Hongkong Land Holdings Limited
Annual Report 2020

Plain-text annual report

Annual Report 2020 Hongkong Land Holdings Limited Front cover : Hongkong Land’s diverse portfolio spans 18 cities in Asia, including the West Bund Financial Hub under construction in Shanghai, building long-term value for generations to come. (This rendering is for illustration and reference only, subject to change and government approval.) 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 1 2 3 4 6 1 4 2 1 2 3 7 6 8 2 8 3 8 4 9 3 9 4 9 5 9 7 9 8 development group. Founded in 1889, Hongkong Land’s business is built on excellence, is a major listed property investment, management and integrity and partnership. The Group owns and manages more than 850,000 sq. m. of prime office and luxury retail property in key Asian cities, principally in Hong Kong, Singapore, Beijing and Jakarta. Its properties attract the world’s foremost companies and luxury brands. The Group’s Central Hong Kong portfolio represents some 450,000 sq. m. of prime property. It has a further 165,000 sq. m. of prestigious office space in Singapore mainly held through joint ventures, a luxury retail centre at Wangfujing in Beijing, and a 50% interest in a leading office complex in Central Jakarta. The Group also has a number of high quality residential, commercial and mixed-use projects under development in cities across China and Southeast Asia. In Singapore, its subsidiary, MCL Land, is a well-established residential developer. Hongkong Land Holdings Limited is incorporated in Bermuda and has a standard listing on the London Stock Exchange, with secondary listings in Bermuda and Singapore. The Group’s assets and investments are managed from Hong Kong by Hongkong Land Limited. Hongkong Land is a member of the Jardine Matheson Group. Annual Report 2020 1 Corporate Information Directors Ben Keswick Chairman Hongkong Land Limited (stepped down as Managing Director Directors on 15th June 2020) John Witt Managing Director (joined the Board on 15th June 2020) Robert Wong Chief Executive Simon Dixon Mark Greenberg John Witt Chairman (appointed as chairman on 15th June 2020) Ben Keswick (stepped down as chairman and director on 15th June 2020) (stepped down on 31st December 2020) Robert Wong Chief Executive Adam Keswick Simon Keswick Simon Dixon Chief Financial Officer Graham Baker (stepped down on 1st January 2020) (joined the board on 15th June 2020) Anthony Nightingale Christina Ong Y.K. Pang Raymond M.J. Chow Kenneth Foo Robert L. Garman Lord Powell of Bayswater, KCMG Mark Greenberg (stepped down on 31st December 2020) David Hsu David P. Lamb Ling Chang Feng Anne O’Riordan Y.K. Pang Jeremy Parr Raymond Wong Corporate Secretary Jonathan Lloyd Lord Sassoon, Kt (stepped down on 9th April 2020) Prijono Sugiarto (joined the Board on 29th July 2020) James Watkins Percy Weatherall Michael Wei Kuo Wu Company Secretary Jonathan Lloyd Registered Office Jardine House 33-35 Reid Street Hamilton Bermuda 2 Hongkong Land Highlights • Underlying profit of US$963 million, down 11% • Net asset value per share down 7% on lower capital values • Dividend level maintained • 43% interest retained in the prime West Bund project in Shanghai • Balance sheet and funding position remain strong Results Underlying profit attributable to shareholders* 963 1,076 (11) (Loss)/profit attributable to shareholders (2,647) 198 N/A 2020 US$m 2019 US$m Change % Shareholders’ funds Net debt 35,709 38,247 4,568 3,591 (7) 27 US¢ US¢ % Underlying earnings per share* 41.27 46.12 (11) Earnings per share Dividends per share Net asset value per share (113.43) 8.48 N/A 22.00 22.00 – US$ US$ 15.30 16.39 % (7) * 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 27 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. Annual Report 2020 3 Chairman’s Statement Overview The Group’s performance was negatively impacted by COVID-19, particularly in relation to the granting of retail rent relief in the Investment Properties business and a lower contribution from Development Properties as a result of fewer expected residential completions. On the Chinese mainland, sentiment in the Group’s Group’s active lease management in recent years, the Central office portfolio performed relatively well amidst the current market downturn. Physical vacancy at the end of 2020 was 6.3%, whilst vacancy on a committed basis was 5.9%. Rental reversions were broadly neutral, with average office rents increasing from HK$118 per sq. ft in 2019 to HK$120 per sq. ft in 2020. markets has recovered to pre-pandemic levels. Retail market sentiment in Hong Kong was severely The Group responded decisively during the year to the pandemic, prioritising the health and safety of our people and customers and taking actions to manage costs and to further strengthen our financial position. These efforts will continue whilst the possibility of further waves of the pandemic remains. impacted by the pandemic and resulting travel restrictions, although there were modest improvements in the second half of the year. Average retail rent in 2020 decreased to HK$164 per sq. ft from HK$222 per sq. ft in 2019, primarily due to the granting of temporary rent relief, which has been charged to underlying profit as incurred, and negative base rental reversions. Vacancy The Group also remains focused on addressing changes in was 0.3% on both a physical and committed basis, customer behaviours, and the need to adapt and align to unchanged from the prior year. The portfolio retains new situations resulting from COVID-19, and is continuing its position as the pre-eminent luxury shopping and fine to add to its suite of digital services and flexible spaces dining destination in Hong Kong. that are available to tenants and customers. Performance Underlying profit attributable to shareholders fell 11% to US$963 million. The value of the Group’s Hong Kong Investment Properties portfolio decreased by 10% compared to the prior year, due to lower open market rents. In Singapore, vacancy in the Group’s office portfolio was 2.1% on a physical and committed basis at the end of Including net losses of US$3,610 million resulting from 2020, compared with 5.0% at the end of 2019. Rental lower valuations of the Group’s investment properties, reversions were positive, with average rents increasing the loss attributable to shareholders was US$2,647 million. to S$9.9 per sq. ft in 2020 from S$9.7 per sq. ft in 2019. This compares to a profit of US$198 million in 2019, which included net losses of US$878 million arising from revaluations. In Beijing, WF CENTRAL experienced a significant decline in tenant sales and footfall in the first half of the year due to the pandemic, whilst trading performance in the second The net asset value per share at 31st December 2020 was half of the year recovered to pre-pandemic levels buoyed US$15.30, compared with US$16.39 at the end of 2019. by the strong recovery in luxury retail spending on the The Directors are recommending a final dividend of Chinese mainland. US¢16.00 per share, providing a total dividend for the In Shanghai, planning and development of the Group’s year of US¢22.00 per share, unchanged from last year. prime mixed-use development on the West Bund, Group Review Investment Properties In Hong Kong, office leasing activity in Central was largely subdued as a result of economic uncertainties brought about by the pandemic. However, as a result of the secured in February 2020, is proceeding on schedule with completion expected in multiple phases to 2027. The project will be jointly developed with a strategic investor headquartered on the Chinese mainland and a government-held SPV, with the Group retaining a 43% interest in the joint venture. 4 Hongkong Land Development Properties Financing The Group’s Development Properties business saw The Group’s financial position remains strong with net varying levels of disruption across the region due to debt of US$4.6 billion on 31st December 2020, up from the temporary suspension of sales and development US$3.6 billion at the end of 2019, primarily due to the activities, with construction delays impacting its full acquisition of the West Bund site. Net gearing at the year performance. On the Chinese mainland, sentiment in the Group’s core markets has recovered to pre-pandemic levels. Profit contribution decreased compared to the prior year due to fewer planned completions resulting from construction delays and a change in product sales mix transferred to buyers. The Group’s attributable interest in contracted sales of US$2,135 million was 14% higher than in 2019 due to a change in sales location mix. end of the year was 13%, compared with 9% at the end of 2019. As at 31st December 2020, the Group had committed liquidity of US$4.3 billion, compared to US$3.2 billion at the end of 2019, with an average tenor of debt of 6.6 years compared to 6.1 years at the end of 2019. People Despite the unprecedented challenges brought about At 31st December 2020, the Group had an attributable by the pandemic, our employees have shown exemplary interest of US$2,584 million in sold but unrecognised commitment and resilience in safeguarding the wellbeing contracted sales, compared with US$1,860 million at of our customers. On behalf of the Board, I would like to the end of 2019. The Group participated in a number of land auctions take this opportunity to thank them for their dedication and hard work throughout the year. during the year, although it remained difficult to secure John Witt succeeded me as Managing Director new sites due to a highly competitive primary land on 15th June 2020. I will continue as Chairman. market. The Group did, however, secure a wholly-owned Mark Greenberg stepped down from the Board on predominantly residential project in a prime location in 31st December 2020. We are grateful for his contribution Chongqing during the year. The site has a developable to the Group since his appointment as a Director in 2006. area of 174,000 sq. m. and will be developed in two phases, with completion expected in 2025. In Singapore, recognised profits in 2020 were lower than Outlook The Group continues to operate in a challenging the prior year largely due to construction delays caused environment and uncertainty remains about the duration by the pandemic. Despite the headwinds, pre-sales at the 1,404-unit Parc Esta and the 638-unit Leedon Green projects have performed well under current of the pandemic and the impact it will have on the Group. The Investment Properties portfolio and the Development Properties business are, however, expected to remain market conditions, with construction of the two projects resilient in 2021. scheduled to complete by 2021 and 2022, respectively. The Group’s attributable interest in contracted sales was US$632 million, compared to US$669 million in the prior year. In the rest of Southeast Asia, development activities have largely resumed, although market sentiment remains subdued in light of the ongoing impact of COVID-19 and the restrictions imposed to contain it. Ben Keswick Chairman 11th March 2021 Annual Report 2020 5 Chief Executive’s Review Hongkong Land produced a solid performance for the year Geographically, China generates the bulk of the Group’s despite the challenges caused by the ongoing pandemic, earnings. Hong Kong, which predominantly comprises with underlying earnings modestly lower than the record Investment Properties, accounted for 54% of the Group’s results achieved in 2019. Contributions from the Group’s underlying operating profit before corporate expenses Investment Properties portfolio were moderately impacted (2019: 51%), whilst the Chinese mainland, which by the provision of temporary retail rent relief and higher predominantly comprises Development Properties, average office vacancy. Results from Development accounted for 28% (2019: 32%). Properties were impacted by a delay in the timing of profit recognition primarily resulting from pandemic-related construction delays and lower margins due to changes in the sales mix. Strategy Hongkong Land is a landlord and a developer in China and The Investment Properties portfolios in Hong Kong and Singapore provide a stable stream of recurring earnings and balance sheet strength that enables the Group to pursue new opportunities in both its Investment Properties and Development Properties businesses in its key markets. During 2020, the Group’s share of capital allocated to new investments totalled US$3.5 billion Southeast Asia. The Group operates a portfolio of prime (2019: US$1.2 billion). investment properties which it develops and holds as long-term investments, and it also develops premium Hong Kong Investment Properties residential and commercial properties for sale. The Group’s Investment Properties are predominantly commercial in nature and located in core business districts of key Asian gateway cities, with a concentration in Hong Kong and Singapore. Returns principally arise from rental income and long-term capital appreciation. The Investment Properties segment is the largest contributor to the Group’s earnings given its relative size and maturity. It accounted for 86% of the Group’s gross assets at the end of 2020 (2019: 87%) and contributed 65% of the Group’s underlying operating profit before corporate expenses in 2020 (2019: 61%). The Group’s Development Properties are primarily premium residential and mixed-use developments located on the Chinese mainland and in Singapore, with a growing presence in other Southeast Asian markets. Returns principally arise from trading profits in respect of the immediate sale of the residential and office components, and rental and trading profits for certain commercial elements of mixed-use sites that are disposed of, or reclassified to Investment Properties, after rents have stabilised. Development Properties accounted for 14% of the Group’s gross assets at the end of 2020 (2019: 13%) and 35% of the Group’s underlying operating profit before corporate expenses in 2020 (2019: 39%). In Hong Kong, the Group’s Central Portfolio consists of 12 interconnected prime commercial buildings forming the heart of the financial district in Central, providing over 450,000 sq. m. of Grade A office and luxury retail space. This integrated mixed-use development is positioned as the pre-eminent office, luxury retail, restaurant and hotel accommodation in Hong Kong, and continues to attract both prime office tenants and luxury retailers in addition to housing the acclaimed Landmark Mandarin Oriental hotel. Hong Kong’s positioning as one of Asia’s main financial and business hubs, combined with the scarcity of supply of high-quality, well-managed space in Central and the unique qualities of the Group’s portfolio, continue to support low vacancy and strong rents. Despite the challenging conditions resulting from the pandemic and global uncertainties, Hong Kong continues to possess unique advantages as a financial centre that are not easily replicated. The Group remains confident that Hong Kong will continue to thrive as the primary gateway for capital flows in and out of the Chinese mainland and will remain an important finance and commercial hub for decades to come. 6 Hongkong Land Central Portfolio top five office tenants (in alphabetical order) Central Portfolio top five retail tenants (in alphabetical order) in 2020 JP Morgan KPMG Mayer Brown PricewaterhouseCoopers Stock Exchange of Hong Kong in 2020 Dickson Concepts Hermes Kering LVMH Group Richemont The Group’s 54,000 sq. m. retail portfolio is integrated a number of leading restaurants. LANDMARK is firmly with its office buildings to create part of its distinctive and established as the iconic luxury shopping and fine dining successful mixed-use business model. Tenants include destination in Hong Kong. Its success depends on the numerous global luxury brand flagship stores, as well as health of the broader Hong Kong economy as well as on 2016 39% Banks and other financial services 30% Legal 6% Property 8% Accounting 2% Trading 1% Governments 14% Others 2020 42% Banks and other financial services 30% Legal 6% Property 8% Accounting 2% Trading 1% Governments 11% Others Central Portfolio office tenant profile by area occupied Hong Kong remaining an attractive destination for affluent visitors from across the region. The Group is working to ensure that, despite the current challenging conditions, it remains the clear market leader in the city in which global luxury brands continue to be represented. Other Investment Properties Outside Hong Kong, the Group has similarly established itself as a leading provider of prime office and retail space. In Singapore, Hongkong Land’s attributable interests totalling 165,000 sq. m. – principally concentrated in the Marina Bay Area – include some of the finest Grade A office space in the market. On the Chinese mainland, the Group’s 49,000 sq. m. WF CENTRAL complex in Beijing is positioned as a premium retail and lifestyle destination, which includes a Mandarin Oriental hotel that has established itself as one of the most exclusive hotels in the city. In Indonesia, the Group has attributable interests of over 100,000 sq. m. of Grade A office space through its 50%-owned joint venture, Jakarta Land. In Cambodia, the EXCHANGE SQUARE complex comprises 25,000 sq. m. of office and retail space in the heart of Phnom Penh. Our performance in these markets depends on the levels of demand for, and supply of, prime office and luxury retail space, both of which are influenced by global and regional macroeconomic conditions. The Group is committed to maintaining excellence in product quality and service to retain and attract tenants and customers and will continue to seek new opportunities to develop prime investment properties in key Asian gateway cities. Annual Report 2020 7 Development Properties Hong Kong The Group has established a strong and profitable Overall demand in the office market remained subdued Development Properties business focused primarily on in 2020 on the backdrop of travel restrictions and other the premium residential market segment on the Chinese pandemic-related measures, with few new entrants in mainland and in Southeast Asia. On the Chinese mainland, the market. Physical vacancy in the Group’s Central office the Group has a presence in seven key markets, namely portfolio was 6.3% at the year-end, up from 2.9% at the Beijing, Chengdu, Chongqing, Hangzhou, Nanjing, end of 2019. On a committed basis, vacancy was 5.9%. Shanghai and Wuhan, which are expected to continue Vacancy for the overall Central Grade A office market was benefiting from the growth of the middle class and 7.3% at the end of 2020, compared to 3.6% at the end long-term urbanisation trends. Whilst the capital of 2019. Rental reversions during the year were broadly invested in this business is significantly lower than that neutral, as the portfolio benefited from a number of invested in Investment Properties, the earnings derived leases which were concluded prior to the onset of the from Development Properties enhance the Group’s pandemic in Hong Kong. The Group’s average office diversification, overall profits and return on capital. rent in 2020 was HK$120 per sq. ft, up from last year’s The Group’s attributable interest in the developable area average of HK$118 per sq. ft. Financial institutions, legal of its projects at the end of 2020 totalled 9.1 million firms and accounting firms occupy 80% of the Group’s sq. m., compared to 9.0 million sq. m. at the end of 2019. total leased office space. The weighted average lease Of this, construction of approximately 43% had been expiry of the office portfolio at the end of 2020 stood completed at the end of 2020, compared to 37% at at 4.6 years, broadly unchanged from the end of 2019. the end of 2019. Annual returns from Development Properties fluctuate due to the nature of projects and the Group’s accounting policy of recognising profits for sold properties on completion in a number of markets, including the Chinese mainland. Demand is also dependent on overall economic conditions, Central Portfolio at 31st December 2020 Capital value (US$m) 23,969 4,109* Office Retail which can be significantly affected by government policies Gross revenue (US$m) 795 187* and the availability of credit. Ongoing land acquisitions Equivalent yield (%) are necessary to build and maintain a stable income – One and Two Exchange Square 3.00 stream over the longer term. Review of Investment Properties Profits from Investment Properties in 2020 were lower – Landmark Atrium Average unexpired term of leases (years) Area subject to renewal/review 4.50 4.6 1.9 than the prior year due primarily to rent relief granted in in 2021 (%) 25 41 support of our retail tenants across the region and higher average office vacancy. * Includes hotel 8 Hongkong Land Chief Executive’s ReviewThe Group’s retail portfolio in Hong Kong was severely culture and art. This new concept will continually have a impacted by weakened sentiment in the luxury retail curated roster of various retail concepts and experiences. market as a result of the pandemic. However, vacancy, on both a physical and committed basis, remained low at 0.3%, unchanged from the end of 2019. Average retail rent in 2020 decreased to HK$164 per sq. ft from HK$222 per sq. ft in 2019, predominantly due to temporary rent relief provided to tenants. Base rental reversions were negative, reflecting falling retail rents across Hong Kong. The value of the Group’s Investment Properties portfolio in Hong Kong at 31st December 2020, based on independent valuations, declined by 10% to US$28.4 billion due to lower open market rents, with no change in capitalisation rates. Singapore The Singapore office leasing market remained relatively soft in 2020. Overall vacancy across the entire Grade A In June 2020, the Group successfully opened BaseHall, central business district was 6.8% at the end of 2020, a first-of-its-kind food hall concept in the basement level compared to 4.2% at the end of 2019. The Group’s of Jardine House. BaseHall aims to provide our tenants office portfolio continued to perform well, reflecting its and other patrons with the best of the city’s buzzing high quality and unique positioning. The Group’s average culinary scene by championing Hong Kong’s exceptional office rent in 2020 was S$9.9 per sq. ft, an increase from food culture and incubating homegrown talents. The S$9.7 per sq. ft in the previous year, due to positive rental BaseHall has eight food outlets and two bars, all operated reversions. Vacancy was low at 2.1%, on both a physical by celebrated names in Hong Kong’s culinary landscape and committed basis, at the year-end, compared to 5.0% chosen for their creative concepts and outstanding at the end of 2019. Financial institutions, legal firms and offerings. To accommodate the demand for innovative accounting firms occupy 77% of the Group’s total leased concepts, vendors will rotate on a regular basis. office space. The weighted average lease expiry of the In December 2020, the Group debuted BELOWGROUND on the basement level of the LANDMARK. BELOWGROUND office portfolio at 2020 year-end stood at 3.8 years (2019: 4.4 years). is a hybrid cultural and retail destination that serves Following the introduction of the ‘By the Bay’ mobile app as a bridge to connect traditional luxury retail in 2019, Bayspace, a plug-and-play flexible workspace, with contemporary culture. By working alongside was successfully launched in late 2020. Bayspace has world-renowned streetwear brands and creative been designed with agility in mind and offers mid- to collaborators, BELOWGROUND aims to become large-sized dedicated suites and project rooms for tenants a thriving cultural ecosystem that shapes a future looking to expand on short notice in a prestigious setting. in which no boundaries exist between luxury, fashion, 12.70 13.14 13.03 13.26 11.18 11.64 13.82 14.39 15.04 15.46 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Central Portfolio average office effective rent (US$/sq. ft per month) Annual Report 2020 9 Chinese Mainland In Bangkok, planning of the Group’s 49%-owned prime In Beijing, trading at WF CENTRAL was negatively impacted commercial joint venture development in the central by the pandemic in the first half of 2020, with the Group business district, secured in late 2017, continues to providing temporary rent relief on a case-by-case basis. progress. This development has a gross floor area of Trading performance improved significantly in the second 290,000 sq. m. and is expected to complete in 2026. half of the year due to a strong recovery in luxury retail spending on the Chinese mainland. No further rent relief was provided in the last two quarters as tenant sales exceeded that of the same period last year. In Shanghai, planning and development of the Group’s prime mixed-use development on the West Bund, secured in February 2020, is proceeding on schedule. Completion is expected in phases from 2023 to 2027. The project will be jointly developed with a strategic investor headquartered on the Chinese mainland and a government-held SPV, with the Group retaining a 43% interest in the joint venture, as well as ongoing project and asset management rights. Other Investment Properties One Central Macau was impacted by weakened sentiment in the luxury retail market and pandemic-related travel restrictions, although there were modest improvements in Performances at the Group’s other investment properties were within expectations under current market conditions. Review of Development Properties Earnings from the Group’s Development Properties segment were lower in 2020 than in 2019, primarily due to pandemic-related construction delays across the region and lower margins on the Chinese mainland caused by a change in sales mix. Chinese Mainland The Group’s development properties on the Chinese mainland comprise 26 projects in seven cities, of which 12 projects are in Chongqing. As at 31st December 2020, the Group’s net investment in development properties on the Chinese mainland was US$4.8 billion, compared to US$4.4 billion at the end of 2019. trading from August 2020 due to the gradual relaxation of The Group participated in a number of land auctions border restrictions with the Chinese mainland. Occupancy during the year, although it remained difficult to was 92%, unchanged from the end of the prior year. successfully secure new sites due to a highly competitive Average retail rent in 2020 decreased to MOP$120 per primary land market. The Group did, however, secure a sq. ft from MOP$207 per sq. ft in 2019 due to temporary 174,000 sq. m. wholly-owned predominantly residential rent relief. In Jakarta, the office portfolio remains resilient due to its high quality and unique positioning, despite the continued