Hysan Development Co Ltd
Annual Report 2001

Plain-text annual report

ANNUAL REPORT 2001 INVESTING FOR THE FUTURE: FUNDAMENTALS STRENGTHENED Inspired by the classic chambered nautilus, the logo of our flagship Lee Gardens reflects the notion of strong foundations. The vitality of the spiralling design symbolises our vision to move forward to a dynamic future. A spirit not only true for the Lee Gardens, but also for our entire portfolio. A distinctive neighbourhood in Causeway Bay – to work, shop and enjoy. CONTENTS 4 Highlights 2001 5 Chairman’s Statement 16 Operating and Financial Review 22 Principal Investment Properties 24 Report of the Valuer 25 Schedule of Principal Properties 26 Our People 28 Directors, Officers and Advisers 34 Corporate Governance 40 Directors’ Report 44 Auditors’ Report 45 Consolidated Income Statement 46 Consolidated Balance Sheet 48 Balance Sheet 49 Consolidated Statement of Recognised Gains and Losses 50 Consolidated Cash Flow Statement 52 Notes to the Financial Statements 84 Five-Year Financial Summary 86 Notice of Annual General Meeting With origins of some 450 million years, the spirally coiled, chambered nautilus has fascinated naturalists, mathematicians and physicists for years. Inside back cover Shareholder Information Back cover Lee Gardens shopping centre Mission Hysan Development is committed to building and owning quality buildings, and being the occupier’s partner of choice in the provision of real estate accommodation and services, thereby delivering attractive and sustainable returns to shareholders. Year 2001 has been challenging, but rewarding for the Company strategically. We made solid steps across all sectors in our portfolio in strengthening our fundamentals, following the strategic focus mapped out last year. Hysan Development Company Limited • Annual Report 2001 1 A distinctive neighbourhood in Causeway Bay – VICTORIA HARBOUR GLOUCESTER ROAD CROSS HARBOUR TUNNEL T E E R T S L A V I C R E P SOGO Causeway Bay MTR D A O R N E D R A G E E L L E I G H T O N R O A D HYSAN AVENUE LEIGHTON HILL L EIG HENNESSY ROAD TIMES SQUARE M ATH ESO N STREET H T O Total Investment Property Portfolio 4.7 million ft2 Portfolio Analysis by Size: HAPPY VALLEY • Office • Retail 2 Hysan Development Company Limited • Annual Report 2001 • Residential 59 % 24 % 17 % Office Retail Residential N R O A D  to work, shop and enjoy VICTORIA PARK PENNINGTON STREET L E I G H T O N R O A D HONG KONG STADIUM Hysan Development Company Limited • Annual Report 2001 3 HIGHLIGHTS 2001 • Office portfolio achieved 98% occupancy despite challenging market conditions • Strong balance sheet geared to complement strategic decisions • Fundamentals strengthened: strategic progress across all business sectors Year ended 31 December 2001 2000 Change HK$’000 HK$’000 1,066,738 1,474,517 600,343 850,173 727,659 715,067 HK$ 0.58 0.38 HK$ HK$ 0.82 0.42 HK$ % (27.7) (29.4) 1.8 % (29.3) (9.5) % Operating Profit Net Profit Core leasing earnings * Earnings per share (basic and diluted) Dividend per share Net asset value per share (before final dividend) 20.62 22.79 (9.5) Note: * before tax 4 Hysan Development Company Limited • Annual Report 2001 CHAIRMAN’S STATEMENT The year under review has been challenging, but strategically rewarding for the Company. Amidst worsened business conditions, our office portfolio achieved a 98% occupancy rate. We made solid steps across all sectors of our portfolio by strengthening our fundamentals, following the strategic directions mapped out last year. Peter T. C. Lee Chairman and Managing Director Hysan Development Company Limited • Annual Report 2001 5 Hysan Development Company Limited • Annual Report 2001 5 Chairman’s Statement STRATEGIC FOCUS It is commonplace to think of We consolidated the minority interests The Group’s investment property in the Lee Theatre Plaza, one of our portfolio, as valued externally by property investment as an assets retail centres, hence further independent professional valuers, business. However, asset strengthening our asset base. We shall was HK$26,639 million (2000: accumulation alone will no longer continue to take advantage of our HK$28,433 million). Largely due to deliver the necessary returns to critical mass and combine this with an the HK$1,841 million net valuation satisfy investors. We must look innovative service-based culture. deficit, shareholders’ funds at the beyond the bricks and mortar, by year end were HK$21,267 million, actively anticipating and satisfying We have a strong balance sheet compared to HK$23,478 million in occupiers’ ever changing needs for geared to complement the Company’s 2000. Net asset value per share real estate accommodation and strategic decisions. Our Medium Term (before final dividend) decreased by services. Occupiers today demand Note Programme established during 9.5% to HK$20.62. a broader as well as different range the year and its first US$200 million of services. issuance received solid investment Detailed commentary on our Our major refurbishment project for grade ratings. performance and assets valuation are set out in “Operating and Financial the luxury Bamboo Grove residential Details of our strategic advancement Review” on page 16. development goes beyond upgrading and financial performance during the the building facilities as part of our year are set out in “Operating and selective building upgrading Financial Review” on page 16. programme. A full range of enhanced and personalized services will also be introduced. PERFORMANCE Net profit for the year ended 31 DIVIDENDS The Board recommends the payment of a final dividend of HK$0.28 per share, which together with the interim dividend of HK$0.10 per share, The goal of our retail sector is to December 2001 was HK$600 million, represents an aggregate distribution ensure that our space is not only 29.4% lower than in 2000. The major of HK$0.38 per share, a decrease of rented to its maximum capacity but factor underlying this fall was the 9.5% for the year. Subject to that the mix of retailers meets the realization of gains on disposal of shareholder approval, the final needs of today’s customers. An long-term investment in marketable dividend will be payable in cash with important step in the delivery of this securities of HK$294 million a scrip dividend alternative. Details strategy is the introduction of a new recorded in year 2000. on the payment of final dividend, “lifestyle” theme in the Lee Theatre including the scrip dividend Plaza area. This has further The Group continues to have solid core arrangements, are set out in progressed our objective to leasing earnings, at HK$728 million. “Shareholder Information” on the strengthen our retail portfolio as a inside back cover. distinct neighbourhood for shopping Earnings per share were HK$0.58, a and entertainment in the retail hub of decline of 29.3% (HK$0.82 for the Causeway Bay. same period in 2000). 6 Hysan Development Company Limited • Annual Report 2001 Chairman’s Statement SHAREHOLDER FOCUS, FINANCIAL PRUDENCE AND TRANSPARENCY The Company values dialogue with organizations, through donations, This has been an active year during sponsorships and the provision of which solid progress was made. My free venues. Members of our thanks go to all of Hysan’s staff, management and staff also serve on whose commitment and efforts have our shareholders, and aims to various government as well as make this possible. continually improve on the quality of industry organizations. We believe it our reporting. This Annual Report aims to present a balanced and understandable assessment of the is important for our business to support the community in which it operates and from which it generates THE WAY AHEAD It has been a challenging year not Group’s position and prospects to our its revenue. For us, this not only only for most businesses, but for shareholders. Senior management means Hong Kong but more Hong Kong as a whole. At Hysan, we team also holds regular meetings with specifically our hub in Causeway Bay. have chosen to demonstrate our the investment community to discuss strategic and other issues. It is our Company policy to adhere to DIRECTORS AND STAFF Mr. H. C. Lee, our former Chairman, commitment and belief in our vision by taking significant steps to strengthen our fundamentals. Recent positive economic indicators financial prudence and corporate retired after the last Annual General regarding U.S. economy and China’s transparency. I am very pleased that Meeting in May 2001 after some accession to the World Trade our efforts in this area were twenty years with the Company. Organization should add a positive recognized; our previous Annual Under H. C.’s distinguished tenure, tone to the market. We shall build on Report won the Gold Award (Hang the Company became one of the this year’s efforts and believe that Seng Index company category) of the leaders in the Hong Kong property through these actions, our Year 2001 Best Corporate sector, laying the foundation for its shareholders and customers will Governance Disclosure Award given continuing development. The recognize that we are in a position to by the Hong Kong Society of Honourable Lee Quo-wei, who has further grow our business by being Accountants. served as our Deputy Chairman, also the occupier’s partner of choice in Details on our financial policy are set Annual General Meeting. The Board accommodation and services. decided to step down as from the last the provision of real estate out in “Operating and Financial Review” on page 16. is greatly indebted to them for their invaluable guidance and contribution HYSAN AND THE COMMUNITY With its long history in Hong Kong, Hysan has strong ties with the to the success of Hysan. Peter T. C. Lee We are very pleased to have Sir David Hong Kong, 12 March 2002 Chairman and Managing Director Akers-Jones as our independent non- executive Deputy Chairman as from community. Hysan supports various 8 May 2001. He also chairs our two charitable and civic institutions in corporate governance board Hong Kong, including environmental committees. Hysan Development Company Limited • Annual Report 2001 7 Lee Theatre Plaza – a landmark building on a historical site. The retail plaza’s lifestyle theme makes it an ideal venue for one-stop shopping and dining in the retail hub of Causeway Bay. 8 Hysan Development Company Limited • Annual Report 2001 LOCATION Hysan is the largest commercial landlord in Causeway Bay, a district that exemplifies Hong Kong’s very own trademarks of vitality and efficiency. A prime location for business that offers unrivalled proximity to clients, peers, business services, and where employees enjoy and relax. This is true all year round, twenty-four hours a day. In 2001, we acquired the remaining minority interests in the retail Lee Theatre Plaza complex, consolidating our dominance in Causeway Bay. Hysan Development Company Limited • Annual Report 2001 9 Looking through the skylight of the Lee Theatre Plaza dome, with the Plaza soaring, depicting Hysan’s objective of moving forward to a dynamic future. 10 Hysan Development Company Limited • Annual Report 2001 BUILDINGS Fine buildings provide the ultimate environment to work. We continually review our portfolio and improve its quality by selective enhancement and refurbishment. In 2001, our Bamboo Grove luxury residential development underwent a major renovation programme to enhance the value of the property. Hysan Development Company Limited • Annual Report 2001 11 An on-site briefing session is one of many such communication channels to ensure effective and efficient An on-site briefing session is one of many such communication channels to ensure effective and efficient management of our properties, providing quality service for our tenants. From left: Mr LEUNG Siu Ming management of our properties, providing quality service for our tenants. From left: Mr LEUNG Siu Ming (Building Manager, Lee Gardens), discusses issues with his team: NG Ho Lam (customer servicing), TO Lai (Building Manager, Lee Gardens), discusses issues with his team: NG Ho Lam (customer servicing), TO Lai Mei (customer servicing), HO Yee Leung (security - traffic control), LI Kai Yin (security), LEUNG Ka On Mei (customer servicing), HO Yee Leung (security - traffic control), LI Kai Yin (security), LEUNG Ka On (building services), JIM Tung Cheung (building services). (building services), JIM Tung Cheung (building services). 12 Hysan Development Company Limited • Annual Report 2001 PEOPLE It is our people that make our buildings work. We oversee the development, marketing, leasing and management of our property portfolio to anticipate and to meet tenants’ needs and to ensure the quality of our investments. In 2001, our property management has been enhanced with upgraded operational efficiency, focusing on good customer service. The Bamboo Grove project will be accompanied by a full range of enhanced and personalized property management services. Hysan Development Company Limited • Annual Report 2001 13 The renowned “Tap Dogs” dancers performing at the outdoor Hysan Street Party held on Hysan Avenue every November. This Party is one of many marketing efforts to the mutual benefit of ourselves and our tenants. 14 Hysan Development Company Limited • Annual Report 2001 PARTNERSHIPS We regard our tenants as business partners beyond the traditional landlord-tenant relationship and have forged lasting partnerships throughout the years. Many of our tenants have been with us since the original lettings of our properties. Hysan Development Company Limited • Annual Report 2001 15 OPERATING AND FINANCIAL REVIEW strategic directions mapped out prudence. Our new Medium Term in the previous year. Note Programme and the US$200 • Leadership position in Causeway Bay. We consolidated the minority million Notes issuance obtained solid investment grade ratings (Moody’s: Baa1; Standard and interests in the retail Lee Theatre Poor’s: BBB+); Plaza complex, further consolidating our dominance in the prime office/retail area of Causeway Bay; • Continual review of the • Operational efficiency and good customer service. Our property management has been further enhanced with upgraded operational efficiency, focusing on performance of individual buildings good customer service. The and improve their quality by selective refurbishment and Bamboo Grove project will be relaunched with a full range of re-development. Our Bamboo enhanced and personalized Grove luxury residential property management services. development underwent a major renovation programme which includes both visible enhancements and the equally ACTIVITIES IN THE YEAR important service upgrades; Investment Properties • Strengthening our retail sector located in the retail hub of • Office The period in review witnessed a worsening of the general market OPERATING REVIEW FUNDAMENTALS STRENGTHENED In a year when the world’s major economies receded, the overall Hong Kong economy also experienced a downturn particularly during the second half Causeway Bay. We further environment. There was an of the year. Generally, corporate expanded our retail sector and increased secondary stock of office expenditure were reduced in advanced our objective to enhance properties following company cost- response to a lower level of activity. our neighbourhood as a distinct cuttings. These include premises The rise in unemployment also hub for dining, shopping and occupied by telecommunications affected consumer sentiment. recreation. A diversity of retail and and financial institutions. We Despite this challenging leisure offers were introduced to continue to have a diversified but environment, our office portfolio our retail portfolio, complemented focused tenant base covering large achieved a 98% occupancy rate. by a new “lifestyle” theme in the multinationals and Hong Kong We also made solid progress Lee Theatre Plaza area; organizations, and achieved an across all property sectors (office, retail and residential) in implementing steps to strengthen • Financial prudence. We continued to have a strong balance sheet our fundamentals, following the and emphasize financial occupancy rate of 98%. Our strategy of continually anticipating the needs of our 16 Hysan Development Company Limited • Annual Report 2001 customers stood us in good stead and we enjoy an excellent relationship with our tenants. We interact closely with our tenants to ensure that we anticipate and meet their needs, and are encouraged by the response. • Retail Retail markets are generally sensitive to the overall economic environment. Consumer confidence, in particular, was affected after the events on 11 September. Our portfolio, located in the retail hub of Causeway Bay, achieved a 97% occupancy rate. The proactive approach we mutual benefit. The annual Hysan Development Properties adopted in managing our tenant Street Party held in November The Grand Gateway commercial mix resulted in the introduction of successfully rounded off a busy and residential complex in Puxi, new complementary tenants to the year for our team. portfolio, further strengthening the “lifestyle” theme in the Lee Theatre Plaza area. • Residential Shanghai, where we have a 17% interest, has established itself as one of the most popular shopping The major refurbishment centers in Puxi area. The retail programme for the Group’s podium is virtually fully-let. The In our retail portfolio, our objective Bamboo Grove luxury residential average occupancy rate of the is to create an attractive complex in the Mid-levels residential tower for year 2001 environment for dining, shopping commenced in 2001. The was 96%. and recreation. All these are to be programme seeks to enhance the achieved by the provision of a external façade, apartment Pre-sales in our two joint-venture diversity of complementary retail interiors, as well as clubhouse and residential developments in and leisure offers that meet the