Building for Quality 2008 ANNUAL REPORT
Stock Code: 00014
2008 was a most eventful year for the
wider economy, while Hysan returned
another year of good performance amidst
the changing conditions.
To provide a clear picture of Hysan in
2008, this Annual Report is divided
into four sections: an overview of our
Company and business, how we put
our strategy into action, how we further
strengthened our governance, and
our financial results. We believe this
arrangement will help the reader to
better understand Hysan as a whole and
our efforts during the year to develop
further as a successful and responsible
business.
Cover: While the designs of our building features evolve over time,
their underlying quality remains unchanged. This commitment to
provide the best of products and services guides our way forward.
Contents
1.
Overview
2.
Our Strategy
in Action
14 Market Overview
16
Investment Properties Portfolio
18 Management’s Discussion and Analysis
18 Operations Review
20 Financial Review
30 Financial Policy
34
Internal Controls and Risk Management
37 Human Resources
4.
Financial
Statements and
Valuation
76 Directors’ Responsibilities for the
Financial Statements
77
Independent Auditor’s Report
78 Financial Statements
133 Five-Year Financial Summary
135 Report of the Valuer
136 Schedule of Principal Properties
04 Hysan Today
07 Year 2008 in Review
10 Chairman’s Statement
3.
Our Governance
40 Board of Directors and Senior
Management
44 Corporate Governance Report
59 Directors’ Report
66 Directors’ Remuneration and
Interests Report
73 Audit Committee Report
137 Shareholding Analysis
02 Hysan Annual Report 2008
1.
Overview
04 Hysan Today
07 Year 2008 in Review
10 Chairman’s Statement
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This section focuses on Hysan’s mission,
competitive advantages, corporate values
and other background information about
who we are and what we do. It also
highlights our performance in 2008,
as well as provides our Chairman’s
statement on how Hysan is building for
the future.
Hysan Annual Report 2008 03
Hysan Annual Report 2008 03
Overview
Hysan Today
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 our 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 2008
Responsible Business as the Guiding Principle
Hysan aims to be a successful as well as responsible
business. We pay attention not only to the results achieved,
but also to how we deliver the same. The principle of
being a responsible business is at the heart of our
Company.
Our Corporate Values
I Take Pride
I Forge Ahead
We foster the highest business ethics and
accountability. At Hysan, we take pride in our
work, acknowledge responsibility for our actions
and endeavour to complete our tasks in the
right way.
Our thought leadership applies to all strategic
and operational issues in the quest to create
innovative solutions through collective insight.
We aim to take a market leadership position in
whatever we do.
Hysan maintains long-term and mutually
benefi cial partnerships with our shareholders,
clients, business partners, employees and the
community.
We take responsibility by giving back to
the community. This is achieved through
everyday business operations as well as active
participation in community activities.
I Share and Support
I Care
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Hysan Annual Report 2008 05
Overview Hysan Today
Overview
Value Creation
Recurring Underlying Profit
HK$ million
Underlying Profit
HK$ million
6
6
0
,
0 1
5
9
5
5
7
1
4
6 6
8
5
1,200
960
720
480
240
0
1
0
2
,
1
8
5
1
,
1
5
0
0
,
1
2
1
0
,
1
1,300
1,040
780
520
260
0
9
0
6
04 05 06 07 08
04 05 06 07 08
Adjusted Shareholders’ Funds
HK$ million
Recurring Underlying Earnings
per Share
HK cents
Dividends per Share
HK cents
,
4
3
1
7
9 2
9
3
2
2
,
40,000
32,000
24,000
16,000
8,000
0
,
2
7
0
5
9 3
2
7
0
3
,
0
6
6
4
3
,
120
96
72
48
24
0
0
0
6
5
.
.
0
6
1
4 7
9
0
6
.
.
0
0
8
0 6
0
0
6
.
.
7
5
2
0
1
2
3
0
9
.
80
64
48
32
16
0
0
0
0
5
.
0
0
5
4
.
0
0
0
4
.
04 05 06 07 08
04 05 06 07 08
04 05 06 07 08
06 Hysan Annual Report 2008
Year 2008 in Review
Highlights
• Group turnover up 19.7%
• Recurring Underlying Profi t up 12.2%
• Full-year dividends up 13.3%
• Balanced tenant base supports resilience
amidst a challenging 2009
• Strong balance sheet underlying our building
for the future
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Hysan Annual Report 2008 07
Overview Year 2008 in Review
Overview of the Group’s Financial Performance
TURNOVER
Offi ce
Retail
Residential
Others
2008
HK$ million
2007
HK$ million
CHANGE
HK$ million
703
608
292
35
567
505
262
34
1,638
1,368
136
103
30
1
270
• Group turnover rose by 19.7%
• Office sector revenue saw healthy growth, due mainly to positive rental reversion on renewals
• Sales growth helped retail rental rate increases and contributed to turnover rent
PROFIT INDICATORS
Recurring Underlying Profi t
Underlying Profi t
Statutory Profi t
2008
HK$ million
2007
HK$ million
CHANGE
HK$ million
1,066
1,201
1,594
950
1,158
3,949
116
43
(2,355)
CHANGE
%
+24.0%
+20.4%
+11.5%
+2.9%
+19.7%
CHANGE
%
+12.2%
+3.7%
-59.6%
• Recurring Underlying Profit increased due to higher rental rate and good occupancy, also reflected more prudent financial
investment strategy
• Underlying Profit change reflected smaller gains from disposal of long-term equity investments during the year
• Statutory Profit change reflected the impact of property revaluation
Recurring Underlying Profi t
Underlying Profi t
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).
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,
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.
Statutory Profi t
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.
ASSET VALUE INDICATORS
Total assets
Shareholders’ funds
Adjusted Shareholders’ Funds
2008
HK$ million
2007
HK$ million
CHANGE
HK$ million
41,536
31,469
34,660
40,890
31,652
35,072
646
(183)
(412)
CHANGE
%
+1.6%
-0.6%
-1.2%
• Shareholders’ funds reflected contribution from operating results as well as decrease in fair value associated with listed securities
portfolio
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.
08 Hysan Annual Report 2008
Key Financial Data
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$)
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
Non-financial Performance
ACCOMPLISHMENTS
AREAS
2008
2007
102.57
102.56
115.56
115.55
153.37
153.36
68.00
(9.11)
0.10
30.23
33.29
1.96
90.32
90.27
110.09
110.04
375.46
375.25
60.00
2.42
5.21
30.51
33.81
2.29
CHANGE
%
+13.6%
+13.6%
+5.0%
+5.0%
-59.2%
-59.1%
+13.3%
N/A
-98.1%
-0.9%
-1.5%
-14.4%
2008
2007
CHANGE
4.4%
5.9%
10.2X
59.5%
3.9 years
5.6%
6.8%
7.8X
60.1%
4.0 years
24.9% : 75.1% 24.7% : 75.3%
-1.2pp
-0.9pp
+2.4X
-0.6pp
N/A
N/A
Corporate
Governance
Continued to be recognised by industry for excellence in corporate governance, including the Diamond Award
(Non-Hang Seng Index Category) in the Hong Kong Institute of Certifi ed Public Accountant’s Best Corporate
Governance Disclosure Awards 2008, and also the Best Corporate Governance Practices in China Award for
2008, as presented by IR Global Rankings.
Corporate
Responsibility
Became a constituent member of the FTSE4Good Global Index, one of the best known indices to track
responsible business practices around the world.
Hysan Annual Report 2008 09
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Overview
Chairman’s Statement
Overview
Hong Kong maintained steady growth during the first half of 2008 despite growing concerns
about the global economy. The second half of the year saw a marked worsening of the global
environment, with the international financial system experiencing severe strain in the fourth
quarter. Hong Kong’s financial markets were adversely affected, with the impact being felt in the
real local economy.
Good Operating Performance and Strong Balance Sheet
Against this background, Hysan achieved another year of good operating performance in our
core leasing business. The Group’s 2008 turnover was HK$1,638 million, an increase of 19.7%
from 2007. Office sector turnover growth was 24.0%, while Retail followed closely at 20.4% and
Residential at 11.5%.
Recurring Underlying Profit, the key measurement of our core business performance, was
HK$1,066 million, up 12.2% from HK$950 million in 2007. This reflected our more prudent
financial investment strategy in light of market conditions. Earnings per share based on
Recurring Underlying Profit correspondingly rose to HK102.57 cents (2007: HK90.32 cents).
Underlying Profit, which excludes unrealised changes in fair value of investment properties and
related deferred tax, was HK$1,201 million (2007: HK$1,158 million). Year 2007 recorded
substantial gains derived from the disposal of long-term securities.
Statutory Profit was HK$1,594 million (2007: HK$3,949 million). This reflected the impact of
property revaluation.
We maintained a strong balance sheet, with improved net interest coverage (2008: 10.2 times;
2007: 7.8 times) and net debt to equity ratios (2008: 5.9%; 2007: 6.8%) signifying the Group’s
financial strength.
The external valuation of the Group’s investment property portfolio was HK$35,850 million, a
slight rise from HK$35,711 million in 2007. Adjusted shareholders’ funds were HK$34,660
million (2007: HK$35,072 million).
The Board of Directors recommends the payment of a final dividend of HK54.0 cents per share
(2007: HK48.0 cents). Together with the interim dividend of HK14.0 cents per share (2007:
HK12.0 cents), there is an aggregate distribution of HK68.0 cents per share, representing a year-
on-year increase of 13.3%. Subject to shareholder approval, the final dividend will be payable in
cash with a scrip dividend alternative.
“Hysan achieved another
year of good operating
performance in our core
leasing business.”
10 Hysan Annual Report 2008
Building for the Future
These are challenging times. However, with a strong balance sheet as our platform, we aim to
maintain our focus on building the future of our property investment business. Our strengthened
management team will enable us to continue to provide high quality products and services to
tenants and visitors alike.
We also took further steps to strengthen our internal controls and risk management. These
measures are further described elsewhere in this year’s Annual Report.
The development of 500 Hennessy Road, the future northern gateway of our community in
Causeway Bay, is in good progress. We believe this building will remain competitive for a long
time to come. Environmental sustainability, in particular, has been a key focus of our design and
planning considerations.
Directors and Staff
I would like to take this opportunity to express my sincere thanks to Pauline Wong, who retired
from the Company during the year, having served the Board since 1991. I would also like to
thank all our staff members for their dedication and hard work during the year.
Outlook
The global economic outlook will remain negative in 2009, and Hong Kong’s real economy is to
be further impacted. Hysan will inevitably be affected by the overall environment. However, the
longer-term contractual nature of our core leasing business, and our balanced tenant base with
no undue dependence on any particular business sector, mean that we should be more resilient
during these challenging times.
Peter T.C. LEE
Chairman
Hong Kong, 10 March 2009
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Hysan Annual Report 2008 11
12 Hysan Annual Report 2008
2.
Our Strategy
in Action
14 Market Overview
16 Investment Properties Portfolio
18 Management’s Discussion and
Analysis
18 Operations Review
20 Financial Review
30 Financial Policy
34 Internal Controls and
Risk Management
37 Human Resources
This section begins with an overview of
Hong Kong’s leasing market, leading to a
comprehensive look at how we operated
in 2008. It provides information on the
drivers behind our financial performance, in
terms of how we manage our operations,
finances, risks, as well as human talent.
It also showcases our portfolio, which
is instrumental in shaping a unique
community in Causeway Bay.
Hysan Annual Report 2008 13
Hysan Annual Report 2008 13
Hysan Annual Report 2008 13
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Our Strategy in Action
Market Overview
This market report intends to give general background rather than Group-specific information. Views expressed shall
not be regarded as providing any advice or recommendation for whatever purpose. For the Group’s performance –
see “Management’s Discussion and Analysis” section.
Hong Kong Economy
In the first half of 2008, the major statistics indicated strong economic growth in Hong Kong.
The overall economy, as measured by Gross Domestic Product (“GDP”), increased by 5.8% year-
on-year in the first half. During that six-month period, the unemployment rate reached a 10-year
low of 3.3% which supported the increasing trend on private consumption.
However, the impact of the global financial crisis started to emerge in the second half of 2008
and became more widespread and apparent in the fourth quarter. In the second quarter of 2008,
the growth of GDP began to slow down. The unemployment rate was 4.1% at the end of the year.
Even the concern on inflation has subsided as the inflation rate, which once reached 6.3% in July
2008, dropped to 2.1% in December 2008. Due to the reversal in the second half, economic
growth for the whole year of 2008 has slowed to 2.5%, compared with 6.4% in 2007.
Gross Domestic Product Year-on-Year Growth
(%)
.
0
2
1
7
7
.
9
7
.
6
6
.
.
7
8 4
3
.
14
12
10
8
6
4
2
0
-2
-4
1
4
.
9
0
.
-
1
1 8
.
.
2 7
6
.
0
9
.
9
6
.
1
6
.
4
6
.
7
6
.
6
5
.
7
1 6
6
.
.
9
6
.
3
7
.
3
4
.
7
1
.
5
2
.
-
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
03
04
05
06
07
08
Source: Census and Statistics Department
Office
Office take-up amounted to 2.0 million square feet net in the first half of 2008. As the adverse
impact of the global financial crisis filtered into Hong Kong, the office market recorded marginally
negative take-up (-19,141 square feet) in the second half of 2008. Hence, the full-year net take-up
remained at about 2.0 million square feet net, compared with 3.4 million square feet net in 2007.
The total new supply of Grade A offices in core districts remained limited, which, to some extent,
negated some of the negative impact of the reduced demand. During 2008, there was only
less than 0.2 million square feet net of new Grade A office projects completed in core districts,
compared with over 3.5 million square feet in decentralised areas which include Island East,
Kowloon West and Kowloon East.
14 Hysan Annual Report 2008
The overall vacancy rate rose to 6.9% in 2008. On the rental of Grade A office, a rise of 20.7% was seen in the first three quarters
of 2008, followed by a drop of 11% in the fourth quarter. As a result, the overall average rental rose by 7.4% in the full year of
2008, with Causeway Bay/Wanchai increasing by 13.5%.
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 overall Grade A Offi ce rents
Change in Causeway Bay/Wanchai Grade A Offi ce rents
(*) square feet net
Source: Jones Lang LaSalle
2008
2007
3,680,432
3.8%
2.9%
6.9%
+7.4%
+13.5%
3,302,070
1.6%
2.1%
5.1%
+21.6%
+12.4%
Retail
During the first half of 2008, the growth in domestic consumption and tourist arrivals continued the upward trend of the previous
year. Retail sales improved by 16% year-on-year in value during the six-month period. The growth of retail sales slowed to 0.8%
year-on-year in the fourth quarter of 2008, giving rise to an overall increase of 10.6% throughout the year.
In the tourism market, non-Mainland arrivals registered a drop of 5.9% year-on-year in the second half of 2008. Mainland visitors
have become a strong support to the retail sector as they still recorded consecutive increases in arrival numbers throughout the
second half of the year. This group of visitors accounted for 57% of the total arrivals in 2008.
For the year, rentals for prime street shops recorded a mild increase of 4.1%, while premium prime shopping centres saw a slight
decline of 0.3% in rentals.
Retail sales by value
Total visitor arrivals
Mainland visitor arrivals
Change in prime street shop rents
Change in premium prime shopping centre rents
2008
+10.6%
+4.7%
+8.9%
+4.1%
-0.3%
2007
+12.8%
+11.6%
+13.9%
+17.9%
+15.3%
Source: Jones Lang LaSalle, Census and Statistics Department and Hong Kong Tourism Board
Luxury Residential
Similar to the office and retail sectors, the Hong Kong residential leasing market performed satisfactorily in the early part of 2008.
After increasing by 10.4% during the first half, overall luxury rents fell 18.7% in the second half of the year. One of the major reasons
of the decline was attributable to the reduced demand from expatriates. Overall, luxury rentals decreased by 10.2% in 2008.
The potential supply for luxury units in traditional high-end districts on Hong Kong Island and Kowloon during 2009 is still on the
low side, which helps to alleviate some pressure from the reduced demand.
Change in luxury residential rents
Source: Jones Lang LaSalle
2008
-10.2%
2007
+17.6%
Hysan Annual Report 2008 15
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Our Strategy in Action
Investment Properties Portfolio
3 SUNNING PLAZA
Mid-Levels
CROSS HARBOUR TUNNEL
N
SOGO
10
HENNESSY ROAD
9
L
E
E
G
A
R
D
E
N
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O
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8
NORTH
POINT
JARDINE’S BAZAAR
2
4
1
YUN PING ROAD
E N U E
H Y S A N A V
3
LEIGHTON ROAD
5
11
LEIG H T O N R O A D
CENTRAL
TIMES SQUARE
P
E
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T
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6
7
D
A
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N R
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H
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L
Not to scale
ABERDEEN TUNNEL
Th rough decades of development, Hysan has created one of
Hong Kong’s best known commercial districts in Causeway
Bay, home to the effi cient offi ces of multinational corporations,
celebrated retail shops, and an eclectic collection of food, beverage
and entertainment outlets. Our buildings and our tenants have
fashioned a community that is like no other.
1 THE LEE GARDENS
Total Gross Floor Area 902,797 ft2
Number of Floors 53
Parking Spaces 200
Completed 1997
2 LEE GARDENS TWO
Total Gross Floor Area 626,996 ft2
Number of Floors 34
Parking Spaces 176
Completed 1992
Renovation of retail podium 2003
Total Gross Floor Area 279,717 ft2
Number of Floors 30
Parking Spaces 150
(jointly owned with Sunning Court)
Completed 1982
4 AIA PLAZA
Total Gross Floor Area 139,119 ft2
Number of Floors 25
Completed 1989
5 111 LEIGHTON ROAD
Total Gross Floor Area 79,905 ft2
Number of Floors 24
Completed 1988/Renovated 2004
6 LEE THEATRE PLAZA
Total Gross Floor Area 317,160 ft2
Number of Floors 26
Completed 1994
7 LEIGHTON CENTRE
Total Gross Floor Area 435,008 ft2
Number of Floors 28
Parking Spaces 264
Completed 1977/Renovated 2004
8 ONE HYSAN AVENUE
Total Gross Floor Area 169,019 ft2
Number of Floors 26
Completed 1976/Renovated 2002
9 500 HENNESSY ROAD
Estimated Total Gross Floor Area
Approx. 710,000 ft2
Projected Year of Completion 2011
10 BAMBOO GROVE
Total Gross Floor Area 691,546 ft2
Number of Units 345
Parking Spaces 436
Completed 1985/Renovated 2002
11 SUNNING COURT
Total Gross Floor Area 97,516 ft2
Number of Units 59
Parking Spaces 150
(jointly owned with Sunning Plaza)
Completed 1982/Renovated 2003
16 Hysan Annual Report 2008
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.
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.
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 some
trend-setting stores.
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.
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.
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.
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.
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.
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.
500 HENNESSY ROAD
500 Hennessy Road, Causeway Bay
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.
Hysan Annual Report 2008 17
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500 Hennessy Road
Hysan’s future
northern gateway
is now undergoing
construction.
Our Strategy in Action
Management’s Discussion and Analysis
Operations Review
Turnover
The Group’s turnover continued to grow and reached HK$1,638 million in 2008 despite the
challenging economic environment. Compared to HK$1,368 million last year, this represented an
increase of 19.7%. There were good performances across the Group’s property portfolio.
Profitability
Recurring Underlying Profit (the key measurement of the Group’s core leasing business), arrived
at by excluding from Statutory Profit asset value changes, gains from disposal of long-term
assets and prior years’ tax provision, was HK$1,066 million, up 12.2% from HK$950 million
in 2007. The increase was attributable to higher rental rate achieved and good occupancy rate
maintained by all leasing sectors during the year. It also reflects our more prudent financial
investment strategy in light of the market conditions.
Underlying Profit, arrived at by excluding from Statutory Profit the change in fair value of
investment properties and the related deferred tax, was HK$1,201 million, increased by 3.7%
from HK$1,158 million in 2007. This reflected smaller gains from disposal of long-term equity
investments during the year.
Statutory Profit, prepared in accordance with Hong Kong Financial Reporting Standards,
was HK$1,594 million, decreased by 59.6% from HK$3,949 million in 2007. In year 2007,
substantial fair value gain of HK$3,131 million was recorded. While the external valuation of
the Group’s investment property portfolio actually increased to HK$35,850 million as at year-
end 2008 (2007: HK$35,711 million), the Group incurred capital expenditures for investment
properties during the year. This results in a slight decrease in fair value of HK$212 million
recognised in the consolidated income statement.
Key Performance Indicators
While many factors contributed to the Group’s business results, turnover growth, occupancy
rate and property expenses trend are the key drivers used by the Group’s management for
assessment of the performance of our core leasing business. The nature of these performance
indicators, the way they are measured and their significance to the Group are set out below.
Key Performance Indicators
PERFORMANCE INDICATOR HOW IT IS MEASURED
SIGNIFICANCE TO THE GROUP
Turnover Growth
– Rental revenue in 2008
compared to that in 2007
– Refl ects the combined effect
of changes in rental rate and
occupancy rate
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
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
– Calculated by dividing property
expenses by turnover
– An indication of the gross
margin of our business
18 Hysan Annual Report 2008
Business Units Review
For management purposes, the leasing activity of the Group is organised into three sectors – office, retail and residential. Each
sector has a different tenant base and requires different marketing strategies. The following discusses our portfolio, strategies
and performance of each sector.
Office Sector
Description:
Hysan owns and manages 2.1 million gross square feet of high quality offi ce buildings in the
core commercial district of Causeway Bay. We offer a range of fi rst class premises with different
occupier characteristics, attracting a balanced, broad-based portfolio of tenants. The diversity
means no one industry takes up more than 25% of the overall fl oor area. Hysan’s offi ce lease
terms are typically for three years, but in some cases up to six to nine years in duration.
2008 Highlights:
– Offi ce sector revenue saw healthy growth of 24.0% to HK$703 million (2007: HK$567 million)
– This was attributable mainly to positive rental reversion on renewals throughout the year. Other
contributors included new tenants, as well as the expansion of existing tenants requiring more
space
– The portfolio had 97.5% (2007: 96.6%) occupancy at the end of the year
Retail Sector
Description:
Hysan’s retail portfolio, approximately 0.9 million gross square feet in size, takes full advantage
of its position in Causeway Bay, one of Hong Kong’s prime retail areas. The tenants include a
variety of retail and leisure outlets, housed in buildings like The Lee Gardens and Lee Gardens
Two, with a concentration of high end brands, or Lee Theatre Plaza area, home to lifestyle shops
and renowned restaurants. Retail leases normally run for three years, but longer leases may be
signed on a case-by-case basis. These leases provide for a fi xed monthly rent, with turnover rent
in most cases.
2008 Highlights:
– Retail sector revenue grew 20.4% over last year to HK$608 million (2007: HK$505 million)
– Good local consumption growth throughout 2008, even though the growth slowed down
somewhat in the second half of the year
– Tourists visiting Hong Kong, especially from Mainland China continued to increase in 2008
which supported the local retail market
– Sales growth in turn helped the rental rate increases and contributed to turnover rent
– Occupancy remained at 97.4% (2007: 97.8%) at the end of the year
Residential Sector
Description:
Our residential portfolio principally comprises of the Bamboo Grove residential development
located in Mid-Levels. We offer top quality facilities and personalised services. Residential
leases are typically for two years.
2008 Highlights:
– Residential sector revenue increased 11.5% to HK$292 million (2007: HK$262 million)
– Demand for luxury residential properties from expatriates, especially from the fi nancial sector,
weakened during the last quarter of the year
– Our residential portfolio recorded a 89.6% (2007: 90.2%) occupancy at the end of the year
amid such a challenging environment
Turnover by Sector
2%
18%
37%
43%
Gross Floor Area by Sector
Excluding Property Under
Redevelopment
21%
24%
55%
Capital Value by Sector
1%
15%
19%
37%
28%
Office
Retail
Residential
Property under Redevelopment
Others
Hysan Annual Report 2008 19
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Our Strategy in Action Management’s Discussion and Analysis
Financial Review
Understanding Financial Statements
To evaluate our ability to generate shareholder returns, we have provided
information that focuses on the Group’s fi nancial position, performance and
changes in fi nancial position through three indispensable components of
fi nancial statements. Th ey are:
• Income Statement – provides information about the Group’s
performance;
• Balance Sheet – provides information about the Group’s
fi nancial position; and
• Cash Flow Statement – provides information about the
Group’s change in fi nancial position.
The balance sheet summarises the Group’s fi nancial position
at every year end. Our financial position is affected by the
economic resources we control, our fi nancial structure (debts
and equity), our liquidity and solvency, and our capacity to adapt
to changes in the environment in which we operate. Broad
analysis is set out on pages 26 and 27.
The income statement summarises the Group’s performance
every financial year. Information about our performance is
essential, in particular our profi tability and trends, in order to
assess potential changes in the economic resources that we
are likely to control in the future. It is also useful in forming
judgments about the effectiveness with which the Group might
employ additional resources. Detailed analysis is set out on
pages 22 to 25.
The cash flow statement summarises the Group’s change in
fi nancial position every fi nancial year. This information is useful
in reviewing our operating, investing and financing activities
during the reporting year and in providing a basis to assess our
ability to generate cash and cash equivalents and our needs
to utilise those cash fl ows. Further analysis is set out on page
28.
INCOME STATEMENT
BALANCE SHEET
CASH FLOW STATEMENT
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
Minority interests
Statutory Profit attributable
to Equity Holders
Assets
Investment properties
Available-for-sale investments
Interests in associates
Accounts receivables
Cash and bank balances
Other assets
Liabilities
Accounts payable
Borrowings
Taxation
Other liabilities
Equity
Share capital
Reserves
Minority interests
Operating Activities
Rental received from tenants
Payment to suppliers
Net tax paid
Investing Activities
Payments in respect of
investment properties
Interest and dividends received
Receipts from (payment to)
overseas projects
Financing Activities
Payment of finance costs
Dividends paid
Additions (repayment) of borrowings
Consideration paid for repurchase
of shares
Proceeds on exercise of share
options
These three components of the financial statements are interrelated because they reflect different aspects of the same
transactions or events. Although each statement provides information that is different from the others, none is likely to serve only
a single purpose or provide all the information necessary for particular needs of users. The illustration above shows examples of
relationships between the income statement, balance sheet and cash fl ow statement.
20 Hysan Annual Report 2008
Key Accounting Policies
Th e turnover and results of the Group are principally derived from leasing of
investment properties located in Hong Kong and the aggregate carrying amount
of the Group’s investment properties accounts for over 85% of the Group’s total
assets. We believe that the explanation of our accounting treatment for investment
properties is valuable to the users to understand our fi nancial statements.
Why the Group’s investment properties are measured at fair
value?
For the measurement of investment properties, Hong Kong
Accounting Standard 40 “Investment Property” permits an
entity to choose either the fair value model or the cost model.
The chosen measurement model must be applied to all of the
entity’s investment properties.
• Fair value model – Investment property is measured at fair
value, and changes in fair value are recognised in the income
statement.
• Cost model – Investment proper ty is measured at
depreciated cost less any accumulated impairment losses.
The fair value of the investment property must still be
disclosed.
Measurement
of Investment
Properties
Fair Value Model
Change in fair value
recognised in income
statement
Cost Model
Depreciated cost less
any accumulated
impairment losses
The Group has selected the fair value model to measure its
investment properties as the fair value model provides useful
information about property held for rental, even if there is
no immediate intention to sell the property. The economic
performance of a property can be regarded as being made
up of both rental income earned during the period (net of
expenses) and changes in the value of future net rental
income. Furthermore, with the passage of time, cost-based
measurements become increasingly irrelevant. An aggregation
of costs incurred over a long period ago is of questionable
relevance.
