To build, own and manage quality buildings,
and being the occupiers’ partner of choice in
the provision of real estate accommodation
and services, thereby delivering attractive and
sustainable returns to shareholders.
~ HYSA N’S MISSION STATEME N T
CONTENTS
WHERE WE ARE TODAY AND
FUTURE DIRECTION
OUR FINANCIAL STATEMENTS AND
PORTFOLIO VALUATION
Competitive Advantages
2006 in Review
Chairman’s Statement
Special Feature: Causeway Bay’s Spirit
HOW WE CREATE VALUE AND
MANAGE RISKS
Overview
Operations Review
Financial Policy
Internal Control and Risk Management
HOW WE GOVERN
2
4
6
18
20
32
36
Board of Directors and Senior Management 40
44
Corporate Governance Report
57
Directors’ Report
Directors’ Remuneration and
Interests Report
Audit Committee Report
63
70
Directors’ Responsibilities for
the Financial Statements
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Balance Sheet
Balance Sheet
Consolidated Statement of Changes
in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated
Financial Statements
Five-Year Financial Summary
Report of the Valuer
Schedule of Principal Properties
Shareholder Information
72
73
74
75
77
78
80
82
121
123
124
1
HYSAN ANNUAL R EPORT 2006
2006 was another productive year for Hysan, with a healthy local
economy as backdrop. As the largest commercial landlord in
Causeway Bay, Hysan always recognises its roots in this most vibrant and diverse
district. In our 2006 Annual Report, we pay tribute to the spirit of Causeway Bay,
its ability to constantly reinvent itself, its gift for seamlessly blending businesses
and tradition, and its ability to attract the dynamic people who work, visit and
reside here. In this Annual Report, we also strive to further enhance the quality
of information and disclosure in the following areas: our performance, how we
create value and manage our risks, and our governance. At the same time, we
recognise that shareholders are equally interested in knowing more about the
“human” side of the equation – the values that underlie our management practices.
We have, therefore, introduced our fi rst Corporate Responsibility Report. We
hope thereby that our readers can better understand how we use our guiding
principle of being a responsible business to defi ne how we interact with our
stakeholders, including our shareholders, tenants, employees, and the community,
as well as how we achieve our results.
1
HYSAN ANNUAL R EPORT 2006
Competitive Advantages
Largest
commercial
landlord
in Causeway Bay,
Hong Kong’s prime
offi ce and retail
district
Balanced
portfolio
of superior
investment
properties
Quality
client base
with prominent
multinational
and strong local
tenants
Sustainable
income
with high
occupancy
consistently
achieved
BA L A NCED PORTFOLIO OF QU A LIT Y IN VE STME N T PROPERTIE S
21%
24%
55%
1%
15%
19%
37%
28%
Office
Retail
Residential
Property under
redevelopment
Others
3.8 million
HK$32,473 million
SQUARE FEET GROSS FLOOR
AREA (EXCLUDING PROPERTY
UNDER REDEVELOPMENT)
CAPITAL VALUE
Established asset
enhancement
programme
with track record
of adding value
Exceptional
services
Strong
balance sheet
Financial
prudence
with focus on
our commercial
and residential
customers
with debts of
long maturity
and diversifi ed
funding sources
to keep risk and
return in balance
Eff ective
corporate
governance
with widespread
industry
recognition
achieved
VA LUE CR E ATION
Underlying Profit Attributable
to Shareholders
(HK$ million)
Profit Excluding Asset Value
Changes and Prior Year Tax
Provision (HK$ million)
Adjusted Shareholders’ Funds
(HK$ million)
1,200
1,000
800
600
400
200
0
609
1,005
1,012
900
750
755
36,000
30,000
600
586
641
24,000
22,399
30,729
27,134
450
300
150
0
18,000
12,000
6,000
0
2004
2005
2006
2004
2005
2006
2004
2005
2006
2006 in Review
• Overall turnover up 1.4%; like-for-like turnover up 8.3%
• Profi t excluding asset value changes and prior year tax provision
up 17.8%
• Full-year dividends up 11.1%
Key Financial Data
Consolidated income statement (HK$ million)
Turnover
Finance costs
Profit excluding asset value changes1 and prior year tax provision
Underlying profit attributable to shareholders2
Profit attributable to shareholders
Consolidated balance sheet (HK$ million)
Total assets
Shareholders’ funds
Adjusted shareholders’ funds3
Consolidated cash flow statement (HK$ million)
Net cash from operating activities
Net cash from investing activities
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Per share data
Earnings per share, based on:
Profit excluding asset value changes1 and prior year tax provision
Basic (HK cents)
Diluted (HK cents)
Underlying profit attributable to shareholders2
Basic (HK cents)
Diluted (HK cents)
Profit attributable to shareholders
Basic (HK cents)
Diluted (HK cents)
Shareholders’ returns:
Dividend per share (HK cents)
Shareholders’ returns per share (HK$) (Note 1)
Total shareholders’ returns per share (HK$) (Note 2)
Assets value:
Net assets value per share (HK$)
Adjusted net assets value per share3 (HK$)
Net debt per share (HK$)
Share information
Number of shares in issue at year end (million)
Weighted average number of shares (million)
Highest share price (HK$)
Lowest share price (HK$)
Closing price at year end (HK$)
2006
2005
Change
%
1,268
1,250
163
755
1,012
3,099
36,253
27,828
30,729
918
175
(2,110)
(1,017)
214
641
1,005
4,121
33,991
24,667
27,134
841
2,394
(1,855)
1,380
71.60
71.53
96.03
95.94
60.94
60.90
95.60
95.54
293.96
293.70
391.87
391.62
50.00
1.60
3.81
26.37
29.12
2.31
1,055
1,054
23.95
18.60
20.35
45.00
3.25
4.83
23.42
25.76
2.75
1,053
1,052
20.50
14.40
19.20
1.4
23.8
17.8
0.7
(24.8)
6.7
12.8
13.2
9.2
(92.7)
(13.7)
N/A
17.5
17.5
0.4
0.4
(25.0)
(25.0)
11.1
(50.8)
(21.1)
12.6
13.0
16.0
0.2
0.2
16.8
29.2
6.0
4
HYS AN ANN UA L REPORT 200 6
Key Financial Data continued
Investments in listed securities
2006
2005
Change
%
Total return (dividends received plus capital value growth)
57.3%
31.6%
81.3
Financials
Average finance costs
Net debt to equity
Net interest coverage (times)
Floating rate debt (% on total debt)
Average debt maturity
Bank facilities : capital market issuance
4.9%
7.9%
6.9x
64.7%
3.6%
10.7%
4.6x
49.8%
5.0 years
5.2 years
25% : 75% 47% : 53%
Key Operating Data
2006
2005
Investment property value (HK$ million)
Office
Retail
Residential
Hennessy Centre (Note 3)
Others
Occupancy at year end
Office
Retail
Residential
Property expenses (HK$ million)
Property expenses as a percentage of turnover
32,473
11,876
9,062
6,206
4,900
429
97%
99%
92%
240
19%
29,815
10,646
8,582
6,060
4,061
466
95%
99%
89%
237
19%
(36.1)
26.2
50.0
29.9
(3.8)
N/A
Change
%
8.9
11.6
5.6
2.4
20.7
(7.9)
2.1
–
3.4
(1.3)
–
Notes: (1) Shareholders’ return per share represents growth in share price plus dividend received per share
(2) Total shareholders’ return per share represents the growth in adjusted net assets value per share plus dividend
received per share
(3) Hennessy Centre was vacant as at 30 September 2006 in preparation for redevelopment and was valued as
such for 2006 year end
In preparing the Group’s 2006 financial statements under the Hong Kong Financial Reporting Standards, the fair value
model for investment properties has been adopted. Accordingly such properties were recorded at their fair values, as
determined by an independent professional valuer. Fair value changes on investment properties and related deferred tax
were recognised through income statement. Revaluation changes on owner occupied properties and related deferred
tax arising thereon were taken to equity. Deferred tax on fair value gain has to be provided for despite no capital gains
tax liability will be crystallised on disposal of those properties at the value included in the financial statements. In light
of the above, management has presented other indicators for assessing the performance of the Group: (i) “Underlying
profit attributable to shareholders”, effectively arrived at by adjusting for the unrealised fair value changes on investment
properties and the related deferred tax on the profit figure. On the same basis, cumulative deferred tax provided on
the fair value gain on investment and owner occupied properties have been added back to the shareholders’ funds
when computing “Adjusted shareholders’ funds” and “Adjusted net assets value per share”, (ii) “Profit excluding asset
value changes and prior year tax provision” was arrived at after further adjusting “Underlying profit attributable to
shareholders” for aggregate of realised gain/loss on disposal of investment properties and available for sale investments,
impairment, reversal, recovery and prior year tax provision.
1. Adjustment to underlying profit relating to asset value changes comprised realised gains on disposal of available-for-
sale investments and investment properties and recognition of a recovery item totalling HK$257 million.
2. Excluded HK$2,030 million unrealised fair value gain on the investment properties portfolio net of deferred tax and
minority interests, and HK$57 million on unrealised fair value gain included in an associate.
3. Adjusted for HK$2,901 million being the cumulative deferred tax provided on fair value gain on the investment and
owner occupied properties attributable to shareholders as at 31 December 2006.
5
HYSAN ANNUAL R EPORT 2006
Chairman’s Statement
OVERVIEW
The 2006 global economy was generally favourable throughout the year, despite signs of
slowdown in certain sectors of the U.S. economy towards the latter part of the year. The Hong
Kong economic environment remained strong, supported by robust domestic demand and a
strong fi nancial market. Grade A offi ce rental growth was underpinned by a generally limited
supply and sustained demand in light of more business activities. More private consumption, in
addition to spending by tourists, helped drive retail rents. Increased demand from expatriate
executives ensured a steady growth for luxury residential rentals.
PERFOR M A NCE
Overall 2006 turnover was HK$1,268 million, up 1.4% from
2005. If the element of the Entertainment Building (disposed of
at the end of 2005) is excluded, the turnover increase would be
8.3%, driven by revenue growth in all sectors (offi ce: 10.2%,
retail: 6.0%, residential: 11.0%). Offi ce sector turnover saw a
healthy year-on-year increase, with positive rental reversions
beginning in the second half of 2005 continuing into 2006.
Profi t excluding asset value changes and prior year tax
provision was HK$755 million, up 17.8% from the
corresponding fi gure in 2005 (2005: HK$641 million).
Earnings per share, excluding asset value changes and prior year tax provision, correspondingly
rose to HK71.60 cents.
Peter T.C. Lee, Chairman
Underlying profi t, excluding unrealised revaluation changes on investment properties and
related items, was HK$1,012 million (2005: HK$1,005 million).
Profi t was HK$3,099 million, 24.8% down from last year’s HK$4,121 million, due mainly to
the HK$1,650 million less fair value changes on the Group’s investment properties taken to the
income statement.
The external valuation of the Group’s investment property portfolio increased to HK$32,473
million, up 8.9%. Adjusted shareholders’ funds rose by 13.2% to HK$30,729 million.
The Board recommends the payment of a fi nal dividend of HK40.0 cents per share (2005:
HK35.0 cents). Together with the interim dividend of HK10.0 cents per share (2005: HK10.0
cents), there is an aggregate distribution of HK50.0 cents per share, representing a year-on-year
increase of 11.1%. Subject to shareholder approval, the fi nal dividend will be payable in cash
with a scrip dividend alternative.
6
HYS AN ANN UA L REPORT 200 6
BUSIN E SS A N D SUSTAINA BILIT Y
Hysan aims to apply the highest standards of professionalism to our everyday business, and
plays an active part in diff erent aspects of community life. To us, the commitment to being
both fi nancially successful and a responsible business is not a mutually exclusive set of targets.
In our quest to deliver long-term sustainable value to our shareholders, we have to understand
the wider context in which our company operates, and we therefore make decisions that
balance short-term requirements and long-term concerns. These concerns include taking into
consideration the impact of our actions on society and the environment.
Further information on our commitment to Corporate Responsibility is set out in a separate
report that we have introduced this year.
DIR ECTORS A N D STAFF
I would like to take this opportunity to express my thanks not only to all our Board members for
their wise counsel, but also to our dedicated staff members for their valuable contribution and
good work during the year.
OU TLOOK
Further growth in the Hong Kong economy is projected for 2007, though at a more moderate
rate when compared with last year. The stabilisation of interest rates and improving employment
conditions should continue to provide a favourable environment for our property investment
business.
Peter T.C. Lee Chairman
Hong Kong, 6 March 2007
7
HYSAN ANNUAL R EPORT 2006
CAUSEWAY BAY’S
Causeway Bay in the 1920’s was
mostly newly reclaimed land dotted
with godowns. It is now one of the
SPIRIT
most remarkable commercial districts in the world, spearheading Hong Kong’s
dramatic development. Causeway Bay is always changing, not just to adapt, but
8
HYS AN ANN UA L REPORT 200 6
to lead. It thrives on showcasing the best and the latest, but also pauses to
encompass the more traditional side of life. It acts as a dynamic crossroad for all
our ultra-effi cient services, but also takes time out to host those from diff erent
backgrounds who work and play here. Causeway Bay breathes a progressive
and all-embracing spirit from every pore. Causeway Bay represents the best of
Hong Kong in everything it does. Indeed, Causeway Bay’s spirit is Hong Kong’s
true spirit.
9
HYSAN ANNUAL R EPORT 2006
CAUSEWAY BAY’S CONTRASTING
ARCHITECTURE STYLES
HIGHLIGHT THE DISTRICT’S
EVOLUTION FROM A QUIET
SUBURB TO ONE OF THE WORLD’S
best known
COMMERCIAL DISTRICTS.
1 0
HYS AN ANN UA L REPORT 200 6
As the heart of a dynamic city, Causeway Bay has
constantly reinvented itself. Always at the forefront of
CONSTANT
REINVENTION
progress, the area was the site of one of Hong Kong’s earliest land reclamations. Not content
with hosting the city’s fi rst tram line in 1923, Causeway Bay today is a superb traffi c hub.
Also with roots stretching back to probably the territory’s earliest motion picture studio in
Ngan Mok Street, Causeway Bay is Hong Kong’s best known shopping and leisure destination,
with a reputation enhanced by being the site of the city’s fi rst Japanese department
stores and quality hotels like the Lee Gardens in the intervening years.
THE DISTRICT’S GEOGRAPHICAL
SUPERIORITY ENSURES
CAUSEWAY BAY’S STATUS AS A
transport hub
CONNECTING ALL AREAS OF THE
ISLAND AND BEYOND, FROM
HONG KONG’S EARLY DAYS UP
TO THE PRESENT.
1 1
HYSAN ANNUAL R EPORT 2006
Causeway Bay welcomes business in all its variety. While large
HARMONY
corporations set up regional headquarters in Causeway Bay’s towering offi ce blocks,
global franchises and trend-setting boutiques share the ground fl oors along the district’s
vibrant shopping streets. Causeway Bay, of course, is not all about commerce. It is also
an area of time-honoured traditions that derive from both east and west. The annual
fi re-dragon dance has been held at Tai Hang for over a century. The Chinese New Year
fl ower market entices those from near and far with blazing colours and scents. And every
day right by the shore, the Noon Day Gun can be heard piercing the cacophony of sounds
along Gloucester Road. Causeway Bay eff ortlessly blends innovations with customs,
creating a sense of harmony rarely found in the heart of other metropolises.
1 2
HYS AN ANN UA L REPORT 200 6
1 3
HYSAN ANNUAL R EPORT 2006
THE HUNDREDS OF THOUSANDS CROSSING
HENNESSY ROAD EACH DAY COME FROM
all corners of Hong Kong,
AND INDEED, THE WORLD. THEY MAY BE THE BEST
FINANCIAL MINDS OR MOST ORIGINAL DESIGN TALENTS.
THEY MAY BE BLISSFUL YOUNGSTERS OR SPORTY
YOUNG-AT-HEARTS. THEY BRING TO CAUSEWAY BAY
NOTHING LESS THAN THEIR HOPES AND CHEERS.
1 4
HYS AN ANN UA L REPORT 200 6
Causeway Bay is all things to
PEOPLE
all people. It is home sweet home for those
returning from a fruitful day at work or school,
as well as a gadget heaven for sun-drenched
tourists. Victoria Park, Hong Kong’s largest urban
green space, is one of the focal points of the city’s
community life. Aspiring football stars shoot
next to gracious tai chi practitioners. Meanwhile,
yachties, library dwellers, extended families,
rugby fans and many more locals and visitors have
staked claims to their favourite parts of Causeway
Bay. All this underscores that Causeway Bay is a
diverse, prosperous and open-minded district.
It is simply a place for everyone.
1 5
HYSAN ANNUAL R EPORT 2006
CAUSEWAY BAY’S SHOPS,
SCHOOLS AND THE WATERFRONT
WELCOME PEOPLE FROM
all walks of life.
1 6
HYS AN ANN UA L REPORT 200 6
A DETAILED M A NAGEME N T’S DISCUSSION A N D A NA LYSIS OF HYSA N’S
20 0 6 R E SULTS IS ORGA NISED IN TO FOUR SECTIONS:
OVERVIEW
OPER ATIONS
R EVIEW
FINA NCIA L POLICY INTERNAL CONTROL
A N D RISK
M A NAGEME N T
This section discusses
how Hysan’s internal
control system
manages risks.
This section reviews
Hysan’s business
activities for the year.
In addition, a review
of the fi nancial results
is presented.
This section provides
a discussion of Hysan’s
fi nancial management,
including fi nancing,
liquidity and cash
management, and
interest rate
management.
To facilitate an
understanding of
Hysan’s 2006 results
under Hong Kong
Financial Reporting
Standards, this
section presents an
overview that includes
key profi t and asset
value indicators, and
reconciliation with the
statutory fi gures.
Pages 18 to 19
Pages 20 to 31
Pages 32 to 35
Pages 36 to 39
1 7
HYSAN ANNUAL R EPORT 2006
Overview
Profit Indicators
Profit excluding asset value changes and prior year
tax provision
Adjusted for:
• Prior year tax provision
Asset value changes:
• Net realised gain on disposal of available-for-sale
investments
• Recovery of a loan to an associate
• Realised fair value gain on disposal of properties
2006
HK$ million
2005
HK$ million
Change
HK$ million
%
755
641
114
17.8
–
755
170
87
–
257
(103)
538
–
–
467
467
Underlying profit attributable to shareholders
1,012
1,005
7
0.7
Adjusted for:
• Group’s share of unrealised fair value changes
on investment properties net of deferred tax
2,087
3,116
Profit per financial statements
3,099
4,121
(1,022)
(24.8)
Asset Value Indicators
Adjusted shareholders’ funds
30,729
27,134
3,595
• Group’s share of cumulative deferred tax on
properties revaluation
(2,901)
(2,467)
31.12.2006
HK$ million
31.12.2005
HK$ million
Change
HK$ million
%
13.2
Shareholders’ funds per financial statements
27,828
24,667
3,161
12.8
1 8
HYS AN ANN UA L REPORT 200 6
WHY M A NAGEME N T GAVE A DDITIONA L PROFIT A N D N ET ASSET IN DICATORS?
While the adoption of new Hong Kong Financial Reporting Standards since the 2005 fi nancial
year did not lead to any change in the Group’s business operations or cashfl ow, there were
signifi cant resulting changes in fi nancial reporting. The Group’s investment properties had since
been recorded on a “fair-value” basis under our accounting policies and “fair value changes” that
arise on valuation of investment properties will be recognised through the income statement.
Additionally, deferred tax on such “fair value gain” has to be provided for despite the fact that no
capital gains tax liability will arise in Hong Kong on disposal of our investment properties. The
adoption of these accounting policies has resulted in a higher volatility on earnings.
The increased fl uctuations in earnings, however, may pose limitations on the use of unadjusted
earning fi gures, fi nancial ratios, trends and comparison against prior period(s). The eff ects are
particularly signifi cant for property investors whose principal activity is to derive recurring
income from the holding of assets, such as the Group’s.
To assist stakeholders to better measure the Group’s performance as a property investor,
management has therefore provided an additional profi t indicator by excluding principally
(i) “fair value changes” of investment properties; (ii) items that are non-recurring in nature;
principally being gains/losses from disposing assets, impairment, reversal, recovery and tax
provisions for prior year. On this basis, “profi t excluding asset value changes and prior year tax
provision” was HK$755 million, up 17.8% from last year (2005: HK$641 million).
We also provide an additional net asset indicator known as “adjusted shareholders’ funds” fi gure,
which is computed by adding back the Group’s share of cumulative deferred tax on property
revaluation.
1 9
HYSAN ANNUAL R EPORT 2006
Operations Review
OUR BUSIN E SS
Hysan is principally engaged, together with its subsidiaries and
joint ventures, in investment, development and management
of quality properties. As at 31 December 2006, Hysan’s
investment property interests totalled some 3.8 million gross
square feet of high-quality offi ce, retail and residential space
in Hong Kong. The redevelopment of the Hennessy Centre
commenced in the fourth quarter of 2006 accounted for the
year-on-year reduction of gross fl oor area.
20 0 6 PERFOR M A NCE
The Group’s turnover was HK$1,268 million, up 1.4% (2005:
HK$1,250 million). If the element of the Entertainment
Building (disposed of at the end of 2005) is excluded, the turnover increase would be 8.3%.
Michael T.H. Lee, Managing Director
Profi t excluding asset value changes and prior year tax provision was HK$755 million, 17.8%
up from last year (2005: HK$ 641 million). Underlying profi t, excluding unrealised revaluation
changes on investment properties and related items, amounted to HK$1,012 million (2005:
HK$1,005 million). Profi t for the year was down by HK$1,022 million (24.8%), to HK$3,099
million (2005: HK$4,121 million), mainly due to HK$1,650 million less fair value changes on
the Group’s investment properties taken to the income statement, refl ecting a rise in asset value
at a more moderate rate.
PERFOR M A NCE IN DICATORS
Although many factors contributed to the results of the Group’s businesses, some of the key
drivers for assessment of our performance included those set out below. Performance is
measured by these and other fi nancial indicators as further analysed below.
Key Indicators
Operations
Investments in listed securities
Financials
1. Occupancy rate
2. Rental income growth
3. Property expenses and as a percentage of turnover
1. Total return – comprises dividends received and capital
value growth
1. Average finance costs
2. Net debt to equity
3. Net interest coverage
4. Fixed/floating debt ratio
5. Average debt maturity
6. Ratio of bank facilities and capital market issuance
– as a measure of diversity of funding sources
2 0
HYS AN ANN UA L REPORT 200 6
Condensed Consolidated Income Statement for the Year Ended 31 December
Turnover
Property expenses
Other income
Administrative expenses
Fair value changes on investment properties
Fair value changes on financial instruments
Net realised gain on disposal of available-for-sale
investments
Share of results of associates
Finance costs
Taxation
– current
– deferred
Minority interests
Profit for the year
Underlying profit
2006
HK$ million
2005
HK$ million
Change
HK$ million
1,268
(240)
147
(111)
2,576
31
170
120
(163)
(89)
(469)
(141)
1,250
(237)
38
(103)
4,226
(25)
–
241
(214)
(178)
(678)
(199)
18
(3)
109
(8)
(1,650)
56
170
(121)
51
89
209
58
%
1.4
(1.3)
286.8
(7.8)
(39.0)
N/A
N/A
(50.2)
23.8
50.0
30.8
29.1
3,099
4,121
(1,022)
(24.8)
1,012
1,005
7
0.7
Profit excluding asset value changes and prior year
tax provision
755
641
114
17.8
Turnover
Turnover comprised principally rental income derived from the Group’s investment properties
portfolio in Hong Kong.
The relevant occupancy rate, gross fl oor area and turnover of the Group’s investment properties
portfolio are as follows:
Key Indicator
Occupancy Rate
%
100
80
60
40
20
0
95 97
99 99
89 92
Office
Retail
Residential
2005
2006
2 1
HYSAN ANNUAL R EPORT 2006
Operations Review
Gross Floor Area (million square feet)
At 1.1.2005
Property disposed of on 30.12.2005 (Note 1)
At 31.12.2005
Property under redevelopment vacated on 30.9.2006 (Note 2)
At 31.12.2006
Notes: (1) Entertainment Building
(2) Hennessy Centre
Office
Retail Residential
2.7
(0.1)
2.6
(0.5)
2.1
1.2
(0.1)
1.1
(0.2)
0.9
0.8
–
0.8
–
0.8
Key Indicator
Turnover
Office
Retail
Residential
Others
2006
2005
Year-on-year Change
From Property
From Property
Held at year
end (1)
HK$ million
Held at year
end (1)
HK$ million
Disposed(2)
HK$ million
Total
HK$ million
From Property
Held at year
end (1)
HK$ million
Total
%
HK$ million
509
491
232
36
462
463
209
37
1,268
1,171
39
40
–
–
79
501
503
209
37
1,250
47
28
23
(1)
97
10.2
6.0
11.0
(2.7)
8.3
8
(12)
23
(1)
18
Total
4.7
(0.2)
4.5
(0.7)
3.8
%
1.6
(2.4)
11.0
(2.7)
1.4
Notes: (1) Hennessy Centre was vacant as at 30 September 2006 in preparation for redevelopment
(2) Entertainment Building was disposed of on 30 December 2005
Office Sector
Positive rental reversion, which began in the second half of 2005, continued into 2006. The
Group was successful in concluding renewals and new leases during the year with strong growth
in rental rates. Such positive reversion, together with full year contribution of renewals and
new leases concluded in 2005, brought a 10.2% like-for-like offi ce revenue growth to HK$509
million. Overall offi ce sector revenue, refl ecting the impact of the disposal of the Entertainment
Building on 30 December 2005, increased by 1.6%.
Retail Sector
Although tourist spending continued to be a signifi cant source of retail consumption, strong
domestic demand on the back of favourable employment conditions and fi nancial market
performance became the key driver of rental growth in the retail sector. The Group’s retail
properties remained virtually fully let as at 31 December 2006. Renewals and new leases were
successfully concluded with satisfactory rental rates growth during the year. A 6.0% like-for-
like rental growth was recorded, since most of these renewals and new leases were completed
during the second half of the year. Such rental rate increases will be translated into a full year
contribution in 2007. Overall retail sector revenue, however, decreased slightly by 2.4% in light
of the disposal of the Entertainment Building as at the end of 2005.
2 2
HYS AN ANN UAL REPORT 2006
Residential Sector
There was a sustained demand for luxury residential properties from expatriates with more
fl exible housing budgets. Year-on-year growth was HK$23 million, up 11.0% from last year.
This was mainly due to higher occupancy (2006: 92%; 2005: 89%) and to increased rental levels
achieved for our residential units.
Property Expenses
Property expenses are the costs of providing property services directly associated with the
daily operations of our investment properties, being primarily related to utilities costs, building
operations, front-line staff wages, repairs and maintenance.
Property expenses amounted to HK$240 million (overall: up 1.3%; excluding the Entertainment
Building: up 6.7%). This was mainly attributable to the increase in utilities costs and government
rates, and higher direct costs incurred in revenue generation including agency costs, repairs and
maintenance and building refurbishment.
Overall the property expenses were maintained at 19% of turnover.
Key Indicators
Property expenses (HK$ million)
Percentage on turnover
2006
240
19%
2005
237
19%
Other Income
Other income mainly comprised dividend, interest and other receivables, which amounted
to HK$147 million (2005: HK$38 million). The increase was attributable to the recognition
of a recovery item, higher dividend income from the Group’s listed securities investment and
additional interest income derived by depositing surplus cash proceeds of the Entertainment
Building received at the end of 2005.
2 3
HYSAN ANNUAL R EPORT 2006
Operations Review
Administrative Expenses
Administrative expenses increased by HK$8 million (7.8%) over the 2005 level. This included
higher employee share option costs, which since 2005 are required to be recognised in the
income statement on a cumulative basis under the applicable accounting standards, despite the
fact that no cash outlay was involved. Other reasons included increased managerial staff costs and
pay rises in line with the market.
Fair Value Changes on Investment Properties
The Group has elected the fair value model for investment properties under the Hong Kong
Accounting Standard (“HKAS”) 40. As at 31 December 2006, the investment properties of the
Group were revalued at HK$32,473 million (2005: HK$29,815 million), by an independent
professional valuer, being 8.9% higher than the corresponding value for last year. This refl ected
further increase in rentals of the Group’s existing investment properties portfolio and the
redevelopment of the Hennessy Centre.
Excluding additions, adjustments and disposals, fair value gain on investment properties of
HK$2,576 million (2005: HK$4,226 million) were recognised in the consolidated income
statement during the year.
Investment Properties
As at 31 December 2005
Additions and adjustments
Fair value gain
Disposals
As at 31 December 2006
Fair Value
HK$ million
29,815
84
2,576
(2)
32,473
Fair Value Changes on Financial Instruments
The Group enters into hedging arrangements from time to time to hedge volatilities and pricing
risks of its treasury assets and liabilities. Positive fair value changes of HK$31 million recognised
in the income statement mainly represented the aggregate of the marked-to-market fair value
movements of these fi nancial instruments.
