Platform for Growth
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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
STOCK CODE 00014
Contents
THE ESSENTIAL READ
PAGES 08 - 09
2010 Performance
at a Glance
PAGES 10 - 11
Chairman’s Statement
PAGES 14 - 17
Our Marketplace
and Our Response
PAGES 20 - 33
Operations and
Financial Reviews
PAGES 34 - 38
Financial Policy
PAGES 39 - 41
Internal Controls
and Risk Management
PAGES 42 - 43
Human Resources
PAGES 50 - 64
Corporate Governance
Report
1
2
Overview
06 Who We Are
—– 06 Mission
—– 06 Responsible Business
as the Guiding Principle
—– 07 Our Values
08 2010 Performance
at a Glance
10 Chairman’s Statement
Strategy in Action
14 Our Marketplace and Our Response
Investment Property Portfolio
18
20 Management’s Discussion and Analysis
—– 20 Operations Review
—– 27 Financial Review
—– 34 Financial Policy
39
42 Human Resources
Internal Controls and Risk Management
3
Corporate Governance
46 Board of Directors
and Senior Management
50 Corporate Governance Report
65 Directors’ Report
73 Directors’ Remuneration
and Interests Report
81 Audit Committee Report
4
Financial Statements
and Valuation
84 Directors’ Responsibility
for the Financial Statements
Independent Auditor’s Report
85
86 Financial Statements
155 Five-Year Financial Summary
157 Report of the Valuer
158 Schedule of Principal
Properties
160 Shareholding Analysis
We began the year facing challenges from the
economic environment, as well as unexpected
management changes. However, with a clear
focus, we took decisive actions and overcame
short-term impacts.
We also enhanced our teamwork and longer-
term competitiveness. With a strong platform
for growth established, we look forward and
consider how we can further build upon this
platform, including our latest Hysan Place
project, to bring us to another level of success.
Our Actions during the Year
We have an established asset
enhancement programme and have
initiated improvements through
refurbishments and redevelopments
We formed closer relationships
with our tenants to better understand
their needs
We are on schedule for Hysan Place’s Q2 2012
grand opening
We refined our retail positioning
We enhanced tourist promotions, including
Mainland media visits
2
Hysan Annual Report 2010
We enhanced our property
service standards
We refined our office positioning – our Grade “A” offices
being the most natural extension of Central
We strengthened our
teamwork at all levels
We improved our marketing
capabilities across the portfolio
We maintained the highest corporate
governance standards
We made positive contributions through
our volunteer team and other corporate
responsibility programmes
Hysan Annual Report 2010
3
1
Overview
We begin by stating who we are,
in terms of our mission and core
values. This section highlights
our 2010 financial as well as
non-financial performance, while
the Chairman’s Statement describes
our building a platform for further
growth.
4
Hysan Annual Report 2010
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Hysan Annual Report 2010
5
06 Who We Are
06 Mission
06 Responsible Business
as the Guiding Principle
07 Our Values
08 2010 Performance at a Glance
10 Chairman’s Statement
Who We Are
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.
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.
6
Hysan Annual Report 2010
Our Values
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
beneficial 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.
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Hysan Annual Report 2010
7
2010 Performance at a Glance
Financial Performance
Turnover
HK$1,764 m 5.0%
Dividends per Share
HK74 cents 8.8%
Net Asset Value per Share
HK$38.61 9.0%
Office Sector’s Revenue
HK$770 m 3.1%
Recurring Underlying Profit
HK$1,148 m 3.4%
Property Value
HK$40,833 m 9.3%
(HK$ million)
800
(HK$ million)
1,200
7
4
7
0
7
7
0
2
7
4
8
5
7
2
5
600
400
200
0
6
6
0
1
,
0
5
9
0
1
1
1
,
8
4
1
1
,
5
5
7
900
600
300
0
06
07
08
09
10
06
07
08
09
10
• Occupancy improved to 95%
• New-let space taken mainly by tenants
in banking and finance, professional
services and high-end retail
• A key performance indicator of the
Group’s core property investment
business
• Reflecting improvements in gross profit
generated from our core leasing activities
Retail Sector’s Revenue
HK$700 m 8.0%
Recurring Underlying
Earnings per Share
HK109.15 cents 2.9%
(HK$ million)
800
600
400
200
0
6
2
6
8
4
6
0
0
7
9
0
5
2
2
5
06
07
08
09
10
• Occupancy at 96%, with only vacancies
being due to the renovation of retail
units in Leighton Centre
• Strengthened marketing activities for
locals and tourists
7
5
.
2
0
1
2
3
.
0
9
9
0
.
6
0
1
5
1
.
9
0
1
(HK cents)
120
90
60
30
0
0
6
.
1
7
09
10
07
06
08
• Being Recurring Underlying Profit divided
by weighted average number of ordinary
shares for the purpose of basic earnings
per share
1
1
7
5
3
,
0
5
8
5
3
,
3
7
4
2
3
,
3
3
8
0
4
,
3
6
3
7
3
,
(HK$ million)
50,000
37,500
25,000
12,500
0
06
07
Valuation Surplus
08
09
Cost
10
• Investment property portfolio valued by
an independent professional valuer, on
the basis of open market value
• Valuation at year end 2010 principally
reflected improved rental rates for the
Group’s investment property portfolio
Shareholders’ Funds
HK$40,677 m 9.3%
(HK$ million)
48,000
36,000
24,000
12,000
0
4
1
2
,
5
3
1
1
8
,
4
3
9
5
8
,
0
3
7
7
6
,
0
4
6
1
2
,
7
3
06
07
08
09
10
• Increase in shareholders’ funds in
line with the increase in valuation of
investment properties
Residential Sector’s Revenue
HK$294 m 3.2%
Dividends per Share
HK74 cents 8.8%
Net Asset Value per Share
HK$38.61 9.0%
2
9
2
5
8
2
4
9
2
2
6
2
2
3
2
(HK$ million)
300
240
180
120
60
0
(HK cents)
80
64
48
32
16
0
8
6
8
6
4
7
0
6
0
5
(HK$)
50
40
30
20
10
0
4
9
.
3
3
4
4
.
3
3
5
2
.
9
2
1
6
.
8
3
2
4
.
5
3
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
• Occupancy improved to 94%
• Turnover growth reflected success in
improving occupancy, offsetting negative
rental reversion
• Recommended the payment of a final
dividend of HK60 cents per share
• Together with the interim dividend of
HK14 cents, an aggregate distribution of
HK74 cents per share
• Being shareholders’ funds divided by
number of issued shares at year end
* Certain figures previously reported have been restated due to changes in accounting policies or reclassified to conform to current year presentation.
8
Hysan Annual Report 2010
Non-Financial Performance
Governance
• Recognition by industry for excellence
in corporate governance: Gold Award
(Non-Hang Seng Index Large Market
Capitalisation Category) in the Hong Kong
Institute of Certified Public Accountants’ Best
Corporate Governance Disclosure Awards 2010
• This was Hysan’s eighth Best Corporate
Governance Disclosure Award in 10 years
Environment
• Hysan Place project on track as Hong Kong’s first
building to be certified by United States Green
Building Council’s Leadership in Energy and
Environmental Design standard (LEED) at its
highest platinum level
Community
• Constituent member of Dow Jones Sustainability
Index, FTSE4Good Index and Hang Seng
Corporate Sustainability Index, three of the best
known indices tracking responsible business
practices around the world
Hysan Annual Report 2010
9
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Chairman’s Statement
Overview
The economy of Hong Kong saw its recovery taking shape in 2010, despite uncertainties
in global economies including the United States and Europe. Core district Grade “A” office
rental levels and occupancy both saw improvements from the market troughs experienced
during 2009. Local retail sales continued to perform well, reflecting better consumer
sentiment and a remarkable inflow of tourists from the Mainland. These factors helped to
create a positive environment for retail rental growth.
Our Performance
The Group’s 2010 turnover was HK$1,764 million, an increase of 5.0% from HK$1,680
million in 2009. Growth was recorded across our core leasing business. The retail sector
recorded 8.0% turnover growth, while that of the office sector was 3.1%. The residential
sector’s turnover increase was 3.2%. The office sector saw occupancy improving to 95%,
while the retail sector was virtually fully let except for those Leighton Centre retail units that
were being renovated. The residential sector occupancy was at 94%.
Recurring Underlying Profit, the key measurement of our core leasing business performance,
was HK$1,148 million, an increase of 3.4% from HK$1,110 million in 2009. Our Underlying
Profit, which excludes unrealised changes in fair value of investment properties, was also
HK$1,148 million, an increase of 3.1% from HK$1,113 million in 2009 when some gains
from disposal of long-term assets were recorded. These figures reflected the improvement
in gross profit generated from our core leasing activities. Basic earnings per share
based on Recurring Underlying Profit correspondingly rose to HK109.15 cents (2009:
HK106.09 cents).
Statutory Profit, prepared in accordance with Hong Kong Financial Reporting Standards,
was HK$3,844 million (2009: HK$2,914 million1), mainly due to the higher valuation of
the Group’s investment properties. The external valuation of the Group’s investment property
portfolio increased to HK$40,833 million, an increase of 9.3% from HK$37,363 million
in 2009. Shareholders’ funds also rose by 9.3% to HK$40,677 million (2009:
HK$37,216 million1).
Our financial position remains strong, with improved net interest coverage of 14.0 times
(2009: 11.7 times) and net debt to equity ratio of 6.4% (2009: 5.1%).
The Board of Directors (the “Board”) recommends the payment of a final dividend of
HK60 cents per share (2009: HK54 cents). Together with the interim dividend of HK14 cents
per share (2009: HK14 cents), there is an aggregate distribution of HK74 cents per share,
representing a year-on-year increase of 8.8%. Subject to shareholder approval, the final
dividend will be payable in cash with a scrip dividend alternative.
1 The amount has been restated due to changes in accounting policies.
10
Hysan Annual Report 2010
Platform for Growth
Year 2010 was a year of progress for Hysan. Despite challenges in the economic
environment at the beginning of the year, we achieved our near-term objectives of improving
occupancy and revenue. They were achieved through making our locations more attractive
and by better understanding our customers and meeting their needs. Hysan Place, our latest
development project, is on schedule for a grand opening in the second quarter of 2012.
The completion of the project will bring Hysan to another level in terms of commercial
success, design and sustainability. Together, we are building a platform for growth to
further enhance Hysan’s longer-term competitiveness.
Board and People
I have served this Board for over 20 years and shall step down at the conclusion of the
May Annual General Meeting. I am pleased to announce that Irene Yun Lien LEE, who brings
with her extensive corporate and commercial experience, has been appointed the new
non-executive Chairman to take over from me. Deanna Ruth Tak Yung LEE RUDGARD has
also decided to step down in May, having served the Board for 18 years. Siu Chuen LAU,
who has served as her alternate, will join as a new non-executive Director.
I would like to thank my fellow Board members for their steadfast contribution to the Group
and their fellowship to me throughout the years. My special thanks to Fa-Kuang HU and
Geoffrey YEH, who stepped down during the year, for their wise counsel throughout their
long tenure. I would also like to welcome our new directors who will bring fresh perspectives
to the Board to help map our future direction. Finally, I should like to express my heartfelt
thanks to the management team and all our staff members for their support, their dedication
and their hard work.
Outlook
We expect Grade “A” office rentals in the core districts to continue to improve during the
year. Against this background, we shall be renewing leases negotiated during the 2008 rental
peak. The retail segment should continue to benefit from good retail sales and inbound
tourists. Our performance is expected to experience steady growth as a whole.
David AKERS-JONES
Independent non-executive Chairman
Hong Kong, 9 March 2011
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Hysan Annual Report 2010
11
2
Strategy in Action
“Strategy in action” starts with
a Hong Kong leasing market
overview and how Hysan responded
successfully to market changes in
2010. This is followed by a detailed
analysis of our operating strategy
and performance, finance, risks and
people management during the year.
12
Hysan Annual Report 2010
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Hysan Annual Report 2010
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14 Our Marketplace
and Our Response
18 Investment Property Portfolio
20 Management’s Discussion
and Analysis
20 Operations Review
27 Financial Review
34 Financial Policy
39 Internal Controls
and Risk Management
42 Human Resources
Our Marketplace and Our Response
Hong Kong Economy
The Hong Kong economy recorded positive GDP growth of 6.8% in 2010, as both exports
and domestic demand grew following a recession in 2009. The growth momentum in
exports was largely led by the healthy recovery of the Asia Pacific markets. In the United
States and European markets, domestic demand has yet to return to its 2008 pre-crisis
levels. Total employment in Hong Kong rose to 3.6 million as of December 2010, while the
unemployment rate fell to 4.0%.
Real Gross Domestic Product*
Year-on-Year % Change
8
6
4
2
0
-2
-4
%
0
7
.
1,541
%
4
6
.
1,639
1,677
1,632
1,743
%
8
6
.
%
3
.
2
%
7
.
2
-
06
07
08
09
10
HK$ billion
1,800
1,700
1,600
1,500
1,400
1,300
1,200
Year-on-Year % Change
Gross Domestic Product
*
In chained (2008) dollars
Source: Census and Statistics Department (data as of March 2011)
The Hong Kong economy improved in 2010 as both exports and domestic demand grew.
14
Hysan Annual Report 2010
Office
After being hit in 2009 by the global financial crisis and its impact on demand, coupled with
a significant new supply particularly in decentralised Kowloon East, the Grade “A” office
market saw an improvement in 2010.
Demand for Grade “A” office space increased during the year. Overall net take-up in
Hong Kong amounted to 3.7 million square feet in 2010. Occupancy improved across all
districts. This also applied to Kowloon East, thus removing the overhang factor in the
Grade “A” market.
Causeway Bay/Wanchai contributed a positive net take-up of around 350,000 square
feet during the year. As at the end of December 2010, the vacancy rate in Causeway Bay/
Wanchai fell to 3.0%.
All Grade “A” office sub-markets witnessed double-digit rental growth in 2010, but their rental
levels have yet to return to the peak in 2008. Causeway Bay/Wanchai recorded an annual
growth of 31.8%. It should be noted that there was a widening rental gap between Causeway
Bay/Wanchai and Central during the year.
Grade ‘A’ Office Net Take-up
Grade ‘A’ Office Vacancy Rate
Hysan’s Response
Million Square Feet
1.8
1.5
1.2
0.9
0.6
0.3
0.0
-0.3
-0.6
1.61
1.51
0.41
0.35
-0.31
-0.38
Central Causeway Bay
/Wanchai
Kowloon
East
%
25
20
15
10
5
0
19.9%
10.8%
In light of the challenging market conditions
at the end of 2009, Hysan took active steps
to stabilise its office sector occupancy. More
than 320,000 square feet of new let were
achieved in 2010.
4.8%
5.3%
3.0%
3.0%
Central Causeway Bay
/Wanchai
Kowloon
East
2009
2010
2009
2010
For details, see our Operations Review – Office section on pages 22 and 23.
Grade ‘A’ Office Rental Value
HK$ per Square Foot
120
110
100
90
80
70
60
50
40
30
20
1Q 2Q 3Q 4Q
06
1Q 2Q 3Q 4Q
07
1Q 2Q 3Q 4Q
08
1Q 2Q 3Q 4Q
09
1Q 2Q 3Q 4Q
10
Central
Causeway Bay/Wanchai
Source: Jones Lang LaSalle (data as of March 2011)
Hysan’s Response
The widening rental gap between Causeway
Bay/Wanchai and Central, as the market
recovered during 2010, means that there
are future opportunities for us to attract
businesses looking for quality and cost
effective offices in a core location.
We refined our office leasing positioning,
highlighting Hysan’s office community as
the most natural extension of Central, also
supported by our unrivalled amenities to
provide a “total work/life experience”.
For details, see our Operations Review – Office section on pages 22 and 23.
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Our Marketplace and Our Response
Retail
The retail market was supported by the expansion of the economy, improvement in the
labour market and the sustained performance of inbound tourism. Overall annual retail sales
increased by 18.3% as compared to the previous year.
In line with rising consumer confidence, private consumption expenditure rose by 5.8% in 2010.
The arrival of increasing numbers of Mainland China visitors and the sustained appreciation
of the Renminbi continued to induce a cross-border spending spree in Hong Kong. In 2010,
Mainland China arrivals hit 22.7 million, accounting for 63.0% of the total arrivals in 2010.
Several retail developments were completed in 2010 with the majority of them located in
Tsim Sha Tsui and other areas of Kowloon. Rents for premium prime shopping centres rose
by 12.8% in 2010.
Hong Kong Total Retail Sales
Total Number of Visitors
HK$ billion
350
18.3%
5
7
2
12.8%
7.2%
10.6%
9
1
2
7
4
2
3
7
2
0.6%
5
2
3
06
07 08 09
10
300
250
200
150
100
%
20
15
10
5
0
Million
40
30
20
10
0
36
%
0
.
7
3
%
0
.
3
6
28
%
0
.
5
4
%
0
.
5
5
30
%
9
.
2
4
30
%
3
.
9
3
%
1
.
7
5
%
7
.
0
6
25
%
2
.
6
4
%
8
.
3
5
06
07
08 09 10
Total Retail Sales
Number of Other Visitors
Year-on-Year % Change
Number of Mainland China Visitors
Hysan’s Response
We maximised our exposure to Mainland
China visitors through a series of
tourism marketing initiatives. These were
complemented by other types of shopping
mall promotions for local shoppers.
We recruited more renowned retail brands,
further enhancing our tenant mix, especially
in the Lee Gardens hub. Meanwhile, we also
rejuvenated the Lee Theatre hub.
Premium Prime Shopping Centre Rental Index (2005 Q4 = 100)
Index
145
140
135
130
125
120
115
110
105
100
1Q 2Q 3Q 4Q
06
1Q 2Q 3Q 4Q
07
1Q 2Q 3Q 4Q
08
1Q 2Q 3Q 4Q
09
1Q 2Q 3Q 4Q
10
For details, see our Operations Review – Retail section on page 24.
Sources: Jones Lang LaSalle, Census and Statistics Department and Hong Kong
Tourism Board (data as of March 2011)
16
Hysan Annual Report 2010
Luxury Residential
The luxury residential market benefitted from the resumption of hiring of expatriates in 2010.
The availability of luxury leasing properties remained limited in 2010. Alongside the growing
demand from expatriates in corporate sectors, especially those in banking and finance,
occupancy rates in the luxury residential leasing market stood firm in the year.
Overall, luxury residential rents increased by 19.3% in 2010 but were still below the market
highs of 2008.
Luxury Residential Rental Index (2005 Q4 = 100)
Index
145
140
135
130
125
120
115
110
105
100
1Q 2Q 3Q 4Q
06
1Q 2Q 3Q 4Q
07
1Q 2Q 3Q 4Q
08
1Q 2Q 3Q 4Q
09
1Q 2Q 3Q 4Q
10
Source: Jones Lang LaSalle (data as of March 2011)
Hysan’s Response
With the market rental levels in 2010 still
being generally below the peak of 2008,
Hysan’s strategy successfully increased
occupancy so as to offset the effects of
negative rental reversion.
For details, see our Operations Review – Residential section on page 25.
Apart from information labelled “Hysan’s Response”, this market report is to give a 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 in detail – see “Management’s Discussion and Analysis” section.
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Hysan Annual Report 2010
17
Investment Property Portfolio
Hysan Place
Grand Opening
Q2 2012
Full details
see Page 26
SOGO
Hennessy Road
CROSS HARBOUR TUNNEL
NORTH POINT
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Mid-Levels
CENTRAL
Times Square
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Leighton Road
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ABERDEEN TUNNEL
Not to scale
High quality and complementary office and retail offerings
Office
Our Grade “A” office hub excels with
a core location and prestige, premium
facilities and unrivalled amenities.
Leighton Centre, meanwhile, is a
quality office building with brand-new
renovations to the lobby and common
areas. Capitalising on its Causeway Bay
locational advantage, the semi-retail
hub is perfect for tenants who require
frequent personal interface with clients.
Retail
Our retail hubs fully complement their
corresponding office hubs with a wide
range of retail offerings. The Lee Gardens
hub presents elegant and luxury premium
spaces for high-end brands, while the Lee
Theatre hub is best known for stylish and
chic shops as well as quality food and
beverage outlets.
Grade “A” Office Hub
Leighton Centre
Semi-retail Office Hub
Lee Gardens Retail Hub
Lee Theatre Retail Hub
Hysan Place
Residential
18
Hysan Annual Report 2010
THE LEE GARDENS
33 Hysan Avenue, Causeway Bay
The Lee Gardens is the Group’s flagship property
comprising an office tower 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.
\ Approx. Gross Floor Area 903,000 ft2
\ Number of Floors 53 \ Parking Spaces 200
\ Completed 1997
LEE GARDENS TWO
28 Yun Ping Road, Causeway Bay
Lee Gardens Two is an office 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 floor.
\ Approx. Gross Floor Area 627,000 ft2
\ Number of Floors 34 \ Parking Spaces 176
\ Completed 1992 \ Renovation of retail podium 2003
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.
1
2
3
\ Approx. Gross Floor Area 277,000 ft2
\ Number of Floors 30 \ Parking Spaces 150 (jointly
owned with Sunning Court) \ Completed 1982
18 HYSAN AVENUE
18 Hysan Avenue, Causeway Bay
18 Hysan Avenue, formerly known as AIA Plaza, is
a 25-level office and retail complex at the corner
of Hysan Avenue. The building boasts a bright and
spacious lobby.
4
\ Approx. Gross Floor Area 132,000 ft2
\ Number of Floors 25
\ Completed 1989 \ Renovated 2009
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 office location offering convenience as well
as privacy. The retail shops include some trend-
setting stores.
\ Approx. Gross Floor Area 80,000 ft2
\ Number of Floors 24
\ Completed 1988 \ Renovated 2004
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.
