Hongkong Land Holdings Limited
Annual Report 2010
www.hkland.com
Contents
Corporate Overview
Corporate Information
Highlights
Chairman’s Statement
Chief Executive’s Review
Financial Review
Directors’ Profiles
Financial Statements
Independent Auditors’ Report
Five Year Summary
Responsibility Statement
Corporate Governance
Principal Risks and Uncertainties
Shareholder Information
Offices
Report of the Valuers
Major Property Portfolio
Properties in Hong Kong’s Central Business District
1
2
3
4
6
13
19
20
63
64
65
66
70
71
72
73
74
76
Bronze sculptures, Water Buffaloes, by Dame Elisabeth Frink at Marina Bay
Financial Centre, a joint venture development in Singapore’s new Central
Business District (front cover).
Hongkong Land is one of Asia’s leading property 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.
In Hong Kong, the Group owns and manages some 450,000 sq. m. (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 subsidiary, MCL Land, is a significant developer.
Hongkong Land Holdings Limited is incorporated in Bermuda. It has a Premium Listing on the
London Stock Exchange, and 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.
Annual Report 2010 1
Corporate Information
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
Company Secretary and Registered Office
John C Lang
Jardine House
33–35 Reid Street
Hamilton
Bermuda
Hongkong Land Limited
Directors
A J L Nightingale Chairman
Y K Pang Chief Executive
R M J Chow
R Garman
Mark Greenberg
D P Lamb
N Leung
James Riley
J A Robinson
Giles White
John R Witt Chief Financial Officer
R Wong
Corporate Secretary
N M McNamara
2 Hongkong Land
Highlights
• Significant contribution from residential developments
• Net assets per share up 30%
• MCL Land privatised
• New development projects in China
Results
Underlying profit attributable to shareholders*
810
777
4
Profit attributable to shareholders†
4,739
1,813
n/m
2010
US$m
2009
US$m
(restated)
Change
%
Shareholders’ funds†
Net debt
Underlying earnings per share
Earnings per share
Dividends per share
Net asset value per share
19,457
14,936
2,358
2,417
US¢
US¢
36.02
34.55
30
(2 )
%
4
210.70
80.60
n/m
16.00
16.00
–
US$
US$
8.64
6.64
%
30
* The Group uses ‘underlying profit attributable to shareholders’ in its internal financial reporting to distinguish between ongoing business performance and non-trading
items, as more fully described in Note 1 to the financial statements. Management considers this to be a key measure which provides additional information to enhance
understanding of the Group's underlying business performance.
† Due to recent amendments to International Financial Reporting Standards, the Group is no longer required to provide for deferred tax on the revaluation of its investment
properties in Hong Kong and Singapore where there is no capital gains taxation. The new policy has been applied retrospectively and the comparative figures in the
financial statements have been restated.
Annual Report 2010 3
Chairman’s Statement
Overview
Market conditions remained favourable for the Group’s office and retail portfolio in the Central district of Hong Kong
and for its increasing commercial property investments in Singapore. Results also benefited significantly from
residential developments, particularly in Singapore.
Performance
Underlying profit attributable to shareholders for 2010 was US$810 million, an increase of 4% from the record
result of 2009. While the contribution from the Group’s commercial portfolio was relatively stable, profit from
residential activities increased as two large projects in Singapore were completed in addition to projects in
Hong Kong and Macau.
Taking into account the results of the independent valuation of the Group’s investment properties at
31st December 2010, including the Group’s share of properties in joint ventures, the profit attributable to
shareholders was US$4,739 million, compared with US$1,813 million in 2009. As a result, the net asset value per
share increased to US$8.64, an increase of 30% from the prior year.
Following a change in International Financial Reporting Standards, the Group is no longer required to provide for
deferred tax on valuation gains on which no tax liability would arise. The new policy has been applied retrospectively.
The Directors are recommending a final dividend of US¢10.00 per share for 2010, providing a total dividend for
the year of US¢16.00 per share, unchanged from 2009.
Group Review
Steady demand for office space in Hong Kong’s Central district enabled the Group to maintain rental levels on
reversions as rents continued to increase from the lower levels seen in 2009. Vacancy in the office portfolio stood
at 2.9% at the end of 2010, while the Group’s retail space in Central remained fully let.
In Singapore, demand for office space recovered and rents began to improve in the second half of the year.
The first two towers were completed at Marina Bay Financial Centre, in which the Group has a one-third interest.
The towers are fully let and tenants began to take occupancy during the second half of the year. Construction of
the final office tower, which is 66% pre-let, is scheduled for completion in 2012.
The Group’s 50%-owned joint venture in Jakarta commenced construction on a 61,000 sq. m. tower, adjacent to
its existing office development, due for completion in 2012.
In the residential sector, MCL Land completed two projects in Singapore, Waterfall Gardens and D’Pavilion. It also
pre-sold all the apartments at The Estuary, a development to be completed in 2013, enabling the reversal of a
US$39 million writedown previously made in respect of the site acquisition cost. The first residential tower at
Marina Bay, which was already fully sold, was completed and the Group benefited from the profit attributable to
its one-third interest. A second residential tower, which has been 62% pre-sold, is scheduled for completion
in 2013.
4 Hongkong Land
In Hong Kong, profits were recognised on approximately one-third of the apartments at the Serenade development,
while in Macau profits were recognised following completion of Tower 4 of the 47%-held One Central project. The
sale of the final residential component at One Central, the branded apartments adjacent to the newly-opened
Mandarin Oriental hotel, began in late 2010 and profits will be recognised on completion in 2011.
Profits were also recorded from the existing residential projects in mainland China; the 90%-owned Maple Place
in Beijing and the Bamboo Grove joint venture in Chongqing. Additional units at Bamboo Grove currently under
construction, including the project’s first high rise apartments, were released to the market and have sold well. The
Group increased its interest in its joint venture in Shenyang from 30% to 50%.
Hongkong Land continues to build its residential business on the Mainland. It recently acquired in joint venture a
190,000 sq. m. site for development in the Jinjiang District of Chengdu, which will also include a commercial
component. A 386,000 sq. m. site in Chongqing was acquired in the vicinity of its existing Bamboo Grove project,
and is the Group’s first wholly-owned project on the Mainland. Both of these projects will be developed in phases.
In August 2010, the Group announced its intention to privatise its 77%-owned Singapore-listed affiliate, MCL Land,
and made an exit offer to the minority shareholders. The privatisation was completed in early 2011.
People
On behalf of the Board, I would like to extend my appreciation to the employees for their commitment, diligence
and dedication which are essential to our continued success.
We welcomed John Witt, the new Chief Financial Officer, to the Board in April 2010.
Outlook
Commercial market conditions in Hong Kong and Singapore are expected to remain favourable in 2011, particularly
in Hong Kong where new supply is limited. Profits from the Group’s residential activities, however, will be
significantly lower in 2011 as there will be fewer completions compared with the previous two years. While over
the longer term demand for residential projects should be strong, a number of the Group’s markets could be
affected by recent government measures to dampen sales activity.
With its strong financial position and market experience, the Group is well-placed to take advantage of future
opportunities.
Simon Keswick
Chairman
3rd March 2011
Annual Report 2010 5
Chief Executive’s Review
Hongkong Land again achieved a record underlying profit in 2010 due to the strong performance of its residential
business in combination with a steady contribution from its commercial portfolio. There has also been a significant
increase in the value of the Group’s commercial property portfolio during 2010.
Strategy
Hong Kong’s Central Portfolio
The Group’s most important investment continues to be its prime portfolio in the heart of Hong Kong’s Central
district where it owns and manages some 450,000 sq. m. (five million sq. ft) of office and retail space. Continued
focus on the returns from this portfolio is fundamental to the ongoing success of the Group. We continue to
manage our 12 Grade A office and retail buildings as a large, integrated mixed-use development.
Luxury retail space in the Central portfolio totals 58,000 sq. m. (620,000 sq. ft). This contributes significantly to the
prestige and convenience of the office space, which in turn attracts premium tenants. In 2010, further enhancements
to the retail areas were begun. In the Prince’s Building, three new flagship stores were opened in 2010: Cartier,
Alfred Dunhill and Berluti with a fourth, Van Cleef & Arpels, under construction. At the same time, the Group
embarked on a US$20 million renovation of the retail podium, which will be completed in 2011. Restaurants are
also an important part of ensuring the ongoing attractiveness of Central. The restaurants introduced into the
portfolio over the past few years continue to perform well, attracting customers both during the day and in
the evenings.
Our intention is to continue to upgrade the office space throughout the portfolio, ensuring it remains the most
prestigious within Hong Kong. At the same time, we will seek to grow our rental yields, recognising the desirability
of both the space and the quality of service which is Hongkong Land’s mandate to provide to each of its tenants.
Central portfolio tenant profile by area occupied (%)
2005
2005
2010
2010
40
21
9
6
4
4
Banks and other
40
financial services
Banks and other
financial services
Legal
21
Legal
Accounting
9
Accounting
Governments
6
Governments
Property
Trading
4
4
Property
Trading
40
26
9
5
5
3
Banks and other
40
financial services
Banks and other
financial services
Legal
26
Legal
Accounting
9
Accounting
Governments
5
Governments
Property
Trading
5
3
Property
Trading
16
Others
16
Others
12
Others
12
Others
6 Hongkong Land
Top five office tenants
(in alphabetical order)
Top five retail tenants
(in alphabetical order)
at 31st December 2010
at 31st December 2010
Credit Suisse
Fortis Bank
JPMorgan
KPMG
PricewaterhouseCoopers
Dickson Concepts
Giorgio Armani
Gucci
Louis Vuitton
Richemont Group
Commercial Property Investments in Asia
Over the past few years, the Group has extended its commercial property interests outside of Hong Kong. Expansion
has been based both on the Group’s strong financial position and its reputation for providing the highest quality
space and service to its tenants. The principal focus has been in Singapore where the Group now has attributable
interests of 164,000 sq. m., including the third tower of Marina Bay Financial Centre which is due for completion
in 2012. In 2010, the first two towers of Marina Bay Financial Centre opened and are fully let.
Also, in 2010, the Group’s 50%-owned joint venture in Jakarta commenced construction within its existing
office development of a 61,000 sq. m., 30-storey tower, which is due for completion in 2012. This will be the
best-of-class building in the market, targeting premium tenants, particularly from the financial services sector.
The office space of the building is already 51% pre-let.
We continue to look for attractive high-quality commercial projects throughout Asia which will offer development
profits as well as providing investments to be held for long-term returns including capital appreciation.
Residential Developments
Based on the Group’s experience throughout Asia, a strong and profitable residential business has been established.
While our ongoing investment in this activity is significantly smaller than our commercial business, the residential
projects enhance the Group’s overall profits and returns on capital.
Annual returns from residential developments fluctuate due to both the nature of the projects and the accounting
policy of only recognising profits on sale at completion. During the past two years, the Group’s results have
benefited significantly from gains on residential developments. The profit contribution from this sector will,
however, be lower in the coming years due to the timing of project completions. Ongoing reinvestment is necessary
to continue to build this income stream over the longer term, and in 2010 we acquired new sites in the Chinese
cities of Chongqing and Chengdu.
Annual Report 2010 7
Chief Executive’s Review
Review of Commercial Property
Hong Kong
In Hong Kong, the Group benefited from favourable market conditions. Demand was relatively consistent
throughout the year, from both existing tenants looking for additional space and from new companies. Demand
for office space is positively correlated with overall economic activity, which was strong throughout 2010. Financial
institutions, law firms and accounting firms continue to account for approximately 75% of the office tenants in
the Central portfolio.
Office vacancy at the end of 2010 was 2.9%, a decrease from 4.4% at the end of 2009. In 2010, the average rent
across the office portfolio was HK$84.3 per sq. ft compared with HK$84.0 per sq. ft a year earlier. Being able to
maintain the average rent level was a pleasing result as spot rents in 2009 were significantly lower than in 2007
when many of the leases coming up for renewal or rent review in 2010 were agreed. There was a significant
increase in spot rents in 2010 which enabled the Group to achieve neutral rental reversions. Looking forward,
further increases in rents will be necessary if we are to continue to achieve at least neutral reversions as 2010
spot rents remained below the levels achieved in mid-2008, the last market peak. While this will partially depend
on overall economic sentiment, the supply of new office space, particularly in Central, over the next few years
is anticipated to be limited. The overall vacancy of Hong Kong Grade A office space at 31st December 2010
was 4.7%.
In respect of the Group’s retail space, we finished the year with 100% occupancy at an average retail rent of
HK$137.1 per sq. ft, a 4% increase over the 2009 average of HK$132.1 per sq. ft. Retail sales for the Group’s
tenants were strong in 2010.
Long-term capital appreciation also has an important impact on the Group. During the year, the value
of the Group’s Hong Kong portfolio increased by 22%, based on independent valuations performed at
31st December 2010. The total value of the portfolio is now US$17.3 billion. This was due to rising rents as
capitalisation rates or equivalent yields remained stable from a year earlier.