common facilities to provide a Singapore, Sanctuary Green and the needs of customers. The comfortable and family-friendly Gardens at Bishan (10% interest), introduction of new-style food and living environment. A full range of are in progress. Pre-sale in Amaryllis beverage establishments in our enhanced and personalized Ville project (25% interest) is neighbourhood during the year property management services will expected to be launched shortly. has further advanced this aim. We be introduced. Re-launch is continued our marketing efforts, scheduled to commence in the partnering with tenants to our second quarter of 2002. Hysan Development Company Limited • Annual Report 2001 17 Operating and Financial Review FINANCIAL REVIEW December, followed in February Performance Analysis 2002 by the inaugural issue US$200 HKD (million) 2001 was characterized by a million 7% 10-year Notes under the weakening economy and falling Programme. interest rates. The weakening local economy, made worse by the global slowdown and the negative economic impact of the September 11 terrorist RESULTS The Group’s net profit attributable to attack in the United States, inevitably shareholders in 2001 was led Hong Kong property rental and HK$600 million, which was 29.4% asset values to fall during the year. lower than the HK$850 million in The U.S. Central Bank aggressively 2000 mainly because of the absence cut interest rates during the year to of gains on disposal of long-term 2,000 1,500 1,000 500 0 -500 293.8 1,475.9 (328.9) (432.0) 1,351.9 (313.6) (310.7) 2000 2001 counter the U.S. slow down and investment in marketable securities -1,000 Hong Kong interest rates followed suit of HK$294 million realized in 2000. because of the currency peg. Earnings per share were HK$0.58 Despite the difficult operating The Group’s core leasing earnings, against 2000’s figure of HK$0.82. Net financing expenses Operating expenses Gain on sale of long-term marketable securities environment, the Group was able to however, were up by 1.8%, which more Rental income achieve strong occupancy rates, accurately reflect the Group’s strong operating profits and cash flows. effort during the past difficult year. Financial gearing and interest coverage were also maintained at comfortable Rental income from the Group’s levels such that strong credit ratings property portfolio dropped by 8.4% from both Standard & Poor’s Rating year-on-year as a result of negative Agency (BBB+) and Moody’s Investor rental reversions and high vacancy at Services (Baa1), reflecting the strong Bamboo Grove with the and stable financial profile of the commencement of refurbishment in Group, were achieved. July 2001. Excluding Bamboo Grove, the fall year-on-year was a more The Group was able to reduce modest 5.0%. To help cope with interest expenses significantly during falling rental income, the Group the year by keeping debt facilities tightened expenses. Operating largely on a floating rate basis to take expenses fell by 4.7% to advantage of declining interest rates. HK$314 million and net financing The Group also took advantage of the charges were HK$121 million lower low rates to lengthen debt tenure and despite higher debt. The net interest diversify funding sources. This was expense cover ratio improved from achieved by the Group establishing a 2000 year-end’s 3.6 times to 3.7 Medium Term Note Programme in times at 31 December 2001. 18 Hysan Development Company Limited • Annual Report 2001 Asset Values Asset Values HKD (billion) Net asset value per share (HKD) 70 60 50 40 30 20 10 0 40 30 20 10 0 33.71 47.94 19.80 18.19 28.07 28.30 22.79 30.78 20.62 28.45 1997 1998 1999 2000 2001 Marketable securities Hong Kong properties Overseas properties Net asset value before final dividend Operating and Financial Review additional borrowings and reduced Gross and Net Debt REVIEW OF ASSET VALUES The Group’s investment properties shareholder equity from lower were revalued independently by property asset valuation. professional valuers at year end 2001 at HK$26,639 million. The resulting During the year, the Group continued net revaluation deficit for the year of to maintain all of its debt in Hong HK$1,841 million has been charged Kong dollars and on an unsecured to reserves. This movement, together basis. Over 98% of the borrowings with the decrease in value of the were on a committed basis. Group’s marketable security holdings, was the most significant elements in The maturity profiles of the Group’s the fall in shareholders’ funds of gross debt at 31 December 2001 and 9.4% to HK$21,267 million. Net 31 December 2000 are summarised HKD (million) 12,000 10,000 9,835 3,142 8,000 7,224 1,389 6,013 5,106 1,676 2,683 3,330 3,430 6,693 5,835 5,628 1,084 4,544 6,000 4,000 2,000 0 1997 1998 1999 2000 2001 2001 2000 HKD(million) HKD(million) Cash, cash equivalents & securities at market value Net debt asset value per share (before final as follows: dividend) correspondingly decreased from HK$22.79 to HK$20.62. DEBT AND MATURITY PROFILE The total debt outstanding at the end of 2001 amounted to HK$5,628 million (excluding amount due to minority shareholders and advances from investees), an increase of HK$522 million from the previous Repayable within a period – Not exceeding 1 year – Between 1 to 2 years – Between 2 to 5 years – After 5 years 2,140 816 436 2,150 2,572 480 2,140 0 5,628 5,106 year end. Loan draw down from Sources of funds at 2001 year-end existing and new facilities during the comprised of 43% from capital year were mainly used to finance the market issuances, 39% from bank minority interest acquisition in The Lee bilateral loans and 18% from Theatre Plaza and the refurbishment syndicated and club loans. expenditures at Bamboo Grove. Net debt (gross borrowings less cash, cash After the 10-year Notes issue in equivalent and marketable securities February 2002 and the repayment of at year-end market value) amounted the HK$2 billion Floating Rate Notes to HK$4,544 million. in March 2002, about 36% of the debt will not mature for 5 to 10 years. Net debt as a percentage of Similarly, the sources of debt facilities shareholder equity increased from from capital market issuances and 14.6% at December 2000 to 21.4% bank bilateral loans will be changed at year-end 2001 as a result of the to 35% and 47% respectively. Sources of Debt Facilities at 2001 Year-end 39% 43% 18% Bank bilateral loans Capital market issuances Syndicated and club loans Hysan Development Company Limited • Annual Report 2001 19 Operating and Financial Review NOTABLE NEW FINANCING In February 2002, the Group issued CAPITAL EXPENDITURES To further strengthen the Group’s balanced spread of facility maturities. The Group also uses interest rate swaps the inaugural US$200 million 7% dynamic and long-term presence in and other instruments to manage Notes under the established Causeway Bay, HK$508 million were interest rate risks with an objective to Medium Term Note Programme. The paid to acquire the 30% minority minimize the impact of fluctuations on Notes have a tenure of 10 years and interest in The Lee Theatre Plaza in earnings while achieving a balance with were priced at 200 basis points over September 2001. Other capital cost effectiveness. Transactions are the benchmark 10-year U.S. expenditures incurred relate to additions conducted for hedging purposes only Treasury Notes with a yield of and improvements to the Group’s and no speculative positions have 7.02%. The Notes received a credit investment properties including the been or will be undertaken. As of rating of Baa1 from Moody’s refurbishment program at Bamboo 31 December 2001, 88% of the Group’s Investors Service and BBB+ from Grove. Regarding those Singapore borrowings were at floating rates. Standard & Poor’s Rating Agency. development projects, where pre-sale is The issue was well received by a in progress, it is expected that such The Group’s foreign exchange wide group of predominately new proceeds are sufficient to fund the exposure is minimal. As of Asian and European investors, construction costs and future cash flow 31 December 2001, all debt including assets managers, requirements would be minimal. outstanding are Hong Kong dollars insurance companies, and private denominated, and investment in investors. The net proceeds will help At year end, the Group had overseas projects totalled the refinance the HK$2 billion Floating HK$1,661 million in undrawn equivalent of HK$703 million or 3.3% Rate Notes due in March 2002 as committed bank facilities. This of the Group’s shareholder equity. well as fund other Group needs. availability, together with the Medium CREDIT RATINGS With respect to the Group’s credit strength, Standard & Poor’s Rating Term Note Programme in place, should be sufficient to cover the Group’s refinancing and capital expenditure CONTINGENT LIABILITIES As and when required, in the ordinary needs over the next few years. course of business, the Group will provide guarantees, counter Agency maintained a stable outlook As planned, the Group will fund its indemnities or undertakings to cover on its credit rating of BBB+. In capital expenditures through debt the Group’s obligations in respect of January 2002, Moody’s Investor while maintaining acceptable gearing projects undertaken by the Group. Services assigned a Baa1 credit and interest expense coverage ratios. rating to the Company with a stable outlook. Both investment grade credit ratings reflect the Group’s strong financial profile underpinned by sound financial management and FINANCIAL RISK AND MANAGEMENT The Group’s financial risk management The Group has provided guarantees for banking facilities granted to associated companies and investee companies. At 31 December 2001, the Group’s share of guarantees and stable operations with large recurring strategies include broadening the counter guarantees amounted to rental income cash flows. Group’s financing channels, expanding approximately HK$148 million (2000: the investor base, extending the tenure HK$153 million) and HK$79 million of facilities, and achieving a well- (2000: HK$84 million) respectively. 20 Hysan Development Company Limited • Annual Report 2001 PRINCIPAL INVESTMENT PROPERTIES Hysan Development Company Limited • Annual Report 2001 21 PRINCIPAL INVESTMENT PROPERTIES Hennessy Centre 500 Hennessy Road, Causeway Bay Located on a busy thoroughfare, Hennessy Centre contains 719,642 square feet in a 45-level office and retail complex. It is served by a multitude of public transport, including Lee Theatre Plaza 99 Percival Street, Causeway Bay Like its predecessor the Lee Theatre, Lee Theatre Plaza is a Hong Kong landmark and among the territory’s first Ginza-style shopping, dining and entertainment complexes. Boasting Esprit’s flagship store, the largest in the world, and Muji – a favourite lifestyle store – as its anchor tenants, the Plaza is a Mass Transit Railway and bus and tram stops popular venue for life-style shopping and on its doorstep. Home to the popular one-stop entertainment and relaxation, with Mitsukoshi Japanese Department Store, it is its cinema, fitness centres and some of the a popular family shopping destination. Principal office tenants Butterworths, Colgate-Palmolive, EDS, Lexmark and The Body Shop finest dining establishments in Causeway Bay. The Plaza contains 315,749 square feet in 26 levels. Principal retail tenants Esprit, Muji, Lee Theatre Cinema and California Fitness Centre AIA Plaza 18 Hysan Avenue, Causeway Bay A 25-level office and retail complex with 139,119 square feet of gross floor area, the building has food and beverage facilities on the ground and first floors. Principal office tenants Principal retail tenants AIA, Occidental Chemical, Miele Mitsukoshi Japanese Department Store Caroline Centre 2-38 Yun Ping Road, Causeway Bay The Lee Gardens 33 Hysan Avenue, Causeway Bay Leighton Centre 77 Leighton Road, Causeway Bay A 34-level office and retail complex of 626,882 square feet, its retail podium has established itself as a centre of variety shopping including fashion, sports, hi-fi and children’s wear. The prime, 53-level, 902,797 square feet office and retail complex was completed in 1997, and comprises the Manulife Plaza office tower and a shopping centre. The 28-level, 435,008 square feet office and retail complex enjoys close proximity to all forms of public transport. Its central location in the Causeway Bay area makes it a well- The complex also has several popular The Lee Gardens shopping centre is sought after location for many professional Asian cuisine outlets, and is linked to Causeway Bay’s high-end retail centre and practices. The addition of G.O.D. to Leighton The Lee Gardens, Causeway Bay’s high-end houses a concentration of international Centre makes it another inviting setting for shopping centre, by a footbridge. fashion and luxury brands. It has undergone life-style purchases. Principal office tenants Bayer, Jebsen & Company, Merck Sharp & Dohme and Pepsico Principal retail tenants (fashion and accessories): Max & Co and Fila; (children’s wear): DKNY Kids and Polo Kids; (lifestyle): Honma Golf, “Apartment” designer furniture and lightings and Nakamichi Hi-Fis aesthetical and environmental improvements during 2001 to provide added value to its retail tenants and visitors. Principal office tenants Bates, General Electric, Manulife, Oracle and Sony Principal retail tenants Chanel, Christian Dior, Hermes, Louis Vuitton, Prada and Tiffany & Co. Principal office tenants Davis Langdon and Seah Simon Kwan & Associates Principal retail tenants G.O.D and Town Gas Cooking Centre 22 Hysan Development Company Limited • Annual Report 2001 111 Leighton Road 111-117 Leighton Road, Causeway Bay 111 Leighton Road is located in a pleasant and tranquil area in the heart of Causeway Bay. Dining and Sunning Plaza 10 Hysan Avenue, Causeway Bay Designed by the renowned architect I.M. Pei, Sunning Plaza greets tenants and visitors with a spacious entrance and lift lobby. The office and retail complex has 30 levels and 279,717 shopping are readily square feet. Among its tenants are popular available. The 24-level office food and beverage outlets, which have and retail building has a established the Plaza as a hub for relaxation size of 79,905 square feet. and social recreation. Bamboo Grove 74-86 Kennedy Road, Mid-Levels Bamboo Grove is a luxury residential complex in the Mid-Levels consisting of 345 apartments in six residential towers. Tenants enjoy full clubhouse and sports facilities. The 697,940 square feet complex is undergoing extensive refurbishment to enhance both the building facilities and the Principal office tenants Agnes B and Mikli Asia Principal office tenants CIGNA, Gillette, Maersk Lines and Yahoo! equally important management services. One Hysan Avenue 1 Hysan Avenue, Causeway Bay Entertainment Building 30 Queen’s Road, Central, Central Sunning Court 8 Hoiping Road, Causeway Bay Located at the junction of three busy streets in the heart of Causeway Bay, One Hysan Avenue enjoys a prime location and a diversity of retail facilities in the surrounding area. The Enjoying a prime location in The 17-level Sunning Court Hong Kong’s Central financial and business district, the post-modern design Entertainment Building has 34 levels, comprising 211,148 square is a unique residential tower in the dynamic Causeway Bay area. Located in a pleasant environment with streets lined with trees, and within office and retail complex has 169,019 square feet. The building has recently undergone easy reach of all forms of relaxation and feet in 26 levels. environmental improvement works to entertainment activities in the district, the Principal office tenants AIWA, BGX, Hong Kong Institute of Architects and NCR Principal retail tenants Maxim’s Restaurant and Starbucks Coffee enhance the quality of the retail podium. building is finished to provide maximum comforts for its tenants. Principal office tenants AES, Baden-Württembergische Bank, Bulgari, Malayan Banking and Morrison & Foerster Principal retail tenants Laurel and Morton’s of Chicago Steak House Hysan Development Company Limited • Annual Report 2001 23 REPORT OF THE VALUER TO THE BOARD OF DIRECTORS HYSAN DEVELOPMENT COMPANY LIMITED Dear Sirs, Annual revaluation of investment properties as at 31 December 2001 In accordance with your appointment of Knight Frank to value the investment properties in Hong Kong owned by Hysan Development Company Limited and its subsidiaries, we are pleased to advise that the open market value of the properties as at 31st December 2001 was in the approximate sum of Hong Kong Dollars Twenty Six Billion Six Hundred Thirty Eight Million and Five Hundred Thousand Only. (i.e. HK$26,638,500,000). We valued the properties on an open market value basis by capitalizing the net income as provided to us with due allowance for outgoings and provisions for reversionary income potential. However, no allowance has been made in our valuation for any expenses or taxation which may be incurred in effecting a sale. Yours faithfully, KNIGHT FRANK Hong Kong, 1 March 2002 24 Hysan Development Company Limited • Annual Report 2001 SCHEDULE OF PRINCIPAL PROPERTIES as at 31 December 2001 INVESTMENT PROPERTIES Address Lot No. The Lee Gardens 33 Hysan Avenue Causeway Bay Hong Kong Hennessy Centre 500 Hennessy Road Causeway Bay Hong Kong Bamboo Grove 74-86 Kennedy Road Hong Kong Caroline Centre 2-38 Yun Ping Road Causeway Bay Hong Kong Leighton Centre 77 Leighton Road Causeway Bay Hong Kong Lee Theatre Plaza 99 Percival Street Causeway Bay Hong Kong Sunning Plaza 10 Hysan Avenue Causeway Bay Hong Kong Sunning Court 8 Hoiping Road Causeway Bay Hong Kong 1. 2. 3. 4. 5. 6. 7. 8. 9. Sec. DD of I.L. 29 and Sec. L of I.L. 457, Sec. MM of I.L. 29, the R.P. of Sec. L of I.L. 29, and the R.P. of I.L. 457 Use Category of the lease Percentage held by the Group Commercial Long lease 100% Sec. FF of I.L. 29 and the R.P. of Marine Lot 365 Commercial Long lease 100% I.L. 8624 Residential Long lease 100% Sec. A and O of I.L. 457 and Sec. G of I.L. 29, Sec. F and the R.P. of Sec. C, D, E, and G, Subsec. 