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Any disadvantages in using fair value to measure the
Group’s investment properties?
Being a property investor, the Group’s results are mainly
derived from the rental revenues on its investment properties.
As the change in fair value on investment properties does
not generate cash and is inherently volatile, the inclusion of
the unrealised fair value change in the consolidated income
statement causes an increase in fluctuation 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, 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 upon disposal of the Group’s investment
properties. Accordingly, the change in fair value on investment
properties and the related deferred tax are both excluded from
Statutory Profit in arriving at other profit indicators given by
management, being Underlying Profi t and Recurring Underlying
Profi t.
Why the for mer Hennessy Centre (cur rently under
redevelopment) has not been transferred out of investment
property into property under development for the duration
of the redevelopment?
In the past, the Group held the former Hennessy Centre as
an investment property to earn rental income. In order to
maximise our shareholders’ wealth, the former Hennessy
Centre is now being redeveloped for continued future use as
investment property. The temporary transfer out of investment
property into property under development, which will be
measured at cost less any impairment losses, for the duration
of the redevelopment, would be of little or no benefi t to users
of the fi nancial statements and potentially confusing the user
of our financial statements. Therefore, the former Hennessy
Centre remains as in the Group’s investment property in the
fi nancial statements. This treatment also complied with Hong
Kong Accounting Standard 40 “Investment Property”.
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Hysan Annual Report 2008 21
Our Strategy in Action Management’s Discussion and Analysis
Condensed Consolidated Income Statement
For The Year Ended 31 December 2008
Condensed
Consolidated
Balance Sheet
Condensed
Consolidated
Cash Flow Statement
2008
HK$ million
2007
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
Recurring Underlying Profi t
1,638
(217)
63
146
(134)
(155)
(212)
590
(264)
263
(124)
1,594
1,201
1,066
1,368
(208)
98
302
(106)
(175)
3,131
452
(185)
(560)
(168)
270
(9)
(35)
(156)
(28)
20
(3,343)
138
(79)
823
44
3,949
(2,355)
1,158
950
43
116
+19.7
+4.3
- 35.7
- 51.7
+26.4
- 11.4
N/A
+30.5
+42.7
N/A
- 26.2
- 59.6
+3.7
+12.2
Turnover
Turnover comprises principally rental income derived from the Group’s investment properties
portfolio in Hong Kong and is analysed by sectors as follows:
Offi ce sector
Retail sector
Residential sector
Others
2008
HK$ million
2007
HK$ million
CHANGE
HK$ million
CHANGE
%
703
608
292
35
567
505
262
34
1,638
1,368
136
103
30
1
270
+24.0
+20.4
+11.5
+2.9
+19.7
The Group continued to have good performance across all leasing sectors in which it operated.
Detailed analysis of each segment is covered in “Business Units Review” set out on page 19.
22 Hysan Annual Report 2008
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.
While the total property expenses increased slightly by HK$9
million or 4.3% to HK$217 million (2007: HK$208 million), such
increase is significantly less than the relevant increase in turnover.
Property expenses to turnover ratio thus improved from 15.2%
to 13.2% against 2007. Our energy efficiency enhancement
programme led to continued savings in energy costs.
Investment Income
Investment income of HK$63 million (2007: HK$98 million) mainly
comprised dividend and interest income. The decrease reflected
a lower interest environment in 2008 and lower dividend income
derived from the Group’s equity investments.
Other Gains and Losses
Other gains and losses dropped to HK$146 million from HK$302 million in 2007.
Hysan creates a unique business
community with its fi rst-class
premises, which satisfy a variety of
different tenants’ needs.
The Group manages financial assets held as long-term investments with the aim of balancing
their anticipated liquidity position, funding needs, capital gains as well as industry diversification.
For these reasons, certain available-for-sale equity investments were disposed of during the year
resulting in a realised gain of HK$186 million recognised in the consolidated income statement.
The remaining available-for-sale investments portfolio will continue to be held as the Group’s
long-term investments.
In light of the extreme volatility and uncertainty of the financial markets since September 2008,
the Group has adopted a more prudent strategy in its financial investment activities. As at the
end of 2008, the Group had no outstanding position on held-for-trading investments. Instead,
the Group made investments in short-term government bills and notes, which are the most liquid
and secure types of investment to maintain the Group’s liquid assets.
The Group has made use of derivatives to manage the volatilities or adjust the appropriate
risk profile of our treasury assets and liabilities. As at year-end 2008, all of the outstanding
derivatives were related to the hedging of, and are commensurate with, our interest rate and
foreign exchange exposures.
Administrative Expenses
Administrative expenses increased to HK$134 million from HK$106 million in 2007, which
was principally due to higher staff costs as a result of the Group’s efforts to strengthen our
management team.
Hysan Annual Report 2008 23
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Our Strategy in Action Management’s Discussion and Analysis
Finance Costs
In a lower interest rate environment, the Group’s finance costs dropped by 11.4% to HK$155
million (2007: HK$175 million). In the current year, the Group’s average finance costs dropped
to 4.4% from 5.6% in 2007. Further discussion of the Group’s financial policy, including debt and
interest rate management, are set out in the “Financial Policy” section.
Change in Fair Value of Investment Properties
The global financial crisis hit Hong Kong’s property market hard, especially in the last quarter
of 2008, which led to an adverse movement in fair value of the Group’s investment properties.
Excluding other movements in investment properties (such as additions and transfer to property,
plant and equipment), fair value loss of HK$212 million (2007: fair value gain of HK$3,131
million) on revaluation of the Group’s investment properties was recognised in the consolidated
income statement during the year.
Share of Results of Associates
The Group’s share of results of associates improved by 30.5% to HK$590 million (2007:
HK$452 million). The increase in the share of results of associates was mainly attributable
to the positive rental growth and the favourable movement in fair value of the Shanghai Grand
Gateway project, of which the Group owns 24.7%. The 2007 comparative figure also included
contribution from Singapore Amaryllis Ville project, of which the Group owns 25.0%. All units in
this Singapore residential project were sold as at year-end 2007.
Shanghai Grand Gateway
Excluding the change in fair value of investment properties and the gain on disposal of certain
carparks held by the associate, the Group’s share of operating results in Shanghai Grand
Gateway project increased by 24.5% to HK$137 million (2007: HK$110 million). All the
residential units as well as retail and office properties are virtually fully let at year-end 2008.
Under Hong Kong Accounting Standards 40 “Investment Property”, properties at Shanghai Grand
Gateway have been revalued at fair value by an independent professional valuer. The Group’s
share of the revaluation gain, net of the corresponding deferred tax thereon, of the associate
amounted to HK$412 million (2007: HK$311 million).
24 Hysan Annual Report 2008
Busy Causeway
Bay is
recognised as
one of Hong
Kong’s prime
retail and
entertainment
areas.
Taxation
Taxation for the year dropped significantly by HK$744 million to HK$1 million (2007: HK$745
million) principally due to the reduction in deferred tax provision arising from the revaluation on
investment properties. In addition, the tax effect of a change in the Hong Kong profits tax rate
from 17.5% to 16.5% also made the Group’s taxation for the year decrease.
As disclosed in the annual and interim reports published in previous years, the Group has over
the past few years been in dispute with the Hong Kong Inland Revenue Department (“IRD”)
on interest deductions made in years of assessment dated back to 1995/96. Taking into
consideration professional advice and recent development, the Group has been in discussions
with IRD to settle the claims. A formal proposal was submitted to IRD at the end of December
2008 to settle the claims at HK$450 million, inclusive of tax principal, interest and all amount
payable. Full provision for such estimated exposure has been made at the balance sheet date,
of which HK$31 million and HK$41 million were provided in the first and second half of the year,
respectively. Total cash exposure (net of tax reserve certificates already purchased) amounted to
HK$268 million will be satisfied out of cash deposits and credit facilities.
The Group expects to settle the claims in the region of such amount within the next few months.
No other Hong Kong destination offers the
round-the-clock world of work, shopping and
leisure activities in a single thriving district.
Hysan Annual Report 2008 25
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Our Strategy in Action Management’s Discussion and Analysis
Condensed
Consolidated
Income Statement
Condensed Consolidated
Balance Sheet As At 31 December 2008
Condensed
Consolidated
Cash Flow Statement
2008
HK$ million
2007
HK$ million
CHANGE
HK$ million
Investment properties
Available-for-sale investments
Interests in associates
Time deposits, cash and
bank balances
Held-to-maturity debt securities
Other assets
Total assets
Borrowings
Taxation
– current
– deferred
Other liabilities
Total liabilities
Net Assets
Shareholders’ funds
Minority interests
Total Equity
35,850
1,022
2,340
1,015
700
609
35,711
2,479
1,601
484
–
615
41,536
40,890
3,751
2,861
351
3,648
1,076
8,826
270
3,910
1,001
8,042
32,710
32,848
31,469
1,241
31,652
1,196
32,710
32,848
Adjusted Shareholders’ Funds
34,660
35,072
139
(1,457)
739
531
700
(6)
646
890
81
(262)
75
784
(138)
(183)
45
(138)
(412)
CHANGE
%
+0.4
- 58.8
+46.2
+109.7
N/A
- 1.0
+1.6
+31.1
+30.0
- 6.7
+7.5
+9.7
- 0.4
- 0.6
+3.8
- 0.4
- 1.2
Investment Properties
Under the Hong Kong real estate price adjustment cycle, the Group’s investment properties were
revalued at HK$35,850 million (2007: HK$35,711 million).
Available-for-Sale Investments
Available-for-sale investments comprised principally equity securities listed in Hong Kong.
In 2008, the Hong Kong stock market experienced significant turmoil, especially in the last
quarter of the year, and the Hang Seng Index dropped by 48% during the year. Consistent with
the overall Hong Kong stock market trend and as a result of the disposal of certain equity
securities, total fair value of the Group’s listed securities portfolio, classified as available-for-sale
investments, has also been reduced to HK$982 million as at year-end 2008 (2007: HK$2,439
million).
26 Hysan Annual Report 2008
Interests in Associates
Interests in associates had increased by HK$739 million to HK$2,340 million. This mainly
represented the Group’s share of operating results, change in fair values of investment
properties as well as exchange gain on translation in the Shanghai Grand Gateway projects
during the year.
Our well-planned community of
offi ce buildings creates a green
and spacious ambience for
multinational and local
companies alike.
Time Deposits, Cash and Bank Balances
Time deposits, cash and bank balances amounted to
HK$1,015 million as at year-end 2008 (2007: HK$484
million). The increase is principally attributable to funds from
new bank loan and issuance of fixed rate notes before the
credit market deteriorated in the last quarter of 2008. These
new funds prepared the Group to better deal with the possible
tightened credit situation in 2009.
Held-to-Maturity Debt Securities
Approximately HK$700 million funds were maintained at
government bills and notes at year-end 2008 to preserve
the Group’s liquidity in this most liquid and secure form of
investment.
Borrowings
The carrying amount of the Group’s borrowings stood at HK$3,751 million at year-end 2008, an
increase from HK$2,861 million as at year-end 2007. The increase is mainly due to US$25.6
million (equivalent to HK$200 million) new bank loan and issuance of HK$565 million fixed rate
notes during the year.
Taxation
Provision for taxation (aggregation of current tax and deferred tax) decreased to HK$3,999
million in 2008 (2007: HK$4,180 million), which was principally due to a HK$223 million
taxation credit on deferred tax resulting from the change in tax rate. Such decrease was offset
by a net increase in current tax of HK$81 million, which was made up of a HK$192 million
charge for the year, a prior year tax provision of HK$72 million and a tax payment less refunds of
HK$183 million.
Shareholders’ Funds
The contribution to shareholders’ funds from operating results was largely offset by the decrease
in fair value associated with the listed securities portfolio, resulting in a slight decrease in
shareholders’ funds from HK$31,652 million in 2007 to HK$31,469 million in 2008. Adjusted
shareholders’ funds were also reduced slightly from HK$35,072 million in 2007 to HK$34,660
million in 2008.
Minority Interests
The rise of HK$45 million in minority interests to HK$1,241 million (2007: HK$1,196 million)
was attributable to profit contribution as well as revaluation surplus from Lee Gardens Two.
Hysan Annual Report 2008 27
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Our Strategy in Action Management’s Discussion and Analysis
Condensed
Consolidated
Income Statement
Condensed
Consolidated
Balance Sheet
Condensed Consolidated Cash Flow Statement
For The Year Ended 31 December 2008
Operating activities
Cash generated from operations
Net tax paid
Investing activities
Payments in respect of
investment properties
Disposals of available-for-sale
investments
Proceeds upon maturity (placement)
of principal-protected deposits
Interest and dividends received
Receipts from overseas projects
Purchase of property, plant and
equipment
Financing activities
Dividends paid
Finance costs
Increase in borrowings
Proceeds on exercise of share options
Share repurchase
2008
HK$ million
2007
HK$ million
CHANGE
HK$ million
CHANGE
%
1,362
(183)
1,179
1,100
(140)
960
262
(43)
219
+23.8
+30.7
+22.8
(345)
(125)
(220)
+176.0
272
394
(122)
- 31.0
78
60
6
(5)
66
(641)
(140)
765
2
–
(197)
87
140
(3)
296
(497)
(162)
–
15
(513)
275
(27)
(134)
N/A
- 31.0
- 95.7
(2)
+66.7
(230)
- 77.7
(144)
22
765
(13)
513
+29.0
- 13.6
N/A
- 86.7
- 100.0
(14)
(1,157)
1,143
- 98.8
Net increase in cash and
cash equivalents
1,231
99
1,132
+1,143.4
Operating Activities
There was an increase of HK$219 million net cash from operations over the previous year which
was in line with the growth in the Group’s core business operating results. Tax payments less
refund of HK$183 million was also made during the year.
Investing Activities
There was a decrease in net cash from investing activities to HK$66 million (2007: HK$296
million). This principally reflects increased capital expenditure, including the re-development of
Hennessy Centre, during the year. Year 2007 also recorded substantial proceeds from disposal,
firstly, of available-for-sales investments; and, secondly, of all the remaining units in the Group’s
Singapore joint-venture residential project.
Financing Activities
Net cash used in financing activities was HK$14 million, a decrease of HK$1,143 million from last
year. This was mainly due to new borrowings of HK$765 million, comprising bank loan of HK$200
million and fixed rate notes of HK$565 million issued under the Medium Term Notes Programme.
No share repurchase was undertaken during the year.
28 Hysan Annual Report 2008
Beyond Financial Statements
Contingent Liabilities
The Group has underwritten its associates on cash calls to finance working capital requirements.
Based on currently available information, management does not anticipate any major call for
cash contributions in the foreseeable future.
Capital Expenditure and Management
The Group is committed to enhancing the asset value of our
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$345
million. The graph on the right illustrates capital expenditure
patterns during the last five years.
Capital Expenditure
HK$ million
400
320
240
160
80
0
0
7
3
5
4
3
4
0
1
5
2
1
1
8
The Group has an internal control system for scrutinising capital
expenditures. Detailed analysis of expected risks and returns
is submitted to unit heads, Executive Directors or the Board for consideration and approval,
depending on strategic importance, cost/benefit and the size of the projects. The criteria for
assessment of financial feasibility are generally based on net present value, pay back period and
internal rate of return from projected cash flow.
04 05 06 07 08
At year-end, the Group had HK$3,550 million undrawn committed bank facilities. These facilities,
together with the Medium Term Notes Programme, available-for-sale investments and positive
cash flows from local and overseas operations, provide adequate financial resources to fund the
level of planned capital expenditure, including the Hennessy Centre redevelopment project.
Hennessy Centre Redevelopment
The former Hennessy Centre (at 500 Hennessy Road) redevelopment project will be completed
at the end of 2011. Sub-structure works are in progress and the Group has proceeded to
awarding the main construction contract. The 36-storey mixed–use office and retail building, with
four additional levels of basement, will have a gross floor area of approximately 710,000 square
feet. 500 Hennessy Road will be the future northern gateway to Hysan’s community in Causeway
Bay. It aims to attain the highest international standards in architectural design, including
environmental sustainability.
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Hysan Annual Report 2008 29
Our Strategy in Action Management’s Discussion and Analysis
Financial Policy
The global financial markets experienced unprecedented turmoil in 2008. In addition to the
volatility in most markets around the world, the supply of credit contracted markedly, which
translated into wider credit spreads even to borrowers with good credit ratings. Despite the
extensive measures rolled out by governments of major countries, the global financial system
remains under stress. Therefore, maintaining sufficient liquidity is the key to ensure financial
strength. In the wake of the collapse of some major financial institutions, counterparty risk has
also become a highly important issue that requires constant monitoring.
Hysan adheres to a policy of financial prudence. Our objectives are to:
– maintain a strong balance sheet by actively managing debt level and cash flow
– secure diversified funding sources from both banks and capital markets
– minimise refinancing and liquidity risks by attaining healthy debt repayment capacity, maturity profile, 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 counterparty risks by imposing proper counterparty limits and reduce financial investment risks by holding quality
marketable securities
Key Performance Indicators
PERFORMANCE INDICATOR
HOW IT IS MEASURED
SIGNIFICANCE TO THE GROUP
Average Finance Costs
– Interest expenses divided by average
– Our treasury aims to manage and optimise
borrowing for the year
fi nance costs
– 2008: 4.4% (2007: 5.6%)
– HIBOR was generally lower in 2008 as compared
Bank Facilities:
Capital Market Issuance
– The proportion of the borrowings from banks
and from capital market relative to the total
borrowings
to 2007
– As a measure of diversifi cation of funding
sources
– No signifi cant change
– 2008: 24.9% : 75.1%
(2007: 24.7% : 75.3%)
Average Debt Maturity
– The weighted average of remaining maturity
– An indicator of the pressure for refi nancing or
period of the Group’s borrowings
repaying the existing borrowings in the near term
Floating Rate Debt
(% on Total Debt)
– 2008: 3.9 years (2007: 4.0 years)
– The average maturity remains broadly the same
– Debt effectively in fl oating interest rate
– A measure to calculate the percentage of
divided by total debt
– 2008: 59.5% (2007: 60.1%)
borrowings subject to fl uctuation in market
interest rates
– No signifi cant change
Net Interest Coverage
– Gross profi t less administrative expenses
before depreciation divided by net interest
expenses
– It represents the Group’s fi nancial strength from
operating activities to meet its interest payment
obligations
– 2008: 10.2 times (2007: 7.8 times)
– Improved ratio refl ects higher gross profi t and
Net Debt to Equity
– Borrowings less cash and cash equivalents
divided by adjusted shareholders’ funds
– 2008: 5.9% (2007: 6.8%)
lower 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
– Improvement principally due to lower net debt
level
30 Hysan Annual Report 2008
Credit Ratings
Moody’s
– 2008: Baa1 (2007: Baa1)
– Investment-grade ratings
Standard and Poor’s
– 2008: BBB (2007: BBB)
unchanged
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 financial prudence.
Treasury has an overall objective of optimisation of borrowing costs and management of the
associated risks: that is, to minimise finance costs subject to the constraints of the operational
parameters. The cost of financing was 4.4% for 2008.
Debt Management
During 2008, the credit market in Hong Kong tightened significantly due to the deleveraging
activities and shrunken balance sheets of many financial institutions. Therefore, a prudent
approach to managing our debt portfolio is particularly crucial. While the Group always strives to
lower the borrowing margin, the more important consideration in the current environment is to
ensure sufficient available facilities, to diversify the funding sources and to maintain a suitable
maturity profile relative to the overall duration of the use of such funds.
The Group managed to secure a total of HK$765 million of new borrowings, comprising a
US$25.6 million bank loan and HK$565 million of notes issued from the Medium Term Notes
Programme, before the credit market nearly dried up in the fourth quarter of 2008. This new
financing is a precautionary measure taken by the Group in case the credit market remains
tight or deteriorates further in 2009. The new financing raised will be sufficient to refinance
the maturing debts in 2009 amounting to HK$550 million. As at 31 December 2008, the
outstanding gross debt of the Group was about HK$3,698 million (2007: HK$2,921 million).
All the outstanding borrowings are on an unsecured and committed basis.
In order to diversify our funding sources, the Group has
established long-term relationships with a number of local
and overseas banks. At present, 10 local and overseas banks
have provided bilateral banking facilities to the Group and such
bank borrowings accounted for about 24.9% of the Group’s
outstanding gross debt. Notes issued from the Medium Term
Notes Programme serve as an important source of funding
for the Group. The Programme allows the Group to access a
broad investor base in the local and international debt capital
markets. These markets are more flexible with respect to the
longer-tenor debts. For instance, the three notes that the Group
issued in 2008 have maturities ranging from 7 to 12 years. As
at the end of 2008, about 75.1% of the Group’s outstanding
gross debts were sourced from the debt capital markets.
The graph on the right shows the percentages of total
outstanding gross debts sourced from banks and the debt
capital markets in the past five years.
Sources of Financing at Year-end
HK$ million
%
6
7
3
.
%
4
.
2
6
%
0
3
5
.
%
0
.
7
4
6,000
4,800
3,600
2,400
1,200
0
%
1
.
5
7
%
9
.
4
2
%
3
.
5
7
%
7
.
4
2
%
3
.
5
7
%
7
.
4
2
04 05 06 07 08
Capital Market Issuances
Bilateral Bank Loans
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Hysan Annual Report 2008 31
Our Strategy in Action Management’s Discussion and Analysis
The Group also strives to maintain an appropriate maturity profile and reduce the concentration
of debts maturing in the near term. The average maturity of the debt portfolio was about 3.9
years. As at 31 December 2008, only about HK$620 million or 16.8% of the outstanding debts
will be due in less than two years. Therefore, there will not be significant refinancing pressure
on the Group in the near term, especially when the level of cash and the undrawn committed
facilities available to the Group are taken into account.
The debt maturity profile of the Group is as follows:
Maturing in not exceeding one year
Maturing in more than one year but not exceeding two years
Maturing in more than two years but not exceeding fi ve years
Maturing in more than fi ve years
Total Gross Debt
2008
HK$ million
2007
HK$ million
550
70
2,270
808
3,698
–
550
2,140
231
2,921
Total gross debt at the end of 2008 was HK$3,698 million, increased by around HK$777 million
as compared to 2007.
Liquidity Management
To cope with the tightening credit market, the maintenance of sufficient liquidity is of utmost
importance to all businesses. The Group always places great emphasis on liquidity management.
Benefited from the strong recurring cash flows from its business, the Group stands in a
favourable position to withstand the liquidity crunch. As at 31 December 2008, the Group had
cash and bank deposits totalling about HK$1,015 million (2007: HK$484 million). All the
deposits are diversified with banks of strong credit ratings and the counterparty risk is monitored
on a regular basis.
Apart from bank deposits, the Group also invested in short-term government bills and notes
issued by the Hong Kong Monetary Authority and US Treasury, thereby preserving the Group’s
liquidity in the most liquid and secure form of investment. As at 31 December 2008, the
outstanding balance of funds invested in these government bills and notes amounted to about
HK$700 million. Additional liquidity reserve is maintained in the form of highly liquid securities
listed on The Stock Exchange of Hong Kong. The market value of these securities amounted to
HK$982 million as at the end of 2008.
Further liquidity, if needed, is available from the undrawn committed facilities offered by the
Group’s relationship banks. These facilities, which amounted to HK$3,550 million as at 31
December 2008, essentially allow the Group to obtain the same level of liquidity as holding the
equivalent amount of cash.
Interest Rate Management
Interest expenses account for a significant proportion of the Group’s total expenses.
Therefore, the Group closely monitors its interest rate exposures. Depending on our medium-
term projections of interest rates, an appropriate hedging strategy is adopted to manage the
exposure.
32 Hysan Annual Report 2008
Since the second half of 2008, when the economic outlook
worsened and inflation pressure subsided, most of the central
banks in the advanced economies have introduced strong
measures to cut policy rates. In tandem with the slash of the
Fed Fund target rate, the 3-month Hong Kong Inter-bank Offered
Rate (“HIBOR”) has dropped from its yearly peak of 4.44%
in October 2008 to 0.95% at the end of 2008. However, the
benefit of the rate reduction was partially offset by the widened
credit spreads on the new borrowings.
As at 31 December 2008, about 59.5% of the Group’s debts
were at floating rates that can reap the full benefit of the lower
interest rate environment. As a result, the Group’s average cost
of financing lowered from 5.6% in 2007 to 4.4% in 2008.
The diagram on the right shows the Group’s debt levels and
average finance costs in the past five years.
Debt Levels and Average Finance Costs
HK$ million
6,000
4,800
3,600
2,400
1,200
0
2
1
6
,
5
0
9
5
,
5
2.5%
5.6%
4.9%
5
7
3
,
4
3.6%
3
7
9
,
2
9
0
9
,
2
1
2
9
,
2
7
3
4
,
2
4
2
5
,
2
4.4%
8
9
6
,
3
3
8
9
,
1
04
05
06
07
08
Year-end Gross Debt
Year-end Net Debt
(Gross debt less cash and cash equivalents)
Average Finance Costs
Foreign Exchange Management
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 and the US$25.6 million
bank loan, which have been hedged by appropriate hedging instruments, all of the Group’s other
borrowings were denominated in Hong Kong dollars. On the investment side, US$27 million
of held-to-maturity debt securities were denominated in US dollars and the investments have
also been fully hedged against foreign exchange exposure. Other foreign exchange exposure
relates to our investments in overseas project in Shanghai. These foreign exchange exposures
amounted to the equivalent of HK$2,340 million or 5.6% of our total assets.
Use of Derivatives
As at 31 December 2008, all of the outstanding derivatives were related to, and commensurate
with, the hedging of interest rate and foreign exchange exposures. The Group has made use of
derivatives to manage the volatilities or adjust the appropriate risk profile of our treasury assets
and liabilities. To prevent the Group from being exposed to undue risks arising from the use of
derivatives, all such transactions have to strictly follow our internal guidelines.
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.
Hysan Annual Report 2008 33
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Our Strategy in Action
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.
Board of Directors – Independent Risk Control
Board of Directors
Audit Committee
Internal Audit
Management – Risk Management
Chairman
Chief Executive Officer
Business/Unit Heads
– business management
– operations
Executive Director, Finance
– treasury, tax, controlling
and accounting
Executive Director and
Company Secretary
– compliance
– human resources
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 5 components, namely
Control Environment; Risk Assessment; Control Activities; Information and Communication; and
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 have in place
a formal Code of Ethics which is communicated to all staff (including new recruits). Our
“whistle-blowing” system is monitored by an independent third party service provider with
direct reporting to Audit Committee Chairman. We aim to build risk awareness and control
responsibility into our culture and regard this as the foundation of our internal controls system.
34 Hysan Annual Report 2008
• 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 beneficial 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. In this light, we conducted an entity-wide exercise to map all key control
processes to appropriate objectives. Process owners in business and support units were
identified to document the relevant policies and are responsible to ensure controls exist and
are in operation. We shall continually review and refine these policies.
Identify and
analyse risks
to achieve-
ment of
corporate
objectives
Determine
impact of such
identified risks on
the achievement
of corporate
objectives
Determine
how each of the
other internal
controls components,
both separately and
together, mitigate
such risks
Specify Corporate
Objectives
Refine corporate
objectives based on
changes potentially
impacting the
business
Hysan’s internal controls
system:
• is designed to ensure
corporate objectives are
achieved
• has five components that
work together
Monitoring
• Independent review
by Independent
Advisor in 2006
• Internal audit
function
Information and
Communication
Implement and
operate information
and communication
to support internal
controls
Control Environment
• Strong tradition of
emphasising good
corporate governance
• Human resources
policies
Determine
Effectiveness
Control Activities
• Documented key
control policies and
processes
Summary of Key Developments in 2008
Important developments, from risk management perspective, that took place in 2008 and steps
taken by management include:
• In the fourth quarter of the year, the global financial markets experienced unprecedented
turmoil. It led to volatility in most markets in the world, as well as contraction in supply of
credit.
