Hongkong Land Holdings Limited
Annual Report 2009
Interim Report 2007 iii
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Contents
Highlights
Corporate Overview
Chairman’s Statement
Chief Executive’s Review
Financial Review
Directors’ Profiles
Financial Statements
Independent Auditor’s Report
Five Year Summary
Responsibility Statement
Corporate Governance
Principal Risks and Uncertainties
Shareholder Information
Management and Offices
Report of the Valuers
Property Portfolio
Properties in Hong Kong’s Central Business District
Corporate Information
Registered Office
Jardine House
33–35 Reid Street
Hamilton
Bermuda
Directors
Simon Keswick Chairman
A J L Nightingale Managing Director
Y K Pang Chief Executive
Charles Allen-Jones
Mark Greenberg
Jenkin Hui
Sir Henry Keswick
R C Kwok
Lord Leach of Fairford
Dr Richard Lee
Lord Powell of Bayswater KCMG
James Watkins
Percy Weatherall
John R Witt
is one of Asia’s
Hongkong Land
investment,
management and development groups. Founded in Hong Kong in 1889,
the Group has interests across the region. Hongkong Land’s business is
built on partnership, integrity and excellence.
leading property
In Hong Kong, the Group owns and manages some five million sq. ft of
prime commercial space that defines the heart of the Central Business
District. In Singapore, it is helping to create the city-state’s new Central
Business District with the expansion of its joint venture portfolio of new
developments. Hongkong Land’s properties in these and other Asian
centres are recognised as market leaders and house the world’s foremost
financial, business and luxury retail names.
Hongkong Land also develops premium residential properties in
a number of cities in the region, not least in Singapore where its
77%-owned listed affiliate, MCL Land, is a significant developer.
Hongkong Land Holdings Limited is incorporated in Bermuda. Its primary
share listing is in London, with secondary listings in Bermuda and
Singapore. The Group’s assets and investments are managed from
Hong Kong by Hongkong Land Limited. Hongkong Land is a member
of the Jardine Matheson Group.
One Central, a joint venture development in the heart of Macau (front cover).
Highlights
• Underlying earnings per share up 111% to a record US¢34.55
• Commercial property net rental income up 19%
• Strong contribution from residential completions
• Capital values of completed investment properties up 6% for the year
• Full year dividend increased by 23% to US¢16.00
Results
2009
US$m
2008
US$m
Change
%
Underlying profit attributable to shareholders*
777
375
Profit/(loss) attributable to shareholders
Shareholders’ funds
Adjusted shareholders’ funds†
Net debt
Underlying earnings per share
Earnings/(loss) per share
Dividends per share
Net asset value per share
Adjusted net asset value per share†
1,641
(109 )
12,756
11,313
14,936
13,308
2,417
2,601
US¢
US¢
34.55
16.41
72.96
(4.79 )
16.00
13.00
US$
US$
5.67
5.03
6.64
5.92
107
n/m
13
12
(7 )
%
111
n/m
23
%
13
12
* The Group uses ‘underlying business performance’ in its internal financial reporting to distinguish between the underlying profits and non-trading items, as more fully
described in Note 1 to the financial statements. Management considers this to be a key measure and has provided this analysis as additional information in order to
provide greater understanding of the Group’s underlying business performance.
† In preparing the Group’s financial statements under International Financial Reporting Standards (‘IFRS’), the fair value model for investment properties has been adopted.
In accordance with this model, the Group’s leasehold investment properties have been included at their open market value as determined by independent valuers. In the
territories where the Group has significant leasehold investment properties, no capital gains tax would be payable on the sale of these properties. In relation to leasehold
investment properties, however, IFRS require deferred tax on any revaluation amount to be calculated using income tax rates. This is in contrast to the treatment for the
revaluation element of freehold properties where IFRS require capital gains tax rates to be used.
As Management considers that the Group’s long leasehold properties have very similar characteristics to freehold property, the adjusted shareholders’ funds and adjusted
net asset value per share information is presented on the basis that would be applicable if the leasehold properties were freehold. The adjustments made add back the
deferred tax provided in the financial statements that would not be payable if the properties were sold. See Note 23 to the financial statements.
Annual Report 2009 1
Corporate Overview
Hongkong Land’s Strategy for Growth
Market Leadership in Hong Kong
Hongkong Land will maintain a leadership position in Hong Kong’s Central business
district where it owns and manages some 5,000,000 sq. ft of prime office and retail
space.
Property Investments and Developments in Asia
The Group will seek commercial and residential property developments in Asia for
long-term investment and for trading. It has investments in Hong Kong, Macau, mainland
China, Singapore, Vietnam, Thailand, Indonesia, Malaysia and the Philippines.
Shareholder Value
The Group aims to build sustainable streams of value for its shareholders, while
maintaining financial strength through a policy of prudent financing and investment.
Group Structure
Hongkong Land Holdings Limited is incorporated in Bermuda and listed in London,
Bermuda and Singapore. Hongkong Land Limited manages the operations of the Group
from Hong Kong and provides services to Hongkong Land China, which holds the
Group’s property interests in China, and to Hongkong Land International, which holds
the Group’s property interests elsewhere.
2 Hongkong Land
Henry Moore’s Double Oval at the newly renovated plaza of Jardine House.
Annual Report 2009 3
Chairman’s Statement
Overview
Continuing high demand for office and retail space in Hong Kong’s Central district,
allied to a strong contribution from residential developments, enabled the Group to
achieve a record result in 2009.
Performance
Underlying profit for 2009 rose 107% to US$777 million and underlying earnings per
share were 111% higher at US¢34.55. Net rental income grew 19% over the previous
year, while the contribution from residential development projects was US$386 million,
compared with a breakeven result in 2008.
The independent valuation of the Group’s commercial investment properties at the end
of 2009, including the Group’s share of completed investment properties in associates
and joint ventures, was US$15.5 billion, an increase of 6%. The adjusted net asset value
per share increased by 12% to US$6.64 over the year.
After taking account of revaluations, the profit attributable to shareholders for 2009
was US$1,641 million, compared with a loss of US$109 million in 2008.
The Directors are recommending a final dividend of US¢10.00 per share for 2009,
providing a total dividend for the year of US¢16.00 per share, an increase of 23%
from 2008.
Group Review
Demand for high quality commercial office space continued to be strong across all
business sectors in Hong Kong’s Central district despite the negative impact of the global
recession in the early part of the year. Market rentals declined sharply in the first half,
before stabilising as the year progressed. The luxury retail market also faced difficult
trading conditions initially, before recovering well in the second half. Occupancy in the
Group’s portfolio remained high throughout the year and good growth in net rental
income was recorded.
The Group’s joint venture development in Macau, One Central, launched its luxury retail
mall in December, which quickly established itself as the premier shopping destination
on the Macau Peninsula.
Rental levels in the Singapore office market declined in the first nine months of 2009 in
response to the poor economic conditions and a projected surplus of supply. Sentiment
did, however, improve in the final quarter and some stability has returned to the market.
The Group’s two completed commercial investment property interests remained fully let.
The joint venture development project, Marina Bay Financial Centre, is progressing well
with over 68% of the commercial office space pre-committed. Completion is scheduled
to take place in two phases in 2010 and 2012, respectively, with the first phase already
81% let.
4 Hongkong Land
The residential sector in general benefited in 2009 from Government stimulus packages
and low interest rates introduced to counter the effects of the economic downturn. In
Hong Kong, The Sail at Victoria was completed in the final quarter of 2009 with 92% of
the units having been sold by the year end.
The second residential tower at Marina Bay Financial Centre in Singapore was well
received when the first tranche of units was launched for sale towards the end of the
year. MCL Land’s residential completions in Singapore made a good contribution to the
Group’s earnings in 2009. A further four of its projects currently under development
remain on schedule for completion over the next three years.
The residential units in One Central Macau also made a significant contribution to
earnings following completion during 2009. After the cancellation of the en-bloc sale of
Tower 4 during the year, the apartments were re-launched in December 2009 and have
been substantially sold. Completion will take place during 2010.
In mainland China, the second phase of Bamboo Grove in Chongqing was completed
and nearly all the units had been handed over to buyers by the year end. The response
to the next phase has been encouraging, and further phases are planned. After increasing
its interest in the Beijing luxury residential development, Maple Place, from 35% to
90%, the Group released for sale a quarter of the units in December. These were fully
taken up within a short period.
The Group has two residential projects in Shenyang: Park Life, where construction of
the second phase has commenced, and One Capitol, where the first phase remains
under active planning. In December, Hongkong Land successfully tendered in joint
venture for a new development site in Chongqing, strengthening the Group’s pipeline
of residential projects.
The Group had no major financing requirements during the year and its balance sheet
remains strong.
People
With particularly difficult financial markets and trading conditions in the first half, 2009
was a demanding year for our business. The Board would like to thank all staff for their
hard work and professionalism.
We welcomed James Watkins to the Board in May 2009.
Outlook
Hongkong Land’s earnings in 2010 should continue to benefit from high occupancy
levels and steady rentals together with the recognition of profits on the completion of
residential developments. Some uncertainty remains, however, over the strength and
durability of the economic recovery.
Simon Keswick
Chairman
4th March 2010
Annual Report 2009 5
Chief Executive’s Review
The Group’s Hong Kong commercial property portfolio continued to be the largest
contributor to earnings in 2009. It enjoyed strong rental income growth of 16% and
high occupancy throughout the year in the face of challenging trading conditions,
particularly in the first half. There was continuing demand for office and retail space in
the Group’s buildings, despite the recessionary market sentiment and competition from
new supply elsewhere on Hong Kong Island and in Kowloon. This clearly reinforced
Central’s status as Hong Kong’s location of choice for international business and finance,
and its leading destination for luxury retail. The Group’s residential business also
performed well with a substantial profit contribution from completions in Hong Kong,
Macau, Singapore and Chongqing. As a result Hongkong Land achieved a record
underlying profit in 2009.
The Group continues to pursue a strategy of expanding its commercial property activities
throughout the region at a measured pace. In Singapore, construction of the
340,000 sq. m. joint venture development Marina Bay Financial Centre (‘MBFC’) is on
track for phased completion in 2010 and 2012. Hongkong Land’s wholly-owned One
Raffles Link (‘ORL’) and joint venture development One Raffles Quay (‘ORQ’) are both
fully let. When MBFC is completed, Hongkong Land’s interests in this important regional
business centre will extend to some 150,000 sq. m. of the leading commercial office
space, for which it will also have overall management responsibility.
Significant progress has been made in establishing Hongkong Land’s residential
development business as a significant, capital-efficient and sustainable contributor to
earnings. In 2009, completions in Hong Kong, Macau, mainland China and, for MCL
Land, in Singapore contributed good profits. The current construction programmes
continue on track for residential development projects in Hong Kong, Macau, Singapore
and Beijing, Chongqing and Shenyang in mainland China. These will ensure a steady
stream of completions going forward. At the end of 2009, another large residential
development site in Chongqing was acquired in joint venture, thereby adding to the
Group’s residential property landbank.
Central portfolio tenant profile by area occupied (%)
2004
2009
42
22
3
6
9
4
Banks and other
financial services
Legal
Trading
Governments
Accounting
Property
41
26
3
5
9
4
Banks and other
financial services
Legal
Trading
Governments
Accounting
Property
14
Others
12
Others
6 Hongkong Land
Central portfolio
at 31st December 2009
Office
Retail
Capital value* (US$m)
11,243
2,985
Gross revenue* (US$m)
561
161
Average unexpired terms of lease (years)
Area subject to renewal/review in 2010 (%)
4.1
39
2.8
44
* includes hotel
Commercial Property
Central portfolio equivalent yield (%)
Hong Kong Central Portfolio
Office rents in Hong Kong’s Central district fell sharply in the first
half of 2009, but stabilised somewhat during the second half.
Office (One and Two Exchange Square)
Retail (Prince’s Building)
Nevertheless, net rental income for the Group’s properties in Hong
Kong, which continued to benefit from positive rental reversions
5.25
5.00
5.50
5.25
5.50
5.25
5.50
6.25
4.75
4.50
during most of the year, rose by 19% to US$611 million in 2009.
Vacancy in the portfolio was 4.4% at the end of 2009, compared
with 2.6% at the end of 2008. This was an encouraging result
given the market challenges faced and is a testimony to the high
quality and enduring reputation of the Group’s portfolio.
’05
’06
’07
’08
’09
8
7
6
5
4
3
2
1
0
11.46
10.84
Central portfolio average office rent (US$/sq. ft per month)
Nominal
Effective
5.93
5.48
5.63
5.24
5.44
5.08
5.26
4.69
4.60
4.04
4.22
3.78
5.21
4.83
8.90
8.52
6.69
6.33
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
12
10
8
6
4
2
0
Annual Report 2009 7
Demand for prime, centrally-located space remained strong for both
the commercial office and retail segments as market sentiment and
business confidence recovered. The Group’s commercial investment
property portfolio was valued at US$14,228 million at the end of
2009, an increase of 9% from 2008. While no significant increase in
vacancy is anticipated in 2010, trading conditions are expected to
remain challenging.
The refurbishment of retail areas and elevators at Jardine House was
completed at the end of the year. A major renovation of the Prince’s
Building retail podium will commence in the first half of 2010. These
initiatives are in line with the Group’s strategy of continually enhancing
the quality, performance and reputation of the portfolio.
While sales in the luxury retail sector were weak during the first half of
2009, a recovery in the second half led to full-year sales levels
comparable with the previous peak in 2007. Average rents for the
Group’s luxury retail space in the Central Portfolio rose by 3% during
the year, while occupancy remained at 100% at the end of 2009.
Commercial Properties other than in Hong Kong
The contribution to the Group’s results from its properties in Singapore
continued to increase in 2009 with both ORL and ORQ fully let at good
rental levels. Construction of MBFC is due to complete in two phases,
in 2010 and 2012. The two phases, comprising 190,000 sq. m. and
150,000 sq. m. of gross floor area, respectively, are more than 68%
pre-committed. The two towers in Phase 1 completing in 2010 are
over 81% let.
The shopping mall at One Central in Macau was launched in December
2009 with flagship stores for a number of prestigious retail brands.
The hotel and serviced apartments element of the development will
open in 2010. When completed, One Central will comprise some
21,000 sq. m. of luxury retail space, together with a Mandarin Oriental
hotel, 92 serviced apartments and 137,000 sq. m. of residential
apartments.
The Group’s other commercial investment properties are located in
Hanoi, Jakarta, Bangkok and Bermuda. Our two buildings in Hanoi are
Chief Executive’s Review
Top five office tenants
(in alphabetical order)
at 31st December 2009
Credit Suisse
Fortis Bank
JPMorgan
KPMG
PricewaterhouseCoopers
Top five retail tenants
(in alphabetical order)
at 31st December 2009
Dickson Concepts
Giorgio Armani
Gucci
Louis Vuitton
Richemont Group
8 Hongkong Land
fully let at the highest rents in that market. Jakarta Land’s portfolio is achieving occupancy
levels of over 95%, also at good rents. In Bangkok, however, our 49%-owned luxury
retail centre and office development, Gaysorn, is experiencing difficult trading conditions.
In Bermuda, Jardine Gibbons Property, in which Hongkong Land has a 40% interest,
owns four fully-let commercial buildings in the centre of Hamilton.
Residential Property
The Group’s residential property activities made a contribution to underlying profit of
US$386 million in 2009, a significant improvement on the breakeven result recorded in
2008. Completions of The Sail at Victoria in Hong Kong, One Central Macau, Phase 2 of
Bamboo Grove in Chongqing and MCL Land’s Tierra Vue, The Fernhill and Hillcrest Villa
contributed to the overall result. The Group’s residential development in Hong Kong,
Serenade in Tai Hang Road, has received pre-sale consent and is scheduled for sale
launch in the first half of 2010.
In Singapore, construction of Marina Bay Residences, the residential component of
Phase 1 of the MBFC, is on schedule for completion and handover to buyers in 2010.
The first batch of units of the second MBFC residential tower were released for sale in
the last quarter of 2009, and over 95% had been sold by the year end.
The units in One Central Residences, our joint venture development in the heart of the
Macau Peninsula, were completed in 2009, providing a significant contribution to the
Group’s earnings. After receiving a fee for cancelling the sale of Tower 4 in June 2009,
the apartments were re-launched for sale in December 2009 and substantially all were
sold by the end of the year.
Phase 2 of Bamboo Grove in Chongqing was completed in the last quarter of 2009, with
97% being sold by the year end. The response to Phase 3A, comprising 261 townhouses
for completion in 2010, was very encouraging and 99% had been sold by the end of
2009. This success was instrumental in the decision to commence construction of a new
phase of townhouses that is scheduled for completion in 2011. A further high-rise phase
is also planned, with pre-sale targeted for 2010.
The Group increased its interest in Maple Place in Beijing, a development of 209 units of
mainly villas and townhouses, from 35% to 90% during 2009. All of the first tranche of
units released for sale in December were sold and committed by the year end.
The Group has two residential projects in Shenyang. Construction of Phase 2 of Park Life
commenced in 2009, while Phase 1 of One Capitol is being planned.
Annual Report 2009 9
Chief Executive’s Review
MCL Land
MCL Land completed The Fernhill and Tierra Vue in Singapore in the first half of 2009,
and these were followed by Hillcrest Villa in the second half of the year. These completions
enabled MCL Land to announce a record result in 2009. MCL Land has a further four
projects under construction, the sales of which have benefited from a resurgence of
confidence in the premium property sector. Waterfall Gardens and D’Pavilion, which will
complete in 2010, were 100% and 44% sold, respectively, at the end of 2009. The
Peak@Balmeg is scheduled for completion in 2011 and was 90% sold, while Parvis is
targeting a 2012 completion and was launched for sale in November with 56% sold at
the end of 2009.
Finance and Corporate Activities
The Group’s financial position remains healthy. At the end of 2009, adjusted gearing was
16% with net debt at US$2.4 billion, down from US$2.6 billion at the end of 2008. The
Group’s liquidity remains strong with no significant refinancing requirements until
2011.
In November 2009, the Group participated as one of the cornerstone investors in the
initial public offering of Longfor Properties Co., the Group’s joint venture partner in the
Bamboo Grove development in Chongqing. This investment strengthens an existing
relationship and will enhance the prospects for the further expansion of the Group’s
residential property portfolio in China.
Outlook
We are cautiously optimistic as we enter 2010. Global financial markets have benefited
from the measures taken by governments worldwide to restore confidence, although
economic conditions are likely to remain volatile for some time.
The financial services institutions that form a significant proportion of our tenants have
begun rehiring after significant layoffs in the first half of 2009 and are once again
considering expansion in Asian markets. Consumer confidence in the region is also
growing as evidenced by the recovery in sales of luxury consumer products, the strong
demand in the high-end residential sector and the gains in equity markets.
