On behalf of the Board of Directors, I am pleased to report that First Sponsor Group Limited has achieved a record profit of S$67.4 million for FY2015. In addition, the Group has successfully executed our Netherlands business strategy during FY2015, expanding geographically and increasing our recurrent income base. This expansion plan has rebalanced the asset allocation and overall business risk of the Group amidst economic uncertainties in the global market and challenging headwinds from our key PRC market. The Group is eager to broaden our footprint in the property market of the Netherlands and other regions, and will stay alert to new business opportunities while remaining cautious of the increasing economic uncertainty of the global economy. The Company's logo has been modified accordingly as the Group's business is no longer solely in the PRC.
The Group delivered a record profit for FY2015. Revenue and net profit attributable to the equity holders of the Company were S$215.0 million (FY2014: S$153.2 million) and S$67.4 million (FY2014: S$21.7 million), which represented an increase of 40.3% and 210.4% over FY2014 respectively.
This significant improvement was mainly due to (i) profit recognition from the further handover of Plot B residential blocks and first time handover of Plot C residential blocks of the Millennium Waterfront Project; (ii) profit contribution from the Dutch properties acquired by the Group during FY2015; and (iii) higher income contribution from the property financing business arising from a larger entrusted loan portfolio.
The Group continues to maintain a strong balance sheet with a low gearing ratio of 0.38 times with S$582.2 million of cash, monetary loan receivables, and unutilized committed credit facilities as at 31 December 2015. Total shareholders' funds (excluding non-controlling interests) increased by 9.0% to S$974.7 million. However, the Group is exposed to the volatility of the RMB due to its PRC operations. As a result, a depreciation of RMB against S$ will adversely affect the Group's financial position and profitability. As at 31 December 2015, the Group recorded a cumulative translation gain of S$105.4 million in its reserves.
The Board is recommending a final tax-exempt (one-tier) ordinary dividend of 1.00 Singapore cent per share. Taking into account the interim dividend paid in October 2015, total dividends paid/payable for FY2015 will amount to 1.70 Singapore cents per share or S$10.0 million.
The property development business segment recorded a 27.4% increase in revenue from S$129.9 million in FY2014 to S$165.4 million in FY2015. Similarly, gross profit increased by S$10.2 million or 28.4% in FY2015. The increase was underpinned by profit recognition from the first time handover of Plot C residential units and Plot B commercial units, and further handover of Plot B residential units of the Millennium Waterfront Project.
Millennium Waterfront Project, Chengdu, PRC
The Group achieved respectable property development sales for the Millennium Waterfront Project despite the slowdown in the PRC economy. For FY2015, gross sales value* of RMB515.6 million (FY2014: RMB736.8 million), including 994 residential units sold, was achieved.
In December 2015, the Group carried out its first time handover of Plot C residential units of the Millennium Waterfront Project. Earlier in June 2015, we commenced first time handover of Plot B commercial units.
Pre-sales of Plot A residential units were progressively launched from March 2015 onwards. In view of the relatively slower sales rate of the riverfront blocks in Plot B, the Group re-designed Plot D to comprise a higher number of smaller units which will better cater for the current residential market demand. Construction of Plot D is expected to commence in FY2016. The Millennium Waterfront Project will still be the primary profit pipeline for the Group in FY2016.
Star of East River Project, Dongguan, PRC
The Group has won the public land tender for East River Plot Two (constituting approximately 25% of the total site area) on 4 December 2015 at the tender base price of RMB103.9 million. The Group expects to commence construction of phase 1 of the project during FY2016.
While macroeconomic data on the overall PRC economy reflects a generally subdued performance, certain cities such as Shenzhen have recorded substantial increase in residential prices which augurs well for our Star of East River project given Dongguan's close proximity to Shenzhen. The Group looks forward to this project becoming the next primary profit pipeline for the property development segment in the future.
Redevelopment of Boompjes, Rotterdam,
The Group has, through its 33% owned associated company, teamed up with Provast, a renowned Dutch property developer to redevelop the Boompjes property in Rotterdam. Provast is also the developer of the world famous Market Hall building in Rotterdam. Located on a prominent site overlooking the River Maas, the proposed redevelopment will transform the current office building into a residential development with approximately 360 modern apartments, supported by commercial and retail services. This proposed redevelopment will mark the Group's maiden entry into the Dutch property development market.