surplus of city-wide office supply and ongoing impact of the pandemic. Occupancy was 72% at the end of 2020, compared to 77% at the end of 2019. On a committed project in Chongqing during the year, to further strengthen its already strong presence in the city. The site is located immediately adjacent to the Guanyinqiao CBD in a mature area that is master-planned for urban improvement. The project will be developed in two phases, with completion expected in 2025. basis, occupancy was 79%. The average net effective Market sentiment in the Group’s core markets started rent was US$15.8 per sq. m. in 2020, compared to to recover in the second quarter following the temporary US$16.8 per sq. m. in the prior year. closure of all sales galleries and the suspension of In Phnom Penh, the office component of EXCHANGE SQUARE, located in the heart of the city’s emerging financial district, was 91% occupied at the end of 2020, unchanged from the prior year. construction activities and has since remained stable. The Group’s share of total contracted sales in 2020 was US$2,135 million, 14% higher than the US$1,868 million achieved in the prior year. The Group’s attributable 10 Hongkong Land Chief Executive’s Reviewinterest in revenue recognised in 2020, including its share Nanjing is the third most significant market for the of revenue in joint ventures and associates, increased by Group, representing some 19% of its Chinese mainland 13% to US$1,518 million from US$1,348 million in 2019. Development Properties exposure. The Group has three At 31st December 2020, the Group’s attributable interest in sold but not yet recognised contracted sales joint venture projects in Nanjing – Yue City, JL CENTRAL and River and City. amounted to US$2,584 million, an increase of 39% from The Group’s attributable interest in the developable US$1,860 million at the end of 2019. area of its Nanjing projects at the end of 2020 totalled Chongqing, the largest city in western China, remains the most significant market for the Group, representing some 38% of its Chinese mainland Development Properties exposure. Including a newly acquired project 336,000 sq. m., unchanged from the prior year. Construction of approximately 39% of this had been completed at the end of 2020, compared to nil at the end of 2019. during the year, the Group has six wholly-owned projects In the central business district of Beijing’s Chaoyang in Chongqing – Yorkville South, Yorkville North, River One, District, the Group’s 30%-owned Grade A office The Pinnacle, Beryl Grove and a yet to be named project development of 127,000 sq. m. of gross floor area adjacent to Guanyinqiao CBD that was acquired in remains in the planning phase, with construction expected December 2020 – and six 50%-owned joint ventures: to commence in 2022. New Bamboo Grove, Landmark Riverside, Central Avenue, Harbour Tale, Hillview, and Scholar’s Mansion. Singapore The Group’s attributable interest in 2020 revenue from property sales in Chongqing, including its share of revenue in joint ventures and associates, decreased by 7% to US$1,000 million, from US$1,077 million in 2019. The wholly-owned 309-unit Margaret Ville residential project, with a developable area of 22,000 sq. m., was 98% pre-sold at the 2020 year-end, with completion scheduled in 2021. The Group’s attributable interest in the developable area Construction of the wholly-owned 1,404-unit Parc of its Chongqing projects at the end of 2020 totalled Esta residential project, with a developable area of 4.3 million sq. m., compared to 4.1 million sq. m. at 98,000 sq. m., is on schedule and is expected to the end of 2019. Of this, construction of approximately complete in 2021. As at the end of 2020, 92% of 66% had been completed at the end of 2020, compared units had been pre-sold. to 58% at the end of 2019. Development of the 50%-owned 638-unit Leedon Shanghai is the second largest market for the Group, Green residential project, with a developable area of representing some 20% of its Chinese mainland 49,000 sq. m., is on schedule for completion in 2022. Development Properties exposure. The Group has At the end of 2020, 11% of the units had been pre-sold. four joint venture projects in Shanghai – Parkville, Galaxy Midtown, Irvine Bay and the trading component of the West Bund project. The Group’s attributable interest in contracted sales was US$632 million in 2020, compared to US$669 million in the prior year. The Group’s attributable interest in revenue The Group’s attributable interest in the developable recognised in 2020 was US$522 million, compared to area of its Shanghai projects at the end of 2020 totalled US$516 million in the prior year. 383,000 sq. m., compared to 256,000 sq. m. at the end of 2019. Of this, construction of approximately 31% had been completed at the end of 2020, compared to 46% at the end of 2019. At 31st December 2020, the Group’s attributable interest in sold but not yet recognised contracted sales amounted to US$676 million, an increase of 18% from US$573 million at the end of 2019. Annual Report 2020 11 Other Development Properties The Velaris, a 40%-owned joint venture project In Indonesia, development of the Group’s projects was with Robinsons Land, is a two-hectare site situated disrupted by the pandemic, with market sentiment yet to in the Bridgetowne Township in Pasig City, Manila. recover to pre-pandemic levels. Nava Park, the Group’s The 1,953-unit luxury condominium project has a 49%-owned joint venture, is a 68-hectare site in the developable area of 144,000 sq. m. and will be developed southwest of Jakarta. Upon completion in 2031, Nava in three phases through to 2031. Of the 185 units Park will comprise a mix of landed houses, villas, mid-rise launched, 28% had been pre-sold at the end of 2020. apartments and low-rise commercial components. Of the 1,010 units that have been launched for sale, 77% had been pre-sold at the end of 2020. In Vietnam, the Marq, a 70%-owned residential development in District 1 of Ho Chi Minh City, is a 515-unit luxury residential tower with a total developable Asya, a joint venture which includes Astra International, area of approximately 57,000 sq. m. Construction is in which the Group has a 33.5% attributable interest, progressing on schedule, with completion expected in is a 67-hectare site located in the east of Jakarta. 2021. Of the 412 units launched, 71% had been pre-sold The project will yield a total developable area of at the end of 2020. approximately 896,000 sq. m., comprising landed houses, villas, apartments and low-rise commercial shophouses. It will be developed in multiple phases through to 2033. Of the 719 launched units, 43% had been pre-sold at the end of 2020. In Thailand, market sentiment has remained subdued since the onset of the pandemic. Construction of the Esse Sukhumvit 36, a 49%-owned 338-unit luxury condominium tower in the Sukhumvit area of Bangkok, was completed in early 2021. At the end of 2020, Arumaya, the Group’s 40%-owned joint venture with 64% of the project had been sold. Astra International, is a 299-unit luxury condominium project located in South Jakarta. The project has a developable area of 24,000 sq. m., and is expected to complete in 2022. All of the units had been launched as at the end of 2020, with 32% of the units reserved or pre-sold. Nonthaburi, the Group’s 49%-owned joint venture project, is a 1,217-unit luxury landed housing project located in Western Bangkok. The project has a total developable area of 434,000 sq. m. and is expected to be developed in four phases through to 2028. Lake Legend, the first phase of the project, comprises 57 landed Avania, the 50%-owned mixed-use development houses. Of the 23 units launched, 26% had been with Astra International situated in central Jakarta, pre-sold at the end of 2020. will consist of over 650 high-end apartments and a Grade A office tower. The project has a developable area of 131,000 sq. m. and will be developed in two phases through to 2026. Sales launch for the first phase of the project is expected to commence in late 2021. King Kaew, a luxury residential project in which the Group has a 49% interest, is situated on King Kaew Road close to Suvarnabhumi International Airport. The project has a developable area of 178,000 sq. m. and will comprise 474 villas. It is expected to complete in 2029. The sales In the Philippines, development at Mandani Bay, launch for the first phase of the project is expected to a 40%-owned 20-hectare development in Cebu commence in mid-2021. comprising principally residential units, continues to progress despite pandemic-related disruptions. The project will be developed in multiple phases through to 2036. Of the 4,179 residential and office units launched, 86% had been pre-sold at the end of 2020. Wireless Road, a luxury condominium site in which the Group has a 49% interest, is situated on Wireless Road in Bangkok’s central business district. The project has a total developable area of 64,000 sq. m., and will consist of over 700 units. Development will be in one phase, with completion expected in 2024. Sales launch for the first phase of the project is expected to commence in mid-2021. 12 Hongkong Land Chief Executive’s ReviewSustainability Hongkong Land has been a landlord and developer The Year Ahead The Group continues to operate in a challenging of premium properties for more than 130 years. environment and uncertainty remains about the duration We strive to set an example of good corporate citizenship of the pandemic and the impact it will have on the Group. by having a well-designed sustainability strategy and Depending on overall economic conditions, the Group’s governance structure and adopting global best practices. Investment Properties portfolio is expected to remain Our continued growth and progress on sustainability resilient, underpinned by its high-quality tenant base. initiatives are guided and monitored by the Group’s In the Development Properties business, it is hoped Sustainability Committee, which reports to the Board. that higher completions on the Chinese mainland will lead We are in a strong position to continue integrating to improved profit contributions. Higher financing sustainability initiatives into our operational and financing costs are anticipated partly due to West Bund-related activities, investment analysis and risk assessments. interest costs. During the year, the Group entered into a number of In the coming year, we will continue to uphold the very sustainability-linked loans with an aggregate facility highest standards in delivering innovative offerings and amount of HK$4.4 billion. The facilities index tiered world-class service to both our tenants and customers. discounts to interest rates against ESG targets, These values are critical to the future success of the which incentivise the Group to demonstrate continuous Group and remain our priority in order to protect our improvements in greenhouse gas emissions, electricity leading market positions and maintain strong shareholder consumption, reducing food waste, and solar energy returns over the long term. Robert Wong Chief Executive 11th March 2021 generation, whilst maintaining green building certifications for the Group’s Central Portfolio. In November 2020, the Group launched the HK$100 million Hongkong Land HOME FUND, which was established as a multi-year initiative to focus on creating initiatives which benefit younger generations and our aspiration to foster a more inclusive society. In its first phase of collaborations, the fund worked with three community organisations in a series of programmes that benefit younger generations and families facing housing issues in Hong Kong. In recognition of our continued efforts to adhere to the highest environmental standards, the Group was awarded the ‘Sustainability Achievement of the Year’ at the RICS Awards 2020 in Hong Kong in relation to its management of the Hong Kong Central Portfolio. Further details on the Group’s approach to sustainability and related policies can be found on the Group’s website at www.hkland.com/en/sustainability. The Group’s sustainability performance for the financial year ended 31st December 2020 will be included in a standalone Sustainability Report to be published on the Group’s website in the second quarter of 2021. Annual Report 2020 13 Financial Review Results Underlying Business Performance Investment Properties Development Properties Corporate costs 2020 US$m 2019 US$m 963 524 (74) 1,064 675 (83) as the portfolio benefited from a number of leases which were concluded prior to the onset of the pandemic. Average rents for the retail portfolio decreased by 26%, predominantly as a result of temporary rent relief provided to tenants. The Hong Kong Central Portfolio remains the Group’s largest profit contributor, generating 85% of the operating profit contributed by the Group’s Investment Properties, up by 2% compared to the prior year. Underlying operating profit 1,413 1,656 Net financing charges Tax Non-controlling interests Underlying profit attributable to shareholders Non-trading items (160) (288) (2) (188) (370) (22) In Singapore, the Group’s Investment Properties portfolio contributed 12% of total operating profits from Investment Properties, marginally higher than the 11% contributed in the prior year. 963 1,076 (3,610) (878) In Beijing, WF CENTRAL provided temporary rent relief in support of its tenants during the first half of the year. However, no further rent relief was provided in the (Loss)/profit attributable second half as trading performance improved as a result to shareholders (2,647) 198 of a strong recovery in luxury retail spending on the Chinese mainland. Underlying earnings per share 41.27 46.12 principally due to pandemic-related construction delays and lower margins. US¢ US¢ Operating profits from Development Properties decreased by 22% from the previous year to US$524 million, Underlying business performance is summarised in the The operating profit contribution from Chinese mainland above table, including the Group’s share of operating Development Properties was down by 26% from the profit from its associates and joint ventures. Given the previous year to US$414 million, mainly due to lower significance of the Group’s joint ventures, this provides margins, with a higher ratio of completions arising from a clearer summary of the Group’s performance during more recently acquired developments with higher relative the year. The Group’s operating profit from Investment Properties was US$963 million, 9% lower than the previous year, primarily due to temporary rent relief provided to retail tenants and higher average office vacancy. In Hong Kong, average rents for the office portfolio land costs, despite a 13% increase in attributable revenue to US$1,518 million due to higher selling prices as a consequence of a higher proportion of completions from higher value developments in Hangzhou and Nanjing. Including the impact of Land Appreciation Tax which is accounted for within the tax line, the contribution from the Group’s Chinese mainland Development Properties increased by 2% despite broadly neutral rental reversions, was down 28% from the prior year. 14 Hongkong Land Revenue was recognised at the following projects in the In other parts of Southeast Asia, the Group recorded Chinese mainland: higher recognised profits in 2020 compared to the prior year primarily due to higher completions in Thailand Project City interest handed over Attributable Number of units partially offset by fewer completions in Indonesia. % 2020 2019 Net financing charges of US$160 million were 15% WE City Chengdu Artisan Bay Chengdu Yorkville North Chongqing Yorkville South Chongqing Bamboo Grove Chongqing 50 33 100 100 50 157 368 664 58 – 2,293 – 755 1,700 4 New Bamboo Grove Chongqing 50 602 1,292 Landmark Riverside Chongqing Central Avenue Chongqing 50 50 River One Chongqing 100 Harbour Tale Chongqing Hangzhou Bay Hangzhou River and City Nanjing Parkville Shanghai Dream Land Wuhan 50 30 50 50 50 1,293 340 219 23 662 861 – 630 410 1,057 – – – – 112 – In Singapore, operating profits from Development Properties decreased by 13% from the previous year to US$96 million due to pandemic-related construction delays lower than the prior year primarily due to lower average borrowing costs and higher capitalised interest. Weighted average borrowing costs were 3.2%, compared to 3.8% in the prior year. The Group’s tax charge decreased by 22% to US$288 million, with an effective tax rate of 23%, lower than the prior year’s 25% effective tax rate due to lower Land Appreciation Tax paid and withholding tax provided in relation to the Group’s Development Properties on the Chinese mainland. In 2020, underlying profit attributable to shareholders was US$963 million, 11% lower than the prior year. Non-Trading Items In 2020, the Group had net non-trading losses of US$3,610 million compared to US$878 million in 2019. These arose principally on revaluations of the Group’s investment properties, including its share of joint ventures, which were performed at 31st December 2020 by independent valuers. and lower margins on more recently acquired projects. The loss on valuation came primarily from the Group’s The Group’s attributable interest in revenue recognised Central office portfolio in Hong Kong due to a decrease was US$522 million, compared to US$516 million in 2019. in open market rents, with no change in capitalisation rates. The Central Portfolio decreased in value by 10% to US$28.1 billion. Annual Report 2020 15 Cash Flows The Group’s consolidated cash flows are summarised as follows: Operating activities Operating profit, excluding non-trading items Net interest Tax paid Payments for Development Properties sites Expenditure on Development Properties projects Sales proceeds from Development Properties Dividends received from joint ventures Others Investing activities Major renovations capex Repayments from/(investments in and advances to) associates and joint ventures Development expenditure Disposal of subsidiaries and other investments Others Financing activities Dividends paid by the Company Net drawdown of borrowings Others Net increase in cash and cash equivalents Cash and cash equivalents at 1st January Effect of exchange rate changes 2020 US$m 2019 US$m 959 (178) (268) (184) (435) 1,108 113 (134) 1,170 (145) (116) (353) (522) 1,143 420 (415) 981 1,182 (129) (116) 599 (4,499) 2,613 – (1,416) (510) 1,458 (5) 943 508 1,418 64 (646) (28) 158 (26) (658) (510) 25 (6) (491) 33 1,369 16 Cash and cash equivalents at 31st December 1,990 1,418 16 Hongkong Land Financial ReviewThe cash inflows from operating activities for the year site in Shanghai before being sold down to a 43% interest were US$981 million, compared with US$1,182 million which is recorded within the disposal of subsidiaries and in the prior year. The decrease of US$201 million was other investments line, whilst capital expenditure of principally due to lower dividends from the Group’s joint US$129 million for major renovations principally relates venture Development Properties projects, partially offset to the Group’s Hong Kong Central Portfolio. by fewer new Development Properties sites acquired. Under financing activities, the Company paid dividends The Group’s operating profit from its subsidiaries of US$510 million, being the 2019 final dividend of (excluding non-trading items) was US$959 million, US¢16.00 per share and the 2020 interim dividend of 18% lower than the prior year, largely due to an increased US¢6.00 per share, unchanged compared to the prior contribution from wholly-owned Development Properties year. The Group had a net drawdown of borrowings of projects in the Chinese mainland, partially offset by lower US$1,458 million during the year. Cash and cash equivalents were US$572 million higher at the end of 2020. Taken together with an increase in borrowings, the Group’s net debt at 31st December 2020 increased to US$4,568 million, from US$3,591 million at the beginning of the year. Year-end debt summary* contributions from wholly-owned Development Properties projects in Singapore. Net interest paid of US$178 million was US$33 million higher than in 2019 due to higher average net borrowings. In 2020, US$184 million was paid by the Group to acquire wholly-owned Development Properties sites, including The Riverside in Hangzhou (US$112 million) and the Xiaoyuan Project (US$70 million), a newly secured project in Chongqing, as compared to US$353 million in 2019. Sales proceeds from wholly-owned Development Properties were US$35 million lower at US$1,108 million, principally due to lower sales proceeds from projects in Singapore. Dividends received from joint ventures decreased by US$307 million to US$113 million, predominately due to receipts from Bamboo Grove in the Chinese mainland in 2019. Cash outflows from investing activities were US$ bonds/notes HK$ bonds/notes HK$ bank loans S$ bonds/notes S$ bank loans RMB bank loans US$1,416 million, compared to US$658 million in the PHP bank loans prior year. Net repayments from the Group’s joint THB bank loans venture projects totalled US$599 million, compared to US$646 million in net investments and advances in the prior year primarily due to fewer new joint venture Development Properties projects secured compared to the prior year. Development expenditure of US$4,499 million Gross debt Cash Net debt was predominantly for the acquisition of the West Bund * Before currency swaps 2020 US$m 2019 US$m 2,122 1,657 1,514 1,478 945 224 399 862 – 356 433 331 255 621 7 376 6,565 1,997 5,015 1,424 4,568 3,591 Annual Report 2020 17 facilities headroom is maintained to facilitate the Group’s capacity to pursue new investment opportunities and to provide some protection against market uncertainties. Overall, the Group’s funding arrangements are designed to strike an appropriate balance between equity and debt from banks and capital markets, both short- and long- term, to give flexibility to develop the business. The Group’s Treasury operations are managed as cost centres and are not permitted to undertake speculative transactions unrelated to underlying financial exposures. Funding The Group is well financed with strong liquidity. Net gearing at the end of the year was 13%, compared with 9% at the end of 2019. Interest cover, calculated as the underlying operating profits, including the Group’s share of associates and joint ventures’ operating profits, divided by net financing charges including the Group’s share of associates and joint ventures’ net financing charges, was 8.8 times, unchanged from the prior year. Capital Management The Group’s capital management policies are set out on page 71. New Investments During 2020, the Group committed to invest, based on its equity contribution and share of project level debt, US$3.5 billion in new projects including its 43% interest in the West Bund site (2019: US$1.2 billion). The Group continues to assess new investment opportunities, which are expected to be funded by a combination of internal resources and external financing from banks and the debt capital markets. Dividends The Board is recommending a final dividend of US¢16.00 per share for 2020, providing a total annual dividend of US¢22.00 per share, the same as last year. The final dividend will be payable on 12th May 2021, subject to approval at the Annual General Meeting to be held on 5th May 2021, to shareholders on the register of members at the close of business on 26th March 2021. 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. Appropriate credit guidelines are in 6% 7% 9% 9% 13% place to manage counterparty credit risk. 2016 2017 2018 2019 2020 When economically sensible to do so, borrowings are Net debt Equity taken in local currencies to hedge foreign currency exposures on investments. A portion of borrowings is denominated in fixed rates. Adequate committed Net debt as a percentage of equity 18 Hongkong Land Financial ReviewBoth Moody’s and Standard & Poor’s have maintained At 31st December 2020, the Group had total committed their credit ratings of Hongkong Land Holdings Limited lines of approximately US$8.9 billion. Of these lines, 55% at A3 and A respectively. The average tenor of the Group’s debt was 6.6 years at 31st December 2020, up from 6.1 years at the end of 2019, benefiting from increased issuance of long dated bonds out of the Group’s MTN programme. Approximately 48% of the Group’s borrowings were at floating rates and the remaining 52% were either fixed rate borrowings or covered by interest rate hedges with major credit worthy financial institutions, broadly in line with the end of 2019. were sourced from banks with the remaining 45% from the capital markets. At the end of 2020, the Group had drawn US$6.6 billion of these lines 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 2020 of US$4.3 billion, up from US$3.2 billion at the end of 2019. 4,883 1,822 890 989 293 Interest rate Currency* Maturity 2021 2022 2023 2024 2025 & beyond 52% Fixed 72% HK$ 38% >5 years 48% Floating 10% S$ 40% 2-5 years 13% RMB 5% THB 11% 1-2 years 11% <1 year Committed facility maturity at 31st December 2020 (US$m) Debt profile at 31st December 2020 * After currency swaps Annual Report 2020 19 Gross Assets The Group’s gross assets, including its share of joint Principal Risks and Uncertainties A review of the principal risks and uncertainties facing ventures, (excluding cash balances) is analysed below, the Group is set out on page 93. by activity and by location. Accounting Policies The Directors continue to review the appropriateness of the accounting policies adopted by the Group with regard to developments in International Financial Reporting Standards. There are no changes to the accounting policies as described in the 2019 annual financial statements. Simon Dixon Chief Financial Officer 11th March 2021 86% Investment Properties 14% Development Properties 86% Investment Properties 14% Development Properties Gross assets by activity 69% Hong Kong 13% Southeast Asia 69% Hong Kong 18% Chinese mainland and Macau 13% Southeast Asia 18% Chinese mainland and Macau Gross assets by location 20 Hongkong Land Financial ReviewDirectors’ Profiles Ben Keswick Chairman Mr Keswick joined the Board as Managing Director Robert Wong* Chief Executive Mr Wong joined the Board as Chief Executive in 2016. in April 2012 and held the position until June 2020. He joined the Group in 1985 and has extensive experience He has been Chairman since 2013. He was also in property management and development. As a director managing director of Dairy Farm, Jardine Matheson, of Hongkong Land Limited since 1996, he had prime Jardine Strategic and Mandarin Oriental from 2012 to responsibility for the Group’s residential property business. 