5
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\ Approx. Gross Floor Area 317,000 ft2
\ Number of Floors 26
\ Completed 1994
LEIGHTON CENTRE
77 Leighton Road, Causeway Bay
This office and retail complex enjoys close
proximity to all forms of public transport. Its
central location in the Causeway Bay area
makes it a much sought-after address.
\ Approx. Gross Floor Area 428,000 ft2
\ Number of Floors 28 \ Parking Spaces 264
\ Completed 1977 \ Renovation of office common
areas 2010 \ Renovation of retail podium 2011
ONE HYSAN AVENUE
1 Hysan Avenue, Causeway Bay
Located at the junction of three busy streets
in the heart of Causeway Bay, this office
and retail complex enjoys a prime location
with a variety of retail facilities in the
surrounding area.
\ Approx. Gross Floor Area 169,000 ft2
\ Number of Floors 26
\ Completed 1976 \ Renovated 2002
HYSAN PLACE
500 Hennessy Road, Causeway Bay
Hysan’s future northern gateway under
construction.
7
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9
Artist’s impression
\ Estimated Total Gross Floor Area Approx. 710,000 ft2
\ Grand Opening Q2 2012
10
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.
\ Approx. Gross Floor Area 691,000 ft2
\ Number of Units 345 \ Parking Spaces 436
\ Completed 1985 \ Renovated 2002
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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.
\ Approx. Gross Floor Area 98,000 ft2
\ Number of Units 59 \ Parking Spaces 150 (jointly
owned with Sunning Plaza) \ Completed 1982
\ Renovated 2003
Note:
The Approximate Gross Floor Areas shown
above are based on accountable gross floor area
of the relevant building and rounded to the
nearest 1,000 ft2.
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Hysan Annual Report 2010
19
Management’s Discussion and Analysis
Operations Review
Hysan is principally engaged, together with its subsidiaries and associates, in investment,
development and management of quality properties in prime locations. As at 31 December
2010, Hysan’s investment property interests totalled some 3.8 million gross square feet of
high-quality office, retail and residential space in Hong Kong, excluding Hysan Place at 500
Hennessy Road, which is currently under redevelopment.
2010 Performance
The Group’s turnover continued to grow and recorded HK$1,764 million in 2010,
representing an increase of 5.0% from HK$1,680 million in 2009. There were good
performances across all leasing sectors of the Group.
Recurring Underlying Profit (the key measurement of the Group’s core leasing business),
which is arrived at principally by excluding from Underlying Profit gains on disposal of long-
term assets, was HK$1,148 million, up 3.4% from HK$1,110 million in 2009. As there was
no gain from disposal of long-term assets during the year, our Underlying Profit, which is
arrived at by excluding from Statutory Profit changes in fair value of investment properties,
was also HK$1,148 million. Both principally reflected the improvement in gross profit
generated from our core leasing activities.
Statutory Profit, prepared in accordance with Hong Kong Financial Reporting Standards, was
HK$3,844 million (2009: HK$2,914 million1) mainly attributable to the higher valuation of the
Group’s investment properties. At year end 2010, the independent external valuation of the
Group’s investment property portfolio was HK$40,833 million (2009: HK$37,363 million).
Turnover growth was recorded in all three sectors of Hysan’s core leasing business.
1 The amount has been restated due to changes in accounting policies.
20
Hysan Annual Report 2010
Key Performance Indicators
While many factors contributed to the results of the Group’s businesses, turnover growth
and occupancy rate are the key drivers used by the Group’s management for assessment of
the performance of our core leasing business. In addition, the management uses property
expenses and such expenses as a percentage of turnover to assess cost effectiveness. The
nature of these performance indicators, the way they are measured and their significance to
the Group are set out below.
Turnover Growth
Occupancy Rate
Property Expenses
Property Expenses
as a Percentage of
Turnover
How is it measured?
Rental revenue in 2010
compared to that in 2009
How is it measured?
Percentage of total area
leased to tenants over total
lettable area of each sector
How are they measured?
Principally being costs
directly associated with
day-to-day operations of the
Group’s property portfolio
How is it measured?
Calculated by dividing
property expenses
by turnover
Why is it significant?
Reflects the combined effect
of changes in rental rate and
occupancy rate
Growth was recorded in our
core leasing business
Why is it significant?
• Rental revenue and
management fees are
directly proportional to
occupancy rate
• Optimises revenue by
balancing occupancy rate
and rental level
• Improved occupancy in
office and residential
sectors
• Retail sector was virtually
fully let except for units
under renovations
Why are they significant?
Measures the costs incurred
in operating the Group’s
property portfolio
Why is it significant?
An indication of the gross
margin of our business
Property expenses rose
in line with the increase in
turnover
Ratio increased slightly in
2010 compared with 2009
Property Expenses to
Turnover Ratio
14.2%
for 2010
(14.0% for 2009)
Office Sector
Office Sector
Total Property Expenses
HK$250
million
for 2010
(HK$235 million for 2009)
3.1%
for 2010
(+3.8% for 2009)
Retail Sector
8.0%
for 2010
(+3.5% for 2009)
Residential Sector
3.2%
for 2010
(-2.4% for 2009)
95%
at year end 2010
(89% at year end 2009)
Retail Sector
96%
at year end 2010
(99% at year end 2009)
Residential Sector
94%
at year end 2010
(92% at year end 2009)
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Hysan Annual Report 2010
21
Management’s Discussion and Analysis
Business Units Review
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
strategies and performance of each sector for 2010 are discussed below.
Office Sector
Hysan owns and manages 2.1 million gross square feet of high quality office buildings in
the core commercial district of Causeway Bay. We organise our office portfolio into two
primary hubs: Grade “A” office hub and semi-retail office hub. Grade “A” office hub (principally
comprising The Lee Gardens, Lee Gardens Two, Sunning Plaza and 18 Hysan Avenue)
provides a core location with premium facilities and prestige for tenants and their clients.
Leighton Centre is a quality office building that recently underwent renovations of the lobby
and common areas. The semi-retail office hub (principally comprising One Hysan Avenue and
111 Leighton Road), is valued by tenants, including health and beauty operations, whose
mode of operations requires frequent personal interface with customers and who appreciate
Causeway Bay’s core location.
In 2010, Hysan’s office sector saw growth of 3.1% to HK$770 million (2009: HK$747
million). Its occupancy was at 95% as at 31 December 2010, as compared to 91% on 30
June 2010 and 89% on 31 December 2009. Rental reversion on renewals and new lettings
remained generally positive for the portfolio as a whole in 2010.
During the year, we successfully improved our occupancy. More than 320,000 square feet
of office space new lettings were achieved. Around 44% of the new-let space was taken by
tenants in the banking and finance sector, with other major tenant groups being professional
services and high-end retailers. This reflects the positive market response to our Grade
“A” office hub, which is positioned as the most natural extension of Central, in terms of
proximity, quality of facilities and supporting amenities.
Top 5 industry categories within our office tenant mix at 2010 year end were insurance,
professional services, banking and finance, semi-retail and high-end retailers. The charts on
page 23 illustrate our office tenant profile analysed by area occupied at the end of 2010
and 2009.
We further strengthened our business processes including sales channels, and raised
property service standards across our portfolio. Other initiatives such as asset enhancement
and forming closer tenant relationships also helped to increase our office portfolio’s longer-
term competitiveness.
22
Hysan Annual Report 2010
In line with our established asset enhancement programme, Leighton Centre underwent
office lobby renovations as well as improvements in other public areas. These were well
received, as reflected in the improved leasing performance.
Office Tenant Profile by Area Occupied as at Year End
18.5%
24.8%
18.5%
18.2%
5.3%
5.6%
7.3%
4.9%
5.2%
6.4%
14.7%
6.0%
9.3%
8.5%
2009
8.9%
13.9%
9.1%
2010
Insurance
Professional and Consulting
Banking and Finance
Semi-retail
14.9%
High-end Retailers
Marketing
Trading
Consumer Products
Others
The most natural extension
of Central
Hysan is to further enhance its office hub as an office
community that is the most natural extension of Central.
In addition to its core location, the community also delivers a
“total work/life experience” where people can enjoy work and
other aspects of life to the full. We also take pride in providing
a “long-term real estate solution” to our tenants. We offer
more than 2 million square feet of quality offices spanning
a diverse price range; and a culture emphasising long-term
partnerships with tenants.
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Hysan Annual Report 2010
23
Management’s Discussion and Analysis
Retail Sector
Hysan’s retail portfolio, approximately 0.9 million gross square feet in size, takes full
advantage of its position in Causeway Bay, Hong Kong’s prime retail area. The Lee Gardens
hub (principally comprising of The Lee Gardens, Lee Gardens Two, Sunning Plaza and 18
Hysan Avenue) provides elegant and luxury premium retail spaces for high-end brands, while
the Lee Theatre hub is home to stylish and chic lifestyle shops and renowned restaurants.
Hong Kong’s retail sales continued to benefit from better consumer sentiment stemming
from the improved economy, as well as spending by Mainland China visitors. Against this
background, the Group’s retail sector’s revenue grew 8.0% to HK$700 million (2009:
HK$648 million). The retail sector occupancy at 31 December 2010 was 96% (99% on both
30 June 2010 and 31 December 2009), with the only vacancies being due to the renovation
of the retail units in Leighton Centre.
Hysan aims to create the right environment for our tenants’ businesses to grow. Our
objectives in 2010 included strengthening marketing activities for both local shoppers
and tourists. Among these were events and promotions for home-grown shoppers, as well
as targeted tourist advertising, joint promotions and tours for the Mainland media. These
programmes achieved good results with Mainland tourists spending in The Lee Gardens and
Lee Gardens Two increasing by more than 60% as compared to the year before. Furthermore,
a number of internationally renowned retail brands were recruited, thereby optimising our
tenant mix, especially for the Lee Gardens hub.
To enhance the longer-term competitiveness of our retail portfolio, we undertook renovations
of Leighton Centre’s retail podium. At One Hysan Avenue, a popular fashion outlet took up
30,000 square feet over four levels.
Retail hubs of different characters
Recent rejuvenation at Leighton Centre and One Hysan Avenue
reinforced the Lee Theatre hub’s stylish and chic, fashion-
forward character. Apart from I.T at One Hysan Avenue, Dutch
apparel store G-Star Raw will be the first new addition to
Leighton Centre. The Lee Gardens hub maintains its elegant
and luxury essence, with The Lee Gardens and Lee Gardens
Two as its most prominent members. Some of the world’s best
known luxury brand names are found in these buildings.
24
Hysan Annual Report 2010
Residential Sector
Our residential portfolio comprises the Bamboo Grove residential development located in
Mid-Levels and Sunning Court in Causeway Bay. We offer top quality facilities and one-stop
personalised services to provide an expatriate-focused living experience. Residential leases
are typically for two years.
The Group’s residential sector revenue increased by 3.2% to HK$294 million (2009: HK$285
million). Occupancy, as at 31 December 2010, was 94% (94% as at 30 June 2010 and 92%
as at 31 December 2009). This was attributable to increased occupancy despite negative
rental reversion for most of the year.
The improvement in occupancy can be attributed to our strengthened marketing strategy,
supported by renovations of units with eco-friendly themes, which were well received by
the market. Improved services and clubhouse activities for tenants also helped to further
improve tenant retention.
Residential community for
“international citizens”
Hysan’s residential portfolio, with Bamboo Grove as its main
constituent, offers its tenants a community experience with
a focus on expatriate living. Residential Services Associates,
for example, provide extra help for tenants who may be out of
town. Activities during Chinese and western festive seasons,
as well as guided trips and visits to local landmarks are also
popular with the residents, particularly those who are new
to Hong Kong. In all, those who live here are well served
by staff members who create a thriving community for our
“international citizens”.
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Hysan Annual Report 2010
25
Management’s Discussion and Analysis
Hysan Place
The Hennessy Centre redevelopment project at 500 Hennessy Road was renamed Hysan
Place in September 2010. The construction work remains on schedule for the shopping
mall’s grand opening in the second quarter of 2012. The approximate gross floor area for
the building is 710,000 square feet, including 15 floors for office use and 17 floors for retail.
Leasing of the retail portions commenced during the year with around 25% of retail space
being leased by the end of 2010.
Grade “A” office hub as the most
natural extension of Central. The
project boasts top building
specifications as well as full harbour
views from all office floors.
As the new northern gateway of
Hysan’s commercial portfolio in
Causeway Bay, Hysan Place will
play a significant strategic role
both for our office as well as our
retail portfolios’ development. It
will be an important part of Hysan’s
office cluster evolution, providing
top quality space to strengthen the
Hysan Place’s retail portion will make
a significant impact upon Hysan’s
overall retail portfolio, in terms of both
the size, an increase of 50% by gross
floor area, and its tenant mix. Hysan
Place concentrates on youthfulness
and trendiness, aiming to introduce
many international brands that are
new to Hong Kong. The mall will
feature an open store format, with
high ceilings to enhance the shopping
experience, while express escalators
and double-decked lifts will allow for
smooth flow of shopping traffic within
the retail mall.
Hysan Place is pre-certified at the
highest platinum level for the United
States Green Building Council’s
Leadership in Energy and
Environmental Design standard (LEED).
It is also pre-certified for the top level
in Hong Kong’s Building Environmental
Assessment Method (BEAM).
26
Hysan Annual Report 2010
Financial Review
Condensed Consolidated Income Statement for the Year Ended 31 December 2010
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
Non-controlling interests
Statutory Profit
Underlying Profit
2010
HK$ million
As restated*
2009
HK$ million
Change
HK$ million
1,764
(250)
49
(42)
(140)
(117)
1,680
(235)
38
(3)
(133)
(131)
84
(15)
11
(39)
(7)
14
Change
%
+5.0
+6.4
+28.9
n/m
+5.3
-10.7
2,594
1,249
1,345
+107.7
394
(201)
(207)
768
(189)
(130)
3,844
2,914
1,148
1,113
(374)
(12)
(77)
930
35
38
-48.7
+6.3
+59.2
+31.9
+3.1
+3.4
Recurring Underlying Profit
1,148
1,110
n/m – not meaningful
* Certain figures previously reported have been restated due to changes in accounting policies.
Turnover
Turnover comprises rental income and management fee income derived from the Group’s
investment properties portfolio in Hong Kong and was analysed by sectors as follows:
Office sector
Retail sector
Residential sector
2010
HK$ million
2009
HK$ million
Change
HK$ million
Change
%
770
700
294
747
648
285
1,764
1,680
23
52
9
84
+3.1
+8.0
+3.2
+5.0
The Group recorded growth across all three leasing sectors during the year. Detailed analysis
of each sector’s performance is covered in “Business Units Review” set out on pages 22
to 25.
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27
Management’s Discussion and Analysis
Property Expenses
Property expenses are the costs directly associated with day-to-day operations of our
investment properties, being primarily related to front-line staff wages and benefits, utilities
costs, repairs and maintenance, marketing expenses and agency fees, as well as cleaning
expenses. The graph below shows the percentage of these property expenses.
Property Expenses
14%
24%
11%
23%
7%
13%
24%
8%
20%
18%
2009
16%
2010
Front-line Staff Wages and Benefits
Utilities Costs
Repairs and Maintenance
Marketing Expenses and Agency Fees
Cleaning Expenses
22%
Others
Property expenses rose 6.4% to HK$250 million from HK$235 million in 2009, mainly
due to higher marketing expenses to capture tourist spending, as well as higher agency
expenses to attract quality tenants. The property expenses to turnover ratio increased
slightly from 14.0% to 14.2% as compared to 2009.
Investment Income
Investment income, mainly comprising dividend income and interest income, amounted to
HK$49 million (2009: HK$38 million). The increase was a result of improved deposit
rates as compared to last year and higher dividend income derived from the Group’s equity
investments.
Other Gains and Losses
In order to hedge against interest rate and foreign exchange rate exposures, the Group
enters into a variety of financial instruments from time to time. The net loss of HK$42
million (2009: HK$3 million) principally represented mark-to-market movements of these
financial instruments, as required under the current accounting standards.
Administrative Expenses
Administrative expenses primarily comprised the payroll costs and related expenses of
management and staff. They rose 5.3% to HK$140 million from HK$133 million in 2009,
mainly due to the full-year impact of the increase in costs for human resources upskilling.
Such activities are for both the Group’s existing property portfolio as well as the upcoming
Hysan Place.
28
Hysan Annual Report 2010
Finance Costs
Despite an increase of the Group’s gross debt by HK$651 million, finance costs reduced
by 10.7% to HK$117 million from HK$131 million in 2009, which was caused by the
capitalisation of HK$12 million interest expenses as part of the construction costs of Hysan
Place. If the capitalised interest expenses were included, the Group’s finance costs in 2010
would have been HK$129 million, broadly the same as last year.
The Group’s average finance costs in 2010 (defined as interest expenses divided by average
gross debt for the year) fell to 2.7% from 3.1% in 2009, as the effect of a lower interest rate
environment offset the impact of the increased gross debt. Further discussion of the Group’s
financial policy, including debt and interest rate management, is set out in the “Financial
Policy” section.
Change in Fair Value of Investment Properties
At 31 December 2010, the Group’s investment properties were valued at HK$40,833 million
(31 December 2009: HK$37,363 million) by an independent professional valuer, Knight
Frank Petty Limited. Excluding capital expenditures for the Group’s property portfolio, fair
value gain on investment properties of HK$2,594 million (2009: HK$1,249 million) was
recognised in the Group’s consolidated income statement for the year.
Share of Results of Associates
The Group’s share of results of associates decreased by 48.7% to HK$394 million (2009:
HK$768 million). This decrease was due to a smaller revaluation gain on the Shanghai
Grand Gateway project, of which the Group owns 24.7%, as compared to last year. 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$227 million (2009: HK$606 million).
In 2010, the Shanghai Grand Gateway project continued to deliver a good performance. The
Group’s share of results, excluding revaluation gains on investment properties, recorded
3.1% increase year-on-year. As at the end of 2010, the residential properties, including the
luxury residential and serviced apartments, were continuing to enjoy high occupancy while
the retail and office properties remained virtually fully let.
Taxation
Following the amendments to Hong Kong Accounting Standard 12 “Income Taxes” and Hong
Kong Accounting Standard 17 “Leases”, there were some changes to the accounting policies
adopted by the Group during 2010. Deferred tax is no longer required to be provided for with
respect to any changes in fair value of the Group’s investment properties. On the other hand,
the land element of owner-occupied properties is reclassified from prepaid lease payments
to property, plant and equipment and measured using the revaluation model, under which
deferred tax is required to be provided for with respect to any changes in fair value. These
amendments have been applied retrospectively and hence the Group’s taxation charge for
2009 was restated at HK$189 million.
Following the changes in the Group’s accounting policies, the taxation of the Group for 2010
was HK$201 million, which increased in line with the growth in the Group’s core business
operating results.
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Hysan Annual Report 2010
29
Management’s Discussion and Analysis
Condensed Consolidated Statement of Financial Position as at 31 December 2010
Investment properties
40,833
37,363
3,470
2010
HK$ million
As restated*
2009
HK$ million
Change
HK$ million
Available-for-sale investments
Interests in associates
Principal-protected investments
and term notes
Time deposits, cash
and bank balances
Other assets
Total assets
Borrowings
Taxation
Other liabilities
Total liabilities
Net Assets
Shareholders’ funds
Non-controlling interests
1,152
3,153
1,002
2,886
150
267
725
200
525
+262.5
1,993
698
1,984
607
9
91
48,554
44,042
4,512
4,587
387
1,263
3,891
342
1,077
6,237
5,310
696
45
186
927
42,317
38,732
3,585
40,677
37,216
1,640
1,516
3,461
124
Change
%
+9.3
+15.0
+9.3
+0.5
+15.0
+10.2
+17.9
+13.2
+17.3
+17.5
+9.3
+9.3
+8.2
+9.3
Total Equity
42,317
38,732
3,585
* Certain figures previously reported have been restated due to changes in accounting policies.
Investment Properties
The Group’s investment property portfolio was valued at 31 December 2010 by Knight Frank
Petty Limited, an independent professional valuer, on the basis of open market value. The
amount of this valuation was HK$40,833 million, an increase of 9.3% from HK$37,363
million at 31 December 2009. The valuation at year end 2010 principally reflected improved
rental rates for the Group’s investment property portfolio.
The following shows the property valuation of each portfolio at year end.
Office portfolio
Retail portfolio
Residential portfolio
Property under redevelopment (Hysan Place)*
* Property under redevelopment is valued at site value plus development cost up to date.
2010
HK$ million
2009
HK$ million
14,708
11,896
7,821
6,408
14,098
10,575
7,050
5,640
40,833
37,363
30
Hysan Annual Report 2010
Available-for-Sale Investments
Available-for-sale investments (principally comprising equity securities listed in Hong
Kong) grew 15.0% in 2010, which was due to mark-to-market gains on the listed equity
investments. At 31 December 2010, the fair value of our listed securities portfolio was
HK$1,147 million (2009: HK$997 million).
Interests in Associates
Interests in associates primarily represented the Group’s investments in the Shanghai
Grand Gateway project, of which the Group owns 24.7%. As at the end of 2010, interests in
associates increased 9.3% to HK$3,153 million (2009: HK$2,886 million), mainly due to
the Group’s share of operating results, change in fair values of investment properties as well
as exchange gain on translation for the Shanghai Grand Gateway projects during the year.
Principal-Protected Investments and Term Notes
The Group placed HK$725 million (2009: HK$200 million) in debt securities and
investments, which were principal-protected in nature at the end of 2010. The counterparties
were financial institutions and corporates with credit ratings at investment grade or above.
These investments helped to preserve the Group’s liquidity and to diversify counterparty risk
exposure.