Net Realised Gain on Disposal of Available-For-Sale Investments
The Group has been managing its treasury assets held as long-term investments with the aim
of balancing the anticipated liquidity position, funding needs and capital gains. For this reason,
certain available-for-sale investments were disposed of during the year resulting in a net realised
gain of HK$170 million (2005: Nil). The remaining available-for-sale investment portfolio will
continue to be held as the Group’s long-term investments.
Share of Results of Associates
The Group has 23.7% and 25.0% ownership in the Shanghai Grand Gateway and the Singapore
Amaryllis Ville projects respectively.
2 4
HYS AN ANN UAL REPORT 2006
The Shanghai Grand Gateway development continued to deliver a good performance. The Group’s
share of results, excluding revaluation gains, recorded a 3.5% increase year-on-year. 100%
occupancy was recorded for the retail and offi ce properties. Satisfactory occupancy was achieved
for the residential properties, including the luxury residential and serviced apartment development
completed in 2006. Under HKAS 40, properties at Shanghai Grand Gateway have been revalued at
market value by an independent professional valuer. The Group’s share of the increase in valuation,
less the corresponding deferred tax thereon, amounted to HK$57 million (2005: HK$182 million).
The Singapore Amaryllis Ville project continued to make a small positive contribution in 2006,
refl ecting the sale of additional units and increased rental income derived from the remaining units.
Finance Costs
During 2006, sales proceeds from the Entertainment Building (completed on 30 December
2005) were used to further reduce the Group’s debt level. This led to a 23.8% reduction in
fi nance costs to HK$163 million (2005: HK$214 million), despite the progressively increasing
market interest rate. The Group also repurchased some of its fi xed rate notes and progressively
reduced the proportion of its fi xed rate borrowing as part of its interest costs management
programme. The Group’s average fi nance costs rose to 4.9% in 2006 (2005: 3.6%). Further
discussions on fi nancial management, including fi nancing policy and fi nancial risk management
are set out in the “Financial Policy” section.
Taxation
Tax provision was HK$558 million in 2006 (2005: HK$856 million) principally due to reduced
deferred tax provision relating to lower revaluation gains on investment properties and the
absence of prior year tax provision of HK$103 million.
2 5
HYSAN ANNUAL R EPORT 2006
Operations Review
Condensed Consolidated Balance Sheet as at 31 December
Investment properties
Available for sale investments – listed
Available for sale investments – unlisted
Interests in associates
Cash and bank balances
Other assets
Total assets
Borrowings
Taxation
– current
– deferred
Other liabilities
Total assets less liabilities
Shareholders’ funds
Minority interests
Adjusted shareholders’ funds
2006
HK$ million
2005
HK$ million
32,473
1,678
67
1,272
385
378
29,815
1,170
86
1,147
1,402
371
36,253
33,991
(2,821)
(4,301)
(225)
(3,349)
(950)
(198)
(2,879)
(960)
28,908
25,653
27,828
1,080
28,908
24,667
986
25,653
30,729
27,134
Change
HK$ million
2,658
508
(19)
125
(1,017)
7
2,262
1,480
(27)
(470)
10
3,255
3,161
94
3,255
3,595
%
8.9
43.4
(22.1)
10.9
(72.5)
1.9
6.7
34.4
(13.6)
(16.3)
1.0
12.7
12.8
9.5
12.7
13.2
Investment Properties
The investment properties were valued at HK$32,473 million, up by 8.9% (HK$2,658 million)
from HK$29,815 million in 2005.
Breakdown of the Group’s (i) investment properties value by sector as at year-end 2006 and
(ii) year-on-year capital growth are as follows:
Capital Value by Sector
1%
Capital Growth by Sector
(excluding property under redevelopment)
15%
19%
37%
28%
Office
Retail
Residential
Property under
redevelopment
Others
12
%
15
12
9
6
3
0
6
2
Office
Retail
Residential
Available-For-Sale Investments
Available-for-sale investments comprised principally securities listed in Hong Kong.
The Hong Kong stock market reached a record high in 2006. Total returns from the Group’s
listed securities portfolio, including both dividend income and capital value growth, were 57.3%
(2005: 31.6%). Total fair value of our listed securities portfolio as at 31 December 2006 was
HK$1,678 million (2005: HK$1,170 million).
2 6
HYS AN ANN UAL REPORT 2006
Interests in Associates
Interests in associates increased by HK$125 million (10.9%) over last year. This represented the
Group’s share of results in the Shanghai Grand Gateway and Singapore Amaryllis Ville projects.
Cash and Bank Balances
The cash and bank balances amounted to HK$385 million as at 2006 year-end (2005: HK$1,402
million), refl ecting the application of funds for debt repayment during the year.
Borrowings
The carrying amount of the Group’s gross debt stood at HK$2,821 million at 2006 year-end, a
decrease of HK$1,480 million (34.4%) from HK$4,301 million as at 31 December 2005. This
refl ected the Group’s debt reduction utilising cash fl ow from operations and the application of
sales proceeds of the Entertainment Building and equity investment.
Taxation
Provision for current taxation and deferred taxation increased to HK$3,574 million in 2006
(2005: HK$3,077 million). The net increase was made up of a HK$110 million charge for
the year, and HK$448 million related to additional deferred tax associated with investment
properties revaluation gains, reduced by tax payments of HK$61 million.
Shareholders’ Funds
Shareholders’ funds increased by 12.8% from HK$24,667 million in 2005 to HK$27,828
million in 2006, mainly attributable to results for the year and revaluation gains associated with
investment properties and listed securities portfolios. Adjusted shareholders’ funds rose from
HK$27,134 million in 2005 to HK$30,729 million in 2006.
Minority Interests
The increase of HK$94 million in minority interests was attributable to increased profi t
contribution as well as a revaluation surplus from Lee Gardens Two.
2 7
HYSAN ANNUAL R EPORT 2006
Operations Review
Contingent Liabilities
As of 31 December 2006, there were no guarantees granted to external parties, since all
outstanding guarantees relating to associates and investee companies were released during
the year.
The Group has underwritten to its associates on cash calls to fi nance working capital
requirements. Based on currently available information, management does not anticipate any
major call for cash contributions in the foreseeable future.
Critical Accounting Estimates
The preparation of fi nancial statements requires management to make judgments, estimates and
assumptions that aff ect the application of policies and reported amounts of assets and liabilities,
income and expenses. The most signifi cant estimate relates to the valuation of the Group’s
property investments. For details, please refer to note 4 to the fi nancial statements.
Capital Expenditure and Management
The Group is committed to enhancing the asset value of its investment properties portfolio
through selective re-tenanting, refurbishment, repositioning and redevelopment.
The Group also has in place a portfolio-wide whole-life cycle maintenance programme as
part of its ongoing strategy to proactively review and implement maintenance activities. The
redevelopment of Hennessy Centre, with demolition works commencing in the fourth quarter
of 2006, is on schedule. This mixed offi ce/retail complex has a projected gross fl oor area of
approximately 710,000 square feet.
Total cash outlay of capital expenditure (excluding purchase of plant and equipment) during the
review year was HK$81 million. The following graph illustrates capital expenditure patterns
during the last fi ve years:
Capital Expenditure
HK$
million
600
480
360
240
120
0
528
399
370
104
81
2002
2003
2004
2005
2006
2 8
HYS AN ANN UAL REPORT 2006
The Group has an internal control system for scrutinising capital expenditure. Detailed analysis
of expected risks and returns is submitted to division heads, executive Directors or the Board
for consideration and approval, depending on strategic importance, cost/benefi t and the size of
the projects. The criteria for assessment of fi nancial feasibility are generally based on net present
value, pay back period and internal rate of return from projected cash fl ow.
At year end, the Group had HK$3.6 billion undrawn committed bank facilities. These facilities,
together with the Medium Term Note Programme, available-for-sale investments and positive
cash fl ows from local and overseas operations, provide adequate fi nancial resources to fund the
level of planned capital expenditure, including the Hennessy Centre redevelopment project,
which the completion is expected by the end of 2009.
2 9
HYSAN ANNUAL R EPORT 2006
Operations Review
BAMBOO
GROVE
Mid-Levels
L
e
e
G
a
r
d
e
n
R
o
P
e
r
c
i
v
a
l
S
a
t
r
e
e
t
d
Hennessy Road
500
HENNESSY
ROAD
(Under redevelopment)
Yee Wo Street
Victoria Park
LEE THEATRE
PLAZA
LEIGHTON
CENTRE
ONE HYSAN
AVENUE
e
u
n
e
n A v
a
s
H y
LEE
GARDENS
TWO
AIA PLAZA
111 LEIGHTON ROAD
THE LEE
GARDENS
SUNNING
PLAZA
SUNNING
COURT
Leighton Road
N
BA MBOO GROVE 74 - 86 Ken nedy Road, M id-L evels
A luxury residential complex in the Mid Levels, Bamboo Grove underwent major
refurbishment in 2002 to enhance both the value and quality of the complex. The complex
commands panoramic views of the harbour and the greenery of the Peak, and is well served
by many different types of public transport. In addition to superb property management
services and full club house and sports facilities, tenants also enjoy personalised Resident
Services that help ensure a comfortable stay.
Total Gross Floor Area: 691,546 sq.ft.
Parking Spaces:
436
Number of Units:
345
Year Completed/Renovated: 1985/2002
LEIGHTON CE N T R E 7 7 L eighton Road, Causeway B ay
This office and retail complex enjoys close proximity to all forms of public transport. Its
central location in the Causeway Bay area makes it a much sought after location for many
professional practices. Upgrading works on building facilities were completed in 2004.
Total Gross Floor Area: 435,008 sq.ft.
Parking Spaces:
264
Number of Floors:
28
Year Completed/Renovated: 1977/2004
LEE THE AT R E PL A ZA 99 Percival St reet, Causeway B ay
Like its predecessor, Lee Theatre, the Lee Theatre Plaza is a Hong Kong landmark, being one
of the city’s most popular shopping and dining complexes, and housing many of the world’s
most famous lifestyle brands and restaurants. The building provides access to various kinds
of transport and the MTR Causeway Bay station.
Total Gross Floor Area: 317,160 sq.ft.
Year Completed:
1994
Number of Floors:
26
50 0 Hen nessy Road, Causeway B ay
Under redevelopment.
Estimated total
Projected Year of Completion: End of 2009
Gross Floor Area:
Approx. 710,000 sq.ft.
3 0
HYS AN ANN UAL REPORT 2006
Hong Kong
Stadium
ON E HYSA N AVE N UE 1 Hysa n Avenue, Causeway B ay
Located at the junction of three busy streets in the heart of Causeway Bay, this office and
retail complex enjoys a prime location with a diversity of retail facilities in the surrounding
area. The building underwent refurbishment of its external facade in 2002.
Total Gross Floor Area: 169,019 sq.ft.
Year Completed/Renovated: 1976/2002
Number of Floors:
26
THE LEE GA R DE NS 33 Hysa n Avenue, Causeway B ay
The Lee Gardens is the Group’s flagship property comprising an office tower, Manulife Plaza,
and a high end shopping centre. The development, close to the MTR Causeway Bay station,
enjoys spectacular views of the Harbour and Happy Valley and is home to many international
corporations, luxury fashion brands and renowned restaurants.
Total Gross Floor Area: 902,797 sq.ft.
Parking Spaces:
Number of Floors:
53
Year Completed:
200
1997
LEE GA R DE NS T WO 28 Yu n P i ng Road, Causeway B ay
Lee Gardens Two is an office and retail complex. The retail podium underwent a comprehensive
refurbishment in 2003 and was re launched as Lee Gardens Two. The complex is conveniently
linked to the neighbouring The Lee Gardens and is home to many international corporations,
luxury fashion brands, renowned restaurants and a children’s concept floor.
Total Gross Floor Area: 626,996 sq.ft.
Parking Spaces:
176
Number of Floors:
34
Year Completed/Renovated: 1992/renovation of retail podium
in 2003
SU N NING PL A ZA 10 Hysa n Avenue, Causeway B ay
Designed by the renowned architect I.M. Pei, Sunning Plaza greets tenants and visitors with
a spacious entrance and lift lobby. Among its retail tenants are popular food and beverage
outlets, which have established the Plaza as a hub for relaxation and social recreation.
Total Gross Floor Area: 279,717 sq.ft.
Parking Spaces:
150 (jointly with Sunning Court)
Number of Floors:
30
Year Completed:
1982
SU N NING COURT 8 Hoi P i ng Road, Causeway B ay
The 19 level Sunning Court is a unique residential tower in the dynamic Causeway Bay area.
Located in a pleasant environment with tree lined streets, and within easy reach of all forms
of relaxation and entertainment in the surrounding district, the building provides maximum
comfort for its tenants. The building underwent refurbishment of its external facade in 2003.
Total Gross Floor Area: 97,516 sq.ft.
Parking Spaces:
150 (jointly with Sunning Plaza)
Number of Units:
59
Year Completed/Renovated: 1982/2003
AIA PL A ZA 18 Hysa n Avenue, Causeway B ay
AIA Plaza is a 25 level office and retail complex at the corner of Hysan Avenue. The building
boasts a bright and spacious lobby, and houses restaurants, specialty cafes and banking
services.
Total Gross Floor Area: 139,119 sq.ft.
Year Completed:
1989
Number of Floors:
25
111 LEIGHTON ROA D 111 L eighton Road, Causeway B ay
Located in a pleasant and quieter area in the heart of Causeway Bay, 111 Leighton Road is an
ideal office location for professional and designer firms. The retail shops include a European
kitchen concept store and fashion stores.
Total Gross Floor Area: 79,905 sq.ft.
Year Completed/Renovated: 1988/2004
Number of Floors:
24
3 1
HYSAN ANNUAL R EPORT 2006
Financial Policy
We adhere to a policy of fi nancial prudence. Our objectives are to:
• maintain a strong balance sheet by actively managing debt level and cash fl ow
• secure diversifi ed funding sources from both banks and capital markets
• minimise refi nancing and liquidity risks by attaining healthy debt repayment capacity,
maturity profi le, and availability of banking facilities with minimum collateral on debt
• manage the exposures arising from adverse market movements in interest rates and foreign
exchange through appropriate hedging strategies
• monitor counter-party risks by imposing proper counter-party limits and reduce fi nancial
investment risks by holding quality marketable securities
Key Indicators
Average finance costs
2006
4.9%
2005
Movements
3.6% Interest rate hikes (the Fed fund
target rate increased by 1% in
2006)
Bank facilities : capital market issuance
25% : 75% 47% : 53% Application of sale proceeds
from the Entertainment Building
to repay bank loans
Average debt maturity
5.0 years
5.2 years No significant movement
Floating rate debt (% on total debt)
64.7%
49.8% Move towards longer term
target of 70% floating rate amid
flattened yield curve
Net interest coverage (Note 1)
6.9 times
4.6 times Lower debt level outweighs
Net debt to equity (Note 2)
Credit ratings
• Moody’s
• Standard and Poor’s
the impact of higher interest
rates
7.9%
10.7% Reduced net debt and higher
adjusted shareholders’ funds
Baa1
BBB
Baa1
BBB
Investment grade rating unchanged
Investment grade rating unchanged
Notes: (1) Gross profit less administrative expenses before depreciation divided by net interest expenses
(2) Gross debt less cash and cash equivalents divided by adjusted shareholders’ funds
The Treasury policy manual lays down the acceptable range of operational parameters and gives
guidance on the above areas in order to achieve the objective of fi nancial prudence.
Treasury has an overall objective of optimisation of borrowing costs: that is, to minimise the
fi nance costs subject to the constraints of the operational parameters. The cost of fi nancing was
4.9% for 2006.
FINA NCING
As at 31 December 2006, the total outstanding borrowings of the Group amounted to HK$2.9
billion, a decrease of 34.1% from HK$4.4 billion in 2005. All the outstanding borrowings are
on unsecured and on a committed basis. The lowered debt level was attributed to cash fl ow
3 2
HYS AN ANN UA L REPORT 200 6
from operations and the non-recurring cash receipts from the sale of Entertainment Building
and equity investment. The remaining balance of the proceeds was placed in bank deposits.
During the year, the Group has also repurchased a total nominal amount of US$18 million of
the US$200 million 10-year fi xed rate notes issued in February 2002. The repurchases were
intended to make better use of the cash and eff ectively lower the net fi nance cost of the Group.
The Group always takes a prudent approach towards managing its loan portfolio. On the
individual loan level, the Group strives to lower the borrowing margin as far as possible; but on
the portfolio level, the more important objectives are to ensure suffi cient available facilities, to
diversify the funding sources and to maintain
a suitable average tenor relative to the overall
duration of the use of the funds.
Sources of Financing at Year–End
HK$
million
6,000
The Group has also established long-term
relationships with a number of local and
overseas banks. At present, 14 local and
overseas banks have provided bilateral
banking facilities to the Group and such bank
borrowings accounted for about 25% of the
Group’s total borrowings while the remaining
75% outstanding debts were sourced from the
capital market.
4,800
3,600
2,400
1,200
0
5.3%
33.1%
37.6%
34.3%
53.0%
66.9%
60.4%
62.4%
75.3%
47.0%
24.7%
2002
2003
2004
2005
2006
Syndicated and club loans
Capital market issuances
Bank bilateral loans
LIQUIDIT Y A N D CASH BA L A NCE
The Group understands the importance of liquidity and thus places great emphasis on liquidity
management. The Group’s major sources of liquidity are from the strong recurring cash fl ows
of the business and the committed banking facilities. Further liquidity reserve is maintained
in the form of highly liquid securities listed on the Hong Kong Stock Exchange. As at
31 December 2006, the market value of these securities totalled HK$1.7 billion and the balance
of bank deposits amounted to HK$0.4 billion. Furthermore, the total undrawn committed
facilities of HK$3.6 billion as at 31 December 2006, essentially allows the Group to obtain the
same level of liquidity as holding the equivalent amount of cash.
Other measures taken against liquidity risk due to the lack of funds for repayment of maturing
debts include maintaining an evenly spread maturity profi le and reducing the concentration of
debts maturing in the near term.
As at 31 December 2006, 56.3% of the outstanding debts will only be due after fi ve years.
Furthermore, there will not be any outstanding debt maturing within the next two years.
The average maturity of the debt portfolio was about 5.0 years. Therefore, there will be no
refi nancing pressure on our outstanding debts in the next few years.
3 3
HYSAN ANNUAL R EPORT 2006
Financial Policy
The maturity profi le is as follows:
Debt Maturities
Maturing in more than two years but not more than five years
Maturing in more than five years
Total
2006
HK$ million
2005
HK$ million
1,270
1,639
2,909
1,956
2,419
4,375
Total debt at end of 2006 was HK$2.9 billion, HK$1.5 billion below the level in 2005. The
source and application drivers leading to the lower debt are analysed below:
Condensed Consolidated Cash Flow Statement
Operating activities
Cash generated from operations
Tax paid
Investing activities
Disposals less additions in investment properties
Interest and dividends received
Disposals less additions of available for sale investments
Receipts from overseas projects
Others
Financing activities
Dividends paid
Finance costs
Net decrease in borrowings
Others
2006
HK$ million
2005
HK$ million
Change
HK$ million
979
(61)
918
(80)
60
95
106
(6)
175
952
(111)
841
27
50
77
2,351
(2,431)
33
–
17
(7)
27
95
89
1
2,394
(2,219)
(482)
(144)
(407)
(200)
(1,487)
(1,248)
3
–
(2,110)
(1,855)
(75)
56
(239)
3
(255)
Net (decrease) increase in cash balances
(1,017)
1,380
(2,397)
Cash generated from operations was HK$979 million, an increase of HK$27 million from the
previous year, refl ecting a stronger business performance. HK$61 million were used to pay the
tax amount due during the year.
Net cash generated from investing activities was HK$175 million, decreased from last year by
HK$2,219 million. The change was mainly due to the disposal of Entertainment Building in 2005,
while interest and dividends received, disposals less additions of available-for-sale investments and
receipts from overseas projects increased by HK$211 million over 2005 comparatives.
Net cash used in fi nancing activities in 2006 primarily resulted from interest payment and
repayment of debt borrowings of HK$1,631 million and the payment of dividends of
HK$482 million.
3 4
HYS AN ANN UA L REPORT 200 6
IN TER E ST R ATE EX POSUR E
Interest expenses account for a signifi cant proportion of the Group’s total expenses. Therefore, the
Group monitors its interest rate exposures closely. Depending on our medium-term projections
of interest rates, an appropriate hedging strategy would be adopted to manage the exposure.
4,800
3.65%
HK$
million
6,000
Debt Levels and Borrowing Costs
The Group’s cost of fi nancing in 2006 was
4.9%. The Federal funds rate continued its
progressive 0.25% increase during the fi rst half
of 2006 and remained stable for the remainder
of the year, in line with market expectations.
The orderly increase has a fl attening eff ect
on the forward interest rate yield curve,
diminishing the fi nancial benefi t of maintaining
a high level of fi xed rate debt. For this reason,
the focus returned to our longer term target
of 30% fi xed rate debt portion, hence some of
the interest rates hedging instruments expired
in 2006 were not replaced. As a result, the
interest rate hedging ratio has decreased from 50.2% in 2005 to 35.3% in 2006.
Average Borrowing Costs
Year end Gross Debt
2.69%
2.54%
7
0
9
,
5
2
2
9
,
5
2
1
6
,
5
4
8
6
,
5
7
0
7
,
5
0
9
5
,
5
2,400
3,600
1,200
2002
2004
2003
0
Year end Net Debt
(Gross debt less cash and cash equivalents)
4.90%
3.60%
5
7
3
,
4
3
7
9
,
2
9
0
9
,
2
4
2
5
,
2
2005
2006
FOR EIGN E XCHA NGE E X POSUR E
The Group aims to have minimal mismatches in currency and does not speculate in currency
movements. With the exception of the US$182 million 10-year notes, which have been hedged
by appropriate hedging instruments, all of the Group’s other borrowings were denominated
in Hong Kong dollars. Other foreign exchange exposure relates to the investments in overseas
projects in Singapore and Shanghai. These foreign exchange exposures amounted to the
equivalent of HK$1,283 million or 3.5% of the total assets.
USE OF DERIVATIVE S
The Group uses derivatives extensively to manage the volatilities and pricing risks of its treasury
assets and liabilities, the bulk of which are related to hedging interest rate and foreign exchange
exposures. To avoid the Group being exposed to losses arising from the use of derivatives, the
potential impact of their use is evaluated thoroughly before executing the transactions.
Before entering into any hedging transaction, the Group will ensure that the counterparty
possesses strong investment-grade ratings so that the transaction will not expose the Group to
undue credit risk. As part of our risk management, a limit on maximum risk-adjusted credit
exposure is assigned to each counterparty. The level of the limit is basically in line with the credit
quality of the counterparty.
3 5
HYSAN ANNUAL R EPORT 2006
Internal Control and Risk Management
REVIEW OF GROUP IN TER NAL CON T ROL SYSTEM IN 20 06
The Committee of Sponsoring Organizations of the U.S. Treadway Commission (“COSO”) set
down the generally recognised global framework of internal control systems. Internal control is
defi ned as a process eff ected by an entity’s board, management and other personnel to provide
reasonable assurance regarding the achievement of its objectives. It has fi ve components, namely,
Control Environment, Risk Assessment, Control Activities, Information and Communications,
and Monitoring. It is important to recognise that an internal control system aims to manage
rather than eliminate risks; and to provide reasonable but not absolute assurance.
Hysan’s Board of Directors has the overall responsibility to ensure that sound and eff ective
internal control are maintained, while management is charged with the responsibility to design
and implement an internal control system.
The Group’s core operation is property leasing and management, which involves relatively
simple and well-established business processes. The Group has a well-established Control
Environment, emphasising high standards of corporate governance and business ethics. Its
Control Activities have traditionally been built on senior management reviews (with controls
being vested in the hands of a small management team); segregation of duties and physical
controls.
Management recognises that enhancement of our internal control system is necessary to support
the continual growth of the Group. In terms of management style, we also aim to move towards
a culture based on systematic and structured control principles.
In this light, management has undertaken a phased review project on Group internal control
system during 2006 and has enhanced its internal control system in the following ways:
• Strengthening the Control Environment: management takes the view that this forms the
foundation of internal control by setting the tone across the organization.
• Formalising and documenting policies and procedures for all key operational, fi nancial
reporting and compliance functions.
• Requiring department managers to undergo a detailed self-risk assessment process using
a common risk management framework, with facilitation and assistance from a reputable
international accounting fi rm (“Independent Advisor”).
• Engaging the Independent Advisor to assess and report on the adequacy and eff ectiveness of the
established internal control arrangements by performing independent reviews and testings.
Integrity and ethical value
Importance of the Board of Directors
CON T ROL E N VIRONME N T
The Group’s Control Environment has the following components:
•
•
• Management’s philosophy and operating style
• Levels of authority and responsibility
• Human resources policies
3 6
HYS AN ANN UA L REPORT 200 6
R i s k Assessment
Determine impact
of such identified
risks on the
achievement
of corporate
objectives
C o n t
i n u ous Improvement
Identify and
analyse risks to
achievement of
corporate
objectives
Determine
how each of the
other internal control
components, both
separately and together,
mitigate such risks
Specify Corporate
Objectives
Refine corporate
objectives based on
changes potentially
impacting the
business
Hysan’s internal control
system:
• is designed to ensure
corporate objectives are
achieved
• has five components that
work together
E
E
x
x
a
a
m
m
i
i
n
n
e
e
o
o
p
p
p
p
o
o
r
r
t
t
u
u
nities for improvement in c o n t
nities for improvement in c o n t
e f f e
e f f e
r o l
r o l
y
y
c
c
n
n
e
e
i
i
c
c
i
i
f
f
f
f
e
e
d
d
n
n
c tive ness a
c tive ness a
Monitoring
• Independent review by
Independent Advisor
in 2006
• Will set up internal
audit function in 2007
Information and
Communication
Implement and operate
information and
communication to
support internal control
Control Activities
• Documented key
control policies
and processes
• Facilitation by
Independent
Advisor
Control Environment
• Strong tradition of
emphasising good
corporate governance
• Strengthened human
resources policies
Determine
Effectiveness
The Group has in place a formal Code of Ethics emphasising the key principles of “respect
for people”, “ethics and business integrity” and “meeting our responsibility”. Guidelines on
specifi c areas including corporate and fi nancial reporting, confl icts of interest, personal benefi ts,
relations with suppliers and contractors have been issued. As part of the Group’s staff orientation
programme, new personnel are informed of our Code of Ethics, corporate mission, and
objectives. We also provide periodically updated information and seminars to serve as a constant
reminder to staff . Relevant documents are also posted on our intranet, providing easy access
for all. Suspected breaches of the Code of Ethics are reported directly to the Head of Human
Resources (instead of business lines), who in turn reports to the Managing Director.
The Board and management are committed to maintaining high standards of corporate
governance. The Board continually enhances its eff ectiveness in fulfi lling its stewardship role
including monitoring management performance. Details are set out in the separate Corporate
Governance Report (page 44).
Management recognises the signifi cance to address the possibility of management overriding
established control policies and procedures. This is particularly important during this early
stage of the Group’s formalisation of key policies and procedures, and in the context of a
family-controlled company. Formal and specifi c guidelines stating the need to have minimal
management overrides are communicated in meetings, which are then issued across the
organisation.
3 7
HYSAN ANNUAL R EPORT 2006
Internal Control and Risk Management
The Group has formalised and strengthened certain key Human Resources policies to further
enhance the eff ectiveness of internal control. Development of people and of their competence,
as well as segregation of duties in key people management activities including staff hiring
and termination are emphasised. The recruitment process stresses eff ectiveness as well as
transparency, thereby ensuring appropriate checks-and-balances between business lines and
Human Resources department. Disciplinary and grievance policies are set out with transparent
procedures and appropriate levels of line authority. Instances involving breaches of Code of
Ethics will be handled independently of business line management. These policies have been
communicated, reinforced and monitored across the organization during the review year.
CON T ROL ACTIVITIE S A N D RISK ASSE SSME N T
In pursuit of the objective to move towards a culture based on systematic and structured control
principles, including allowing appropriate delegation of routine transactions while minimizing
policy exceptions and overrides, management has further enhanced the Group’s internal control
system in 2006 by taking the following steps:
• Mapping control processes: management has conducted an entity-wide exercise to map all
key control processes to appropriate control objectives, as derived from the Group’s Mission
Statement, strategic management objectives, fi nancial/general operational controls.
• Establishing ownership: process owners are identifi ed who have the responsibility of ensuring
that controls exist and are in operation.
• Updating policies and procedures: the process owners are also responsible for documenting
and updating the relevant policies in light of self-risk assessment. A document called “risk
register” is created which sets out the main strategic and operational risks that have been
identifi ed, and how these are managed. The process owners are responsible for maintaining
the relevant risk registers.