We adhered to the principle of financial prudence:
– We accelerated our financing plans and pre-arranged funding in advance of re-financing due
in 2009.
– We further strengthened our regular review system of counterparty risks as regards banking
and investment activities.
– We adopted prudent financial investment activities and orderly disposed of listed securities
held for trading purposes. The proceeds were invested in short-term government bills and
bonds, a secure and liquid form of investment.
(Further details are described in the sections “Management’s Discussion and Analysis –
Financial Policy” and “Corporate Governance Report – Focus in 2008”)
Hysan Annual Report 2008 35
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Our Strategy in Action Internal Controls and Risk Management
• Worsened economic conditions led to reduced demand in the Hong Kong leasing markets in
general, and intensified competition among landlords.
– We refined our “scenario planning” approach in preparing budget and forecasts, in
anticipation of a more challenging economic environment. This will enable us to take
appropriate cost management measures in a timely manner in response to any significant
changes in budgeted revenue.
– We started a phased project to review our procurement system to further enhance cost
efficiency as well as control effectiveness. Steps have been taken to enhance procurement
processes, including contractor selection, contract terms and conditions, appropriate in-
sourcing, as well as having in place additional checks-and-balances.
– In general, we further strengthened our management team, with the view to better
understanding and providing solutions to changing tenant needs. Skills in customer
relationships management, sales and marketing, as well as property services were further
strengthened. Levels of authority were also reviewed following the arrival of new senior staff,
balancing effective delegation and control.
• Hennessy Centre re-development
– Management proceeded to fully develop the design and tendering of the main construction
contract. The demolition of the existing structure was completed during the year.
– Our internal project management team, complemented by specialist advisers, reviewed the
tendering process from the risk perspective. Various aspects, including tender award criteria
and process; terms and conditions, were covered in this review.
– The Finance Division is also involved in the tendering process to ensure appropriate checks-
and-balances and input from the finance perspective. There is periodic reporting to senior
management and the Board.
2008 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 findings 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 2008, the Board considered the internal controls
system effective and adequate. No significant areas of concern which might affect the
operational, financial reporting, and compliance functions of the Company were identified.
Way Forward
We recognise that the strengthening of internal controls is a continuing process. We shall
continually review our business processes and control activities. Most importantly, 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.
36 Hysan Annual Report 2008
Human Resources
Key among our growth priorities is the development
of a strong base of leadership. Building a talented
organisation is the cornerstone of our human
resources strategy to support the ongoing success
of our business. As at 31 December 2008, we
employed a total of 488 staff, including the head
office asset management team and front-line
building management team.
Staff briefi ng session
for our results
announcement
– an example of
communication and
team work.
To succeed in a very competitive business environment, we truly believe that
“people” are our most valuable asset and that they drive our success. We focus
on building a talented organisation by attracting, retaining and developing our
high-performing employees. Considerable efforts have been made to achieve
our people-related objectives.
Attract – Building our talent pool
We have a high commitment to developing our employees to their fullest potential. At the same
time, we aim to attract the best talents to work with our team in order to generate innovative
insights and to fully capitalise on business opportunities.
We attract talents by providing them with a motivating working environment that fosters open
communication, teamwork and creativity. The Hysan values are highly appreciated by employees
since they promote the Company’s “gold standard” in business ethics and deep respect for each
individual.
Due to our unceasing efforts, we have successfully attracted talents from different industries to
fill key positions. The wealth of business experience and entrepreneurship of these individuals
add new perspectives to our strategies for attaining sustainable growth.
Retain – Aiming for a high performance team
We adopt the principle of “reward for performance” to motivate our employees and recognise their
contribution. To cater for the changing needs of our business, we have refined our performance
management system to ensure that employee performance is objectively assessed and rewarded.
We offer our compensation and benefits at a competitive level to guarantee fairness. Balancing past
year’s operating results and the anticipated challenging business environment ahead, our 2009
salary review provided salary increments to all staff. Executive Directors, however, will take a salary
freeze. By conducting regular market analysis, we implemented upgrades to our benefits during the
year and revamped the compensation system to reinforce our performance-driven culture.
Develop – Maximising our employees’ potential
We are committed to developing our employees and to maximising their potential, helping them
to pursue career paths that match their aspirations. We offer various development opportunities,
including classroom training, field visits, challenging projects, on-the-job training and training
sponsorship, in order to cater for different development needs of each individual. We will
continue to explore different development opportunities and career management processes to
encourage our employees to grow with us.
The Way Ahead
Hysan is well equipped to execute our priorities for the future. People development together with
collaborative teamwork continue to be our major focus and platform for supporting our growth
plan. To achieve our vision of building a talented organisation that is second to none, we will
devote all our efforts to developing and retaining the next generation of leadership at Hysan.
Hysan Annual Report 2008 37
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38 Hysan Annual Report 2008
Hysan is committed to maintaining
the highest standards of corporate
governance. Detailed information on
our corporate governance structure and
practices is set out in four separate
reports within this section.
40 Board of Directors
and Senior Management
44 Corporate Governance Report
59 Directors’ Report
66 Directors’ Remuneration
and Interests Report
73 Audit Committee Report
3.
Our Governance
Hysan Annual Report 2008 39
Our Governance
Board of Directors and Senior Management
Structure
The Board
Chairman
Chief Executive Officer
Audit Committee
Emoluments Review Committee
Nomination Committee
Investment Committee
Finance
Corporate Services
Property Investment
Property Services
Property Development
Chairman
Peter Ting Chang LEE
J.P. (I, chairing N)
Independent non-executive
Directors
Tom BEHRENS-SORENSEN (A)
Non-executive Directors
Hans Michael JEBSEN
B.B.S. (I)
Executive Directors
Ricky Tin For TSANG
Executive Director, Finance
(currently acting as Chief Executive
Offi cer)
Fa-kuang HU
G.B.S., C.B.E., J.P. (E)
Independent non-executive
Deputy Chairman
Sir David AKERS-JONES
G.B.M., K.B.E., C.M.G., J.P.
(N, chairing A, E)
Dr. Geoffrey Meou-tsen YEH
S.B.S., M.B.E., J.P., D.C.S., M.Sc.,
F.C.I.O.B., F.Inst.D. (E, N)
Anthony Hsien Pin LEE
(chairing I)
Chien LEE (A)
Dr. Deanna Ruth Tak Yung
RUDGARD
Wendy Wen Yee YUNG
Executive Director and Company
Secretary
(A) Audit Committee
(E) Emoluments Review Committee
(N) Nomination Committee
(I) Investment Committee
40 Hysan Annual Report 2008
Board of Directors
Peter Ting Chang LEE J.P.
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 55.
Sir David AKERS-JONES G.B.M., K.B.E., C.M.G., J.P.
Sir David is Chairman of GAM Hong Kong Limited, Deputy Chairman of CNT Group Limited and a
non-executive director of China Everbright International Limited and K. Wah International Holdings Limited.
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 81.
Tom BEHRENS-SORENSEN
Mr. Behrens-Sorensen is the Executive Vice President of A.P. Moller-Maersk Group as well as Chairman of
Maersk China Limited. He is also the Vice President for the European Chamber of Commerce in China.
He has over 20 years of experience with the A.P. Moller-Maersk Group in Asia and Australia. He was
appointed as Independent non-executive Director in 2007 and is aged 50.
Fa-kuang HU G.B.S., C.B.E., J.P.
Mr. Hu is Honorary Chairman of Ryoden Development Limited. He was an independent non-executive
director of i-CABLE Communications Limited and retired effective from the conclusion of its annual
general meeting held on 17 May 2007. He holds a Bachelor of Science Degree from Shanghai Jiao
Tong University. He was appointed a Non-executive Director in 1979 and re-designated as Independent
non-executive Director in 2008. He is aged 85.
Hans Michael JEBSEN B.B.S.
Mr. Jebsen is Chairman of Jebsen and Company Limited as well as a director of other Jebsen Group
companies worldwide. He is also an independent non-executive director of The Wharf (Holdings)
Limited. He was appointed a Non-executive Director in 1994 and is aged 52.
Anthony Hsien Pin LEE
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 is also an alternate director of Television Broadcasts Limited. 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 51.
Hysan Annual Report 2008 41
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Our Governance Board of Directors and Senior Management
Board of Directors
Chien LEE
Mr. Lee is a private investor and a non-executive director of Swire Pacifi c Limited and Television Broadcasts
Limited and a number of private companies. 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 55.
Dr. Deanna Ruth Tak Yung RUDGARD
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 69.
Dr. Geoffrey Meou-tsen YEH S.B.S., M.B.E., J.P., D.C.S., M.Sc., F.C.I.O.B., F.Inst.D.
Dr. Yeh is former Chairman of Hsin Chong Construction Group Ltd. He was an independent non-executive
director of China Travel International Investment Hong Kong Limited until 14 July 2007. 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 77.
Ricky Tin For TSANG
Mr. Tsang joined the Group in 2004 and was appointed an Executive Director in 2008. He 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 Master’s Degree in Engineering from Oxford University, United Kingdom. He is 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 47.
Wendy Wen Yee YUNG
Ms. Yung joined the Group in 1999 and was appointed an Executive Director in 2008. She is responsible
for the Group’s corporate services including legal and secretarial, human resources and administration, as
well as corporate communications. Ms. Yung holds a Master of Arts Degree from Oxford University, United
Kingdom and is qualifi ed as a solicitor of the Supreme Court of England and Wales as well as Supreme
Court of Hong Kong. She was a partner of an international law fi rm prior to joining the Group. Ms. Yung is
also qualifi ed as a Certifi ed Public Accountant 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
panels of the Hong Kong Institute of Certifi ed Public Accountants and the Hong Kong Institute of Chartered
Secretaries respectively. She is aged 47.
42 Hysan Annual Report 2008
Senior Management
From left to right
Jimmy Yiu Cho MAK
Lai Kiu CHAN
Cissy Ching Sze CHAN
Ricky Tin For TSANG
Peter Ting Chang LEE
Wendy Wen Yee YUNG
Clara WONG
Roger Shu Yan HAO
Cissy Ching Sze CHAN Director, Retail Portfolio and Marketing
Ms. Chan is responsible for the Group’s retail portfolio and related marketing activities. She joined the Group in 2008. Ms.
Chan received a Master of Business Administration Degree from the Chinese University of Hong Kong and a Bachelor of Social
Science Degree from the University of Hong Kong. She gained substantial general management experience in multinational
companies while holding senior positions, with particular expertise in sales and marketing. She is aged 43.
Lai Kiu CHAN Director, Design and Project
Ms. Chan oversees the Group’s design and project affairs. She joined the Group in 2008. Ms. Chan holds a Doctor of
Philosophy Degree in Architecture from the University of Hong Kong. She qualifi ed as a PRC Class 1 Registered Architect, is
a Registered Architect of Architects Registration Board of Hong Kong, and is also an Authorised Person (Architect) in Hong
Kong. Ms. Chan has received various international and local awards for architectural designs. She is aged 46.
Roger Shu Yan HAO Group Financial Controller
Mr. Hao is responsible for the Group’s fi nancial and control functions. He joined the Group in 2008. Mr. Hao received a
Bachelor’s Degree in Business Administration from the Chinese University of Hong Kong, and is a Chartered Accountant with
the Institute of Chartered Accountants in England and Wales, a Fellow of the Association of Chartered Certifi ed Accountants
and an Associate of the Hong Kong Institute of Certifi ed Public Accountants. Mr. Hao accumulated extensive experience in
auditing, fi nancial management and control, while holding senior positions in multinational corporations. He is aged 43.
Jimmy Yiu Cho MAK General Manager, Property Services
Mr. Mak, who joined the Group in 2009, oversees the Group’s property management services. He holds a Master of Business
Administration Degree from The Open University of Hong Kong. He is a Fellow of Chartered Institute of Housing and Hong
Kong Institute of Housing. Having been in senior management positions in a number of property companies, Mr. Mak brings to
the Group extensive experience in enhancement of property management services in commercial as well as luxury residential
properties. He is aged 50.
Clara WONG Director, Offi ce Portfolio
Ms. Wong is responsible for the Group’s offi ce portfolio. She holds a Master of Science Degree in Finance from National
University of Ireland, and a Bachelor of Arts Degree majoring in Economics and Mathematics from Smith College in the United
States. Prior to joining the Group in 2008, Ms. Wong gained extensive experience in customer relationship management and
business portfolio management through holding a number of senior positions within the banking industry. She is aged 43.
Hysan Annual Report 2008 43
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Our Governance
Corporate Governance Report
Responsible Business as the Guiding Priniciple
Hysan aims to be a financially 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
Practices
Hysan meets the requirements of the Code Provisions contained in the Code on Corporate
Governance Practices (the “Corporate Governance Code”) 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”), except that its Emoluments Review Committee (established
since 1987) has the responsibility for determining executive Director compensation. The Board is
of the view that, in light of the current organisational structure and the relatively simple nature of
Hysan’s business activities, the current arrangements for the Emoluments Review Committee to
determine executive Director compensation is 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 Chief Executive Officer. Peter Ting Chang LEE serves
as the Chairman. An open search is currently underway for a new Chief Executive Officer.
44 Hysan Annual Report 2008
Exceeded
Code Provisions
Best Practices in Corporate Governance in Place at Hysan
The Board fi rst established a formal Corporate Governance Policy* in 2004.
The Board has a designated Senior Independent non-executive Director, Sir David AKERS-JONES (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.
Over one-third of the Board is represented by Independent non-executive Directors.
All Corporate Governance Committees (Audit, Emoluments Review and Nomination) have at least a majority of
Independent non-executive Directors. There is a 100% Independent non-executive Director membership for the
Emoluments Review Committee. Terms of Reference* of such Committees 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.
Such service provider has direct reporting access to the Audit Committee.
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 and
determination of price sensitive information in order to ensure consistent and timely disclosure and fulfi llment of the
Group’s continuous disclosure obligations.
The Group has established an Auditor 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 a formal 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 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.
* Detailed policies/terms of reference are available on the Company’s website: www.hysan.com.hk.
The Group has early adopted certain changes in requirements of the Listing Rules effective for financial year 2009 and proposed
changes set out in recent Stock Exchange consultation conclusions, in pursuant of good governance.
Early Adoption
Best Practices in Corporate Governance in Place at Hysan
The Company has conducted all voting at AGMs by poll since 2004.
The Group published its annual results within 73 days for 2008, well within the proposed change (being 3 months of
the end of accounting period).
The Group has a “Qualifi ed Accountant” (as defi ned under the Listing Rules) throughout 2008. The Audit Committee
also reviewed the adequacy of resources, qualifi cation/experience of staff of the Group’s accounting and fi nancial
reporting function and their training/budget.
Hysan Annual Report 2008 45
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Our Governance Corporate Governance Report
Focus in 2008
Further strengthening of our internal controls system was a key focus area in 2008. This was
particularly important in light of the global financial markets turmoil during the fourth quarter
and the generally worsened local economic conditions. We adhered to the principle of financial
prudence and further strengthened our financial and treasury management, budgetary planning
and costs control. In particular, we further enhanced our regular review system of the Group’s
counterparty risks in banking and investment activities. Our management team was further
strengthened generally. Further details are set out in the separate “Internal Controls and Risk
Management Report”.
The Board noted recent incidents in Hong Kong and elsewhere associated with the lack of
transparency in the management of business activities, including where some companies had
taken steps that stray from their core competencies. There were Board discussions on the
general principles. The Board and management unanimously agreed as to the significance of
providing timely and accurate information to the full Board. They fully supported the monitoring
function of Independent non-executive Directors. These are further described under “The Board”
in this report.
In general, we further improved the quality of corporate governance reporting and disclosure
generally. In this Annual Report, we aim to provide comprehensive yet user-friendly information
on all material matters regarding performance of the Group. We seek to explain the drivers,
risks, and strategy behind our financial performance:
• Operations Review (Page 18)
• Financial Policy (Page 30)
• Human Resources (Page 37)
As regards governance-related aspects, enhanced disclosure in internal controls and risk
management; executive compensation was made in particular. The relevant reports are:
• Internal Controls and Risk Management (Page 34)
• Directors’ Remuneration and Interests Report (Page 66)
We recognise the significance of electronic communications. Detailed information on our
governance framework is set out in our corporate website (www.hysan.com.hk).
– New approach to AGMs
(2004)
– Self-funded programme to
facilitate transmission of
corporate communication
materials to ultimate
shareholders (2005)
– Corporate Governance
Report (2001)
– Audit Committee Report
(2003)
– Directors’ Remuneration
and Interests Report
(2004)
– Internal Controls and
Risk Management
Report (2006)
– Corporate Responsibility
Report (2007)
Board Committees:
– Emoluments Review Committee
(1987)
– Audit Committee (1999)
– Nomination Committee (2005)
– Formalised role of Senior Independent
non-executive Director (Deputy
Chairman) (2007)
– Key Corporate Governance Documents
– Corporate Governance Guidelines
(2004)
– Code of Ethics (2005)
– Board of Directors Mandate (2007)
– Role Requirements of
Non-executive Directors (2007)
– Formal Corporate Responsibility
Policy (2007)
ESTABLISH THE INFRASTRUCTURE
DISCLOSURE
SHAREHOLDER RIGHTS
Evolution of Hysan’s Corporate Governance Framework
46 Hysan Annual Report 2008
-- Continual corporate
social responsibility
efforts as an integral
part of good corporate
governance (admission
to FTSE4Good Index,
2008)
-- Company-wide briefing
of Code of Ethics and
outsourcing of “whistle-
blowing” to independent
third party (2008)
– Continual Group-wide
reinforcement of
corporate values and
culture
WAY FORWARD:
MORE THAN A
BOARD PROCESS
1. Our Corporate Governance Practices – Governance Model
and Framework
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.
Authority
Delegation through:
• clear policies and
procedures
• monitoring
Shareholders
Board
Management
Accountability
Assurance through
checks-and-balances:
• monitoring
• reporting
Governance Framework
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 the Company’s website: www.hysan.com.hk:
• 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.
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Hysan Annual Report 2008 47
Our Governance Corporate Governance Report
2. Our Corporate Governance Practices – The Board
Focus in 2008
In addition to extensive discussions on Group leasing strategy, projects, and performance, the
Board also focused on the following areas.
Group human talent was an area of attention. There was a general review and refinement 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.
The Chairman ensures that the Directors receive accurate, timely and clear information. This
was particularly important in light of global financial markets turmoil during the last quarter
of the year. Updated information on the Group’s counterparty risks in banking/investment
activities, and steps taken to manage such risks, was supplied to non-executive Directors in
a timely manner. Moving forward, management will further strengthen the provision of regular
updates to the Board of our business performance in addition to detailed reports presented
in quarterly Board meetings. (Please refer to the separate Internal Controls and Risk
Management Report for more details.)
The Board noted recent incidents in Hong Kong and elsewhere associated with the lack of
transparency in the management of business activities, including where some companies had
at times taken steps that stray from their core competencies. There were Board discussions
on the general principles. The Board and management unanimously agreed on the significance
of: firstly, the provision of timely and accurate information to the full Board; and secondly, the
monitoring function of Independent non-executive Directors to ensure compliance with the
disclosure and other legal requirements.
Objectivity of Independent non-executive Directors was further stressed in this light. They have
a special contribution as Board members as they offer critical insight into operations. The
Board carried out a detailed review of the “independence” of non-executive Directors during
the year.
The Board and Management
The roles of the Board and of the management are separate and distinct. The Board’s
responsibility is, firstly to formulate strategy and, secondly, to monitor and control operating
and financial performance in pursuit of 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.
48 Hysan Annual Report 2008
These are governed by a formal Board of Directors
Mandate (Details are available on the Company’s website:
www.hysan.com.hk) which sets out the key responsibilities of
the Board in fulfilling its stewardship roles.
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 extension of Group
activities into new business areas; annual budgets; preliminary
announcements of interim and final results; dividends; material
banking facilities; material acquisitions and disposals; and
connected transactions.
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 2009.
“Hysan has always
believed in the need to
have outside directors...
A majority of the public
company’s first board
of directors were from
outside the Lee family.”
“There has been
significant evolution in
the role of the outside directors as well. Now, they still
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 and are more alert to our
responsibilities.”
Four Board meetings were held in 2008 and the meetings were
structured to allow open discussion. Details of Directors’ Board
attendance records are as follow:
— Peter T.C. LEE
Chairman
DIRECTORS
ATTENDANCE/
TOTAL BOARD MEETINGS
Executive
Peter Ting Chang LEE
Pauline Wah Ling YU WONG
(Stepped down on the conclusion of AGM held in May 2008)
Ricky Tin For TSANG (Appointed on 1 April 2008)
Wendy Wen Yee YUNG (Appointed on 1 April 2008)
Independent Non-executive
Sir David AKERS-JONES
Tom BEHRENS-SORENSEN
Fa-kuang HU
Dr. Geoffrey Meou-tsen YEH
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Dr. Deanna Ruth Tak Yung RUDGARD
4/4
2/2
3/3
3/3
4/4
3/4
3/4
3/4
4/4
(50% by alternate)
4/4
4/4
4/4
Hysan Annual Report 2008 49
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Division of Responsibilities
The Group’s corporate governance model aims to effectively combine family control and
professional management. In this light, the Board has established a clear specification of duties
under our Board structure to ensure a proper division of responsibilities and balance of power.
The Group’s Corporate Governance Guidelines provide for separate roles of Chairman and Chief
Executive Officer. Peter Ting Chang LEE serves as the Chairman. An open search is currently
underway for a Chief Executive Officer.
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. 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.
The Non-executive Directors play a key role in protecting shareholders’ interests. They bring an
external dimension to the Board, whilst complementing the skills and experience of the executive
Directors through their range of knowledge, experience and insight from other sectors.
The principal roles of the Senior Independent non-executive Director and Non-executive Directors
are set out below:
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
• To be available to shareholders and fellow Directors if they have concerns relating to matters
that contact through the normal channels of Chairman and/or Chief Executive Officer has
failed to resolve, or for which such contact is inappropriate.
• Our Senior Independent non-executive Director currently chairs two of Hysan’s corporate
governance-related committees, namely the Audit Committee and the Emoluments Review
Committee.
For details, please refer to the Company’s Corporate Governance Guidelines at the Company’s website:
www.hysan.com.hk.
NON-EXECUTIVE DIRECTORS
They have four key roles in addition to those 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 financial 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
For details, please refer to the Company’s Corporate Governance Compliance Report at the Company’s website:
www.hysan.com.hk.
50 Hysan Annual Report 2008
Balance and Independence
The Board currently comprises of 3 executive and 8 non-
executive Directors (including 4 independent non-executive
Directors). The Board continually reviews its composition and
is actively engaged in succession planning issues for both
executive and non-executive roles.
Directors’ biographies are set out on pages 41 and 42 and are
also available on the Company’s website: www.hysan.com.hk.
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 4 Independent non-executive Directors
who are identified in our Annual and Interim Reports and other
communications with shareholders.
“The ‘independent’ and
‘non-executive’ parts
of the title describe my
role very well. I am a full
member of the Board,
but I am not a member of
the executive staff of the
Company.”
“The independent directors look at the company from
the outside. We try and see it from the viewpoint
of the general shareholding public. We take an
independent view of the business operations using
our own experience as the basis. The independent
directors of Hysan, for example, have a world of
experience and are from different walks of life. We
can bring much to the Company. We are certainly not
cyphers.”
— Sir David AKERS-JONES
Independent non-executive Deputy Chairman
The Board last carried out a detailed review of director independence in March 2009. It
concluded that each of the 4 Independent non-executive Directors is independent and will keep
under review whether there are relationships or circumstances which are likely to affect (or could
appear to affect) independence.
Dr. Geoffrey Meou-tsen YEH and Mr. Fa-kuang HU will stand for re-election at this year’s AGM.
While they have served the Board for more than 9 years, they have clearly demonstrated their
respective 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 their
independence. The Board therefore considers that they remain independent, notwithstanding the
length of their respective tenure (Please refer to the accompanying Circular to Shareholders for
more details on their respective independence considerations).
Hysan Annual Report 2008 51
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Our Governance Corporate Governance Report
INDEPENDENCE STATUS
Name
Management
Independent
Not
Independent
March 2009 Review-
Reason for Independence Status
Peter Ting Chang LEE
Sir David AKERS-JONES
Tom BEHRENS-SORENSEN
Fa-kuang HU
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Dr. Deanna Ruth Tak Yung
RUDGARD
Ricky Tin For TSANG
Pauline Wah Ling YU WONG
(up to May 2008)
Dr. Geoffrey Meou-tsen YEH
Wendy Wen Yee YUNG
No business or other
relationships with the Group
or management
No business or other
relationships with the Group
or management
No business or other
relationships with the Group
or management
No business or other
relationships with the Group
or management
Director Appointments and Re-Election
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.
The Committee met in March 2008 to consider the appointment of 2 new Executive Directors,
Ricky Tin For TSANG and Wendy Wen Yee YUNG. Their remuneration where determined by the
Emoluments Review Committee (please refer to the separate Directors’ Remuneration and
Interests Report on pages 66 to 72). There are formalised role requirements for Non-executive
Directors who have 4 additional key roles as well as those requirements applicable to all
Directors (Details are available on the Company’s website: www.hysan.com.hk).
52 Hysan Annual Report 2008
Term
Non-executive Directors are appointed for a term of 3 years. New Directors are required to
submit themselves for re-election at the first AGM following their appointment. The Group’s
Articles of Association contains provisions regarding rotation of Directors so that every Director
will be subject to retirement by rotation at least once every 3 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. Details of the
Directors standing for re-election in the forthcoming AGM are set out in the accompanying
Circular to Shareholders.
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. 3 meetings were held in
2008.
Supply of Information
Supply and access to 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
significance or on new opportunities for the Group. Directors
are also kept updated of any material developments from time
to time through notifications and circulars giving them the
relevant background and explanatory information. Directors
also have access to non-Director management staff where
appropriate. These ensure that the Board will be given the
answers it needs.
ance
Best Corporate Governance
Disclosure Awards 2008:
8:
Non-Hang Seng Index
Category – Diamond Award
ward
(top award)
Organised by The Hong Kong
Institute of Certified
Public Accountants
Hysan’s 2007 annual
report “achieved a
good balance between
the depth and range of
information and readability, and it reflected,
overall, a high standard of corporate governance,
combining family ownership and professional
management.”
lity and it reflected
— Judges’ Report
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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 financial 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.
Hysan Annual Report 2008 53
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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 are also updated on any developments or changes affecting through notifications
circulated to them from time to time where appropriate.
3. Our Corporate Governance Practices – Board Committees
Focus in 2008
The workings of these governance-related Board Committees were further strengthened during
the year. The Emoluments Review Committee now has 100% Independent non-executive
Director membership. There is a majority of Independent non-executive Directors for the Audit
and Nomination Committees. Terms of reference of these Committees were revised to provide
for in-camera meetings of Independent non-executive Directors only to further encourage
objective and independent discussions and assessment.
In order to provide effective oversight and leadership and pursuant to its Corporate Governance
Guidelines, the Board has established 3 governance-related Board Committees. In common
with the Board, each Committee has access to independent advice and counsel as required and
each is supported by Executive Director and Company Secretary. The terms of reference of these
Committees are available on the Company’s website.
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, with
an overall majority of Independent non-executive Directors. All members have experience in
reviewing or analysing audited financial statements of public companies or major organisations.
The Audit Committee meets no less than twice a year. Meetings are also attended by
management by invitation including Executive Director, Finance.
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 the preparation of the financial statements. The external auditors are responsible for auditing
and attesting to the Group’s financial 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.