Borrowings
The carrying amount of the Group’s borrowing was HK$4,587 million at year end 2010,
representing an increase of 17.9% from HK$3,891 million at year end 2009. During the
year, the Group issued HK$800 million notes from the Medium Term Notes Programme to
capture market liquidity at relatively low interest costs with tenors ranging from 10 to 15
years. In addition, HK$500 million bank loans were drawn while HK$600 million bank loans
were repaid. To manage interest rate and foreign exchange exposures of the outstanding
borrowings, the Group entered into hedging transactions with financial institutions with
investment grade or above. All borrowings were effectively denominated in Hong Kong dollars
after taking into account the hedging transactions.
Shareholders’ Funds
Following the amendments to Hong Kong Accounting Standard 12 “Income Taxes” and
Hong Kong Accounting Standard 17 “Leases”, the Group applied these amendments
retrospectively and the Group’s shareholders’ funds as at 31 December 2009 were restated
at HK$37,216 million. As at the end of 2010, the Group’s shareholders’ funds grew 9.3% to
HK$40,677 million. This was mainly attributable to the increase in valuation of the Group’s
investment properties and listed securities portfolio, as well as the profits generated from
the Group’s core leasing activities.
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31
Management’s Discussion and Analysis
Condensed Consolidated Statement of Cash Flows for the Year Ended 31 December 2010
Operating activities
Cash generated from operations
Net tax paid
Investing activities
Payments in respect of
investment properties
Proceeds on disposal of
an investment property
Proceeds on disposal of
available-for-sale investments
Placement of principal-protected investments
(net of proceeds received upon maturity)
Interest and dividends received
Repayment from an associate
Purchase of term notes
Purchase of property, plant and equipment
Decrease (increase) in time deposits
with original maturity over three months
Financing activities
Dividends paid
Finance costs
New borrowings
Repayment of borrowings
Proceeds on exercise of share options
Net Increase (Decrease) in Cash
and Cash Equivalents
n/a – not applicable
2010
Change
HK$ million HK$ million HK$ million
2009
1,460
(161)
1,349
(469)
1,299
880
111
308
419
Change
%
+8.2
-65.7
+47.6
(871)
(242)
(629)
+259.9
50
–
(263)
46
230
(266)
(7)
–
50
n/a
44
(44)
-100.0
(72)
35
221
–
(8)
(191)
11
9
(266)
1
+265.3
+31.4
+4.1
n/a
-12.5
118
(1,551)
1,669
n/a
(963)
(1,573)
610
-38.8
(733)
(109)
1,300
(668)
1
(209)
(642)
(127)
799
(620)
1
(589)
(91)
18
501
(48)
–
380
+14.2
-14.2
+62.7
+7.7
–
-64.5
127
(1,282)
1,409
n/a
Operating Activities
Reflecting the growth in the Group’s core leasing business, cash generated from operations
increased HK$111 million to HK$1,460 million (2009: HK$1,349 million). In 2009, the tax
payment made included HK$268 million for the final settlement of a prior-year tax dispute.
Investing Activities
There was a decrease of HK$610 million in net cash used in investing activities over the
prior year. In 2010, the Group reduced its financial investments as a whole, while it used
more cash for payments of capital expenditure, including construction costs of Hysan Place
and other costs for building renovations.
Financing Activities
Net cash used in financing activities reduced by HK$380 million from last year, mainly
due to new borrowings of HK$800 million fixed rate notes and HK$500 million bank loans
during the year, which was partly offset by the cash outflow for dividend payments and debts
repayment.
32
Hysan Annual Report 2010
Beyond Financial Statements
Contingent Liabilities
The Group has an obligation to finance the working capital and other financial requirements
of an associate. Based on currently available information, management does not
anticipate any major call for contributions in the foreseeable future.
Capital Expenditure and Management
The Group is committed to enhancing the asset value of its investment property portfolio
through selective refurbishment, repositioning and redevelopment. The Group also has
in place a portfolio-wide whole-life cycle maintenance programme as part of its ongoing
strategy to pro-actively implement preventive maintenance activities.
Capital Expenditure
HK$ million
900
1
7
8
675
450
225
0
5
4
3
2
4
2
5
2
1
1
8
06
07
08
09
10
Total cash outlay of capital expenditure (excluding purchase of plant and equipment) during
the year was HK$871 million, an increase of HK$629 million from last year. The rise was
mostly attributable to the increase in payments of construction costs for Hysan Place in
2010. The graph on the right illustrates capital expenditure patterns during the last
five years.
The Group has an internal control system for scrutinising capital expenditures. Detailed
analysis of expected risks and returns is submitted to business 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, payback period and internal rate of return from
projected cash flow.
At year end 2010, the Group had HK$2,550 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
construction costs of Hysan Place.
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Hysan Annual Report 2010
33
Management’s Discussion and Analysis
Financial Policy
Market Highlights
The Asian economy continued to improve in 2010 despite much slower growth in the United
States with continuing high unemployment and a sovereign debt crisis in parts of Europe.
The asset markets generally rebounded swiftly, mainly due to the excessive liquidity and low
interest rate environment introduced by various central banks. In the latter part of the year,
some Asian countries began to tighten their monetary policies by raising interest rates to
combat the inflation fears triggered by higher food, energy and raw material prices. Against
this backdrop, the Group will continue to focus on liquidity and interest rate risk management
in 2011.
Objectives
We adhere to a policy of financial prudence. Our objectives are to:
• maintain a strong financial position 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,
diversified 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 credit risks by imposing proper counterparty limits and reduce financial
investment risks by holding quality marketable securities
Hysan Place is scheduled for a grand opening in Q2 2012.
34
Hysan Annual Report 2010
Key Performance Indicators
Average Finance Costs
How are they measured?
Interest expenses divided by
average gross debt for the year
Bank Facilities :
Capital Market Issuance
Average Debt Maturity
How is it measured?
The proportion of the borrowings
from banks and from capital markets
relative to gross debt
How is it measured?
The weighted average of the remaining
maturity period of the Group’s gross
debt
Why are they significant?
Our treasury aims to manage and
optimise finance costs
Why is it significant?
As a measure of diversification of
funding sources
Why is it significant?
An indicator of the pressure for
refinancing or repaying the existing
borrowings in the near term
HIBOR was generally lower in 2010
compared with 2009
Issued medium term notes during the
year to capture liquidity in the capital
markets
The average maturity was lengthened
due to issuance of medium term notes
Average Finance Costs
2.7% for 2010
(3.1% for 2009)
Bank Facilities : Capital Market Issuance
Average Debt Maturity
29.7% : 70.3%
at year end 2010
(37.2% : 62.8% at year end 2009)
4.3 years
at year end 2010
(3.4 years at year end 2009)
Floating Rate Debt
(% of Total Debt)
How is it measured?
Debt effectively in floating interest
rate divided by gross debt
Net Interest Coverage
Net Debt to Equity
How is it measured?
Gross profit less administrative
expenses before depreciation divided
by net interest expenses
How is it measured?
Borrowings less time deposits,
cash and bank balances divided by
shareholders’ funds
Why is it significant?
A measure to calculate the
percentage of borrowings subject to
fluctuations in market interest rates
Why is it significant?
It represents the Group’s financial
ability from operating activities to
meet its interest payment obligations
Why is it significant?
A benchmark as to the healthy debt
level as well as an indicator of the
Group’s ability to raise further debt
The ratio was lower to prepare
for any interest rate hike in the long-
end of the interest rate curve
Improved ratio reflects our stable profit
against lower net interest expenses
The ratio remains low and the
Group’s ability to raise further debt
remains strong
Floating Rate Debt
Net Interest Coverage
Net Debt to Equity
53.6% at year end 2010
(64.9% at year end 2009)
14.0 times for 2010
(11.7 times for 2009)
6.4% at year end 2010
(5.1% at year end 2009)
Hysan’s 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. Reflecting our strong financial position, the Group maintained its investment-grade
credit ratings of Baa1 as rated by Moody’s and BBB as rated by Standard and Poor’s
in 2010.
Treasury has an overall objective of optimisation of borrowing costs and management of
associated risks: that is, to minimise the finance costs subject to the constraints of the
operational parameters. The cost of financing was 2.7% for 2010.
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Hysan Annual Report 2010
35
Management’s Discussion and Analysis
Debt Management
Credit markets in Hong Kong improved in 2010 as banks have ample liquidity. This
environment, together with the stabilisation of the local economy, helped to tighten credit
spreads and to provide long term liquidity. Capital market activities intensified
as investors became more willing to increase their risk exposures.
Although loans maturing in 2010 and 2011 were not substantial, we took the opportunity
of the improved credit markets to arrange new financing totalling HK$2,100 million during
the year to support our upcoming capital expenditure and repayment of our US dollars
bond maturing in 2012. Included in the sum were HK$800 million of notes from the
Medium Term Notes Programme issued to capture the market liquidity at relatively low
interest costs with tenors ranging from 10 to 15 years. We also secured new banking
facilities of HK$1,300 million to maintain our prudent financial position.
The graph on the right shows the financial strength of the Group and our ability to meet
interest payment obligations and to raise further debts if necessary.
The Group always strives to lower the borrowing margin, to diversify the funding sources
and to maintain a suitable maturity profile relative to the overall use of funds. As at
31 December 2010, the outstanding gross debt of the Group was HK$4,540 million
(2009: HK$3,889 million), an increase of HK$651 million compared with 2009. All the
outstanding borrowings are on an unsecured basis.
To diversify the funding sources, the Group has established long-term relationships with
a number of local and overseas banks. Nine local and overseas banks have provided
bilateral banking facilities to the Group and such bank borrowings accounted for about
29.7% of the Group’s outstanding gross debt. The Group also has access to local and
international investors through notes issued from the Medium Term Notes Programme.
The capital markets proved to be more flexible in raising longer-tenor debts in order to
lengthen the average debt maturity during 2010. As at the end of 2010, about 70.3% of
the Group’s outstanding gross debts were sourced from the debt capital markets through
the Programme.
The graph on the right shows the percentages of total outstanding gross debts sourced
from banks and the debt capital markets in the past five years.
Net Interest Coverage and
Net Debt to Equity at Year End
%/times
14.0
11.2
8.4
5.6
2.8
0
14.0x
11.7x
10.2x
7.8x
6.9x
%
9
.
7
%
8
.
6
%
9
.
5
%
1
.
5
%
4
.
6
06
07
08
09
10
Net Debt to Equity
Net Interest Coverage (times)
Sources of Financing at Year End
HK$ million
5,000
%
3
.
0
7
%
8
.
2
6
%
1
.
5
7
%
9
.
4
2
%
2
.
7
3
%
7
.
9
2
%
3
.
5
7
%
7
.
4
2
%
3
.
5
7
%
7
.
4
2
06
07
08
09
10
Capital Market Issuances
Bilateral Bank Loans
4,000
3,000
2,000
1,000
14.0
0
11.2
8.4
5.6
2.8
0.0
36
Hysan Annual Report 2010
14.0
11.2
8.4
5.6
2.8
0.0
Debt Maturity Profile
at 2009 and 2010 Year End
Gross Debt Amount
(HK$ million)
5,000
5,000
4,000
4,000
3,889
3,889
821
821
3,000
3,000
2,018
2,018
2,000
2,000
1,000
1,000
0
0
650
650
400
400
09
09
4,540
4,540
1,235
1,235
1,298
1,298
1,357
1,357
650
650
10
10
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 five years
Maturing in more than five years
The Group also strives to maintain an appropriate maturity profile. As at 31 December
2010, the average maturity of the debt portfolio was about 4.3 years, of which about
HK$2,007 million or 44.2% of the outstanding debts will be due in less than two years.
Since we have begun to arrange new borrowings in 2010, refinancing pressure in 2011 will
not be significant, especially when the level of cash and the undrawn committed facilities
available to the Group are considered. Hysan will continue to monitor the financial markets
closely to identify the appropriate time to secure more borrowings.
The graph on the right shows the debt maturity profile of the Group at 2009 and 2010
year end.
Liquidity Management
The Group always places great emphasis on liquidity management which helped to
keep the Group solid and to withstand the liquidity crunch in the latest financial turmoil.
Recurring cash flows from our business continued to remain steady and strong. As at 31
December 2010, the Group had cash and bank deposits totalling about HK$1,993 million
(2009: HK$1,984 million), which will be used for capital expenditure and maturing debt
repayments. All the deposits are placed with banks with strong credit ratings and the
counterparty risk is monitored on a regular basis. In order to preserve liquidity and
enhance interest yields, the Group also invested HK$725 million in debt securities and
investments, which are principal-protected in nature.
Additional liquidity reserve was maintained in the form of highly liquid securities listed
on The Stock Exchange of Hong Kong Limited. The market value of these securities
amounted to HK$1,147 million as at the end of 2010 (2009: HK$997 million).
Further liquidity, if needed, is available from the undrawn committed facilities offered by
the Group’s relationship banks. These facilities, which amounted to HK$2,550 million at
31 December 2010, essentially allow the Group to obtain additional liquidity as the needs
arise (31 December 2009: HK$2,250 million).
Interest Rate Management
Interest expenses account for a significant proportion of the Group’s total expenses and
warrant close monitoring. Appropriate hedging strategies are adopted to manage exposure
to projected movements in the interest rate.
As mentioned before, liquidity in the interbank market of Hong Kong was high in 2010. This
together with the low Fed Fund target rate kept the 3-month Hong Kong Inter-bank Offered
Rate (HIBOR) hovering at low level throughout 2010.
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Hysan Annual Report 2010
37
Management’s Discussion and Analysis
As a result, the Group’s average cost of financing was lowered from 3.1% in 2009 to 2.7% in
2010. To prepare for any interest rate hike in the long-end of the interest rate curve as the
world’s economic recovery proceeds, the Group increased the fixed rate debt ratio to 46.4%
as at 31 December 2010 from 35.1% a year earlier.
The diagram below shows the Group’s debt levels and average finance costs in the past
five years.
Debt Levels and Average Finance Costs
HK$ million
6,000
4,800
3,600
2,400
1,200
0
4.9%
5.6%
9
0
9
2
,
4
2
5
2
,
1
2
9
2
,
7
3
4
2
,
8
9
6
3
,
4.4%
3
8
9
1
,
9
8
8
3
,
3.1%
5
0
9
1
,
0
4
5
4
,
2.7%
7
4
5
2
,
06
07
08
09
10
6.0%
4.8%
3.6%
2.4%
1.2%
0.0%
Year End Gross Debt
Year End Net Debt
(Gross debt less short-term investments,
time deposits, cash and bank balances)
Average Finance Costs
Foreign Exchange Management
The Group aims to have minimal mismatches in currency and does not speculate in currency
movements for debt management. With the exception of the US$174 million 10-year
notes and the US$51 million bank loans, 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, the Group’s outstanding investment in principal-protected investments
and debt securities amounted to US$64 million, of which around US$16 million was hedged
by foreign exchange forward contracts. Other foreign exchange exposure mainly relates
to investments in the overseas project in Shanghai. These foreign exchange exposures
amounted to the equivalent of HK$3,153 million or 6.5% of the total assets.
Use of Derivatives
As at 31 December 2010, all outstanding derivatives were related to the hedging of interest
rate and foreign exchange exposures. Strict internal guidelines have been established to
ensure derivatives are used mainly to manage volatilities or adjust the appropriate risk
profile of the Group’s treasury assets and liabilities.
Before entering into any hedging transaction, the Group will ensure that its counterparty
possesses strong investment-grade ratings to control credit risk. As part of our risk
management, a limit on maximum risk-adjusted credit exposure is assigned to each
counterparty, which reflects the credit quality of the counterparty.
38
Hysan Annual Report 2010
Internal Controls and Risk Management
Responsibility
Our Board of Directors has the overall responsibility to ensure that sound and effective
internal controls are maintained, while management is charged with the responsibility to
design and implement an internal controls system to manage risks. A sound system of
internal controls is designed to manage rather than eliminate the risk of failure to achieve
business objectives, and can only provide reasonable but not absolute assurance.
Hysan’s Internal Controls Model
Our internal controls model is based on that set down by the Committee of Sponsoring
Organisations of the U.S. Treadway Commission (“COSO”), and has five 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 organisational structure and the nature of our 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 that 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 the Audit Committee Chairman. We aim to
build risk awareness and control responsibility into our culture and regard them as the
foundation of our internal controls system.
• Control Activities — our core property leasing and management business involves
well-established business processes. Control activities have traditionally been built on
senior management reviews, segregation of duties and physical controls. Over the past
few years, we have been formalising the control processes in line with a general desire
to move towards a management style based on systematic and structured control
principles.
Currently, the key features of our system of internal controls include:
– Strategic and business planning: each business unit produces and obtains Board
approval on a business plan each year, against which its performance is regularly
monitored. Targets for a wide variety of key performance indicators are set. During
2010, we refined the list of matters reserved for the full Board to cover all major
policies and directions of the Group.
– Investment appraisal: capital projects are reviewed in detail and approved by the
Chief Executive Officer, or the Board where appropriate, in accordance with delegated
authority limits.
– Financial monitoring: profitability, cash flow and capital expenditure are closely
monitored and key financial information is reported to the Board on a regular basis,
including explanations of variances between actual and budgeted performance. During
2010, monthly reporting to Directors was introduced.
– Systems of control procedures and delegated authorities: there are clearly defined
guidelines and approval limits for capital and operating expenditure and other key
business transactions and decisions. During 2010, we refined levels of authority for
the Chief Executive Officer following his appointment.
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Hysan Annual Report 2010
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Internal Controls and Risk Management
Our Approach to Risk Management
We have an ongoing process to identify, evaluate and manage the risks faced by the Group.
Methodology: We capture and report risk in a consistent manner across the Group enabling
management to assess the significance of risks by considering the relationship between the
likelihood and consequence of their occurrence.
The risk profile example shown below provides a graphical depiction of how we monitor and
report risk. It includes both “Inherent” and “Residual” risk positions with arrows to show
how management has reduced risks through appropriate controls and mitigating activities.
Annual assessments: department heads review and update the relevant risks’ registers
once a year, providing assurances that controls are both embedded and effective within
the business. Potential weaknesses and action items are regularly monitored by the
management team.
Internal audit: responsible for reviewing and testing key business processes and controls
in accordance with its audit plan, including following up the implementation of management
actions and reporting any overdue actions to the Audit Committee. The Head of Internal
Audit reports to the Chief Executive Officer and has direct access to the Audit Committee
Chairman.
Sample Risk Profile
H
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Consequence
VH
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VH
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Moderate
Significant
Critical
Disabling
Catastrophic
Types of risk
Risk Ranking
I
Inherent Risk
R
Residual Risk
Low
Moderate
High
Very High
40
Hysan Annual Report 2010
2010 Review of Internal Controls Effectiveness
The Board is responsible for the Group’s system of internal controls and for reviewing its
effectiveness. Internal Audit reports on reviews of the business processes and activities,
including action plans to address any identified control weaknesses. Management assesses
and presents to the Audit Committee its own assessments of the strengths and weaknesses
of the overall internal controls systems, with action plans to address the weaknesses.
External auditors also report on any control issues identified in the course of their work.
Taking these into consideration, the Audit Committee reviews the effectiveness of the
Group’s system of internal controls at least once each year and reports to the Board on such
reviews.
In respect of the year ended 31 December 2010, the Board considered the internal controls
system effective and adequate. No significant areas of concern that might affect the
operational, financial reporting, and compliance functions of the Group were identified. The
scope of this review covers the adequacy of resources, qualification/experience of staff of
the Group’s accounting and financial reporting function, and their training and budget.
Way Forward
We recognise that the strengthening of internal controls is a continuing process. We shall
continually review our business processes and control activities accordingly.
Type of Risk
Explained in
Economic and Market
Our Marketplace and Our Response: pages 14 to 17
Board Changes
Core Leasing
Corporate Governance Report: pages 50 to 64
Operations Review: pages 20 to 25
Construction – Hysan Place
Operations Review: page 26
Financial and Treasury
Financial Review and Financial Policy: pages 27 to 38
People
Human Resources: pages 42 and 43;
2010 Corporate Responsibility Report
Health and Safety
2010 Corporate Responsibility Report
Environmental
2010 Corporate Responsibility Report
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Hysan Annual Report 2010
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Human Resources
Key to Hysan’s success is our strong belief in teamwork, and our focus on people
development. As at 31 December 2010, we employed a total of 495 staff including our head
office management team and front-line building management colleagues.
Our core values of maintaining high standards of business ethics alongside deep respect
for each individual staff member help establish an encouraging environment for nurturing
cohesive teamwork. Such values also highlight the importance of people development, which
we believe is essential for successfully attracting and retaining talents. Our commitment to
building close teamwork and people development are exemplified in a number of our Group’s
programmes and activities.
Teamwork – “Together We Can Take the Lead”
Our management team is further strengthened by new members who have blended in
very well. This, in turn, has enhanced the Group’s capability to attain sustainable growth.
Cohesive team efforts help build the foundation of success that is fully reflected in our
slogan “Together we can take the lead”.
Our management exemplifies this belief by holding a Company Day at the beginning of the
year. All of Hysan’s head office employees and all building managers participate in this
annual gathering. Group directions and objectives are shared by department heads to align
common goals with employees. This sharing is followed by a clear goal setting process,
which harmonises company goals with those of each individual, while also recognising their
contribution to the Group. Employee participation in the process is very important, since it
mobilises a team commitment, and enables the entire organisation to navigate towards the
same goals of success.
To promote and recognise the values of teamwork, we have established the “You are
marvellous” programme to award outstanding employees who have demonstrated such
values. All employees participate in the programme by choosing the award winners.
Such encouragement helps the culture of teamwork to flourish. This culture is further
strengthened by our teambuilding training in which participants experience the significance
of cooperation and teamwork through games and projects. In addition, we communicate the
progress of our business to our employees by holding regular company meetings, including
briefings after result announcements. Regular business updates are also provided through
our electronic communication channel, “Marvellous Hysan”.
“Together We Can Take the Lead” fully reflects our belief in teamwork, and was the theme for the Company Day.