Central portfolio
at 31st December 2010
Office
Retail
Capital value (US$m)
14,064
3,236 *
Gross revenue (US$m)
562
174 *
Equivalent yield (%)
– One and Two Exchange Square
– The Landmark Atrium
Average unexpired term of leases (years)
Area subject to renewal/review in 2011 (%)
* includes hotel
4.50
3.9
24
4.50
2.7
25
8 Hongkong Land
Central portfolio average office effective rent (US$/sq. ft per month)
10.84
10.85
8.52
6.33
5.48
5.24
5.08
4.69
4.83
4.04
3.78
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Singapore
While the contribution from the Group’s Singapore commercial property investments was modest in comparison
with the well-established Hong Kong portfolio, it continued to grow as we began to benefit from the completion
(cid:23)(cid:24)
of the first two office towers of Marina Bay Financial Centre, in which the Group has a one-third interest. The
(cid:23)(cid:22)
contribution will continue to increase in 2011 as the tenants of the buildings progressively occupied the buildings
(cid:30)
(cid:22)
only from October onwards. Construction of Tower 3, the largest tower at Marina Bay Financial Centre with
122,000 sq. m., is underway with completion expected in 2012. This tower is now 66% let with DBS Bank as the
(cid:28)
largest tenant.
(cid:26)
Generally, conditions in the Singapore office market improved steadily throughout 2010. This was the result of a
(cid:24)
‘flight to quality’ as tenants looked to upgrade their offices. In addition, there was demand from new or expanding
companies in the market, particularly from the financial services sector. This demand for high-quality Grade A
office space, particularly in the Central Business District, has reduced significantly the fears of oversupply which
were present at the beginning of 2010. As a result, overall rent levels have firmed.
Both One Raffles Link, which is 100% owned by the Group, and One Raffles Quay, which is one-third owned,
remained fully let.
Other Commercial Property Investments
In Macau, the retail centre at our 47%-owned joint venture project, One Central, has now been opened for just
over one year and is well-established as the most prestigious shopping venue in the city. The retail mall of some
20,000 sq. m. features the world’s leading luxury brands. The centre is now 81% occupied with space only
remaining on the third floor. The hotel component, a 213-room Mandarin Oriental hotel, opened in June 2010,
further complementing this mixed-use complex.
In Jakarta Land, the Group’s 50%-owned joint venture currently owns and manages some 80,000 sq. m. of space
in three buildings located prominently in Jakarta’s Central Business District. These are 96% let. A fourth tower, now
under construction, is expected to be completed in 2012.
Annual Report 2010 9
Chief Executive’s Review
The performance of the Group’s other commercial investment properties in Hanoi, Bangkok and Bermuda has
generally been satisfactory. The two buildings in Hanoi, each approximately 70% owned, remained fully let at
premium rents to the market. In Bangkok, the performance of the Group’s 49%-owned retail and office complex,
Gaysorn Plaza, suffered in the first half of the year due to significant civil disturbances, although there has been
some recovery in the second half. In Bermuda, Jardine Gibbons Property, in which Hongkong Land has a 40%
interest, owns four fully-let commercial buildings in the centre of Hamilton.
Review of Residential Property
2010 was again an active year for our residential property business which achieved record results.
Hong Kong
In Hong Kong, the Group completed the 97-unit Serenade project and benefited from the profits from 33 units
which were sold and handed over to buyers before the end of the year. Further units have subsequently been
released and sold, and these completions will occur in 2011. The release of the remaining units for sale will depend
on market conditions.
Macau
At the successful One Central joint venture project in Macau, most of the 68 units of Tower 4 were sold and
handed over to buyers in 2010. Sales of The Residences and Apartments at Mandarin Oriental, which are located
in the hotel tower, began late in the year and all but 19 units have been sold. Completion of these sales will take
place in 2011 and the profits recognised accordingly. This is the final phase of our residential development at
One Central.
Singapore
Our residential businesses in Singapore enjoyed an excellent year. In general, the market conditions were strong,
although overall sales activity had begun to be affected by the various measures introduced by the government to
cool the market.
At MCL Land, two projects were completed. Waterfall Gardens was a project of 132 apartments, all of which had
been pre-sold prior to completion. D’Pavilion which was completed in the second half of the year featured 50
apartments which were also fully sold.
MCL Land launched a 608-unit apartment project called The Estuary, which was fully pre sold in the first half of
the year. Completion is anticipated in 2013. MCL Land has three other development sites now under construction
in Singapore.
In addition, MCL Land has five development sites in Singapore with a gross floor area of approximately
100,000 sq. m. that are at various stages of planning approval, including a development site at Hougang
Avenue 2 which was acquired in 2010 for US$157 million.
Following the completion of the US$160 million privatisation of MCL Land in early 2011, our intention is to
maintain the strategy and operations of the company.
10 Hongkong Land
The Group’s second residential interest in Singapore is its one-third investment in the residential component at
Marina Bay. During 2010, the first phase of this, Marina Bay Residences, was completed. While all 428 luxury
apartments and penthouses were previously sold, the profit was only recognised on completion in the first half
of 2010.
Construction of the second and final phase of the project, called Marina Bay Suites, is now well underway. This
phase, which is expected to be completed in 2013, consists of 221 units over an area of some 45,000 sq. m.
Approximately 62% of the units have been sold at attractive prices, and the joint venture will release the balance
of the units for sale at a later date.
Mainland China
The Group’s residential business continues to progress well with developments in Chongqing, Chengdu, Shenyang
and Beijing.
In Chongqing, the largest city in Central China, the Group now has three projects.
At Bamboo Grove, our first project in the city, the Group’s 50%-owned joint venture with Longfor Properties,
completed Phase 3A in the second half of 2010 which consisted of 261 townhouses. Only the two show units
remained unsold. Construction of the next phases, Phase 3B and Phase 4, are now underway. In Phase 3B, 143
units are expected to be completed in the second half of 2011 which have all been pre-sold. In Phase 4A, 667 units
will be completed of which 656 units have been pre-sold.
On completion, the Bamboo Grove development will comprise some 1.4 million sq. m. of mainly residential space,
including villas, townhouses and high-rise apartments. Of this, 340,000 sq. m. have already been developed and
sold and 300,000 sq. m. are now under construction.
The Group’s second project in Chongqing is Landmark Riverside at Dan Zishi, a joint venture with China Merchants
Group established in late 2009. During 2010, work commenced on the master plan for this 34 hectare site which
will consist of approximately 1.5 million sq. m. of residential and some prime retail space. Like Bamboo Grove, this
site will be developed in a number of phases.
In December 2010, Hongkong Land acquired a third project in the city, for US$445 million. The project, at
Zhaomushan, is near the core area of the new Two-River New Area, which is in the vicinity of the Bamboo Grove
development. The project consists of a site of almost 386,000 sq. m. for mainly residential development with a
small portion of retail. The total developable area is approximately 880,000 sq. m. and will also be developed in a
number of phases. This is the Group’s first wholly-owned development on the Mainland.
In 2010, the Group also established its first project in Chengdu in a 50%-owned joint venture with KWG Property
Holding Group. The project consists of a site of approximately 190,000 sq. m. which will be used for the development
of residential and commercial properties. The cost of the site was US$594 million. The total developable area is
approximately 900,000 sq. m. Preliminary plans are that 65% will consist of residential, including serviced
apartments for strata-sale, while 35% will be commercial, including office, retail and a hotel.
Annual Report 2010 11
Chief Executive’s Review
In Shenyang, work continued at our three residential projects in the city, which are located to the north and south
of the Central Business District. In 2010, the Group increased its interest in these projects from 30% to 50% for
US$80 million. (Further consideration may be payable if the return from the projects exceeds a 12.9% investment
return.) Construction work and sales activities have begun on two of the projects, Park Life and One Capitol.
In Beijing, at the Group’s 90%-owned project, Maple Place, we completed the sales of 76 units. A further 133 units
consisting of villas, townhouses and apartments with a total area of 32,000 sq. m. are available for future sale. Our
intention remains to refurbish and sell these units only gradually. Most of the units are currently leased.
At Central Park, our 40%-owned joint venture with the Vantone Group continues to hold 72 apartments which
are being operated as serviced apartments.
Conclusion
Over the past two years, the Group has achieved record underlying profits. This has been due primarily to the
significant number of residential units completed during the period. In the next few years, the contribution from
our residential activity will decrease as the number of completions will decline significantly. Nonetheless, in 2010,
we have made new investments to create future profit opportunities for the Group. While various measures by
governments around Asia may dampen activity in the shorter-term, we remain convinced of the strong underlying
demand for residential units as the Asian economies continue to prosper.
At the same time, the Group’s commercial portfolio remains well-placed to benefit from the continued, positive
economic conditions throughout the region, particularly in Hong Kong due to the limited new supply of
high-quality office space.
Overall, the Group with its excellent financial position, its experience throughout Asia and its group of talented
professionals, is well-placed to capitalise on emerging opportunities.
Y K Pang
Chief Executive
3rd March 2011
12 Hongkong Land
Financial Review
Accounting Policies
The Directors continue to review the appropriateness of the accounting policies adopted by the Group having
regard to developments in International Financial Reporting Standards (‘IFRS’). The accounting policies are
consistent with those of the previous year, except that the Group has adopted, effective 1st January 2010, the
amendments to International Accounting Standard (‘IAS’) 12 Income Taxes made by the International Accounting
Standards Board in December 2010 (which are mandatory from 1st January 2012 onwards). The consequence of
this is that the Group is no longer required to provide for deferred tax on the revaluation of its investment properties
in Hong Kong and Singapore where there is no taxation of capital gains. This is more fully detailed in the ‘basis of
preparation’ note in the financial statements.
Results
Underlying Profit
The Group’s underlying profit attributable to shareholders in 2010 was US$810 million (or US¢36.02 on an earnings
per share basis) which can be analysed between the contribution from Commercial Property, the contribution from
Residential Property and unallocated expenses, which include corporate costs, net financing charges and tax. Each
of these items includes the Group’s share of results from its joint ventures.
Commercial property
Residential property
Corporate costs, net financing charges and tax
Minority interests
Underlying profit attributable to shareholders
Underlying earnings per share
2010
US$m
686
483
(313 )
(46 )
810
US¢
36.02
2009
US$m
665
434
(278 )
(44 )
777
US¢
34.55
In 2010, the contribution from Commercial Property increased by 3% to US$686 million. Rental revenues from the
Group’s Hong Kong portfolio were stable as the average rent per square foot across the office portfolio was
relatively constant throughout the year due to largely neutral rental reversions. Retail rents increased modestly.
The contribution from the Group’s growing commercial property investments in Singapore rose by approximately
11% largely due to new rental income from the Group’s one-third interest at Marina Bay Financial Centre which
began to be occupied in the second half of the year. In 2011, the Group will benefit from a full 12 months of rental
income from the first two towers of this complex. The contribution from the remaining tower under construction
is expected from 2012 onwards.
Annual Report 2010 13
Financial Review
The contribution from Residential Property increased by 11% to US$483 million. In 2010, the most significant
source of profits was from Singapore. At MCL Land, two projects were completed, Waterfall Gardens (132 units)
and D’Pavilion (50 units), both of which were largely pre-sold prior to or during construction. In addition, the
Group benefited from a US$51 million (US$39 million after minority interests) reversal of a writedown previously
made in respect of The Estuary development following the successful launch of the project in 2010 during which
all units were pre-sold. The Group continues to carry writedowns of US$146 million made in 2008 in respect of
other developments projects owned by MCL Land.
Also in Singapore, there was a significant contribution from the completion of the Marina Bay Residences
(428 units), a project which was one-third owned by the Group. All of these units had been previously sold.
Profits were also derived from sales of 33 units of the 97-unit Serenade development in Hong Kong which were
completed in 2010 as well as from sales at the Group’s various projects on the Mainland, namely the 90%-owned
Maple Place in Beijing (76 units), and the 50%-owned Bamboo Grove in Chongqing (295 units).
In 2009, the contribution of US$434 million came from the completion of The Sail at Victoria (84 units), the first
six residential towers at One Central Macau (710 units) and ongoing sales at Bamboo Grove (929 units). In addition,
in Singapore, MCL Land completed three projects, Tierra Vue (129 units), The Fernhill (25 units) and Hillcrest Villa
(161 units).
Net financing charges in 2010, including the Group’s share of net financing charges within joint ventures, increased
to US$95 million from US$69 million in 2009. This was principally due to the decline in interest income in the year
as a result of lower deposit rates in 2010 compared with the prior year. The average interest rate on Group deposits
was 0.7% in 2010 compared with 1.9% in 2009. The average interest rate on Group borrowings was 2.8% in
2010, the same rate as in 2009.
The Group’s underlying tax charge, including the Group’s share of joint ventures, increased to US$163 million from
US$158 million in 2009 as a result of the higher profit contribution. The Group’s effective tax rate was 16.0%
(2009: 16.1%).
Non-Trading Gains
In 2010, the Group had non-trading gains of US$3.9 billion compared with US$1.0 billion in 2009. These arose on
revaluations of the Group’s investment properties, including its share of joint ventures, which were performed at
31st December 2010 by independent valuers. As the Group adopted the amendments to IAS 12 Income Taxes, no
provision for deferred tax was required on the revaluations of its investment properties in Hong Kong and Singapore
where there is no capital gains taxation. The new policy has been applied retrospectively and the comparative
figures in the financial statements have been restated.
The most significant increase in valuations came from the Group’s Hong Kong portfolio in Central. This increased
in value by 22% to US$17.3 billion (2009: US$14.2 billion) as a result of increasing rents. Capitalisation rates or
equivalent yields were unchanged from those used in the valuations as at 31st December 2009.