Y K Pang
Chief Executive
4th March 2010
10 Hongkong Land
Financial Review
Financial Markets’ Review
Global financial markets stabilised during the year after the turbulence
experienced in 2008 and the early part of 2009. Stock markets as well
as banking and bond markets have all improved during the year, and
interest rates remain at historically low levels. Credit spreads, however,
are more expensive than they were before the financial crisis. While
challenging times continue for a number of the world’s economies,
the outlook is more positive than a year ago, particularly in Asia.
Results
There have been some changes to the accounting policies adopted by
the Group during 2009, the most significant of which is that investment
property under development is now carried at fair value rather than at
cost following an amendment to IAS 40 Investment Property.
Underlying earnings for the year rose 107% to US$777 million from
US$375 million recorded in 2008. Underlying earnings per share rose
to US¢34.55 from US¢16.41 in 2008. A profit attributable to
shareholders of US$1,641 million (2008: loss of US$109 million) was
recorded after a US$877 million increase in the fair value of investment
properties (including those in associates and joint ventures) net of
deferred tax.
Overall, net rental income from commercial properties was 19% higher
than in 2008. In the Group’s Hong Kong Central office portfolio
average effective rents increased from US$8.52 psf in 2008 to
US$10.84 psf in 2009, while occupancy at the end of 2009 was
95.6%, lower than the 97.4% at the end of 2008. In the Group’s
Hong Kong Central retail portfolio average effective rents increased
Net debt as a percentage of
adjusted equity*
from US$16.54 psf in 2008 to US$17.04 psf in 2009, and at the end
Net debt
Adjusted equity*
of the year the portfolio remained fully occupied.
The Group’s residential property business recorded a contribution to
underlying profit of US$386 million in 2009 up from the breakeven
result in 2008. The results benefited from the completions of The Sail
at Victoria in Hong Kong, One Central Macau, Phase 2 of Bamboo
Grove in Chongqing and MCL Land’s Tierra Vue, The Fernhill and
Hillcrest Villa.
22%
21%
17%
19%
16%
Net financing charges increased from US$45 million in 2008 to
US$52 million in 2009. Average borrowing costs were 2.8%, compared
’05
’06
’07
’08
’09
with 3.6% in 2008. Interest cover, calculated as the underlying
operating profit which includes the Group’s share of associates’ and
* Excludes deferred tax on revaluation surpluses of
investment properties that would not be payable
if the properties were sold
(cid:24)
(cid:23)
(cid:23)
(cid:22)
(cid:27)
(cid:22)
(cid:27)
(cid:22)
(cid:22)
(cid:22)
(cid:22)
(cid:22)(cid:22)
(cid:22)(cid:22)
Annual Report 2009 11
(cid:22)(cid:22)
(cid:22)
(cid:22)
(cid:22)
Financial Review
Year-end debt summary
US$ convertible bonds
US$ bonds
US$ bank loans
HK$ bank loans
S$ bonds
S$ bank loans
Gross debt
Cash
2009
US$m
2008
US$m
368
1,156
358
1,184
2 3
866
503
748
809
493
873
3,643
1,226
3,720
1,119
joint ventures’ results divided by net financing charges, was strong at
19.1 times (2008: 10.7 times).
Dividends
The Board is recommending a final dividend of US¢10.00 per share
(2008: US¢7.00 per share) giving a total dividend payable for the year
of US¢16.00 per share (2008: US¢13.00). The final dividend is payable
on 12th May 2010 to those persons registered as shareholders on
19th March 2010. The dividends are payable in cash.
Cash Flow
With strong rental income from the Group’s investment properties and
receipt of progress payments from development projects in Hong
Kong, mainland China, Macau and Singapore, the recurring cash flow
(cash flow from operating activities less major renovations expenditure)
of US$874 million in 2009 was US$373 million higher than in 2008.
This cash flow was largely applied to the payment of dividends
(US$298 million), capital expenditure on developments and associates
and joint ventures (US$390 million).
As a result, the Group’s net debt at 31st December 2009 was
US$2,417 million, down US$184 million from US$2,601 million at the
end of 2008. Net gearing calculated on adjusted equity, which excludes
deferred tax provisions on revaluation surpluses of investment
properties, was 16%, compared with 19% at the end of 2008 due to
the lower net debt and higher adjusted shareholders’ funds resulting
from the increase in the value of investment properties.
Net debt
2,417
2,601
Investment Properties’ Valuation
In preparing the Group’s financial statements under International
Financial Reporting Standards (‘IFRS’), the fair value model for
investment properties has been adopted. In accordance with this
model, the Group’s leasehold investment properties have been included
at their open market value as determined by independent valuers. In
the territories where the Group has significant leasehold investment
properties, no capital gains tax would be payable on the sale of these
properties. In relation to leasehold investment properties, however,
IFRS require deferred tax on any revaluation amount to be calculated
using income tax rates. This is in contrast to the treatment for the
revaluation element of freehold properties where IFRS require capital
gains tax rates to be used.
12 Hongkong Land
As Management considers that the Group’s long-term leasehold
Debt profile as at
properties have very similar characteristics to freehold property, the
31st December 2009 (%)
adjusted shareholders’ funds and adjusted net asset value per share
information is presented on the basis that would be applicable if the
leasehold properties were freehold. The adjustments made add back
the deferred tax provided in the financial statements that would not
be payable if the properties were sold.
The revaluation increase for 2009 of US$1,055 million, which includes
the Group’s shares in associates and joint ventures, resulted largely
from lower capitalisation rates offset by lower market rental levels. The
deferred tax charge required by IFRS in relation to this revaluation
increase is US$178 million. The revaluation increase and the associated
deferred tax charge have been taken to the profit and loss account in
accordance with IFRS as set out above. At the end of the year, the
Group’s completed commercial
investment properties portfolio
(including the Group’s share of investment properties in associates and
joint ventures) was valued at US$15,452 million, up by 6% from
US$14,525 million at the end of 2008.
Excluding the deferred tax provision on the revaluation surpluses of
(cid:23)(cid:24)(cid:22)
(cid:23)(cid:22)(cid:22)
(cid:30)(cid:22)
(cid:28)(cid:22)
(cid:26)(cid:22)
(cid:24)(cid:22)
(cid:22)
investment properties that would not be payable if the properties were
sold, the Group’s adjusted net asset value per share increased by 12%
to US$6.64 at the end of 2009 from US$5.92 at the end of 2008.
Financial Risk Management and Treasury Activities
The Group manages its treasury activities within established risk
management objectives and policies using a variety of techniques and
instruments. The main objectives are to manage exchange, interest
rate and liquidity risks and to provide a degree of certainty about costs.
The Group’s Treasury operations are managed as cost centres, and
derivatives are employed for hedging purposes only. Appropriate credit
guidelines are in place to manage counterparty credit risk.
When economically sensible to do so, borrowings are taken in local
currencies to hedge foreign currency exposures on investments. A
portion of borrowings is denominated in fixed rates. Adequate
headroom in committed facilities is maintained to facilitate the Group’s
capacity to pursue new investment opportunities.
A review of the principal risks and uncertainties facing the Company is
set out on page 62.
Interest
rate
52
48
Fixed
Rate
Floating
Rate
Currency
Maturity
10
34
56
US$
S$
HK$
13
52
28
7
> 5 years
2-5 years
1-2 years
<1 year
Annual Report 2009 13
Financial Review
Committed facility maturity as
Funding
at 31st December 2009 (US$m)
Global credit markets were extremely difficult at the beginning of
1,721
2009 but stabilised and improved during the year. Credit spreads,
1,212
1,144
680
292
’10
’11
’12
’13
’14 &
beyond
(cid:24)(cid:22)(cid:22)(cid:22)
(cid:23)(cid:27)(cid:22)(cid:22)
(cid:23)(cid:22)(cid:22)(cid:22)
(cid:27)(cid:22)(cid:22)
(cid:22)
however, remain more expensive than they were prior to the global
financial crisis. The Group continues to maintain a healthy funding and
liquidity position. While the Group did not have any major refinancing
requirements in 2009, a number of new bilateral banking facilities
were established. In June, the Group established a US$3.0 billion
guaranteed medium-term note programme, which provides for the
issue of notes in multiple currencies and with a range of maturities up
to 30 years, to further strengthen its funding position and diversify its
sources of funding. During 2009 the Group completed five fixed rate
note issues raising a total of US$200 million with maturities of eight to
twelve years.
As at 31st December 2009, the Group had total financing facilities of
US$5.3 billion (2008: US$5.0 billion), of which 96% was committed
(2008: 95%). At that date, 71% of the committed facilities were
drawn. Of the Group’s committed facilities, 44% are sourced from the
capital markets and 56% from the banking market. The average
facility maturity at 31st December 2009 was 3.4 years (2008:
3.6 years). At the year end the Group held cash deposits of
US$1,226 million (2008: US$1,119 million). Total liquidity calculated
as committed facility headroom plus surplus cash on deposit was
US$2,688 million (2008: US$2,102 million).
In February 2010 Standard & Poors upgraded its credit rating of
Hongkong Land Holdings Limited to A- with stable outlook from BBB+
with positive outlook. Moody’s continues to maintain a stable outlook
on its Baa1 rating of the Group.
Geoffrey M Brown
Chief Financial Officer
4th March 2010
14 Hongkong Land
Directors’ Profiles
Simon Keswick Chairman
Sir Henry Keswick
Mr Simon Keswick has been a Director of the Group’s holding company
Sir Henry first served on the Board of the Group’s holding company
since 1983. He was Chairman from 1983 to 1988 and was subsequently
between 1970 and 1975 and was re-appointed a Director in 1988. He is
re-appointed in 1989. He joined the Jardine Matheson group in 1962 and
chairman of Jardine Matheson, having first joined the group in 1961, and
is also chairman of Dairy Farm and Mandarin Oriental, and a director of
is also chairman of Jardine Strategic. He is a director of Dairy Farm,
Jardine Lloyd Thompson, Jardine Matheson and Jardine Strategic.
Mandarin Oriental and Rothschilds Continuation. He is also vice chairman
A J L Nightingale* Managing Director
Mr Nightingale joined the Board and was appointed as Managing Director
of the Hong Kong Association.
R C Kwok
in 2006. He has served in a number of executive positions since joining the
Mr Kwok is a Chartered Accountant and has been a Director of the
Jardine Matheson group in 1969. He is chairman of Jardine Cycle &
Group’s holding company since 1981. He joined the Jardine Matheson
Carriage, Jardine Matheson Limited, Jardine Motors and Jardine Pacific;
group in 1964 and is a director of Jardine Matheson Limited, Dairy Farm,
and a commissioner of Astra. He is also managing director of Dairy Farm,
Jardine Matheson, Jardine Strategic and Mandarin Oriental.
Jardine Matheson, Jardine Strategic and Mandarin Oriental. Mr Nightingale
is chairman of the Business Facilitation Advisory Committee established by
the Financial Secretary in Hong Kong, a vice president of The Real Estate
Developers Association of Hong Kong, a member of the Commission on
Strategic Development, a council member of the Employers’ Federation of
Hong Kong and a Hong Kong representative to the APEC Business
Advisory Council. He is also chairman of The Sailors Home and Missions
to Seamen.
Y K Pang* Chief Executive
Mr Pang joined the Board and was appointed Chief Executive of
the Group in 2007. He has previously held a number of senior executive
positions in the Jardine Matheson group, having first joined in 1984. He is
also chairman of MCL Land and Jardine Matheson (China) Limited, and is
a director of Jardine Matheson Limited. He is a general committee member
of the Hong Kong General Chamber of Commerce.
John R Witt* Chief Financial Officer
Mr Witt joined the Board as Chief Financial Officer on 1st April 2010. He
is a Chartered Accountant and has an MBA from INSEAD. He has been
with the Jardine Matheson group since 1993 during which time he has
held a number of senior finance positions, most recently the chief financial
officer of Mandarin Oriental.
Charles Allen-Jones
Mr Allen-Jones joined the Board in 2001. He was formerly senior partner
of Linklaters, where he had been a partner for 33 years until 2001.
Mr Allen-Jones is a non-executive director of Jardine Strategic and
Caledonia Investments, a member of the Financial Reporting Review Panel
and vice chairman of the Council of the Royal College of Art.
Mark Greenberg
Lord Leach of Fairford
Lord Leach has been a Director of the Group’s holding company
since 1985. He is deputy chairman of Jardine Lloyd Thompson, and
a director of Dairy Farm, Jardine Matheson, Jardine Strategic, Mandarin
Oriental and Rothschilds Continuation. He joined the Jardine Matheson
group in 1983 after a career in banking and merchant banking.
Dr Richard Lee
Dr Lee joined the Board in 2003. Dr Lee’s principal business interests are in
the manufacturing of textiles and apparel in Southeast Asia, and he is the
chairman of TAL Apparel. He is also a director of Jardine Matheson and
Mandarin Oriental.
Lord Powell of Bayswater KCMG
Lord Powell rejoined the Board in 2008, having first served as a Director
between 1992 and 2000. He was previously Private Secretary and adviser
on foreign affairs and defence to British Prime Ministers, Baroness Thatcher
and Rt Hon John Major. He is a director of Caterpillar, LVMH Moët
Hennessy Louis Vuitton, Matheson & Co, Mandarin Oriental, Capital
Generation Partners, Textron Corporation, Schindler Holdings, Northern
Trust Global Services and Magna Holdings. He is co-chairman of the
UK Government’s Asia Task Force and was previously president of the
China-Britain Business Council and chairman of the Singapore-British
Business Council.
James Watkins
Mr Watkins joined the Board in May 2009. He was a director
and group general counsel of Jardine Matheson from 1997 to
2003. Mr Watkins qualified as a solicitor in 1969 and was formerly
a partner of Linklaters. He is also a director of Advanced Semiconductor
Manufacturing Corporation, Asia Satellite Telecommunications Holdings,
Mr Greenberg joined the Board in 2006. He is group strategy director of
Global Sources, IL&FS India Realty Fund II, Jardine Cycle & Carriage,
Jardine Matheson. He had previously spent 16 years in investment banking
Mandarin Oriental and MCL Land.
with Dresdner Kleinwort Wasserstein in London. He is also a director of
Jardine Matheson Limited, Dairy Farm, Jardine Cycle & Carriage and
Mandarin Oriental and a commissioner of Astra and Bank Permata.
Jenkin Hui
Percy Weatherall
Mr Weatherall joined the Board in 1994 and was Managing Director from
2000 to 2006. He held a number of senior positions since first joining the
Jardine Matheson group in 1976 until his retirement from executive office
Mr Hui joined the Board in 1994 and is a director of Jardine Matheson,
in 2006. He is also a director of Dairy Farm, Jardine Matheson, Jardine
Jardine Strategic, Central Development and a number of property and
Strategic and Mandarin Oriental. He is chairman of Corney and Barrow.
investment companies.
* Executive Director
Annual Report 2009 15
Consolidated Profit and Loss Account
for the year ended 31st December 2009
Underlying
business
performance
Note
US$m
2009
Non-
trading
items
US$m
Underlying
business
performance
US$m
Total
US$m
2008
Non-
trading
items
US$m
Total
US$m
5
6
11
11
7
8
9
1,322.6
(508.1 )
814.5
–
–
–
1,322.6
(508.1 )
1,022.3
(626.5 )
814.5
395.8
–
–
–
1,022.3
(626.5 )
395.8
–
1,000.6
1,000.6
–
(698.9 )
(698.9 )
–
(8.4 )
(8.4 )
–
1.8
1.8
814.5
992.2
1,806.7
395.8
(697.1 )
(301.3 )
(110.0 )
58.0
(52.0 )
177.8
–
–
–
44.6
(110.0 )
58.0
(52.0 )
222.4
(116.3 )
71.8
(44.5 )
81.3
–
–
–
(16.4 )
(116.3 )
71.8
(44.5 )
64.9
940.3
1,036.8
(120.3 )
(168.9 )
1,977.1
(289.2 )
432.6
(81.1 )
(713.5 )
(280.9 )
228.6
147.5
820.0
867.9
1,687.9
351.5
(484.9 )
(133.4 )
777.1
42.9
864.0
3.9
1,641.1
46.8
375.1
(23.6 )
(484.5 )
(109.4 )
(0.4 )
(24.0 )
820.0
867.9
1,687.9
351.5
(484.9 )
(133.4 )
US¢
72.96
70.62
US¢
(4.79 )
(4.79 )
Revenue
Net operating costs
Increase/(decrease) in fair value of
investment properties
Asset impairment provisions, reversals
and disposals
Operating profit/(loss)
Financing charges
Financing income
Net financing charges
Share of results of associates and joint ventures
Profit/(loss) before tax
Tax
Profit/(loss) after tax
Attributable to:
Shareholders of the Company
Minority interests
Earnings/(loss) per share
10
– basic
– diluted
16 Hongkong Land
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2009
Profit/(loss) for the year
Revaluation of properties
Revaluation of other investments
– gains arising during the year
– transfer to profit and loss
Actuarial gains/(losses) on employee benefit plans
Net exchange translation differences
Cash flow hedges
– losses arising during the year
– transfer to profit and loss
Share of other comprehensive income of associates and joint ventures
Tax relating to components of other comprehensive income
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Shareholders of the Company
Minority interests
Note
12
2009
US$m
2008
US$m
1,687.9
(133.4 )
83.3
8.5
–
8.5
4.0
16.1
(7.1 )
(1.4 )
(8.5 )
6.3
(14.1 )
95.6
1,783.5
1,735.0
48.5
1,783.5
–
–
(6.1 )
(6.1 )
(12.1 )
75.5
(0.6 )
(3.6 )
(4.2 )
(2.2 )
3.8
54.7
(78.7 )
(55.7 )
(23.0 )
(78.7 )
Annual Report 2009 17
Note
12
13
14
15
16
18
17
18
19
20
21
21
15
20
22
2009
US$m
2008
US$m
14,817.7
3.9
14,821.6
2,305.2
46.4
3.9
10.0
56.7
13,702.7
14.8
13,717.5
1,797.5
–
4.5
6.1
101.9
17,243.8
15,627.5
787.1
315.3
1,226.1
838.9
289.2
1,119.0
2,328.5
2,247.1
(687.1 )
(245.9 )
(120.6 )
(1,053.6 )
1,274.9
(3,397.5 )
(2,179.4 )
(50.5 )
(668.8 )
(95.4 )
(58.2 )
(822.4 )
1,424.7
(3,624.1 )
(1,992.9 )
(26.8 )
12,891.3
11,408.4
224.9
12,531.0
12,755.9
135.4
224.9
11,088.4
11,313.3
95.1
12,891.3
11,408.4
Consolidated Balance Sheet
at 31st December 2009
Net operating assets
Tangible assets
Investment properties
Others
Associates and joint ventures
Other investments
Deferred tax assets
Pension assets
Non-current debtors
Non-current assets
Properties for sale
Current debtors
Bank balances
Current assets
Current creditors
Current borrowings
Current tax liabilities
Current liabilities
Net current assets
Long-term borrowings
Deferred tax liabilities
Non-current creditors
Total equity
Share capital
Revenue and other reserves
Shareholders’ funds
Minority interests
Approved by the Board of Directors on 4th March 2010
A J L Nightingale
Y K Pang
Directors
18 Hongkong Land
Consolidated Statement of Changes in Equity
for the year ended 31st December 2009
Attributable to shareholders of the Company
Share Revenue
Capital Hedging Exchange
Attributable
to minority
capital
reserves
reserves
reserves
reserves
Total
interests
Note
US$m
US$m
US$m
US$m
US$m
US$m
US$m
Total
equity
US$m
2009
At 1st January
Total comprehensive income
Dividends paid by the Company
12
24
Dividends paid to minority
shareholders
New subsidiary
224.9 10,901.9
63.4
–
–
–
–
1,723.0
(292.4 )
–
–
–
–
–
–
1.2
(8.6 )
–
–
–
121.9 11,313.3
95.1 11,408.4
20.6
1,735.0
48.5
1,783.5
–
(292.4 )
–
(292.4 )
–
–
–
–
(6.0 )
(2.2 )
(6.0 )
(2.2 )
At 31st December
224.9 12,332.5
63.4
(7.4 )
142.5 12,755.9
135.4 12,891.3
2008
At 1st January
229.5 11,486.7
63.4
Total comprehensive income
Dividends paid by the Company
24
Dividends paid to minority
shareholders
Repurchase of shares
–
–
–
(125.4 )
(344.3 )
–
(4.6 )
(115.1 )
–
–
–
–
3.8
(2.6 )
–
–
–
49.6 11,833.0
124.1 11,957.1
72.3
(55.7 )
(23.0 )
–
(344.3 )
–
(78.7 )
(344.3 )
–
–
–
(6.0 )
(6.0 )
(119.7 )
–
(119.7 )
At 31st December
224.9 10,901.9
63.4
1.2
121.9 11,313.3
95.1 11,408.4
Annual Report 2009 19
Consolidated Cash Flow Statement
for the year ended 31st December 2009
Operating activities
Operating profit/(loss)
Depreciation
Fixed assets written off
Provision for development properties held for sale
(Increase)/decrease in fair value of investment properties
Asset impairment provisions, reversals and disposals
Decrease/(increase) in properties for sale
(Increase)/decrease in debtors, prepayments and others
Increase in creditors and accruals
Interest received
Interest and other financing charges paid
Tax paid
Dividends from associates and joint ventures
Cash flows from operating activities
Investing activities
Major renovations expenditure
Developments capital expenditure
Purchase of a subsidiary
Investments in and loans to associates and joint ventures
Purchase of other investments
Cash flows from investing activities
Financing activities
Drawdown of borrowings
Repayment of borrowings
Repurchase of shares
Contribution from minority shareholders
Dividends paid by the Company
Dividends paid to minority shareholders
Cash flows from financing activities
Effect of exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at 1st January
Note
6
6
25
2009
US$m
1,806.7
1.6
1.5
–
(1,000.6 )
8.4
152.4
(34.3 )
41.4
62.3
(94.6 )
(53.1 )
11.6
903.3
(29.5 )
(4.4 )
(42.0 ) –
(305.2 )
(37.9 ) –
(419.0 )
456.3
(541.4 )
–
3.8
(292.2 )
(6.0 )
(379.5 )
3.1
2008
US$m
(301.3 )
1.7
–
180.2
698.9
(1.8 )
(159.9 )
159.0
6.6
68.8
(109.3 )
(62.3 )
50.4
531.0
(29.8 )
(15.0 )
(111.5 )
(156.3 )
391.5
(291.4 )
(119.7 )
2.0
(343.1 )
(6.3 )
(367.0 )
6.5
107.9
1,117.1
14.2
1,102.9
Cash and cash equivalents at 31st December
26
1,225.0
1,117.1
20 Hongkong Land
Notes to the Financial Statements
1 Principal Accounting Policies
Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards, including International
Accounting Standards and
the
International Accounting Standards Board. The financial statements
have been prepared under the historical cost convention except as
disclosed in the accounting policies below.