42
Hysan Annual Report 2010
People Development – Our Foundation of Success
We truly value the fact that people are assets for building our success. We, therefore,
implement a strong and continuous people development programme to build our talent
pool and maintain a succession pipeline. To ensure our employees can grow to their fullest
potential, we are committed to providing a motivational working environment that fosters
personal leadership, empowerment, creativity and open communication.
Recognising that training is essential for people development, we have established a well-
designed training curriculum for managerial and general staff. The curriculum is developed
through training needs’ analysis provided by staff at different levels and by gathering
management insight on the future competency requirements of the organisation. Among
the recent training focuses are marketing and asset enhancement skills. Individual training
needs are fulfilled by our newly set-up “External Training Library” which recommends good
quality external training courses for employees to apply for through our Training Sponsorship
Programme. Business operations training courses are also arranged to facilitate employees’
understanding of the operations of other functions. Such opportunities include field visits,
external seminars, job assignments, participation in cross-functional teams and task forces
to maximise employees’ exposure to different business experience and knowledge, thus
enhancing skill sets for all staff members.
Tailored training programmes are in place to help new employees make smooth transitions
into the new working environment, and to ensure they work closely with other team members
to achieve our business objectives.
The Way Ahead
As stated in our Company slogan “Together we can take the lead”, collaborative teamwork
and people development will continue to be our major focus and platform to support the
Group’s growth plan. Behind every success stands a team of people. We will continue to
devote all our efforts to developing the next generation of leaders at Hysan.
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3
Corporate Governance
“Corporate governance” presents
Hysan’s governance structure and
systems, its Board of Directors and
senior management. This year,
we highlight the focus of our Board
and its actions during the year.
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Hysan Annual Report 2010
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Hysan Annual Report 2010
45
46 Board of Directors
and Senior Management
50 Corporate Governance Report
65 Directors’ Report
73 Directors’ Remuneration
and Interests Report
81 Audit Committee Report
Board of Directors and Senior Management
STRUCTURE
THE BOARD
Audit Committee
Emoluments Review Committee
Nomination Committee
Finance
Corporate Services
CHAIRMAN
CHIEF EXECUTIVE OFFICER
Property
Investment
Property
Services
Property
Development
INDEPENDENT NON-ExECuTIvE CHAIRMAN
Sir David AKERS-JONES G.B.M., K.B.E., C.M.G., J.P. (chairing E, N)
Sir David AKERS-JONES is chairman of GAM Hong Kong Limited and deputy chairman of CNT Group
Limited. He was 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, Deputy Chairman in 2001 and became Independent non-executive
Chairman in January 2010. He is aged 83.
CHIEF ExECuTIvE OFFICER
Gerry Lui Fai YIM (N)
Mr. Yim leads the management team and is responsible for the entire Group’s business and development.
Prior to joining Hysan, he was managing director (for the Americas, Middle East and Africa) of the ports
division of a conglomerate and has held senior positions in general management, finance, and investment
banking at major organisations in Hong Kong. Mr. Yim holds a Bachelor’s degree in Economics from the
University of Leeds, United Kingdom. He is a member of the Institute of Chartered Accountants in England
and Wales and the Hong Kong Institute of Certified Public Accountants. He was appointed Executive
Director in December 2009 and Chief Executive Officer in March 2010. He is aged 51.
INDEPENDENT NON-ExECuTIvE DIRECTOR
Nicholas Charles ALLEN (chairing A)
Mr. Allen is an independent non-executive director of CLP Holdings Limited, Lenovo Group Limited
and VinaLand Limited. He has extensive experience in accounting and auditing and was a partner of
PricewaterhouseCoopers (PwC) from 1988 until his retirement in June 2007. His other appointments in
Hong Kong prior to his retirement from PwC included: Member of the Securities & Futures Appeal Panel;
Member of the Takeovers & Mergers Panel; Member of the Takeovers Appeal Committee; Member of the
Share Registrars’ Disciplinary Committee and Member of the Disciplinary Panel of the Hong Kong Institute
of Certified Public Accountants. Mr. Allen holds a Bachelor of Arts degree in Economics/Social Studies
from Manchester University, United Kingdom. He is a Fellow of the Institute of Chartered Accountants in
England and Wales and a member of the Hong Kong Institute of Certified Public Accountants. He was
appointed an Independent non-executive Director in November 2009 and is aged 55.
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Hysan Annual Report 2010
INDEPENDENT NON-ExECuTIvE DIRECTOR
Philip Yan Hok FAN (A, E, N)
Mr. Fan is a non-executive director of China Everbright International Limited and an independent
non-executive director of HKC (Holdings) Limited and Zhuhai Zhongfu Enterprise Co. Ltd. Mr. Fan holds a
Bachelor’s Degree in Industrial Engineering and a Master’s Degree in Operations Research from Stanford
University, as well as a Master’s Degree in Management Science from Massachusetts Institute of
Technology. He was appointed Independent non-executive Director in January 2010. He is aged 61.
INDEPENDENT NON-ExECuTIvE DIRECTOR
Joseph Chung Yin POON
Mr. Poon is group managing director of a private company and an independent non-executive director of
AAC Acoustic Technologies Holdings Inc. He was formerly managing director and deputy chief executive
of Hang Seng Bank Limited and had held senior management posts in HSBC Group and a number of
international renowned financial institutions. Mr. Poon is a member of the Board of Inland Revenue
of Hong Kong Special Administrative Region and the Environment and Conservation Fund Investment
Committee, also a committee member of the Chinese General Chamber of Commerce. He was the former
chairman of Hang Seng Index Advisory Committee, Hang Seng Indexes Company Limited. Mr. Poon holds
a Bachelor of Commerce degree from the University of Western Australia, is a member of the Hong Kong
Institute of Certified Public Accountants and the Institute of Chartered Accountants in Australia. He was
appointed Independent non-executive Director in January 2010. He is aged 56.
NON-ExECuTIvE DIRECTOR
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 54.
NON-ExECuTIvE DIRECTOR
Anthony Hsien Pin LEE (A)
Mr. Lee is a director and substantial shareholder of the Australian-listed Beyond International Limited,
principally engaged in television programme production and international sales of television programmes
and feature films. He is also 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 53.
NON-ExECuTIvE DIRECTOR
Chien LEE (N)
Mr. Lee is a private investor and a non-executive director of Swire Pacific 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 57.
(A) Audit Committee
(E) Emoluments Review Committee
(N) Nomination Committee
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Hysan Annual Report 2010
47
Board of Directors and Senior Management
NON-ExECuTIvE DIRECTOR
Irene Yun Lien LEE
Ms. Lee is the non-executive chairman of Keybridge Capital Limited, a financial services company listed on
the Australian Stock Exchange, a non-executive director of Cathay Pacific Airways Limited, QBE Insurance
Group Limited (listed on the Australian Stock Exchange), The Myer Family Company Pty Limited and ING
Bank (Australia) Limited. She is a member of the Advisory Council of JP Morgan Australia. She has held
senior positions in investment banking and fund management in a number of renowned international
financial institutions. Previously, Ms. Lee has been an executive director of Citicorp Investment Bank
Limited in New York, London and Sydney, head of corporate finance at Commonwealth Bank of Australia
and chief executive officer of Sealcorp Holdings Limited, both based in Sydney. Ms. Lee was formerly
a member of the Australian Government Takeovers Panel. She is a member of the founding Lee family,
a sister of Mr. Anthony Hsien Pin LEE and his alternate on the Board. Ms. Lee holds a Bachelor of Arts
Degree from Smith College, United States of America, and is a Barrister-at-Law in England and Wales and
a member of the Honourable Society of Gray’s Inn, United Kingdom. She was appointed a Non-executive
Director in March 2011 and is aged 57.
NON-ExECuTIvE DIRECTOR
Michael Tze Hau LEE (E)
Mr. Lee is currently the managing director of MAP Capital Limited, an investment management company.
He is also an independent non-executive director of Hong Kong Exchanges and Clearing Limited, Chen
Hsong Holdings Limited, Trinity Limited; and a Steward of Hong Kong Jockey Club. Mr. Lee was an
independent non-executive director of Tai Ping Carpets International Limited and a member of the Main
Board and Growth Enterprise Market Listing Committees of The Stock Exchange of Hong Kong Limited.
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 joined the Board in January 2010 having previously served
as a Director from 1990 to 2007. Mr. Lee received his Bachelor of Arts Degree from Bowdoin College and
his Master of Business Administration Degree from Boston University. He is aged 49.
NON-ExECuTIvE DIRECTOR
Dr. Deanna Ruth Tak Yung RUDGARD O.B.E.
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 71.
ExECuTIvE DIRECTOR AND COMPANY SECRETARY
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 office and residential leasing, as well as property management activities. In addition,
she advises the Board on corporate governance systems and developments generally. Ms. Yung holds
a Master of Arts degree from Oxford University, United Kingdom and is qualified as a solicitor of the
Supreme Court of England and Wales as well as High Court of Hong Kong. She was a partner of an
international law firm prior to joining the Group. Ms. Yung is also qualified as a Certified Public Accountant
of the Hong Kong Institute of Certified Public Accountants, and sits on the Institute’s Professional
Accountants in Business Leadership Panel. She is aged 49.
(A) Audit Committee
(E) Emoluments Review Committee
(N) Nomination Committee
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Hysan Annual Report 2010
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Senior management team (from left to right)
Jimmy Yiu Cho MAK, Lai Kiu CHAN, Wendy Wen Yee YUNG, Gerry Lui Fai YIM, Cissy Ching Sze CHAN, Roger Shu Yan HAO
DIRECTOR, RETAIl PORTFOlIO AND MARKETINg
Cissy Ching Sze CHAN
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 45.
DIRECTOR, DESIgN AND PROjECT
Lai Kiu CHAN
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
qualified 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 48.
gROuP FINANCIAl CONTROllER
Roger Shu Yan HAO
Mr. Hao is responsible for the Group’s
financial control and information
technology function. 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 Certified
Accountants and an Associate of the
Hong Kong Institute of Certified Public
Accountants. Mr. Hao accumulated
extensive experience in auditing,
financial management and control, while
holding senior positions in multinational
corporations. He is aged 45.
gENERAl MANAgER, PROPERTY SERvICES
Jimmy Yiu Cho MAK
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 52.
ADvISOR TO THE BOARD
Peter Hoo Tim LEE
Mr. Lee has over 35 years of experience
in the property field covering a spectrum
of activities spanning property leasing
and new developments in Hong Kong,
as well as other parts of Asia.
He is a former Hong Kong Chairman of
the international property consultancy
firm, Jones Lang LaSalle. Mr. Lee
advises Hysan on the Hysan Place
development project.
Hysan Annual Report 2010
49
Corporate Governance Report
Sustaining Excellence in Governance
Hysan believes that embracing strong governance is the foundation to delivering on its
strategic objective of consistent and sustainable performance over the long term. At the
heart of Hysan’s governance structure is an effective Board that is committed to upholding
strong governance principles and to reinforcing Hysan’s long-established and deeply
engrained corporate governance tradition and culture of accountability, transparency and
integrity.
We recognise the importance of having a broad complement of skills, experience and
competencies on our Board to ensure the continued effective oversight of, and informed
decision making with respect to, issues affecting Hysan. We are committed to continuing
Board renewal to ensure that the Board is infused with fresh perspectives from time to time
and that it always has the necessary skills and attributes required to oversee and govern in
the ever-changing operating environment. Since October 2009, five non-executive Directors
with backgrounds in the areas of finance, general management and professional practices
have joined our Board.
Sir David AKERS-JONES, the current Independent non-executive Chairman, will step down
from this position following Hysan’s annual general meeting (the “AGM”) in May 2011, after
having served on the Board for over 20 years, including 8 years as Deputy Chairman. Irene
Yun Lien LEE, who has extensive corporate and commercial experience, will become the new
Non-executive Chairman.
Meeting and Exceeding Compliance Requirements
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 “HKSE”), with the exception that its Emoluments Review Committee
(established since 1987) has the responsibility of determining compensation at executive
Director-level only. The Board is of the view that, in light of the current organisational
structure and the relatively simple nature of Hysan’s business activities, this arrangement
is appropriate. However, the Board will continue to review this arrangement going forward in
light of the evolving needs of the Group.
Hysan’s system of corporate governance practices exceed the Corporate Governance
Code in a number of key areas (as specified below), some of which are contained in the
HKSE’s December 2010 consultation paper entitled “On Review of the Code on Corporate
Governance Practices and Associated Listing Rules” (the “December 2010 HKSE
Consultation”).
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Hysan Annual Report 2010
Best Practices in Corporate Governance in Place at Hysan
Exceeded
Code
Provisions
The Board first established a formal Corporate Governance Policy* in 2004.
Board independence from management and any shareholder group - Sir David AKERS-JONES currently serves
as Independent non-executive Chairman. The Company has adopted a written description of his roles*, which
include ensuring that the Company maintains a culture of integrity and other corporate governance values. (Under
the December 2010 HKSE Consultation, it is a proposed change from recommended best practice to a Code
requirement that the Chairman takes special responsibilities for corporate governance).
Over one-third of the Board is represented by Independent non-executive Directors. Our Corporate Governance
Report contains a detailed description as to why each Independent non-executive Director is considered to be
independent. (Under the December 2010 HKSE Consultation, it is a proposed change from recommended best
practice to a Code requirement that the annual general meeting circular nominating a director for election as an
independent non-executive director explains why he or she is considered to be independent).
The Board has established formal mandates and responsibilities* for itself, with a clear division of roles with
management. The Board’s responsibilities in the formulation of strategy, in addition to its monitoring function, are
expressly provided for.
The Board has established formal criteria and requirements* for non-executive Director appointments. Newly
appointed non-executive Directors are given formal letters of appointment, which address (among other things) the
expected time commitment of the non-executive Director. (Proposed change from recommended best practice to a
Code requirement under the December 2010 HKSE Consultation – time commitment of directors).
Board evaluation: The Chairman and non- executive Directors meet at regularly scheduled sessions without
management presence. (Board evaluation is a proposed recommended best practice under the December 2010
HKSE Consultation).
We have three Corporate Governance-related Committees, being the Audit Committee, Emoluments Review
Committee and Nomination Committee. The Terms of Reference* of each Corporate Governance Committee
provides for in-camera meetings without management presence to further encourage objective and independent
discussions and assessment. The Audit and Emoluments Review Committees have a majority of Independent
non-executive Directors. (Formation of a nomination committee is a proposed Code provision under the December
2010 HKSE Consultation).
The Audit Committee meets the external auditors twice annually without management presence. (Such meeting
frequency is a proposed Code requirement under the December 2010 HKSE Consultation).
The Group has a written Code of Ethics* applicable to all staff and Directors. Monitoring of the “whistle blowing”
mechanism is performed by an external independent third party provider to further enhance independence. Such
service provider reports directly to the Audit Committee. (The establishment of a “whistle blowing” policy is a
proposed recommended best practice under the December 2010 HKSE Consultation).
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 stakeholder communications and the
determination of price sensitive information in order to ensure consistent and timely disclosure and fulfillment of
the Group’s continuous disclosure obligations.
The Group has established an Auditor Service Policy* to identify areas of conflict and prohibit the 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) Internal Controls and Risk Management Report.
The Group has a formal Corporate Responsibility Policy and publishes a separate Corporate Responsibility Report.
Since 2004, the Group has operated a new form of AGM that goes beyond discharging statutory business by
including a detailed business review. All voting at AGMs has been conducted by poll since 2004.
The Group has initiated and funded a programme inviting major nominee companies to proactively forward
communication materials to the ultimate beneficial shareholders at the Group’s expense.
In 2011, the Group published its annual results within 70 days, well within the required time period of three
months from the end of accounting period.
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 the Corporate Governance
Committees are posted and publicly available.
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Hysan Annual Report 2010
51
Corporate Governance Report
What the Board has done during 2010
During the year, 5 Board meetings were held. The focus of these meetings included the following topics of discussion and
yielded the following results:
1. Strong leadership
• appointment of an Independent
non-executive Chairman
• appointment of a CEO
• appointments of new Board members who
2. A clear plan
• reviewed strategic plans for the Company’s core
leasing business (office, retail and residential
segments) to meet short-term objectives and
to strengthen medium-term competitiveness
bring new insights to the Board
• reviewed strategic plans for Hysan Place,
• refined corporate governance framework:
– developed the roles of Independent
non-executive Chairman
– refined terms of reference of
Emoluments Review Committee
– new composition of Board Committees
• implemented Board process to ensure
sufficient time for constructive discussions
during Board meetings, and also enhanced
the provision of information
required by Directors for
discharging their duties
with a view to enabling it to take the Company
to another level of commercial success
and sustainability
• reviewed direction of the Group’s
treasury activities
• reviewed further opportunities in the
core property portfolio of the Company
with management
Roles of Board
• Strategic Planning
• Internal Controls and
Risk Management
• Culture and Values
• Capital Management
• Corporate Governance
• Board Succession
3. Checks and balances
• refined levels of authorities of CEO,
and the Board
• assessed effectiveness of financial controls,
and other internal controls
(Please refer to separate “Internal Controls
and Risk Management Report”)
4. Corporate values and teamwork
• strong teamwork for employees
– Independent non-executive Chairman held
monthly meetings with department heads
• reinforced corporate values, stressing good
corporate governance and corporate social
responsibility
52
Hysan Annual Report 2010
Governance Model and Framework
Governance Model
Hysan’s governance model is based on an effective combination of family ownership and
professional management. Our founding shareholder 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.
Shareholders
Auditors
Chair of the Board
BOARD OF DIRECTORS
Chief Executive Officer
Management
Nomination
Committee
Emoluments Review
Committee
Audit Committee
We also ensure the presence of a capable and qualified Board with diverse backgrounds and
skills. Over the years, the Board has developed, maintained and continues to supplement a
robust set of governance policies and procedures as the basis of our governance system.
Governance Framework and continually evolving Governance Practices
Hysan’s governance framework serves as a guide for the Board and management in the
performance and fulfillment of their respective obligations to Hysan and its stakeholders.
The guidelines, policies, and procedures which form this framework (as listed below) work
together to ensure the existence of a capable and qualified Board with diverse backgrounds
and skills, the establishment of appropriate roles for the Board and various committees, and
a collaborative and constructive relationship between the Board and management.
As part of its ongoing review, the Board regularly assesses and enhances its governance
practices and principles in light of regulatory regimes, international best practices, as well as
Company needs.
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
• Position Description for the Chairman of the Board of Directors
• Roles Requirements of non-executive Directors
• Terms of Reference of the various corporate governance related Board Committees
• Code of Ethics for Employees
• Auditor Service Policy
• Corporate Disclosure Policy
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Hysan Annual Report 2010
53
Corporate Governance Report
Board Leadership
Who is on our Board?
Sir David AKERS-JONES currently leads the Board as Chairman, and will be succeeded by
Irene Yun Lien LEE as of May 2011. Gerry Lui Fai YIM was appointed Chief Executive Officer
effective 10 March 2010.
Since October 2009, the following new non-executive Directors were appointed by the full
Board:
Nicholas Charles ALLEN, Philip Yan Hok FAN, Irene Yun Lien LEE, Michael Tze Hau LEE and
Joseph Chung Yin POON.
Further description of their backgrounds is set out in the section “Board Effectiveness – Skills
and Balance” below.
Non-executive Directors are appointed for a term of 3 years and are required to submit their
candidacy for re-election at the first AGM following their appointment. Under the Group’s
Articles of Association, every Director will be subject to retirement by rotation at least once
every 3 years. Retiring Directors are eligible for re-election at the AGM at which he retires.
There is no cumulative voting in Director elections. The election of each candidate is done
through a separate resolution.
At the AGM to be held on 9 May 2011, Chien LEE, Irene Yun Lien LEE and Hans Michael
JEBSEN will retire and, being eligible, offer themselves for re-election. Sir David AKERS-JONES
and Dr. Deanna Ruth Tak Yung RUDGARD will not seek re-election and will step down from the
Board. Details with respect to the candidates standing for election as Directors are set out in
the AGM Circular to shareholders.
Best Corporate Governance Disclosure
Awards 2010: Non-Hang Seng Index
(Large Market Capitalisation)
Category - Gold Award
Organised by the Hong Kong Institute of Certified Public
Accountants
“The corporate governance report was professionally presented and
thorough.”
“The clear description of the succession of chairmanship was also
helpful. The best practices summary and the concise narrative on
the independence status of directors were also commendable.”
– Judges’ Report
54
Hysan Annual Report 2010
Board and Management
At the core of our governance structure is our Board, which is accountable to shareholders
for the long-term performance of the Company.
The Board relies on management for the day-to-day operation of the business. It monitors
what management is doing, and holds them accountable for the performance of the
Company as measured against established targets. In terms of strategy formulation, the
Board works closely with management in thinking through our direction and long-term plans,
as well as the various opportunities and risks associated therewith and facing the Company
generally.
The non-executive Directors provide independent challenge and review, bringing a wide range
of experiences, specific expertise, and fresh objective perspectives. As members of the
various Board committees, they also undertake detailed governance work with a particular
focus as noted under the respective terms of reference of the various Board committees.
The Board and management fully appreciate their respective roles and are supportive of the
development and maintenance of a healthy corporate governance culture.
The role of the Board is governed by a formal Board of Directors Mandate (details are
also available on the Company’s website: www.hysan.com.hk), which sets out the key
responsibilities of the Board in fulfilling its stewardship roles.
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Hysan Annual Report 2010
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Corporate Governance Report
A detailed list of Matters Reserved for Board Decisions sets out the key matters that are to
be retained for the decision of the full Board. During the 2010 review, we refined the list to
cover all major policies and directions of the Company. These matters include: the extension
of Group activities into new business areas; capital management framework and policy;
treasury policies; material investment transactions; connected transactions; annual budgets;
preliminary announcements of interim and final results; and the declaration of dividends.
Where applicable, “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.
These thresholds are set out in a schedule that is subject to review periodically and in any
event, at least once a year.