14 Hongkong Land
Cash Flows
The Group’s consolidated cash flows are summarised as follows:
2010
US$m
2009
US$m
Operating activities
Operating profit, excluding non-trading items
Net interest paid
Tax paid
Dividends received from joint ventures
Purchase of residential sites
Other
Investing activities
Major renovations capex
Funding of joint ventures
Additional 20% interest purchased in Shenyang joint venture
Loan repayments from joint ventures
Other
Financing activities
Dividends paid by the Company
Purchase of additional interest in MCL Land
Other
Net increase in cash and cash equivalents
Cash and cash equivalents at 1st January
Cash and cash equivalents at 31st December
881
(52 )
(170 )
272
(454 )
213
690
(34 )
(213 )
(80 )
275
(2 )
(54 )
(358 )
(160 )
23
(495 )
141
1,225
1,366
815
(32 )
(53 )
12
–
161
903
(30 )
(373 )
–
68
(84 )
(419 )
(292 )
–
(84 )
(376 )
108
1,117
1,225
In 2010, cash flows from operating activities were US$690 million, compared with US$903 million in 2009. The
decrease was primarily due to the acquisition of new residential sites. In 2010, the Group’s subsidiaries paid
US$454 million (2009: nil) for new residential sites. The sites acquired were MCL Land’s Hougang Avenue 2 site in
Singapore, for US$157 million and a site in Zhaomushan, Chongqing for which US$297 million was paid in
December 2010 out of the total site cost of US$445 million.
Under investing activities, in 2010, the Group had outlays of US$54 million (2009: US$419 million). Investing
activities included US$34 million of capital expenditure related to major renovations, principally in respect of the
Hong Kong Central portfolio; US$213 million to fund construction at both the Group’s one-third owned Marina
Bay Financial Centre project in Singapore and the Group’s various joint venture projects in China; and
US$80 million for the purchase of an additional 20% interest in the Shenyang joint venture. Investing activities in
2009 included US$373 million to fund construction at various joint ventures in Singapore, Macau and China;
US$42 million for the purchase of an additional 55% interest in Maple Place in Beijing; and US$38 million to
purchase shares in Longfor Properties Co. Ltd., the Group’s joint venture partner in Bamboo Grove, Chongqing at
the time of its initial public offering in Hong Kong.
Annual Report 2010 15
Financial Review
Finally, under investment activities, the Group received US$275 million (2009: US$68 million) of loan repayments
from joint ventures, including US$228 million from One Raffles Quay following a refinancing.
Under financing activities, the Company paid dividends of US$358 million, reflecting the final 2009 dividend of
US¢10.00 per share and the 2010 interim dividend of US¢6.00 per share. Also, the Group spent US$160 million
on purchasing an additional 22.6% interest in MCL Land pursuant to its privatisation and exit offer to the minorities.
This was completed in early 2011 and MCL Land is now a wholly-owned subsidiary of Hongkong Land.
The Group’s year end cash and cash equivalents totalled US$1.4 billion (2009: US$1.2 billion).
At 31st December 2010, the Group’s net debt was US$2.4 billion, unchanged from US$2.4 billion at the beginning
of the year.
Dividends
The Board is recommending a final dividend of US¢10.00 per share for 2010 (2009: US¢10.00 per share) for
a full year dividend of US¢16.00 per share (2009: US¢16.00 per share). The final dividend will be payable on
18th May 2011, subject to approval at the Annual General Meeting to be held on 11th May 2011, to shareholders
on the register of members at the close of business on 18th March 2011. No scrip alternative is being offered in
respect of the dividend.
Treasury Policy
The Group manages its treasury activities within established risk management objectives and policies using a
variety of techniques and instruments. The main objectives are to manage exchange, interest rate and liquidity risks
and to provide a degree of certainty in respect of costs. The investment of the Group’s cash balances is managed
so as to minimise risk while seeking to enhance yield.
The Group’s Treasury operations are managed as cost centres and are not permitted to undertake speculative
transactions unrelated to underlying financial exposures. Appropriate credit guidelines are in place to manage
Year-end debt summary
US$ convertible bonds
US$ bonds
US$ bank loans
HK$ bank loans
S$ bonds
S$ bank loans
Gross debt
Cash
Net debt
2010
US$m
373
1,153
1
1,278
293
627
3,725
1,367
2009
US$m
368
1,156
2
866
503
748
3,643
1,226
2,358
2,417
counterparty credit risk.
Net debt as a percentage
of equity
Net debt
Equity
21%
17%
19%
16%
12%
2006
2007
2008
2009
2010
16 Hongkong Land
20000
15000
10000
5000
0
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.
Funding
The Group is well-financed, with gearing of 12% (2009: 16%) and strong liquidity. This decrease was due to the
higher shareholders’ funds resulting from the increase in value of investment properties. Interest cover, calculated
as the underlying operating profits, including the Group’s share of joint ventures’ operating profits, divided by net
financing charges including the Group’s share of joint ventures’ net financing charges, was strong at 11.7 times
(2009: 15.3 times).
In September 2010, Moody’s upgraded its rating of Hongkong Land Holdings Limited to A3 while Standard &
Poor’s A- rating of the Group was the result of an upgrade in February 2010.
During the year, the Group raised US$1.1 billion under the Group’s US$3.0 billion guaranteed medium-term note
or MTN programme, with maturities from 10 to 30 years. Included in this, was the Group’s first public issue under
the MTN programme in September of US$600 million in 15-year notes which was well-received by the market. This
US$600 million will be used to refinance US$600 million of bonds which come due in May of this year. The only
other significant refinancing in 2011 is a US$621 million, Singapore dollar denominated, syndicated facility expiring
in December. Of this, only US$254 million was drawn at the end of 2010.
Following the issuance of the longer-dated debt in 2010, the average tenor of the Group’s debt, excluding
the 7% United States Dollar bonds due in May 2011 which have already been refinanced, is now 5.2 years
(2009: 3.4 years).
At the end of 2010, the Group had total committed lines of approximately US$6.0 billion, 51% of which
was sourced from the capital markets with the remaining 49% from banks. Of this, the Group had drawn
US$3.7 billion leaving US$2.3 billion of committed, but unused facilities. Adding the Group’s year-end cash
balances, the Group had overall liquidity at 31st December 2010 of US$3.6 billion.
Debt profile as at
31st December 2010 (%)
Interest
rate
62
38
Fixed
Floating
Currency
Maturity
65
25
10
HK$
S$
US$
33
32
11
23
> 5 years
2-5 years
1-2 years
<1 year
Maturity of committed facility
as at 31st December 2010 (US$m)
1,751
1,240
1,250
1,165
577
2011
2012
2013
2014
2015 &
beyond
Annual Report 2010 17
(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)
(cid:23)(cid:22)(cid:22)
(cid:30)(cid:22)
(cid:28)(cid:22)
(cid:26)(cid:22)
(cid:24)(cid:22)
(cid:22)
Financial Review
Gross Assets
The Group’s gross assets, including its share of joint ventures, (excluding cash balances) is analysed below, by
activity and by location.
By activity (%)
91
9
Commercial
Residential
By location (%)
79
15
Hong Kong
South East Asia
4
2
Mainland China
Macau
Principal Risks and Uncertainties
A review of the principal risks and uncertainties facing the Group is set out on page 70.
John R Witt
Chief Financial Officer
3rd March 2011
18 Hongkong Land
Directors’ Profiles
Simon Keswick Chairman
Mr Simon Keswick has been a Director of the Group’s holding company
since 1983. He was Chairman from 1983 to 1988 and was subsequently
re-appointed in 1989. He joined the Jardine Matheson group in 1962 and
is also chairman of Dairy Farm and Mandarin Oriental, and a director of
Jardine Lloyd Thompson, Jardine Matheson and Jardine Strategic.
Sir Henry Keswick
Sir Henry first served on the Board of the Group’s holding company
between 1970 and 1975 and was re-appointed a Director in 1988. He is
chairman of Jardine Matheson, having first joined the group in 1961, and
is also chairman of Jardine Strategic. He is a director of Dairy Farm,
Mandarin Oriental and Rothschilds Continuation. He is also vice chairman
of the Hong Kong Association.
A J L Nightingale* Managing Director
Mr Nightingale joined the Board and was appointed as Managing Director
in 2006. He has served in a number of executive positions since joining the
Jardine Matheson group in 1969. He is chairman of Jardine Cycle &
Carriage, Jardine Matheson Limited, Jardine Motors and Jardine Pacific,
and a commissioner of Astra. He is also managing director of Dairy Farm,
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 member of the Commission on
Strategic Development, a member of the Committee on Strategic
Enhancement of Hong Kong as an International Financial Centre, a vice
president of The Real Estate Developers Association of Hong Kong, a
council member of the Employers’ Federation of Hong Kong, a Hong
Kong representative to the APEC Business Advisory Council and a member
of Chongqing Mayor’s International Economic Advisory Council. He is also
chairman of The Sailors Home and Missions to Seamen in Hong Kong.
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
chairman of Jardine Matheson (China) Limited and a director of Jardine
Matheson Limited. He is also vice chairman of the Employers’ Federation
of Hong Kong and the Hong Kong General Chamber of Commerce.
John R Witt* Chief Financial Officer
Mr Witt joined the Board as Chief Financial Officer in 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, he was 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
Mr Greenberg joined the Board in 2006. He is group strategy director of
Jardine Matheson. He had previously spent 16 years in investment banking
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
R C Kwok
Mr Kwok is a Chartered Accountant and has been a Director of the
Group’s holding company since 1981. He joined the Jardine Matheson
group in 1964 and is a director of Jardine Matheson Limited, Dairy Farm,
Jardine Matheson, Jardine Strategic and Mandarin Oriental.
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 Holding, 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 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, Global Sources, IL&FS India Realty
Fund II, Jardine Cycle & Carriage and Mandarin Oriental.
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
in 2006. He is also a director of Dairy Farm, Jardine Matheson, Jardine
Strategic and Mandarin Oriental. He is chairman of Corney and Barrow.
Mr Hui joined the Board in 1994 and is a director of Jardine Matheson,
* Executive Director
Jardine Strategic, Central Development and a number of property and
investment companies.
Annual Report 2010 19
Consolidated Profit and Loss Account
for the year ended 31st December 2010
Underlying
business
performance
2010
Non-
trading
items
US$m
US$m
Underlying
business
performance
US$m
Total
US$m
2009
Non-
trading
items
US$m
Total
US$m
(restated)
(restated)
(restated)
1,340.6
(459.2 )
881.4
–
–
–
–
3,197.6
1,340.6
(459.2 )
1,322.6
(508.1 )
–
–
–
1,322.6
(508.1 )
814.5
881.4
3,197.6
814.5
–
1,000.6
1,000.6
–
0.1
0.1
–
(8.4 )
(8.4 )
881.4
3,197.7
4,079.1
814.5
992.2
1,806.7
(112.3 )
35.2
(77.1 )
173.9
–
–
–
731.4
(112.3 )
35.2
(77.1 )
905.3
(110.0 )
58.0
(52.0 )
177.8
–
–
–
47.2
(110.0 )
58.0
(52.0 )
225.0
978.2
3,929.1
(122.8 )
0.7
4,907.3
(122.1 )
940.3
1,039.4
1,979.7
(120.3 )
0.4
(119.9 )
855.4
3,929.8
4,785.2
820.0
1,039.8
1,859.8
810.2
3,929.2
45.2
0.6
4,739.4
45.8
777.1
1,035.9
1,813.0
42.9
3.9
46.8
855.4
3,929.8
4,785.2
820.0
1,039.8
1,859.8
US¢
210.70
202.30
US¢
80.60
77.92
Revenue
Net operating costs
Change in fair value of investment properties
Asset impairment provisions, reversals
and disposals
Operating profit
Financing charges
Financing income
Net financing charges
Share of results of associates and joint ventures
Profit before tax
Tax
Profit after tax
Attributable to:
Shareholders of the Company
Minority interests
Earnings per share
– basic
– diluted
Note
5
6
11
11
7
8
9
10
20 Hongkong Land
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2010
Profit for the year
Revaluation of properties
Revaluation of other investments
Net actuarial gain on employee benefit plans
Net exchange translation differences
Cash flow hedges
– net loss arising during the year
– transfer to profit and loss
Share of other comprehensive income of associates and joint ventures
Tax relating to components of other comprehensive income
Other comprehensive income for the year
Note
12
2010
US$m
2009
US$m
(restated)
4,785.2
1,859.8
–
11.0
0.2
59.1
(17.1 )
7.2
(9.9 )
80.8
1.1
142.3
83.3
8.5
4.0
15.0
(7.1 )
(1.4 )
(8.5 )
7.6
(0.8 )
109.1
Total comprehensive income for the year
4,927.5
1,968.9
Attributable to:
Shareholders of the Company
Minority interests
4,870.4
57.1
1,920.4
48.5
4,927.5
1,968.9
Annual Report 2010 21
Note
12
13
14
15
16
18
17
18
19
20
21
21
15
20
22
At 31st December
At 1st January
2010
US$m
2009
US$m
(restated)
2009
US$m
(restated)
18,036.0
4.2
18,040.2
3,177.7
59.2
7.1
10.6
51.5
14,817.7
3.9
14,821.6
2,352.2
46.4
3.9
10.0
56.7
13,702.7
14.8
13,717.5
1,840.6
–
4.5
6.1
101.9
21,346.3
17,290.8
15,670.6
1,184.4
245.1
1,366.7
787.1
315.3
1,226.1
838.9
289.2
1,119.0
2,796.2
2,328.5
2,247.1
(723.4 )
(859.7 )
(69.2 )
(687.1 )
(245.9 )
(120.6 )
(1,652.3 )
(1,053.6 )
1,143.9
(2,864.8 )
(54.8 )
(93.1 )
1,274.9
(3,397.5 )
(46.2 )
(50.5 )
(668.8 )
(95.4 )
(58.2 )
(822.4 )
1,424.7
(3,624.1 )
(41.2 )
(26.8 )
19,477.5
15,071.5
13,403.2
225.1
19,231.5
19,456.6
20.9
224.9
14,711.2
14,936.1
135.4
224.9
13,083.2
13,308.1
95.1
19,477.5
15,071.5
13,403.2
Consolidated Balance Sheet
at 31st December 2010
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 3rd March 2011
A J L Nightingale
Y K Pang
Directors
22 Hongkong Land
Consolidated Statement of Changes in Equity
for the year ended 31st December 2010
Share
capital
US$m
Note
Attributable to shareholders of the Company
Share
premium
Revenue
reserves
Capital
reserves
Hedging
reserves
Exchange
reserves
Attributable
to minority
interests
Total
US$m
US$m
US$m
US$m
US$m
US$m
US$m
Total
equity
US$m
2010
At 1st January
– as previously reported
– change in accounting
policy for deferred tax
224.9
– 12,332.5
63.4
(7.4 )
142.5 12,755.9
135.4 12,891.3
–
–
2,172.1
–
–
8.1
2,180.2
–
2,180.2
– as restated
224.9
– 14,504.6
63.4
(7.4 )
150.6 14,936.1
135.4 15,071.5
Total comprehensive income
Dividends paid by the
Company
23
Dividends paid to minority
shareholders
Issue of shares
Change in interests in
subsidiaries
Transfer
–
–
–
0.2
–
–
–
4,750.6
–
(359.9 )
–
5.3
–
–
–
–
4.5
0.9
–
–
–
–
–
(0.9 )
(8.8 )
128.6
4,870.4
57.1
4,927.5
–
–
–
–
–
–
(359.9 )
–
(359.9 )
–
–
–
–
–
5.5
(8.1 )
–
(8.1 )
5.5
4.5
(163.5 )
(159.0 )
–
–
–
At 31st December
225.1
5.3 18,900.7
62.5
(16.2 )
279.2 19,456.6
20.9 19,477.5
2009
At 1st January
– as previously reported
224.9
– 10,901.9
63.4
1.2
121.9 11,313.3
95.1 11,408.4
– change in accounting
policy for deferred tax
–
–
1,986.7
–
–
8.1
1,994.8
–
1,994.8
– as restated
224.9
– 12,888.6
63.4
1.2
130.0 13,308.1
95.1 13,403.2
Total comprehensive income
Dividends paid by the
Company
23
Dividends paid to minority
shareholders
New subsidiary
–
–
–
–
–
1,908.4
–
(292.4 )
–
–
–
–
–
–
–
–
(8.6 )
20.6
1,920.4
48.5
1,968.9
–
–
–
–
(292.4 )
–
(292.4 )
–
–
–
–
(6.0 )
(2.2 )
(6.0 )
(2.2 )
At 31st December
224.9
– 14,504.6
63.4
(7.4 )
150.6 14,936.1
135.4 15,071.5
The comprehensive income included in revenue reserves comprises profit attributable to shareholders of US$4,739.4 million
(2009: US$1,813.0 million), net fair value gain on other investments of US$11.0 million (2009: US$8.5 million) and net actuarial gain
on employee benefit plans of US$0.2 million (2009: US$3.3 million).