1 of Sec. C, D, E and G and Subsec. 2 of Sec. E of I.L. 457, Sec. H of I.L. 457, Subsec. 1, 2 and 3 and the R.P. of Sec. C of I.L. 461 Sec. B, C and the R.P. of I.L. 1451 I.L. 1452 and the R.P. of I.L. 472 and 476 Commercial Long lease 65.36% Commercial Long lease 100% Commercial Long lease 100% Commercial Long lease 100% The R.P. of Subsec. 1 of Sec. J, Subsec. 2 and the R.P. of Sec. J of I.L. 29 Residential Long lease 100% Entertainment Building 30 Queen’s Road Central Hong Kong The R.P. of I.L. 16 and the extension thereto Commercial Long lease 100% 10. One Hysan Avenue The R.P. of Sec. GG of I.L. 29 Commercial Long lease 100% 1 Hysan Avenue Causeway Bay Hong Kong 11. AIA Plaza Sec. N of I.L. 457 and Sec. LL of I.L. 29 Commercial Long lease 100% 18 Hysan Avenue Causeway Bay Hong Kong 12. 111 Leighton Road Sec. KK of I.L. 29 Commercial Long lease 100% 111-117 Leighton Road Causeway Bay Hong Kong Hysan Development Company Limited • Annual Report 2001 25 OUR PEOPLE People are Hysan’s most vital asset. In a year during which downsizing and job cuts were announced by quite a number of businesses, we have elected to take a different path. We further strengthened our performance measurement system, invested in training and fostered our team spirit. All these are towards maximizing our efficiency to deliver shareholder value. Alignment of individual and corporate goals is key to our human resources practices 26 Hysan Development Company Limited • Annual Report 2001 PERFORMANCE MEASUREMENT We further strengthened our performance measurement system, including building in a specific customer service focus. Coaching and performance measurement workshops were conducted for all supervisory staff to ensure that the performance reviews are effectively conducted, with effective feedback supported by specific improvement plans. Clear goals, both corporate and individual, were identified and communicated thus aligning all staff with corporate objectives. Hysan has always rewarded our staff based on performance, reinforcing quality performance and customer service. TRAINING AND DEVELOPMENT Hysan recognizes the significance of continual training for our staff and the value such training brings to our operations. During the year, we continued to make substantial investments in staff development and encouraged a learning culture. All levels of staff benefited from strong team spirit and a sense of our formalized and customized belonging, and in establishing and training and development maintaining trust between programmes which covered a wide management and staff members. range of skills and expertise. Effective communication channels, Following the successful roll-out of including Staff Newsletters, formal customer service seminars and and informal briefing and chat workshops across the organization sessions by senior management and last year, customer service among corporate headquarters and standards were further reinforced building staff alike, were introduced. through vigorous coaching by unit Activities organized by the Hysan supervisors and Group self-audits. Recreation Club further strengthened Multi-level team briefings and the team spirit. Despite tough times, service coaching skills workshops our medical benefits were enhanced were also introduced to support in the year. teams with different responsibilities and at different locations. As a move to encourage innovation PEOPLE ARE OUR SUCCESS It is the people who make our and to involve staff in enhanced Company a success. At 31 customer service, we launched the December 2001, we employed a “Ideas That Work” programme, total of 561 staff members. Property which was received positively by Investment is more than an assets staff. FOSTERING TEAM SPIRIT Hysan is a caring employer and business. People make assets work. We shall continue to align our human resource practices with our corporate objective so as to maximize shareholder value and to enjoys good relations with its staff. achieve growth. We spare no efforts in building a Customer service is the key to our success Safety and security in a friendly environment Meticulous management ensures efficiency Hysan Development Company Limited • Annual Report 2001 27 DIRECTORS, OFFICERS AND ADVISORS BOARD OF DIRECTORS Peter Ting Chang LEE (I) J.P. Chairman and Managing Director Peter T. C. Lee first joined the Board in 1988, became Managing Director in 1999, and Chairman and Managing Director in 2001. A non-executive director of South China Morning Post (Holdings) Limited and a director of a number of other companies. Also a director of Lee Hysan Estate Company, Limited. Received a Bachelor of Science Degree in Civil Engineering from the University of Manchester, he also qualified as a Solicitor of the Supreme Court of England and Wales. He is aged 48. Dr. Victor Kwok King FUNG (I) Independent Non-Executive Director Chairman of the Li & Fung Group, the Hong Kong Airport Authority and the Hong Kong University Council, a non-executive director of Bank of China (Hong Kong) Limited, Anglogold Limited, Pacific Century CyberWorks Limited, Kerry Properties Ltd., Orient Overseas (International) Ltd., DBS Kwong On Bank, Ltd., Sun Hung Kai Properties Limited, Dao Heng Bank Group Limited and its three operating subsidiaries, which are authorized institutions. He holds a Bachelors and a Masters Degree in Electrical Engineering from the Massachusetts Institute of Technology, a Doctorate in Business Economics from Harvard University. Appointed a Director in 1998 and is aged 56. Sir David AKERS-JONES (A,E) K.B.E., C.M.G., J.P. Independent Non-Executive Deputy Chairman Chairman of Global Asset Management (HK) Limited. Vice chairman of CNT Group Limited and a non-executive director of various other companies. He is also a chairman and member of various voluntary organisations. Received his Master of Arts Degree at Oxford University. He was formerly the Chief Secretary of Hong Kong. Appointed a Director in 1989 and became the Deputy Chairman in 2001. He is aged 74. Fa-kuang HU (E) C.B.E., J.P. Non-Executive Director Chairman of Ryoden Development Limited and its group companies. Also a director of i-CABLE Communications Limited. Holds a Bachelor of Science Degree from Shanghai Jiao Tong University. Appointed a Director in 1979 and is aged 78. 28 Hysan Development Company Limited • Annual Report 2001 Hans Michael JEBSEN (I) Non-Executive Director Chairman of Jebsen and Company Limited as well as a director of other Jebsen Group companies worldwide. Appointed a Director in 1994 and is aged 45. Per JORGENSEN (A) Independent Non-Executive Director A director of A.P. Moller, Denmark and a number of A.P. Moller-Maersk companies in Asia, Africa and Europe; also a non-executive Chairman of Lee Gardens International Holdings Limited. Appointed a Director in 1981 and is aged 66. Anthony Hsien Pin LEE (I) Non-Executive Director A director and substantial shareholder of the Australian-listed Beyond International Limited, principally engaged in television programme production and international sales of television programmes and feature films. Received a Bachelor of Arts Degree from Princeton University and a Master of Business Administration Degree from The Chinese University of Hong Kong. Also a director of Lee Hysan Estate Company, Limited. Appointed a Director in 1994 and is aged 44. Chien LEE (A) Non-Executive Director A director of Scottish and Eastern Investments Limited, Lee Gardens International Holdings Limited and a number of other companies. Non-executive director of Swire Pacific Limited. Also a director of Lee Hysan Estate Company, Limited. Received a Bachelor of Science Degree in Mathematical Science, a Master of Science Degree in Operations Research and a Master of Business Administration Degree from Stanford University. Appointed a Director in 1988 and is aged 48. Michael Chi Kung MOY Chief Financial Officer & Director Responsible for Group finance. Received a BSE in Aeronautical Engineering from Princeton University, a Master Degree in Aeronautical Engineering from the University of Washington, and MBA with Distinction from The Wharton School of the University of Pennsylvania. Before joining the Company in 1999, he was a management consultant with Mckinsey & Company, and head of Asia for an international direct investment firm. He became Chief Financial Officer and Director in 1999 and is aged 45. Pauline Wah Ling YU WONG Director, Property Responsible for the Group’s property portfolio. Having obtained a Bachelor of Arts Degree from The University of Hong Kong, she qualified as a Fellow Member of the Chartered Institute of Housing. She joined the Company in 1981 and has over thirty years of experience in the property field. She was appointed a Director in 1991 and is aged 53. Dr. Deanna Ruth Tak Yung RUDGARD Non-Executive Director Received a Master of Arts Degree, Bachelor of Medicine and of Surgery Degree from Oxford University. Also a director of Lee Hysan Estate Company, Limited. Appointed a Director in 1993 and is aged 62. Dr. Geoffrey Meou-tsen YEH (E) S.B.S., M.B.E., J.P., D.C.S., M.Sc., F.C.I.O.B., F.Inst. D. Independent Non-Executive Director Chairman of Hsin Chong Construction Group Ltd. Holds a Bachelor of Science Degree from University of Illinois and a Master of Science Degree from Harvard University. Appointed a Director in 1979. He is aged 70. Michael Tze Hau LEE (I) Non-Executive Director Managing Director of Asia Strategic Investment Management Limited, he has extensive experience in equity investments in the Asia-Pacific region and is a registered investment advisor in Hong Kong. Non-executive director of Tai Ping Carpets International Limited. Also a director of Lee Hysan Estate Company, Limited. Received his Bachelor of Arts Degree from Bowdoin College and a Master of Business Administration Degree from Boston University. Appointed a Director in 1990 and is aged 40. (A) Audit Committee (E) Emoluments Review Committee (I) Investment Committee Hysan Development Company Limited • Annual Report 2001 29 Directors, Officers and Advisors Mr Peter T.C. Lee with Senior Management Front row, from left: Connie Kit Mei Pang, Wendy Wen Yee Yung, Michael Chi Kung Moy, Peter T.C. Lee, Pauline Wah Ling Yu Wong Back row, from left: Mark Sun Wah Chim, Lora Wing Sze Luke, Ben Sau Shun Lui SECRETARY Wendy Wen Yee YUNG Graduated from Oxford University with a Master of Arts Degree and is a solicitor of the High Court of the Hong Kong SAR. Prior to joining the Company in 1999, she was a partner of an international law firm in Hong Kong. She is aged 40. SENIOR MANAGEMENT Mark Sun Wa CHIM General Manager, Office Leasing Responsible for the Group’s office leasing activities. Before joining the Company in 1999, he was National Director, Commercial Department, of an international real estate consultancy firm with over fourteen years’ experience in leasing. Graduated from The Hong Kong Polytechnic University in Building Technology and Management. He is aged 38. Ben Sau Shun LUI General Manager, Project and Technical Services Responsible for the Group’s project and technical services. A Registered Professional Engineer, he holds a Master of Science Degree in Construction Project Management and a Bachelor of Science Degree in Civil Engineering, both from the University of Hong Kong. Before joining the Company in 2000, he has served senior project management positions in other major listed companies. Aged 43. ADVISERS Auditors Deloitte Touche Tohmatsu Principal Bankers The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited Registered Office 49th Floor, Manulife Plaza The Lee Gardens 33 Hysan Avenue Hong Kong Share Registrars and Transfer Office Standard Registrars Limited 5th Floor Wing On Centre 111 Connaught Road Central Hong Kong Lora Wing Sze LUKE General Manager, Retail Leasing Responsible for the Group’s retail leasing activities. Prior to joining the Company in 2000, she was senior leasing manager of a major listed property investment company. She holds a M.B.A. degree from University of Reading in Real Estate and Construction. Aged 41. Connie Kit Mei PANG Head of Corporate Planning Responsible for the Group’s corporate planning activities. She holds M.B.A. and M.A. degrees from the Columbia University of New York and a Bachelor degree in Management and Economics from the University of Hong Kong. Prior to joining the Group in 2000, she was a principal with an international management consulting firm. Aged 38. 30 Hysan Development Company Limited • Annual Report 2001 Notes Hysan Development Company Limited • Annual Report 2001 31 Notes 32 Hysan Development Company Limited • Annual Report 2001 DIRECTORS’ REPORT AND ACCOUNTS 2001 Hysan Development Company Limited • Annual Report 2001 33 CORPORATE GOVERNANCE The Company is committed to a high standard of corporate governance. This section describes how the principles of corporate governance are applied to the Company and the Company’s compliance with the Code of Best Practice (the “Code of Best Practice”) as set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). STATEMENT OF COMPLIANCE WITH THE CODE OF BEST PRACTICE The Company has complied throughout the review period with the Code of Best Practice. BOARD EFFECTIVENESS The Board The Board currently comprises Peter T. C. Lee, Chairman and Managing Director, Pauline W. L. Yu Wong, Director, Property and Michael C. K. Moy, Chief Financial Officer and Director, and ten other non-executive Directors. Sir David Akers-Jones acts as the Independent non-executive Deputy Chairman, also chairing the two corporate governance committees, namely the Audit Committee and Emoluments Review Committee. The biographies of the Directors appear on pages 28 and 29. These demonstrate a range of experience and calibre to bring valuable judgment on issues of strategy, performance, and resources which are vital to the success of the Group. The four independent non-executive Directors also sit on the corporate governance committees of the Board. Under the Company’s articles of association, all Directors are subject to retirement by rotation. The three Directors who have been longest in office as at each Annual General Meeting will retire from office and be subject to re-election. Chairman and Deputy Chairman The Board structure, including the presence of an independent non-executive Deputy Chairman on the Board, is designed to ensure that the Board functions effectively and independent of management where appropriate. At the same time, the fact that the Chairman is also Managing Director means that the Chairman has a more detailed knowledge of the business and activities of the Company than would be possible for a Chairman who was not a member of management. Responsibilities, Functioning, and Supply of Information The Board meets at least quarterly. Its principal task is to formulate strategy and to monitor and control operating and financial performance in pursuit of the Group’s strategic objectives. Certain significant transactions, including material bank facilities, material acquisitions and disposals, and material transactions with connected parties are reserved for Board decision. An important element of the Board’s corporate governance programme is the continuous improvement in the quality and timeliness of the dissemination of information to Directors. Where appropriate, communications are sent electronically. At least quarterly, Directors are provided with comprehensive reports on the management’s strategic plans, updates by business unit heads on their lines of business, financial objectives, plans and actions. During the year, following every committee meeting, committee chairs report to the Board on the activities of their respective committees. All Directors have access to the Company Secretary who is responsible for ensuring that Board procedures are complied with and advises the Board on corporate governance and compliance matters. 