54 Hysan Annual Report 2008
The Audit Committee also has the responsibility to review the Group’s “whistle-blowing”
procedures for its employees to raise concerns, in confidence 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 2008
Full details are set out in the “Audit Committee Report” on pages 73 and 74. 3 meetings were
held in 2008 with full attendance for the 2 meetings for considering the Group’s annual and
interim results.
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,
Independent non-executive Directors. There is a 100% Independent non-executive Director
membership. 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.
Activities and Report in 2008
Full details are set out in the “Directors’ Remuneration and Interests Report” on pages 66 to
72. One meeting was held in March 2008 with full attendance to consider Executive Director
compensation.
Nomination Committee
Composition and Meetings Schedule
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 has a majority of Independent non-executive Directors. The
Committee meets when it is considered necessary.
Roles and Authority
The Committee has the responsibility of nominating for Board approval candidates to fill 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 2008
The Committee met in March 2008 with full attendance to consider the appointment of Ricky Tin
For TSANG and Wendy Wen Yee YUNG as new Executive Directors as from 1 April 2008.
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Hysan Annual Report 2008 55
Our Governance Corporate Governance Report
4. Our Corporate Governance Practices – Shareholders
Focus in 2008
We are committed to continually enhancing our communication with shareholders. There is
currently no requirement in Hong Kong providing for mandatory forwarding of shareholder
communication materials by nominee companies to beneficial shareholders. We operate
a self-funded programme to proactively forward shareholder communication materials via
nominee companies and continue to expand coverage of the same during the year. We noted
recent Listing Rules changes, which (subject to legal requirements of the issuer’s place of
incorporation) provide for deemed shareholder consent to receive shareholder communications
via electronic means. While we support the wider use of electronic communications in
today’s environment, we aim to strike a balance to ensure effective communications with all
shareholder segments as far as practicable. We therefore plan to continue our self-funded
communication programme for important areas, including Notice of AGM and key information
to enable shareholders to vote.
In general, we enhanced the quality of disclosure in our corporate communication materials,
including this Annual Report.
The Board and management fully recognise the significance 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.
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 financial and non-financial 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.
Hysan has its company website which provides an additional channel for shareholders
and other interested parties to access the Group’s information. The Group’s key corporate
governance policies and supporting documents including terms of reference of the various
Board Committees as well as the Group’s financial reports, press releases and announcements
56 Hysan Annual Report 2008
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The AGM provides a useful opportunity for the Board to maintain a
constructive dialogue with private shareholders.
are available on the website. Since 2006, shareholders are given the option to elect to receive
corporate communications by electronic means with their express consent. We continue to
review how to better utilise the website for timely disclosure and to enhance transparency.
Constructive Use of AGM
The Board recognises the significance 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 2007 business environment;
business activities review and outlook. The Company values the contributions from shareholders
in the questions and answers session after the statutory part of the meeting.
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. Executive Director, Finance participates in
regular one-on-one meetings and roadshows.
Corporate Disclosure Policy
We recognise the significance of consistent disclosure practices aimed at accurate, timely and
broadly disseminated disclosure of material information about Hysan. The Group’s Corporate
Disclosure Policy 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 identifies who may speak on Hysan’s behalf, and outlines the responsibility for
communications with various stakeholders groups. (Details of the Corporate Disclosure Policy is
available at the Company’s website: www.hysan.com.hk).
Hysan Annual Report 2008 57
Our Governance Corporate Governance Report
Shareholder Rights
Self-funded Programme to Proactively Forward Shareholder Communication Materials via
Nominee Companies
Shareholders must be furnished with sufficient 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
beneficial 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 significance of providing information to shareholders to enable them to make an
informed assessment in voting. Copies of the Annual Report and financial statements and related
papers were dispatched to shareholders at over 30 days prior to the AGM (statutory requirement:
21 days). Comprehensive information on each resolution to be proposed is also provided.
Voting
We recognise shareholders’ right in exercising their control proportionate to their equity
ownership and support the principle of voting by poll. The Company has conducted all voting
at general meetings by poll since 2004. The poll is conducted by the Company’s Registrars
and scrutinised by the Group’s auditors. Procedures for conducting a poll are included in the
Circular to Shareholders accompanying the Notice of AGM and again explained to the general
meeting prior to the taking of the poll. 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 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 depositing
the signed requisition at the Company’s registered office.
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.
58 Hysan Annual Report 2008
Directors’ Report
The Directors submit their report together with the audited financial statements for the year ended 31 December 2008, which were
approved by the Board of Directors (the “Board”) on 10 March 2009.
Principal Activities
The principal activities of the Group continued throughout 2008 to be property investment, management and development. Details of
the Group’s principal subsidiaries and associates as at 31 December 2008 are set out in notes 17 and 18 respectively to the financial
statements.
The turnover and results of the Group are principally derived from leasing of investment properties located in Hong Kong; accordingly, no
segment financial analysis is provided. A detailed review of the development of the business of the Group during the year, and likely future
developments, is set out in Chairman’s Statement and Management’s Discussion and Analysis of this Annual Report.
Results and Appropriations
The results of the Group for the year ended 31 December 2008 are set out in the consolidated income statement on page 78.
An interim dividend of HK14 cents per share, amounting to HK$146 million, was paid to shareholders during the year.
The Board recommends the payment of a final dividend of HK54 cents per share with a scrip alternative to the shareholders on the
register of members on 18 May 2009, absorbing HK$562 million. The ordinary dividends proposed and paid in respect of the full year
2008 will absorb HK$708 million, the balance of the profit will be retained.
Reserves
Movements during the year in the reserves of the Group and the Company are set out in the consolidated statement of changes in equity
on pages 82 and 83 and note 32 to the financial statements respectively.
Investment Properties
All of the Group’s investment properties were revalued by an independent professional valuer as at 31 December 2008 using the fair
value model. Details of movements during the year in the investment properties of the Group are set out in note 14 to the financial
statements.
Details of the major investment properties of the Group as at 31 December 2008 are set out in the section under Schedule of Principal
Properties of this Annual Report.
Property, Plant and Equipment
Details of movements during the year in the property, plant and equipment of the Group and the Company are set out in note 15 to the
financial statements.
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Share Capital
Details of movements in the share capital of the Company during the year are set out in note 31 to the financial statements.
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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 “Corporate Governance 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 44 to 58) – it gives detailed information on the Company’s compliance with the Corporate
Governance Code, and adoption of local and international best practices;
(b) “Directors’ Remuneration and Interests Report” (pages 66 to 72) – 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 73 and 74) – it sets out the terms of reference, work performed and findings of the Audit
Committee for the year;
(d) “Internal Controls and Risk Management” (pages 34 to 36) – it sets out the Company’s framework on internal controls and risks
assessment including control environment, control activities, work done during the year and further steps to be done; and
(e) “Corporate Responsibility Report” – it sets out the Company’s Corporate Responsibility Policies and Practices reflecting its
commitment to maintaining, a high standard of corporate governance.
The Board
The Board currently comprises Peter Ting Chang LEE (Chairman), Ricky Tin For TSANG (Executive Director, Finance) and Wendy Wen
Yee YUNG (Executive Director and Company Secretary) and eight other Non-executive Directors. Sir David AKERS-JONES acts as the
Independent non-executive Deputy Chairman, also chairing two corporate governance-related committees, namely, the Audit Committee
and the Emoluments Review Committee.
Ricky Tin For TSANG and Wendy Wen Yee YUNG were appointed as Executive Directors effective 1 April 2008.
Pursuant to the Company’s Articles of Association, Pauline Wah Ling YU WONG retired from the Board by rotation as from the conclusion
of the annual general meeting held on 14 May 2008. She remained as Senior Advisor to the Company until 31 December 2008 when she
retired from the Company. Save otherwise mentioned, the Directors whose names and biographies appear on pages 41 and 42 have been
Directors of the Company during the year.
Raymond Liang-ming HU, Kam Wing LI, Timothy John SMITH and V-nee YEH (resigned on 20 January 2009) also served as alternate
Directors throughout the year.
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 office shall retire from office by rotation. A retiring Director is eligible for re-election.
Particulars of Directors seeking for re-election at the forthcoming annual general meeting (“2009 AGM”) are set out in the accompanying
circular to shareholders.
The Company has received from each Independent non-executive Director an annual confirmation of his independence as regard each of
the factors referred to in Rule 3.13 (1) to (8) 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 Directors 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 66 to 72.
60 Hysan Annual Report 2008
Substantial Shareholders’ and Other Persons’ Interests in Shares
As at 31 December 2008, 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 notified to the Company, were as follows:
Aggregate long positions in shares and underlying shares of the Company
Name
Capacity
Lee Hysan Estate Company, Limited
Lee Hysan Company Limited
Beneficial owner and interests
of controlled corporations
Interests of controlled
corporations
Number
of ordinary
shares held
433,130,735
(Note b)
433,130,735
(Note b)
% of the
issued
share
capital
(Note a)
41.60
41.60
Silchester International Investors Limited
Investment manager
83,513,000
8.02
Notes:
(a) The percentage has been compiled based on the total number of shares of the Company in issue as at 31 December 2008 (i.e. 1,041,114,578
ordinary shares).
(b) 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 2008.
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 37 to the financial statements.
Some of these transactions also constitute “Continuing Connected Transactions” under the Listing Rules, as identified below.
Continuing Connected Transactions
Certain transactions entered into by the Group constituted continuing connected transactions (the “Transactions”) under Rule 14A.34 of
the Listing Rules during the year. Details of the Transactions required to be disclosed are set out as follows:
Lease granted by the Group
I.
(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 (“Oxer”) (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:
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Date of agreement
Terms
Premises
Oxer Limited
(Note b)
30 August 2007
(Lease and
Supplemental
Lease)
3 years commencing
from 1 July 2007
(for Room 3703) and
35 months commencing
from 1 August 2007
(for Room 3704)
Rooms 3703
and 3704 and
1 carparking space
Annual consideration
(Note a)
2008: HK$ 1,458,060
2009: HK$ 1,464,144
732,072
2010: HK$
(on pro-rata basis)
(Note c)
6 July 2007
(Carpark Licence
Agreement)
34 months commencing
from 1 September 2007
(for a carparking space)
Hysan Annual Report 2008 61
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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
(i)
Jebsen and
Company
Limited
(Note d)
29 June 2007
3 years commencing
from 1 September 2007
(ii) Hang Seng Bank
Limited
(Note d)
7 June 2006
(Note e)
3 years commencing
from 1 October 2006
(iii) Hang Seng Bank
Limited
15 October 2007
(Note f)
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)
(Note g)
Office units
on the 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 the
Lower Ground Floor
(iv) Pearl Investments 23 May 2008
(HK) Limited
(Note i)
(Lease)
18 May 2007
(Carpark Licence
Agreement and
a supplemental
letter dated
5 June 2007)
3 years commencing
from 15 May 2008
Room 1401C on
the 14th Floor
3 years commencing
from 1 June 2007
1 carparking space
Annual consideration
(Note a)
2008: HK$ 20,582,424
2009: HK$ 20,692,488
2010: HK$ 13,794,992
(on pro-rata basis)
(Note c)
2008: HK$ 1,643,808
(on pro-rata basis)
2008: HK$ 10,578,491
2009: HK$ 12,526,488
2010: HK$ 9,866,293
(on pro-rata basis upto
14 October 2010)
(Notes c and h)
2008: HK$ 1,307,578
(on pro-rata basis
for the Lease)
2009: HK$ 2,049,156
2010: HK$ 2,011,356
(on pro-rata basis
for the Carpark
Licence Agreement)
736,132
(on pro-rata basis
for the Lease)
(Note c)
2011: HK$
62 Hysan Annual Report 2008
Continuing Connected Transactions continued
I. Lease granted by the Group continued
(c) Bamboo Grove, 74-86 Kennedy Road, Hong Kong (“Bamboo Grove”)
The following lease arrangement was entered into by Kwong Wan Realty Limited, a wholly-owned subsidiary of the Company and property
owner of Bamboo Grove, as landlord, with Atlas Corporate Management Limited (“Atlas”), a wholly-owned subsidiary of Lee Hysan Estate
Company, Limited, a substantial shareholder of the Company (holding 41.60% interest). Details of the leases are set out below:
Connected person
Date of agreement
Terms
Premises
Atlas Corporate
Management
Limited
5 January 2006
(Note j)
2 years commencing
from 16 January 2006
Penthouse 01
on the 29th and
30th Floors and
2 carparking spaces
Annual consideration
(Note a)
2008: HK$
72,494
(on pro-rata basis)
(d) One Hysan Avenue, Causeway Bay, Hong Kong (“One Hysan Avenue”)
The following lease arrangements were 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 leases are set out below:
Connected person
Date of agreement
Terms
Premises
(i) Atlas Corporate
Management
Limited
(ii) Atlas Corporate
Management
Limited
9 November 2005
3 years commencing
from 1 November 2005
Whole of 21st Floor
14 November 2008
(Note k)
3 years commencing
from 1 November 2008
Whole of 21st Floor
Annual consideration
(Note a)
2008: HK$ 1,169,800
(on pro-rata basis)
2008: HK$
416,598
(on pro-rata basis)
2009: HK$ 2,505,684
2010: HK$ 2,505,684
2011: HK$ 2,088,070
(on pro-rata basis)
(Note c)
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
Annual consideration
Barrowgate Limited
25 February 2004 and 3 years commencing
two Supplemental
Appointment Letters
of 19 July 2004 and
7 February 2007
from 1 April 2004
(renewed for
further 3 years)
Whole premises of
Lee Gardens Two
HK$13,004,618 (i)
and
HK$2,324,977 (ii)
(Note l)
Hysan Annual Report 2008 63
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Directors’ Report continued
Continuing Connected Transactions continued
Notes:
(a) The annual considerations are based on current rates of rental, operating charges, (for retail premises) promotional levies and (for carparking spaces)
licence fees for each of the relevant financial years. The rental, operating charges, promotional levies and licence fees (as the case may be) are
payable monthly in advance.
(b) Oxer was considered a connected person by virtue of its being a company controlled by Mr. Michael Tze Hau LEE, former Managing Director of the
Company (until 8 May 2007). It has ceased to be a connected person upon expiry of 12 months, on 8 May 2008.
(c) The monthly operating charges were revised with effect from 1 January 2009 while the rental, promotional levies and licence fees (as the case may be)
remained unchanged.
(d)
Jebsen and Company Limited (“Jebsen and Company”) and Hang Seng Bank Limited (“Hang Seng”) are beneficial substantial shareholders of
Barrowgate having equity interest of 10% and 24.64% respectively in Barrowgate.
(e) 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)(ii) above with effect from 14 February 2008.
(f) Barrowgate and Hang Seng entered into an agreement for lease dated 15 October 2007. A formal lease agreement and a supplemental deed in
respect of the premises mentioned under I(b)(iii) above were entered into between Barrowgate and Hang Seng on 15 February 2008 and 13 May 2008
respectively.
(g) The term of the lease mention under I(b)(iii) exceeds 3 years and according to Listing Rules requirement, an independent financial adviser to the Board
was engaged and it formed the view that the term of this lease with duration longer than 3 years was required and it was normal business practice for
leases of this type to be of such duration.
(h) 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.
(i)
(j)
Pearl Investments (HK) Limited is a connected person by virtue of its being an associate of Mr. Chien LEE, a Non-executive Director of the Company.
This lease expired on 15 January 2008 and was not renewed.
(k) This is a renewal of the lease mentioned under I(d)(i) above.
(l)
These represent the actual considerations for the year ended 31 December 2008, 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 II above by virtue of Rule 14A.42 from strict compliance with the requirements of Rules
14A.35, 14A.45 to 14A.47 of the Listing Rules on condition that details of the Transactions be included in the Company’s subsequent
published annual report for financial years in which the relevant Transactions are subsisting. The Company confirms 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 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;
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 findings on these procedures to the Board 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 fell within the range of rentals offered to independent third parties. All
Independent non-executive Directors of the Company have reviewed the Transactions and the report of the auditor and confirmed that the
respective contracts and terms of the Transactions are:
1.
in the ordinary and usual course of business of the Company;
2. on normal commercial terms; and
3.
in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the commercial interests of
the Group as a whole.
64 Hysan Annual Report 2008
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 significance due to the annual consideration of the lease having a percentage
ratio of 1.26% from the calculation of the revenue test (the percentage ratios for assets ratio and consideration ratio are 0.05% and
0.16% respectively) as at 31 December 2008. Details of the transaction are set out under I(b)(i) of Continuing Connected Transactions.
Major Customers and Suppliers
During the year, both the aggregate amount of purchases attributable to the Group’s 5 largest suppliers and the aggregate amount of
turnover attributable to the Group’s 5 largest customers were less than 30% of total purchases and turnover of the Group respectively.
Purchase, Sale or Redemption of the Company’s Listed Securities
During the year, neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.
Public Float
Based on the information that is publicly available to the Company and within the knowledge of the Directors, the Company has
maintained the prescribed amount of public float during the year and up to the date of this report as required under the Listing Rules.
Donations
During the year, the Group made donations of approximately HK$2 million to charitable and non-profit-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 2009 AGM.
On behalf of the Board
Peter T.C. LEE
Chairman
Hong Kong, 10 March 2009
Hysan Annual Report 2008 65
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Directors’ Remuneration and Interests Report
Director Compensation
Emoluments Review Committee
The Board recognises the significance of having in place a transparent and objective process for determining executive Director
compensation, particularly in light of the fact that the Company’s founding family is a major shareholder. The Emoluments Review
Committee was first established in 1987 to review and determine the remuneration of executive Directors.
The Committee is currently chaired by Sir David AKERS-JONES, Independent non-executive Deputy Chairman. Its other members are
Fa-kuang HU and Dr. Geoffrey Meou-tsen YEH. It has 100% Independent non-executive Director membership.
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
Officer may be invited to Committee meetings. No Director is involved in deciding his own remuneration.
Remuneration Policy
The Group’s remuneration policy aims to provide a fair market remuneration in a form and value to attract, retain and motivate high quality
staff. At the same time, such awards must be aligned with shareholder interests.
The following principles had been established:
• Remuneration package will consist of several components: (i) fixed part (base salary and benefits); (ii) performance-based
(bonus); (iii) long-term incentives (executive share options). The structure will reflect a fair system of reward for all the participants,
emphasizing performance.
• 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.
•
The Committee will determine the overall amount of each component of remuneration, taking into account both quantitative and
qualitative assessment of performance.
• Remuneration policy and practice will be as transparent as possible.
• Executive Directors will develop a significant personal shareholding pursuant to the executive share options in order to align their
interests with those of shareholders.
• Pay and employment conditions elsewhere in the Group will be taken into account, especially in setting annual salary increases.
•
The remuneration policy for executive Directors will be reviewed regularly, independently of executive management.
2008 Review
The Committee met in March 2008 to review executive Director compensation packages. It also considered packages for two new
executive Directors. Advice of independent advisers was taken in consideration. All members attended the meeting without any executive
Director presence. Details are set out in note 7 to the financial statements. The most recent meeting of the Committee held in March 2009
was attended by Sir David AKERS-JONES and Dr. Geoffrey Meou-tsen YEH to review executive Director compensation packages.
Details of Directors’ (including individual executive Directors) emoluments and options are set out in notes 7 and 38 respectively to the
financial statements.
Non-executive Director emoluments
Director fees are subject to shareholder approval at general meeting. Key elements of our non-executive Director remuneration policy
include:
• Remuneration should be sufficient to attract and retain first class non-executive talent.
• Remuneration of non-executive Directors is (subject to shareholder approval) set by the Board and should be proportional to their
contribution towards the interests of the Company.
• Remuneration practice should be consistent with recognised best practice standards for non-executive Directors’ remuneration.
• Remuneration should be in the form of cash fees, payable annually.
• Non-executive Directors do not receive share options from the Company.
66 Hysan Annual Report 2008
Director Compensation continued
Non-executive Director emoluments continued
Taking into consideration the level of responsibility, experience and abilities required of the Directors, and fees offered for similar positions
in comparable companies, the fee structure of Directors (approved at annual general meeting (the “AGM”) held on 10 May 2005) is as
follows:
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 receives any pension benefits from the Company, nor do they participate in any bonus or incentive
schemes.
The Non-executive Directors (including the Independent non-executive Directors) received fees totalling HK$1,100,000 and the
Independent non-executive Deputy Chairman received a total annual fee of HK$230,000 for 2008 (Please refer to note 7 to the financial
statements).
Long-term incentives: Share Option Schemes
The Company has granted options under 2 executive share option schemes. The purpose of both schemes was to strengthen the
link between individual staff and shareholder interests. The power of grant to executive Directors is vested in the Emoluments Review
Committee and endorsed by all Independent non-executive Directors as required under the Rules Governing the Listing of Securities (the
“Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The Chairman or the Managing Director may make
grants to management staff below executive Director level.
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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 2008, shares issuable under options granted under the 1995 scheme was 189,000 representing less than 0.02% 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). For the options granted under the
1995 Scheme currently outstanding, the basis for determining the exercise price is 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 5 business days immediately preceding the date of grant; and (iii) the nominal value
of the shares. Consideration on each grant of option was HK$1 and was paid within 30 days from the date of grant of option, with full
payment for exercise price to be made on exercise of the relevant option.
Hysan Annual Report 2008 67
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Director Compensation continued
Long-term incentives: Share Option Schemes continued
The 2005 Share Option Scheme (the “2005 Scheme”)
The Company adopted the 2005 Scheme at its AGM held on 10 May 2005, which has a term of 10 years and will expire on 9 May 2015
(together with the 1995 Scheme are referred to as the “Schemes”).
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
as at 10 May 2005, the date of the AGM approving the 2005 Scheme (being 104,996,365 shares). 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 shareholder approval, being
10,499,636 shares). 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 5 business days immediately preceding the date of grant; and (iii) the nominal value of the
shares. Consideration on each grant of option is HK$1 and is required to be paid within 30 days from the date of grant of option, with full
payment for exercise price to be made on exercise of the relevant option.
Grant and vesting structures
Grants made prior to 8 March 2005 had a holding period of 2 years and a vesting period of 5 years.
With effect from 8 March 2005, the Board has approved a new grant and vesting structure. Grants will be made on a periodic basis.
Vesting period is 3 years in equal proportions. Size of grant will be determined by reference to base salary multiple and job grades. A
clear performance criterion will be a key driver. The Board will review the grant and vesting structures from time to time.
Movement of share options
During the year, a total of 903,000 shares options were granted under the 2005 Scheme.
As at 31 December 2008, an aggregate of 1,981,000 shares are issuable for options granted under the Schemes, representing
approximately 0.19% of the issued share capital of the Company.
As at the date of this Report, 98,808,765 shares are issuable under the Schemes representing 9.49% of the issued share capital.
Details of options granted, exercised, cancelled/lapsed and outstanding under the Schemes during the year are as follows:
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2008
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2008
30.3.2005
15.850
30.3.2005
15.850
30.3.2005
15.850
30.3.2005 –
29.3.2015
30.3.2005 –
29.3.2015
30.3.2005 –
29.3.2015
120,000
96,000
87,667
–
–
–
(40,000)
(Note j)
–
(74,667)
(Note k)
–
–
–
80,000
96,000
13,000
1995 Scheme
Executive Directors
Ricky Tin For TSANG
(Note b)
Wendy Wen Yee YUNG
(Note b)
Eligible employees
(Note c)
68 Hysan Annual Report 2008
Director Compensation continued
Long-term incentives: Share Option Schemes continued
Movement of share options continued
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2008
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2008
Name
Date of grant
2005 Scheme
Executive Directors
Peter Ting Chang LEE
6.3.2007
21.380
6.3.2007 –
5.3.2017
235,000
–
13.3.2008
21.450
(Note e)
13.3.2008 –
12.3.2018
–
260,000
Ricky Tin For TSANG
(Note b)
30.3.2006
22.000
30.3.2007
21.250
30.3.2006 –
29.3.2016
30.3.2007 –
29.3.2017
120,000
95,000
–
–
31.3.2008
21.960
(Note f)
31.3.2008 –
30.3.2018
–
100,000
Wendy Wen Yee YUNG
(Note b)
26.6.2006
20.110
30.3.2007
21.250
26.6.2006 –
25.6.2016
30.3.2007 –
29.3.2017
110,000
95,000
–
–
Pauline Wah Ling
YU WONG (Note d)
Eligible employees
(Note c)
31.3.2008
21.960
(Note f)
31.3.2008 –
30.3.2018
–
100,000
6.3.2007
21.380
30.3.2006
22.000
30.3.2007
21.250
6.3.2007 –
30.6.2009
30.3.2006 –
29.3.2016
30.3.2007 –
29.3.2017
108,000
99,000
132,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
235,000
–
260,000
–
120,000
–
95,000
–
100,000
–
110,000
–
95,000
–
100,000
–
108,000
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(Note m)
67,000
73,000
(2,000)
(Note l)
(57,000)
(Note m)
31.3.2008
21.960
(Note f)
31.3.2008 –
30.3.2018
2.5.2008
23.900
(Note g)
2.5.2008 –
1.5.2018
9.9.2008
21.300
(Note h)
9.9.2008 –
8.9.2018
2.10.2008
20.106
(Note i)
2.10.2008 –
1.10.2018
–
178,000
–
–
–
95,000
85,000
85,000
–
–
–
–
(14,000)
(Note m)
164,000
–
–
–
95,000
85,000
85,000
1,297,667
903,000
(116,667)
(103,000) 1,981,000
Hysan Annual Report 2008 69
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Directors’ Remuneration and Interests Report continued
Director Compensation continued
Long-term incentives: Share Option Schemes continued
Movement of share options continued
Notes:
(a) Save otherwise stated, all options granted have a vesting period of 3 years in equal proportions.
(b) Ricky Tin For TSANG and Wendy Wen Yee YUNG were appointed as Executive Directors on 1 April 2008.
(c) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance.
(d) Pauline Wah Ling YU WONG retired from the Board of the Company by rotation as from the conclusion of 2008 AGM held on 14 May 2008. She
remained as Senior Advisor to the Company until 31 December 2008 when she retired from the Company and her outstanding options remain
exercisable until 30 June 2009.
(e) The closing price of the shares of the Company immediately before the date of grant (as of 12 March 2008) was HK$22.100.
(f)
The closing price of the shares of the Company immediately before the date of grant (as of 28 March 2008) was HK$21.950.
(g) The closing price of the shares of the Company immediately before the date of grant (as of 30 April 2008) was HK$22.600.
(h) The closing price of the shares of the Company immediately before the date of grant (as of 8 September 2008) was HK$21.300.
(i)
The closing price of the shares of the Company immediately before the date of grant (as of 30 September 2008) was HK$19.980.
(j)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$22.700.
(k) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$22.337.
(l)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$22.950.
(m) The options lapsed during the year upon 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 Schemes are set out in note 38 to the financial statements.
Value of share options
Pursuant to Rule 17.08 of the Listing Rules, the value of the share options granted during the year is as follows to be expensed through
the Group’s income statement over the three-year vesting period of the options.
The 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
a number of 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:
Date of grant
2.10.2008
9.9.2008
2.5.2008
31.3.2008
13.3.2008
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 values per share option
HK$19.160
HK$20.106
2.936%
10 years
38.86%
HK$0.463
HK$6.940
HK$21.300
HK$21.300
2.833%
10 years
38.19%
HK$0.463
HK$8.130
HK$23.900
HK$23.900
2.668%
10 years
35.51%
HK$0.463
HK$8.990
HK$21.800 HK$21.450
HK$21.960 HK$21.450
2.486%
10 years
33.03%
HK$0.463
HK$6.970
2.607%
10 years
34.25%
HK$0.463
HK$7.390
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 5 financial years.
70 Hysan Annual Report 2008
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 1 year without payment of compensation (other than statutory compensation).
