New World Development Company Limited
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Risk Factors
B. Risk Relating to Financial Conditions and Results of Operations
1.
The following factors may lower the level of turnover and profit of the Group, while the Group cannot guarantee that
the turnover and net profit level will be sustained or improved. The Group may not be able to sustain similar patterns
or levels of turnover or profit in the future:
I.
change in the mix of turnover contributions, such as income from property development, rental income from
investment properties and income from our hotels;
II.
increased market competition;
III.
unfavourable government policies affecting consumer sentiments;
IV.
failure to achieve target sales volumes and prices;
V.
failure to achieve target rentals, daily room rates and occupancy rates;
VI.
decrease in the fair value of investment properties;
VII. our costs may not decrease in tandem with a reduction in turnover to be derived from properties, as most of
the expenses associated with owning and maintaining the Group’s properties are fairly fixed (including land
cost, development cost, administration cost, and selling and distribution cost); and
VIII. failure to negotiate volume discounts with suppliers on favourable terms.
2.
The Group’s finance costs and interest expenses fluctuate with changes in interest rates. In Hong Kong, the Group’s
borrowings include amounts denominated in Hong Kong dollars. The interest rates on some of our outstanding Hong
Kong dollar denominated borrowings are benchmarked to the Hong Kong interbank offered rates (“HIBOR”) for Hong
Kong dollars. We cannot assure that the benchmark interest rate will not increase in the future, which would increase
our financing costs and interest expenses. In the PRC, the Group’s borrowings also include amounts denominated in
RMB. The People’s Bank of China adjusts its benchmark lending rates from time to time in response to domestic and
global economic changes. The Group cannot guarantee that the People’s Bank of China will not raise such lending
rates in future. In addition, as the Group also borrows from overseas banks and other financial institutions, the
availability of sufficient capital in the capital market directly affects the cost of borrowing in relation to the currencies
the Group borrows. The Group may also be affected by changes in the prevailing interest rate of the global credit
market. Any increase in interest rate in connection with the currencies the Group borrows will increase the Group’s
finance costs and customers’ mortgage interest rates and may adversely and materially affect the Group’s
businesses, financial condition, results of operations and growth prospects.
3.
Fluctuations in the Group’s results of operations may also be induced by other factors, including changes in market
demand for the Group’s properties. In addition, the periodicity of the property market also has an impact on the
optimal timing for land acquisition as well as the planning of development and sales of properties. As results of
operations in relation to property development activities are susceptible to significant fluctuations, comparison of the
Group’s results of operations and cash flow position among periods may not be an effective indicator of the Group’s
financial performance in any particular period.
4.
The Group is required to reassess the fair value of its investment properties at every balance sheet date to which
financial statements are made up. Pursuant to Hong Kong Financial Reporting Standards (HKFRS), investment
properties are stated at their fair value, and the variation in their changes should be taken to the consolidated income
statement of the financial period in which it is incurred. Based on the appraisal conducted by independent property
valuers, the Group recognises the aggregate market value of investment properties at fair value and the related
deferred tax in the consolidated statement of financial position, while the variation in changes in fair value and the
related deferred tax of investment properties are recognised in the consolidated income statement. Therefore, the
assumptions made in appraising investment properties would change under changing market conditions, including
lower weighted average capital ratio. Notwithstanding any variations in profit, fair value gains and losses are not cash
items and will not increase or decrease cash and cash equivalent. The amount of revaluation adjustment has been
and will continually be subject to changes in market conditions. As such, there can be no assurance that changes in
market conditions will continue to generate gains from fair value changes in investment properties at similar level or
at all, or there will be no decline in the fair value of the Group’s investment properties. If a property market in the
region where the Group operates slows down, the fair value of the Group’s investment properties may decline.