Wenjiang Lake Project, Chengdu, PRC
There has been an extensive delay in the official works for preparing the development land in connection with the Wenjiang Lake Project for the relevant land tender process. In view of the current PRC property market conditions, the Group will continue to work with the relevant local government authorities to reach a mutually acceptable solution.
Out of the Group's three business segments, the property holding business segment achieved the biggest growth for FY2015. Revenue surged by 269.6% from S$3.8 million in FY2014 to S$14.1 million in FY2015. This was significantly bolstered by profit contribution from the newly acquired Dutch properties, in particular Zuiderhof I and Arena Towers, which were acquired in February 2015 and June 2015 respectively.
The Netherlands Property Portfolio
The Group has successfully diversified into the Netherlands in FY2015, building a portfolio of core properties that deliver steady recurrent income and properties with redevelopment potential, and interest bearing property financing loans to our Dutch associated companies. These properties are geographically spread across the Netherlands including key business cities such as Amsterdam, Rotterdam, The Hague and prime residential areas in Zeist and Bilthoven. As at 31 December 2015, our Dutch investments, including property holding and property development business segments, constitute approximately 20.5% of our total asset base.
In February 2016, our Dutch associated company disposed the bulk of the non-core Dutch properties identified during the office portfolio acquisition in November 2015 at approximately 41% premium to cost.
M Hotel Chengdu and Millennium Waterfront
Chengdu Hotel, Chengdu, PRC
We are pleased to report that M Hotel Chengdu achieved a small gross operating profit in its second full year of operations.
The construction of the Millennium Waterfront Chengdu Hotel is currently ongoing as planned with target hotel commencement date to be in early 2017. After due consultation with one of our controlling shareholders, Millennium & Copthorne Hotels plc, the Group is in discussions with various reputable international hotel managers for the external management of the hotel.
The Group recorded strong growth in the property financing business in FY2015, with an 81.7% year-on-year increase, from S$19.5 million in FY2014 to S$35.5 million in FY2015, in revenue achieved. The property financing business accounted for 45.6% of the Group's profit before tax for FY2015, ending the year with a loan portfolio of RMB980.0 million as at 31 December 2015 (31 December 2014: RMB801.0 million) with interest ranging between 17.0% to 18.0% per annum. Property collaterals held under first legal mortgage include office units in Beijing, Shanghai, Guangzhou and Chengdu, development land in Shanghai, and completed residential units in Chengdu.
The Group encountered various problematic loans in December 2015 and January 2016, its first experience since the inception of this business four years ago. These problematic loans will put to test our property financing business strategy of collecting loan principal as our first course of action, and dealing with or repossessing the property loan collaterals as our next course of action. The loans have a relatively conservative loan-to-value ratio and the Group holds the first legal mortgage to the properties pledged as loan collateral, in addition to the various corporate and personal guarantees. We remain confident of the full recovery of our loan principals. We will also be entitled to receive default interest up to the point of recovery then.
The Group remains committed to the sustainable development of its business, the environment and communities in which it operates.
The Group had adopted various corporate social responsibility initiatives during the year. For example, M Hotel Chengdu organized and visited Chengdu's Tu Qiao Old Age Home in November 2015. As part of the visit, we have donated daily essentials items such as electric cooker, energy-saving table lamp, rice and cooking oil, and also spent time extending their care and concern to the old folks.
These activities display the Group's continued commitment to its corporate social responsibility initiatives.
Amidst the challenging macroeconomic environment in the PRC and uncertain growth outlook for the other major economies, FY2016 remains unpredictable on the global economic front. Nevertheless, during the course of FY2015, the Group has successfully established a new and stable recurrent income business base with its investments in the Netherlands which will further enhance the Group's profit visibility and diversify our earnings. While we continue to digest and consolidate our Dutch investments, we will also strive to build on the success of our Dutch acquisitions and seek new growth opportunities in the Netherlands, PRC and other regions.
Ho Han Leong Calvin
1 March 2016
* Includes sales under option agreements or sale and purchase agreements, as the case may be.