34 Hysan Development Company Limited • Annual Report 2001 CORPORATE GOVERNANCE continued BOARD COMMITTEES The Board currently has three Board committees, namely the Audit Committee, Emoluments Review Committee and Investment Committee. The Audit and Emoluments Review Committees, being corporate governance committees, have 100% non-executive membership with a majority of independent Directors. These three committees deal with specific aspects of the Group’s affairs, as detailed below: Audit Committee The Audit Committee which is chaired by Sir David Akers-Jones, its other current members being Per Jorgensen and Chien Lee, meets not less than twice per annum. The Committee provides a forum of reporting by the Group’s external auditors. Meetings are also attended by the Managing Director and the Chief Financial Officer. The Audit Committee receives reports from and consults with external auditors. It reviews the interim and annual results, considers any matters raised by the external auditors, and reports thereon to the Board. It also monitors the controls which are in force to ensure the integrity of information reported to the shareholders, and oversee compliance generally. Emoluments Review Committee The Group’s Emoluments Review Committee is also chaired by Sir David Akers-Jones. Other members are Mr. F. K. Hu and Dr. Geoffrey M. T. Yeh. The function of the Committee is to review and determine the remuneration of the executive Directors. The Chairman and Managing Director makes recommendations to the Committee on the Company’s framework for, and cost of, executive Director remuneration and the Committee then reviews these recommendations. On matters other than those concerning him, the Chairman and Managing Director may be invited to Committee meetings. No Director is involved in deciding his own remuneration. Details of each Director’s emoluments and options are shown in section headed “Directors’ remuneration and interests”. Investment Committee The Group’s Investment Committee comprises the Chairman and Managing Director, Victor K. K. Fung, Hans Michael Jebsen, Michael T. H. Lee, with Anthony H. P. Lee as the Chairman. The five Directors, demonstrating a range of valuable experience and background, meet as necessary to advise and make recommendations on the investment strategies of the Group within agreed terms of reference. DIRECTORS’ REMUNERATION AND INTERESTS Executive Director Emoluments Details on Directors’ emoluments are set out in note 6 to the financial statements. As detailed above, the Emoluments Review Committee reviews and determines the remuneration of the executive Directors. Non-Executive Director Emoluments The annual remuneration of the non-executive Directors for year 2001 was HK$592,534 per annum. The independent non-executive Deputy Chairman receives an annual fee of HK$65,000, with the other non-executive Directors being entitled to an annual fee of HK$50,000. Members of the Audit Committee receive an annual fee of HK$20,000. None of the non-executive Directors receive any pension benefits from the Company, nor do they participate in any bonus or incentive schemes. Hysan Development Company Limited • Annual Report 2001 35 CORPORATE GOVERNANCE continued Service Contracts No Director has a service contract that is not determinable by the Group within one year without payment of compensation (other than statutory compensation). Directors’ Interests in Shares As at 31 December 2001, the interests of the Directors and Alternate Directors in the ordinary shares of the Company, as recorded in the register maintained by the Company pursuant to Section 29 of the Securities (Disclosure of Interests) Ordinance (the “SDI Ordinance”) were as follows: Name Peter Ting Chang Lee Fa-kuang Hu Hans Michael Jebsen Per Jorgensen Chien Lee Personal Interests 2,000,000 – 60,000 6,678 970,000 Michael Tze Hau Lee 1,023,233 Deanna Ruth Tak Yung Rudgard 1,871,600 Pauline Wah Ling Yu Wong Michael Chi Kung Moy Geoffrey Meou-tsen Yeh V-nee Yeh (Alternate to Geoffrey Meou-tsen Yeh) 254,000 – 109,619 43,259 Family Interests No. of shares held Corporate Interests Other Interests – – – – – – – – 131,565 (Note 4) 4,020,014 (Note 1) 255,012 (Note 2) 2,432,914 (Note 1) – – – – – 4,020,014 (Note 1) 3,750,000 (Note 3) – – – – – – 1,000 (Note 1) 84,575 (Note 1) – – – – – – Total 6,020,014 255,012 2,492,914 6,678 8,740,014 1,023,233 1,871,600 254,000 131,565 110,619 127,834 Notes: (1) (2) (3) (4) Such shares were held through corporations in which the respective Directors were members entitled to exercise one-third or more of the voting power at general meetings. Such shares were held by a company which was wholly-owned by Fa-kuang Hu and he was deemed to have beneficial interests in all these shares. Such shares were held through a discretionary trust of which Chien Lee was a beneficiary. These shares were held by the wife of Michael Chi Kung Moy who was therefore deemed to have interest in them. 36 Hysan Development Company Limited • Annual Report 2001 CORPORATE GOVERNANCE continued As at 31 December 2001, certain Directors had personal interests in options to subscribe for ordinary shares in the Company granted under the Company’s Executive Share Option Scheme, details of which are set out below under “Executive Share Options” (also see note 28 to the financial statements). Apart from the above, as at 31 December 2001, there was no other interest or right recorded in the register required to be kept under Section 29 of the SDI Ordinance. Executive Share Options The Company operates an Executive Share Option Scheme (the “Scheme”) under which options may be granted to employees of the Company or any of its wholly-owned subsidiaries to subscribe for ordinary shares of the Company, thereby strengthening the links between individual staff and shareholder interests. Approved by shareholders on 28 April 1995, the Scheme has a term of ten years. The maximum number of shares in respect of which options may be granted under the Scheme (together with shares issued and issuable under the Scheme) is three percent (3%) of the issued share capital of the Company (excluding shares issued pursuant to the Scheme) from time to time. The exercise price was fixed at 80 per cent of the average of the closing prices of the shares on the Hong Kong Stock Exchange for the twenty trading days immediately preceding the date of grant. Consideration to be paid on each grant of option is HK$1.00, with full payment for exercise price to be made on exercise of the relevant option. As at 31 December 2001, Scheme participants were executive Directors of the Company with shares issuable under options granted representing less than 0.4% of the then issued share capital of the Company. Options expiring, granted and outstanding to them are as follows: Opening Balance as at 1/1/01 Date of Grant Lapsed Granted Exercised Changes During Year Options as at 31/12/01 Exercise price (HK$) Closing Balance Exercisable period Peter Ting Chang Lee Pauline Wah Ling Yu Wong 1,350,000 900,000 7/1/99 3/5/95 Michael Chi Kung Moy 1,200,000 23/12/99 NIL NIL NIL NIL NIL NIL NIL NIL NIL 1,350,000 900,000 1,200,000 9.22 13.46 7/1/01-6/1/09 3/5/97-2/5/05 7.54 23/12/01-22/12/09 All options referred to above are subject to a five-year vesting period and a bar on the exercise of options within the first two years of their issue. During the review period, no options were granted to or were exercised by Directors. Certain options granted to Hon Chiu Lee, former Chairman of the Company who retired on 8 May 2001, to subscribe for 1,125,000 shares of the Company, had lapsed on his retirement. Apart from the Scheme, at no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. The power of grant to executive Directors is vested in the Emoluments Review Committee and otherwise pursuant to Listing Rules requirements. Hysan Development Company Limited • Annual Report 2001 37 CORPORATE GOVERNANCE continued The Managing Director has been delegated by the Board the authority to make grants to other management staff. In this light, the Company has undertaken a review of the Scheme to seek to further strengthen the links between staff and shareholder objectives, also with the view to balance the interests of shareholders generally. The exercise price will be at least the higher of (i) the closing price of the Company’s ordinary shares on the date of grant; and (ii) the average closing price of such shares for the five days immediately before the grant. Interests of shareholders will be balanced by having appropriate aggregate and individual grant limits, also being in line with new Listing Rules requirements. A clear performance criterion will be the main driver. Directors’ Interests in Contracts of Significance Except as stated in note 36(A) to the financial statements, no contract of significance to which the Company or any of its subsidiaries was a party and in which a Director had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. Disclosure of Directors’ Interests in Competing Business under the Listing Rules The Group is engaged principally in the development, ownership and management of high quality investment properties in Hong Kong. The following Directors are considered to have interests in other activities (“Deemed Competing Business”) that compete or are likely to compete with the said core business of the Group, all within the meaning of the Listing Rules. For the reasons stated below, and coupled with the diligence of the Group’s Independent non-executive Directors and the Audit Committee, the Group is capable of carrying on its business independent of and at arm’s length from the Deemed Competing Business. (i) Peter T. C. Lee, Anthony H. P. Lee, Chien Lee, Michael T. H. Lee and Deanna R. T. Y. Rudgard are members of the founding family whose range of general investment activities include property investments in Hong Kong and overseas. In the light of the size and dominance of the portfolio of the Group, such disclosed Deemed Competing Business is considered immaterial. (ii) F. K. Hu (and his alternate, Raymond L. M. Hu) are substantial shareholders and directors of Ryoden (Holdings) Limited, Ryoden Development Limited, Designcase Limited and their respective subsidiaries and associates, which are engaged in investment holding, property investment and development, property agency and management, project management in both the People’s Republic of China and Hong Kong. The Company’s management team is separate and independent from that of the companies listed above. In addition, the aforementioned Director has a non-executive role and is not involved in the Company’s day-to-day operations and management. Connected and Related Party Transactions The Company acquired during the review period from members of the Sincere Group the remaining 30% minority interests in its subsidiary, Lee Theatre Realty Limited (“LTRL”). The principal business of LTRL is that of holding the property “Lee Theatre Plaza”. As the Sincere Group was a substantial shareholder of LTRL, the transactions constituted a connected transaction for the Company under the Listing Rules. Details of the transaction is set out in note 36(B) to the financial statements. In the opinion of the Directors, the terms of such transaction were fair and reasonable and in the interests of the Company and all the shareholders as a whole. 38 Hysan Development Company Limited • Annual Report 2001 CORPORATE GOVERNANCE continued Save as disclosed therein, there were no other transactions which needed to be disclosed as connected transactions in accordance with the requirements of the Listing Rules. The Company also entered into certain transactions with parties regarded as “Related Parties” under applicable accounting principles. These mainly relate to contracts entered into by the Company in the ordinary course of business, which contracts were negotiated on normal commercial terms and on an arm’s length basis. Further details are set out in Note 36(A) to the financial statements. RELATIONS WITH SHAREHOLDERS The Company values dialogue with shareholders. Further details on Group efforts in this regard are set out in the section “Shareholder Focus, Financial Prudence and Transparency” in the Chairman’s Statement. The Company arranges for the Annual Report and Financial Statements and related papers to be posted to shareholders so as to allow at least 25 working days for consideration prior to the Annual General Meeting. The Board also welcomes moves towards a more constructive use of Annual General Meetings and regards the Annual General Meeting as the principal opportunity to meet private shareholders. Accompanying this Annual Report is the Notice of Annual General Meeting setting out the full texts of the resolutions for the meeting and explanatory notes thereon. Financial and other information on the Group is also made available at the Group’s website at www.hysan.com.hk. HUMAN RESOURCES PRACTICES The Group aims to attract, retain and motivate high calibre individuals committed to attaining our objectives. The total number of employees as at 31 December 2001 was 516. The Group’s human resources practices are aligned with our corporate objective so as to maximize shareholder value and achieve growth. Details on our human resources policy, including performance measurement and reward, training and development are set out in the section “Our People” in the Annual Report. SOCIAL RESPONSIBILITY AND THE COMMUNITY Further information on the Group’s community efforts is set out in “Hysan and the Community” in the Chairman’s Statement. By order of the Board Wendy W. Y. Yung Company Secretary Hong Kong, 12 March 2002 Hysan Development Company Limited • Annual Report 2001 39 DIRECTORS’ REPORT The Directors submit their report together with the audited financial statements for the year ended 31 December 2001, which were approved by the Board of Directors on 12 March 2002. PRINCIPAL ACTIVITIES The principal activities of the Group continued throughout 2001 to be property development and investment and investment holding. Details of the Group’s associates and subsidiaries at 31 December 2001 are set out in notes 16 and 38 respectively to the financial statements. An analysis of Group’s turnover is set out in note 4 to the financial statements. As the Group’s turnover is derived principally from rental income and wholly in Hong Kong, no segment financial analysis is provided. A detailed review of the development of the business of the Group during the year, and likely future developments, is set out in the Chairman’s Statement and the Operating and Financial Review of the Annual Report. RESULTS AND APPROPRIATIONS The results of the Group for the year ended 31 December 2001 are set out in the consolidated income statement on page 45. An interim dividend of HK$0.10 per share amounting to HK$102,833,355 was paid to shareholders during the year. The Board of Directors recommends the payment of a final dividend of HK$0.28 per share with a scrip alternative to the shareholders on the register of members on 14 May 2002, absorbing HK$288,764,945. The ordinary dividends paid and proposed in respect of the full year 2001 will absorb HK$391,598,300, the balance of the profit will be retained. RESERVES Movements during the year in the reserves of the Group and the Company are set out in notes 29 and 30 to the financial statements. INVESTMENT PROPERTIES All of the Group’s investment properties were revalued by an independent professional valuer at 31 December 2001. The revaluation resulted in a deficit as compared to carrying amount amounting to HK$1,972 million, which has been charged directly to the investment property revaluation reserve. Details of movements during the year in the investment properties of the Group and the Company are set out in note 14 to the financial statements. MAJOR PROPERTIES Details of the major properties of the Group at 31 December 2001 are set in section under “Schedule of Principal Properties” of the annual report. 40 Hysan Development Company Limited • Annual Report 2001 DIRECTORS’ REPORT continued PROPERTY, PLANT AND EQUIPMENT Details of movements during the year in the property, plant and equipment of the Group and the Company are set out in note 13 to the financial statements. SHARE CAPITAL The Company was authorised at the Annual General Meeting held in 2001 to purchase its own ordinary shares not exceeding 10% of the aggregate nominal amount of its issued share capital at that time. The Company periodically repurchases its ordinary shares when they are significantly undervalued, in order to enhance shareholder value. During the financial year, the Company repurchased an aggregate of 6,964,000 ordinary shares for a total consideration of HK$64,319,631 on The Stock Exchange of Hong Kong Limited. Save as disclosed above, neither the Company nor its subsidiaries repurchased, sold or redeemed any of the Company’s listed securities during the year. The Company also issued a total of 8,016,072 ordinary shares under the scrip dividend scheme accompanying year 2000 final dividends and year 2001 interim dividends. Details of movements during the year in the share capital of the Company are set out in note 27 to the financial statements. Except as disclosed in note 28 to the financial statements, there were no other warrants, options or convertible securities issued by the Company or its subsidiaries during the year. CORPORATE GOVERNANCE The Company is committed to a high standard of corporate governance and has complied throughout the review period with the Code of Best Practice (the “Code of Best Practice”) as set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). Further information on the Company’s corporate governance practices is set out in the section “Corporate Governance”. Such section sets out detailed information on (a) Board effectiveness (including workings of Audit Committee and other Board committees); (b) Directors’ remuneration and interests (including information on Directors’ emoluments, service contracts, interests in shares, executive share options, interests in contracts of significance and interests in competing businesses under the Listing Rules); (c) Connected and Related Party Transactions and (d) Human Resources Practices. THE BOARD The Board currently comprises Peter T. C. Lee, Chairman and Managing Director, Pauline W. L. Yu Wong, Director, Property and Michael C. K. Moy, Chief Financial Officer and Director, and ten other non-executive Directors. Sir David Akers-Jones acts as the Independent non-executive Deputy Chairman, also chairing the two corporate governance committees, namely the Audit Committee and Emoluments Review Committee. The biographies of the Directors appear on pages 28 and 29. Hysan Development Company Limited • Annual Report 2001 41 DIRECTORS’ REPORT continued Hon Chiu Lee, the former Chairman of the Board, retired after twenty years with the Company, as from the last Annual General Meeting held on 8 May 2001. The Honourable Lee Quo-Wei, former Deputy Chairman, also stepped down after the last Annual General Meeting on 8 May 2001. Under the Company’s articles of association, all Directors are subject to retirement by rotation. The three Directors who have been longest in office as at each Annual General Meeting will retire from office and be subject to re-election. In accordance therewith, Per Jorgensen, Deanna R. T. Y. Rudgard and Anthony H. P. Lee will retire from office at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. During the year, Claus Michael Valentin Hemmingsen, Raymond Liang-ming Hu, Markus Friedrich Jebsen and V-nee Yeh served as alternate Directors. DIRECTORS’ RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS The Companies Ordinance requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group as at the end of the financial year and of their respective profit or loss for the year then ended. In preparing the financial statements, the Directors are required to: (a) select suitable accounting policies and apply them on a consistent basis, making judgements and estimates that are prudent, fair and reasonable; (b) state the reasons for any significant departure from accounting standards; and (c) prepare the financial statements on the going concern basis, unless it is not appropriate to presume that the Company and the Group will continue in business for the foreseeable future. The Directors are responsible for keeping proper accounting records, for safeguarding the assets of the Company and of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. SUBSTANTIAL SHAREHOLDERS The register of substantial shareholders maintained under Section 16(1) of the Securities (Disclosure of Interests) Ordinance shows that as at 31 December 2001, the Company has been notified of the following interests, being ten per cent (10%) or more of the Company’s issued share capital: Lee Hysan Estate Company, Limited and certain of its subsidiaries 429,046,912 No. of shares These interests are in addition to those disclosed above in respect of the Directors. MAJOR CUSTOMERS AND SUPPLIERS The aggregate turnover attributable to the Group’s five largest customers was less than 30% of total turnover. The aggregate purchases attributable to the Group’s five largest suppliers was less than 30% of total purchases. 