Annual Report 2010 23
Consolidated Cash Flow Statement
for the year ended 31st December 2010
Operating activities
Operating profit
Depreciation
Fixed assets written off
Writeback of provision for development properties held for sale
Change in fair value of investment properties
Asset impairment provisions, reversals and disposals
(Increase)/decrease in properties for sale
Decrease/(increase) in debtors, prepayments and others
Increase in creditors and accruals
Interest received
Interest and other financing charges paid
Tax paid
Dividends from associates and joint ventures
Cash flows from operating activities
Investing activities
Major renovations expenditure
Developments capital expenditure
Purchase of a subsidiary
Investments in and loans to associates and joint ventures
Purchase of other investments
Cash flows from investing activities
Financing activities
Drawdown of borrowings
Repayment of borrowings
Change in interests in subsidiaries
(Repayment to)/contribution from minority shareholders
Dividends paid by the Company
Dividends paid to minority shareholders
Cash flows from financing activities
Effect of exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at 1st January
Note
6
6
24
2010
US$m
4,079.1
1.1
–
(50.9 )
(3,197.6 )
(0.1 )
(296.6 )
79.3
26.1
38.2
(90.2 )
(169.7 )
271.7
690.4
(34.6 )
(0.2 )
–
(17.9 )
(2.0 )
(54.7 )
1,404.2
(1,380.6 )
(159.9 )
(11.1 )
(358.2 )
(7.8 )
(513.4 )
18.4
140.7
1,225.0
2009
US$m
(restated)
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
107.9
1,117.1
Cash and cash equivalents at 31st December
24
1,365.7
1,225.0
24 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 Interpretations adopted by the International Accounting Standards Board. The financial statements have been
prepared under the historical cost convention except as disclosed in the accounting policies below.
Standards, amendments and interpretations effective in 2010 which are relevant to the Group’s operations
Amendments to IFRS 2
Group Cash-settled Share-based Payment Transactions
Amendment to IAS 39
Eligible Hedged Items
IFRIC 17
IFRIC 18
Distributions of Non-cash Assets to Owners
Transfers of Assets from Customers
Improvements to IFRSs (2009)
The amendments to IFRS 2 ‘Group Cash-settled Share-based Payment Transactions’ incorporate the guidance provided in IFRIC 8 ‘Scope of
IFRS 2’ and IFRIC 11 ‘IFRS 2 – Group and Treasury Share Transactions’ and expand on the guidance in IFRIC 11 to address the classification
of group arrangements that were not covered by that interpretation.
The amendment to IAS 39 ‘Eligible Hedged Items’ gives additional guidance on the designation of a hedged item and how hedged
accounting should be applied in particular situations.
IFRIC 17 ‘Distribution of Non-cash Assets to Owners’ 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 values 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 and loss.
IFRIC 18 ‘Transfers of Assets from Customers’ addresses the accounting by recipients for transfers of property, plant and equipment from
customers and concludes that when an item of property, plant and equipment transferred meets the definition of an asset from the
perspective of the recipient, the recipient should recognise the asset at its fair value on the date of transfer, with the credit being recognised
as revenue in accordance with IAS 18 ‘Revenue’.
IAS 17 (amendment) ‘Leases’ 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.
IFRS 5 (amendment) ‘Non-current Assets Held for Sale and Discontinued Operations’ is part of the 2009 improvement project. It clarifies
that the disclosure requirements in IFRSs other than IFRS 5 do not apply to non-current assets (or disposal groups) classified as held for sale
of discontinued operations unless those IFRSs require (i) specific disclosures in respect of non-current assets (or disposal groups) classified
as held for sale or discontinued operations, or (ii) disclosures about measurement of assets and liabilities within a disposal group that are
not within the scope of the measurement requirement of IFRS 5 and the disclosures are not already provided in the consolidated financial
statements.
IAS 1 (amendment) ‘Presentation of Financial Statements’ is part of the 2009 improvement project. It clarifies that the potential settlement
of a liability by the issue of equity is not relevant to its classification as current or non-current.
IAS 36 (amendment) ‘Impairment of Assets’ is part of the 2009 improvement project. It clarifies that the largest cash-generating unit (or
group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by
paragraph 5 of IFRS 8.
IFRIC 16 (amendment) ‘Hedges of a Net Investment in a Foreign Operation’ is part of the 2009 improvement project. It states that in a
hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the Group,
including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a
net investment hedge are satisfied.
The adoption of the above standards, amendments and interpretations does not have a material impact on the Group’s accounting policies.
Annual Report 2010 25
Notes to the Financial Statements
1 Principal Accounting Policies continued
Basis of preparation continued
Amended standard early adopted by the Group
Amendments to IAS 12
Deferred Tax: Recovery of Underlying Assets
The amendments to IAS 12 (effective from 1st January 2012) provides that the measurement of deferred tax liabilities and deferred tax
assets arising from investment properties which are measured using the fair value model in IAS 40 should reflect a rebuttable presumption
that the carrying amount of the underlying asset will be recovered through sale.
The early adoption of the amendments to IAS 12 has resulted in a change in accounting policy on the provision of deferred tax on
revaluation of investment properties. Previously, provision for deferred tax was made at the income tax rates on the revaluation of, and the
tax bases of, investment properties held under operating leases on the basis that their values would be recovered through use rather than
through sale. In accordance with the amendments, deferred tax is provided at the income tax rates on allowances claimed on these
properties and at the capital gains tax rates on the valuation in excess of cost. As the Group’s long leasehold investment properties are
located in Hong Kong and Singapore where sales of a capital nature in excess of cost are not taxable, deferred tax liabilities relating to
investment properties have been reduced significantly. This change in accounting policy has been accounted for retrospectively and the
comparative financial statements have been restated.
Effects of change in accounting policy on the adoption of amendments to IAS 12:
a) On the consolidated profit and loss account for the year ended 31st December
Increase in share of results of associates and joint ventures
Decrease in tax
Increase in profit after tax
Attributable to:
Shareholders of the Company
Increase in basic earnings per share
Increase in diluted earnings per share
b) On the consolidated balance sheet at 31st December
2010
2009
2008
26 Hongkong Land
2010
US$m
110.5
528.2
638.7
2009
US$m
2.6
169.3
171.9
638.7
171.9
US¢
28.39
27.14
US¢
7.64
7.30
Increase in assets
Associates
and joint
ventures
US$m
(Increase)/decrease
in equity/liabilities
Revenue
and other
reserves
US$m
Deferred
tax
liabilities
US$m
166.5
(2,821.9 )
2,655.4
47.0
43.1
(2,180.2 )
2,133.2
(1,944.8 )
1,951.7
1 Principal Accounting Policies continued
Basis of preparation continued
Standards, amendments and interpretations effective after 2010 which are relevant to the Group’s operations and yet to be
adopted
IFRS 9
Revised IAS 24
Financial Instruments
Related Party Disclosures
Amendment to IAS 32
Classification of Right Issues
Amendments to IFRIC 14
Prepayments of a Minimum Funding Requirement
IFRIC 19
Extinguishing Financial Liabilities with Equity Instruments
Improvements to IFRSs (2010)
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. IFRS 9 is likely to affect the Group’s accounting for its financial assets. The Group will apply IFRS 9
from 1st January 2013 and is yet to assess IFRS 9’s full impact.
Revised 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. To date, the Group has
not entered into any arrangements that would fall within the scope of the amendments.
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, but it is not expected to have any significant impact on the results of the Group.
IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ (effective from 1st July 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 and is in the process of making an assessment of the impact of this interpretation.
The Improvements to IFRSs (2010) comprise a number of non-urgent but necessary amendments to IFRSs. The amendments which are
relevant to the Group’s operations include IFRS 3 (amendment) ‘Business Combinations’, IFRS 7 (amendment) ‘Financial Instruments:
Disclosures’, IAS 1 (amendment) ‘Presentation of Financial Statements’, IAS 34 (amendment) ‘Interim Financial Reporting’ and IFRIC 13
(amendment) ‘Customer Loyalty Programmes’. The adoption of these amendments is not expected to have any significant impact on the
results of the Group.
IFRS 3 (amendments) ‘Business Combinations’ (effective from 1st July 2010) clarify the transition requirements for contingent consideration
from business combination that occurred before the effective date of the revised IFRS, the measurement of non-controlling interests and
unreplaced and voluntarily replaced share-based payment awards. The Group will apply the amendments from 1st January 2011.
IFRS 7 (amendments) ‘Financial Instruments: Disclosures’ (effective from 1st January 2011) emphasize the interaction between qualitative
and quantitative disclosures and the nature and extent of risks associated with financial instruments. The Group will apply the amendments
from 1st January 2011.
IAS 1 (amendments) ‘Presentation of Financial Statements’ (effective from 1st January 2011) clarify that entities may present the required
reconciliations for each component of other comprehensive income either in the statement of changes in equity or in the notes to the
financial statements. The Group will apply the amendments from 1st January 2011.
IAS 34 (amendments) ‘Interim Financial Reporting’ (effective from 1st January 2011) provide guidance to illustrate how to apply disclosure
principles in IAS 34 and add disclosure requirements around the circumstances likely to affect fair values of financial instruments and their
classification, transfers of financial instruments between different levels of fair value hierarchy, changes in classification of financial assets
and changes in contingent liabilities and assets. The Group will apply the amendments from 1st January 2011.
IFRIC 13 (amendment) ‘Customer Loyalty Programmes’ (effective from 1st January 2011) clarifies that when the fair value of award credits
is measured on the basis of the value of the awards for which they could be redeemed, the fair value of the award credits should take
account of expected forfeitures as well as the discounts or incentives that would otherwise be offered to customers who have not earned
award credits from an initial sale. The Group will apply the amendment from 1st January 2011.
Annual Report 2010 27
Notes to the Financial Statements
1 Principal Accounting Policies continued
Basis of preparation continued
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 includes 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 investments are recognised in other comprehensive income as part
of the gains and losses arising from changes in their fair value. Exchange differences relating to changes in the amortised cost of monetary
securities classified as available-for-sale and all other exchange differences are recognised in profit and loss.
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.
28 Hongkong Land
1 Principal Accounting Policies continued
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.
Intangible assets
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.