2020. Mr Keswick has held a number of executive He is a member of both The Royal Institution of Chartered positions since joining the Jardine Matheson group in Surveyors and The Hong Kong Institute of Surveyors. 1998, including finance director and then chief executive officer of Jardine Pacific between 2003 and 2007 and, thereafter, group managing director of Jardine Cycle & Carriage until 2012. He is executive chairman of Jardine Matheson and Jardine Strategic, and chairman of Dairy Farm, Jardine Cycle & Carriage and Mandarin Oriental. Mr Keswick is also a director of Yonghui Superstores and a commissioner of Astra. He has an MBA from INSEAD. John Witt* Managing Director Mr Witt rejoined the Board as Managing Director in June 2020, having previously served as the Chief Financial Officer between 2010 and 2016. He has been with the Jardine Matheson group since 1993 and has held a number of senior finance positions, including group finance director of Jardine Matheson from 2016 to 2020. Mr Witt is chairman of Jardine Matheson Limited, group managing director of Jardine Matheson and managing director of Dairy Farm, Jardine Strategic and Mandarin Oriental. He is also a director of Jardine Pacific and Jardine Motors, and a commissioner and chairman Simon Dixon* Chief Financial Officer Mr Dixon joined the Board as Chief Financial Officer in 2016. A Chartered Accountant, he joined the Jardine Matheson group in 2006 from PricewaterhouseCoopers. He was previously finance director of Astra, prior to which he was group treasurer of Jardine Matheson from 2006 to 2010. Adam Keswick Mr Keswick joined the Board in 2012. Having joined Jardine Matheson in 2001, he was appointed to the Jardine Matheson board in 2007 and was deputy managing director from 2012 to 2016. Mr Keswick is a director of Dairy Farm, Jardine Strategic and Mandarin Oriental. He is also a director of Ferrari NV and Yabuli China Entrepreneurs Forum and vice chairman of the supervisory board of Rothschild & Co. Anthony Nightingale Mr Nightingale joined the Board in 2006 and was of the executive committee of Astra. Mr Witt is a Managing Director of the Company from 2006 to 2012. Chartered Accountant and has an MBA from INSEAD. He is also a director of Dairy Farm, Jardine Cycle & Carriage, Jardine Matheson, Jardine Strategic, Mandarin Oriental, Prudential, Shui On Land and Vitasoy, and a commissioner of Astra. He is chairperson of The Sailors Home and Missions to Seafarers in Hong Kong. * Executive Director Annual Report 2020 21 Christina Ong Mrs Ong joined the Board in May 2018. She is chairman Prijono Sugiarto Mr Sugiarto joined the Board in 2020. He is the president and senior partner of Allen & Gledhill as well as co-head commissioner of Astra and was the president and group of its financial services department. She is a director of CEO from 2010 to 2020. Mr Sugiarto is the chairman Oversea-Chinese Banking Corporation, SIA Engineering of the German Indonesian Chamber of Commerce. Company and Singapore Telecommunications. She is also In 2014, he was awarded Asia Business Leader of a member of the Catalist Advisory Panel, and the corporate The Year from CNBC. governance advisory committee of the Monetary Authority of Singapore, and a trustee of The Stephen A. Schwarzman Scholars Trust. Y.K. Pang Mr Pang has been a Director of the Company since 2007. 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 He was Chief Executive of the Group from 2007 to 2016. of Mandarin Oriental. Percy Weatherall Mr Weatherall joined the Board in 1994 and was Managing Director from 2000 to 2006. He first joined the Jardine Matheson group in 1976 and retired 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 & Barrow and the Nith District Salmon Fishery Board. Michael Wei Kuo Wu Mr Wu joined the Board in 2012. He is chairman and managing director of Maxim’s Caterers in Hong Kong. He is also a non-executive director of Hang Seng Bank and Jardine Matheson. He is deputy managing director and chairman of Hong Kong of Jardine Matheson, and chairman of Jardine Pacific. He previously held a number of senior executive positions in the Jardine Matheson group, which he joined in 1984. Mr Pang is also deputy chairman of Jardine Matheson Limited, and a director of Dairy Farm, Gammon, Jardine Matheson (China), Jardine Strategic, Mandarin Oriental and Greatview. He is chairman of the Hong Kong Tourism Board, deputy chairman of the Hong Kong Management Association, a member of the Council and General Committee of the Hong Kong General Chamber of Commerce and the Employers’ Federation of Hong Kong. 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 Sir John Major. He is a director of Jardine Strategic, LVMH Moët Hennessy Louis Vuitton, Matheson & Co, and the Northern Trust Corporation. He was previously President of the China-Britain Business Council and chairman of the Singapore-British Business Council. He is an independent member of the House of Lords. 22 Hongkong Land Directors’ ProfilesConsolidated Profit and Loss Account for the year ended 31st December 2020 2020 Underlying Non- business trading 2019 Underlying Non- business trading performance Note US$m items US$m Total performance US$m US$m items US$m Total US$m Revenue Net operating costs Change in fair value of investment properties Operating (loss)/profit Net financing charges – financing charges – financing income Share of results of associates and joint ventures – before change in fair value of investment properties – change in fair value of investment properties (Loss)/profit before tax Tax 3 4 9 5 6 9 7 2,094.2 – 2,094.2 2,319.7 – 2,319.7 (1,135.2) 1.0 (1,134.2) (1,149.3) 34.4 (1,114.9) – (3,443.4) (3,443.4) – (854.2) (854.2) 959.0 (3,442.4) (2,483.4) 1,170.4 (819.8) 350.6 (194.9) 79.0 (115.9) 267.5 – – – – (194.9) (204.8) 79.0 83.4 (115.9) (121.4) 267.5 272.7 – – – – – (175.4) (175.4) – (32.6) (204.8) 83.4 (121.4) 272.7 (32.6) 267.5 (175.4) 92.1 272.7 (32.6) 240.1 1,110.6 (3,617.8) (2,507.2) 1,321.7 (852.4) 469.3 (149.5) 4.9 (144.6) (246.6) (20.5) (267.1) (Loss)/profit after tax 961.1 (3,612.9) (2,651.8) 1,075.1 (872.9) 202.2 Attributable to: Shareholders of the Company Non-controlling interests 963.3 (3,610.7) (2,647.4) 1,076.4 (878.4) 198.0 (2.2) (2.2) (4.4) (1.3) 5.5 4.2 961.1 (3,612.9) (2,651.8) 1,075.1 (872.9) 202.2 Earnings per share (basic and diluted) 8 41.27 (113.43) 46.12 US¢ US¢ US¢ US¢ 8.48 Annual Report 2020 23 Consolidated Statement of Comprehensive Income for the year ended 31st December 2020 (Loss)/profit for the year Other comprehensive income/(expense) Items that will not be reclassified to profit or loss: Remeasurements of defined benefit plans Tax on items that will not be reclassified Items that may be reclassified subsequently to profit or loss: Net exchange translation differences – net gain arising during the year Cash flow hedges – net (loss)/gain arising during the year – transfer to profit and loss Tax relating to items that may be reclassified Share of other comprehensive income of associates and joint ventures Other comprehensive income for the year, net of tax Total comprehensive (expense)/income for the year Attributable to: Shareholders of the Company Non-controlling interests Note 7 7 2020 US$m (2,651.8) 1.7 (0.3) 1.4 2019 US$m 202.2 2.2 (0.4) 1.8 400.9 166.3 (20.8) (0.4) (21.2) 3.5 242.4 625.6 627.0 (2,024.8) (2,025.1) 0.3 (2,024.8) 25.7 (0.6) 25.1 (4.1) 29.5 216.8 218.6 420.8 418.0 2.8 420.8 24 Hongkong Land Consolidated Balance Sheet at 31st December 2020 Net operating assets Fixed assets Right-of-use assets Investment properties Associates and joint ventures Non-current debtors Deferred tax assets Pension assets Non-current assets Properties for sale Current debtors Current tax assets Bank balances Current assets Current creditors Current borrowings Current tax liabilities Current liabilities Net current assets Long-term borrowings Deferred tax liabilities Pension liabilities Non-current creditors Total equity Share capital Share premium Revenue and other reserves Shareholders’ funds Non-controlling interests Approved by the Board of Directors Robert Wong Simon Dixon Directors 11th March 2021 Note 2020 US$m 2019 US$m 10 11 12 13 14 12 15 16 17 17 13 16 18 125.2 12.4 30,083.3 8,921.2 42.0 35.5 0.7 127.6 12.4 33,191.2 7,226.1 48.1 26.9 0.1 39,220.3 40,632.4 1,948.8 1,081.7 14.4 1,996.6 2,042.0 1,141.3 19.5 1,424.0 5,041.5 4,626.8 (1,572.0) (689.5) (153.0) (1,460.8) (715.3) (261.0) (2,414.5) (2,437.1) 2,627.0 (5,875.4) (195.8) (1.3) (36.3) 2,189.7 (4,299.9) (210.9) (1.5) (20.0) 35,738.5 38,289.8 233.4 257.3 233.4 257.3 35,218.4 37,756.1 35,709.1 29.4 38,246.8 43.0 35,738.5 38,289.8 Annual Report 2020 25 Consolidated Statement of Changes in Equity for the year ended 31st December 2020 Share Share Revenue Hedging Exchange of the controlling Total capital premium reserves reserves reserves Company interests Note US$m US$m US$m US$m US$m US$m US$m equity US$m Attributable to Attributable shareholders to non- 2020 At 1st January Total comprehensive (expense)/income Dividends paid by the Company Dividends paid to non-controlling shareholders Unclaimed dividends forfeited Disposal of a subsidiary 19 233.4 257.3 38,039.8 8.3 (292.0) 38,246.8 43.0 38,289.8 – – – – – – (2,646.0) (29.9) 650.8 (2,025.1) 0.3 (2,024.8) – (513.4) – – – – 0.8 – – – – – – – – – (513.4) – (513.4) – 0.8 – (0.9) – (0.9) 0.8 (13.0) (13.0) At 31st December 233.4 257.3 34,881.2 (21.6) 358.8 35,709.1 29.4 35,738.5 2019 At 1st January Total comprehensive income Dividends paid by the Company Dividends paid to non-controlling shareholders Unclaimed dividends forfeited Acquisition of a subsidiary 19 233.4 257.3 38,352.7 (8.8) (493.1) 38,341.5 28.0 38,369.5 – – – – – – – – – – 199.8 17.1 201.1 418.0 2.8 420.8 (513.4) – 0.7 – – – – – – – – – (513.4) – (513.4) – 0.7 – (0.9) – 13.1 (0.9) 0.7 13.1 At 31st December 233.4 257.3 38,039.8 8.3 (292.0) 38,246.8 43.0 38,289.8 26 Hongkong Land Consolidated Cash Flow Statement for the year ended 31st December 2020 Operating activities Operating (loss)/profit Depreciation and amortisation Change in fair value of investment properties Gain on disposal of subsidiaries/other investments Decrease/(increase) in properties for sale Decrease/(increase) in debtors Increase in creditors 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 Repayments from/(investments in and advances to) associates and joint ventures Acquisition of a subsidiary Proceeds received for disposal of subsidiaries Deposits refunded for disposal of subsidiaries Proceeds on disposal of other investments Cash flows from investing activities Financing activities Drawdown of borrowings Repayment of borrowings Principal elements of lease payments Dividends paid by the Company Dividends paid to non-controlling shareholders Cash flows from financing activities Net cash inflow Cash and cash equivalents at 1st January Effect of exchange rate changes Note 4 10 4 20a 20b 20c 20c 2020 US$m (2,483.4) 15.3 3,443.4 (7.2) 164.2 19.1 162.5 42.3 (220.1) (267.9) 112.9 2019 US$m 350.6 13.6 854.2 (34.4) (1.1) (186.7) 26.7 50.3 (195.2) (115.5) 419.6 981.1 1,182.1 (129.1) (4,499.1) 599.0 – 4,619.0 (2,005.7) (116.4) (27.3) (646.0) (25.8) – – – 157.5 (1,415.9) (658.0) 3,726.9 (2,268.8) (4.6) (509.6) (0.9) 943.0 508.2 1,418.0 64.2 1,334.5 (1,309.2) (5.1) (510.1) (0.9) (490.8) 33.3 1,368.9 15.8 Cash and cash equivalents at 31st December 20d 1,990.4 1,418.0 Annual Report 2020 27 Notes to the Financial Statements 1 Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’), including International Accounting Standards (‘IAS’) and Interpretations adopted by the International Accounting Standards Board. The financial statements have been prepared on a going concern basis and under the historical cost convention except as disclosed in the accounting policies. Details of the Group’s principal accounting policies are included in Note 27. The Group has elected to early adopt the ‘Interest Rate Benchmark Reform – Phase 1: Amendments to IFRS 9, IAS 39 and IFRS 7’ (effective 1st January 2020) in relation to hedge accounting for the Group’s annual reporting period commencing 1st January 2019. Apart from the above, amendments which are effective in 2020 and relevant to the Group’s operations do not have a significant effect on the Group’s accounting policies. The Group has not early adopted any standard, interpretation or amendment that has been issued but not yet effective (refer Note 28). 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 2 and are described on pages 29 to 30. 28 Hongkong Land 2 Segmental Information Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the executive Directors of the Company for the purpose of resource allocation and performance assessment. The Group has two operating segments, namely Investment Properties and Development Properties. No operating segments have been aggregated to form the reportable segments. Set out below is an analysis of the Group’s underlying profit and total equity by reportable segment. Investment Development Investment Development 2020 2019 Properties US$m Properties US$m Corporate US$m Total US$m Properties US$m Properties US$m Corporate US$m Total US$m Revenue 1,073.5 1,020.7 – 2,094.2 1,142.6 1,177.1 – 2,319.7 Net operating costs (238.6) (822.4) (74.2) (1,135.2) (224.0) (842.3) (83.0) (1,149.3) Share of operating profit of associates and joint ventures 127.8 325.9 – 453.7 145.0 340.5 – 485.5 Underlying operating profit 962.7 524.2 (74.2) 1,412.7 1,063.6 675.3 (83.0) 1,655.9 Net financing charges – subsidiaries – share of associates and joint ventures Tax – subsidiaries – share of associates and joint ventures Non-controlling interests – subsidiaries – share of associates and joint ventures Underlying profit attributable to shareholders Non-trading items: – change in fair value of investment properties – gain on disposal of subsidiaries/ other investments (Loss)/profit attributable to shareholders (115.9) (44.2) (160.1) (149.5) (138.2) (287.7) 2.2 (3.8) (1.6) 963.3 (3,611.7) 1.0 (3,610.7) (2,647.4) (121.4) (66.6) (188.0) (246.6) (123.6) (370.2) 1.3 (22.6) (21.3) 1,076.4 (912.8) 34.4 (878.4) 198.0 Annual Report 2020 29 2019 US$m 902.3 525.8 272.0 2 Segmental Information continued Revenue Underlying operating profit Underlying profit attributable to shareholders 2020 US$m 2019 US$m 2020 US$m 2019 US$m 2020 US$m By geographical location Hong Kong and Macau Chinese mainland Southeast Asia and others Corporate, net financing charges and tax 986.7 537.4 570.1 – 1,042.0 711.3 566.4 – 812.7 414.6 259.6 902.3 563.9 272.7 812.7 404.8 257.9 (74.2) (83.0) (512.1) (623.7) 2,094.2 2,319.7 1,412.7 1,655.9 963.3 1,076.4 Segment assets Development Investment properties properties US$m for sale US$m Others US$m Unallocated Segment assets and liabilities US$m liabilities US$m Total assets and liabilities US$m By business 2020 Investment Properties Development Properties Unallocated assets and liabilities 36,093.2 – – – 9,001.2 – 374.4 450.5 – (751.0) (2,920.2) – – 35,716.6 6,531.5 – (6,509.6) (6,509.6) 36,093.2 9,001.2 824.9 (3,671.2) (6,509.6) 35,738.5 2019 Investment Properties Development Properties Unallocated assets and liabilities By geographical location 2020 Hong Kong and Macau Chinese mainland Southeast Asia and others Unallocated assets and liabilities 2019 Hong Kong and Macau Chinese mainland Southeast Asia and others Unallocated assets and liabilities 37,820.1 – – – 7,823.9 – 366.0 773.8 – (767.8) (2,410.4) – – 37,418.3 6,187.3 – (5,315.8) (5,315.8) 37,820.1 7,823.9 1,139.8 (3,178.2) (5,315.8) 38,289.8 28,971.1 2,466.5 4,655.6 – 154.8 6,948.1 1,898.3 – 158.8 401.6 264.5 – (565.5) (2,768.5) (337.2) – – – 28,719.2 7,047.7 6,481.2 – (6,509.6) (6,509.6) 36,093.2 9,001.2 824.9 (3,671.2) (6,509.6) 35,738.5 32,156.5 917.4 4,746.2 – 153.3 5,607.7 2,062.9 – 149.8 602.3 387.7 – (540.7) (2,231.4) (406.1) – – – 31,918.9 4,896.0 6,790.7 – (5,315.8) (5,315.8) 37,820.1 7,823.9 1,139.8 (3,178.2) (5,315.8) 38,289.8 Development properties for sale include properties for sale, contract assets and cost to fulfill contracts. Unallocated assets and liabilities include tax assets and liabilities, bank balances and borrowings. 30 Hongkong Land Notes to the Financial Statements3 Revenue Rental income Service income Sales of properties – recognised at a point in time – recognised over time 2020 US$m 937.6 147.5 484.3 524.8 1,009.1 2,094.2 2019 US$m 998.8 152.6 652.6 515.7 1,168.3 2,319.7 Total variable rents included in rental income amounted to US$19.9 million (2019: US$16.2 million). The maturity analysis of lease payments, showing the undiscounted lease payments to be received after the balance sheet date are as follow: Within one year Between one and two years Between two and five years Beyond five years 2020 US$m 800.8 601.0 788.9 280.1 2019 US$m 877.3 653.8 970.0 356.4 2,470.8 2,857.5 Generally the Group’s operating leases are for terms of three years or more. Contract balances Contract assets primarily relate to the Group’s rights to consideration for work completed but not billed, and are transferred to receivables when the rights become unconditional which usually occurs when the customers are billed. Costs to fulfil contracts includes costs recognised to fulfil future performance obligations on existing contracts that have not yet been satisfied. Costs to obtain contracts include costs such as sale commissions and stamp duty paid, as a result of obtaining contracts. The Group has capitalised these costs which are recognised in the profit and loss when the related revenue is recognised. Contract liabilities primarily relate to the advance consideration received from customers relating to properties for sale. Annual Report 2020 31 3 Revenue continued Contract balances continued Contract assets and contract liabilities relating to properties for sale are further analysed as follows: Contract assets (see Note 12) 2020 US$m 290.3 2019 US$m 102.7 Contract liabilities (see Note 16) (487.0) (265.7) At 31st December 2020, costs to fulfil contracts and costs to obtain contracts amounted to US$364.2 million (2019: US$345.0 million) and US$17.1 million (2019: US$14.2 million), and US$412.1 million (2019: US$396.9 million) and US$17.2 million (2019: US$12.7 million) have been recognised in profit and loss during the year respectively. Revenue recognised in relation to contract liabilities Revenue recognised in the current year relating to carried forward contract liabilities: Properties for sale 2020 US$m 167.8 2019 US$m 286.1 Revenue expected to be recognised on unsatified contracts with customers The timing of revenue to be recognised on unsatified performance obligations relating to properties for sale at 31st December 2020: Within one year Between one and two years Between two and three years 2020 US$m 1,058.0 86.4 68.6 2019 US$m 566.3 439.4 – 1,213.0 1,005.7 32 Hongkong Land Notes to the Financial Statements4 Net Operating Costs Cost of sales Other income Administrative expenses Gain on disposal of subsidiaries/other investments The following credits/(charges) are included in net operating costs: Cost of properties for sale recognised as expense Operating expenses arising from investment properties Depreciation of fixed assets Depreciation of right-of-use assets Employee benefit expense – salaries and benefits in kind – defined contribution pension plans – defined benefit pension plans Auditors’ remuneration – audit – non-audit services 2020 US$m (982.6) 31.2 (190.0) 7.2 2019 US$m (989.6) 25.9 (185.6) 34.4 (1,134.2) (1,114.9) (769.1) (191.5) (10.8) (4.5) (173.6) (1.8) (1.9) (177.3) (2.2) (0.7) (2.9) (789.8) (179.6) (8.3) (5.3) (167.1) (1.8) (1.9) (170.8) (2.0) (0.3) (2.3) The number of employees at 31st December 2020 was 2,686 (2019: 2,403). In relation to the COVID-19 pandemic, the Group had received government grants, the majority of which were in support of employee retention, and rent concessions of US$9.6 million and US$0.9 million, respectively for the year ended 31st December 2020. These subsidies were accounted for as other income. Annual Report 2020 33 5 Net Financing Charges Interest expense – bank loans and overdrafts – other borrowings Total interest expense Interest capitalised Commitment and other fees and exchange differences Financing charges Financing income 2020 US$m (65.1) (139.6) (204.7) 22.2 (182.5) (12.4) (194.9) 79.0 (115.9) Financing charges and financing income are stated after taking into account hedging gains or losses. 6 Share of Results of Associates and Joint Ventures By business Investment Properties Development Properties Underlying business performance Non-trading items: Change in fair value of investment properties 2020 US$m 75.2 192.3 267.5 (175.4) 92.1 Results are shown after tax and non-controlling interests in the associates and joint ventures. The Group’s share of revenue of associates and joint ventures was US$1,294.9 million (2019: US$1,074.5 million). 2019 US$m (60.0) (134.2) (194.2) 1.2 (193.0) (11.8) (204.8) 83.4 (121.4) 2019 US$m 78.3 194.4 272.7 (32.6) 240.1 34 Hongkong Land Notes to the Financial Statements7 Tax Tax charged to profit and loss is analysed as follows: Current tax Deferred tax – changes in fair value of investment properties – other temporary differences Reconciliation between tax expense and tax at applicable tax rate: Tax at applicable tax rate Change in fair value of investment properties not deductible in determining taxable profit Income not subject to tax Expenses not deductible in determining taxable profit Withholding tax Land appreciation tax in Chinese mainland Tax losses arising in the year not recognised Others Tax relating to components of other comprehensive income is analysed as follows: Remeasurements of defined benefit plans Cash flow hedges 2020 US$m 2019 US$m (164.5) (247.8) 4.9 15.0 19.9 (16.5) (2.8) (19.3) (144.6) (267.1) 409.4 (562.6) 30.7 (12.1) 27.3 (30.2) (6.7) (0.4) (144.6) (0.3) 3.5 3.2 (71.6) (157.0) 47.6 (14.3) (17.3) (49.2) (4.6) (0.7) (267.1) (0.4) (4.1) (4.5) The applicable tax rate for the year of 15.8% (2019: 31.2%) represents the weighted average of the rates of taxation prevailing in the territories in which the Group operates. Share of tax charge of associates and joint ventures of US$125.9 million (2019: US$136.2 million) is included in share of results of associates and joint ventures. Annual Report 2020 35 8 Earnings per Share Earnings per share are calculated on loss attributable to shareholders of US$2,647.4 million (2019: profit of US$198.0 million) and on the weighted average number of 2,333.9 million (2019: 2,333.9 million) shares in issue during the year. Earnings per share are additionally calculated based on underlying profit attributable to shareholders. A reconciliation of earnings is set out below: 2020 2019 Underlying profit attributable to shareholders 963.3 41.27 Non-trading items (see Note 9) (3,610.7) Earnings per share US¢ US$m Earnings per share US¢ 46.12 US$m 1,076.4 (878.4) (Loss)/profit attributable to shareholders (2,647.4) (113.43) 198.0 8.48 9 Non-trading Items An analysis of non-trading items after interest, tax and non-controlling interests is set out below: Change in fair value of investment properties Tax on change in fair value of investment properties Gain on disposal of subsidiaries/other investments Share of results of associates and joint ventures – change in fair value of investment properties – tax on change in fair value of investment properties Non-controlling interests 2020 US$m (3,443.4) 4.9 1.0 (187.7) 12.3 (175.4) 2.2 2019 US$m (854.2) (20.5) 34.4 (20.0) (12.6) (32.6) (5.5) (3,610.7) (878.4) 36 Hongkong Land Notes to the Financial Statements10 Investment Properties 2020 At 1st January Exchange differences Additions Disposal of subsidiaries Transfer Decrease in fair value At 31st December Freehold properties Leasehold properties 2019 At 1st January Exchange differences Additions (Decrease)/increase in fair value At 31st December Freehold properties Leasehold properties Under Completed development commercial commercial properties US$m properties US$m Completed residential properties US$m Total US$m 32,867.1 201.2 116.3 – 6.0 (3,423.6) 49.7 433.4 4,504.7 (4,921.6) (6.0) (15.9) 274.4 33,191.2 1.2 0.3 – – 635.8 4,621.3 (4,921.6) – (3.9) (3,443.4) 29,767.0 44.3 272.0 30,083.3 159.8 29,923.5 30,083.3 33,385.5 188.8 141.2 (848.4) 32,867.1 47.4 – 1.3 1.0 49.7 279.2 33,712.1 1.8 0.2 (6.8) 190.6 142.7 (854.2) 274.4 33,191.2 172.3 33,018.9 33,191.2 The Group measures its investment properties at fair value. The fair values of the Group’s investment properties at 31st December 2020 and 2019 have been determined on the basis of valuations carried out by independent valuers who hold a recognised relevant professional qualification and have recent experience in the locations and segments of the investment properties valued. The Group engaged Jones Lang LaSalle to value its commercial investment properties in Hong Kong, Chinese mainland, Singapore, Vietnam and Cambodia which are either freehold or 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 Council and the HKIS Valuation Standards 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 97. The valuations are comprehensively reviewed by the Group. At 31st December 2020, investment properties of US$964.4 million (2019: US$917.4 million) were pledged as security for borrowings (see Note 17). Annual Report 2020 37 10 Investment Properties continued Fair value measurements of residential properties using no significant unobservable inputs Fair values of completed residential properties are generally derived using the direct comparison method. This valuation method is based on comparing the property to be valued directly with other comparable properties, which have recently transacted. However, given the heterogeneous nature of real estate properties, appropriate adjustments are usually required to allow for any qualitative differences that may affect the price likely to be achieved by the property under consideration. Fair value measurements of commercial properties using significant unobservable inputs Fair values of completed commercial properties in Hong Kong, Chinese mainland and Singapore are generally derived using the income capitalisation method. This valuation method is based on the capitalisation of the net income and reversionary income potential by adopting appropriate capitalisation rates, which are derived from analysis of sale transactions and valuers’ interpretation of prevailing investor requirements or expectations. The prevailing market rents adopted in the valuation have reference to valuers’ views of recent lettings, within the subject properties and other comparable properties. Fair values of completed commercial properties in Vietnam and Cambodia are generally derived using the discounted cash flow method. The net present value of the income stream is estimated by applying an appropriate discount rate which reflects the risk profile. Fair values of under development commercial properties are generally derived using the residual method. This valuation method is essentially a means of valuing the land by reference to its development potential by deducting development costs together with developer’s profit and risk from the estimated capital value of the proposed development assuming completion as at the date of valuation. The Group’s policy is to recognise transfers between fair value measurements as of the date of the event or change in circumstances that caused the transfer. Information about fair value measurements using significant unobservable inputs at 31st December 2020: Location of properties Fair value US$m Valuation method rent per month discount rate US$ % Range of significant unobservable inputs Prevailing market Capitalisation/ Hong Kong Chinese mainland Singapore Vietnam and Cambodia 28,078.2 Income capitalisation 5.2 to 29.4 per square foot 2.75 to 5.00 964.4 593.2 131.2 Income capitalisation 104.4 per square metre 3.75 Income capitalisation 7.6 to 8.8 per square foot 3.50 to 4.80 Discounted cash flow 19.2 to 42.4 per square metre 12.50 to 15.00 Total 29,767.0 Prevailing market rents are estimated based on independent valuers’ view of recent lettings, within the subject properties and other comparable properties. The higher the rents, the higher the fair value. Capitalisation and discount rates are estimated by independent valuers based on the risk profile of the properties being valued. The lower the rates, the higher the fair value. 