42 Hysan Development Company Limited • Annual Report 2001 DIRECTORS’ REPORT continued POST BALANCE SHEET EVENT Details of the post balance sheet event are set out in note 37 to the financial statements. DONATIONS During the year, the Group made donations totalling HK$1,282,650 for charitable and other purposes. AUDITORS A resolution will be submitted to the Annual General Meeting to re-appoint Messrs. Deloitte Touche Tohmatsu as auditors of the Company. By order of the Board Peter T. C. Lee Chairman and Managing Director Hong Kong, 12 March 2002 Hysan Development Company Limited • Annual Report 2001 43 AUDITORS’ REPORT 香港中環干諾道中111號 永安中心26樓 TO THE SHAREHOLDERS OF HYSAN DEVELOPMENT COMPANY LIMITED 希 慎 興 業 有 限 公 司 (Incorporated in Hong Kong with limited liability) We have audited the financial statements on pages 45 to 83 which have been prepared in accordance with accounting principles generally accepted in Hong Kong. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Companies Ordinance requires the directors to prepare financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstance of the Company and the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 December 2001 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the Companies Ordinance. DELOITTE TOUCHE TOHMATSU Certified Public Accountants Hong Kong, 12 March 2002 44 Hysan Development Company Limited • Annual Report 2001 CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2001 Turnover Property expenses Cost of property sales Gross profit Gain on disposal of investments in securities Impairment loss reversed in respect of investments in securities Other revenue Release of negative goodwill arising on acquisition of additional interest in a subsidiary Administrative expenses Profit from operations Finance costs Gain on disposal of an associate Impairment loss (arising) reversed in respect of interests in associates Share of results of associates Profit before taxation Taxation Profit after taxation Minority interests Notes 4 5 8 9 2001 HK$’000 2000 HK$’000 1,355,450 (223,598) – 1,480,246 (238,906) (50) 1,131,852 – 1,241,290 293,842 6,225 18,557 60 (89,956) 1,066,738 (314,428) 33,531 (4,880) (2,338) – 29,354 – (89,969) 1,474,517 (449,020) – 3,419 4,210 778,623 (114,903) 1,033,126 (117,210) 663,720 (63,377) 915,916 (65,743) Net profit for the year 10 & 29 600,343 850,173 Dividends Earnings per share Basic Diluted 391,598 433,064 11 12 HK$0.58 HK$0.82 HK$0.58 HK$0.82 Hysan Development Company Limited • Annual Report 2001 45 CONSOLIDATED BALANCE SHEET at 31 December 2001 Non-current assets Property, plant and equipment Investment properties Interests in associates Investments in securities Negative goodwill Staff housing loans, secured Current assets Cash and bank balances Time deposits Accounts receivable Staff housing loans, secured – due within one year Prepayments and deposits Current liabilities Long term bank loans – due within one year Floating rate notes Creditors and accruals Construction costs payable Rental deposits from tenants Taxation payable Unclaimed dividends Notes 2001 HK$’000 2000 HK$’000 (restated) 13 14 16 17 18 19 20 19 25 26 21 50,158 56,632 26,638,500 28,432,700 61,324 1,754,059 (1,136) 20,936 51,384 2,297,335 – 28,898 28,523,841 30,866,949 457 26,612 9,459 2,764 59,459 3,421 48,134 7,952 2,583 19,900 98,751 81,990 139,837 1,999,547 71,380 73 248,911 100,673 2,137 815,500 – 85,907 302 268,584 59,137 2,282 2,562,558 1,231,712 Net current liabilities (2,463,807) (1,149,722) Total assets less current liabilities carried forward 26,060,034 29,717,227 46 Hysan Development Company Limited • Annual Report 2001 CONSOLIDATED BALANCE SHEET continued Notes 2001 HK$’000 2000 HK$’000 (restated) Total assets less current liabilities brought forward 26,060,034 29,717,227 Non-current liabilities Advances from investees Amounts due to minority shareholders Long term loan Long term bank loans – due after one year Floating rate notes NET ASSETS MINORITY INTERESTS CAPITAL AND RESERVES Share capital Accumulated profits Other reserves 22 23 24 25 26 27 29 30 52,571 292,765 – 3,088,634 397,047 59,482 292,765 263,754 1,890,000 2,393,739 3,831,017 4,899,740 22,229,017 962,092 24,817,487 1,339,063 21,266,925 23,478,424 5,156,516 3,580,672 5,151,256 3,436,247 12,529,737 14,890,921 21,266,925 23,478,424 The financial statements on pages 45 to 83 were approved and authorised for issue by the Board of Directors on 12 March 2002 and are signed on its behalf by: Peter T.C. Lee Director David Akers-Jones Director Hysan Development Company Limited • Annual Report 2001 47 BALANCE SHEET at 31 December 2001 Non-current assets Property, plant and equipment Investment properties Investments in subsidiaries Interests in associates Investments in securities Staff housing loans, secured Current assets Cash and bank balances Time deposits Accounts receivable Staff housing loans, secured – due within one year Prepayments and deposits Dividends receivable Current liabilities Long term bank loans – due within one year Creditors and accruals Rental deposits from tenants Amounts due to subsidiaries Taxation payable Unclaimed dividends Net current liabilities Total assets less current liabilities Non-current liabilities Notes 2001 HK$’000 13 14 15 16 17 19 20 19 25 21 2000 HK$’000 (restated) 8,430 3,740,000 12,395,625 3 2,831 28,898 5,735 3,500,000 12,908,172 3 2,831 20,936 16,437,677 16,175,787 1,023 925 2,416 2,764 15,289 – 22,417 139,837 27,777 27,307 7,473 6,696 2,137 211,227 3,277 20,832 3,656 2,583 13,894 107,010 151,252 815,500 37,734 24,817 69,733 6,322 2,282 956,388 (188,810) (805,136) 16,248,867 15,370,651 Long term bank loans – due after one year 25 3,088,634 1,890,000 NET ASSETS CAPITAL AND RESERVES Share capital Accumulated profits Other reserves 13,160,233 13,480,651 27 29 30 5,156,516 3,957,698 4,046,019 5,151,256 4,077,068 4,252,327 13,160,233 13,480,651 The financial statements on pages 45 to 83 were approved and authorised for issue by the Board of Directors on 12 March 2002 and are signed on its behalf by: Peter T.C. Lee Director David Akers-Jones Director 48 Hysan Development Company Limited • Annual Report 2001 CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES for the year ended 31 December 2001 (Loss) gain recognised on revaluation of land and buildings (Loss) gain recognised on revaluation of investment properties Loss recognised on revaluation of investments in other securities Net (losses) gains not recognised in the income statement Net profit for the year 2001 HK$’000 2000 HK$’000 (2,823) (1,840,545) (566,708) 2,833 3,063,851 (190,050) (2,410,076) 600,343 2,876,634 850,173 Total net recognised (losses) gains (1,809,733) 3,726,807 Prior year adjustment arising from the effect of change in accounting policies – increase in dividend reserve at 1 January 2000 309,170 Hysan Development Company Limited • Annual Report 2001 49 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2001 NET CASH INFLOW FROM OPERATING ACTIVITIES RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received Interest paid Dividends received from investments in securities Dividends received from associates Dividends paid Dividends paid to minority shareholders of subsidiaries Note 31 2001 HK$’000 2000 HK$’000 985,211 1,166,988 3,826 (316,019) 8,612 – (351,429) (63,502) 17,389 (452,121) 7,040 125 (391,179) (62,671) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (718,512) (881,417) CASH OUTFLOW FROM TAXATION Hong Kong Profits Tax paid INVESTING ACTIVITIES Additions to investment properties Additions to property, plant and equipment Acquisition of additional interest in a subsidiary Net proceeds received on property sales Net proceeds received on disposal of property, plant and equipment Refund of cost of investment properties Advance to an associate Repayments from an associate Net proceeds received on disposal of an associate Net proceeds received on disposal of investments in other securities Advances to investees Construction costs paid NET CASH (OUTFLOW) INFLOW FROM INVESTING ACTIVITIES (73,367) (78,413) (178,098) (2,380) (243,947) – – – (7,288) 1,601 35,929 – (17,207) (179) (9,955) (3,570) – 400 23 110 (2,017) 24,988 – 591,170 (18,643) (26,937) (411,569) 555,569 NET CASH (OUTFLOW) INFLOW BEFORE FINANCING ACTIVITIES CARRIED FORWARD (218,237) 762,727 50 Hysan Development Company Limited • Annual Report 2001 CONSOLIDATED CASH FLOW STATEMENT continued Note 2001 HK$’000 2000 HK$’000 NET CASH (OUTFLOW) INFLOW BEFORE FINANCING ACTIVITIES BROUGHT FORWARD (218,237) 762,727 FINANCING Share issue expenses Repurchase of own shares Repayment of long term loan in respect of acquisition of additional interest in a subsidiary New unsecured bank loans Repayment of unsecured bank loans Repurchase of convertible bonds (Repayment to) advances from investees 32 (31) (64,320) (14) (90,887) (263,754) 1,604,814 – 2,305,500 (1,081,843) (2,290,000) – (1,115) (923,374) 9,763 NET CASH INFLOW (OUTFLOW) FROM FINANCING 193,751 (989,012) DECREASE IN CASH AND CASH EQUIVALENTS (24,486) (226,285) CASH AND CASH EQUIVALENTS AT 1 JANUARY 51,555 277,840 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 27,069 51,555 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Time deposits 457 26,612 3,421 48,134 27,069 51,555 Hysan Development Company Limited • Annual Report 2001 51 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2001 1. GENERAL The Company is a public listed limited company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited. The principal activities of the Group are property development and investment and investment holding. 2. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE / CHANGES IN ACCOUNTING POLICIES In the current year, the Group has adopted for the first time a number of new and revised Statements of Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants. Adoption of these SSAPs has led to a number of changes in the Group’s accounting policies. The revised accounting policies are set out in note 3. In addition, the new and revised SSAPs have introduced additional and revised disclosure requirements which have been adopted in these financial statements. Comparative amounts for the prior year have been restated in order to achieve a consistent presentation. The adoption of these new and revised SSAPs has resulted in the following changes to the Group’s accounting policies that have affected the amounts reported for the current or prior years: Dividends proposed or declared after the balance sheet date In accordance with SSAP 9 (Revised) “Events after the Balance Sheet Date”, dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date, but are disclosed as a separate component of equity in the notes to the financial statements. This change in accounting policy has been applied retrospectively, resulting in a prior year adjustment (see Note 30) as at 31 December 2000 by increasing reserves by HK$319,377,904 (1999: HK$309,170,399) and the shareholders’ funds to HK$23,478,423,517 (1999: HK$20,526,492,023) from HK$23,159,045,613 (1999: HK$20,217,321,624). Goodwill In the current year, the Group has adopted SSAP 30 “Business Combinations” and has elected not to restate goodwill (negative goodwill) previously eliminated against (credited to) reserves. Accordingly, goodwill arising on acquisitions prior to 1 January 2001 is held in reserves and will be charged to the income statement at the time of disposal of the relevant subsidiary or associate, or at such time as the goodwill is determined to be impaired. Negative goodwill arising on acquisitions prior to 1 January 2001 will be credited to income at the time of disposal of the relevant subsidiary or associate. Goodwill arising on acquisitions on or after 1 January 2001 is capitalised and amortised over its estimated useful life. Negative goodwill arising on acquisitions on or after 1 January 2001 is presented as a deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted. 3. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared under the historical cost convention, as modified for the revaluation of properties and investments in securities. The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below: Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. All significant intercompany transactions and balances within the Group have been eliminated on consolidation. 52 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 3. SIGNIFICANT ACCOUNTING POLICIES continued Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition. Goodwill arising on acquisitions on or after 1 January 2001 is capitalised and amortised on a straight line basis over its useful life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. Goodwill arising on acquisitions prior to 1 January 2001 continues to be held in reserves, and will be charged to the income statement at the time of disposal of the relevant subsidiary or associate, or at such time as the goodwill is determined to be impaired. Negative goodwill Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition over the cost of acquisition. Negative goodwill arising on acquisitions on or after 1 January 2001 is presented as deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted. To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised in income immediately. Negative goodwill arising on the acquisition of an associate is deducted from the carrying value of that associate. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets. Negative goodwill arising on acquisitions prior to 1 January 2001 continues to be held in reserves and will be credited to income at the time of disposal of the relevant subsidiary or associate. Investments in subsidiaries Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable during the year. Interests in associates The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. The carrying amount of such interests is reduced to recognise any identified impairment loss in the value of individual investments. Investments in securities Investments in securities are recognised on a trade date basis and are initially measured at cost. All securities other than held-to-maturity debt securities are measured at fair value at subsequent reporting dates. Where securities are held for trading purposes, unrealised gains and losses are included in net profit or loss for the year. For other securities, unrealised gains and losses are dealt with in the investment revaluation reserve, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss is included in net profit or loss for the year. Hysan Development Company Limited • Annual Report 2001 53 NOTES TO THE FINANCIAL STATEMENTS continued 3. SIGNIFICANT ACCOUNTING POLICIES continued Investment properties Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length. Investment properties are stated at their open market value based on independent professional valuations at each balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged. On disposal of an investment property, the balance on the investment property revaluation reserve attributable to the property disposed of is transferred to the income statement. No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less. Property, plant and equipment Property, plant and equipment are stated at cost or valuation less accumulated depreciation and any accumulated impairment losses. Land and buildings are stated in the balance sheet at their revalued amount, being the fair value on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation . Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. Any surplus arising on revaluation of land and buildings is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case this surplus is credited to the income statement to the extent of the deficit previously charged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it exceeds the balance, if any, on the asset revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to accumulated profits. Depreciation is provided to write off the cost or valuation of items of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum: Leasehold land Buildings Over the remaining term of the lease Over the shorter of the term of the lease, or 40 years Furniture, fixtures and equipment Computers Motor vehicles 20% 20% 25% The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement. 