Tangible fixed assets and depreciation
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:
Furniture, equipment and motor vehicles
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
Properties including those under operating leases which are held for long-term rental yields or capital gains are classified and accounted
for as investment properties, but the business model does not necessarily envisage that the properties will be held for their entire useful
life. 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 is calculated on the discounted net rental income allowing for reversionary potential. Changes in fair value are recognised in profit
and loss.
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 they are expected to be realised 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.
Annual Report 2010 29
Notes to the Financial Statements
1 Principal Accounting Policies continued
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.
Properties for sale
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 cost, and construction and other 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.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise deposits with banks, 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 they are due to be settled 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. Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
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.
30 Hongkong Land
1 Principal Accounting Policies continued
Pension obligations
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 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.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognised in
other comprehensive income and accumulated in equity under 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.
Financial guarantee contracts
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.
Annual Report 2010 31
Notes to the Financial Statements
1 Principal Accounting Policies continued
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 investment 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-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.
iv) Dividend income is recognised when the right to receive payment is established.
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 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 2010 are disclosed in Note 25.
32 Hongkong Land
2 Financial Risk Management continued
Financial risk factors continued
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.
Entities in the Group use forward foreign exchange contracts in a consistent manner to hedge firm and anticipated foreign exchange
commitments and manage their foreign exchange risk arising from future commercial transactions. 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. Group companies are required to manage their foreign exchange risk
against their functional currency. Foreign currency borrowings are 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.
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. At 31st December 2010, there are no significant monetary balances held by group companies that are denominated
in a non-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 40% to 60% of its gross borrowings in fixed rate instruments with an average tenor of two to three years. At
31st December 2010, the Group’s interest rate hedge was 62% (2009: 52%) with an average tenor of six years (2009: three 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 2010, 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$7 million (2009: US$5 million) higher/lower, and hedging reserve would have been US$45 million
(2009: US$22 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 of the hedged item caused by interest rate movements balance out in profit
and loss against changes in the fair value of the hedging instruments. 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.
Annual Report 2010 33
Notes to the Financial Statements
2 Financial Risk Management continued
Financial risk factors continued
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 recognised in other comprehensive
income. The performance of the Group’s listed and unlisted available-for-sale investments are monitored regularly, 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.
Available-for-sale investments are unhedged. At 31st December 2010, if the price of listed and unlisted available-for-sale investments
had been 25% higher/lower with all other variables held constant, total equity would have been US$15 million (2009: 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.
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 counterparty. The utilisation of credit
limits is regularly monitored. At 31st December 2010, 100% (2009: 100%) of deposits and balances with banks were made to
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 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$33 million
(2009: US$66 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$55 million (2009: US$64 million). The Group’s exposure
to credit risk arising from deposits and balances with banks is set out in Note 19 and totals US$1,367 million (2009: US$1,226 million).
iii) Liquidity risk
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 2010, total available borrowing facilities amounted to US$6,184 million (2009: US$5,291 million) of which
US$3,725 million (2009: US$3,643 million) was drawn down. Undrawn committed facilities, in the form of revolving credit and term
loan facilities, totalled US$2,262 million (2009: US$1,463 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 25.
34 Hongkong Land
2 Financial Risk Management continued
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 equity. Net debt is calculated as total borrowings less bank balances. Interest cover is calculated as
underlying operating profit including the Group’s share of operating profit within joint ventures divided by net financing charges including
the Group’s share of net financing charges within joint ventures. The Group does not have a defined gearing or interest cover benchmark
or range.
The ratios at 31st December 2009 and 2010 are as follows:
Gearing ratio (%)
Interest cover (times)
2010
2009
12
12
16
15
The decrease in gearing ratio at 31st December 2010 is largely a result of higher investment properties valuations. The decrease in interest
cover for the year then ended as compared to 2009 is primarily due to higher net financing charges.
Fair value estimation
i) Financial instruments that are measured at fair value
For financial instruments that are measured at fair value in the balance sheet, the corresponding fair value measurements are disclosed
by level of the following fair value measurement hierarchy:
a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (‘quoted prices in active markets’)
The fair value of listed securities, which are classified as available-for-sale, is based on quoted prices in active markets at the balance
sheet date. The quoted market price used for listed investments held by the Group is the current bid price.
b)
Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly (‘observable
current market transactions’)
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.
c)
Inputs for the asset or liability that are not based on observable market data (‘unobservable inputs’)
The fair value of unlisted securities, which are classified as available-for-sale, is determined using valuation techniques by reference
to observable current market transactions or the market prices of the underlying investments with certain degree of entity specific
estimates.
ii) Financial instruments that are not measured at fair value
The fair values of current debtors, bank balances, current creditors and current borrowings are assumed to approximate their carrying
amounts 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.
Annual Report 2010 35
Notes to the Financial Statements
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.
Acquisition of subsidiary, associates and joint ventures
The initial accounting on the acquisition of subsidiary, associates and joint ventures involves identifying and determining the fair values to
be assigned to the identifiable assets, liabilities and contingent liabilities of the acquired entities. The fair values of leasehold land, tangible
assets and investment properties are determined by independent valuers by reference to market prices or present value of expected net
cash flows from the assets. Any changes in the assumptions used and estimates made in determining the fair values, and management’s
ability to measure reliably the contingent liabilities of the acquired entity will impact the carrying amount of these assets and liabilities.
Investment properties
The fair values of investment properties are determined 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
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.
In determining when an available-for-sale equity investment is impaired, significant judgement is required. 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 flows.
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.
Provision of deferred tax follows the way management expects to recover or settle the carrying amount of the related assets or liabilities,
which the management may expect to recover through use, sale or combination of both. Accordingly, deferred tax will be calculated at
income tax rate, capital gains tax rate or combination of both. There is a rebuttable presumption in International Financial Reporting
Standards that investment properties measured at fair value are recovered by sale. Thus, deferred tax on revaluation of investment properties
held by the Group are calculated at the capital gains tax rate.
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.
36 Hongkong Land
3 Critical Accounting Estimates and Judgements continued
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 2010 37
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. The Group operates in two operating
segments namely Commercial Property and Residential Property. No operating segments have been aggregated to form the
reportable segments.
Revenue
Operating profit
2010
US$m
2009
US$m
2010
US$m
2009
US$m
By business
Commercial property
Residential property
Corporate, net financing charges and tax
Change in fair value of investment properties
Asset impairment provisions, reversals and disposals
775.3
565.3
–
1,340.6
–
–
759.8
562.8
–
1,322.6
–
–
649.0
287.1
(54.7 )
881.4
3,197.6
0.1
638.2
227.7
(51.4 )
814.5
1,000.6
(8.4 )
Underlying profit
attributable to shareholders
Segment assets
Segment liabilities
2010
US$m
684.5
432.5
(306.8 )
810.2
–
–
2009
US$m
664.0
384.3
(271.2 )
777.1
–
–
2010
US$m
2009
US$m
18,047.7
1,465.4
–
19,513.1
–
–
14,851.0
1,117.2
–
15,968.2
–
–
2010
US$m
(309.2 )
(440.3 )
–
(749.5 )
–
–
2009
US$m
(260.1 )
(418.9 )
–
(679.0 )
–
–
1,340.6
1,322.6
4,079.1
1,806.7
810.2
777.1
19,513.1
15,968.2
(749.5 )
(679.0 )
By geographical location
Greater China
Southeast Asia and others
Corporate, net financing charges and tax
Operating profit
Results of associates and joint ventures
Net financing charges and tax
935.9
404.7
–
834.4
488.2
–
3,821.3
312.5
(54.7 )
1,781.1
77.0
(51.4 )
761.7
355.3
(306.8 )
861.3
187.0
(271.2 )
18,081.6
1,431.5
–
14,772.0
1,196.2
–
(385.3 )
(364.2 )
–
(395.0 )
(284.0 )
–
1,340.6
1,322.6
4,079.1
1,806.7
810.2
777.1
19,513.1
15,968.2
(749.5 )
(679.0 )
4,079.1
905.3
(199.2 )
1,806.7
225.0
(171.9 )
Segment assets and liabilities
Investments in associates and joint ventures
Unallocated assets and liabilities
19,513.1
3,177.7
1,451.7
15,968.2
2,352.2
1,298.9
(749.5 )
–
(3,915.5 )
(679.0 )
–
(3,868.8 )
Profit after tax
4,785.2
1,859.8
Total assets and liabilities
24,142.5
19,619.3
(4,665.0 )
(4,547.8 )
Greater China includes Hong Kong, Macau, mainland China and Taiwan.
Unallocated assets and liabilities include tax assets and liabilities, bank balances and borrowings.
38 Hongkong Land
Annual Report 2010 39
Notes to the Financial Statements
5
Revenue
Rental income
Service income
Sales of properties
2010
US$m
681.8
102.2
556.6
2009
US$m
669.0
95.4
558.2
1,340.6
1,322.6
Service income includes service and management charges and hospitality service income.
Total contingent rents included in rental income amounted to US$9.9 million (2009: US$7.5 million).
The future minimum rental payments receivable under non-cancellable leases
are as follows:
Within one year
Between one and two years
Between two and five years
Beyond five years
Generally the Group’s operating leases are for terms of three years or more.
6
Net Operating Costs
Cost of sales
Other income
Administrative expenses
The following credits/(charges) are included in net operating costs:
Cost of properties for sale recognised as expense
Operating expenses arising from investment properties
Reversal of writedown on developement properties held for sale
Depreciation of tangible assets (see Note 12)
Staff costs
– salaries and benefits in kind
– defined contribution pension plan
– defined benefit pension plan (see Note 16)
The number of employees at 31st December 2010 was 1,144 (2009: 1,104).
40 Hongkong Land
2010
US$m
598.8
376.3
402.2
76.3
2009
US$m
588.7
399.8
308.1
75.5
1,453.6
1,372.1
2010
US$m
(382.6 )
5.0
(81.6 )
(459.2 )
(309.4 )
(124.1 )
50.9
(1.1 )
(73.9 )
(2.3 )
–
(76.2 )
2009
US$m
(437.8 )
2.2
(72.5 )
(508.1 )
(318.8 )
(119.0 )
–
(1.6 )
(69.9 )
(2.3 )
(0.5 )
(72.7 )
7
Net Financing Charges
Interest expenses
– Bank loans and overdrafts
– Other borrowings
Total interest expenses
Interest capitalised
Commitment and other fees
Financing charges
Financing income
2010
US$m
(24.1 )
(80.4 )
(104.5 )
2.7
(101.8 )
(10.5 )
(112.3 )
35.2
(77.1 )
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
– Operating profit
– Net financing charges
– Tax
– Net profit
Residential property
– Operating profit
– Net financing charges
– Tax
– Minority interests
– Net profit
Underlying business performance
Non-trading items:
Change in fair value of investment properties (net of deferred tax)
– Commercial property
– Residential property
Asset impairment provisions, reversals and disposals
2010
US$m
37.2
(14.0 )
(2.6 )
20.6
196.1
(4.2 )
(37.8 )
(0.8 )
153.3
173.9
722.4
9.0
731.4
–
731.4
905.3
2009
US$m
(35.6 )
(67.5 )
(103.1 )
8.2
(94.9 )
(15.1 )
(110.0 )
58.0
(52.0 )
2009
US$m
27.1
(11.2 )
(1.3 )
14.6
206.2
(5.3 )
(36.5 )
(1.2 )
163.2
177.8
50.8
0.6
51.4
(4.2 )
47.2
225.0
The share of revenue of associates and joint ventures was US$555.6 million (2009: US$538.8 million).
Annual Report 2010 41
Notes to the Financial Statements
9
Tax
Current tax
Deferred tax
– changes in fair value of investment properties
– other temporary differences
Reconciliation between tax expense and tax at applicable tax rate:
Tax at applicable tax rate
Change in Singapore profits tax rate
Change in fair value of investment properties not taxable in determining
taxable profit
Asset impairment provisions, reversals and disposals not deductible in
determining taxable profit
Expenses not deductible in determining taxable profit
Income not subject to tax
Utilisation of previously unrecognised tax losses
Overprovision in prior years
Losses not recognised
Deferred tax assets written off
Deferred tax liabilities written back
Withholding tax
Tax relating to components of other comprehensive income is analysed as follows:
Pension assets
Cash flow hedges
2010
US$m
(115.4 )
0.7
(7.4 )
(6.7 )
2009
US$m
(115.0 )
0.4
(5.3 )
(4.9 )
(122.1 )
(119.9 )
(659.9 )
–
528.7
–
(11.8 )
22.3
2.2
0.9
(0.1 )
(0.2 )
–
(4.2 )
(289.4 )
(0.1 )
164.6
(2.2 )
(6.2 )
12.9
0.4
2.4
(0.7 )
(1.0 )
0.4
(1.0 )
(122.1 )
(119.9 )
–
1.1
1.1
(0.7 )
(0.1 )
(0.8 )
The applicable tax rate for the year of 16.8% (2009: 16.5%) represents the weighted average of the rates of taxation prevailing
in the territories in which the Group operates. The increase in the applicable tax rate is caused by a change in the profitability of
the Group’s subsidiaries in the respective territories.
The Group has no tax payable in the United Kingdom (2009: Nil).
Share of tax of associates and joint ventures of US$62.0 million (2009: US$47.3 million) is included in share of results of associates
and joint ventures.
42 Hongkong Land
10 Earnings per Share
Basic earnings per share is calculated on profit attributable to shareholders of US$4,739.4 million (2009: US$1,813.0 million) and
on the weighted average number of 2,249.4 million (2009: 2,249.3 million) shares in issue during the year.