Interpretations adopted by
Standards, amendments and interpretations effective in 2009
which are relevant to the Group’s operations
IFRS 8
IAS1 (revised 2007)
IAS 23 (revised 2007)
Amendments to
IFRS 1 and IAS 27
Amendment to IFRS 2
Amendments to IFRS 7
Improvements to
IFRSs (2008)
IFRIC 13
IFRIC 15
IFRIC 16
Operating Segments
Presentation of Financial Statements
Borrowing Costs
Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate
Vesting Conditions and Cancellations
Improving Disclosures about Financial
Instruments
Customer Loyalty Programmes
Agreements for the Construction
of Real Estate
Hedges of a Net Investment in a
Foreign Operation
IFRS 8 ‘Operating Segments’ supersedes IAS 14 ‘Segment Reporting’
and requires the reporting of financial and descriptive information
about an entity’s reportable segments on the basis of internal reports
that are regularly reviewed by its management. There is no change
in the Group’s reportable segments from 2008 as they remain
consistent with the internal reporting provided to management. No
operating segments have been aggregated to form the reportable
segments. The Group has also early adopted an amendment to
IFRS 8 (effective from 1st January 2010) included in the 2009
improvement project. The amendment clarifies that a measure of
total assets should be disclosed in the financial statements only if
that amount is regularly provided to management.
IAS 1 (revised 2007) ‘Presentation of Financial Statements’ replaces
IAS 1 (as revised in 2003 and amended in 2005) and sets overall
requirements for the presentation of financial statements, guidelines
for their structure and minimum requirement for their content. Two
new primary statements, ‘Consolidated Statement of Comprehensive
Income’ and ‘Consolidated Statement of Changes in Equity’ have
been presented in these financial statements. The former replaces
the ‘Consolidated Statement of Recognised Income and Expense’
presented in the 2008 financial statements. This change in
presentation has no effect on reported profit or loss, total income
and expense or net assets.
Amendments to IFRS 1 and IAS 27 ‘Cost of an Investment in a
Subsidiary, Jointly Controlled Entity or Associate’ remove the
definition of the cost method from IAS 27 and allow an entity to
recognise a dividend from subsidiary, jointly controlled entity or
associate in profit and loss in its separate financial statements when
its right to receive the dividend is established. There is no impact on
the consolidated financial statements as the changes only affect the
separate financial statements of the investing entity.
Amendments to IFRS 7 ‘Improving Disclosures about Financial
Instruments’ require the disclosure of any change in valuation
technique and the reason for that change, introduce a three-level
hierarchy for fair value measurement disclosures, and require the
disclosure of liquidity risk between non-derivative financial liabilities
and derivative financial liabilities.
IAS 36 (Amendment) ‘Impairment of Assets’ is part of the 2008
improvement project. It provides that where fair value less costs to
sell is calculated on the basis of discounted cash flows, disclosures
equivalent to those for value-in-use calculation should be made.
IAS 40 (Amendment) ‘Investment Property’ is part of the 2008
improvement project. It requires that property that is being
constructed or developed for future use as investment property
should be classified as investment property. It also requires that such
property to be carried at fair value at the earlier of when the fair
value first becomes reliably measurable and the date of completion
of the property with any gain or loss recognised in profit and loss.
This is a change in accounting policy as previously such property was
carried at cost until the construction was completed.
IFRIC 13 ‘Customer Loyalty Programmes’ addresses the accounting
by entities that grant loyalty award credits to customers who buy
goods or services. It requires the allocation of consideration
receivable from the customer between the separately identifiable
components of the sale transaction using fair values. There is no
significant impact on the results of the Group on adoption of this
interpretation.
The adoption of the following standards, amendments and
interpretations does not have a material impact on the Group’s
accounting policies.
IAS 23 (revised 2007) ‘Borrowing Costs’ supersedes IAS 23 (as
revised in 1993) and requires the capitalisation of borrowing costs
relating to qualifying assets.
Amendment to IFRS 2 ‘Vesting Conditions and Cancellations’ restrict
vesting conditions to service conditions and performance conditions,
and specify that a failure to meet a non-vesting condition, whether
by the entity or by the counterparty, should be treated as a
cancellation.
IAS 19 (Amendment) ‘Employee Benefits’ is part of the 2008
improvement project. It clarifies the distinction between curtailments
and negative past service costs under a defined benefit plan.
IAS 23 (Amendment) ‘Borrowing Costs’ is part of the 2008
improvement project. It amends the definition of borrowing costs
such that interest expense is calculated using the effective interest
method as defined in IAS 39 ‘Financial Instruments: Recognition and
Measurement’.
Annual Report 2009 21
Notes to the Financial Statements
1 Principal Accounting Policies continued
Basis of preparation continued
IAS 28 (Amendment) ‘Investments in Associates’ and consequential
amendments to IAS 32 ‘Financial Instruments: Presentation’ and
IFRS 7 ‘Financial Instruments: Disclosures’ is part of the 2008
improvement project. It specifies that for the purposes of impairment
testing, an investment in associate is treated as a single asset and
any impairment loss is not allocated to specific assets included
within the investment.
IAS 38 (Amendment) ‘Intangible Assets’ is part of the 2008
improvement project. It clarifies that expenditure on advertising and
other promotional activities must be recognised in the period in
which the entity obtains the right to access the advertising or
promotional material.
IAS 39 (Amendment) ‘Financial Instruments: Recognition and
Measurement’ is part of the 2008 improvement project. It clarifies
that a revised effective interest rate is used when the carrying
amount of a debt instrument is remeasured on cessation of fair
value hedge accounting.
IFRIC 15 ‘Agreements for the Construction of Real Estate’ provides
guidance in determining whether an agreement for the construction
of real estate is within the scope of IAS 11 ‘Construction Contracts’
or IAS 18 ‘Revenue’.
IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’
addresses the nature of the hedged risk and amount of the hedged
item for which a hedging relationship may be designated in the
consolidated financial statements of a parent entity.
Standards and amendments early adopted by the Group
IFRS 3 (revised 2008)
IAS 27 (amended 2008)
Business Combinations
Consolidated and Separate
Financial Statements
IFRS 3 (revised 2008) ‘Business Combinations’ and the related
amendment to IAS 27 ‘Consolidated and Separate Financial
Statements’ (both effective prospectively from 1st July 2009) provide
guidance for applying the acquisition method for business
combinations. The major changes from the existing standards
include: the immediate expensing of all acquisition-related costs,
the inclusion in the cost of acquisition of the fair value at acquisition
date of any contingent purchase consideration, the remeasurement
of previously held equity interest in the acquiree at fair value in a
business combination achieved in stages, and accounting for
changes in a parent’s ownership interest in a subsidiary that do not
result in the loss of control as equity transactions. The early adoption
of IFRS 3 (revised 2008) and the related amendment to IAS 27 has
resulted in changes in the accounting policies for goodwill and
change in attributable interests in subsidiaries. Until 31st December
2008, acquisition-related costs were included in the cost of a
business combination; contingent purchase consideration was
recognised in goodwill as incurred; the cost of each exchange
transaction in a business combination achieved in stages was
compared with the fair values of the acquiree’s identifiable net
22 Hongkong Land
assets to determine the amount of goodwill associated with that
transaction; the difference between the cost of acquisition and the
carrying amount of the proportion of minority interest acquired in
respect of an increase in attributable interest in a subsidiary was
recognised as goodwill or credited to profit and loss as discount on
acquisition, where appropriate; and the difference between the
proceeds and the carrying amount of the proportion sold in respect
of a decrease in attributable interest in a subsidiary was recognised
as profit or loss on disposal. The Group continues to measure
minority interest in an acquiree in a business combination at the
minority interest’s proportionate share of the acquiree’s identifiable
net assets.
Standards, amendments and interpretations effective after
2009 which are relevant to the Group’s operations and yet to
be adopted
IFRS 9 ‘Financial Instruments’ (effective from 1st January 2013) is the
first part of a project to replace IAS 39. It addresses the classification
and measurement of financial assets. The Group will apply IFRS 9
from 1st January 2013.
IAS 24 ‘Related Party Disclosures’ (effective from 1st January 2011)
supersedes IAS 24 (as revised in 2003). It simplifies the disclosure
requirements for government-related entities and clarifies the
definition of a related party. The Group will apply IAS 24 and provide
the required disclosure from 1st January 2011.
Amendment to IAS 32 ‘Classification of Rights Issues’ (effective from
1st February 2010) clarifies that rights issues are equity instruments
when they are denominated in a currency other than the issuer’s
functional currency and are issued pro-rata to an entity’s existing
shareholders for a fixed amount of currency. The Group will apply
amendment to IAS 32 from 1st January 2011.
Amendment to IAS 39 ‘Eligible Hedged Items’ (effective from
1st July 2009) gives additional guidance on the designation of a
hedged item and how hedged accounting should be applied in
particular situations. The Group will apply amendment to IAS 39
from 1st January 2010, but it is not expected to have any significant
impact on the results of the Group.
The Improvements to IFRSs (2009) comprise a number of non-urgent
but necessary amendments to IFRSs. With the exception of IAS 17
(Amended 2009) ‘Leases’, adoption of the other amendments is not
expected to have any significant impact on the results of the
Group.
IAS 17 (Amended) ‘Leases’ (effective from 1st January 2010) is part
of the 2009 improvement project. It specifies that a land lease may
be classified as a finance lease when significant risks and rewards
associated with the land are transferred to the lessee despite there
being no transfer of title at the end of the lease term. The Group will
apply this amendment retrospectively from 1st January 2010.
Amendments to IFRIC 14 ‘Prepayments of a Minimum Funding
Requirement’ (effective from 1st January 2011) require an entity to
recognise an asset for a prepayment that will reduce future minimum
funding contributions required by the entity. The Group will apply
amendments to IFRIC 14 from 1st January 2011.
IFRIC 17 ‘Distributions of Non-cash Assets to Owners’ (effective
from 1st July 2009) requires that a non-cash dividend payable should
be recognised when the dividend is appropriately authorised and is
no longer at the discretion of the entity. The dividend should be
measured at the fair value of the net assets to be distributed. Any
difference between the dividend paid and the carrying amount of
the net assets distributed should be included in profit or loss. The
Group will apply IFRIC 17 from 1st January 2010.
IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’
(effective from 1st April 2010) provides guidance on the application
of IAS 39 and IAS 32 when an entity issues its own equity instruments
to extinguish all or part of a financial liability. The Group will apply
IFRIC 19 from 1st January 2011.
The principal operating subsidiaries, associates and joint ventures
have different functional currencies in line with the economic
environments of the locations in which they operate. The functional
currency of the Company is United States dollars. The consolidated
financial statements are presented in United States dollars.
The Group’s reportable segments are set out in Note 4.
Basis of consolidation
i) The consolidated financial statements include the financial
statements of the Company, its subsidiaries, and its associates
and joint ventures.
ii) Subsidiaries are entities over which the Group has the power to
govern the financial and operating policies. The purchase
method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition include the
fair value at the acquisition date of any contingent consideration.
In a business combination achieved in stages, the Group
remeasures its previously held interest in the acquiree at its
acquisition-date fair value and recognised the resulting gain or
loss in profit and loss. Changes in a parent’s ownership interest
in a subsidiary that do not result in the loss of control are
accounted for as equity transactions. When control over a
previous subsidiary is lost, any remaining interest in the entity is
remeasured at fair value and the resulting gain or loss is
recognised in profit and loss.
All material intercompany transactions, balances and unrealised
surpluses and deficits on transactions between Group companies
have been eliminated. The cost of and related income arising
from shares held in the Company by subsidiaries are eliminated
from shareholders’ funds and minority interests, and profit
respectively.
iii) Associates are entities, not being subsidiaries or joint ventures,
over which the Group exercises significant influence. Joint
ventures are entities which the Group jointly controls with one
or more other venturers. Associates and joint ventures are
included on the equity basis of accounting.
iv) Minority interests represent the proportion of the results and
net assets of subsidiaries and their associates and joint ventures
not attributable to the Group.
v) The results of subsidiaries, associates and joint ventures are
included or excluded from their effective dates of acquisition or
disposal respectively. The results of entities other than
subsidiaries, associates and joint ventures are included to the
extent of dividends received when the right to receive such
dividend is established.
Foreign currencies
Transactions in foreign currencies are accounted for at the exchange
rates ruling at the transaction dates.
Assets and liabilities of subsidiaries, associates and joint ventures,
together with all other monetary assets and liabilities expressed in
foreign currencies, are translated into United States dollars at the
rates of exchange ruling at the year end. Results expressed in foreign
currencies are translated into United States dollars at the average
rates of exchange ruling during the year, which approximate the
exchange rates at the dates of the transactions.
Exchange differences arising from the retranslation of the net
investment in foreign subsidiaries, associates and joint ventures, and
of financial instruments which are designated as hedges of such
investments, are recognised in other comprehensive income and
accumulated in equity under exchange reserves. On the disposal of
these investments which results in the loss of control, such exchange
differences are recognised in profit and loss. Exchange differences
on available-for-sale
in other
investments are
comprehensive income as part of the gains and losses arising from
changes in their fair value. All other exchange differences are
recognised in profit and loss.
recognised
Goodwill and fair value adjustments arising on acquisition of a
foreign entity after 1st January 2003 are treated as assets and
liabilities of the foreign entity and translated into United States
dollars at the rate of exchange ruling at the year end.
Impairment
Assets that have indefinite useful lives are not subject to amortisation
and are tested for impairment annually and whenever there is an
indication that the assets may be impaired. Assets that are subject to
amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not
be recoverable. For the purpose of assessing impairment, assets are
grouped at the lowest level for which there is separately identifiable
cash flows. Cash-generating units or groups of cash-generating
units to which goodwill has been allocated are tested for impairment
annually and whenever there is an indication that the units may be
impaired. An impairment loss is recognised for the amount by which
the carrying amount of the asset exceeds its recoverable amount,
which is the higher of an asset’s fair value less costs to sell and value
in use.
Annual Report 2009 23
Notes to the Financial Statements
1 Principal Accounting Policies continued
Intangible assets
is calculated on the discounted net rental income allowing for
reversionary potential. Changes in fair value are recognised in profit
and loss.
i) Goodwill represents the excess of the cost of an acquisition over
the fair value of the Group’s share of the net identifiable assets
of the acquired subsidiary, associate or joint venture at the
effective date of acquisition. Minority interests are measured at
their proportionate share of the net identifiable assets at the
acquisition date. If the cost of acquisition is less than the fair
value of the net assets acquired, the difference is recognised
directly in profit and loss. Goodwill on acquisitions of subsidiaries
is included in intangible assets. Goodwill on acquisitions of
associates and joint ventures is included in investment in
associates and joint ventures. Goodwill is allocated to cash-
generating units or groups of cash-generating units for the
purpose of impairment testing and is carried at cost less
accumulated impairment loss.
The profit or loss on disposal of subsidiaries, associates and joint
ventures includes the carrying amount of goodwill relating to
the entity sold.
ii) Land use rights are payments to third parties to acquire long-
term interests in owner-occupied property. These payments are
stated at cost and are amortised over the useful life of the lease
which includes the renewal period if the lease can be renewed
by the Group without significant cost.
iii) Other intangible assets are stated at cost less accumulated
amortisation. Amortisation is calculated on the straight line
basis to allocate the cost of intangible assets over their estimated
useful lives.
