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OUR
GUIDING
VALUES
2007 Annual Report
stock code: 00014
Hysan Development Company Limited
49/F The Lee Gardens
33 Hysan Avenue, Hong Kong
T 852 2895 5777 F 852 2577 5153
www.hysan.com.hk
Hysan’s fi nancial results and other
accomplishments contributed to a
successful 2007. Hysan’s encouraging
revenue growth during the year was
complemented by the Company’s strengthened
competitiveness and operational effectiveness.
We also, as recorded in our separate Corporate
Responsibility Report, made useful contributions
to our community through Hysan’s daily
operations and giving projects. We are creating
value and are positioned to grow further as a
successful and responsible business, guided
by our corporate culture and values.
Hysan Annual Report 2007
Contents
Overview
04 Hysan’s Mission
04 Competitive Advantages
05 Value Creation
06-07 Year 2007 in Review
10-11 Chairman’s Statement
02-11
Our Strategy in Action
14-15 Market Overview
16-25 Operations Review
28-31 Financial Policy
34-38
Internal Controls and Risk Management
39 Human Resources
42-43
Investment Properties Portfolio
12-43
Our Governance
46-49 Our Board of Directors and Offi cers
50-64 Corporate Governance Report
65-71 Directors’ Report
72-78 Directors’ Remuneration and Interests Report
79-80 Audit Committee Report
44-80
Financial Statements and Valuation
82 Directors’ Responsibilities for the Financial Statements
Independent Auditor’s Report
83
84 Consolidated Income Statement
85-86 Consolidated Balance Sheet
87 Balance Sheet
88-89 Consolidated Statement of Changes in Equity
90-91 Consolidated Cash Flow Statement
92-134 Notes to the Financial Statements
135-136 Five-Year Financial Summary
137 Report of the Valuer
138 Schedule of Principal Properties
139-140 Shareholding Analysis
81-140
Shareholder Information
Hysan Annual Report 2007
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Overview
Hysan is one of Hong Kong’s leading property
investment companies. We are the largest
commercial landlord in the prime Causeway
Bay district. This section provides important
background information for our shareholders
about where we are today, how we performed
in 2007, and our Chairman’s outlook.
02
Hysan Annual Report 2007
CONTENT HIGHLIGHTS
Hysan’s Mission
Competitive Advantages
Value Creation
Year 2007 in Review
Chairman’s Statement
Hysan Annual Report 2007
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Hysan’s Mission
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.
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
Established Asset Enhancement Programme
with track record of adding value
Exceptional Services
with focus on our commercial and residential customers
Strong Balance Sheet
with debts of long maturity and diversifi ed funding sources
Financial Prudence
to keep risk and return in balance
Effective Corporate Governance
with widespread industry recognition achieved
04
Hysan Annual Report 2007
Value Creation
Recurring Underlying Profit
(HK$ million)
Underlying Profit
(HK$ million)
Adjusted Shareholders’ Funds
(HK$ million)
1,000
800
600
400
200
0
950
1,200
1,158
40,000
755
641
586
534
1,005
1,012
960
720
609
534
480
32,000
24,000
22,399
18,553
16,000
35,072
30,729
27,134
03
04
05
06
07
240
0
03
04
05
06
07
8,000
0
03
04
05
06
07
Recurring Underlying Earnings
per Share (HK cents)
Dividends per Share
(HK cents)
100
80
60
40
20
0
90.32
71.60
60.94
56.00
51.42
03
04
05
06
07
80
64
48
32
16
0
60.00
50.00
45.00
40.00
36.50
03
04
05
06
07
Gross Floor Area
(Excluding Property Under
Redevelopment)
21%
24%
55%
Capital Value
Turnover by Sector
1%
16%
37%
19%
27%
3%
19%
37%
41%
Office
Retail
Residential
Property under
Redevelopment
Others
3.8 million sq.ft.
HK$35,711 million HK$1,368 million
Hysan Annual Report 2007
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Year 2007 in Review
OVERVIEW OF THE GROUP’S FINANCIAL PERFORMANCE
Turnover
Offi ce
Retail
Residential
Others
2007
HK$ million
2006
HK$ million
Change
HK$ million
567
505
262
34
509
491
232
36
+58
+14
+30
-2
Change
%
+11.4%
+2.9%
+12.9%
-5.6%
1,368
1,268
+100
+7.9%
Change
%
+25.8%
+14.4%
+27.4%
Change
%
+12.8%
+13.7%
+14.1%
• Group turnover rose by 7.9% (like-for-like turnover, excluding Hennessy Centre, up 18.8%)
• Offi ce sector recorded strong growth in rentals, including capitalisation on Grade “A” offi ce decentralisation trend
• Strong retail sales translated into higher rental rates and turnover rent
Profit Indicators
1
2
3
Recurring Underlying Profi t
Underlying Profi t
Statutory Profi t
2007
HK$ million
2006
HK$ million
Change
HK$ million
950
1,158
3,949
755
1,012
3,099
+195
+146
+850
• Increase in turnover and lower operating costs have contributed to the increase in Recurring Underlying Profi t
• Underlying Profi t increased principally due to higher operating profi ts and realised gain on disposal of listed securities
• Statutory Profi t improvement due mainly to HK$555 million more fair value changes on investment properties
4
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Asset Value Indicators
Total assets
Shareholders’ funds
Adjusted Shareholders’ Funds
2007
HK$ million
40,890
31,652
35,072
2006
HK$ million
36,253
27,828
30,729
Change
HK$ million
+4,637
+3,824
+4,343
• Increase in shareholders’ funds due to growth in core operating business, revaluation gains associated with investment
properties and listed securities portfolios
DEFINITIONS
Recurring Underlying Profit
This is a performance indicator of the Group’s
core property investment business. It is arrived
at by excluding from Underlying Profi t gains/
losses from disposal of assets, impairment,
reversal, recovery and tax provisions for prior
year(s).
deferred tax on such fair value changes has to be
provided for despite the fact that no capital gain
tax liability will arise in Hong Kong on disposal of
the Group’s investment properties. Accordingly,
both of these two items are excluded in arriving at
the Underlying Profi t.
Underlying Profit
This is arrived at by excluding from Statutory
Profi t unrealised fair value changes on
investment properties and related deferred tax.
As a property investor, the Group’s results are
principally derived from the rental revenues
on its investment properties. The inclusion of
the unrealised fair value change on investment
properties in the consolidated income statement
causes an increase in fl uctuation in earnings and
poses limitation on the use of the unadjusted
earning fi gures, fi nancial ratios, trends and
comparison against prior period(s). Besides,
3
4
Statutory Profit
This is the profi t attributable to equity holders of the
Company. It is prepared in accordance with Hong
Kong Financial Reporting Standards issued by
Hong Kong Institute of Certifi ed Public Accountants
and the Hong Kong Companies Ordinance.
Adjusted Shareholders’ Funds
This is arrived at by adding back the Group’s share
of cumulative deferred tax on property revaluation
to shareholders’ funds fi gure. Deferred tax on
property revaluation has to be provided for despite
the fact that no capital gains tax liability will arise in
Hong Kong on disposal of properties.
06
Hysan Annual Report 2007
KEY FINANCIAL AND OPERATING DATA
Cash Flow Information (expressed in HK$ million)
Net cash from operating activities
Net cash from investing activities
Net cash used in fi nancing activities
Net increase (decrease) in cash and cash equivalent
Per Share Data
Earnings per share, based on:
Recurring Underlying Profi t
Basic (HK cents)
Diluted (HK cents)
Underlying Profi t
Basic (HK cents)
Diluted (HK cents)
Statutory Profi t
Basic (HK cents)
Diluted (HK cents)
Shareholders’ returns:
Dividends per share (HK cents)
Shareholders’ returns per share (HK$)
Total shareholders’ returns per share (HK$)
Assets value:
Net assets value per share (HK$)
Adjusted net assets value per share (HK$)
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$)
Closing share price at year end (HK$)
Investments in Listed Securities
2007
2006
Change
1,044
212
(1,157)
99
918
175
(2,110)
(1,017)
90.32
90.27
110.09
110.04
375.46
375.25
60.00
2.42
5.21
30.51
33.81
2.29
1,037
1,052
23.80
18.54
22.25
71.60
71.53
96.03
95.94
293.96
293.70
50.00
1.60
3.81
26.37
29.12
2.31
1,055
1,054
23.95
18.60
20.35
+13.7%
+21.1%
+45.2%
N/A
+26.1%
+26.2%
+14.6%
+14.7%
+27.7%
+27.8%
+20.0%
+51.3%
+36.7%
+15.7%
+16.1%
-0.9%
-1.7%
-0.2%
-0.6%
-0.3%
+9.3%
Total return (i.e. dividends received plus capital value growth)
65.9%
57.3%
+8.6pp
Financial Data
Average fi nance costs
Net debt to equity
Net interest coverage (times)
Floating rate debt (% on total debt)
Average debt maturity
Bank facilities: Capital market issuance
Key Operating Data (expressed in HK$ million)
Investment properties value
Offi ce
Retail
Residential
Hennessy Centre
Others
Occupancy rate as at year end
Offi ce
Retail
Residential
5.6%
6.8%
7.8X
60.1%
4.0 years
4.9%
7.9%
6.9X
64.7%
5.0 years
24.7% : 75.3% 24.7% : 75.3%
35,711
13,202
9,616
6,810
5,650
433
97%
98%
90%
32,473
11,876
9,062
6,206
4,900
429
97%
99%
92%
+0.7pp
-1.1pp
+0.9X
-4.6pp
N/A
N/A
+10.0%
+11.2%
+6.1%
+9.7%
+15.3%
+0.9%
–
-1pp
-2pp
Hysan Annual Report 2007
07
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08
Hysan Annual Report 2007
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Hysan aims to achieve its market
leadership by providing the fi nest
products and services. We are proud
to be the largest commercial landlord
in Causeway Bay, the thriving home of
more than 500 offi ces, retail shops and
restaurants. Our Causeway Bay portfolio
perfectly refl ects Hong Kong’s energetic
and progressive personality.
Hysan Annual Report 2007
09
Chairman’s Statement
OVERVIEW
While the global economy experienced
overall growth in 2007, the second half of
the year saw signifi cant slowdown in the
United States economy, stemming from
subprime debt issues. Hong Kong’s economic
fundamentals continued to be supported by
domestic consumption and good employment
conditions. The supply of Grade A offi ce units
in core districts remained limited relative to the
demand, leading to signifi cant rental increases.
In particular, rental trends in the central business
district resulted in more tenants choosing
to relocate to other core areas including
Causeway Bay. Retail rents were again boosted
by strong private consumption, while luxury
residential rental demand remained high.
PERFORMANCE
Overall 2007 turnover was HK$1,368 million,
up 7.9% from 2006. If the element of Hennessy
Centre (under redevelopment since late 2006)
is excluded, the turnover increase would
be 18.8%. Healthy growth was recorded
in all sectors (Offi ce: 23.3%; Retail: 17.7%;
Residential: 12.9%), with the offi ce sector
growth due partly to the decentralisation factor.
Recurring Underlying Profi t, which is profi t
excluding asset value changes and prior years’
tax provision, was HK$950 million, up 25.8%
from HK$755 million in 2006. Earnings per
share, based on Recurring Underlying Profi t,
rose to HK90.32 cents (2006: HK71.60 cents).
Underlying Profi t, excluding unrealised
revaluation changes on investment properties
and related deferred tax, was HK$1,158 million
(2006: HK$1,012 million).
Statutory Profi t increased 27.4% to HK$3,949
million (2006: HK$3,099 million), due mainly
to higher valuation of the Group’s investment
properties.
The external valuation of the Group’s investment
property portfolio increased to HK$35,711
million, a rise of 10.0% from HK$32,473 million
in 2006. Adjusted shareholders’ funds went up
by 14.1% to HK$35,072 million.
The Board recommends the payment of
a fi nal dividend of HK48.0 cents per share
(2006: HK40.0 cents). Together with the
interim dividend of HK12.0 cents per share
(2006: HK10.0 cents), there is an aggregate
distribution of HK60.0 cents per share,
representing a year-on-year increase of 20.0%.
Subject to shareholder approval, the fi nal
dividend will be payable in cash with a scrip
dividend alternative.
OUR GUIDING VALUES
I believe a company’s corporate culture and
values play a very important role in its success.
They defi ne the way it does things, and
ensure that all staff pursue a common goal.
Hysan takes pride in our corporate culture
underpinning our aim to be a successful as well
as responsible business. “Our Guiding Values”
is the theme of this year’s annual report. I trust
it will give readers a better understanding of the
values that underpin our achievements.
10
Hysan Annual Report 2007
DIRECTORS AND STAFF
I would like to take this opportunity to express
my sincere thanks to Per Jorgensen, who
stepped down as an Independent non-
executive Director after serving the Board for
26 years. I would also like to thank Michael Lee,
who stepped down as the Managing Director,
for his contribution to the Group. I welcome
Tom Behrens-Sorensen, our new Independent
non-executive Director, who joined us in May.
Finally, I also thank all staff members for their
dedication and hard work throughout the year.
OUTLOOK
Hong Kong’s economic fundamentals remain
sound, underpinned by solid domestic demand
and employment conditions. Challenges,
however, include the risk of further slowdown in
the U.S. economy and in Europe.
We are cautiously optimistic about the year
ahead. Signifi cant price differential for Grade
A offi ces between central business district
and other core areas, together with limited
new supply in such districts, should continue
to benefi t our property investment portfolio
situated in the prime Causeway Bay district.
Peter Ting Chang Lee
Chairman
Hong Kong, 13 March 2008
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Hysan Annual Report 2007 11
Our Strategy in Action
This section talks about a number of key areas of
interest, from market dynamics to our operations;
from business opportunities to the way we manage
risks. These are supported by our fi nancial as well
as our human resources strategies.
12
Hysan Annual Report 2007
CONTENT HIGHLIGHTS
Market Overview
Operations Review
Financial Policy
Internal Controls and
Risk Management
Human Resources
Investment Properties
Portfolio
Hysan Annual Report 2007 13
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Market Overview
This market report intends to give general background
rather than Group-specifi c information. Views expressed
shall not be regarded as providing any advice or
recommendation for whatever purpose. For the Group’s
performance – see “Operations Review” section.
HONG KONG ECONOMY
Hong Kong’s economy expanded by 6.3% in
2007, after growing by 7.0% in 2006. There was
broad-based growth in both the external and
domestic sectors. Export of services increased
11.2% year-on-year while better employment
conditions helped private consumption
spending to go up by 7.8% in 2007.
OFFICE
The growth in Hong Kong’s economy
ensured many business sectors to remain in
an expansive mode over the last 12 months.
This continuous growth translated into
demand for additional offi ce space in terms
of net take-up. In 2007, overall net take-up
amounted to 3.4 million sq ft net, which is
more than twice the amount achieved in 2006.
Overall vacancy was down to just 5.1% in
2007, compared to 5.4% in 2006. Overall
supply of Grade A offi ces in core districts
remained limited relative to the demand.
Growing demand and tightening vacancy
levels combined to lift Central’s rentals up
32.2% for 2007. Rising rents continued to drive
relocation of Central tenants into other core
areas, including Causeway Bay/Wanchai, in
addition to in-house expansions by tenants in
those districts.
Source: Census and Statistics Department
14
Hysan Annual Report 2007
2007
2006
3,302,070 1,131,327
1.6%
4.2%
2.1%
4.1%
5.1%
5.4%
+32.2%
+27.9%
+12.4%
+19.2%
Grade A Offi ce
Completion*
Central Grade A
Offi ce Vacancy Rate
Causeway Bay/
Wanchai Grade A
Offi ce Vacancy Rate
Overall Grade A
Offi ce Vacancy Rate
Change in Central
Grade A Offi ce Rents
Change in Causeway
Bay/Wanchai
Grade A Offi ce Rents
* sq.ft. net
Source: Jones Lang LaSalle
RETAIL
Strong domestic consumption, supplemented
by a growing tourism sector, helped create
strong leasing demand for prime retail spaces.
Due to intense competition for prime street
shops especially among luxury brand name
retailers, rentals for prime street shops were
pushed up by 17.9% in 2007. On the back of
limited supply, rentals in prime shopping centres
increased by 15.3% during the year.
Retail Sales
by Value
2007
2006
+12.8%
+7.3%
Visitor Arrivals
+11.6%
+8.1%
Change in Prime
Shopping Centre Rents
Change in Prime
Street Shop Rents
+15.3%
+8.1%
+17.9%
+1.3%
Sources: Jones Lang LaSalle, Census and Statistics
Department and Hong Kong Tourism Board
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LUXURY RESIDENTIAL
The luxury residential leasing market continued
to pick up, supported by strong demand from
expatriates. Overall rentals increased by
17.6% in 2007 compared to the previous year.
Sub-markets with limited supply including
Mid-levels, The Peak and Island South
continued to outperform.
2007
2006
+17.6%
+8.9%
Change in Luxury
Residential Rents
Source: Jones Lang LaSalle
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Hysan Annual Report 2007 15
Operations Review
OUR BUSINESS
Hysan is principally engaged, together
with its subsidiaries and joint ventures, in
investment, development and management of
quality properties in prime locations. As at 31
December 2007, Hysan’s investment property
interests totaled some 3.8 million gross square
feet of high-quality offi ce, retail and residential
space in Hong Kong. The former Hennessy
Centre at 500 Hennessy Road is currently
under redevelopment.
2007 PERFORMANCE
The Group’s turnover was HK$1,368 million,
up 7.9% (2006: HK$1,268 million). Excluding
the revenue attributable to Hennessy Centre
(under redevelopment since the fourth quarter
of 2006), the like-for-like turnover would
increase by 18.8% over the prior year (2006:
HK$1,152 million).
Recurring Underlying Profi t1 was HK$950
million, 25.8% up from last year (2006: HK$755
million). Underlying Profi t1 (excluding unrealised
revaluation changes on investment properties
and related deferred tax from the Statutory
Profi t1), amounted to HK$1,158 million (2006:
HK$1,012 million). Statutory Profi t for the
year increased by HK$850 million (27.4%), to
HK$3,949 million (2006: HK$3,099 million),
mainly due to HK$555 million higher fair value
changes on the Group’s investment properties
taken to the consolidated income statement,
refl ecting rising asset values.
PERFORMANCE INDICATORS AND
THEIR SIGNIFICANCE TO THE GROUP
Although many factors contributed to the
results of the Group’s businesses, some of the
key drivers for assessment of our performance
include those set out below. The nature of
these performance indicators, the way they are
measured and their signifi cance to the Group
are set out as follows:
Performance
indicator
Operations:
How it is measured
Significance to the Group
Occupancy Rate
– Percentage of total area leased to tenants over
total lettable area of each sector
– Rental revenue and management fees are
directly proportional to occupancy rate
– Optimises revenue by balancing occupancy
rate and rental level
Turnover Growth
– Rental revenue in 2007 compared to that in
– Refl ects the combined effect of changes in
2006
rental rate and occupancy rate
– Like-for-like basis: excluding rental income
attributable to Hennessy Centre in computing
2006 comparative fi gures
– Like-for-like change refl ects the growth in the
Group’s businesses on a comparable lettable
area basis with prior year
Property Expenses
and as a Percentage
on Turnover
– Principally being direct costs associated
with daily operations of the Group’s property
portfolio
– Measures the direct costs incurred in
managing the Group’s property portfolio
– An indication of the gross margin of our
– Calculated by dividing property expenses by
business
turnover
Investments in listed securities:
Total Return
– Aggregate of dividends received and capital
– The Group’s equity investment portfolio is
value growth
signifi cant in size and it is crucial to optimise
the returns from these investments
1 Please refer to “Year 2007 in Review” section for defi nitions.
16
Hysan Annual Report 2007
Condensed Consolidated Income Statement
for the year ended 31 December
2007
HK$ million
2006
HK$ million
Change
HK$ million
Change
%
Turnover
Property expenses
Investment income
Other gains and losses
Administrative expenses
Finance costs
Change in fair value of investment properties
Share of results of associates
Taxation
– current
– deferred
Minority interests
Statutory Profi t
Underlying Profi t
1,368
(208)
98
302
(106)
(175)
3,131
452
(185)
(560)
(168)
1,268
(240)
147
201
(111)
(163)
2,576
120
(89)
(469)
(141)
3,949
3,099
1,158
1,012
Recurring Underlying Profi t
950
755
Occupancy Rate as at Year End
Turnover
Turnover comprised principally rental income
derived from the Group’s investment properties
portfolio in Hong Kong.
The occupancy rate and turnover of the Group’s
investment properties portfolio are as follows:
100
32
(49)
101
5
(12)
555
332
(96)
(91)
(27)
850
146
195
7.9
13.3
(33.3)
50.2
4.5
(7.4)
21.5
276.7
(107.9)
(19.4)
(19.1)
27.4
14.4
25.8
Turnover
Offi ce
Retail
Residential
Others
2007
Total
HK$ million
Hennessy
Centre
HK$ million
2006
Other
Buildings
HK$ million
Total
HK$ million
Like-for-like
HK$ million
567
505
262
34
49
62
–
5
460
429
232
31
509
491
232
36
1,368
116
1,152
1,268
107
76
30
3
216
Year-on-year Change
%
23.3
17.7
12.9
9.7
18.8
Total
HK$ million
58
14
30
(2)
100
%
11.4
2.9
12.9
(5.6)
7.9
Note: Hennessy Centre was fully vacated as of 30 September 2006 in preparation for redevelopment and therefore was excluded in calculating the
like-for-like changes from the 2006 comparative fi gures.
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Hysan Annual Report 2007 17
Operations Review
Office Sector
There was healthy growth in the offi ce sector
rental revenue during the year, attributable
to both new lettings as well as positive rental
reversion on renewals and rent reviews. In
particular, the Group successfully capitalised
on the decentralisation trend and attracted
new tenants including international
accountancy fi rms, as well as others in the
fi nancial industries.
The like-for-like turnover increased by 23.3% to
HK$567 million (2006: HK$460 million). Overall,
the offi ce sector revenue increased by 11.4%
(2006: HK$509 million). Occupancy for the
sector as at year-end was 97% (2006: 97%).
Retail Sector
Strong domestic consumptions on the back of
favourable employment conditions and strong
fi nancial market performance remained the
main driving force for the growth in retail sales.
Increased tourists arrivals also supplemented
such growth. Strong retail sales in turn
supported the rise in retail rental rates, as well
as increased contribution from turnover rent.
Like-for-like rental revenue grew 17.7% over last
year to HK$505 million (2006: HK$429 million).
Overall retail sector revenue increased by 2.9%
(2006: HK$491 million). Occupancy for the
sector as at year-end was 98% (2006: 99%).
Residential Sector
There was sustained demand for luxury
residential properties from expatriates. Year-on-
year growth was HK$30 million, up 12.9% from
last year. Occupancy for the sector as at year-
end was 90% (2006: 92%).
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, front-line
staff wages, repairs and maintenance, agency
fees, government rents and rates, as well as
other rent-related expenses.
The like-for-like decrease in property expenses
as compared with last year was HK$8 million.
The implementation of a number of energy
saving initiatives led to a 9% reduction in overall
energy costs compared to 2006 on a like-for-
like basis (after adjusting for tariff changes and
other relevant factors). Other factors for less
property expenses included lower repairs and
maintenance costs and promotion expenses.
Total property expenses amounted to HK$208
million in 2007, being HK$32 million (13.3%)
lower than last year (2006: HK$240 million).
Overall the property expenses in 2007 were
15.2% of turnover, signifi cantly lower than the
18.9% level in 2006, refl ecting both the increase
in turnover as well as reduction in costs.
2007
HK$ million
2006
HK$ million
Property expenses
208
240
Percentage on turnover
15.2%
18.9%
Investment Income
Investment income mainly comprised dividend,
interest, other receivables and reversals, which
amounted to HK$98 million (2006: HK$147
million). The decrease mainly refl ected the effect
of a one-off recovery item in 2006, partly offset
by higher interest income and higher dividend
income from the Group’s overseas investment.
18
Hysan Annual Report 2007
Other Gains and Losses
Other gains and losses mainly comprised net
realised gain on disposal of available-for-sale
investments and mark-to-market movements of
fi nancial instruments.
The Group’s average fi nance costs rose to
5.6% in 2007 (2006: 4.9%). Further discussions
on fi nancial management, including fi nancing
policy and fi nancial risk management, are set
out in the “Financial Policy” section.
Change in Fair Value of 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 2007, the investment properties of
the Group were revalued at HK$35,711 million
(2006: HK$32,473 million), by an independent
professional valuer, being 10.0% higher than the
corresponding value for last year. This refl ected
a further increase in rentals of the Group’s
existing investment properties portfolio and a
higher realisable value on Hennessy Centre
redevelopment.
Excluding additions, fair value gains on
investment properties of HK$3,131 million
(2006: HK$2,576 million) were recognised in the
consolidated income statement during the year.
As at 31 December 2006
Additions
Fair value gains
As at 31 December 2007
Fair Value
HK$ million
32,473
107
3,131
35,711
The Group manages its investment portfolio
by continuing to follow prudent investment
guidelines that sets out the permitted
investments and limits, and with suffi cient
fl exibility taking into account the prevailing
volatility of the market.
For fi nancial assets held as long-term
investments, the Group manages them 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$255
million (2006: HK$170 million). The remaining
available-for-sale investment portfolio will
continue to be held as the Group’s long-term
investments. In addition, the Group enters
into derivative instruments from time to time
to manage volatilities and the pricing risks of
its fi nancial assets and liabilities, as well as to
enhance returns on its investment portfolio.
Administrative Expenses
Administrative expenses were lower than the
2006 level by HK$5 million (4.5%) mainly due to
lower staff costs and professional fees.
Finance Costs
Finance costs increased by 7.4% to HK$175
million (2006: HK$163 million) mainly due to
the generally higher HIBOR in 2007 and the
expiration of interest rate hedging instruments
secured in a low-interest environment a few
years ago.
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Hysan Annual Report 2007 19
20
Hysan Annual Report 2007
I Take Pride
Hysan strongly believes in having
the highest business ethics and
accountability. All of us take pride in
our work, acknowledge responsibility for
our actions, and endeavour to complete
our tasks in the right way.
Hysan Annual Report 2007 21
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Operations Review
Share of Results of Associates
The Group’s share of results of associates
increased substantially by 276.7% to HK$452
million (2006: HK$120 million). This was the
combined result of an increased share of profi ts
from the Shanghai Grand Gateway project to
HK$421 million in 2007 (2006: HK$118 million)
and that from the Singapore Amaryllis Ville
project, which was HK$31 million (2006:
HK$2 million).
Shanghai Grand Gateway
The Group’s share of operating results
increased by 80.3% to HK$110 million (2006:
HK$61 million). Overall satisfactory occupancy
was achieved for the residential units whilst
both the retail and offi ce properties remained
virtually fully let. The remaining increase in share
of profi ts was attributable to higher fair value
gain on investment properties and an one-off
adjustment to deferred taxation provision arising
from the unifi cation of corporate income tax rate
in China effective January 2008.
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
(including the effect of adjustment in income
tax rate), amounted to HK$311 million (2006:
HK$56 million).
The Group’s effective interest in Shanghai
Grand Gateway has increased to 24.7% at
2007 year-end (2006: 23.7%), following the
acquisition of an additional interest in this
project by the Hong Kong joint-venture partners
in December 2007.
Singapore Amaryllis Ville
The Group has a 25% interest in the Singapore
Amaryllis Ville project. All the remaining units at
the project were disposed of during the year
and contributed to a signifi cant increase in profi t
as compared to last year, refl ecting the buoyant
luxury property market in Singapore.
Taxation
Tax provision increased by HK$187 million to
HK$745 million in 2007 (2006: HK$558 million)
principally due to increase in deferred tax
provision relating to higher revaluation gains on
investment properties and a provision for prior
year taxation of HK$58 million.