Formal Board of Directors Mandate
The Board is responsible for the stewardship of the Group and is accountable for ensuring
that the Group and its subsidiaries are managed in such a way so as to achieve the objective
of prudent stewardship. The Board’s responsibilities are, firstly, to formulate strategy and,
secondly, to monitor and control operating and financial performance in pursuit of the
Group’s strategic objectives. The Board established a formal Board of Directors Mandate
in 2007 setting out its key responsibilities in fulfilling such stewardship roles. These include
the following:
Duties and Obligations
The Board must understand and meet the duties and performance standards expected of it
under applicable regulatory requirements.
Strategic Planning
The Board establishes, oversees and receives regular updates on the strategic direction,
plans and priorities of the Group, and ensures that the Group has the necessary finances,
people and systems in place to meet its objectives.
Internal Controls and Risk Management
The Board monitors and assesses procedures implemented to identify the principal risks of
the Group’s business, receiving frequent updates on the same.
Culture and values
The Board promotes the culture of integrity and transparency and other corporate values.
Capital Management
The Board considers and approves Group activities relating to major capital expenditures,
the allocation of resources among the Group’s lines of business, and other major financial
activities.
Corporate governance
The Board promotes the highest standards of corporate governance.
Board Succession
The Board continually assesses and evaluates the skills and expertise needed on the Board.
56
Hysan Annual Report 2010
Board Effectiveness
Skills and Balance
We currently have 10 Non-executive Directors, drawn from diverse and complementary
backgrounds:
Primary Background
Names
Public policy
Sir David AKERS-JONES
General management
Philip Yan Hok FAN, Irene Yun Lien LEE,
Joseph Chung Yin POON
Finance and investment
Chien LEE, Anthony Hsien Pin LEE, Irene Yun Lien LEE,
Joseph Chung Yin POON, Michael Tze Hau LEE
Marketing and distribution
Hans Michael JEBSEN
Professionals
Nicholas Charles ALLEN (accounting),
Dr. Deanna Ruth Tak Yung RUDGARD (medicine)
(Directors’ full biographies are set out on pages 46 to 48 and are also available on the Company’s website:
www.hysan.com.hk.)
Independence
The Board has established “independence” standards as contained in our Corporate
Governance Guidelines. It considers “independence” to be a matter of judgment and
conscience. A Director is considered to be independent only where he or she is free from any
business or other relationship that might interfere with the exercise of his or her 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. Independent non-executive Directors are identified in our Annual
and Interim Reports and other communications with shareholders.
The Board carried out a detailed review of director independence in March 2011.
It concluded that each of the 4 Independent non-executive Directors was independent as at
that time. The Board will continually monitor and review whether there are relationships or
circumstances that are likely to affect (or could appear to affect) independence.
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Hysan Annual Report 2010
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Corporate Governance Report
Independence Status
Name
Management Independent Independent Reason for Independence Status
Not
March 2011 Review-
Sir David AKERS-JONES
Nicholas Charles ALLEN
Philip Yan Hok FAN
Fa-kuang HU
(up to 11 May 2010)
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Irene Yun Lien LEE
Michael Tze Hau LEE
Joseph Chung Yin POON
(Note)
Dr. Deanna Ruth Tak Yung
RUDGARD
Dr. Geoffrey Meou-tsen YEH
(up to 11 May 2010)
Gerry Lui Fai YIM
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
No business or other
relationships with the
Group or management
No business or other
relationships with the
Group or management
Note: Mr. Poon was formerly the managing director and deputy chief executive of Hang Seng Bank Limited
(“Hang Seng”). Hang Seng is a connected person of the Company under the Listing Rules by virtue of its
beneficial equity interest (24.64%) in a non-wholly owned subsidiary that holds the Lee Gardens Two property.
However, Hang Seng does not have a controlling interest in nor does it participate in the day-to-day operations
of the relevant company and is connected to the Company only at the subsidiary level. Additionally, Mr. Poon’s
functions at Hang Seng did not involve him playing any direct role in Hang Seng’s participation as a minority
shareholder in the relevant company.
58
Hysan Annual Report 2010
Supply of Information
The Board recognises the significance of providing timely and relevant information to non-
executive Directors so as to enable them to discharge their duties effectively.
The Board regularly receives presentations, including from non-Board management members,
on significant issues or new opportunities for the Group. This also facilitates the build-up of
constructive relations and dialogue between the Board and the management team.
Supply and Access to Information
The Board receives detailed quarterly reports from members of 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. During 2010, monthly reports to non-executive
Directors were introduced, covering financial and operating highlights.
Directors are also kept updated of any material developments from time to time through
notifications and circulars detailing the relevant background and explanatory information.
Directors also have access to non-Director members of management and staff where
appropriate. Collectively, these processes ensure that the Board receives the answers and
information it needs to fulfill its obligations.
Independent Advice
The Board recognises that there may be occasions when one or more Directors feel that it
is necessary to obtain independent legal and/or financial advice for the purpose of fulfilling
their obligations. Such advice may be obtained at the Company’s expense and there is an
agreed upon procedure to enable Directors to obtain such advice, as stated in our Corporate
Governance Guidelines.
Induction and update
Upon 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 businesses, the operations of the Board and the main issues it faces, as well as an
overview of the additional responsibilities of non-executive Directors. Discussion sessions
with key members of management are also held.
Through the course of their directorship, Directors are updated on any developments or
changes affecting the Company and their obligations to it by way of notifications circulated to
them from time to time where appropriate.
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Corporate Governance Report
Evaluation
Hysan evaluates the performance of the Board and members of management at meetings
between the Chairman and non-executive Directors without the presence of management.
The following table sets out the number of meetings of the Board and its principal
committees in 2010, individual attendance by Board and committee members at these
meetings and the attendance of the Board members at the 2010 AGM:
Board
(Notes 1, 2)
Audit
Committee
(Notes 1, 3)
Emoluments
Review
Committee
(Notes 1, 4)
Nomination
Committee
(Note 5)
AgM
(Note 1)
Directors
Executive
Gerry Lui Fai YIM
Wendy Wen Yee YUNG
Independent Non-executive
Sir David AKERS-JONES
Nicholas Charles ALLEN
Philip Yan Hok FAN
Fa-kuang HU (Note 6)
Dr. Geoffrey Meou-tsen YEH (Note 6)
Joseph Chung Yin POON
5/5
5/5
5/5
5/5
5/5
1/2
2/2
5/5
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Michael Tze Hau LEE
Chien LEE
5/5
(1 by alternate)
5/5
(1 by telephone
conference)
5/5
5/5
(1 by telephone (by telephone
conference)
conference)
Dr. Deanna Ruth Tak Yung
RUDGARD
5/5
(1 by telephone
conference)
1/1
1/1
1/1
2/2
1/1
1/1
1/1
1/1
–
–
–
–
–
1/1
1/1
1/1
1/1
1/1
0/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
Notes:
1. The attendance figure represents actual attendance / the number of meetings a Director is entitled to
attend.
2. On 11 January 2010, Michael Tze Hau LEE, Philip Yan Hok FAN and Joseph Chung Yin POON were
appointed Directors.
3. On 11 May 2010, Anthony Hsien Pin LEE and Philip Yan Hok FAN were appointed members of the Audit
Committee, while Chien LEE stepped down as a member.
4. On 10 August 2010, Philip Yan Hok FAN was appointed as a member of the Emoluments Review
Committee.
5. On 10 August 2010, Philip Yan Hok FAN, Chien LEE, and Gerry Lui Fai YIM were appointed as members of
the Nomination Committee.
6. Fa-kuang HU stepped down as a Director and member of the Emoluments Review Committee on 11 May
2010. Dr. Geoffrey Meou-tsen YEH stepped down as a Director and member of the Audit Committee,
Emoluments Review Committee and Nomination Committee on 11 May 2010.
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Hysan Annual Report 2010
Board Committees in 2010
In order to provide effective oversight and leadership and pursuant to its Corporate
Governance Guidelines, the Board has established 3 governance-related Board Committees.
Like the Board, each Committee has access to independent advice and counsel as
required and each is supported by the Company Secretary. The terms of reference of these
Committees are available on the Company’s website.
Audit Committee
Composition and Meetings Schedule
The Audit Committee is currently comprised of Nicholas Charles ALLEN (Chairman), Anthony
Hsien Pin LEE and Philip Yan Hok FAN, with an overall majority of Independent non-executive
Directors. Chien LEE stepped down as member on 11 May 2010. Nicholas Charles ALLEN
(Chairman) is a Fellow of the Institute of Chartered Accountants in England and Wales and
a member of the Hong Kong Institute of Certified Public Accountants. He has extensive
experience in auditing and accounting, which he developed while working with the “Big Four”
international firms. The Audit Committee meets no less than twice a year. At the invitation of
the Audit Committee, meetings are also attended by members of management, including the
Head of the Finance Department.
Roles and Authority
Hysan believes a clear appreciation of the separate roles of management, the external
auditors and Audit Committee members is crucial to the effective functioning of an audit
committee. Management of Hysan is responsible for selecting 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.
The Audit Committee also has the responsibility of reviewing the Group’s “whistle-blowing”
procedures allowing employees to raise concerns, in confidence or anonymously, about
possible breaches of the Group’s 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 2010 and to date
Full details of the activities of the Audit Committee are also set out on pages 81 and 82
of the “Audit Committee Report”. Attendance of Audit Committee meetings is set out in
the table on page 60. The conduct of Audit Committee meetings was also refined in 2010,
with the institution and holding of pre-meeting sessions with external and internal auditors
without the presence of management. In general, a more structured approach was adopted
with respect to the conduct of Audit Committee meetings, ensuring that all items under its
terms of reference were appropriately covered during meetings.
Emoluments Review Committee
Composition and Meetings Schedule
The Group established an Emoluments Review Committee in 1987 to review the
compensation of executive Directors. The current Emoluments Review Committee is chaired
by Sir David AKERS-JONES, Independent non-executive Chairman. The other members of
the Emoluments Review Committee are Philip Yan Hok FAN and Michael Tze Hau LEE. There
is an overall majority of Independent non-executive Directors. The Emoluments Review
Committee generally meets at least once every year.
Pre-meeting sessions
with external and internal
auditors held without
management presence
In-camera meetings held
without management
presence
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Corporate Governance Report
Roles and Authority
Management makes recommendations to the Emoluments Review Committee on Hysan’s
framework for, and cost of, the remuneration of executive Directors and the Committee then
reviews these recommendations. The Emoluments Review Committee also reviews the
remuneration of the Chairman prior to such remuneration being submitted for approval at
the AGM. No Director or any of his or her associates is involved in deciding his or her own
remuneration. During 2010, its terms of reference was also refined to cover review of new share
option plans, changes to key terms of pension plans, and key terms of new compensation and
benefits plans with material financial, reputational and strategic impact.
Activities and Report in 2010 and to date
As described above, the Committee’s terms of reference were refined during the year. Full details
of the activities of the Emoluments Review Committee are set out on pages 73 to 80 of the
“Directors’ Remuneration and Interests Report”. Attendance of Emoluments Review Committee
meetings is set out in the table on page 60.
Nomination Committee
Composition and Meetings Schedule
The Board established a Nomination Committee in 2005. The Nomination Committee is
currently chaired by Sir David AKERS-JONES, Independent non-executive Chairman. The other
members of the Nomination Committee are Philip Yan Hok FAN, Chien LEE and Gerry Lui Fai YIM.
The Nomination Committee meets when it is considered necessary.
Roles and Authority
The Nomination Committee is responsible for nominating candidates, for Board approval, to fill
Board vacancies as and when they arise, and for evaluating the balance of skills, knowledge and
experience of the Board. The terms of reference of the Nomination Committee clearly set out
that the Chairman of the Board shall not chair the Nomination Committee when it is dealing with
the matter of succession of the chairmanship.
The appointment of new Directors in January 2010 was approved by the full Board.
Shareholders
The Board and management fully recognise the significance and importance of 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 to obtain
their feedback.
The AGM provides a
good opportunity for
communications
with shareholders.
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Hysan Annual Report 2010
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. Recognising that we are accountable to our stakeholders,
reporting financial and non-financial results in a transparent fashion is critical. 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’s corporate website provides an additional channel for shareholders and other
interested parties to access information about the Group. The Group’s key corporate
governance policies and supporting documents, including the terms of reference of the
various Board Committees, as well as the Group’s financial reports, press releases and
announcements are available on the website. Since 2006, shareholders have been given the
option of electing to receive corporate communications by electronic means. We continue to
review how to better utilise the Company’s website for the purposes of timely disclosure and
to enhance transparency.
Institutional Shareholders
We are committed to maintaining a continuing open dialogue with institutional investors,
fund managers and analysts as a means of developing their understanding of our strategy,
operations, management and plans, and enabling them to raise any issues they may have.
The Company has an ongoing programme of dialogue and meetings between executive
Directors and institutional investors, fund managers and analysts. At these meetings, a wide
range of relevant issues, including strategy, performance, management and governance, are
discussed within the constraints of information already made public. During 2010, we have
further strengthened our programme and extended the scope of our coverage of investors
and analysts, including attending oversea investor roadshows.
Constructive use of AgM
The Board is equally interested in the concerns of private shareholders. The Company
Secretary, on behalf of the Board, oversees communication with these investors. The
Board recognises the significance of the constructive use of AGMs as a means to enter
into a dialogue with private shareholders based on the mutual understanding of objectives.
Individual shareholders can put questions to the Chairman at the AGM. The Chairmen of the
various Board Committees, as provided under their respective terms of references, attend
AGMs to respond to any shareholder questions on the activities of those Committees.
Since 2004, to enable shareholders to gain a better understanding of our business
activities, we have included a “business review” session in our AGMs, in addition to the
statutory part of the meeting. Topics covered at the last AGM included the business
environment in 2009, a review of business activities, and the Company’s outlook for 2010.
The Company values the contributions of its shareholders during the question and answer
session following the statutory part of the meeting.
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 responsibilities for communications with various stakeholders groups. (Details of the
Corporate Disclosure Policy are available at the Company’s website: www.hysan.com.hk).
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63
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.
Provision of Sufficient and Timely Information
We recognise the significance of providing information to shareholders to enable them to
make an informed assessment for the purposes of voting on each of the items put before
shareholders at the AGM. Copies of the Annual Report, and financial statements and related
papers are dispatched to shareholders 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’ rights in exercising control proportionate to their equity
ownership and we support the principle of voting by poll. Since 2004, the Company has
conducted all voting at its AGMs by poll. 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 are again explained to the
general meeting prior to the taking of the poll. Poll results are announced and posted on the
websites of both the HKSE and the Company.
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
deposit the signed requisition at the Company’s registered office.
Hong Kong Companies Ordinance also provides 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.
64
Hysan Annual Report 2010
Directors’ Report
The Directors submit their report together with the audited financial statements for the year ended 31 December 2010, which
were approved by the Board of Directors (the “Board”) on 9 March 2011.
Principal Activities
The principal activities of the Group continued throughout 2010 to be property investment, management and development.
Details of the Group’s principal subsidiaries and associates as at 31 December 2010 are set out in notes 18 and 19
respectively to the financial statements.
The turnover and results of the Group are principally derived from leasing of investment properties located in Hong Kong. The
Group’s turnover and results by reportable segment are set out in note 5. 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 2010 are set out in the consolidated income statement on page 86.
An interim dividend of HK14 cents per share, amounting to approximately HK$147 million, was paid to shareholders during the
year.
The Board recommends the payment of a final dividend of HK60 cents per share with a scrip alternative to the shareholders
on the register of members on 9 May 2011, absorbing approximately HK$632 million. The dividends proposed and paid for
ordinary shares in respect of the full year 2010 will absorb approximately HK$779 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 90 and 91 and note 33 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 2010 using
the fair value model. Details of movements during the year in the investment properties of the Group are set out in note 16 to
the financial statements.
Details of the major investment properties of the Group as at 31 December 2010 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 17
to the financial statements.
Share Capital
Details of movements in the share capital of the Company during the year are set out in note 32 to the financial statements.
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65
Directors’ Report continued
Corporate Governance
The Company is committed to maintaining a high standard of corporate governance and, save as otherwise stated and explained
in the Corporate Governance Report, meets the requirements of 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 50 to 64) – 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 73 to 80) – 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 81 and 82) – it sets out the terms of reference, work performed and findings of the Audit
Committee for the year;
(d) “Internal Controls and Risk Management Report” (pages 39 to 41) – 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 is currently chaired by Sir David AKERS-JONES, Independent non-executive Chairman and has 2 executive Directors,
Gerry Lui Fai YIM (Chief Executive Officer) and Wendy Wen Yee YUNG (Executive Director and Company Secretary) and 9 other
Non-executive Directors.
Sir David AKERS-JONES was appointed Independent non-executive Chairman effective 11 January 2010.
Gerry Lui Fai YIM, Executive Director, was appointed Chief Executive Officer effective 10 March 2010.
Philip Yan Hok FAN and Joseph Chung Yin POON were appointed Independent non-executive Directors and Michael Tze Hau LEE
was appointed Non-executive Director, all effective 11 January 2010.
Irene Yun Lien LEE was appointed alternate Director to Anthony Hsien Pin LEE effective 11 January 2011 and appointed
Non-executive Director effective 9 March 2011.
Dr. Geoffrey Meou-tsen YEH and Fa-kuang HU stepped down as Independent non-executive Directors as from conclusion of the
annual general meeting held on 11 May 2010.
Save as otherwise mentioned, other Directors whose names and biographies appear on pages 46 to 48 have been Directors of
the Company during the year.
Kam Wing LI served as alternate Director throughout the year. Siu Chuen LAU was appointed alternate Director to Dr. Deanna
Ruth Tak Yung RUDGARD effective 3 December 2010. Raymond Liang-ming HU ceased to be an alternate Director after the
stepping down of Fa-kuang HU effective 11 May 2010.
According to Article 97 of the Company’s current Articles of Association, a Director appointed either to fill a casual vacancy or as
an addition to the Board shall hold office only until the next following annual general meeting.
Under Article 114 of the Company’s current Articles of Association, one-third (or such other number as may be required under
applicable legislation) of the Directors; and where the applicable number is not an integral number, to be rounded upwards, who
have been longest in 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 are set out in the related 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.
66
Hysan Annual Report 2010
Directors’ Interests in Shares
Details of the interests and short positions of the 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 73 to 80.
Substantial Shareholders’ and Other Persons’ Interests in Shares
As at 31 December 2010, 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
Beneficial owner and
interests of
controlled corporations
Number of
ordinary
shares held
433,130,735
(Note b)
Lee Hysan Company Limited
Interests of controlled
corporations
433,130,735
(Note b)
% of the
issued
share
capital
(Note a)
41.12
41.12
Silchester International Investors LLP
Investment manager
104,722,000
9.94
Notes:
(a) The percentage has been compiled based on the total number of shares of the Company in issue as at 31 December 2010 (i.e.
1,053,426,635 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 2010.
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 38 to the financial statements.
Some of these transactions also constitute “Continuing Connected Transactions” under the Listing Rules, as identified below.
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Directors’ Report continued
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:
Leases granted by the Group
I.
(a) The lee gardens, 33 Hysan Avenue, Hong Kong (“The lee gardens”)
The following lease arrangements were 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”), an associate of Michael Tze Hau LEE,
Non-executive Director of the Company. Details of the lease arrangement are set out below:
Connected person
Date of agreement
Terms
Premises
Annual consideration
(Note a)
Rooms 3703 and
3704 on the
37th Floor
2010:
HK$756,975
(on pro-rata basis)
(Note c)
1 carparking space
2010:
HK$843,528
Rooms 3703 and
(on pro-rata basis)
3704 on the
37th Floor and
2011: HK$1,638,876
1 carparking space 2012: HK$1,638,876
HK$819,438
(on pro-rata basis)
2013:
Oxer Limited
(Note b)
(1) 30 August 2007
(Lease and
Supplemental
Lease)
(2) 6 July 2007
(Carpark
Licence
Agreement)
(3) 14 June 2010
(Lease and
Carpark Licence
Agreement)
(renewal)
3 years commencing
from 1 July 2007
(for Room 3703)
and 35 months
commencing
from 1 August 2007
(for Room 3704)
34 months
commencing from
1 September 2007
3 years commencing
from 1 July 2010
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Hysan Annual Report 2010
Leases granted by the Group continued
Continuing Connected Transactions continued
I.
(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
Annual consideration
(Note a)
(i)
Jebsen and
Company
Limited
(Note d)
(1) 29 June 2007
3 years commencing from
1 September 2007
Office units on the
28th, 30th and
31st Floors
2010: HK$13,923,824
(on pro-rata basis)
(Note c)
(2) 31 March 2010
(renewal)
3 years commencing from
1 September 2010
Office units on the
28th, 30th and
31st Floors
(ii) Hang Seng
Bank Limited
(Note d)
15 October 2007
(Note e)
Shop G13A on the
Ground Floor and
Shops 2-10 and
11-12 on the
Lower Ground
Floor
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 f)
2010: HK$6,974,856
(on pro-rata basis)
2011: HK$20,802,552
2012: HK$20,802,552
2013: HK$13,868,368
(on pro-rata basis)
2010: HK$13,713,453
2011: HK$17,706,600
2012: HK$17,706,600
2013: HK$13,946,327
(on pro-rata basis)
(Note g)
(iii) Pearl
Investments
(HK) Limited
(Note h)
(1) 23 May 2008
(Lease)
3 years commencing from
15 May 2008
Room 1401C on the 2010: HK$2,019,107
(on pro-rata basis
14th Floor
for the Carpark
Licence Agreement)
3 years commencing from
1 June 2007
1 carparking space
(2) 18 May 2007
(Carpark Licence
Agreement and a
supplemental
letter dated
5 June 2007)
(iv) MF Jebsen
(1) 22 December
International
Limited
(Note i)
2008
3 years commencing from
1 February 2008
Office units on
the 24th and
25th Floors
(2) 7 September
2010 (renewal)
3 years commencing from
1 February 2011
Office units on
the 25th Floor
2011:
HK$739,226
(on pro-rata basis
for the Lease)
(Note c)
2010: HK$13,586,567
(on pro-rata basis)
2011: HK$1,127,761
(on pro-rata basis)
(Note j)
2011: HK$6,612,419
(on pro-rata basis)
2012: HK$7,213,548
2013: HK$7,213,548
HK$601,129
2014:
(on pro-rata basis)
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69
Directors’ Report continued
Leases granted by the Group continued
Continuing Connected Transactions continued
I.