38 Hongkong Land Notes to the Financial Statements11 Associates and Joint Ventures Unlisted associates – share of attributable net assets – amounts due from associates Unlisted joint ventures – share of attributable net assets – amounts due from joint ventures By business Investment Properties Development Properties 2020 US$m 60.8 422.8 483.6 6,021.0 2,416.6 8,437.6 8,921.2 5,132.1 3,789.1 8,921.2 2019 US$m 41.4 223.1 264.5 4,476.0 2,485.6 6,961.6 7,226.1 3,753.7 3,472.4 7,226.1 Amounts due from associates are interest free, unsecured and have no fixed terms of repayment. Amounts due from joint ventures bear interests at rates ranging from approximately 0% to 8% per annum and are repayable within one to fifteen years. Movements of associates and joint ventures during the year: At 1st January Exchange differences Share of results after tax and non-controlling interests Share of other comprehensive income/(expense) after tax and non-controlling interests Dividends received and receivable Investments in and advances to/(repayments from) associates and joint ventures Transfer from subsidiaries on partial disposal of interests (see Note 20c) Transfer to subsidiary on further acquisition of interests Associates Joint ventures 2020 US$m 264.5 (14.8) 4.2 29.2 (0.8) 2019 US$m 199.9 6.9 8.2 2020 US$m 2019 US$m 6,961.6 (15.7) 87.9 6,494.8 40.5 231.9 (0.5) (1.0) 213.2 (110.8) 30.0 (415.3) 201.3 51.0 (817.5) 595.0 – – – – 2,118.9 – – (15.3) At 31st December 483.6 264.5 8,437.6 6,961.6 The material joint ventures of the Group are listed below. These joint ventures have share capital consisting solely of ordinary shares, which are held directly by the Group. Nature of investments in material joint ventures in 2020 and 2019: Name of entity Nature of business of business interest 2020 2019 Properties Sub F, Ltd BFC Development LLP Central Boulevard Development Pte Ltd One Raffles Quay Pte Ltd Property investment Property investment Property investment Property investment Macau Singapore Singapore Singapore 49.0 33.3 33.3 33.3 49.0 33.3 33.3 33.3 Country of incorporation/ % of principal place ownership Annual Report 2020 39 11 Associates and Joint Ventures continued Summarised financial information for material joint ventures Summarised balance sheet at 31st December: 2020 Non-current assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current liabilities Central BFC Boulevard One Raffles Properties Development Development Sub F, Ltd US$m LLP US$m Pte Ltd US$m Quay Pte Ltd US$m 1,261.1 3,700.1 2,875.4 2,807.7 81.1 35.4 116.5 12.4 3.2 15.6 22.9 2.1 25.0 Financial liabilities (excluding trade payables) – (1,293.5) (1,257.9) Other non-current liabilities (including trade payables) (133.6) – (21.5) Total non-current liabilities Current liabilities (133.6) (1,293.5) (1,279.4) (1,005.9) Financial liabilities (excluding trade payables) Other current liabilities (including trade payables) – (54.1) (0.8) (62.4) (12.9) (35.4) (5.0) (48.7) Total current liabilities (54.1) (63.2) (48.3) (53.7) Net assets 1,189.9 2,359.0 1,572.7 1,767.5 2019 Non-current assets Current assets Cash and cash equivalents Other current assets Total current assets Non-current liabilities 1,356.9 3,755.7 2,909.6 2,857.6 58.4 34.8 93.2 11.6 0.6 12.2 23.6 1.8 25.4 Financial liabilities (excluding trade payables) – (1,268.8) (1,206.5) Other non-current liabilities (including trade payables) (144.6) – (21.3) Total non-current liabilities Current liabilities Financial liabilities (excluding trade payables) Other current liabilities (including trade payables) Total current liabilities Net assets (144.6) (1,268.8) (1,227.8) (985.0) – (48.2) (48.2) (0.8) (56.0) (56.8) (12.6) (36.3) (48.9) (4.9) (43.5) (48.4) 1,257.3 2,442.3 1,658.3 1,841.8 40 Hongkong Land 15.4 4.0 19.4 (801.9) (204.0) 12.4 5.2 17.6 (775.1) (209.9) Notes to the Financial Statements11 Associates and Joint Ventures continued Summarised financial information for material joint ventures continued Summarised statement of comprehensive income for the year ended 31st December: 2020 Revenue Depreciation and amortisation Interest income Interest expense Profit from underlying business performance Tax Profit after tax from underlying business performance Loss after tax from non-trading items Loss after tax Other comprehensive income Central BFC Boulevard One Raffles Properties Development Development Sub F, Ltd US$m LLP US$m Pte Ltd US$m Quay Pte Ltd US$m 48.0 (6.7) 0.3 (0.1) 14.2 (1.6) 12.6 (85.1) (72.5) 5.1 151.3 118.8 113.2 – 0.1 – 0.1 – 0.1 (35.1) (27.7) (16.0) 81.5 (13.7) 67.8 (123.3) (55.5) 41.9 64.7 (11.0) 53.7 (86.6) (32.9) 1.2 69.4 (11.9) 57.5 (92.8) (35.3) 18.9 Total comprehensive expense (67.4) (13.6) (31.7) (16.4) Group’s share of dividends received and receivable from joint ventures – 23.2 18.0 19.3 2019 Revenue Depreciation and amortisation Interest income Interest expense Profit from underlying business performance Tax Profit after tax from underlying business performance Profit/(loss) after tax from non-trading items Profit after tax Other comprehensive income Total comprehensive income 85.6 (8.5) 0.3 (0.3) 39.7 (4.7) 35.0 (24.1) 10.9 7.6 18.5 161.0 – 0.3 120.7 – 0.3 110.6 – 0.2 (50.8) (34.0) (25.2) 75.1 (12.7) 62.4 21.3 83.7 45.3 129.0 58.4 (9.9) 48.5 21.6 70.1 9.0 79.1 57.6 (9.9) 47.7 12.3 60.0 26.7 86.7 Group’s share of dividends received and receivable from joint ventures 20.1 25.1 16.2 15.9 The information contained in the summarised balance sheets and statements of comprehensive income reflect the amounts presented in the financial statements of the joint ventures adjusted for differences in accounting policies between the Group and the joint ventures, and fair value of the joint ventures at the time of acquisition. Annual Report 2020 41 11 Associates and Joint Ventures continued Reconciliation of summarised financial information Reconciliation of the summarised financial information presented to the carrying amount of the Group’s interest in the material joint ventures for the year ended 31st December: 2020 Net assets Central BFC Boulevard One Raffles Properties Development Development Sub F, Ltd US$m LLP US$m Pte Ltd US$m Quay Pte Ltd US$m 1,189.9 2,359.0 1,572.7 1,767.5 Interest in joint ventures (%) 49.0 33.3 33.3 33.3 Group’s share of net assets in joint ventures Amounts due from joint ventures 583.0 – 786.3 431.2 524.2 – 589.2 37.1 Carrying value 2019 Net assets 583.0 1,217.5 524.2 626.3 1,257.3 2,442.3 1,658.3 1,841.8 Interest in joint ventures (%) 49.0 33.3 33.3 33.3 Group’s share of net assets in joint ventures Amounts due from joint ventures 616.1 – 814.1 422.9 552.8 – 613.9 35.9 Carrying value 616.1 1,237.0 552.8 649.8 The Group has interests in a number of individually immaterial joint ventures. The following table analyses, in aggregate, the share of profit and other comprehensive income and carrying amount of these joint ventures. Share of profit Share of other comprehensive income/(expense) Share of total comprehensive income 2020 US$m 164.5 190.3 354.8 2019 US$m 155.0 (0.7) 154.3 Carrying amount of interests in these joint ventures 5,486.6 3,905.9 At 31st December 2020, the Group’s commitments to provide funding to its joint ventures, if called, amounted to US$720.9 million (2019: US$1,024.0 million). There were no contingent liabilities relating to the Group’s interests in the joint ventures at 31st December 2020 and 2019. 42 Hongkong Land Notes to the Financial Statements12 Debtors Trade debtors Contract assets (see Note 3) Other debtors – third parties – associates and joint ventures Non-current Current By geographical area of operation Hong Kong and Macau Chinese mainland Southeast Asia and others 2020 US$m 53.2 290.3 725.2 55.0 1,123.7 42.0 1,081.7 1,123.7 152.8 186.0 784.9 2019 US$m 112.4 102.7 919.3 55.0 1,189.4 48.1 1,141.3 1,189.4 136.3 397.6 655.5 1,123.7 1,189.4 The fair value of trade debtors, contract assets and other debtors approximates to their carrying amounts, as the impact of discounting is not significant. Derivative financial instruments are stated at fair value. The higher the discount rates, the lower the fair value. Significant financial difficulties of a debtor, probability that a debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payment are considered indicators that the debt is impaired and an allowance for impairment is made based on the estimated irrecoverable amount determined by reference to past default experience. The Group applied the simplified approach to measure expected credit loss, that is a lifetime expected loss allowance for trade debtors and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. Changes in certain macroeconomic information, such as GDP and inflation rate, are relevant for determining expected credit loss rates. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade debtors for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade debtors are a reasonable approximation of the loss rates for the contract assets. The expected loss rates are based on the historical payment profiles of sales and the corresponding historical credit losses. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors and industry trends affecting the ability of the customers to settle the receivables. Annual Report 2020 43 12 Debtors continued The loss allowance as at 31st December 2020 and 2019: Below 30 Between 31 Between 61 More than days US$m and 60 days US$m and 120 days US$m 120 days US$m Total US$m 2020 Expected loss rate (%) Gross carrying amount – trade debtors Gross carrying amount – contract assets – 39.8 290.3 1 6.3 – 10 6.1 – 18 2.8 – 1 55.0 290.3 Loss allowance (0.6) (0.1) (0.6) (0.5) (1.8) 2019 Expected loss rate (%) Gross carrying amount – trade debtors Gross carrying amount – contract assets Loss allowance – 105.9 102.7 – – 2.9 – – – 3.1 – – – 0.5 – – – 112.4 102.7 – Trade debtors, contract assets and other debtors are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group. Other debtors are further analysed as follows: Costs to fulfil contracts (see Note 3) Costs to obtain contracts (see Note 3) Prepayments Derivative financial instruments Amounts due from associates and joint ventures Others 2020 US$m 364.2 17.1 176.4 33.4 55.0 134.1 780.2 2019 US$m 345.0 14.2 351.2 30.5 55.0 178.4 974.3 44 Hongkong Land Notes to the Financial Statements13 Deferred Tax Assets and Liabilities 2020 At 1st January Exchange differences Credited/(charged) to profit and loss Charged to other comprehensive income Disposal of subsidiaries At 31st December Deferred tax assets Deferred tax liabilities 2019 At 1st January Exchange differences Credited/(charged) to profit and loss Credited to other comprehensive income Acquisition of a subsidiary At 31st December Deferred tax assets Deferred tax liabilities Revaluation Accelerated surpluses of Other capital investment temporary Tax losses US$m allowances US$m properties US$m differences US$m Total US$m 4.1 0.3 4.8 – – 9.2 9.2 – 9.2 1.3 (0.1) 2.9 – – 4.1 4.1 – 4.1 (92.3) (0.4) (5.2) – – (27.5) (0.7) 4.9 – – (68.3) (4.1) 15.4 3.2 5.5 (184.0) (4.9) 19.9 3.2 5.5 (97.9) (23.3) (48.3) (160.3) – – (97.9) (23.3) 26.3 (74.6) 35.5 (195.8) (97.9) (23.3) (48.3) (160.3) (88.2) (0.5) (3.6) – – (11.2) 0.2 (16.5) – – (55.4) (153.5) (0.4) (2.1) (4.5) (5.9) (0.8) (19.3) (4.5) (5.9) (92.3) (27.5) (68.3) (184.0) – (92.3) – (27.5) 22.8 (91.1) 26.9 (210.9) (92.3) (27.5) (68.3) (184.0) 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$23.1 million (2019: US$15.3 million) arising from unused tax losses of US$100.9 million (2019: US$67.8 million) have not been recognised in the financial statements. Included in the unused tax losses, US$14.8 million (2019: US$12.3 million) have no expiry date and the balance will expire at various dates up to and including 2024. Annual Report 2020 45 14 Properties for Sale Properties under development Completed properties Provision for impairment 2020 US$m 1,741.0 239.6 1,980.6 (31.8) 2019 US$m 1,824.4 230.9 2,055.3 (13.3) 1,948.8 2,042.0 At 31st December 2020, properties under development which were not scheduled for completion within the next 12 months amounted to US$1,098.0 million (2019: US$1,131.1 million). 15 Bank Balances Deposits with banks and financial institutions Bank balances By currency Chinese renminbi Hong Kong dollar Malaysian ringgit Singapore dollar United States dollar Others 2020 US$m 1,847.3 149.3 1,996.6 1,306.1 59.4 30.4 373.4 224.0 3.3 2019 US$m 1,267.3 156.7 1,424.0 603.7 124.9 30.3 166.0 496.0 3.1 1,996.6 1,424.0 The weighted average interest rate on deposits with banks and financial institutions is 0.9% (2019: 2.0%) per annum. 46 Hongkong Land Notes to the Financial Statements16 Creditors Trade creditors Other creditors Tenants’ deposits Derivative financial instruments Rent received in advance Contract liabilities – properties for sale (see Note 3) Lease liabilities Non-current Current By geographical area of operation Hong Kong and Macau Chinese mainland Southeast Asia and others 2020 US$m 622.3 174.4 281.6 16.1 21.2 487.0 5.7 1,608.3 36.3 1,572.0 1,608.3 609.2 859.5 139.6 2019 US$m 620.1 274.9 280.3 4.7 29.2 265.7 5.9 1,480.8 20.0 1,460.8 1,480.8 572.2 723.9 184.7 Derivative financial instruments are stated at fair value. Other creditors are stated at amortised cost. The fair value of these creditors approximates their carrying amounts. 1,608.3 1,480.8 17 Borrowings Current Bank overdrafts Bank loans Current portion of long-term borrowings – bank loans – notes Long-term Bank loans Notes Secured Unsecured 2020 2019 Carrying amount US$m Fair value US$m Carrying amount US$m Fair value US$m 6.2 100.3 516.8 66.2 6.2 100.3 516.8 66.2 6.0 383.8 21.4 304.1 6.0 383.8 21.4 305.4 689.5 689.5 715.3 716.6 1,939.1 3,936.3 1,939.1 4,275.4 1,281.5 3,018.4 1,281.5 3,176.3 5,875.4 6,214.5 4,299.9 4,457.8 6,564.9 6,904.0 5,015.2 5,174.4 801.6 5,763.3 6,564.9 653.2 4,362.0 5,015.2 Annual Report 2020 47 17 Borrowings continued The fair values are based on market prices or are estimated using the expected future payments discounted at market interest rates ranging from 0.3% to 4.9% (2019: 1.4% to 6.4%) per annum. This is in line with the definition of ‘observable current market transactions’ under the fair value measurement hierarchy. The fair value of current borrowings approximates their carrying amounts, as the impact of discounting is not significant. Secured borrowings at 31st December 2020 and 2019 were certain subsidiaries’ bank borrowings which were secured against their investment properties and properties for sale. The movements in borrowings are as follow: Bank Long-term Short-term overdrafts US$m borrowings US$m borrowings US$m Total US$m 2020 At 1st January Exchange differences Transfer Change in fair value Change in bank overdrafts Drawdown of borrowings Repayment of borrowings 6.0 4,299.9 – – – 0.2 – – 88.6 (518.0) 15.1 – 709.3 (12.3) 518.0 – – 5,015.2 76.3 – 15.1 0.2 3,550.1 176.8 3,726.9 (1,560.3) (708.5) (2,268.8) At 31st December 6.2 5,875.4 683.3 6,564.9 2019 At 1st January Exchange differences Transfer Change in fair value Change in bank overdrafts Drawdown of borrowings Repayment of borrowings At 31st December 6.3 4,145.2 – – – (0.3) – – (0.9) (315.4) 14.6 – 1,052.6 (596.2) 787.5 37.5 315.4 – – 4,939.0 36.6 – 14.6 (0.3) 281.9 1,334.5 (713.0) (1,309.2) 6.0 4,299.9 709.3 5,015.2 48 Hongkong Land Notes to the Financial Statements17 Borrowings continued The borrowings are further summarised as follows: By currency 2020 Hong Kong dollar Singapore dollar Chinese renminbi Thai baht 2019 Hong Kong dollar Singapore dollar Chinese renminbi Thai baht Others Fixed rate borrowings Weighted Weighted average average period interest rates outstanding % Years US$m Floating rate borrowings US$m Total US$m 3.1 2.2 4.9 1.8 4.1 3.1 5.0 1.8 4.0 7.4 14.7 – – 6.5 11.4 – – – 3,142.3 291.8 – – 1,581.7 4,724.0 330.5 862.3 356.3 622.3 862.3 356.3 3,434.1 3,130.8 6,564.9 2,306.0 397.5 – – – 1,054.2 3,360.2 253.2 620.8 376.2 7.3 650.7 620.8 376.2 7.3 2,703.5 2,311.7 5,015.2 The weighted average interest rates and period of fixed rate borrowings are stated after taking into account hedging transactions. The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at 31st December after taking into account hedging transactions are as follows: Floating rate borrowings Fixed rate borrowings – within one year – between one and two years – between two and three years – between three and four years – between four and five years – beyond five years 2020 US$m 2019 US$m 3,130.8 2,311.7 – 267.4 248.2 199.2 646.2 2,073.1 3,434.1 6,564.9 239.7 – 266.6 246.0 199.0 1,752.2 2,703.5 5,015.2 Annual Report 2020 49 17 Borrowings continued Details of notes outstanding at 31st December are as follows: Maturity 2020 2019 Current Non-current US$m US$m Current US$m Non-current US$m 2020 2020 2020 2020 2021 2022 2022 2022 2022 2023 2023 2024 2025 2025 2026 2027 2027 2027 2028 2028 2028 2028 2029 2029 2030 2030 2031 2032 2032 2033 2034 2035 2035 2035 2035 2038 2039 2040 – – – – 66.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 52.8 504.8 39.3 25.8 141.5 38.6 414.3 38.6 607.6 38.8 100.2 60.9 25.7 38.3 41.7 57.9 45.6 51.1 70.8 594.7 103.2 25.5 30.5 110.3 89.6 77.5 51.1 50.9 50.9 102.0 111.3 112.4 32.1 64.3 64.2 111.4 64.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 65.5 52.5 497.5 39.1 25.6 140.8 38.4 406.7 38.4 609.1 38.6 99.7 60.7 25.6 38.1 41.5 57.6 45.4 50.8 70.5 – 102.8 25.4 30.3 – 89.2 77.2 – – – – 109.2 110.2 32.0 66.2 3,936.3 304.1 3,018.4 Medium term notes HK$500m 10-year notes at 4.22% HK$500m 10-year notes at 4.24% S$150m 10-year notes at 3.43% HK$500m 10-year notes at 3.95% HK$500m 12-year notes at 4.28% HK$410m 10-year notes at 3.86% US$500m 10-year notes at 4.50%* HK$305m 10-year notes at 3.00% HK$200m 10-year notes at 2.90% HK$1,100m 10-year notes at 3.95% HK$300m 10-year notes at 3.95% US$400m 10-year notes at 4.625%* HK$300m 15-year notes at 4.10% US$600m 15-year notes at 4.50%* HK$302m 15-year notes at 3.75% HK$785m 15-year notes at 4.00% HK$473m 15-year notes at 4.04% HK$200m 15-year notes at 3.95% HK$300m 15-year notes at 3.15% HK$325m 15-year notes at 4.22% HK$450m 10-year notes at 3.83% HK$355m 10-year notes at 3.75% HK$400m 15-year notes at 4.40% HK$550m 10-year notes at 2.93% US$600m 10-year notes at 2.875%* HK$800m 20-year notes at 4.11% HK$200m 20-year notes at 4.125% HK$240m 20-year notes at 4.00% HK$863m 12-year notes at 2.83% HK$700m 15-year notes at 4.12% HK$604m 15-year notes at 3.67% HK$400m 15-year notes at 2.72% HK$400m 15-year notes at 2.90% HK$400m 15-year notes at 2.90% HK$800m 15-year notes at 2.65% S$150m 20-year notes at 3.95% S$150m 20-year notes at 3.45% HK$250m 30-year notes at 5.25% * Listed on the Singapore Exchange 50 Hongkong Land Notes to the Financial Statements18 Share Capital Authorised Shares of US$0.10 each Issued and fully paid At 1st January and 31st December 19 Dividends Ordinary shares in millions 2020 2019 2020 US$m 2019 US$m 4,000.0 4,000.0 400.0 400.0 2,333.9 2,333.9 233.4 233.4 Final dividend in respect of 2019 of US¢16.00 (2018: US¢16.00) per share Interim dividend in respect of 2020 of US¢6.00 (2019: US¢6.00) per share 2020 US$m 373.4 140.0 513.4 2019 US$m 373.4 140.0 513.4 A final dividend in respect of 2020 of US¢16.00 (2019: US¢16.00) per share amounting to a total of US$373.4 million (2019: US$373.4 million) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the 2021 Annual General Meeting. The amount will be accounted for as an appropriation of revenue reserves in the year ending 31st December 2021. 20 Notes to Consolidated Cash Flow Statement a) Development capital expenditure in 2020 included US$4,484.5 million for a prime mixed used site in the Xuhui District of Shanghai, Chinese mainland. b) Repayments from/(investments in and advances to) associates and joint ventures By business Investment Properties Development Properties By geographical location Chinese mainland Southeast Asia and others 2020 US$m (0.9) 599.9 599.0 572.4 26.6 599.0 2019 US$m (1.7) (644.3) (646.0) (456.9) (189.1) (646.0) Annual Report 2020 51 20 Notes to Consolidated Cash Flow Statement continued c) Disposal of subsidiaries Fair value of assets and liabilities of subsidiaries disposed of Non-current assets Current assets Non-current liabilities Current liabilities Non-controlling interests Net assets Profit on disposal Transfer to joint venture upon partial disposal of interest in subsidiaries Translation differences on disposal proceeds received Consideration Cash and cash equivalents of subsidiaries disposed of Net cash inflow for disposal of subsidiaries Analysis of net cash inflow for disposal of subsidiaries: Proceeds received for disposal of subsidiaries Deposits refunded for disposal of subsidiaries 2020 US$m 4,922.0 85.0 (5.9) (19.3) (13.0) 4,968.8 7.2 (2,118.9) (235.4) 2,621.7 (8.4) 2,613.3 4,619.0 (2,005.7) 2,613.3 Net cash inflow for disposal of subsidiaries in 2020 included US$47.1 million for disposal of 80% interest in a development properties project in Vietnam and US$2,566.2 million for 57% interest in a prime mixed used project in the Xuhui District of Shanghai, Chinese mainland. d) Cash and cash equivalents Bank balances (see Note 15) Bank overdrafts (see Note 17) 2020 US$m 1,996.6 (6.2) 2019 US$m 1,424.0 (6.0) 1,990.4 1,418.0 52 Hongkong Land Notes to the Financial Statements 21 Derivative Financial Instruments The fair values of derivative financial instruments at 31st December are as follows: Designated as cash flow hedges – interest rate swaps – cross currency swaps Designated as fair value hedges – interest rate swaps – cross currency swaps Interest rate swaps 2020 2019 Positive fair value US$m Negative fair value US$m Positive fair value US$m Negative fair value US$m – 9.7 1.7 22.0 3.3 12.8 – – – 19.7 1.3 9.5 1.8 – – 2.9 The notional principal amounts of the outstanding interest rate swap contracts designated as fair value hedges and cash flow hedges at 31st December 2020 were US$64.5 million (2019: US$64.2 million) and US$68.1 million (2019: US$66.8 million) respectively. The fair values of interest rate swaps are based on the estimated cash flows discounted at market rates ranging from 0.2% to 0.4% (2019: 1.5% to 2.4%) per annum. Cross currency swaps The contract amounts of the outstanding cross currency swap contracts at 31st December 2020 were US$2,100.0 million (2019: US$1,567.0 million). The outstanding interest rate swaps and cross currency swaps of an aggregate notional principal and contract amount of US$1.7 billion are impacted by the IBORs reform. 22 Capital Commitments Authorised not contracted Contracted not provided – contributions to joint ventures – others 2020 US$m 3.9 720.9 104.0 824.9 828.8 2019 US$m 7.9 1,024.0 112.8 1,136.8 1,144.7 Annual Report 2020 53 23 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. 24 Related Party Transactions The parent company of the Group is Jardine Strategic Holdings Limited and the ultimate holding company is Jardine Matheson Holdings Limited (‘JMH’). Both companies are incorporated in Bermuda. In the normal course of business, the Group has entered into a variety of transactions with the subsidiaries, associates and joint ventures of JMH (‘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 (‘JML’) in 2020 was US$4.8 million (2019: US$5.4 million), being 0.5% per annum of the Group’s underlying profit in consideration for management consultancy services provided by JML, a wholly-owned subsidiary of JMH. Property and other services The Group rented properties to Jardine Matheson group members. Gross rents on such properties in 2020 amounted to US$19.3 million (2019: US$24.1 million). The Group provided project management services and property management services to Jardine Matheson group members in 2020 amounting to US$3.7 million (2019: US$3.0 million). Jardine Matheson group members provided property maintenance and other services to the Group in 2020 in aggregate amounting to US$63.1 million (2019: US$61.4 million). Hotel management services Jardine Matheson group members provided hotel management services to the Group in 2020 amounting to US$1.6 million (2019: US$2.1 million). Outstanding balances with associates and joint ventures Amounts of outstanding balances with associates and joint ventures are included in associates and joint ventures, debtors and creditors as appropriate (see Notes 11, 12 and 16). Directors’ emoluments Details of Directors’ emoluments (being the key management personnel compensation) are shown on page 90 under the heading of ‘Remuneration in 2020’. 