Investments
i)
Investments are classified by management as available for sale
or held to maturity on initial recognition. Available-for-sale
investments are shown at fair value. Gains and losses arising
from changes in the fair value are recognised in other
comprehensive income. On the disposal of an investment or
when an investment is determined to be impaired, the
cumulative gain or loss previously deferred in equity is recognised
in profit and loss. Held-to-maturity investments are shown at
amortised cost. Investments are classified under non-current
assets unless their maturities are within twelve months after the
balance sheet date.
ii) At each balance sheet date, the Group assesses whether there
is objective evidence that an investment is impaired. In the case
of equity securities classified as available for sale, a significant or
prolonged decline in the fair value of the security below its cost
is considered as an indicator that the securities are impaired.
iii) All purchases and sales of investments are recognised on the
trade date, which is the date that the Group commits to
purchase or sell the investment.
Leases
Leases are classified as finance leases when the terms of the lease
transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Tangible fixed assets and depreciation
Properties for sale
Depreciation of tangible fixed assets is calculated on the straight line
basis to allocate the cost or valuation of each asset to its residual
value over its estimated useful life. The residual values and useful
lives are reviewed at each balance sheet date. The estimated useful
lives are as follows:
Buildings
Furniture, equipment and motor vehicles
10 – 50 years
3 – 10 years
Where the carrying amount of a tangible fixed asset is greater than
its estimated recoverable amount, it is written down immediately to
its recoverable amount.
The profit or loss on disposal of tangible fixed assets is recognised by
reference to their carrying amount.
Investment properties
Investment properties are held for long-term rental yields. Properties
under operating leases which are held for long-term rental yields are
classified and accounted for as investment properties. Investment
properties are carried at fair value, representing estimated open
market value determined annually by independent qualified valuers
who have recent experience in the location and category of the
investment property being valued. The market value of each property
Properties for sale, which comprise land and buildings held for
resale, are stated at the lower of cost and net realisable value. The
cost of properties for sale comprises land and related development
costs.
Debtors
Debtors, excluding derivative financial instruments, are measured at
amortised cost except where the effect of discounting would be
immaterial. Provision for impairment is established when there is
objective evidence that the outstanding amounts will not be
collected. Significant financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganisation,
and default or delinquency in payments are considered indicators
that the debtor is impaired. The carrying amount of the asset is
reduced through the use of an allowance account and the amount
of the loss is recognised in arriving at operating profit. When a
debtor is uncollectible, it is written off against the allowance
account. Subsequent recoveries of amount previously written off are
credited to profit and loss.
Debtors with maturities greater than twelve months after the
balance sheet date are classified under non-current assets.
24 Hongkong Land
Cash and cash equivalents
Pension obligations
For the purposes of the cash flow statement, cash and cash
equivalents comprise deposits with banks and financial institutions,
and bank and cash balances, net of bank overdrafts. In the balance
sheet, bank overdrafts are included in current borrowings.
Provisions
Provisions are recognised when the Group has present legal or
constructive obligations as a result of past events, it is probable that
an outflow of resources embodying economic benefits will be
required to settle the obligations, and a reliable estimate of the
amount of the obligations can be made.
Borrowings and borrowing costs
Borrowings are initially recognised at fair value, net of transaction
costs incurred. In subsequent periods, borrowings are stated at
amortised cost using the effective interest method.
On the issue of convertible bonds, the fair value of the liability
portion is determined using a market interest rate for an equivalent
non-convertible bond; this amount is included in long-term
borrowings on the amortised cost basis until extinguished on
conversion or maturity of the bond. The remainder of the proceeds
is allocated to the conversion option which is recognised and
included in shareholders’ funds.
Borrowing costs relating to major development projects are
capitalised until the asset is substantially completed. Capitalised
borrowing costs are included as part of the cost of the asset. All
other borrowing costs are expensed as incurred.
Borrowings are classified under non-current liabilities unless their
maturities are within twelve months after the balance sheet date.
Deferred tax
Deferred tax is provided, using the liability method, for all temporary
differences arising between the tax bases of assets and liabilities and
their carrying values.
Provision for deferred tax is made on the revaluation of certain non-
current assets and, in relation to acquisitions, on the difference
between the fair value of the net assets acquired and their tax base.
Deferred tax is provided on temporary differences associated with
investments in subsidiaries, associates and joint ventures, except
where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets relating to the
carry forward of unused tax losses are recognised to the extent that
it is probable that future taxable profit will be available against
which the unused tax losses can be utilised.
The Group operates a number of defined benefit and defined
contribution plans, the assets of which are held in trustee
administered funds.
Pension accounting costs for defined benefit plans are assessed
using the projected unit credit method. Under this method, the
costs of providing pensions are charged to profit and loss spreading
the regular cost over the service lives of employees in accordance
with the advice of qualified actuaries, who carry out a full valuation
of major plans every year. The pension obligations are measured as
the present value of the estimated future cash outflows by reference
to market yields on high quality corporate bonds which have terms
to maturity approximating the terms of the related liability. Plan
assets are measured at fair value. Actuarial gains and losses are
recognised in other comprehensive income in the year in which they
occur.
The Group’s total contributions relating to the defined contribution
plans are charged to profit and loss in the year to which they
relate.
Non-current assets held for sale
Non-current assets are classified as assets held for sale and stated at
the lower of carrying amount and fair value less costs to sell if their
carrying amount is recovered principally through a sale transaction
rather than through continuing use.
Derivative financial instruments
The Group only enters into derivative financial instruments in order
to hedge underlying exposures. Derivative financial instruments are
initially recognised at fair value on the date a derivative contract is
entered into and are subsequently remeasured at their fair value.
The method of recognising the resulting gain or loss is dependent
on the nature of the item being hedged. The Group designates
certain derivatives as either a hedge of the fair value of a recognised
asset or liability (fair value hedge), or a hedge of a forecast transaction
or of the foreign currency risk on a firm commitment (cash flow
hedge), or a hedge of a net investment in a foreign entity.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges and that are highly effective, are
recognised in profit and loss, along with any changes in the fair
value of the hedged asset or liability that is attributable to the
hedged risk. When a hedging instrument expires or is sold, or when
a hedge no longer meets the criteria for hedge accounting, the
cumulative adjustment to the carrying amount of a hedged item for
which the effective interest method is used is amortised to profit
and loss over the residual period to maturity.
Annual Report 2009 25
Notes to the Financial Statements
1 Principal Accounting Policies continued
Derivative financial instruments continued
Changes in the fair value of derivatives that are designated and
qualify as cash flow hedges and that are highly effective, are
recognised in hedging reserves. Where the forecast transaction or
firm commitment results in the recognition of a non-financial asset
or of a non-financial liability, the gains and losses previously deferred
in hedging reserves are transferred from hedging reserves and
included in the initial measurement of the cost of the asset or
liability. Otherwise, amounts deferred in hedging reserves are
transferred to profit and loss in the same periods during which the
hedged firm commitment or forecast transaction affects profit and
loss. When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative
gain or loss existing in hedging reserves at that time remains in the
hedging reserves and is recognised when the committed or forecast
transaction ultimately is recognised in profit and loss. When a
committed or forecast transaction is no longer expected to occur,
the cumulative gain or loss that was reported in hedging reserves is
immediately transferred to profit and loss.
Certain derivative transactions, while providing effective economic
hedges under the Group’s risk management policies, do not qualify
for hedge accounting under the specific rules in IAS 39. Changes in
the fair value of any derivative instruments that do not qualify for
hedge accounting under IAS 39 are recognised immediately in profit
and loss.
Hedges of net investments in foreign entities are accounted for on a
similar basis to that used for cash flow hedges. Any gain or loss on
the hedging instrument relating to the effective portion of the
hedge is recognised in exchange reserves; the gain or loss relating to
the ineffective portion is recognised immediately in profit and loss.
The fair value of derivatives which are designated and qualify as
effective hedges are classified as non-current assets or liabilities if
the remaining maturities of the hedged assets or liabilities are
greater than twelve months after the balance sheet date.
recurring nature that require inclusion in order to provide additional
insight into underlying business performance.
Earnings per share
Basic earnings per share are calculated on profit attributable to
shareholders and on the weighted average number of shares in
issue during the year. For the purpose of calculating diluted earnings
per share, profit attributable to shareholders is adjusted for the
effects of the conversion of dilutive potential ordinary shares, and
the weighted average number of shares is adjusted for the number
of shares which are deemed to be issued on the conversion of
convertible bonds into ordinary shares.
Dividends
Dividends proposed or declared after the balance sheet date are not
recognised as a liability at the balance sheet date.
Revenue recognition
Revenue is measured at the fair value of the consideration received
and receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts
and sales related taxes.
i) Revenue from sale of properties, is recognised on the transfer of
significant risks and rewards of ownership, which generally
coincides with the time when the properties are delivered to
customers.
ii) Receipts under operating leases are accounted for on an accrual
basis over the lease terms.
iii) Revenue from rendering of services is recognised when services
are performed, provided that the amount can be measured
reliably.
Pre-operating costs
Pre-operating costs are expensed as they are incurred.
Financial guarantee contracts
Comparative figures
Financial guarantee contracts under which the Group accepts
significant risk from a third party by agreeing to compensate that
party on the occurrence of a specified uncertain future event are
accounted for in a manner similar to insurance contracts. Provisions
are recognised when it is probable that the Group has obligations
under such guarantees and an outflow of resources embodying
economic benefits will be required to settle the obligations.
Non-trading items
Non-trading items are separately identified to provide greater
understanding of the Group’s underlying business performance.
Items classified as non-trading items include fair value gains or losses
on revaluation of investment properties; gains and losses arising
from the sale of businesses, investments and properties; impairment
of non-depreciable intangible assets and other investments;
provisions for the closure of businesses; acquisition-related costs in
business combinations; and other credits and charges of a non-
Certain comparative figures have been reclassified to conform with
the current year presentation.
2 Financial Risk Management
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market
risk (including foreign exchange risk, interest rate risk and price risk),
credit risk and liquidity risk.
The Group’s treasury function co-ordinates, under the directions of
the Board of Hongkong Land Limited, financial risk management
policies and their implementation on a group-wide basis. The
Group’s treasury policies are designed to manage the financial
impact of fluctuations in interest rates and foreign exchange rates
and to minimise the Group’s financial risks. The Group uses derivative
financial instruments, principally interest rate swaps and forward
foreign exchange contracts as appropriate for hedging transactions
26 Hongkong Land
and managing the Group’s assets and liabilities in accordance with
the Group’s financial risk management policies. Financial derivative
contracts are executed between third party banks and the Group
entity that is directly exposed to the risk being hedged. Certain
derivative transactions, while providing effective economic hedges
under the Group’s risk management policies, do not qualify for
hedge accounting under the specific rules in IAS 39. Changes in the
fair value of any derivative instruments that do not qualify for hedge
accounting under IAS 39 are recognised immediately in profit and
loss. It is the Group’s policy not to enter into derivative transactions
for speculative purposes. The notional amounts and fair values of
derivative financial instruments at 31st December 2009 are disclosed
in Note 27.
i) Market risk
Foreign exchange risk
Entities within the Group are exposed to foreign exchange risk
from future commercial transactions, net investments in foreign
operations and net monetary assets and liabilities that are
denominated in a currency that is not the entity’s functional
currency.
Group companies are required to manage their foreign exchange
risk against their functional currency. To manage their foreign
exchange risk arising from future commercial transactions,
entities in the Group use forward foreign exchange contracts in
a consistent manner to hedge firm and anticipated foreign
exchange commitments. The Group does not usually hedge its
net investments in foreign operations except in circumstances
where there is a material exposure arising from a currency that
is anticipated to be volatile and the hedging is cost effective.
Foreign currency borrowings are required to be swapped into
the entity’s functional currency using cross-currency swaps
except where the foreign currency borrowings are repaid with
cash flows generated in the same foreign currency. The purpose
of these hedges is to mitigate the impact of movements in
foreign exchange rates on assets and liabilities and the profit
and loss account of the Group. At 31st December 2009, there
are no significant monetary balances held by Group companies
that are denominated in a non-functional currency. Currency
risks as defined by IFRS 7 arise on account of monetary assets
and liabilities being denominated in a currency that is not the
functional currency; differences resulting from the translation of
financial statements into the Group’s presentation currency are
not taken into consideration.
Interest rate risk
The Group is exposed to interest rate risk through the impact of
rate changes on interest bearing liabilities and assets. These
exposures are managed partly by using natural hedges that arise
from offsetting interest rate sensitive assets and liabilities, and
partly through the use of derivative financial instruments such
as interest rate swaps. The Group monitors interest rate exposure
on a monthly basis by currency and business unit, taking into
consideration proposed financing and hedging arrangements.
The Group’s guideline is to maintain between 40% and 60% of
its gross borrowings in fixed rate instruments with an average
tenor of 2 - 3 years. At 31st December 2009, 52% of the
Group’s debt (2008: 51%) was hedged into fixed rate with an
average fixed rate tenor of 2.8 years (2008: 2.5 years). The
interest rate profile of the Group’s borrowings after taking into
account hedging transactions are set out in Note 21.
Cash flow interest rate risk is the risk that changes in market
interest rates will impact cash flows arising from variable rate
financial instruments. Borrowings at floating rates therefore
expose the Group to cash flow interest rate risk. The Group
manages this risk by using forward rate agreements to a maturity
of one year, and by entering into interest rate swaps for a
maturity of up to five years. Forward rate agreements and
interest rate swaps have the economic effect of converting
borrowings from floating rate to fixed rate.
Fair value interest rate risk is the risk that the value of a financial
asset or liability and derivative financial instrument will fluctuate
because of changes in market interest rates. The Group manages
its fair value interest rate risk by entering into interest rate swaps
which have the economic effect of converting borrowings from
fixed rate to floating rate.
At 31st December 2009, if interest rates had been 100 basis
points higher/lower with all other variables held constant, the
Group’s profit after tax would have been US$5 million (2008:
US$2 million) higher/lower, and hedging reserves would have
been US$17 million (2008: US$12 million) higher/lower as a
result of fair value changes to cash flow hedges. The sensitivity
analysis has been determined assuming that the change in
interest rates had occurred at the balance sheet date and had
been applied to the exposure to interest rate risk for both
derivative and non-derivative financial instruments in existence
at that date. The 100 basis point increase or decrease represents
management’s assessment of a reasonably possible change in
those interest rates which have the most impact on the Group,
specifically the United States, Hong Kong and Singapore rates,
over the period until the next annual balance sheet date. In the
case of effective fair value hedges, changes in fair value caused
by interest rate movements balance out in profit and loss against
changes in the fair value of the hedged item. Changes in market
interest rates affect the interest income or expense of non-
derivative variable-interest financial instruments, the interest
payments of which are not designated as hedged items of cash
flow hedges against interest rate risks. As a consequence, they
are included in the calculation of profit after tax sensitivities.
Changes in the market interest rate of financial instruments that
were designated as hedging instruments in a cash flow hedge
to hedge payment fluctuations resulting from interest rate
movements affect the hedging reserves and are therefore taken
into consideration in the equity-related sensitivity calculations.
Price risk
The Group is exposed to securities price risk because of listed
investments which are available for sale and held by the Group
at fair value. Gains and losses arising from changes in the fair
value of available-for-sale investments are dealt with in reserves.
listed available-for-sale
The performance of the Group’s
investments are monitored
together with an
assessment of their relevance to the Group’s long term strategic
plans. Details of the Group’s available-for-sale investments are
contained in Note 14.
regularly,
Annual Report 2009 27
Notes to the Financial Statements
2 Financial Risk Management continued
iii) Liquidity risk
Financial risk factors continued
Available-for-sale investments are unhedged. At 31st December
2009, if the price of listed available-for-sale investments had
been 25% higher/lower with all other variables held constant,
total equity would have been US$12 million higher/lower. The
sensitivity analysis has been determined based on a reasonable
expectation of possible valuation volatility over the next 12
months.
ii) Credit risk
The Group’s credit risk is primarily attributable to deposits with
banks, credit exposures to customers and derivative financial
instruments with a positive fair value. The Group has credit
policies in place and the exposures to these credit risks are
monitored on an ongoing basis.
limits
The Group manages its deposits with banks and financial
institutions and transactions involving derivative financial
instruments by monitoring credit ratings, capital adequacy
ratios, and limiting the aggregate risk to any individual
is regularly
counterparty. The utilisation of credit
monitored. At 31st December 2009, 100% (2008: 100%) of
deposits and balances with banks were made to financial
institutions with credit ratings of no less than A3 (Moody’s).
Similarly transactions involving derivative financial instruments
are with banks with sound credit ratings and capital adequacy
ratios. In developing countries it may be necessary to deposit
money with banks that have a lower credit rating, however the
Group only enters into derivative transactions with counterparties
which have credit ratings of at least investment grade.
Management does not expect any counterparty to fail to meet
its obligations.
In respect of credit exposures to customers, the Group has
policies in place to ensure that investment properties are let
principally to corporate companies with an appropriate credit
history. Rental deposits in the form of cash or bank guarantee
are usually received from tenants. The Group receives progress
payments from sales of residential properties to individual
customers prior to the completion of transactions. In the event
of default by customers, Group companies undertake legal
proceedings to recover the property. Amounts due from
associates and joint ventures are generally supported by the
underlying assets.
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the balance sheet
after deducting any impairment allowance. The Group’s
exposure to credit risk arising from debtors is set out in Note 18
and totals US$66 million (2008: US$81 million). The Group’s
exposure to credit risk arising from exposure to derivative
financial instruments with a positive fair value is disclosed in
Note 18 as a component of other debtors and totals
US$64 million (2008: US$110 million). The Group’s exposure to
credit risk arising from deposits and balances with banks is set
out
(2008:
US$1,119 million).
totals US$1,226 million
in Note 19 and
28 Hongkong Land
Prudent liquidity risk management includes managing the
profile of debt maturities and funding sources, maintaining
sufficient cash and marketable securities, and ensuring the
availability of funding from an adequate amount of committed
credit facilities and the ability to close out market positions. The
Group’s ability to fund its existing and prospective debt
requirements is managed by maintaining diversified funding
sources with adequate committed funding lines from high
quality lenders, and by monitoring rolling short-term forecasts
of the Group’s cash and gross debt on the basis of expected
cash flows. In addition long-term cash flows are projected to
assist with the Group’s long-term debt financing plans.
At 31st December 2009, total available borrowing facilities
amounted to US$5,291 million (2008: US$4,953 million) of
which US$3,643 million (2008: US$3,720 million) was drawn
down. Undrawn committed facilities, in the form of revolving
credit and term loan facilities, totalled US$1,463 million (2008:
US$994 million).
An ageing analysis of the Group’s financial liabilities based on
the remaining period at the balance sheet to the contractual
maturity dates is included in Notes 20, 21 and 27.
Capital management
The Group’s objectives when managing capital are to safeguard the
Group’s ability to continue as a going concern whilst seeking to
maximise benefits to shareholders and other stakeholders. Capital is
equity as shown in the consolidated balance sheet plus net debt.