Directors’ Interests in Shares
As at 31 December 2008, the interests and short positions of the Directors and alternate Director in the shares, underlying shares or
debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance
(“SFO”)) as recorded in the register required to be kept under section 352 of the SFO; or as otherwise notified to the Company and the
Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”), are set out
below:
Aggregate long positions in shares and underlying shares of the Company
Name
Number of ordinary shares held
Personal
Interests
Family
Interests
Corporate
Interests
Other
Interests
Total
% of the issued
share capital
(Note a)
Peter Ting Chang LEE
3,370,708
Tom BEHRENS-SORENSEN
Fa-kuang HU
Hans Michael JEBSEN
Chien LEE
10,000
–
60,000
800,000
Deanna Ruth Tak Yung RUDGARD
1,871,600
Ricky Tin For TSANG
Geoffrey Meou-tsen YEH
Wendy Wen Yee YUNG
V-nee YEH
(alternate to Geoffrey Meou-tsen YEH)
(Note d)
40,000
265,364
28,000
43,259
–
–
–
–
–
–
–
–
–
–
–
–
200,000
(Note b)
2,432,914
(Note c)
–
–
–
–
–
–
–
–
–
3,370,708
10,000
200,000
0.324
0.001
0.019
–
2,492,914
0.239
–
–
–
–
–
–
800,000
1,871,600
40,000
265,364
28,000
43,259
0.077
0.180
0.004
0.025
0.003
0.004
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(a) This percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,041,114,578 ordinary shares) as at
31 December 2008.
(b) Such shares were held by a company which was wholly-owned by Fa-kuang HU and he was deemed to have a beneficial 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.
(d) V-nee YEH resigned as alternate Director to Dr. Geoffrey Meou-tsen YEH effective from 20 January 2009.
Certain executive Directors of the Company have been granted share options under the 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.
Aggregate long positions in shares of associated corporations
Listed below is a Director’s interest in the shares of Barrowgate Limited (“Barrowgate”), a 65.36% subsidiary of the Company:
Name
Hans Michael JEBSEN
Number of ordinary shares held
Corporate
interests
Other
interests
% of the issued
share capital
Total
1,000
–
1,000
10
(Note)
Note: 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 a controlling shareholder of Jebsen
and Company.
Hysan Annual Report 2008 71
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Directors’ Remuneration and Interests Report continued
Directors’ Interests in Shares continued
Aggregate long positions in shares of associated corporations continued
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 2008 were recorded in the register required to be kept under Section 352 of the SFO; or as otherwise
notified to the Company and the Stock Exchange pursuant to the Model Code.
Compliance of the Model Code for Securities Transactions by Directors of Listed Issuers
The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules as its own code of conduct regarding Director’s
securities transactions. All Directors have confirmed, following specific enquiry by the Company, that they have complied with the required
standards set out in the Model Code throughout the year.
Directors’ Interests in Contracts
During the year, certain Directors are parties to contracts with the Group. These contracts constitute Related Party Transactions,
Connected Transactions or Contracts of Significance under applicable accounting or regulatory rules (details are disclosed in the
Directors’ Report).
Directors’ Interests in Competing Business
The Group is engaged principally in the property investment, development and management of high quality investment properties in Hong
Kong. The following Directors (excluding Independent non-executive Directors) are considered to have interests in other activities (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:
(i) Peter Ting Chang LEE, Anthony Hsien Pin LEE, Chien LEE 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) Hans Michael JEBSEN and his alternate, Kam Wing LI, hold the offices of directors in each of Jebsen and Company and Jebsen China
Services Limited 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.
(iii) Chien LEE is an independent non-executive director of Swire Pacific Limited whose business includes, inter alia, property investment
and trading in Hong Kong, the People’s Republic of China and the United States of America.
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,
and project management in both the People’s Republic of China and Hong Kong. Mr. Hu was re-designated as Independent non-executive
Director effective 27 March 2008.
The Company’s management team is separate and independent from that of the companies identified above. In addition, save and except
Peter Ting Chang LEE, the relevant Directors have non-executive roles and are not involved in the Company’s day-to-day operations and
management.
By Order of the Board
Wendy W.Y. YUNG
Executive Director and Company Secretary
Hong Kong, 10 March 2009
72 Hysan Annual Report 2008
Audit Committee Report
The Audit Committee has 3 members and is chaired by Sir David AKERS-JONES, Independent non-executive Deputy Chairman. The
Committee has a majority of Independent non-executive Directors namely, Tom BEHRENS-SORENSEN, Independent non-executive Director,
and Chien LEE, Non-executive Director. Under its terms of reference, the Committee oversees the Company’s financial reporting process;
it also reviews the Company’s internal controls and risk management systems and its relationship with external auditor. Effective from
1 January 2009, the Committee’s terms of reference was revised in light of the changes to the Listing Rules. The Committee also has the
responsibility to review the adequacy of resources, qualifications and experience of staff of the Group’s accounting and financial reporting
function, and their training programmes and budget. The Committee presents a report to the Board on its findings after each Committee
meeting.
The Committee held 3 meetings during 2008, on 1 February, 12 March and 4 August. The meetings held in March and August 2008 were
attended by all members to consider the financial statements for the annual and interim reports respectively. An additional meeting held
in February 2008 was attended by Sir David AKERS-JONES and Chien LEE to consider matters relating to the new Internal Audit function.
The Committee last met on 9 March 2009 to consider the financial statements for the year ended 31 December 2008.
Details of the meetings held in February and March 2008 were set out in the 2007 Annual Report. Significant matters, as reviewed and
discussed in the other meetings, include the following:
Financial Reporting
In the process of financial reporting, management is responsible for the preparation of Group financial statements including the selection
of suitable accounting policies. The external auditor is responsible for auditing and attesting to Group financial statements and evaluating
Group’s system of internal controls in such regard. The Committee oversees the respective work of management and the external auditor
to endorse the processes and safeguards employed by them.
• August 2008
:
The Committee reviewed and recommended to the Board for approval the unaudited financial statements
for the first 6 months of 2008, prior to public announcement and filing. The Committee received reports
from and met with the external auditor to discuss the scope of their review and findings. The Committee had
discussions with management on significant judgments affecting Group’s financial statements.
• March 2009
:
The Committee reviewed and discussed with management and the external auditor the 2008 financial
statements included in the Annual Report 2008, prior to public announcement and filing. The Committee
received reports from and met with external auditor and internal auditor to discuss the general scope of their
respective work and findings. The Committee had discussions with management with regard to significant
judgments affecting the Group financial statements. Based on these review and discussions, and the report
of the external auditor, the Audit Committee recommended to the Board approval of the financial statements
for the year ended 31 December 2008, with the Independent Auditor’s Report thereon.
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Review of Internal Controls and Risk Management Systems
• August 2008
:
The Committee considered the report of internal audit, including status in implementing recommendations
following 2007 annual internal controls review and was satisfied.
• March 2009
:
For 2008 annual internal controls review, the Committee considered reports from and upon receiving
confirmation of management and internal audit, was satisfied as to the effectiveness of the Company’s
internal controls system (including the adequacy of resources, qualifications and experience of staff of the
Group’s accounting and financial reporting function, and their training programmes and budget). There were
no matters of material concern relating to financial, operational, or compliance controls.
Hysan Annual Report 2008 73
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Audit Committee Report continued
Relationship with External Auditor
• March 2008 and :
August 2008
The Committee reviewed and considered the terms of engagement of the external auditor in respect of the
2008 interim results reviews and 2008 annual audit and the related results announcement and annual
confirmation.
• March 2009
:
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 auditor. The
Committee recommended to the Board that the shareholders be asked to re-appoint Deloitte Touche
Tohmatsu as the Group’s external auditor for 2009.
For the year ended 31 December 2008, external auditor received a total fee of HK$2,104,000 (audit
services: HK$1,800,000 and non-audit services HK$304,000).
Members of the Audit Committee
David AKERS-JONES (Chairman)
Tom BEHRENS-SORENSEN
Chien LEE
Hong Kong, 10 March 2009
74 Hysan Annual Report 2008
4.
Financial Statements
and Valuation
76 Directors’ Responsibilities for
the Financial Statements
77
Independent Auditor’s Report
78 Consolidated Income Statement
79 Consolidated Balance Sheet
81 Balance Sheet
82 Consolidated Statement of
Changes in Equity
84 Consolidated Cash Flow Statement
86 Signifi cant Accounting Policies
93 Notes to the Financial Statements
125 Financial Risk Management
133 Five-Year Financial Summary
135 Report of the Valuer
136 Schedule of Principal Properties
137 Shareholding Analysis
Hysan Annual Report 2008 75
Directors’ Responsibilities for the Financial Statements
The Companies Ordinance requires the Directors to prepare financial statements for each financial year which give a true and fair view of
the state of affairs of the Company and of the Group as at the end of the financial year and of their respective profit or loss for the year
then ended. In preparing the financial statements, the Directors are required to:
(a) select suitable accounting policies and apply them on a consistent basis, making judgments and estimates that are prudent, fair and
reasonable;
(b) state the reasons for any significant departure from accounting standards; and
(c) prepare the financial statements on the going concern basis, unless it is not appropriate to presume that the Company and the
Group will continue in business for the foreseeable future.
The Directors are responsible for keeping proper accounting records, for safeguarding the assets of the Company and of the Group and
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
76 Hysan Annual Report 2008
Independent Auditor’s Report
To the Members of Hysan Development Company Limited
(incorporated in Hong Kong with limited liability)
We have audited the financial statements of Hysan Development Company Limited (the “Company”) and its subsidiaries (collectively
referred to as the “Group”) set out on pages 78 to 132, which comprise the consolidated and Company’s balance sheets as at 31
December 2008, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash
flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Directors’ responsibility for the financial statements
The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in
accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the
Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to
the preparation and the true and fair presentation of the financial statements that are free from material misstatement, whether due
to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a
body, in accordance with section 141 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility
towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong
Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31
December 2008 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting
Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
10 March 2009
Hysan Annual Report 2008 77
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Consolidated Income Statement
For the year ended 31 December 2008
Turnover
Property expenses
Gross profit
Investment income
Other gains and losses
Administrative expenses
Finance costs
Change in fair value of investment properties
Share of results of associates
Profit before taxation
Taxation
Profit 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
2008
HK$ million
2007
HK$ million
4
5
6
9
10
11
12
12
13
13
1,638
(217)
1,421
63
146
(134)
(155)
(212)
590
1,719
(1)
1,718
1,594
124
1,718
644
562
1,368
(208)
1,160
98
302
(106)
(175)
3,131
452
4,862
(745)
4,117
3,949
168
4,117
549
498
153.37
153.36
375.46
375.25
78 Hysan Annual Report 2008
Consolidated Balance Sheet
At 31 December 2008
Non-current assets
Investment properties
Property, plant and equipment
Prepaid lease payments
Investments in associates
Available-for-sale investments
Other financial assets
Other receivables
Current assets
Accounts receivable and other receivables
Amount due from an associate
Other financial assets
Short-term investments
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Other financial liabilities
Rental deposits from tenants
Amounts due to minority shareholders
Borrowings
Taxation payable
Net current assets
Total assets less current liabilities
Non-current liabilities
Borrowings
Other financial liabilities
Rental deposits from tenants
Deferred taxation
Net assets
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Notes
2008
HK$ million
2007
HK$ million
14
15
16
18
19
20
21
23
20
24
25
25
26
20
27
28
28
20
30
35,850
80
123
1,750
1,022
242
29
39,096
94
590
41
700
964
51
35,711
73
123
1,011
2,479
235
22
39,654
66
590
1
95
478
6
2,440
1,236
320
–
158
327
550
351
1,706
734
278
40
124
327
–
270
1,039
197
39,830
39,851
3,201
41
230
3,648
7,120
2,861
17
215
3,910
7,003
32,710
32,848
Hysan Annual Report 2008 79
Consolidated Balance Sheet continued
At 31 December 2008
Capital and reserves
Share capital
Reserves
Equity attributable to equity holders of the Company
Minority interests
Total equity
Notes
31
2008
HK$ million
2007
HK$ million
5,206
26,263
31,469
1,241
32,710
5,187
26,465
31,652
1,196
32,848
The consolidated financial statements on pages 78 to 132 were approved and authorised for issue by the Board of Directors on 10 March
2009 and are signed on its behalf by:
Peter T.C. LEE
Director
David AKERS-JONES
Director
80 Hysan Annual Report 2008
Balance Sheet
At 31 December 2008
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Investments in associates
Available-for-sale investments
Other receivables
Current assets
Other receivables
Amounts due from subsidiaries
Time deposits
Cash and bank balances
Current liabilities
Other payable and accruals
Amounts due to subsidiaries
Taxation payable
Net current assets
Net assets
Capital and reserves
Share capital
Reserves
Total equity
Notes
2008
HK$ million
2007
HK$ million
15
17
18
19
22
25
25
22
31
32
5
–
–
2
1
8
3
12,869
100
41
13,013
31
59
40
130
12,883
12,891
5,206
7,685
5
–
–
2
1
8
2
12,781
–
6
12,789
19
42
50
111
12,678
12,686
5,187
7,499
12,891
12,686
The financial statements on pages 78 to 132 were approved and authorised for issue by the Board of Directors on 10 March 2009 and
are signed on its behalf by:
Peter T.C. LEE
Director
David AKERS-JONES
Director
Hysan Annual Report 2008 81
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Consolidated Statement of Changes in Equity
For the year ended 31 December 2008
Attributable to equity holders of the Company
At 1 January 2007
Change in fair value of available-for-sale investments
Surplus on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
Exchange differences on translation of an overseas associate
Change in fair value of derivatives designated as cash flow hedge
Net income recognised directly in equity
Transfer to profit and loss on disposal of available-for-sale investments
Transfer to profit and loss for cash flow hedges
Profit 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 12)
Share
capital
HK$ million
Share
premium
HK$ million
5,276
1,453
–
–
–
–
–
–
–
–
–
–
25
7
(121)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
79
9
–
–
–
–
–
–
At 31 December 2007
5,187
1,541
Change in fair value of available-for-sale investments
Surplus on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
Share of reserve of an associate
Change in fair value of derivatives designated as cash flow hedge
Net expense recognised directly in equity
Transfer to profit and loss on disposal of available-for-sale investments
Transfer to profit and loss for cash flow hedges
Profit 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
Forfeiture of share options
Dividends paid during the year (note 12)
–
–
–
–
–
–
–
–
–
–
18
1
–
–
–
–
–
–
–
–
–
–
–
–
–
63
2
–
–
–
At 31 December 2008
5,206
1,606
Share
options
reserve
HK$ million
Investments
revaluation
reserve
HK$ million
5
–
–
–
–
–
–
–
–
–
–
–
(1)
–
–
4
(2)
–
–
6
–
–
–
–
–
–
–
–
–
–
–
(1)
5
(1)
–
9
1,313
1,192
–
–
–
–
1,192
(382)
–
–
810
–
–
–
–
–
–
–
–
2,123
(1,165)
–
–
–
–
(1,165)
(186)
–
–
(1,351)
–
–
–
–
–
772
82 Hysan Annual Report 2008
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
profits
HK$ million
Total
HK$ million
Minority
interests
HK$ million
Total
HK$ million
155
100
422
19,099
27,828
1,080
28,908
2
–
8
(1)
–
–
7
–
–
–
7
–
–
–
–
–
–
–
–
9
–
4
(1)
–
–
3
–
–
–
3
–
–
–
–
–
2
–
–
–
–
1
1
–
(2)
–
(1)
–
–
–
–
–
–
–
–
1
–
–
–
–
(31)
(31)
–
3
–
(28)
–
–
–
–
–
1
–
–
–
(2)
–
(2)
–
–
–
(2)
–
–
–
–
–
–
–
–
(1)
–
–
–
155
–
155
–
–
–
155
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
121
–
–
–
–
–
276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
(27)
154
276
100
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O
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c
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F
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i
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t
a
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m
e
n
t
s
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V
a
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u
a
t
i
o
n
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
127
(549)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,949
1,192
8
(1)
(2)
1
1,198
(382)
(2)
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
1,198
(382)
(2)
4,117
4,931
104
15
(511)
(2)
4
–
–
(601)
22,410
31,652
1,196
32,848
–
–
–
–
–
–
–
–
1,594
1,594
–
–
–
1
(644)
(1,165)
4
(1)
155
(31)
(1,038)
(186)
3
1,594
373
81
2
5
–
(644)
–
–
–
–
–
–
–
–
124
124
–
–
–
–
(79)
(1,165)
4
(1)
155
(31)
(1,038)
(186)
3
1,718
497
81
2
5
–
(723)
23,361
31,469
1,241
32,710
Hysan Annual Report 2008 83
Consolidated Cash Flow Statement
For the year ended 31 December 2008
Operating activities
Profit 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
Depreciation of property, plant and equipment
Share-based payment expenses
Operating cash flows before movements in working capital
(Increase) decrease in accounts receivable and other receivables
Increase in held-for-trading investments
Increase in accounts payable and accruals
Decrease in equity derivatives
Increase in rental deposits from tenants
Cash generated from operations
Hong Kong profits tax paid
Hong Kong profits tax refund
Net cash from operating activities
Investing activities
Interest received
Dividends received from available-for-sale investments
Proceeds on disposal of available-for-sale investments
Proceeds upon maturity of principal-protected deposits
Repayment from associates
Repayment from investees
Payments in respect of investment properties
Purchases of property, plant and equipment
Additions to principal-protected deposits
Net cash from investing activities
2008
HK$ million
2007
HK$ million
1,719
4,862
(146)
155
212
(590)
(48)
(15)
–
6
5
1,298
(17)
(56)
23
65
49
1,362
(189)
6
1,179
12
48
272
78
6
–
(345)
(5)
–
66
(302)
175
(3,131)
(452)
(53)
(30)
(11)
7
4
1,069
3
(102)
58
18
54
1,100
(141)
1
960
34
53
394
81
132
8
(125)
(3)
(278)
296
84 Hysan Annual Report 2008
Financing activities
Interest paid
Bank charges
Medium Term Note Programme expenses
Payment for front-end fees
Payment for hedging expenses
Dividends paid
Dividends paid to minority shareholders of a subsidiary
New bank loan
Issue of fixed rate notes
Consideration paid for repurchase of shares
Expenses paid for repurchase of shares
Proceeds on exercise of share options
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Analysis of the balances of cash and cash equivalents
Held-to-maturity debt securities maturing within three months
Time deposits
Cash and bank balances
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2008
HK$ million
2007
HK$ million
(125)
(8)
(1)
(4)
(2)
(562)
(79)
200
565
–
–
2
(14)
1,231
484
1,715
700
964
51
1,715
(151)
(8)
(1)
–
(2)
(445)
(52)
–
–
(511)
(2)
15
(1,157)
99
385
484
–
478
6
484
Hysan Annual Report 2008 85
Significant Accounting Policies
For the year ended 31 December 2008
1. Basis of Preparation
These financial statements have been prepared on the historical cost basis except for certain properties and financial instruments, which
are measured at revalued amounts or fair values, as explained in the accounting policies set out below.
These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong
Institute of Certified Public Accountants and the Hong Kong Companies Ordinance. In addition, these financial statements include
applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The
principal accounting policies adopted are as follows:
2. Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those
used by other members of the Group.
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.
3. Investments in Subsidiaries
Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss. The results of
subsidiaries are accounted for by the Company on the basis of dividends received and receivable during the year.
4. Investments in Associates
An associate is an entity over which the Group or the Company has significant influence and that is neither a subsidiary nor an interest
in a joint venture. Significant influence is the power to participate in the financial 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 financial statements using the equity method of
accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for
post-acquisition changes in the Group’s share of the net assets of the associate, less any identified impairment loss. When the Group’s
share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance,
form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional
share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations
or made payments on behalf of that associate.
Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of
acquisition, after reassessment, is recognised immediately in profit or loss.
Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in
the relevant associate.
Investments in associates are included in the Company’s balance sheet at cost less any identified impairment loss. The results of
associates are accounted for by the Company on the basis of dividends received and receivable during the year.
86 Hysan Annual Report 2008
5. 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 properties are included in profit or loss for the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future
economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in
which the item is derecognised.
6. 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 sufficient regularity such that the carrying amount does not
differ materially from that which would be determined using fair values at the balance sheet date.
Any revaluation increase arising on revaluation of buildings is credited to the 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 profits.
Depreciation is provided to write off the cost or fair value of items of property, plant and equipment over their estimated useful lives and
after taking into account of their estimated residual values, using the straight-line method.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is
derecognised.
7. Prepaid Lease Payments
The land and buildings elements of a lease of land and buildings are considered separately for the purpose of lease classification. 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 classified 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.
8. Impairment of Non-Financial Assets
At each balance sheet date, the Group and the Company review the carrying amounts of their 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 profit 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 profit 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.
Hysan Annual Report 2008 87
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Significant Accounting Policies continued
For the year ended 31 December 2008
9. Financial Instruments
Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual
provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
(a) Financial assets
The Group’s financial assets are classified into one of the four categories, including (i) financial assets at fair value through profit or loss
(“FVTPL”), (ii) loans and receivables, (iii) held-to-maturity investments and (iv) available-for-sale financial assets. The Company’s financial
assets are classified into (i) loans and receivables and (ii) available-for-sale financial assets. The classification depends on the nature and
purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets
are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets
that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies
adopted in respect of each category of financial assets are set out below.
(i) Financial assets at FVTPL
Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL.
A financial asset is classified 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 financial 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.
At each balance sheet date subsequent to initial recognition, financial assets at FVTPL are measured at fair value, with changes in fair
value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any
dividend or interest earned on the financial asset.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
At each balance sheet date subsequent to initial recognition, loans and receivables (including accounts receivable, other receivables,
amounts due from subsidiaries, amount due from an associate, time deposits and bank balances) are carried at amortised cost using the
effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).
(iii) Held-to-maturity investments
Held-to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s
management has the positive intention and ability to hold to maturity. The Group designated listed debt securities, which are denominated
in Hong Kong dollars and US dollars (see note 24 to the financial statements), as held-to-maturity investments. At each balance sheet
date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method,
less any identified impairment losses (see accounting policy on impairment of financial assets below).
(iv) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated as such or not classified as financial assets at FVTPL,
loans and receivables or held-to-maturity investments. The Group and the Company designated investments in equity securities and club
debentures (if any) as available-for-sale financial assets. At each balance sheet date subsequent to initial recognition, available-for-sale
financial assets (including certain equity securities investments and club debentures) are measured at fair value. Changes in fair value
are recognised in equity in the investments revaluation reserve until the financial asset is disposed of or is determined to be impaired,
at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss (see
accounting policy on impairment of financial 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 identified impairment losses at each balance sheet date subsequent to initial
recognition (see accounting policy on impairment of financial assets below).
(v) Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial 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 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 financial asset or, where appropriate, a shorter period.
Interest income is recognised on an effective interest basis for debt instruments, other than those financial assets at FVTPL, of which
interest income is included in net gains or losses.
88 Hysan Annual Report 2008
9. Financial Instruments continued
(a) Financial assets continued
(vi) 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 financial
asset, the estimated future cash flows of the financial assets have been impacted.
For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is
considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
•
•
•
significant financial difficulty 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 financial re-organisation.
For certain categories of financial asset, such as accounts receivable, assets that are assessed not to be impaired individually are
subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include
the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average
credit period, observable changes in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the
asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future
cash flows discounted at the original effective interest rate.
For financial 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 flows discounted at the current market rate of return for a similar financial
asset. Such impairment loss will not be reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial 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 profit 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 profit or loss.
For financial 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 profit 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.
Impairment losses on available-for-sale equity investments will not be reversed in profit 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.
(vii) Derecognition of financial assets
Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and
the Group or the Company has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of
a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the
cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.
(b) Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Group or the Company after deducting all of its
liabilities. The Group’s financial liabilities are generally classified into (i) financial liabilities at FVTPL and (ii) other financial liabilities. The
Company’s financial liabilities are generally classified into other financial liabilities. The accounting policies adopted in respect of financial
liabilities and equity instruments are set out below.
Hysan Annual Report 2008 89
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Significant Accounting Policies continued
For the year ended 31 December 2008
9. Financial Instruments continued
(b) Financial liabilities and equity continued
(i) 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, financial liabilities at FVTPL are measured at fair value, with changes in fair
value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any
interest paid on the financial liabilities.
(ii) Other financial liabilities
Other financial liabilities (including accounts payable, accruals, other payable, amounts due to subsidiaries, amounts due to minority
shareholders and borrowings) are subsequently measured at amortised cost, using the effective interest method.
(iii) 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 profit
or loss.
(iv) Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial 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 financial liability, or, where appropriate, a shorter period.
Interest expense is recognised on an effective interest basis for financial liabilities, other than those financial liabilities at FVTPL, of which
the interest expense is included in net gains or losses.
(v) Derecognition of financial liabilities
Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The
difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in
profit or loss.
(c) 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 profit or loss immediately unless the derivative is
designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of
the hedge relationship. The Group designates certain derivatives to hedge its exposure against interest rate and foreign exchange rate
fluctuation.
(d) 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 profit or loss.
(e) Hedge accounting
The Group designates certain derivatives as hedging instruments as either fair value hedge or cash flow 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 flows of the hedged item.
(i) Fair value hedge
Changes in the fair values of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately,
together with any changes in the fair values of the hedged items that are attributable to the hedged risk. The adjustment to the carrying
amount of the hedged item for which the effective interest is used is amortised to profit or loss when the hedged item ceases to be
adjusted for changes in its fair value attributable to the risk being hedged. The adjustment is based on a recalculated effective interest
rate at the date the amortisation begins.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting.
90 Hysan Annual Report 2008
9. Financial Instruments continued
(e) Hedge accounting continued
(ii) Cash flow hedge
The effective portion of changes in the fair values of derivatives that are designated and qualify as cash flow hedges are deferred in equity
(hedging reserve). The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as other gains or losses.
Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and
is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to
occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss.
10. 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 financial assets at FVTPL is recognised when the shareholders’ right to receive payments has
been established.
Interest income from a financial asset excluding financial 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 financial asset to that asset’s net carrying amount.
11. Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
(a) 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.
(b) The Company as lessee
Rentals payable under operating leases, including the leasehold interests in land, are charged to profit or loss on a straight-line basis
over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a
reduction of rental expense over the lease term on a straight-line basis.
12. Foreign Currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that
entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity
operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated
in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit
or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Group’s
net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financials
statements.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations
are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance
sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate
significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences
arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in
profit or loss in the period in which the foreign operation is disposed of.
Hysan Annual Report 2008 91
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Significant Accounting Policies continued
For the year ended 31 December 2008
13. Borrowing Costs
All borrowing costs are recognised as and included in finance costs in the consolidated income statement in the period in which they are
incurred.
14. Retirement Benefit Costs
Payments to the Mandatory Provident Fund Scheme are charged as an expense when employees have rendered service entitling them to
the contributions.
15. Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
(a) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that
are never taxable or deductible. The Group’s or the Company’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date.
(b) Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except
where the Group or the Company is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.
Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
16. Equity-Settled Share-Based Payment Transactions
Share options granted to employees
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 and the Company revise their estimates of the number of options that are expected to ultimately
vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, 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 profits.
92 Hysan Annual Report 2008
Notes to the Financial Statements
For the year ended 31 December 2008
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 office 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 financial 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 and the Company had adopted, for the first time, the following amendments and new interpretations (“new
HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants, which are or have become effective.
HKAS 39 and HKFRS 7 (Amendments)
HK(IFRIC) – INT 11
HK(IFRIC) – INT 12
HK(IFRIC) – INT 14
Reclassification of Financial Assets
HKFRS 2 – Group and Treasury Share Transactions
Service Concession Arrangements
HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and
their Interaction
The adoption of the new HKFRSs had no material effect on how the Group’s or the Company’s results and financial position for the current
or prior accounting years have been prepared and presented. Accordingly, no prior year adjustment has been required.
