total gross floor area of properties held for sale sold during the six months ended 30 June 2020 was approximately 45,539 square meters (six months ended 30 June 2019: approximately 64,349 square meters).

Revenue from leasing of investment properties for the six months ended 30 June 2020 was approximately RMB317.4 million (six months ended 30 June 2019: RMB302.3 million). The Group's commercial properties are all located in core areas. The increase was mainly due to the commencement of operation of Hong Kong LVGEM NEO in the second half of 2019. The properties are mainly operated under the brands of "Zoll" and "NEO". The occupancy rate of investment properties for the six months ended 30 June 2020 remained at a high level at 89% (six months ended 30 June 2019: 94%). The occupancy rate of Hong Kong LVGEM NEO as at 30 June 2020 was approximately 50%.

The Group provides comprehensive services to customers and tenants of its residential and commercial properties. These comprehensive services include property management services, hotel operations, renovations and others. During the six months ended 30 June 2020, comprehensive services of the Group generated revenue of RMB114.2 million (six months ended 30 June 2019: RMB131.5 million), representing a decrease of approximately 13.1% as compared to the corresponding period last year. The decrease was mainly attributable to the drop in revenue from hotel operations which was created by the unprecedented COVID-19 pandemic. The hotel operations were gradually recovering after the control of this coronavirus disease by the PRC government.

Gross Profit and Gross Profit Margin

For the six months ended 30 June 2020, the Group's integrated gross profit decreased to approximately RMB1,603.0 million (six months ended 30 June 2019: RMB2,408.3 million), representing a decrease of approximately 33.4% as compared to corresponding period last year; while the integrated gross profit margin for the six months ended 30 June 2020 was 65% (six months ended 30 June 2019: 70%). The fluctuation of gross profit margin was mainly attributable to the revenue recognised under different project portfolio. In 2019, over 90% of the revenue for the six months ended 30 June 2019 was mainly generated from LVGEM Mangrove Bay No. 1, with a gross profit margin over 70% while the 62% of revenue for the six months ended 30 June 2020 was contributed by LVGEM Amazing Plaza, with a gross profit margin of approximately 60% and revenue from LVGEM Mangrove Bay No. 1 only accounted for around 30% of the total revenue in first half of 2020.

Selling Expenses

For the six months ended 30 June 2020, selling expenses of the Group amounted to approximately RMB26.9 million (six months ended 30 June 2019: RMB51.2 million), representing a decrease of approximately 47.5% as compared to the corresponding period last year. The selling expenses mainly included sales commission for LVGEM Amazing Plaza and LVGEM Mangrove Bay No. 1. The decrease was mainly attributable to the reduction of advertising campaigns during the current interim period.

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Administrative Expenses

For the six months ended 30 June 2020, administrative expenses of the Group amounted to approximately RMB198.6 million (six months ended 30 June 2019: RMB161.3 million), representing an increase of approximately 23.1% as compared to the corresponding period last year. The increase was mainly attributable to the donations to several charitable organisations in the PRC and the depreciation expenses incurred for new office in Hong Kong LVGEM NEO.

Fair Value Changes on Investment Properties

The valuation on the Group's investment properties as at 30 June 2020 was conducted by an independent property valuer which resulted in a negative fair value changes on investment properties of RMB174.1 million for the six months ended 30 June 2020 (six months ended 30 June 2019: positive fair value changes on investment properties of RMB479.2 million).

Finance Costs

For the six months ended 30 June 2020, finance costs of the Group amounted to approximately RMB686.2 million (six months ended 30 June 2019: RMB490.1 million), representing an increase of approximately 40.0% as compared to the corresponding period last year.

The increase in finance costs was mainly due to (i) the increase of the Group's total interest-bearing loans to RMB29,399.0 million as at 30 June 2020 from RMB25,976.5 million as at 31 December 2019; and (ii) the cessation of interest capitalisation in relation to Hong Kong LVGEM NEO upon its completion last year. The Group's average finance cost of interest-bearing loans was 6.9% for the six months ended 30 June 2020 (six months ended 30 June 2019: 6.2%).

Income Tax Expense

For the six months ended 30 June 2020, income tax expense of the Group amounted to approximately RMB480.2 million (six months ended 30 June 2019: RMB1,232.6 million). The Group's income tax expense included payments and provisions made for EIT and LAT during the period under review. The decrease of income tax expense was mainly attributable to the less LAT provision for LVGEM Amazing Plaza in current interim period than that of LVGEM Mangrove Bay No. 1 recognised in the corresponding period last year.