The Group actively and regularly reviews and manages its capital
structure to ensure optimal capital structure and shareholder returns,
taking into consideration the future capital requirements of the
Group and capital efficiency, prevailing and projected profitability,
projected operating cash flows, projected capital expenditures and
projected strategic investment opportunities. In order to maintain or
adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, purchase Group shares, return
capital to shareholders, issue new shares or sell assets to reduce
debt.
The Group monitors capital on the basis of the Group’s consolidated
gearing ratio and consolidated interest cover. The gearing ratio is
calculated as net debt divided by total adjusted equity, which adds
back the deferred tax provided for revaluation surplus of investment
properties that would not be payable if the properties were sold. Net
debt is calculated as total borrowings less bank balances. Interest
cover is calculated as underlying business performance divided by
net financing charges. The Group does not have a defined gearing
or interest cover benchmark or range.
The ratios at 31st December 2008 and 2009 are as follows:
Gearing ratio (%)
Interest cover (times)
2009
16
19
2008
19
11
The decrease in gearing ratio at 31st December 2009 is largely a
result of higher investment properties valuations. The increase in
interest cover for the year then ended as compared to 2008 is
primarily due to strong cash flows generated by Group companies.
Fair value estimation
The fair value of listed financial instruments is based on quoted
prices in active markets. The quoted market price used for listed
investments held by the Group is the current bid price.
The fair values of current debtors, bank balances and other liquid
funds, current creditors and current borrowings are assumed to
approximate their carrying amount due to the short-term maturities
of these assets and liabilities.
The fair values of long-term borrowings are based on market prices
or are estimated using the expected future payments discounted at
market interest rates.
The fair value of interest rate swaps is calculated by reference to the
present value of the estimated future cash flows, taking into account
current interest rates as observed from the market. The fair value of
forward foreign exchange contracts is determined using forward
exchange market rates of the same remaining tenor at the balance
sheet date.
3 Critical accounting estimates and
judgements
Estimates and judgements used in preparing the financial statements
are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable. The resulting accounting estimates will,
by definition, seldom equal the related actual results. The estimates
and assumptions that have a significant effect on the carrying
amounts of assets and liabilities are discussed below.
Investment properties
The fair values of investment properties are determined annually by
independent valuers on an open market for existing use basis
calculated on the discounted net income allowing for reversionary
potential.
In making the judgement, considerations have been given to
assumptions that are mainly based on market conditions existing at
the balance sheet date and appropriate capitalisation rates. These
estimates are regularly compared to actual market data and actual
transactions entered into by the Group.
Impairment of assets
The Group tests annually whether goodwill suffered any impairment.
Other assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
asset exceeds its recoverable amount. The recoverable amount of an
asset or a cash generating unit is determined based on the higher of
its fair value less costs to sell and its value-in-use, calculated on the
basis of management’s assumptions and estimates. Changing the
key assumptions, including the discount rates or the growth rate
assumptions in the cash flow projections, could materially affect the
value-in-use calculations.
judgement
is required.
In determining when an investment is other-than-temporarily
impaired, significant
In making this
judgement, the Group evaluates, among other factors, the duration
and extent to which the fair value of an investment is less than its
cost; and the financial health of and near-term business outlook for
the investee, including factors such as industry and sector
performance, changes in technology and operational and financial
cash flow.
Income taxes
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the worldwide
provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. Where the final tax outcome
of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred
tax provisions in the period in which such determination is made.
Recognition of deferred tax assets, which principally relate to tax
losses, depends on the management’s expectation of future taxable
profit that will be available against which the tax losses can be
utilised. The outcome of their actual utilisation may be different.
As required by International Financial Reporting Standards, provision
for deferred tax is made on the revaluation of investment properties
held under operating leases on the basis that the Group has no
intention to sell, and their values would be recovered through use
rather than through sale.
Pension obligations
The present value of the pension obligations depends on a number
of factors that are determined on an actuarial basis using a number
of assumptions. The assumptions used in determining the net cost/
income for pensions include the expected long-term rate of return
on the relevant plan assets and the discount rate. Any changes in
these assumptions will impact the carrying amount of pension
obligations.
The expected return on plan assets assumption is determined on a
uniform basis, taking into consideration long-term historical returns,
asset allocation and future estimates of long-term investment
returns.
The Group determines the appropriate discount rate at the end of
each year. This is the interest rate that should be used to determine
the present value of estimated future cash outflows expected to be
required to settle the pension obligations. In determining the
appropriate discount rate, the Group considers the interest rates of
high-quality corporate bonds that are denominated in the currency
in which the benefits will be paid, and that have terms to maturity
approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on
current market conditions.
Non-trading items
The Group uses underlying business performance in its internal
financial reporting to distinguish between the underlying profits and
non-trading items. The identification of non-trading items requires
judgement by management.
Annual Report 2009 29
Notes to the Financial Statements
4
Segmental information
Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by
the Board for the purpose of resource allocation and performance assessment.
By business
Commercial property
Residential property
Corporate, net financing charges and tax
By geographical location
Greater China
Southeast Asia and others
Corporate, net financing charges and tax
Operating profit/(loss)
Results of associates and joint ventures
Net financing charges and tax
Revenue
Operating profit/(loss)
Underlying profit
attributable to shareholders
Capital expenditure
Segment assets
Segment liabilities
2009
US$m
2008
US$m
2009
US$m
2008
US$m
2009
US$m
2008
US$m
2009
US$m
2008
US$m
2009
US$m
2008
US$m
2009
US$m
2008
US$m
759.8
562.8
676.2
346.1
1,322.6
–
1,022.3
–
1,631.9
232.2
1,864.1
(57.4 )
(156.2 )
(101.7 )
(257.9 )
(43.4 )
668.1
386.2
1,054.3
(277.2 )
570.5
0.7
571.2
(196.1 )
21.7
–
21.7
0.4
44.5
0.4
44.9
3.9
14,851.0
1,117.2
13,775.4
1,048.4
15,968.2
–
14,823.8
–
(260.1 )
(418.9 )
(679.0 )
–
(229.1 )
(350.1 )
(579.2 )
–
1,322.6
1,022.3
1,806.7
(301.3 )
777.1
375.1
22.1
48.8
15,968.2
14,823.8
(679.0 )
(579.2 )
834.4
488.2
648.7
373.6
1,322.6
–
1,022.3
–
1,787.1
77.0
1,864.1
(57.4 )
(167.4 )
(90.5 )
(257.9 )
(43.4 )
865.4
188.9
1,054.3
(277.2 )
590.5
(19.3 )
571.2
(196.1 )
19.7
2.4
22.1
–
47.0
1.8
48.8
–
14,772.0
1,196.2
13,358.3
1,465.5
15,968.2
–
14,823.8
–
(395.0 )
(284.0 )
(679.0 )
–
(277.6 )
(301.6 )
(579.2 )
–
1,322.6
1,022.3
1,806.7
(301.3 )
777.1
375.1
22.1
48.8
15,968.2
14,823.8
(679.0 )
(579.2 )
1,806.7
222.4
(341.2 )
(301.3 )
64.9
103.0
Segment assets and liabilities
Investments in associates and joint ventures
Unallocated assets and liabilities
15,968.2
2,305.2
1,298.9
14,823.8
1,797.5
1,253.3
(679.0 )
–
(6,002.0 )
(579.2 )
–
(5,887.0 )
Profit/(loss) after tax
1,687.9
(133.4 )
Total assets and liabilities
19,572.3
17,874.6
(6,681.0 )
(6,466.2 )
Capital expenditure comprises additions of intangible assets, tangible assets and investment properties, including those arising from
acquisition of subsidiaries.
Greater China includes Hong Kong, Macau, mainland China and Taiwan.
Unallocated assets and liabilities include tax assets and liabilities, bank balances and borrowings.
30 Hongkong Land
Annual Report 2009 31
Notes to the Financial Statements
5
Revenue
Rental income
Service income
Sales of trading properties
2009
US$m
669.0
95.4
558.2
2008
US$m
574.1
104.6
343.6
1,322.6
1,022.3
Service income includes service and management charges and hospitality service income.
Total contingent rents included in rental income amounted to US$7.5 million (2008: US$7.8 million).
The future minimum rental payments receivable under non-cancellable leases
are as follows:
Within one year
Between one and two years
Between two and five years
Beyond five years
Generally the Group’s operating leases are for terms of three years or more.
6
Net operating costs
Cost of sales
Other income
Administrative expenses
The following credits/(charges) are included in net operating costs:
Cost of properties for sale recognised as expenses
Direct operating expenses arising from investment properties
Provision for developement properties held for sale
Depreciation of tangible assets (see Note 12)
Staff costs
– salaries and benefits in kind
– defined contribution pension plan
– defined benefit pension plan (see Note 16)
The number of employees at 31st December 2009 was 1,104 (2008: 1,086).
32 Hongkong Land
2009
US$m
588.7
399.8
308.1
75.5
2008
US$m
550.9
371.2
240.1
13.4
1,372.1
1,175.6
2009
US$m
(437.8 )
2.2
(72.5 )
(508.1 )
(318.8 )
(119.0 )
–
(1.6 )
(69.9 )
(2.3 )
(0.5 )
(72.7 )
2008
US$m
(574.3 )
0.8
(53.0 )
(626.5 )
(258.1 )
(136.0 )
(180.2 )
(1.7 )
(59.2 )
(2.0 )
0.4
(60.8 )
7
Net financing charges
Interest expenses
– Bank loans and overdrafts
– Other borrowings
Total interest expenses
Interest capitalised
Commitment and other fees
Financing charges
Financing income
2009
US$m
(35.6 )
(67.5 )
(103.1 )
8.2
(94.9 )
(15.1 )
(110.0 )
58.0
(52.0 )
Financing charges and financing income are stated after taking into account hedging gains or losses.
8
Share of results of associates and joint ventures
By business
Commercial property
Residential property
Increase/(decrease) in fair value of investment properties
– Commercial property
– Residential property
Asset impairment provisions, reversals and disposals
2009
US$m
14.6
163.2
177.8
49.4
(0.6 )
48.8
(4.2 )
222.4
2008
US$m
(51.1 )
(74.5 )
(125.6 )
12.4
(113.2 )
(3.1 )
(116.3 )
71.8
(44.5 )
2008
US$m
17.8
63.5
81.3
(9.8 )
(6.3 )
(16.1 )
(0.3 )
64.9
Results are shown after tax and minority interests. The share of revenue of associates and joint ventures was US$538.8 million
(2008: US$362.3 million).
Annual Report 2009 33
Notes to the Financial Statements
9
Tax
Current tax
Deferred tax
– changes in fair value of investment properties
– other temporary differences
Reconciliation between tax (expense)/credit and tax at the applicable tax rate
Tax at applicable tax rate
Change in Singapore/Hong Kong profits tax rate
Changes in fair value of investment properties not deductible in determining
taxable profit
Asset impairment provisions, reversals and disposals not (deductible)/taxable in
determining taxable profit
Expenses not deductible in determining taxable profit
Other income not subject to tax
Utilisation of previously unrecognised tax losses
Overprovision in prior years
Losses not recognised
Deferred tax assets written off
Deferred tax liabilities written back
Withholding tax
Tax relating to components of other comprehensive income is analysed as follows:
Revaluation of tangible assets
Pension assets
Cash flow hedges
2009
US$m
(115.0 )
(168.9 )
(5.3 )
(174.2 )
(289.2 )
(289.4 )
1.8
(1.2 )
(2.2 )
(6.2 )
7.5
0.4
2.4
(0.7 )
(1.0 ) –
0.4
(1.0 ) –
2008
US$m
(79.7 )
228.6
(1.4 )
227.2
147.5
60.9
123.6
(1.8 )
0.6
(39.3 )
2.9
1.1
0.5
(1.0 )
–
(289.2 )
147.5
(13.3 ) –
(0.7 )
(0.1 )
(14.1 )
2.1
1.7
3.8
The applicable tax rate for the year of 16.5% (2008: 17.6%) represents the weighted average of the rates of taxation prevailing
in the territories in which the Group operates. The decrease in the applicable tax rate is caused by a change in the profitability of
the Group’s subsidiaries in the respective territories.
Share of tax of associates and joint ventures of US$47.3 million (2008: US$18.6 million) are included in share of results of
associates and joint ventures.
34 Hongkong Land
10 Earnings per share
Basic earnings/loss per share are calculated on profit attributable to shareholders of US$1,641.1 million (2008: loss of
US$109.4 million) and on the weighted average number of 2,249.3 million (2008: 2,285.9 million) shares in issue during
the year.
Diluted earnings/loss per share are calculated on profit attributable to shareholders of US$1,661.8 million (2008: loss of
US$89.3 million), which is after adjusting for the effects of the conversion of convertible bonds, and on the weighted
average number of 2,353.2 million (2008: 2,389.8 million) shares in issue during the year. The weighted average number of shares
for basic and diluted earnings/loss per share is reconciled as follows:
Weighted average number of shares in issue
Adjustment for shares to be issued on conversion of convertible bonds
Weighted average number of shares for diluted earnings per share calculation
Ordinary shares in millions
2009
2008
2,249.3
103.9
2,353.2
2,285.9
103.9
2,389.8
Earnings per share are additionally calculated based on underlying profit attributable to shareholders. The difference between
underlying profit attributable to shareholders and profit/loss attributable to shareholders is reconciled as follows:
Underlying profit attributable to shareholders
Non-trading items (see Note 11)
2009
Basic
earnings
per share
US¢
Diluted
earnings
per share
US¢
2008
Basic
earnings
per share
US¢
Diluted
earnings
per share
US¢
US$m
34.55
33.90
375.1
16.41
16.41
(484.5 )
US$m
777.1
864.0
Profit/(loss) attributable to shareholders
1,641.1
72.96
(109.4 )
(4.79 )
Interest expense on convertible bonds (net of tax)
20.7
20.1
Profit/(loss) for calculation of diluted earnings
per share
1,661.8
70.62
(89.3 )
(4.79 )
11 Non-trading items
Revaluation surpluses/(deficits) of investment properties
Deferred tax (charges)/credit on revaluation surpluses/deficits of investment properties
Share of revaluation surpluses/(deficits) of investment properties of associates and
joint ventures (net of deferred tax)
Asset impairment provisions, reversals and disposals
Share of asset impairment provisions, reversals and disposals of associates and
joint ventures
Minority interests
2009
US$m
1,000.6
(168.9 )
48.8
(8.4 )
(4.2 )
(3.9 )
2008
US$m
(698.9 )
228.6
(16.1 )
1.8
(0.3 )
0.4
864.0
(484.5 )
Annual Report 2009 35
Notes to the Financial Statements
12 Tangible assets
2009
Cost or valuation
Cumulative depreciation
Net book value at 1st January
Exchange rate adjustments
Additions
Depreciation
Written off
Net revaluation surplus
Transfer
Net book value at 31st December
Cost or valuation
Cumulative depreciation
2008
Cost or valuation
Cumulative depreciation
Net book value at 1st January
Exchange rate adjustments
Additions
Depreciation
Disposals
Net revaluation deficit
Net book value at 31st December
Cost or valuation
Cumulative depreciation
Investment
properties
US$m
Other
properties
US$m
Other
assets
US$m
Total
US$m
13,702.7
–
13,702.7
2.6
21.0
–
–
1,000.6
90.8
14,817.7
14,817.7
–
14,817.7
14,260.6
–
14,260.6
96.5
44.5
–
–
(698.9 )
13,702.7
13,702.7
–
10.9
(2.6 )
8.3
–
0.7
(0.1 )
–
83.3
(92.2 )
–
–
–
–
10.5
(2.4 )
8.1
–
0.4
(0.2 )
–
–
8.3
10.9
(2.6 )
15.3
(8.8 )
13,728.9
(11.4 )
6.5
–
0.4
(1.5 )
(1.5 )
–
–
13,717.5
2.6
22.1
(1.6 )
(1.5 )
1,083.9
(1.4 )
3.9
14,821.6
13.9
(10.0 )
14,831.6
(10.0 )
3.9
14,821.6
11.9
(7.7 )
14,283.0
(10.1 )
4.2
–
3.9
(1.5 )
(0.1 )
–
14,272.9
96.5
48.8
(1.7 )
(0.1 )
(698.9 )
6.5
13,717.5
15.3
(8.8 )
13,728.9
(11.4 )
13,702.7
8.3
6.5
13,717.5
The Group’s investment properties were revalued at 31st December 2009 by independent qualified valuers. As a result, a surplus
of US$1,000.6 million (2008: deficit of US$698.9 million) has been taken to the consolidated profit and loss account.
All the Group’s commercial investment properties in Hong Kong, Singapore and Vietnam are held under leases with unexpired
lease terms of more than 20 years. Details concerning the Group’s commercial investment properties are set out on page 66.
The other properties revaluation surplus of US$83.3 million less deferred tax of US$13.3 million have been taken to asset
revaluation reserve which is included in the revenue reserves as at 31st December 2009.
36 Hongkong Land
13 Associates and joint ventures
Share of unlisted associates and joint ventures’ net assets
Goodwill on acquisition
The Group’s share of assets, liabilities, capital commitments and contingent
liabilities of associates and joint ventures are summarised below:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Minority interests
Capital commitments
Contingent liabilities
14 Other investments
Listed securities
2009
US$m
2,278.6
26.6
2,305.2
1,845.2
1,193.9
(454.4 )
(303.4 )
(2.7 )
2008
US$m
1,769.4
28.1
1,797.5
1,202.4
1,441.1
(523.5 )
(350.5 )
(0.1 )
2,278.6
1,769.4
184.1
42.4
283.9
43.7
2009
US$m
46.4
2008
US$m
–
The Group’s other investments were available-for-sale financial assets and were shown at fair value by reference to quoted prices
in active markets.
Annual Report 2009 37
Notes to the Financial Statements
15 Deferred tax assets and liabilities
Accelerated
capital
allowances
US$m
Revaluation
surpluses of
investment
properties
US$m
Other
temporary
differences
US$m
Tax losses
US$m
Total
US$m
2009
At 1st January
Exchange rate adjustments
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive
income
–
–
0.5
–
(35.9 )
(1,953.8 )
–
(6.0 )
1.1
(168.9 )
1.3
0.1
0.2
(1,988.4 )
1.2
(174.2 )
–
(13.3 )
(0.8 )
(14.1 )
At 31st December
0.5
(41.9 )
(2,134.9 )
0.8
(2,175.5 )
Deferred tax assets
Deferred tax liabilities
2008
At 1st January
Exchange rate adjustments
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive
income
At 31st December
Deferred tax assets
Deferred tax liabilities
0.5
–
0.5
0.1
–
(0.1 )
–
–
–
–
–
–
–
(41.9 )
(2,134.9 )
3.4
(2.6 )
3.9
(2,179.4 )
(41.9 )
(2,134.9 )
0.8
(2,175.5 )
(33.0 )
(0.2 )
(2.7 )
(2,168.2 )
(14.2 )
228.6
–
–
(3.5 )
(0.4 )
1.4
3.8
(2,204.6 )
(14.8 )
227.2
3.8
(35.9 )
(1,953.8 )
1.3
(1,988.4 )
1.1
(37.0 )
–
(1,953.8 )
3.4
(2.1 )
4.5
(1,992.9 )
(35.9 )
(1,953.8 )
1.3
(1,988.4 )
Deferred tax balances predominantly comprise non-current items. Deferred tax assets and liabilities are netted when the taxes
relate to the same taxation authority and where offsetting is allowed.