The Group and the Company have not early applied the following new and revised standards, amendments or interpretations that have
been issued but not yet effective.
HKFRSs (Amendments)
HKAS 1 (Revised)
HKAS 23 (Revised)
HKAS 27 (Revised)
HKAS 32 and HKAS 1 (Amendments)
HKAS 39 (Amendment)
HKFRS 1 and HKAS 27 (Amendments)
HKFRS 2 (Amendment)
HKFRS 3 (Revised)
HKFRS 8
HK(IFRIC) – INT 13
HK(IFRIC) – INT 15
HK(IFRIC) – INT 16
HK(IFRIC) – INT 17
HK(IFRIC) – INT 18
Improvements to HKFRSs 1
Presentation of Financial Statements 2
Borrowing Costs 2
Consolidated and Separate Financial Statements 3
Puttable Financial Instruments and Obligations Arising on Liquidation 2
Eligible Hedged Items 3
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate 2
Vesting Conditions and Cancellation 2
Business Combinations 3
Operating Segments 2
Customer Loyalty Programmes 4
Agreements for the Construction of Real Estate 2
Hedges of a Net Investment in a Foreign Operation 5
Distribution of Non-cash Assets to Owners 5
Transfer of Assets from Customers 6
1 Effective for annual periods beginning on or after 1 January 2009, except the amendments to HKFRS 5, effective for annual periods beginning on or after
1 July 2009.
2 Effective for annual periods beginning on or after 1 January 2009.
3 Effective for annual periods beginning on or after 1 July 2009.
4 Effective for annual periods beginning on or after 1 July 2008.
5 Effective for annual periods beginning on or after 1 October 2008.
6 Effective for transfers on or after 1 July 2009.
The Directors of the Company anticipate that the application of these new and revised standards, amendments or interpretations will have
no material impact on the results and the financial position of the Group or the Company.
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Hysan Annual Report 2008 93
Notes to the Financial Statements continued
For the year ended 31 December 2008
3. Critical Accounting Judgments and Key Sources of Estimation Uncertainty
In the application of the Group’s accounting policies, which are described in the “Significant Accounting Policies” section, 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.
Critical judgment in applying the Group’s accounting policies
The following is the critical judgment, apart from those involving estimates (see below), the management has made in the process of
applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in financial statements.
Held-to-maturity investments
The management of the Company has reviewed the Group’s held-to-maturity investments in the light of its capital maintenance and
liquidity requirements and has confirmed the Group’s positive intention and ability to hold those assets to maturity. The carrying amount
of the held-to-maturity investments is HK$700 million (2007: nil). Details of these assets are set out in note 24.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
(a) Fair value of investment properties
At the balance sheet date, the Group’s investment properties are stated at fair value of HK$35,850 million (2007: HK$35,711 million)
based on the valuation performed by an independent qualified professional valuer. In determining the fair value, the valuers have based
on market value 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
judgment and is satisfied that the method of valuation is reflective of the current market conditions.
(b) Fair values of financial instruments
Financial instruments, such as interest rate swaps, cross currency swaps, foreign exchange derivatives and equity derivatives, are carried
in the balance sheet at fair value, as disclosed in note 20. The best evidence of fair value is quoted prices in an active market, where
quoted prices are not available for a particular financial instrument, the Group uses the fair values determined by independent financial
institutions or internal or external valuation models to estimate the fair value. The use of methodologies, models and assumptions in
pricing and valuing these financial assets and liabilities is subjective and requires varying degrees of judgment by management, which
may result in significantly different fair values and results. Details of the assumptions used and of the results of sensitivity analyses
regarding these assumptions are provided in the “Financial Risk Management” section.
4. Turnover
Turnover represents gross rental income from investment properties for the year.
The Group’s principal activities are property investment, management and development. As the Group did not have any active development
projects during the years ended 31 December 2008 and 2007 and its turnover and results are principally derived from investment
properties located in Hong Kong, no business or geographical segment analysis is presented.
94 Hysan Annual Report 2008
5. 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
Sundry income
Investment income earned on financial 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-financial assets
Investment income recognised in respect of financial assets designated as at FVTPL is disclosed in note 6.
6. Other Gains and Losses
Other gains and losses comprise:
Gains on fair value change of financial assets designated as at FVTPL
Losses on fair value change of financial assets or financial liabilities classified
as held for trading
Recycling of gains from reserve on disposal of available-for-sale equity investments
Gains on hedging instruments under fair value hedge
Losses on hedged items under fair value hedge
7. Directors’ Emoluments
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus
Share-based payments (note 38)
Retirement benefits scheme contributions
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2008
HK$ million
2007
HK$ million
47
1
15
–
–
63
41
12
30
11
4
98
2008
HK$ million
2007
HK$ million
15
48
63
–
63
24
60
84
14
98
2008
HK$ million
2007
HK$ million
–
(52)
186
124
(112)
146
6
(99)
382
41
(28)
302
2008
HK$ million
2007
HK$ million
1
10
3
3
–
17
1
9
2
1
–
13
Hysan Annual Report 2008 95
Notes to the Financial Statements continued
For the year ended 31 December 2008
7. Directors’ Emoluments continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2008, calculated with
reference to their employment as Directors of the Company, are set out below:
For the year ended 31 December 2008
Basic salaries,
housing
and other
allowances
HK$’000
Directors’
fees
HK$’000
(Note a)
Bonus
HK$’000
Share-based
payments
HK$’000
Retirement
benefits
scheme
contributions
HK$’000
190
75
75
37
120
130
130
100
230
140
130
120
4,454
2,085
2,085
1,040
1,457
526
526
608
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(Note b)
1,395
638
656
96
–
–
–
–
–
–
–
–
12
9
9
104
–
–
–
–
–
–
–
–
Total
HK$’000
7,508
3,333
3,351
1,885
120
130
130
100
230
140
130
120
1,477
9,664
3,117
2,785
134
17,177
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
(Note b)
Retirement
benefits
scheme
contributions
HK$’000
190
100
42
120
130
130
100
120
230
140
85
46
4,304
2,925
1,215
1,183
344
38
862
396
–
12
273
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
HK$’000
6,551
4,038
1,300
120
130
130
100
120
230
140
85
46
1,433
8,444
1,565
1,258
290
12,990
Executive Directors
Peter Ting Chang LEE (Note c)
Ricky Tin For TSANG (Note d)
Wendy Wen Yee YUNG (Note d)
Pauline Wah Ling YU WONG (Note e)
Non-executive Directors
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
Fa-kuang HU
Executive Directors
Peter Ting Chang LEE (Note c)
Pauline Wah Ling YU WONG
Michael Tze Hau LEE (Note f)
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Dr. Deanna Ruth Tak Yung RUDGARD
Fa-kuang HU
Independent non-executive Directors
Sir David AKERS-JONES
Dr. Geoffrey Meou-tsen YEH
Tom BEHRENS-SORENSEN (Note g)
Per JORGENSEN (Note h)
96 Hysan Annual Report 2008
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Notes:
(a) Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2008 is set out below:
Executive Directors
Peter Ting Chang LEE
Ricky Tin For TSANG (Note d)
Wendy Wen Yee YUNG (Note d)
Pauline Wah Ling YU WONG (Note e)
Michael Tze Hau LEE (Note f)
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Dr. Deanna Ruth Tak Yung RUDGARD
Fa-kuang HU
Independent non-executive Directors
Sir David AKERS-JONES
Dr. Geoffrey Meou-tsen YEH
Tom BEHRENS-SORENSEN (Note g)
Fa-kuang HU
Per JORGENSEN (Note h)
Audit
Committee
HK$’000
Emoluments
Review
Committee
HK$’000
Board
HK$’000
Investment Nomination
Committee
Committee
HK$’000
HK$’000
2008
Total
HK$’000
2007
Total
HK$’000
140
75
75
37
–
100
100
100
100
–
120
100
100
100
–
–
–
–
–
–
–
–
30
–
–
60
–
30
–
–
1,147
120
–
–
–
–
–
–
–
–
–
–
30
20
–
20
–
70
20
–
–
–
–
20
30
–
–
–
–
–
–
–
–
70
30
–
–
–
–
–
–
–
–
–
20
20
–
–
–
70
190
75
75
37
–
120
130
130
100
–
230
140
130
120
–
190
–
–
100
42
120
130
130
100
120
230
140
85
–
46
1,477
1,433
(b) Share-based payments are the fair values of share options granted to Directors, which are determined at the date of grant and expensed over the
vesting period, regardless of whether the Directors exercise the share options or not during the year.
(c) Year 2008: The Emoluments Review Committee reviewed his 2008 fixed base salary and determined his 2007 performance-based bonus in March
2008. It was decided to make an increment on his base salary as from April 2008. Accordingly, his fixed base package (including housing allowance
which amount remains unchanged) paid during the year was HK$4,454,000. The stated bonus figure includes adjustment for 2007 bonus accrued
in 2007 accounts (following finalisation of bonus by the Emoluments Review Committee in March 2008), and 2008 target bonus figures pending
finalisation by the Emoluments Review Committee after year-end in March 2009.
Year 2007: The Emoluments Review Committee reviewed his 2007 fixed 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 fixed base package (including housing allowance
which amount remains unchanged) paid during the year was HK$4,304,000. The stated bonus figure includes adjustment for 2006 bonus accrued
in 2006 accounts (following finalisation of bonus by the Emoluments Review Committee in March 2007), and 2007 target bonus figures pending
finalisation by the Emoluments Review Committee after year-end in March 2008.
(d) Ricky Tin For TSANG and Wendy Wen Yee YUNG were appointed as Executive Directors on 1 April 2008. The figures stated refer to their respective
emoluments received or receivable as Executive Directors. The stated bonus figures are 2008 target bonus figures pending finalisation by the
Emoluments Review Committee after year-end in March 2009.
(e) Pauline Wah Ling YU WONG retired from the Board of the Company by rotation as from the conclusion of 2008 Annual General Meeting held on 14 May
2008. She remained as Senior Advisor to the Company until 31 December 2008 when she retired from the Company. The figure stated refers to her
emoluments received as Executive Director.
(f) Michael Tze Hau LEE stepped down as Managing Director as from the conclusion of 2007 Annual General Meeting held on 8 May 2007.
Year 2007: The Emoluments Review Committee reviewed his 2007 fixed base salary and determined his 2006 performance-based bonus in March
2007. Accordingly, his fixed base package (including housing allowance which amount remains unchanged) paid during the year was HK$1,215,000.
The stated bonus figure includes adjustment for 2006 bonus accrued in 2006 accounts (following finalisation of bonus by the Emoluments Review
Committee in March 2007).
(g) Tom BEHRENS-SORENSEN was appointed as Independent non-executive Director as from the conclusion of 2007 Annual General Meeting held on
8 May 2007.
(h) Per JORGENSEN stepped down as Independent non-executive Director as from the conclusion of 2007 Annual General Meeting held on 8 May 2007.
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Hysan Annual Report 2008 97
Notes to the Financial Statements continued
For the year ended 31 December 2008
8. Employees’ Emoluments
Of the five individuals with the highest emoluments in the Group, four (2007: two) are Directors of the Company, including three directors
appointed or resigned during the year, details of whose emoluments as Directors are included in note 7 above. The emoluments of all of
the five individuals with the highest emoluments for the year ended 31 December 2008 and 2007 were as follows:
Basic salaries, housing and other allowances
Bonus
Incentive paid on joining
Share-based payments (Note)
2008
HK$ million
2007
HK$ million
15
4
4
3
26
15
3
–
3
21
Note: Share-based payments are the fair values of share options granted to Directors and eligible employees, which are determined at the date of grant
and expensed over the vesting period, regardless of whether the Directors or eligible employees exercise the share options or not during the year.
Their emoluments are within the following bands:
Number of individuals
2008
2007
–
–
2
2
–
1
5
1
2
1
–
1
–
5
2008
HK$ million
2007
HK$ million
27
17
99
11
12
166
(29)
3
8
1
6
35
26
100
–
12
173
(7)
(2)
8
1
2
155
175
HK$2,000,001 to HK$2,500,000
HK$3,500,001 to HK$4,000,000
HK$4,000,001 to HK$4,500,000
HK$5,000,001 to HK$5,500,000
HK$6,500,001 to HK$7,000,000
HK$7,500,001 to HK$8,000,000
9. Finance Costs
Finance costs comprise:
Interest on bank loans and overdrafts wholly repayable within five years
Interest on floating rate notes wholly repayable within five years
Interest on fixed rate notes wholly repayable within five years
Interest on fixed rate notes not wholly repayable within five years
Imputed interest on zero coupon notes not wholly repayable within five years
Total interest expenses
Net interest receipts on interest rate swap and cross currency swaps
designated as fair value hedges
Recycling of losses (gains) from reserve on financial instruments designated
as cash flow hedges
Bank charges
Medium Term Note Programme expenses
Other finance costs
98 Hysan Annual Report 2008
10. Taxation
Current tax
Hong Kong profits tax
– current year
– under(over)provision in prior years
– prior years’ tax provision (Note)
Deferred tax (note 30)
Change in fair value of investment properties
Other temporary differences
Attributable to change in tax rate
2008
HK$ million
2007
HK$ million
166
26
72
264
(28)
(12)
(223)
(263)
1
130
(3)
58
185
540
20
–
560
745
Hong Kong profits tax is calculated at 16.5% (2007: 17.5%) of the estimated assessable profit for the year. In June 2008, the Hong Kong
profits tax rate was decreased from 17.5% to 16.5% with effect from the 2008/09 year of assessment. The effect of this decrease has
been reflected in the calculation of current and deferred tax balances as at and for the year ended 31 December 2008.
The taxation for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:
Profit before taxation
Tax at Hong Kong profits tax rate of 16.5% (2007: 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
Tax effect of deductible temporary differences not recognised
Reversal of previously recognised taxable temporary differences
Utilisation of estimated tax losses previously not recognised
Effect of change in tax rate
Under(over)provision in prior years
Prior years’ tax provision
Others
Taxation for the year
2008
HK$ million
2007
HK$ million
1,719
4,862
284
(97)
11
(51)
21
6
(24)
(24)
(223)
26
72
–
1
851
(79)
8
(85)
20
1
–
(12)
–
(3)
58
(14)
745
In addition to the amount charged to the consolidated income statement, deferred tax relating to the revaluation of the Group’s buildings
held for own use has been charged directly to equity (see note 30).
Note: As disclosed in the annual and interim reports published in previous years, the Group has over the past few years been in dispute with the Hong
Kong Inland Revenue Department (“IRD”) on interest deductions made in years of assessment dated back to 1995/96. Taking into consideration
professional advice and recent development, the Group has been in discussions with IRD to settle the claims. A formal proposal was submitted to
IRD at the end of December 2008 to settle the claims at HK$450 million, inclusive of tax principal, interest and all amount payable. Full provision for
such estimated exposure has been made at the balance sheet date, of which HK$31 million and HK$41 million were provided in the first and second
half of the year, respectively. Total cash exposure (net of tax reserve certificates already purchased) amounted to HK$268 million will be satisfied out
of cash deposits and credit facilities.
The Group expects to settle the claims in the region of such amount within the next few months.
Hysan Annual Report 2008 99
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Notes to the Financial Statements continued
For the year ended 31 December 2008
11. Profit for the Year
Profit for the year has been arrived at after charging (crediting):
Auditor’s remuneration
Amortisation of prepaid lease payments (note 16)
Depreciation of property, plant and equipment
Gross rental income from investment properties
Less:
– Direct operating expenses arising from properties that generated rental income
– Direct operating expenses arising from properties that did not generate rental income
Staff costs, comprising:
– Directors’ emoluments (note 7)
– Share-based payments
– Other staff costs
Share of income tax of an associate (included in share of results of associates)
12. Dividends
(a) Dividends recognised as distributions during the year:
2008 interim dividend paid – HK14 cents per share
2007 interim dividend paid – HK12 cents per share
2007 final dividend paid – HK48 cents per share
2006 final dividend paid – HK40 cents per share
2008
HK$ million
2007
HK$ million
2
–
6
2
–
7
(1,638)
(1,368)
214
3
205
3
(1,421)
(1,160)
17
2
126
145
181
13
3
111
127
81
2008
HK$ million
2007
HK$ million
146
–
498
–
644
–
127
–
422
549
Scrip dividend alternatives were offered to the shareholders in respect of the above dividends. These alternatives were accepted by the
shareholders as follows:
2008
HK$ million
2007
HK$ million
135
11
428
70
644
99
28
346
76
549
2008 interim dividend (2007 interim dividend):
– Cash payment
– Share alternative
2007 final dividend (2006 final dividend):
– Cash payment
– Share alternative
100 Hysan Annual Report 2008
12. Dividends continued
(b) Dividends proposed after the balance sheet date:
2008
HK$ million
2007
HK$ million
Final dividend proposed – HK54 cents per share (2007: HK48 cents per share)
562
498
The 2008 final dividend of HK54 cents per share (2007: HK48 cents per share) has been proposed by the Directors on 10 March 2009
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 2008.
The proposed 2008 final dividend will be payable in cash with a scrip dividend alternative.
13. 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:
Profit 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
2008
HK$ million
2007
HK$ million
1,594
3,949
Number of shares
2008
2007
1,039,339,066 1,051,770,437
73,471
607,460
1,039,412,537 1,052,377,897
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.
Hysan Annual Report 2008 101
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Notes to the Financial Statements continued
For the year ended 31 December 2008
13. 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 profit for the year attributable to the equity holders of the Company should be adjusted in the calculation of basic
earnings per share as follows:
Profit for the year attributable to equity holders
of the Company
Change in fair value of investment properties
Effect of deferred taxation on change in
fair value of investment properties
Effect of minority interests’ shares
Share of change in fair value of investment
2008
2007
Profit
HK$ million
1,594
212
(236)
43
Basic
earnings
per share
HK cents
153.37
20.40
(22.71)
4.14
Profit
HK$ million
Basic
earnings
per share
HK cents
3,949
(3,131)
375.46
(297.69)
540
111
51.34
10.55
properties (net of deferred taxation) of an associate
(412)
(39.64)
(311)
(29.57)
Underlying profit attributable to equity holders
of the Company
Prior years’ tax provision
Gain on disposal of investment properties
of an associate
Net realised gain on disposal of available-for-sale
investments
Reversal of impairment loss recognised in respect
of investment in an associate
Recurring underlying profit
1,201
72
115.56
6.93
1,158
58
110.09
5.52
(41)
(3.95)
–
–
(166)
(15.97)
(255)
(24.24)
–
–
1,066
102.57
(11)
950
(1.05)
90.32
The denominators used are the same as those detailed above for basic earnings per share.
14. Investment Properties
Fair value
At 1 January
Additions
Transfer to property, plant and equipment
Net change in fair value
At 31 December
The carrying amount of investment properties shown above comprises:
Leasehold land in Hong Kong:
– Medium-term lease
– Long lease
102 Hysan Annual Report 2008
The Group
2008
HK$ million
2007
HK$ million
35,711
355
(4)
(212)
35,850
32,473
107
–
3,131
35,711
The Group
2008
HK$ million
2007
HK$ million
6,240
29,610
35,850
6,200
29,511
35,711
14. Investment Properties continued
The fair value of the Group’s investment properties at 31 December 2008 have been arrived at on the basis of a valuation carried out
on that date by Knight Frank Petty Limited, an independent qualified professional valuer not connected with the Group. Knight Frank Petty
Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The Group’s
investment properties have been valued individually, on market value basis, which conforms to Hong Kong Institute of Surveyors Valuation
Standards on Properties. The valuation was mainly arrived at by reference to comparable market transactions for similar properties and
on the basis of capitalisation of the net income with due allowance for the reversionary income and redevelopment potential.
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 classified and accounted for as investment properties.
15. Property, Plant and Equipment
Buildings in
Hong Kong
HK$ million
Furniture,
fixtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
The Group
Cost or Valuation
At 1 January 2007
Additions
Disposals
Surplus on revaluation
At 31 December 2007
Additions
Transfer from investment properties
Disposals
Surplus on revaluation
At 31 December 2008
Comprising:
At cost
At valuation 2008
Accumulated Depreciation
At 1 January 2007
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2007
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2008
Carrying Amounts
At 31 December 2008
At 31 December 2007
55
–
–
7
62
–
4
–
2
68
–
68
68
–
1
–
(1)
–
2
–
(2)
–
68
62
51
2
–
–
53
3
–
–
–
56
56
–
56
43
3
–
–
46
2
–
–
48
8
7
21
1
(1)
–
21
1
–
–
–
22
22
–
22
15
3
(1)
–
17
2
–
–
19
3
4
1
–
–
–
1
1
–
(1)
–
1
1
–
1
1
–
–
–
1
–
(1)
–
–
1
–
128
3
(1)
7
137
5
4
(1)
2
147
79
68
147
59
7
(1)
(1)
64
6
(1)
(2)
67
80
73
Hysan Annual Report 2008 103
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Notes to the Financial Statements continued
For the year ended 31 December 2008
15. Property, Plant and Equipment continued
The Company
Cost
At 1 January 2007
Additions
Disposals
At 31 December 2007
Additions
Disposals
At 31 December 2008
Accumulated Depreciation
At 1 January 2007
Provided for the year
Eliminated on disposals
At 31 December 2007
Provided for the year
Eliminated on disposals
At 31 December 2008
Carrying Amounts
At 31 December 2008
At 31 December 2007
Furniture,
fixtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
21
1
–
22
–
–
22
20
1
–
21
–
–
21
1
1
20
1
(1)
20
1
–
21
14
3
(1)
16
2
–
18
3
4
1
–
–
1
1
(1)
1
1
–
–
1
–
(1)
–
1
–
42
2
(1)
43
2
(1)
44
35
4
(1)
38
2
(1)
39
5
5
The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:
Buildings
Furniture, fixtures and equipment
Computers
Motor vehicles
Over the shorter of the term of the lease or 40 years
20%
20%
25%
The Group’s buildings were revalued at 31 December 2008 by Knight Frank Petty Limited, an independent qualified professional valuer,
on market value basis, by reference to comparable market transactions for similar properties and on the basis of capitalisation of net
income with due allowance for the reversionary income. The surplus of HK$4 million (2007: HK$8 million) arising on revaluation have
been credited to the properties revaluation reserve.
Had the Group’s buildings been measured on a historical cost basis, their carrying amounts would have been HK$53 million (2007:
HK$50 million) at the balance sheet date.
Furniture, fixtures and equipment of the Group include assets carried at cost of HK$20 million (2007: HK$19 million) and accumulated
depreciation of HK$18 million (2007: HK$17 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 (2007: 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.
16. 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 (2007:
HK$163,000).
104 Hysan Annual Report 2008
17. Investments in Subsidiaries
The Company’s investments in subsidiaries are the interest in unlisted shares stated at cost.
The table below lists the principal subsidiaries of the Group at 31 December 2008 and 2007:
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
Place of
incorporation/
operation
Issued
share capital
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
HK$2
HK$2
HK$2
US$1
HK$1
HK$2
HK$2
HK$2
HK$1
HK$1,000
HK$2
HK$2
HK$300,000
Teamfine Enterprises Limited
Tohon Development Limited
Bamboo Grove Recreational Services
Hong Kong
Hong Kong
Hong Kong
HK$2
HK$2
HK$2
HK$1
HK$1
HK$1
HK$1
Hong Kong
Hong Kong
British Virgin Islands
British Virgin Islands
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
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
HK$10
HK$2
HK$2
HK$2
HK$2
HK$20
HK$10,000
Proportion of
nominal value of
issued share capital
held by the Company
directly
indirectly
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
65.36%
Principal activities
Investment holding
Investment holding
Treasury operation
Treasury operation
Investment holding
Leasing administration
Property management
Treasury operation
Investment holding
Property investment
Property investment
Property investment
Provision of
security services
Investment holding
Property investment
Resident club
management
Property investment
Property development
Investment holding
Capital market
investment
Property investment
Property investment
Investment holding
Property investment
Property investment
Property investment
Property investment
The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length and therefore the
above table contains only those subsidiaries which materially contribute to the net income of the Group or hold a material portion of the
assets or liabilities or otherwise are operating subsidiaries of the Group. Other than floating rate notes, fixed rate notes and zero coupon
notes issued by Hysan (MTN) Limited as disclosed in note 28, none of the subsidiaries had issued any debt securities at the balance
sheet date.
Hysan Annual Report 2008 105
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Notes to the Financial Statements continued
For the year ended 31 December 2008
18. Investments in Associates
Cost of unlisted investments
Share of post-acquisition profits and
reserves, net of dividend received
Loan to an associate
Share of post-acquisition losses and
reserves, net of dividend received
The Group
The Company
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
3
3
1,744
1,747
106
(103)
3
999
1,002
112
(103)
9
1,750
1,011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Loan to an associate of HK$106 million (2007: HK$112 million) is unsecured and interest-free. In the opinion of the Directors, the loan
is considered as part of the Group’s net investment in the associate and, accordingly, the loan is included in the amount of investments in
associates.
At 31 December 2007, the Company’s investment in an associate was the interest in unlisted shares stated at cost of approximately
HK$3,000. The associate was dissolved during the year and net gain of approximately HK$36,000 was recognised in income statement.
Details of the Group’s associates at 31 December 2008 and 2007 are as follows:
Name of associate
Wingrove Investment Pte Ltd
Form of
business structure
Private company
limited by shares
Place of
registration
and operation
Class of
share held/
registered capital
Effective
interest held
by the Group
Singapore
Ordinary share
25.0%*
Principal activities
Property
development
and investment,
and being inactive
in 2008
Hong Kong
Ordinary share
26.3%*
Investment holding
Country Link Enterprises Limited
Private limited
company
Shanghai Kong Hui Property
Development Co., Ltd
Sino-Foreign equity
joint venture
Shanghai Grand Gateway Plaza
Property Management Co., Ltd
Sino-Foreign equity
joint venture
US$165,000,000#
24.7%*
US$140,000#
23.7%*
The People’s
Republic of
China
The People’s
Republic of
China
Property
development
and leasing
Property
management
Under liquidation in
2007 and dissolved
on 29 May 2008
Parallel Asia Engineering
Company Limited
Private limited
company
Hong Kong
Ordinary share
25.0%
* Indirectly held
# Registered capital
106 Hysan Annual Report 2008
18. Investments in Associates continued
The summarised financial information in respect of the Group’s associates based on the unaudited management accounts for the year
ended 31 December 2008 is as follows:
Total assets
Total liabilities
Net assets
Group’s share of net assets of associates
Turnover
Profit for the year
Group’s share of results of associates for the year
19. Available-for-Sale Investments
2008
HK$ million
2007
HK$ million
11,968
(5,182)
6,786
1,750
952
2,240
590
8,445
(4,272)
4,173
1,011
1,055
1,723
452
The Group
The Company
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
Available-for-sales investments comprise:
Listed investments:
– Equity securities listed in Hong Kong, at fair value
982
2,439
Unlisted investments:
– Equity securities in overseas, at cost
Less: Impairment loss recognised
– Club debentures, at fair value
93
(55)
38
2
93
(55)
38
2
1,022
2,479
–
–
–
–
2
2
–
–
–
–
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 identified impairment loss at each balance sheet date because the range of reasonable fair value estimates is so significant that
the management is of the opinion that their fair values cannot be measured reliably.
During the year ended 31 December 2007, the Group disposed of an unlisted equity security at its carrying amount of HK$19 million,
which had been carried at cost less impairment before the disposal.