(c) One Hysan Avenue, Causeway Bay, Hong Kong (“One Hysan Avenue”)
The following lease arrangement was entered into by OHA Property Company Limited, a wholly-owned subsidiary of the Company
and property owner of One Hysan Avenue, as landlord with Atlas Corporate Management Limited, a wholly-owned subsidiary of
LHE, a substantial shareholder of the Company (holding 41.12% interest). Details of the lease are set out below:
Connected person
Date of agreement
Terms
Premises
Atlas Corporate
Management
Limited
14 November 2008
3 years commencing from Whole of
1 November 2008
21st Floor
Annual consideration
(Note a)
2010: HK$2,520,991
2011: HK$2,103,300
(on pro-rata basis)
(Note c)
II. Provision of leasing and property management services to a non wholly-owned subsidiary regarding Lee Gardens Two
(a) The following management agreements were entered into by Hysan Leasing Company Limited (“Hysan Leasing”), wholly-
owned subsidiary of the Company, with Barrowgate for the provision of leasing, marketing and lease administration services
to Lee Gardens Two:
Connected person
Date of agreement
Terms
Premises
Consideration
Barrowgate
Limited
(1) 25 February 2004
and a Supplemental
Appointment Letter
of 19 July 2004
3 years commencing from Whole premises of
1 April 2004 (renewed
Lee Gardens Two
for further 3 years)
HK$4,704,030
(Note k)
(2) 31 March 2010
(renewal)
3 years commencing from Whole premises of
Lee Gardens Two
1 April 2010
HK$19,450,485
(Note l)
(b) The following management agreements were entered into by Hysan Property Management Limited, wholly-owned subsidiary
of the Company, with Barrowgate for the provision of property management services to Lee Gardens Two:
Connected person
Date of agreement
Terms
Premises
Consideration
Barrowgate
Limited
Notes:
(1) 25 February 2004
3 years commencing from Whole premises of
Lee Gardens Two
HK$649,920
(Note k)
and 2 Supplemental 1 April 2004 (renewed
Appointment Letters for further 3 years)
of 19 July 2004 and
7 February 2007
(2) 31 March 2010
(renewal)
3 years commencing from Whole premises of
Lee Gardens Two
1 April 2010
HK$2,114,856
(Note l)
(a) The annual considerations for 2010 are based on all relevant considerations paid during the year. The annual considerations for remaining
terms are estimated 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 is a connected person of the Company by virtue of its being an associate of Michael Tze Hau LEE, Non-executive Director of the
Company.
(c) The monthly office operating charges were revised with effect from 1 April 2010 while the rental and licence fee (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 and having equity interest of 10% and 24.64% respectively in Barrowgate.
(e) Barrowgate and Hang Seng entered into an agreement for lease dated 15 October 2007. A formal lease agreement, a supplemental deed
and an endorsement (following rent review as provided under the lease arrangements) in respect of the premises mentioned under I(b)(ii)
above were entered on 15 February 2008, 13 May 2008 and 22 November 2010 respectively.
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Hysan Annual Report 2010
Continuing Connected Transactions continued
(f)
The term of the lease mentioned under I(b)(ii) above 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.
(g) The rent for the period from 15 October 2010 to 14 October 2013 was revised at the then prevailing market rent, the monthly promotional
levy was revised with effect from 1 January 2010 and the monthly operating charges remained unchanged.
(h) Pearl Investments (HK) Limited is a connected person of the Company by virtue of its being an associate of Chien LEE, Non-executive
Director of the Company.
(i) MF Jebsen International Limited became a connected person of the Company upon amendments of the Listing Rules effective 3 June
2010 by virtue of its being controlled (more than 50%) by the brother of Hans Michael JEBSEN, Non-executive Director of the Company.
(j)
The annual considerations are based on current rates of rental and operating charges calculating from effective date of amendments of
the Listing Rules (i.e. 3 June 2010). (See Note (i) above).
(k) These represent the actual considerations for the period from 1 January 2010 to 31 March 2010, calculated on the basis of the fee
schedules as prescribed in the respective management agreements.
(l)
These represent the actual considerations for the period from 1 April 2010 to 31 December 2010, 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 II(a)(1) and II(b)(1) 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 Company’s auditor was engaged to report on the Group’s continuing
connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements
Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on
Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public
Accountants. The auditor has issued his unqualified letter containing his findings and conclusions in respect of the continuing
connected transactions disclosed by the Group in pages 68 to 71 of the Annual Report in accordance with Rule 14A.38 of the
Listing Rules. A copy of the auditor’s letter has been provided by the Company to the Stock Exchange.
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.
Interest in Contracts of Significance
Certain Transactions are considered contracts of significance under paragraph 15 of Appendix 16 of the Listing Rules, namely:
(i)
(ii)
the lease arrangement between Barrowgate and Jebsen and Company, due to the annual consideration of the lease
having a percentage ratio of 1.24% from the calculation of the revenue test (the percentage ratios for assets ratio and
consideration ratio are 0.05% and 0.05% respectively); and
the management agreement between Barrowgate and Hysan Leasing, due to the annual consideration of the management
agreement having a percentage ratio of 1.92% from the calculation of the revenue test (the percentage ratios for assets
ratio and consideration ratio are 0.07% and 0.08% respectively).
Details of the above Transactions are set out under I(b)(i) and II(a) of “Continuing Connected Transactions”.
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Directors’ Report continued
Major Customers and Suppliers
During the year, 35.19% of the aggregate amount of purchases were attributable to the Group’s 5 largest suppliers with the
largest supplier accounting for 11.92% of the Group’s total purchases. The aggregate amount of turnover attributable to the
Group’s 5 largest customers was less than 30% of total turnover of the Group.
None of the Directors, their associates or any shareholder (which to the knowledge of the Directors owns more than 5% of the
Company’s issued share capital) has any interest in the Group’s 5 largest suppliers.
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$0.3 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
2011 AGM.
On behalf of the Board
Sir David AKERS-JONES
Independent non-executive Chairman
Hong Kong, 9 March 2011
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Hysan Annual Report 2010
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. The Emoluments Review Committee, first established in 1987, reviews and determines the remuneration of
executive Directors as well as recommending for shareholder approval fee payable to the Chairman.
The Committee is currently chaired by Sir David AKERS-JONES, Independent non-executive Chairman. Its other members are
Philip Yan Hok FAN, Independent non-executive Director and Michael Tze Hau LEE, Non-executive Director.
Management makes recommendations to the Committee on the Company’s framework for, and cost of, executive Director
remuneration and the Committee then reviews these recommendations. Independent professional advice will be sought where
appropriate. On matters other than those concerning him, the 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.
2010 Review
The Committee met in March 2010 to review 2010 executive Director compensation packages, including determining the
compensation of the new Chief Executive Officer. Such packages were 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.
Changes in roles and responsibilities were also taken into consideration. Independent professional advice was sought. The
proportion of performance-based compensation for executive Directors has been increased generally following this review. Clear
performance targets were set. All members attended the meeting.
Details of Directors’ (including individual executive Directors) emoluments for year 2010 and options movement during the year
are set out in notes 12 and 39 respectively to the financial statements.
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Directors’ Remuneration and Interests Report continued
Director Compensation continued
Non-executive Director emoluments
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.
Non-executive Directors received no other compensation from the Group except for the fees disclosed below. None of the
Non-executive Directors receives any pension benefits from the Company, nor do they participate in any bonus or incentive
schemes.
Non-executive Directors (including the Independent non-executive Directors) received fees totalling HK$1,707,205.45 and the
Independent non-executive Chairman received a total annual fee of HK$652,438.36 for 2010 (Please refer to note 12 to the
financial statements).
March 2011 Review
Two meetings of the Committee were held in March 2011 with all members being present to review (i) 2011 executive Director
compensation packages; (ii) its terms of reference; and (iii) fees for non-executive Directors and Board Committee members.
Director Fees
Director fees are subject to shareholder approval at general meeting. Taking into consideration the level of responsibility,
experience, abilities required of the Directors, level of care and amount of time needed to be spent, and fees offered for similar
positions in companies competing for the same talent, it is proposed for shareholder consideration and approval revising
Director fees for Non-executive Directors and Board Committee members. The current fee structure of Directors (approved at
annual general meeting (the “AGM”) held on 10 May 2005) and Independent non-executive Chairman (approved at the AGM
held on 11 May 2010) during the year and the proposed fees are set out below. It is also proposed that no Director fees be
payable to executive Directors.
Board of Directors
Chairman
Director
Audit Committee
Chairman
Member
Emoluments Review Committee
Chairman
Member
Other Committees
Chairman
Member
Details are also set out in the related AGM circular.
74
Hysan Annual Report 2010
Current fee
Per annum
HK$
Proposed fee
Per annum
HK$
400,000
100,000
no change
200,000
60,000
30,000
100,000
60,000
30,000
20,000
50,000
40,000
30,000
20,000
no change
no change
Director Compensation continued
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 Chief Executive Officer may make grants to management staff below executive Director level.
Key terms of the share option schemes of the Company are summarised as follows:
The 1995 Share Option Scheme (the “1995 Scheme”)
The 1995 Scheme was approved by shareholders on 28 April 1995 and had a term of 10 years. It expired on 28 April 2005. All
outstanding options granted under the 1995 Scheme will continue to be valid and exercisable in accordance with the provisions
of the 1995 Scheme.
As at 31 December 2010, shares issuable under options granted under the 1995 scheme was 96,000 representing less than
0.01% 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.
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 be expiring 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$1 and is required to be paid within 30 days from
the date of grant of option, with full payment for exercise price to be made on exercise of the relevant option.
grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Vesting period is 3 years in equal proportions. Size
of grant will be determined by reference to base salary multiple and job grades. A clear performance criterion will be a key driver.
The Board will review the grant and vesting structures from time to time.
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Directors’ Remuneration and Interests Report continued
Director Compensation continued
Long-term incentives: Share Option Schemes continued
Movement of share options
During the year, a total of 714,000 shares options were granted under the 2005 Scheme.
As at 31 December 2010, an aggregate of 3,273,334 shares are issuable for options granted under the Schemes, representing
approximately 0.31% of the issued share capital of the Company.
As at the date of this Report, 97,756,766 shares are issuable under the Schemes representing 9.27% of the issued share
capital.
Details of options granted, exercised, cancelled/lapsed and outstanding under the Schemes during the year are as follows:
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
1995 Scheme
Executive Directors
Changes during the year
Balance
as at
1.1.2010
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2010
Wendy Wen Yee YUNG 30.3.2005 15.850 30.3.2005 –
96,000
–
–
–
96,000
29.3.2015
2005 Scheme
Executive Directors
Peter Ting Chang LEE
(Note b)
6.3.2007 21.380
6.3.2007 –
16.1.2011
235,000
13.3.2008 21.450 13.3.2008 –
260,000
16.1.2011
11.3.2009 11.760 11.3.2009 –
500,000
16.1.2011
Gerry Lui Fai YIM
1.12.2009 22.800 1.12.2009 –
218,000
30.11.2019
Wendy Wen Yee YUNG 26.6.2006 20.110 26.6.2006 –
110,000
25.6.2016
30.3.2007 21.250 30.3.2007 –
95,000
29.3.2017
31.3.2008 21.960 31.3.2008 –
100,000
30.3.2018
11.3.2009 11.760 11.3.2009 –
300,000
10.3.2019
–
–
–
–
–
–
–
–
11.3.2010 22.100 11.3.2010 –
(Note c)
10.3.2020
–
185,000
–
–
–
–
–
–
–
–
–
–
235,000
–
260,000
–
500,000
–
218,000
–
110,000
–
95,000
–
100,000
–
300,000
–
185,000
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Hysan Annual Report 2010
Director Compensation continued
Long-term incentives: Share Option Schemes continued
Movement of share options continued
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
2005 Scheme continued
Eligible employees
(Note d)
30.3.2006 22.000 30.3.2006 –
29.3.2016
30.3.2007 21.250 30.3.2007 –
29.3.2017
31.3.2008 21.960 31.3.2008 –
30.3.2018
2.5.2008 23.900
2.5.2008 –
1.5.2018
Balance
as at
1.1.2010
23,000
31,000
88,000
95,000
2.10.2008 20.106 2.10.2008 –
85,000
1.10.2018
31.3.2009 13.300 31.3.2009 –
30.3.2019
411,000
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2010
–
–
–
–
–
–
(8,000)
(Note e)
(16,000)
(Note e)
(10,000)
(Note e)
–
–
–
15,000
–
15,000
–
78,000
–
95,000
–
85,000
(21,666)
(Note f)
(26,000) 363,334
(Note g)
31.3.2010 22.450 31.3.2010 –
30.3.2020
(Note h)
–
529,000
–
(6,000) 523,000
(Note g)
2,647,000
714,000
(55,666)
(32,000) 3,273,334
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions.
(b) The late Chairman, Peter Ting Chang LEE, passed away on 17 October 2009. An extension in time (to 16 January 2011) for exercising
his options was granted to his legal personal representative pursuant to the 2005 Scheme. Share options of 235,000, 173,333 and
166,666, which were granted to him on 6 March 2007, 13 March 2008 and 11 March 2009 respectively, were exercised by his sole
executrix to his estate on 3 January 2011. The outstanding share options of 420,001 lapsed on 17 January 2011.
(c) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 10 March 2010) was HK$22.40.
(d) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.40.
(f)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$28.62.
(g) The options lapsed during the year upon resignation of certain eligible employees.
(h) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2010) was HK$22.55.
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 39 to the financial statements.
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Directors’ Remuneration and Interests Report continued
Director Compensation continued
Long-term incentives: Share Option Schemes continued
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
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
Notes:
31.3.2010
11.3.2010
HK$22.450
HK$22.450
2.843%
10 years
35.489%
HK$0.582
HK$8.598
HK$22.100
HK$22.100
2.780%
10 years
35.459%
HK$0.582
HK$8.425
(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 for the options granted before 1 December 2009. For options granted on or after 1 December 2009,
management considers that it would be more appropriate that the expected volatility be the appropriate historical volatility of closing prices
of the shares of the Company in the past 10 years immediately before the date of grant in order to match the expected life of the options
of 10 years.
(d) Expected dividend per annum: being the approximate average annual cash dividend for the past 5 financial years.
Service Contracts
No Director proposed for re-election at the forthcoming AGM has a service contract with the Company or any of its subsidiaries
that is not determinable by the Group within 1 year without payment of compensation (other than statutory compensation).
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Hysan Annual Report 2010
Directors’ Interests in Shares
As at 31 December 2010, the interests and short positions of the Directors 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)
Hans Michael JEBSEN
60,000
Chien LEE
800,000
Deanna Ruth Tak Yung RUDGARD
1,871,600
Gerry Lui Fai YIM
Wendy Wen Yee YUNG
Siu Chuen LAU
Notes:
40,000
28,000
–
–
–
–
–
–
–
2,433,371
(Note b)
–
–
–
–
20,115
(Note c)
–
2,493,371
0.237
–
–
–
–
–
800,000
1,871,600
40,000
28,000
0.076
0.178
0.004
0.003
20,115
0.0019
(a) This percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,053,426,635 ordinary shares)
as at 31 December 2010.
(b) 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.
(c) Siu Chuen LAU is an alternate director to Deanna Ruth Tak Yung RUDGARD, such shares were held through a corporation in which
Siu Chuen LAU and his wife were members and each entitled to exercise no less than one-third of the voting power at general meeting.
Certain executive Directors of the Company have been granted share options under the 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
Number of ordinary shares held
Corporate
interests
Other
interests
% of the issued
share capital
Total
Hans Michael JEBSEN
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.
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 2010 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.
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Directors’ Remuneration and Interests Report continued
Directors’ Interests in Shares continued
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 have interests, directly or indirectly, in 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:
(i) Anthony Hsien Pin LEE, Chien LEE, Irene Yun Lien LEE, Michael Tze Hau LEE, Dr. Deanna Ruth Tak Yung RUDGARD and her
alternate (Siu Chuen LAU), 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.
The Company’s management team is separate and independent from that of the companies identified above. In addition, the
relevant Directors have non-executive roles and are not involved in the Company’s day-to-day operations and management.
For the reasons stated above, 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.
By Order of the Board
Wendy W.Y. YUNG
Executive Director and Company Secretary
Hong Kong, 9 March 2011
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Hysan Annual Report 2010
Audit Committee Report
The Audit Committee has 3 members (with a majority of Independent non-executive Directors). Currently, it is chaired by
Nicholas Charles ALLEN, Independent non-executive Director and the other members are Philip Yan Hok FAN, Independent
non-executive Director and Anthony Hsien Pin LEE, Non-executive Director. Dr. Geoffrey Meou-tsen YEH stepped down as from
the May 2010 Annual General Meeting.
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. 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 Chairman reports to the Board on its findings
after each Committee meeting.
The Committee held 2 meetings during the year, on 9 March and 6 August 2010. The meeting held in March 2010 was attended
by Nicholas Charles ALLEN and Dr. Geoffrey Meou-tsen YEH. The meeting held in August 2010 was attended by Nicholas
Charles ALLEN, Philip Yan Hok FAN and Anthony Hsien Pin LEE to consider the financial statements for the 2009 annual report
and 2010 interim report respectively. The Committee last met on 7 March 2011 to consider the financial statements for the
year ended 31 December 2010.
Details on the meeting held in March 2010 were set out in the 2009 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 the 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 2010
:
• March 2011
:
The Committee reviewed and recommended to the Board for approval the unaudited financial
statements for the first 6 months of 2010, 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.
The Committee reviewed and discussed with management and external auditor the 2010 financial
statements included in the 2010 Annual Report, 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
2010, with the Independent Auditor’s Report thereon.
Review of Internal Controls and Risk Management Systems
•
August 2010
:
The Committee considered the report of internal audit, including status in implementing
recommendations on previous audits and was satisfied.
• March 2011
:
For 2010 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.
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Hysan Annual Report 2010
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Audit Committee Report continued
Relationship with External Auditor
•
August 2010
:
The Committee reviewed and considered the terms of engagement of the external auditor in respect
of the 2010 annual audit and the related results announcement and annual confirmation.
• March 2011
:
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 2011.
The Committee also reviewed and considered the terms of engagement of the external auditor in
respect of the 2011 interim results review.
For the year ended 31 December 2010, external auditor received a total fee of HK$2,164,000 (audit
services: HK$1,860,000 and non-audit services: HK$304,000).
Members of the Audit Committee
Nicholas Charles ALLEN (Chairman)
Philip Yan Hok FAN
Anthony Hsien Pin LEE
Hong Kong, 9 March 2011
82
Hysan Annual Report 2010
4
Financial Statements
and Valuation
84 Directors’ Responsibility for the Financial Statements
85 Independent Auditor’s Report
86 Consolidated Income Statement
87 Consolidated Statement of Comprehensive Income
88 Consolidated Statement of Financial Position
89 Statement of Financial Position
90 Consolidated Statement of Changes in Equity
92 Consolidated Statement of Cash Flows
94 Significant Accounting Policies
103 Notes to the Financial Statements
146 Financial Risk Management
155 Five-Year Financial Summary
157 Report of the Valuer
158 Schedule of Principal Properties
160 Shareholding Analysis
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Hysan Annual Report 2010
83
Directors’ Responsibility 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.
84
Hysan Annual Report 2010
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 86 to 154, which comprise the consolidated and Company’s
statements of financial position as at 31 December 2010, and the consolidated income statement, consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year
then ended, and a summary of significant accounting policies and other explanatory information.