54 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 3. SIGNIFICANT ACCOUNTING POLICIES continued Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the impairment loss is treated as revaluation decrease under that SSAP. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the reversal of the impairment loss is treated as a revaluation increase under that other SSAP. Floating rate notes issue expenses Expenses incurred directly in connection with the issue of Floating Rate Notes are deferred and amortised on a straight line basis over the terms of the Notes. Foreign currencies Transactions in currencies other than Hong Kong dollars are initially recorded at the rates of exchange ruling on the dates of the transactions or at the contracted settlement rate. Monetary assets and liabilities denominated in such currencies are re-translated at the rates ruling on the balance sheet date, with the exception of those items covered under forward exchange contracts, which are re-translated at the contracted settlement rate. Gains and losses arising on exchange are dealt with in the income statement. On consolidation the financial statements of associates which are denominated in currencies other than Hong Kong dollars are translated at the rates ruling on the balance sheet date. Exchange differences arising, if any, are classified as equity and are recognised as income or as expenses in the period in which the interests in associates are disposed of. Taxation The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future. Operating leases Rentals receivable and payable under operating leases are credited and charged respectively to the income statement on a straight line basis over the relevant lease term. Retirement benefits scheme The retirement benefit costs charged in the income statement represent the contributions paid and payable in respect of the current year to the Group’s Enhanced Mandatory Provident Fund Scheme. Hysan Development Company Limited • Annual Report 2001 55 NOTES TO THE FINANCIAL STATEMENTS continued 3. SIGNIFICANT ACCOUNTING POLICIES continued Recognition of income Rental income is recognised on a straight line basis over the relevant lease term. Income from property sales is recognised on the execution of a binding sales agreement. Income from disposals of investments in securities is recognised on a trade date basis. Management fee income and security service income are recognised when the services are rendered. Dividend income from investments is recognised when the shareholders’ right to receive payment has been established. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable. 4. TURNOVER Turnover comprises: Gross rental income from properties Income from property sales Management fee and security service income 2001 HK$’000 2000 HK$’000 1,351,892 1,475,941 – 3,558 400 3,905 1,355,450 1,480,246 As the Group’s turnover is derived principally from rental income and wholly in Hong Kong, no segment financial analysis is provided. 56 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 5. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging (crediting): Staff costs Retirement benefits scheme contributions (Note) Forfeited contributions Depreciation Auditors’ remuneration Rental income arising from operating leases less out-goings Dividends from – listed investments – unlisted investments Gain on disposal of investments in other securities (including HK$Nil (2000: HK$293,922,213) previously recognised in investment revaluation reserve) Gain on property sales Interest income Note: 2001 HK$’000 2000 HK$’000 107,645 4,456 (2,742) 109,359 6,029 1,636 102,208 10,050 – 112,258 5,624 1,495 (1,131,580) (1,240,958) (8,612) (5,796) – – (3,749) (7,040) (4,790) (293,842) (350) (17,021) A new enhanced MPF scheme (the “Enhanced MPF Scheme”) was established effective 1 December 2000 to replace the old defined benefit scheme (the “Old Scheme”), which was terminated at the close of business on 30 November 2000 with all assets transferred to the Enhanced MPF Scheme. The Group targeted to maintain broadly the same benefit at retirement under the Enhanced MPF Scheme. A special retirement transfer value was therefore offered to all transferring Old Scheme members. The leaving service benefit of all members of the Old Scheme were also enhanced as incentives to convert. Retirement benefit scheme contribution in 2000 therefore included these transfer values. The Group injected HK$4,735,323 to finance such transfer values of which sums of HK$570,398 and HK$146,314 were attributable to the Directors and the employee referred to in notes 6 and 7 respectively. Their retirement transfer values, which make up a substantial part of the aggregate transfer values, would only be fully vested upon their attaining retirement age. Forfeitures will be used to fund future contributions. During the year, a total of HK$2,741,993 forfeited contributions were fully utilised to fund the Group’s contributions. The Enhanced MPF Scheme is a defined contribution plan, offering a range of investment choice to all staff of the Group, providing benefits based on accumulated investment returns. The Enhanced MPF Scheme covers the Group’s contributions to the plan (which are immediately vested) are based on fixed percentages of members’ salary, ranging from 5% of MPF Relevant Income to 15% of basic salary. Members’ mandatory contributions are fixed at 5% of MPF Relevant Income, in compliance with MPF legislation. On 4 January 2001, the Enhanced MPF Scheme was granted a participation certificate by the Mandatory Provident Fund Schemes Authority under Section 124(1) of the Mandatory Provident Fund Schemes (General) Regulation. Hysan Development Company Limited • Annual Report 2001 57 NOTES TO THE FINANCIAL STATEMENTS continued 6. DIRECTORS’ REMUNERATION Directors’ fees Other emoluments: Basic salaries Housing, other allowances and benefits in kind Bonus paid Retirement benefits scheme regular contributions (Note) 2001 HK$’000 2000 HK$’000 792 7,776 3,556 1,625 210 857 9,871 4,629 1,142 578 13,959 17,077 Note: In 2000, as part of the restructuring of its retirement scheme arrangements, the Group injected funds to finance certain transfer values. A substantial part of such transfer values, including the portion attributable to the Directors, are only vested upon the relevant members attaining retirement. Details are set out in note 5. The number of Directors whose remuneration/fees within the bands set out below is as follows: HK$ 0 – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000 HK$2,500,001 – HK$3,000,000 HK$3,000,001 – HK$3,500,000 HK$3,500,001 – HK$4,000,000 HK$4,000,001 – HK$4,500,000 HK$4,500,001 – HK$5,000,000 2001 No. of Directors 2000 No. of Directors 11 1 – – – 1 1 – 1 15 11 – – – – 1 1 1 1 15 Directors’ fees paid to independent non-executive Directors during the year totalled HK$249,740 (2000: HK$170,000). They received no other emoluments from the Company or any of its subsidiaries. 58 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 7. EMPLOYEE COSTS The five highest paid individuals included three (2000: four) Directors, details of whose remuneration are set out in note 6. The remuneration of the remaining individuals is detailed as follows: Basic salaries, housing, other allowances and benefits in kind Bonus paid Retirement benefits scheme regular contributions (Note) Remuneration within the band: HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000 2001 HK$’000 2000 HK$’000 3,886 369 24 4,279 2,171 84 128 2,383 2001 No. of employees 2000 No. of employees – 1 1 2 – – 1 1 Note: In 2000, as part of the restructuring of its retirement scheme arrangements, the Group injected funds to finance certain transfer values. A substantial part of such transfer values, including the portion attributable to the employee, are only vested upon the employees attaining retirement. Details are set out in note 5. 8. FINANCE COSTS Interest on – bank loans, overdraft and other loans: wholly repayable within five years not repayable within five years – convertible bonds – floating rate notes Amortisation of convertible bonds and floating rate notes issue expenses Bank charges Exchange loss Medium Term Note Programme expenses 2001 HK$’000 2000 HK$’000 179,209 4,789 – 117,678 243,409 – 25,829 165,409 301,676 434,647 2,855 7,930 – 1,967 5,123 6,077 3,173 – 314,428 449,020 Hysan Development Company Limited • Annual Report 2001 59 NOTES TO THE FINANCIAL STATEMENTS continued 9. TAXATION The charge comprises: Hong Kong Profits Tax – for the year – under(over)provision in prior years 2001 HK$’000 2000 HK$’000 114,799 104 117,212 (2) Taxation attributable to the Company and its subsidiaries 114,903 117,210 Hong Kong Profits Tax is calculated at 16% (2000: 16%) of the estimated assessable profit for the year. No provision for deferred taxation has been recognised in the financial statements as the amount involved is immaterial. Deferred taxation has not been provided on the surplus arising on the valuation of investment properties, land and buildings and investments in securities because profits arising on the disposal of these assets would not be subject to taxation. Accordingly, the surplus arising on valuation does not constitute a timing difference for taxation purposes. 10. NET PROFIT FOR THE YEAR Of the Group’s net profit for the year of HK$600,343,225 (2000: HK$850,173,491), a profit of HK$336,547,511 (2000: HK$389,246,795) has been dealt with in the financial statements of the Company. 11. DIVIDENDS Ordinary shares: Interim dividend, paid – HK$0.10 per share (2000: HK$0.11) Final dividend, proposed – HK$0.28 per share (2000: HK$0.31) 2001 HK$’000 2000 HK$’000 102,833 288,765 113,686 319,378 391,598 433,064 The 2001 final dividend of HK$0.28 per share has been proposed by the directors and is subject to approval by the shareholders in general meeting. The proposed final dividend for 2001 will be payable in cash with a scrip dividend alternative. During the year, scrip dividend alternatives were offered to shareholders in respect of the 2000 final and 2001 interim dividends. These alternatives were accepted by the shareholders as follows: Dividends: Cash Share alternative 60 Hysan Development Company Limited • Annual Report 2001 2001 Interim HK$’000 2000 Final HK$’000 83,025 19,808 268,259 51,119 102,833 319,378 NOTES TO THE FINANCIAL STATEMENTS continued 12. EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on the following data: 2001 2000 Earnings for the purposes of basic and diluted earnings per share (net profit for the year) HK$600,343,225 HK$850,173,491 Weighted average number of ordinary shares for the purposes of basic earnings per share 1,030,485,146 1,032,763,163 Effect of dilutive potential ordinary shares: Share options 357,639 231,730 Weighted average number of ordinary shares for the purposes of diluted earnings per share 1,030,842,785 1,032,994,893 The computation of diluted earnings per share does not assume the exercise of certain of the Company’s outstanding share options as the exercise prices are higher than the fair value per share. Hysan Development Company Limited • Annual Report 2001 61 NOTES TO THE FINANCIAL STATEMENTS continued 13. PROPERTY, PLANT AND EQUIPMENT Land and buildings in Hong Kong under long lease HK$’000 Furniture, fixtures and equipment HK$’000 Computers HK$’000 Motor vehicles HK$’000 Total HK$’000 THE GROUP COST OR VALUATION At 1 January 2001 Additions Disposals Deficit on revaluation 46,000 – – (3,500) 38,153 1,846 – – 4,799 1,611 532 (51) – – – – 90,563 2,378 (51) (3,500) At 31 December 2001 42,500 39,999 5,280 1,611 89,390 Comprising: At cost At valuation 2001 ACCUMULATED DEPRECIATION At 1 January 2001 Provided for the year Eliminated on disposals Adjustment on revaluation – 39,999 42,500 – 5,280 – 1,611 – 46,890 42,500 42,500 39,999 5,280 1,611 89,390 – 677 – (677) 30,620 4,166 – – 1,994 892 (51) – 1,317 294 – – 33,931 6,029 (51) (677) At 31 December 2001 – 34,786 2,835 1,611 39,232 NET BOOK VALUES At 3l December 2001 42,500 5,213 2,445 – 50,158 At 3l December 2000 46,000 7,533 2,805 294 56,632 62 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 13. PROPERTY, PLANT AND EQUIPMENT continued Furniture, fixtures and equipment HK$’000 Computers HK$’000 Motor vehicles HK$’000 Total HK$’000 THE COMPANY COST At 1 January 2001 Additions Disposals 18,637 1,120 – 4,785 532 (51) 1,611 – – 25,033 1,652 (51) At 31 December 2001 19,757 5,266 1,611 26,634 ACCUMULATED DEPRECIATION At 1 January 2001 Provided for the year Eliminated on disposals 13,293 3,164 – 1,993 889 (51) At 31 December 2001 16,457 2,831 NET BOOK VALUES At 31 December 2001 At 31 December 2000 3,300 5,344 2,435 2,792 1,317 294 – 1,611 – 294 16,603 4,347 (51) 20,899 5,735 8,430 The leasehold land and buildings of the Group were revalued at 31 December 2001 by Messrs. Knight Frank, an independent professional valuer, on an open market value basis. The deficit arising on revaluation has been charged to asset revaluation reserve. If leasehold land and buildings of the Group had not been revalued, they would have been included in these financial statements at cost less accumulated depreciation at HK$34,084,593 (2000: HK$34,609,137). Furniture, fixtures and equipment of the Group and the Company include assets carried at cost of HK$20,512,083 (2000: HK$19,817,086) and HK$846,317 (2000: HK$844,238) respectively and accumulated depreciation of HK$18,692,470 (2000: HK$17,747,881) and HK$804,179 (2000: HK$782,827) respectively in respect of assets held for use under operating leases. Depreciation charges in respect of those assets for the year amounted to HK$944,589 (2000: HK$1,123,087) and HK$21,352 (2000: HK$29,460) respectively. Hysan Development Company Limited • Annual Report 2001 63 NOTES TO THE FINANCIAL STATEMENTS continued 14. INVESTMENT PROPERTIES At 1 January Additions Adjustment resulted from cost variation Refund of cost Disposals (Deficit) surplus on revaluation THE GROUP 2001 HK$’000 2000 HK$’000 THE COMPANY 2001 HK$’000 2000 HK$’000 28,432,700 178,098 25,173,000 9,955 3,740,000 1,331 3,250,000 1,263 (50) – – (1,972,248) (3,229) (110) (300) 3,253,384 – – – (241,331) – – – 488,737 At 31 December 26,638,500 28,432,700 3,500,000 3,740,000 The value of investment properties comprises: Land in Hong Kong: – Medium term lease – Long lease THE GROUP 2001 HK$’000 2000 HK$’000 THE COMPANY 2001 HK$’000 2000 HK$’000 4,300,000 22,338,500 4,600,000 23,832,700 – 3,500,000 – 3,740,000 26,638,500 28,432,700 3,500,000 3,740,000 The investment properties of the Group and the Company were revalued at 31 December 2001 by Messrs. Knight Frank, an independent professional valuer, on an open market value basis. The deficit arising on revaluation has been charged to investment property revaluation reserve. All of the investment properties of the Group and the Company are held for use under operating leases. 15. INVESTMENTS IN SUBSIDIARIES Unlisted shares, at cost Amounts due therefrom Less: Impairment loss THE COMPANY 2001 HK$’000 2000 HK$’000 5 13,312,167 5 12,799,620 13,312,172 (404,000) 12,799,625 (404,000) 12,908,172 12,395,625 The Directors consider that the unlisted investments are worth at least their cost. Details of the principal subsidiaries held by the Company at 31 December 2001 are set out in note 38. 64 Hysan Development Company Limited • Annual Report 2001 16. INTERESTS IN ASSOCIATES Unlisted shares, at cost Share of net liabilities Amounts due therefrom Less: Impairment loss NOTES TO THE FINANCIAL STATEMENTS continued THE GROUP 2001 HK$’000 2000 HK$’000 THE COMPANY 2001 HK$’000 2000 HK$’000 – – (77,164) (91,495) (77,164) 149,786 72,622 (11,298) (91,495) 345,878 254,383 (202,999) 61,324 51,384 3 – 3 – 3 – 3 3 – 3 – 3 – 3 The aggregate attributable share of results of the associates is based on the unaudited management accounts of Parallel Asia Engineering Company Limited and Wingrove Investment Pte Limited for the year ended 31 December 2001. Details of the Group’s associates at 31 December 2001 are as follows: Form of business structure Place of incorporation and operation Class of share held Proportion of nominal value of issued share capital held by the Company directly indirectly Incorporated Hong Kong Ordinary – 25% Name of associate Parallel Asia Engineering Company Limited Wingrove Investment Incorporated Singapore Ordinary 25% – Pte Limited Principal activity Investment holding Property development Hysan Development Company Limited • Annual Report 2001 65 NOTES TO THE FINANCIAL STATEMENTS continued 17. INVESTMENTS IN SECURITIES THE GROUP Equity securities: Listed in Hong Kong Other investments: Club debentures Unlisted shares Amounts due therefrom Less: Impairment losses Other securities 2001 HK$’000 2000 HK$’000 1,057,222 1,623,930 2,831 2,831 136,856 685,483 136,856 668,276 822,339 (128,333) 805,132 (134,558) 694,006 670,574 696,837 673,405 1,754,059 2,297,335 Market value of securities listed in Hong Kong 1,057,222 1,623,930 Carrying amount analysed for reporting purposes as: Non-current THE COMPANY Other investments: Club debentures Carrying amount analysed for reporting purpose as: Non-current 1,754,059 2,297,335 Other securities 2001 HK$’000 2000 HK$’000 2,831 2,831 2,831 2,831 66 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 18. NEGATIVE GOODWILL Negative goodwill arising on acquisition of additional interest in a subsidiary during the year and balance at 31 December 2001 Released to income during the year and balance at 31 December 2001 Carrying amount at 31 December 2001 THE GROUP 2001 HK$’000 1,196 (60) 1,136 The negative goodwill which arose on the Group’s acquisition of additional interest in a subsidiary is released to income on a straight line basis over a period of twenty years. 19. STAFF HOUSING LOANS, SECURED Staff housing loans, secured Less: Amounts due within one year shown under current assets THE GROUP AND THE COMPANY 2001 HK$’000 2000 HK$’000 23,700 (2,764) 31,481 (2,583) 20,936 28,898 The secured advances arise in connection with an established Staff Housing Loan scheme granted to the employees who meet the qualifying criteria. The advances bear a fixed interest rate of 4% per annum. 