• Setting up functional groups or committees: specifi c focus groups or committees on certain
areas of control are engaged once the objectives and principles are established. Examples are
the budget review committees.
This exercise was accomplished in combination with a self-risk assessment process, which
allowed line managers to make a more informed decision as to whether certain policies would
need further refi nement. The Independent Advisor was engaged to conduct facilitated workshops
and interviews to assist department managers in performing the self-risk assessment. The
process owner has to assess the likelihood of the relevant risk occurring, in accordance with the
Group’s risk management framework.
The Managing Director and the Chief Financial Offi cer report the results of their review of the
risk registers to the Audit Committee and to the Board.
3 8
HYS AN ANN UA L REPORT 200 6
As a result of the Independent Advisor’s review, certain potential improvement areas were
identifi ed. These include the further strengthening of segregation of duties as well as the checks-
and-balances system. Management has adopted all the recommendations and established clear
timelines for implementation. Progress will be reported to the Audit Committee and the Board.
MONITORING
In the absence of an internal audit function, the Independent Advisor was engaged to perform an
agreed review and testings. No major defi ciencies were identifi ed.
The Group’s external auditors, Deloitte Touche Tohmatsu, have audited the fi nancial statements
for the year ended 2006 and have reviewed the internal control systems to the extent that they
considered necessary to support their audit report.
Management has reviewed the need for and planned to establish an internal audit function
during 2007. The scope of work of internal auditors, unlike that of the external auditors,
is not restricted to risks relating to fi nancial statements. The internal auditors will perform
independent reviews and provide the Audit Committee and the Board with an objective view as
to the adequacy and eff ectiveness of the internal control systems established by management.
This plan is also endorsed by the Independent Advisor.
COM MU NICATION
The signifi cance of internal control and risk management is communicated to staff members
by way of internal meetings, updates and workshops. The risk assessment workshops facilitated
by the Independent Advisor also raised the risk awareness of line managers. Moving forward,
communication will be a key area of focus with the aim of further strengthening general risk
awareness across the organisation.
Management also plans to engage an independent service provider, with direct reporting line
to the Audit Committee, to monitor the whistle-blowing system under the Code of Ethics.
This should make staff feel even more comfortable and protected should they want to express
concerns involving the management.
In general, the establishment of a whistle-blowing system and an internal audit function refl ects
management’s commitment to further strengthening our Control Environment.
COMPLIA NCE WITH CODE OF COR POR ATE GOVER NA NCE R EQUIR EME N TS
Directors acknowledge their responsibility for the Group’s internal control systems and confi rm
they have reviewed and are satisfi ed as to its eff ectiveness in managing risks. In doing so, the
Board has taken note of management’s reports and the fi ndings of the review performed by the
Independent Advisor.
Management has adopted the Independent Advisor’s recommendations aimed at further
strengthening the Group’s internal control, which is a continual process. Actions are in progress
in accordance with established timelines.
3 9
HYSAN ANNUAL R EPORT 2006
Board of Directors and Senior Management
ST RUCT UR E
THE BOA R D
CHAIR M A N
M A NAGING DIR ECTOR
Audit Committee
Emoluments Review Committee
Nomination Committee
Investment Committee
Finance
Corporate Services
Property
Investment
Property
Services
Property
Development
CHAIR M A N
Peter Ting Chang LEE (I, chairing N)
J.P.
IN DEPE N DE N T NON-EX ECU TIVE
DEPU T Y CHAIR M A N
Sir David AKERS-JONES (N, chairing A, E)
G.B.M., K.B.E., C.M.G., J.P.
NON-EX ECU TIVE DIR ECTORS
Fa-kuang HU (E)
G.B.S., C.B.E., J.P.
Hans Michael JEBSEN (I)
B.B.S.
Anthony Hsien Pin LEE (chairing I)
Chien LEE (A)
Dr. Deanna Ruth Tak Yung RUDGARD
M A NAGING DIR ECTOR
Michael Tze Hau LEE (I)
IN DEPE N DE N T NON-EX ECU TIVE
DIR ECTORS
Per JORGENSEN (A)
Dr. Geoff rey Meou-tsen YEH (E, N)
S.B.S., M.B.E., J.P., D.C.S., M.Sc., F.C.I.O.B., F.Inst.D.
EXECUTIVE DIRECTOR
Pauline Wah Ling YU WONG
COMPA N Y SECR ETA RY
Wendy Wen Yee YUNG
(A) Audit Committee
(E) Emoluments Review Committee
(N) Nomination Committee
(I) Investment Committee
4 0
HYS AN ANN UA L REPORT 200 6
BOA R D OF DIR ECTORS
PETER TING CHA NG LEE
Chairman (I, chairing N) J.P.
Mr. Lee joined the Board in 1988, became Managing Director in 1999, and Chairman
in 2001. He is a non executive director of Cathay Pacific Airways Limited, CLP Holdings
Limited, Hang Seng Bank Limited, SCMP Group Limited, Maersk China Limited, and a
director of a number of other companies. He is also vice president of the Real Estate
Developers Association of Hong Kong. He is a member of the founding Lee family and a
director of Lee Hysan Estate Company, Limited, a substantial shareholder of the Company.
Mr. Lee holds a Bachelor of Science Degree in Civil Engineering from the University of
Manchester and is also qualified as a Solicitor of the Supreme Court of England and Wales.
He is aged 53.
SIR DAVID A K ERS -JON E S
Independent non-executive Deputy Chairman (N, chairing A, E) G.B.M., K.B.E., C.M.G., J.P.
Sir David is Chairman of GAM Hong Kong Limited, Deputy 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. He received his Master of Arts Degree at Oxford
University. He was formerly the Chief Secretary of Hong Kong. He was appointed a Director
in 1989 and became the Deputy Chairman in 2001. He is aged 79.
MICHA EL TZE HAU LEE
Managing Director (I)
Mr. Lee joined the Board in 1990, became Chief Operating Officer in 2002, and Managing
Director in 2003. He is a member of the Main Board and Growth Enterprise Market Listing
Committees of The Stock Exchange of Hong Kong Limited, a member of the Securities and
Futures Commission (HKEC Listing) Committee, a non executive director of Tai Ping Carpets
International Limited, a director of Equestrian Events (Hong Kong) of the Games of the XXIX
Olympiad Company Limited, and a Steward of Hong Kong Jockey Club. He is a member of
the founding Lee family and a director of Lee Hysan Estate Company, Limited, a substantial
shareholder of the Company. Mr. Lee received his Bachelor of Arts Degree from Bowdoin
College and his Master of Business Administration Degree from Boston University. He is
aged 45.
FA-KU A NG HU
Non-executive Director (E) G.B.S., C.B.E., J.P.
Mr. Hu is Honorary Chairman of Ryoden Development Limited. He is also an independent
non executive director of i CABLE Communications Limited. Mr. Hu holds a Bachelor of
Science Degree from Shanghai Jiao Tong University. He was appointed a non executive
Director in 1979 and is aged 83.
HA NS MICHA EL JEBSE N
Non-executive Director (I) B.B.S.
Mr. Jebsen is Chairman of Jebsen and Company Limited as well as a director of other Jebsen
Group companies worldwide. He is also an independent non executive director of The Wharf
(Holdings) Limited. He was appointed a non executive Director in 1994 and is aged 50.
4 1
HYSAN ANNUAL R EPORT 2006
Board of Directors and Senior Management
PER JORGE NSE N
Independent non-executive Director (A)
Mr. Jorgensen is a director of A.P. Moller Maersk A/S, Denmark and a number of
A.P. Moller Maersk companies in Asia, Africa and Europe. He was appointed a non executive
Director in 1981 and as Independent non executive Director in 2000. He is aged 71.
A N THON Y HSIE N PIN LEE
Non-executive Director (chairing I)
Mr. Lee is 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. He is also a director of Australian listed Mariner
Financial Limited, a Sydney based financial services group. He received a Bachelor of Arts
Degree from Princeton University and a Master of Business Administration Degree from
The Chinese University of Hong Kong. Mr. Lee is a member of the founding Lee family and a
director of Lee Hysan Estate Company, Limited, a substantial shareholder of the Company.
He was appointed a non executive Director in 1994 and is aged 49.
CHIE N LEE
Non-executive Director (A)
Mr. Lee is a private investor and a non executive director of a number of companies including
Swire Pacific Limited and Television Broadcasts Limited. He is a member of the founding Lee
family and a director of Lee Hysan Estate Company, Limited, a substantial shareholder of the
Company. Mr. Lee 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. Mr. Lee was appointed a non executive Director in 1988 and is
aged 53.
DR. DE A N NA RU TH TA K Y U NG RUDGA R D
Non-executive Director
Dr. Rudgard received a Master of Arts Degree, Bachelor of Medicine and of Surgery Degree
from Oxford University. She is a member of the founding Lee family and a director of
Lee Hysan Estate Company, Limited, a substantial shareholder of the Company. She was
appointed a non executive Director in 1993 and is aged 67.
DR. GEOFFR EY MEOU-TSE N YEH
Independent non-executive Director (E, N) S.B.S., M.B.E., J.P., D.C.S., M.Sc., F.C.I.O.B., F.Inst.D.
Dr. Yeh is former Chairman of Hsin Chong Construction Group Ltd. He is currently an
independent non executive director of China Travel International Investment Hong Kong
Limited. He holds a Bachelor of Science Degree from University of Illinois and a Master of
Science Degree from Harvard University. Dr. Yeh was appointed a non executive Director in
1979 and as Independent non executive Director in 2001. He is aged 75.
PAULIN E WAH LING Y U WONG
Executive Director
Mrs. Wong is responsible for the Group’s investment properties activities. 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 30 years
of experience in the property field. She was appointed a Director in 1991 and is aged 58.
4 2
HYS AN ANN UA L REPORT 200 6
From left to right: John Che Kong HO (Group Financial Controller)(cid:18)(cid:2)Ricky Tin For TSANG (Chief Financial Officer),
Michael Tze Hau LEE (Managing Director), Peter Ting Chang LEE (Chairman), Pauline Wah Ling YU WONG (Executive Director),
Wendy Wen Yee YUNG (Company Secretary), Alex Chun Wan LUI (Senior Advisor, Urban Design and Architectural Services)
SE NIOR M A NAGEME N T
RICKY TIN FOR TSA NG Chief Financial Offi cer
Mr. Tsang is responsible for the Group’s finance. He holds a Master’s Degree in Engineering from Oxford
University, is qualified as a Chartered Accountant with the Institute of Chartered Accountants in England and
Wales and is a Fellow of Hong Kong Institute of Certified Public Accountants. Mr. Tsang is also a member of the
Association of Corporate Treasurers in the United Kingdom. Prior to joining the Group in 2004, he held senior
business and finance positions with leading financial institutions in Hong Kong and the United Kingdom. He has
extensive experience in management and finance including risk management, treasury and financial control. He
is aged 45.
W E N DY W E N Y EE Y U NG Company Secretary
Ms. Yung is responsible for the Group’s corporate services including legal and secretarial, human resources and
administration, as well as corporate communications. A solicitor by training, she holds a Master of Arts Degree
from Oxford University. Ms. Yung is also a Member of the Hong Kong Institute of Certified Public Accountants. She
sits on the Hong Kong Selection Committee of the Rhodes Scholarships, and a number of committees of the Hong
Kong Institute of Certified Public Accountants and the Hong Kong Institute of Chartered Secretaries respectively.
Prior to joining the Group in 1999, she was a partner of an international law firm in Hong Kong. She is aged 45.
A LEX CHU N WA N LUI Senior Advisor, Urban Design and Architectural Services
Mr. Lui is responsible for the Group’s urban design and architectural services. He is a Registered Architect
and an Authorised Person (Architect). He holds a Master’s Degree in City Planning from the Massachusetts
Institute of Technology and a Bachelor of Architecture Degree from The University of Hong Kong. Before joining
the Group in 2002, he was Professor in Architecture at the Chinese University of Hong Kong and has practised
architecture and urban design for almost 30 years in Hong Kong, Singapore and the USA. He is aged 63.
JOHN CHE KONG HO Group Financial Controller
Mr. Ho is responsible for the Group’s financial and reporting affairs. He holds a Master of Business
Administration Degree from the Chinese University of Hong Kong, and is a Fellow of the Association of Chartered
Certified Accountants and the Hong Kong Institute of Certified Public Accountants. He is also a Chartered
Management Accountant of The Chartered Institute of Management Accountants. Prior to joining the Group
in 2005, he held financial controller positions with leading construction companies and had over 10 years of
auditing experience with an international accounting firm. He is aged 39.
4 3
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
ACCOU N TA BILIT Y, T R A NSPA R E NCY, IN T EGRIT Y
The Board and management of the Group are committed to maintaining high standards of
corporate governance. Underlying this commitment is our aim to be a responsible business. To
Hysan, governance is not an exercise in compliance but a more powerful concept. The Board,
as representative of our shareholders, is responsible for achieving consistent and sustainable
long-term returns. We believe that such long-term success is only made possible by eff ective
governance. The cornerstones of our corporate governance practices are accountability,
transparency, and integrity.
Best Practices in Corporate Governance in Place at Hysan
Exceeded Code
Provisions
Hysan’s Corporate Governance Practices
The Board first established a formal Corporate Governance Policy in 2004.
The Board has formally designated a “senior” Independent non executive Director,
Sir David Akers Jones, who currently serves as Independent non executive Deputy
Chairman. [NEW]
The Board has established formal mandates and responsibilities for itself, with clear
division of roles with management. [NEW]
The Board has established formal criteria and requirements for non executive director
appointments. [NEW]
Board evaluation: Chairman and non executive Directors meet at regularly scheduled
sessions without presence of management.
The Group has established a Corporate Disclosure Policy to guide its communications
with its stakeholders in order to ensure consistent and timely disclosure. [NEW]
The Group has demonstrated its commitment to transparency in shareholder
reporting by publishing a separate Corporate Governance Report since 2001. This
year, we have introduced a Corporate Responsibility Report. [NEW]
In 2004 the Group introduced a new form of annual general meeting (“AGM”) that
went beyond discharging statutory business. A detailed business review session led by
the Chairman and Managing Director was established.
The Group has initiated and funded a programme inviting major nominee companies
to pro actively forward communication materials to shareholders at its expense.
The Group has a written Code of Ethics applicable to all staff.
P
P
P
P
P
P
P
P
P
P
4 4
HYS AN ANN UA L REPORT 200 6
CODE PROVISIONS COMPLIANCE
The Group has complied throughout the review year with the Code Provisions contained in
the Code on Corporate Governance Practices (the “Corporate Governance Code”) set out in
Appendix 14 of the Rules (the “Listing Rules”) Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (“Stock Exchange”), except that its Emoluments Review
Committee (established since 1987) has the responsibility for determining executive Director
compensation. In light of the current organisational structure and the relatively simple nature
of Hysan’s business activities, the Board regards the current arrangements for the Emoluments
Review Committee to determine executive Director compensation as appropriate.
FOCUS IN 2006 AND CORPORATE GOVERNANCE REPORTING
Hysan’s governance model seeks to combine the best of family ownership and professional
management. We take the view that the element of family ownership can enable managers to
take a long-term view in decision-making, whilst balancing short-term targets. We recognize,
however, that appropriate checks-and-balances must be built in.
In this light, we further strengthened our governance structure during 2006. New measures
included establishing formal mandates for the Board and for the “senior” Independent
non-executive Director, as well as setting down clear criteria for non-executive Director
appointments.
We recognize that eff ective governance does not stop at Board level. The Board must delegate
to other executives, who in turn implement policies across the organisation. We therefore place
strong emphasis on fostering an appropriate corporate culture across the Group. During the
year, we began to formalize and communicate a set of corporate values to guide our staff in all
their actions.
The quality of disclosure has also been enhanced, notably in regard to Board activities, Board
appointments, and internal control, all as a result of feedback from analysts.
Detailed information on our governance structure and practices are set out in the following
separate reports:
• Corporate Governance Report
• Audit Committee Report (Page 70)
• Directors’ Remuneration and Interests Report (Page 63)
• Report on Internal Control and Risk Management (Page 36)
Further information relating to our underlying corporate values, and exchange of views with our
“senior” Independent non-executive Director and analysts respectively are set out in a separate
Corporate Responsibility Report.
4 5
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
1. HYSAN’S GOVERNANCE MODEL
Hysan’s governance model is based on an eff ective combination of family ownership and
professional management. Our founding shareholding family remains a major shareholder
today. We take the view that this element of family ownership can enable managers to take
a long-term view in decision-making, balancing the need to produce short-term results
or earnings targets. In general, family owners also have a direct interest in the outcome of
decisions made.
This family ownership model is combined with a commitment to apply the principle of
meritocracy in human resources management across the Group. Recruitment of professional
management staff from outside the controlling shareholder base ensures that a wide net is
cast for talent. Appropriate checks-and-balances are also built into our governance structure.
These include the designation of a “senior” Independent non-executive Director and various
board committees. The roles and responsibilities of the Board, non-executive Directors, and
Board Committees are clearly delineated.
AU THORIT Y
Delegation through
• clear policies and
procedures
• monitoring
SHA R EHOLDERS
BOA R D
M A NAGEME N T
ACCOU N TA BILIT Y
Assurance through
checks and balances:
• monitoring
• reporting
2. HOW OUR BOARD GOVERNS THE GROUP
Corporate Governance Framework
K EY GOVER NA NCE DOCU ME N TS
There are many guidelines, policies, and procedures that support the governance
framework at Hysan. The following documents are reviewed periodically and constitute key
components of Hysan’s governance framework. They are available at www.hysan.com.hk.
• Corporate Governance Guidelines
• Board of Directors Mandate
• Role requirements of non-executive Directors
• Terms of Reference of various corporate governance-related Board
Committees (Audit, Emoluments, and Nomination Committees)
• Code of Ethics for Employees
• Auditor Services Policy
• Corporate Disclosure Policy
To discharge its governance function in the most eff ective manner, the Board has laid down rules
for its own activities in a set of Corporate Governance Guidelines.
4 6
HYS AN ANN UA L REPORT 200 6
The guidelines covers:
• Mission of the Board
• Board appointment and induction
• Board Leadership: Chairman, Managing Director and “senior” Independent non-
executive Director
• “Independence” standards for outside Directors
• Board authorities, delegations and discretions
• Board compensation review
• Board access to senior management; availability of information
• Meeting procedures
• Governance-related Board Committees
N EW: FOR M A L BOA R D OF DIR ECTORS M A N DATE
The Board is responsible for the stewardship of the Group and is accountable for ensuring
that the Group and its subsidiaries are managed in such a way as to achieve the objective of
prudent stewardship. The Board’s responsibility is, fi rstly, to formulate strategy and, secondly,
to monitor and control operating and fi nancial performance in pursuit of the Group’s strategic
objectives. The Board established a formal Board of Directors Mandate in 2007 setting
out its key responsibilities in fulfi lling such stewardship roles. These include the following:
DU TIE S A N D OBLIGATIONS
The Board must understand and meet the duties and performance standards expected of it
under applicable regulatory requirements.
ST R ATEGIC PL A N NING
The Board establishes, oversees and receives regular updates on the strategic direction, plans
and priorities of the Group, and ensures that the Group has the necessary fi nances, people
and systems in place to meet its objectives.
IN TER NA L CON T ROL A N D RISK M A NAGEME N T
The Board monitors and assesses procedures implemented to identify the principal risks of
the Group’s business, receiving frequent updates on the same.
CULT UR E A N D VA LUE S
The Board promotes the culture of integrity and transparency and other corporate values.
CA PITA L M A NAGEME N T
The Board considers and approves Group activities relating to major capital expenditures,
allocation of resources among the Group’s lines of business, and other major fi nancial activities.
COR POR ATE GOVER NA NCE
The Board promotes the highest standards of corporate governance.
BOA R D SUCCE SSION
The Board continually assesses and evaluates the skills and expertise needed on the Board.
4 7
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
Matters Reserved For Board Decision
The roles of the Board and of the management are separate and distinct. The Board’s role is not
to manage business, which responsibility remains vested in management. Board responsibility is
to test and question management, and to monitor progress.
The Board and management fully appreciate their respective roles and are supportive of the
development of a healthy corporate governance culture.
The Board has in place a list of key matters that are to be retained for full Board decision
including transactions with connected persons. These matters include:
• Long-term objectives and strategies
• Extension of Group activities into new business areas
• Annual budgets
• Preliminary announcements of interim and fi nal results
• Dividends
• Material banking facilities
• Material acquisitions and disposals
• Connected Transactions
• Annual internal control assessment and
• Appointments to the Board following recommendations by the Nomination Committee
Where applicable, the “materiality” thresholds are based on Listing Rules requirements but
they are set at lower levels, which means more stringent monetary levels.
Board Focus in 2006
During 2006, the Board paid considerable attention to the development of the Group’s
future growth strategy. Succession planning was considered in this light and the principle
of meritocracy was formally established as the guiding principle of human resources
management across the organisation. Formal role requirements for new director
appointments were established. The Board also reviewed the Group’s internal control
systems, which are moving towards an approach based on established principles and policies
rather than concentration of power in the hands of a small number of management personnel.
In this light, the Board strengthened the Board infrastructure, including formalising a Board
Mandate which sets out the Board’s key responsibilities.
4 8
HYS AN ANN UA L REPORT 200 6
The Board held four meetings in 2006. Details of Directors’ attendance records are as follows:
Executive Directors
Peter T.C. Lee
Michael T.H. Lee
Pauline W.L. Yu Wong
Independent non executive Directors
Sir David Akers Jones
Per Jorgensen
Dr. Geoffrey M.T. Yeh
Non executive Directors
Fa kuang Hu
Hans Michael Jebsen
Anthony H.P. Lee
Chien Lee
Dr. Deanna R.T.Y. Rudgard
Attendance (%)
100
100
100
100
75
100 (50 by alternate)
100
75 (75 by alternate)
100
100
100 (25 by alternate)
3. WHO IS ON THE BOARD
The Board is composed of three executive and eight non-executive Directors. The Board is
actively engaged in succession planning issues for both executive and non-executive roles.
Diversity
Hysan’s Board members bring an appropriately diverse set of experience, competencies,
skills and judgment to the Board. From our experience, diversity of background and
experience contributes to more eff ective Board deliberations.
Skill/Experience of the Hysan Board Members
Executive Directors
• Top management (overall strategic direction and daily operations of Hysan) –
Peter T.C. Lee (Chairman) and Michael T.H. Lee (Managing Director)
• Business line – Pauline W.L. Yu Wong (Executive Director)
Independent non executive Directors
• Civil service – Sir David Akers Jones (Independent non executive Deputy Chairman)
• Multi national corporations/global exposure – Per Jorgensen
• Related business (construction) – Dr. Geoffrey M.T. Yeh
Non executive Directors
• Related business (real estate and investment) – F.K. Hu
• Trading companies/global exposure – Hans Michael Jebsen
• Finance and investment – Chien Lee and Anthony H.P. Lee
• Professional – Dr. Deanna R.T.Y. Rudgard
Directors’ biographies are set out on pages 41 and 42.
4 9
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
BEST CORPORATE
GOVERNANCE DISCLOSURE
AWARDS 2006
NON-HANG SENG INDEX
CATAGORY – GOLD AWARD
ORGANISED BY THE HONG KONG
INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS
“THE 2005 REPORT OF HYSAN, IN A NUMBER
OF WAYS, SETS A BENCHMARK FOR LISTED
COMPANIES GENERALLY... IN A NUMBER
OF ASPECTS, THE COMPANY’S CORPORATE
GOVERNANCE PRACTICES EXCEED THE
STANDARDS LAID DOWN BY THE CODE”
EXTRACTED FROM JUDGES’ REPORT
4. BOARD INDEPENDENCE
Independence
The Board has established “independence” standards as contained in the Corporate
Governance Guidelines. It considers “independence” as a matter of judgment and conscience.
A Director is considered independent only where he is free from any business or other
relationship that might interfere with the exercise of his independent judgment.
The Board makes a determination concerning the “independence” of a Director each year
at the time the Board approves Director nominees for inclusion in the AGM circular. If a
Director joins the Board mid-year, the Board makes a determination on the new Director’s
independence at that time.
Currently, the Group has three Independent non-executive Directors who are identifi ed in
our Annual and Interim Reports and other communications with shareholders.
Dr. Geoff rey M.T. Yeh, Independent non-executive Director seeking re-election at this year’s
AGM, has served the Board for more than nine years. Dr. Yeh has clearly demonstrated
his willingness to exercise independent judgment and to provide objective challenges to
management. There is no evidence that length of tenure is having an adverse impact on
his independence. The Board therefore considers that Dr. Yeh remains independent, not-
withstanding the length of his tenure.
5. DIRECTOR APPOINTMENTS AND RE-ELECTION
Requirements
The Nomination Committee is responsible for recommending candidates to the full Board
for consideration. The Committee and, in turn, the Board reviews the skill set of the
Director candidates as well as the Board as a whole. In 2007, the Board formalised the role
requirements of non-executive Directors.
5 0
HYS AN ANN UA L REPORT 200 6
N EW: FOR M A L ROLE R EQUIR EME N TS OF NON-EX ECU TIVE DIR ECTORS
The Board considers that its non-executive Directors have four key roles in addition to
requirements applicable to all Directors:
ST R ATEGY
Non-executive Directors should constructively challenge, hence help develop proposals on
strategy.
PERFOR M A NCE
Non-executive Directors should scrutinise the performance of management in meeting
agreed goals and objectives.
RISK
Non-executive Directors should satisfy themselves on the integrity of fi nancial information
and also that controls and systems of risk management are robust.
PEOPLE
Non-executive Directors are responsible for determining appropriate levels of remuneration
for executive Directors and for succession planning.
In terms of requirements, a non-executive Director must demonstrate the necessary time
commitment to discharge his role eff ectively. He must also take all reasonable actions
to avoid potential confl icts of interest and disclose any that may arise. In addition, an
Independent non-executive Director must maintain his own independence as measured
by the independence criteria for non-executive Directors agreed by the Board under its
Corporate Governance Guidelines and applicable regulations.
Term
Non-executive Directors are appointed for a term of three years, with the qualifi cation that
new Directors are required to submit themselves for re-election at the fi rst AGM following
their appointment. The Group’s Articles of Association contains provisions regarding rotation
of Directors so that every Director will be subject to retirement by rotation at least once
every three years. Retiring Directors are subject to re-election at the general meeting at
which they retire.
5 1
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
6. SERVING AS A DIRECTOR: INDUCTION, SUPPLY OF INFORMATION AND EVALUATION
Induction and Update
The Chairman, with the assistance of the Company Secretary, is responsible for the induction
of new Board members. Directors receive induction on their appointment to the Board as
appropriate, covering matters such as the operation and activities of the Group, the role of
the Board and the matters reserved for its decision, the tasks and membership of the principal
Board Committees, the powers delegated to those Committees, the Board’s governance
policies and practices, and the latest fi nancial information about the Group. On their
appointment, Directors are advised on the legal and other duties and obligations they have as
directors of a listed company.
Our Directors are updated on Hysan’s business, the environment in which it operates and
other matters throughout their period in offi ce. The Board regularly considers the implications
of their duties as directors of listed companies under the Board’s governance policies.
Supply of Information
The Board receives detailed quarterly reports from Managing Director, Executive Director
and Chief Financial Offi cer in respect of their areas of responsibility. Appropriate key
performance indicators are used to facilitate benchmarking and peer group comparison.
Financial plans, including budgets and forecasts, are regularly discussed at Board meetings.
From time to time, the Board also receives presentations, including from non-Board
management members, on issues of signifi cance or on new opportunities for the Group.
The non-executive Directors and the Chairman regularly meet without executives being
present. Non-executive Directors also have access to non-Director management staff where
appropriate. These ensure that the Board will be given the answers it needs.
In terms of the Board process, non-executive Directors are given ample opportunity to add
items to the agenda of Board meetings.
“THE INCLUSION OF COMPANIES
INCLUDING HYSAN ON THE TOP 10 LIST
DISPELS THE PREVAILING MYTH THAT
FAMILY-CONTROLLED COMPANIES DO NOT
HAVE GOOD CORPORATE GOVERNANCE.”
PROFESSOR STEPHEN CHEUNG YAN LEUNG
PROFESSOR (CHAIR) OF FINANCE AT CITY
UNIVERSITY OF HONG KONG
RATED TOP 10
COMPANIES WITH BEST
CORPORATE GOVERNANCE
SURVEY ON CORPORATE
GOVERNANCE OF HONG KONG
LISTED COMPANIES 2006 –
JOINTLY PRESENTED BY
THE HONG KONG INSTITUTE
OF DIRECTORS AND CITY
UNIVERSITY OF HONG KONG
5 2
HYS AN ANN UA L REPORT 200 6
During the year, there were discussions on the diff erent information needs of the Board and
Board Committees in terms of content, timing and format. For instance, there will be a
greater focus on technical details in the information provided to Audit Committee members
as compared to that provided to the full Board for their respective reviews of the Group’s
internal control systems.