Deferred tax assets of US$2.9 million (2008: US$2.2 million) arising from unused tax losses of US$17.2 million (2008:
US$12.8 million) have not been recognised in the financial statements. Unused tax losses have no expiry date.
38 Hongkong Land
16 Pension plans
The Group has a number of defined benefit pension plans, covering all the main territories in which it operates with the major
plans relating to employees in Hong Kong. Most of the pension plans are final salary defined benefit plans and are funded. The
assets of the plans are held independently of the Group’s assets in separate trustee administered funds. The Group’s major plans
are valued by independent actuaries annually using the projected unit credit method.
The principal actuarial assumptions used for accounting purposes at 31st December are as follows:
Discount rate applied to pension obligations
Expected return on plan assets
Future salary increases
2009
Weighted
average
%
5.0
7.5
5.0
2008
Weighted
average
%
6.0
7.5
5.0
The expected return on plan assets is determined on the basis of long-term average returns on global equities of 3.8% to 11.3%
per annum and global bonds of 2.8% to 4.4% per annum, and the long-term benchmark allocation of assets between equities
and bonds in the plan.
The amounts recognised in the consolidated balance sheet are as follows:
Fair value of plan assets
Present value of pension obligations
Pension assets
Movements in the fair value of plan assets:
At 1st January
Exchange differences
Expected return
Contributions from plan members
Benefits paid
Actuarial gains/(losses)
At 31st December
Movements in the present value of pension obligations:
At 1st January
Exchange difference
Interest cost
Current service cost
Benefits paid
Actuarial losses/(gains)
At 31st December
2009
US$m
31.4
(21.4 )
10.0
25.1
–
1.9
0.5
(0.4 )
4.3
31.4
19.0
–
1.1
1.3
(0.4 )
0.4
21.4
2008
US$m
25.1
(19.0 )
6.1
38.2
0.1
2.9
0.5
(2.1 )
(14.5 )
25.1
20.9
0.1
1.0
1.5
(2.1 )
(2.4 )
19.0
Annual Report 2009 39
Notes to the Financial Statements
16 Pension plans continued
The analysis of the fair value of plan assets at 31st December is as follows:
Equity instruments
Debt instruments
Other assets
2009
US$m
14.1
9.4
7.9
31.4
The estimated amount of contributions expected to be paid to the plans in 2010 is US$0.5 million.
The amounts recognised in the consolidated profit and loss account are as follows:
Current service cost
Interest cost
Expected return on plan assets
Expense/(income) recognised
Actual return/(loss) on plan assets in the year
2009
US$m
1.3
1.1
(1.9 )
0.5
6.2
2008
US$m
11.3
6.7
7.1
25.1
2008
US$m
1.5
1.0
(2.9 )
(0.4 )
(11.7 )
The above amounts are all recognised in arriving at operating profit and are included in cost of sales and administrative
expenses.
The five year history of experience adjustments is as follows:
Fair value of plan assets
Present value of pension obligations
2009
US$m
31.4
(21.4 )
2008
US$m
25.1
(19.0 )
2007
US$m
38.2
(20.9 )
2006
US$m
33.2
(19.3 )
2005
US$m
29.1
(18.3 )
Surplus
10.0
6.1
17.3
13.9
10.8
Experience adjustments on plan assets
Percentage of plan assets (%)
Experience adjustments on pension obligations
Percentage of pension obligations (%)
4.3
14
1.2
6
(14.5 )
58
–
–
2.5
7
(0.1 )
–
3.4
10
–
–
1.1
4
0.3
2
40 Hongkong Land
17 Properties for sale
Properties under development
– land and development costs
– interest and other expenses capitalised
Provision
Completed properties
2009
US$m
832.6
42.3
874.9
(184.9 )
690.0
97.1
787.1
2008
US$m
955.1
64.0
1,019.1
(180.2 )
838.9
–
838.9
At 31st December 2009, properties for sale of US$289.9 million (2008: US$296.6 million) were pledged as security for borrowings
of US$99.7 million (2008: US$258.9 million) as shown in Note 21.
18 Debtors
Trade debtors
Other debtors
– third parties
– associates and joint ventures
Non-current
Current
By geographical area of operation
Greater China
Southeast Asia and others
Fair value
Trade debtors
Other debtors
2009
US$m
65.7
185.7
120.6
372.0
56.7
315.3
372.0
211.6
160.4
372.0
65.7
306.3
372.0
2008
US$m
80.6
217.3
93.2
391.1
101.9
289.2
391.1
214.0
177.1
391.1
80.6
310.5
391.1
An allowance for impairment of trade debtors is made based on the estimated irrecoverable amount. Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency
in payment are considered indicators that the debtor is impaired.
At 31st December 2009, trade debtors of US$0.5 million (2008: Nil) were impaired and fully provided.
Annual Report 2009 41
Notes to the Financial Statements
18 Debtors continued
At 31st December 2009, trade debtors of US$4.4 million (2008: US$7.8 million) were past due but not impaired. The ageing
analysis of these trade debtors is as follows:
Below 30 days
Between 31 and 60 days
Between 61 and 90 days
Over 90 days
2009
US$m
3.4
0.6
0.2
0.2
4.4
2008
US$m
5.7
1.6
0.3
0.2
7.8
The risk of trade debtors that are neither past due nor impaired at 31st December 2009 becoming impaired is low as most of the
balances have been settled subsequent to the year end.
Other debtors are further analysed as follows:
Prepayments
Derivative financial instruments
Amounts due from associates and joint ventures
Others
2009
US$m
85.6
64.0
120.6
36.1
306.3
2008
US$m
65.4
109.6
93.2
42.3
310.5
The fair value of debtors other than derivative financial instruments approximates their carrying amount, as the impact of
discounting is not significant. Derivative financial instruments are stated at fair value which is calculated by reference to quoted
prices in active markets.
The amounts due from associates and joint ventures are repayable on demand.
19 Bank balances
By geographical area of operation
Greater China
Southeast Asia and others
2009
US$m
61.9
1,164.2
1,226.1
2008
US$m
39.4
1,079.6
1,119.0
Bank balances of certain subsidiaries amounting to US$53.8 million (2008: US$58.3 million) are held under the Housing Developers
(Project Account) Rules in Singapore, withdrawals from which are subject to the provision of these Rules.
The weighted average interest rate on bank balances of US$1,194.0 million (2008: US$1,078.1 million) is 0.3% (2008: 1.9%)
per annum.
42 Hongkong Land
20 Creditors
Trade creditors
Amounts due to associates and joint ventures
Tenants’ deposits
Other creditors
Derivative financial instruments
Financial liabilities
Rent received in advance
Progress billings received
Non-current
Current
By geographical area of operation
Greater China
Southeast Asia and others
The remaining contractual maturities of financial liabilities other than
derivative financial instruments are analysed as follows:
Within one year
Between one and two years
Between two and five years
Beyond five years
2009
US$m
193.6
81.7
149.0
68.8
18.5
511.6
7.5
218.5
737.6
50.5
687.1
737.6
432.4
305.2
737.6
355.0
62.2
58.5
17.4
493.1
2008
US$m
202.2
23.9
139.1
56.8
16.9
438.9
7.4
249.3
695.6
26.8
668.8
695.6
367.7
327.9
695.6
257.2
95.9
50.1
18.8
422.0
Derivative financial instruments are stated at fair value which is calculated by reference to quoted prices in active market. Other
creditors are stated at amortised cost. The fair value of these creditors approximates their carrying amounts.
Annual Report 2009 43
Notes to the Financial Statements
21 Borrowings
Current
Bank overdrafts
Bank loans
Current portion of long-term borrowings
– Bank loans
– 3.01% Singapore Dollar notes due 2010
Long-term
Bank loans
7% United States Dollar bonds due 2011
5.5% United States Dollar bonds due 2014
3.01% Singapore Dollar notes due 2010
3.65% Singapore Dollar notes due 2015
2.75% United States Dollar convertible bonds due 2012
Medium term notes
2009
Carrying
amount
US$m
Fair value
US$m
2008
Carrying
amount
US$m
Fair value
US$m
1.1
–
10.5
234.3
245.9
1,405.2
619.1
537.0
–
268.9
368.1
199.2
1.1
–
10.5
234.5
246.1
1,405.2
635.2
537.0
–
274.7
385.0
194.5
1.9
9.0
84.5
–
95.4
1.9
9.0
84.5
–
95.4
1,587.8
1,587.8
629.1
555.2
229.4
264.2
358.4
–
652.0
555.2
229.8
275.5
355.2
–
3,397.5
3,431.6
3,624.1
3,655.5
3,643.4
3,677.7
3,719.5
3,750.9
The fair values are based on market prices or are estimated using the expected future payments discounted at market interest
rates ranging from 0.4% to 3.7% (2008: 0.8% to 5.6%) per annum. The fair values of current borrowings approximate their
carrying amount, as the impact of discounting is not significant.
Secured
Unsecured
2009
US$m
99.7
3,543.7
3,643.4
2008
US$m
258.9
3,460.6
3,719.5
Secured borrowings at 31st December 2009 were certain subsidiaries’ bank borrowings which were secured against its properties
for sale.
The 7% bonds with nominal value of US$600 million due on 3rd May 2011 issued by a wholly-owned subsidiary are listed on the
Luxembourg Stock Exchange.
The 5.5% bonds with nominal value of US$500 million due on 28th April 2014 issued by a wholly-owned subsidiary are listed on
the Singapore Exchange.
The 3.01% notes due on 4th October 2010 and 3.65% notes due on 5th October 2015 with nominal value of S$325 million and
S$375 million respectively, were issued by a wholly-owned subsidiary and are listed on the Singapore Exchange.
44 Hongkong Land
21 Borrowings continued
The 2.75% convertible bonds with nominal value of US$400 million due on 21st December 2012 are convertible up to and
including 11th December 2012 into fully paid ordinary shares of the Company at a conversion price of US$3.85 per ordinary
share, which is subject to adjustment for subdivision or consolidation of shares, bonus issues, right issues and other dilutive
events. The fair value of the liability component is calculated using a market interest rate for an equivalent non-convertible bond
at the time of issue, and is recorded as long-term borrowings on the amortised cost basis, until extinguished on conversion or
maturity of the bonds. The residual amount, representing the value of the equity conversion component determined on issue of
the bonds, is included in shareholders’ funds.
During the year, the Group issued the following notes under the US$3,000 million medium term note programme:
– 4.135% 10-year notes with nominal value of HK$200 million due on 17th September 2019
– 4.1875% 10-year notes with nominal value of HK$300 million due on 23rd October 2019
– 4.25% 10-year notes with nominal value of HK$300 million due on 25th November 2019
– 4.28% 12-year notes with nominal value of HK$500 million due on 20th December 2021
– 3.86% 8-year notes with nominal value of S$50 million due on 29th December 2017
The convertible bonds are recognised in the consolidated balance sheet as follows:
Liability component at 1st January
Interest expense at effective interest rate
Interest expense at coupon rate
Liability component at 31st December
The borrowings are further summarised as follows:
Fixed rate borrowings
2009
US$m
358.4
20.7
(11.0 )
368.1
2008
US$m
349.3
20.1
(11.0 )
358.4
Weighted
Weighted
average average period
outstanding
Years
interest rates
%
Floating
rate
borrowings
US$m
US$m
Total
US$m
By currency
2009
Hong Kong Dollar
Singapore Dollar
United States Dollar
2008
Hong Kong Dollar
Singapore Dollar
United States Dollar
2.4
2.1
5.5
3.6
2.4
5.5
2.1
3.9
3.0
1.8
2.7
4.0
906.3
602.3
368.1
1,116.1
648.4
2.2
2,022.4
1,250.7
370.3
1,876.7
1,766.7
3,643.4
900.6
651.9
358.6
1,091.9
714.0
2.5
1,992.5
1,365.9
361.1
1,911.1
1,808.4
3,719.5
The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging
transactions.
Annual Report 2009 45
Notes to the Financial Statements
21 Borrowings continued
The remaining contractual maturities of the borrowings, including the contractual interest payments, are analysed below. The
interest payments are computed using contractual rates and, in the case of floating rate borrowings, based on market rates at the
balance sheet date before taking into account hedging transactions. Cash flows denominated in currencies other than United
States dollars are converted into United States dollars at the rates of exchange ruling at the balance sheet date.
Within one year
Between one and two years
Between two and five years
Beyond five years
22 Share capital
Authorised
Shares of US$0.10 each
Issued and fully paid
At 1st January
Repurchased and cancelled
2009
US$m
356.6
1,105.1
2,016.7
522.2
4,000.6
2008
US$m
219.7
572.3
2,545.9
786.2
4,124.1
Ordinary shares in millions
2009
2008
2009
US$m
2008
US$m
4,000.0
4,000.0
400.0
400.0
2,249.3
–
2,295.2
(45.9 )
224.9
–
229.5
(4.6 )
At 31st December
2,249.3
2,249.3
224.9
224.9
In 2008, the Company repurchased 45.9 million ordinary shares from the stock market at a total cost of US$119.7 million which
was dealt with by charging US$4.6 million to share capital and US$115.1 million to revenue reserves.
23 Net asset value per share
Net asset value per share is calculated on shareholders’ funds of US$12,755.9 million (2008: US$11,313.3 million) and on
2,249.3 million (2008: 2,249.3 million) shares issued at the year end.
Net asset value per share is additionally calculated based on adjusted shareholders’ funds. The difference between adjusted
shareholders’ funds and shareholders’ funds is reconciled as follows:
Shareholders’ funds
Deferred tax on revaluation surpluses of investment properties
Share of deferred tax on revaluation surpluses of investment
properties of associates and joint ventures
2009
2008
Net
asset value
per share
US$
Net
asset value
per share
US$
US$m
5.67
11,313.3
5.03
1,951.7
43.1
US$m
12,755.9
2,133.2
46.9
Adjusted shareholders’ funds
14,936.0
6.64
13,308.1
5.92
46 Hongkong Land
24 Dividends
Final dividend in respect of 2008 of US¢7.00 (2007: US¢9.00) per share
Interim dividend in respect of 2009 of US¢6.00 (2008: US¢6.00) per share
2009
US$m
157.5
134.9
292.4
2008
US$m
206.6
137.7
344.3
A final dividend in respect of 2009 of US¢10.00 (2008: US¢7.00) per share amounting to a total of US$224.9 million (2008:
US$157.5 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the
Annual General Meeting. The amount will be accounted for as an appropriation of revenue reserves in the year ending
31st December 2010.
25 Purchase of a subsidiary
Current assets
Current liabilities
Other non-current liabilities
Net assets
Adjustment for minority interests
Net assets acquired
Adjustment for carrying value of associates and joint ventures
Cash and cash equivalents acquired
Net cash outflow
2009
Fair value
adjustments
US$m
Book value
US$m
Fair value
US$m
87.2
(3.9 )
(10.5 )
72.8
–
–
–
–
87.2
(3.9 )
(10.5 )
72.8
2.2
75.0
(29.2 )
(3.8 )
42.0
During the year, the Group increased its interest in King Kok Investment Limited (‘Kingkok’) from 35% to 90%. Fair value
adjustments were determined based on fair values of Kingkok’s identifiable assets and liabilities at the date on which the Group
obtained control. Revenue and profit after tax since acquisition amounted to US$2.5 million and US$0.8 million respectively. Had
the acquisition occurred on 1st January 2009, the Group’s consolidated revenue and profit after tax for the year ended
31st December 2009 would have been US$1,328.7 million and US$1,678.9 million respectively.
26 Cash and cash equivalents
Bank balances
Bank overdrafts (see Note 21)
2009
US$m
1,226.1
(1.1 )
2008
US$m
1,119.0
(1.9 )
1,225.0
1,117.1
Annual Report 2009 47
Notes to the Financial Statements
27 Derivative financial instruments
The fair values of derivative financial instruments at 31st December are as follows:
Designated as cash flow hedges
– interest rate swaps
– cross currency swaps
Designated as fair value hedges
– interest rate swaps
– cross currency swaps
Not qualified as hedges
– interest rate swaps
– cross currency swaps
2009
2008
Positive
fair value
US$m
Negative
fair value
US$m
Positive
fair value
US$m
Negative
fair value
US$m
4.8
2.4
4.8
52.0
–
–
11.8
2.8
3.9
–
–
–
13.8
7.6
7.8
78.0
0.1
2.3
16.9
–
–
–
–
–
The remaining contractual maturities of net settled and gross settled derivative financial instruments, based on their undiscounted
cash outflows, are analysed as follows:
Within
one
year
US$m
Between
one and
two years
US$m
Between
two and
five years
US$m
Beyond
five
years
US$m
16.2
9.0
11.4
30.5
618.7
522.1
46.7
627.7
533.5
–
91.5
91.5
13.0
7.5
2.7
–
33.3
33.3
636.8
505.8
46.3
40.8
639.5
505.8
2009
Net settled
– interest rate swaps
Gross settled
– cross currency swaps
2008
Net settled
– interest rate swaps
Gross settled
– cross currency swaps
48 Hongkong Land
27 Derivative financial instruments continued
Interest rate swaps
The notional principal amounts of the outstanding interest rate swap contracts at 31st December 2009 were US$1,401.2 million
(2008: US$1,491.5 million).
At 31st December 2009, the fixed interest rates relating to interest rate swaps vary from 1.84% to 5.16% (2008: 1.90% to
5.16%).
The fair values of interest rate swaps are based on the estimated cash flows discounted at market rates ranging from 0.14% to
2.71% (2008: 0.95% to 1.99%) per annum.
Cross currency swaps
The contract amounts of the outstanding cross currency swap contracts at 31st December 2009 were US$1,176.7 million
(2008: US$1,100.0 million).
28 Commitments
Capital commitments
Authorised not contracted
Contracted not provided
Contribution to associates and joint ventures
Operating lease commitments
Due within one year
Due between one and two years
Due between two and three years
Due between three and four years
2009
US$m
166.9
17.1
184.0
614.7
1.4
0.8
0.4
–
2.6
2008
US$m
131.0
24.4
155.4
744.4
0.7
0.5
0.5
0.3
2.0
29 Contingent liabilities
Various Group companies are involved in litigation arising in the ordinary course of their respective businesses. Having reviewed
outstanding claims and taking into account legal advice received, the Directors are of the opinion that adequate provisions have
been made in the financial statements.
Annual Report 2009 49
Notes to the Financial Statements
30 Related party transactions
The parent company of the Group is Jardine Strategic Holdings Limited and the ultimate holding company is Jardine Matheson
Holdings Limited. Both companies are incorporated in Bermuda.