Operating Results

For the six months ended 30 June 2020, the profit attributable to owners of the Company was approximately RMB37.6 million (six months ended 30 June 2019: RMB991.9 million), representing a decrease of approximately 96.2% as compared to the corresponding period last year.

Liquidity, Financial Resources and Gearing

Bank balances and cash as at 30 June 2020 amounted to approximately RMB10,686.5 million (including restricted bank deposits) (31 December 2019: RMB8,347.0 million).

The Group had total borrowings of approximately RMB29,399.0 million as at 30 June 2020 (31 December 2019: RMB25,976.5 million).

Borrowings classified as current liabilities were approximately RMB10,929.5 million ((31 December 2019: RMB10,826.7 million) and the

Group's gearing ratio as at 30 June 2020 was approximately 147.7% ((31 December 2019: 135.3%), which was based on net debt (total interest-bearing loans net of bank balances and cash (including restricted bank deposits)) over total equity.

Current, Total and Net Assets

As at 30 June 2020, the Group had current assets of approximately RMB24,945.8 million (31 December 2019: RMB22,276.5 million) and

current liabilities of approximately RMB17,431.0 million (31 December 2019: RMB17,760.7 million), which represented an increase in net current assets from approximately RMB4,515.9 million as at 31 December 2019 to approximately RMB7,514.8 million as at 30 June 2020. The increase in net current assets as at 30 June 2020 was mainly attributable to the reclassification of certain borrowings from current liabilities to non-current liabilities, mainly include (i) US$ denominated senior notes with principal amount of US$227,390,000 upon the completion of the exchange of new senior notes on 10 March 2020, and (ii) US$ denominated convertible bonds with principal amount of US$100,000,000 upon the effective of supplemental trust deed in June 2020.

As at 30 June 2020, the Group recorded total assets of approximately RMB51,416.3 million (31 December 2019: RMB48,736.3 million) and

total liabilities of approximately RMB38,743.1 million (31 December 2019: RMB35,701.5 million), representing a debt ratio (total liabilities

over total assets) of approximately 75.4% (31 December 2019: 73.3%). Net assets of the Group were approximately RMB12,673.2 million as

at 30 June 2020 (31 December 2019: RMB13,034.8 million).

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For the six months ended 30 June 2020, the Group was able to utilise its internal resources and debt and equity financing to meet the funding requirements for the development of real estate projects.

Charge on Assets

As at 30 June 2020, loans of approximately RMB19,905.2 million (31 December 2019: RMB18,642.0 million) were secured by properties under development for sale, properties held for sale, investment properties, properties, plant and equipment and pledged deposits of the Group respectively in the total amount of approximately RMB29,703.7 million (31 December 2019: RMB26,344.1 million).

Material Acquisition and Disposal

During the six months ended 30 June 2020, the Group did not enter into any material acquisition or disposal of subsidiaries, associates or join ventures.

Contingent Liabilities

As at 30 June 2020, the Group had contingent liabilities relating to guarantees in respect of mortgage facilities for certain purchasers amounting to approximately RMB2,884.1 million (31 December 2019: RMB2,132.4 million). Pursuant to the terms of the guarantees, if there is default of the mortgage payments by these purchasers, the Group is responsible to repay the outstanding mortgage loans together with any accrued interest and penalty owned by the defaulted purchasers to the banks.

The Group's guarantee period commences from the dates of grant of the relevant mortgage loans and ends upon the earlier of the buyer obtaining the individual property ownership certificate or the full settlement of mortgage loans by the buyer.

The Directors consider that it is not probable for the Group to sustain a loss under these guarantees as during the periods under guarantees, the Group can take over the ownerships of the related properties under default and sell the properties to recover any amounts paid by the Group to the banks. The Group has not recognised any deferred income in respect of these guarantees as its fair value is considered to be minimal by the Directors. The Directors also consider that the fair market value of the underlying properties is able to cover the outstanding mortgage loans guaranteed by the Group in the event that the purchasers default payments to the banks for their mortgage loans.

As at 30 June 2020, the Group has provided joint and several liability guarantee amounting to RMB3,200,000,000 to a bank in respect of a bank loan granted to an associate of the Group amounting to RMB2,333,000,000. In the opinion of the Directors, the fair value of guarantee contracts are insignificant at initial recognition. Also, no provision for the guarantee contracts at the end of the reporting period is recognised as the default risk is low.