Evaluation
Since 2005, Hysan has in place a formal process of Board evaluation. The process takes the
form of meetings between the Chairman and non-executive Directors without management
being present, which meetings are held at least once a year. Two meetings were held in 2006.
The Board regards such meetings as a forum in which a broad range of strategic and
performance matters may be openly discussed.
7. BOARD LEADERSHIP: THE CHAIRMAN, MANAGING DIRECTOR AND “SENIOR”
INDEPENDENT NON-EXECUTIVE DIRECTOR
Peter T.C. Lee serves as the Chairman and Michael T.H. Lee serves as the Managing Director.
The Chairman focuses on Group strategic and Board issues. The Managing Director has
overall chief executive responsibility for Group operations and general development. Sir
David Akers-Jones acts as the Independent non-executive Deputy Chairman of the Board,
and he also chairs two of Hysan’s corporate governance related committees, namely the Audit
Committee and the Emoluments Review Committee. The presence of an Independent non-
executive Deputy Chairman is designed to ensure that the Board functions eff ectively and is
independent of management where appropriate.
N EW: THE “SE NIOR” IN DEPE N DE N T NON-E X ECU TIVE DIR EC TOR
In 2007, the Board formalized the role of the “senior” Independent non-executive Director
in its Corporate Governance Guidelines.
The “senior” Independent non-executive Director’s role is to be available to shareholders
and fellow Directors if they have concerns relating to matters that contact through the
normal channels of Chairman and/or Managing Director has failed to resolve, or for which
such contact is inappropriate.
8. ACCOUNTABILITY TO SHAREHOLDERS
Corporate Reporting
Disciplined measurement of our performance is an important aspect of our strategy to
achieve long-term success. Reporting fi nancial and non-fi nancial results in a transparent
fashion is critical, recognising that we are accountable to our stakeholders. A number of
formal communication channels are used to account to shareholders for the performance of
the Group. These include the Annual Report and Accounts, Interim Report and Accounts and
press releases/announcements.
5 3
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
The Board and management are committed to promoting consistent disclosure practices
aimed at accurate, timely and broadly disseminated disclosure of material information about
Hysan. We have established a new Corporate Disclosure Policy, which provides guidance for
coordinating the disclosure of material information to investors, analysts and media as well as
our processes for results announcements. This policy also identifi es who may speak on Hysan’s
behalf, and outlines the responsibility for communications with various stakeholder groups.
Internal Control Review
The Board’s governance policies include a process for the Board to review regularly the
eff ectiveness of the system of internal control as required by the Code. As part of this
process, the Board and the Audit Committee requested, received and reviewed reports from
management at their regular meetings. These reports enabled them to assess the eff ectiveness
of the system of internal control in operation for managing signifi cant risks, including
operational, fi nancial reporting and compliance risks, throughout the year.
A detailed report is set out on pages 36 to 39.
9. OTHER SHAREHOLDER COMMUNICATIONS
Constructive Use of AGMs
The Board welcomes moves towards a more constructive use of AGMs and treats them as
one of the principal avenues to enter into a dialogue with shareholders based on mutual
understanding of objectives. Since 2004, we have introduced a “business review” session
in addition to the statutory part of the meeting. This session is led by the Chairman and
Managing Director. Topics covered at the last AGM included: Year 2005 overall business
environment; governance and social responsibilities; achievements during the year; business
activities review and outlook. The arrangements were positively received by shareholders.
Hysan also exceeded Code Provisions in conducting the statutory business of the AGM in a
number of ways. Copies of the Annual Report and fi nancial statements and related papers
were dispatched to shareholders at least 35 days prior to the AGM (statutory requirement:
21 days). A comprehensive yet user-friendly AGM circular was prepared containing detailed
reports on voting procedures (including procedures for demanding a poll) presented in
a user-friendly “frequently-asked-questions-and-answers” format; and comprehensive
information on each resolution to be proposed was provided. The Chairman also demanded a
poll on all resolutions proposed.
Self-funded Programme to Forward Shareholder Communication Materials via
Nominee Companies
There is currently no requirement in Hong Kong providing for mandatory forwarding of
shareholder communication materials by nominee companies to benefi cial shareholders.
Since 2005, we have initiated and funded a programme inviting major nominee companies to
5 4
HYS AN ANN UA L REPORT 200 6
pro-actively forward communication materials to shareholders at our expense. Coverage of
the programme has extended by more than double since inception.
Institutional Shareholders
Hysan is committed to maintaining a continuing open dialogue with institutional investors
and analysts in order to raise understanding and awareness of the Group’s strategy,
operations, management and plans. Under the programme in 2006, the Managing Director
and/or Chief Financial Offi cer participated in regular one-on-one meetings and roadshows in
Hong Kong as well as overseas.
10. BOARD COMMITTEES
The Corporate Governance Guidelines allocate the tasks of monitoring executive actions and
assessing performance to certain governance-related Board Committees. All such committees
have a majority of Independent non-executive Directors. In common with the Board, each
Committee has access to independent advice and counsel as required and each is supported
by the Company Secretary.
A. Audit Committee
Composition and Meetings Schedule
Hysan’s Audit Committee is chaired by Sir David Akers-Jones, Independent non-executive
Deputy Chairman and has a majority of Independent non-executive Directors. Its other
members are Per Jorgensen (Independent non-executive Director) and Chien Lee (non-
executive Director). All members have experience in reviewing or analysing audited fi nancial
statements of public companies or major organisations. The Audit Committee meets no less
than twice a year. Meetings are also attended by invitation by the Managing Director and
Chief Financial Offi cer. The Committee held two meetings in 2006 with 100% attendance.
5 5
HYSAN ANNUAL R EPORT 2006
Corporate Governance Report
Roles and Authority
Hysan believes that crucial to the eff ective functioning of an audit committee is a clear
appreciation of the separate roles of management, the external auditors and Audit Committee
members. Hysan management is responsible for selecting the appropriate accounting policies
and the preparation of the fi nancial statements. The external auditors are responsible for
auditing and attesting to the Group’s fi nancial statements and evaluating the Group’s system
of internal control to the extent that they consider necessary to support their audit report.
The Audit Committee, as the delegate of the full Board, is responsible for overseeing the
entire process.
Activities and Report in 2006
Full details are set out in the “Audit Committee Report” on pages 70 and 71.
B. Emoluments Review Committee
Composition and Meetings Schedule
The Group set up an Emoluments Review Committee in 1987 to review executive Director
compensation. The Committee is chaired by Sir David Akers-Jones, Independent non-
executive Deputy Chairman, with a majority of Independent non-executive Directors.
Its current members are F.K. Hu, non-executive Director and Dr. Geoff rey M.T. Yeh,
Independent non-executive Director. The Committee generally meets at least once every
year. There was 100% attendance for the meeting held in 2006.
Role and Authority
Management makes recommendations to the Committee on Hysan’s framework for,
and cost of, executive Director remuneration and the Committee then reviews these
recommendations. No Director or any of his associates is involved in deciding his own
remuneration.
Activities and Report in 2006
Full details are set out in the “Directors’ Remuneration and Interests Report” on pages 63
to 69.
C. Nomination Committee
Composition
In March 2005, the Board established a Nomination Committee, which is chaired by
Peter T.C. Lee, Chairman of the Board, and its other members are Sir David Akers-Jones,
Independent non-executive Deputy Chairman, and Dr. Geoff rey M.T. Yeh, Independent non-
executive Director. The Committee meets when considered appropriate.
Role and Authority
The Committee has the responsibility of nominating for Board approval candidates to fi ll
Board vacancies as and when they arise and of evaluating the balance of skills, knowledge and
experience of the Board.
5 6
HYS AN ANN UA L REPORT 200 6
Directors’ Report
The Directors submit their report together with the audited financial statements for the year ended 31 December 2006, which
were approved by the Board of Directors on 6 March 2007.
PRINCIPAL ACTIVITIES
The principal activities of the Group continued throughout 2006 to be property investment, management and development.
Details of the Group’s associates and principal subsidiaries at 31 December 2006 are set out in notes 18 and 38 respectively
to the financial statements.
An analysis of Group’s turnover is set out in note 6 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 Chairman’s Statement and
Management’s Discussion and Analysis of the Annual Report.
RESULTS AND APPROPRIATIONS
The results of the Group for the year ended 31 December 2006 are set out in the consolidated income statement on page 74.
An interim dividend of HK10 cents per share amounting to HK$105,460,624 was paid to shareholders during the year.
The Board of Directors recommends the payment of a final dividend of HK40 cents per share with a scrip alternative to the
shareholders on the register of members on 8 May 2007, absorbing HK$422,054,964. The ordinary dividends proposed and
paid in respect of the full year 2006 will absorb HK$527,515,588, 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 the consolidated statement of
changes in equity on pages 78 and 79 and note 30 to the financial statements respectively.
INVESTMENT PROPERTIES
All of the Group’s investment properties were revalued by an independent professional valuer at 31 December 2006. The
revaluation resulted in a surplus as compared to carrying amount of HK$2,575,610,978 and is recognised in the consolidated
income statement.
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.
Details of the major investment properties of the Group at 31 December 2006 are set out in the section under “Schedule of
Principal Properties” of the Annual Report.
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
15 to the financial statements.
SHARE CAPITAL
During the year, the Company issued a total of 1,876,568 ordinary shares. Details of movements in the share capital of the
Company are set out in note 29 to the financial statements.
CORPORATE GOVERNANCE
The Company is committed to maintaining a high standard of corporate governance and, save as otherwise stated and
explained in the Corporate Governance Report, has complied throughout the year with the code provisions of the Code on
Corporate Governance Practice (the “Code”) as set out in Appendix 14 of the Rules Governing the Listing of Securities (the
“Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).
Further information on the Company’s corporate governance practices is set out in the following separate reports:
(a) “Corporate Governance Report” (page 44) – it gives detailed information on the Company’s compliance with the Code, and
adoption of local and international best practices;
(b) “Directors’ Remuneration and Interests Report” (page 63) – it gives detailed information of Directors’ remuneration and
interests (including information on Director’s compensation, service contracts, Directors’ interests in shares; contracts
and competing business);
5 7
HYSAN ANNUAL R EPORT 2006
Directors’ Report continued
CORPORATE GOVERNANCE continued
(c) “Audit Committee Report” (page 70) – it sets out terms of reference, work performed and findings of the Audit Committee
for the review year;
(d) “Report on Internal Control and Risk Management” (page 36) – it sets out the Company’s framework on internal control
and risks assessment including methodology, control activities, work done during the year and further steps to be done;
(e) “Corporate Responsibility Report” – it sets out the Company’s corporate values and Corporate Responsibility Policy
underlying its commitment to maintaining a high standard of corporate governance.
THE BOARD
The Board currently comprises Peter T.C. Lee, Chairman, Michael T.H. Lee, Managing Director and Pauline W.L. Yu Wong,
Executive Director and eight other non executive Directors. Sir David Akers Jones acts as the Independent non executive
Deputy Chairman, also chairing the corporate governance committees, namely, the Audit Committee and Emoluments Review
Committee. The biographies of the Directors as at the date of this Report appear on pages 41 and 42.
Under the Company’s current Articles of Association, one third (or such other number as may be required under applicable
legislation) of the Directors; and where the applicable number is not an integral number, to be rounded upwards, who have
been longest in office shall retire from office by rotation. Details on Board changes effective as from the conclusion of the
forthcoming Annual General Meeting (“AGM”) including particulars of Directors seeking re-election at the AGM are set out in
the accompanying circular to shareholders.
On 12 April 2006, Timothy John Smith was appointed as alternate Director for Per Jorgensen in place of Charles Gary Wellins.
Save as the aforesaid, Raymond Liang ming Hu, Li Kam Wing and V nee Yeh served as alternate Directors throughout the year.
The Company has received from each Independent non executive Director an annual confirmation of his independence
pursuant to Rule 3.13 of the Listing Rules and the Company considered all of them to be independent.
DIRECTORS’ INTERESTS IN SHARES
Details of Directors’ interests in shares of the Company are set out in Directors’ Remuneration and Interests Report on pages
63 to 69.
SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS IN SHARES
As at 31 December 2006, the interests or short positions of Substantial Shareholders and Other Persons of the Company, in
the shares of the Company as recorded in the register required to be kept under section 336 of the Securities and Futures
Ordinance (“SFO”), or as otherwise notified to the Company, were as follows:
Aggregate long positions in shares and underlying shares of the Company
Name
Capacity
Lee Hysan Estate Company, Limited
Beneficial owner and
interests of controlled
corporations
No. of ordinary
shares held
433,130,735
(Note 1)
Lee Hysan Company Limited
Interests of controlled
corporations
433,130,735
(Note 1)
% of the issued
share capital *
41.05
41.05
* The percentages have been compiled based on the total number of shares of the Company in issue as at 31 December 2006 (i.e.
1,055,137,409 ordinary shares).
Note: (1) These interests represent the same block of shares of the Company. 270,118,724 shares were held by Lee Hysan Estate Company,
Limited (“LHE”) and 163,012,011 shares were held by certain subsidiaries of LHE. LHE is a wholly owned subsidiary of Lee Hysan
Company Limited.
Apart from the above, no other interest or short position in the shares or underlying shares of the Company were recorded in
the register required to be kept under section 336 of the SFO as at 31 December 2006.
5 8
HYS AN ANN UA L REPORT 200 6
RELATED PARTY TRANSACTIONS
The Group entered into certain transactions with parties regarded as “Related Parties” under applicable accounting principles.
These mainly relate to contracts entered into by the Group 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 to the financial statements.
Some of these transactions also constitute “Continuing Connected Transactions” under the Listing Rules, as identified below.
CONTINUING CONNECTED TRANSACTIONS
Certain transactions entered into by the Group constituted continuing connected transactions (the “Transactions”) under the
Listing Rules. Details of the Transactions are set out as follows:
I. Lease granted by the Group
(a) Lee Gardens Two, 28 Yun Ping Road, Hong Kong (“Lee Gardens Two”)
The following lease arrangements were entered into by Barrowgate Limited, a 65.36% subsidiary of the Company and
property owner of Lee Gardens Two, as landlord with the following connected persons:
Connected person
Date of
agreement
Terms
Premises
Annual
consideration
(Note 1)
(i) Jebsen and
Company
Limited (Note 2)
10 September 2003 4 years
commencing from
1 September 2003
Office units
at 28th
to 31st Floors
2006: HK$14,138,718
2007: HK$ 9,572,328
(on pro rata basis)
(ii) Hang Seng Bank
3 September 2004 2 years and
Limited (Note 2)
(iii) Hang Seng Bank
Limited
7 June 2006
(Note 3)
16 days
commencing from
15 September 2004
3 years
commencing from
1 October 2006
Shop units
at Ground
Floor and
Basement
Shop units at
Ground Floor
and Lower
Ground Floor
(iv) MF Jebsen
International
Limited (Note 4)
23 April 2004
and a
Supplemental
Deed of
12 July 2004
4 years commencing Office units
from 1 February 2004 at 24th and
25th Floors
and 3 years and
7 months
commencing from
1 July 2004
2006: HK$ 7,377,192
(on pro rata basis)
2006: HK$ 3,296,994
(on pro rata basis)
2007: HK$13,267,560
2008: HK$13,267,560
2009: HK$ 9,950,670
(on pro rata basis)
2006: HK$ 6,286,699
2007: HK$ 6,596,532
2008: HK$ 549,711
(on pro rata basis)
(v) Chickeeduck Retail 18 December 2003 3 years
(Hong Kong)
Limited (Note 5)
commencing from
7 November 2003
Shop units on the 2006: HK$ 1,115,900
(on pro rata basis)
Second Floor
5 9
HYSAN ANNUAL R EPORT 2006
Directors’ Report continued
CONTINUING CONNECTED TRANSACTIONS continued
I. Lease granted by the Group continued
(b) Bamboo Grove, 7486 Kennedy Road, Hong Kong (“Bamboo Grove”)
The following leases were entered into by Kwong Wan Realty Limited, a wholly owned subsidiary of the Company
and property owner of Bamboo Grove as landlord, with Lee Hysan Estate Company, Limited (“Lee Hysan Estate”),
a substantial shareholder of the Company (holding 41.05% interest) and Atlas Corporate Management Limited, a
wholly owned subsidiary of Lee Hysan Estate. Details of the leases are set out below:
Connected person
Date of
agreement
Terms
Premises
(i) Lee Hysan Estate 12 January 2004
Company,
Limited (Note 6)
(ii) Lee Hysan Estate 9 November 2005
Company,
Limited
2 years
commencing from
16 January 2004
2 years
commencing from
1 November 2005
An apartment
and
2 carparking
spaces
An apartment
and
1 carparking
space
Annual
consideration
(Note 1)
2006: HK$ 52,011
(on pro rata basis)
2006: HK$2,644,800
(Note 7)
(iii) Atlas Corporate
Management
Limited (Note 8)
14 December 2005 2 years
(Formal tenancy
agreement
executed on
5 January 2006)
commencing from
16 January 2006
An apartment
and
2 carparking
spaces
2006: HK$1,706,575
(on pro rata basis)
(Note 9)
(c) One Hysan Avenue, Causeway Bay, Hong Kong
The following lease arrangement was entered into by OHA Property Company Limited, a wholly owned subsidiary of
the Company and property owner of One Hysan Avenue, with Atlas Corporate Management Limited. Details of the
lease are set out below:
Connected person
Date of
agreement
Terms
Premises
Atlas Corporate
Management
Limited
9 November 2005
3 years
commencing from
1 November 2005
Whole of
21st Floor
Annual
consideration
(Note 1)
2006: HK$1,378,518
2007: HK$1,397,664
2008: HK$1,164,720
(on pro rata basis)
II. Provision of leasing and property management services to a non wholly owned subsidiary regarding Lee Gardens Two
The following management agreements were entered into by Hysan Leasing Company Limited and Hysan Property
Management Limited, both being wholly owned subsidiaries of the Company, with Barrowgate Limited for the provision
of services to Lee Gardens Two, including (i) leasing, marketing and lease administration services; and (ii) property
management services:
Terms
Premises
Annual
consideration
from 1 April 2004
3 years commencing Whole premise of HK$13,667,068 (i)
and
HK$2,224,452 (ii)
(Note 10)
(renewable for a
further 3 years)
Lee Gardens Two
Connected person
Barrowgate
Limited
Date of
agreement
25 February 2004
and a
Supplemental
Appointment
Letter of
19 July 2004
6 0
HYS AN ANN UA L REPORT 200 6
CONTINUING CONNECTED TRANSACTIONS continued
Notes:
(1) The annual consideration are based on current rates of rental and operating charges and (for retail premises) promotional levies for
each of the relevant financial years. The rental and operating charges and promotional levies (as the case may be) are payable monthly
in advance.
(2) Jebsen and Company Limited and Hang Seng Bank Limited are beneficial substantial shareholders of Barrowgate Limited having
equity interest of 10% and 24.64% respectively in Barrowgate Limited.
(3) This is a renewal of the lease mentioned under I(a)(ii) above.
(4) MF Jebsen International Limited is considered a connected person by virtue of its being a company controlled by an associate of a
non executive Director of the Company.
(5) Chickeeduck Retail (Hong Kong) Limited is considered a connected person by virtue of its being a company controlled by an associate
of a non executive Director of the Company. The lease expired on 6 November 2006 and was not renewed.
(6) The lease expired on 15 January 2006. A new lease for the same premise was entered by Atlas Corporate Management Limited (see
I(b)(iii) for details).
(7) The monthly management fees were revised with effect from 1 January 2007 while the rental remained unchanged. The annual
consideration based on current rates for the rental and management fees for the financial year of 2007 in relation to the remaining
term of the lease is HK$2,221,900.
(8) This is a new lease of the same premise mentioned in I(b)(i) above.
(9) The monthly management fees were revised with effect from 1 January 2007 while the rental remained unchanged. The annual
consideration based on current rates for the rental and management fees for each of the financial year of 2007 and 2008 in relation
to the remaining term of the lease are HK$1,792,920 and HK$72,295 respectively.
(10) These represent the actual considerations for the year ended 31 December 2006, calculated on the basis of the fee schedules as
prescribed in the respective management agreements.
All the Transactions were entered in the ordinary and usual course of business of the respective companies after due
negotiations on an arm’s length basis with reference to the prevailing market conditions.
Announcements were published regarding the Transactions (other than that referred to in section I(a)(v)) in accordance with
the Listing Rules. The Stock Exchange has granted a waiver for the Transactions referred to in section I(a)(iv) and section
II above by virtue of Rule 14A.42 from strict compliance with the requirements of Rules 14A.35, 14A.45 to 14A.47 of the
Listing Rules on condition that details of the Transactions be included in the Company’s subsequent published annual report
for financial years in which the relevant Transactions are subsisting.
Pursuant to Rule 14A.38 of the Listing Rules, the Board of Directors engaged the auditors of the Company to perform
certain agreed upon procedures in respect of the Transactions of the Group to assist the Directors to evaluate whether the
Transactions:
1. have received the approval from the Board of Directors;
2. were in accordance with the pricing policies of the Company where the Transactions involve provision of goods and services
by the Company;
3. have been entered into in accordance with the agreement governing such Transactions; and
4. have not exceeded the cap stated in the relevant announcements.
6 1
HYSAN ANNUAL R EPORT 2006
Directors’ Report continued
CONTINUING CONNECTED TRANSACTIONS continued
The auditors have reported their factual findings on these procedures to the Board of Directors that the samples the auditors
selected for the Transactions were in agreement in respect of items 1, 3 & 4 above and that according to the samples the
auditors selected, in respect of item 2, the rent charged to the connected persons were either the same or fall within or
slightly above the range of rental offered to independent third parties. All Independent non executive Directors of the Company
have reviewed the Transactions and the report of the auditors and confirmed that the respective contracts and terms of the
Transactions are:
1. in the ordinary and usual course of business of the Company;
2. on normal commercial terms; and
3. in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the commercial
interests of the Group as a whole.
INTEREST IN CONTRACTS OF SIGNIFICANCE
The lease arrangement between Barrowgate Limited, a non wholly owned subsidiary, and Jebsen and Company Limited
also constitutes a contract of significance due to the annual consideration of the lease having a percentage ratio of 1.1%
from the calculation of the revenue test (the percentage ratio for assets ratio and consideration ratio are 0.04% and 0.07%
respectively). Details of the transaction are set out under I (a)(i) of Continuing Connected Transactions.
MAJOR CUSTOMERS AND SUPPLIERS
The aggregate turnover attributable to the Group’s five largest customers was less than 30% of total turnover.
Details of the Group’s transactions with its major suppliers during the year are set out below:
The largest supplier
Five largest suppliers in aggregate
Percentage of the
Group’s total purchases
16%
32%
Save otherwise disclosed, no Director, their associates or shareholders (which to the knowledge of the Directors own more
than 5% of the Company’s issued share capital) were interested, at any time during the year, in the Group’s five largest
suppliers.
PURCHASES, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES
During the year, neither the Company nor its subsidiaries had purchased, sold or redeemed any of the Company’s listed
securities.
PUBLIC FLOAT
Based on the information that is publicly available to the Company and within the knowledge of the Directors, the Company
has maintained the prescribed amount of public float during the year and up to the date of this report as required under the
Listing Rules.
DONATIONS
During the year, the Group made donations totalling HK$1,693,790 for charitable and non-profit-making organisations.
AUDITORS
A resolution for the re appointment of Messrs. Deloitte Touche Tohmatsu as auditors of the Company is to be proposed at the
forthcoming AGM.
By order of the Board
Peter T.C. Lee
Chairman
Hong Kong, 6 March 2007
6 2
HYS AN ANN UA L REPORT 200 6
Directors’ Remuneration and Interests Report
DIRECTOR COMPENSATION
Executive Director emoluments
The Board first established the Emoluments Review Committee in 1987 to review and determine the remuneration of executive
Directors.
The Committee is chaired by Sir David Akers Jones, Independent non executive Deputy Chairman, and has a majority of
Independent non executive Directors. Its other members are F.K. Hu and Dr. Geoffrey M.T. Yeh (Independent non executive
Director).
Management 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 or Managing Director may be invited to Committee meetings. No Director is involved in deciding his own
remuneration.
The Group’s remuneration policy seeks to provide a fair market remuneration in a form and value to attract, retain and
motivate high quality staff and at the same time to reflect the importance of aligning awards with shareholder interests.
Remuneration packages are set at levels to ensure comparability and competitiveness with Hong Kong based companies
competing within a similar talent pool, with particular emphasis on the property industry. Independent professional advice will
be sought to supplement internal resources where appropriate.
Following a review completed in November 2003 by the Committee, the Company has developed a policy that involves top
management (the Chairman and Managing Director) having a remuneration package consisting of several remuneration
components. The fixed part of the package is a combination of basic salary and benefits. The proportion of performance
based compensation has been increased under this new structure. In addition, there are arrangements for a long term
incentive plan. The new levels of remuneration, taking effect as from December 2003, reflected comparator market
information and advice from independent consultants (Watson Wyatt Hong Kong Limited). Such salary levels would be
reviewed by the Committee on an annual basis.
The Committee met in March 2006 to review the executive Director compensation packages. There was 100% attendance
without any executive Director presence. Details are set out in note 7 to the financial statements. The most recent meeting of
the Committee was held in March 2007 to review executive Director compensation packages.
Details of Directors’ (including individual executive Directors) emoluments and options are set out in notes 7 and 37
respectively to the financial statements.
Non executive Director emoluments
The Directors’ fees are subject to shareholder approval at general meeting. The non executive Directors (including the
Independent non executive Directors) received fees totalling HK$1,100,000 and the Independent non executive Deputy
Chairman received a total annual fee of HK$230,000 for 2006 (Please refer to note 7 to the financial statements).
Taking into consideration the level of responsibility, experience and abilities required of the Directors, and fees offered for
similar positions in comparable companies, new levels of Directors’ fees were reviewed and approved at the AGM held on 10
May 2005:
Board of Directors
Chairman
Deputy Chairman
Director
Audit Committee
Chairman
Member
Other Committees
Chairman
Member
Per annum
HK$
140,000
120,000
100,000
60,000
30,000
30,000
20,000
6 3
HYSAN ANNUAL R EPORT 2006
Directors’ Remuneration and Interests Report continued
DIRECTOR COMPENSATION continued
Non executive Director emoluments continued
The non executive Directors received no other compensation from the Group except for the fees disclosed above.
None of the non executive Directors receive any pension benefits from the Company, nor do they participate in any bonus or
incentive scheme.
Long term incentives: Share Option Schemes
The Company has granted options under two executive share option schemes. The purpose of both schemes was to
strengthen the link between individual staff and shareholder interests. The power of grant to executive Directors is vested in
the Emoluments Review Committee and endorsed by all Independent non executive Directors as required under the Listing
Rules. As approved by the Board, either the Chairman or the Managing Director may make grants to management staff below
executive Director level.
Key terms of the share option schemes of the Company are summarised as follows:
The 1995 Share Option Scheme (“the 1995 Scheme”)
The 1995 scheme was approved by shareholders on 28 April 1995 and had a term of 10 years. It expired on 28 April 2005.
All outstanding options granted under the 1995 Scheme will continue to be valid and exercisable in accordance with the
provisions of the 1995 Scheme.
As at 31 December 2006, shares issuable under options granted under the 1995 scheme was 1,751,333, representing less
than 0.17% of the issued share capital of the Company.
The maximum entitlement of each participant is substantially below the limit set out under the scheme rules (being 25%
of the maximum number of shares in respect of which options may at any time be granted under the 1995 Scheme). The
exercise price was initially fixed at 80% of the average of the closing prices of the shares on the Stock Exchange for the
20 trading days immediately preceding the date of grant or the nominal value of a share whichever is the greater. The
exercise price for options granted after 1 September 2001 was amended to comply with amendments to the Listing Rules.
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.
Grants made prior to 8 March 2005 are subject to a five year vesting period and a bar on the exercise of options within the
first two years of their issue.
The 2005 Share Option Scheme (“the 2005 Scheme”)
The Company adopted a new share option scheme (the “2005 Scheme” and together with the 1995 Scheme are referred to as
“the Schemes”) at the AGM held on 10 May 2005, which has a term of 10 years and will expire on 9 May 2015.
The maximum number of shares in respect of which options may be granted under the 2005 Scheme and any other share
option scheme of the Company shall not exceed such number of shares as required under the Listing Rules, currently being
10% of the shares in issue (being 104,996,365 shares) as at 10 May 2005, the date of the AGM approving the 2005 Scheme.
Under the Listing Rules, a listed issuer may seek approval by its shareholders in general meetings for “refreshing” the 10%
limit under the scheme. The limit on the number of shares which may be issued upon exercise of all outstanding options
granted and yet to be exercised under the 2005 Scheme and any other share option scheme of the Company must not exceed
30% of the shares in issue from time to time (or such number of shares as required under the Listing Rules). No options may
be granted if such grant will result in this 30% limit being exceeded.