The Group has been in dispute with the Hong
Kong Inland Revenue Department (“IRD”)
regarding additional tax assessments for the
years of assessment 1995/1996 to 1999/2000.
Full amount of tax in dispute has been provided
for in the Group’s accounts for previous years.
No agreement with IRD has been reached
at the date of approval of the 2007 fi nancial
statements. Taking into consideration the lapse
of time and in light of recent developments
in tax case law and practices, an additional
provision of HK$58 million was made in the
2007 fi nancial statements being the current
estimate of the interest payable on the tax in
dispute should IRD’s claim be successful.
22
Hysan Annual Report 2007
Condensed Consolidated Balance Sheet
as at 31 December
2007
HK$ million
2006
HK$ million
Change
HK$ million
Change
%
Investment properties
Available-for-sale investments – listed
Avaliable-for-sale investments – unlisted
Interests in associates
Cash and bank balances
Other assets
Total assets
Borrowings
Taxation
– current
– deferred
Other liabilities
Total liabilities
Net assets
Shareholders’ funds
Minority interests
35,711
2,439
40
1,601
484
615
40,890
32,473
1,678
67
1,272
385
378
36,253
2,861
2,821
270
3,910
1,001
8,042
225
3,349
950
7,345
3,238
761
(27)
329
99
237
4,637
(40)
(45)
(561)
(51)
(697)
32,848
28,908
3,940
31,652
1,196
32,848
27,828
1,080
28,908
3,824
116
3,940
Adjusted Shareholders’ Funds
35,072
30,729
4,343
Investment Properties
The investment properties were valued at
HK$35,711 million, up by 10.0% (HK$3,238
million) from HK$32,473 million in 2006.
The Group’s investment properties value by
sector as at year-end 2007 is as follows:
Available-for-Sale Investments
Available-for-sale investments comprised
principally securities listed in Hong Kong.
Overall, the Hong Kong stock market performed
strongly during 2007, notwithstanding a sharp
adjustment in the fourth quarter. Total returns
from the Group’s listed securities portfolio,
including both dividend income and capital
value growth, were 65.9% (2006: 57.3%).
Total fair value of our listed securities portfolio,
classifi ed as available-for-sale investments, as
at 31 December 2007 was HK$2,439 million
(2006: HK$1,678 million).
The decrease in unlisted available-for-sale
investment relates to two Singapore residential
joint venture projects (10% interest in each).
With all the completed units of the projects
having been sold, the aggregate amount
represents return of the Group’s capital by
way of disposal of joint venture interest and
loan repayment.
10.0
45.4
(40.3)
25.9
25.7
62.7
12.8
(1.4)
(20.0)
(16.8)
(5.4)
(9.5)
13.6
13.7
10.7
13.6
14.1
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Hysan Annual Report 2007 23
Operations Review
Interests in Associates
Interests in associates increased by HK$329
million (25.9%) over last year. This mainly
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$484 million as at 2007 year-end (2006:
HK$385 million), principally refl ecting positive
operating cash fl ows during the year and cash
generated from disposal of listed securities.
Borrowings
The carrying amount of the Group’s borrowings
stood at HK$2,861 million at year-end 2007,
which was maintained at similar level as at
year-end 2006 (HK$2,821 million).
Taxation
Provision for current taxation and deferred
taxation increased to HK$4,180 million in 2007
(2006: HK$3,574 million). The net increase
was made up of a HK$148 million charge for
the year, HK$540 million related to additional
deferred tax associated with investment
properties revaluation gains, and a prior year
tax provision of HK$58 million, reduced by tax
payments less refund of HK$140 million.
Shareholders’ Funds
Shareholders’ funds increased by 13.7% from
HK$27,828 million in 2006 to HK$31,652
million in 2007, mainly attributable to results
for the year and revaluation gains associated
with investment properties and listed securities
portfolios. Adjusted Shareholders’ Funds rose
by 14.1% from HK$30,729 million in 2006 to
HK$35,072 million in 2007.
Minority Interests
The increase of HK$116 million in minority
interests was attributable to increased profi t
contribution as well as a revaluation surplus
from Lee Gardens Two.
Contingent Liabilities
The Group has underwritten 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 and
Judgements
The preparation of fi nancial statements
requires management to make judgments,
estimates and assumptions that affect 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 investment properties.
For details, please refer to note 4 to the
fi nancial statements.
24
Hysan Annual Report 2007
Capital Expenditure and Management
The Group is committed to enhancing the
asset value of its investment property 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 pro-actively
review and implement maintenance activities.
Total cash outlay of capital expenditure
(excluding purchase of plant and equipment)
during the review year was HK$125 million. The
following graph illustrates capital expenditure
patterns during the last fi ve years:
The Group has an internal control system for
scrutinising capital expenditures. Detailed
analysis of expected risks and returns is
submitted to division heads, and 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$3,600 million
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.
Hennessy Centre Redevelopment
Demolition work for the former Hennessy
Centre site had been completed and the
design of the new building fi nalised. Design
enhancements, in response to market demand,
will increase prime retail space, fl exibility
to adjust the offi ce/retail mix with ease,
and provisions for better connectivity with
neighbouring facilities generally. Improved rental
revenue will offset anticipated additional costs,
with project completion now expected to be
in 2011.
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Hysan Annual Report 2007 25
26
Hysan Annual Report 2007
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Through seamless teamwork, Hysan
provides creative and effective solutions
to our clients. Our thought leadership
applies to all strategic and operational
issues, including creating a vision for our
ever-evolving hub in Causeway Bay.
I Forge Ahead
Hysan Annual Report 2007 27
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
Performance
indicator
Average Finance
Costs
How it is measured
Significance to the Group
– Interest expenses divided by average borrowing
– Our treasury aims to manage and optimise
for the year
– 2007: 5.6% (2006: 4.9%)
Floating Rate Debt
(% on Total Debt)
by total debt
– 2007: 60.1% (2006: 64.7%)
– Debt effectively in fl oating interest rate divided
– A measure to calculate the percentage of
fi nance costs
– HIBOR moved up gradually from the beginning
of 2007 to mid-October though signifi cant
decline was noted in the last two months of
2007
– As a measure of diversifi cation of funding
sources
– No movement
– An indicator of the pressure for refi nancing or
repaying the existing borrowings in the near
term
– The average maturity has shortened by about
one year
borrowings subject to fl uctuation in market
interest rates
– No signifi cant change
– It represents the Group’s fi nancial strength
from operating activities to meet its interest
payment obligations
– Higher gross profi t and interest income
outweighed the effect of higher average
fi nance cost
– A benchmark as to the healthy debt level as
well as an indicator of the Group’s ability to
raise further debt
– Higher adjusted capital with net debt level
similar to last year
Bank Facilities:
Capital Market
Issuance
Average Debt
Maturity
– The proportion of the borrowings from banks
and from capital market relative to the total
borrowings
– 2007: 24.7%: 75.3% (2006: 24.7%: 75.3%)
– The weighted average of remaining maturity
period of the Group’s borrowings
– 2007: 4.0 years (2006: 5.0 years)
Net Interest Coverage
– Gross profi t less administrative expenses before
depreciation divided by net interest expenses
– 2007: 7.8 times (2006: 6.9 times)
Net Debt to Equity
– Borrowings less cash and cash equivalents
divided by Adjusted Shareholders’ Funds
– 2007: 6.8% (2006: 7.9%)
28
Hysan Annual Report 2007
Credit Ratings
Moody’s
– 2007: Baa1 (2006: Baa1)
– Investment-grade ratings
unchanged
Standard and Poor’s
– 2007: BBB (2006: BBB)
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 5.6% for 2007.
FINANCING
As at 31 December 2007, the outstanding
gross debt of the Group amounted to
HK$2,921 million, approximately at the same
level as in 2006. All the outstanding borrowings
are on unsecured and committed basis.
The Group always takes a prudent approach
in 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, diversify
the funding sources and to maintain a suitable
average tenor relative to the overall duration of
the use of the funds.
The Group has also established long-term
relationships with a number of local and
overseas banks. At present, 13 local and
overseas banks have provided bilateral
banking facilities to the Group and such bank
borrowings accounted for about 24.7% of
the Group’s outstanding gross debt while the
remaining 75.3% outstanding debts were
sourced from the capital market.
LIQUIDITY AND CASH BALANCE
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 Stock Exchange
of Hong Kong Limited. As at 31 December
2007, the market value of these securities
amounted to HK$2,534 million and the balance
of bank deposits was about HK$484 million.
Furthermore, the total undrawn committed
facilities of HK$3,600 million as at 31 December
2007, essentially allows the Group to obtain the
same level of liquidity as holding the equivalent
amount of cash.
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Hysan Annual Report 2007 29
Financial Policy
Other measures taken against liquidity risk due
to the lack of funds for repayment of maturing
debts include maintaining an evenly spread
maturity profi le and reducing the concentration
of debts maturing in the near term.
As at 31 December 2007, around 73.3% of
the outstanding debts will be due in more than
two years but less than fi ve years. The average
maturity of the debt portfolio was about
4.0 years. Therefore, there will not be any
refi nancing pressure on the Group at least
in the near term.
The maturity profi le is as follows:
2007
2006
HK$ million HK$ million
Maturing in more than one year
but less than two years
Maturing in more than two years
but less than fi ve years
Maturing in more than fi ve years
Total gross debt
550
–
2,140 1,270
231 1,639
2,921 2,909
Total gross debt at the end of 2007 was
HK$2,921 million, approximately at the same
level as in 2006 (2006: HK$2,909 million). The
source and application drivers leading to the
marginally higher debt are analysed below:
Condensed Consolidated Cash Flow Statement
for the year ended 31 December
2007
HK$ million
2006
HK$ million
Change
HK$ million
Operating Activities
Cash generated from operations
Net tax paid
Investing Activities
Additions less disposals of investment properties
Interest and dividends received
Disposals less additions of available-for-sale investments
Receipts from overseas projects
Net placement of principal-protected deposits
Additions less disposals of held for trading investment
Others
Financing Activities
Dividends paid
Finance costs
Net decrease in borrowings
Consideration and expenses paid for repurchase of shares
Proceeds on exercise of share options
Net increase (decrease) in cash balances
1,184
(140)
1,044
(125)
87
394
140
(197)
(102)
15
212
(497)
(162)
–
(513)
15
979
(61)
918
(80)
60
95
106
–
–
(6)
175
(482)
(144)
(1,487)
–
3
(1,157)
(2,110)
99
(1,017)
205
(79)
126
(45)
27
299
34
(197)
(102)
21
37
(15)
(18)
1,487
(513)
12
953
1,116
30
Hysan Annual Report 2007
Net cash generated from operating activities
was HK$1,044 million, an increase of HK$126
million from the previous year mainly attributable
to a stronger business performance. Net
amount of HK$140 million was used to pay
tax amount due during the year.
Net cash generated from investing activities
was HK$212 million, increased from HK$175
million. The change was mainly due to disposal
of available-for-sale investments, after offsetting
the net cash outfl ows for principal-protected
deposits and held for trading investment.
Net cash used in fi nancing activities was
HK$1,157 million, mainly for payment
of dividends, fi nance costs and repurchase
of shares.
INTEREST RATE EXPOSURE
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.
The Group’s cost of fi nancing in 2007 was
5.6%. The Federal funds rate had been stable
at 5.25% before the easing cycle started in the
fourth quarter and the rate reached 4.25% at
the year end of 2007. Following the fi rst cut in
the Federal fund rates, the upward trend of the
HKD interest rates has reversed. In anticipation
of further reduction in the rates, about 60.1%
of the Group’s debts have been maintained in
fl oating rates at the end of 2007.
FOREIGN EXCHANGE EXPOSURE
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$1,601 million or 3.9% of the
total assets.
USE OF DERIVATIVES
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.
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Hysan Annual Report 2007
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I Share and Support
Hysan maintains long-term and
mutually benefi cial partnerships with
our stakeholders. This enthusiasm to
share and support shines through in our
everyday dealings with our shareholders,
clients, business partners and staff
members.
Hysan Annual Report 2007 33
Internal Controls and
Risk Management
RESPONSIBILITY
Our Board of Directors has the overall
responsibility to ensure that sound and
effective internal controls are maintained, while
management is charged with the responsibility
to design and implement an internal controls
system to manage risks. A sound system of
internal controls is designed to manage rather
than eliminate the risk of failure to achieve
business objectives, and can only provide
reasonable but not absolute assurance.
HYSAN’S INTERNAL CONTROLS
MODEL
Our internal controls model is based on that
set down by the Committee of Sponsoring
Organisations of the U.S. Treadway
Commission (“COSO”), and has fi ve
components, namely Control Environment; Risk
Assessment; Control Activities; Information and
Communication; Monitoring. In developing our
internal controls model based on the COSO
principles, we have taken into consideration
our organisation structure and nature of
business activities:
• Control Environment – this is very important
as it sets the tone for internal controls in a
company. Hysan is a tightly-knit organisation
with around 500 staff members. The actions
of management and its demonstrated
commitment to effective governance and
control are therefore very transparent to all.
We have a strong tradition of good corporate
governance and a corporate culture based
on good business ethics and accountability.
We aim to build risk awareness and control
responsibility into our culture and regard this as
the foundation of our internal controls system.
• Control Activities – our core property
leasing and management business involves
well-established business processes. Control
Activities have traditionally been built on senior
management reviews, segregation of duties and
physical controls. Nonetheless, we recognise
that an appropriate level of further formalisation
commensurate with the complexity of business
processes is benefi cial for the continual
development of the Group. There is also the
general desire to move towards a management
style based on systematic and structured
control principles.
34
Hysan Annual Report 2007
FOCUS IN 2007
Our Control Environment is further enhanced.
A company-wide briefi ng of our Code of Ethics
was completed, to ensure all staff members
have a good understanding not only of the
Code provisions but also their application to
daily operating activities. In order to make
the staff even more comfortable and not be
intimidated in reporting breaches of Code of
Ethics, we have refi ned the whistle-blowing
mechanism. An independent third-party service
provider will be engaged to receive complaints
and allegations, effective March 2008. It is
a relatively new practice among Hong Kong
corporations. These are accompanied by
efforts to reinforce our corporate values by a
range of communication channels, including
newsletters, staff events, and corporate
publications. The roles of the Board and Audit
Committee in this regard were reinforced. For
instance, corporate values and culture is a
Board-level issue as formalised in the Board of
Directors Mandate. To ensure alignment of staff
roles, responsibilities as well as authorities to
corporate objectives, we reviewed and updated
job descriptions across the organisation.
The levels of authorities were also reviewed
and refi ned.
In terms of Control Activities, we continued the
phased project to document all key policies and
procedures for operating, fi nancial reporting and
compliance functions. An appropriate balance
of preventive and detective controls was built in.
We set up our Internal Audit function during the
second half of the year to assist management
in its “Monitoring” function by providing
independent assessment and assurance.
The principle of independence was fi rmly
established, as evident by its reporting line to
Audit Committee and Chief Executive Offi cer
(Chairman acting). Other key principles,
including the principle of objectivity under which
internal auditors should not be involved in the
operations being audited, are refl ected in an
Internal Audit Charter approved by the Audit
Committee. A special Audit Committee meeting
was convened to ensure smooth working of the
Internal Audit function. The 2008 Internal Audit
Plan was approved by the Committee.
2007 REVIEW OF INTERNAL
CONTROLS EFFECTIVENESS
The Board is responsible for the Company’s
system of internal controls and for reviewing its
effectiveness. Internal Audit and management
conduct reviews of the effectiveness of the
Company’s system of internal controls. The
Audit Committee reviews the fi ndings and
opinion of Internal Audit and management on
the effectiveness of the Company’s system of
internal controls at least once each year and
reports annually to the Board on such reviews.
In respect of the year ended 31 December
2007, the Board considered the internal
controls system effective and adequate.
No signifi cant areas of concern which might
affect the operational, fi nancial reporting,
and compliance functions of the Company
were identifi ed.
WAY FORWARD
We recognise that the strengthening of internal
controls is a continuing process. The followings
form the basis of further work in this light:
• Governance – in light of the search of a new
Chief Executive Offi cer and the coming on
board of new senior executives, the governance
structure will be reviewed to ensure clear and
appropriate roles, responsibilities and authorities
for the senior management team.
• Policies and procedures – we shall continue
our phased project to review and document
policies and procedures covering key operating,
fi nancial reporting and compliance functions.
The focus will include inter-departmental issues
and reviewing documented policies following
implementation in the light of balancing controls
and operating effi ciency.
• Education and communication – an effective
internal controls system does not stop at senior
management level. We shall further strengthen
risks and controls awareness among our staff
across the organisation.
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Hysan Annual Report 2007 35
Internal Controls and Risk Management
THE HYSAN INTERNAL CONTROLS SYSTEM – HOW COSO PRINCIPLES ARE APPLIED
The following is a summary of the key COSO principles and how Hysan has applied them.
Control Environment
Component
Hysan’s way to achieve the principle
Integrity and Ethical Values
Basic Principle:
Sound integrity and ethical values,
particularly of top management,
are developed, communicated
and policed so that these set
the standard of conduct for the
organisation.
Developing the values
Hysan has in place a formal Code of Ethics, emphasising the key principles of
(i) respect for people; (ii) ethics and business integrity; (iii) meeting our responsibility.
Specifi c guidelines on various areas including corporate and fi nancial reporting,
confl icts of interests, personal benefi ts, relations with suppliers and contractors
are covered.
Communication
– Briefi ng of Code of Ethics covered in orientation programme for new recruits.
– Code provisions posted on intranet to provide easy access to all.
– During 2007, completed a company-wide briefi ng of our Code of Ethics to employees
at all levels.
Monitoring
– (Effective March 2008) An independent third party service provider engaged to monitor
the “whistle-blowing” system with direct reporting to Audit Committee Chairman.
Mechanics:
– available 24-hour-a-day, 7 days a week, option of remaining anonymous; via
telephone / email / post
– reporting – report to the Audit Committee directly to preserve impartiality where
the allegation involves senior management or anyone in the Corporate
Services Division
Importance of the Board of
Directors
Basic Principle:
The Board of Directors
understands and exercises
oversight responsibility related to
internal controls.
Formalised Board roles and responsibilities
– Internal controls and risk management, corporate culture and values are
Board-level activities.
Formalised role expectations of Non-executive Directors
– Key roles of Non-executive Directors are formalised, which roles include monitoring
of management performance, review of risk management, in addition to requirements
applicable to all Directors.
36
Hysan Annual Report 2007
Component
Hysan’s way to achieve the principle
Management’s Philosophy and
Operating Style
Basic Principle:
Continual reinforcement
– This is integrated into our daily operations and continually reinforced.
– Use of communication channels including staff newsletters, events and corporate
Management’s philosophy and
operating style support achieving
effective internal controls by setting
the tone across the organisation.
publications.
Levels of Authority and
Responsibility
Basic Principle:
Management and employees
are assigned appropriate levels
of authority and responsibility to
facilitate effective internal controls.
Human Resources
Basic Principle:
Human resources policies and
practices are designed and
implemented to facilitate effective
internal controls, emphasising
organisation and development of
people and their competence.
Levels of responsibilities
– During 2007, we conducted a comprehensive review and update of job descriptions
across the Company.
Levels of authority
– During 2007, we refi ned our written levels of authority across the Company.
The principles of segregation of duties and confl icts of interests have been built in
where appropriate.
Human Resources policies
– Hysan formalised and refi ned its human resources policies to ensure competence of
our staff, and appropriate application of the principles of checks-and-balances and
fairness in key people issues.
Checks-and-balances
– Neither business line nor human resources may have absolute power in key people
issues including hiring/termination, disciplinary actions.
Competence
– Various background checks for new recruits; all staff expected to demonstrate
behaviours consistent with Code of Ethics and reasonable standard of performance
(Employee Discipline Policy); staff given growth opportunity for retention (Staffi ng
Policy – internal transfers).
Fairness
– Employee Discipline Policy provides for various types of disciplinary actions
(oral/written warning, dismissal) according to degree of misconduct; Grievance
Handling Procedures provide for opportunity to be heard in an appeal system.
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Hysan Annual Report 2007 37
Internal Controls and Risk Management
Hysan’s way to achieve the principle
– Management conducted an entity-wide exercise in 2006 to map all key control
processes to appropriate control objectives. Process owners were identifi ed who have
the responsibility for ensuring that (i) controls exist and are in operation; (ii) the relevant
policies are documented and updated in light of self-risk assessment. To facilitate the
process, a standardised template was developed for documenting these policies:
– objectives of the policy
– scope of the policy
– functions/locations to which the policy applies
– roles and responsibilities for ownership, creation, implementation, and maintenance
of policy
– key provisions covered by the policy
– Our Control Activities include a range of activities such as management reviews of
operating performance, approvals, reconciliations, security of assets and segregation
of duties. An appropriate balance of preventive and detective controls is used.
Balancing the availability of resources, duties are segregated to mitigate risks.
Hysan’s way to achieve the principle
– A review of internal controls system was conducted by independent consultants
in 2006.
– Set-up of Internal Audit function in 2007. Internal Audit performed an independent
review of the overall effectiveness of internal controls system based on framework
developed by independent consultants in 2006.
– Internal Audit reports are distributed to senior management. Signifi cant fi ndings will be
reported to Audit Committee immediately. Summary of fi ndings and audit work done
will be presented to Audit Committee on a half-yearly basis.
– In general, management monitoring of internal controls effectiveness is a by-product
of monitoring the business through management’s direct involvement in business
operations.
Control Activities
Component
Basic Principle:
Elements of Control Activities –
policies and procedures are
established and communicated
throughout the Company, enabling
management directives to be
carried out.
Basic Principle:
Selection and development
of Control Activities – Control
Activities are selected and
developed considering their cost
and potential effectiveness in
mitigating risks.
Monitoring
Component
Basic Principle:
On-going and separate
evaluations of all fi ve internal
controls components; internal
controls defi ciencies are identifi ed
and communicated in a timely
manner to responsible parties for
taking corrective action, and to
management and the Board as
appropriate.
38
Hysan Annual Report 2007
At the same time, we aim to attract the best
talent and are prepared to go beyond the
property industry for general management skills
that complement our technical expertise.
Key positions across the Group have been
fi lled both by promotions within the existing
employee population and by successful
new hires.
REWARD AND RECOGNITION
We recognise that competitive compensation is
a pre-requisite to recruiting and retaining talent.
Hysan has always rewarded its staff based on
performance and contribution. During the year,
we refi ned our differentiated compensation
system to better align the nature and market
competitiveness of different job families.
EMPLOYEE COMMUNICATION
We understand that effective communication
is key to fostering staff commitment to
the Group and we continue to refi ne our
employee communication programme. This
includes briefi ngs and updates on results
announcements and other key corporate
developments, regular newsletters, and
gatherings with senior management.
THE HYSAN ADVANTAGE
We aim to be the employer of choice in the
property sector, attracting and retaining the
best talent that share our corporate values
emphasising quality, innovation, and achieving
results the right way. We have identifi ed career
management as an improvement area and
plans are in place to address the issue.
Human
Resources
People remain key to the ongoing growth and
success of our business. As at 31 December
2007, we have a total of 459 staff members,
including head offi ce asset management team
and front-line building management staff.
We operate in a business environment with
increased competition. Our business strategy
is to provide innovative real estate solutions,
thereby capturing new customers as well as
retaining existing ones. This drives our human
resources strategy to become the employer of
choice in the property sector. Our objective is
to attract and retain high-performing employees
who can add value to the business.
We made good progress in delivering our
human resources strategy covering the core
areas of:
• Talent management
• Reward and recognition
• Employee communication
TALENT MANAGEMENT
Considerable efforts were devoted to identifying
core skills and competencies essential to the
achievement of business objectives in the
changing market and competitive environment.
We recognise that we need to challenge the
existing practices so as to provide a better
solution to serve our existing and potential
customers. This requires the skills of innovation
— the ability to spot opportunities, to
evaluate existing business practices including
emulating those from other industries. We shall
continue to develop our people by fostering
the competencies of innovation and broader
business perspectives in our daily operations.
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Hysan Annual Report 2007 39
I Care
Hysan takes responsibility by giving
back to our community. Through our
everyday business operations and active
participation in community activities,
Hysan demonstrates how corporations
can give more than just fi nancially to
make our society a better place.
40
Hysan Annual Report 2007
Hysan Annual Report 2007 41
Investment Properties Portfolio
Bamboo
Grove
Mid-Levels
Leighton
Centre
500 Hennessy Road
Lee
Theatre
Plaza
One Hysan
Avenue
The Lee
Gardens
Lee
Gardens
Two
111
Leighton
Road
Sunning
Plaza
AIA
Plaza
Sunning
Court
BAMBOO GROVE 74-86 Kennedy Road, Mid-Levels
A luxury residential complex in the Mid-Levels, Bamboo Grove commands
panoramic views of the harbour and the greenery of the Peak, and is
well served by a multitude 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.
LEIGHTON CENTRE 77 Leighton Road, Causeway Bay
This offi ce 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.
LEE THEATRE PLAZA 99 Percival Street, Causeway Bay
Like its predecessor, Lee Theatre, the Lee Theatre Plaza is a Hong
Kong landmark, being one of the city’s best known shopping and dining
complexes, housing many of the world's most famous lifestyle brands
and restaurants.
500 HENNESSY ROAD Causeway Bay
Under redevelopment.
Total Gross
Floor Area
691,546 sq.ft.
Number
of Units
Parking
Spaces
Year
Completed/
Renovated
345
436
1985/2002
Total Gross
Floor Area
435,008 sq.ft.
Number
of Floors
Parking
Spaces
Year
Completed/
Renovated
28
264
1977/2004
Total Gross
Floor Area
317,160 sq.ft.
Number
of Floors
26
Year
Completed/
Renovated
1994
Estimated
total
Gross
Floor Area
Projected
year of
Completion
Approx.
710,000 sq.ft.
2011
42
Hysan Annual Report 2007
Total Gross
Floor Area
169,019 sq.ft.
Number
of Floors
26
Year
Completed/
Renovated
1976/2002
Total Gross
Floor Area
902,797 sq.ft.
Number
of Floors
Parking
Spaces
Year
Completed/
Renovated
53
200
1997
Total Gross
Floor Area
626,996 sq.ft.
Number
of Floors
Parking
Spaces
34
176
Year
Completed/
Renovated
1992/renovation
of retail podium
in 2003
Total Gross
Floor Area
279,717 sq.ft.
Number
of Floors
Parking
Spaces
30
150 (jointly owned
with Sunning Court)
Year
Completed/
Renovated
1982
Total Gross
Floor Area
97,516 sq.ft.
Number
of Units
Parking
Spaces
Year
Completed/
Renovated
59
150 (jointly owned
with Sunning Plaza)
1982/2003
Total Gross
Floor Area
139,119 sq.ft.
Number
of Floors
25
Year
Completed/
Renovated
1989
Total Gross
Floor Area
79,905 sq.ft.
Number
of Floors
24
Year
Completed/
Renovated
1988/2004
ONE HYSAN AVENUE 1 Hysan Avenue, Causeway Bay
Located at the junction of three busy streets in the heart of Causeway
Bay, this offi ce and retail complex enjoys a prime location with a variety of
retail facilities in the surrounding area.
THE LEE GARDENS 33 Hysan Avenue, Causeway Bay
The Lee Gardens is the Group’s fl agship property comprising an offi ce
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.
LEE GARDENS TWO 28 Yun Ping Road, Causeway Bay
Lee Gardens Two is an offi ce and retail complex. 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 fl oor.
SUNNING PLAZA 10 Hysan Avenue, Causeway Bay
Designed by the renowned architect I.M. Pei, Sunning Plaza greets
tenants and visitors with a spacious entrance and lift lobby. Among
its retail tenants are popular food and beverage outlets, which have
established the plaza as a hub for relaxation and social recreation.
SUNNING COURT 8 Hoi Ping Road, Causeway Bay
The 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.