54 Hongkong Land Notes to the Financial Statements25 Summarised Balance Sheet of the Company Included below is certain summarised balance sheet information of the Company disclosed in accordance with Bermuda law. Net operating assets Investments at cost Unlisted shares in subsidiaries Amounts due from subsidiaries Creditors and other accruals Total equity Share capital (see Note 18) Revenue and other reserves Contributed surplus Share premium Revenue reserves Shareholders’ funds 2020 US$m 2019 US$m 4,481.7 2,328.5 6,810.2 (35.1) 4,481.7 1,819.4 6,301.1 (32.8) 6,775.1 6,268.3 233.4 233.4 2,249.6 257.3 4,034.8 6,541.7 6,775.1 2,249.6 257.3 3,528.0 6,034.9 6,268.3 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 2020 55 26 Principal Subsidiaries, Associates and Joint Ventures The principal subsidiaries, associates and joint ventures of the Group at 31st December 2020 are set out below. Attributable interest 2020 2019 % % Issued share capital Main activities incorporation Place of Subsidiaries Hongkong Land China Holdings Ltd* 100 100 USD 200,000,000 Investment holding Bermuda Hongkong Land International 100 100 USD 200,000,000 Investment holding Bermuda Holdings Ltd* Hongkong Land Ltd* 100 100 USD 12,000 Group management Bermuda The Hongkong Land Company, Ltd 100 100 HKD 1,293,180,006 Investment holding Hong Kong The Hongkong Land Property 100 100 HKD 200 Property investment Hong Kong Company, Ltd HKL (Chater House) Ltd 100 100 HKD 1,500,000 Property investment Hong Kong HKL (Landmark Hotel) Ltd 100 100 HKD 2 Hotel investment Hong Kong HKL (Prince’s Building) Ltd 100 100 HKD 200 Property investment Hong Kong Hongkong Land (HK) Investments Ltd 100 100 HKD 4,033,804,249 Investment holding Hong Kong Mulberry Land Company Ltd 100 100 HKD 200 Property investment Hong Kong Hongkong Land (Chongqing) 100 100 USD 550,990,000 Property development Chinese mainland Development Co Ltd Hongkong Land (Chongqing North) 100 100 HKD 3,980,000,000 Property development Chinese mainland Development Co Ltd Hongkong Land (Chongqing) 100 100 USD 2,200,000,000 Investment holding Chinese mainland Investment and Holding Co Ltd Hongkong Land (Chonqqing) 100 100 RMB 900,000,000 Property development Chinese mainland Xinchen Development Co Ltd Hongkong Land (Chongqing) 100 100 RMB 480,000,000 Property development Chinese mainland Xingyi Development Co Ltd Hongkong Land (Hangzhou) Heyue 100 100 RMB 706,000,000 Property development Chinese mainland Investment and Development Co Ltd Wangfu Central Real Estate 84 84 RMB 3,500,000,000 Property investment Chinese mainland Development Co Ltd HKL (Esplanade) Pte Ltd 100 100 SGD 150,000,000 Property investment Singapore HKL Treasury (Singapore) Pte Ltd 100 100 Hongkong Land (Singapore) Pte Ltd 100 100 SGD SGD SGD SGD 2 63,138,529† 1 519,525,895† Finance Singapore Project management Singapore The Hongkong Land Treasury 100 100 SGD 2 Finance Singapore Services (Singapore) Pte Ltd * Owned directly † Preference shares 56 Hongkong Land Notes to the Financial Statements26 Principal Subsidiaries, Associates and Joint Ventures continued Attributable interest 2020 2019 % % Issued share capital Main activities incorporation Place of Subsidiaries continued MCL Land Limited 100 100 SGD 511,736,041 Investment holding Singapore MCL Land (Everbright) Pte Ltd 100 100 SGD 4,000,000 Property development Singapore MCL Land (Regency) Pte Ltd 100 100 SGD 3,000,000 Property development Singapore Hongkong Land 100 100 Riels 4,000,000 Property investment Cambodia (Premium Development) Ltd MCL Land (Quinn) Sdn Bhd 100 100 MYR 2,764,210 Property development Malaysia MCL Land (Century Gardens) Sdn Bhd 100 100 MYR 29,117,145 Investment holding Malaysia MCL Land (Pantai View) Sdn Bhd 100 100 MYR 28,000,000 Property investment Malaysia MCL Land (Malaysia) Sdn Bhd 100 100 MYR 4,010,000 Property development Malaysia HKL (Thai Developments) Ltd 100 100 Baht 2,592,000,000 Investment holding Thailand Central Building Ltd 65 65 USD 1,991,547 Property investment Vietnam Doan Ket International Co Ltd 73.9 73.9 USD 7,292,000 Property investment Vietnam HKL (Treasury Services) Ltd 100 100 USD 1 Finance British Virgin Islands The Hongkong Land Notes Co Ltd 100 100 USD 2 Intra-group financing British Virgin Islands The Hongkong Land Finance 100 100 USD 2 Intra-group financing Cayman Islands (Cayman Islands) Co Ltd Associates and joint ventures Normelle Estates Ltd Properties Sub F, Ltd Beijing Landmark Trinity Real Estate Development Co Ltd Beijing Premium Real Estate Ltd Chongqing Central Park Co Ltd Chongqing Lijia Development Co Ltd Chengdu Premium Property Development Co Ltd 50 49 30 40 50 50 50 50 49 30 40 50 50 50 HKD MOP 10,000 Property investment Hong Kong 1,000,000 Property investment Macau RMB 2,800,000,000 Property development Chinese mainland USD 12,000,000 Property development Chinese mainland HKD 4,640,000,000 Property development Chinese mainland RMB USD 533,596,100 Property development Chinese mainland 699,980,000 Property development Chinese mainland China West Premier Housing 50 50 USD 569,960,000 Property development Chinese mainland Development Co Ltd Hangzhou Kesheng Property 30 30 RMB 50,000,000 Property development Chinese mainland Development Co Ltd Hangzhou Keyi Property 30 30 RMB 150,000,000 Property development Chinese mainland Development Co Ltd Hongkong Land (Chengdu) 33 33 RMB 50,000,000 Property development Chinese mainland Xingyi Development Co Ltd Annual Report 2020 57 26 Principal Subsidiaries, Associates and Joint Ventures continued Attributable interest 2020 2019 % % Issued share capital Main activities incorporation Place of Associates and joint ventures continued Hongkong Land Longfor (Chongqing) 50 50 RMB 2,000,000,000 Property development Chinese mainland Hongmao Development Co Ltd Longfor Hongkong Land (Chongqing) 50 50 RMB 1,275,920,000 Property development Chinese mainland Development Co Ltd Nanjing Shengxiangyuan Property 33 33 RMB 3,000,000,000 Property development Chinese mainland Development Co Ltd Nanjing Xinyeezhi Property 50 50 USD 750,000,000 Property development Chinese mainland Development Co Ltd Nanjing Yeezhi Jiangbei Property 50 50 RMB 1,500,000,000 Property development Chinese mainland Development Co Ltd Shanghai Xinqiaogao Development Co Ltd 26.7 26.7 RMB 4,000,000,000 Property development Chinese mainland Shanghai Xujing Property Co Ltd Shanghai Yihui Development Co Ltd Wuhan Dream Land Investment and Development Co Ltd 50 50 50 50 50 50 RMB 4,200,000,000 Property development Chinese mainland RMB 830,000,000 Property development Chinese mainland RMB 1,200,000,000 Property development Chinese mainland Wuhan Yeezhi Minghong 66 66 RMB 600,000,000 Property development Chinese mainland Development Co Ltd Yeezhi Yuexiang (Chongqing) 50 50 RMB 260,000,000 Property development Chinese mainland Development Co Ltd Asia Radiant Pte Ltd 50 50 SGD 4,000,000 Property development Singapore BFC Development LLP 33.3 33.3 SGD N/A Property investment Singapore Central Boulevard Development Pte Ltd 33.3 33.3 SGD One Raffles Quay Pte Ltd 33.3 33.3 SGD Universal Estate Pte Ltd 50 50 SGD 6 6 2 Property investment Singapore Property investment Singapore Investment Holding Singapore PT Astra Modern Land 33.5 33.5 IDR 3,870,000,000,000 Property development Indonesia PT Award Global Infinity PT Brahmayasa Bahtera PT Bumi Parama Wisesa PT Jakarta Land Sunrise MCL Land Sdn Bhd Roxas Land Corporation Central and Hongkong Land Co Ltd CPN and HKL Co Ltd 50 40 49 50 50 40 49 49 50 40 49 50 50 40 49 49 IDR 257,981,171,800 Property development Indonesia IDR 166,000,000,000 Property development Indonesia IDR 1,950,000,000,000 Property development Indonesia IDR 3,320,000,000 Property investment Indonesia MYR 2,000,000 Property development Malaysia Peso 1,065,000,000 Property development The Philippines THB 4,986,250,000 Property development Thailand THB 4,000,000 Property development Thailand 58 Hongkong Land Notes to the Financial Statements26 Principal Subsidiaries, Associates and Joint Ventures continued Attributable interest 2020 2019 % % Issued share capital Main activities incorporation Place of Associates and joint ventures continued PFHKL 1 Co Ltd PFHKL 2 Co Ltd PFHKL 3 Co Ltd PFHKL 4 Co., Ltd. PFHKL 5 Co., Ltd. PFHKL 6 Co., Ltd. Gaysorn Land Co Ltd S36 Property Co Ltd NDC An Khang Joint Stock Co Jardine Gibbons Properties Ltd 49 49 49 49 49 49 49 49 70 40 49 49 49 49 49 49 49 49 70 40 THB THB THB THB THB THB THB THB 5,000,000 Property development Thailand 5,000,000 Property development Thailand 5,000,000 Property development Thailand 5,000,000 Property development Thailand 5,000,000 Property development Thailand 5,000,000 Property development Thailand 61,250,000 Property investment Thailand 800,000,000 Property development Thailand VND 2,861,000,000,000 Property development Vietnam BD 600,000 ‘A’ Property investment Bermuda 400,000 ‘B’ 27 Principal Accounting Policies Basis of consolidation i) The consolidated financial statements include the financial statements of the Company, its subsidiaries, and the Group’s interests in associates and joint ventures. ii) A subsidiary is an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 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. The Group recognises the non-controlling interest’s proportionate share of the recognised identifiable net assets of the acquired subsidiary. In a business combination achieved in stages, the Group remeasures its previously held interest in the acquiree at its acquisition-date fair value and recognises 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. iii) An associate is an entity, not being a subsidiary or joint venture, over which the Group exercises significant influence. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Associates and joint ventures are included on the equity basis of accounting. Profits and losses resulting from upstream and downstream transactions between the Group and its associates and joint ventures are recognised in the consolidated financial statements only to the extent of unrelated investor’s interests in the associates and joint ventures. Annual Report 2020 59 27 Principal Accounting Policies continued Basis of consolidation continued iv) Non-controlling 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, such exchange differences are recognised in profit and loss. Exchange differences on other investments measured at fair value through other comprehensive income are recognised in other comprehensive income as part of the gains and losses arising from changes in their fair value. All other exchange differences are recognised in profit and loss. Goodwill and fair value adjustments arising on acquisition of a foreign entity after 1st January 2003 are treated as assets and liabilities of the foreign entity and translated into United States dollars at the rate of exchange ruling at the year-end. Impairment of non-financial assets 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. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment annually. Goodwill Goodwill represents the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the acquisition-date fair value of any previously held equity interest in the acquiree over the acquisition-date fair value of the Group’s share of the net identifiable assets acquired. Non-controlling 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 is stated after deducting the carrying amount of goodwill relating to the entity sold. 60 Hongkong Land Notes to the Financial Statements 27 Principal Accounting Policies continued Fixed assets and depreciation The building component of owner-occupied leasehold properties are stated at cost less accumulated depreciation and impairment. Other fixed assets are stated at cost less amounts provided for depreciation. Depreciation of 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: Hotel property 20 – 30 years Furniture, equipment and motor vehicles 3 – 10 years Where the carrying amount of a 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 fixed assets is recognised by reference to their carrying amount. Leases At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. i) As a lessee The Group enters into property leases for use as offices, as well as leases for motor vehicles for use in its operations. The Group recognises right-of-use assets and lease liabilities at the lease commencement dates, that is the dates the underlying assets are available for use. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment, and adjusted for any remeasurement of lease liabilities. The cost of the right-of-use assets includes amounts of the initial measurement of lease liabilities recognised, lease payments made at or before the commencement dates less any lease incentives received, initial direct costs incurred and restoration costs. Right-of-use assets are depreciated using the straight-line method over the shorter of their estimated useful lives and the lease terms. When right-of-use assets meet the definition of investment properties, they are presented in investment properties, and are initially measured at cost and subsequently measured at fair value, in accordance with the Group’s accounting policy. The Group also has interests in leasehold land for use in its operations. Lump sum payments were made upfront to acquire these land interests from their previous registered owners or governments in the jurisdictions where the land is located. There are no ongoing payments to be made under the term of the land leases, other than insignificant lease renewal costs or payments based on rateable value set by the relevant government authorities. These payments are stated at cost and are amortised over the term of the lease which includes the renewal period if the lease can be renewed by the Group without significant cost. Lease liabilities are measured at the present value of lease payments to be made over the lease terms. Lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised and payments of penalties for terminating a lease, if the lease term reflects the Group exercising that option. The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. Lease liabilities are measured at amortised cost using the effective interest method. After the commencement date, the amount of lease liabilities is increased by the interest costs on the lease liabilities and decreased by lease payments made. Annual Report 2020 61 27 Principal Accounting Policies continued Leases continued i) As a lessee continued The carrying amount of lease liabilities is remeasured when there is a change in the lease term, or there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise an extension or a termination option. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of right-of-use asset has been reduced to zero. The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low value assets (i.e. US$5,000 or less) and short-term leases. Low value assets comprised IT equipment and small items of office furniture. Short-term leases are leases with a lease term of 12 months or less. Lease payments associated with these leases are recognised on a straight-line basis as an expense in profit and loss over the lease term. Lease liabilities are classified as non-current liabilities unless payments are within 12 months from the balance sheet date. ii) As a lessor The Group enters into contracts with lease components as a lessor on its investment properties. These leases are operating leases as they do not transfer the risk and rewards incidental to the underlying investment properties. The Group recognises the lease payments received under these operating leases on a straight line basis over the lease term as part of revenue in the profit and loss. 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 commercial properties are calculated on the discounted net rental income allowing for reversionary potential. The market value of residential properties are arrived at by reference to market evidence of transaction prices for similar properties. Changes in fair value are recognised in profit and loss. 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, construction and other development costs, and borrowing costs. Debtors Debtors are recognised initially at the amount of consideration that is unconditional and measured subsequently at amortised cost using the effective interest method. A contract asset arises if the Group has a right to consideration in exchange for goods or services the Group has transferred to a customer, that is conditional on something other than the passage of time. All other debtors, excluding derivative financial instruments, are measured at amortised cost except where the effect of discounting would be immaterial. For trade debtors and contract assets, the Group applied the simplified approach as permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the debtors. Provision for impairment is established by considering potential financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. 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 12 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 financial institutions, and bank and cash balances, net of bank overdrafts. In the balance sheet, bank overdrafts are included in current borrowings. 62 Hongkong Land Notes to the Financial Statements 27 Principal Accounting Policies continued 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. 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 as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Current and deferred tax The tax expense for the year comprises current and deferred tax. Tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or direct in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. 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. 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 arising from experience adjustments and changes in actuarial assumptions are recognised in other comprehensive income in the year in which they occur. Past service costs are recognised immediately in profit and loss. The Group’s total contributions relating to the defined contribution plans are charged to profit and loss in the year to which they relate. Annual Report 2020 63 27 Principal Accounting Policies continued Derivative financial instruments The Group only enters into derivative financial instruments in order to hedge underlying exposures and not as speculative investments. 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. At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its hedge transactions. 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. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit and loss within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in profit and loss. 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. Changes in the fair value relating to the ineffective portion is recognised immediately in profit and loss. Where the hedged item results in the recognition of a non-financial asset or of a non-financial liability, the deferred gains and losses are included in the initial measurement of the cost of the asset or liability. The deferred amounts are ultimately recognised in profit and loss as the hedged item affects profit and loss. 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. The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings is recognised in profit and loss within finance cost at the same time as the interest expense on the hedged borrowings. 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 IFRS 9. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IFRS 9 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 other comprehensive income and accumulated 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 12 months after the balance sheet date. 64 Hongkong Land Notes to the Financial Statements 27 Principal Accounting Policies continued Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. 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 and investment properties; impairment of non-depreciable intangible assets; 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 Earnings per share are calculated on profit attributable to shareholders and on the weighted average number of shares in issue during the year. Dividends Dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date. Revenue recognition i) Properties for sale Revenue from properties for sale is recognised when or as the control of the property is transferred to the customer. Revenue consists of the fair value of the consideration received and receivable, net of value added tax, rebates and discounts. Proceeds received in advance for pre-sale are recorded as contract liabilities. Depending on the terms of the contract and the laws that apply to the contract, control of the property may transfer over time or at a point in time. If control of the property transfers over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point in time when the customer obtains control of the property. The progress towards complete satisfaction of the performance obligation is measured based on the Group’s efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of reporting period as a percentage of total estimated costs for each contract. For properties for sale under development and sales contract for which the control of the property is transferred at a point in time, revenue is recognised when the customer obtains the physical possession or the legal title of the completed property and the Group has present right to payment and the collection of the consideration is probable. ii) Investment properties Rental income from investment properties are accounted for on an accruals basis over the lease term. iii) Service income Revenue from property management service and hospitality service are recognised when services are performed provided that the amount can be measured reliably. Annual Report 2020 65 27 Principal Accounting Policies continued Pre-operating costs Pre-operating costs are expensed as they are incurred. Government grants Grants from government are recognised at their fair values where there is reasonable assurance that the grants will be received, and the Group will comply with the conditions associated with the grants. Grants that compensate the Group for expenses incurred are recognised in the profit and loss as other income on a systematic basis in the period in which the expenses are recognised. Unconditional grants are recognised in the profit and loss as other income when they become receivable. Grants related to assets are deducted in arriving at the carrying value of the related assets. 28 Standards and Amendments Issued but Not Yet Effective A number of new standard and amendments effective for accounting periods beginning after 2020 have been published and will be adopted by the Group from their effective dates. The Group is currently assessing the potential impact of these standard and amendments but expects their adoption will not have a significant impact on the Group’s consolidated financial statements. The more important standard and amendments are set out below. i) Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (effective from 1st January 2021) provides a number of practical expedients as a result of the reform which affect the measurement of financial assets, financial liabilities and lease liabilities, and a number of reliefs for hedging relationships. The Group will apply the amendments from 1st January 2021, but it is not expected the adoption will have a significant impact on the Group’s consolidated financial statements. ii) Amendment to IFRS 9: ‘Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities’ (effective from 1st January 2022) clarifies the requirement to derecognise the original financial liability and recognise a new financial liability where there is an exchange between an existing borrower and lender of debt instrument with substantially different terms. The amendments clarifies that the terms are substantially different if the discounted present value of the cash flows under the new terms using the original effective interest rate, including any fees paid net of any fees received, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. The Group will apply the amendment from 1st January 2022, but it is not expected the adoption will have a significant impact on the Group’s consolidated financial statements. iii) Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract (effective from 1st January 2022) clarifies that for the purpose of assessing whether a contract is onerous, the cost of fulfilling the contract includes both the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling contracts. The Group will apply the amendment from 1st January 2022, but it is not expected the adoption will have a significant impact on the Group’s consolidated financial statements. 66 Hongkong Land Notes to the Financial Statements 29 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, cross-currency 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. Hedge accounting is applied to remove the accounting mismatch between the hedging instrument and the hedged item. The effective portion of the change in the fair value of the hedging instrument is deferred into the cash flow hedge reserve through other comprehensive income and will be recognised in profit and loss when the hedged item affects profit and loss. In general, the volatility in profit or loss can be reduced by applying hedge accounting. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. For hedges of foreign currency purchases, the Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. The Group assesses whether the derivative designated in each hedging relationship has been and expected to be effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative method. Ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated for hedges of foreign currency purchases, or if there are changes in the credit risk of the Group or the derivative counterparty. The Group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. The Group does not hedge 100% of its loans, therefore the hedged item is identified as a proportion of the outstanding loans up to the notional amount of the swaps. As all critical terms matched during the year, effective economic relationship existed between the swaps and the loans. Hedge ineffectiveness for interest rate swaps is assessed using the same principles as for hedges of foreign currency purchases. It may occur due to: i) The credit value/debit value adjustment on the interest rate swaps which is not matched by the loan; ii) Differences in critical terms between the interest rate swaps and loans; and iii) The effects of the forthcoming reforms to IBORs, because these might take effect at a different time and have a different impact on the hedged item (the floating-rate debt) and the hedging instrument (the interest rate swap used to hedge the debt). The ineffectiveness during 2020 or 2019 in relation to interest rate swaps was not material. Annual Report 2020 67 29 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 cross-currency swaps and 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 entities 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 2020, there are no significant monetary balances held by group companies that are denominated in a non-functional currency other than the cross-currency swap contracts with contract amounts of US$2,100 million (2019: US$1,567 million). Differences resulting from the translation of financial statements into the Group’s presentation currency are not taken into consideration. Since the Group manages the interdependencies between foreign exchange risk and interest rate risk of foreign currency borrowings using cross-currency swaps, the sensitivity analysis on financial impacts arising from cross-currency swaps is included in the sensitivity assessment on interest rates under the interest rate risk section. 