The maximum entitlement of each participant under the 2005 Scheme must not during any 12 month period exceed such
number of shares as required under the Listing Rules (which is 1% of the total shares in issue as at the date of shareholders’
approval). The exercise price shall be at least the highest of (i) the closing price of the shares as stated in the Stock
Exchange’s daily quotations sheet on the date of grant; (ii) the average of the closing prices of the shares as stated in the
Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the
nominal value of the shares. Consideration to be paid on each grant of option is HK$1.00, with full payment for exercise price
to be made on exercise of the relevant option.
6 4
HYS AN ANN UA L REPORT 200 6
DIRECTOR COMPENSATION continued
Long term incentives: Share Option Schemes continued
Grant and vesting structures
With effect from 8 March 2005, the Board has approved a new grant and vesting structure. Grants will be made on a periodic
basis. Vesting period is three years in equal proportion. Size of grant will be determined by reference to base salary multiple
and job grades. A clear performance criterion will be a key driver. The Board will review the grant and vesting structures from
time to time.
Grant movements during the year
During the year, a total of 659,000 shares options were granted under the 2005 Scheme.
As at 31 December 2006, an aggregate of 2,830,333 shares are issuable under options granted under the Schemes,
representing approximately 0.27% of the issued share capital of the Company.
As at the date of this Report, 99,277,765 shares are issuable under the Schemes, regarding options granted which remain
unexercised and options to be granted under the 2005 Scheme, representing 9.41% of the issued share capital.
Details of options granted and outstanding under the Schemes during the year are as follows:
Changes during the year
Name
1995 Scheme
Executive Director
Peter T.C. Lee
(Note 1)
Balance
as at
1.1.2006
Date of
grant
Granted Exercised
Cancelled/
Balance
as at
lapsed 31.12.2006
Exercise
price
HK$
Exercise
period
1,350,000
7.1.1999
Nil
Nil
Nil 1,350,000
9.22
7.1.2001 –
6.1.2009
Eligible employees
(Note 2)
535,000 30.3.2005
Nil 128,267
(Note 4)
5,400
(Note 5)
401,333
15.85 30.3.2005 –
29.3.2015
2005 Scheme
Executive Director
Michael T.H. Lee
(Note 3)
240,000 10.5.2005
Nil
Nil
Nil
240,000
Nil 30.3.2006 188,000
Nil
Nil
188,000
16.60 10.5.2005 –
9.5.2015
22.00 30.3.2006 –
29.3.2016
(Note 7)
Eligible employees
(Note 2)
144,000
9.8.2005
Nil 48,000
(Note 6)
Nil
96,000
18.79
9.8.2005 –
8.8.2015
120,000 12.10.2005
Nil
Nil
Nil
120,000
18.21 12.10.2005 –
11.10.2015
Nil 30.3.2006 361,000
Nil
36,000
(Note 5)
325,000
22.00 30.3.2006 –
29.3.2016
(Note 7)
Nil 26.6.2006 110,000
Nil
Nil
110,000
20.11 26.6.2006 –
25.6.2016
(Note 8)
2,389,000
659,000 176,267
41,400 2,830,333
6 5
HYSAN ANNUAL R EPORT 2006
Directors’ Remuneration and Interests Report continued
DIRECTOR COMPENSATION continued
Long term incentives: Share Option Schemes continued
Grant movements during the year continued
Notes:
(1) Options granted to Peter T.C. Lee were under the 1995 Scheme with a holding period of 2 years and a vesting period of 5 years.
(2) Eligible Employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance. The options granted under the Schemes have vesting periods of 3 years in equal proportions.
(3) Options granted to Michael T. H. Lee were under the 2005 Scheme with a vesting period of 3 years in equal proportions.
(4) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was
HK$22.09.
(5) These options lapsed during the year upon the resignation of certain Eligible Employees.
(6) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was
HK$21.00.
(7) The closing price of the shares of the Company immediately before the date of grant (as of 29 March 2006) was HK$22.45.
(8) The closing price of the shares of the Company immediately before the date of grant (as of 23 June 2006) was HK$20.25.
Apart from the above, the Company had not granted any share option under the Schemes to any other persons as required to
be disclosed under Rule 17.07 of the Listing Rules.
Particulars of the Company’s share option schemes are set out in note 37 to the financial statements.
Value of share options
Pursuant to Rule 17.08 of the Listing Rules, the value of the share options granted during the year is as follows to be
expensed through the Group’s income statement over the three year vesting period of the options.
The Company has used the Black Scholes option pricing model (the “Model”) to value the share options granted during the
year. The Model is one of the commonly used models to estimate the fair value of an option. The value of an option varies
with different variables of certain subjective assumptions. Any change in the variables so adopted may materially affect the
estimation of the fair value of an option.
Details of the fair values of share options determined at the date of grant using the Model with significant variables and
assumptions are as follows:
Closing share price at the date of grant
Risk free rate (Note 1)
Expected life of option (Note 2)
Expected volatility (Note 3)
Expected dividend per annum (Note 4)
Date of grant
30.3.2006
26.6.2006
HK$22.00
HK$20.00
4.539%
4.915%
10 years
(till 29 March 2016) (till 25 June 2016)
10 years
27.04%
32.00%
HK$0.390
HK$0.392
Estimated fair values of options granted
HK$4,271,220
HK$859,247
6 6
HYS AN ANN UA L REPORT 200 6
DIRECTOR COMPENSATION continued
Long term Incentives: Share Option Schemes continued
Value of share options continued
Notes:
(1) Risk free rate: being the approximate yields of 10 year Exchange Fund Notes traded on the date of grant, matching the expected life of
each option.
(2) Expected life of option: being the period of 10 years commencing on the date of grant, adjusted based on management’s best estimates
for the effects of non transferability, exercise restriction and behavioural consideration.
(3) Expected volatility: being the approximate historical volatility of closing prices of the share of the Company in the past one year
immediately before the date of grant.
(4) Expected dividend per annum: being the approximate average annual cash dividend for the past five financial years.
SERVICE CONTRACTS
No Director proposed for re election at the forthcoming AGM has a service contract with the Company or any of its
subsidiaries 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 2006, the interests and short positions of the Directors and Alternate Director in the shares, underlying
shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and
Futures Ordinance (“SFO”)) as recorded in the register required to be kept under section 352 of the SFO; or as otherwise
notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed
Issuers (“Model Code”), are set out below:
Aggregate long positions in shares and underlying shares of the Company
Name
Personal
interests
Family
interests
Corporate
interests
Other
interests
% of the
issued
share capital *
Total
No. of ordinary shares held
Peter T.C. Lee
2,000,000
Michael T.H. Lee
1,023,233
Fa kuang Hu
–
Hans Michael Jebsen
60,000
Per Jorgensen
6,726
Chien Lee
850,000
Deanna Ruth Tak Yung 1,871,600
Rudgard
Pauline Wah Ling Yu
Wong
194,000
Geoffrey Meou tsen Yeh
256,702
V nee Yeh
(alternate to Geoffrey
Meou tsen Yeh)
43,259
–
–
–
–
–
–
–
–
–
–
–
–
255,012
(Note 1)
2,432,914
(Note 2)
–
–
–
–
–
–
–
–
–
2,000,000
0.190
1,023,233
0.097
255,012
0.024
–
2,492,914
0.236
–
–
–
–
–
–
6,726
0.001
850,000
0.081
1,871,600
0.177
194,000
0.018
256,702
0.024
43,259
0.004
* This percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,055,137,409 ordinary shares) as at
31 December 2006.
6 7
HYSAN ANNUAL R EPORT 2006
Directors’ Remuneration and Interests Report continued
DIRECTORS’ INTERESTS IN SHARES continued
Aggregate long positions in shares and underlying shares of the Company continued
Notes:
(1) 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.
(2) Such shares were held through a corporation in which Hans Michael Jebsen was a member entitled to exercise no less than one third of
the voting power at general meeting.
Certain executive Directors of the Company have been granted share options under the Company’s Share Option Schemes
(details are set out in the section headed “Long term incentives: Share Options Schemes” above). These constitute interests in
underlying shares of equity derivatives of the Company under the SFO.
Aggregate long positions in shares of associated corporations
Listed below are certain Directors’ interests in the shares of Barrowgate Limited (“Barrowgate”), a 65.36% subsidiary of the
Company, and Parallel Asia Engineering Company Limited (“PAECL”), a 25% associate of the Company.
Name
Hans Michael Jebsen
Fa kuang Hu
Raymond Liang ming Hu
(alternate to Fa kuang Hu)
No. of ordinary shares held
Corporate
interests
Other
interests
% of the
issued
share capital
Total
1,000
–
1,000
10 (Note 1)
–
–
5,000
5,000
50 (Note 2)
5,000
5,000
50 (Note 2)
Notes:
(1) Jebsen and Company Limited (“Jebsen and Company”) held a 10% interest in the issued share capital in Barrowgate through a
wholly owned subsidiary. Hans Michael Jebsen was deemed to be interested in the shares of Barrowgate by virtue of being the controlling
shareholder of Jebsen and Company.
(2) Ryoden Development Limited (“Ryoden Development”) held a 50% interest in the issued share capital in PAECL through a wholly owned
subsidiary. Fa kuang Hu and Raymond Liang ming Hu were deemed to be interested in the shares of PAECL by virtue of their interests as
a founder and/or beneficiaries of a discretionary trust which had an indirect controlling interest in Ryoden Development.
Apart from the above, no other interest or short position in the shares, underlying shares or debentures of the Company or
any associated corporations as at 31 December 2006 were recorded in the register required to be kept under Section 352 of
the SFO; or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.
Compliance of the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”)
The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules as its own code of conduct regarding
Director’s securities transactions. All Directors have confirmed, following specific enquiry by the Company, that they have
complied with the required standards set out in the Model Code throughout the review year.
DIRECTORS’ INTERESTS IN CONTRACTS
During the review year, certain Directors are parties to contracts with the Group. These contracts constitute Related Party
Transactions, Connected Transactions or Contracts of Significance under applicable accounting or regulatory rules (details are
disclosed in the Directors’ Report).
6 8
HYS AN ANN UA L REPORT 200 6
DIRECTORS’ INTERESTS IN COMPETING BUSINESS
The Group is engaged principally in the property investment, development and management of high quality investment
properties in Hong Kong. The following Directors (excluding Independent non executive 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 on an arm’s length from the Deemed
Competing Business.
(i) Peter T.C. Lee, Anthony H.P. Lee, Chien Lee, Michael T.H. Lee and Dr. Deanna R.T.Y. Rudgard are members of the founding
Lee family whose range of general investment activities include property investments in Hong Kong and overseas. In
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 directors and have an indirect substantial interest in Designcase Limited
and its subsidiaries, 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.
(iii) Hans Michael Jebsen (and his alternate, Li Kam Wing) hold the offices of directors in each of Jebsen and Company
Limited and Jebsen China Services Limited (the “Companies”) and some of their subsidiaries, of which their business
activities include, inter alia, investment holding and property investment in both the People’s Republic of China and Hong
Kong. Mr. Jebsen is also a substantial shareholder of the Companies.
Mr. Jebsen is an independent non executive director of The Wharf (Holdings) Limited whose business includes, inter alia,
property investment, development and management in both the People’s Republic of China and Hong Kong.
(iv) Chien Lee is an independent non executive director of Swire Pacific Limited whose business includes, inter alia, property
investment and trading in Hong Kong, Mainland China and USA.
The Company’s management team is separate and independent from that of the companies identified in (ii), (iii) and (iv)
above. In addition, save and except Peter T.C. Lee and Michael T.H. Lee, the relevant Directors have non executive roles and are
not involved in the Company’s day to day operations and management.
By order of the Board
Wendy W.Y. Yung
Company Secretary
Hong Kong, 6 March 2007
6 9
HYSAN ANNUAL R EPORT 2006
Audit Committee Report
Audit Committee Report
The Audit Committee has three members. It is chaired by the Independent non executive Deputy Chairman, Sir David Akers
Jones. Under its terms of reference, the Committee oversees the Company’s financial reporting process; it also reviews the
Company’s internal control and risk management system, its relationship with external auditors. The Committee presents a
report to the Board on its findings after each Committee meeting.
The Committee held two meetings during 2006, on 6 March and 7 August. A meeting was also held on 5 March 2007 to
consider the consolidated financial statements for the year ended 31 December 2006. All members attended the above
meetings. Significant matters relating to financial statements and activities of the Group for the year ended 31 December
2006, as reviewed and discussed in the relevant meetings, include the following:
Financial reporting
In the process of financial reporting, management is responsible for the preparation of Group financial statements including
the selection of suitable accounting policies. External auditors are responsible for auditing and attesting to Group financial
statements and evaluating Group’s system of internal control in such regard. The Committee oversees the respective work of
management and external auditors to endorse the processes and safeguards employed by them.
• August 2006 :
• March 2007 :
The Committee reviewed and recommended to the Board of Directors for approval the unaudited
financial statements for the first six months of 2006, prior to public announcement and filing. The
Committee received reports from and met with external auditors to discuss the scope of their review
and findings. The Committee had discussions with management on significant judgments affecting
Group’s financial statements.
The Committee reviewed and discussed with management and external auditors the 2006
consolidated financial statements included in the 2006 Annual Report, prior to public announcement
and filing. The Committee received reports from and met with the external auditors to discuss the
general scope of their audit work and findings, including their assessment of Group’s internal
control in this light. The Committee had discussions with management with regard to significant
judgments affecting the Group financial statements. Based on these review and discussions, and
the report of the external auditors, the Audit Committee recommended to the Board of Directors
approval of the consolidated financial statements for the year ended 31 December 2006, with the
Auditors’ Report thereon.
7 0
7 0
HYS AN ANN UA L REPORT 200 6
HYS AN ANN UA L REPORT 200 6
Review of internal control and risk management systems
• March 2007 :
The Committee reviewed the Group’s internal control and risks management processes and is
satisfied as to their effectiveness in managing risks. In doing so, the Committee has taken note of
management’s reports and an independent review performed by a reputable international accounting
firm (“Independent Advisor”). The Committee also noted that the Independent Advisor had identified
improvement areas aimed at further strengthening the Group’s internal control system, which is a
continual process. Management had confirmed to the Committee that all recommendations would
be implemented in accordance with established timelines.
Relationship with external auditors
• March 2007 :
The Committee reviewed and considered the terms of engagement of the external auditors including
assessing their independence and objectivity. Factors considered include the arrangement for lead
audit partner rotation, and the provision of non audit services by the auditors. The Committee
recommended to the Board that the shareholders be asked to re appoint Deloitte Touche Tohmatsu
as the Group’s external auditors for 2007.
The Committee noted that management had adopted the Auditor Services Policy prohibiting the
engagement of external auditors to perform certain activities that would impair their independence
or objectivity.
In the year ended 31 December 2006, external auditors received a total fee of HK$2,128,550 (Audit
Services: HK$1,620,000; Non Audit Services HK$301,100; tax compliance: HK$207,450).
Members of the Audit Committee
David Akers Jones Chairman
Per Jorgensen
Chien Lee
Hong Kong, 6 March 2007
7 1
HYSAN ANNUAL R EPORT 2006
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 judgments 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.
7 2
HYS AN ANN UA L REPORT 200 6
Independent Auditor’s Report
TO THE MEMBERS OF HYSAN DEVELOPMENT COMPANY LIMITED
希慎興業有限公司
(incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of Hysan Development Company Limited (the “Company”) and its
subsidiaries (collectively referred to as the “Group”) set out on pages 74 to 120, which comprise the consolidated and
Company’s balance sheets as at 31 December 2006, and the consolidated income statement, the consolidated statement of
changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting
policies and other explanatory notes.
Directors’ responsibility for the consolidated financial statements
The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated
financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of
Certified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing
and maintaining internal control relevant to the preparation and the true and fair presentation of the consolidated financial
statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate
accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our
opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance and for no other
purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We
conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified
Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance as to whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and
of the Group as at 31 December 2006 and of the Group’s profit and cash flows for the year then ended in accordance with
Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies
Ordinance.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong, 6 March 2007
7 3
HYSAN ANNUAL R EPORT 2006
Consolidated Income Statement
For the year ended 31 December 2006
Turnover
Property expenses
Gross profit
Other income
Administrative expenses
Finance costs
Fair value changes on investment properties
Fair value changes on financial instruments
Net realised gain on disposal of available for sale investments
Share of results of associates
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity holders of the parent
Minority interests
Dividends
Dividends paid
Dividends proposed
Earnings per share
Basic
Diluted
Notes
6
2006
HK$’000
2005
HK$’000
1,268,115
(240,561 )
1,249,796
(237,351 )
9
18
10
11
12
13
1,027,554
147,089
(111,336 )
(162,762 )
2,575,611
31,395
170,277
120,053
1,012,445
38,327
(102,889 )
(214,585 )
4,226,005
(24,777 )
–
241,358
3,797,881
(558,342 )
5,175,884
(856,583 )
3,239,539
4,319,301
3,098,789
140,750
4,120,555
198,746
3,239,539
4,319,301
474,147
420,213
422,055
368,641
293.96 cents
391.87 cents
293.70 cents
391.62 cents
7 4
HYS AN ANN UA L REPORT 200 6
Consolidated Balance Sheet
At 31 December 2006
Non current assets
Investment properties
Property, plant and equipment
Prepaid lease payments
Investments in associates
Amount due from an associate
Available for sale investments
Derivative financial instruments
Other receivables
Current assets
Amount due from an associate
Derivative financial instruments
Accounts receivable and other receivables
Time deposits
Cash and bank balances
Current liabilities
Derivative financial instruments
Accounts payable and accruals
Rental deposits from tenants
Amounts due to minority shareholders
Advances from investees
Taxation payable
Net current assets
Total assets less current liabilities
Non current liabilities
Borrowings
Derivative financial instruments
Amounts due to minority shareholders
Rental deposits from tenants
Deferred taxation
Net assets
Notes
2006
HK$’000
2005
HK$’000
14
15
16
18
18
19
20
21
18
20
21
22
22
20
23
27
25
26
20
27
28
32,473,158
69,309
122,933
443,569
186,117
1,745,427
2,474
21,571
29,815,430
69,477
123,096
333,514
171,131
1,256,100
32,004
29,549
35,064,558
31,830,301
642,338
2,315
158,831
381,971
3,031
642,596
14,195
102,273
1,401,230
284
1,188,486
2,160,578
39,495
198,736
102,418
327,256
54,060
225,781
64,057
217,358
121,604
–
54,068
198,139
947,746
655,226
240,740
1,505,352
35,305,298
33,335,653
2,820,621
44,560
–
183,282
3,348,828
4,300,523
39,802
327,256
135,009
2,879,451
6,397,291
7,682,041
28,908,007
25,653,612
7 5
HYSAN ANNUAL R EPORT 2006
Consolidated Balance Sheet continued
At 31 December 2006
Capital and reserves
Share capital
Reserves
Equity attributable to equity holders of the parent
Minority interests
Note
29
2006
HK$’000
2005
HK$’000
5,275,687
22,552,019
5,266,304
19,400,992
27,827,706
1,080,301
24,667,296
986,316
28,908,007
25,653,612
The consolidated financial statements on pages 74 to 120 were approved and authorised for issue by the Board of Directors
on 6 March 2007 and are signed on its behalf by:
Peter T.C. Lee
Director
David Akers Jones
Director
7 6
HYS AN ANN UA L REPORT 200 6
Balance Sheet
At 31 December 2006
Non current assets
Investment properties
Property, plant and equipment
Investments in subsidiaries
Investments in associates
Available for sale investments
Other receivables
Current assets
Accounts receivable and other receivables
Amounts due from subsidiaries
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to subsidiaries
Taxation payable
Net current assets
Total assets less current liabilities
Non current liabilities
Rental deposits from tenants
Deferred taxation
Net assets
Capital and reserves
Share capital
Reserves
Notes
2006
HK$’000
2005
HK$’000
14
15
17
18
19
21
21
24
22
22
23
24
28
–
7,187
5
3
2,031
1,642
4,061,000
9,466
5
3
2,031
9,685
10,868
4,082,190
2,413
13,016,557
46,545
3,964
5,342
7,949,195
1,189,010
178
13,069,479
9,143,725
21,724
27
104,371
68,024
24,381
15,162
21,280
83,220
194,146
144,043
12,875,333
8,999,682
12,886,201
13,081,872
–
161
5,969
490,077
161
496,046
12,886,040
12,585,826
29
30
5,275,687
7,610,353
5,266,304
7,319,522
12,886,040
12,585,826
The financial statements on pages 74 to 120 were approved and authorised for issue by the Board of Directors on 6 March
2007 and are signed on its behalf by:
Peter T.C. Lee
Director
David Akers Jones
Director
7 7
HYSAN ANNUAL R EPORT 2006
Consolidated Statement of Changes in Equity
For the year ended 31 December 2006
Attributable to equity holders of the parent
Employee
share based
Share compensation
reserve
HK$’000
Investment
revaluation
reserve
HK$’000
premium
HK$’000
Share
capital
HK$’000
Asset
revaluation
reserve
HK$’000
At 1 January 2005
5,249,818 1,380,278
Fair value changes on available for sale investments
Surplus on revaluation of buildings for own use
Share of reserve of an associate
Exchange differences on translation of an overseas
associate
Net gain on cash flow hedges
Deferred taxation arising on revaluation of properties
Net income recognised directly in equity
Release of revaluation surplus on disposal of land
and buildings
Profit for the year
Total recognised income and expenses for the year
Issue of shares pursuant to scrip dividend scheme
Premium on issue of shares pursuant to scrip
dividend scheme
Share issue expenses
Recognition of equity settled share based payments
Final dividend for 2004 distributed
Interim dividend for 2005 distributed
Dividend for 2005 declared
–
–
–
–
–
–
–
–
–
–
16,486
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40,186
(40 )
–
–
–
–
–
–
2,171
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
540,781
10,737
255,473
–
–
–
–
–
–
1,256
–
–
–
(220 )
255,473
1,036
–
–
(10,508 )
–
255,473
(9,472 )
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2005
5,266,304 1,420,424
2,171
796,254
1,265
Fair value changes on available for sale investments
Surplus on revaluation of buildings for own use
Share of reserve of an associate
Exchange differences on translation of an overseas
associate
Net loss on cash flow hedges
Deferred taxation arising on revaluation of properties
Net income recognised directly in equity
Transfer to profit and loss on disposal of
available for sale investments
Profit for the year
Total recognised income and expenses for the year
Issue of shares pursuant to scrip dividend scheme
Premium on issue of shares pursuant to scrip
dividend scheme
Exercise of share options
Premium on issue of shares on exercise of
share options
Share issue expenses
Recognition of equity settled share based payments
Share options lapsed during the year
Final dividend for 2005 distributed
Interim dividend for 2006 distributed
Dividend for 2006 declared
–
–
–
–
–
–
–
–
–
–
8,502
–
–
–
–
–
–
–
–
–
–
–
–
881
29,841
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,031
(32 )
–
–
–
–
–
(978 )
–
4,382
(13 )
–
–
–
686,782
–
–
–
–
–
–
1,565
–
–
–
(274 )
686,782
1,291
(170,277 )
–
–
–
516,505
1,291
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2006
5,275,687 1,453,264
5,562 1,312,759
2,556
7 8
HYS AN ANN UA L REPORT 200 6
Attributable to equity holders of the parent
Hedging
reserve
HK$’000
Translation
reserve
HK$’000
Capital
redemption
reserve
HK$’000
General
reserve
HK$’000
Dividend
reserve
HK$’000
Retained
profits
HK$’000
Total
HK$’000
Minority
interests
HK$’000
Total
HK$’000
(32,720 )
(7,379 )
154,995
100,000
314,989 12,869,747 20,581,246
830,870 21,412,116
–
–
–
–
67,652
–
–
–
212
2,532
–
–
67,652
2,744
–
–
–
–
67,652
2,744
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
255,473
1,256
212
2,532
67,652
(220 )
326,905
–
–
–
–
–
–
–
255,473
1,256
212
2,532
67,652
(220 )
326,905
10,508
–
–
– 4,120,555 4,120,555
–
–
198,746 4,319,301
– 4,131,063 4,447,460
198,746 4,646,206
–
–
16,486
–
16,486
–
–
–
(314,989 )
(105,224 )
473,865
–
–
–
–
–
(473,865 )
40,186
(40 )
2,171
(314,989 )
(105,224 )
–
–
–
–
–
(43,300 )
–
40,186
(40 )
2,171
(314,989 )
(148,524 )
–
34,932
(4,635 )
154,995
100,000
368,641 16,526,945 24,667,296
986,316 25,653,612
–
–
–
–
(32,643 )
–
–
–
286
4,702
–
–
(32,643 )
4,988
–
–
–
–
(32,643 )
4,988
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
686,782
1,565
286
4,702
(32,643 )
(274 )
660,418
–
–
–
–
–
–
–
686,782
1,565
286
4,702
(32,643 )
(274 )
660,418
(170,277 )
–
–
– 3,098,789 3,098,789
–
(170,277 )
140,750 3,239,539
– 3,098,789 3,588,930
140,750 3,729,680
–
–
–
–
–
–
8,502
29,841
881
–
–
–
8,502
29,841
881
–
–
–
–
(368,641 )
(105,461 )
527,516
–
–
–
13
(45 )
–
(527,516 )
2,053
(32 )
4,382
–
(368,686 )
(105,461 )
–
–
–
–
–
–
(46,765 )
–
2,053
(32 )
4,382
–
(368,686 )
(152,226 )
–
2,289
353
154,995
100,000
422,055 19,098,186 27,827,706 1,080,301 28,908,007
7 9
HYSAN ANNUAL R EPORT 2006
Consolidated Cash Flow Statement
Consolidated Cash Flow Statement
For the year ended 31 December 2006
For the year ended 31 December 2006
Operating activities
Profit before taxation
Adjustments for:
Finance costs
Share of results of associates
Interest income
Dividend income
Depreciation
Amortisation of prepaid lease payments
Share based payment
Loss on disposal of property, plant and equipment
Revaluation deficit (reversal of revaluation deficit)
on building for own use
Fair value changes on investment properties
Fair value changes on financial instruments
Net realised gain on disposal of available for sale investments
Recovery of a loan to an associate
Operating cash flows before movements in working capital
Decrease in accounts receivable and other receivables
(Decrease)/increase in accounts payable and accruals
Increase in rental deposits from tenants
Cash generated from operations
Hong Kong profits tax paid
Net cash from operating activities
Investing activities
Interest received
Dividends received from available for sale investments
Additions to available for sale investments
Additions to property, plant and equipment
Additions to investment properties
Proceeds on disposal of available for sale investments
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of investment properties
Repayment from associates
Repayment from investees
Recovery of a loan to an associate
Proceeds on disposal of subsidiaries
Note
2006
HK$’000
2005
HK$’000
3,797,881
5,175,884
162,762
(120,053 )
(18,075 )
(41,101 )
6,738
163
4,382
432
214,585
(241,358 )
(2,914 )
(33,714 )
5,787
163
2,171
9
58
(2,575,611 )
(31,395 )
(170,277 )
(87,043 )
(65 )
(4,226,005 )
24,777
–
–
928,861
28,370
(6,920 )
29,087
979,398
(61,597 )
919,320
15,991
6,036
10,527
951,874
(111,418 )
917,801
840,456
22,983
37,376
(92,240 )
(5,555 )
(81,465 )
187,465
60
1,491
258
18,562
87,043
–
2,228
30,564
–
(6,811 )
(370,387 )
–
–
41,569
–
17,390
–
2,679,567
31
Net cash from investing activities
175,978
2,394,120
8 0
8 0
HYS AN ANN UA L REPORT 200 6
HYS AN ANN UA L REPORT 200 6
Financing activities
Share issue expenses
Interest paid
Bank charges
Medium Term Note Programme expenses
Other finance costs
Dividends paid
Dividends paid to minority shareholders of subsidiaries
New unsecured bank loans
Repayment of unsecured bank loans
Purchase of fixed rate notes
Net proceeds from issue of zero coupon notes
Proceeds on exercise of share options
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Analysis of the balances of cash and cash equivalents
Time deposits
Cash and bank balances
2006
HK$’000
2005
HK$’000
(32 )
(135,359 )
(7,379 )
(1,083 )
–
(435,696 )
(46,765 )
–
(1,336,500 )
(150,411 )
–
2,934
(40 )
(188,181 )
(10,079 )
(972 )
(890 )
(363,539 )
(43,300 )
10,000
(1,455,600 )
–
197,615
–
(2,110,291 )
(1,854,986 )
(1,016,512 )
1,379,590
1,401,514
21,924
385,002
1,401,514
381,971
3,031
1,401,230
284
385,002
1,401,514
8 1
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
For the year ended 31 December 2006
1. GENERAL
The Company is a public listed company incorporated in Hong Kong and its shares are listed on The Stock Exchange of
Hong Kong Limited. The addresses of the registered office and principal place of business of the Company are disclosed
on inside back cover of the Annual Report.