Hysan Annual Report 2008 107
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Notes to the Financial Statements continued
For the year ended 31 December 2008
20. Other Financial Assets/Liabilities
Other financial assets
Derivatives under hedge accounting:
Cash flow hedges
– Foreign exchange derivatives
– Cross currency swap
Fair value hedges
– Interest rate swaps
– Cross currency swaps
Financial assets designated as at FVTPL:
Principal-protected deposits
Total
Other financial liabilities
Derivatives under hedge accounting:
Cash flow hedges
– Interest rate swaps
Other derivatives classified as held for trading
(not under hedge accounting):
– Foreign exchange derivatives
– Equity derivatives
Total
Current
Non-current
The Group
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
1
–
–
–
1
40
41
–
–
–
–
–
1
–
–
–
1
–
1
2
–
38
38
40
1
2
71
83
157
85
242
31
10
–
10
41
2
–
–
30
32
203
235
–
17
–
17
17
The fair values of principal-protected deposits, equity derivatives and the interest rate swap designated as fair value hedge for zero coupon
notes are determined based on market values derived from prevailing market data and provided by the counterparty financial institutions
using valuation models developed from valuation techniques commonly applied by the market participants. The fair values of principal-
protected deposits are calculated using valuation models developed from discounted cash flow analysis based on observable market
data, such as the quoted interest rates and quoted spot and forward foreign exchange rates. The fair values of equity derivatives are
calculated using the Black-Scholes option pricing model with observable market prices and rates, such as the strike price and the market
price of the underlying equities, as input. The fair values of the interest rate swap and other derivatives are calculated using discounted
cash flow analysis based on the applicable yield curves derived from quoted interest rates and quoted spot and forward foreign exchange
rates.
(a) Cash flow hedges
(i) Foreign currency risk
The Group designates forward foreign exchange contracts and a cross currency swap as cash flow hedges to manage its foreign currency
exposure. The forward foreign exchange contracts are used to hedge the foreign currency exposure in relation to the semi-annual coupon
payments of the US$65 million (HK$507 million equivalent) out of the US$182 million fixed rate notes. The cross currency swap is to
convert the US dollar interest and principal payments of the US$26 million (HK$200 million equivalent) bank loan into Hong Kong dollar
by matching the loan amount, interest rate fixing basis and the interest and principal payment dates. The interest of US$26 million bank
loan is paid on a quarterly basis and the principal will be paid upon maturity in 2013. The principal terms of the forward foreign exchange
contracts and the cross currency swap have been negotiated to match the principal terms of the hedged items and the management
considers that the hedges are highly effective. The amount deferred in equity is recognised in profit or loss over the period that the
interest expense is recognised and impacts profit or loss.
108 Hysan Annual Report 2008
20. Other Financial Assets/Liabilities continued
(a) Cash flow hedges continued
(i) Foreign currency risk continued
At the balance sheet date, the maturity periods of the forward foreign exchange contracts and the cross currency swap at notional
amounts were as follows:
Forward foreign exchange contracts
Within one year
More than one year, but not exceeding five years
Cross currency swap
More than one year, but not exceeding five years
The Group
2008
HK$ million
2007
HK$ million
34
84
118
200
34
118
152
–
As at 31 December 2008, fair value gains of HK$4 million (2007: HK$3 million) from the forward foreign exchange contracts and the
cross currency swap have been deferred in equity and are expected to be recognised in profit or loss at various dates when the hedged
items are recognised in profit or loss.
During the year, the Group had recycled gains of approximately HK$3 million (2007: HK$1 million) on forward foreign exchange contracts
and the cross currency swap from the hedging reserve to profit or loss as finance costs.
Interest rate risk
(ii)
The Group uses interest rate swaps to manage its exposure to interest rate changes of the quarterly interest payments of the HK$325
million (2007: nil) bank loans and the interest rate changes in relation to the semi-annual or quarterly floating-interest-rate payments of
certain financial instruments with notional amount of HK$400 million (2007: HK$200 million). For the year ended 31 December 2007,
the Group also used interest rate swaps, which matured during the year, to manage its exposure to interest changes of HK$460 million
floating rate notes. The interest rate swaps match the major terms of the hedged underlying items such that the management considers
that the interest rate swaps are highly effective hedging instruments. The amount deferred in equity is recognised in profit or loss over the
period that the interest expense is recognised and impacts profit or loss.
At the balance sheet date, the maturity periods of interest rate swaps at notional amount were as follows:
Within one year
More than one year, but not exceeding five years
The Group
2008
HK$ million
2007
HK$ million
–
725
725
660
–
660
As at 31 December 2008, the floating-to-fixed interest rate swaps locked in the interest rates ranging from 2.78% to 3.83% (2007: 4.31%
to 4.71%) per annum.
As at 31 December 2008, fair value losses of HK$31 million (2007: HK$2 million) from the interest rate swaps under cash flow hedges
have been deferred in equity and are expected to be recognised in profit or loss at various dates during the lives of the swaps when the
hedged interest expense is recognised and impacts profit or loss.
During the year, the Group had recycled losses of approximately HK$6 million (2007: gains of approximately HK$1 million) on interest rate
swaps from the hedging reserve to profit or loss as finance costs.
Hysan Annual Report 2008 109
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Notes to the Financial Statements continued
For the year ended 31 December 2008
20. Other Financial Assets/Liabilities continued
(b) Fair value hedges
As at 31 December 2008 and 2007, 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 (note 28(d)), 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 (HK$913 million equivalent) out of
the US$182 million fixed rate notes. During the year ended 31 December 2008, the Group has also designated an interest rate swap as
fair value hedge to minimise its interest rate risk exposure in relation to the HK$300 million fixed-rate notes (note 28(c)). The principal
terms of interest rate swaps and cross currency swaps match the corresponding notes and the management considers that the swaps
are highly effective hedging instruments.
At the balance sheet date, the maturity periods of the swaps at notional amounts were as follows:
Interest rate swaps
More than five years
Cross currency swaps
More than one year, but not exceeding five years
The Group
2008
HK$ million
2007
HK$ million
539
913
227
913
As a result of the hedge accounting, the carrying amount of the fixed rate notes as at 31 December 2008 was adjusted by losses of
approximately HK$22 million (2007: gains of approximately HK$54 million) while the carrying amount of the zero coupon notes as at 31
December 2008 was adjusted by losses of approximately HK$36 million (2007: HK$72,000). The changes in fair values of the notes for
the hedged risk were included in profit or loss at the same time that the changes in fair value of the swaps were included in profit or loss.
The fixed-to-floating interest rate swap hedging the zero coupon notes converted a fixed rate of 5.19% per annum to Hong Kong Interbank
Offered Rate (“HIBOR”) plus 0.69% per annum for both years, and the other interest rate swap hedging HK$300 million fixed rate notes
converted a fixed rate of 4.18% per annum to HIBOR in 2008. The cross currency swaps hedging the 7% USD fixed rate notes converted
the USD coupon payments into Hong Kong dollars at HIBOR plus 1.93% per annum in average for both years.
(c) Financial assets designated as at FVTPL
The Group entered into certain contracts of structured deposits with certain financial institutions. 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, such as foreign exchange rates. The entire combined contracts
have been designated as financial assets at FVTPL on initial recognition.
At the balance sheet date, the maturity periods of the structured deposits at notional amount were as follows:
Within one year
More than one year, but not exceeding five years
During the year, the Group has early redeemed a structured deposit at notional amount of HK$78 million.
The Group
2008
HK$ million
2007
HK$ million
40
80
120
–
198
198
110 Hysan Annual Report 2008
20. Other Financial Assets/Liabilities continued
(d) Other derivatives classified as held for trading (not under hedge accounting)
At the balance sheet date, the notional amounts and the maturity periods of other derivatives classified as for held for trading not under
hedge accounting are as follows:
Derivatives
Forward foreign exchange contracts
Net basis swaps
Equity derivatives
2008
Notional amount
Maturity
2007
Notional amount
Maturity
The Group
US$32 million
US$65 million
–
2009
2012
–
US$6 million
US$65 million
HK$147 million
2008
2012
2008
As at 31 December 2008, the forward foreign exchange contracts are mainly used for managing the foreign currency exposure of listed
debt securities denominated in US dollar. As at 31 December 2008 and 2007, 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 fixed rate notes. As at 31 December
2007, the equity derivatives were call options of certain listed securities in Hong Kong.
21. Accounts Receivable
Rents from leasing of investment properties are normally received in advance. At the balance sheet date, accounts receivable of the
Group with carrying amount of HK$10 million (2007: HK$10 million) mainly represented rents receipts in arrears, which were aged less
than 90 days.
22. Amounts due from/to Subsidiaries
The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand.
23. Amount due from an Associate
The amount due from an associate is unsecured, interest-free and repayable on demand.
24. Short-Term Investments
At the balance sheet date, the Group’s short-term investments were as follows:
Held for trading marketable securities, at market value
Equity securities listed in Hong Kong
Held-to-maturity debt securities maturing within one year, at amortised cost
Debt securities listed in Hong Kong
Debt securities listed in overseas
Market value of held-to-maturity debt securities
Debt securities listed in Hong Kong
Debt securities listed in overseas
The Group
2008
HK$ million
2007
HK$ million
–
491
209
700
700
491
209
700
95
–
–
–
95
–
–
–
At the balance sheet date, the effective yield of the debt securities ranged from -1.34% to 0.06% per annum with maturity of three months
or less.
Hysan Annual Report 2008 111
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Notes to the Financial Statements continued
For the year ended 31 December 2008
25. 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 0.01%
to 1.54% (2007: 0.88% to 3.45%) per annum with an original maturity of three months or less.
26. Accounts Payable
At the balance sheet date, accounts payable of the Group with carrying amount of HK$90 million (2007: HK$69 million) were aged less
than 90 days.
27. Amounts due to Minority Shareholders
The amounts due to minority shareholders are unsecured, interest-free and repayable on demand.
28. Borrowings
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Current
Non-current
The Group
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
–
550
–
–
550
–
–
–
–
–
920
–
2,003
278
3,201
720
549
1,362
230
2,861
(a) Unsecured bank loans
The unsecured bank loans of HK$920 million (2007: HK$720 million) are guaranteed as to principal and interest by the Company and are
repayable as follows:
More than one year, but not exceeding two years
More than two years, but not exceeding five years
The Group
2008
HK$ million
2007
HK$ million
70
850
920
–
720
720
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 0.79% to 5.11% (2007: 3.94% to 4.17%) per annum. As at 31 December 2008
and 2007, bank loans of HK$720 million are denominated in Hong Kong dollars. Out of the HK$720 million bank loan, HK$325 million
is hedged as to its interest rate risk exposure arising from the quarterly interest payments until maturity of the bank loans in 2011 by
interest rate swaps as detailed in note 20(a)(ii). As at 31 December 2008, bank loans of HK$200 million equivalent are denominated in
US dollars. The foreign currency risk related to the interest and the principal payments have been hedged by a cross currency swap as
detailed in note 20(a)(i). Interest rate is normally re-fixed at every one to six months.
(b) Floating rate notes
In 2004, HK$550 million five-year floating rate notes were issued by Hysan (MTN) Limited, a wholly-owned subsidiary of the Company. The
notes are guaranteed as to principal and interest by the Company, bear effective interest rates (which are equal to contracted interest
rates) ranging from 1.30% to 4.04% (2007: 3.98% to 5.08%) per annum at the balance sheet date and are repayable in full in 2009.
During the year ended 31 December 2007, the Group entered into interest rate swaps, that matured in 2008, to hedge against the
interest rate risk of certain floating rate notes (see note 20(a)(ii)).
112 Hysan Annual Report 2008
28. Borrowings continued
(c) Fixed rate notes
Fixed rate notes
Add: Net loss (gain) attributable to hedged risks
The Group
2008
HK$ million
2007
HK$ million
1,981
22
2,003
1,416
(54)
1,362
In February 2002, US$200 million 10-year fixed 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. The coupon
payments are paid on a semi-annual basis and the principal 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 the
balance sheet dates was US$182 million.
During the year, HK$300 million and HK$100 million 7-year fixed rate notes were issued in August and HK$165 million 12-year fixed rate
notes were issued in September 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) ranging from 5.1% to 5.38% per annum and are repayable in full in
August 2015 and September 2020. The coupon payments for the HK$100 million 7-year and the HK$165 million 12-year fixed rate notes
are paid on an annual basis whilst the coupon payments for the HK$300 million 7-year fixed rate notes are paid on a quarterly basis.
The Group has entered into cross currency swaps to hedge against the interest rate and foreign exchange rate risks in relation to the
coupon payments and principal repayment of the US$117 million (2007: US$117 million) fixed rate notes under fair value hedge (see
note 20(b)). The Group has also entered into forward foreign exchange contracts and net basis swaps to hedge against the foreign
exchange rate risk arising from the coupon payments and principal repayment of the remaining US$65 million fixed rate notes. The
forward foreign exchange contracts are accounted for as cash flow hedges (see note 20 (a)(i)) and the net basis swaps are classified as
held for trading (see note 20 (d)). The Group has also entered into an interest rate swap to hedge against the interest rate risk of HK$300
million fixed rate notes under fair value hedge (see note 20(b)).
The net losses of HK$22 million (2007: gains of HK$54 million) represented changes in fair value attributable to the hedged interest
rate and foreign exchange rate risks of the US$117 million (2007: US$117 million) fixed rate notes under fair value hedge and hedged
interest rate risk of the HK$300 million (2007: nil) fixed rate notes under fair value hedge.
(d) Zero coupon notes
Zero coupon notes
Add: Net loss attributable to hedged risk
The Group
2008
HK$ million
2007
HK$ million
242
36
278
230
–
230
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 20(b)).
The net loss of approximately HK$36 million (2007: HK$72,000) represented changes in fair value attributable to the hedged interest
rate risk of the zero coupon notes under fair value hedge.
Hysan Annual Report 2008 113
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Notes to the Financial Statements continued
For the year ended 31 December 2008
29. Categories of Financial Instruments
Financial assets
Financial assets at FVTPL
– designated as at FVTPL
– held for trading
Derivative instruments under hedge accounting
Available-for-sale financial assets
Held-to-maturity investments
Loans and receivables (including cash and cash equivalents)
Financial liabilities
Financial liabilities at FVTPL
– held for trading
Derivative instruments under hedge accounting
Amortised cost
The Group
The Company
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
125
–
158
1,022
700
1,728
3,733
10
31
4,398
4,439
203
95
33
2,479
–
1,162
3,972
55
2
3,466
3,523
–
–
–
2
–
–
–
–
2
–
13,014
13,016
12,790
12,792
–
–
90
90
–
–
61
61
30. Deferred Taxation
The following are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the year:
The Group
At 1 January 2007
Charge to consolidated income statement
for the year (note 10)
Charge to equity for the year
At 31 December 2007
Charge (credit) to consolidated income statement
for the year (note 10)
Charge to equity for the year
Effect of change in tax rate
At 31 December 2008
Accelerated tax
depreciation
HK$ million
Revaluation
of properties
HK$ million
Tax losses
HK$ million
Total
HK$ million
244
20
–
264
1
–
(15)
250
3,106
540
1
3,647
(28)
1
(208)
3,412
(1)
–
–
(1)
(13)
–
–
(14)
3,349
560
1
3,910
(40)
1
(223)
3,648
At the balance sheet date, the Group has unused estimated tax losses of HK$655 million (2007: HK$400 million), of which HK$312
million (2007: nil) has not been agreed by IRD, available for offset against future profits. A deferred tax asset has been recognised in
respect of HK$85 million (2007: HK$5 million) of such losses. No deferred tax asset has been recognised in respect of the remaining
estimated tax losses of HK$570 million (2007: HK$395 million) as the utilisation of these estimated tax losses is uncertain. These
estimated tax losses may be carried forward indefinitely.
At the balance sheet date, the Group has deductible temporary differences of HK$49 million (2007: HK$4 million) arisen from the
revaluation of properties. No deferred tax asset has been recognised in relation to such deductible temporary differences as it is not
probable that taxable profit will be available against which the deductible temporary differences can be utilised.
The Company does not have any unused tax loss as at balance sheet date.
114 Hysan Annual Report 2008
31. Share Capital
Ordinary shares of HK$5 each
Authorised:
Number of shares
Share capital
2008
2007
2008
HK$ million
2007
HK$ million
At 1 January and 31 December
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
1,037,469,756 1,055,137,409
5,057,681
1,507,666
(24,233,000)
3,528,155
116,667
–
1,041,114,578 1,037,469,756
5,187
18
1
–
5,206
5,276
25
7
(121)
5,187
(a) Issue of shares pursuant to scrip dividend schemes
For the year ended 31 December 2008
On 18 June 2008 and 12 September 2008 respectively, the Company issued and allotted a total of 3,031,113 shares and 497,042
shares of HK$5 each in the Company at HK$23.10 and HK$21.59 to the shareholders who elected to receive shares in the Company in
lieu of cash for the 2007 final and 2008 interim dividends pursuant to the scrip dividend schemes announced by the Company on 14 May
2008 and 21 August 2008. These shares rank pari passu in all respects with other shares in issue.
For the year ended 31 December 2007
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 final 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
For the year ended 31 December 2008
During the year ended 31 December 2008, options to subscribe for a total of 114,667 shares and 2,000 shares were exercised at the
exercise prices of HK$15.85 and HK$21.25 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 38.
For the year ended 31 December 2007
During the year ended 31 December 2007, 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 38.
Hysan Annual Report 2008 115
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Notes to the Financial Statements continued
For the year ended 31 December 2008
31. Share Capital continued
(c) Cancellation upon repurchase of own shares
The Company was authorised at the respective annual general meetings held in 2007 and 2008 to purchase its own ordinary shares not
exceeding 10% of the aggregate nominal amount of the then issued share capital of the Company.
For the year ended 31 December 2008
Neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year ended 31
December 2008.
For the year ended 31 December 2007
During the year ended 31 December 2007, the Company repurchased its ordinary shares on the Stock Exchange when they were
significantly trading at a discount in order to enhance shareholder value. The details were set out below:
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 ended 31 December 2007 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 profits.
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 profits 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 ended 31 December 2007.
116 Hysan Annual Report 2008
32. Reserves of the Company
The Company’s reserves available for distribution to its equity holders as at 31 December 2008 amounted to HK$5,794 million (2007:
HK$5,676 million), being its general reserve, dividend reserve and retained profits at that date.
Share
premium
Total
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
General
reserve
Dividend
reserve
Retained
profits
Share
options
reserve
Capital
redemption
reserve
At 1 January 2007
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
Profit for the year
Interim dividend declared for 2007
Dividends paid during the year (note 12)
At 31 December 2007
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
Forfeiture of share options
Profit for the year
Dividends paid during the year (note 12)
1,453
79
9
–
–
–
–
–
–
–
1,541
63
2
–
–
–
–
At 31 December 2008
1,606
Note: General reserve was set up from the transfer of retained profits.
(Note)
155
100
422
5,475
7,610
–
–
121
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
276
100
–
–
–
–
–
–
–
–
–
–
–
–
276
100
–
–
–
–
–
–
–
127
(549)
–
–
–
–
–
–
–
–
–
79
–
(511)
(2)
–
2
739
(127)
–
8
(390)
(2)
4
–
739
–
(549)
5,576
7,499
–
–
–
1
761
(644)
63
1
5
–
761
(644)
5,694
7,685
5
–
(1)
–
–
4
(2)
–
–
–
6
–
(1)
5
(1)
–
–
9
33. Retirement Benefits Plans
With effect from 1 December 2000, the Group set up an enhanced Mandatory Provident Fund Scheme (the “Enhanced MPF Scheme”),
a defined contribution scheme, for all qualifying employees. The Enhanced MPF Scheme is registered with the Mandatory Provident Fund
Schemes Authority under Section 124(1) of the Mandatory Provident Fund Schemes (General) Regulation.
Pursuant to the rules of the Enhanced MPF Scheme, the Group’s contributions to the plan are based on fixed percentages of members’
salaries, ranging from 5% of MPF Relevant Income to 15% of basic salary. Members’ mandatory contributions are fixed at 5% of MPF
Relevant Income, in compliance with MPF legislation.
Total contributions made by the Group during the year amounted to HK$5 million (2007: HK$5 million). Forfeited contributions for the year
amounted to HK$3 million (2007: HK$3 million) were refunded to the Group.
Hysan Annual Report 2008 117
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Notes to the Financial Statements continued
For the year ended 31 December 2008
34. Contingent Liabilities
At the balance sheet date, there were contingent liabilities in respect of the following:
Corporate guarantee to note holders
– for issue of floating rate notes
– for issue of fixed rate notes
– for issue of zero coupon notes
Guarantees to banks for providing financing facilities
to subsidiaries
The Group
The Company
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
–
–
–
–
–
–
–
–
–
–
550
1,985
430
2,965
550
1,420
430
2,400
920
720
35. 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
The Group
2008
HK$ million
2007
HK$ million
2,068
123
1,006
134
36. 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 fifth year inclusive
The Company
2008
HK$ million
2007
HK$ million
8
3
11
15
6
21
Operating lease payments represent rentals payable by the Company to its subsidiaries for its staff quarters and office premises which
are negotiated and rental are fixed for two years and three years respectively.
At the balance sheet date, the Group had no commitment under non-cancellable operating lease.
118 Hysan Annual Report 2008
36. Lease Commitments continued
(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 fifth year inclusive
Over five years
The Group
2008
HK$ million
2007
HK$ million
1,266
1,349
–
2,615
1,104
1,468
10
2,582
Operating lease payments represent rentals receivable by the Group from leasing of its investment properties. Typically, leases are
negotiated and rentals are fixed for lease term of one to three years. Certain leases include contingent rentals calculated with reference
to turnover of the tenants.
37. 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:
The Group
Substantial shareholders
Directors
2008
HK$ million
2007
HK$ million
2008
HK$ million
2007
HK$ million
Gross rental income received from (Note a)
Amount due to a minority shareholder (Note b)
2
–
6
–
24
94
26
94
Notes:
(a) The sum of transactions with Directors represented the aggregate gross rental income received under various leases respectively with Directors
of approximately HK$882,000 (2007: HK$754,000), and companies controlled by Directors or their associates in aggregate of approximately
HK$23,337,000 (2007: HK$25,199,000).
(b) The sum represents outstanding loan advanced to a non wholly-owned subsidiary of the Group, Barrowgate Limited (“Barrowgate”) by Mightyhall
Limited, a wholly-owned subsidiary of Jebsen and Company Limited of which Hans Michael JEBSEN is a director and shareholder, as shareholders loan
in proportion to its shareholding in Barrowgate for general funding purpose. The amount is unsecured, interest-free and repayable on demand.
The Company has the following balances with its subsidiaries at the balance sheet date:
Amounts due from subsidiaries
Less: Allowances on amounts due therefrom
Amounts due to subsidiaries
Details of amounts due from/to subsidiaries are disclosed in note 22.
The Company
2008
HK$ million
2007
HK$ million
13,368
(499)
13,039
(258)
12,869
12,781
59
42
Hysan Annual Report 2008 119
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Notes to the Financial Statements continued
For the year ended 31 December 2008
37. Related Party Transactions and Balances continued
(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 benefits
Share-based payments
Retirement benefits scheme contributions
2008
HK$ million
2007
HK$ million
26
4
1
31
17
3
1
21
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.
38. 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). For the options granted under the
1995 Scheme currently outstanding, the basis for determining the exercise price is the highest of (i) the closing price of the shares as
stated in the Stock Exchange’s daily quotations sheet on the date of grant; (ii) the average of the closing prices of the shares as stated
in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal
value of the shares. Consideration on each grant of option was HK$1 and was paid within 30 days from the date of grant of option, with
full payment for exercise price to be made on exercise of the relevant option.
The 2005 Share Option Scheme (the “2005 Scheme”)
The Company adopted the 2005 Scheme 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 (together with the 1995 Scheme are referred to as the “Schemes”).
The purpose of the 2005 Scheme is to provide an incentive for employees of the Company and its wholly-owned subsidiaries to work with
commitment towards enhancing the value of the Company and its shares for the benefit of its shareholders.
Under the 2005 Scheme, options may be granted to employees of the Company or any wholly-owned subsidiaries (including executive
Directors) and such other persons as the Board may consider appropriate from time to time, on the basis of their contribution to the
development and growth of the Company and its 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 Rules Governing the Listing of Securities on the Stock
Exchange (the “Listing Rules”), currently being 10% of the shares in issue as at 10 May 2005, the date of the AGM approving the 2005
Scheme (being 104,996,365 shares). 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.
120 Hysan Annual Report 2008
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38. Share-Based Payment Transactions continued
(a) Equity-settled share option schemes continued
The 2005 Share Option Scheme (the “2005 Scheme”) continued
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 shareholder approval, being
10,499,636). The exercise price shall be at least the highest of (i) the closing price of the shares as stated in the Stock Exchange’s
daily quotations sheet on the date of grant; (ii) the average of the closing prices of the shares as stated in the Stock Exchange’s
daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the shares.
Consideration on each grant of option is HK$1 and is required to be paid within 30 days from the date of grant of option, with full payment
for exercise price to be made on exercise of the relevant option.
(b) Grant and vesting structures
Grants made prior to 8 March 2005 had a holding period of 2 years and a vesting period of 5 years.
With effect from 8 March 2005, the Board has approved a new grant and vesting structure. Grants will be made on a periodic basis.
Vesting period is 3 years in equal proportion. Size of grant will be determined by reference to base salary multiple and job grades. A clear
performance criterion will be a key driver. The Board will review the grant and vesting structures from time to time.
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Directors and employees during the current year:
Date of
grant
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2008
Changes during the year
Cancelled/
Balance
as at
lapsed 31.12.2008
Granted
Exercised
Name
1995 Scheme
Executive Directors
Ricky Tin For TSANG
(Note b)
(Note c)
2005 Scheme
Executive Directors
Peter Ting Chang LEE
30.3.2005 15.850
Wendy Wen Yee YUNG
30.3.2005 15.850
(Note b)
Eligible employees
30.3.2005 15.850
30.3.2005 –
29.3.2015
30.3.2005 –
29.3.2015
30.3.2005 –
29.3.2015
120,000
96,000
87,667
–
–
–
(40,000)
(Note j)
–
(74,667)
(Note k)
6.3.2007 21.380
6.3.2007 –
5.3.2017
235,000
–
13.3.2008 21.450
(Note e)
13.3.2008 –
12.3.2018
–
260,000
Ricky Tin For TSANG
30.3.2006 22.000
(Note b)
30.3.2007 21.250
30.3.2006 –
29.3.2016
30.3.2007 –
29.3.2017
120,000
95,000
–
–
31.3.2008 21.960
(Note f)
31.3.2008 –
30.3.2018
–
100,000
Wendy Wen Yee YUNG
26.6.2006 20.110
(Note b)
30.3.2007 21.250
26.6.2006 –
25.6.2016
30.3.2007 –
29.3.2017
110,000
95,000
–
–
31.3.2008 21.960
(Note f)
31.3.2008 –
30.3.2018
–
100,000
Pauline Wah Ling YU WONG
6.3.2007 21.380
(Note d)
6.3.2007 –
30.6.2009
108,000
–
–
–
–
–
–
–
–
–
–
–
–
–
80,000
96,000
13,000
–
235,000
–
260,000
–
120,000
–
95,000
–
100,000
–
110,000
–
95,000
–
100,000
–
108,000
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Hysan Annual Report 2008 121
Notes to the Financial Statements continued
For the year ended 31 December 2008
38. Share-Based Payment Transactions continued
(c) Movement of share options continued
Name
2005 Scheme continued
Date of
grant
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2008
Changes during the year
Cancelled/
Balance
as at
lapsed 31.12.2008
Granted
Exercised
Eligible employees
30.3.2006 22.000
(Note c)
30.3.2007 21.250
30.3.2006 –
29.3.2016
30.3.2007 –
29.3.2017
99,000
132,000
–
–
–
(32,000)
(Note m)
(2,000)
(Note l)
(57,000)
(Note m)
67,000
73,000
31.3.2008 21.960
(Note f)
31.3.2008 –
30.3.2018
2.5.2008 23.900
(Note g)
2.5.2008 –
1.5.2018
9.9.2008 21.300
(Note h)
9.9.2008 –
8.9.2018
2.10.2008 20.106
(Note i)
2.10.2008 –
1.10.2018
–
178,000
–
95,000
–
85,000
–
85,000
–
–
–
–
(14,000)
(Note m)
164,000
–
–
–
95,000
85,000
85,000
1,297,667
903,000
(116,667)
(103,000) 1,981,000
Notes:
(a) Save otherwise stated, all options granted have a vesting period of 3 years in equal proportions.
