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Dear Shareholders,
Total traffic volume and toll revenue of the Group's toll road projects in 2007 were 130 million vehicles and RMB2.3 billion respectively, representing an increase of 11% and 16%, respectively, as compared to those in 2006 (excluding the results of Guangsan Expressway which was terminated in the second half of year 2006). Cash generated from the toll road business amounted to HK$767 million. Benefited from the economic growth in China, the Group's expressways continued to perform well in 2007 with annual toll revenue increased by 24%. Total revenue and cashflow generated from the expressway projects represented 67% and 65% respectively, of those of the Group and such proportions are expected to increase in the future. In 2007, the Group disposed of 25% of the equity interest in Provincial Highway 307 Bengbu Huaihe Bridge Highway, Provincial Highway 307 Bengbu Huaimeng Highway and Bengbu Chaoyanglu Huaihe Bridge in the Anhui Province, of which the Group owned 60% equity interest prior to the disposal. The Group intends to dispose of its remaining 35% interest in the coming few years. In addition, the Group entered into a framework agreement in 2007 to dispose of its interest in Yugong Highway and certain assets of Yulin City Ring Roads in Guangxi Zhuang Autonomous Region. The transaction is expected to be completed in 2009. These disposals are in line with the Group's strategy to dispose of Class I/II highway projects to enhance investment returns. The Group did not commit any investment in new expressway project in 2007 due to the uncertainties in the regulatory approval procedures. However, the Group is still in the process of evaluating and negotiating several new expressway projects. Upon the clarification of the procedures, the Group will consider to materialise new investments. The Group's revenue in property development surged substantially from HK$506 million in 2006 to HK$2,408 million in 2007 and total contracted sales and pre-sales of properties in 2007 amounted to 444,000 sq.m. in aggregate (comprising only the results of the Group's wholly-owned projects and projects of Sunco Property since it was acquired in July 2007). In 2007, the Group's seven wholly-owned property development projects, namely Parkrise and Parkvista in Guangzhou; Royal City, Vista Panorama and Grand Metropolis in Changzhou; and Phoenix City in Suzhou, had achieved satisfactory progress; with the selling price of the projects in Guangzhou far exceeded the original expectation; the Changzhou projects well perceived by the locals; and the gradual integration of the operation of Phoenix City into the Group's stringent management system and thus improving its development. The Group acquired projects of the Sunco group in phases. The acquisition of 49% equity interest in Sunco Property was completed in January 2007. In July 2007, the Group increased its shareholding in Sunco Property to approximately 88.5%. After a series of transactions and restructuring, the Group's property business is now operated under the brand of RK Properties. The procedural steps of the acquisition of Sunco Property have caused certain commercial disputes which are being resolved by the Group in accordance with the law. The toll road and the property businesses both leverage on the Group's experience and relationship in the PRC and are complementary in characteristics, thus helping the Group to diversify the operation risk. The toll road business brings stable cash inflow to the Group and serves as a robust source of profit. The Group will continue to explore opportunities to divest its Class I/II Highway portfolio to maximise the value of the toll road business while continuing to identify new expressway projects. The property business will focus on resolving the legacy issues of the acquired projects, and consolidating and strengthening the management team. The Group also plans to impose stringent construction and sales programs, improve management and control systems, and look for new development opportunities. I express my sincere gratitude to our business partners, customers and shareholders for their enduring support, and thank all staff for their dedication and hard work. Ko Yuk Bing
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The Group's profit attributable to shareholders for 2007 was HK$851 million or HK$1.16 per share. The steady profit from toll road business together with the growing contribution from the property business provide an impetus to the increase in the Group's earnings.