Diluted earnings per share is calculated on profit attributable to shareholders of US$4,760.6 million (2009: US$1,833.7 million),
which is after adjusting for the effects of the conversion of convertible bonds, and on the weighted average number of
2,353.2 million (2009: 2,353.2 million) shares in issue during the year. The weighted average number of shares for basic and
diluted earnings per share is reconciled as follows:
Weighted average number of shares in issue
Adjustment for shares to be issued on conversion of convertible bonds
Weighted average number of shares for diluted earnings per share calculation
Ordinary shares in millions
2010
2,249.4
103.8
2,353.2
2009
2,249.3
103.9
2,353.2
Earnings per share is additionally calculated based on underlying profit attributable to shareholders. The difference between
underlying profit attributable to shareholders and profit attributable to shareholders is reconciled as follows:
Underlying profit attributable to shareholders
Non-trading items (see Note 11)
2010
Basic
earnings
per share
US¢
Diluted
earnings
per share
US¢
2009
Basic
earnings
per share
US¢
Diluted
earnings
per share
US¢
US$m
36.02
35.33
777.1
34.55
33.90
1,035.9
US$m
810.2
3,929.2
Profit attributable to shareholders
4,739.4
210.70
1,813.0
80.60
Interest expense on convertible bonds (net of tax)
21.2
20.7
Profit for calculation of diluted earnings per share
4,760.6
202.30
1,833.7
77.92
11 Non-trading Items
An analysis of non-trading items after interest, tax and minority interests is set out below:
Change in fair value of investment properties
Deferred tax on change in fair value of investment properties
Share of change in fair value of investment properties of associates and
joint ventures (net of deferred tax)
Asset impairment provisions, reversals and disposals
Share of asset impairment provisions, reversals and disposals of associates and
joint ventures
Minority interests
2010
US$m
3,197.6
0.7
731.4
0.1
–
(0.6 )
2009
US$m
1,000.6
0.4
51.4
(8.4 )
(4.2 )
(3.9 )
3,929.2
1,035.9
Annual Report 2010 43
Notes to the Financial Statements
12 Tangible Assets
2010
Cost or valuation
Cumulative depreciation
Net book value at 1st January
Exchange differences
Additions
Depreciation
Net revaluation surplus
Net book value at 31st December
Cost or valuation
Cumulative depreciation
2009
Cost or valuation
Cumulative depreciation
Net book value at 1st January
Exchange differences
Additions
Depreciation
Written off
Net revaluation surplus
Transfer
Net book value at 31st December
Cost or valuation
Cumulative depreciation
Investment
properties
US$m
Other
properties
US$m
Other
assets
US$m
Total
US$m
14,817.7
–
14,817.7
(6.9 )
27.6
–
3,197.6
18,036.0
18,036.0
–
18,036.0
13,702.7
–
13,702.7
2.6
21.0
–
–
1,000.6
90.8
14,817.7
14,817.7
–
14,817.7
–
–
–
–
–
–
–
–
–
–
–
10.9
(2.6 )
8.3
–
0.7
(0.1 )
–
83.3
(92.2 )
–
–
–
–
13.9
(10.0 )
14,831.6
(10.0 )
3.9
0.1
1.3
(1.1 )
–
14,821.6
(6.8 )
28.9
(1.1 )
3,197.6
4.2
18,040.2
15.1
(10.9 )
18,051.1
(10.9 )
4.2
18,040.2
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
The Group’s investment properties were revalued at 31st December 2010 by independent qualified valuers. The Group employed
Jones Lang LaSalle to value its commercial investment properties in Hong Kong, Singapore and Vietnam which are held under
leases with unexpired lease terms of more than 20 years. The valuations, which conform to the International Valuation Standards
issued by the International Valuation Standards Committee and the HKIS Valuation Standards on Properties issued by the Hong
Kong Institute of Surveyors, were arrived at by reference to the net income allowing for reversionary potential of each property.
The Report of the Valuers is set out on page 73.
The other properties revaluation surplus of US$83.3 million had been taken to asset revaluation reserve which was included in the
revenue reserves as at 31st December 2009.
44 Hongkong Land
13 Associates and Joint Ventures
Share of unlisted associates and joint ventures’ net assets
Goodwill on acquisition
The Group's share of assets, liabilities, capital commitments and contingent
liabilities of associates and joint ventures are summarised below:
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Minority interests
Capital commitments
Contingent liabilities
Movements of associates and joint ventures for the year:
At 1st January
– as previously reported
– change in accounting policy for deferred tax
– as restated
Exchange differences
Share of results after tax and minority interests
Share of other comprehensive income after tax and minority interests
Dividends received and receivable
Net acquisitions and increases in attributable interests
Reclassification of a joint venture as subsidiary
Others
At 31st December
2010
US$m
3,132.2
45.5
3,177.7
2,986.1
1,142.4
(497.0 )
(496.4 )
(2.9 )
2009
US$m
2,325.6
26.6
2,352.2
1,845.2
1,193.9
(454.4 )
(256.4 )
(2.7 )
3,132.2
2,325.6
112.4
36.6
184.1
42.4
2,305.2
47.0
2,352.2
89.9
905.3
80.8
(270.5 )
17.9
–
2.1
1,797.5
43.1
1,840.6
24.5
225.0
7.6
(12.8 )
305.2
(29.2 )
(8.7 )
3,177.7
2,352.2
Annual Report 2010 45
Notes to the Financial Statements
14 Other Investments
Listed securities
Unlisted securities
Movements for the year:
At 1st January
Exchange differences
Additions
Net revaluation surplus
At 31st December
The fair value measurements of available-for-sale financial assets are based on
the following data:
Quoted prices in active markets
Unobservable inputs
2010
US$m
57.2
2.0
59.2
46.4
(0.2 )
2.0
11.0
59.2
57.2
2.0
59.2
15 Deferred Tax Assets and Liabilities
2010
At 1st January
– as previously reported
– change in accounting policy for deferred tax
– as restated
Exchange differences
(Charged)/credited to profit and loss
Credited to other comprehensive income
At 31st December
Deferred tax assets
Deferred tax liabilities
Accelerated
capital
allowances
US$m
Revaluation
surpluses of
investment
properties
US$m
Other
temporary
differences
US$m
Tax losses
US$m
0.5
–
0.5
0.1
0.4
–
1.0
1.0
–
1.0
(41.9 )
–
(41.9 )
0.1
(4.4 )
–
(46.2 )
–
(46.2 )
(46.2 )
(2,134.9 )
2,133.2
(1.7 )
–
0.7
–
(1.0 )
–
(1.0 )
(1.0 )
0.8
–
0.8
–
(3.4 )
1.1
(1.5 )
6.1
(7.6 )
(1.5 )
46 Hongkong Land
2009
US$m
46.4
–
46.4
–
–
37.9
8.5
46.4
46.4
–
46.4
Total
US$m
(2,175.5 )
2,133.2
(42.3 )
0.2
(6.7 )
1.1
(47.7 )
7.1
(54.8 )
(47.7 )
15 Deferred Tax Assets and Liabilities continued
Accelerated
capital
allowances
US$m
Revaluation
surpluses of
investment
properties
US$m
Other
temporary
differences
US$m
Tax losses
US$m
2009
At 1st January
– as previously reported
– change in accounting policy for deferred tax
– as restated
Exchange differences
(Charged)/credited to profit and loss
Charged to other comprehensive income
At 31st December
Deferred tax assets
Deferred tax liabilities
–
–
–
–
0.5
–
0.5
0.5
–
0.5
(35.9 )
–
(35.9 )
–
(6.0 )
–
(41.9 )
–
(41.9 )
(41.9 )
(1,953.8 )
1,951.7
(2.1 )
–
0.4
–
(1.7 )
–
(1.7 )
(1.7 )
Total
US$m
(1,988.4 )
1,951.7
(36.7 )
0.1
(4.9 )
(0.8 )
1.3
–
1.3
0.1
0.2
(0.8 )
0.8
(42.3 )
3.4
(2.6 )
3.9
(46.2 )
0.8
(42.3 )
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$0.8 million (2009: US$2.9 million) arising from unused tax losses of US$4.7 million
(2009: US$17.2 million) have not been recognised in the financial statements. Of the unused tax losses, US$4.4 million
(2009: US$17.2 million) have no expiry date and the balance will expire in 2015.
16 Pension Plans
The Group has a number of defined benefit pension plans, covering all the main territories in which it operates with the major
plans relating to employees in Hong Kong. Most of the pension plans are final salary defined benefit plans and are funded. The
assets of the funded plans are held independently of the Group’s assets in separate trustee administered funds. The Group’s major
plans are valued by independent actuaries annually using the projected unit credit method.
The principal actuarial assumptions used for accounting purposes at 31st December are as follows:
Discount rate applied to pension obligations
Expected return on plan assets
Future salary increases
2010
Weighted
average
%
4.85
7.50
5.00
2009
Weighted
average
%
5.00
7.50
5.00
The expected return on plan assets is determined on the basis of long-term average returns on global equities of 4.3% to 11.4%
(2009: 3.8% to 11.3%) per annum and global bonds of 3.6% to 5.2% (2009: 2.8% to 4.4%) per annum, and the long-term
benchmark allocation of assets between equities and bonds in the plan.
Annual Report 2010 47
Notes to the Financial Statements
16 Pension Plans continued
The amounts recognised in the consolidated balance sheet are as follows:
Fair value of plan assets
Present value of pension obligations
Movements in the fair value of plan assets:
At 1st January
Exchange differences
Expected return on plan assets
Contributions from plan members
Benefits paid
Actuarial gains
At 31st December
Movements in the present value of pension obligations:
At 1st January
Interest cost
Current service cost
Benefits paid
Actuarial losses
At 31st December
The analysis of the fair value of plan assets at 31st December is as follows:
Equity instruments
Debt instruments
Other assets
2010
US$m
33.8
(23.2 )
10.6
31.4
(0.1 )
2.3
0.5
(0.9 )
0.6
33.8
21.4
1.0
1.3
(0.9 )
0.4
23.2
15.8
9.6
8.4
33.8
The estimated amount of contributions expected to be paid to the plans in 2011 is US$0.4 million.
The amounts recognised in the consolidated profit and loss account are as follows:
Current service cost
Interest cost
Expected return on plan assets
Expense recognised
Actual return on plan assets in the year
2010
US$m
1.3
1.0
(2.3 )
–
2.9
2009
US$m
31.4
(21.4 )
10.0
25.1
–
1.9
0.5
(0.4 )
4.3
31.4
19.0
1.1
1.3
(0.4 )
0.4
21.4
14.1
9.4
7.9
31.4
2009
US$m
1.3
1.1
(1.9 )
0.5
6.2
The above amounts are all recognised in arriving at operating profit and are included in cost of sales and administrative expenses.
48 Hongkong Land
16 Pension Plans continued
The five year history of experience adjustments is as follows:
Fair value of plan assets
Present value of pension obligations
2010
US$m
33.8
(23.2 )
2009
US$m
31.4
(21.4 )
2008
US$m
25.1
(19.0 )
2007
US$m
38.2
(20.9 )
2006
US$m
33.2
(19.3 )
Surplus
10.6
10.0
6.1
17.3
13.9
Experience adjustments on plan assets
Percentage of plan assets (%)
Experience adjustments on pension obligations
Percentage of pension obligations (%)
0.6
2
0.1
–
4.3
14
1.2
6
(14.5 )
58
–
–
2.5
7
(0.1 )
–
17 Properties for Sale
Properties under development
– land and development costs
– interest and other expenses capitalised
Provision for impairment
Completed properties
2010
US$m
1,114.8
29.0
1,143.8
(156.7 )
987.1
197.3
1,184.4
3.4
10
–
–
2009
US$m
843.6
42.3
885.9
(195.9 )
690.0
97.1
787.1
At 31st December 2010, properties for sale of US$404.7 million (2009: US$289.9 million) were pledged as security for borrowings
of US$41.2 million (2009: US$99.7 million) as shown in Note 21.
18 Debtors
Trade debtors
Other debtors
– third parties
– associates and joint ventures
Non-current
Current
2010
US$m
32.8
178.3
85.5
296.6
51.5
245.1
296.6
2009
US$m
65.7
185.7
120.6
372.0
56.7
315.3
372.0
Annual Report 2010 49
Notes to the Financial Statements
18 Debtors continued
By geographical area of operation
Greater China
Southeast Asia and others
2010
US$m
179.6
117.0
296.6
2009
US$m
211.6
160.4
372.0
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 2010, no trade debtors (2009: US$0.5 million) were impaired and fully provided.
At 31st December 2010, trade debtors of US$4.4 million (2009: US$4.4 million) were past due but not impaired. The ageing
analysis of these trade debtors is as follows:
Below 30 days
Between 31 and 60 days
Between 61 and 90 days
Over 90 days
2010
US$m
3.2
1.1
0.1
–
4.4
2009
US$m
3.4
0.6
0.2
0.2
4.4
The risk of trade debtors that are neither past due nor impaired at 31st December 2010 becoming impaired is low as most of the
balances have been settled subsequent to the year end.
Other debtors are further analysed as follows:
Prepayments
Derivative financial instruments
Amounts due from associates and joint ventures
Others
2010
US$m
91.2
55.2
85.5
31.9
263.8
2009
US$m
85.6
64.0
120.6
36.1
306.3
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.
50 Hongkong Land
19 Bank Balances
Bank balances of certain subsidiaries amounting to US$80.6 million (2009: US$53.8 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$1,309.9 million (2009: US$1,194.0 million) is 0.3% (2009: 0.3%)
per annum.