In the normal course of business, the Group has entered into a variety of transactions with the subsidiary undertakings, associates
and joint ventures of Jardine Matheson Holdings Limited (‘Jardine Matheson group members’). The more significant of these
transactions are described below:
Management fee
The management fee payable by the Group, under an agreement entered into in 1995, to Jardine Matheson Limited was
US$3.9 million (2008: US$1.9 million), being 0.5% per annum of the Group’s underlying profit in consideration for management
consultancy services provided by Jardine Matheson Limited, a wholly-owned subsidiary of Jardine Matheson Holdings Limited.
Property and other services
The Group rented properties to Jardine Matheson group members. Gross rents on such properties in 2009 amounted to
US$14.0 million (2008: US$8.2 million).
Jardine Matheson group members provided property construction, maintenance and other services to the Group in 2009 in
aggregate amounted to US$77.0 million (2008: US$23.2 million).
Hotel management services
Jardine Matheson group members provided hotel management services to the Group in 2009 amounted to US$0.9 million (2008:
US$0.6 million).
Outstanding balances with associates and joint ventures
Amounts of outstanding balances with associates and joint ventures are included in debtors and creditors as appropriate (see
Notes 18 and 20).
Directors’ emoluments
Details of Directors’ emoluments (being the key management personnel compensation) are shown on page 59 under the heading
of ‘Appointments, Retirement, Remuneration and Service Contracts’.
50 Hongkong Land
31 Summarised balance sheet of the Company
Included below is certain summarised balance sheet information of the Company disclosed in accordance with Bermuda law.
Net operating assets
Investments at cost
Unlisted shares in subsidiaries
Net amounts due to subsidiaries
Creditors and other accruals
Capital employed
Share capital (see Note 22)
Revenue and other reserves
Contributed surplus
Revenue reserves
Shareholders’ funds
2009
US$m
2008
US$m
4,481.7
(708.2 )
3,773.5
(18.7 )
4,481.7
(827.9 )
3,653.8
(19.2 )
3,754.8
3,634.6
224.9
2,249.6
1,280.3
3,529.9
3,754.8
224.9
2,249.6
1,160.1
3,409.7
3,634.6
Subsidiaries are shown at cost less amounts provided.
The contributed surplus was set up on the formation of the Company in 1989 and, under the Bye-Laws of the Company, is
distributable.
Annual Report 2009 51
Notes to the Financial Statements
32 Principal subsidiaries, associates and joint ventures
The principal subsidiaries, associates and joint ventures of the Group at 31st December 2009 are set out below.
Effective holding %
2008
2009
Issued share capital
Main activities
Country of
incorporation
Subsidiaries
Hongkong Land China Holdings
Limited
100
100 * USD
200,000,000
Investment holding
Bermuda
Hongkong Land Limited
100
100 * USD
12,000
Group management
Bermuda
Hongkong Land International
Holdings Limited
The Hongkong Land Company,
Limited
The Hongkong Land Property
Company, Limited
100
100 * USD
200,000,000
Investment holding
Bermuda
100
100 HKD
1,293,180,006
Property investment
Hong Kong
100
100 HKD
200
Property investment
Hong Kong
HKL (Chater House) Limited
100
100 HKD
1,500,000
Property investment
Hong Kong
HKL (Esplanade) Pte Limited
100
100 SGD
150,000,000
Property investment
Singapore
HKL (Prince’s Building) Limited
100
100 HKD
200
Property investment
Hong Kong
HKL Treasury (Singapore) Pte Limited
100
100 SGD
2
Finance
Singapore
Mulberry Land Company Limited
100
100 HKD
200
Property investment
Hong Kong
The Hongkong Land Finance
100
100 USD
2
Finance
Cayman Islands
(Cayman Islands) Company Limited
HKL (Landmark Hotel) Limited
100
100 HKD
2
Hotel investment
Hong Kong
Hongkong Land Credit Limited
100
100 HKD
200
Finance
Hong Kong
HK Glory Properties Limited
100
100 USD
2
Property development British Virgin
Islands
Tong Yan Development Company
Limited
100
100 HKD
400
Property development Hong Kong
Hongkong Land CB (2005) Limited
100
100 USD
2
Finance
British Virgin
Islands
The Hongkong Land Treasury Services
100
100 SGD
2
Finance
Singapore
(Singapore) Pte Limited
MCL Land Limited (details are
shown on pages 53 and 54)
77.4
77.4 SGD
369,985,977
Property development Singapore
Reid Street Properties Limited
100
100 USD
400
Investment holding
British Virgin
Islands
Hongkong Land Singapore (Pte) Ltd
100
100 SGD
100,000
Property management Singapore
Starsome Investments Limited
100
100 USD
2
Investment holding
The Hongkong Land Notes Company
Limited
100
100 USD
2
Finance
British Virgin
Islands
British Virgin
Islands
King Kok Investment Limited
90
35 USD
10,000
Property investment
Mauritius
* Owned directly
52 Hongkong Land
32 Principal subsidiaries, associates and joint ventures continued
Effective holding %
2008
2009
Issued share capital
Main activities
Country of
incorporation
Associates and joint ventures
Beijing Premium Real Estate Limited
Gaysorn Land Company Limited
40
49
40 USD
12,000,000
Property development Mainland China
49 THB
61,250,000
Property investments
Thailand
and operations
Grosvenor Land Property Fund
21.4
21.4 Ord.USD
28,000
Property investment
Bermuda
Limited
Pref.USD
100
Normelle Estates Limited
50
50 HKD
10,000
Property investment
Hong Kong
One Raffles Quay Pte Limited
33.3
33.3 SGD
6
Property development Singapore
P.T. Jakarta Land
50
50
IDR
3,320,000,000
Property development
and asset
management
Indonesia
NorthPine Land Inc
40
40 Peso
1,224,635,200
Property investment
The Philippines
BFC Development Pte Limited
33.3
33.3 SGD
6
Property development Singapore
Longhu Land Limited
50
50 USD
12,000,000
Property development Mainland China
Basecity Investments Limited
46.6
46.6 USD
10,000
Property investment
British Virgin
Islands
Central Boulevard Development
33.3
33.3 SGD
6
Property investment
Singapore
Pte Limited
Ampang Investments Pte Limited
40
40 SGD
10
Hotel investment
Singapore
Raise Up Enterprises Limited
30.3
30.3 USD
10,000
Property investment
British Virgin
Islands
Cosmo City Limited
Jardine Gibbons Properties Limited
50
40
– HKD
2
Property investment
Hong Kong
40 BD
600,000 ’A’
Property holding
Bermuda
400,000 ’B’
MCL Land Limited’s principal subsidiaries, associates and joint ventures
MCL Land Holdings Pte Ltd
77.4
77.4 SGD
6,000,000
Property investment
Singapore
MCL Land (Serangoon) Pte Ltd
77.4
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Grange) Pte Ltd
77.4
77.4 SGD
1,000,000
Property development Singapore
Richdeal Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Properties) Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
Superport Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
Maxgrowth Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
Acecharm Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
MCL Land Realty Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
Annual Report 2009 53
Notes to the Financial Statements
32 Principal subsidiaries, associates and joint ventures continued
Effective holding %
2008
2009
Issued share capital
Main activities
Country of
incorporation
MCL Land Limited’s principal subsidiaries, associates and joint ventures continued
MCL Land Development Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Prime) Pte. Ltd.
77.4
77.4 SGD
1,000,000
Property development Singapore
Caseldine Investments Pte Ltd
77.4
77.4 SGD
1,000,000
Property development Singapore
Kedron Investments Pte Ltd
77.4
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Warren) Pte Ltd
77.4
77.4 SGD
1,000,000
Property development Singapore
MCL (Century Gardens) Sdn. Bhd.
77.4
77.4 MYR
6,608,763
Property investment
Malaysia
MCL (Pantai View) Sdn. Bhd.
77.4
77.4 MYR
2,000,000
Property investment
Malaysia
Grange Development Pte Ltd
41.4
41.4 SGD
1,000,000
Property development Singapore
Calne Pte Ltd
38.7
38.7 SGD
1,000,000
Property development Singapore
Golden Quantum Acres Sdn Bhd
38.7
38.7 MYR
10,764,210
Property development Malaysia
Sunrise MCL Land Sdn Bhd
38.7
38.7 MYR
2,000,000
Property development Malaysia
MSL Properties Sdn Bhd
38.7
38.7 MYR
3,000,000
Property development Malaysia
54 Hongkong Land
Independent Auditor’s Report
To the members of Hongkong Land Holdings Limited
We have audited the accompanying consolidated financial statements of Hongkong Land Holdings Limited
and its subsidiaries (the ‘Group’) which comprise the consolidated balance sheet as of 31st December 2009
and the consolidated profit and loss account, consolidated statement of comprehensive income, consolidated
statement of changes in equity and consolidated cash flow statement for the year then ended and a summary
of significant accounting policies and other explanatory notes.
Directors’ Responsibility for the Financial Statements
The Company’s Directors are responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards and with the requirements
of Section 90 of the Bermuda Companies Act. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those Standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of the Group as of 31st December 2009, and its financial performance and its cash flows for
the year then ended in accordance with International Financial Reporting Standards and with the requirements
of the Bermuda Companies Act.
Other Matters
This report, including the opinion, has been prepared for and only for the Company’s members as a body in
accordance with Section 90 of the Bermuda Companies Act and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
United Kingdom
4th March 2010
Annual Report 2009 55
Five Year Summary
2005
US$m
2006
US$m
2007
US$m
2008
US$m
2009
US$m
Profit/(loss) attributable to shareholders
2,061
1,901
2,840
(109 )
1,641
Underlying profit attributable to shareholders
188
245
345
375
777
Investment properties
9,779
11,651
14,261
13,703
14,818
Net debt
1,855
2,312
2,431
2,601
2,417
Shareholders’ funds
7,215
9,197
11,833
11,313
12,756
Adjusted shareholders’ funds*
8,592
10,922
14,041
13,308
14,936
Net asset value per share
3.24
4.01
5.16
5.03
Adjusted net asset value per share*
3.86
4.76
6.12
5.92
US$
US$
US$
US$
US$
5.67
6.64
Underlying earnings/dividends
Adjusted net asset value
per share (US¢)
per share* (US$)
Underlying earnings
Dividends
34.55
15.02
16.41
16.00
13.00
13.00
10.98
10.00
8.42 8.00
6.12
5.92
6.64
4.76
3.86
’05
’06
’07
’08
’09
’05
’06
’07
’08
’09
* Based on shareholders’ funds excluding deferred
tax on revaluation surpluses of investment
properties that would not be payable if the
properties were sold
35
30
25
20
15
10
5
0
56 Hongkong Land
6
5
4
3
2
1
0
Responsibility Statement
The Directors of the Company confirm to the best of their knowledge that:
a.
the consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards, including International Accounting Standards and Interpretations adopted by the
International Accounting Standards Board; and
b. the sections of this Report, including the Chairman’s Statement, Chief Executive’s Review and Principal
Risks and Uncertainties, which constitute the management report include a fair review of all information
required to be disclosed by the Disclosure and Transparency Rules 4.1.8 to 4.1.11 issued by the Financial
Services Authority of the United Kingdom.
For and on behalf of the Board
A J L Nightingale
Y K Pang
Directors
4th March 2010
Annual Report 2009 57
Corporate Governance
The Group’s corporate governance relies on a combination of shareholder, board and management supervision
and strict compliance, internal audit and risk control procedures, within the context of the various international
regulatory regimes to which the Group is subject.
Hongkong Land Holdings Limited is incorporated in Bermuda. The Group’s property interests are almost
entirely in Asia. The Company has its primary share listing on the London Stock Exchange and secondary
listings in Bermuda and Singapore. With effect from 6th April 2010, the Company’s share listing in London will
be included within the new Premium listing segment. The primary corporate governance regime applicable to
the Company arises under the laws of Bermuda, including under certain specific statutory provisions that apply
to the Company alone. The Company has fully complied with that governance regime. This Report outlines the
significant ways in which the Company's corporate governance practices differ from those set out in the
Combined Code (‘Code’), which was originally introduced in relation to United Kingdom incorporated
companies listed on the London Stock Exchange.
The Management of the Group
The Company has its dedicated executive management under the Chief Executive. The Memorandum of
Association of the Company, however, provides for the chairman of Jardine Matheson Holdings Limited
(‘Jardine Matheson’) to be, or to appoint, the Managing Director of the Company. The managing director of
Jardine Matheson has been so appointed. Reflecting this, and the 50% interest of the Jardine Matheson group
in the Company’s share capital, the Chief Executive and the Managing Director meet regularly. Similarly, the
board of the Hong Kong-based Group management company, Hongkong Land Limited (‘HKL’), and its finance
committee are chaired by the Managing Director and include Group executives and the group finance director,
the group strategy director and the group general counsel of Jardine Matheson.
The Board
The Company currently has a Board of 14 Directors: the Chief Executive and Chief Financial Officer; five
executives of Jardine Matheson; and seven non-executive Directors. Their names and brief biographies appear
on page 15 of this Report. The Chairman has been appointed in accordance with the provisions of the
Bye-laws of the Company, which provide that the chairman of Jardine Matheson, or any Director nominated
by him, shall be the Chairman of the Company. The composition and operation of the Board reflect the
Company’s commitment to its long-term strategy, shareholding structure and tiered approach to oversight and
management as described in this Report. The Board regards Asian business experience and relationships as
more valuable attributes of its non-executive Directors than formal independence criteria. The Company has
not designated a ‘senior independent director’ as set out in the Code, nor does it have nomination or
remuneration committees or a formal Board evaluation process. Decisions on nomination and remuneration
result from consultations between the Chairman and the Managing Director and other Directors as they
consider appropriate. The four executives of Jardine Matheson on the board of HKL, being A J L Nightingale,
Mark Greenberg, James Riley and Giles White, also form the HKL audit committee that has responsibility
for the Group.
Among the matters which the Board of the Company decides are the Group’s business strategy, its annual
budget, dividends and major corporate activities. Responsibility for implementing the Group’s strategy is
delegated to the Company’s executive management, with decision-making authority within designated
financial parameters delegated to the HKL finance committee. In addition, as part of the Company’s tiered
approach to oversight and management, certain Directors of the Company based outside Asia make regular
visits to Asia and Bermuda, where they participate in five annual strategic reviews, four of which normally
precede the full Board meetings. These Directors are not directly involved in the operational management of
the Group’s business activities, but their knowledge and close oversight of the Group's affairs reinforces the
process by which business is reviewed before consideration by the Board.
The Board is scheduled to hold four meetings in 2010, and ad hoc procedures are adopted to deal with urgent
matters. Two meetings each year are held in Bermuda and two in Asia. The Board receives high quality, up to
date information for each of its meetings, which has previously been considered and approved at meetings of
the board of HKL. This information is also the subject of a strategy review in a cycle of meetings (in Bermuda
or Asia, as appropriate) prior to consideration by the Board itself.
58 Hongkong Land
Appointments, Retirement, Remuneration and Service Contracts
Candidates for appointment as executive Directors of the Company, or as executive directors of HKL or senior
executives elsewhere in the Group may be sourced internally, from the Jardine Matheson group or externally
using the services of specialist executive search firms. The aim is to appoint individuals of the highest calibre in
their area of expertise, combining international best practice with experience of and an affinity with Asian
markets.
Each new Director is appointed by the Board and, in accordance with Bye-law 92 of the Company’s Bye-laws,
each new Director is subject to retirement at the first Annual General Meeting after appointment. Thereafter,
the Director will be subject to retirement by rotation pursuant to Bye-law 85 whereby one-third of the Directors
retire at the Annual General Meeting each year. These provisions apply to both executive and non-executive
Directors, but the requirement to retire by rotation pursuant to Bye-law 85 does not extend to the Chairman
or Managing Director.
James Watkins was appointed as a Director of the Company with effect from 6th May 2009. John R Witt was
appointed as a Director and Chief Financial Officer of the Company with effect from 1st April 2010. In
accordance with Bye-law 85, Lord Leach of Fairford, Dr Richard Lee and Y K Pang retire by rotation at the
Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Bye-law 92,
James Watkins and John R Witt will also retire, and, being eligible, offer themselves for re-election. None of
the Directors proposed for re-election has a service contract with the Company or its subsidiaries.
The Company’s policy is to offer competitive remuneration packages to its senior executives. It is recognised
that, due to the nature of the Group and its diverse geographic base, a number of its senior executives,
including the Chief Executive and Chief Financial Officer, are required to be offered international terms. The
nature of the remuneration packages is designed to reflect this, for example by the provision of
accommodation.
Non-executive Directors’ fees are decided upon by shareholders in general meeting as provided for by the
Company’s Bye-laws. For the year ended 31st December 2009, the Directors received from the Group
US$2.6 million (2008: US$1.8 million) in Directors’ fees and employee benefits, being US$0.3 million
(2008: US$0.2 million) in Directors’ fees, US$2.2 million (2008: US$1.5 million) in short-term employee
benefits including salary, bonus, accommodation and deemed benefits in kind and US$0.1 million
(2008: US$0.1 million) in post-employment benefits. The information set out in this paragraph forms part of
the audited financial statements.
The Company has in place shadow share option schemes under which cash bonuses are paid based on the
performance of the Company’s share price over a period. The shadow schemes were established to provide
longer-term incentives for executive Directors and senior managers. Shadow share options are granted after
consultation between the Chairman, the Managing Director and the Chief Executive and other Directors as
they consider appropriate.
The Company purchases insurance to cover its Directors against their costs in defending themselves in civil
proceedings taken against them in that capacity and in respect of damages resulting from the unsuccessful
defence of any proceedings. To the extent permitted by law, the Company also indemnifies its Directors.
Neither the insurance nor the indemnity provides cover where the Director has acted fraudulently
or dishonestly.
The Secretary of the Company, Charles Harry Wilken, sadly passed away unexpectedly on 24th January 2010.
Dianne Edmunds, Assistant Secretary of the Company, is acting Secretary until a successor to the position of
Company Secretary takes office.
Directors’ Responsibilities in respect of the Financial Statements
The Directors are required under the Bermuda Companies Act 1981 to prepare financial statements for each
financial year and to present them annually to the Company’s shareholders at the Annual General Meeting.
The financial statements should present fairly in accordance with International Financial Reporting Standards
(‘IFRS’) the financial position of the Group at the end of the year and the results of its operations and its cash
flows for the year then ended. The Directors consider that applicable accounting policies under IFRS, applied
on a consistent basis and supported by prudent and reasonable judgements and estimates, have been followed
in preparing the financial statements.
Annual Report 2009 59
Corporate Governance
Code of Conduct
The Group conducts business in a professional, ethical and even-handed manner. Its ethical standards are
clearly set out in the Group’s Code of Conduct, a set of guidelines to which every employee must adhere. The
code requires that all Group companies comply with all laws of general application, all rules and regulations
that are industry specific and proper standards of business conduct. The code prohibits the giving or receiving
of illicit payments, and requires all employees to be treated fairly, impartially and with respect. It also requires
that all managers must be fully aware of their obligations under the Code of Conduct and establish procedures
to ensure compliance at all levels within their organisations. The Group has in place procedures by which
employees can raise, in confidence, matters of serious concern in areas such as financial reporting or
compliance.