(b) Ricky Tin For TSANG and Wendy Wen Yee YUNG were appointed as Executive Directors on 1 April 2008.
(c) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance.
(d) Pauline Wah Ling YU WONG retired from the Board of the Company by rotation as from the conclusion of 2008 AGM held on 14 May 2008. She
remained as Senior Advisor to the Company until 31 December 2008 when she retired from the Company and her outstanding options remain
exercisable until 30 June 2009.
(e) The closing price of the shares of the Company immediately before the date of grant (as of 12 March 2008) was HK$22.100.
(f)
The closing price of the shares of the Company immediately before the date of grant (as of 28 March 2008) was HK$21.950.
(g) The closing price of the shares of the Company immediately before the date of grant (as of 30 April 2008) was HK$22.600.
(h) The closing price of the shares of the Company immediately before the date of grant (as of 8 September 2008) was HK$21.300.
(i)
(j)
The closing price of the shares of the Company immediately before the date of grant (as of 30 September 2008) was HK$19.980.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$22.700.
(k) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$22.337.
(l)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$22.950.
(m) The options lapsed during the year upon resignations of certain eligible employees.
122 Hysan Annual Report 2008
38. Share-Based Payment Transactions continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and employees in prior year:
Date of
grant
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2007
7.1.1999
9.220
7.1.2001 – 1,350,000
6.1.2009
30.3.2005 –
29.3.2015
401,333
Changes during the year
Cancelled/
Balance
as at
lapsed 31.12.2007
Granted
Exercised
–
–
(1,350,000)
(Note g)
–
–
(77,666)
(Note h)
(20,000)
(Note j)
303,667
Eligible employees
30.3.2005 15.850
Name
1995 Scheme
Executive Director
Peter Ting Chang LEE
(Note b)
(Note c)
2005 Scheme
Executive Directors
Peter Ting Chang LEE
6.3.2007 21.380
(Note e)
6.3.2007 –
5.3.2017
–
235,000
–
–
235,000
Michael Tze Hau LEE
10.5.2005 16.600
(Note d)
30.3.2006 22.000
10.5.2005 –
9.5.2015
30.3.2006 –
29.3.2016
240,000
188,000
–
–
Pauline Wah Ling YU WONG
6.3.2007 21.380
(Note e)
6.3.2007 –
5.3.2017
6.3.2007 21.380
(Note e)
6.3.2007 –
5.3.2017
–
185,000
–
108,000
Eligible employees
9.8.2005 18.790
(Note c)
9.8.2005 –
8.8.2015
96,000
12.10.2005 18.210 12.10.2005 –
11.10.2015
120,000
30.3.2006 22.000
26.6.2006 20.110
30.3.2006 –
29.3.2016
26.6.2006 –
25.6.2016
325,000
110,000
–
–
–
–
30.3.2007 21.250
(Note f)
30.3.2007 –
29.3.2017
–
335,000
(80,000)
(Note i)
(160,000)
(Note j)
–
–
–
(188,000)
(Note j)
(185,000)
(Note j)
–
108,000
(96,000)
(Note j)
(120,000)
(Note j)
(106,000)
(Note j)
–
–
219,000
–
110,000
(13,000)
(Note j)
322,000
–
–
–
–
–
–
–
–
2,830,333
863,000
(1,507,666)
(888,000) 1,297,667
Notes:
(a) Save otherwise stated, all options granted have a vesting period of 3 years in equal proportions.
(b) Options granted to Peter Ting Chang LEE on 7 January 1999 had a holding period of 2 years and a vesting period of 5 years.
(c) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance. Among the Eligible Employees, Ricky Tin For TSANG and Wendy Wen Yee YUNG were appointed as Directors with effect from 1 April 2008.
Their options are disclosed as held by Directors in current year.
(d) Michael Tze Hau LEE stepped down from the Board of the Company as from the conclusion of 2007 AGM on 8 May 2007.
Hysan Annual Report 2008 123
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Notes to the Financial Statements continued
For the year ended 31 December 2008
38. Share-Based Payment Transactions continued
(c) Movement of share options continued
Notes: continued
(e) The closing price of the shares of the Company immediately before the date of grant (as of 5 March 2007) was HK$20.500.
(f)
The closing price of the shares of the Company immediately before the date of grant (as of 29 March 2007) was HK$21.300.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$19.600.
(h) The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$21.090.
(i)
(j)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was HK$21.200.
The options lapsed during the year upon the stepping down of Michael Tze Hau LEE and resignations of certain eligible employees.
(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 2005. In accordance with HKFRS 2, fair value of share options granted to employees determined at the date of grant is
expensed over the vesting period, with a corresponding adjustment to the Group’s share options reserve. In the current year, the Group
recognised the share option expenses of HK$5 million (2007: HK$4 million) in relation to share options granted by the Company, of which
HK$3 million (2007: HK$1 million) related to the Directors (see note 7), 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
a number of 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:
Date of grant
2.10.2008
9.9.2008
2.5.2008
31.3.2008
13.3.2008
30.3.2007
6.3.2007
Closing share price
at the date of grant
HK$19.160 HK$21.300 HK$23.900 HK$21.800 HK$21.450 HK$21.250 HK$20.800
Exercise price
HK$20.106 HK$21.300 HK$23.900 HK$21.960 HK$21.450 HK$21.250 HK$21.380
Risk free rate (Note a)
2.936%
2.833%
2.668%
2.607%
2.486%
4.192%
4.188%
Expected life of option (Note b)
10 years
10 years
10 years
10 years
10 years
10 years
10 years
Expected volatility (Note c)
38.86%
38.19%
35.51%
34.25%
33.03%
29.53%
30.12%
Expected dividend per annum
(Note d)
HK$0.463
HK$0.463
HK$0.463
HK$0.463
HK$0.463
HK$0.416
HK$0.416
Estimated fair value per
share option
HK$6.940
HK$8.130
HK$8.990
HK$7.390
HK$6.970
HK$7.470
HK$7.210
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 five financial years.
124 Hysan Annual Report 2008
Financial Risk Management
For the year ended 31 December 2008
1. Financial Risk Management Objectives and Policies
The Group’s major financial instruments include cash and bank balances, time deposits, held-to-maturity investments, amount due from
an associate, accounts receivable, other receivables, available-for-sale financial assets, accounts payable, accruals, rental deposits
from tenants, amounts due to minority shareholders, borrowings and derivative financial instruments. The Company’s major financial
instruments include cash and bank balances, time deposits, other receivables, amounts due from/to subsidiaries, other payable and
accruals. Details of these financial instruments are disclosed in respective notes to the financial statements. The risks associated with
these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors
these exposures to ensure appropriate measures are implemented on a timely and effective manner.
(a) Credit Risk
The credit risk of the Group and the Company are primarily attributable to rents receivable from tenants, amounts due from subsidiaries,
amount due from an associate, derivative financial instruments, held-to-maturity investments, time deposits and bank balances. The
Group’s and the Company’s maximum exposure to credit risk which will cause a financial loss to the Group and the Company due to
failure to discharge an obligation by the counterparties and financial guarantees issued by the Company are arising from:
(i)
the carrying amount of the respective recognised financial assets as stated in the consolidated and Company’s balance sheets; and
(ii)
the amount of contingent liabilities in relation to financial guarantee issued by the Company as disclosed in note 34 to the financial
statements.
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 financial institutions with strong investment-grade
credit ratings, limits exposure to each financial 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 financial institution. The Group’s listed debt securities are issued by Hong Kong
Monetary Authority or national government with high sovereign credit rating.
To minimise the credit risk of amounts due from subsidiaries and an associate, the management of the Group and the Company review
the recoverable amount of each individual balance at each balance sheet date to ensure adequate impairment losses are made for
irrecoverable amounts. Other than concentration of credit risk on amount due from an associate, the Group and the Company have no
significant concentration of credit risk, with exposure spread over a number of counterparties and tenants.
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Hysan Annual Report 2008 125
Financial Risk Management continued
For the year ended 31 December 2008
1. Financial Risk Management Objectives and Policies continued
(b) Liquidity Risk
The Group and the Company closely monitor their liquidity requirements and the sufficiency 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 financial liabilities.
The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group
and the Company is required to pay. The table includes both interest and principal cash flows. The interest payments are computed using
contractual rates or, if floating, based on the prevailing market rate at the balance sheet date. For cash flows denominated in currency
other than Hong Kong dollars, the prevailing foreign exchange rates at the balance sheet date are used to convert the cash flows into
Hong Kong dollars.
Carrying
amount
HK$ million
Total
contractual
undiscounted
cash flow
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
(320)
(388)
(327)
(920)
(550)
(2,003)
(278)
(320)
(388)
(327)
(970)
(557)
(2,570)
(430)
(320)
(158)
(327)
(21)
(557)
(128)
–
(4,786)
(5,562)
(1,511)
(278)
(339)
(327)
(720)
(549)
(1,362)
(230)
(278)
(339)
(327)
(809)
(589)
(1,866)
(430)
(3,805)
(4,638)
(278)
(124)
(327)
(29)
(22)
(99)
–
(879)
–
(88)
–
(85)
–
(129)
–
(302)
–
(104)
–
(29)
(567)
(99)
–
(799)
–
(132)
–
(864)
–
(1,648)
–
–
(10)
–
–
–
(665)
(430)
(2,644)
(1,105)
–
(107)
–
(751)
–
(1,668)
–
(2,526)
–
(4)
–
–
–
–
(430)
(434)
The Group
As at 31 December 2008
Non-derivative financial 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 2007
Non-derivative financial 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
126 Hysan Annual Report 2008
1. Financial Risk Management Objectives and Policies continued
(b) Liquidity Risk continued
Carrying
amount
HK$ million
Total
contractual
undiscounted
cash flow
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
The Company
As at 31 December 2008
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
As at 31 December 2007
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
(31)
(59)
(90)
(19)
(42)
(61)
(31)
(59)
(90)
(19)
(42)
(61)
(31)
(59)
(90)
(19)
(42)
(61)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Hysan Annual Report 2008 127
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Financial Risk Management continued
For the year ended 31 December 2008
1. Financial Risk Management Objectives and Policies continued
(b) Liquidity Risk continued
The following table details the Group’s remaining contractual maturity for its derivative financial instruments. The table has been drawn up
based on the undiscounted net cash inflows (outflows) on the derivative instruments that settle on a net basis and undiscounted gross
inflows (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount
disclosed has been determined by the prevailing market rate at the balance sheet date. For cash flows denominated in currency other
than Hong Kong dollars, the prevailing foreign exchange rates at the balance sheet date are used to convert the cash flows into Hong
Kong dollars.
Carrying
amount
HK$ million
Total
contractual
undiscounted
cash flow
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
The Group
As at 31 December 2008
Derivative settled net
Interest rate swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency and net basis swaps
Outflow
Inflow
As at 31 December 2007
Derivative settled net
Interest rate swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
40
2
75
(2)
3
Cross currency and net basis swaps
13
Outflow
Inflow
139
5
4
28
102
(366)
368
(1,758)
1,856
(282)
283
(43)
70
(35)
35
(36)
68
(49)
50
(1,679)
1,718
–
–
–
–
41
–
2
8
31
(201)
206
(1,659)
1,707
(83)
85
(57)
64
(34)
35
(52)
64
(84)
86
(1,550)
1,579
–
–
–
–
At the balance sheet date, the Company has no derivative financial instruments.
128 Hysan Annual Report 2008
1. Financial Risk Management Objectives and Policies continued
(c) Interest Rate Risk
The Group manages its interest rate exposure based on interest rate level and outlook as well as potential impact on the Group’s financial
position arising from volatility. The Group’s policy is to maintain the proportion of borrowings in fixed rates and floating rates within an
appropriate range. Accordingly, the Group entered into (i) interest rate swaps to hedge the interest rate risk of the Group’s floating rate
borrowings including bank loans and floating rate notes; and (ii) cross currency swaps and interest rate swaps to hedge the interest
rate risk of certain amounts of the Group’s fixed rate notes. The Group reviews the continuing effectiveness of hedging instruments at
least at each balance sheet date and until the hedging instrument expires or is terminated or the hedge no longer meets the criteria for
hedge accounting. The Group mainly used regression analysis and comparison of change in fair value of the hedging instruments and the
hedged items for assessing the hedging effectiveness.
As at 31 December 2008, about 59.5% (2007: 60.1%) of the Group’s gross debts were effectively on a floating rate basis. The ratio could
be adjusted with changes to the interest rate trend going forward. In addition, the Group is exposed to (i) cash flow interest rate risk as
the interest income derived from time deposits and bank balances is subject to interest rate changes; and (ii) fair value interest rate risk
in relation to its held-to-maturity investments in fixed-rate debt securities. Other than the concentration of interest rate risk related to the
movements in HIBOR, the Group has no significant concentration of interest rate risk.
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 financial instruments that would have affected the profit or loss and equity. A
change of 50 basis points (“bps”) (2007: 75 bps) was applied to the yield curves at the balance sheet date. The applied change of bps
represented management’s assessment of the reasonably possible change in interest rates based on the current market conditions. The
decrease in applied change of bps is mainly due to the lower prevailing market interest rates at the balance sheet date.
In management’s opinion, the sensitivity analysis is unrepresentative of the interest rate risk as the year end exposure does not reflect
the exposure during the year.
The Group
Increase (decrease) in
profit or loss
50 bps
increase
HK$ million
50 bps
decrease
HK$ million
Increase (decrease) in
equity
50 bps
increase
HK$ million
50 bps
decrease
HK$ million
As at 31 December 2008
(1)
2
11
(12)
As at 31 December 2007
2
(2)
1
(1)
75 bps
increase
HK$ million
75 bps
decrease
HK$ million
75 bps
increase
HK$ million
75 bps
decrease
HK$ million
Hysan Annual Report 2008 129
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Financial Risk Management continued
For the year ended 31 December 2008
1. Financial Risk Management Objectives and Policies continued
(d) 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 are located, and all rental income are derived, in Hong Kong, and denominated in Hong Kong dollars. As at 31
December 2008, the Group held US$27 million listed debt securities and all of the Group’s debts were denominated in Hong Kong dollars
with the exception of the US$182 million 10-year fixed rate notes and the US$26 million bank loan. Other than concentration of currency
risk of USD in relation to the US$182 million 10-year fixed rate notes, the US$26 million bank loan and the US$27 million listed debt
securities, the Group has no other significant currency risk.
The Group has entered into appropriate hedging instruments, mentioned in notes 20(a)(i) and 20(b) to the financial statements, to hedge
against the potential currency risk. The Group reviews the continuing effectiveness of hedging instruments at least at each balance sheet
date and until the hedging instrument expires or is terminated or the hedge no longer meets the criteria for hedge accounting. The Group
mainly used regression analysis and comparison of change in fair value of the hedging instruments and the hedged items for assessing
the hedging effectiveness.
Sensitivity analysis
The sensitivity analysis below has been determined assuming that a change in exchange rate had occurred at the balance sheet date
and had been applied to both derivative and non-derivative financial instruments that would have affected the profit or loss and equity.
A change of 650 bps (2007: 300 bps) was applied to the HKD:USD spot rate at the balance sheet date with the upper and lower
boundaries at 7.75 and 7.85 respectively due to the peg of Hong Kong dollars against US dollars. The applied change of bps represented
management’s assessment of the reasonably possible change in foreign exchange rates. As the HKD:USD spot rate as at the balance
sheet date was close to 7.75, implying a greater room for increase in the exchange rate in the coming year, the applied change of bps
is therefore increased. The forward points (the difference between spot rate and the forward rates) were assumed the same as the
prevailing market forward points at respective balance sheet date.
The Group
Increase (decrease) in
profit or loss
650 bps
increase
HK$ million
650 bps
decrease
HK$ million
Increase (decrease) in
equity
650 bps
increase
HK$ million
650 bps
decrease
HK$ million
As at 31 December 2008
(2)
–
3
–
As at 31 December 2007
2
(2)
1
(1)
300 bps
increase
HK$ million
300 bps
decrease
HK$ million
300 bps
increase
HK$ million
300 bps
decrease
HK$ million
130 Hysan Annual Report 2008
1. Financial Risk Management Objectives and Policies continued
(e) 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 prices. Therefore, the Group is exposed to equity price risk and the management will monitor
the price movements and take appropriate actions when it is required. As at 31 December 2007, the Group had outstanding equity
derivatives. The equity derivatives are not qualified as hedging instrument and hence are measured at fair value through profit 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 the investments that would have affected the profit or loss and equity. A change of 25%
(2007: 10%) in stock prices was applied at the balance sheet date. The applied change of percentage represented management’s
assessment of the reasonably possible change in stock prices. The increase in applied change of percentage is due to the increased
volatility of stock prices during the year.
The Group
Increase (decrease) in
profit or loss
25%
increase
HK$ million
25%
decrease
HK$ million
Increase (decrease) in
equity
25%
increase
HK$ million
25%
decrease
HK$ million
As at 31 December 2008
–
–
246
(246)
10%
increase
HK$ million
10%
decrease
HK$ million
10%
increase
HK$ million
10%
decrease
HK$ million
As at 31 December 2007
(10)
9
251
(251)
2. Fair Value Estimation
The fair value of financial assets and financial liabilities are determined as follows:
•
•
•
the fair value of listed investments traded on active liquid markets and classified as held for trading, available-for-sale financial
assets and held-to-maturity investments are determined with reference to the published price quotations;
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with
generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions;
and
the fair value of derivative instruments are calculated using quoted prices from independent financial institutions or using discounted
cash flow analysis based on the applicable yield curves derived from quoted interest rates and quoted spot and forward 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 financial assets and financial liabilities measured at amortised costs approximate
their fair values, except for the carrying amount of HK$2,003 million (2007: HK$1,362 million) fixed rate notes as stated in note 28 to
the financial statements with fair value of HK$2,117 million (2007: HK$1,543 million).
Hysan Annual Report 2008 131
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Financial Risk Management continued
For the year ended 31 December 2008
3. Capital Risk Management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.
The Group monitors its capital structure on the basis of a net debt to adjusted capital ratio. For this purpose, the Group defines net
debt as borrowings as shown in the consolidated balance sheet less total cash and cash equivalents. Adjusted capital comprises all
components of equity, adjusted by cumulative deferred tax provided on fair value gain on the investment and owner-occupied properties
attributable to equity holders.
The management reviews the Group’s net debt to adjusted capital ratio regularly and adjust the ratio through the payment of dividends,
the issue of new share or debt, the repurchase of shares and the redemption of existing debt.
The net debt to adjusted capital ratio at the year end was as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Borrowings
Less: Held-to-maturity debt securities
Time deposits
Cash and bank balances
Net debt
Equity attributable to equity holders of the Company
Add: Group’s share of cumulative deferred tax on properties revaluation
Adjusted capital
Net debt to adjusted capital
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
The Group
2008
HK$ million
2007
HK$ million
920
550
2,003
278
3,751
(700)
(964)
(51)
2,036
31,469
3,191
34,660
5.9%
720
549
1,362
230
2,861
–
(478)
(6)
2,377
31,652
3,420
35,072
6.8%
132 Hysan Annual Report 2008
Five-Year Financial Summary
For the year ended 31 December 2008
Results
Turnover
Property expenses
Gross profit
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
Profit before taxation
Taxation
Profit for the year
Minority interests
Profit attributable to equity holders
of the Company
Underlying profit for the year
Recurring underlying profit for the year
Dividends
Dividends paid
Dividends proposed
Dividends per share (HK cents)
Earnings per share (HK$), based on:
Profit for the year
– basic
– diluted
Underlying profit for the year – basic
Recurring underlying profit for the year – basic
Performance Indicators
Net debt to equity
Net interest coverage (times)
Net assets value per share (HK$)
Adjusted net assets value per share (HK$)
Net debt per share (HK$)
Year end share price (HK$)
2008
HK$ million
2007
HK$ million
2006
HK$ million
2005
HK$ million
1,638
(217)
1,421
63
146
(134)
(155)
(212)
590
–
–
1,719
(1)
1,718
(124)
1,594
1,201
1,066
644
562
68.00
1.53
1.53
1.16
1.03
5.9%
10.2x
30.23
33.29
1.96
12.52
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
2004
HK$ million
(restated)
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
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Hysan Annual Report 2008 133
Five-Year Financial Summary continued
For the year ended 31 December 2008
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
2008
HK$ million
2007
HK$ million
2006
HK$ million
2005
HK$ million
35,850
2,340
1,022
1,015
1,309
41,536
(3,751)
(3,999)
(1,076)
(8,826)
32,710
(1,241)
31,469
34,660
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
2004
HK$ million
(restated)
27,917
855
1,018
22
335
30,147
(5,603)
(2,332)
(815)
(8,750)
21,397
(831)
20,566
22,399
Definitions:
(1) Underlying profit for the year: profit adjusted for group’s share of unrealised fair value changes on investment properties net of deferred tax
(2) Recurring underlying profit for the year: underlying profit 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 profit 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
Note:
The figures for 2004 have been restated to reflect the prior year adjustments arising from (i) reclassification of certain investment properties of the Group
to property, plant and equipment as a result of 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) reclassification of
leasehold interests in land to prepaid lease payments under operating leases according to HKAS 17 “Leases”.
134 Hysan Annual Report 2008
Report of the Valuer
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual revaluation of investment properties as at 31 December 2008
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 2008 was in the approximate sum of Hong Kong Dollars Thirty Five Billion Eight Hundred Fifty Million Only (i.e. HK$35,850
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, 20 February 2009
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Hysan Annual Report 2008 135
Schedule of Principal Properties
As at 31 December 2008
Investment Properties
Address
Lot No.
1. The Lee Gardens
33 Hysan Avenue
Causeway Bay
Hong Kong
Sec. DD of I.L. 29, Sec. L of I.L. 457,
Sec. MM of I.L. 29,
the R.P. of Sec. L of I.L. 29,
and the R.P. of I.L. 457
Use
Category
of the Lease
Percentage
held by
the Group
Commercial
Long lease
100%
2. Bamboo Grove
I.L. 8624
Residential
Medium-term
100%
74-86 Kennedy Road
Mid-Levels
Hong Kong
3. Lee Gardens Two
28 Yun Ping Road
Causeway Bay
Hong Kong
4. Leighton Centre
77 Leighton Road
Causeway Bay
Hong Kong
5. Lee Theatre Plaza
99 Percival Street
Causeway Bay
Hong Kong
6. Sunning Plaza
10 Hysan Avenue
Causeway Bay
Hong Kong
7. Sunning Court
8 Hoi Ping Road
Causeway Bay
Hong Kong
8. One Hysan Avenue
1 Hysan Avenue
Causeway Bay
Hong Kong
lease
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%
9. AIA Plaza
Sec. N of I.L. 457 and Sec. LL of I.L. 29
Commercial
Long lease
100%
18 Hysan Avenue
Causeway Bay
Hong Kong
10. 111 Leighton Road
111 Leighton Road
Causeway Bay
Hong Kong
11. 500 Hennessy Road *
Causeway Bay
Hong Kong
Sec. KK of I.L. 29
Commercial
Long lease
100%
Sec. FF of I.L. 29 and
the R.P. of Marine Lot 365
Commercial
Long lease
100%
*
The property (the site of the former Hennessy Centre) is currently under redevelopment. The site has a registered site area of approximately 47,738
square feet. Demolition work for existing basement and sub-structure work are currently underway. The redevelopment has a projected gross floor area
of around 710,000 square feet and is expected to be completed in 2011.
136 Hysan Annual Report 2008
Shareholding Analysis
Share Capital
As at 31 December 2008:
Authorised share capital
Issued and fully paid-up capital
Number of
Ordinary shares
HK$
Nominal Value
HK$
7,250,000,000
5,205,572,890
1,450,000,000
1,041,114,578
5
5
There was one class of ordinary shares of HK$5 each with equal voting rights.
Distribution of Shareholdings
(as at 31 December 2008, as per register of members of the Company)
Size of registered shareholdings
5,000 or below
5,001 – 50,000
50,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
Above 1,000,000
Total
Number of
shareholders
% of
shareholders
Number of
shares
% of the issued
share capital
(Note)
2,578
995
91
55
3
20
3,742
68.89
26.59
2.43
1.47
0.08
0.54
4,781,921
15,262,447
6,808,391
11,359,998
2,298,394
1,000,603,427
100
1,041,114,578
0.46
1.47
0.65
1.09
0.22
96.11
100
Types of Shareholders
(as at 31 December 2008, 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
Number of
shares held
% of the issued
share capital
(Note)
433,130,735
561,255,967
46,727,876
1,041,114,578
41.60
53.91
4.49
100
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Hysan Annual Report 2008 137
Shareholding Analysis continued
Location of Shareholders
(as at 31 December 2008, as per register of members of the Company)
Location of shareholders
Hong Kong
United States and Canada
United Kingdom
Singapore
Others
Total
Number of
shares held
% of the issued
share capital
(Note)
1,035,412,143
4,299,846
1,132,138
63,556
206,895
1,041,114,578
99.45
0.41
0.11
0.01
0.02
100
Note:
The percentages have been compiled based on the total number of shares of the Company in issue as at 31 December 2008 (i.e. 1,041,114,578 ordinary
shares).
138 Hysan Annual Report 2008
Shareholder Information
Financial Calendar
Full year results announced
Ex-dividend date for final dividend
Closure of register of members
Annual General Meeting
Record date for final dividend
Dispatch of scrip dividend circular and election form
Dispatch of final dividend warrants / definitive share certificates
2009 interim results to be announced
* subject to change
Dividend
The Board recommends the payment of a final dividend of
HK54 cents per share. Subject to shareholder approval, the final
dividend will be payable in cash with a scrip dividend alternative
to shareholders on the register of members as at Monday,
18 May 2009. 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,
20 May 2009. 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,
3 June 2009.
Definitive share certificates 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 Tuesday,
9 June 2009.
The register of members will be closed from Thursday, 14 May 2009
to Monday, 18 May 2009, both dates inclusive, for the purpose of
determining shareholders’ entitlements to attend and vote at the
Annual General Meeting to be held on 18 May 2009 (the “AGM”)
and the proposed final dividend, during which period no transfer
of shares will be registered. In order to qualify for attending and
voting at the AGM and the proposed final dividend, all transfer
documents accompanied by the relevant share certificates must
be lodged with the Company’s Registrars not later than 4:00 p.m.
on Wednesday, 13 May 2009.
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
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10 March 2009
12 May 2009
14 to 18 May 2009
18 May 2009
18 May 2009
(on or about) 20 May 2009
(on or about) 9 June 2009
11 August 2009 *
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 difficulty in receiving or gaining access to the Annual Report
will promptly upon request be sent a printed copy free of charge.
Shareholders may at any time change their choice of the language
or means of receipt of the Annual Report by notice in writing to
the Company’s Registrars at the address above. The Change
Request Form may be downloaded from the Company’s website
at www.hysan.com.hk.
Investor Relations
For enquiries relating to investor relations, please email to
investor@hysan.com.hk or write to the Company at:
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”.
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