AIA PLAZA 18 Hysan Avenue, Causeway Bay
AIA Plaza is a 25-level offi ce 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.
111 LEIGHTON ROAD 111 Leighton Road, Causeway Bay
Located in a pleasant and quieter area in the heart of Causeway Bay,
111 Leighton Road is an ideal offi ce location for professional and
designer fi rms. The retail shops include a European kitchen concept
store and a restaurant/fashion store.
Hysan Annual Report 2007 43
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Our Governance
We are proud of our commitment to maintaining
the highest standards of corporate governance,
the only means to achieve long-term and
sustainable returns. Underlying this commitment
is our aim to be a responsible business.
44
Hysan Annual Report 2007
CONTENT HIGHLIGHTS
Our Board of Directors
and Offi cers
Corporate Governance
Report
Directors’ Report
Directors’ Remuneration
and Interests Report
Audit Committee Report
Hysan Annual Report 2007 45
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Our Board of Directors and Offi cers
STRUCTURE
The Board
Audit
Committee
Chairman
Chief
Executive
Officer
Emoluments
Review
Committee
Nomination
Committee
Investment
Committee
Chairman
Peter Ting Chang LEE (I, chairing N)
J.P. (currently acting as Chief Executive Offi cer)
Independent non-executive
Deputy Chairman
Sir David AKERS-JONES (N, chairing A, E)
G.B.M., K.B.E., C.M.G., J.P.
Independent non-executive Directors
Tom BEHRENS-SORENSEN (A)
Fa-kuang HU (E)
G.B.S., C.B.E., J.P.
Dr. Geoffrey 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.
Non-executive Directors
Hans Michael JEBSEN (I)
B.B.S.
Anthony Hsien Pin LEE (chairing I)
Chien LEE (A)
Dr. Deanna Ruth Tak Yung RUDGARD
Finance
Executive Director
Pauline Wah Ling YU WONG
Company Secretary
Wendy Wen Yee YUNG
Corporate
Services
Property
Investment
Property
Services
Property
Development
(A) Audit Committee
(E) Emoluments Review Committee
(N) Nomination Committee
Investment Committee
(I)
46
Hysan Annual Report 2007
BOARD OF DIRECTORS
Mr. Lee joined the Board in 1988, became Managing Director in 1999,
and Chairman in 2001. Mr. Lee is a non-executive director of Cathay
Pacifi c 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 qualifi ed as a Solicitor of the Supreme Court of
England and Wales. He is aged 54.
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 80.
Mr. Behrens-Sorensen is the Group Executive Vice President of A.P.
Moller-Maersk Group as well as Chairman of Maersk China Limited.
He is also the Chairman of the Danish Chamber of Commerce in
China and Chairman of the European Chamber of Commerce in China
Transportation Working Group. He has over 20 years of experience with
the A.P. Moller – Maersk Group in Asia and Australia. He was appointed
an Independent non-executive Director in 2007 and is aged 49.
Mr. Hu is Honorary Chairman of Ryoden Development Limited.
He holds a Bachelor of Science Degree from Shanghai Jiao Tong
University. He was appointed a Non-executive Director in 1979 and as
Independent non-executive Director in 2008. He is aged 84.
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 51.
Peter Ting Chang Lee
Chairman (I, chairing N)
J.P.
Sir David Akers-Jones
Independent non-executive
Deputy Chairman
(N, chairing A, E)
G.B.M., K.B.E., C.M.G., J.P.
Tom Behrens-Sorensen
Independent non-executive
Director (A)
Fa-kuang Hu
Independent non-executive
Director (E)
G.B.S., C.B.E., J.P.
Hans Michael Jebsen
Non-executive Director (I)
B.B.S.
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Hysan Annual Report 2007 47
Our Board of Directors and Offi cers
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 fi lms. 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 50.
Mr. Lee is a private investor and a non-executive director of a number
of companies including Swire Pacifi c 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 54.
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 68.
Dr. Yeh is former Chairman of Hsin Chong Construction Group Ltd.
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 76.
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 qualifi ed 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 fi eld. She was
appointed a Director in 1991 and is aged 59.
Anthony Hsien Pin Lee
Non-executive Director
(chairing I)
Chien Lee
Non-executive Director (A)
Dr. Deanna Ruth Tak
Yung Rudgard
Non-executive Director
Dr. Geoffrey
Meou-tsen 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.
Pauline Wah Ling
Yu Wong
Executive Director
48
Hysan Annual Report 2007
OFFICERS
From left to right: Pauline Wah Ling Yu Wong (Executive Director), Peter Ting Chang Lee (Chairman),
Ricky Tin For Tsang (Chief Financial Offi cer), Wendy Wen Yee Yung (Company Secretary)
Ricky Tin For Tsang
Chief Financial Offi cer
Mr. Tsang joined the Group in 2004 and oversees the areas of fi nancial control and accounting,
treasury, corporate fi nance and institutional investors relations, as well as information technology.
He had previously held senior positions in risk management, treasury and fi nancial control
with major fi nancial institutions in the United Kingdom and in Hong Kong. Mr. Tsang holds a
Masters’ Degree in Engineering from Oxford University, United Kingdom. He is also qualifi ed as
a Chartered Accountant with the Institute of Chartered Accountants in England and Wales, and
is a Fellow of Hong Kong Institute of Certifi ed Public Accountants. He is also a member of the
Association of Corporate Treasurers in the United Kingdom. He is aged 46.
Wendy Wen Yee Yung
Company Secretary
Ms. Yung joined the Group in 1999 and 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, Ms. Yung was a partner of an international law fi rm prior
to joining the Group. Ms. Yung holds a Master of Arts Degree from Oxford University, United
Kingdom. She is also a Member of the Hong Kong Institute of Certifi ed Public Accountants. She
sits on the Hong Kong Selection Committee of the Rhodes Scholarships, as well as a number
of committees of the Hong Kong Institute of Certifi ed Public Accountants and the Hong Kong
Institute of Chartered Secretaries respectively. She is aged 46.
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Hysan Annual Report 2007 49
Corporate Governance
Report
RESPONSIBLE BUSINESS AS THE
GUIDING PRINICIPLE
Hysan aims to be a fi nancially successful as well
as responsible business. In our quest to deliver
long-term sustainable value to our shareholders,
we have to understand the context in which
we operate and make decisions that balance
the needs of various stakeholders. To our
shareholders, this is translated into a commitment
to maintaining the highest standards of corporate
governance. The cornerstones of our corporate
governance practices are accountability,
transparency, and integrity.
To us, therefore, good corporate governance
is not an exercise in compliance. Nor is this
restricted to the Board process. The Board
must delegate to other executives, who in turn
implement policies across the organisation. It
is therefore crucial to reinforce our corporate
culture and values, which emphasise good
business ethics and responsible behaviour in
general.
STATEMENT OF COMPLIANCE
WITH THE CODE ON CORPORATE
GOVERNANCE
Hysan 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. The Board will continue to review
this arrangement in light of the needs of the
Group. The Company’s Corporate Governance
guidelines provide for separate roles of
Chairman and Managing Director. Peter Ting
Chang Lee serves as the Chairman. An open
search is currently underway for a new Chief
Executive Offi cer.
50
Hysan Annual Report 2007
Best Practices in Corporate Governance in Place at Hysan
Exceeded
Code
Provisions
The Board fi rst established a formal Corporate Governance Policy in 2004.
The Board has formally designated a Senior Independent non-executive Director, Sir David Akers-Jones. He
currently serves as Independent non-executive Deputy Chairman.
The Board has established formal mandates and responsibilities for itself, with clear division of roles with
management.
The Board has established formal criteria and requirements for Non-executive Director appointments. Newly
appointed Non-executive Directors are given formal letters of appointment.
Board evaluation: Chairman and Non-executive Directors meet at regularly scheduled sessions without presence
of management.
All Corporate Governance Committees (Audit, Emoluments Review and Nomination) have at least a majority
of Independent non-executive Directors, in compliance with Listing Rules requirements. Terms of Reference of
such Committees have been refi ned to provide for in-camera meetings without management presence to further
encourage objective and independent discussions and assessment.
The Group has a written Code of Ethics applicable to all staff and Directors. Monitoring of the “whistle
blowing” mechanism has been outsourced to an external independent third party provider to further enhance
independence.
The Group has established a Code for Securities Dealing applicable to those employees likely to have access to
unpublished price-sensitive information.
The Group has established a Corporate Disclosure Policy to guide its communications with its stakeholders in
order to ensure consistent and timely disclosure.
The Group has established an Auditor’s Services Policy to identify areas of confl icts and prohibits engagement of
auditors in such areas to ensure objectivity and independence.
The Group has demonstrated its commitment to transparency in shareholder reporting by publishing a separate
Corporate Governance Report since 2001. It also publishes the following reports:
(i) Audit Committee Report;
(ii) Directors’ Remuneration and Interests Report; and
(iii) Report on Internal Controls and Risk Management.
The Group has formalised its Corporate Responsibility Policy and publishes a separate annual Corporate
Responsibility Report.
Since 2004 the Group has operated a new form of annual general meeting (“AGM”) that goes beyond the
discharging of statutory business by including a detailed business review session led by the Chairman.
The Group has initiated and funded a programme inviting major nominee companies to proactively forward
communication materials to ultimate benefi cial shareholders at its expense.
The Group continually enhances the use of its corporate website as a means of communication with
shareholders. Principal corporate governance policies, guidelines, and terms of reference of related committees
are posted.
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Hysan Annual Report 2007 51
Corporate Governance Report
FOCUS IN 2007
Reinforcement of our corporate culture and
values was a main focus in 2007. This in
fact forms an important element of further
strengthening our control environment, a key
component of our internal controls system.
Our programme includes a Group-wide
briefi ng of our Code of Ethics, establishing
corporate culture and values as a Board-level
matter, and strengthening the Board and Audit
Committee’s oversight roles generally. These
are complemented by a range of employee
communication channels, including staff
newsletters, events and corporate publication.
In addition to enhancing the control
environment, other steps were also undertaken
to further strengthen our internal controls
system. These are described in greater details
in a separate report – “Internal Controls and
Risk Management”.
In terms of the Board infrastructure, we further
reinforced the independence of corporate
governance-related Board Committees (being
Audit, Emoluments Review, and Nomination
Committees). Currently, all Committees have at
least a majority of Independent non-executive
Directors. We refi ned their terms of reference
and formalised the arrangements of in-camera
meetings without management presence.
This is intended to further encourage open and
objective discussions and assessment.
We improved the quality of corporate reporting
and disclosure generally. In this annual report,
we aim to provide comprehensive yet user-
friendly information on all material matters
regarding the Group, including the fi nancial
situation, performance, and governance. To
further facilitate the comparability of reporting
and provide more insight into our performance,
we included a greater use of key performance
indicators, as well as general market and
competitive information. We also enhanced
the provision of information to facilitate
shareholders’ exercising their rights. These
enhancements include detailed information
in the accompanying AGM circular on voting
procedures, resolutions to be voted thereat,
and shareholders’ rights generally.
Recent Recognitions for Hysan’s Corporate Governance Achievements
Year
Awards
2007
2006
2005
– Platinum Award (Non-Hang Seng Index Category) in Best Corporate Governance
Disclosure Awards 2007 by Hong Kong Institute of Certifi ed Public Accountants
– Award Winner – Best Five Corporate Governance Practices in Asia/Pacifi c by
The IR Global Rankings 2007.
– Gold Award (Non-Hang Seng Index Category) in Best Corporate Governance
Disclosure Awards 2006 by Hong Kong Institute of Certifi ed Public Accountants.
– Award Winner – Best Five Corporate Governance Practices in Asia/Pacifi c by
The IR Global Rankings 2006.
– On the Top 10 Companies List with Best Corporate Governance in the 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.
– Platinum Award (Non-Hang Seng Index Category) in Best Corporate Governance
Disclosure Awards 2005 by Hong Kong Institute of Certifi ed Public Accountants.
– “Citation for Achievement in Corporate Governance Disclosure” award in General
Category by Hong Kong Management Association.
– Third highest rated company in Hong Kong in the FTSE Institutional Shareholder
Services Corporate Governance Index 2005.
2004
– Directors of The Year Awards 2004, in the Listed Companies Boards Category,
organised by the Hong Kong Institute of Directors.
52
Hysan Annual Report 2007
CORPORATE GOVERNANCE
REPORTING
We have set out detailed information on our
corporate governance structure and practices
in the following separate reports:
• Corporate Governance Report
• Audit Committee Report (Page 79-80)
• Directors’ Remuneration and Interests Report
(Page 72-78)
• Internal Controls and Risk Management
(Page 34-38)
Evolution of Hysan’s Corporate Governance Framework
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Hysan Annual Report 2007 53
Corporate Governance Report
Chairman Peter T.C. Lee spoke on family ownership and professional
management at the 2nd Asia-Pacifi c Corporate Governance
Conference, August 2007
“When the issue of ‘family business’ is brought up…I am sure people
can think of good things like ‘identity and values’…and ‘long-term vision’,
while others may see the not-so-positives like ‘abuses by the majority
shareholder’…So how should a family business stress the positives and
eliminate the negatives?...The essence of Hysan’s governance model
is an effective combination of the commitment and support of a family
ownership and the best of professional management.”
Transcript of the full speech is posted on www.hysan.com.hk
1. OUR GOVERNANCE MODEL
Hysan’s governance model is based on an
effective 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 more 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 the establishment of appropriate board
committees. The roles and responsibilities of
the Board, Non-executive Directors, and Board
Committees are clearly delineated.
54
Hysan Annual Report 2007
2. OUR GOVERNANCE FRAMEWORK
3. THE BOARD AND MANAGEMENT
Key Facts
Key Facts
There are many guidelines, policies and
procedures that support the governance
framework at Hysan. The following constitute key
components of Hysan’s governance framework.
They are posted on www.hysan.com.hk
→(cid:3)Corporate Governance Guidelines
→ Board of Directors Mandate
→ Roles requirements of Non-executive
Directors
→ Terms of Reference of various corporate
governance-related Board Committees
(Audit, Emoluments Review, and Nomination
Committees)
→ Code of Ethics for Employees
→ Auditor Services Policy
→ Corporate Disclosure Policy
The Board reviews its corporate governance
practices annually
The Corporate Governance Guidelines
form the general framework of our corporate
governance practices and cover:
• 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
→ Board of Directors Mandate is posted on
www.hysan.com.hk
→ The Board reviews its corporate governance
practices annually
→ Board focus in 2007: internal controls;
corporate culture and values; human
resources
The roles of the Board and of the management
are separate and distinct. 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. On the other hand, the
responsibility for the day-to-day management
of the Group’s business activities and the
implementation of the Group’s policies remains
vested in management.
The Board and management fully appreciate
their respective roles and are supportive of
the development of a healthy corporate
governance culture.
These are governed by a formal Board of
Directors Mandate which sets out the key
responsibilities of the Board in fulfi lling its
stewardship roles. These include the following:
• Strategic Planning and Monitoring
• Internal Controls and Risk Management
• Culture and Values
• Capital Management
• Corporate Governance
• Board Succession
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Hysan Annual Report 2007 55
Corporate Governance Report
A detailed list of Matters Reserved For Board
Decisions is in place setting out key matters
that are to be retained for full Board decision.
These matters include:
(Details on the 2007 Board review and general
information on Group internal controls system
are set out in “Internal Controls and Risk
Management” on page 34 to 38)
Group human talent was another area of
attention. There was a general review and
refi nement of core skill requirements in light
of the changing market environment and
competition. Regular updates on progress in
continually strengthening the Group’s human
resources were provided to the Board.
Four Board meetings were held in 2007
and the meetings were structured to allow
open discussion. Details of Directors’ Board
attendance records are as follow:
Director
Executive
Peter Ting Chang Lee
Pauline Wah Ling Yu Wong
Michael Tze Hau Lee
Independent Non-Executive
Sir David Akers-Jones
Tom Behrens-Sorensen
Fa-kuang Hu (Note)
Dr. Geoffrey Meou-tsen Yeh
Non-Executive
Hans Michael Jebsen
Anthony Hsien Pin Lee
Chien Lee
Dr. Deanna Ruth Tak Yung Rudgard
Per Jorgensen
Attendance/Total
Board Meetings
4/4
4/4
2/2
4/4
2/2
3/4
4/4
(25% by alternate)
4/4
(75% by alternate)
4/4
4/4
4/4
2/2
Note: Designated as Independent non-executive Director
in 2008.
• 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 controls assessment and
• Appointments to the Board following
recommendations by the Nomination
Committee
Where applicable, the “materiality” thresholds
are set at appropriate levels to ensure proper
control while allowing for smooth day-to-day
operations to be carried out by management.
The schedule is reviewed periodically, at least
once a year. It was last formally reviewed by
the Board in March 2008.
Board Focus in 2007
In addition to extensive discussions on Group
leasing strategy, projects, and performance, the
Board also focused on the following areas.
The Board reiterated the importance of
continually enhancing the Group’s internal
controls system. In light of the nature of the
Group being a family-controlled company
and the possible perception this might give,
the Board paid special attention to having
appropriate checks-and-balances in its internal
controls system. Group culture and values
were reinforced generally, particularly as the
Group entered into a stage of expanding its
human talent.
56
Hysan Annual Report 2007
4. BOARD LEADERSHIP: CHAIRMAN
AND SENIOR INDEPENDENT NON-
EXECUTIVE DIRECTOR
The Group’s Corporate Governance Guidelines
provide for separate roles of Chairman and
Managing Director. Peter Ting Chang Lee
serves as the Chairman. An open search is
currently underway for a Chief Executive Offi cer.
The Group’s corporate governance model
aims to effectively combine family control and
professional management.
Sir David Akers-Jones acts as the Independent
non-executive Deputy Chairman of the Board.
His role as the Senior Independent non-
executive Director is formalised in the Group’s
Corporate Governance Guidelines. He is
available to shareholders and fellow Directors
if they have concerns relating to matters
that contact through the normal channels of
Chairman and/or Chief Executive Offi cer has
failed to resolve, or for which such contact
is inappropriate.
The Senior Independent non-executive
Director 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 effectively
and is independent of management where
appropriate.
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. We fi nd
that diversity of background and experience
contributes to more effective Board
deliberations.
Skill/Experience of the Hysan Board
Members
Executive Directors
– Top management – Peter Ting Chang Lee
(Chairman)
– Business line – Pauline Wah Ling Yu Wong
(Executive Director)
Independent non-executive Directors
– Civil service – Sir David Akers-Jones
(Independent non-executive Deputy Chairman)
– Multi-national corporations/global exposure
– Tom Behrens-Sorensen
– Related business (real estate and investment)
– Fa-kuang Hu
– Related business (construction) – Dr. Geoffrey
Meou-tsen Yeh
Non-executive Directors
– Trading companies/global exposure – Hans
Michael Jebsen
– Finance and investment – Chien Lee and
Anthony Hsien Pin Lee
– Professional – Dr. Deanna Ruth Tak Yung
Rudgard
5. BOARD COMPOSITION
The Board currently comprises of two executive
and eight non-executive Directors. The Board
continually reviews its composition and is
Directors’ biographies are set out on pages 47
and 48 and are also available on the Group’s
website.
“The outside directors bring their world of experience into our board
room and these are especially invaluable during discussions on
strategies and plans for the future. They are also watchdogs to ensure
the strict requirements of the law and regulatory controls are observed.
They make our management team much more aware of corporate
governance requirements.”
Extract from Chairman Peter T.C. Lee’s speech at the 2nd Asia Pacifi c Corporate
Governance Conference
Hysan Annual Report 2007 57
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Corporate Governance Report
6. BOARD INDEPENDENCE
Key Facts
→ The Board’s “independence” standards are
posted on www.hysan.com.hk
→ The Board reviews “independence” status of
Non-executive Directors on an annual basis
→ All Non-executive Directors standing for re-
election at the 2008 AGM are independent
except Chien Lee because he is a member
of the founding Lee family
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 four Independent non-
executive Directors who are identifi ed in our Annual
and Interim Reports and other communications
with shareholders.
Sir David Akers-Jones, Independent non-
executive Deputy Chairman seeking re-election
at this year’s AGM, has served the Board for
more than nine years. Sir David Akers-Jones
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 Sir David
remains independent, notwithstanding the
length of his tenure.
Management
Independent
Not Independent March 2008 Review – Reason for Independence Status
No business or other relationships with Group or
management
No business or other relationships with Group or
management
No business or other relationships with Group or
management
No business or other relationships with Group or
management (Note 1)
No business or other relationships with Group or
management (Note 2)
INDEPENDENCE STATUS
Name
Peter Ting Chang Lee
Sir David Akers-Jones
Tom Behrens-Sorensen
(as from 8 May 2007)
Per Jorgensen
(up to 8 May 2007)
Dr. Geoffrey
Meou-tsen Yeh
Fa-kuang Hu
Hans Michael Jebsen
Anthony Hsien Pin Lee
Chien Lee
Dr. Deanna Ruth
Tak Yung Rudgard
Pauline Wah Ling Yu Wong
Note 1: Dr. Yeh is the former Chairman of Hsin Chong Group whose business includes construction and is on the Group’s tender list. As at
31 December 2007, Dr. Yeh and his associates hold less than 5% interest in the Hsin Chong Group.
Note 2: Mr. Hu is a former director and shareholder of Ryoden Lift Services Limited and Ryoden Engineering Contracting Company Limited which
have lift maintenance and miscellaneous works contracts with the Group. Since 2004, Mr. Hu and his associates no longer have interests in
such companies. Mr. Hu formerly acted as Non-executive Director of a number of the Group’s non-operating subsidiaries. He has resigned
from such positions in 2008.
58
Hysan Annual Report 2007
Best Corporate Governance Disclosure Awards 2007: Non-Hang Seng Index Catagory – PLATINUM AWARD
Organised by The Hong Kong Institute of Certifi ed Public Accountants
“The judges considered the 2006 report of
Hysan set a good benchmark... in a number of
respects, the company’s corporate governance
practices exceeded the standards laid down by
the Code on Corporate Governance Practices.”
“Generally, the judges found the report to be an
impressive and professionally presented report.”
Extracted from Judges’ Report
7. DIRECTOR APPOINTMENTS
AND RE-ELECTION
Key Facts
→ Formalised role requirements of
Non-executive Directors posted on
www.hysan.com.hk
→ Non-executive Directors are appointed for
a term of three years and are subject to
rotation under our Articles of Association
→ Biographies and other details of Directors
standing for re-election are found in the AGM
circular accompanying this Annual Report
Requirements
There is a formal, rigorous and transparent
procedure for the appointment of new Directors
to the Board. The Board has established the
Nomination Committee with the responsibility
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.
There are formalised role requirements for
Non-executive Directors who have four
additional key roles as well as those
requirements applicable to all Directors:
• Strategy – constructively challenge, hence
help develop proposals on strategy
• Performance – scrutinise performance of
management in meeting agreed goals and
objectives
• Risk – to satisfy themselves about the integrity
of fi nancial information and the robustness of
controls and systems of risk management
• People – determine appropriate levels of
remuneration for Executive Directors and to
undertake succession planning
Mr. Tom Behrens-Sorensen was appointed
as an Independent non-executive Director
during 2007.
Term
Non-executive Directors are appointed for
a term of three years. New Directors are
required to submit themselves for re-election
at the fi rst AGM following their appointment.
The Group’s Articles of Association contain
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 he retires. There is no
cumulative voting in Directors elections, election
on each candidate is by a separate resolution.
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Hysan Annual Report 2007 59
Corporate Governance Report
8. SUPPLY OF INFORMATION
AND EVALUATION
Key Facts
→ The Chairman, with the assistance of the
Company Secretary, is responsible for the
induction of new Board members
→ New Directors’ induction includes provision
of an induction package and discussion
sessions with key management personnel
Induction and Update
On their appointment, Directors are advised on
the legal and other duties and obligations they
have as directors of a listed company. Newly
appointed Directors receive a comprehensive
induction package designed to provide a
general understanding of the Group; its
business; operation of the Board and main
issues it faces; as well as an overview of the
responsibilities of a Non-executive Director
of the Group. Discussion sessions with key
management personnel will also be held.
Directors’ Induction Package
The contents of the induction package are
reviewed from time to time in light of the nature
of the Group’s activities and the needs of the
individuals concerned. They cover:
• Directors’ Duties – including
– Hysan Handbook on the Duties and
Responsibilities of Directors
– The Company’s Code for Securities Dealing
by Directors
– Checklist of circumstances that require
notifi cation by a Director to the Company
• The Group’s Business – including
– Budget highlights
– Company organisation chart
– Details of any major litigation; summary
of major group insurance policies including
Directors and Offi cers’ Liabilities Insurance
• Board Process and Current Board Issues –
including
– Minutes of last 3 Board meetings
– Brief biographical details of all Directors,
the Company Secretary and other key
executives
– Details of Board Committees together with
terms of references.
Our Directors are regularly updated on Hysan’s
business, the environment in which it operates
and other matters throughout their period
in offi ce.
Supply of Information
The Board receives detailed quarterly reports
from management 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. Directors also
have access to non-Director management staff
where appropriate. These ensure that the Board
will be given the answers it needs.
Independent Advice
The Board recognises that there may be
occasions when one or more Director feel it
is necessary to take independent legal and/or
fi nancial advice at the Company’s expense.
There is an agreed procedure to enable
them to do so, as laid down in our Corporate
Governance Guidelines.
Evaluation
Hysan has in place a process of Board
evaluation in the form of meetings between the
Chairman and Non-executive Directors without
management being present. A number of
meetings were held in 2007.
60
Hysan Annual Report 2007
9. BOARD COMMITTEES
Key Facts
→ The Board has three corporate governance-
related committees
→ Work prepared by Audit Committee is found
in a separate report from the Committee
(page 79-80)
→ Work performed by the Emoluments Review
Committee is found in a separate Directors’
Remuneration and Interests Report
(page 72-78)
In order to provide effective oversight and
leadership and pursuant to its Corporate
Governance Guidelines, the Board has
established three governance-related Board
Committees. All such Committees have at
least 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. The terms of
reference of these Committees are available on
the Company website.
A. Audit Committee
Composition and Meetings Schedule
Hysan’s Audit Committee is chaired by Sir
David Akers-Jones, Independent non-executive
Deputy Chairman. Its other members are
Tom Behrens-Sorensen and Chien Lee.
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 management including the Chief
Financial Offi cer.
Roles and Authority
Hysan believes that crucial to the effective
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 for 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 controls 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.
The Audit Committee also has the responsibility
for reviewing the Group’s “whistle-blowing”
procedures for employees to raise concerns,
in confi dence or anonymously, about possible
breaches of its Code of Ethics and to ensure
that these arrangements allow proportionate
and independent investigation of such matters
and appropriate follow up action.
Activities and Report in 2007
Full details are set out in the “Audit Committee
Report” on pages 79-80. Two meetings were
held in 2007 with full attendance.
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. Its current members are
Fa-kuang Hu and Dr. Geoffrey Meou-tsen Yeh.
The Committee generally meets at least once
every year.
Roles 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 nor any of
his associates is involved in deciding his own
remuneration.
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Hysan Annual Report 2007 61
Corporate Governance Report
Activities and Report in 2007
Full details are set out in the “Directors’
Remuneration and Interests Report” on
pages 72-78. One meeting was held in
March 2007 to consider executive Directors’
compensation. Sir David Akers-Jones and
Mr. Fa-Kuang Hu attended the meeting.
C. Nomination Committee
Composition
The Board established a Nomination Committee
in 2005. It is chaired by Peter Ting Chang Lee,
Chairman of the Board, and its other members
are Sir David Akers-Jones and Dr. Geoffrey
Meou-tsen Yeh. The Committee meets when it
is considered necessary.
Roles 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. It is clearly set out in
the terms of reference of the Committee that
the Chairman of the Board shall not chair the
Committee when it is dealing with the matter of
succession of the chairmanship.