The consolidated financial statements are presented in Hong Kong dollars, which is the same as the functional currency of
the Company.
The principal activities of the Company and its subsidiaries (the “Group”) are property investment, management and
development.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)
In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations
(“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are either effective for
accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs had no
material effect on how the results and financial position for the current or prior accounting periods have been prepared
and presented. Accordingly, no prior period adjustment has been required.
The Group has not early applied the following new standard, amendment or interpretations that have been issued but
are not yet effective. The directors of the Company anticipate that the application of these new standard, amendment or
interpretations will have no material impact on the results and the financial position of the Group.
HKAS 1 (Amendment)
HKFRS 7
HK(IFRIC) – INT 7
HK(IFRIC) – INT 8
HK(IFRIC) – INT 9
HK(IFRIC) – INT 10
HK(IFRIC) – INT 11
Capital disclosures 1
Financial instruments: Disclosures 1
Applying the restatement approach under HKAS 29
Financial Reporting in Hyperinflationary Economies 2
Scope of HKFRS 2 3
Reassessment of Embedded Derivatives 4
Interim Financial Reporting and Impairment 5
HKFRS 2: Group and Treasury Share Transactions 6
1 Effective for accounting periods beginning on or after 1 January 2007.
2 Effective for accounting periods beginning on or after 1 March 2006.
3 Effective for accounting periods beginning on or after 1 May 2006.
4 Effective for accounting periods beginning on or after 1 June 2006.
5 Effective for accounting periods beginning on or after 1 November 2006.
6 Effective for accounting periods beginning on or after 1 March 2007.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared on the historical cost basis except for certain properties and
financial instruments, which are measured at revalued amounts or fair values, as explained in the accounting policies set
out below.
The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition,
the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement
from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group.
8 2
8 2
HYS AN ANN UA L REPORT 200 6
HYS AN ANN UA L REPORT 200 6
3. SIGNIFICANT ACCOUNTING POLICIES continued
Basis of consolidation continued
All intra group transactions, balances, income and expenses are eliminated on consolidation.
Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity
therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business
combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the
minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group
except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the
losses.
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 during the year.
Investments in associates
The results, assets and liabilities of associates are incorporated in these consolidated financial statements using the
equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance
sheet at cost as adjusted for post acquisition changes in the Group’s share of the profit or loss and of changes in equity
of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds
its interest in that associate (which includes any long term interests that, in substance, form part of the Group’s net
investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses
is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations
or made payments on behalf of that associate.
Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the
cost of acquisition, after reassessment, is recognised immediately in profit or loss.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the
Group’s interest in the relevant associate.
Property, plant and equipment
Property, plant and equipment are stated at cost/deemed cost or fair value less subsequent accumulated depreciation and
accumulated impairment losses.
For leasehold land and building classified as an investment property under fair value model which is then transferred to
owner occupied property, the property interest is stated at a deemed cost equal to its fair value at the date of change in use.
Buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the
balance sheet at their revalued amount, being the fair value at the date of revaluation less any subsequent accumulated
depreciation and any subsequent accumulated impairment losses. 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 revaluation increase arising on revaluation of 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 the increase is
credited to the consolidated income statement to the extent of the decrease 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 retained profits.
Depreciation is provided to write off the cost or fair value of items of property, plant and equipment over their estimated
useful lives and after taking into account of their estimated residual value, using the straight line method.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income
statement in the year in which the item is derecognised.
8 3
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
3. SIGNIFICANT ACCOUNTING POLICIES continued
Investment properties
On initial recognition, investment properties are measured at cost, including any directly attributable expenditure.
Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising
from changes in the fair value of investment property are included in profit or loss for the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from
use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the
consolidated income statement in the year in which the item is derecognised.
Prepaid lease payments
Prepaid lease payments of land under operating lease are charged to the consolidated income statement on straight line
basis over the lease terms.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in the consolidated income statement on a straight line basis over the
term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the
carrying amount of the leased asset and recognised as an expense on a straight line basis over the lease term.
The Group as lessee
Rentals payable under operating leases, including the leasehold interests in land, are charged to profit or loss on a straight
line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating
lease are recognised as a reduction of rental expense over the lease term on a straight line basis.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional
currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary
economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions.
At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non monetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing on the date when the fair value was determined. Non monetary items that are measured
in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are
recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary
item that forms part of the Group’s net investment in a foreign operation, in which case, such exchange differences
are recognised in equity in the consolidated financials statements. Exchange differences arising on the retranslation of
non monetary items carried at fair value are included in profit or loss for the period except for differences arising on the
retranslation of non monetary items in respect of which gains and losses are recognised directly in equity, in which cases,
the exchange differences are also recognised directly in equity.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rate of exchange
prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the
year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the
dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the
translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation
is disposed of.
8 4
HYS AN ANN UA L REPORT 200 6
3. SIGNIFICANT ACCOUNTING POLICIES continued
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated income statement because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in
a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to
equity, in which case the deferred tax is also dealt with in equity.
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. An impairment
loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another
Standard, in which case the impairment loss is treated as a revaluation decrease under that Standard.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate
of its recoverable amount, such 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 revalued amount under another Standard, in
which case the reversal of the impairment loss is treated as a revaluation increase under that other Standard.
Retirement benefit costs
Payments to the Mandatory Provident Fund Scheme (“MPF Scheme”) are charged as an expense when employees have
rendered service entitling them to the contributions.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable.
Rental income is recognised on a straight line basis over the relevant lease term.
Management fee income and security service income are recognised when services are rendered.
Dividend income from investments is recognised when the shareholders’ right to receive dividend has been established.
Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the
expected life of the financial asset to that asset’s net carrying amount.
8 5
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
3. SIGNIFICANT ACCOUNTING POLICIES continued
Borrowing costs
All borrowing costs are recognised as and included in finance costs in the consolidated income statement in the period in
which they are incurred.
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to
the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised
immediately in profit or loss.
Financial assets
The Group’s financial assets are classified as one of the three categories, including financial assets at fair value through
profit or loss, loans and receivables and available for sale financial assets. All regular way purchases or sales of financial
assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales
of financial assets that require delivery of assets within the time frame established by regulation or convention in the
marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss comprise derivative financial instruments that are not designated as
hedging instruments and are classified as held for trading.
At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are stated
at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The fair value
of a derivative financial instrument is classified as a non current asset if the remaining maturity of the derivative contract
is more than 12 months and as a current asset if the remaining maturity of the derivative contract is less than 12 months.
Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an
active market. At each balance sheet date subsequent to initial recognition, loans and receivables including accounts
receivable and other receivables, bank balances, time deposits and amounts due from associates are carried at amortised
cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit
or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s
carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.
Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related
objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount
of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the
impairment not been recognised.
Available for sale financial assets
Available for sale financial assets are non derivatives that are either designated as such or not classified as loans and
receivables and financial assets at fair value through profit or loss. At each balance sheet date subsequent to initial
recognition, available for sale financial assets are measured at fair value. Changes in fair value are recognised in
equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or
loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on
available for sale financial assets are recognised to profit or loss. Impairment losses on available for sale equity
investments will not reverse to profit or loss in subsequent periods. For available for sale debt investments, impairment
losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event
occurring after recognition of the impairment loss.
For available for sale equity investments that do not have a quoted market price in an active market and whose fair value
cannot be reliably measured, they are measured at cost less any identified impairment losses at each balance sheet date
subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that
the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of
the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a
similar financial asset. Such impairment losses will not reverse in subsequent periods.
8 6
HYS AN ANN UA L REPORT 200 6
3. SIGNIFICANT ACCOUNTING POLICIES continued
Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the
contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its
liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss
and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are
set out below.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss comprise derivative financial instruments that are not designated as
hedging instruments.
At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are
stated at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The fair
value of a derivative financial instrument is classified as a non current liability if the remaining maturing of the derivative
contract is more than 12 months and as a current liability if the remaining maturity of the derivative contract is less than
12 months.
Financial liabilities
Financial liabilities including borrowings, amounts due to minority shareholders, accounts payable and advances from
investees are subsequently measured at amortised cost, using the effective interest method. In respect of the fixed rate
notes, the carrying amounts are further adjusted for the gain or loss attributable to the hedged risk.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedging
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the
recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives to
hedge its exposure against interest rate and foreign exchange rate fluctuation.
Embedded derivatives
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when
their risks and characteristics are not closely related to those of the host contracts and the combined contracts are not
measured at fair value with changes in fair value recognised in profit or loss.
Hedge accounting
The Group designates certain derivatives as hedging instruments as either fair value hedge or cash flow hedge.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and
hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions.
Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging
instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the
hedged item.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss
immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the
hedged item arising from the hedged risk is amortised to profit or loss from that date.
8 7
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
3. SIGNIFICANT ACCOUNTING POLICIES continued
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or
loss.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or
is sold, terminated, or exercised, or no longer qualifies for hedge accounting. For a hedge of the foreign currency risk of
a firm commitment, when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for
hedge accounting, the cumulative gain or loss that was deferred in equity from the period when the hedge was effective
shall remain separately recognised in equity until the hedged risk affects profit or loss.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are
transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On
derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration
received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit
or loss.
Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or
expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and
payable is recognised in profit or loss.
Equity settled share based payment transactions
The fair value of services received determined by reference to the fair value of share options granted at the grant date is
expensed on a straight line basis over the vesting period, with a corresponding increase in equity (Employee share based
compensation reserve).
At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately vest.
The impact of the revision of the estimates, if any, is recognised in profit or loss, with a corresponding adjustment to
employee share based compensation reserve.
At the time when the share options are exercised, the amount previously recognised in employee share based
compensation reserve will be transferred to share premium. When the share options are forfeited after the vesting date or
are still not exercised at the expiry date, the amount previously recognised in employee share based compensation reserve
will be transferred to retained profits.
The Group has applied HKFRS 2 “Share based payments” to share options granted on or after 1 January 2005. The above
policy is applied to all equity settled share based payments that were granted after 7 November 2002 and vested after 1
January 2005. In relation to share options granted before 1 January 2005, the Group chooses not to apply HKFRS 2 with
respect to share options granted on or before 7 November 2002 and vested before 1 January 2005, no amount has been
recognised in the financial statements in respect of the other equity settled shared based payments.
8 8
HYS AN ANN UA L REPORT 200 6
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
In the process of applying the Group’s accounting policies, which are described in note 3 above, management has
made various estimates based on past experience, expectations of the future and other information. The key sources of
estimation uncertainty that can significantly affect the amounts recognised in the financial statements are set out below.
Estimate of fair value of investment properties
As described in note 14, the investment properties were revalued at the balance sheet date on market value existing use
basis by independent professional valuers. Such valuations were based on certain assumptions, which are subject to
uncertainty and might materially differ from the actual results. In making the judgement, the Group considers information
from current prices in an active market for similar properties and uses assumptions that are mainly based on market
conditions existing at each balance sheet date.
Fair values of financial instruments
Financial instruments such as interest rate, foreign exchange and equity derivative instruments are carried at the balance
sheet at fair value. The best evidence of fair value is quoted prices in an active market, where quoted prices are not
available for a particular financial instrument, the Group uses the market values determined by independent financial
institutions or internal or external valuation models to estimate the fair value. The use of methodologies, models and
assumptions in pricing and valuing these financial assets and liabilities is subjective and requires varying degrees of
judgment by management, which may result in significantly different fair values and results. All significant financial
valuation models are strictly controlled and regularly recalibrated and vetted.
5. FINANCIAL INSTRUMENTS
Financial risk management objectives and policies
The Group’s major financial instruments include cash and bank balances, time deposits, accounts receivable, equity
investments, amount due from an associate, other receivables, borrowings, accounts payable, amounts due to minority
shareholders and derivative financial instruments. The Company’s major financial instruments include cash and bank
balances, time deposits, other receivables and amounts due from/to subsidiaries. Details of these financial instruments
are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate
these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures
are implemented on a timely and effective manner.
Market risk
(i) Currency risk
The Group aims to minimize its currency risk and does not speculate in currency movements. The majority of
the Group’s and the Company’s assets by value are located and all rental income are derived in Hong Kong, and
denominated in Hong Kong dollars. At year end 2006, all of the Group’s debts were denominated in Hong Kong dollars
with the exception of the US$182 million 10 year fixed rate notes. The Group has entered into appropriate hedging
instruments to hedge against the potential currency risk (see note 20). Other than 10 year fixed rates notes which are
exposed to currency risk, the Group has no other significant currency risk.
(ii) Interest rate risk
The Group manages its interest rate exposure based on interest rate level and outlook as well as potential impact on
the Group’s financial position arising from volatility. Interest rate swap is the hedging instrument most commonly used
by the Group to manage the interest rate exposure (see note 20 for details). At year end 2006, about 64.7% of the
Group’s gross debts were effectively on a floating rate basis. The ratio could change with changes to the interest rate
trend going forward.
The Group’s policy is to maintain the proportion of borrowings in fixed rates and floating rates within an appropriate
range. Accordingly, the Group entered into (i) interest rate swaps to hedge the interest rate risk of these Group’s
floating borrowings including bank loans and floating rate notes; (ii) cross currency swaps to hedge the interest rate
risk of certain of the Group’s fixed rate notes.
8 9
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
5. FINANCIAL INSTRUMENTS continued
Financial risk management objectives and policies continued
(iii) Other price risk
The Group’s available for sale investments in listed securities are measured at fair value at each balance sheet date
with reference to the listed share price. Therefore, the Group is exposed to equity price risks and the management will
monitor the price movements and take appropriate actions when it is required. As at 31 December 2006, the Group
has entered equity derivatives to hedge the price risk arising from certain listed securities. The equity derivatives are
not designated as hedging instrument and hence are measured at fair value through profit or loss.
Credit risk
The Group’s and the Company’s credit risks are primarily attributable to amount due from an associate, time deposits,
rent receivable from tenants and counterparty financial obligations in derivative financial instrument. The Group’s and the
Company’s maximum exposure to credit risk which will cause a financial loss to the Group and the Company due to failure
to discharge an obligation by the counterparties and financial guarantees issued by the Group and the Company is arising
from: (a) the carrying amount of the respective recognised financial assets as stated in the consolidated and Company’s
balance sheets; and (b) the amount disclosed in note 33 Contingent Liabilities.
The Group’s and the Company’s time deposits and bank balances are deposited with banks of high credit quality in Hong
Kong and the Group and the Company has exposure limit to any single financial institution.
For rent receivable from tenants, credit checks are part of the normal leasing process and stringent monitoring procedures
are in place to deal with overdue debts. In addition, the Group reviews the recoverable amount of each individual trade
debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.
To mitigate counterparty risk, the Group enters into derivative contracts only with sound financial institutions with strong
investment grade credit ratings, limits exposure to each, and monitors each’s rating regularly.
The Group and the Company have no significant concentration of credit risk, with exposure spread over a number of
counterparties and customers.
Fair value
The fair value of financial assets and financial liabilities are determined as follows:
•
•
•
the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid
markets are determined with reference to the published price quotations; the fair values of the club debentures have
been determined by reference to the recent transaction prices of similar club debentures;
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined
in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from
observable current market transactions; and
the fair value of derivative instruments, are calculated using quoted prices from independent financial institutions.
Where such prices are not available, the fair value of a non option derivative is estimated using discounted cash flow
analysis and the applicable yield curve. For an option derivative, the fair value is estimated using option pricing model
(for example, the black scholes model).
The directors consider that the carrying amounts of non derivative financial assets and financial liabilities approximate
their fair value, except for the carrying amount of US$182 million (approximate to HK$1,415 million) fixed rate notes (note
26(c)) with fair value of US$193 million (approximate to HK$1,504 million).
9 0
HYS AN ANN UA L REPORT 200 6
6. TURNOVER
Turnover comprises:
Gross rental income from investment properties
Management fee and security service income
2006
HK$’000
2005
HK$’000
1,267,576
539
1,249,392
404
1,268,115
1,249,796
As the Group’s turnover is derived principally from rental income and wholly in Hong Kong, no segment financial analysis
is provided.
7. DIRECTORS’ REMUNERATION
Directors’ fees
Other emoluments:
Basic salaries, housing and other allowances
Bonus
Share based payments (note 37)
Retirement benefits scheme contributions
2006
HK$’000
1,510
10,581
2,485
1,171
251
2005
HK$’000
1,135
10,423
2,499
524
233
15,998
14,814
Remuneration paid or payable to each of the eleven (2005: twelve) Directors were as follows:
For the year ended 31 December 2006
Basic salaries,
housing
and other
allowances
HK$’000
Directors’
fees
HK$’000
(Note)
Share based
Retirement
benefits
scheme
Bonus
HK$’000
payments contributions
HK$’000
HK$’000
Total
HK$’000
Executive Directors
Peter T.C. Lee (note a)
Michael T.H. Lee (note b)
Pauline W.L. Yu Wong
Non executive Directors
Fa kuang Hu
Hans Michael Jebsen
Anthony Hsien Pin Lee
Chien Lee
Dr. Deanna Ruth Tak Yung Rudgard
Independent non executive Directors
Sir David Akers Jones
Per Jorgensen
Dr. Geoffrey Meou tsen Yeh
190
120
100
120
120
130
130
100
230
130
140
4,213
3,599
2,769
1,213
1,027
245
–
1,171
–
12
12
227
5,628
5,929
3,341
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120
120
130
130
100
230
130
140
1,510
10,581
2,485
1,171
251
15,998
9 1
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
7. DIRECTORS’ REMUNERATION continued
For the year ended 31 December 2005
Basic salaries,
housing
and other
allowances
HK$’000
Directors’
fees
HK$’000
(Note)
Share based
Retirement
benefits
scheme
Bonus
HK$’000
payments contributions
HK$’000
HK$’000
Total
HK$’000
Executive Directors
Peter T.C. Lee (note a)
Michael T.H. Lee (note b)
Pauline W.L. Yu Wong
Non executive Directors
Fa kuang Hu
Hans Michael Jebsen
Anthony Hsien Pin Lee
Chien Lee
Dr. Deanna Ruth Tak Yung Rudgard
Independent non executive Directors
Sir David Akers Jones
Per Jorgensen
Dr. Geoffrey Meou tsen Yeh
David Muir Turnbull #
136
85
75
85
85
90
100
75
157
100
95
52
4,146
3,538
2,739
1,200
1,020
279
–
524
–
12
12
209
5,494
5,179
3,302
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
85
85
90
100
75
157
100
95
52
# David Muir Turnbull appointed as Independent non executive Director on 11 May 2005 and resigned on 12 December 2005.
1,135
10,423
2,499
524
233
14,814
9 2
HYS AN ANN UA L REPORT 200 6
7. DIRECTORS’ REMUNERATION continued
Notes:
Directors’ fees breakdown of each of the Directors is set out below:
Emoluments
Investment Nomination
Review
Board Committee Committee Committee Committee
HK$’000
HK$’000
HK$’000
HK$’000
Audit
HK$’000
Total
2006
HK$’000
Total
2005
HK$’000
Executive Directors
Peter T.C. Lee
Michael T.H. Lee
Pauline W.L. Yu Wong
Non executive Directors
Fa kuang Hu
Hans Michael Jebsen
Anthony Hsien Pin Lee
Chien Lee
Dr. Deanna Ruth Tak Yung Rudgard
Independent non executive Directors
Sir David Akers Jones
Per Jorgensen
Dr. Geoffrey Meou tsen Yeh
David Muir Turnbull
140
100
100
100
100
100
100
100
120
100
100
–
–
–
–
–
–
–
30
–
60
30
–
–
1,160
120
–
–
–
20
–
–
–
–
30
–
20
–
70
20
20
–
–
20
30
–
–
–
–
–
–
30
–
–
–
–
–
–
–
20
–
20
–
190
120
100
120
120
130
130
100
230
130
140
–
136
85
75
85
85
90
100
75
157
100
95
52
90
70
1,510
1,135
(a) Year 2005: The Emoluments Review Committee reviewed his 2005 fixed base salary and determined his performance based bonus in
March 2005. In the light of the recent salary review completed in November 2003, management did not receive any salary increment.
Accordingly, his fixed base package remains HK$4,146,000 during the year. The stated bonus figure includes adjustment for 2004
bonus accrued in 2004 accounts (following finalisation of bonus by the Emoluments Review Committee in March 2005), and 2005
target bonus figure pending finalisation by the Emoluments Review Committee after year end in March 2006.
Year 2006: The Emoluments Review Committee reviewed his 2006 fixed base salary and determined his performance based bonus in
March 2006. It was decided to make an increment on such base salary as from April 2006. Accordingly, his fixed base package (including
housing allowance which amount remains unchanged) paid during the year was HK$4,213,000. The stated bonus figure includes
adjustment for 2005 bonus accrued in 2005 accounts (following finalisation of bonus by the Emoluments Review Committee in March
2006), and 2006 target bonus figure pending finalisation by the Emoluments Review Committee after year end in March 2007.
(b) Year 2005: The Emoluments Review Committee reviewed his 2005 fixed base salary and determined his performance based bonus in
March 2005. In the light of the recent salary review completed in November 2003, management did not receive any salary increment.
Accordingly, his fixed base package remains HK$3,538,000 during the year. The stated bonus figure includes adjustment for 2004
bonus accrued in 2004 accounts (following finalisation of bonus by the Emoluments Review Committee in March 2005), and 2005
target bonus figure pending finalisation by the Emoluments Review Committee after year end in March 2006.
Year 2006: The Emoluments Review Committee reviewed his 2006 fixed base salary and determined his performance based bonus in
March 2006. It was decided to make an increment on his base salary as from April 2006. Accordingly, his fixed base package (including
housing allowance which amount remains unchanged) paid during the year was HK$3,599,000. The stated bonus figure includes
adjustment for 2005 bonus accrued in 2005 accounts (following finalisation of bonus by the Emoluments Review Committee in March
2006), and 2006 target bonus figure pending finalisation by the Emoluments Review Committee after year end in March 2007.
9 3
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
8. EMPLOYEES’ EMOLUMENTS
The five highest paid individuals included three (2005: three) Directors, details of whose remuneration are set out in note
7 above. The remuneration of the remaining two (2005: two) individuals is detailed as follows:
2006
HK$’000
4,922
1,208
758
24
2005
HK$’000
4,762
656
726
24
6,912
6,168
2006
No. of
employees
2005
No. of
employees
–
1
1
2
1
1
–
2
2006
HK$’000
2005
HK$’000
37,470
–
25,651
107,605
10,970
63,429
34,129
15,988
108,720
9,401
181,696
231,667
(21,783 )
(9,634 )
(31,417 )
7,379
1,083
4,021
(924 )
(32,562 )
(33,486 )
10,079
972
5,353
162,762
214,585
Basic salaries, housing and other allowances
Share based payments
Bonus
Retirement benefits scheme contributions
Their emoluments were within the following bands:
HK$2,500,001 to HK$3,000,000
HK$3,000,001 to HK$3,500,000
HK$3,500,001 to HK$4,000,000
9. FINANCE COSTS
Interest on
– bank loans, overdraft and other loans:
wholly repayable within five years
not repayable within five years
– floating rate notes
– fixed rate notes
– zero coupon notes (imputed interests)
Net interest received on derivative financial instruments (Note)
– due within five years
– due after five years
Bank charges
Medium Term Note Programme expenses
Others
Note: Fair value changes excluded accrued interest in derivative financial instruments for the year.
9 4
HYS AN ANN UA L REPORT 200 6
10. TAXATION
Hong Kong profits tax for the year
(Over) underprovision in prior years
Prior years provision
Deferred tax (note 28)
– changes in fair value on investment properties
– changes in fair value on disposed leasehold properties
– other temporary differences
2006
HK$’000
90,163
(924 )
–
2005
HK$’000
75,270
25
103,000
89,239
178,295
448,378
–
20,725
668,351
(4,903 )
14,840
469,103
678,288
558,342
856,583
Hong Kong profits tax is calculated at 17.5% of the estimated assessable profit for both years.
The taxation for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:
Profit before taxation
Tax at the Hong Kong profits tax rate of 17.5%
Tax effect of expenses not deductible for tax purposes
Tax effect of utilisation of estimated tax losses not previously recognised
Tax effect of income not taxable for tax purposes
Tax effect of estimated tax loss not provided
Tax effect of deferred tax assets not recognised
Tax effect of share of results of associates
(Over) underprovision in prior years
Prior years provision
Others
2006
HK$’000
2005
HK$’000
3,797,881
5,175,884
664,629
1,254
(16,980 )
(62,224 )
1,753
143
(21,009 )
(924 )
–
(8,300 )
905,779
19,721
(29,002 )
(103,487 )
195
10,436
(42,237 )
25
103,000
(7,847 )
Taxation for the year
558,342
856,583
In addition to the amount charged to the consolidated income statement, deferred tax relating to the revaluation of the
Group’s leasehold buildings has been charged directly to equity (see note 28).
At the date of issue of the consolidated financial statements, the Group has disputes with the Hong Kong Inland Revenue
Department regarding additional tax assessments for prior years. A tax provision of HK$193 million has been made in
previous years.
However, it remains the Directors’ view that there still have ample grounds to contest the assessments based on tax
principles as well as facts and the Group will continue to pursue the objection against the additional assessments
vigorously.
9 5
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
11. PROFIT FOR THE YEAR
Profit for the year has been arrived at after charging (crediting):
Staff costs
Retirement benefits scheme contributions (note 32)
Forfeited contributions (note 32)
Share based payments
Amortisation of prepaid lease payments
Depreciation for property, plant and equipment
Revaluation deficit (reversal of revaluation deficit) on building for own use
Auditor’s remuneration
Gross rental income from investment properties
Less: Direct operating expenses that generated rental income
Direct operating expenses that did not generate rental income
Dividends from
– listed investments
– unlisted investments
Interest income
Share of tax of an associate (included in share of results of associates)
Recovery of a loan to an associate
Loss on disposal of property, plant and equipment
Net foreign exchange (gain) loss
12. DIVIDENDS
Dividends recognised as distribution during the year:
Interim dividend paid – HK10 cents per share (2005: HK10 cents)
Additional prior year’s dividend paid on exercise of share options
subsequent to 31 December 2005
2005 Final dividend paid – HK35 cents per share
2004 Final dividend paid – HK30 cents per share
2006
HK$’000
2005
HK$’000
133,976
5,230
(2,876 )
4,382
131,354
5,301
(3,789 )
2,171
140,712
135,037
163
6,738
58
1,770
163
5,787
(65 )
1,740
(1,267,576 )
234,156
6,405
(1,249,392 )
233,575
3,776
(1,027,015 )
(1,012,041 )
(41,081 )
(20 )
(41,101 )
(18,075 )
57,090
(87,043 )
432
(287 )
(33,714 )
–
(33,714 )
(2,914 )
107,646
–
9
19
2006
HK$’000
2005
HK$’000
105,461
105,224
45
368,641
–
–
–
314,989
474,147
420,213
Final dividend proposed – HK40 cents per share (2005: HK35 cents)
422,055
368,641
The 2006 final dividend of HK40 cents (2005: HK35 cents) per share has been proposed by the Directors and is subject to
approval by the shareholders in general meeting. The proposed final dividend for 2006 will be payable in cash with a scrip
dividend alternative.
9 6
HYS AN ANN UA L REPORT 200 6
12. DIVIDENDS continued
During the year, scrip dividend alternatives were offered to shareholders in respect of the 2005 final and 2006 interim
dividends. These alternatives were accepted by the shareholders as follows:
Dividends:
Cash
Share alternative (note 29)
2006
Interim
HK$’000
2005
Final
HK$’000
95,430
10,031
340,330
28,311
105,461
368,641
13. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is
based on the following data:
Earnings for the purposes of basic and diluted earnings
per share (profit for the year attributable to equity
holders of the parent)
Weighted average number of ordinary shares for the
purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
Weighted average number of ordinary shares for the
purposes of diluted earnings per share
2006
HK$’000
2005
HK$’000
3,098,789
4,120,555
2006
’000
2005
’000
1,054,166
1,051,502
924
682
1,055,090
1,052,184
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 average market price per share.