Internal Control
The Board has overall responsibility for the Group’s system of internal control. The system of internal control is
designed to manage, rather than eliminate, business risk; to help safeguard the Group’s assets against fraud
and other irregularities; and to give reasonable, but not absolute, assurance against material financial
misstatement or loss.
The principal risks and uncertainties facing the Company are set out on page 62.
The Board has delegated to the audit committee of HKL responsibility for reviewing the operation and
effectiveness of the Group’s system of internal control and the procedures by which this is monitored. The
audit committee considers the system and procedures on a regular basis, and reports to the Board
semi-annually. The chief executive and chief financial officer of HKL, together with representatives of the
internal and external auditors, attend the meetings of the audit committee by invitation.
Executive management is responsible for the implementation of the system of internal control throughout the
Group and the internal audit function monitors the effectiveness of the system. The internal audit function is
outside the operating businesses and reports its findings, and recommendations for any corrective action
required, to the audit committee of HKL.
The Group has in place an organisational structure with defined lines of responsibility and delegation of
authority. There are established policies and procedures for financial planning and budgeting; for information
and reporting systems; for assessment of risk; and for monitoring the Group’s operations and performance.
The information systems in place are designed to ensure that the financial information reported is reliable and
up to date.
The Company’s policy on commercial conduct is also an important part of the Group’s internal control process,
particularly in the area of compliance. The policy, as set out in the Code of Conduct, is reinforced and monitored
by an annual compliance certification process.
The audit committee of HKL has also been given the responsibility to oversee the effectiveness of the formal
procedures for employees to raise any matters of serious concern, and is required to review any reports made
under those procedures that are referred to it by the internal audit function.
Prior to completion and announcement of the half-year and year-end results, a review of the financial
information and of any issues raised in connection with the preparation of the results is undertaken by the
audit committee of HKL with the executive management and a report is received from the external auditors.
The external auditors also have access to the full Board, in addition to the Chief Executive, Chief Financial
Officer and other senior executives.
The audit committee of HKL keeps under review the nature, scope and results of the external audit and the
audits conducted by the internal audit department. The audit committee of HKL also keeps under review the
independence and objectivity of the external auditors.
60 Hongkong Land
Directors’ Share Interests
The Directors of the Company in office on 1st April 2010 had interests (within the meaning of the Disclosure
and Transparency Rules (‘DTRs’) of the Financial Services Authority (the ‘FSA’) of the United Kingdom) in the
ordinary share capital of the Company at 12th March 2010 as set out below. These interests included those
notified to the Company in respect of the Directors’ connected persons (as that term is used in the DTRs in
relation to companies incorporated outside the United Kingdom).
Simon Keswick
A J L Nightingale
Y K Pang
Charles Allen-Jones
R C Kwok
Dr Richard Lee
Substantial Shareholders
74,521
2,184
38,000
60,000
15,261
3,678,685
As a non-UK issuer, the Company is subject to the DTRs pursuant to which a person must in certain
circumstances notify the Company of the percentage of voting rights attaching to the share capital of the
Company that he holds. The obligation to notify arises if that person acquires or disposes of shares in the
Company which results in the percentage of voting rights which he holds reaching, exceeding or falling below
5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%.
The Company has been informed of the holding of voting rights of 5% or more attaching to the Company’s
issued ordinary share capital by Jardine Strategic, which is directly interested in 1,124,916,146 ordinary shares
carrying 50.01% of the voting rights. By virtue of its interest in Jardine Strategic, Jardine Matheson is also
interested in the same ordinary shares. Apart from this shareholding, the Company is not aware of any holders
of voting rights of 5% or more attaching to the issued ordinary share capital of the Company as at 12th March
2010.
There were no contracts of significance with corporate substantial shareholders during the year under
review.
Relations with Shareholders
The Company holds meetings following the announcement of the annual and half-year results with institutional
shareholders. A corporate website is maintained containing a wide range of information of interest to investors
at www.hkland.com.
The 2010 Annual General Meeting will be held on 5th May 2010. The full text of the resolutions and explanatory
notes in respect of the meeting are contained in the Notice of Meeting which accompanies this Report.
Securities Purchase Arrangements
At the Annual General Meeting held on 6th May 2009, shareholders renewed the approval of a general
mandate authorising the Directors to effect purchases by the Company or its subsidiaries of the Company’s
own ordinary shares of less than 15% in aggregate of its issued share capital.
Related Party Transactions
Details of transactions with related parties entered into by the Company during the course of the year are
included in Note 30 to the financial statements on page 50. There were no transactions entered into by the
Company during the course of the year to which the related party transaction rules of the FSA in the United
Kingdom apply.
Annual Report 2009 61
Principal Risks and Uncertainties
The Board has overall responsibility for risk management and internal control. The process by which the Group
identifies and manages risk is set out in more detail on page 60 of the Corporate Governance section of this
Report. The following are the principal risks and uncertainties facing the Company as required to be disclosed
pursuant to the Disclosure and Transparency Rules issued by the Financial Services Authority in the United
Kingdom and are in addition to the matters referred to in the Chairman’s Statement and Chief Executive’s
Review.
Economic Risk
The Group is exposed to the risk of negative developments in global and regional economies, and financial and
property markets, either directly or through the impact on the Group’s joint venture partners, bankers, suppliers
or tenants. These developments can result in:
• recession, inflation, deflation and currency fluctuations;
• restrictions in the availability of credit, increases in financing and construction costs and business failures;
and
• reductions in office and retail rents, office and retail occupancy and sales prices of, and demand for,
residential developments.
Such developments might increase costs of sales and operating costs, reduce revenues, or result in reduced
valuations of the Group’s investment properties or in the Group being unable to meet in full its strategic
objectives.
Commercial Risk and Financial Risk
Risks are an integral part of normal commercial practices, and where practicable steps are taken to mitigate
such risks. These risks are further pronounced when operating in volatile markets.
The Group makes significant investment decisions in respect of commercial and residential development
projects that take time to come to fruition and achieve the desired returns and are, therefore, subject to
market risks. These risks are further pronounced when operating in volatile markets.
The Group operates in areas that are highly competitive, and failure to compete effectively in terms of price,
product specification or levels of service can have an adverse effect on earnings as can construction risks in
relation to new developments. Significant pressure from such competition may lead to reduced margins. The
quality and safety of the products and services provided by the Group are also important and there is an
associated risk if they are below standard.
The steps taken by the Group to manage its exposure to financial risk are set out in the Financial Review on
page 13 and Note 2 to the Financial Statements on pages 26 to 29.
Regulatory and Political Risk
The Group is subject to a number of regulatory environments in the territories in which it operates. Changes
in the regulatory approach to such matters as foreign ownership of assets and businesses, exchange controls,
planning controls, tax rules and employment legislation have the potential to impact the operations and
profitability of the Group. Changes in the political environment in such territories can also affect the Group.
Terrorism, Pandemic and Natural Disasters
A number of the Group’s interests are vulnerable to the effects of terrorism, either directly through the impact
of an act of terrorism or indirectly through the impact of generally reduced economic activity in response to
the threat of or an actual act of terrorism.
The Group would be impacted by a global or regional pandemic which could be expected to seriously affect
economic activity and the ability of our business to operate smoothly. In addition, many of the territories
in which the Group is active can experience from time to time natural disasters such as earthquakes
and typhoons.
62 Hongkong Land
Shareholder Information
Financial Calendar
2009 full-year results announced
Share registers closed
Annual General Meeting to be held
2009 final dividend payable
2010 half-year results to be announced
Share registers to be closed
2010 interim dividend payable
* Subject to change
Dividends
4th March 2010
22nd to 26th March 2010
5th May 2010
12th May 2010
29th July 2010 *
23rd to 27th August 2010 *
13th October 2010 *
Shareholders will receive their dividends in United States dollars, unless they are registered on the Jersey
branch register where they will have the option to elect for sterling. These shareholders may make new
currency elections for the 2009 final dividend by notifying the United Kingdom transfer agent in writing by
23rd April 2010. The sterling equivalent of dividends declared in United States dollars will be calculated by
reference to a rate prevailing on 28th April 2010. Shareholders holding their shares through The Central
Depository (Pte) Limited (‘CDP’) in Singapore will receive United States dollars unless they elect, through CDP,
to receive Singapore dollars.
Registrars and Transfer Agent
Shareholders should address all correspondence with regard to their shareholdings or dividends to the
appropriate registrar or transfer agent.
Principal Registrar
Jardine Matheson International Services Limited
P O Box HM 1068
Hamilton HM EX
Bermuda
Jersey Branch Registrar
Capita Registrars (Jersey) Limited
12 Castle Street
St Helier, Jersey JE2 3RT
Channel Islands
United Kingdom Transfer Agent
Capita Registrars
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
England
Singapore Branch Registrar
M & C Services Private Limited
138 Robinson Road #17-00
The Corporate Office
Singapore 068906
Press releases and other financial information can be accessed through the Internet at www.hkland.com.
Annual Report 2009 63
Management and Offices
Hongkong Land Limited
Offices
Directors
A J L Nightingale Chairman
Y K Pang Chief Executive
R M J Chow
R Garman
Mark Greenberg
D P Lamb
James Riley
J A Robinson
Giles White
M Whitehead
John R Witt Chief Financial Officer
R Wong
Corporate Secretary
N M McNamara
64 Hongkong Land
Hongkong Land Holdings
Limited
Jardine House
33-35 Reid Street
Hamilton, Bermuda
Tel +1441 292 0515
Fax +1441 292 4072
E-mail: dee@jardines.com
Dianne Edmunds
Hongkong Land Limited
Hongkong Land (Chongqing)
Management Company Limited
4/F, Zone A, Neptune Building
No. 62 Star Light Road
New North Zone
Chongqing 401147
China
Tel +8623 6703 3016-8
Fax +8623 6703 3888
E-mail: jkwok@hklandbj.com /
lcf@hklandbj.com
Joe Kwok / Ling Chang Feng
One Exchange Square, 8th Floor
Representative Offices
Hong Kong
Tel +852 2842 8428
Fax +852 2845 9226
E-mail: ykp@hkland.com
Y K Pang
Hongkong Land (Singapore)
Pte. Limited
One Raffles Quay
North Tower #34–03
Singapore 048583
Tel +65 6238 1121
Fax +65 6238 1131
E-mail: robgarman@hkland.com
Robert Garman
Hongkong Land
(Asia Management) Limited
Suite 204, 2/F Central Building
31 Hai Ba Trung
Hoan Kiem
Hanoi, Vietnam
Tel +844 3824 0753
Fax +844 3824 0769
E-mail: slam@hkland.com
Shirley Lam
Shanghai
Unit 1109C, Bund Centre
222 Yanan Road (East)
Shanghai 200002
China
Tel +8621 6335 1220
Fax +8621 6335 0100
E-mail: sko@hkland.com /
vsun@hkland.com
Stanley Ko / Vincent Sun
Vietnam
8/F, SATRA Dong Khoi Building
58 Dong Khoi St., District 1
Ho Chi Minh City
Vietnam
Tel +848 3827 9006
Fax +848 3827 9020
E-mail: cosimo.jencks@hkland.com
Cosimo Jencks
India
Suite 202, The Taj Mahal Palace & Tower
Apollo Bunder
Mumbai 400001
India
Hongkong Land (Beijing)
Management Company Limited
Tel +9122 6665 3366
Fax +9122 6665 0300
E-mail: handrew@hkland.com
Hugh Andrew
Room 303, Block 26, Central Park
No. 6 Chaoyangmenwai Avenue
Chaoyang District
Beijing 100020, China
Tel +8610 6597 0921
Fax +8610 6597 0925
E-mail: jkwok@hklandbj.com
Joe Kwok
Report of the Valuers
To Hongkong Land Holdings Limited
Dear Sirs,
Revaluation of Commercial Investment Properties Held on Leases
Further to your instructions, we have valued in our capacity as external valuers the commercial investment
properties held on leases as described in the Annual Report of Hongkong Land Holdings Limited. We are of
the opinion that the market value of the commercial investment properties held on leases in Hong Kong,
Singapore and Vietnam as at 31st December 2009, totalled US$14,711,400,000 (United States Dollars
Fourteen Billion Seven Hundred Eleven Million and Four Hundred Thousand).
Our valuations are prepared in accordance with the International Valuation Standards (‘IVS’) (Eighth Edition
2007) by the International Valuation Standards Committee and The HKIS Valuation Standards on Properties by
The Hong Kong Institute of Surveyors.
We have inspected the properties without either making structural surveys or testing the services. We have
been supplied with details of tenure, tenancies and other relevant information.
In arriving at our opinion, each property was valued individually, on market value basis, calculated on the net
income allowing for reversionary potential, however no allowance has been made for expenses of realisation
or for taxation which might arise in the event of disposal.
Yours faithfully,
Jones Lang LaSalle Ltd
Hong Kong, 4th March 2010
Annual Report 2009 65
Property Portfolio
at 31st December 2009
Commercial Investment Property
Hong Kong*
Alexandra House
Chater House
Exchange Square
One Exchange Square
Two Exchange Square
Three Exchange Square
Podium
The Forum
Jardine House
The Landmark
Gloucester Tower
Atrium
Edinburgh Tower
York House
Prince’s Building
Singapore
One Raffles Link
Hanoi, Vietnam
Central Building
63 L’y Thái Tô’
LETTABLE AREA
Total
Office
Retail
Year of
Total
levels completion
Lease
expiry
(in thousands of square feet)
372
464
1,474
323
418
567
505
321
–
–
676
636
1,323
470
–
338
113
403
548
49
46
–
–
–
49
32
40
–
259
143
–
145
4,857
4,094
763
37
33
52
51
33
3
5
52
48
8
47
26
29
2899
2898
2057 **
1976
2002
1985
1985
1988
1985
1988
1973
2045 **
2842
1980
1980
1983
2006
1965
2895
309
236
73
10
2000
2095
41
74
37
68
4
6
9
10
1995
1998
2033
2039
115
105
10
* Property in Hong Kong is almost entirely held under leases originally granted from the Crown. Under the Basic Law of the Hong Kong Special Administrative Region,
all rights in relation to such leases will continue to be recognised and protected. All the Group’s investment properties are leasehold and directly held under these
leases.
** There is an option to renew these leases for a further term of 75 years.
66 Hongkong Land
Residential Development Property for Sale
Hong Kong
Tai Hang Road
Singapore
Waterfall Gardens
D’Pavilion
The Peak@Balmeg
Address
Site area
Lease expiry
Tai Hang Road
66,713 sq. ft
2113
Farrer Road
160,934 sq. ft
Upper Serangoon Road
46,098 sq. ft
Balmeg Hill
184,143 sq. ft
Lot 6185M, 9866T MK 17
Boon Teck Road
27,858 sq. ft
Lots 570N, 571X, 611N, 612X & 613L TS 26
Ewe Boon Road
63,572 sq. ft
Lot 4239X MK 04
Lot 3078 MK 19
Sixth Avenue
69,018 sq. ft
Yishun Avenue 1 / Avenue 2
290,080 sq. ft
Lots 7289V, 7290M, 9052L & 9053C MK 27
Upper East Coast Road
65,110 sq. ft
Lot 8547P & 8550P MK 18
Nim Road
193,267 sq. ft
Freehold
Freehold
Freehold
Freehold
Freehold
Freehold
2107
Freehold
Freehold
Annual Report 2009 67
Properties in Hong Kong’s Central Business District
L
A
R
T
N
E
D C
The
Landmark
Mandarin
Oriental
R O A
S
N ’
E
E
Q U
P
E
D
D
E
R
S
T
R
E
E
T
8
L
A
R
E N T
R O A D C
V O E U X
S
D E
C O N N A U G H T
7
6
4
12
IC
IC
E
E
H
O
U
S
E S
T
R
E
E
T
1
2
Stock
Exchange
U
O
B
R
A
H
Statue
Square
Mandarin
Oriental
5
Hang
Seng
Bank
L
A
R
E N T
R O A D C
3
T
E
E
R
T
W S
R V I E
Airport Express Station
General
Post Office
M
A
N
Y
I
U
S
T
R
E
E
T
L
A
R
T
N
E
C
D
A
O
R
City Hall
9
11
I
C
E
H
O
U
S
E
10
S
T
R
E
E
T
Standard
Chartered
Bank
HSBC
L
A
R
T
N
E
D C
A
O
X R
U
E
O
S V
E
D
Legislative
Council
D
A
O
R
R
E
T
A
H
C
Statue
Square
J
A
C
K
S
O
N
R
O
A
D
T
H
G
U
A
N
N
O
C
Chater
Garden
D
A
O
R
R
E
T
A
H
C
1 One Exchange Square
2 Two Exchange Square
3 Three Exchange Square
4 The Forum
5 Jardine House
6 Chater House
7 Alexandra House
8 Gloucester Tower
9 Edinburgh Tower
10 York House
11 The Landmark Atrium
12 Prince’s Building
Since the founding of Hong Kong in 1842, a quarter square mile of land in Central has been the focus of
business, finance and Government. Today, it is also the location of Hongkong Land’s unique portfolio of
interconnected buildings. The northern shoreline of Hong Kong Island has been reclaimed four times to
create this area. The latest major reclamation is part of the Hong Kong SAR Government’s far-sighted
‘Metroplan’, which is creating new land for infrastructure to support future economic growth. Phase 1 of
the Central and Wanchai Reclamation was started in 1993 and completed in 1998. It has provided 20
hectares of new land contiguous with Hongkong Land’s portfolio, strengthening the focus of the Central
business and financial district as well as adding new facilities including the Central Station of the Airport
Railway. The new phase of the reclamation has commenced in 2003, and is expected to be completed by
2012. It will add 18 hectares of new land to the east of Phase 1 and house the underground Central
Wanchai Bypass and North Hong Kong Island line as well as the waterfront promenade.
The Group’s portfolio accounts for a substantial portion of the prime office space in Hong Kong’s Central
business and financial district. Located within this area are the Hong Kong head offices of many of the
world’s leading banks, the Stock Exchange, the Legislative Council Building and the Hong Kong SAR
Central Government Offices, as well as an unequalled concentration of the world’s finest retail names.
68 Hongkong Land
9
11
8
5
10
7
6
1
2
12
3
4
Beyond Central & Regional Developments
Singapore
One Raffles Link
CityLink Mall
Marina Bay Financial Centre
One Raffles Quay
Singapore
Thailand
Vietnam
Parvis
Gaysorn
Central Building
63 L´y Thái Tô’
Indonesia
Macau
Hong Kong
Jakarta Land
One Central
The Sail at Victoria
Serenade
Beijing
Chongqing
Shenyang
Central Park
Maple Place
Bamboo Grove
Park Life
Hongkong Land Holdings Limited
Jardine House Hamilton Bermuda
www.hkland.com
ii Hongkong Land