20 Creditors
Trade creditors
Amounts due to associates and joint ventures
Tenants’ deposits
Other creditors
Derivative financial instruments
Financial liabilities
Rent received in advance
Proceeds from property for sale received in advance
Non-current
Current
By geographical area of operation
Greater China
Southeast Asia and others
The remaining contractual maturities of financial liabilities other than
derivative financial instruments are analysed as follows:
Within one year
Between one and two years
Between two and five years
Beyond five years
2010
US$m
231.1
–
156.6
66.4
70.9
525.0
11.6
279.9
816.5
93.1
723.4
816.5
427.1
389.4
816.5
314.8
50.6
72.7
16.0
454.1
2009
US$m
193.6
81.7
149.0
68.8
18.5
511.6
7.5
218.5
737.6
50.5
687.1
737.6
432.4
305.2
737.6
355.0
62.2
58.5
17.4
493.1
Derivative financial instruments are stated at fair value. Other creditors are stated at amortised cost. The fair value of these
creditors approximates their carrying amounts.
Annual Report 2010 51
Notes to the Financial Statements
21 Borrowings
Current
Bank overdrafts
Current portion of long-term borrowings
– Bank loans
– 3.01% Singapore dollar notes due 2010
– 7% United States dollar bonds due 2011
Long-term
Bank loans
7% United States dollar bonds due 2011
5.5% United States dollar bonds due 2014
3.65% Singapore dollar notes due 2015
2.75% United States dollar convertible bonds due 2012
Medium term notes
Secured
Unsecured
2010
Carrying
amount
US$m
Fair value
US$m
2009
Carrying
amount
US$m
Fair value
US$m
1.0
1.0
1.1
1.1
253.8
–
604.9
859.7
410.7
–
548.3
293.3
372.8
1,239.7
253.8
–
609.0
863.8
410.7
–
548.3
301.4
395.1
1,188.5
10.5
234.3
–
245.9
10.5
234.5
–
246.1
1,405.2
1,405.2
619.1
537.0
268.9
368.1
199.2
635.2
537.0
274.7
385.0
194.5
2,864.8
2,844.0
3,397.5
3,431.6
3,724.5
3,707.8
3,643.4
3,677.7
41.2
3,683.3
3,724.5
99.7
3,543.7
3,643.4
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 3.5% (2009: 0.4% to 3.7%) per annum. The fair values of current borrowings approximate their
carrying amount, as the impact of discounting is not significant.
Secured borrowings at 31st December 2010 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.
52 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:
– 4.22% 10-year notes with nominal value of HK$500 million due on 26th February 2020
– 5.25% 30-year notes with nominal value of HK$250 million due on 18th March 2040
– 4.24% 10-year notes with nominal value of HK$500 million due on 19th March 2020
– 3.43% 10-year notes with nominal value of S$150 million due on 14th May 2020
– 3.95% 10-year notes with nominal value of HK$500 million due on 8th June 2020
– 4.10% 15-year notes with nominal value of HK$300 million due on 28th July 2025
– 4.11% 20-year notes with nominal value of HK$800 million due on 13th September 2030
– 4.50% 15-year notes with nominal value of US$600 million due on 7th October 2025
The convertible bonds are recognised in the consolidated balance sheet as follows:
Liability component at 1st January
Interest expense at effective interest rate
Interest expense at coupon rate
Conversion
Liability component at 31st December
2010
US$m
368.1
21.2
(11.0 )
(5.5 )
372.8
2009
US$m
358.4
20.7
(11.0 )
–
368.1
Annual Report 2010 53
Notes to the Financial Statements
21 Borrowings continued
The borrowings are further summarised as follows:
Fixed rate borrowings
Weighted
Weighted
average average period
outstanding
Years
interest rates
%
Floating
rate
borrowings
US$m
US$m
Total
US$m
By currency
2010
Hong Kong dollar
Singapore dollar
United States dollar
2009
Hong Kong dollar
Singapore dollar
United States dollar
2.8
2.7
5.5
2.4
2.1
5.5
8.2
5.0
2.0
1,234.6
1,196.5
2,431.1
699.1
372.8
220.7
0.8
919.8
373.6
2,306.5
1,418.0
3,724.5
2.1
3.9
3.0
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
The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging transactions.
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
2010
US$m
976.4
548.7
1,385.5
1,757.7
4,668.3
2009
US$m
356.6
1,105.1
2,016.7
522.2
4,000.6
54 Hongkong Land
22 Share Capital
Authorised
Shares of US$0.10 each
Issued and fully paid
At 1st January
Issued on conversion of convertible bonds
Ordinary shares in millions
2010
2009
2010
US$m
2009
US$m
4,000.0
4,000.0
400.0
400.0
2,249.3
1.5
2,249.3
–
224.9
0.2
224.9
–
At 31st December
2,250.8
2,249.3
225.1
224.9
23 Dividends
Final dividend in respect of 2009 of US¢10.00 (2008: US¢7.00) per share
Interim dividend in respect of 2010 of US¢6.00 (2009: US¢6.00) per share
2010
US$m
224.9
135.0
359.9
2009
US$m
157.5
134.9
292.4
A final dividend in respect of 2010 of US¢10.00 (2009: US¢10.00) per share amounting to a total of US$225.1 million
(2009: US$224.9 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved
at the Annual General Meeting. The amount will be accounted for as an appropriation of revenue reserves in the year ending
31st December 2011.
24 Notes to Consolidated Cash Flow Statement
a) Change in interests in subsidiaries
The increase represents the Group’s increased attributable interests from 77.4% to 100% in MCL Land.
b) Cash and cash equivalents
Bank balances
Bank overdrafts (see Note 21)
2010
US$m
1,366.7
(1.0 )
2009
US$m
1,226.1
(1.1 )
1,365.7
1,225.0
Annual Report 2010 55
Notes to the Financial Statements
25 Derivative Financial Instruments
The fair values of derivative financial instruments at 31st December are as follows:
Designated as cash flow hedges
– interest rate swaps
– cross currency swaps
Designated as fair value hedges
– interest rate swaps
– cross currency swaps
2010
Positive
fair value
US$m
Negative
fair value
US$m
2009
Positive
fair value
US$m
Negative
fair value
US$m
1.1
0.2
0.6
53.3
11.7
15.4
1.8
42.0
4.8
2.4
4.8
52.0
11.8
2.8
3.9
–
The remaining contractual maturities of derivative financial instruments, based on their undiscounted cash outflows, are analysed
as follows:
Within
one
year
US$m
Between
one and
two years
US$m
Between
two and
five years
US$m
Beyond
five
years
US$m
8.4
6.2
5.3
–
635.5
26.2
571.4
935.2
643.9
32.4
576.7
935.2
16.2
9.0
11.4
30.5
618.7
522.1
46.7
627.7
533.5
–
91.5
91.5
2010
Net settled
– interest rate swaps
Gross settled
– cross currency swaps
2009
Net settled
– interest rate swaps
Gross settled
– cross currency swaps
56 Hongkong Land
25 Derivative Financial Instruments continued
Interest rate swaps
The notional principal amounts of the outstanding interest rate swap contracts at 31st December 2010 were US$611.9 million
(2009: US$1,401.2 million).
At 31st December 2010, the fixed interest rates relating to interest rate swaps vary from 1.84% to 4.28% (2009: 1.84% to
5.16%).
The fair values of interest rate swaps are based on the estimated cash flows discounted at market rates ranging from 0.28% to
3.32% (2009: 0.14% to 2.71%) per annum.
Cross currency swaps
The contract amounts of the outstanding cross currency swap contracts at 31st December 2010 were US$1,853.5 million
(2009: US$1,176.7 million).
26 Commitments
Capital commitments
Authorised not contracted
Contracted not provided
Contribution to associates and joint ventures
Operating lease commitments
Due within one year
Due between one and two years
Due between two and three years
2010
US$m
147.8
35.1
182.9
845.0
1.3
0.5
–
1.8
2009
US$m
166.9
17.1
184.0
614.7
1.4
0.8
0.4
2.6
27 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 2010 57
Notes to the Financial Statements
28 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$4.0 million (2009: US$3.9 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 2010 amounted to
US$19.3 million (2009: US$14.0 million).
Jardine Matheson group members provided property construction, maintenance and other services to the Group in 2010 in
aggregate amounting to US$30.5 million (2009: US$77.0 million).
The outstanding balances arising from the above services at 31st December 2010 are not material.
Hotel management services
Jardine Matheson group members provided hotel management services to the Group in 2010 amounting to US$1.4 million
(2009: US$0.9 million).
Outstanding balances with associates and joint ventures
Amounts of outstanding balances with associates and joint ventures are included in debtors and creditors as appropriate (see
Notes 18 and 20).
Directors’ emoluments
Details of Directors’ emoluments (being the key management personnel compensation) are shown on page 67 under the heading
of ‘Directors’ Appointment, Retirement, Remuneration and Service Contracts’.
58 Hongkong Land
29 Summarised Balance Sheet of the Company
Included below is certain summarised balance sheet information of the Company disclosed in accordance with Bermuda law.
Net operating assets
Investments at cost
Unlisted shares in subsidiaries
Net amounts due from/(to) subsidiaries
Creditors and other accruals
Capital employed
Share capital (see Note 22)
Revenue and other reserves
Contributed surplus
Share premium
Revenue reserves
Shareholders’ funds
2010
US$m
2009
US$m
4,481.7
213.7
4,695.4
(19.7 )
4,481.7
(708.2 )
3,773.5
(18.7 )
4,675.7
3,754.8
225.1
2,249.6
5.3
2,195.7
4,450.6
4,675.7
224.9
2,249.6
–
1,280.3
3,529.9
3,754.8
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 2010 59
Notes to the Financial Statements
30 Principal Subsidiaries, Associates and Joint Ventures
The principal subsidiaries, associates and joint ventures of the Group at 31st December 2010 are set out below.
Attributable interests %
2009
2010
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
HK Glory Properties Limited
100
100 USD
2
2
Hotel investment
Hong Kong
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 61 and 62)
100
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
Ample Keen Limited
100
– HKD
2
Property investment
Hong Kong
King Kok Investment Limited
90
90 USD
10,000
Property investment
Mauritius
* Owned directly
60 Hongkong Land
30 Principal Subsidiaries, Associates and Joint Ventures continued
Attributable interests %
2009
2010
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
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
Indonesia
and asset
management
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
50
30.3 USD
10,000
Property investment
British Virgin
Islands
Cosmo City Limited
Jardine Gibbons Properties Limited
50
40
50 HKD
2
Property investment
Hong Kong
40 BD
600,000 ‘A’
Property holding
Bermuda
400,000 ‘B’
Total Champ Limited
50
– HKD
3
Property investment
Hong Kong
MCL Land Limited’s principal subsidiaries, associates and joint ventures
MCL Land Holdings Pte Ltd
100
77.4 SGD
6,000,000
Property investment
Singapore
MCL Land (Serangoon) Pte Ltd
100
77.4 SGD
1,000,000
Property development Singapore
Maxgrowth Pte. Ltd.
100
77.4 SGD
1,000,000
Property development Singapore
Acecharm Pte. Ltd.
100
77.4 SGD
1,000,000
Property development Singapore
MCL Land Realty Pte. Ltd.
100
77.4 SGD
1,000,000
Property development Singapore
MCL Land Development Pte. Ltd.
100
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Prime) Pte. Ltd.
100
77.4 SGD
1,000,000
Property development Singapore
Caseldine Investments Pte Ltd
100
77.4 SGD
1,000,000
Property development Singapore
Annual Report 2010 61
Notes to the Financial Statements
30 Principal Subsidiaries, Associates and Joint Ventures continued
Attributable interests %
2009
2010
Issued share capital
Main activities
Country of
incorporation
MCL Land Limited’s principal subsidiaries, associates and joint ventures continued
Kedron Investments Pte Ltd
100
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Warren) Pte Ltd
100
77.4 SGD
1,000,000
Property development Singapore
MCL Land (Century Gardens) Sdn. Bhd.
100
77.4 MYR
6,608,763
Property investment
Malaysia
MCL Land (Pantai View) Sdn. Bhd.
100
77.4 MYR
2,000,000
Property investment
Malaysia
Calne Pte Ltd
50
38.7 SGD
1,000,000
Property development Singapore
Golden Quantum Acres Sdn Bhd
50
38.7 MYR
2,764,210
Property development Malaysia
Sunrise MCL Land Sdn Bhd
50
38.7 MYR
2,000,000
Property development Malaysia
MSL Properties Sdn Bhd
50
38.7 MYR
3,000,000
Property development Malaysia
62 Hongkong Land
Independent Auditors’ Report
To the Members of Hongkong Land Holdings Limited
Report on the Financial Statements
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 2010 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.
Auditors’ 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 auditors’ 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 auditors consider 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 2010, 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.
Report on Legal and Regulatory Requirements
We have nothing to report in respect of the following matters that under the UK Listing Rules we are required to review:
• Directors’ statement in relation to going concern; and
• the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK June 2008
Combined Code specified for our review.