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 fixed rate borrowings and 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. At 31st December 2020, the Group’s interest rate hedge was 52% (2019: 54%) with an average tenor of eight years (2019: seven years). The interest rate profile of the Group’s borrowings after taking into account hedging transactions are set out in Note 17. 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 rates to fixed rates. Details of interest rate swaps and cross-currency swaps are set out in Note 21. 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 rates to floating rates, to maintain the Group’s fixed rate instruments within the Group’s guideline. 68 Hongkong Land Notes to the Financial Statements 29 Financial Risk Management continued Financial risk factors continued i) Market risk continued Interest rate risk continued At 31st December 2020, 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$2 million (2019: US$1 million) lower/higher, and hedging reserve would have been US$82 million (2019: US$40 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, Chinese mainland 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 account 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. 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 and capital adequacy ratios of counterparties, and limiting the aggregate risk to any individual counterparty. The utilisation of credit limits is regularly monitored. 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 leased principally to corporate companies with appropriate credit history, and 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, the Group undertakes 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. Annual Report 2020 69 29 Financial Risk Management continued Financial risk factors continued iii) Liquidity risk Prudent liquidity risk management includes managing the profile of debt maturities and funding sources, maintaining sufficient cash, 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 2020, total committed and uncommitted borrowing facilities amounted to US$9,069 million (2019: US$7,332 million) of which US$6,565 million (2019: US$5,015 million) was drawn down. Undrawn committed facilities, in the form of revolving credit and term loan facilities, totalled US$2,356 million (2019: US$2,127 million). Undrawn uncommitted facilities in the form of revolving credit loan facilities, amounted to US$148 million (2019: US$190 million). The following table analyses the Group’s non-derivative financial liabilities, net-settled derivative financial liabilities and gross-settled financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows. Between Between Between Between Total Within one and two and three and four and Beyond undiscounted one year US$m two years US$m three years US$m four years US$m five years five years cash flows US$m US$m US$m 903.1 780.3 929.7 18.9 398.8 0.2 (1.4) (1.4) (0.5) 603.2 2,022.4 3,060.3 7,917.5 0.2 – 0.5 – 2.3 802.4 – (3.3) 85.3 572.6 62.8 445.5 639.8 678.2 2,484.2 (74.3) (564.6) (56.6) (445.6) (638.8) (681.4) (2,461.3) 895.4 881.3 503.6 1,290.7 4.4 12.1 340.1 0.2 (0.5) (0.5) (0.5) (0.1) 545.0 2,548.3 6,123.1 0.2 – 2.7 900.9 – (1.6) 132.7 (134.1) 68.0 (66.9) 555.7 (551.1) 45.5 (42.0) 428.4 623.0 1,853.3 (438.6) (617.8) (1,850.5) 2020 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow 2019 Borrowings Creditors Net settled derivative financial instruments Gross settled derivative financial instruments – inflow – outflow None of the undiscounted borrowings at 31st December 2020 are impacted by the IBORs reform. 70 Hongkong Land Notes to the Financial Statements 29 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 does not have a defined dividend policy or share repurchase plan. 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 and the Group’s share of underlying operating profit of associates and joint ventures divided by net financing charges including the Group’s share of net financing charges within associates and joint ventures. The Group does not have a defined gearing or interest cover benchmark or range. The ratios at 31st December 2020 and 2019 are as follows: Gearing ratio (%) Interest cover (times) Fair value estimation 2020 2019 13 9 9 9 i) Financial instruments that are measured at fair value based on 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 values of derivative financial instruments are determined using rates quoted by the Group’s bankers at the balance sheet date. The rates for interest rate swaps and forward foreign exchange contracts are calculated by reference to market interest rates and foreign exchange rates. Assets Derivative designated at fair value – through other comprehensive income – through profit and loss Liabilities Derivative designated at fair value – through other comprehensive income – through profit and loss There were no changes in valuation techniques during the year. Observable current market transactions 2020 US$m 2019 US$m 9.7 23.7 33.4 (16.1) – (16.1) 19.7 10.8 30.5 (1.8) (2.9) (4.7) Annual Report 2020 71 29 Financial Risk Management continued Fair value estimation continued ii) Financial instruments that are not measured at fair value The fair values of current debtors, bank balances, current creditors, current borrowings and current lease liabilities 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. The fair values of non-current lease liabilities are estimated using the expected future payments discounted at market interest rates. Financial instruments by category The fair values of financial assets and financial liabilities, together with carrying amounts at 31st December 2020 and 2019 are as follows: Fair value Financial assets at of hedging amortised instruments US$m costs US$m Other financial liabilities US$m Total carrying amount US$m Fair value US$m 2020 Financial assets measured at fair value Derivative financial instruments Financial assets not measured at fair value Debtors Bank balances 33.4 – – – – 242.3 1,996.6 2,238.9 Financial liabilities measured at fair value Derivative financial instruments (16.1) Financial liabilities not measured at fair value Borrowings Trade and other payable excluding non-financial liabilities – – – – – – – – – – – – 33.4 33.4 242.3 1,996.6 242.3 1,996.6 2,238.9 2,238.9 (16.1) (16.1) (6,564.9) (6,564.9) (6,904.0) (802.4) (802.4) (802.4) (7,367.3) (7,367.3) (7,706.4) 72 Hongkong Land Notes to the Financial Statements 29 Financial Risk Management continued Fair value estimation continued Financial instruments by category continued Fair value of hedging instruments US$m Financial assets at amortised costs US$m Other financial liabilities US$m Total carrying amount US$m Fair value US$m 2019 Financial assets measured at fair value Derivative financial instruments Financial assets not measured at fair value Debtors Bank balances 30.5 – – – – 345.8 1,424.0 1,769.8 Financial liabilities measured at fair value Derivative financial instruments (4.7) Financial liabilities not measured at fair value Borrowings Trade and other payable excluding non-financial liabilities – – – – – – – – – – – – 30.5 30.5 345.8 1,424.0 345.8 1,424.0 1,769.8 1,769.8 (4.7) (4.7) (5,015.2) (5,015.2) (5,174.4) (900.9) (900.9) (900.9) (5,916.1) (5,916.1) (6,075.3) Annual Report 2020 73 30 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 according to circumstances and conditions available. The existing and potential impacts arising from the COVID-19 pandemic have been considered when applying estimates and assumptions in the preparation of the financial statements, including the Group’s assessment of impairment of assets and the independent valuers’ valuation of the Group’s investment properties. Given the uncertainty of the impact of COVID-19, the actual results may differ from these accounting estimates. The estimates and assumptions that have a significant effect on the reported amounts of assets and liabilities, and income and expenses are discussed below. 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. For investment properties in Hong Kong, Chinese mainland and Singapore, capitalisation rates in the range of 2.75% to 3.50% for office (2019: 2.75% to 3.50%) and 3.75% to 5.00% for retail (2019: 3.75% to 5.00%) are used in the fair value determination. Considerations have been given to assumptions that are mainly based on market conditions existing at the balance sheet date and appropriate capitalisation rates. These estimates are regularly compared to actual market data and actual transactions entered into by the Group. Impairment of assets The Group tests annually whether goodwill and other assets that have indefinite useful lives suffered any impairment. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset or a cash generating unit is determined based on the higher of its fair value less costs to sell and its value-in-use, calculated on the basis of management’s assumptions and estimates. Changing the key assumptions, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the value-in-use calculations. The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the balance sheet date (see Note 12). 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 through sale. Thus deferred tax on revaluation of investment properties held by the Group are calculated at the capital gain 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. Revenue recognition The Group uses the percentage of completion method to account for its contract revenue of certain development properties sales. The stage of completion is measured by reference to the contract costs incurred to date compared to the estimated total costs for the contract. Significant assumptions are required to estimate the total contract costs and the recoverable variation works that affect the stage of completion and the contract revenue respectively. In making these estimates, management has relied on past experience and the work of specialists. 74 Hongkong Land Notes to the Financial Statements 30 Critical Accounting Estimates and Judgements continued 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, but follows the consistent methodology as set out in the Group’s accounting policies. Interest rate benchmark reform Following the financial crisis, the reform and replacement of benchmark interest rates such as US$ LIBOR and other interbank offered rates (‘IBORs’) has become a priority for global regulators. There is currently uncertainty around the timing and precise nature of these changes. To transition existing contracts and agreements that reference IBORs (including US$ LIBOR) to risk free rates (‘RFRs’) such as US$ LIBOR to Secured Overnight Financing Rate, adjustments for term differences and credit differences might need to be applied to RFRs, to enable the two benchmark rates to be economically equivalent on transition. Group Treasury is managing the Group’s IBORs transition plan. The greatest change will be amendments to the contractual terms of the IBORs-referenced floating-rate debt and the associated swap and the corresponding update of the hedge designation. However, the changed reference rate may also affect other systems, processes, risk and valuation models, as well as having tax and accounting implications. Relief applied The Group has applied the following reliefs that were introduced by the amendments made to IFRS 9 Financial Instruments in September 2019: i) When considering the ‘highly probable’ requirement, the Group has assumed that the IBORs interest rate on which the Group’s hedged debt is based does not change as a result of IBORs reform. ii) In assessing whether the hedge is expected to be highly effective on a forward-looking basis the Group has assumed that the IBORs interest rate on which the cash flows of the hedged debt and the interest rate swap that hedges it are based is not altered by IBORs reform. iii) The Group has not recycled the cash flow hedge reserve relating to the period after the reforms are expected to take effect. Assumptions made In calculating the change in fair value attributable to the hedged risk of floating-rate debt, the Group has made the following assumptions that reflect its current expectations: i) The IBORs-referenced floating-rate debt will move to RFRs during 2023 and the spread will be similar to the spread included in the interest rate swap used as the hedging instrument. ii) No other changes to the terms of the floating-rate debt are anticipated. iii) The Group has incorporated the uncertainty over when the IBORs-referenced floating-rate debt will move to RFRs, the resulting adjustment to the spread, and the other aspects of the reform that have not yet been finalised by adjusting the discount rate used in the calculation. Annual Report 2020 75 Independent Auditors’ Report To the members of Hongkong Land Holdings Limited Report on the audit of the group financial statements Opinion In our opinion, Hongkong Land Holdings Limited’s Group (the ‘Group’) financial statements (the ‘financial statements’): • give a true and fair view of the state of the Group’s affairs as at 31st December 2020 and of its loss and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); and • have been prepared in accordance with the requirements of the Companies Act 1981 (Bermuda). We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated Balance Sheet as at 31st December 2020; the Consolidated Profit and Loss Account, the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement, and the Consolidated Statement of Changes in Equity for the year then ended; and the Notes to the Financial Statements, which include a description of the significant accounting policies (‘the Principal Accounting Policies’). Certain required disclosures have been presented in the Corporate Governance section, rather than in the Notes to the Financial Statements. These disclosures are cross-referenced from the financial statements and are identified as audited. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the Financial Reporting Council’s (‘FRC’s’) Ethical Standard as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Materiality • Overall Group materiality: US$268.0 million (2019: US$406.0 million), which represents 0.75% of net assets (2019: 1% of total non-current assets). • Specific Group materiality, applied to balances not related to investment properties: US$55.0 million (2019: US$66.0 million) which represents 5% of underlying profit before tax. Audit scope • A full scope audit was performed on seven entities. These subsidiaries accounted for 92% of the Group’s revenue, 91% of the Group’s loss before tax, 80% of the Group’s underlying profit before tax and 81% of the Group’s net assets. • Full scope audits of four joint ventures were also performed which accounted for a further 4% of the Group’s loss before tax, 10% of the Group’s underlying profit before tax and 4% of the Group’s net assets. Key audit matters • Valuation of investment properties • Impact of COVID-19 76 Hongkong Land Our audit approach continued The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Capability of the audit in detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to, but were not limited to, the Companies Act 1981 (Bermuda), the Listing Rules, tax regulations, employment regulation, health and safety regulation and equivalent local laws and regulations applicable to significant reporting component teams, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 1981 (Bermuda). We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to the posting of inappropriate journal entries and management bias in accounting estimates and judgements. The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors included: • Gaining an understanding of the legal and regulatory framework applicable to the Group and the industries in which its businesses operate, and considering the risk of any acts by the Group which may be contrary to applicable laws and regulations, including fraud; • Discussions with management and internal audit, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; • Understanding the results of whistleblowing procedures and related investigations. We focused on known and suspected instances of non-compliance with laws and regulations that could give rise to a material misstatement in the Group and company financial statements, including, but not limited to, the Companies Act 1981 (Bermuda), the Listing Rules, tax legislation, employment regulation, health and safety regulation and equivalent local laws and regulations applicable to significant reporting component teams; • Review of reporting component auditors’ work, including any matters reported by component auditors’ relating to non-compliance with laws and regulations or fraud; • Challenging assumptions and judgements made by management in their significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. In particular, in relation to the valuation of investment properties (see related key audit matters below); and • We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals, and evaluated whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Annual Report 2020 77 Independent Auditors' Report Our audit approach continued Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. The impact of COVID-19 is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Valuation of investment properties Refer to Note 30 (Critical Accounting Estimates and Judgements) We understood management’s controls and processes for and Note 10 (Investment Properties) to the consolidated determining the valuation of investment properties and assessed financial statements. The fair value of the Group’s investment properties amounted to US$30,083.3 million at 31st December 2020, with a revaluation the inherent risk of material misstatement by considering the degree of estimation uncertainty and the judgement involved in determining assumptions to be applied. loss of US$3,443.4 million recognised as a non-trading item in We assessed the valuers’ qualifications and their expertise, the Consolidated Profit and Loss account for the year. The Group’s considering whether there were any matters that might have property portfolio principally consists of commercial properties. affected their objectivity or may have imposed scope limitations The valuation of the Group’s investment property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location, prevailing market returns upon their work. We found no evidence to suggest that the objectivity of the valuers in their performance of the valuations was compromised. and the expected future rentals for that particular property. Our work focused on the highest value properties in the The valuations were carried out by third-party valuers (the ‘valuers’). There is inherent estimation uncertainty in portfolio, namely the buildings in the central business district of Hong Kong. determining a property’s valuation, as the valuers make We read the valuation reports covering the majority of the total assumptions, judgements and estimates in key areas. investment property portfolio to consider whether the valuation Valuations are principally derived using the income methodology used was appropriate for each property and suitable capitalisation method. Judgements are made in respect of for use in determining the carrying value. We performed testing, capitalisation rates and market rents. on a sample basis, on the input data used in the valuation We focused on the valuation of investment properties due to the significant judgements and estimates involved in determining the valuations. 78 Hongkong Land process to satisfy ourselves of the accuracy of the property information supplied to the valuers by management, for example agreement of lease terms to tenancy agreements and other supporting documents. We understood and assessed the Group’s controls over data used in the valuation of the investment property portfolio and management’s review of the valuations. The audit team, including our valuation specialists, attended meetings with the valuers at which the valuations and the key assumptions were discussed. We compared the capitalisation rates used by the valuers with an estimated range of expected rates, determined via reference to published benchmarks and market information. We evaluated year-on-year movements in capital value with reference to publicly available information and rentals with reference to prevailing market rents. We evaluated whether the assumptions used were appropriate in light of the evidence provided by relevant transactions during the year. Overall, we concluded that the assumptions used in the valuations were appropriate. We also assessed the adequacy of the disclosures related to the valuation of investment properties in the context of IFRS disclosure requirements and were satisfied that appropriate disclosure has been made. Our audit approach continued Key audit matters continued Key audit matter Impact of COVID-19 How our audit addressed the key audit matter The on-going COVID-19 pandemic has caused volatility to the Our procedures in respect of the valuation of investment global economy. There is inherent uncertainty for the pace properties are covered in the related key audit matter above. of global economic recovery which might have a future impact on the real estate market and in determining the impact of the pandemic on certain aspects of the financial statements. We performed additional procedures to assess any control implications arising from the impact of COVID-19, including inquiries with respect to the operation of IT and business The most significant impact of COVID-19 on the financial process controls, and whether there has been any impact statements has been in relation to the assumptions supporting on the Group. We instructed our component teams to the valuation of investment properties which have been perform additional procedures to understand if there were updated to reflect management’s best estimate of the impact any changes to management’s planned operation of controls of COVID-19. We also considered whether COVID-19 had any impact on the Group’s liquidity and ability to continue as a going concern. Management’s way of working, including the operation of controls, has been impacted by COVID-19 as a result of staff members working remotely at times. For example, this has meant virtual review meetings replaced in-person meetings. or monitoring activities. Based on the inquiries performed and the results of our audit procedures, we did not identify any evidence of material deterioration in the control environment. We increased the frequency and extent of our oversight over component audit teams, using video conferencing and remote working paper reviews, to satisfy ourselves as to the appropriateness of audit work performed at significant and material components. We considered the appropriateness of disclosures in the financial statements in respect of the impact of the current environment and consider these to be appropriate. We have examined the Group’s liquidity forecasts in light of the impact of COVID-19. Our conclusions in relation to going concern are set out in the section below. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which it operates. The Group’s accounting processes are structured around finance functions, which are responsible for their own accounting records and controls, which in turn, report financial information to the Group’s finance function in Hong Kong to enable them to prepare consolidated financial statements. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by members of the Group engagement team or by component auditors from member firms within the PwC Network and other auditors operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those components to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the financial statements as a whole. The Group engagement team was involved in the significant reporting entities in scope for Group reporting during the audit cycle through a combination of meetings and conference calls. Due to the current restrictions on travel and social distancing measures, enacted as a response to COVID-19, the lead Group audit partner and other senior team members were involved throughout the year through the regular use of video conference calls and other forms of communication to direct and oversee the audit, including remote review of the work of component teams. A full scope audit of the complete financial information was performed for seven subsidiaries. These subsidiaries, together with procedures performed on centralised functions and at the Group level (on the consolidation and other areas of significant judgement), accounted for 92% of the Group’s revenue, 91% of the Group’s loss before tax, 80% of the Group’s underlying profit before tax and 81% of the Group’s net assets. Full scope audits of the complete financial information were also performed for four principal joint ventures which accounted for a further 4% of the Group’s loss before tax, 10% of the Group’s underlying profit before tax and 4% of the Group’s net assets. This gave us the evidence we needed for our opinion on the financial statements as a whole. Annual Report 2020 79 Independent Auditors' Report Our audit approach continued Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality US$268.0 million (2019: US$406.0 million) How we determined it 0.75% of net assets (2019: 1% of total non-current assets) Rationale for benchmark applied A key determinant of the Group’s value is investment property. As net assets is the primary measure used by the shareholders in assessing the performance of the Group, we set an overall Group materiality level based on net assets. We set a specific materiality level of US$55.0 million for items not related to the carrying value of investment properties and their related fair value changes (either wholly owned or held within joint ventures). This equates to 5% of underlying profit before tax. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of overall materiality allocated across components was US$2.1 million to US$49.5 million. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to US$201.0 million for the items related to investment properties and US$41.0 million for items not related to carrying value of investment properties in the group financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit Committee that we would report to them misstatements identified during our audit of investment property related items above US$13.0 million (2019: US$20.0 million) as well as misstatements below that amount that in our view, warranted reporting for qualitative reasons. For all other account balances, we agreed with the Audit Committee that we would report to them misstatements identified during our audit above US$2.7 million (2019: US$3.3 million) as well as misstatements below that amount that in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting included: • Evaluating the inherent risks to the Group’s and its businesses’ business models and analysed how those risks might affect the Group’s financial resources or ability to continue operations over the going concern period. • Considering sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of reasonably possible, but not unrealistic, adverse effects that could arise from adverse trading conditions as a result of COVID-19 and impact the Group’s liquidity position over the going concern period. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least 12 months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. As not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s ability to continue as a going concern. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. 80 Hongkong Land Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Responsibility Statement and the Corporate Governance section, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Section 90 of the Companies Act 1981 (Bermuda) and for no other purpose. We do not, in giving these opinions, 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. Partner responsible for the audit The engagement partner responsible for this independent auditors’ report is John Waters. PricewaterhouseCoopers LLP Chartered Accountants London 11th March 2021 (a) The maintenance and integrity of the Hongkong Land Holdings Limited website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in Bermuda governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual Report 2020 81 Five Year Summary 2016 US$m 2017 US$m 2018 US$m 2019 US$m 2020 US$m Profit/(loss) attributable to shareholders 3,311 5,614 2,457 198 (2,647) Underlying profit attributable to shareholders 822 947 1,036 1,076 963 Investment properties 27,712 32,481 33,712 33,191 30,083 Net debt 2,008 2,549 3,564 3,591 4,568 Shareholders ’ funds 31,383 36,842 38,342 38,247 35,709 Net asset value per share 13.34 15.66 16.43 16.39 15.30 US$ US$ US$ US$ US$ 44.24 46.12 41.27 40.24 34.92 19.00 20.00 22.00 22.00 22.00 15.66 16.43 16.39 15.30 13.34 2016 2017 2018 2019 2020 Underlying earnings Dividends 2016 2017 2018 2019 2020 Underlying earnings/dividends per share (US¢) Net asset value per share (US$) 82 Hongkong Land 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 the Principal Risks and Uncertainties, which constitute the management report, include a fair review of all information required to be disclosed by the Disclosure Guidance and Transparency Rules 4.1.8 to 4.1.11 issued by the Financial Conduct Authority in the United Kingdom. For and on behalf of the Board Robert Wong Simon Dixon Directors 11th March 2021 Annual Report 2020 83 Corporate Governance Overview of Governance Approach The Hongkong Land Group (Hongkong Land Holdings Limited and its subsidiaries together known as the ‘Group’) understands the value of good corporate governance to long-term sustainable success and attaches importance to the corporate stability that strong governance brings, as well as the opportunities that result from it being part of the Jardine Matheson Holdings Limited (‘Jardine Matheson’) group. The Group is committed to high standards of governance. The system of governance it has adopted has been developed over many years by the members of the Jardine Matheson group which both the Group and its stakeholders regard as appropriate to the nature of its business and the long-term strategy it pursues in its Asian markets, and is tailored to the Group’s size, ownership structure, complexity and breadth of business. It enables the Group to benefit from Jardine Matheson’s strategic guidance and professional expertise, while at the same time ensuring that the independence of the Board is respected and clear operational accountability rests with the Company’s executive management teams. Having an effective corporate governance framework supports the Board in the delivery of the Group’s strategy and supports long-term sustainable growth. Group Structure Jardine Matheson is the ultimate holding company of the Group. The structural relationship between Jardine Matheson group and the Group is considered to be a key element of the Group’s success. By coordinating objectives, establishing common values and standards, and sharing experience, contacts and business relationships, the Jardine Matheson group companies aim to optimise their opportunities across the Asian countries where they operate. The Company is incorporated in Bermuda. The Company’s property interests are held almost entirely in Asia. The Company’s equity shares have as their primary listing a standard listing on the Main Market of the London Stock Exchange (the ‘LSE’), and the Company’s primary regulator is the Financial Conduct Authority of the United Kingdom (the ‘FCA’). The Disclosure Guidance and Transparency Rules (the ‘DTRs’) issued by the FCA require that this Report addresses all relevant information about the corporate governance practices applied by the Company and the Group beyond the requirements under Bermuda law. The Company also has secondary listings in Singapore and Bermuda. As the Company has only secondary listings on these exchanges, the listing rules of such exchanges are not generally applicable. Instead, the Company must release the same information as it is required to release under the rules applicable to it as a standard listed company on the LSE, in compliance with the rules applicable to those exchanges in Singapore and Bermuda. Governance and Legal Framework As a company incorporated in Bermuda, the Company is governed by: • The Bermuda Companies Act 1981 (the ‘Companies Act’); • The Bermuda Hongkong Land Holdings Limited Consolidation and Amendment Act 1988 (as amended), pursuant to which the Company was incorporated and the Bermuda HongkongLand Holdings Limited Regulations 1993 (as amended) was established; and • The Company’s Memorandum of Association and Bye-laws. The Bye-laws of the Company can be amended by the shareholders by way of a special resolution at a general meeting of the Company. The Company’s standard listing in London means that it is bound by many of the same rules as premium-listed companies under the UK Listing Rules, the DTRs, the Market Abuse Regulation1 (‘MAR’) and the Prospectus Regulation Rules, including in relation to continuous disclosure, periodic financial reporting, disclosure of interests in shares, market abuse and the publication and content of prospectuses in connection with admission to trading or offering securities to the public. The Company is also subject to regulatory oversight from the FCA, as the Company’s principal securities regulator, and is required to comply with the Admission and Disclosure Standards of the Main Market of the LSE. The Company and its Directors are also subject to legislation and regulations in Singapore relating to insider dealing. The Company is not required to comply with the UK Corporate Governance Code (the ‘Code’), which applies to all premium-listed companies and sets out the governance principles and provisions which are expected to be followed by companies, which are subject to the Code. When the shareholders approved the Company’s move to a standard listing from a premium listing in 2014, the Company stated that it intended to maintain certain governance principles on the basis as was then applicable to the Company’s premium listing. As a result, the Company has adopted a number of governance principles (the ‘Governance Principles’) based on the then applicable requirements for a premium listing, which go further than the standard listing requirements. 1 The EU Market Abuse Regulation and, with effect from 1st January 2021, the UK Market Abuse Regulation. 84 Hongkong Land Governance and Legal Framework continued The key elements of the Governance Principles are as follows: • When assessing a significant transaction (a larger transaction which would be classified as a class 1 transaction under the provisions of the UK Listing Rules), the Company will engage an independent financial adviser to provide a fairness opinion on the terms of the transaction. • If the Company carries out a related party transaction which would require a sponsor to provide a fair and reasonable opinion under the provisions of the UK Listing Rules, it will engage an independent financial adviser to confirm that the terms of the transaction are fair and reasonable as far as the shareholders of the Company are concerned. • Further, as soon as the terms of a significant transaction or a related party transaction are agreed, an announcement will be issued by the Company providing such details of the transaction as are necessary for investors to evaluate the effect of the transaction on the Company. • At each annual general meeting (‘AGM’), the Company will seek shareholders’ approval to issue new shares on a non-pre-emptive basis for up to 33% of the Company’s issued share capital, of which up to 5% can be issued for cash consideration. • The Company adheres to a set of Securities Dealing Rules which follow the provisions of MAR with respect to market abuse and disclosure of interests in shares. The Management of the Group The Board The Board is responsible for ensuring that the Group is appropriately managed and achieves the strategic objectives it sets, in a way that is supported by the right culture, values and behaviours throughout the Group. The Directors have the full power to manage the business affairs of the Company, other than matters reserved to be exercised by the Company in general meeting under Bermuda legislation or the Company’s Bye-laws. Key matters for which the Directors are responsible include: • Responsibility for the overall strategic aims and objectives of the Group; • Establishing the Company’s purpose and values; • Approval of the Group’s strategy and risk appetite to align with the Group’s purpose and values; • Approval and oversight of the Group policy framework and approval of appropriate Group policies; • Approval of the Annual Budget and monitoring of performance against it; • Oversight of the Group’s operations; • Approval of major changes to Group’s corporate or capital structure; • Approval of major capital expenditure and significant transactions (in terms of size or reputational impact); • Approval of interim and final financial statements upon recommendation from the Audit Committee, and interim management statements; • Approval of Annual Report and Accounts; • Approval of dividend policy and amount and form of interim and final dividend payments for approval by shareholders as required; • Any significant changes to the Company’s accounting policies or practices upon recommendation from the Audit Committee; • Appointment, reappointment or removal of the external auditor, subject to shareholder approval, upon recommendation from the Audit Committee; • Approval of matters relating to the AGM (resolutions and shareholder documentation); • Approval of all shareholder circulars, prospectuses and listing particulars issued by the Company; and • Approval of material public announcements concerning matters decided by the Board. Responsibility for certain matters, including the approval of borrowing facilities and of capital expenditure (other than major capital expenditure which is required to be approved by the Board) has been delegated to the finance committee established within the Hong Kong-based Group management company, Hongkong Land Limited (‘HKL’). Annual Report 2020 85 Board Composition and Operational Management The Board’s composition and the way it operates provide stability, allowing the Company to take a long-term view as it seeks to grow its business and pursue investment opportunities. 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 Company has a dedicated executive management team led by the Chief Executive. The Memorandum of Association of the Company, however, provides for the chairman of Jardine Matheson to be, or to appoint, the Managing Director of the Company. Reflecting this, and the Jardine Matheson group’s 50% interest in the Company’s share capital, the Chief Executive and the Managing Director meet regularly. Similarly, the board of HKL, and its finance committee are chaired by the Managing Director and include Hongkong Land Group executives as well as Jardine Matheson’s deputy managing director, group finance director and group general counsel. The presence of Jardine Matheson representatives on the Board of the Company and on the board of HKL, as well as on its audit and finance committees, provides an added element of stability to the Company’s financial planning and supervision, enhancing its ability to raise finance and take a long-term view of business development. The presence of Jardine Matheson representatives on the Company’s Board and nominations committee and HKL’s audit, finance and remuneration committees also strengthens the ability of management to work effectively together in exploiting the full range of the Jardine Matheson group’s commercial strengths. As at 11th March 2021, the Company comprises 13 Directors, three of whom (23%) – Christina Ong, Prijono Sugiarto and Michael Wu – are regarded as Independent Non-Executive Directors. Four further Non-Executive Directors – Anthony Nightingale, Lord Powell of Bayswater, James Watkins and Percy Weatherall – do not have any executive responsibilities, nor have they been an employee of the Company or the Group within the past five years, and they are sufficiently distanced from the day-to-day operations of the Company for the Company to take the view that they are independent Directors, even though they have served on the Board for over nine years. The names of all the Directors and brief biographies appear on pages 21 and 22 of this Report. Ben Keswick has been Chairman of the Board since 16th May 2013. John Witt has held the role of Managing Director from 15th June 2020. Robert Wong has been Chief Executive since 1st August 2016. Ben Keswick previously held the roles of Chairman and Managing Director on a combined basis from 16th May 2013. The Board considers that there is a clear division of responsibilities among the Chairman, the Managing Director and the Chief Executive, in order to ensure an appropriate balance of power and authority. Chairman The Chairman’s role is to lead the Board, ensuring its effectiveness while taking account of the interests of the Group’s various stakeholders, and promoting high standards of corporate governance. The Chairman’s principal responsibilities are in the areas of strategy, relationships, governance and people. He leads the Board in overseeing the long-term strategic direction of the Group and approving its key business priorities. His key responsibilities also include: • Leading the development of the culture and values of the Group; • Supporting the development and maintenance of relationships with existing and new key business partners, governments and shareholders; • Ensuring (together with the Managing Director and the Chief Executive) an appropriate focus on attracting and retaining the right people and carrying out succession planning for senior management positions; • Creating a culture of openness and transparency at Board meetings; • Building an effective Board supported by a strong governance framework; • Ensuring all Directors effectively contribute to discussions and feel comfortable in engaging in healthy debate and constructive challenge; • Ensuring all Directors receive accurate, timely and clear information; and • Promoting effective communication between Executive and Non-Executive Directors. 86 Hongkong Land Corporate GovernanceManaging Director The Managing Director acts as chairman of HKL and of its finance committee, as well as being a member of the Company’s nominations committee and the remuneration committee established in HKL. He has responsibility for representing Jardine Matheson, as the major shareholder in the Company, in its oversight of the day-to-day management by the Chief Executive and his leadership team of the business. Chief Executive The responsibility for running the Group’s business and all the executive matters affecting the Group rests with the Chief Executive. The implementation of 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. The Chief Executive has day-to-day responsibility for: • The effective management of the Group’s business; • Leading the development of the Company’s strategic direction and implementing the agreed strategy; • Identifying and executing new business opportunities; • Managing the Group’s risk profile and implementing and maintaining an effective framework of internal controls; • Developing targets and goals for his executive team; • Ensuring effective communication with shareholders and key stakeholders and regularly updating institutional investors on the business strategy and performance; • Providing regular operational updates to the Board on all matters of significance relating to the Group’s business or reputation; • Overseeing the Group’s capital allocation, business planning and performance; • Ensuring (together with the Chairman and the Managing Director) an appropriate focus on attracting and retaining the right people and carrying out succession planning for senior management positions; and • Fostering innovation and entrepreneurialism to drive the Group’s business forward. Non-Executive Directors The Non-Executive Directors bring insight and experience to the Board. They have responsibility for constructively challenging the strategies proposed by the Executive Directors and scrutinising the performance of management in achieving agreed goals and objectives. Board Meetings The Board usually holds four meetings each year and ad hoc procedures are adopted to deal with urgent matters which arise between scheduled meetings. The majority of Board meetings are usually held in different locations around Asia and one Board meeting is usually held in Bermuda, at the same time as the Company’s AGM each May. In 2020, due to travel restrictions imposed as a result of the pandemic, it was necessary to hold all four Board meetings virtually. The Board receives high quality, up to date information for each of its meetings, which is provided to Directors via a secure online board information portal. The Directors of the Company who do not serve on the board of HKL and who are based outside Asia will usually visit Asia and Bermuda to discuss the Group’s business, as well as to participate in the four strategic reviews that precede the regular Board meetings. In 2020, all of these strategic reviews were held virtually as a result of the pandemic. These Directors are not directly involved in the operational management of the Group’s business activities, but their knowledge of the Group’s affairs, as well as their experience of the wider Jardine Matheson group, provide significant value to the ongoing review by the Company of the Group’s business and reinforces the Board oversight process. Annual Report 2020 87 Board and Committee Attendance Directors are expected to attend all Board and Audit Committee meetings. The table below shows the attendance at the scheduled Board and Audit Committee meetings: Current Directors of the Company Board Committee Audit Ben Keswick John Witt Robert Wong Simon Dixon Adam Keswick Anthony Nightingale Christina Ong Y.K. Pang Lord Powell of Bayswater Prijono Sugiarto James Watkins Percy Weatherall Michael Wu Directors of HKL Graham Baker 1 Jeremy Parr Former Directors of the Company Mark Greenberg 2 Lord Sassoon 3 4/4 2/2 4/4 4/4 4/4 4/4 4/4 4/4 4/4 2/2 4/4 4/4 4/4 – – 4/4 1/1 – 2/2 – – – – – 2/2 – – – – – 1/1 2/2 2/2 – 1 Graham Baker joined the board of HKL on 15th June 2020. 2 Mark Greenberg stepped down as a Director on 31st December 2020. 3 Lord Sassoon retired from the Board on 9th April 2020. Appointment and Retirement of Directors Each new Director is appointed by the Board and the Nominations Committee has been established to assist the Board in such matters. In accordance with the Company’s Bye-laws, each new Director is subject to retirement and re-appointment at the first AGM after appointment. Thereafter, Directors are subject to retirement by rotation requirements under the Bye-laws whereby one-third of the Directors retire at the AGM each year. These provisions apply to both Executive and Non-Executive Directors, but the requirement to retire by rotation does not extend to the Chairman or Managing Director. Simon Keswick and Lord Sassoon retired from the Board on 1st January 2020 and 9th April 2020, respectively. Ben Keswick stepped down as Managing Director of the Company on 15th June 2020 and remains as the Chairman. John Witt joined the Board and took on the role of Managing Director of the Company with effect from 15th June 2020. Prijono Sugiarto was appointed to the Board with effect from 29th July 2020 and Mark Greenberg stepped down from the Board with effect from 31st December 2020. In accordance with Bye-law 85, Lord Powell of Bayswater, James Watkins and Percy Weatherall retire by rotation at this year’s AGM and, being eligible, offer themselves for re-election. In accordance with Bye-law 92, John Witt and Prijono Sugiarto will also retire and, being eligible, offer themselves for re-election. None of the Directors proposed for re-election has a service contract with the Company or its subsidiaries. Company Secretary All Directors have access to the advice of the Company Secretary, who is responsible for advising the Board on all governance matters. 88 Hongkong Land Corporate GovernanceCommittees The Board is supported by the activities of its Committees (the Nominations, Remuneration and Audit Committees), which ensure the right level of attention and consideration are given to specific matters. Matters considered by each of the Committees are set out in its respective terms of reference. Copies of these documents can be obtained from the Company’s website at www.hkland.com. Nominations Committee The Board established a Nominations Committee (the ‘Nominations Committee’) in March 2021. The key responsibilities of the Nominations Committee are to: • Review the structure, size and composition of the Board and its committees and make recommendations on any appointments in order to maintain a balance of skills, knowledge and experience, as well as a diversity of perspectives; • Lead the process for Board appointments and nominate suitable candidates to the Board; • Assess suitable candidates based on merit and objective criteria (giving consideration to the promotion of diversity of backgrounds, knowledge, experience and skills), taking into account their ability to meet the required time commitments; • Oversee the development of succession pipelines for both the Board and senior management positions, to ensure talent is identified and nurtured to meet the challenges and opportunities facing the Group; and • Satisfy itself that any skill gaps are addressed in the reviews of Board composition, and that appropriate development opportunities are in place for Directors to keep abreast of market knowledge and industry trends to perform their role effectively. The Nominations Committee consists of a minimum of three members, selected by the Chairman of the Board. The Chairman of the Board is the chairman of the Nominations Committee. The current members of the Nominations Committee are Ben Keswick, Adam Keswick and John Witt. The Nominations Committee meets at least annually and more often if necessary. It plays a key role in the process of recruiting senior executives. Candidates for appointment as Executive Directors of the Company or for other senior management positions may be sourced internally or externally, including by using the services of specialist executive search or recruitment firms. The aim is to appoint individuals who combine international business knowledge and experience, industry knowledge and experience if possible, and familiarity with, or adaptability to, Asian markets. When appointing Non-Executive Directors, the Committee pays particular attention to the Asian business experience and relationships that they can bring. Remuneration Committee The Board established a Remuneration Committee (the ‘Remuneration Committee’) within HKL in March 2021. The key responsibilities of the Remuneration Committee are to: • Oversee the formulation of a Group-wide reward strategy and ensure the business implements the reward strategy in alignment with its industry-specific needs; • Review and approve the compensation of the Chief Executive and leadership team of the business; • Review the terms of and design of performance related incentives (both short- and long-term), including the review and approval of any changes to plan design, targets and metrics; • Review and approve the overall compensation costs, including salary and bonus budgets, of the business; and • Remain abreast of trends and developments in executive compensation and corporate governance as they relate to the Group’s industry and countries of operation. The Remuneration Committee consists of a minimum of three members, selected by the Chairman of the Board. The Chairman of the Board is the chairman of the Committee. The current members of the Remuneration Committee are Ben Keswick, John Witt, Y.K. Pang, Graham Baker and John Nolan (Jardines group human resources director). The Chief Executive and the Head of Human Resources will generally attend meetings of the Remuneration Committee. The Remuneration Committee meets at least twice annually and more often if necessary, with its meetings aligned with the key events in the Group’s annual remuneration cycle. Audit Committee The Board has established within HKL an Audit Committee (the ‘Audit Committee’), the current members of which are Y.K. Pang, Graham Baker, Jeremy Parr and John Witt. None of them is directly involved in operational management. Graham Baker was appointed as a member of the Audit Committee with effect from 15th June 2020. Mark Greenberg retired as a member of the Audit Committee on 31st December 2020. The chairman, 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. Other individuals may attend part of a meeting for specific agenda items as appropriate. The Audit Committee meets twice a year and reports to the Board after each meeting. Annual Report 2020 89 Committees continued Audit Committee continued The role of the Audit Committee is governed by its terms of reference. The Committee’s remit includes: • Independent oversight and assessment of financial reporting processes including related internal controls; • Risk management and compliance; • Overseeing the effectiveness of the internal and external audit functions; • Considering the independence and objectivity of the external auditors; and • Reviewing and approving the level and nature of non-audit work performed by the external auditors. 