Activities and Report in 2007
The Committee met once in 2007 with full
attendance to consider the appointment of
Mr. Tom Berhrens-Sorensen as Independent
non-executive Director as from the conclusion
of the 2007 AGM.
10. SHAREHOLDERS
Key Facts
→ We operate a self-funded programme
to proactively forward shareholder
communication materials via nominee
companies
→ Our AGM promotes shareholder
communications by providing a business
session led by Chairman (2007 review
posted on www.hysan.com.hk)
→ Investor relations programme in place to
maintain a continuing open dialogue with
institutional shareholders
→ Corporate Disclosure Policy posted on
www.hysan.com.hk
→ Detailed information on voting contained in
AGM circular
The Board and management fully recognise the
signifi cance in having a governance framework
that protects shareholder rights and their
exercise of the same. At the same time, we aim
to continually improve our communications with
shareholders and obtain their feedback.
AGENDA
• 2006 Business Environment Overview
• Management Philosophy
• 2007 Outlook
• Business Activities Review
62
Hysan Annual Report 2007
Communication with Shareholders
Accountability to Shareholders and
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.
Constructive Use of AGM
The Board recognises the signifi cance of
constructive use of AGMs as a useful means to
enter into a dialogue with private shareholders
based on mutual understanding of objectives.
Individual shareholders can put questions to
the Chairman at the general meeting. Board
Committee Chairmen, as provided under the
respective terms of references, attend AGMs to
respond to any shareholder questions on the
activities of the Committees.
Since 2004, to enable shareholders to gain
a better understanding of our business
activities, we have included a “business review”
session led by the Chairman in addition to the
statutory part of the meeting. Topics covered
at the last AGM included: Year 2006 business
environment; business activities review and
outlook. The arrangements were positively
received by shareholders.
Institutional Shareholders
We are committed to maintaining a continuing
open dialogue with institutional investors
and analysts as a means of developing their
understanding of our strategy, operations,
management and plans and raising any issues
they may have. The Chief Financial Offi cer
participates in regular one-on-one meetings and
roadshows in Hong Kong as well as overseas.
Corporate Disclosure Policy
We recognise the signifi cance of consistent
disclosure practices aimed at accurate,
timely and broadly disseminated disclosure of
material information about Hysan. A Corporate
Disclosure Policy is in place, 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
stakeholders groups.
Shareholder Rights
Self-funded Programme to Proactively
Forward Shareholder Communication
Materials via Nominee Companies
Shareholders must be furnished with suffi cient
and timely information concerning the
Company and any material developments.
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 proactively forward communication materials
to shareholders at our expense. Coverage of
the programme has more than doubled
since inception.
Provision of Sufficient and
Timely Information
We recognise the signifi cance of providing
information to shareholders to enable them
to make an informed assessment in voting.
Copies of the Annual Report and fi nancial
statements and related papers were dispatched
to shareholders more than 30 days prior to
the AGM (statutory requirement: 21 days).
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Hysan Annual Report 2007 63
Corporate Governance Report
Ordinance, shareholders holding not less than
5% of the paid up capital of the Company may
convene an extraordinary general meeting by
requisition stating the objects of the meeting,
and deposit the signed requisition at the
Company’s registered offi ce.
The Hong Kong Companies Ordinance also
provide for shareholder approval of decisions
concerning fundamental corporate changes,
including amendments to the Articles of
Association, and extraordinary transactions
including the transfer of all or a substantial part
of a company’s assets.
There are no limitations imposed by Hong
Kong law or the Articles of Association on the
right of non-residents or foreign persons to hold
or vote on the Company’s shares other than
those limitations that would generally apply to
all shareholders.
Detailed information on voting procedures
(including procedures for demanding a poll)
is given in a user-friendly “frequently-asked-
questions-and-answers” format in the AGM
circular which accompanies the Annual Report.
Comprehensive information on each resolution
to be proposed is also provided.
Voting
To ensure shareholders can obtain a degree
of control proportionate to their equity
ownership, the Company intends to conduct
all voting at general meetings by poll which
practice has been adopted for our AGMs since
2004. The poll is conducted by the Company’s
Registrars and scrutinised by the Group’s
auditors. Poll results are announced and
posted on both the Stock Exchange’s and the
Company’s websites.
Relevant Provisions in Articles of
Association and Hong Kong Law
Under the Articles of Association of the
Company and Hong Kong Companies
“The idea of fair play….applies to the
distinct separation of the private and
public entities, as well as the relationship
between majority and minority shareholders.
The sense of fair play would become the
cornerstone of what is now better known as
‘corporate governance’.”
Extract form Chairman Peter T.C. Lee’s speech at the
2nd Asia Pacifi c Corporate Governance Conference
64
Hysan Annual Report 2007
Directors’ Report
The Directors submit their report together with the audited fi nancial statements for the year ended 31 December 2007, which
were approved by the Board of Directors on 13 March 2008.
PRINCIPAL ACTIVITIES
The principal activities of the Group continued throughout 2007 to be property investment, management and development.
Details of the Group’s associates and principal subsidiaries at 31 December 2007 are set out in notes 19 and 41 respectively to
the consolidated fi nancial statements.
The revenue and result of the Group are principally derived from leasing of investment properties located in Hong Kong;
accordingly, no segment fi nancial 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 2007 are set out in the consolidated income statement on page 84.
An interim dividend of HK12 cents per share amounting to HK$127,232,025 was paid to shareholders during the year.
The Board of Directors recommends the payment of a fi nal dividend of HK48 cents per share with a scrip alternative to the
shareholders on the register of members on 14 May 2008, absorbing HK$497,985,483. The ordinary dividends proposed and
paid in respect of the full year 2007 will absorb HK$625,217,508, the balance of the profi t 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 88 and 89 and note 32 to the consolidated fi nancial statements respectively.
INVESTMENT PROPERTIES
All of the Group’s investment properties were revalued by an independent professional valuer at 31 December 2007. The
revaluation resulted in a surplus of HK$3,130,712,676 as compared to carrying amount and is recognised in the consolidated
income statement.
Details of movements during the year in the investment properties of the Group are set out in note 15 to the consolidated
fi nancial statements.
Details of the major investment properties of the Group at 31 December 2007 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 16
to the consolidated fi nancial statements.
SHARE CAPITAL
Details of movements in the share capital of the Company during the year are set out in note 31 to the consolidated fi nancial
statements.
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Hysan Annual Report 2007 65
Directors’ Report continued
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” (pages 50 to 64) – 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” (pages 72 to 78) – 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);
(c) “Audit Committee Report” (pages 79 and 80) – it sets out terms of reference, work performed and fi ndings of the Audit
Committee for the review year;
(d) “Internal Controls and Risk Management” (pages 34 to 38) – 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; and
(e) “Corporate Responsibility Report” – it set out the Company’s Corporate Responsibility Policies and Practices refl ecting its
commitment to maintaining a high standard of corporate governance.
THE BOARD
The Board currently comprises Peter Ting Chang Lee, Chairman and Pauline Wah Ling 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-related committees, namely, the Audit Committee and the Emoluments Review Committee. The
biographies of the Directors as at the date of this Report appear on pages 47 and 48.
Michael Tze Hau Lee and Per Jorgensen stepped down as Managing Director and Independent non-executive Director
respectively and Tom Behrens-Sorensen was appointed as Independent non-executive Director as from the conclusion of the
2007 annual general meeting held on 8 May 2007 (“2007 AGM”). Accordingly, Timothy John Smith was appointed as alternate
Director to Tom Behrens-Sorensen (previously acted as alternate Director to Per Jorgensen) as from the conclusion of the 2007
AGM. Save as the aforesaid, Raymond Liang-ming Hu, Li Kam Wing, V-nee Yeh served as alternate Directors throughout the
year.
According to Article 97 of the Company’s current Articles of Association, a Director appointed either to fi ll a casual vacancy or as
an addition to the Board shall hold offi ce only until the next following annual general meeting.
Under Article 114 of 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 offi ce shall retire from offi ce by rotation.
Details of Board changes effective as from the conclusion of the forthcoming annual general meeting (“2008 AGM”) including
particulars of Directors seeking re-election at the 2008 AGM are set out in the accompanying circular to shareholders.
The Company has received from each Independent non-executive Director an annual confi rmation 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 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 are set out in Directors’ Remuneration and Interests Report on pages 72 to 78.
66
Hysan Annual Report 2007
SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS IN SHARES
As at 31 December 2007, the interests or short positions of substantial shareholders and other persons of the Company, in the
shares and underlying 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 notifi ed to the Company, were as follows:
Aggregate long positions in shares and underlying shares of the Company
Name
Lee Hysan Estate Company, Limited
Lee Hysan Company Limited
Capacity
No. of ordinary
shares held
Benefi cial owner and interests
of controlled corporations
Interests of controlled
corporations
433,130,735
(Note 2)
433,130,735
(Note 2)
% of the
issued
share
capital
(Note 1)
41.75
41.75
Notes:
(1) The percentage has been compiled based on the total number of shares of the Company in issue as at 31 December 2007 (i.e. 1,037,469,756
ordinary shares).
(2) 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 2007.
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 39 to the consolidated fi nancial
statements.
Some of these transactions also constitute “Continuing Connected Transactions” under the Listing Rules, as identifi ed 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 as at 31 December 2007 are set out as follows:
I. Lease granted by the Group
(a) The Lee Gardens, 33 Hysan Avenue, Hong Kong (“The Lee Gardens”)
The following lease arrangement was entered into by Perfect Win Properties Limited, a wholly-owned subsidiary of the Company
and property owner of The Lee Gardens, as landlord, with Oxer Limited (formerly known as “Bonde Limited”), a company
controlled by Michael Tze Hau Lee, former Managing Director of the Company. Details of the lease arrangement are set out
below:
Connected person
Date of agreement
Terms
Premises
Oxer Limited
Rooms 3703
and 3704 and
1 carparking
space
30 August 2007
(Lease and
Supplemental
Lease)
6 July 2007
(Carpark Licence
Agreement)
3 years commencing
from 1 July 2007
(for Room 3703) and
35 months commencing
from 1 August 2007
(for Room 3704)
34 months commencing
from 1 September
2007 (for a carparking
space)
Annual
consideration
(Note 1)
2007: HK$ 507,299
(on pro-rata basis)
2008: HK$ 1,458,060
2009: HK$ 1,458,360
2010: HK$ 729,180
(on pro-rata basis)
Hysan Annual Report 2007 67
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Directors’ Report continued
CONTINUING CONNECTED TRANSACTIONS continued
I. Lease granted by the Group continued
(b) Lee Gardens Two, 28 Yun Ping Road, Hong Kong (“Lee Gardens Two”)
The following lease arrangements were entered into by Barrowgate Limited (“Barrowgate”), 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
Offi ce units
at 28th
to 31st Floors
Offi ce units
at 28th,
30th and
31st Floors
Shop G13 on the
Ground Floor and
portion of Lower
Ground Floor
(Shops 11-12)
Shop G13A on the
Ground Floor and
Shops 2-10 and
11-12 on Lower
Ground Floor
Annual
consideration
(Note 1)
2007: HK$ 9,572,328
(on pro-rata basis)
2007: HK$ 6,805,776
(on pro-rata basis)
2008: HK$ 20,582,424
2009: HK$ 20,582,424
2010: HK$ 13,721,616
(on pro-rata basis)
2007: HK$ 13,267,560
2008: HK$ 1,643,808
(on pro-rata basis)
2007: HK$
242,097
(on pro-rata basis)
2008: HK$ 10,578,491
2009: HK$ 12,469,416
2010: HK$ 9,821,341
(on pro-rata basis)
(Note 6)
Offi ce units
at 24th and
25th Floors
2007: HK$ 6,596,532
558,431
2008: HK$
(on pro-rata basis)
(i) Jebsen and
Company
Limited (Note 2)
10 September
2003
(ii) Jebsen and
Company
Limited
29 June 2007
(Note 3)
4 years
commencing from
1 September 2003
3 years
commencing from
1 September 2007
(iii) Hang Seng Bank
Limited (Note 2)
7 June 2006
(Note 4)
3 years
commencing from
1 October 2006
(iv) Hang Seng Bank
Limited
15 October 2007
(Note 5)
(v) MF Jebsen
International
Limited
(Note 7)
23 April 2004 and
a Supplemental
Deed of
12 July 2004
72 months commencing
from 15 October 2007
(for Shops 2-10 on the
Lower Ground Floor)
68 months commencing
from 15 February 2008
(for Shop G13A on the
Ground Floor and
Shops 11-12 on the
Lower Ground Floor)
4 years commencing
from 1 February 2004
and 3 years and
7 months
commencing from
1 July 2004
68
Hysan Annual Report 2007
CONTINUING CONNECTED TRANSACTIONS continued
I. Lease granted by the Group continued
(c) Bamboo Grove, 74-86 Kennedy Road, Hong Kong (“Bamboo Grove”)
The following leases were entered into by Kwong Wan Realty Limited (“Kwong Wan”), a wholly-owned subsidiary of the
Company and property owner of Bamboo Grove as landlord, with LHE, a substantial shareholder of the Company (holding
41.75% interest) and Atlas Corporate Management Limited (“Atlas”), a wholly-owned subsidiary of LHE. Details of the leases are
set out below:
Connected person
Date of agreement
Terms
Premises
(i) Lee Hysan Estate
Company,
Limited
9 November 2005
and an extension
agreement of
1 November 2007
2 years and
2 months
commencing
from 1 November
2005
Penthouse 01
on the 36th and
37th Floors and
1 carparking space
Annual
consideration
(Note 1)
2007: HK$ 2,690,280
(Note 8)
(ii) Atlas Corporate
Management
Limited
14 December 2005
(Formal tenancy
agreement executed
on 5 January 2006)
2 years
commencing
from 16 January
2006
Penthouse 01
on the 29th and
30th Floors and
2 carparking spaces
2007: HK$ 1,792,920
72,494
2008: HK$
(on pro-rata basis)
(Note 9)
(d) 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. 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)
2007: HK$ 1,397,664
2008: HK$ 1,169,800
(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 for the provision of services to Lee Gardens
Two, including (i) leasing, marketing and lease administration services; and (ii) property management services:
Connected person
Date of agreement
Terms
Premises
Barrowgate Limited
25 February 2004
and two Supplemental
Appointment Letters
of 19 July 2004 and
7 February 2007
3 years commencing
from 1 April 2004
(renewable for
a further 3 years)
Whole premise of
Lee Gardens Two
Annual
consideration
HK$ 17,443,318 (i)
and
HK$ 2,525,278 (ii)
(Note 10)
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Hysan Annual Report 2007 69
Directors’ Report continued
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 fi nancial years. The rental and operating charges and promotional levies (as the case may be) are payable monthly in advance.
2. Jebsen and Company Limited (“Jebsen and Company”) and Hang Seng Bank Limited (“Hang Seng”) are benefi cial substantial shareholders of
Barrowgate having equity interest of 10% and 24.64% respectively in Barrowgate.
3. This is a renewal of the lease mentioned under I(b)(i) above.
4. Barrowgate entered into a surrender agreement with Hang Seng on 15 October 2007 whereby Hang Seng agreed to surrender the premises
mentioned under I(b)(iii) above with effect from 14 February 2008.
5. Barrowgate entered into an agreement for lease on 15 October 2007.
6. The rent for the period from 15 October 2010 to 14 October 2013 will be reviewed at the then prevailing market rent and to be agreed by
Barrowgate and Hang Seng.
7. At the time of entering the lease, MF Jebsen International Limited was considered a connected person by virtue of it being a company controlled
by an alternate Director of the Company. It has ceased to be a connected person upon expiry of 12 months from the resignation of the alternate
Director.
8. The monthly management fees were revised with effect from 1 January 2007. An extension agreement was entered into between Kwong Wan
and LHE on 1 November 2007 whereby Kwong Wan agreed to extend the term of the lease mentioned under I(c)(i) for a further period of 2
months commenced from 1 November 2007 and expired on 31 December 2007.
9. The monthly management fees were revised with effect from 1 January 2007 while the rental remained unchanged.
10. These represent the actual considerations for the year ending 31 December 2007, 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 in accordance with the Listing Rules. The Stock Exchange has
granted a waiver for the Transactions referred to in section I(b)(v) 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 fi nancial years in which the relevant
Transactions are subsisting. The Company confi rms that it has complied with the disclosure requirements in accordance with
Chapter 14A of the Listing Rules in so far as they are applicable.
Pursuant to Rule 14A.38 of the Listing Rules, the Board of Directors engaged the auditor 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.
The auditor has reported the factual fi ndings on these procedures to the Board of Directors that the samples the auditor
selected for the Transactions were in agreement in respect of items 1, 3 & 4 above and that according to the samples the
auditor selected, in respect of item 2, the rent charged to the connected persons were either the same or fall within 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 auditor and confi rmed 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.
70
Hysan Annual Report 2007
INTEREST IN CONTRACTS OF SIGNIFICANCE
The lease arrangement between Barrowgate, a non wholly-owned subsidiary, and Jebsen and Company, of which Hans Michael
Jebsen is a director and shareholder, also constitutes a contract of signifi cance due to the annual consideration of the lease
having a percentage ratio of 1.29% from the calculation of the revenue test (the percentage ratio for assets ratio and
consideration ratio are 0.04% and 0.07% respectively) as at 31 December 2007. Details of the transaction are set out under
I(b)(i) and (ii) of Continuing Connected Transactions.
MAJOR CUSTOMERS AND SUPPLIERS
The aggregate turnover attributable to the Group’s fi ve 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%
33%
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 fi ve largest suppliers.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES
The Company was authorised at the 2007 AGM to purchase its own ordinary shares not exceeding 10% of the aggregate
nominal amount of its issued share capital at that time. During the year, the Company repurchased its ordinary shares on the
Stock Exchange when they were signifi cantly trading at a discount in order to enhance shareholder value.
During the year, the Company repurchased its own ordinary shares on the Stock Exchange as follows:
Month of
repurchase in 2007
August
September
October
November
Number of shares of
nominal value of HK$5
each repurchased
871,000
22,720,000
100,000
542,000
24,233,000
Consideration per share
Highest
HK$
19.64
22.00
21.00
23.00
Lowest
HK$
18.94
19.40
20.95
22.75
Aggregate
consideration paid
HK$
16,844,269
480,117,127
2,099,650
12,404,450
511,465,496
The repurchased shares were cancelled during the year and the issued share capital of the Company was reduced by the
nominal value thereof.
Save as disclosed above, neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company’s listed
securities during the year.
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 fl oat 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$1,299,170 for charitable and non-profi t-making organisations.
AUDITOR
A resolution for the re-appointment of Messrs. Deloitte Touche Tohmatsu as auditor of the Company is to be proposed at the
2008 AGM.
On behalf of the Board
Peter Ting Chang Lee
Chairman
Hong Kong, 13 March 2008
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Hysan Annual Report 2007 71
Directors’ Remuneration and Interests Report
DIRECTOR COMPENSATION
Executive Director emoluments
The Board fi rst 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. Its other members are Fa-
kuang Hu and Dr. Geoffrey Meou-tsen Yeh.
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 Chief Executive Offi cer 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 refl ect 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 Chief Executive Offi cer) having a remuneration package consisting of several remuneration
components. The fi xed part of the package is a combination of basic salary and benefi ts. 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, refl ected 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 2007 to review executive Director compensation packages. Except Dr. Geoffrey Meou-tsen Yeh,
all members attended the meeting without any executive Director presence. Details are set out in note 8 to the consolidated
fi nancial statements. The most recent meeting of the Committee was held in March 2008 with all members being present to
review executive Director compensation packages.
Details of Directors’ (including individual executive Directors) emoluments and options are set out in notes 8 and 40 respectively
to the consolidated fi nancial 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$1,100,356 and the Independent non-executive Deputy
Chairman received a total annual fee of HK$230,000 for 2007 (Please refer to note 8 to the consolidated fi nancial statements).
Taking into consideration the level of responsibility, experience and abilities required of the Directors, and fees offered for similar
positions in comparable companies, new levels of Directors’ fees were reviewed and approved at the annual general meeting
(“AGM”) held on 10 May 2005:
Board of Directors
Chairman
Deputy Chairman
Director
Audit Committee
Chairman
Member
Other Committees
Chairman
Member
Per annum
HK$
140,000
120,000
100,000
60,000
30,000
30,000
20,000
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 benefi ts from the Company, nor do they participate in any bonus or
incentive schemes.
72
Hysan Annual Report 2007
DIRECTOR COMPENSATION continued
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 Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). As approved by the Board, either the Chairman or
the former 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 2007, shares issuable under options granted under the 1995 scheme was 303,667 representing less than
0.03% 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 fi xed at 80% of the average of the closing prices of the shares on The Stock Exchange of Hong Kong Limited
(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 paid on each grant of option was 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 had a holding period of 2 years and a vesting period of 5 years.
The 2005 Share Option Scheme (the “2005 Scheme”)
The Company adopted the 2005 Scheme (together with the 1995 Scheme are referred to as the “Schemes”) at its 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 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 fi ve 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$1.00, with full payment for exercise price to be made on
exercise of the relevant option.
Grant and vesting structures
With effect from 8 March 2005, the Board has approved a new grant and vesting structure. Grants will be made on a periodic basis.
Vesting period is three years in equal proportion. Size of grant will be determined by reference to base salary multiple and job
grades. A clear performance criterion will be a key driver. The Board will review the grant and vesting structures from time to time.
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Hysan Annual Report 2007 73
Directors’ Remuneration and Interests Report continued
DIRECTOR COMPENSATION continued
Long-term incentives: Share Option Schemes continued
Grant movements during the year
During the year, a total of 863,000 shares options were granted under the 2005 Scheme.
As at 31 December 2007, an aggregate of 1,297,667 shares are issuable for options granted under the Schemes, representing
approximately 0.13% of the issued share capital of the Company.
As at the date of this Report, 99,342,765 shares are issuable under the Schemes representing 9.58% of the issued share
capital.
Details of options granted, exercised, cancelled/lapsed and outstanding under the Schemes during the year are as follows:
Changes during the year
Date of
grant
Exercise
price
HK$
Exercisable
period
Name
1995 Scheme
Executive Director
Balance
as at
1.1.2007 Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2007
Peter Ting Chang Lee
7.1.1999
9.22
(Note a)
Eligible employees
30.3.2005
15.85
(Note b)
2005 Scheme
Executive Directors
7.1.2001 –
6.1.2009
30.3.2005 –
29.3.2015
1,350,000
–
(1,350,000)
–
–
(Note g)
401,333
–
(77,666)
(20,000) 303,667
(Note h)
(Note j)
Peter Ting Chang Lee
6.3.2007
(Note c)
21.38
(Note e)
6.3.2007 –
5.3.2017
– 235,000
–
– 235,000
Michael Tze Hau Lee
10.5.2005
16.60
(Note d)
30.3.2006
22.00
6.3.2007
Pauline Wah Ling Yu Wong
(Note c)
6.3.2007
21.38
(Note e)
21.38
(Note e)
Eligible employees
(Note b)
9.8.2005
18.79
10.5.2005 –
9.5.2015
30.3.2006 –
29.3.2016
6.3.2007 –
5.3.2017
6.3.2007 –
5.3.2017
9.8.2005 –
8.8.2015
12.10.2005
18.21 12.10.2005 –
11.10.2015
30.3.2006
22.00
26.6.2006
20.11
30.3.2006 –
29.3.2016
26.6.2006 –
25.6.2016
30.3.2007
21.25
(Note f)
30.3.2007 –
29.3.2017
240,000
–
(80,000) (160,000)
(Note i)
(Note j)
188,000
–
– (188,000)
(Note j)
– 185,000
– (185,000)
(Note j)
–
–
–
– 108,000
–
– 108,000
96,000
120,000
325,000
110,000
–
–
–
–
–
(96,000)
(Note j)
– (120,000)
(Note j)
–
–
– (106,000) 219,000
(Note j)
–
– 110,000
– 335,000
–
(13,000) 322,000
(Note j)
2,830,333 863,000
(1,507,666) (888,000) 1,297,667
74
Hysan Annual Report 2007
DIRECTOR COMPENSATION continued
Long-term incentives: Share Option Schemes continued
Grant movements during the year continued
Notes:
(a) Options granted to Peter Ting Chang Lee had a holding period of 2 years and a vesting period of 5 years.
(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.
(c) Options granted to Peter Ting Chang Lee and Pauline Wah Ling Yu Wong have a vesting period of 3 years in equal proportions.
(d) Options granted to Michael Tze Hau Lee had a vesting period of 3 years in equal proportions. Michael Tze Hau Lee stepped down from the
Board of the Company as from the conclusion of the 2007 AGM held on 8 May 2007.
(e) The closing price of the shares of the Company immediately before the date of grant (as of 5 March 2007) was HK$20.50.
(f) The closing price of the shares of the Company immediately before the date of grant (as of 29 March 2007) was HK$21.30.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$19.60.
(h) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was
HK$21.09.
(i) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$21.20.
(j) The options for 888,000 shares lapsed during the year upon the stepping down of Michael Tze Hau Lee and resignations of certain eligible
employees.
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 40 to the consolidated fi nancial 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 fair values of share options granted by the Company were determined by using Black-Scholes option pricing model (the
“Model”). 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 management’s 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. The inputs into the Model were 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)
Expected dividend per annum (Note d)
Estimated fair value per share option
Date of grant
30.3.2007
6.3.2007
HK$21.25
HK$21.25
4.192%
10 years
29.53%
HK$0.416
HK$7.47
HK$20.80
HK$21.38
4.188%
10 years
30.12%
HK$0.416
HK$7.21
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, 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 shares 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 fi ve fi nancial years.
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Hysan Annual Report 2007 75
Directors’ Remuneration and Interests Report continued
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 2007, 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 notifi ed
to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers
(the “Model Code”), are set out below:
Aggregate long positions in shares and underlying shares of the Company
No. of ordinary shares held
Name
Personal
interests
Family
interests
Corporate
interests
Other
interests
Total
% of the
issued
share capital
(Note a)
Peter Ting Chang Lee
3,370,708
Fa-kuang Hu
–
–
–
–
200,000
(Note b)
–
–
3,370,708
200,000
0.325
0.019
Hans Michael Jebsen
60,000
–
2,432,914
–
2,492,914
0.240
Tom Behrens-Sorensen
Chien Lee
10,000
800,000
Deanna Ruth Tak Yung Rudgard
1,871,600
Pauline Wah Ling Yu Wong
Geoffrey Meou-tsen Yeh
V-nee Yeh
(alternate to
Geoffrey Meou-tsen Yeh)
154,000
258,288
43,259
(Note c)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,000
800,000
1,871,600
154,000
258,288
43,259
0.001
0.077
0.180
0.015
0.025
0.004
Notes:
(a) This percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,037,469,756 ordinary shares) as at 31
December 2007.
(b) Such shares were held by a company which was wholly-owned by Fa-kuang Hu and he was deemed to have benefi cial interest in all these
shares.
(c) 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 Option Schemes” above). These constitute interests in
underlying shares of equity derivatives of the Company under the SFO.
76
Hysan Annual Report 2007
DIRECTORS’ INTERESTS IN SHARES continued
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
1,000
–
–
–
5,000
5,000
% of
the issued
share capital
10 (Note a)
50 (Note b)
50 (Note b)
Total
1,000
5,000
5,000
Notes:
(a) 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.
(b) 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 benefi ciaries 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 2007 were recorded in the register required to be kept under Section 352 of the
SFO; or as otherwise notifi ed 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
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 confi rmed, following specifi c 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 Signifi cance under applicable accounting or regulatory rules (details are
disclosed in the Directors’ Report).
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 during 2007) are considered to
have interests in other activities (the “Deemed Competing Business”) that compete or are likely to compete with the said core
business of the Group, all within the meaning of the Listing Rules.
For the reasons stated below, and coupled with the diligence of the Group’s Independent non-executive Directors and the Audit
Committee, the Group is capable of carrying on its business independent of and at arm’s length from the Deemed Competing
Business.