For the purpose of assessing the underlying performance of the Group, the management is of the view that the profit for
the year should be adjusted for fair value changes on investment properties and related deferred taxation in arriving at
“Underlying profit attributable to equity holders of the parent”. In 2006, net realised gain on disposal of available for sale
investments and investment properties and recovery of a loan to an associate should also be adjusted in arriving at “Profit
excluding asset value changes attributable to the equity holders of the parent”. In 2005, net realised gain on disposal of
investment properties and prior year tax provision was adjusted in arriving at “Profit excluding asset value changes and
prior year tax provision attributable to the equity holders of the parent”. The difference between the underlying profit,
profit excluding asset value changes and profit attributable to equity holders of the parent as shown in the consolidated
income statement for the year is reconciled as follows:
9 7
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
13. EARNINGS PER SHARE continued
Profit attributable to equity holders of the parent as shown in
the consolidated income statement
Gain arising from fair value changes on investment properties
Increase in deferred taxation in relation to fair value gain on
investment properties
Gain arising from fair value changes on investment properties net
of related deferred taxation attributable to minority interests
Gain arising from fair value changes on investment properties net
of related deferred taxation from an associate
Underlying profit attributable to equity holders of the parent
Recovery of a loan to an associate
Net realised gain on disposal of available for sale investments
Realised fair value gain on disposal of investment properties
Profit excluding asset value changes attributable to equity holders
of the parent
2006
HK$’000
Earnings
per share
(Basic)
HK cents
3,098,789
(2,575,420 )
293.96
(244.31 )
448,378
42.54
97,019
9.20
(56,521 )
(5.36 )
1,012,245
(87,043 )
(170,277 )
(191 )
96.03
(8.26 )
(16.15 )
(0.02 )
754,734
71.60
Profit attributable to equity holders of the parent as shown in the
consolidated income statement
Gain arising from fair value changes on investment properties
Less: Gain arising from fair value changes on disposed
2005
HK$’000
2005
HK$’000
4,120,555
(4,226,005 )
Earnings
per share
(Basic)
HK cents
391.87
(401.90 )
investment properties
467,019
(3,758,986 )
44.41
Increase in deferred taxation in relation to fair value gain on
investment properties
Gain arising from fair value changes on investment properties net
of related deferred taxation attributable to minority interests
Gain arising from fair value changes on investment properties net
of related deferred taxation from an associate
Underlying profit attributable to equity holders of the parent
Prior year tax provision
Realised fair value gain on disposal of investment properties
Profit excluding asset value changes and prior year tax
provision attributable to equity holders of the parent
668,351
63.56
156,874
14.92
(181,523 )
(17.26 )
1,005,271
103,000
(467,453 )
95.60
9.80
(44.46 )
640,818
60.94
9 8
HYS AN ANN UA L REPORT 200 6
14. INVESTMENT PROPERTIES
Fair Value
At 1 January
Additions
Adjustment resulted from cost variation
Disposals
Transfer to a group company
Reclassified from buildings (note 15)
Reclassified to buildings (note 15)
Fair value changes
The Group
The Company
2006
HK$’000
2005
HK$’000
2006
HK$’000
2005
HK$’000
29,815,430
84,816
(1,208 )
(1,491 )
–
–
–
2,575,611
27,916,790
385,662
(761 )
(2,727,166 )
–
30,500
(15,600 )
4,226,005
4,061,000
–
–
–
(4,061,000 )
–
–
–
3,510,000
220
–
–
–
–
–
550,780
At 31 December
32,473,158
29,815,430
–
4,061,000
The carrying value of investment properties shown above comprises:
Leasehold land in Hong Kong:
– Medium term lease
– Long lease
The Group
The Company
2006
HK$’000
2005
HK$’000
2006
HK$’000
2005
HK$’000
5,640,000
26,833,158
5,500,000
24,315,430
32,473,158
29,815,430
–
–
–
–
4,061,000
4,061,000
The fair value of the Group’s investment properties at 31 December 2006 have been arrived at on the basis of a valuation
carried out on that date by Knight Frank Petty Limited, an independent qualified professional valuer not connected
with the Group. Knight Frank Petty Limited has appropriate qualifications and recent experiences in the valuation of
similar properties in the relevant locations. The valuation, which conforms to Hong Kong Institute of Surveyors Valuation
Standards on Properties, was arrived at by reference to comparable market transactions and rental yield for similar
properties.
All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are
measured using the fair value model and are classified and accounted for as investment properties.
9 9
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
15. PROPERTY, PLANT AND EQUIPMENT
Buildings in
Hong Kong
under
long lease
HK$’000
Furniture,
fixtures and
equipment
HK$’000
Computers
HK$’000
Motor
vehicles
HK$’000
Total
HK$’000
69,592
–
–
(30,500 )
15,600
344
–
55,036
–
–
110
44,897
4,288
(147 )
17,362
2,523
(4 )
1,131
–
–
–
–
–
(70 )
48,968
4,634
(2,305 )
–
–
–
–
(28 )
19,853
921
(66 )
–
–
–
–
–
1,131
–
–
–
132,982
6,811
(151 )
(30,500 )
15,600
344
(98 )
124,988
5,555
(2,371 )
110
The Group
Cost or valuation
At 1 January 2005
Additions
Disposals
Reclassified to investment
properties (note 14)
Reclassified from investment
properties (note 14)
Surplus on revaluation
Disposal of subsidiaries
At 31 December 2005
Additions
Disposals
Surplus on revaluation
At 31 December 2006
55,146
51,297
20,708
1,131
128,282
Comprising:
At cost
At valuation 2006
Accumulated depreciation
At 1 January 2005
Provided for the year
Eliminated on disposals
Eliminated on revaluation
Disposal of subsidiaries
At 31 December 2005
Provided for the year
Eliminated on disposals
Eliminated on revaluation
–
55,146
51,297
–
20,708
–
1,131
–
73,136
55,146
55,146
51,297
20,708
1,131
128,282
–
977
–
(977 )
–
–
1,397
–
(1,397 )
40,747
1,921
(140 )
–
(53 )
42,475
2,319
(1,819 )
–
9,037
2,889
(2 )
–
(19 )
11,905
3,022
(60 )
–
1,131
–
–
–
–
1,131
–
–
–
50,915
5,787
(142 )
(977 )
(72 )
55,511
6,738
(1,879 )
(1,397 )
At 31 December 2006
–
42,975
14,867
1,131
58,973
Net book values
At 31 December 2006
55,146
8,322
5,841
At 31 December 2005
55,036
6,493
7,948
–
–
69,309
69,477
1 0 0
HYS AN ANN UA L REPORT 200 6
15. PROPERTY, PLANT AND EQUIPMENT continued
Furniture,
fixtures and
equipment
HK$’000
Computers
HK$’000
Motor
vehicles
HK$’000
Total
HK$’000
The Company
Cost
At 1 January 2005
Additions
Disposals
At 31 December 2005
Additions
Disposals
At 31 December 2006
Accumulated depreciation
At 1 January 2005
Provided for the year
Eliminated on disposals
At 31 December 2005
Provided for the year
Eliminated on disposals
At 31 December 2006
Net book values
At 31 December 2006
At 31 December 2005
20,958
1,425
(111 )
22,272
519
(1,314 )
16,687
2,439
–
19,126
874
(66 )
1,131
–
–
1,131
–
–
38,776
3,864
(111 )
42,529
1,393
(1,380 )
21,477
19,934
1,131
42,542
19,903
669
(111 )
20,461
674
(1,198 )
8,717
2,754
–
11,471
2,876
(60 )
1,131
–
–
1,131
–
–
29,751
3,423
(111 )
33,063
3,550
(1,258 )
19,937
14,287
1,131
35,355
1,540
5,647
1,811
7,655
–
–
7,187
9,466
The above items of property, plant and equipment are depreciated on a straight line basis at the following rate per annum:
Buildings
Furniture, fixtures and equipment
Computers
Motor vehicles
Over the shorter of the term of the lease, or 40 years
20%
20%
25%
The buildings of the Group were revalued at 31 December 2006 by Knight Frank Petty Limited, an independent
professional valuer, on market value basis. The surplus and deficit arising on revaluation of HK$1,565,000 and HK$58,000
(2005: surplus of HK$1,256,000 and HK$65,000) has been credited to the asset revaluation reserve and charged to
consolidated income statement respectively.
If the buildings of the Group had not been revalued, they would have been included in these financial statements at cost
less accumulated depreciation at HK$51,737,000 (2005: HK$53,350,000).
1 0 1
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
16. PREPAID LEASE PAYMENTS
The Group’s prepaid lease payments represent leasehold land in Hong Kong held under long lease.
The leasehold land is amortised on a straight line basis over the lease terms.
17. INVESTMENTS IN SUBSIDIARIES
Unlisted shares, at cost
The Company
2006
HK$’000
5
2005
HK$’000
5
Details of the principal subsidiaries held by the Company at 31 December 2006 are set out in note 38.
18. INVESTMENTS IN ASSOCIATES/AMOUNTS DUE FROM ASSOCIATES
Unlisted cost of investment in associates
Share of post acquisition profits and
reserves, net of dividend received
Less: Impairment loss
The Group
The Company
2006
HK$’000
2005
HK$’000
2006
HK$’000
2005
HK$’000
2,629
2,629
452,298
342,243
454,927
(11,358 )
344,872
(11,358 )
443,569
333,514
3
–
3
–
3
3
–
3
–
3
The amounts due from associates are unsecured and interest free.
At the balance sheet date, amounts due from associates amounting to HK$186,117,000 (2005: HK$171,131,000) and
HK$642,338,000 (2005: HK$642,596,000) are not recoverable within one year and are recoverable within one year
respectively.
The aggregate attributable share of results of the associates is based on the unaudited management accounts for the year
ended 31 December 2006.
1 0 2
HYS AN ANN UA L REPORT 200 6
18. INVESTMENTS IN ASSOCIATES/AMOUNTS DUE FROM ASSOCIATES continued
Details of the Group’s associates at 31 December 2006 are as follows:
Name of associate
Form of
business
structure
Place of
incorporation/
registration
and operation
Class of
share held/
registered capital
Percentage
of issued
capital/
registered
capital held
Parallel Asia Engineering
Company Limited
Private limited
company
Hong Kong
Share
25
Wingrove Investment Pte Ltd. Private company
limited by shares
Singapore
Share
25 *
Country Link Enterprises
Limited (“Country Link”)
Private limited
company
Hong Kong
Share
26.3 *
Shanghai Kong Hui Property
Development Co., Ltd.
Sino Foreign
equity joint
venture
The People’s US$165,000,000 #
Republic of
China
23.7 *
Shanghai Grand Gateway Plaza
Property Management Co.,
Ltd.
Sino Foreign
equity joint
venture
The People’s
Republic of
China
US$140,000 #
23.7 *
* Indirectly held
# Registered capital
The summarised financial information in respect of the Group’s associates is set out below:
Principal activity
Investment
holding
Property
development
and leasing
Investment
holding
Property
development
and leasing
Property
management
Total assets
Total liabilities
Net assets
Group’s share of net assets of associates
Turnover
Profit for the year
Group’s share of results of associates for the year
2006
HK$’000
2005
HK$’000
6,928,251
(4,721,330 )
6,531,050
(4,777,200 )
2,206,921
1,753,850
454,927
344,872
668,956
523,376
456,662
828,116
120,053
241,358
1 0 3
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
19. AVAILABLE-FOR-SALE INVESTMENTS
Listed investments:
– Equity securities listed in Hong Kong
Unlisted investments:
– Club debentures
Less: Impairment loss
– Unlisted shares
Less: Impairment loss
Amounts due therefrom
Total
Carrying amount analysed for reporting purposes as:
Non current
Unlisted investments:
– Club debentures
Less: Impairment loss
The Group
2006
HK$’000
2005
HK$’000
1,677,913
1,170,295
2,831
(800 )
2,831
(800 )
2,031
2,031
117,385
(60,333 )
117,385
(60,333 )
57,052
8,431
57,052
26,722
65,483
83,774
67,514
85,805
1,745,427
1,256,100
1,745,427
1,256,100
The Company
2006
HK$’000
2005
HK$’000
2,831
(800 )
2,831
(800 )
2,031
2,031
Carrying amount analysed for reporting purpose as:
Non current
2,031
2,031
At the balance sheet date, all available for sale investments are stated at fair value except for those unlisted equity
securities.
The unlisted equity investments represent investments in unlisted equity securities issued by private entities incorporated
in Singapore. They are measured at cost less impairment at each balance sheet date because the range of reasonable fair
value estimates is so significant that the management is of the opinion that their fair values cannot be measured reliably.
1 0 4
HYS AN ANN UA L REPORT 200 6
20. DERIVATIVE FINANCIAL INSTRUMENTS
The Group’s net fair values of derivative financial instruments at 31 December 2006 were as follows:
Current
Interest rate swaps
Cash flow hedges
Not designated as hedges
Foreign exchange derivatives
Cash flow hedges
Not designated as hedges
Equity derivatives
Not designated as hedges
Non current
Interest rate swaps
Cash flow hedges
Fair value hedges
Not designated as hedges
Foreign exchange derivatives
Cash flow hedges
Not designated as hedges
Cross currency swap
Fair value hedges
The Group
2006
Assets
HK$’000
2006
Liabilities
HK$’000
2005
Assets
HK$’000
2005
Liabilities
HK$’000
879
504
932
–
–
–
–
–
13,411
136
571
77
–
–
–
–
–
(39,495 )
–
(64,057 )
2,315
(39,495 )
14,195
(64,057 )
–
–
–
–
(3,529 )
–
1,299
–
(815 )
(31,913 )
18,522
–
718
2,395
–
–
(10,812 )
–
–
(24,194 )
1,175
(8,303 )
10,369
(4,796 )
2,474
(44,560 )
32,004
(39,802 )
Total
4,789
(84,055 )
46,199
(103,859 )
Interest rate swaps
The aggregate notional amount of the outstanding interest rate swaps as at 31 December 2006 was HK$1,164,238,000
(2005: HK$2,423,492,000). Those instruments comprise fixed to floating interest rate swaps, floating to fixed interest rate
swaps and average HIBOR swaps. The floating to fixed interest rate swaps were designated as hedging the interest rate
risk of the floating borrowings including bank loans and the floating rate notes. The fixed to floating interest rate swap
was entered into to hedge the fair value risk of the zero coupon notes. The average HIBOR swaps do not qualify for hedge
accounting.
At the balance sheet date, fair value gains of HK$873,000 (2005: HK$31,965,000) from the interest rate swaps under
cash flow hedges have been deferred in equity and are expected to be released to the consolidated income statement at
various dates during the lives of the swaps when the hedged interest payable occur.
The maturity periods of interest rate swaps at notional amount at 31 December 2006 were as follows:
Within one year
Between one and five years
Beyond five years
The Group
2006
HK$’000
2005
HK$’000
948,983
–
215,255
970,000
1,248,983
204,509
1,164,238
2,423,492
1 0 5
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
20. DERIVATIVE FINANCIAL INSTRUMENTS continued
Interest rate swaps continued
At 31 December 2006, the floating to fixed interest rate swaps locked in the interest rates ranging from 2.11% to 2.45%
(2005: 2.11% to 2.85%). The average HIBOR swaps swapped the HIBOR into average HIBOR with the effective rates for the
year ranging from 3.98% to 4.44% (2005: 0.3% to 4.1%). The fixed to floating swap converted a fixed rate of 5.19% to
HIBOR plus 0.69% for both years.
The above derivatives are measured at fair value, as calculated by the present value of the estimated future cash flow at
each balance sheet date or as determined by independent financial institutions.
Foreign exchange derivatives
The aggregate notional amount of the outstanding foreign exchange derivatives at 31 December 2006 was
HK$1,605,831,000 (2005: HK$1,711,097,000). Those instruments, which comprise forward foreign exchange contracts,
cross currency swaps and net basis swaps, are mainly used for managing the foreign exchange risk of the outstanding
US$182 million (2005: US$200 million) fixed rate notes. Out of the US$182 million (2005: US$200 million), the foreign
exchange exposures on the principal and the coupons of the US$117 million (2005: US$135 million) fixed rate notes are
hedged by the cross currency swaps. The forward foreign exchange contracts are mainly designated to hedge the foreign
exchange rate risk arising from the coupon payments of the remaining US$65 million (2005: US$65 million) fixed rate
notes. The net basis swaps which are used to eliminate the foreign exchange exposures on the principal part of the US$65
million (2005: US$65 million) fixed rate notes were not designated as hedging instruments for hedge accounting purpose.
At 31 December 2006, fair value gains of HK$1,416,000 (2005: HK$2,966,000) from the forward foreign exchange
contracts under cash flow hedges have been deferred in equity and are expected to be released to the consolidated income
statement at various dates when the coupon payments of the US$65 million (2005: US$65 million) fixed rate notes occur.
The maturity periods of the foreign exchange derivatives at notional amount at 31 December 2006 were as follows:
Within one year
Between one and five years
Beyond five years
The Group
2006
HK$’000
2005
HK$’000
34,275
137,526
1,434,030
48,722
102,398
1,559,977
1,605,831
1,711,097
The above derivatives are measured at fair value, as calculated by the foreign exchange rates and the present value of the
estimated future cash flow at each balance sheet date.
Equity derivatives
The aggregate notional amount of the outstanding equity derivatives at 31 December 2006 was HK$95,205,000 (2005:
HK$196,300,000). The existing equity derivatives were not designated as hedging instrument according to HKAS 39.
The above derivatives are measured at fair value, as determined by an independent financial institution.
21. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Accounts receivable are mainly in respect of rents which are normally received in advance. Rents in arrears of the Group
and the Company as at 31 December 2006 and 2005 were aged less than 90 days.
22. TIME DEPOSITS AND CASH AND BANK BALANCES
Time deposits and cash and bank balances comprise cash and short term bank deposits carrying effective interest ranging
from 3.7% to 3.9% (2005: 3.5% to 4.0%) with an original maturity of three months or less.
1 0 6
HYS AN ANN UA L REPORT 200 6
23. ACCOUNTS PAYABLE AND ACCRUALS
Accounts payable and accruals of the Group as at 31 December 2006 and 2005 were aged less than 90 days.
24. AMOUNTS DUE FROM/TO SUBSIDIARIES
The amounts are unsecured, interest free and are recoverable on demand.
25. ADVANCES FROM INVESTEES
The advances are unsecured, interest free and are repayable within one year.
26. BORROWINGS
The analysis of the carrying amount of borrowings is as follows:
Bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Notes:
(a) Bank loans
Bank loans, unsecured
The bank loans are repayable as follows:
More than two years, but not exceeding five years
More than five years
Notes
(a)
(b)
(c)
(d)
The Group
2006
HK$’000
2005
HK$’000
720,000
548,730
1,337,323
214,568
2,056,500
548,213
1,499,591
196,219
2,820,621
4,300,523
The Group
2006
HK$’000
2005
HK$’000
720,000
2,056,500
720,000
–
1,406,500
650,000
Amounts due after one year shown under non current liabilities
720,000
2,056,500
At the balance sheet date, all the above bank loans are variable rate borrowings with effective interest rates (which are also equal to
contracted interest rates) ranging from 4.39% to 4.58% (2005: 4.53% to 4.74%) denominated in Hong Kong Dollars. Interest is normally
refixed at every one to six months.
At 31 December 2006, the interest rate risk of certain bank loans was hedged by interest rate swaps (floating to fixed interest rate swaps)
(see note 20).
(b) Floating rate notes
Floating rate notes
The Group
2006
HK$’000
2005
HK$’000
548,730
548,213
Hysan (MTN) Limited, a wholly owned subsidiary of the Company, issued HK$550 million five year floating rate notes in 2004. The notes,
which are guaranteed as to principal and interest by the Company, bear effective interest rates (which are equal to contracted interest
rates) ranging from 4.24% to 5.04% (2005: 0.65% to 4.60%) and are repayable in full in 2009.
The Group has entered into an interest rate swap to hedge against the interest rate risk of certain floating rate notes (see note 20).
1 0 7
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
26. BORROWINGS continued
Notes: continued
(c) Fixed rate notes
Fixed rate notes
Less: Notes repurchased and cancelled
Net gain attributable to hedged risks (Note)
The Group
2006
HK$’000
2005
HK$’000
1,555,406
(140,398 )
(77,685 )
1,553,967
–
(54,376 )
1,337,323
1,499,591
Hysan (MTN) Limited, a wholly owned subsidiary of the Company, issued US$200 million 10 year fixed rate notes in February 2002. The
notes, which are guaranteed as to principal and interest by the Company, bear an effective interest rate (which is equal to contracted
interest rate) of 7% per annum and are repayable in full in February 2012. During the year ended 31 December 2006, a total nominal
amount of US$18 million has been repurchased and cancelled. As at 31 December 2006, the outstanding nominal amount of the notes
was US$182 million.
The Group has entered into forward foreign exchange contracts to hedge against the foreign exchange rate risk of the coupon payments of
the US$65 million fixed rate notes and the contracts are accounted for as cash flow hedges (see note 20).
The Group has also entered into cross currency swaps to hedge against the interest rate and foreign exchange rate risk in relation to the
principal repayment and coupon payments of US$117 million (2005: US$135 million) of the fixed rate notes under fair value hedge (see
note 20).
Note: The HK$77,685,000 (2005: HK$54,376,000) represented gains in fair value of the hedged interest rate and foreign exchange rate
risk of the US$117 million (2005: US$135 million) fixed rate notes that were designated as the hedged instrument of fair value
hedge.
(d) Zero coupon notes
Zero coupon notes
Less: Net gain attributable to hedged risk (Note)
The Group
2006
HK$’000
2005
HK$’000
218,202
(3,634 )
207,114
(10,895 )
214,568
196,219
Hysan (MTN) Limited, a wholly owned subsidiary of the Company, issued 15 year zero coupon notes of nominal amount of HK$430 million
at an issue price of around 46.37% in February 2005. The notes, which are guaranteed as to the nominal amount by the Company, bear an
effective yield (which is equal to contracted yield) at the rate of 5.19% per annum and are repayable at par in February 2020. Hysan (MTN)
Limited has the option to redeem the notes on 7 February 2015 at a price of about 77.4% of the nominal amount.
The Group has entered into interest rate swap to hedge against the interest rate risk of the zero coupon notes under fair value hedges (see
note 20).
Note: The HK$3,634,000 (2005: HK$10,895,000) represented gains in fair value attributable to the hedged interest rate risk of the zero
coupon notes under fair value hedge.
27. AMOUNTS DUE TO MINORITY SHAREHOLDERS
The amounts are unsecured, interest free and are repayable within one year. At 31 December 2005, the amounts were
classified as non current and were not repayable within one year.
1 0 8
HYS AN ANN UA L REPORT 200 6
28. DEFERRED TAXATION
The following are the major deferred tax liabilities (assets) recognised by the Group and the Company and movements
thereon during the year:
Accelerated
tax
depreciation
HK$’000
Revaluation
of
properties
HK$’000
Retirement
benefits
scheme
contributions
HK$’000
Tax
losses
HK$’000
Total
HK$’000
222,713
1,993,852
(1 )
(15,621 )
2,200,943
The Group
At 1 January 2005
Charge to income for the year
(Note 10)
Charge to equity for the year
At 31 December 2005
Charge to income for the year
(Note 10)
Charge to equity for the year
1,236
–
663,448
220
223,949
2,657,520
19,906
–
448,378
274
At 31 December 2006
243,855
3,106,172
The Company
At 1 January 2005
Charge to income for the year
At 31 December 2005
Credit to income for the year
At 31 December 2006
1
–
–
–
–
–
13,603
–
678,288
220
(2,018 )
2,879,451
819
–
469,103
274
(1,199 )
3,348,828
Accelerated
tax
depreciation
HK$’000
Revaluation
of
properties
HK$’000
Total
HK$’000
9,069
1,338
383,284
96,386
392,353
97,724
10,407
(10,246 )
479,670
(479,670 )
490,077
(489,916 )
161
–
161
At 31 December 2006, the Group has unused estimated tax losses of HK$456 million (2005: HK$556 million) available for
offset against future profits. A deferred tax asset has been recognised in respect of HK$7 million (2005: HK$12 million)
of such losses. No deferred tax asset has been recognised in respect of the remaining estimated tax losses of HK$449
million (2005: HK$544 million) as the utilisation of these estimated tax losses is uncertain. These estimated tax losses
may be carried forward indefinitely.
At 31 December 2006, the Group has deductible temporary differences of HK$49 million (2005: HK$60 million). No
deferred tax asset has been recognised in relation to such deductible temporary differences as it is not probable that
taxable profit will be available against which the deductible temporary differences can be utilised.
The Company does not have any unused tax loss as at balance sheet date.
1 0 9
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
29. SHARE CAPITAL
Ordinary shares of HK$5 each
Authorised:
At 1 January and 31 December
Issued and fully paid:
At 1 January
Issue of shares pursuant to scrip
dividend scheme
Exercise of share options
Number of shares
Share capital
2006
’000
2005
’000
2006
HK$’000
2005
HK$’000
1,450,000
1,450,000
7,250,000
7,250,000
1,053,261
1,049,964
5,266,304
5,249,818
1,700
176
3,297
–
8,502
881
16,486
–
At 31 December
1,055,137
1,053,261
5,275,687
5,266,304
On 9 June 2006 and 3 October 2006 respectively, the Company issued and allotted a total of 1,217,135 shares and
483,166 shares of HK$5 each in the Company at HK$23.26 and HK$20.76 to the shareholders who elected to receive
shares in the Company in lieu of cash for the 2005 final and 2006 interim dividends pursuant to the scrip dividend scheme
announced by the Company on 9 May 2006 and 29 August 2006.
During the year, options to subscribe for a total of 128,267 shares and 48,000 shares were exercised at the exercise prices
of HK$15.85 and HK$18.79 per share respectively. Details of options outstanding and movements during the year are set
out in note 37.
These shares rank pari passu in all respects with other shares in issue.
None of the Company’s subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year.
1 1 0
HYS AN ANN UA L REPORT 200 6
30. RESERVES OF THE COMPANY
The distributable reserves of the Company as at 31 December 2006 amounted to HK$5,574,477,000, being its retained
profits and general reserve at that date (2005: HK$3,111,988,000, excluded unrealised fair value changes on investment
properties and related deferred taxation).
Capital
Share redemption
reserve
HK$’000
premium
HK$’000
General
reserve
HK$’000
(Note)
Employee
Dividend share based
reserve compensation
HK$’000
HK$’000
Retained
profits
HK$’000
Total
HK$’000
1,380,278
154,995
100,000
314,989
– 5,103,500 7,053,762
At 1 January 2005
Premium on issue of shares
pursuant to scrip dividend
scheme
Share issue expenses
Recognition of equity settled
share based payments
Final dividend for 2004 distributed
Interim dividend for 2005
distributed
Dividend for 2005 declared
Profit for the year
40,186
(40 )
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(314,989 )
2,171
–
–
–
–
–
40,186
(40 )
2,171
(314,989 )
(105,224 )
473,865
–
–
–
–
–
(473,865 )
643,656
(105,224 )
–
643,656
At 31 December 2005
Premium on issue of shares
pursuant to scrip dividend
scheme
Premium on issue of shares on
exercise of share options
Share issue expenses
Share options lapsed during
the year
Recognition of equity settled
share based payments
Final dividend for 2005
distributed
Interim dividend for 2006
distributed
Dividend for 2006 declared
Profit for the year
1,420,424
154,995
100,000
368,641
2,171 5,273,291 7,319,522
29,841
3,031
(32 )
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29,841
(978 )
–
–
–
2,053
(32 )
(13 )
13
–
4,382
–
4,382
–
(368,641 )
–
–
–
(105,461 )
527,516
–
–
–
–
–
(45 )
(368,686 )
–
(527,516 )
728,734
(105,461 )
–
728,734
At 31 December 2006
1,453,264
154,995
100,000
422,055
5,562 5,474,477 7,610,353
Note: General reserve was set up from the transfer of retained profits.
1 1 1
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
31. DISPOSAL OF SUBSIDIARIES
The net assets of the wholly owned subsidiaries at the date of disposal were as follows:
Net assets disposed of
Investment properties
Property, plant and equipment
Other receivables, prepayments and deposits
Accounts receivable
Accounts payable and accruals
Rental deposits from tenants
Amounts due to group companies
Total consideration
Satisfied by:
Cash
Amounts due to group companies waived
2006
HK$’000
2005
HK$’000
–
–
–
–
–
–
–
–
–
–
–
2,699,341
26
3,839
602
(445 )
(23,796 )
(1,149,264 )
1,530,303
2,679,567
(1,149,264 )
1,530,303
Net cash inflow arising on disposal:
Cash consideration received during the year ended 31 December 2005
–
2,679,567
In 2005, the disposed wholly owned subsidiaries contributed HK$455,550,000 and HK$2,679,567,000 to the Group’s
profit and cash flows respectively.
32. RETIREMENT BENEFITS PLANS
With effect from 1 December 2000, the Group set up an enhanced MPF scheme (the “Enhanced MPF Scheme”), a defined
contribution scheme, for all qualifying employees. The Enhanced MPF Scheme is registered with the Mandatory Provident
Fund Schemes Authority under Section 124 (1) of the Mandatory Provident Fund Schemes (General) Regulation.
Pursuant to the rules of the Enhanced MPF Scheme, the Group’s contributions to the plan are based on fixed percentages
of members’ salaries, 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.
Total contributions made by the Group during the year amounted to HK$5,230,000 (2005: HK$5,301,000). Forfeited
contributions for the year amounted to HK$2,876,000 (2005: HK$3,789,000) were refunded to the Group.