Directors’ Responsibility for the Financial Statements
The directors of the Company are responsible for the preparation of financial statements that give a true and fair view in
accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants
and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
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
about 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 of the financial statements that give a true and fair view 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 2010, 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
9 March 2011
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Hysan Annual Report 2010
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Consolidated Income Statement
For the year ended 31 December 2010
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
Profit for the year attributable to:
Owners of the Company
Non-controlling interests
Earnings per share (expressed in HK cents)
Basic
Diluted
Notes
2010
HK$ million
As restated
2009
HK$ million
4
6
7
8
9
10
15
1,764
(250)
1,514
49
(42)
(140)
(117)
2,594
394
4,252
(201)
4,051
3,844
207
4,051
1,680
(235)
1,445
38
(3)
(133)
(131)
1,249
768
3,233
(189)
3,044
2,914
130
3,044
365.47
365.16
278.52
278.42
86
Hysan Annual Report 2010
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2010
Profit for the year
Other comprehensive income:
Fair value gains on available-for-sale investments
Net (losses) gains on cash flow hedges
Gain on revaluation of properties held for own use
Share of translation reserve of an associate
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Note
11
2010
HK$ million
As restated
2009
HK$ million
4,051
3,044
150
(22)
29
103
260
37
5
9
(1)
50
4,311
3,094
4,104
207
4,311
2,964
130
3,094
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Hysan Annual Report 2010
87
Consolidated Statement of Financial Position
At 31 December 2010
Non-current assets
Investment properties
Property, plant and equipment
Investments in associates
Principal-protected investments
Term notes
Available-for-sale investments
Other financial assets
Other receivables
Current assets
Accounts receivable and other receivables
Amount due from an associate
Principal-protected investments
Term notes
Other financial assets
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
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
Capital and reserves
Share capital
Reserves
Equity attributable to owners of the Company
Non-controlling interests
Total equity
At
31 Dec 2010
HK$ million
As restated
At
31 Dec 2009
HK$ million
As restated
At
1 Jan 2009
HK$ million
Notes
16
17
19
20
21
22
23
24
26
20
21
23
27
27
28
29
30
30
23
31
32
40,833
429
3,014
378
168
1,152
90
79
46,143
98
139
84
95
2
1,930
63
2,411
433
175
327
650
50
1,635
776
37,363
396
2,517
82
–
1,002
95
31
41,486
83
369
118
–
2
1,945
39
2,556
314
127
327
400
45
1,213
1,343
35,850
387
1,750
85
–
1,022
157
29
39,280
94
590
40
700
1
964
51
2,440
320
158
327
550
351
1,706
734
46,919
42,829
40,014
3,937
52
276
337
4,602
3,491
36
273
297
4,097
3,201
41
230
269
3,741
42,317
38,732
36,273
5,267
35,410
40,677
1,640
42,317
5,253
31,963
37,216
1,516
38,732
5,206
29,605
34,811
1,462
36,273
The consolidated financial statements on pages 86 to 154 were approved and authorised for issue by the Board of Directors on
9 March 2011 and are signed on its behalf by:
88
Hysan Annual Report 2010
David AKERS-JONES
Director
Gerry L.F. YIM
Director
Statement of Financial Position
At 31 December 2010
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Available-for-sale investments
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
At
31 Dec 2010
HK$ million
At
31 Dec 2009
HK$ million
17
18
22
25
27
27
25
32
33
9
–
2
11
5
12,671
547
33
13,256
38
175
2
215
13,041
13,052
5,267
7,785
8
–
2
10
4
12,743
566
8
13,321
34
192
3
229
13,092
13,102
5,253
7,849
13,052
13,102
The financial statements on pages 86 to 154 were approved and authorised for issue by the Board of Directors on 9 March
2011 and are signed on its behalf by:
David AKERS-JONES
Director
Gerry L.F. YIM
Director
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Hysan Annual Report 2010
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Consolidated Statement of Changes in Equity
For the year ended 31 December 2010
Attributable to owners of the Company
Share
capital
HK$ million
Share
premium
HK$ million
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
Attributable to owners of the Company
General
reserve
Investments
revaluation
reserve
Hedging
reserve
Properties
revaluation
reserve
Translation
reserve
Retained
profits
HK$ million
HK$ million
HK$ million
HK$ million
HK$ million
HK$ million
HK$ million
Non-controlling
Total
interests
HK$ million
Total
HK$ million
At 1 January 2009, as originally stated
Effect of changes in accounting policies (note 2)
At 1 January 2009, as restated
5,206
–
1,606
–
5,206
1,606
Profit for the year
Change in fair value of available-for-sale investments
Transfer to profit and loss on disposal of available-for-sale investments
Change in fair value of derivatives designated as cash flow hedges
Transfer to profit and loss for cash flow hedges
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
Share of other comprehensive income of an associate
Total comprehensive income (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 14)
–
–
–
–
–
–
–
–
–
47
–
–
–
–
–
–
–
–
–
–
–
–
–
96
1
–
–
–
9
–
9
–
–
–
–
–
–
–
–
–
–
–
6
(5)
–
276
–
276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2009, as restated
5,253
1,703
10
276
100
809
(22)
175
153
28,759
37,216
1,516
38,732
Profit for the year
Change in fair value of available-for-sale investments
Change in fair value of derivatives designated as cash flow hedges
Transfer to profit and loss for cash flow hedges
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
Share of other comprehensive income of an associate
Total comprehensive income (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
Dividends paid during the year (note 14)
–
–
–
–
–
–
–
–
14
–
–
–
–
–
–
–
–
–
–
–
50
1
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2010
5,267
1,754
16
276
100
959
(44)
204
256
31,889
40,677
1,640
42,317
100
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
772
–
772
–
40
(3)
37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(27)
–
(27)
(12)
17
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150
(40)
18
12
154
166
154
–
154
23,361
3,188
31,469
3,342
1,241
221
32,710
3,563
26,549
34,811
1,462
36,273
2,914
2,914
130
3,044
11
(2)
–
–
–
–
–
–
9
–
–
–
–
–
–
–
–
–
34
(5)
–
29
–
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103
103
2,914
2,964
130
3,094
(709)
(709)
(76)
(785)
3,844
3,844
207
4,051
–
–
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
40
(3)
(12)
17
11
(2)
(1)
143
1
6
–
150
(40)
18
34
(5)
103
64
1
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40
(3)
(12)
17
11
(2)
(1)
143
1
6
–
150
(40)
18
34
(5)
103
64
1
6
(714)
(714)
(83)
(797)
150
(22)
3,844
4,104
207
4,311
90
Hysan Annual Report 2010
At 1 January 2009, as originally stated
Effect of changes in accounting policies (note 2)
At 1 January 2009, as restated
Profit for the year
Change in fair value of available-for-sale investments
Transfer to profit and loss on disposal of available-for-sale investments
Change in fair value of derivatives designated as cash flow hedges
Transfer to profit and loss for cash flow hedges
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
Share of other comprehensive income of an associate
Total comprehensive income (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 14)
At 31 December 2009, as restated
Profit for the year
Change in fair value of available-for-sale investments
Change in fair value of derivatives designated as cash flow hedges
Transfer to profit and loss for cash flow hedges
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
Share of other comprehensive income of an associate
Total comprehensive income (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
Dividends paid during the year (note 14)
Attributable to owners of the Company
Share
capital
Share
premium
Share
options
reserve
Capital
redemption
reserve
HK$ million
HK$ million
HK$ million
HK$ million
5,206
1,606
5,206
1,606
276
–
276
47
96
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
50
1
–
–
9
–
9
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
–
–
6
–
(5)
–
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Attributable to owners of the Company
General
reserve
HK$ million
Investments
revaluation
reserve
HK$ million
Hedging
reserve
HK$ million
Properties
revaluation
reserve
HK$ million
Translation
reserve
HK$ million
Retained
profits
HK$ million
Total
HK$ million
Non-controlling
interests
HK$ million
Total
HK$ million
100
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,253
1,703
276
100
–
–
–
–
–
–
–
–
–
–
–
–
772
–
772
–
40
(3)
–
–
–
–
–
37
–
–
–
–
–
809
–
150
–
–
–
–
–
150
–
–
–
–
(27)
–
(27)
–
–
–
(12)
17
–
–
–
5
–
–
–
–
–
(22)
–
–
(40)
18
–
–
–
(22)
–
–
–
–
12
154
166
–
–
–
–
–
11
(2)
–
9
–
–
–
–
–
175
–
–
–
–
34
(5)
–
29
–
–
–
–
154
–
154
23,361
3,188
31,469
3,342
1,241
221
32,710
3,563
26,549
34,811
1,462
36,273
–
–
–
–
–
–
–
(1)
(1)
–
–
–
–
–
153
–
–
–
–
–
–
103
103
–
–
–
–
2,914
–
–
–
–
–
–
–
2,914
40
(3)
(12)
17
11
(2)
(1)
2,914
2,964
–
–
–
5
(709)
143
1
6
–
(709)
130
–
–
–
–
–
–
–
130
–
–
–
–
(76)
3,044
40
(3)
(12)
17
11
(2)
(1)
3,094
143
1
6
–
(785)
28,759
37,216
1,516
38,732
3,844
–
–
–
–
–
–
3,844
150
(40)
18
34
(5)
103
3,844
4,104
–
–
–
(714)
64
1
6
(714)
207
–
–
–
–
–
–
207
–
–
–
(83)
4,051
150
(40)
18
34
(5)
103
4,311
64
1
6
(797)
At 31 December 2010
5,267
1,754
16
276
100
959
(44)
204
256
31,889
40,677
1,640
42,317
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Consolidated Statement of Cash Flows
For the year ended 31 December 2010
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
Depreciation of property, plant and equipment
Share-based payment expenses
Operating cash flows before movements in working capital
Increase in accounts receivable and other receivables
Increase in accounts payable and accruals
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 an investment property
Proceeds on disposal of available-for-sale investments
Proceeds upon maturity of principal-protected investments
Repayment from an associate
Payments in respect of investment properties
Purchases of property, plant and equipment
Purchases of term notes
Additions to principal-protected investments
Decrease (increase) in time deposits with original maturity over three months
Net cash used in investing activities
2010
HK$ million
2009
HK$ million
4,252
3,233
42
117
(2,594)
(394)
(34)
(15)
8
6
1,388
(45)
66
51
1,460
(171)
10
1,299
12
34
50
–
169
230
(871)
(7)
(266)
(432)
118
(963)
3
131
(1,249)
(768)
(27)
(11)
7
6
1,325
(2)
14
12
1,349
(469)
–
880
8
27
–
44
40
221
(242)
(8)
–
(112)
(1,551)
(1,573)
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Hysan Annual Report 2010
Note
2010
HK$ million
2009
HK$ million
Financing activities
Interest paid
Payment of other finance costs
Medium Term Note Programme expenses
Dividends paid
Dividends paid to non-controlling interests of a subsidiary
Repayment of bank loans
Repayment of floating rate notes
Redemption of fixed rate notes
New bank loans
Issue of fixed rate notes
Issue of floating rate notes
Proceeds on exercise of share options
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
27
(97)
(11)
(1)
(650)
(83)
(600)
–
(68)
500
800
–
1
(209)
127
433
560
(119)
(7)
(1)
(566)
(76)
(70)
(550)
–
599
–
200
1
(589)
(1,282)
1,715
433
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Significant Accounting Policies
For the year ended 31 December 2010
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:
1. 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 in full on consolidation.
Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein.
Total comprehensive income and expenses of a subsidiary are attributed to the owners of the Company and to the non-
controlling interests even if this results in the non-controlling interests having a deficit balance. Prior to 1 January 2010, losses
applicable to the non-controlling interests in excess of the non-controlling interests in the subsidiary’s equity were allocated
against the interests of the Group except to the extent that the non-controlling interests had a binding obligation and were able
to make an additional investment to cover the losses.
2. Investments in Subsidiaries
Investments in subsidiaries are included in the Company’s statement of financial position 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.
3. Investments in Associates
An associate is an entity over which the Group 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 initially recognised in the consolidated
statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other
comprehensive income of the associates. 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. Additional losses are recognised only to the extent
that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.
Where a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are
recognised in the Group’s consolidated financial statements only to the extent of the interests in the associate that are not
related to the Group.
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4. Investment Properties
Investment properties are properties held to earn rental and/or for capital appreciation including properties under
redevelopment for such proposes.
Investment properties are initially 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. If
an investment property becomes an item of property, plant and equipment because its use has changed as evidenced by
commencement of owner-occupation, the property’s deemed cost for subsequent accounting is its fair value at the date of
change in use.
Construction costs incurred for investment properties under redevelopment are capitalised as part of the carrying amount of
the investment properties under redevelopment. Investment properties under redevelopment are measured at fair value at the
end of the reporting period. Any difference between the fair value of the investment properties under redevelopment and their
carrying amount is recognised in profit or loss in 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 disposal. 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 profit or loss in the
period in which the item is derecognised.
5. Property, Plant and Equipment
Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or
for administrative purposes are stated at cost or fair value less subsequent accumulated depreciation and accumulated
impairment losses.
Any revaluation increase arising on revaluation of land and buildings is recognised in other comprehensive income and
accumulated in the properties revaluation reserve, except to the extent that it reverses a revaluation decrease of the same
asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease
previously charged. A decrease in net carrying amount arising on revaluation of an asset is recognised in profit or loss 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 corresponding revaluation surplus is transferred to retained
profits.
Depreciation is recognised so as to write off the cost or fair value of items of property, plant and equipment less their estimated
residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and
depreciation method are reviewed at the end of the reporting period, with the effect of any changes in estimate accounted for
on a prospective basis.
If an item of property, plant and equipment becomes an investment property because its use has changed as evidenced by
end of owner-occupation, any difference between the carrying amount and the fair value of that item at the date of transfer
is recognised in other comprehensive income and accumulated in property revaluation reserve. On the subsequent sale or
retirement of the asset, the relevant revaluation reserve will be transferred directly to retained profits.
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 the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised
in profit or loss.
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Significant Accounting Policies continued
For the year ended 31 December 2010
6. Impairment of Non-Financial Assets
At the end of the reporting period, the Group or the Company reviews the carrying amounts of their assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset
is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An
impairment loss is recognised as an expense immediately 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
as income 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.
7. Financial Instruments
Financial assets and financial liabilities are recognised in the statement of financial position 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.
Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurement 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 assets.
(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. Subsequent to initial recognition, loans and receivables (including accounts receivable and other receivables, amounts
due from subsidiaries, amount due from an associate, unlisted debt securities (see note 21 of the notes to the financial
statements section), 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).
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7. Financial Instruments continued
(a) Financial assets continued
(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 US dollars (“USD”) (see note 21 of the notes to the financial statements section), as held-to-maturity
investments. 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 or the Company designated investments in equity
securities and club debentures (if any) as available-for-sale financial assets. 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 other comprehensive income and accumulated 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 accumulated
in the investments revaluation reserve is reclassified to profit or loss (see accounting policy on impairment of financial assets
below).
Subsequent to initial recognition, 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 (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 to the net carrying amount
on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments, other than those financial assets classified as
at FVTPL, for which interest income is included in net gains or losses.
(vi) Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period.
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 affected.
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
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
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.
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Significant Accounting Policies continued
For the year ended 31 December 2010
7. Financial Instruments continued
(a) Financial assets continued
(vi) Impairment of financial assets continued
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 amounts due from subsidiaries and an associate, where the carrying amount is reduced through
the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
When an account receivable or an amount due from a subsidiary or 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 other comprehensive income and accumulated
in investments revaluation reserve. 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 contractual 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 in other comprehensive income
and accumulated 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.
(i) Financial liabilities at FvTPl
Financial liabilities at FVTPL, that are classified as held for trading, comprise derivatives that are not designated and effective as
hedging instruments.
Financial liabilities at FVTPL are measured at fair value, with changes in fair value arising on remeasurement 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 and accruals, other payable, amounts due to subsidiaries, amounts due to
non-controlling interests 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 is deducted from equity. No gain or loss is recognised
in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
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7. Financial Instruments continued
(b) Financial liabilities and equity continued
(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 to the net carrying amount on initial
recognition.
Interest expense is recognised on an effective interest basis for financial liabilities, other than those financial liabilities
classified 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 the end of the reporting period. 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.
(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 hedges or cash flow hedges.
At the inception of the hedging relationship, the Group 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
attributable to the hedged risk.
(i) Fair value hedges
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, when the hedging instrument expires or is
sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.
(ii) Cash flow hedges
The effective portion of changes in the fair values of derivatives that are designated and qualify as cash flow hedges are
recognised in other comprehensive income (hedging reserve). The gain or loss relating to the ineffective portion is recognised
immediately in profit or loss as other gains or losses.
Amounts previously recognised in other comprehensive income and accumulated in equity (hedging reserve) are reclassified to
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, when the hedging instrument expires or is
sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any cumulative gain or loss accumulated 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 accumulated in equity is recognised
immediately in profit or loss.
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Significant Accounting Policies continued
For the year ended 31 December 2010
8. 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 (provided that it is probable that the economic benefits will flow to the Group or the Company
and the amount of revenue can be measured reliably).
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group or the
Company and the amount of revenue can be measured reliably. 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 on initial recognition.
9. 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 profit or loss 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
Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. In the
event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The
aggregate benefit of incentives is recognised as a reduction of rental expense over the lease term on a straight-line basis.
10. 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 the end of the reporting
period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that 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 retranslation 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 other comprehensive
income and accumulated in equity and will be reclassified from equity to profit or loss on disposal of the foreign operation.
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
end of the reporting period, 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 in other comprehensive income and accumulated in equity
(translation reserve).
11. Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets
until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible
for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
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12. 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.
13. 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 end of the reporting period.
(b) Deferred tax
Deferred tax is recognised on temporary 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. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are generally 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 associated with 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. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognised to the extent that it is probable that there will
be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of the reporting period 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 assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is
settled or the asset realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of
the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in
which the Group or the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its
assets and liabilities. For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties
that are measured using the fair value model in accordance with HKAS 40 “Investment Properties”, such properties’ value
are presumed to be recovered through sale. Such a presumption is rebutted when the investment property is depreciable and
is held within a business model of the Group or the Company whose business objective is to consume substantially all of the
economic benefits embodied in the investment property over time, rather than through sale. If the presumption is rebutted,
deferred tax liabilities and deferred tax assets for such investment properties are measured in accordance with the above
general principles set out in HKAS 12 (i.e based on the expected manner as to how the properties will be recovered).
Deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income
or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity
respectively.
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Significant Accounting Policies continued
For the year ended 31 December 2010
14. 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 the end of the reporting period, 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.
102
Hysan Annual Report 2010
Notes to the Financial Statements
For the year ended 31 December 2010
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 (“HKD”), 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 have applied all of the new and revised Standards, Amendments to Standards
and Interpretations (“new and revised HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”)
that are relevant to their operations and effective for the financial year beginning on 1 January 2010. In addition, the Group and
the Company have early adopted the amendments to HKAS 12 “Income Taxes”, in respect of the recognition of deferred tax on
investment properties carried at fair value under HKAS 40 “Investment Property”.
Except as described below, the adoption of these new and revised HKFRSs had no material effect on the financial statements
of the Group or the Company for the current and/or prior accounting years. Accordingly, no prior year adjustment has been
required.
Amendments to HKAS 17 “Leases”
As part of Improvements to HKFRSs issued in 2009, HKAS 17 “Leases” has been amended in relation to the classification of
leasehold land. Before the amendments to HKAS 17, lessees were required to classify leasehold land as operating leases and
presented leasehold land as prepaid lease payments in the consolidated statement of financial position. The amendments have
removed such a requirement. The amendments to HKAS 17 require that the classification of leasehold land should be based
on the general principles set out in HKAS 17, that is, whether or not risks and rewards incidental to ownership of a leased asset
have been transferred substantially to the lessee.
In accordance with the transitional provisions set out in the amendments to HKAS 17, the Group reassessed the classification
of unexpired leasehold land as at 1 January 2010 based on information that existed at the inception of these leases. Leasehold
land that qualifies for finance lease classification has been reclassified from prepaid lease payments to property, plant and
equipment and has been measured using the revaluation model on a retrospective basis. The application of the amendments
has had no significant financial impact to the Group’s consolidated income statements for the current and prior periods.
Amendments to HKAS 12 “Income Taxes”
Amendments to HKAS 12 titled “Deferred Tax: Recovery of Underlying Assets” have been applied in advance of their effective
date (annual periods beginning on or after 1 January 2012). Under the amendments, investment properties that are measured
using the fair value model in accordance with HKAS 40 “Investment Property” are presumed to be recovered through sale,
unless the presumption is rebutted in certain circumstances.
As a result, the Group’s investment properties that are measured using the fair value model have been presumed to be
recovered through sale for the purpose of measuring deferred tax liabilities and deferred tax assets in respect of such
properties. This resulted in deferred tax liabilities being decreased by HK$3,409 million and HK$3,616 million as at 1 January
2009 and 31 December 2009 respectively, with the corresponding adjustment being recognised in retained profits.
In the current year, no deferred tax has been provided for in respect of changes in fair value of such investment properties,
whereas previously deferred tax liabilities were provided for in relation to the changes in fair value of such investment
properties. The application of the amendments has resulted in profit for the year being increased by HK$426 million.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
2. Application of New and Revised Hong Kong Financial Reporting Standards
(“HKFRSs”) continued
Summary of the effects of the above changes in accounting policies
(a) The effects of changes in accounting policies described above on the results for the current and prior years by line items
are as follows:
Decrease in taxation and increase in profit for the year
Increase in profit for the year attributable to owners
of the Company
2010
HK$ million
2009
HK$ million
426
406
207
198
(b) The effects of the above changes in accounting policies on the financial positions of the Group as at 1 January 2009 and
31 December 2009 are as follows:
At 31 Dec 2009
At 1 Jan 2009
Originally Amendments Amendments
to HKAS 17
Originally Amendments Amendments
to HKAS17
to HKAS 12
stated
Restated
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
to HKAS 12
Restated
stated
Property, plant and
equipment
Prepaid lease payments
Deferred taxation
Non-controlling interests
Properties revaluation
reserve
Retained profits
81
121
(3,881)
(1,286)
–
–
3,616
(230)
315
(121)
(32)
–
396
–
(297)
(1,516)
80
123
(3,648)
(1,241)
–
–
3,409
(221)
307
(123)
(30)
–
387
–
(269)
(1,462)
13
25,373
–
3,386
162
–
175
28,759
12
23,361
–
3,188
154
–
166
26,549
(c) The effects of the above changes in accounting policies on the Group’s basic and diluted earnings per share for the current
and prior years are as follows:
Figures before adjustments
Adjustments arising from changes in the Group’s
accounting policies in relation to:
Impact on basic
earnings per share
Impact on diluted
earnings per share
2010
HK cents
2009
HK cents
2010
HK cents
2009
HK cents
326.87
259.60
326.59
259.50
Deferred tax for investment properties
38.60
18.92
38.57
18.92
Figures after adjustments
365.47
278.52
365.16
278.42
104
Hysan Annual Report 2010
2. Application of New and Revised Hong Kong Financial Reporting Standards
(“HKFRSs”) continued
The Group and the Company have not early applied the following new and revised Standards, Amendments to Standards and
Interpretations that have been issued but are not yet effective.