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Hysan Annual Report 2007 77
Directors’ Remuneration and Interests Report continued
DIRECTORS’ INTERESTS IN COMPETING BUSINESS continued
(i) Peter Ting Chang Lee, Anthony Hsien Pin Lee, Chien Lee, Michael Tze Hau Lee (former Managing Director who stepped
down from the Board on 8 May 2007) and Dr. Deanna Ruth Tak Yung 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) Fa-kuang Hu and his alternate, Raymond Liang-ming 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, Kam Wing Li, hold the offi ces of directors in each of Jebsen and Company 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 Pacifi c Limited whose business includes, inter alia, property
investment and trading in Hong Kong, the People’s Republic of China and the USA.
The Company’s management team is separate and independent from that of the companies identifi ed in (ii), (iii) and (iv) above. In
addition, save and except Peter Ting Chang Lee and Michael Tze Hau 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 Wen Yee Yung
Company Secretary
Hong Kong, 13 March 2008
78
Hysan Annual Report 2007
Audit Committee Report
The Audit Committee has three members chaired by Sir David Akers-Jones, Independent non-executive Deputy Chairman, and
has a majority of Independent non-executive Directors. Under its terms of reference, the Committee oversees the Company’s
fi nancial reporting process; it also reviews the Company’s internal control and risk management system and its relationship with
external auditors. The Committee presents a report to the Board on its fi ndings after each Committee meeting.
The Committee held two meetings during 2007, on 5 March and 14 August. All members attended the above meetings. A
meeting was also held on 1 February 2008 to consider matters relating to the new Internal Audit function. The meeting held on
12 March 2008 was to consider the consolidated fi nancial statements for the year ended 31 December 2007. Signifi cant
matters, as reviewed and discussed in the relevant meetings, include the following:
FINANCIAL REPORTING
In the process of fi nancial reporting, management is responsible for the preparation of Group fi nancial statements including the
selection of suitable accounting policies. External auditors are responsible for auditing and attesting to Group fi nancial
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 2007
:
• March 2008
:
The Committee reviewed and recommended to the Board for approval the unaudited
consolidated fi nancial statements for the fi rst six months of 2007, prior to public announcement
and fi ling. The Committee received reports from and met with external auditors to discuss the
scope of their review and fi ndings. The Committee had discussions with management on
signifi cant judgments affecting Group’s fi nancial statements.
The Committee reviewed and discussed with management and external auditors the 2007
consolidated fi nancial statements included in the Annual Report 2007, prior to public
announcement and fi ling. The Committee received reports from and met with the external auditors
to discuss the general scope of their audit work and fi ndings. The Committee had discussions
with management with regard to signifi cant judgments affecting the Group fi nancial statements.
Based on these review and discussions, and the report of the external auditors, the Audit
Committee recommended to the Board approval of the consolidated fi nancial statements for the
year ended 31 December 2007, with the Independent Auditor’s Report thereon.
REVIEW OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS
• August 2007
:
The Committee considered management’s report on implementing the improvement areas
identifi ed by an independent international accounting fi rm following its 2006 review of internal
controls, and was satisfi ed as to the same.
• February 2008
:
The Committee met to discuss the work performed by the new internal audit function set up
during the second half of 2007. The Committee also considered and approved audit plan for
2008.
• March 2008
:
The Committee, upon receiving confi rmation of management and internal audit, was satisfi ed as
to the effectiveness of the Company’s internal controls system; that there were no matters of
material concerns relating to fi nancial, operational, or compliance controls.
Hysan Annual Report 2007 79
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Audit Committee Report continued
RELATIONSHIP WITH EXTERNAL AUDITORS
• August 2007 and :
March 2008
The Committee reviewed and considered the terms of engagement of the external auditors in
respect of the 2007 interim results reviews and 2007 annual audit and the related results
announcement and annual confi rmation.
The Committee assessed the auditor’s 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 2008.
For the year ended 31 December 2007, external auditors received a total fee of HK$2,341,840
(audit services: HK$1,700,000; non-audit services HK$301,000; and tax compliance services:
HK$340,840).
Members of the Audit Committee
David Akers-Jones (Chairman)
Chien Lee
Tom Behrens-Sorensen
Hong Kong, 13 March 2008
80
Hysan Annual Report 2007
Financial Statements
and Valuation
82 Directors’ Responsibilities for the Financial Statements
Independent Auditor’s Report
83
84 Consolidated Income Statement
85-86 Consolidated Balance Sheet
87 Balance Sheet
88-89 Consolidated Statement of Changes in Equity
90-91 Consolidated Cash Flow Statement
92-134 Notes to the Financial Statements
135-136 Five-Year Financial Summary
137 Report of the Valuer
138 Schedule of Principal Properties
139-140 Shareholding Analysis
Recurring Underlying Profi t Up
Overall Turnover Up
25.8%
7.9%
18.8%
20.0%
Dividends Up
Like-for-Like Turnover Up
Hysan Annual Report 2007 81
Directors’ Responsibilities for the Financial Statements
The Companies Ordinance requires the Directors to prepare fi nancial statements for each fi nancial 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 fi nancial year and of their respective profi t or
loss for the year then ended. In preparing the fi nancial 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 signifi cant departure from accounting standards; and
(c) prepare the fi nancial 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.
82
Hysan Annual Report 2007
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 fi nancial statements of Hysan Development Company Limited (the “Company”) and its subsidiaries
(collectively referred to as the “Group”) set out on pages 84 to 134, which comprise the consolidated and Company’s balance
sheets as at 31 December 2007, and the consolidated income statement, the consolidated statement of changes in equity and
the consolidated cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other
explanatory notes.
Directors’ responsibility for the financial statements
The directors of the Company are responsible for the preparation and the true and fair presentation of these fi nancial statements
in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certifi ed 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 fi nancial 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 fi nancial 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 Certifi ed 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 fi nancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the fi nancial 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 fi nancial 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 fi nancial statements.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the fi nancial statements give a true and fair view of the state of affairs of the Company and of the Group as at
31 December 2007 and of the Group’s profi t and cash fl ows 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
Certifi ed Public Accountants
Hong Kong, 13 March 2008
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Hysan Annual Report 2007 83
Consolidated Income Statement
For the year ended 31 December 2007
Turnover
Property expenses
Gross profi t
Investment income
Other gains and losses
Administrative expenses
Finance costs
Change in fair value of investment properties
Share of results of associates
Profi t before taxation
Taxation
Profi t for the year
Attributable to:
Equity holders of the Company
Minority interests
Dividends
Paid
Proposed
Earnings per share (expressed in HK cents)
Basic
Diluted
Notes
2007
HK$ million
2006
HK$ million
5
6
7
10
11
12
13
13
14
14
1,368
(208)
1,160
98
302
(106)
(175)
3,131
452
4,862
(745)
4,117
3,949
168
4,117
549
498
1,268
(240)
1,028
147
201
(111)
(163)
2,576
120
3,798
(558)
3,240
3,099
141
3,240
474
422
375.46
375.25
293.96
293.70
84
Hysan Annual Report 2007
Consolidated Balance Sheet
At 31 December 2007
Non-current assets
Investment properties
Property, plant and equipment
Prepaid lease payments
Investments in associates
Available-for-sale investments
Other fi nancial assets
Other receivables
Current assets
Accounts receivable and other receivables
Amount due from an associate
Held for trading investments
Other fi nancial assets
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Other fi nancial liabilities
Rental deposits from tenants
Amounts due to minority shareholders
Taxation payable
Net current assets
Total assets less current liabilities
Non-current liabilities
Borrowings
Other fi nancial liabilities
Rental deposits from tenants
Deferred taxation
Net assets
Notes
2007
HK$ million
2006
HK$ million
15
16
17
19
20
21
22
22
24
25
21
26
26
27
21
28
29
21
30
35,711
73
123
1,011
2,479
235
22
39,654
66
590
95
1
478
6
32,473
69
123
630
1,745
2
23
35,065
159
642
–
2
382
3
1,236
1,188
278
40
124
327
270
1,039
197
253
40
102
327
225
947
241
39,851
35,306
2,861
17
215
3,910
7,003
2,821
45
183
3,349
6,398
32,848
28,908
Hysan Annual Report 2007 85
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Consolidated Balance Sheet continued
At 31 December 2007
Capital and reserves
Share capital
Reserves
Equity attributable to equity holders of the Company
Minority interests
Total equity
Notes
31
2007
HK$ million
2006
HK$ million
5,187
26,465
31,652
1,196
32,848
5,276
22,552
27,828
1,080
28,908
The consolidated fi nancial statements on pages 84 to 134 were approved and authorised for issue by the Board of Directors on
13 March 2008 and are signed on its behalf by:
Peter Ting Chang Lee
Director
David Akers-Jones
Director
86
Hysan Annual Report 2007
Balance Sheet
At 31 December 2007
Non-current assets
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
Amounts due to subsidiaries
Taxation payable
Net current assets
Net assets
Capital and reserves
Share capital
Reserves
Total equity
Notes
2007
HK$ million
2006
HK$ million
16
18
19
20
22
22
23
26
26
27
23
31
32
5
–
–
2
1
8
2
12,781
–
6
12,789
19
42
50
111
12,678
12,686
5,187
7,499
7
–
–
2
2
11
2
13,017
46
4
13,069
22
104
68
194
12,875
12,886
5,276
7,610
12,686
12,886
The fi nancial statements on pages 84 to 134 were approved and authorised for issue by the Board of Directors on 13 March
2008 and are signed on its behalf by:
Peter Ting Chang Lee
Director
David Akers-Jones
Director
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Hysan Annual Report 2007 87
Consolidated Statement of Changes in Equity
For the year ended 31 December 2007
Attributable to equity holders of the Company
At 1 January 2006
Change in fair value of available-for-sale investments
Surplus on revaluation of properties for own use
Exchange differences on translation of an overseas associate
Change in fair value of derivatives designated as cash fl ow hedge
Transfer to profi t and loss for derivatives designated as
cash fl ow hedge
Net income recognised directly in equity
Transfer to profi t and loss on disposal of available-for-sale investments
Profi t for the year
Total recognised income and expenses for the year
Issue of shares pursuant to scrip dividend schemes
Issue of shares under share option schemes
Recognition of equity-settled share-based payments
Interim dividend declared for 2006
Dividends paid during the year (note 13)
Proposed fi nal dividend for 2006
Share
capital
HK$ million
Share
premium
HK$ million
5,266
1,420
–
–
–
–
–
–
–
–
–
9
1
–
–
–
–
–
–
–
–
–
–
–
–
–
30
3
–
–
–
–
At 31 December 2006
5,276
1,453
Change in fair value of available-for-sale investments
Surplus on revaluation of properties for own use
Deferred taxation arising on revaluation of properties for own use
Exchange differences on translation of an overseas associate
Change in fair value of derivatives designated as cash fl ow hedge
Transfer to profi t and loss for derivatives designated as
cash fl ow hedge
Net income recognised directly in equity
Transfer to profi t and loss on disposal of available-for-sale investments
Profi t for the year
Total recognised income and expenses for the year
Issue of shares pursuant to scrip dividend schemes
Issue of shares under share option schemes
Cancellation upon repurchase of own shares
Expenses for repurchase of own shares
Recognition of equity-settled share-based payments
Forfeiture of share options
Interim dividend declared for 2007
Dividends paid during the year (note 13)
–
–
–
–
–
–
–
–
–
–
25
7
(121)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
79
9
–
–
–
–
–
–
At 31 December 2007
5,187
1,541
Share
options
reserve
HK$ million
Investments
revaluation
reserve
HK$ million
2
–
–
–
–
–
–
–
–
–
–
(1)
4
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
(1)
–
–
4
(2)
–
–
6
796
687
–
–
–
–
687
(170)
–
517
–
–
–
–
–
–
1,313
1,192
–
–
–
–
–
1,192
(382)
–
810
–
–
–
–
–
–
–
–
2,123
88
Hysan Annual Report 2007
Attributable to equity holders of the Company
Properties
revaluation
reserve
HK$ million
Hedging
reserve
HK$ million
Translation
reserve
HK$ million
Capital
redemption
reserve
HK$ million
General
reserve
HK$ million
Dividend
reserve
HK$ million
Retained
profi ts
HK$ million
Total
HK$ million
Minority
interests
HK$ million
Total
HK$ million
1
–
1
–
–
–
1
–
–
1
–
–
–
–
–
–
2
–
8
(1)
–
–
–
7
–
–
7
–
–
–
–
–
–
–
–
9
35
(4)
155
100
369
16,527
24,667
986
25,653
–
–
–
(11)
(22)
(33)
–
–
(33)
–
–
–
–
–
–
2
–
–
–
–
1
(2)
(1)
–
–
(1)
–
–
–
–
–
–
–
–
1
–
–
5
–
–
5
–
–
5
–
–
–
–
–
–
1
–
–
–
(2)
–
–
(2)
–
–
(2)
–
–
–
–
–
–
–
–
(1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
105
(474)
422
–
–
–
–
–
–
–
3,099
687
1
5
(11)
(22)
660
(170)
3,099
3,099
3,589
–
–
–
(105)
39
3
4
–
–
(474)
(422)
–
–
–
–
–
–
–
–
141
141
–
–
–
–
(47)
–
687
1
5
(11)
(22)
660
(170)
3,240
3,730
39
3
4
–
(521)
–
155
100
422
19,099
27,828
1,080
28,908
–
–
–
–
–
–
–
–
–
–
–
–
121
–
–
–
–
–
276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
127
(549)
–
–
–
–
–
–
–
–
3,949
1,192
8
(1)
(2)
1
(2)
1,196
(382)
3,949
3,949
4,763
–
–
(511)
(2)
–
2
(127)
–
104
15
(511)
(2)
4
–
–
(549)
–
–
–
–
–
–
–
–
168
168
–
–
–
–
–
–
–
(52)
1,192
8
(1)
(2)
1
(2)
1,196
(382)
4,117
4,931
104
15
(511)
(2)
4
–
–
(601)
100
–
22,410
31,652
1,196
32,848
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Hysan Annual Report 2007 89
Consolidated Cash Flow Statement
For the year ended 31 December 2007
Operating activites
Profi t before taxation
Adjustments for:
Other gains and losses
Finance costs
Change in fair value of investment properties
Share of results of associates
Dividend income
Interest income
Reversal of impairment loss recognised in respect of
investment in an associate
Recovery of a loan to an associate
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Share-based payment expenses
Operating cash fl ows before movements in working capital
Decrease in accounts receivable and other receivables
Increase (decrease) in accounts payable and accruals
Increase in rental deposits from tenants
Cash generated from operations
Hong Kong profi ts tax paid
Hong Kong profi ts tax refund
Net cash from operating activities
Investing activities
Interest received
Dividends received from available-for-sale investments
Proceeds on disposal of investment properties
Proceeds on disposal of available-for-sale investments
Proceeds upon maturity of principal-protected deposits
Proceeds on disposal of held for trading investments
Receipts from equity derivatives
Repayment from associates
Repayment from investees
Recovery of a loan to an associate
Additions to investment properties
Purchases of property, plant and equipment
Purchases of available-for-sale investments
Additions to principal-protected deposits
Purchases of held for trading investments
Payment for equity derivatives
Net cash from investing activities
90
Hysan Annual Report 2007
2007
HK$ million
2006
HK$ million
4,862
3,798
(302)
175
(3,131)
(452)
(53)
(30)
(11)
–
7
–
4
1,069
3
58
54
1,184
(141)
1
1,044
34
53
–
394
81
21
169
132
8
–
(125)
(3)
–
(278)
(123)
(151)
212
(201)
163
(2,576)
(120)
(41)
(18)
–
(87)
7
1
4
930
27
(7)
29
979
(61)
–
918
23
37
1
187
–
–
–
–
19
87
(81)
(6)
(92)
–
–
–
175
Financing activities
Interest paid
Bank charges
Medium Term Note Programme expenses
Payment for hedging expenses
Dividends paid
Dividends paid to minority shareholders of a subsidiary
Repayment of unsecured bank loans
Purchases of fi xed rate notes
Consideration paid for repurchase of shares
Expenses paid for repurchase of shares
Proceeds on exercise of share options
Net cash used in fi nancing activities
Net increase (decrease) 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
2007
HK$ million
2006
HK$ million
(151)
(8)
(1)
(2)
(445)
(52)
–
–
(511)
(2)
15
(1,157)
99
385
484
478
6
484
(136)
(7)
(1)
–
(435)
(47)
(1,337)
(150)
–
–
3
(2,110)
(1,017)
1,402
385
382
3
385
Hysan Annual Report 2007 91
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Notes to the Financial Statements
For the year ended 31 December 2007
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 “Stock Exchange”). The addresses of the registered offi ce and principal place of business of the Company are
disclosed in the shareholder information section of the annual report.
The principal activities of the Company and its subsidiaries (collectively referred to as the “Group”) are property investment,
management and development.
These fi nancial statements are presented in Hong Kong dollars, which is the same as the functional currency of the Company.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)
In the current year, the Group has adopted, for the fi rst time, the following new standard, amendment and interpretations (“new
HKFRSs”) issued by the Hong Kong Institute of Certifi ed Public Accountants (“HKICPA”), which are effective for the Group’s
fi nancial year beginning on 1 January 2007.
HKAS 1 (Amendment)
HKFRS 7
HK(IFRIC) – INT 7
HK(IFRIC) – INT 8
HK(IFRIC) – INT 9
HK(IFRIC) – INT 10
Capital Disclosures
Financial Instruments: Disclosures
Applying the Restatement Approach under HKAS 29 Financial Reporting in
Hyperinfl ationary Economies
Scope of HKFRS 2
Reassessment of Embedded Derivatives
Interim Financial Reporting and Impairment
The adoption of the new HKFRSs had no material effect on how the results and fi nancial position for the current or prior
accounting periods have been prepared and presented. Accordingly, no prior year adjustment has been required.
The Group has not early applied the following new and revised standards or interpretations that have been issued but not yet
effective.
HKAS 1 (Revised)
HKAS 23 (Revised)
HKFRS 8
HK(IFRIC) – INT 11
HK(IFRIC) – INT 12
HK(IFRIC) – INT 13
HK(IFRIC) – INT 14
Presentation of Financial Statements 1
Borrowing Costs 1
Operating Segments 1
HKFRS 2 – Group and Treasury Share Transactions 2
Service Concession Arrangements 3
Customer Loyalty Programmes 4
HKAS 19 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements
and their Interaction 3
1 Effective for annual periods beginning on or after 1 January 2009.
2 Effective for annual periods beginning on or after 1 March 2007.
3 Effective for annual periods beginning on or after 1 January 2008.
4 Effective for annual periods beginning on or after 1 July 2008.
The Directors of the Company anticipate that the application of these standards or interpretations will have no material impact
on the results and the fi nancial position of the Group.
3. SIGNIFICANT ACCOUNTING POLICIES
These fi nancial statements have been prepared on the historical cost basis except for certain properties and fi nancial
instruments, which are measured at revalued amounts or fair values, as explained in the accounting policies set out below.
These fi nancial statements have been prepared in accordance with HKFRSs issued by the HKICPA and the Hong Kong
Companies Ordinance. In addition, these fi nancial statements include applicable disclosures required by the Rules Governing the
Listing of Securities on the Stock Exchange (the “Listing Rules”). The principal accounting policies adopted are as follows:
Basis of consolidation
The consolidated fi nancial statements incorporate the fi nancial statements of the Company and entities controlled by the
Company (its subsidiaries). Control is achieved where the Company has the power to govern the fi nancial and operating policies
of an entity so as to obtain benefi ts 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.
92
Hysan Annual Report 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
Basis of consolidation continued
Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting policies into line
with those used by other members of the Group.
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 identifi ed impairment loss. The results
of subsidiaries are accounted for by the Company on the basis of dividends received and receivable during the year.
Investments in associates
An associate is an entity over which the Group has signifi cant infl uence and that is neither a subsidiary nor an interest in a joint
venture. Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of the investee but is not
control or joint control over those policies.
The results, assets and liabilities of associates are incorporated in the consolidated fi nancial 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 net assets of the associate, less any identifi ed 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 identifi able assets, liabilities and contingent liabilities over the cost of
acquisition, after reassessment, is recognised immediately in profi t or loss.
Where a group entity transacts with an associate of the Group, profi ts and losses are eliminated to the extent of the Group’s
interest in the relevant associate.
Investments in associates are included in the Company’s balance sheet at cost less any identifi ed impairment loss. The results of
associates are accounted for by the Company on the basis of dividends received and receivable during the year.
Investment properties
Investment properties are properties held to earn rental and/or for capital appreciation.
On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to
initial recognition, investment properties are measured at their fair values using the fair value model. Gains or losses arising from
changes in the fair value of investment property are included in profi t 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 benefi ts 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.
Property, plant and equipment
Property, plant and equipment are stated at cost or fair value less subsequent accumulated depreciation and accumulated
impairment losses.
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 amounts, being the fair values at the date of revaluation less any subsequent accumulated depreciation
and any subsequent accumulated impairment losses. Revaluations are performed with suffi cient regularity such that the carrying
amount does not differ materially from that which would be determined using fair values at the balance sheet date.
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Hysan Annual Report 2007 93
Notes to the Financial Statements continued
For the year ended 31 December 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
Property, plant and equipment continued
Any revaluation increase arising on revaluation of buildings is credited to the properties 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
properties 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 profi ts.
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 benefi ts 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.
Prepaid lease payments
The land and buildings elements of a lease of land and buildings are considered separately for the purpose of lease
classifi cation. To the extent that the allocation of the lease payments between the land and buildings elements can be made
reliably, the leasehold interests in land are classifi ed as prepaid lease payments, which are carried at cost less subsequent
accumulated amortisation and accumulated impairment losses, and is amortised to the consolidated income statement on a
straight-line basis over the terms of relevant land leases.
Impairment of non-financial assets
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
immediately in profi t or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised
immediately in profi t or loss, unless the relevant asset is carried at revalued amount, in which case the reversal of the impairment
loss is treated as a revaluation increase.
Financial instruments
Financial assets and fi nancial liabilities are recognised on the balance sheet when a group entity becomes a party to the
contractual provisions of the instrument. Financial assets and fi nancial liabilities are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of fi nancial assets and fi nancial liabilities (other than fi nancial assets
and fi nancial liabilities at fair value through profi t or loss) are added to or deducted from the fair value of the fi nancial assets or
fi nancial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of fi nancial assets
or fi nancial liabilities at fair value through profi t or loss are recognised immediately in profi t or loss.
Financial assets
The Group’s fi nancial assets are classifi ed into one of the three categories, including (i) fi nancial assets at fair value through profi t
or loss (“FVTPL”), (ii) loans and receivables and (iii) available-for-sale fi nancial assets. The classifi cation depends on the nature
and purpose of the fi nancial assets and is determined at the time of initial recognition. All regular way purchases or sales of
fi nancial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales
of fi nancial 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 fi nancial assets are set out below.
Financial assets at FVTPL
Financial assets are classifi ed as at FVTPL where the fi nancial asset is either held for trading or it is designated as at FVTPL.
A fi nancial asset is classifi ed as held for trading if it has been acquired principally for the purpose of selling in the near future or it
is a derivative that is not designated and effective as a hedging instrument.
A fi nancial asset other than the one held for trading may be designated as at FVTPL upon initial recognition if it contains one or
more embedded derivatives and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.
94
Hysan Annual Report 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
Financial instruments continued
Financial assets continued
Financial assets at FVTPL continued
At each balance sheet date subsequent to initial recognition, fi nancial assets at FVTPL are measured at fair value, with changes
in fair value recognised directly in profi t or loss in the period in which they arise. The net gain or loss recognised in profi t or loss
includes any dividend or interest earned on the fi nancial asset.
Loans and receivables
Loans and receivables are non-derivative fi nancial assets with fi xed 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, amount due from an associate, time deposits and bank balances) are carried at amortised cost using the
effective interest method, less any identifi ed impairment losses (see accounting policy on impairment of fi nancial assets below).
The effective interest method is a method of calculating the amortised cost of a fi nancial asset and of allocating interest income
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all
fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the fi nancial asset or, where appropriate, a shorter period.
Available-for-sale financial assets
Available-for-sale fi nancial assets are non-derivatives that are either designated as such or not classifi ed as fi nancial assets at
FVTPL or loans and receivables. At each balance sheet date subsequent to initial recognition, available-for-sale fi nancial assets
(including certain equity securities investments) are measured at fair value. Changes in fair value are recognised in equity in the
investments revaluation reserve with the exception of impairment losses, which are recognised directly in profi t or loss. Where
the fi nancial 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 profi t or loss (see accounting policy on impairment of fi nancial
assets below).
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 identifi ed impairment losses at each balance sheet date subsequent to
initial recognition (see accounting policy on impairment of fi nancial assets below).
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial
assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the fi nancial asset, the estimated future cash fl ows of the fi nancial assets have been impacted.
For an available-for-sale equity investment, a signifi cant or prolonged decline in the fair value of that investment below its cost is
considered to be objective evidence of impairment.
For all other fi nancial assets, objective evidence of impairment could include:
• signifi cant fi nancial diffi culty of the issuer or counterparty; or
• default or delinquency in interest or principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or fi nancial re-organisation.
For fi nancial assets carried at amortised cost, an impairment loss is recognised in profi t 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 fl ows discounted at the original effective interest rate.
For fi nancial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s
carrying amount and the present value of the estimated future cash fl ows discounted at the current market rate of return for a
similar fi nancial asset. Such impairment loss will not be reversed in subsequent periods.
The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets with the exception of
accounts receivables and amount due from an associate, where the carrying amount is reduced through the use of an allowance
account (if any). Changes in the carrying amount of the allowance account are recognised in profi t or loss. When an account
receivable or amount due from an associate is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited to profi t or loss.
For fi nancial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised
impairment loss is reversed through profi t or loss to the extent that the carrying amount of the asset at the date of impairment is
reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
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Hysan Annual Report 2007 95
Notes to the Financial Statements continued
For the year ended 31 December 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
Financial instruments continued
Financial assets continued
Impairment of financial assets continued
Impairment losses on available-for-sale equity investments will not be reversed in profi t or loss in subsequent periods. Any
increase in fair value subsequent to impairment loss is recognised directly in equity. 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 the recognition of the impairment loss.
Derecognition of financial assets
Financial assets are derecognised when the rights to receive cash fl ows from the assets expire or, the fi nancial assets are
transferred and the Group has transferred substantially all the risks and rewards of ownership of the fi nancial assets. On
derecognition of a fi nancial 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 profi t or loss.
Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classifi ed according to the substance of the contractual
arrangements entered into and the defi nitions of a fi nancial 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 fi nancial liabilities are generally classifi ed into (i) fi nancial liabilities at FVTPL and (ii) other fi nancial liabilities.
The accounting policies adopted in respect of fi nancial liabilities and equity instruments are set out below.
Financial liabilities at FVTPL
Financial liabilities at FVTPL, that are held for trading, comprise derivatives that are not designated and effective as hedging
instruments.
At each balance sheet date subsequent to initial recognition, fi nancial liabilities at FVTPL are measured at fair value, with
changes in fair value recognised directly in profi t or loss in the period in which they arise. The net gain or loss recognised in profi t
or loss includes any interest paid on the fi nancial liabilities.
Other financial liabilities
Other fi nancial liabilities (including accounts payable and accruals, rental deposits from tenants, amounts due to minority
shareholders and borrowings) are subsequently measured at amortised cost, using the effective interest method. In respect of
the fi xed rate notes and the zero coupon notes, the carrying amounts are further adjusted for the gain or loss attributable to the
hedged risk.
The effective interest method is a method of calculating the amortised cost of a fi nancial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments
through the expected life of the fi nancial liability, or, where appropriate, a shorter period.