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 with the executive management and a report is received from the external auditors. The external auditors also have access to the full Board when necessary, in addition to the Chief Executive, the Chief Financial Officer and other senior executives. The matters considered by the Audit Committee during 2020 included: • Reviewing the 2019 annual financial statements and 2020 half-yearly financial statements, with particular focus on the impact of COVID-19, provisioning and impairment assessments, assumptions that underpinned key valuation models and effectiveness of financial controls; • Reviewing the actions and judgements of management in relation to changes in accounting policies and practices, to ensure clarity of disclosures and compliance with new accounting standards; • Receiving reports from internal audit function on the status of the control environment of the Group and its business divisions, and progress made in resolving matters identified in the reports; • Reviewing the principal risks, evolving trends and emerging risks that affect the Group, and monitoring changes to the risk profile, as well as the effectiveness of risk management measures and crisis management arrangements; • Receiving updates on the cybersecurity threat landscape and the Group’s cybersecurity environment, risk management approach, priorities and control effectiveness; • Receiving reports from risk management and legal functions on key legal matters and compliance and code of conduct issues, and the actions taken in addressing those issues and strengthening controls; • Reviewing the annual internal audit plan and status updates; • Reviewing and approving the revised terms of reference of the Group’s internal audit and risk management functions; • Reviewing the biennial assessment of the effectiveness of PwC; • Reviewing the independence, audit scope and fees of PwC, and recommending their re-appointment as the external auditor; and • Conducting a review of the terms of reference of the Audit Committee. Remuneration The Board has overall responsibility for setting remuneration across the Group, ensuring it is appropriate and supports the Group’s strategy, creating value for stakeholders. The Remuneration Committee has been established to assist the Board in these remuneration matters. 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. Executive Directors joining from outside the Group may be offered an initial fixed-term service contract to reflect any requirement for them to relocate. Shareholders decide in general meetings the Directors’ fees which are payable to all Directors other than the Chief Executive and the Chief Financial Officer, as provided for by the Company’s Bye-laws. Remuneration in 2020 For the year ended 31st December 2020, the Directors received from the Group US$9.1 million (2019: US$9.0 million) in Directors’ fees and employee benefits, being: • US$0.8 million (2019: US$0.8 million) in Directors’ fees; • US$8.1 million (2019: US$7.9 million) in short-term employee benefits including salary, bonuses, accommodation and deemed benefits in kind; and • US$0.2 million (2019: US$0.3 million) in post-employment benefits. The information set out in the section above headed ‘Remuneration in 2020’ forms part of the audited financial statements. 90 Hongkong Land Corporate GovernanceShare Schemes The Company has in place notional share option plan under which cash bonuses are paid based on the performance of the Company’s share price over a period. The notional plan was established to provide longer-term incentives for Executive Directors and senior managers. Notional share options are granted after consultation between the Chairman and the Chief Executive as well as other Directors as they consider appropriate. Notional share options are not granted to Non-Executive Directors. Insurance and Indemnification 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 insurance nor indemnity arrangements provide cover where the Director has acted fraudulently or dishonestly. Risk Management and Internal Control The Board has overall responsibility for the Group’s systems of risk management and internal control. The Board has delegated to the Audit Committee responsibility for providing oversight in respect of risk management activities. The Audit Committee considers the Group’s principal risks and uncertainties and potential changes to the risk profile and reviews the operation and effectiveness of the Group’s systems of internal control (financial, operational and compliance) and the procedures by which these risks are monitored and mitigated. The Audit Committee considers the systems and procedures on a regular basis, and reports to the Board semi-annually. The systems of internal control are 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. Executive management is responsible for the implementation of the systems of internal control throughout the Group. The Group has an established risk management process which is reviewed on a regular basis and covers all business units within the Group. This includes the maintenance of risk registers which detail the emerging and existing risks to the future success of the business and the relevant key controls and mitigating factors which address those risks. These are reviewed on a regular basis. The internal audit function also monitors the approach taken by the business units to risk. The internal audit function is independent of the operating business and reports its findings, and recommendations for any corrective action required, to the Audit Committee. The principal risks and uncertainties facing the Company are set out on page 93. Delegations of Authority 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, information and reporting systems, assessment of risk, and 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. Whistleblowing Policy The Group has a whistleblowing policy covering the process by which employees can report, in confidence, matters of serious concern. The Audit Committee has responsibility for overseeing the effectiveness of the formal procedures for employees to raise such matters and is required to review any reports made under those procedures which are referred to it by the internal audit function. Directors’ Responsibilities in respect of the Financial Statements The Directors are required under the Companies Act to prepare financial statements for each financial year and to present them annually to the Company’s shareholders at the AGM. The financial statements are required to 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. The financial statements have been prepared on a going concern basis. Annual Report 2020 91 Code of Conduct The Group conducts business in a professional, ethical and even-handed manner. Its ethical standards are clearly set out in its Code of Conduct, which is a set of guidelines to which every employee must adhere and is reinforced and monitored by an annual compliance certification process, and is modelled on the Jardine Matheson group’s code of conduct. The Code of Conduct 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 of Conduct prohibits the giving or receiving of illicit payments and 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 Company’s policy on commercial conduct underpins the Group’s internal control process, particularly in the area of compliance. The policy is also set out in the Group’s Code of Conduct. Inclusion and Diversity The Code of Conduct also encourages inclusion and diversity, and requires all employees to be treated fairly, impartially and with dignity and respect. As a multinational Group with a broad range of business operating across Asia, the Group believes in promoting equal opportunities in recruiting, developing and rewarding its people regardless of race, gender, nationality, religion, sexual orientation, disability, age or background. The scale and breadth of the Group’s business necessitate that they seek the best people from the communities in which they operate most suited to their needs. Directors’ Share Interests The Directors of the Company in office on 11th March 2021 had interests* as set out below in the ordinary share capital of the Company. These interests include those notified to the Company in respect of the Directors’ closely associated persons*. Robert Wong Simon Dixon Anthony Nightingale Y.K. Pang * Within the meaning of MAR 400,000 300,000 2,184 638,000 In addition, Robert Wong held share options in respect of 1,650,000 ordinary shares issued pursuant to the Company’s notional share option plan. Substantial Shareholders As a non-UK issuer, the Company is subject to the provisions of the DTRs which require that a person must in certain circumstances notify the Company of the percentage of voting rights attaching to the share capital of the Company that person 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 the person 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 1,176,616,646 ordinary shares carrying 50.41% 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 11th March 2021. There were no contracts of significance with corporate substantial shareholders during the year under review. Related Party Transactions Details of transactions with related parties entered into by the Company during the course of the year are included in Note 24 to the financial statements on page 54. Securities Purchase Arrangements The Directors have the power under the Companies Act and the Company’s Memorandum of Association to purchase the Company’s shares. Any shares so purchased shall be treated as cancelled and, therefore, reduce the issued share capital of the Company. When the Board reviews the possibility for share repurchases, it will take into consideration the potential for the enhancement of earnings or asset values per share. When purchasing such shares, the Company is subject to the provisions of MAR. Annual General Meeting The 2021 AGM will be held on 5th May 2021. 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. A corporate website is maintained containing a wide range of information of interest to investors at www.hkland.com. 92 Hongkong Land Corporate Governance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 91 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 Guidance and Transparency Rules issued by the Financial Conduct Authority in the United Kingdom and are in addition to the matters referred to in the Chairman’s Statement, Chief Executive’s Review and other parts of this Report. 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 such developments might have on the Group’s joint venture partners, associates, bankers, suppliers, customers or tenants. These developments could include 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 and mixed-use developments. Such developments might increase costs of sales and operating costs, reduce revenues, increase net financing charges, or result in reduced valuations of the Group’s investment properties or in the Group being unable to meet its strategic objectives. Commercial Risk and Financial Risk Risks are an integral part of normal commercial activities, and where practicable steps are taken to mitigate them. Risks can be more pronounced when businesses are operating in volatile markets. The Group makes significant investment decisions in respect of commercial and residential development projects and these are subject to market risks. This is especially the case where projects are longer-term in nature and take more time to deliver returns. The Group operates in regions which are highly competitive, and failure to compete effectively, whether in terms of price, tender terms, product specification or levels of service can have an adverse effect on earnings or market share, as can construction risks in relation to new developments. Significant competitive pressure may also lead to reduced margins. It is essential for the products and services provided by the Group’s businesses to meet appropriate quality and safety standards and there is an associated risk if they do not, including the risk of damage to brand equity or reputation, which might adversely impact the ability to achieve acceptable revenues and profit margins. The potential impact of disruption to IT systems or infrastructure, whether as a result of cyber-crime or other factors, could be significant. There is also an increasing risk to our businesses from adverse social media commentary, which could influence customer and other stakeholder behaviours and impact operations or profitability, or lead to reputational damage. The steps taken by the Group to manage its exposure to financial risk are set out in the Financial Review on page 18 and Note 29 to the financial statements on pages 67 to 73. Regulatory and Political Risk The Group is subject to a number of regulatory regimes in the territories in which it operates. Changes in such regimes, in relation to matters such as foreign ownership of assets and businesses, exchange controls, planning controls, tax rules, climate-related regulation and employment legislation, could have the potential to impact the operations and profitability of the Group. Changes in the political environment, including political or social unrest, in the territories where the Group operates could adversely affect the Group. Pandemic, Natural Disasters, Climate Change and Terrorism The Group could be impacted by a global or regional pandemic which seriously affects economic activity or the ability of businesses to operate smoothly. In addition, many of the territories in which the Group operates can experience from time to time natural disasters such as earthquakes and typhoons. Ongoing changes to the physical climate in which the Group operates may have an impact on our businesses. Rising sea levels could, in the future, affect the value of any coastal assets that the Group owns or develops. The Group’s operations are vulnerable to the effects of terrorism, either directly through the impact of an act of terrorism or indirectly through the effect on the Group’s businesses of generally reduced economic activity in response to the threat of, or an actual act of, terrorism. Cybersecurity Risk The Group’s businesses are ever more reliant on technology in their operations and face increasing numbers of cyberattacks from groups targeting both individuals and businesses. The privacy and security of customer, tenant and corporate information is at risk of being compromised through a breach of our or our suppliers’ IT systems or the unauthorised or inadvertent release of information, resulting in brand damage, impaired competitiveness or regulatory action. Cyberattacks may also adversely affect our ability to manage our business operations or operate information technology and business systems, resulting in business interruption, lost revenues, repair or other costs. Annual Report 2020 93 Shareholder Information Financial Calendar 2020 full-year results announced Shares quoted ex-dividend Share registers closed Annual General Meeting to be held 2020 final dividend payable 2021 half-year results to be announced Shares quoted ex-dividend Share registers to be closed 2021 interim dividend payable * Subject to change Dividends 11th March 2021 25th March 2021 29th March to 2nd April 2021 5th May 2021 12th May 2021 29th July 2021* 19th August 2021* 23rd to 27th August 2021* 13th October 2021* Shareholders will receive their cash dividends in United States Dollars, except when elections are made for alternate currencies in the following circumstances. Shareholders on the Jersey Branch Register Shareholders registered on the Jersey branch register will have the option to elect for their dividends to be paid in Sterling. These shareholders may make new currency elections for the 2020 final dividend by notifying the United Kingdom transfer agent in writing by 28th April 2021. The Sterling equivalent of dividends declared in United States Dollars will be calculated by reference to a rate prevailing on 3rd May 2021. Shareholders holding their shares through CREST in the United Kingdom will receive their cash dividends in Sterling only. Shareholders on the Singapore Branch Register who hold their shares through The Central Depository (Pte) Limited (‘CDP’) Shareholders who are on CDP’s Direct Crediting Service (‘DCS’) For those shareholders who are on CDP’s DCS, they will receive their cash dividends in Singapore Dollars unless they opt out of CDP Currency Conversion Service, through CDP, to receive United States Dollars. Shareholders who are not on CDP’s DCS For those shareholders who are not on CDP’s DCS, they will receive their cash dividends in 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 Link Market Services (Jersey) Limited, 12 Castle Street, St Helier, Jersey JE2 3RT, Channel Islands Singapore Branch Registrar M & C Services Private Limited, 112 Robinson Road #05-01, Singapore 068902 United Kingdom Transfer Agent Link Group, The Registry, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL, United Kingdom Press releases and other financial information can be accessed through the internet at www.hkland.com. 94 Hongkong Land Offices Hongkong Land Holdings Limited Jardine House 33-35 Reid Street Hamilton HM EX Bermuda Tel +1441 292 0515 E-mail: gpobox@hkland.com Philip A. Barnes Hongkong Land Limited 8th Floor, One Exchange Square Hong Kong Tel +852 2842 8428 E-mail: gpobox@hkland.com Robert Wong Hongkong Land (Beijing) Management Company Limited Room 303, Block 26, Central Park No. 6 Chaoyangmenwai Avenue Chaoyang District Beijing 100020 China Tel +86 10 6597 0921 E-mail: gpobox.bj@hkland.com James Zhang Hongkong Land (Chengdu) Investment and Development Company Limited 16F, Block A, Weland Centre No. 246 Dongda Road Jinjiang District Chengdu 610065 Sichuan Province China Tel +86 28 61556008 E-mail: gpobox.cd@hkland.com Yin Ming Hongkong Land (Chongqing) Investment and Holding Co. Ltd. 3/F, Zone D, Neptune Building No. 62 Star Light Road New North Zone Chongqing 401147 China Tel +86 23 6703 3016 E-mail: gpobox.cq@hkland.com Ling Chang Feng Hongkong Land (Hangzhou) Shengyue Management Co. Ltd. Unit 3001-1, Building One Ping An Finance Centre No. 280 Mingxin Road Jianggan District Hangzhou 310016 Zhejiang Province China Tel +86 571 87013930 E-mail: gpobox.hz@hkland.com Shi Guangyu Hongkong Land (Nanjing) Puzhi Management Co., Ltd. Unit B, 55/F, Nanjing Center No. 1 Zhongshan South Road Qinhuai District Nanjing 210001 Jiangsu Province China Tel +86 25 8333 8388 E-mail: gpobox.nj@hkland.com Wesley Wu Hongkong Land (Philippines) Consultancy, Inc. 1803 The Taipan Place F. Ortigas Jr. Road Ortigas Center Pasig City 1605 Philippines Tel +63 2 737 6348 E-mail: gpobox.ph@hkland.com Lee Chee Hoe Hongkong Land (Premium Investments) Limited Unit 702, 7th Floor, EXCHANGE SQUARE No. 19 & 20 Street 106, Village 2 Sangkat Wat Phnom Khan Daun Penh, Phnom Penh Cambodia Tel +855 2399 2063 E-mail: gpobox.cambodia@hkland.com James Padden Annual Report 2020 95 Offices Hongkong Land (Shanghai) Management Company Limited 11/F, Tower A, LCM No. 2389 Zhangyang Road Pudong New District Shanghai 200135 China Tel +86 21 2020 0086 E-mail: gpobox.sh@hkland.com Zhao Jun Hongkong Land (Singapore) Pte. Ltd. One Raffles Quay #22-10 South Tower Singapore 048583 Tel +65 6238 1121 E-mail: gpobox.sg@hkland.com Robert Garman Hongkong Land (Wuhan) Investment and Development Company Limited Room 1208, CITIC PACIFIC MANSION No. 1627 Zhongshan Avenue Jiang An District Wuhan 430014 Hubei Province China Tel +86 27 8289 1566 E-mail: gpobox.wh@hkland.com Wang Yi Bin HKL (Thai Developments) Limited Unit B, 20th Floor, Gaysorn Tower No. 127 Rajdamri Road Lumpini Sub-District Pathumwan District Bangkok 10330 Thailand Tel +66 2 033 0160 ext. 30168 Email: gpobox.thailand@hkland.com William Bright HKL (Vietnam) Consultancy and Management Company Limited Suite 704, The Metropolitan 235 Dong Khoi Ben Nghe Ward, District 1 Ho Chi Minh City Vietnam Tel +84 28 3827 9006 E-mail: gpobox.hcmc@hkland.com Cosimo Jencks Beijing Yee Zhi Real Estate Consultancy Co., Ltd. Room 1123A, 11/F Office Tower 3 Beijing APM No. 138 Wangfujing Street Dongcheng District Beijing 100006 China Tel +86 10 6520 4800 E-mail: gpobox.bj@hkland.com Shirley Lam MCL Land Limited One Raffles Quay #22-10 South Tower Singapore 048583 Tel +65 6238 1121 E-mail: gpobox.mcl@hkland.com Tan Wee Hsien PT Hongkong Land Consultancy and Management World Trade Centre 1, 17th Floor Jl. Jend. Sudirman Kav. 29–31 Jakarta 12920 Indonesia Tel +62 21 521 1125 E-mail: gpobox.indonesia@hkland.com Francis Yee 96 Hongkong Land Report of the Valuers To Hongkong Land Holdings Limited Dear Sirs Revaluation of Investment Properties Held under Freehold and Leasehold Further to your instructions, we have valued in our capacity as external valuers the investment properties held under freehold and leasehold as described in the consolidated financial statements of Hongkong Land Holdings Limited. We are of the opinion that the market value of the investment properties held under freehold in Cambodia and leasehold in China, Hong Kong, Singapore and Vietnam as at 31st December 2020, totalled US$30,069,900,000 (United States Dollars Thirty Billion Sixty-Nine Million and Nine Hundred Thousand). Our valuations were prepared in accordance with the International Valuation Standards by the International Valuation Standards Council and The HKIS Valuation Standards 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, 15th January 2021 Annual Report 2020 97 Major Property Portfolio at 31st December 2020 Investment Properties interest Location Total Office Retail Attributable Lettable area of the property Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Beijing Macau Singapore Singapore Singapore Singapore Singapore Singapore Jakarta Jakarta Jakarta Jakarta Jakarta Phnom Penh Bangkok Hanoi Hanoi (in thousands of square metres) 35 43 139 63 42 23 45 10 51 43 19 29 123 285 43 60 73 15 19 25 17 4 7 30 39 53 47 30 – 4 59 42 – 32 10 38 – – 23 71 52 57 95 116 37 56 69 14 17 17 5 3 6 5 4 – – – 5 – 4 – 23 13 – 13 43 19 6 – – 3 6 8 6 4 4 1 2 8 12 1 1 Alexandra House Chater House Exchange Square One Exchange Square Two Exchange Square Three Exchange Square Podium The Forum Jardine House Gloucester Tower Landmark Atrium Edinburgh Tower York House Prince’s Building WF CENTRAL One Central One Raffles Link One Raffles Quay North Tower South Tower % 100 100 100 100 100 100 100 100 100 84 49 100 33.3 Marina Bay Financial Centre 33.3 50 50 50 50 50 100 49 65 73.9 Tower 1 Tower 2 Tower 3 World Trade Centre 1 World Trade Centre 2 World Trade Centre 3 World Trade Centre 5 World Trade Centre 6 EXCHANGE SQUARE Gaysorn Central Building 63 Ly Thai To 98 Hongkong Land Development Properties interest Location Total completed developed Attributable Construction to be Developable area of the property Under construction/ Artisan Bay WE City Beryl Grove Central Avenue Harbour Tale Hillview Landmark Riverside River One Scholar’s Mansion The Pinnacle Yorkville North Hangzhou Bay The Riverside JL CENTRAL Yue City Galaxy Midtown Irvine Bay Dream Land Lakeward Mansion Leedon Green Margaret Ville Parc Esta Arumaya Asya Avania Nava Park King Kaew Nonthaburi The Marq % 33 50 100 50 50 50 50 100 50 100 100 30 100 50 33 26.7 50 50 66 50 100 100 40 33.5 50 49 49 49 70 (in thousands of square metres) Chengdu Chengdu Chongqing Chongqing Chongqing Chongqing Chongqing Chongqing Chongqing Chongqing Chongqing Hangzhou Hangzhou Nanjing Nanjing Shanghai Shanghai Wuhan Wuhan Singapore Singapore Singapore Jakarta Jakarta Jakarta Jakarta Bangkok Bangkok Ho Chi Minh City 155 922 133 1,115 114 61 1,109 161 318 125 1,116 791 74 252 251 389 64 494 226 49 22 98 24 896 131 652 178 434 57 70 708 – 586 86 – 794 117 – – 761 80 – – 17 – – 87 – – – – – 29 – 148 – 11 – 85 214 133 529 28 61 315 44 318 125 355 711 74 252 234 389 64 407 226 49 22 98 24 867 131 504 178 423 57 Annual Report 2020 99 Major Property Portfolio Hong Kong – Central District E N ’ S R O A D C E N T R A L Q U E P E D D E R S T R E E T D E S V O E U X R O A D C E N T R A L I C E H O U S E 9a 10 9 8 S T R E E T 11 R O A D C E N T R A L 3 C O N N A U G H T Hongkong Land properties Public car park Pedestrian bridges Mass Transit Railway access L A R T N E C Standard Chartered Bank D A O R ’ S N E E U Q Bank of China L A R T N E D C HSBC A O X R U E O S V E D 7 6 I C E H O 12 U S E S T R E E T 1 2 Stock Exchange U O B R A H R V I E 4 W S T R E E T Airport E xpress Station G S T R E E T N Statue Square D A O R R E T A H C Statue Square R O A D N O C Mandarin Oriental L A R T N E C D A O R T H G U A N J A C K S O N 5 General Post Office H E U N C A M M A N Y I U S T R E E T D A O O R G W N L U 9a 10 9 7 8 11 6 1 2 5 3 4 12 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 9a The Landmark Mandarin Oriental 10 York House 1 1 Landmark Atrium 12 Prince’s Building 100 Hongkong Land Beijing, China Chengdu, China WF CENTRAL CBD Z3 Project* Central Park WE City* Artisan Bay* Chongqing, China Landmark Riverside Yorkville South Yorkville North Central Avenue River One Xiao Yuan Project* New Bamboo Grove Hillview Harbour Tale The Pinnacle Chongqing, China Hangzhou, China Macau, China Scholar’s Mansion* Beryl Grove* Hangzhou Bay The Riverside One Central * This rendering is for illustration and reference only, subject to change and government approval. Indonesia WTC Indonesia Anandamaya Residences Nava Park Arumaya* Cambodia Asya* Avania* Central Mansions EXCHANGE SQUARE 313 Quayside Thailand Gaysorn The ESSE Sukhumvit 36 British Embassy Site Lake Legend King Kaew Project* Wireless Road Project* Vietnam Malaysia Central Building 63 Ly Thai To The Marq* Wangsa Walk Mall The Quinn* Singapore Marina Bay Financial Centre One Raffles Quay One Raffles Link Parc Esta* Singapore Philippines Leedon Green* Margaret Ville* Roxas Triangle Towers Mandani Bay* The Velaris Residences* Shanghai, China West Bund Site* Parkville Galaxy Midtown* Irvine Bay* Nanjing, China Wuhan, China JL CENTRAL* Yue City* River and City* Dream Land Lakeward Mansion* * This rendering is for illustration and reference only, subject to change and government approval. Hongkong Land Holdings Limited Jardine House Hamilton Bermuda www.hkland.com 

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