1 1 2
HYS AN ANN UA L REPORT 200 6
33. CONTINGENT LIABILITIES
At the balance sheet date, there were contingent liabilities in respect of the following:
Corporate guarantee to a third party
in respect of the sale of the interest
in an associate
Corporate guarantee to subsidiaries
– for issue of floating rate notes
– for issue of fixed rate notes
– for issue of zero coupon notes
Undertaking given to a bank in
proportion to shareholding regarding
facilities granted to a joint venture
property project of an associate
Guarantees to banks to provide
financing facilities to
– an associate
– subsidiaries
The Group
The Company
2006
HK$ million
2005
HK$ million
2006
HK$ million
2005
HK$ million
4.1
4.0
4.1
4.0
–
–
–
–
–
–
–
–
–
550.0
1,415.2
430.0
550.0
1,550.9
430.0
86.7
–
–
56.0
–
–
720.0
56.0
2,056.5
34. CAPITAL COMMITMENTS
At the balance sheet date, the Group and the Company had capital commitments in respect of the following:
The Group
The Company
2006
HK$ million
2005
HK$ million
2006
HK$ million
2005
HK$ million
Investment properties:
Authorised but not contracted for
1,011.9
–
Contracted but not provided for
152.9
69.0
–
–
–
33.5
35. LEASE COMMITMENTS
The Group and the Company as lessee
At the balance sheet date, 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
The Company
2006
HK$’000
2005
HK$’000
–
–
–
–
–
–
2006
HK$’000
14,665
20,166
34,831
2005
HK$’000
4,602
1,445
6,047
Operating lease payments represent rentals payable by the Company to its subsidiaries for its staff quarters and office
premises which are negotiated and fixed for two years and three years respectively.
1 1 3
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
35. LEASE COMMITMENTS continued
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:
Within one year
In the second to fifth year inclusive
After five years
The Group
The Company
2006
HK$’000
2005
HK$’000
2006
HK$’000
830,532
1,134,218
52,791
735,027
874,567
66,897
2,017,541
1,676,491
–
–
–
–
2005
HK$’000
92,906
54,877
–
147,783
Operating lease payments represent rentals receivable by the Group from its investment properties. Leases are negotiated
and rentals are fixed for an average of one to three years.
36. RELATED PARTY TRANSACTIONS AND BALANCES
Related party transactions
During the year, the Group has the following transactions with related parties:
Expenses paid to
Gross rental income from
Construction cost paid for
investment properties
Notes
(a)
(b)
(c)
Substantial shareholder
Directors
2006
HK$’000
2005
HK$’000
2006
HK$’000
–
–
142
2005
HK$’000
73
5,953
4,669
23,283
22,705
–
–
–
10,894
At the balance sheet date, the Group has the following balances with related parties:
Expenses payable to
Construction cost payable to
Amount due to a minority shareholder
Notes
(a)
(c)
(d)
Substantial shareholder
Directors
2006
HK$’000
2005
HK$’000
–
–
–
–
–
–
2006
HK$’000
–
2005
HK$’000
48
1,554
1,554
94,443
94,443
Notes:
(a) These transactions were provision of services carried out in the normal course of business.
(b) The Group has, in the ordinary course of its business, entered into lease agreements with related parties to lease premises for varying
periods. The leases were entered into in the normal course of business.
(c) Dr. Geoffrey M.T. Yeh (and his alternate, V nee Yeh) are substantial shareholders and V nee Yeh is also Chairman of Hsin Chong
Construction Group Ltd., whose wholly owned subsidiary, Hsin Chong Construction (Asia) Limited (“Hsin Chong Asia”), entered into a
main contract with a subsidiary of the Company relating to the renovation project of Lee Gardens Two.
The sum represented the sum paid to, or as the case may be, outstanding balances due under the main contract with Hsin Chong Asia.
To the best of the Company’s knowledge having made due enquiries, substantially the whole of such contracts were sub contracted by
Hsin Chong Asia to other sub contractors. The sum is not the indicative of the amount actually derived by Hsin Chong Asia under the
relevant contract, which amount is substantially less than the relevant contract sum.
(d) The sum represents outstanding loan advanced by Jebsen and Company Limited to a non wholly owned subsidiary of the Group,
Barrowgate Limited, in proportion to its shareholding for general funding purpose. The amount is unsecured, interest free and is
repayable within one year. At 31 December 2005, the amount was classified as non current and was not repayable within one year.
Hans Michael Jebsen is a director and shareholder of Jebsen and Company Limited.
1 1 4
HYS AN ANN UA L REPORT 200 6
36. RELATED PARTY TRANSACTIONS AND BALANCES continued
Related party transactions continued
At the balance sheet date, the Company has the following balances with related parties:
Amounts due from subsidiaries
Less: Allowances on amounts due therefrom
Amounts due to subsidiaries
2006
HK$’000
2005
HK$’000
13,345,557
(329,000 )
8,278,195
(329,000 )
13,016,557
7,949,195
104,371
21,280
Details of amounts due from and due to subsidiaries are set out in note 24 to the financial statements.
Compensation of key management personnel
The remuneration of directors and other members of key management of the Group and the Company during the year was
as follows:
Salaries and other short term employee benefits
Share based payments
Retirement benefits scheme contributions
2006
HK$’000
24,628
3,310
299
2005
HK$’000
21,125
1,498
265
28,237
22,888
The remuneration of the Directors and key executives is determined by the Emoluments Review Committee and Managing
Director respectively having regard to the performance of individuals and market trends.
37. SHARE-BASED PAYMENT TRANSACTIONS
Equity settled share option scheme
The 1995 Share Option Scheme (“the 1995 Scheme”)
The Company operates an Executive Share Option Scheme which was approved by shareholders on 28 April 1995 and had
a term of 10 years. The 1995 Scheme expired on 28 April 2005. All outstanding options granted under the 1995 Scheme
will continue to be valid and exercisable in accordance with the provisions of the 1995 Scheme.
The purpose of the 1995 Scheme was to strengthen the links between individual staff and shareholder interests.
Under the 1995 Scheme, options may be granted to employees of the Company or any of its wholly owned subsidiaries
selected by the Board at its discretion to subscribe for ordinary shares of the Company.
The maximum number of shares in respect of which options may be granted under the 1995 Scheme (together with
shares issued and issuable under the scheme) is 3% of the issued share capital of the Company (excluding shares issued
pursuant to the scheme and any other share option scheme) from time to time. The maximum number of shares issued
under the scheme and other scheme will not exceed 10% of the issued share capital of the Company from time to time
(excluding shares issued pursuant to the scheme and any other share option scheme).
The maximum entitlement of each participant under the 1995 Scheme is 25% of the maximum number of shares in
respect of which options may at any time be granted under the 1995 Scheme. Under the 1995 Scheme, the exercise price
was initially fixed at 80% of the average of the closing prices of the shares on the Stock Exchange for the 20 trading days
immediately preceding the date of grant or the nominal value of a share whichever is the greater. The exercise price for
options granted after 1 September 2001 was amended to comply with amendments to the Listing Rules. 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.
Grants made prior to 8 March 2005 are subject to a five year vesting period and a bar on the exercise of options within the
first two years of their issue.
1 1 5
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
37. SHARE-BASED PAYMENT TRANSACTIONS continued
Equity settled share option scheme continued
The 2005 Share Option Scheme (“the 2005 Scheme”)
The Company adopted a new share option scheme (the “2005 Scheme” and together with the 1995 Scheme are referred
to as “the Schemes”) at the Annual General Meeting (“AGM”) held on 10 May 2005, which has a term of 10 years and will
expire on 9 May 2015.
The purpose of the 2005 Scheme is to provide an incentive for employees of the Company and its wholly owned
subsidiaries to work with commitment towards enhancing the value of the Company and its shares for the benefit of its
shareholders.
Under the 2005 Scheme, options may be granted to employees of the Company or any wholly owned subsidiaries (including
executive Directors) and such other persons as the Board may consider appropriate from time to time on the basis of their
contribution on the development and growth of the Company and the subsidiaries to subscribe for ordinary shares of the
Company.
The maximum number of shares in respect of which options may be granted under the 2005 Scheme and any other share
option scheme of the Company shall not exceed such number of shares as required under the Listing Rules, currently
being 10% of the shares in issue (being 104,996,365 shares) as at 10 May 2005, the date of the AGM approving the 2005
Scheme. Under the Listing Rules, a listed issuer may seek approval by its shareholders in general meeting for “refreshing”
the 10% limit under the scheme. The limit on the number of shares which may be issued upon exercise of all outstanding
options granted and yet to be exercised under the 2005 Scheme and any other share option scheme of the Company must
not exceed 30% of the shares in issue from time to time (or such number of shares as required under the Listing Rules).
No options may be granted if such grant will result in this 30% limit being exceeded.
The maximum entitlement of each participant under the 2005 Scheme must not during any 12 month period exceed
such number of shares as required under the Listing Rules (which is 1% of the total shares in issue as at the date of
shareholders’ approval). The exercise price shall be at least the highest of (i) the closing price of the shares as stated in
the Stock Exchange’s daily quotations sheet on the date of grant; (ii) the average of the closing prices of the shares as
stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant;
and (iii) the nominal value of the shares. Consideration to be paid on each grant of option is HK$1.00, with full payment
for exercise price to be made on exercise of the relevant option.
Grant and vesting structures
With effect from 8 March 2005, the Board has approved a new grant vesting structure. Grants will be made on a periodic
basis. Vesting period is three years in equal proportion. Size of grant will be determined by reference to base salary
multiple and job grades. A clear performance criterion will be a key driver. The Board will review the grant and vesting
structures from time to time.
1 1 6
HYS AN ANN UA L REPORT 200 6
37. SHARE-BASED PAYMENT TRANSACTIONS continued
Grant and vesting structures continued
The following table discloses movements of the Company’s share options held by the Directors and employees during the
current year:
Name
1995 Scheme
Executive Director
Peter T.C. Lee
(note a)
Balance
as at
1.1.2006
Date
of grant
Changes during the year
Balance
Cancelled/
Granted Exercised
lapsed 31.12.2006
as at Exercise
price
HK$
1,350,000
7.1.1999
Nil
Nil
Nil 1,350,000
9.22
Exercise
period
7.1.2001–
6.1.2009
Eligible employees
535,000 30.3.2005
Nil 128,267
(note d)
5,400 401,333
(note e)
15.85 30.3.2005 –
29.3.2015
(note b)
2005 Scheme
Executive Director
Michael T.H. Lee
(note c)
240,000 10.5.2005
Nil
Nil 30.3.2006 188,000
Nil
Nil
Nil 240,000
Nil 188,000
16.60 10.5.2005 –
9.5.2015
22.00 30.3.2006 –
29.3.2016
9.8.2005 –
8.8.2015
(note g)
18.79
Eligible employees
144,000
9.8.2005
(note b)
120,000 12.10.2005
Nil
Nil
48,000
(note f)
Nil
Nil
96,000
Nil 120,000
18.21 12.10.2005 –
Nil 30.3.2006 361,000
Nil 26.6.2006 110,000
Nil
Nil
36,000 325,000
(note e)
Nil 110,000
2,389,000
659,000 176,267
41,400 2,830,333
(note g)
11.10.2015
22.00 30.3.2006 –
29.3.2016
20.11 26.6.2006 –
25.6.2016
(note h)
Notes:
(a) Options granted to Peter T.C. Lee were under the 1995 Scheme with a holding period of 2 years and a vesting period of 5 years in
equal proportions (i.e. 20% of the options will be vested in each year).
(b) Eligible Employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance. The options granted under the Schemes have vesting periods of 3 years in equal proportions (i.e. 33% of the
options will be vested in the first year, second year and third year respectively).
(c) Options granted to Michael T.H. Lee were under the 2005 Scheme with a vesting period of 3 years in equal proportions.
(d) The weighted average closing price of the shares of the Company immediately before the dates on which the options was exercised was
HK$22.09.
(e) The options for 41,400 shares lapsed during the year upon the resignation of certain Eligible Employees.
(f) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised
was HK$21.00.
(g) The closing price of the shares of the Company immediately before the date of grant (as of 29 March 2006) was HK$22.45.
(h) The closing price of the shares of the Company immediately before the date of grant (as of 23 June 2006) was HK$20.25.
1 1 7
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
37. SHARE-BASED PAYMENT TRANSACTIONS continued
Grant and vesting structures continued
The following table discloses movements of the Company’s share options held by the Directors and employees in prior
year:
Name
1995 Scheme
Executive Directors
Peter T.C. Lee
Balance
as at
1.1.2005
Date
of grant
Changes during the year
Balance
Cancelled/
Granted Exercised
lapsed 31.12.2005
as at Exercise
price
HK$
1,350,000
7.1.1999
Nil
Nil
Nil 1,350,000
9.22
Exercisable
period
(note)
7.1.2001 –
6.1.2009
Eligible employees
Nil 30.3.2005 675,000
Nil 140,000 535,000
15.85 30.3.2005 –
29.3.2015
2005 Scheme
Executive Directors
Michael T.H. Lee
Nil 10.5.2005 240,000
Eligible employees
Nil
9.8.2005 144,000
Nil 12.10.2005 120,000
Nil
Nil
Nil
Nil 240,000
Nil 144,000
Nil 120,000
18.79
16.60 10.5.2005 –
9.5.2015
9.8.2005 –
8.8.2015
18.21 12.10.2005 –
11.10.2015
1,350,000
1,179,000
Nil 140,000 2,389,000
Note:
As at 31 December 2005, options granted to Peter T.C. Lee are subject to a five year vesting period and a bar on the exercise of options
within the first two years of their issue. All other options are subject to a vesting period of 3 years in equal proportions.
The Group has applied HKFRS 2 “Share based Payments” to account for its share options granted after 7 November 2002 and vested
after 1 January 2005. In accordance with HKFRS 2, fair value of share options granted to employees determined at the date of grant
is expensed over the vesting period, with a corresponding adjustment to the Group’s employee share based compensation reserve. In
the current year, the Group recognised the share option expenses of HK$4,382,000 (2005: HK$2,171,000) in relation to share options
granted by the Company, of which HK$1,171,000 (2005: HK$524,000) related to a Director (see note 7), with a corresponding adjustment
recognised in the Group’s employee share based compensation reserve.
The Company has used the Black Scholes option pricing model (the “Model”) to value the share options granted during the year. The
Model is one of the commonly used models to estimate the fair value of an option. The variables and assumptions used in computing the
fair value of the share options are based on the directors’ best estimate. The value of an option varies with different variables of certain
subjective assumptions. Any change in the variables so adopted may materially affect the estimation of the fair value of an option.
1 1 8
HYS AN ANN UA L REPORT 200 6
37. SHARE-BASED PAYMENT TRANSACTIONS continued
Grant and vesting structures continued
Details of the fair values of share options determined at the date of grant using the Model with significant variables and
assumptions are as follows:
Closing share price at the date of grant
Exercise price
Risk free rate (note a)
Expected life of option (note b)
Expected volatility (note c)
Date of grant
30.3.2006
26.6.2006
HK$22.00
HK$20.00
HK$22.00
HK$20.11
4.539%
4.915%
10 years
(till 29 March
2016)
10 years
(till 25 June
2016)
27.04%
32.00%
Expected dividend per annum (note d)
HK$0.390
HK$0.392
Estimated fair values of options granted
HK$4,271,220
HK$859,247
Closing share price immediately before date of grant
HK$22.45
HK$20.25
Notes:
(a) Risk free rate: being the approximate yields of 10 year Exchange Fund Notes traded on the date of grant, matching the expected life of
each option.
(b) Expected life of option: being the period of 10 years commencing on the date of grant, adjusted based on management’s best
estimates for the effects of non transferability, exercise restriction and behavioural consideration.
(c) Expected volatility: being the approximate historical volatility of closing prices of the share of the Company in the past one year
immediately before the date of grant.
(d) Expected dividend per annum: being the approximate average annual cash dividend for the past five financial years.
1 1 9
HYSAN ANNUAL R EPORT 2006
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2006
38. PRINCIPAL SUBSIDIARIES
Name of subsidiary
Admore Investments Limited
Golden Capital Investment
Limited
HD Treasury Limited
HD Treasury Management
Limited
Hysan China Holdings
Limited
Hysan Leasing Company
Limited
Hysan Treasury Limited
Hysan (MTN) 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
Earn Extra Investments Limited
Gearup Investments Limited
HD Investment Limited
Kochi Investments Limited
Lee Theatre Realty Limited
Leighton Property Company
Limited
Main Rise Development Limited
OHA Property Company Limited
Perfect Win Properties Limited
Silver Nicety Company Limited
Barrowgate Limited
Place of
incorporation/
operation
Hong Kong
Hong Kong
Hong Kong
Hong Kong
British Virgin
Islands
Hong Kong
Hong Kong
British Virgin
Islands/
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
British Virgin
Islands
British Virgin
Islands
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Proportion of
nominal value of
issued share capital
held by the Company
directly
indirectly
Issued
share capital
HK$2
HK$2
HK$2
HK$2
HK$1
HK$2
HK$2
US$1
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
–
–
100%
100%
100%
100%
HK$1
100%
HK$10
HK$2
100%
100%
HK$2
HK$2
HK$2
HK$20
HK$10,000
100%
100%
100%
100%
65.36%
100%
100%
100%
100%
Principal activities
Investment holding
Investment holding
Treasury operation
Treasury operation
100%
Investment holding
100%
Leasing administration
100%
100%
Treasury operation
Treasury operation
100%
Property management
100%
Investment holding
100%
100%
100%
100%
100%
100%
–
Property investment
Property investment
Property investment
Provision of security
services
Investment holding
Property investment
Resident club management
–
–
–
–
–
–
–
–
–
–
–
Property investment
Property development
Investment holding
Capital market investment
Property investment
Property investment
Investment holding
Property investment
Property investment
Property investment
Property investment
The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length
and therefore the above table contains only those subsidiaries which materially affected the results or assets of the Group.
Other than floating rate notes, fixed rate notes and zero coupon notes issued by Hysan (MTN) Limited as disclosed in note
26, none of the subsidiaries had issued any debt securities at the year end.
1 2 0
HYS AN ANN UA L REPORT 200 6
Five-Year Financial Summary
For the year ended 31 December
2006
HK$ million
2005
HK$ million
2004
HK$ million
(Note)
2003
HK$ million
(Note)
2002
HK$ million
(Note)
Condensed consolidated
income statement
Turnover
Property expenses
Gross Profit
Net realised gain on disposal
of available for sale investments
Other income
Share of results of associates
Release of negative goodwill
of associates
Impairment loss arising from
interests in associates
Impairment loss reversed on
(arising from) investments in
securities
Administrative expenses
Finance costs
Fair value changes on investment
properties
Fair value changes on financial
instruments
Taxation
Minority interests
Profit for the year
Underlying profit for the year
Profit excluding asset value changes
and prior year tax provision
Dividends
Dividends paid
Dividends proposed
Dividend per share (HK cents)
Earnings per share (HK$), based on:
Profit for the year
– Basic
– Diluted
Underlying profit for the year
Profit excluding asset value changes
and prior year tax provision
Performance Indicators
Net debt to equity
Net interest coverage (times)
Net assets value per share (HK$)
Adjusted net assets value
per share (HK$)
Net debt per share (HK$)
Year end share price (HK$)
1,268
(240 )
1,028
170
147
120
–
–
–
(111 )
(163 )
1,250
(237 )
1,013
–
38
241
–
–
–
(103 )
(214 )
2,576
4,226
31
(558 )
(141 )
3,099
1,012
(25 )
(856 )
(199 )
4,121
1,005
755
641
474
422
50.00
2.94
2.94
0.96
0.72
7.9%
6.9x
26.37
29.12
2.31
20.35
420
369
45.00
3.92
3.92
0.96
0.61
10.7%
4.6x
23.42
25.76
2.75
19.20
1,154
(259 )
895
15
27
39
2
–
63
(96 )
(162 )
–
–
(140 )
(34 )
609
609
586
381
315
40.00
0.58
0.58
0.58
0.56
24.9%
5.5x
19.59
21.33
5.32
16.35
1,139
(239 )
900
48
25
10
2
–
–
(92 )
(168 )
–
–
(165 )
(26 )
534
534
534
378
277
36.50
0.51
0.51
0.51
0.51
31.8%
5.2x
16.51
17.78
5.66
12.00
1,233
(236 )
997
–
16
–
–
(10 )
(1 )
(86 )
(220 )
–
–
(108 )
(55 )
533
533
586
392
274
36.50
0.52
0.52
0.52
0.57
29.9%
4.5x
18.34
N/A
5.49
5.80
Definition:
Net debt to equity:
Net interest coverage:
Net assets value/Adjusted
net assets value per share:
Net debt per share:
Underlying profit:
Profit excluding asset value
changes and prior year
tax provision:
gross debt less cash and cash equivalents divided by adjusted shareholders’ funds (for 2002: divided by
shareholders’ funds)
gross profit less administrative expenses before depreciation divided by net interest expenses
shareholders’ funds / adjusted shareholders’ funds divided by number of issued shares at year end
gross debt less cash and cash equivalents divided by number of issued shares at year end
profit adjusted for group’s share of unrealised fair value changes on investment properties net of
deferred tax.
underlying profit adjusted for aggregate of realised gain/loss on disposal of investment properties
and available for sale investments, impairment, reversal, recovery and prior year tax provision
Adjusted shareholders’ funds:
shareholders’ funds adjusted for cumulative deferred tax provided on fair value changes on properties
1 2 1
HYSAN ANNUAL R EPORT 2006
Five-Year Financial Summary continued
At 31 December
Condensed consolidated
balance sheet
Investment properties
Available for sale investments/
Investments in securities
Interests in associates
Cash and bank balances
Other assets
2006
HK$ million
2005
HK$ million
2004
HK$ million
(Note)
2003
HK$ million
(Note)
2002
HK$ million
(Note)
32,473
29,815
27,917
24,162
24,841
1,745
1,272
385
378
1,256
1,147
1,402
371
1,018
855
22
335
941
850
15
302
1,484
61
23
146
Total assets
36,253
33,991
30,147
26,270
26,555
Borrowings
Taxation
Other liabilities
(2,821 )
(3,574 )
(950 )
(4,301 )
(3,077 )
(960 )
(5,603 )
(2,332 )
(815 )
(5,914 )
(1,708 )
(779 )
(5,696 )
(240 )
(768 )
Total assets less liabilities
28,908
25,653
21,397
17,869
19,851
Shareholders’ funds
Minority interests
27,828
1,080
24,667
986
20,566
831
17,227
642
18,975
876
28,908
25,653
21,397
17,869
19,851
Adjusted shareholders’ funds
30,729
27,134
22,399
18,553
N/A
Note: The figures for 2003 and 2004 have been restated to reflect the prior year adjustments arising from (i) reclassification of certain
investment properties of the Group to property, plant and equipment as a result of application of HKAS 40; (ii) recognition of deferred
taxation in respect of revalued investment properties in accordance with HK(SIC) INT – 21; and (iii) reclassification of leasehold
interests in land to prepaid lease payments under operating leases according to HKAS 17. The figures for 2002 have not been restated
with respect to these HKASs and HK(SIC) INT, and therefore are not strictly comparable.
1 2 2
HYS AN ANN UA L REPORT 200 6
Report of the Valuer
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual revaluation of investment properties as at 31 December 2006
In accordance with your appointment of Knight Frank Petty Limited to value the investment properties in Hong Kong owned by
Hysan Development Company Limited and its subsidiaries, we are pleased to advise that the market value of the properties
as at 31 December 2006 was in the approximate sum of Hong Kong Dollars Thirty Two Billion Four Hundred Seventy Three
Million One Hundred and Fifty Eight Thousand Only (i.e. HK$32,473,158,000).
The properties have been valued individually, on market value basis, by reference to comparable market transactions and on
the basis of capitalisation of the net income with due allowance for the reversionary income and redevelopment potential,
without allowances for any expenses or taxation which may be incurred in effecting a sale.
Yours faithfully,
Knight Frank Petty Limited
Hong Kong, 23 February 2007
1 2 3
HYSAN ANNUAL R EPORT 2006
Schedule of Principal Properties
As at 31 December 2006
INVESTMENT PROPERTIES
Address
Lot No.
1. The Lee Gardens
33 Hysan Avenue
Causeway Bay
Hong Kong
Sec. DD of I.L. 29, 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%
2. Bamboo Grove
I.L. 8624
Residential
Long lease
100%
74 86 Kennedy Road
Mid Levels
Hong Kong
3. Lee Gardens Two
28 Yun Ping Road
Causeway Bay
Hong Kong
4. Leighton Centre
77 Leighton Road
Causeway Bay
Hong Kong
Sec. G of I.L. 29,
Sec. A, O, F and H of I.L. 457,
the R.P. of Sec. C, D, E and G of I.L. 457,
Subsec. 1 of Sec. C, D, E and G of I.L. 457,
Subsec. 2 of Sec. E of I.L. 457 and
Subsec. 1, 2, 3 and
the R.P. of Sec. C of I.L. 461
Commercial
Long lease
65.36%
Sec. B, C and the R.P. of I.L. 1451
Commercial
Long lease
100%
5. Lee Theatre Plaza
I.L. 1452, the R.P. of I.L. 472 and 476
Commercial
Long lease
100%
99 Percival Street
Causeway Bay
Hong Kong
6. Sunning Plaza
10 Hysan Avenue
Causeway Bay
Hong Kong
7. Sunning Court
8 Hoi Ping Road
Causeway Bay
Hong Kong
8. One Hysan Avenue
1 Hysan Avenue
Causeway Bay
Hong Kong
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
Commercial
Long lease
100%
Residential
Long lease
100%
The R.P. of Sec. GG of I.L. 29
Commercial
Long lease
100%
9. 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
10. 111 Leighton Road
111 Leighton Road
Causeway Bay
Hong Kong
11. 500 Hennessy Road *
Causeway Bay
Hong Kong
Sec. KK of I.L. 29
Commercial
Long lease
100%
Sec. FF of I.L. 29 and
the R.P. of Marine Lot 365
Commercial
Long lease
100%
* The property is currently under redevelopment. Demolition work on the existing building which commenced in October 2006 is currently
underway. The site has a registered site area of approximately 47,738 square feet. The new development (500 Hennessy Road) has a
projected gross floor area of around 710,000 square feet and is targetted for completion in late 2009.
1 2 4
HYS AN ANN UA L REPORT 200 6
Shareholder Information
FINANCIAL CALENDAR
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
2007 interim results to be announced
* subject to change
6 March 2007
2 May 2007
4 to 8 May 2007
8 May 2007
8 May 2007
(on or about) 15 May 2007
(on or about) 12 June 2007
15 August 2007 *
DIVIDEND
The Board recommends the payment of a final dividend of
HK 40 cents 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, 8 May 2007. The scrip dividend alternative is
conditional upon the granting by the Listing Committee of
The Stock Exchange of Hong Kong Limited of the listing
of and permission to deal in the new shares to be issued
pursuant thereto.
A circular containing details of the scrip dividend and the
form of election will be mailed to shareholders on or about
Tuesday, 15 May 2007. 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 Tuesday, 5 June 2007.
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 Tuesday, 12 June 2007.
The share register will be closed from Friday, 4 May 2007
to Tuesday, 8 May 2007, 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, 3 May 2007.
SHARE LISTING
Hysan’s shares are listed on The Stock Exchange of Hong
Kong Limited. It has a sponsored American Depositary
Receipts (ADR) Programme in the New York market.
SHAREHOLDER SERVICES
For enquiries about share transfer and registration, please
contact the Company’s Registrars:
Standard Registrars Limited
26/F., Tesbury Centre,
28 Queen’s Road East,
Wanchai, Hong Kong
Telephone: (852) 2980 1768
Facsimile : (852) 2861 1465
Holders of the Company’s ordinary shares should notify the
Registrars promptly of any change of their address.
The Annual Report is printed in English and Chinese language
and is available on our website at www.hysan.com.hk.
Shareholders may at any time choose to receive the Annual
Report in printed form in either the English or Chinese
language or both or by electronic means. Shareholders who
have chosen to receive the Annual Report using electronic
means and who for any reason have difficulty in receiving
or gaining access to the Annual Report will promptly upon
request be sent a printed copy free of charge.
Shareholders may at any time change their choice of the
language or means of receipt of the Annual Report by
notice in writing to the Company’s Registrars at the address
above. The Change Request Form may be downloaded from
the Company’s website at www.hysan.com.hk.
INVESTOR RELATIONS
For enquiries relating to investor relations, please email to
investor@hysan.com.hk or write to the Company at:
STOCK CODE
The Stock Exchange of Hong Kong Limited: 00014
Bloomberg: 14HK
Reuters: 0014.HK
Ticket Symbol for ADR Code: HYSNY
CUSIP reference number: 449162304
Investor Relations
Hysan Development Company Limited
49/F., The Lee Gardens, 33 Hysan Avenue
Hong Kong
Telephone: (852) 2895 5777
Facsimile: (852) 2577 5153
OUR WEBSITE
Press releases and other information of the Group can be
found at our internet website: “www.hysan.com.hk”