Interest expense is recognised on an effective interest basis for fi nancial liabilities, other than those fi nancial liability designated
as at FVTPL, of which the interest expense is included in net gains or losses.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Consideration paid to repurchase the Company’s own equity instruments are deducted from equity. No gain or loss is
recognised in profi t or loss.
Derecognition of financial liabilities
Financial liabilities are derecognised when the obligation specifi ed in the relevant contract is discharged, cancelled or expires.
The difference between the carrying amount of the fi nancial liability derecognised and the consideration paid and payable is
recognised in profi t or loss.
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 values at each balance sheet date. The resulting gain or loss is recognised in profi t or loss immediately unless the
derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profi t 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 fl uctuation.
96
Hysan Annual Report 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
Financial instruments continued
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics
are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair
value recognised in profi t or loss.
Hedge accounting
The Group designates certain derivatives as hedging instruments as either fair value hedge or cash fl ow hedge.
At the inception of the hedging relationship, the entity documents the relationship between the hedging instrument and the
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 fl ows of the hedged item.
Fair value hedge
Changes in the fair values of derivatives that are designated and qualify as fair value hedges are recorded in profi t or loss
immediately, together with any changes in the fair values of the hedged items that are 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 qualifi es for hedge accounting.
Cash flow hedge
The effective portion of changes in the fair values of derivatives that are designated and qualify as cash fl ow hedges are deferred
in equity. The gain or loss relating to the ineffective portion is recognised immediately in profi t or loss as other gains or losses.
Amounts deferred in equity are recycled in profi t or loss in the periods when the hedged item is recognised in profi t 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 qualifi es for hedge accounting. For a hedge of the foreign currency risk or interest rate risk
of a fi rm commitment, when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifi es 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 forecast transactions ultimately recognised in profi t or loss.
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 term of the relevant lease.
Management fee income and security service income are recognised when services are rendered.
Dividend income from investments including fi nancial assets at FVTPL is recognised when the shareholders’ right to receive
payments has been established.
Interest income from a fi nancial asset excluding fi nancial assets at FVTPL 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 fi nancial asset to that asset’s net carrying amount.
Leases
Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classifi ed 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 profi t or loss on a straight-line
basis over the term of the relevant lease. Benefi ts 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.
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Hysan Annual Report 2007 97
Notes to the Financial Statements continued
For the year ended 31 December 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
Foreign currencies
In preparing the fi nancial 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 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
profi t 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 fi nancials statements.
For the purposes of presenting the consolidated fi nancial 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 fl uctuate signifi cantly 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 profi t or loss in the period in which the foreign operation is disposed of.
Borrowing costs
All borrowing costs are recognised as and included in fi nance costs in the consolidated income statement in the period in which
they are incurred.
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.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profi t for the year. Taxable profi t differs from profi t 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
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the fi nancial statements and
the corresponding tax bases used in the computation of taxable profi t, 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 profi ts 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
profi t nor the accounting profi t.
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 suffi cient taxable profi ts 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 profi t 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.
98
Hysan Annual Report 2007
3. SIGNIFICANT ACCOUNTING POLICIES continued
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 (share options 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 profi t or loss over the remaining vesting period, with a
corresponding adjustment to share options reserve.
At the time when the share options are exercised, the amount previously recognised in share options 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 share options reserve will be transferred to retained profi ts.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, the management of the Company are
required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance
sheet date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next fi nancial year.
Fair value of investment properties
At the balance sheet date, the Group’s investment properties are stated at fair value of HK$35,711 million (2006: HK$32,473
million) based on the valuation performed by an independent qualifi ed professional valuer. In determining the fair value, the
valuers have based on market value existing use basis which involves, inter-alia, certain estimates, including comparable market
transactions, appropriate capitalisation rates and reversionary income potential and redevelopment potential. In relying on the
valuation, management has exercised their judgement and is satisfi ed that the method of valuation is refl ective of the current
market conditions.
Fair values of financial instruments
Financial instruments, such as interest rate swaps, cross currency swaps, foreign exchange derivatives and equity derivatives,
are carried at the balance sheet at fair value, as disclosed in note 21. The best evidence of fair value is quoted prices in an active
market, where quoted prices are not available for a particular fi nancial instrument, the Group uses the market values determined
by independent fi nancial institutions or internal or external valuation models to estimate the fair value. The use of methodologies,
models and assumptions in pricing and valuing these fi nancial assets and liabilities is subjective and requires varying degrees of
judgment by management, which may result in signifi cantly different fair values and results. Details of the assumptions used and
of the results of sensitivity analyses regarding these assumptions are provided in note 34.
5. TURNOVER
Turnover represents gross rental income from investment properties for the year.
As the turnover and results of the Group are principally derived from investment properties located in Hong Kong, no business
or geographical segment analysis is presented.
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Hysan Annual Report 2007 99
Notes to the Financial Statements continued
For the year ended 31 December 2007
6. INVESTMENT INCOME
Investment income comprises:
Dividends from
– listed investments
– unlisted investments
Interest income
Reversal of impairment loss recognised in respect of
investment in an associate
Recovery of a loan to an associate
Sundry income
Investment income earned on fi nancial assets, analysed by category of asset, is as follows:
Loans and receivables (including time deposits and bank balances)
Available-for-sale equity investments
Investment income earned on non-fi nancial assets
Income recognised in respect of fi nancial assets designated as at FVTPL is disclosed in note 7.
7. OTHER GAINS AND LOSSES
Other gains and losses comprise:
Gain on fair value change of fi nancial assets
designated as at FVTPL
(Loss) gain on fair value change of fi nancial assets
or fi nancial liabilities classifi ed as held for trading
Recycling of gains from reserve on disposal of
available-for-sale equity investments
Gain (loss) on hedging instruments under fair value hedge
(Loss) gain on hedged items under fair value hedge
Hedge ineffectiveness on cash fl ow hedges
8. DIRECTORS’ EMOLUMENTS
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus
Share-based payments (note 40)
Retirement benefi ts scheme contributions
100
Hysan Annual Report 2007
2007
HK$ million
2006
HK$ million
41
12
30
11
–
4
98
41
–
18
–
87
1
147
2007
HK$ million
2006
HK$ million
24
60
84
14
98
105
41
146
1
147
2007
HK$ million
2006
HK$ million
6
(99)
382
41
(28)
–
302
–
20
170
(3)
6
8
201
2007
HK$ million
2006
HK$ million
1
9
2
1
–
13
2
11
2
1
–
16
8. DIRECTORS’ EMOLUMENTS continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2007,
calculated with reference to their employment as Directors of the Company, are set out below:
Executive Directors
Peter Ting Chang Lee (Note b)
Pauline Wah Ling Yu Wong
Michael Tze Hau Lee (Notes c and d)
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
Dr. Geoffrey Meou-tsen Yeh
Tom Behrens-Sorensen (Note e)
Per Jorgensen (Note f)
Executive Directors
Peter Ting Chang Lee (Note b)
Pauline Wah Ling Yu Wong
Michael Tze Hau Lee (Note c)
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
Dr. Geoffrey Meou-tsen Yeh
Per Jorgensen
For the year ended 31 December 2007
Basic salaries,
housing
and other
allowances
HK$’000
Directors’
fees
HK$’000
(Note a)
Bonus
HK$’000
Share-based
payments
HK$’000
Retirement
benefi ts
scheme
contributions
HK$’000
190
100
42
120
120
130
130
100
230
140
85
46
4,304
2,925
1,215
1,183
344
38
862
396
–
12
273
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
HK$’000
6,551
4,038
1,300
120
120
130
130
100
230
140
85
46
1,433
8,444
1,565
1,258
290
12,990
For the year ended 31 December 2006
Basic salaries,
housing
and other
allowances
HK$’000
Directors’
fees
HK$’000
(Note a)
Bonus
HK$’000
Share-based
payments
HK$’000
Retirement
benefi ts
scheme
contributions
HK$’000
190
100
120
120
120
130
130
100
230
140
130
4,213
2,769
3,599
1,213
245
1,027
–
–
1,171
12
227
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
HK$’000
5,628
3,341
5,929
120
120
130
130
100
230
140
130
1,510
10,581
2,485
1,171
251
15,998
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Hysan Annual Report 2007 101
Notes to the Financial Statements continued
For the year ended 31 December 2007
8. DIRECTORS’ EMOLUMENTS continued
Notes:
(a) Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2007 is set out below:
Emoluments
Investment Nomination
Review
Board Committee Committee Committee Committee
HK$’000
HK$’000
HK$’000
HK$’000
Audit
HK$’000
Executive Directors
Peter Ting Chang Lee
Pauline Wah Ling Yu Wong
Michael Tze Hau Lee (Note d)
Non-executive Directors
Fa-kuang Hu
Hans Michael Jebsen
Anthony Hsien Pin Lee
Chien Lee
Dr. Deanna Ruth Tak Yung Rudgard
Independent non-executive Directors
Sir David Akers-Jones
Dr. Geoffrey Meou-tsen Yeh
Tom Behrens-Sorensen (Note e)
Per Jorgensen (Note f)
140
100
35
100
100
100
100
100
120
100
65
35
–
–
–
–
–
–
30
–
60
–
20
11
1,095
121
–
–
–
20
–
–
–
–
30
20
–
–
70
20
–
7
–
20
30
–
–
–
–
–
–
77
30
–
–
–
–
–
–
–
20
20
–
–
70
2007
Total
HK$’000
2006
Total
HK$’000
190
100
42
120
120
130
130
100
230
140
85
46
190
100
120
120
120
130
130
100
230
140
–
130
1,433
1,510
(b) Year 2007: The Emoluments Review Committee reviewed his 2007 fi xed base salary and determined his 2006 performance-based bonus in
March 2007. It was decided to make an increment on his base salary as from April 2007. Accordingly, his fi xed base package (including housing
allowance which amount remains unchanged) paid during the year was HK$4,304,000. The stated bonus fi gure includes adjustment for 2006
bonus accrued in 2006 accounts (following fi nalisation of bonus by the Emoluments Review Committee in March 2007), and 2007 target bonus
fi gures pending fi nalisation by the Emoluments Review Committee after year-end in March 2008.
Year 2006: The Emoluments Review Committee reviewed his 2006 fi xed base salary and determined his 2005 performance-based bonus in
March 2006. It was decided to make an increment on his base salary as from April 2006. Accordingly, his fi xed base package (including housing
allowance which amount remains unchanged) paid during the year was HK$4,213,000. The stated bonus fi gure includes adjustment for 2005
bonus accrued in 2005 accounts (following fi nalisation of bonus by the Emoluments Review Committee in March 2006), and 2006 target bonus
fi gures pending fi nalisation by the Emoluments Review Committee after year-end in March 2007.
(c) Year 2007: The Emoluments Review Committee reviewed his 2007 fi xed base salary and determined his 2006 performance-based bonus in
March 2007. Accordingly, his fi xed base package (including housing allowance which amount remains unchanged) paid during the year was
HK$1,215,000. The stated bonus fi gure includes adjustment for 2006 bonus accrued in 2006 accounts (following fi nalisation of bonus by the
Emoluments Review Committee in March 2007).
Year 2006: The Emoluments Review Committee reviewed his 2006 fi xed base salary and determined his 2005 performance-based bonus in
March 2006. It was decided to make an increment on his base salary as from April 2006. Accordingly, his fi xed base package (including housing
allowance which amount remains unchanged) paid during the year was HK$3,599,000. The stated bonus fi gure includes adjustment for 2005
bonus accrued in 2005 accounts (following fi nalisation of bonus by the Emoluments Review Committee in March 2006), and 2006 target bonus
fi gures pending fi nalisation by the Emoluments Review Committee after year-end in March 2007.
(d) Michael Tze Hau Lee stepped down as Managing Director as from the conclusion of 2007 annual general meeting held on 8 May 2007.
(e) Tom Behrens-Sorensen was appointed as Independent non-executive Director as from the conclusion of 2007 annual general meeting held on 8
May 2007.
(f) Per Jorgensen stepped down as Independent non-executive Director as from the conclusion of 2007 annual general meeting held on 8 May
2007.
102
Hysan Annual Report 2007
9. EMPLOYEES’ EMOLUMENTS
Of the fi ve individuals with the highest emoluments in the Group, two (2006: three) are Directors of the Company, details of whose
emoluments are included in note 8 above. The emoluments of the remaining three (2006: two) individuals are detailed as follows:
Basic salaries, housing and other allowances
Bonus
Share-based payments
Their emoluments are within the following bands:
HK$2,000,001 to HK$2,500,000
HK$3,000,001 to HK$3,500,000
HK$3,500,001 to HK$4,000,000
10. FINANCE COSTS
Finance costs comprise:
Interest on bank loans and overdrafts wholly repayable within fi ve years
Interest on fl oating rate notes wholly repayable within fi ve years
Interest on fi xed rate notes wholly repayable within fi ve years
Interest on fi xed rate notes not wholly repayable within fi ve years
Imputed interest on zero coupon notes not wholly repayable within fi ve years
Total interest expenses
Net interest receipts on interest rate swap and cross currency swaps designated
as fair value hedges
Recycling of gains from reserve on fi nancial instruments designated
as cash fl ow hedges
Bank charges
Medium term note programme expenses
Other fi nance costs
2007
HK$ million
2006
HK$ million
7
1
2
10
5
1
1
7
Number of individuals
2007
2006
1
–
2
3
–
1
1
2
2007
HK$ million
2006
HK$ million
35
26
100
–
12
173
(7)
(2)
8
1
2
175
38
26
–
108
11
183
(10)
(22)
7
1
4
163
Hysan Annual Report 2007 103
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Notes to the Financial Statements continued
For the year ended 31 December 2007
11. TAXATION
Current tax
Hong Kong profi ts tax
– current year
– overprovision in prior years
– prior years’ tax provision
Deferred tax (note 30)
Change in fair value of investment properties
Other temporary differences
2007
HK$ million
2006
HK$ million
130
(3)
58
185
540
20
560
745
90
(1)
–
89
448
21
469
558
Hong Kong profi ts tax is calculated at 17.5% of the estimated assessable profi t for both years.
The taxation for the year can be reconciled to the profi t before taxation per the consolidated income statement as follows:
Profi t before taxation
Tax at Hong Kong profi ts tax rate of 17.5%
Tax effect of share of results of associates
Tax effect of expenses not deductible for tax purposes
Tax effect of income not taxable for tax purposes
Tax effect of estimated tax losses not recognised
Utilisation of estimated tax losses previously not recognised
Overprovision in prior years
Prior years’ tax provision
Others
Taxation for the year
2007
HK$ million
2006
HK$ million
4,862
3,798
851
(79)
8
(85)
20
(12)
(3)
58
(13)
745
664
(21)
1
(62)
2
(17)
(1)
–
(8)
558
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 30).
At the date of approval of these fi nancial statements, the Group had disputes with the Hong Kong Inland Revenue Department
(“IRD”) regarding the deductibility of certain expenses in assessing the taxable profi ts for the years of assessment 1995/1996 to
1999/2000. Full amount of tax in dispute has been provided for in the Group’s accounts for previous years. No agreement with
IRD has been reached at the date of approval of the 2007 fi nancial statements. The Group reviews its tax position annually and
has made adequate provisions for each year based on the then prevailing tax law and practices. After taking into account the
lapse of time and recent developments in tax case law and practices, an additional provision of HK$58 million was made in the
current year being current estimate of interest payable on the tax in dispute should IRD’s claim be successful. The Directors
believe that the Group has made suffi cient tax provisions as at the balance sheet date based on professional advice obtained.
104
Hysan Annual Report 2007
12. PROFIT FOR THE YEAR
Profi t for the year has been arrived at after charging (crediting):
Auditor’s remuneration
Amortisation of prepaid lease payments (note 17)
Depreciation of property, plant and equipment
Gross rental income from investment properties
Less:
– Direct operating expenses that generated rental income
– Direct operating expenses that did not generate rental income
Loss on disposal of property, plant and equipment
Staff costs, comprising:
– Directors’ emoluments (note 8)
– Share-based payments
– Other staff costs
Share of income tax of an associate
(included in share of results of associates)
13. DIVIDENDS
(a) Dividends recognised as distribution during the year:
2007 interim dividend paid – HK12 cents per share
2006 interim dividend paid – HK10 cents per share
2006 fi nal dividend paid – HK40 cents per share
2005 fi nal dividend paid – HK35 cents per share
2007
HK$ million
2006
HK$ million
2
–
7
2
–
7
(1,368)
(1,268)
205
3
234
6
(1,160)
(1,028)
–
13
3
111
127
81
1
16
3
117
136
57
2007
HK$ million
2006
HK$ million
127
–
422
–
549
–
105
–
369
474
Scrip dividend alternatives were offered to the shareholders in respect of the above dividends. These alternatives were accepted
by the shareholders as follows:
2007 interim dividend (2006 interim dividend):
– Cash payment
– Share alternative
2006 fi nal dividend (2005 fi nal dividend):
– Cash payment
– Share alternative
2007
HK$ million
2006
HK$ million
99
28
346
76
549
94
11
341
28
474
Hysan Annual Report 2007 105
O
V
E
R
V
I
E
W
O
U
R
S
T
R
A
T
E
G
Y
I
N
A
C
T
O
N
I
O
U
R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
V
A
L
U
A
T
O
N
I
Notes to the Financial Statements continued
For the year ended 31 December 2007
13. DIVIDENDS continued
(b) Dividends proposed after the balance sheet date:
Final dividend proposed – HK48 cents per share
(2006: HK40 cents per share)
2007
HK$ million
2006
HK$ million
498
422
The 2007 fi nal dividend of HK48 cents per share (2006: HK40 cents per share) has been proposed by the Directors on 13 March
2008 and is subject to approval by the shareholders at the forthcoming annual general meeting. Such dividend is not recognised
as a liability as at 31 December 2007.
The proposed 2007 fi nal dividend will be payable in cash with a scrip dividend alternative.
14. EARNINGS PER SHARE
(a) Basic and diluted earnings per share
The calculation of the basic and diluted earnings per share attributable to the equity holders of the Company is based on the
following data:
Earnings for the purposes of basic and diluted earnings per share:
Profi t for the year attributable to equity holders of the Company
Weighted average number of ordinary shares for the purpose of
basic earnings per share
Effect of dilutive potential ordinary shares:
Share options issued by the Company
Weighted average number of ordinary shares for the purpose of
diluted earnings per share
Earnings
2007
HK$ million
2006
HK$ million
3,949
3,099
Number of shares
2007
2006
1,051,770,437 1,054,166,353
607,460
923,579
1,052,377,897 1,055,089,932
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.
106
Hysan Annual Report 2007
14. EARNINGS PER SHARE continued
(b) Adjusted basic earnings per share
For the purpose of assessing the performance of the Group’s principal activities (i.e. leasing of investment properties), the
management is of the view that the profi t for the year attributable to the equity holders of the Company should be adjusted in
the calculation of basic earnings per share as follows:
Profi t for the year attributable to
equity holders of the Company
Gain arising from change in fair value of
investment properties
Effect of deferred taxation on change in
fair value of investment properties
Effect of minority interests’ shares
Gain arising from share of change in
fair value of investment properties
(net of deferred taxation) of an associate
Underlying profi t attributable to
equity holders of the Company
Prior years’ tax provision
Net realised gain on disposal of
available-for-sale investments
Reversal of impairment loss recognised
in respect of investment in an associate
Recovery of a loan to an associate
Recurring underlying profi t
2007
2006
Profi t
HK$ million
Basic
earnings
per share
HK cents
Profi t
HK$ million
Basic
earnings
per share
HK cents
3,949
375.46
3,099
293.96
(3,131)
(297.69)
(2,576)
(244.31)
540
111
51.34
10.55
448
97
42.54
9.20
(311)
(29.57)
(56)
(5.36 )
1,158
58
110.09
5.52
1,012
–
96.03
–
(255)
(24.24)
(170)
(16.16 )
(11)
–
950
(1.05)
–
90.32
–
(87)
755
–
(8.27 )
71.60
The denominators used are the same as those detailed above for basic earnings per share.
15. INVESTMENT PROPERTIES
Fair value
At 1 January
Additions
Disposals
Transfer to a group company
Net increase in fair value
At 31 December
The Group
The Company
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
32,473
107
–
–
3,131
35,711
29,815
83
(1)
–
2,576
32,473
–
–
–
–
–
–
4,061
–
–
(4,061)
–
–
The carrying amount of investment properties shown above comprises:
Leasehold land in Hong Kong:
– Medium-term lease
– Long lease
The Group
The Company
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
6,200
29,511
35,711
5,640
26,833
32,473
–
–
–
–
–
–
Hysan Annual Report 2007 107
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W
O
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S
T
R
A
T
E
G
Y
I
N
A
C
T
O
N
I
O
U
R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
V
A
L
U
A
T
O
N
I
Notes to the Financial Statements continued
For the year ended 31 December 2007
15. INVESTMENT PROPERTIES continued
The fair value of the Group’s investment properties at 31 December 2007 have been arrived at on the basis of a valuation carried
out on that date by Knight Frank Petty Limited, an independent qualifi ed professional valuer not connected with the Group.
Knight Frank Petty Limited has appropriate qualifi cations 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
mainly arrived at by reference to comparable market transactions for similar properties.
All of the Group’s property interests held under operating leases to earn rentals and/or for capital appreciation purposes are
measured using the fair value model and are classifi ed and accounted for as investment properties.
16. PROPERTY, PLANT AND EQUIPMENT
Buildings in
Hong Kong
under
long lease
HK$ million
Furniture,
fi xtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
55
–
–
55
–
–
7
62
–
62
62
–
1
–
(1)
–
1
–
(1)
–
62
55
49
5
(3)
51
2
–
–
53
53
–
53
42
3
(2)
–
43
3
–
–
46
7
8
20
1
–
21
1
(1)
–
21
21
–
21
12
3
–
–
15
3
(1)
–
17
4
6
1
–
–
1
–
–
–
1
1
–
1
1
–
–
–
1
–
–
–
1
–
–
125
6
(3)
128
3
(1)
7
137
75
62
137
55
7
(2)
(1)
59
7
(1)
(1)
64
73
69
The Group
Cost or Valuation
At 1 January 2006
Additions
Disposals
At 31 December 2006
Additions
Disposals
Surplus on revaluation
At 31 December 2007
Comprising:
At cost
At valuation 2007
Accumulated Depreciation
At 1 January 2006
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2006
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2007
Carrying Amounts
At 31 December 2007
At 31 December 2006
108
Hysan Annual Report 2007
16. PROPERTY, PLANT AND EQUIPMENT continued
Furniture,
fi xtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
The Company
Cost
At 1 January 2006
Additions
Disposals
At 31 December 2006
Additions
Disposals
At 31 December 2007
Accumulated Depreciation
At 1 January 2006
Provided for the year
Eliminated on disposals
At 31 December 2006
Provided for the year
Eliminated on disposals
At 31 December 2007
Carrying Amounts
At 31 December 2007
At 31 December 2006
22
–
(1)
21
1
–
22
20
1
(1)
20
1
–
21
1
1
19
1
–
20
1
(1)
20
11
3
–
14
3
(1)
16
4
6
1
–
–
1
–
–
1
1
–
–
1
–
–
1
–
–
42
1
(1)
42
2
(1)
43
32
4
(1)
35
4
(1)
38
5
7
The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:
Leasehold buildings
Furniture, fi xtures and equipment
Computers
Motor vehicles
Over the shorter of the term of the lease or 40 years
20%
20%
25%
The Group’s leasehold buildings were revalued at 31 December 2007 by Knight Frank Petty Limited, an independent qualifi ed
professional valuer, on market value basis. The surplus of HK$8 million (2006: HK$1 million) arising on revaluation have been
credited to the properties revaluation reserve.
Had the Group’s leasehold buildings been measured on a historical cost basis, their carrying amounts would have been HK$50
million (2006: HK$52 million) at the balance sheet date.
Furniture, fi xtures and equipment of the Group include assets carried at cost of HK$19 million (2006: HK$18 million) and
accumulated depreciation of HK$17 million (2006: HK$16 million) in respect of assets held for leasing out under operating
leases. Depreciation charges in respect of those assets for the year amounted to HK$1 million (2006: HK$1 million).
There is no property, plant and equipment of the Company held for renting out under operating leases for the year or at the
balance sheet date.
17. PREPAID LEASE PAYMENTS
The Group’s prepaid lease payments represent leasehold land in Hong Kong held under long lease, and are amortised on a
straight-line basis over the terms of leases. The amortisation of prepaid lease payments for the year was approximately
HK$163,000 (2006: HK$163,000).
Hysan Annual Report 2007 109
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A
T
E
G
Y
I
N
A
C
T
O
N
I
O
U
R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
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M
E
N
T
S
A
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Notes to the Financial Statements continued
For the year ended 31 December 2007
18. INVESTMENTS IN SUBSIDIARIES
The Company’s investments in subsidiaries are the interest in unlisted shares stated at cost of approximately HK$5,000 (2006:
HK$5,000). Details of the principal subsidiaries held by the Company at 31 December 2007 are set out in note 41.
19. INVESTMENTS IN ASSOCIATES
Cost of unlisted investments
Loan to an associate
Share of post-acquisition profi ts and
reserves, net of dividend received
Less: Impairment loss recognised
The Group
The Company
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
3
112
896
1,011
–
1,011
3
186
452
641
(11)
630
–
–
–
–
–
–
–
–
–
–
–
–
Loan to an associate of HK$112 million (2006: HK$186 million) is unsecured and interest-free. In the opinion of the Directors, the
loan is considered as part of the Group’s investment cost in the associate and, accordingly, the loan is included in the amount of
investments in associates.
During the year, the Directors conducted a review of the Group’s investments in associates and determined that the recoverable
amount of investment in an associate exceeded its carrying amount. Accordingly, impairment loss of HK$11 million recognised
in respect of that associate in prior year was reversed at the balance sheet date.
The Company’s investments in associates are the interest in unlisted shares stated at cost of approximately HK$3,000 (2006:
HK$3,000).
Details of the Group’s associates at 31 December 2007 are as follows:
Name of associate
Wingrove Investment
Pte Ltd
Country Link
Enterprises Limited
Shanghai Kong Hui
Property Development
Co., Ltd
Shanghai Grand
Gateway Plaza
Property Management
Co., Ltd
Form of
business
structure
Place of
registration
and
operation
Class of
share held/
registered
capital
Effective
interest
held by
the Group
Private company
limited by shares
Singapore
Ordinary share
25.0% *
Private limited
company
Sino-Foreign
equity joint
venture
Sino-Foreign
equity joint
venture
Hong Kong
Ordinary share
26.3% *
US$165,000,000 #
24.7% *
US$140,000 #
23.7% *
The People’s
Republic
of China
The People’s
Republic
of China
Parallel Asia Engineering
Company Limited
Private limited
company
Hong Kong
Ordinary share
25.0%
Principal
activities
Property
development
and leasing
Investment
holding
Property
development
and leasing
Property
management
Under
liquidation
* Indirectly held
# Registered capital
110
Hysan Annual Report 2007
19. INVESTMENTS IN ASSOCIATES continued
The summarised fi nancial information in respect of the Group’s associates based on the unaudited management accounts for
the year ended 31 December 2007 is as follows:
Total assets
Total liabilities
Net assets
Group’s share of net assets of associates
Turnover
Profi t for the year
Group’s share of results of associates for the year
20. AVAILABLE-FOR-SALE INVESTMENTS
2007
HK$ million
2006
HK$ million
8,445
(4,272)
4,173
1,011
1,055
1,723
452
6,928
(4,535)
2,393
641
669
457
120
The Group
The Company
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
Available-for-sale investments comprise:
Listed investments:
– Equity securities listed in Hong Kong, at fair value
2,439
1,678
Unlisted investments:
– Equity securities in overseas, at cost
Less: Impairment loss recognised
Add: Amounts due therefrom
– Club debentures, at cost
Less: Impairment loss recognised
93
(55)
38
–
38
3
(1)
2
117
(60)
57
8
65
3
(1)
2
2,479
1,745
–
–
–
–
–
–
3
(1)
2
2
–
–
–
–
–
–
3
(1)
2
2
The equity securities in overseas represent the Group’s investments in unlisted equity securities issued by private entities
incorporated in Singapore. These private entities are engaged in property investment and development activities in Singapore.