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
3rd March 2011
Annual Report 2010 63
Five Year Summary
2006
US$m
2007
US$m
2008
US$m
2009
US$m
2010
US$m
Profit/(loss) attributable to shareholders
2,253
3,324
(337 )
1,813
4,739
Underlying profit attributable to shareholders
245
345
375
777
810
Investment properties
11,651
14,261
13,703
14,818
18,036
Net debt
2,312
2,431
2,601
2,417
2,358
Shareholders’ funds
10,922
14,041
13,308
14,936
19,457
Net asset value per share
4.76
6.12
5.92
6.64
8.64
US$
US$
US$
US$
US$
Note: Due to recent amendments to International Financial Reporting Standards, the Group is no longer required to provide for deferred tax on the revaluation of its
investment properties in Hong Kong and Singapore where there is no capital gains taxation. The new policy has been applied retrospectively and the comparative
figures in the financial statements have been restated.
Underlying earnings/dividends
Net asset value per share (US$)
per share (US¢)
Underlying earnings
Dividends
34.55
36.02
8.64
6.12
5.92
6.64
4.76
15.02
16.41
16.00
16.00
13.00
13.00
10.98
10.00
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
40
35
30
25
20
15
10
5
0
64 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
Y K Pang
John R Witt
Directors
3rd March 2011
Annual Report 2010 65
Corporate Governance
Hongkong Land Holdings Limited is incorporated in Bermuda. The Group’s property interests are almost entirely in Asia. The Company’s equity
shares have a Premium Listing on the London Stock Exchange, and secondary listings in Bermuda and Singapore. The Company attaches
importance to the corporate stability that is fundamental to the Group’s ability to pursue a long-term strategy in Asian markets. It is committed
to high standards of governance. Its approach, however, developed over many years, differs from that envisaged by the UK Corporate
Governance Code (the ‘UK Code’), which was originally introduced as a guide for United Kingdom incorporated companies listed on the
London Stock Exchange. Following a change in the Listing Rules issued by the Financial Services Authority in the United Kingdom with effect
from 6th April 2010, the Company’s Premium Listed status now requires that this Report address how the main principles of the UK Code have
been applied by the Company, and explain the reasons for the different approach adopted by the Company as compared to the UK Code’s
provisions. The Company’s governance differs from that contemplated by provisions of the UK Code on board balance and refreshment,
director independence, board evaluation procedures, nomination and remuneration committees and the appointment of a senior independent
director.
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 19 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. These factors
explain the balance on the Board between executive and non-executive Directors, the stability of the Board, the absence of nomination and
remuneration committees and the conduct of Board evaluation procedures. The Board regards Asian business experience and relationships as
more valuable attributes of its non-executive Directors than formal independence criteria. Accordingly the Board has not designated a ‘senior
independent director’ as set out in the UK Code. Recommendations and decisions on remuneration result from consultations between the
Chairman and the Managing Director and other Directors as they consider appropriate.
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 who do not serve on the board of HKL and who are based
outside Asia make regular visits to Asia and Bermuda where they will participate in four annual strategic reviews. All of these reviews precede
the 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 2011 and ad hoc procedures are adopted to deal with urgent matters. In 2010 two meetings
were held in Bermuda and two in Asia. All Directors attended all four Board meetings, save that Lord Leach of Fairford attended three meetings,
Jenkin Hui and Lord Powell of Bayswater attended two meetings and R C Kwok was unable to attend the meetings due to illness. John R Witt
attended three meetings following his appointment to the Board. 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.
The division of responsibilities between the Chairman, the Managing Director and the Chief Executive is well established. The Chairman’s role
is to lead the Board as it oversees the Group’s strategic and financial direction. The Managing Director’s principal role is to act as chairman of
HKL and of its finance committee, while the responsibility for running the Group’s business and all the executive matters affecting the Group
rests with the Chief Executive.
66 Hongkong Land
Directors’ Appointment, Retirement, Remuneration and Service Contracts
Candidates for appointment as executive Directors of the Company, as executive directors of HKL or as 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 who combine international best practice with adaptability to 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.
In accordance with Bye-law 85, Charles Allen-Jones, Jenkin Hui, Sir Henry Keswick and Lord Powell of Bayswater retire by rotation at the Annual
General Meeting 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 are required to be offered international terms and the nature of the
remuneration packages is designed to reflect this.
Directors’ fees, which are payable to all Directors other than the Chief Executive and the Chief Financial Officer, are decided upon by shareholders
in general meeting as provided for by the Company’s Bye-laws. A motion to increase the Directors’ fees to US$45,000 each per annum and the
fees for the Chairman and Managing Director to US$65,000 each per annum with effect from 1st January 2011 will be proposed at the
forthcoming Annual General Meeting.
For the year ended 31st December 2010, the Directors received from the Group US$3.8 million (2009: US$2.6 million) in Directors’ fees and
employee benefits, being US$0.6 million (2009: US$0.3 million) in Directors’ fees, US$3.1 million (2009: US$2.2 million) in short-term employee
benefits including salary, bonuses, accommodation and deemed benefits in kind and US$0.1 million (2009: 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.
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.
Going Concern
The Directors are required to consider whether it is appropriate to prepare financial statements on the basis that the Company and the Group
are going concerns. The Group prepares comprehensive financial forecasts and, based on these forecasts, cash resources and existing credit
facilities, the Directors consider that the Company and the Group have adequate resources to continue in business for the foreseeable future.
For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Annual Report 2010 67
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.
Risk Management and Internal Control
The Board has overall responsibility for the Group’s system of risk management and 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 70.
The Board has delegated to the audit committee of HKL responsibility for reviewing areas of risk and uncertainty, the operation and effectiveness
of the Group’s system of internal control and the procedures by which these are monitored. The audit committee considers the system and
procedures on a regular basis, and reports to the Board semi-annually. The members of the audit committee of HKL are A J L Nightingale, Mark
Greenberg, James Riley and Giles White; they have extensive knowledge of the Group while at the same time not being directly involved in
operational management. The Board considers that the members of the audit committee of HKL have, collectively, the requisite skills, knowledge
and experience to enable it to discharge its responsibilities in a proper manner. All members of the audit committee attended both its meetings
during the year. The chief executive and chief financial officer of HKL, together with representatives of the internal and external auditors, also
attend the audit committee meetings by invitation.
Executive management is responsible for the implementation of the system of internal control throughout the Group. The internal audit
function monitors the effectiveness of the system and the approach taken by the business units to risk. 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
audit committee of HKL also reviews the effectiveness of the internal audit function.
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 underpins 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, including the adoption of new accounting policies, is undertaken by the audit committee of HKL
with the executive management and a report is received from the external auditors. The audit committee of HKL also assesses any reports on
frauds identified during the period under review. 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 function. The audit committee of HKL also keeps under review the independence and objectivity of the external auditors, and as part of
that process considers and approves the level and nature of non-audit work performed. The terms of reference of the audit committee of HKL
can be found on the Company’s website at www.hkland.com.
68 Hongkong Land
Directors’ Share Interests
The Directors of the Company in office on 9th March 2011 had interests (within the meaning of the Disclosure and Transparency Rules (‘DTRs’)
of the Financial Services Authority (the ‘FSA’) of the United Kingdom) as set out below in the ordinary share capital of the Company. 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 Holdings Limited (‘Jardine Strategic’), which is directly interested in 1,141,993,146 ordinary shares carrying 49.60% 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 9th March 2011.
There were no contracts of significance with corporate substantial shareholders during the year under review.
Relations with Shareholders
The 2011 Annual General Meeting will be held at The Fairmont Southampton, Bermuda on 11th May 2011. 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. All shareholders
are invited to attend the Annual General Meeting and participate in communicating with the Company. The Company holds regular meetings
with institutional shareholders. A corporate website is maintained containing a wide range of information of interest to investors at
www.hkland.com.
Securities Purchase Arrangements
At the Annual General Meeting held on 5th May 2010, 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 28 to the financial
statements on page 58. 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 2010 69
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 68 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 16 and Note 2 to the financial
statements on pages 32 to 35.
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.
70 Hongkong Land
Shareholder Information
Financial Calendar
2010 full-year results announced
Share registers closed
Annual General Meeting to be held
2010 final dividend payable
2011 half-year results to be announced
Share registers to be closed
2011 interim dividend payable
* Subject to change
Dividends
3rd March 2011
21st to 25th March 2011
11th May 2011
18th May 2011
28th July 2011 *
22nd to 26th August 2011 *
12th October 2011 *
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 2010 final dividend by notifying the United
Kingdom transfer agent in writing by 21st April 2011. The sterling equivalent of dividends declared in United States dollars will be calculated
by reference to a rate prevailing on 4th May 2011. 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 2010 71
Offices
Offices
Hongkong Land Holdings Limited
Jardine House
33-35 Reid Street
Hamilton, Bermuda
Tel +1441 292 0515
Fax +1441 292 4072
E-mail: john.lang@jardines.com
John C Lang
Hongkong Land Limited
One Exchange Square, 8th Floor
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 (Chongqing)
Management Company Limited
7/F, Zone D, 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@hkland.com / lcf@hkland.com
Joe Kwok / Ling Chang Feng
Representative Offices
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
Unit 1105, 11/F Gemadept Tower
2 bis-4-6 Le Thauh Ton, District 1
Ho Chi Minh City
Hongkong Land (Asia Management) Limited
Vietnam
Tel +848 3827 9006
Fax +848 3827 9020
E-mail: cosimo.jencks@hkland.com
Cosimo Jencks
Suite 204, 2/F Central Building
31 Hai Ba Trung
Hoan Kiem
Hanoi, Vietnam
Tel +844 3824 0753
Fax +844 3824 0769
E-mail: sbruce@hkland.com
Stephen Bruce
Hongkong Land (Beijing)
Management Company Limited
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@hkland.com
Joe Kwok
72 Hongkong Land
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 note 12 to the consolidated financial statements 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 2010, totalled US$17,911,300,000
(United States Dollars Seventeen Billion Nine Hundred Eleven Million and Three 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 Limited
Hong Kong, 3rd March 2011
Annual Report 2010 73
Attributable
interests %
LETTABLE AREA
Total
Office
Retail
(in thousands of square metres)
Major Property Portfolio
at 31st December 2010
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
Macau
One Central
Singapore
One Raffles Link
One Raffles Quay
North Tower
South Tower
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
46.6
100
33.3
35
43
137
63
123
51
452
19
29
124
Marina Bay Financial Centre
33.3
280
Tower 1
Tower 2
Tower 3 (under construction)
Jakarta, Indonesia
Jakarta Land
Wisma Metropolitan I
Wisma Metropolitan II
World Trade Center
World Trade Center II (under construction)
Bangkok, Thailand
Gaysorn Plaza
Hanoi, Vietnam
Central Building
63 L’y Thái Tô’
74 Hongkong Land
50
49
71
73.9
433
138
138
17
4
7
11
30
39
53
47
30
–
–
59
44
–
31
11
38
382
–
22
71
53
56
94
114
410
15
14
37
57
123
5
4
6
10
5
4
–
–
–
4
3
4
–
24
13
–
13
70
19
7
–
–
1
7
8
23
2
3
6
4
15
12
–
1
1
Residential Development Property for Sale
Attributable
interests %
Available units at
Location
31st December 2010
Completed development
Hong Kong
The Sail at Victoria
Serenade
Mainland China
Maple Place
Macau
100
100
90
Victoria Road
Tai Hang Road
Beijing
One Central Residences
46.6
Avenida Dr Sun Yat Sen
5
54
117
107
Under development
Singapore
The Peak@Balmeg
Parvis
D’Mira
The Estuary
A site at Ewe Boon Road
A site at Sixth Avenue
A site at Upper East Coast Road
A site at Nim Road
A site at Hougang Avenue 2
Marina Bay Suites
Mainland China
Bamboo Grove
Landmark Riverside
A site in New North Zone, Chongqing
A site in Jinjiang District, Chengdu
Park Life
One Capitol
A site in Shenbei District, Shenyang
Attributable
interests %
Location
Approximate
site area
(in square metres)
100
50
100
Balmeg Hill
Holland Hill
Boon Teck Road
100 Yishun Avenue 1/Avenue 2
100
100
100
100
100
Ewe Boon Road
Sixth Avenue
Upper East Coast Road
Nim Road
Hougang Avenue 2
33.3
Central Boulevard
50
50
100
50
50
50
50
Chongqing
Chongqing
Chongqing
Chengdu
Shenyang
Shenyang
Shenyang
17,107
22,863
2,588
26,949
5,906
6,412
6,103
17,955
30,196
5,290
778,648
336,600
385,943
190,362
572,419
346,721
356,624
Annual Report 2010 75
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
9
11
I
C
E
H
O
U
S
E
10
S
T
R
E
E
T
Standard
Chartered
Bank
P
E
D
D
E
R
S
T
8
R
E
E
T
V O E U X
S
D E
L
A
R
E N T
R O A D C
C O N N A U G H T
7
6
4
Hang
Seng
Bank
L
A
R
E N T
R O A D C
3
E T
E
R
W S T
12
IC
IC
E
E
H
O
U
S
E S
T
R
E
E
T
Statue
Square
Mandarin
Oriental
5
1
2
Stock
Exchange
U
O
B
R
A
H
R V I E
Airport Express Station
D
A
O
R
Statue
Square
R
E
T
A
H
C
R
O
A
D
T
H
G
U
A
N
N
O
C
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
HSBC
L
A
R
T
N
E
D C
A
O
X R
U
E
O
S V
E
D
Legislative
Council
J
A
C
K
S
O
Chater
Garden
N
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.
76 Hongkong Land
9
11
8
7
6
5
1
2
3
4
10
12
Beyond Central & Regional Developments
Singapore
One Raffles Link
CityLink Mall
Marina Bay Financial Centre
One Raffles Quay
Singapore
Thailand
Vietnam
D’Pavilion
Waterfall Gardens
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