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LVGEM (China) Announces 2020 Interim Results Author: CHINA LVGEM

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High Gross Profit Margins and Sufficient Cash Balance

(21 August 2020, Hong Kong) LVGEM (China) Real Estate Investment Company Limited (“LVGEM (China)” or the “Company” or together with its subsidiaries, the “Group”; stock code: 95.HK) today announced the unaudited results of the Company and its subsidiaries for the six months ended 30 June 2020 (“the Period”).

In the first half of 2020, under various macroeconomic unfavorable factors, LVGEM adopted flexible and efficient business strategies, adjusted marketing methods and construction pace, quickly returned to the right track after the ease of domestic pandemic. Meanwhile, the Company took proactive refinancing approaches to ensure sufficient cash levels to support operations and development.

For the six months ended 30 June 2020, key financial indicators were basically in line with expectations. During the Period, the Group achieved total revenue of approximately RMB 2,462 million, representing a decrease of approximately 28%, mainly because the company focuses on the development and operation of urban renewal projects. Under this special business model, cyclical fluctuations in contracted and recognized sales still existed (The Shenzhen LVGEM Mangrove Bay No.1 contributed approximately RMB 2.75 billion, and took over 80% of the revenue at the same period of last year, which constituted a relatively high base).

Gross profit was RMB 1,603 million and gross profit margin recorded 65%, which remained at above market level. Core profit was RMB 262 million, decreasing 54% YoY, mainly due to: 1) revenue declined YoY, 2) total financial expenses increased around 40% YoY, due to the interest expenses brought by the completion of Hong Kong LVGEM NEO in 2H2019. Profit attributable to shareholders was RMB 38 million, basic earnings per share declined 96% YoY to RMB 0.74 cents. In addition to the aforesaid reasons, the decrease is because the fair value impairment of investment properties was approximately RMB 170 million, representing a decline of approximately RMB 650 million from the same period of last year (fair value increased by RMB 480 million). This was mainly due to the adverse impact of the COVID-19 global outbreak on the domestic and overseas economies and markets, which led to the temporary impairment.

Urban renewal projects progressed smoothly

Majority of equity interest of Baishizhou Project to be injected

In the first half of 2020, the Group adhered to the “Dual-core Strategy” of “Focusing on  Core Cities and Cities Core Areas”, with low cost but high value landbank through urban renewal and market auctions, and developed its real estate project in Shenzhen, Hong Kong and Zhuhai such core cities in the Greater Bay Area.

During the Period, the Group steadily pushed forward the progress of urban renewal projects, including Shenzhen Baishizhou Urban Renewal Project, Shenzhen Liguang Urban Renewal Project, Zhuhai Dongqiao Urban Renewal Project and LVGEM Joyful Town (formerly known as “Kaiwei” Project). In the future, the Group will continue to focus on the Greater Bay Area and strive for excellence to build benchmark smart city projects with “technology + property”, and build better delicate residences and living environment to upgrade city value, thereby promoting the Group’s profitability and sustainability.

Shenzhen Baishizhou Urban Renewal Project (“the 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 advantage and a capacity building area of up to 3.58 million square meters. On 28 October 2019, 25% of the equity interests of the Project was injected into the Group and the remaining major equity interest is to be injected in the second half of 2020, which will substantially improve the Group’s asset value, credit position and profitability.

Focus on core areas of core cities in the Greater Bay Area

Gradual release of high-quality landbank

In the first half of 2020, revenue from recognised sales of properties was RMB 2,031 million. The contracted sales was RMB 2,463 million, mainly from Shenzhen LVGEM Amazing Plaza, LVGEM Joyful Town in Zhuhai, LVGEM International Garden, with high gross profit margin, sell through rate and cash collection ratio. Projects under construction include LVGEM International Garden in Huazhou, LVGEM Joyful Town in Zhuhai and Suzhou LVGEM Mansion 1898.

As at 30 June 2020, the Group had a landbank of approximately 4.14 million square meters, most of which are located in the Greater Bay Area with strategic layout in Shenzhen, Hong Kong, Zhuhai and Dongguan. If including the landbank of the controlling shareholders, which was approximately 10 million square meters, 80% are in the core area of the Greater Bay Area.

Steady development of commercial properties and comprehensive services

The “two-pronged” “residential + business” is an essential part of the Group’s business model. As of 30 June 2020, the revenue from commercial property investment and operations of the Group amounted to approximately RMB 317 million, representing an increase of 5.0% YoY.

During the Period, the Group owned 28 quality commercial property projects comprising of 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 Center and other shops and investment properties.

As for comprehensive services, the group provides comprehensive services to customers and tenants of its residential and commercial properties, including property management services, hotel operations, etc. For the six months ended 30 June 2020, the comprehensive services of the Group generated revenue of RMB 114 million. The Group provided all rounded property management services for most of its property development projects, serving a total gross floor area of approximately 2.6 million square meters. Services included security services, property maintenance and management of ancillary facilities, property brokerage business, online platform and lifestyle e-shops.

 Diversified financing channels and maintained financing costs at healthy level

During the Period, in the challenging capital market environment, the Group made full use of domestic and overseas financing channels, proactively grasped market opportunities and completed the short to mid-term refinancing. The Company launched a complex and well-structured USD bond exchange and new issuance plan in February and March 2020, to be ready for the funding of USD 50 million private bond mature in June 2020 and USD 400 million public bond due in August 2020.

In June, the Group applied to the HKEx to revise the terms and conditions of the original guaranteed convertible bonds with an annual interest rate of 4.00% due in 2023. It is recommended to extend the put option date to 17 May 2022 or later (formerly 17 May 2020).

With effective and active refinancing, comprehensive financing costs in the first half of 2020 remained at a healthy level at about 6.9%, representing a slight increase of 0.6 percentage points as compared to the same period of last year. Cash balance is sufficient, which increased by 28.0% to approximately RMB 10.7 billion. In the second half of the year, the Group will continue to further explore new financing channels, consolidate its financial strength and the improve the efficiency of capital use.

Looking into the future, Ms. Huang Jingshu, the executive director and chairlady of LVGEM (China) said, “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 “Focus on Urban Renewal in the Greater Bay Area and Develop a Brand New Smart City”, the Group will focus on its development in the core areas of core cities in the Greater Bay Area. To facilitate the urban renewal projects in the Greater Bay Area, the Group will continue to follow the national strategic plans, dedicated to the large-scale urban renewal projects held by the Group and its controlling shareholder. With committed efforts, the Group will step up its endeavors in creating an outstanding business operation model, aiming to enhance brand value-added for the Group, bring better living experience to the residents, infuse vitality to the city and deliver substantial returns to the investors.”

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