They are measured at cost less any identifi ed impairment loss at each balance sheet date because the range of reasonable fair
value estimates is so signifi cant that the management is of the opinion that their fair values cannot be measured reliably.
In the current year, the Group disposed of an unlisted equity security at its carrying amount of HK$19 million, which had been
carried at cost less impairment before the disposal.
O
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W
O
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R
A
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G
Y
I
N
A
C
T
O
N
I
O
U
R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
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I
S
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A
T
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M
E
N
T
S
A
N
D
V
A
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A
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Hysan Annual Report 2007 111
Notes to the Financial Statements continued
For the year ended 31 December 2007
21. OTHER FINANCIAL ASSETS/LIABILITIES
Other fi nancial assets
Derivatives under hedge accounting:
Cash fl ow hedges
– Interest rate swaps
– Foreign exchange derivatives
Fair value hedges
– Cross currency swaps
Financial assets designated as at FVTPL:
Principal-protected deposits
Total
Other fi nancial liabilities
Derivatives under hedge accounting:
Cash fl ow hedges
– Interest rate swaps
– Foreign exchange derivatives
Fair value hedges
– Interest rate swap
– Cross currency swaps
Other derivatives classifi ed as held for trading
(not under hedge accounting):
Foreign exchange derivatives
Equity derivatives
Total
The Group
Current
Non-current
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
–
1
–
1
–
1
2
–
–
–
2
–
38
38
40
1
1
–
2
–
2
–
–
–
–
–
–
40
40
40
–
2
30
32
203
235
–
–
–
–
–
17
–
17
17
–
1
1
2
–
2
–
1
4
8
13
32
–
32
45
Except for the fair values of principal-protected deposits, equity derivatives and the interest rate swap designated as fair value
hedge being determined based on market values provided by the counterparty fi nancial institutions, the fair values of other
derivatives are calculated using discounted cash fl ow analysis based on the applicable yield curves and foreign exchange rates.
112
Hysan Annual Report 2007
21. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges
(i) Interest rate risk
The Group uses interest rate swaps to manage its exposure to interest rate changes of certain amounts of its fl oating rate notes
and the interest rate changes in relation to fl oating-interest-rate payments of certain fi nancial instruments. The interest rate
swaps match the major terms of the hedged underlying items such that the management considers that the interest rate swaps
are highly effective hedging instruments.
At the balance sheet date, the maturity periods of interest rate swaps at notional amount were as follows:
Within one year
The Group
2007
HK$ million
2006
HK$ million
660
949
As at 31 December 2007, the fl oating-to-fi xed interest rate swaps locked in the interest rates ranging from 4.31% to 4.71%
(2006: 2.11% to 2.45%).
As at 31 December 2007, fair value losses of HK$2 million (2006: fair value gains of HK$1 million) from the interest rate swaps
under cash fl ow 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 payables occur.
During the year, the Group had recycled approximately HK$1 million (2006: HK$21 million) gains on interest rate swaps from the
hedging reserve to profi t or loss as fi nance costs.
(ii) Foreign currency risk
The Group designates forward foreign exchange contracts as cash fl ow hedges to manage its foreign currency exposure in
relation to the coupon payments of the US$65 million out of the US$182 million fi xed rate notes for both years.
The principal terms of the foreign exchange derivatives have been negotiated to match the coupon payments of the fi xed rate
notes. At the balance sheet date, the maturity periods of the forward foreign exchange contracts at notional amount were as
follows:
Within one year
More than one year, but less than fi ve years
More than fi ve years
The Group
2007
HK$ million
2006
HK$ million
34
118
–
152
34
138
14
186
As at 31 December 2007, fair value gains of HK$3 million (2006: HK$1 million) from the forward foreign exchange contracts
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 fi xed rate notes occur.
During the year, the Group had recycled approximately HK$1 million (2006: HK$1 million) gains on forward foreign exchange
contracts from the hedging reserve to profi t or loss as fi nance costs.
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I
N
A
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O
N
I
O
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R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
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M
E
N
T
S
A
N
D
V
A
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Hysan Annual Report 2007 113
Notes to the Financial Statements continued
For the year ended 31 December 2007
21. OTHER FINANCIAL ASSETS/LIABILITIES continued
(b) Fair value hedges
The Group designates an interest rate swap as fair value hedge to minimise its interest rate risk exposure in relation to the zero
coupon notes, and designates cross currency swaps as fair value hedges to manage interest rate and foreign currency risk in
relation to the principal and coupon payments of the US$117 million out of the US$182 million fi xed rate notes. The principal
terms of the interest rate swap and cross currency swaps match the corresponding notes and the management considers that
the swaps are highly effective hedging instruments.
At the balance sheet date, the maturity periods of the swaps at notional amount were as follows:
Interest rate swap
More than fi ve years
Cross currency swaps
More than one year, but less than fi ve years
More than fi ve years
The Group
2007
HK$ million
2006
HK$ million
227
913
–
913
215
–
913
913
As a result of the hedge accounting, the carrying amount of the fi xed rate notes was adjusted by gains of approximately HK$54
million (2006: gains of approximately HK$78 million) while the carrying amount of the zero coupon notes was adjusted by losses
of approximately HK$72,000 (2006: gains of approximately HK$4 million). The changes in fair values of the notes for the hedged
risk were included in profi t or loss at the same time that the changes in fair value of the swaps were included in profi t or loss.
The fi xed-to-fl oating interest rate swap hedging the zero coupon notes converted a fi xed rate of 5.19% to HIBOR plus 0.69% for
both years.
(c) Financial assets designated as at FVTPL
During the year, the Group entered into certain contracts of structured deposits with certain fi nancial institutions. The deposits
with notional amounts of HK$118 million and HK$80 million will mature in 2009 and 2010 respectively. The structured deposits
are principal-protected at the maturity dates and contain embedded derivatives which are not closely related to the host
contract. The interest rates of such deposits vary in relation to the relative movements of the underlying assets, such as foreign
exchange rates. The entire combined contracts have been designated as fi nancial assets at FVTPL on initial recognition.
(d) Other derivatives classified as held for trading (not under hedge accounting)
The notional amounts of other derivatives classifi ed as held for trading not under hedge accounting are as follows:
Derivatives
Forward foreign exchange contact
Net basis swaps
Equity derivatives
Notional amount
US$6 million
US$65 million
HK$147 million
Maturity
2008
2012
2008
The Group entered into net basis swaps to minimise the foreign currency exposure in relation to the principal of the US$65
million of the US$182 million fi xed rate notes. The equity derivatives were call options of certain listed securities in Hong Kong.
114
Hysan Annual Report 2007
22. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Rents from leasing of investment properties are normally received in advance. At the balance sheet date, accounts receivable of
the Group and the Company mainly represented rents receipts in arrears, which were aged less than 90 days.
23. AMOUNTS DUE FROM/TO SUBSIDIARIES
The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand.
24. AMOUNT DUE FROM AN ASSOCIATE
The amount due from an associate is unsecured, interest-free and repayable on demand.
25. HELD FOR TRADING INVESTMENTS
The Group’s held for trading investments represent investments in equity securities listed in Hong Kong.
26. TIME DEPOSITS/CASH AND BANK BALANCES
Time deposits, cash and bank balances comprise cash and short-term bank deposits carrying effective interest rates ranging
from 0.88% to 3.45% (2006: 3.73% to 3.93%) with an original maturity of three months or less.
27. ACCOUNTS PAYABLE AND ACCRUALS
At the balance sheet date, accounts payable and accruals of the Group and the Company were aged less than 90 days.
28. AMOUNTS DUE TO MINORITY SHAREHOLDERS
The amounts due to minority shareholders are unsecured, interest-free and repayable on demand.
29. BORROWINGS
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
The Group
2007
HK$ million
2006
HK$ million
720
549
1,362
230
2,861
720
549
1,338
214
2,821
(a) Unsecured bank loans
The unsecured bank loans of HK$720 million (2006: HK$720 million) are guaranteed as to principal and interest by the Company
and are repayable after two years, but not exceeding fi ve years.
At the balance sheet date, all the Group’s unsecured bank loans are variable-rate borrowings with effective interest rates (which
are also equal to contracted interest rates) ranging from 3.94% to 4.17% (2006: 4.39% to 4.58%) per annum denominated in
Hong Kong dollars. Interest rate is normally re-fi xed at every one to six months.
(b) Floating rate notes
In 2004, HK$550 million fi ve-year fl oating rate notes were issued by Hysan (MTN) Limited, a wholly-owned subsidiary of the
Company. The notes are guaranteed as to principal and interest by the Company, bear effective interest rates (which are equal
to contracted interest rates) ranging from 3.98% to 5.08% (2006: 4.24% to 5.04%) per annum at the balance sheet date and
are repayable in full in 2009.
The Group has entered into interest rate swaps to hedge against the interest rate risk of certain fl oating rate notes (see note 21).
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I
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A
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F
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Hysan Annual Report 2007 115
Notes to the Financial Statements continued
For the year ended 31 December 2007
29. BORROWINGS continued
(c) Fixed rate notes
Fixed rate notes
Less: Notes repurchased and cancelled
Net gain attributable to hedged risks
The Group
2007
HK$ million
2006
HK$ million
1,416
–
(54)
1,362
1,556
(140)
(78)
1,338
In February 2002, US$200 million 10-year fi xed rate notes were issued by Hysan (MTN) Limited. The notes 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 was repurchased and cancelled. The outstanding nominal amount of the notes at both balance sheet dates was US$182
million.
The Group has entered into cross currency swaps to hedge against the interest rate and foreign exchange rate risks in relation
to the principal repayment and coupon payments of the US$117 million (2006: US$117 million) fi xed rate notes under fair value
hedge. The Group has also entered into forward foreign exchange contracts to hedge against the foreign exchange rate risk
arising from the coupon payments of the remaining US$65 million fi xed rate notes and the forward foreign exchange contracts
are accounted for as cash fl ow hedges (see note 21).
The net gain of HK$54 million (2006: HK$78 million) represented changes in fair value attributable to the hedged interest rate
and foreign exchange rate risks of the US$117 million (2006: US$117 million) fi xed rate notes under fair value hedge.
(d) Zero coupon notes
Zero coupon notes
Less: Net gain attributable to hedged risk
The Group
2007
HK$ million
2006
HK$ million
230
–
230
218
(4)
214
In February 2005, 15-year zero coupon notes of nominal amount of HK$430 million were issued at an issue price of around
46.37% of the nominal amount by Hysan (MTN) Limited. The notes are guaranteed as to 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 an interest rate swap to hedge against the interest rate risk of the zero coupon notes under fair
value hedge (see note 21).
The net loss of approximately HK$72,000 (2006: gain of approximately HK$4 million) represented changes in fair value
attributable to the hedged interest rate risk of the zero coupon notes under fair value hedge.
116
Hysan Annual Report 2007
30. DEFERRED TAXATION
The following are the major deferred tax liabilities (assets) recognised by the Group and the Company and movements thereon
during the year:
Accelerated tax
depreciation
HK$ million
Revaluation
of properties
HK$ million
Tax
losses
HK$ million
Total
HK$ million
The Group
At 1 January 2006
Charge to consolidated income statement
for the year (note 11)
At 31 December 2006
Charge to consolidated income statement
for the year (note 11)
Charge to equity for the year
At 31 December 2007
The Company
At 1 January 2006
Credit to income statement for the year
At 31 December 2006 and 31 December 2007
224
20
244
20
–
264
2,658
448
3,106
540
1
3,647
(2)
1
(1)
–
–
(1)
2,880
469
3,349
560
1
3,910
Accelerated tax
depreciation
HK$ million
Revaluation
of properties
HK$ million
Total
HK$ million
10
(10)
–
480
(480)
–
490
(490)
–
At the balance sheet date, the Group has unused estimated tax losses of HK$400 million (2006: HK$456 million) available for
offset against future profi ts. A deferred tax asset has been recognised in respect of HK$5 million (2006: HK$7 million) of such
losses. No deferred tax asset has been recognised in respect of the remaining estimated tax losses of HK$395 million (2006:
HK$449 million) as the utilisation of these estimated tax losses is uncertain. These estimated tax losses may be carried forward
indefi nitely.
At the balance sheet date, the Group has deductible temporary differences of HK$4 million (2006: HK$49 million). No deferred
tax asset has been recognised in relation to such deductible temporary differences as it is not probable that taxable profi t 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.
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C
T
O
N
I
O
U
R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
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I
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Hysan Annual Report 2007 117
Notes to the Financial Statements continued
For the year ended 31 December 2007
31. SHARE CAPITAL
Ordinary shares of HK$5 each
Authorised:
At 1 January and 31 December
Number of shares
2007
2006
Share capital
2007
HK$ million
2006
HK$ million
1,450,000,000 1,450,000,000
7,250
7,250
Issued and fully paid:
At 1 January
Issue of shares pursuant to scrip dividend schemes
Exercise of share options
Cancellation upon repurchase of own shares
At 31 December
1,055,137,409 1,053,260,841
1,700,301
176,267
–
5,057,681
1,507,666
(24,233,000)
1,037,469,756 1,055,137,409
5,276
25
7
(121)
5,187
5,266
9
1
–
5,276
(a) Issue of shares pursuant to scrip dividend schemes
On 12 June 2007 and 5 October 2007 respectively, the Company issued and allotted a total of 3,623,799 shares and 1,433,882
shares of HK$5 each in the Company at HK$21.11 and HK$19.412 to the shareholders who elected to receive shares in the
Company in lieu of cash for the 2006 fi nal and 2007 interim dividends pursuant to the scrip dividend schemes announced by the
Company on 8 May 2007 and 3 September 2007. These shares rank pari passu in all respects with other shares in issue.
(b) Issue of shares under share option schemes
During the year, options to subscribe for a total of 1,350,000 shares, 77,666 shares and 80,000 shares were exercised at the
exercise prices of HK$9.22, HK$15.85 and HK$16.60 per share respectively. These shares rank pari passu in all respects with
other shares in issue. Details of options outstanding and movements during the year are set out in note 40.
(c) Cancellation upon repurchase of own shares
The Company was authorised at the 2007 annual general meeting to purchase its own ordinary shares not exceeding 10% of
the aggregate nominal amount of its issued share capital at that time. During the year, the Company repurchased its ordinary
shares on the Stock Exchange when they were signifi cantly trading at a discount in order to enhance shareholder value.
During the year, the Company repurchased its own ordinary shares on the Stock Exchange as follows:
Month of
repurchase in 2007
Number of shares of
nominal value of HK$5
each repurchased
August
September
October
November
871,000
22,720,000
100,000
542,000
24,233,000
Consideration per share
Highest
HK$
19.64
22.00
21.00
23.00
Lowest
HK$
18.94
19.40
20.95
22.75
Aggregate
consideration
paid
HK$ million
17
480
2
12
511
The repurchased shares were cancelled during the year and the issued share capital of the Company was reduced by the
nominal value thereof. The premium paid on repurchase of the shares of HK$390 million was charged to retained profi ts.
Pursuant to section 49H of the Hong Kong Companies Ordinance, an amount of HK$121 million equivalent to nominal value of
the shares cancelled was transferred from the retained profi ts of the Company to the capital redemption reserve.
Save as disclosed above, neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company’s listed
securities during the year.
118
Hysan Annual Report 2007
32. RESERVES OF THE COMPANY
The Company’s reserves available for distribution to its equity holders as at 31 December 2007 amounted to HK$5,676 million
(2006: HK$5,997 million), being its general reserve, dividend reserve and retained profi ts at that date.
Share
premium
HK$ million
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
General
reserve
HK$ million
Dividend
reserve
HK$ million
Retained
profi ts
HK$ million
Total
HK$ million
At 1 January 2006
Premium on issue of shares pursuant
to scrip dividend schemes
Premium on issue of shares under
share option schemes
Recognition of equity-settled
share-based payments
Profi t for the year
Interim dividend declared for 2006
Dividends paid during
the year (note 13)
Proposed fi nal dividend for 2006
At 31 December 2006
Premium on issue of shares pursuant
to scrip dividend schemes
Premium on issue of shares under
share option schemes
Cancellation upon repurchase
of own shares
Expenses for repurchase of own shares
Recognition of equity-settled
share-based payments
Forfeiture of share options
Profi t for the year
Interim dividend declared for 2007
Dividends paid during
the year (note 13)
1,420
30
3
–
–
–
–
–
1,453
79
9
–
–
–
–
–
–
–
At 31 December 2007
1,541
Note: General reserve was set up from the transfer of retained profi ts.
(Note)
100
155
369
5,273
7,319
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
105
(474)
422
–
–
–
729
(105)
–
(422)
30
2
4
729
–
(474)
–
155
100
422
5,475
7,610
–
–
121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
127
–
–
(511)
(2)
–
2
739
(127)
79
8
(390)
(2)
4
–
739
–
(549)
–
(549)
276
100
–
5,576
7,499
2
–
(1)
4
–
–
–
–
5
–
(1)
–
–
4
(2)
–
–
–
6
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O
N
I
O
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O
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N
A
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C
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F
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N
A
N
C
A
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A
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Hysan Annual Report 2007 119
Notes to the Financial Statements continued
For the year ended 31 December 2007
33. CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from
prior year.
The Group monitors its capital structure on the basis of a net debt to adjusted capital ratio. For this purpose, the Group defi nes
net debt as borrowings as shown in the consolidated balance sheet less total cash and cash equivalents. Adjusted capital
comprises all components of equity, adjusted by cumulative deferred tax provided on fair value gain on the investment and
owner-occupied properties attributable to equity holders.
The management reviews the Group’s net debt to adjusted capital ratio regularly and adjust the ratio through the payment of
dividends, the issue of new share or debt, the repurchase of shares and the redemption of existing debt.
The net debt to adjusted capital ratio at the year end was as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Borrowings
Less: Time deposits
Cash and bank balances
Net debt
Equity attributable to equity holders of the Company
Add: Group’s share of cumulative deferred tax on properties revaluation
Adjusted capital
Net debt to adjusted capital
The Group
2007
HK$ million
2006
HK$ million
720
549
1,362
230
2,861
(478)
(6)
2,377
31,652
3,420
35,072
6.8%
720
549
1,338
214
2,821
(382)
(3)
2,436
27,828
2,901
30,729
7.9%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
120
Hysan Annual Report 2007
34. FINANCIAL INSTRUMENTS
(a) Categories of financial instruments
Financial assets
Financial assets at FVTPL
– designated as at FVTPL
– held for trading
Derivative instruments under
hedge accounting
Available-for-sale fi nancial assets
Loans and receivables
(including cash and cash equivalents)
Financial liabilities
Financial liabilities at FVTPL
– held for trading
Derivative instruments under
hedge accounting
Amortised cost
The Group
The Company
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
203
95
33
2,479
1,162
3,972
55
2
3,805
3,862
–
–
4
1,745
1,209
2,958
72
13
3,686
3,771
–
–
–
2
–
–
–
2
12,790
12,792
13,071
13,073
–
–
61
61
–
–
126
126
(b) Financial risk management objectives and policies
The Group’s major fi nancial instruments include cash and bank balances, time deposits, accounts receivable, equity
investments, amount due from an associate, other receivables, borrowings, accounts payable and accruals, amounts due to
minority shareholders, rental deposits from tenants and derivative fi nancial instruments. The Company’s major fi nancial
instruments include cash and bank balances, time deposits, accounts receivable, other receivables, amounts due from/to
subsidiaries and accounts payable and accruals. Details of these fi nancial instruments are disclosed in respective notes. The
risks associated with these fi nancial 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.
(i) Credit risk
The credit risk of the Group and the Company are primarily attributable to rents receivable from tenants, amount due from an
associate, derivative fi nancial instruments, time deposits and bank balances. The Group’s and the Company’s maximum
exposure to credit risk which will cause a fi nancial loss to the Group and the Company due to failure to discharge an obligation
by the counterparties and fi nancial guarantees issued by the Group and the Company is arising from:
•
•
the carrying amount of the respective recognised fi nancial assets as stated in the consolidated and Company’s balance
sheets; and
the amount of contingent liabilities in relation to fi nancial guarantee issued by the Group and the Company as disclosed in
note 36.
For rents 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 fi nancial institutions with strong
investment-grade credit ratings, limits exposure to each fi nancial institution, and monitors each rating regularly.
The Group’s and the Company’s time deposits and bank balances are placed with banks of high credit ratings in Hong Kong.
The Group and the Company has set an exposure limit to each single fi nancial institution.
Other than concentration of credit risk on amount due from an associate, the Group and the Company have no signifi cant
concentration of credit risk, with exposure spread over a number of counterparties and tenants.
Hysan Annual Report 2007 121
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G
Y
I
N
A
C
T
O
N
I
O
U
R
G
O
V
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N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
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N
T
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A
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Notes to the Financial Statements continued
For the year ended 31 December 2007
34. FINANCIAL INSTRUMENTS continued
(b) Financial risk management objectives and policies continued
(ii) Liquidity risk
The Group and the Company closely monitors its liquidity requirements and the suffi ciency of cash and available banking
facilities so as to ensure that the payment obligations are met.
The following table details the remaining contractual maturity of the Group and the Company for their non-derivative fi nancial
liabilities. The table has been drawn up based on the undiscounted cash fl ows of fi nancial liabilities based on the earliest date on
which the Group is required to pay. The table includes both interest and principal cash fl ows. The interest payments are
computed using contractual rates or, if fl oating, based on the prevailing market rate at the balance sheet date. For cash fl ows
denominated in currency other than Hong Kong dollars, the prevailing foreign exchange rates at the balance sheet date are used
to convert the cash fl ows into Hong Kong dollars.
Total
contractual
Carrying undiscounted
cash fl ow
amount
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year but
less than
2 years
HK$ million
More than
2 years but
less than
5 years
HK$ million
More than
5 years
HK$ million
The Group
As at 31 December 2007
Non-derivative fi nancial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to minority shareholders
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
As at 31 December 2006
Non-derivative fi nancial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to minority shareholders
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
(278)
(339)
(327)
(720)
(549)
(1,362)
(230)
(278)
(339)
(327)
(809)
(589)
(1,866)
(430)
(3,805)
(4,638)
(253)
(285)
(327)
(720)
(549)
(1,338)
(214)
(253)
(285)
(327)
(850)
(615)
(1,963)
(430)
(3,686)
(4,723)
(278)
(124)
(327)
(29)
(22)
(99)
–
(879)
(253)
(102)
(327)
(28)
(23)
(102)
–
(835)
–
(104)
–
(29)
(567)
(99)
–
–
(107)
–
(751)
–
(1,668)
–
(799)
(2,526)
–
(57)
–
(32)
(23)
(99)
–
–
(121)
–
(790)
(569)
(297)
–
–
(4)
–
–
–
–
(430)
(434)
–
(5)
–
–
–
(1,465)
(430)
(211)
(1,777)
(1,900)
122
Hysan Annual Report 2007
34. FINANCIAL INSTRUMENTS continued
(b) Financial risk management objectives and policies continued
(ii) Liquidity risk continued
Total
contractual
Carrying undiscounted
cash fl ow
amount
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year but
less than
2 years
HK$ million
More than
2 years but
less than
5 years
HK$ million
More than
5 years
HK$ million
The Company
As at 31 December 2007
Non-derivative fi nancial liabilities
Accounts payable and accruals
Amounts due to subsidiaries
As at 31 December 2006
Non-derivative fi nancial liabilities
Accounts payable and accruals
Amounts due to subsidiaries
(19)
(42)
(61)
(22)
(104)
(126)
(19)
(42)
(61)
(22)
(104)
(126)
(19)
(42)
(61)
(22)
(104)
(126)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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V
E
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I
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W
O
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S
T
R
A
T
E
G
Y
I
N
A
C
T
O
N
I
O
U
R
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
A
N
D
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A
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Hysan Annual Report 2007 123
Notes to the Financial Statements continued
For the year ended 31 December 2007
34. FINANCIAL INSTRUMENTS continued
(b) Financial risk management objectives and policies continued
(ii) Liquidity risk continued
The following table details the Group’s remaining contractual maturity for its derivative fi nancial instruments. The table has been
drawn up based on the undiscounted net cash infl ows (outfl ows) on the derivative instruments that settle on a net basis and
undiscounted gross infl ows (outfl ows) on those derivatives that require gross settlement. When the amount payable or receivable
is not fi xed, the amount disclosed has been determined by the prevailing market rate at the balance sheet date. For cash fl ows
denominated in currency other than Hong Kong dollars, the prevailing foreign exchange rates at the balance sheet date are used
to convert the cash fl ows into Hong Kong dollars.
Total
contractual
Carrying undiscounted
cash fl ow
amount
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year but
less than
2 years
HK$ million
More than
2 years but
less than
5 years
HK$ million
More than
5 years
HK$ million
The Group
As at 31 December 2007
Derivative settled net
Interest rate swap
Derivative settled gross
Forward foreign exchange contracts
Outfl ow
Infl ow
Cross currency and net basis swaps
Outfl ow
Infl ow
As at 31 December 2006
Derivative settled net
Interest rate swap
Derivative settled gross
Forward foreign exchange contracts
Outfl ow
Infl ow
Cross currency and net basis swaps
Outfl ow
Infl ow
(2)
3
13
(3)
1
(39)
41
–
2
8
31
(201)
206
(1,659)
1,707
(83)
85
(57)
64
(34)
35
(52)
64
(84)
86
(1,550)
1,579
–
–
–
–
33
7
1
4
21
(185)
191
(1,731)
1,767
(34)
35
(59)
65
(34)
35
(56)
64
(103)
106
(168)
191
(14)
15
(1,448)
1,447
At the balance sheet date, the Company has no contractual maturity for any derivative fi nancial instruments.
(iii) 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
fi nancial 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 21 for details). As at 31 December 2007, about 60.1% of the Group’s gross debts
were effectively on a fl oating 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 fi xed rates and fl oating rates within an appropriate range.
Accordingly, the Group entered into (i) interest rate swaps to hedge the interest rate risk of the Group’s fl oating rate borrowings
including bank loans and fl oating rate notes; and (ii) cross currency swaps and an interest rate swap to hedge the interest rate
risk of certain amounts of the Group’s fi xed rate notes.
124
Hysan Annual Report 2007
34. FINANCIAL INSTRUMENTS continued
(b) Financial risk management objectives and policies continued
(iii) Interest rate risk continued
Sensitivity analysis
The sensitivity analysis below has been determined assuming that the change in interest rates had occurred at the balance
sheet date and had been applied to both derivative and non-derivative fi nancial instruments that would have affected the profi t
or loss and equity. A change of 75 basis points (“bps”) was applied to the yield curves at respective balance sheet date.
As at 31 December 2007
As at 31 December 2006
The Group
Increase (decrease)
in profi t or loss
Increase (decrease)
in equity
75 bps
increase
HK$ million
75 bps
decrease
HK$ million
75 bps
increase
HK$ million
75 bps
decrease
HK$ million
2
4
(2)
(5)
1
1
(1)
(1)
(iv) Currency risk
The Group aims to minimise 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. As at 31 December 2007, all of the Group’s debts were denominated in Hong Kong dollars with the exception of the
US$182 million 10-year fi xed rate notes. The Group has entered into appropriate hedging instruments to hedge against the
potential currency risk (see note 21). Other than the 10-year fi xed rates notes, the Group has no other signifi cant currency risk.
Sensitivity analysis
The sensitivity analysis below has been determined assuming that a change in exchange rate had occurred at the balance sheet
date and had been applied to both derivative and non-derivative fi nancial instruments that would have affected the profi t or loss
and equity. A change of 300 bps was applied to the HKD:USD spot and forward rates at respective balance sheet date with the
upper and lower boundaries at 7.75 and 7.85 respectively for the spot rate.