Exposure to Fluctuations in Exchange Rates and Related Hedges

Almost all of the Group's operating activities are carried out in the PRC with most of the transactions denominated in Renminbi. The Group is exposed to foreign currency risk arising from the exposure of Hong Kong dollars and United States dollars against Renminbi as a result of certain cash balances and loans in Hong Kong dollars or United States dollars.

The Group does not have a foreign currency hedging policy. However, the Directors monitor the Group's foreign exchange exposure closely and may, depending on the circumstances and trend of foreign currency, consider adopting appropriate foreign currency hedging policy in the future.

Treasury Policies and Capital Structure

The Group adopts a prudent approach with respect to treasury and funding policies, with a focus on risk management and transactions that are directly related to the underlying business of the Group.

Employees

As at 30 June 2020, the Group had a staff roster of 1,856 (30 June 2019: 1,566), of which 1,825 (30 June 2019: 1,539) employees were

based in the mainland China and 31 (30 June 2019: 27) employees were based in Hong Kong. The remuneration of employees was in line with the market trends and commensurate to the levels of remuneration in the industry. Remuneration of the Group's employees includes basic salaries, bonuses, retirement scheme and long-term incentives such as share options within an approved scheme. The increase in the number of staffs were mainly due to (i) the delivery of properties; and (ii) the fact that certain urban renewal projects entered into relocation and signing phase.

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COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES

The Company is committed to the establishment of good corporate practices and procedures. The corporate governance principles of the Company emphasise a quality board, transparency and accountability to all shareholders of the Company.

Throughout the six months ended 30 June 2020, the Group complied with all the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Rules Governing the Listing of Securities (the "Listing Rules") on the Stock Exchange.

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") set out in Appendix 10 of the Listing Rules as its own code of conduct regarding directors' securities transactions. The Directors confirmed that they have complied with the required standard as set out in the Model Code for the six months ended 30 June 2020.

REVIEW OF INTERIM FINANCIAL INFORMATION

The auditor of the Company, Deloitte Touche Tohmatsu, has performed an independent review on the interim financial report for the six months ended 30 June 2020 in accordance with Hong Kong Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the HKICPA. On the basis of the auditor's review, which does not constitute an audit, Deloitte Touche Tohmatsu confirmed in writing that nothing has come to the auditor's attention that causes the auditor to believe that the interim financial report is not prepared, in all material respects, in accordance with HKAS 34. The interim results of the Group for the six months ended 30 June 2020 have also been reviewed by the members of the audit committee of the Company before submission to the Board for approval. The audit committee of the Company was of the opinion that the preparation of such results complied with the applicable accounting standards and requirements and that adequate disclosures have been made.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

On 14 January 2020, the Company received a conversion notice for the conversion of 13,636,364 convertible preference shares in the capital of the Company into 13,636,364 ordinary shares of the Company.

The Company has not redeemed any of the Company's listed securities during the period. Save as disclosed above and the issue of 434,000 shares by the Company pursuant to the exercise of share options under the share option scheme of the Company during the period, neither the Company nor any of its subsidiaries has purchased or sold any of the Company's listed securities during the six months ended 30 June 2020.

EVENTS AFTER THE REPORTING PERIOD

Except for the matters disclosed under the "Management Discussion and Analysis" section of this announcement, the Board is not aware of any significant event requiring disclosure that has taken place subsequent to 30 June 2020 and up to the date of this announcement.

PUBLICATION OF INTERIM RESULTS ANNOUNCEMENT AND INTERIM REPORT

The contents of results announcement are published on the websites of the Company (www.lvgem-china.com) and the Stock Exchange (www.hkex.com.hk). The 2020 Interim Report will be dispatched to shareholders in due course.

GENERAL INFORMATION

As at the date of this announcement, the Board comprises Ms. HUANG Jingshu (Chairman), Mr. TANG Shouchun (Chief Executive Officer), Mr. YE Xingan, Mr. HUANG Hao Yuan and Mr. SIU Chi Hung as executive directors; Ms. LI Lihong as non-executive director and Mr. WANG Jing, Ms. HU Gin Ing and Mr. MO Fan as independent non-executive directors.

By order of the Board

LVGEM (China) Real Estate Investment Company Limited

HUANG Jingshu

Chairman

Hong Kong, 21 August 2020

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