20. ACCOUNTS RECEIVABLE Accounts receivables are mainly in respect of rents which are normally payable in advance. Rents in arrears of the Group as at 31 December 2001 and 2000 were aged less than 90 days. 21. CREDITORS AND ACCRUALS All of the trade payables of the Group as at 31 December 2001 and 2000 were aged less than 90 days. 22. ADVANCES FROM INVESTEES The advances are unsecured, interest free and are not repayable within one year. Hysan Development Company Limited • Annual Report 2001 67 NOTES TO THE FINANCIAL STATEMENTS continued 23. AMOUNTS DUE TO MINORITY SHAREHOLDERS The amounts are unsecured, interest free and are not repayable within one year. 24. LONG TERM LOAN The amount was due to the ultimate holding company of a minority shareholder of a subsidiary and was unsecured, bore interest at the rate of 1.5% per annum over HIBOR and was not repayable within one year. 25. LONG TERM BANK LOANS THE GROUP AND THE COMPANY 2001 HK$’000 2000 HK$’000 Bank loans, unsecured 3,228,471 2,705,500 The bank loans are repayable as follows: Within one year More than one year, but not exceeding two years More than two years, but not exceeding five years More than five years Less: Amounts due within one year shown under current liabilities 139,837 435,500 2,172,634 480,500 815,500 150,000 1,740,000 – 3,228,471 (139,837) 2,705,500 (815,500) 3,088,634 1,890,000 68 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 26. FLOATING RATE NOTES Floating rate notes Less: Unamortised notes issue expenses Less: Amount due within one year shown under current liabilities THE GROUP 2001 HK$’000 2000 HK$’000 2,400,000 2,400,000 (3,406) (6,261) 2,396,594 (1,999,547) 2,393,739 – 397,047 2,393,739 HD Treasury (BVI) Limited and HD Finance (BVI) Limited, wholly-owned subsidiaries of the Company, issued HK$2,000 million and HK$400 million five-year floating rate notes on 27 March 1997 and 3 November 1999 respectively. The notes are guaranteed as to principal and interest by the Company, bear interest at the rate of 0.565% and 1.25% over the 3-month HIBOR and are repayable in full in March 2002 and November 2004 respectively. Hysan Development Company Limited • Annual Report 2001 69 NOTES TO THE FINANCIAL STATEMENTS continued 27. SHARE CAPITAL Ordinary shares of HK$5 each Authorised: At 1 January and 31 December Issued and fully paid: At 1 January Issued pursuant to scrip dividend scheme Shares repurchased and cancelled THE COMPANY 2001 HK$’000 2000 HK$’000 7,250,000 7,250,000 5,151,256 5,183,810 40,080 (34,820) 18,481 (51,035) At 31 December 5,156,516 5,151,256 During the year, the Company repurchased its own shares through the Hong Kong Stock Exchange as follows: Month of repurchase June July September No. of ordinary shares of HK$5 each 3,381,000 2,033,000 1,550,000 Price per share Highest HK$ 10.35 10.05 7.65 Lowest HK$ 9.75 8.95 7.15 Aggregate consideration paid HK$ 33,810,136 18,849,934 11,659,561 The above shares were cancelled upon repurchase. 70 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 28. EXECUTIVE SHARE OPTION SCHEME On 28 April 1995, an Executive Share Option Scheme was approved by the shareholders under which the Directors of the Company may, at their discretion, offer any employee (including any director) of the Company or of any of its wholly-owned subsidiary options to subscribe for shares (the “Shares”) in the Company subject to the terms and conditions stipulated in the Executive Share Option Scheme. At 31 December 2001, the Company had outstanding options granted to qualifying employees (including Directors) of the Company and its wholly-owned subsidiaries to subscribe for shares of the Company as follows: Date of grant 3 May 1995 7 January 1999 23 December 1999 Exercise price per share HK$ Exercise period 13.46 9.22 7.54 3 May 1997 to 2 May 2005 7 January 2001 to 6 January 2009 23 December 2001 to 22 December 2009 Number of options outstanding 900,000 1,350,000 1,200,000 3,450,000 The consideration paid on each grant of options was HK$1.00. During the year, certain granted options to subscribe for 1,125,000 shares of the Company lapsed on resignation of the grantee. The maximum number of Shares in respect of which options may be granted under the Executive Share Option Scheme (together with the Shares issued and issuable under the Executive Share Option Scheme) by the Company to or for the benefit of employees may not exceed in nominal value three percent of the issued share capital of the Company (excluding Shares issued pursuant to the Executive Share Option Scheme) from time to time. 29. ACCUMULATED PROFITS THE GROUP 2001 HK$’000 2000 HK$’000 THE COMPANY 2001 HK$’000 2000 HK$’000 At 1 January 3,436,247 3,110,025 4,077,068 4,211,773 Share repurchased and cancelled: – Nominal value of share repurchased – Premium on shares repurchased – Share repurchase expenses Net profit for the year (34,820) (29,500) – 600,343 (51,035) (39,836) (16) 850,173 (34,820) (29,500) – 336,548 (51,035) (39,836) (16) 389,246 Profit available for distribution Dividends 3,972,270 (391,598) 3,869,311 (433,064) 4,349,296 (391,598) 4,510,132 (433,064) At 31 December 3,580,672 3,436,247 3,957,698 4,077,068 The accumulated profits of the Group include accumulated losses of HK$88,130,335 (2000: HK$85,792,248) attributable to associates of the Group. The distributable reserves of the Company as at 31 December 2001 amounted to HK$4,057,697,703 (2000: HK$4,177,068,123), being its accumulated profits and general reserve at that date. Hysan Development Company Limited • Annual Report 2001 71 NOTES TO THE FINANCIAL STATEMENTS continued 30. OTHER RESERVES THE GROUP At 1 January 2000 – as original stated – prior year adjustment, derecognition of liability for final dividend for 1999 – as restated Premium on issue of shares pursuant to scrip dividend scheme Share issue expenses Shares repurchased and cancelled Unrealised loss on investments in other securities Recognition of unrealised gain on disposal of investments in other securities transferred to income statement Surplus on revaluation of investment properties Surplus on revaluation of land and buildings Surplus on revaluation of investment properties shared by minority shareholders Share of reserve of an associate Realisation on disposal of investment properties transferred to income statement Final dividend for 1999 paid Amount set aside for 2000 dividend Interim dividend for 2000 paid At 31 December 2000 Premium on issue of shares pursuant to scrip dividend scheme Share issue expenses Shares repurchased and cancelled Unrealised loss on investments in other securities Deficit on revaluation of investment properties Deficit on revaluation of land and buildings Deficit on revaluation of investment properties shared by minority shareholders Reversed on disposal of an associate Final dividend for 2000 paid Amount set aside for 2001 dividend Interim dividend for 2001 paid Share premium account HK$’000 Investment property revaluation reserve HK$’000 Investment revaluation reserve HK$’000 1,258,363 8,345,106 1,654,177 – – – 1,258,363 8,345,106 1,654,177 14,189 (14) – – – – – – – – – – – – – – – – 3,253,384 – (189,533) – (250) – – – – – – (190,050) (293,922) – – – – – – – – 1,272,538 11,408,707 1,170,205 30,847 (31) – – – – – – – – – – – – – (1,972,248) – 131,703 – – – – – – – (566,708) – – – – – – – At 31 December 2001 1,303,354 9,568,162 603,497 72 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued Asset revaluation reserve HK$’000 Capital reserve HK$’000 Translation reserve HK$’000 Capital redemption reserve HK$’000 General reserve HK$’000 Dividend reserve HK$’000 Total HK$’000 8,719 500,718 (12,736) 69,140 100,000 – 11,923,487 – – – – – 309,170 309,170 8,719 500,718 (12,736) 69,140 100,000 309,170 12,232,657 – – – – – – 2,833 – – – – – – – – – – – – – – 384 – – – – – – – – – – – – – – – – – – – 51,035 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (309,170) 433,064 (113,686) 14,189 (14) 51,035 (190,050) (293,922) 3,253,384 2,833 (189,533) 384 (250) (309,170) 433,064 (113,686) 11,552 501,102 (12,736) 120,175 100,000 319,378 14,890,921 – – – – – (2,823) – – – – – – – – – – – – 1,133 – – – – – – – – – – 12,736 – – – – – 34,820 – – – – – – – – – – – – – – – – – – – – – – – – – – – (319,378) 391,598 (102,833) 30,847 (31) 34,820 (566,708) (1,972,248) (2,823) 131,703 13,869 (319,378) 391,598 (102,833) 8,729 502,235 – 154,995 100,000 288,765 12,529,737 Hysan Development Company Limited • Annual Report 2001 73 NOTES TO THE FINANCIAL STATEMENTS continued 30. OTHER RESERVES continued Share premium account HK$’000 Investment property revaluation reserve HK$’000 Capital redemption reserve HK$’000 General reserve HK$’000 Dividend reserve HK$’000 Total HK$’000 THE COMPANY At 1 January 2000 – as original stated 1,258,363 1,951,499 69,140 100,000 – 3,379,002 – prior year adjustment, derecognition of liability for final dividend for 1999 – – – – 309,170 309,170 – as restated 1,258,363 1,951,499 69,140 100,000 309,170 3,688,172 Premium on issue of shares pursuant to scrip dividend scheme Share issue expenses Surplus on revaluation of investment properties Shares repurchased and cancelled Final dividend for 1999 paid Amount set aside for 2000 dividend Interim dividend for 2000 paid 14,189 (14) – – – – – – – 488,737 – – – – – – – 51,035 – – – – – – – – – – – – – – 14,189 (14) 488,737 51,035 (309,170) (309,170) 433,064 433,064 (113,686) (113,686) At 31 December 2000 1,272,538 2,440,236 120,175 100,000 319,378 4,252,327 Premium on issue of shares pursuant to scrip dividend scheme Share issue expenses Deficit on revaluation of investment properties Shares repurchased and cancelled Final dividend for 2000 paid Amount set aside for 2001 dividend Interim dividend for 2001 paid 30,847 (31) – – – – – – – (241,331) – – – – – – – 34,820 – – – – – – – – – – – – – – 30,847 (31) (241,331) 34,820 (319,378) (319,378) 391,598 391,598 (102,833) (102,833) At 31 December 2001 1,303,354 2,198,905 154,995 100,000 288,765 4,046,019 74 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 30. OTHER RESERVES continued (a) Included in the above are the following Group’s share of post-acquisition reserves of the associates: At 1 January 2001 Change during the year Capital reserve HK$’000 2,130 (2,130) Translation reserve HK$’000 (12,736) 12,736 Total HK$’000 (10,606) 10,606 At 31 December 2001 – – – (b) General reserve General reserve was set up from the transfer of accumulated profits. (c) Capital reserve Capital reserve comprises negative goodwill of HK$516,142,884 (2000: HK$516,142,884) arising from acquisition of subsidiaries prior to 1 January 2001 and capitalisation issue of a subsidiary. 31. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2001 HK$’000 2000 HK$’000 778,623 1,033,126 Profit before taxation Impairment loss arising (reversed) in respect of interests in associates Impairment loss reversed in respect of investments in securities Share of results of associates Net interest expenses Dividend income Depreciation Gain on property sales Gain on disposal of an associate Gain on disposal of investments in other securities Gain on disposal of property, plant and equipment Gain on repurchase of convertible bonds Exchange loss on advances from investees 4,880 (6,225) 2,338 297,927 (14,408) 6,029 – (33,531) – – – – Amortisation of convertible bonds and floating rate notes issue expenses 2,855 Release of negative goodwill arising on acquisition of additional interest in a subsidiary (Increase) decrease in accounts receivable, prepayments and deposits Decrease in staff housing loans, secured Decrease in rental deposits from tenants, creditors and accruals (60) (41,142) 7,781 (19,856) (3,419) – (4,210) 417,626 (11,830) 5,624 (350) – (293,842) (20) (2) 3,193 5,123 – 2,513 25,802 (12,346) Net cash inflow from operating activities 985,211 1,166,988 Hysan Development Company Limited • Annual Report 2001 75 NOTES TO THE FINANCIAL STATEMENTS continued 32. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR At 1 January 2000 Share issue expenses Repurchase of own shares New unsecured bank loans Repayment of unsecured bank loans Repurchase of convertible bonds Advances from investees Share capital and share premium HK$’000 Bank loans, other loans and other financing HK$’000 6,442,173 6,609,827 (14) (90,887) – – – – – – 2,305,500 (2,290,000) (923,374) 9,763 Net cash outflow from financing (90,901) (898,111) Exchange loss on advances from investees Dividend income from investees Premium on share repurchase Gain on repurchase of convertible bonds Amortisation of convertible bonds and floating rate notes issue expenses Issue of shares pursuant to scrip dividend scheme for 1999 final and 2000 interim dividends – – 39,852 – – 32,670 72,522 3,193 (4,790) – (2) 5,123 – 3,524 At 31 December 2000 and 1 January 2001 6,423,794 5,715,240 Share issue expenses Repurchase of own shares New unsecured bank loans Repayment of unsecured bank loans Repayment of long term loan in respect of acquisition of additional interest in a subsidiary Repayment of advances from investees (31) (64,320) – – – – – – 1,604,814 (1,081,843) (263,754) (1,115) Net cash (outflow) inflow from financing (64,351) 258,102 Dividend income from investees Premium on share repurchase Amortisation of convertible bonds and floating rate notes issue expenses Issue of shares pursuant to scrip dividend scheme for 2000 final and 2001 interim dividends At 31 December 2001 – 29,500 – 70,927 (5,796) – 2,855 – 100,427 (2,941) 6,459,870 5,970,401 76 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 33. CONTINGENT LIABILITIES As at 31 December 2001, there were contingent liabilities in respect of the following: THE GROUP 2001 Million 2000 Million THE COMPANY 2001 Million 2000 Million Corporate guarantee to a third party in respect of the sale of the interest in an associate HK$3.6 Corporate guarantee to subsidiaries for issue of floating rate notes – Share of counter guarantees given to partners of property development – – HK$3.6 – HK$2,400.0 HK$2,400.0 projects S$18.6 S$18.6 – – Guarantees to bankers to provide finance to – An associate – A property development project 34. CAPITAL COMMITMENTS S$12.0 S$22.0 S$12.0 S$22.0 S$12.0 S$22.0 S$12.0 S$22.0 As at 31 December 2001, there were capital commitments as follows: THE GROUP 2000 HK$ (Million) HK$ (Million) HK$ (Million) HK$ (Million) 2001 2000 THE COMPANY 2001 Uncalled share of shareholders’ loan for property development projects Contracted for but not provided in the financial statements: 20.2 34.0 – Acquisition of investment properties – Building refurbishment 18.5 52.4 12.0 – – – – – – – The Group has also participated in two other property development projects in Singapore with 10% interest in each project. The Group has undertaken, in the agreed proportion, to meet all funding requirements necessary for these property developments by way of subscription to share capital, shareholders’ loans or otherwise. At 31 December 2001, it is estimated that the pre-sales proceeds for these two projects are sufficient to fund the construction costs. Accordingly, the Group’s maximum funding requirements for these two projects of approximately HK$88 million (2000: HK$98 million) is expected not to be required. Hysan Development Company Limited • Annual Report 2001 77 NOTES TO THE FINANCIAL STATEMENTS continued 35. LEASE COMMITMENTS The Group and the Company as lessee As at 31 December 2001, the Group and the Company had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: Within one year In the second to fifth year inclusive THE GROUP 2001 HK$’000 2000 HK$’000 THE COMPANY 2001 HK$’000 2000 HK$’000 – – – – – – 11,916 5,608 12,850 17,523 17,524 30,373 Operating lease payments represent rental payable by the Company for its staff quarters and office premises. The Group and the Company as lessor At the balance sheet date, the Group and the Company had contracted with tenants for the following future minimum lease payments: THE GROUP 2001 HK$’000 2000 HK$’000 THE COMPANY 2001 HK$’000 2000 HK$’000 Within one year In the second to fifth year inclusive After five years 894,372 1,240,792 313,466 1,050,360 1,518,592 345,484 131,887 105,997 16,509 143,248 187,588 5,523 2,448,630 2,914,436 254,393 336,359 78 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 36. RELATED PARTY AND CONNECTED TRANSACTIONS A. Related party transactions During the year, the Group has the following transactions with related parties: Substantial shareholder Senior management executives Directors Notes 2001 HK$’000 2000 HK$’000 2001 HK$’000 2000 HK$’000 2001 HK$’000 2000 HK$’000 (a) (b) (c) – – – – 6,167 5,936 Interest income from staff housing loans Repairs and maintenance expenses paid to Gross rental income from Construction cost paid during the year for investment properties completed in previous years (d) – – – – – – 134 – – – – 21,070 20,806 46,054 56,357 – 179 8,817 As at 31 December 2001, the Group has the following balances with related parties: Substantial shareholder Senior management executives Directors Notes 2001 HK$’000 2000 HK$’000 2001 HK$’000 2000 HK$’000 2001 HK$’000 2000 HK$’000 Amount due to a minority shareholder (a) Construction cost payable to (d) – – – – – – – – 84,486 84,486 – 179 Hysan Development Company Limited • Annual Report 2001 79 NOTES TO THE FINANCIAL STATEMENTS continued 36. RELATED PARTY AND CONNECTED TRANSACTIONS continued A. Related party transactions continued Notes: (a) The details of the terms of staff housing loans and amount due to a minority shareholder are set out in notes 19 and 23 respectively. (b) Such expenses were incurred in connection with the repair and maintenance charges for lift, electrical installation and gondola services. (i) In relation to the lift and electrical installation services, F. K. Hu (and his alternate, Raymond L. M. Hu) are directors of Ryoden Lift Services Limited (“RLS”) and Ryoden Engineering Contracting Company Limited (“REC”) and have an indirect equity interests in RLS and REC. RLS and REC entered into a number of lift maintenance contracts and electrical installation maintenance and repair contracts respectively with a subsidiary of the Company. (ii) In relation to the gondola maintenance services, Hans M. Jebsen is a director and shareholder of Jebsen and Company Limited which entered into a number of gondola maintenance contracts with a number of the Company’s subsidiaries. These agreements were entered into on normal commercial terms and on arm’s length basis. (c) The Group has, in the normal course of its business, entered into lease agreements with related parties to lease premises for varying period. The leases were entered into on normal commercial terms and on arm’s length basis. (d) Geoffrey M. T. Yeh (and his alternate, V-nee Yeh) are substantial shareholders and directors of Hsin Chong Construction Group Limited whose associate entered into a MVAC/BAS contract with a subsidiary of the Company relating to the construction of The Lee Gardens. The contract has now been completed, with the relevant sum being the amount fully paid under the contract during the current year. Such transaction was entered into on normal commercial terms and on arm’s length basis. 