As at 31 December 2007
As at 31 December 2006
The Group
Increase (decrease)
in profi t or loss
Increase (decrease)
in equity
300 bps
increase
HK$ million
300 bps
decrease
HK$ million
300 bps
increase
HK$ million
300 bps
decrease
HK$ million
2
1
(2)
(1)
1
1
(1)
(1)
(v) Equity price risk
The Group’s available-for-sale investments and held for trading 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 2007, the
Group has outstanding equity derivatives. The equity derivatives are not designated as hedging instrument and hence are
measured at fair value through profi t or loss.
Sensitivity analysis
The sensitivity analysis below has been determined assuming that a change in the corresponding equity prices had occurred at
the balance sheet date and had been applied to both the derivatives and the investments that would have affected the profi t or
loss and equity. A change of 10% in stock prices was applied at respective balance sheet date.
As at 31 December 2007
As at 31 December 2006
The Group
Increase (decrease)
in profi t or loss
Increase (decrease)
in equity
10%
increase
HK$ million
10%
decrease
HK$ million
10%
increase
HK$ million
10%
decrease
HK$ million
(10)
(4)
9
4
251
168
(251)
(168)
Hysan Annual Report 2007 125
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Notes to the Financial Statements continued
For the year ended 31 December 2007
34. FINANCIAL INSTRUMENTS continued
(c) Fair value
The fair value of fi nancial assets and fi nancial liabilities are determined as follows:
•
•
•
the fair value of listed investments classifi ed as held for trading and available-for-sale investments and other fi nancial assets
and fi nancial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference
to the published price quotations;
the fair value of other fi nancial assets and fi nancial liabilities (excluding derivative instruments) are determined in accordance
with generally accepted pricing models based on discounted cash fl ow analysis using prices from observable current market
transactions; and
the fair value of derivative instruments are calculated using quoted prices from independent fi nancial institutions or using
discounted cash fl ow analysis based on the applicable yield curves and foreign exchange rates. For the Company’s share
options, the fair value is estimated using Black-Scholes option pricing model.
The Directors consider that the carrying amounts of non-derivative fi nancial assets and fi nancial liabilities approximate their fair
value, except for the carrying amount of US$182 million (approximate to HK$1,362 million) fi xed rate notes as stated in note 21
with fair value of US$198 million (approximate to HK$1,543 million).
35. RETIREMENT BENEFITS PLANS
With effect from 1 December 2000, the Group set up an enhanced MPF scheme (the “Enhanced MPF Scheme”), a defi ned
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 fi xed percentages of
members’ salaries, ranging from 5% of MPF Relevant Income to 15% of basic salary. Members’ mandatory contributions are
fi xed at 5% of MPF Relevant Income, in compliance with MPF legislation.
Total contributions made by the Group during the year amounted to HK$5 million (2006: HK$5 million). Forfeited contributions
for the year amounted to HK$3 million (2006: HK$3 million) were refunded to the Group.
36. CONTINGENT LIABILITIES
At the balance sheet date, there were contingent liabilities in respect of the following:
Corporate guarantee to a third party in respect of
the sale of the interest in an associate
Corporate guarantee to subsidiaries
– for issue of fl oating rate notes
– for issue of fi xed rate notes
– for issue of zero coupon notes
Guarantees to banks for providing
fi nancing facilities to subsidiaries
The Group
The Company
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
–
–
–
–
–
–
4
–
–
–
–
–
–
4
550
1,420
430
2,400
550
1,415
430
2,395
720
720
37. CAPITAL COMMITMENTS
At the balance sheet date, the Group had the following capital commitments in respect of its investment properties:
Authorised but not contracted for
Contracted but not provided for
126
Hysan Annual Report 2007
The Group
2007
HK$ million
2006
HK$ million
1,006
134
1,012
153
38. LEASE COMMITMENTS
(a) As lessee
At the balance sheet date, 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 fi fth year inclusive
The Company
2007
HK$ million
2006
HK$ million
15
6
21
15
20
35
Operating lease payments represent rentals payable by the Company to its subsidiaries for its staff quarters and offi ce premises
which are negotiated and rental are fi xed for two years and three years respectively.
At the balance sheet date, the Group had no commitment under non-cancellable operating lease.
(b) As lessor
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
Within one year
In the second to fi fth year inclusive
Over fi ve years
The Group
2007
HK$ million
2006
HK$ million
1,104
1,468
10
2,582
831
1,134
53
2,018
Operating lease payments represent rentals receivable by the Group from leasing of its investment properties. Leases are
negotiated and rentals are fi xed for an average of one to three years.
39. RELATED PARTY TRANSACTIONS AND BALANCES
(a) Transactions and balances with related parties
The Group has the following transactions with related parties during the year and has the following balances with them at the
balance sheet date:
Gross rental income received from (Note a)
Construction cost payable to (Note b)
Amount due to a minority shareholder (Note c)
The Group
Substantial shareholders
Directors
2007
HK$ million
2006
HK$ million
2007
HK$ million
2006
HK$ million
6
–
–
6
–
–
26
–
94
23
2
94
Notes:
(a) The sum of transactions with Directors represented the aggregate gross rental income received under various leases respectively with a Director
of approximately HK$754,000 (2006: HK$407,000), and companies controlled by Directors or their associates in aggregate of approximately
HK$25,199,000 (2006: HK$22,876,000).
(b) Dr. Geoffrey Meou-tsen Yeh and his alternate, V-nee Yeh, were substantial shareholders (and V-nee Yeh was 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. During the year ended 31 December 2007,
Dr. Geoffrey Meou-tsen Yeh and his alternate, V-nee Yeh, have disposed certain of their interests in Hsin Chong Construction Group Ltd. and
thereafter they were interested in less than 5% of the issued share capital of Hsin Chong Construction Group Ltd.
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.
(c) The sum represented outstanding loan advanced to a non wholly-owned subsidiary of the Group, Barrowgate Limited (“Barrowgate”) by Jebsen
and Company Limited, of which Hans Michael Jebsen is a director and shareholder, as shareholders loan in proportion to its shareholding in
Barrowgate for general funding purpose. The amount is unsecured, interest-free and repayable on demand.
Hysan Annual Report 2007 127
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Notes to the Financial Statements continued
For the year ended 31 December 2007
39. RELATED PARTY TRANSACTIONS AND BALANCES continued
(a) Transactions and balances with related parties continued
The Company has the following balances with its subsidiaries at the balance sheet date:
Amounts due from subsidiaries
Less: Allowances on amounts due therefrom
Amounts due to subsidiaries
The Company
2007
HK$ million
2006
HK$ million
13,039
(258)
12,781
42
13,346
(329)
13,017
104
Details of amounts due from/to subsidiaries are disclosed in note 23 to the fi nancial statements.
(b) 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 benefi ts
Share-based payments
Retirement benefi ts scheme contributions
2007
HK$ million
2006
HK$ million
17
3
1
21
24
3
1
28
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.
40. SHARE-BASED PAYMENT TRANSACTIONS
(a) Equity-settled share option schemes
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.
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 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 fi xed 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 paid on each grant
of option was 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 had a holding period of 2 years and a vesting period of 5 years.
128
Hysan Annual Report 2007
40. SHARE-BASED PAYMENT TRANSACTIONS continued
(a) Equity-settled share option schemes continued
The 2005 Share Option Scheme (the “2005 Scheme”)
The Company adopted the 2005 Scheme (together with the 1995 Scheme are referred to as the “Schemes”) at its 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 benefi t 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 fi ve 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$1.00, with full payment for exercise price to be made on
exercise of the relevant option.
(b) Grant and vesting structures
With effect from 8 March 2005, the Board has approved a new grant and vesting structure. Grants will be made on a periodic basis.
Vesting period is three years in equal proportion. Size of grant will be determined by reference to base salary multiple and job
grades. A clear performance criterion will be a key driver. The Board will review the grant and vesting structures from time to time.
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Hysan Annual Report 2007 129
Notes to the Financial Statements continued
For the year ended 31 December 2007
40. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Directors and employees during the
current year:
Date
of grant
Exercise
price
HK$
Exercisable
period
Balance
as at
1.1.2007
Changes during the year
Granted Exercised
Cancelled/
Balance
as at
lapsed 31.12.2007
7.1.1999
9.22
7.1.2001 – 1,350,000
– (1,350,000)
–
–
30.3.2005
15.85
6.1.2009
30.3.2005 –
29.3.2015
(Note g)
401,333
–
(77,666)
(20,000) 303,667
(Note h)
(Note j)
6.3.2007
21.38
(Note e)
6.3.2007 –
5.3.2017
– 235,000
–
– 235,000
Name
1995 Scheme
Executive Director
Peter Ting Chang Lee
(Note a)
Eligible employees
(Note b)
2005 Scheme
Executive Directors
Peter Ting Chang Lee
(Note c)
Michael Tze Hau Lee
(Note d)
10.5.2005
16.60
30.3.2006
22.00
6.3.2007
Pauline Wah Ling Yu Wong
(Note c)
6.3.2007
21.38
(Note e)
21.38
(Note e)
Eligible employees
(Note b)
9.8.2005
18.79
10.5.2005 –
9.5.2015
30.3.2006 –
29.3.2016
6.3.2007 –
5.3.2017
6.3.2007 –
5.3.2017
9.8.2005 –
8.8.2015
240,000
–
(80,000) (160,000)
(Note i)
(Note j)
188,000
–
– (188,000)
(Note j)
– 185,000
– (185,000)
(Note j)
–
–
–
– 108,000
–
– 108,000
96,000
12.10.2005
18.21 12.10.2005 –
11.10.2015
120,000
30.3.2006
22.00
26.6.2006
20.11
30.3.2006 –
29.3.2016
26.6.2006 –
25.6.2016
325,000
110,000
–
–
–
–
–
(96,000)
(Note j)
– (120,000)
(Note j)
–
–
– (106,000) 219,000
(Note j)
–
– 110,000
30.3.2007
21.25
(Note f)
30.3.2007 –
29.3.2017
– 335,000
–
(13,000) 322,000
(Note j)
2,830,333 863,000 (1,507,666) (888,000) 1,297,667
130
Hysan Annual Report 2007
40. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options continued
Notes:
(a) Options granted to Peter Ting Chang Lee had a holding period of 2 years and a vesting period of 5 years.
(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.
(c) Options granted to Peter Ting Chang Lee and Pauline Wah Ling Yu Wong have a vesting period of 3 years in equal proportions.
(d) Options granted to Michael Tze Hau Lee had a vesting period of 3 years in equal proportions. Michael Tze Hau Lee stepped down from the
Board of the Company as from the conclusion of 2007 annual general meeting held on 8 May 2007.
(e) The closing price of the shares of the Company immediately before the date of grant (as of 5 March 2007) was HK$20.50.
(f) The closing price of the shares of the Company immediately before the date of grant (as of 29 March 2007) was HK$21.30.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$19.60.
(h) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was
HK$21.09.
(i) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$21.20.
(j) The options for 888,000 shares lapsed during the year upon the stepping down of Michael Tze Hau Lee and resignations of certain eligible
employees.
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Hysan Annual Report 2007 131
Notes to the Financial Statements continued
For the year ended 31 December 2007
40. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and employees in prior year:
Name
1995 Scheme
Executive Director
Peter Ting Chang Lee
(Note a)
Date
of grant
Exercise
price
HK$
Exercisable
period
Balance
as at
1.1.2006
Changes during the year
Granted Exercised
Cancelled/
Balance
as at
lapsed 31.12.2006
7.1.1999
9.22
7.1.2001 – 1,350,000
–
–
– 1,350,000
Eligible employees
30.3.2005
15.85
(Note b)
2005 Scheme
Executive Director
Michael Tze Hau Lee
(Note c)
10.5.2005
16.60
30.3.2006
22.00
(Note d)
Eligible employees
9.8.2005
18.79
(Note b)
6.1.2009
30.3.2005 –
29.3.2015
10.5.2005 –
9.5.2015
30.3.2006 –
29.3.2016
9.8.2005 –
8.8.2015
535,000
– (128,267)
(5,400) 401,333
(Note f)
(Note h)
240,000
–
– 188,000
–
–
– 240,000
– 188,000
144,000
–
(48,000)
–
96,000
(Note g)
12.10.2005
18.21 12.10.2005 –
120,000
–
–
– 120,000
11.10.2015
30.3.2006
22.00
(Note d)
30.3.2006 –
29.3.2016
26.6.2006
20.11
(Note e)
26.6.2006 –
25.6.2016
– 361,000
–
(36,000) 325,000
(Note h)
– 110,000
–
– 110,000
2,389,000 659,000 (176,267)
(41,400) 2,830,333
Notes:
(a) Options granted to Peter Ting Chang Lee had a holding period of 2 years and a vesting period of 5 years.
(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.
(c) Options granted to Michael Tze Hau Lee had a vesting period of 3 years in equal proportions.
(d) The closing price of the shares of the Company immediately before the date of grant (as of 29 March 2006) was HK$22.45.
(e) The closing price of the shares of the Company immediately before the date of grant (as of 23 June 2006) was HK$20.25.
(f) 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.
(g) 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.
(h) The options for 41,400 shares lapsed during the year upon resignations of certain eligible employees.
132
Hysan Annual Report 2007
40. SHARE-BASED PAYMENT TRANSACTIONS continued
(d) Fair values of share options
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 2006. 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 share options reserve. In the
current year, the Group recognised the share option expenses of HK$4 million (2006: HK$4 million) in relation to share options
granted by the Company, of which HK$1 million (2006: HK$1 million) related to the Directors (see note 8), with a corresponding
adjustment recognised in the Group’s share options reserve.
The fair values of share options granted by the Company were determined by using Black-Scholes option pricing model (the
“Model”). 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 management’s 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. The inputs into the Model were 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)
Expected dividend per annum (Note d)
Estimated fair value per share option
30.3.2007
6.3.2007
26.6.2006
30.3.2006
Date of grant
HK$21.25
HK$21.25
4.192%
10 years
29.53%
HK$0.416
HK$7.47
HK$20.80
HK$21.38
4.188%
10 years
30.12%
HK$0.416
HK$7.21
HK$20.00
HK$20.11
4.915%
10 years
32.00%
HK$0.392
HK$7.81
HK$22.00
HK$22.00
4.539%
10 years
27.04%
HK$0.390
HK$7.78
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, 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 shares 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 fi ve fi nancial years.
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Hysan Annual Report 2007 133
Notes to the Financial Statements continued
For the year ended 31 December 2007
41. PRINCIPAL SUBSIDIARIES
Name of subsidiary
Admore Investments Limited
Golden Capital Investment Limited
HD Treasury Limited
Hysan (MTN) Limited
Hysan China Holdings Limited
Hysan Leasing Company Limited
Hysan Property Management Limited
Hysan Treasury Limited
Kwong Hup Holding Limited
Kwong Wan Realty Limited
Minsal Limited
Mondsee Limited
Stangard Limited
Teamfi ne 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
British Virgin
Islands/
Hong Kong
British Virgin
Islands
Hong Kong
Hong Kong
Hong Kong
British Virgin
Islands
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
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
indirectly
directly
Issued
share capital
HK$2
HK$2
HK$2
US$1
100%
100%
100%
100%
HK$1
100%
HK$2
HK$2
HK$2
HK$1
HK$1,000
HK$2
HK$2
HK$300,000
HK$2
HK$2
HK$2
HK$1
HK$1
HK$1
HK$1
HK$10
HK$2
HK$2
HK$2
HK$2
HK$20
HK$10,000
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
65.36%
Principal activities
Investment holding
Investment holding
Treasury operation
Treasury operation
Investment holding
Leasing administration
Property management
Treasury operation
Investment holding
Property investment
Property investment
Property investment
Provision of
security services
Investment holding
Property investment
Resident club
management
Property investment
Property development
Investment holding
Capital market
investment
Property investment
Property investment
Investment holding
Property investment
Property investment
Property investment
Property investment
The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length and
therefore the above table contains only those subsidiaries which materially contribute to the net income of the Group or hold a
material portion of the assets or liabilities or otherwise are operating subsidiaries of the Group. Other than fl oating rate notes,
fi xed rate notes and zero coupon notes issued by Hysan (MTN) Limited as disclosed in note 29, none of the subsidiaries had
issued any debt securities at the balance sheet date.
134
Hysan Annual Report 2007
Five-Year Financial Summary
2007
HK$ million
2006
HK$ million
2005
HK$ million
2004
HK$ million
(restated)
2003
HK$ million
(restated)
Results
Turnover
Property expenses
Gross profi t
Investment income
Other gains and losses
Administrative expenses
Finance costs
Change in fair value of
investment properties
Share of results of associates
Release of negative goodwill
of associates
Reversal of impairment loss
recognised in respect of
investments in securities
Profi t before taxation
Taxation
Profi t for the year
Minority interests
Profi t attributable to equity holders
of the Company
Underlying profi t for the year
Recurring underlying profi t for the year
Dividends
Dividends paid
Dividends proposed
Dividends per share (HK cents)
Earnings per share (HK$), based on:
Profi t for the year
– basic
– diluted
Underlying profi t for the year
– basic
Recurring underlying profi t for the year
– basic
Performance Indicators
Net debt to equity
Net interest coverage (times)
Net assets value per share (HK$)
Adjusted net assets value
per share (HK$)
Net debt per share (HK$)
Year end share price (HK$)
1,368
(208)
1,160
98
302
(106)
(175)
3,131
452
–
–
4,862
(745)
4,117
(168)
3,949
1,158
950
549
498
60.00
3.75
3.75
1.10
0.90
6.8%
7.8x
30.51
33.81
2.29
22.25
1,268
(240)
1,028
147
201
(111)
(163)
2,576
120
–
–
3,798
(558)
3,240
(141)
3,099
1,012
755
474
422
50.00
2.94
2.94
0.96
0.72
7.9%
6.9x
26.37
29.12
2.31
20.35
1,250
(237)
1,013
38
(25)
(103)
(214)
4,226
241
–
–
5,176
(856)
4,320
(199)
4,121
1,005
641
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
27
15
(96)
(162)
–
39
2
63
783
(140)
643
(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
25
48
(92)
(168)
–
10
2
–
725
(165)
560
(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
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Hysan Annual Report 2007 135
Five-Year Financial Summary continued
Defi nitions:
(1) Underlying profi t for the year: profi t adjusted for group’s share of unrealised fair value changes on investment properties net of deferred tax
(2) Recurring underlying profi t for the year: underlying profi t adjusted for aggregate of realised gain or loss on disposal of investment properties and
available-for-sale investments, impairment, reversal, recovery and prior year tax provision
(3) Net debt to equity: borrowings less cash and cash equivalents divided by adjusted shareholders’ funds
(4) Net interest coverage: gross profi t less administrative expenses before depreciation divided by net interest expenses
(5) Net assets value/Adjusted net assets value per share: shareholders’ funds / adjusted shareholders’ funds divided by number of issued shares at
year end
(6) Net debt per share: borrowings less cash and cash equivalents divided by number of issued shares at year end
(7) Adjusted shareholders’ funds: shareholders’ funds adjusted for cumulative deferred tax provided for fair value changes on properties
Assets and Liabilities
Investment properties
Interests in associates
Available-for-sale investments
Time deposit, cash and bank balances
Other assets
Total assets
Borrowings
Taxation
Other liabilities
Total liabilities
Net assets
Minority interests
Shareholders’ funds
Adjusted shareholders’ funds
2007
HK$ million
2006
HK$ million
2005
HK$ million
2004
HK$ million
(restated)
2003
HK$ million
(restated)
35,711
1,601
2,479
484
615
40,890
(2,861)
(4,180)
(1,001)
(8,042)
32,848
(1,196)
31,652
35,072
32,473
1,272
1,745
385
378
36,253
(2,821)
(3,574)
(950)
(7,345)
28,908
(1,080)
27,828
30,729
29,815
1,147
1,256
1,402
371
33,991
(4,301)
(3,077)
(960)
(8,338)
25,653
(986)
24,667
27,134
27,917
855
1,018
22
335
30,147
(5,603)
(2,332)
(815)
(8,750)
21,397
(831)
20,566
22,399
24,162
850
941
15
302
26,270
(5,914)
(1,708)
(779)
(8,401)
17,869
(642)
17,227
18,553
Note:
The fi gures for 2003 and 2004 have been restated to refl ect the prior year adjustments arising from (i) reclassifi cation of certain investment properties
of the Group to property, plant and equipment as a result of the application of HKAS 40 “Investment Property”; (ii) recognition of deferred taxation in
respect of revalued investment properties in accordance with HK(SIC)INT-21 “Income Taxes – Recovery of Revalued Non-Depreciable Assets”; and
(iii) reclassifi cation of leasehold interests in land to prepaid lease payments under operating leases according to HKAS 17 “Leases”.
136
Hysan Annual Report 2007
Report of the Valuer
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual revaluation of investment properties as at 31 December 2007
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 investment
properties as at 31 December 2007 was in the approximate sum of Hong Kong Dollars Thirty Five Billion Seven Hundred Eleven
Million Only (i.e. HK$35,711 million).
The investment 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, 5 March 2008
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Hysan Annual Report 2007 137
Schedule of Principal Properties
As at 31 December 2007
INVESTMENT PROPERTIES
Address
Lot No.
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%
I.L. 8624
Residential
Long lease
100%
Commercial
Long lease
65.36%
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
Sec. B, C and the R.P. of I.L. 1451
Commercial
Long lease
100%
I.L. 1452, the R.P. of I.L. 472 and 476
Commercial
Long lease
100%
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%
Sec. N of I.L. 457 and Sec. LL of I.L. 29
Commercial
Long lease
100%
1.
2.
3.
4.
5.
6.
7.
Bamboo Grove
74-86 Kennedy Road
Mid-Levels
Hong Kong
Lee Gardens Two
28 Yun Ping Road
Causeway Bay
Hong Kong
Leighton Centre
77 Leighton Road
Causeway Bay
Hong Kong
Lee Theatre Plaza
99 Percival Street
Causeway Bay
Hong Kong
Sunning Plaza
10 Hysan Avenue
Causeway Bay
Hong Kong
Sunning Court
8 Hoi Ping Road
Causeway Bay
Hong Kong
8. One Hysan Avenue
1 Hysan Avenue
Causeway Bay
Hong Kong
9.
AIA Plaza
18 Hysan Avenue
Causeway Bay
Hong Kong
10. 111 Leighton Road
Sec. KK of I.L. 29
Commercial
Long lease
100%
111 Leighton Road
Causeway Bay
Hong Kong
11. 500 Hennessy Road *
Causeway Bay
Hong Kong
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 above ground had been completed and site formation
work is currently underway. The site has a registered site area of approximately 47,738 square feet. The new development has a projected gross
fl oor area of around 710,000 square feet and is projected for completion in 2011.
138
Hysan Annual Report 2007
Shareholding Analysis
SHARE CAPITAL
As at 31 December 2007:
Authorised share capital: HK$7,250,000,000, comprising 1,450,000,000 ordinary shares of HK$5.00 each.
Issued and fully paid-up capital: HK$5,187,348,780 comprising 1,037,469,756 ordinary shares of HK$5.00 each.
Class of shares: one class of ordinary shares of HK$5.00 each with equal voting rights.
DISTRIBUTION OF SHAREHOLDINGS
(as at 31 December 2007, as per register of members of the Company)
Size of registered shareholdings
5,000 or below
5,001 – 50,000
50,001 – 100,000
Above 100,000
Total
No. of
shareholders
% of
shareholders
No. of % of the issued
share capital
shares
(Note a)
2,626
1,015
92
82
3,815
4,896,259
68.83%
15,575,533
26.61%
2.41%
6,918,771
2.15% 1,010,079,193
0.47%
1.50%
0.67%
97.36%
100% 1,037,469,756
100%
TYPES OF SHAREHOLDERS
(as at 31 December 2007, as per register of members of the Company)
Type of shareholders
Lee Hysan Company Limited, Lee Hysan Estate Company, Limited
and their subsidiaries
Other corporate shareholders
Individual shareholders
Total
LOCATION OF SHAREHOLDERS
(as at 31 December 2007, as per register of members of the Company)
Location of shareholders
Hong Kong
United States and Canada
United Kingdom
Singapore
Others
Total
shares held
Number of % of the issued
share capital
(Note a)
433,130,735
555,623,745
48,715,276
41.75%
53.55%
4.70%
1,037,469,756
100%
shares held
Number of % of the issued
share capital
(Note a)
1,031,916,417
4,289,319
1,131,330
65,042
67,648
99.46%
0.41%
0.11%
0.01%
0.01%
1,037,469,756
100%
Hysan Annual Report 2007 139
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Shareholding Analysis continued
TOP 10 LARGEST SHAREHOLDERS
(as at 31 December 2007, as per register of members of the Company)
No. Name of shareholder
Atlas Corporate Management Limited (Note b)
Lee Hysan Estate Company, Limited (Note b)
Kenwin Assets Limited (Note b)
1. HKSCC Nominees Limited
2.
3.
4. Overton Holdings Limited (Note b)
5.
6. Hang Seng (Nominee) Limited
7. Clipperton Company Limited (Note b)
Besticom Investment Limited (Note b)
8.
Shanghai Commercial Bank (Nominees) Limited
9.
10. Gowin Investments Limited (Note b)
shares held
Number of % of the issued
share capital
(Note a)
521,178,555
270,118,724
43,902,720
43,902,720
39,809,001
18,577,014
17,019,739
8,834,176
8,392,080
3,740,105
50.24%
26.04%
4.23%
4.23%
3.84%
1.79%
1.64%
0.85%
0.81%
0.36%
Total
975,474,834
94.03%
Notes:
(a) The percentages have been compiled based on the total number of shares of the Company in issue as at 31 December 2007
(i.e. 1,037,469,756 ordinary shares).
(b) These are wholly-owned subsidiaries of Lee Hysan Company Limited, a substantial shareholder of the Company (see “Substantial Shareholders’
and Other Persons’ Interests in Shares” section in Directors’ Report).
140
Hysan Annual Report 2007
Shareholder Information
FINANCIAL CALENDAR
Full year results announced
Ex-dividend date for fi nal dividend
Closure of register of members
Annual General Meeting
Record date for fi nal dividend
Dispatch of scrip dividend circular and election form
Dispatch of fi nal dividend warrants / defi nitive share certifi cates
2008 interim results to be announced
* subject to change
DIVIDEND
The Board recommends the payment of a fi nal dividend of
HK48 cents per share. Subject to shareholder approval, the
fi nal dividend will be payable in cash with a scrip dividend
alternative to shareholders on the register of members as at
Wednesday, 14 May 2008. 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
Wednesday, 21 May 2008. 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 Wednesday, 11 June 2008.
Defi nitive share certifi cates in respect of the scrip dividend
and cheques (for those shareholders who do not elect for
scrip dividend) will be dispatched to shareholders on or
about Wednesday, 18 June 2008.
The register of members will be closed from Friday, 9 May
2008 to Wednesday, 14 May 2008, both dates inclusive,
for the purpose of determining shareholders’ entitlements
to the proposed fi nal dividend and during which period no
transfers of shares will be registered. In order to qualify for the
proposed fi nal dividend, all transfer documents accompanied
by the relevant share certifi cates must be lodged with the
Company’s Registrars not later than 4:00 p.m. on Thursday,
8 May 2008.
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.
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
13 March 2008
7 May 2008
9 to 14 May 2008
14 May 2008
14 May 2008
(on or about) 21 May 2008
(on or about) 18 June 2008
5 August 2008 *
SHAREHOLDER SERVICES
For enquiries about share transfer and registration, please
contact the Company’s Registrars:
Tricor Standard 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 diffi culty 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:
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”
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2007 Annual Report
stock code: 00014
Hysan Development Company Limited
49/F The Lee Gardens
33 Hysan Avenue, Hong Kong
T 852 2895 5777 F 852 2577 5153
www.hysan.com.hk