80 Hysan Development Company Limited • Annual Report 2001 NOTES TO THE FINANCIAL STATEMENTS continued 36. RELATED PARTY AND CONNECTED TRANSACTIONS continued B. Connected transaction Under an agreement entered into on 20 August 2001, a wholly-owned subsidiary of the Company agreed to purchase (“Acquisitions”) (i) from Sincere B.V.I. Limited (“Share Vendor”) the remaining 30% interests, representing 3 fully paid “B” ordinary shares of HK$1.00 each, in its subsidiary Lee Theatre Realty Limited (“LTRL”); and (ii) from The Sincere Company Limited (“Loan Vendor”) its total outstanding shareholder’s loan to LTRL. LTRL’s principal business is that of a holding vehicle for a property, known as “Lee Theatre Plaza” (“the Property”). As the Share Vendor was a substantial shareholder of LTRL, and the Loan Vendor was the holding company of the Share Vendor, the Acquisitions constituted a connected transaction for the Company under the Listing Rules. A press notice regarding the Acquisitions was made on 20 August 2001 pursuant to the Listing Rules. The total consideration for the Acquisitions, arrived at after arm’s length negotiations, was the sum of HK$516,000,000, representing 30% of the value of the Property determined pursuant to the independent valuation, less 30% of the audited net current liabilities as at the completion. The transaction was completed on 15 September 2001. 37. POST BALANCE SHEET EVENT Subsequent to 31 December 2001, Hysan (MTN) Limited, a wholly-owned subsidiary of the Company, issued US$200 million Medium Term Notes. The notes are guaranteed as to principal and interest by the Company bearing interest at 7% and are repayable in full in 2012. Hysan Development Company Limited • Annual Report 2001 81 NOTES TO THE FINANCIAL STATEMENTS continued 38. PRINCIPAL SUBSIDIARIES AT 31 DECEMBER 2001 Name of subsidiary Admore Investments Limited Golden Capital Investment Limited HD Finance (BVI) Limited HD Treasury (BVI) Limited HD Treasury Limited HD Treasury Management Limited Hysan China Holdings Limited Hysan Treasury Limited Hysan (MTN) Limited Hysan Project Management (PRC) Limited Hysan Property Management Limited Kwong Hup Holding Limited Kwong Wan Realty Limited Minsal Limited Mondsee Limited Stangard Limited Teamfine Enterprises Limited Tohon Development Limited Bamboo Grove Recreational Services Limited HD Investment Limited Jarrow Properties Limited Kochi Investments Limited Lee Theatre Realty Limited Leighton Property Company Limited Main Rise Development Limited OHA Property Company Limited Perfect Win Properties Limited Profit Team Investment Limited Silver Nicety Company Limited South Eagle Investments Limited Barrowgate Limited Place of incorporation Hong Kong Hong Kong Place of operation Hong Kong Hong Kong British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Hong Kong Hong Kong Hong Kong Hong Kong British Virgin Islands British Virgin Islands Hong Kong British Virgin Islands Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong British Virgin Islands British Virgin Islands 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 Hong Kong British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong British Virgin Islands Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length and therefore the above table contains only those subsidiaries which materially affected the results or assets of the Group. 82 Hysan Development Company Limited • Annual Report 2001 Proportion of nominal value of issued share capital held by the Company indirectly directly Class of share held Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Issued share capital HK$2 HK$2 HK$1 HK$1 HK$2 HK$2 HK$1 HK$2 US$1 HK$2 HK$2 HK$1 HK$1,000 HK$2 HK$2 HK$300,000 HK$2 HK$2 HK$2 HK$1 HK$1 HK$1 HK$10 HK$2 HK$2 HK$2 HK$2 HK$2 HK$20 US$1 – – – – – – – – – – – – – – – – – – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% HK$10,000 65.36% NOTES TO THE FINANCIAL STATEMENTS continued 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – – – – – – – – – – – – Principal activities Investment holding Investment holding Treasury operation Treasury operation Treasury operation Treasury operation Investment holding Treasury operation Treasury operation Project management Property management Investment holding Property investment Property investment Property investment Provision of security services Investment holding Property investment Resident club management Investment holding Investment holding Capital market investment Property investment Property investment Investment holding Property investment Property investment Investment holding Property investment Property investment Property investment Hysan Development Company Limited • Annual Report 2001 83 FIVE-YEAR FINANCIAL SUMMARY 1997 HK$’000 (Note 3) 1998 HK$’000 (Note 3) 1999 HK$’000 2000 HK$’000 2001 HK$’000 CONSOLIDATED INCOME STATEMENT Turnover 2,011,817 3,590,656 2,295,717 1,480,246 1,355,450 Profit from operations Finance cost Gain on disposal of an associate Impairment loss (arising) reversed in respect of interests in associates 2,169,169 2,773,264 1,994,930 1,474,517 1,066,738 (759,261) (1,251,944) (526,819) (449,020) (314,428) – – – – – 33,531 (108,000) (75,702) (98,418) (4,284) 3,419 4,210 (4,880) (2,338) Share of results of associates 34,095 Profit before taxation Taxation Profit after taxation Minority interests 1,444,003 1,337,618 1,365,409 1,033,126 778,623 (162,327) (111,550) (86,795) (117,210) (114,903) 1,281,676 1,226,068 1,278,614 (103,385) (86,797) (74,656) 915,916 (65,743) 663,720 (63,377) Net profit for the year 1,178,291 1,139,271 1,203,958 850,173 600,343 Dividends 1,003,937 381,099 412,795 433,064 391,598 Earnings per share – Basic HK$1.14 HK$1.11 HK$1.16 HK$0.82 HK$0.58 – Diluted HK$1.14 N/A HK$1.16 HK$0.82 HK$0.58 84 Hysan Development Company Limited • Annual Report 2001 FIVE-YEAR FINANCIAL SUMMARY continued 1997 HK$’000 (Note 3) 1998 HK$’000 (Note 3) 1999 HK$’000 2000 HK$’000 2001 HK$’000 CONSOLIDATED BALANCE SHEET Property, plant and equipment 23,936 56,060 56,443 56,632 50,158 Investment properties Interests in associates Investments in securities Negative goodwill 43,886,000 25,949,000 25,173,000 28,432,700 26,638,500 418,038 241,487 66,467 51,384 61,324 2,076,193 1,847,563 2,468,742 2,297,335 1,754,059 – – – – (1,136) 20,936 Staff housing loans, secured 41,350 53,201 43,151 28,898 Net current liabilities (Note 2) (2,825,706) (615,596) (1,476,134) (1,149,722) (2,463,807) 43,619,811 27,531,715 26,331,669 29,717,227 26,060,034 Advances from investees Amounts due to minority shareholders Long term loan Long term bank loans Convertible bonds Floating rate notes 135,114 292,765 263,754 140,520 292,765 263,754 51,316 292,765 263,754 59,482 292,765 263,754 52,571 292,765 – 2,614,746 3,796,000 1,660,000 1,890,000 3,088,634 1,273,456 1,108,239 – – – 1,992,293 1,994,107 2,390,884 2,393,739 397,047 6,572,128 7,595,385 4,658,719 4,899,740 3,831,017 Net assets 37,047,683 19,936,330 21,672,950 24,817,487 22,229,017 Minority interests 2,350,412 1,169,607 1,146,458 1,339,063 962,092 34,697,271 18,766,723 20,526,492 23,478,424 21,266,925 Share capital Reserves (Note 2) 5,146,629 5,158,136 5,183,810 5,151,256 5,156,516 29,550,642 13,608,587 15,342,682 18,327,168 16,110,409 Shareholders’ funds 34,697,271 18,766,723 20,526,492 23,478,424 21,266,925 Notes: (1) (2) (3) Prior years’ figures have been reclassified to conform with the current year’s presentation. Figures for all periods have been adjusted to reflect the change in accounting policy for the adoption of SSAP9 (Revised). Figures for 1998 have been adjusted to reflect the change in accounting policy for the adoption of SSAP 24. Figures for 1997 have not been adjusted to reflect the change in accounting policy for the adoption of SSAP 24 as it is impractical to restate historical amounts in accordance with the requirements of SSAP 24. Hysan Development Company Limited • Annual Report 2001 85 NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the Members of Hysan Development Company Limited 希 慎 興 業 有 限 公 司 (“the Company”) will be held in the Nathan Room, Lower Lobby, Conrad International Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Tuesday, 14 May 2002 at 12:00 noon for the following purposes: 1. 2. 3. 4. To receive and consider the Statement of Accounts for the year ended 31 December 2001 together with the Reports of Directors and Auditors thereon. To declare a Final Dividend. To re-elect retiring Directors. To re-appoint Auditors and to authorize the Directors to fix their remuneration. As special business, to consider and, if thought fit, pass the following Ordinary Resolutions: 5. “That: (a) (b) (c) subject to paragraph (c), a general mandate be and is hereby unconditionally granted to the Directors of the Company to exercise during the Relevant Period all the powers of the Company to allot, issue and dispose of additional shares in the Company and to make or grant offers, agreements, options or warrants which would or might require the exercise of such powers; the mandate in paragraph (a) shall authorize the Directors of the Company during the Relevant Period to make or grant offers, agreements and options which would or might require the exercise of such powers after the end of the Relevant Period; the aggregate nominal value of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors of the Company pursuant to the mandate in paragraph (a), otherwise than pursuant to (i) Rights Issue, or (ii) any option scheme or similar arrangement for the time being adopted for the grant or issue to the officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company or (iii) any scrip dividend or similar arrangement pursuant to the Articles of Association of the Company from time to time, shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue and the said mandate shall be limited accordingly; (d) for the purpose of this Resolution: “Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of: (i) the conclusion of the next Annual General Meeting of the Company; (ii) the expiration of the period within which the next Annual General Meeting of the Company is required by law to be held; and (iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution of the Members in general meeting. “Rights Issue” means an offer of shares open for a period fixed by the Directors of the Company to holders of shares of the Company or any class thereof on the register on a fixed record date in proportion to their then holdings of such shares or class thereof (subject to such exclusion or other arrangements as the Directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory outside Hong Kong).” 86 Hysan Development Company Limited • Annual Report 2001 NOTICE OF ANNUAL GENERAL MEETING continued 6. “That: (a) a general mandate be and is hereby unconditionally given to the Directors of the Company to exercise during the Relevant Period all the powers of the Company to purchase or otherwise acquire shares of HK$5 each in the capital of the Company in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, provided that the aggregate nominal amount of shares so purchased or otherwise acquired shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue. (b) for the purpose of this Resolution: “Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of: (i) the conclusion of the next Annual General Meeting of the Company; (ii) the expiration of the period within which the next Annual General Meeting of the Company is required by law to be held; and (iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution of the Members in general meeting.” 7. “That, conditional upon the passing of Resolutions numbered 5 and numbered 6 set out in the Notice convening this Meeting, the aggregate nominal amount of the shares which are purchased or otherwise acquired by the Company pursuant to Resolution numbered 6 shall be added to the aggregate nominal amount of the shares which may be issued pursuant to Resolution numbered 5.” By Order of the Board Wendy W. Y. Yung Company Secretary Hong Kong, 12 March 2002 Notes: 1. 2. 3. 4. 5. A Member entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote on his behalf. A proxy need not be a Member of the Company. In order to be valid, a form of proxy must be deposited at the Company’s registered office, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, not less than 48 hours before the time for holding the meeting. The Register of Members of the Company will be closed from Friday, 10 May 2002 to Tuesday, 14 May 2002, both dates inclusive. To qualify for the above dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Share Registrars, Standard Registrars Limited at 5/F., Wing On Centre, 111 Connaught Road Central, Hong Kong for registration not later than 4:00 p.m., Thursday, 9 May 2002. Concerning Ordinary Resolution numbered 5, the Directors wish to state that they have no immediate plans to issue any new shares in the Company except those shares that may be issued pursuant to the Executive Share Options or any scrip dividend pursuant to the Articles of Association of the Company from time to time. The Ordinary Resolution is being sought from Members as a general mandate in compliance with Section 57B of the Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Concerning Ordinary Resolution numbered 6, there is no immediate plan for the Directors to exercise the right of the Company to repurchase its own shares. The Ordinary Resolution is being sought from Members as a general mandate in compliance with Section 49BA of the Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Hysan Development Company Limited • Annual Report 2001 87 Notes 88 Hysan Development Company Limited • Annual Report 2001 SHAREHOLDER INFORMATION FINANCIAL CALENDAR 2002 Full year results announced Ex-dividend date for final dividend Share registers closed Annual General Meeting Record date for final dividend Despatch of scrip dividend circular and election form Despatch of final dividend warrants/definitive share certificates 2002 interim results to be announced 2002 interim dividend payable * subject to change 12 March 2002 8 May 2002 10 to 14 May 2002 14 May 2002 14 May 2002 (on or about) 21 May 2002 (on or about) 13 June 2002 late August 2002* October 2002* SHAREHOLDERS SERVICES For enquiries about share transfer and registration, please contact the Company’s Registrars:- Standard Registrars Limited 5/F., Wing On Centre 111 Connaught Road Central Hong Kong Telephone : (852) 2528 4511 Facsimile : (852) 2528 3158 Holders of the Company’s ordinary shares should notify the Registrars promptly of any change of their address. INVESTORS RELATIONS For enquiries relating to investors relations, please email to investor@hysan.com.hk or write to:- Investors Relations, Hysan Development Company Limited 49/F., Manulife Plaza The Lee Gardens, 33 Hysan Avenue Causeway Bay Hong Kong Telephone : (852) 2895 5777 Facsimile : (852) 2577 5153 Press releases and other information of the Group can be found at our Internet website at “www.hysan.com.hk” DIVIDENDS The Board recommends the payment of a final dividend of HK$0.28 per share. Subject to shareholder approval, the final dividend will be payable in cash with a scrip dividend alternative to shareholders on the register of members as at Tuesday, 14 May 2002. A circular containing details of the scrip dividend and the form of election will be mailed to shareholders on or about Tuesday, 21 May 2002. Shareholders who elect for the scrip dividend, in lieu of the cash dividend, in whole or in part, shall return the form of election to the Company’s Registrars on or before Monday, 10 June 2002. Definitive share certificates in respect of the scrip dividend and cheques (for those shareholders who do not elect for scrip dividend) will be despatched to shareholders on or about Thursday, 13 June 2002. The share register will be closed from Friday, 10 May 2002 to Tuesday, 14 May 2002, both dates inclusive. In order to qualify for the proposed final dividend, all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s Registrars not later than 4:00 p.m. on Thursday, 9 May 2002. HYSAN DEVELOPMENT COMPANY LIMITED 49/F., Manulife Plaza The Lee Gardens, 33 Hysan Avenue, Causeway Bay, Hong Kong Tel: (852) 2895 5777 Fax: (852) 2577 5153 www.hysan.com.hk k h . m o c . a d t . i w k w h w . m o . d c t . L a d s t e . w t a w c w o s . s d A t L n s g e s t a e D c o e s h s T A i i i i : n n g g s s e e D D e h T : n g i s e D 

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