HKFRSs (Amendments)
HKAS 24 (as revised in 2009)
HKAS 32 (Amendments)
HKFRS 7 (Amendments)
HKFRS 9
HK(IFRIC) – Int 14 (Amendments)
HK(IFRIC) – Int 19
Improvements to HKFRSs issued in 20101
Related Party Disclosures2
Classification of Rights Issues3
Disclosures – Transfers of Financial Assets4
Financial Instruments5
Prepayments of a Minimum Funding Requirement2
Extinguishing Financial Liabilities with Equity Instruments6
1 Amendments that are effective for annual periods beginning on or after 1 July 2010 or 1 January 2011, as appropriate.
2 Effective for annual periods beginning on or after 1 January 2011.
3 Effective for annual periods beginning on or after 1 February 2010.
4 Effective for annual periods beginning on or after 1 July 2011.
5 Effective for annual periods beginning on or after 1 January 2013.
6 Effective for annual periods beginning on or after 1 July 2010.
HKFRS 9 “Financial Instruments” (as issued in November 2009) introduces new requirements for the classification and
measurement of financial assets. HKFRS 9 “Financial Instruments” (as revised in November 2010) adds requirements for
financial liabilities and for derecognition.
• Under HKFRS 9, all recognised financial assets that are within the scope of HKAS 39 “Financial Instruments: Recognition
and Measurement” are subsequently measured at either amortised cost or fair value. Specifically, debt investments that
are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash
flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised
cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at
their fair values at the end of subsequent accounting periods.
•
In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value
through profit or loss. Specifically, under HKFRS 9, for financial liabilities that are designated as at fair value through profit
or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of
that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s
credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in
fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under
HKAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit
or loss was presented in profit or loss.
HKFRS 9 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.
The Directors of the Company anticipate that HKFRS 9 will be adopted in the financial statements for the year ending 31
December 2011 and that the application of HKFRS 9 may affect the classification and measurement of the Group’s available-
for-sale investments. However, it is not practicable to provide a reasonable estimate of the effect until a detailed review has
been completed.
Other than as described above, the Directors of the Company anticipate that the application of the other new and revised
Standards, Amendments to Standards and 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 2010
105
Notes to the Financial Statements continued
For the year ended 31 December 2010
3. 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 is required to make estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future
periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year.
Fair value of investment properties
At the end of the reporting period, the Group’s investment properties are stated at fair value of HK$ 40,833 million (2009:
HK$37,363 million) based on the valuation performed by an independent qualified professional valuer. In determining the fair
value, the valuers have applied a 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 its judgment and is satisfied that the method of valuation is reflective of the current
market conditions.
Fair values of financial instruments
Financial instruments, such as interest rate swaps, cross currency swaps and foreign exchange derivatives, are carried in
the statement of financial position at fair value, as disclosed in note 23. The management of the Group uses its judgment in
selecting an appropriate valuation technique for financial instruments not quoted in an active market. Valuation techniques
commonly used by market practitioners are applied. For derivative financial instruments, assumptions are made based on
quoted market rates. Most of the financial instruments are valued using a discounted cash flow analysis based on assumptions
supported, where possible, by observable market prices or rates. 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 and management fee income for the year.
The Group’s principal activities are property investment, management and development, and its turnover and results are
principally derived from investment properties located in Hong Kong.
5. Segment Information
Based on the internal reports about components of the Group that are regularly reviewed by the chief operating decision maker
(i.e. Chief Executive Officer of the Group) in order to allocate resources to segments and to assess their performance, the
Group’s reportable segments are as follows:
Office segment – leasing of high quality office space and related facilities
Retail segment – leasing of space and related facilities to a variety of retail and leisure operators
Residential segment – leasing of luxury residential properties and related facilities
106
Hysan Annual Report 2010
5. Segment Information continued
Segment turnover and results
The following is an analysis of the Group’s turnover and results by reportable segment.
Office
HK$ million
Retail
HK$ million
Residential
HK$ million
Consolidated
HK$ million
For the year ended 31 December 2010
Turnover
Gross rental income from investment properties
Management fee income
Segment revenue
Property expenses
Segment 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
For the year ended 31 December 2009
Turnover
Gross rental income from investment properties
Management fee income
Segment revenue
Property expenses
Segment 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
654
116
770
(119)
651
635
112
747
(109)
638
636
64
700
(81)
619
584
64
648
(73)
575
264
30
294
(50)
244
257
28
285
(53)
232
1,554
210
1,764
(250)
1,514
49
(42)
(140)
(117)
2,594
394
4,252
1,476
204
1,680
(235)
1,445
38
(3)
(133)
(131)
1,249
768
3,233
All of the segment turnover reported above is from external customers.
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in the “Significant
Accounting Policies” section. Segment profit represents the profit earned by each segment without allocation of investment
income, central administration costs and directors’ salaries, other gains and losses, finance costs, change in fair value of
investment properties and share of results of associates. This is the measure reported to the Group’s management for the
purpose of resource allocation and performance assessment.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
5. Segment Information continued
Segment assets and liabilities
The following is an analysis of the Group’s assets by reportable segment.
Office
HK$ million
Retail
HK$ million
Residential
HK$ million
Consolidated
HK$ million
As at 31 December 2010
Segment assets
Investment properties under redevelopment
Investments in associates
Other assets
Consolidated assets
As at 31 December 2009 (restated)
Segment assets
Investment properties under redevelopment
Investments in associates
Other assets
Consolidated assets
As at 1 January 2009 (restated)
Segment assets
Investment properties under redevelopment
Investments in associates
Other assets
Consolidated assets
14,708
11,900
7,822
14,100
10,580
7,051
13,602
10,156
6,832
34,430
6,408
3,014
4,702
48,554
31,731
5,640
2,517
4,154
44,042
30,590
5,270
1,750
4,110
41,720
Segment assets represented the fair value of investment properties and accounts receivable of each segment without allocation
of property, plant and equipment, investments in associates, amount due from an associate, financial instruments, other
receivables, time deposits, cash and bank balances. This is the measure reported to the Group’s management for the purpose
of monitoring segment performances and allocating resources between segments. The investment properties are included in
segment assets at their fair values whilst the change in fair value of investment properties is not included in segment profit. No
segment liabilities analysis is presented as the Group’s management monitors and manages all the liabilities on a group basis.
Other than the investments in associates, which operated in the People’s Republic of China (the “PRC”) and Singapore with
carrying amounts of HK$3,011 million (2009: HK$2,514 million) and HK$3 million (2009: HK$3 million) respectively, all the
Group’s assets are located in Hong Kong.
Other segment information
For the year ended 31 December 2010
Additions to non-current assets
Additions to investment properties under redevelopment
For the year ended 31 December 2009
Additions to non-current assets
Additions to investment properties under redevelopment
Office
HK$ million
Retail
HK$ million
Residential
HK$ million
Consolidated
HK$ million
88
326
10
33
42
2
424
502
926
77
184
261
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Hysan Annual Report 2010
6. Investment Income
Investment income comprises:
Dividends from listed investments
Interest income
2010
HK$ million
2009
HK$ million
34
15
49
27
11
38
Investment income earned on financial assets not designated as at fair value through profit or loss (“FVTPL”) is as follows:
Held-to-maturity investments
Available-for-sale equity investments
Loans and receivables (including term notes, time deposits and bank balances)
2010
HK$ million
2009
HK$ million
1
34
14
49
–
27
11
38
Investment income recognised in respect of financial assets designated as at FVTPL is disclosed in note 7.
7. Other Gains and Losses
Other gains and losses comprise:
Change in fair value of financial assets designated as at FVTPL
Change in fair value of financial assets or financial liabilities classified as
held for trading
Cumulative gain reclassified from equity on disposal of investments classified as
available-for-sale
Gains (losses) on hedging instruments under fair value hedge
(Losses) gains on adjustment for hedged items under fair value hedge
Amortisation of fair value gain adjusted to hedged items under fair value hedge
in prior years
2010
HK$ million
2009
HK$ million
(1)
(18)
–
19
(19)
(23)
(42)
3
(8)
3
(52)
59
(8)
(3)
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Notes to the Financial Statements continued
For the year ended 31 December 2010
8. 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
Less: Amounts capitalised (Note)
Net interest receipts on interest rate swaps and cross currency swaps
Reclassification of losses from hedging reserve on
financial instruments designated as cash flow hedges
Premium on redemption of fixed rate notes
Medium Term Note Programme expenses
Other finance costs
2010
HK$ million
2009
HK$ million
13
3
116
18
13
163
(12)
151
(69)
18
6
1
10
117
16
5
99
30
12
162
(1)
161
(57)
17
–
1
9
131
Note:
Interest expenses have been capitalised to investment properties under redevelopment at an average annual rate of 1.60% (2009: 0.55%)
during the year.
9. Taxation
Current tax
Hong Kong profits tax
– current year
– (overprovision) underprovision in prior years
Deferred tax (note 31)
2010
HK$ million
As restated
2009
HK$ million
172
(6)
166
35
201
161
2
163
26
189
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.
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Hysan Annual Report 2010
9. Taxation continued
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%
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
Reversal of previously recognised taxable temporary differences
Utilisation of estimated tax losses previously not recognised
(Overprovision) underprovision in prior years
Taxation for the year
2010
HK$ million
As restated
2009
HK$ million
4,252
3,233
701
(65)
18
(447)
1
–
(1)
(6)
201
533
(127)
6
(217)
2
(9)
(1)
2
189
In addition to the amount charged to the consolidated income statement, deferred tax relating to the revaluation of the Group’s
properties held for own use has been charged directly to equity (see note 31).
In 2009, the Group entered into a settlement with the Hong Kong Inland Revenue Department (the “IRD”) to settle a prior-year
tax dispute with the IRD on interest deductions made in years of assessment dating back to 1995/1996. Total claim amount
of HK$450 million, which was fully provided at year end 2008, was settled in 2009 by cash payment of HK$268 million and tax
reserve certificates of HK$182 million already purchased in prior years.
10. Profit for the Year
Profit for the year has been arrived at after charging (crediting):
Auditor’s remuneration
Depreciation of property, plant and equipment
Gross rental income from investment properties
Less:
– Direct operating expenses arising from properties that generated rental income
– Direct operating expenses arising from properties that did not generate rental income
Staff costs, comprising:
– Directors’ emoluments (note 12)
– Share-based payments
– Other staff costs
Share of income tax of an associate (included in share of results of associates)
2010
HK$ million
As restated
2009
HK$ million
2
8
2
7
(1,554)
(1,476)
247
3
231
4
(1,304)
(1,241)
14
4
147
165
153
17
2
135
154
286
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Notes to the Financial Statements continued
For the year ended 31 December 2010
11. Other Comprehensive Income
Other comprehensive income comprises:
Available-for-sale investments:
– Gains arising during the year
– Reclassification adjustments for the cumulative gain
included in profit or loss upon disposal
Cash flow hedges:
– Losses arising during the year
– Reclassification adjustments for losses included in profit or loss
Gain on revaluation of properties held for own use
Share of translation reserve of an associate
Other comprehensive income
Income tax relating to components of other comprehensive income (see below)
Other comprehensive income for the year (net of tax)
Tax effect relating to other comprehensive income:
2010
HK$ million
As restated
2009
HK$ million
150
–
150
(40)
18
(22)
34
103
265
(5)
260
40
(3)
37
(12)
17
5
11
(1)
52
(2)
50
2010
As restated
2009
Before-tax
amount
Net-of-tax
amount
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
Before-tax
amount
Net-of-tax
amount
Tax
expense
Tax
expense
Fair value gains on
available-for-sale investments
Net (losses) gains on cash flow hedges
Gain on revaluation of properties held for own use
Share of translation reserve of an associate
12. Directors’ Emoluments
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus
Share-based payments (note 39)
Retirement benefits scheme contributions
150
(22)
34
103
265
–
–
(5)
–
(5)
150
(22)
29
103
260
37
5
11
(1)
52
–
–
(2)
–
(2)
37
5
9
(1)
50
2010
HK$ million
2009
HK$ million
2
8
2
2
–
1
9
3
4
–
14
17
112
Hysan Annual Report 2010
12. Directors’ Emoluments continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2010,
calculated with reference to their employment as Directors of the Company, are set out below:
Basic salaries,
housing
and other
allowances
HK$’000
(Note b)
Directors’
fees
HK$’000
(Note a)
Share-based
Retirement
benefits
scheme
payments contributions
HK$’000
HK$’000
(Note c)
Bonus
HK$’000
(Note b)
Total
HK$’000
For the year ended 31 December 2010
Executive Directors
Gerry Lui Fai YIM (Note d)
Wendy Wen Yee YUNG
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE (Note e)
Chien LEE (Note f)
Michael Tze Hau LEE (Note g)
Dr. Deanna Ruth Tak Yung RUDGARD
Independent non-executive Directors
Sir David AKERS-JONES (Note h)
Fa-kuang HU (Note i)
Dr. Geoffrey Meou-tsen YEH (Note j)
Nicholas Charles ALLEN
Philip Yan Hok FAN (Note k)
Joseph Chung Yin POON (Note l)
For the year ended 31 December 2009
Executive Directors
Peter Ting Chang LEE (Note m)
Gerry Lui Fai YIM (Note d)
Wendy Wen Yee YUNG
Ricky Tin For TSANG (Note n)
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 (Note o)
Fa-kuang HU
Dr. Geoffrey Meou-tsen YEH (Note p)
Nicholas Charles ALLEN (Note q)
Tom BEHRENS-SORENSEN (Note p)
108
100
107
130
119
105
100
652
43
61
160
132
97
4,854
2,805
–
1,476
1,089
1,293
13
259
6,064
5,933
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
107
130
119
105
100
652
43
61
160
132
97
1,914
7,659
1,476
2,382
272
13,703
151
8
100
74
120
130
130
100
229
120
156
20
49
3,583
322
2,711
2,167
1,467
–
742
318
1,825
95
984
657
242
–
131
9
7,268
425
4,668
3,225
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120
130
130
100
229
120
156
20
49
1,387
8,783
2,527
3,561
382
16,640
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Notes to the Financial Statements continued
For the year ended 31 December 2010
12. Directors’ Emoluments continued
Notes:
(a) The fee structure of Director’s fees was approved by shareholders at annual general meeting in 2005. At the annual general meeting held
on 11 May 2010, shareholders approved a new fee scale for Independent non-executive Chairman at HK$400,000 per annum effective
1 June 2010.
Director’s fees are paid on annual basis. For Directors not having served the full year on a position, the fees will be paid on pro rata basis.
Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2010 is set out below:
Audit
Committee
HK$’000
Emoluments
Review
Committee
HK$’000
Board
HK$’000
Investment Nomination
Committee
Committee
HK$’000
HK$’000
2010
Total
HK$’000
2009
Total
HK$’000
–
100
100
–
100
100
100
97
100
592
36
36
100
–
97
97
–
–
–
–
–
19
11
–
–
–
–
11
60
–
19
–
–
–
–
–
–
–
–
8
–
30
7
7
–
–
8
–
–
–
–
–
7
11
–
–
–
–
–
–
–
–
–
–
–
8
–
–
–
–
8
–
–
30
–
7
–
–
8
–
–
108
100
–
107
130
119
105
100
652
43
61
160
–
132
97
151
8
100
74
120
130
130
–
100
229
120
156
20
49
–
–
1,655
120
60
18
61
1,914
1,387
Executive Directors
Peter Ting Chang LEE (Note m)
Gerry Lui Fai YIM (Note d)
Wendy Wen Yee YUNG
Ricky Tin For TSANG (Note n)
Non-executive Directors
Hans Michael JEBSEN (Note e)
Anthony Hsien Pin LEE (Note e)
Chien LEE (Note f)
Michael Tze Hau LEE (Note g)
Dr. Deanna Ruth Tak Yung RUDGARD
Independent non-executive Directors
Sir David AKERS-JONES (Note h)
Fa-kuang HU (Note i)
Dr. Geoffrey Meou-tsen YEH (Note j)
Nicholas Charles ALLEN
Tom BEHRENS-SORENSEN (Note p)
Philip Yan Hok FAN (Note k)
Joseph Chung Yin POON (Note l)
(b) Year 2010:
The Emoluments Review Committee reviewed the 2010 fixed base salary of the Company’s executive Directors and determined their 2009
performance-based bonus in March 2010. In reviewing their 2010 compensation structure, changes in their roles and responsibilities were
also taken into consideration. Their base salary was raised as from April 2010. The stated bonus figure shows the 2009 performance-
based bonus approved by the Committee and paid to Executive Director, namely HK$1,475,512 for Wendy Wen Yee YUNG, with reference
to her employment as Director of the Company.
Year 2009:
The Emoluments Review Committee reviewed the 2009 fixed base salary of the Company’s executive Directors and determined their 2008
performance-based bonus in March 2009. It approved their proposal to freeze their fixed base salary for 2009. The stated bonus figures
show the 2008 performance-based bonus approved by the Committee and paid to Executive Directors, namely HK$1,466,750 for Peter
Ting Chang LEE, HK$742,256 for Wendy Wen Yee YUNG and HK$318,110 for Ricky Tin For TSANG respectively, with reference to their
employment as Directors of the Company.
(c) 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.
(d) Gerry Lui Fai YIM was appointed as Executive Director on 1 December 2009. He was appointed Chief Executive Officer on 10 March 2010
and a member of the Nomination Committee on 10 August 2010.
(e) The Investment Committee was disbanded on 11 May 2010, Hans Michael JEBSEN and Anthonoy Hsien Pin LEE ceased as members
accordingly. Anthony Hsien Pin LEE was appointed a member of the Audit Committee as from the conclusion of 2010 Annual General
Meeting held on 11 May 2010.
(f) Chien LEE was appointed a member of the Nomination Committee on 10 August 2010.
(g) Michael Tze Hau LEE was appointed as Non-executive Director and a member of the Emoluments Review Committee on 11 January 2010
and 10 August 2010 respectively.
114
Hysan Annual Report 2010
12. Directors’ Emoluments continued
(h) Sir David AKERS-JONES was appointed as Independent non-executive Chairman on 11 January 2010. A special fee of HK$300,000 was
granted to Sir David AKERS-JONES in recognition of his special roles during the period from 18 October 2009 to the appointment of the
Chief Executive Officer on 10 March 2010. The annual fee for the Independent non-executive Chairman was revised from HK$140,000 to
HK$400,000 effective from 1 June 2010.
(i)
Fa-kuang HU stepped down as Independent non-executive Director and a member of the Emoluments Review Committee as from the
conclusion of 2010 Annual General Meeting held on 11 May 2010.
(j) Dr. Geoffrey Meou-tsen YEH stepped down as Independent non-executive Director and member of the Audit Committee, Emoluments
Review Committee and Nomination Committee as from the conclusion of 2010 Annual General Meeting held on 11 May 2010.
(k) Philip Yan Hok FAN was appointed as Independent non-executive Director on 11 January 2010 and a member of the Audit Committee as
from 11 May 2010. He was also appointed member of the Emoluments Review Committee and the Nomination Committee on 10 August
2010.
(l)
Joseph Chung Yin POON was appointed as Independent non-executive Director on 11 January 2010.
(m) Peter Ting Chang LEE passed away on 17 October 2009. The figures stated refer to his emoluments up to his passing.
(n) Ricky Tin For TSANG resigned as Executive Director, Finance on 29 September 2009. The figures stated refer to his emoluments received
as Executive Director.
(o) Sir David AKERS-JONES was appointed Acting Chairman and Chairman of the Nomination Committee on 18 October 2009. He stepped
down from the Audit Committee on 17 November 2009 upon the appointment of Mr. Nicholas Charles ALLEN.
(p) Tom BEHRENS-SORENSEN resigned as Independent non-executive Director and a member of the Audit Committee on 18 May 2009, and
Dr. Geoffrey Meou-tsen YEH was appointed as member of the Audit Committee in his stead on 18 June 2009.
(q) Nicholas Charles ALLEN was appointed as Independent non-executive Director and Chairman of the Audit Committee on 17 November 2009.
13. Employees’ Emoluments
Of the five individuals with the highest emoluments in the Group, two (2009: three) were Directors of the Company, details of
whose emoluments are included in note 12 above. The emoluments of all of the five individuals with the highest emoluments
for the year ended 31 December 2010 and 2009 were as follows:
Basic salaries, housing and other allowances
Bonus
Share-based payments (Note)
2010
HK$ million
2009
HK$ million
14
4
4
22
14
4
4
22
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:
HK$2,500,001 to HK$3,000,000
HK$3,000,001 to HK$3,500,000
HK$4,000,001 to HK$4,500,000
HK$4,500,001 to HK$5,000,000
HK$5,500,001 to HK$6,000,000
HK$6,000,001 to HK$6,500,000
HK$7,000,001 to HK$7,500,000
Number of individuals
2010
2009
1
1
1
–
1
1
–
5
1
2
–
1
–
–
1
5
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Notes to the Financial Statements continued
For the year ended 31 December 2010
14. Dividends
(a) Dividends recognised as distribution during the year:
2010 interim dividend paid – HK14 cents per share
2009 interim dividend paid – HK14 cents per share
2009 final dividend paid – HK54 cents per share
2008 final dividend paid – HK54 cents per share
2010
HK$ million
2009
HK$ million
147
–
567
–
714
–
147
–
562
709
Scrip dividend alternatives were offered to the shareholders in respect of the above dividends. These alternatives were accepted
by the shareholders as follows:
2010 interim dividend (2009 interim dividend):
– Cash payment
– Share alternative
2009 final dividend (2008 final dividend):
– Cash payment
– Share alternative
(b) Dividends proposed after the end of the reporting period:
2010
HK$ million
2009
HK$ million
112
35
538
29
714
132
15
434
128
709
2010
HK$ million
2009
HK$ million
Final dividend proposed – HK60 cents per share (2009: HK54 cents per share)
632
567
The 2010 final dividend of HK60 cents per share (2009: HK54 cents per share) has been proposed by the Directors on
9 March 2011 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 2010.
The proposed 2010 final dividend will be payable in cash with a scrip dividend alternative.
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Hysan Annual Report 2010
15. Earnings Per Share
(a) Basic and diluted earnings per share
The calculation of the basic and diluted earnings per share attributable to the owners 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 owners 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
2010
HK$ million
As restated
2009
HK$ million
3,844
2,914
Number of shares
2010
2009
1,051,785,240
1,046,243,250
900,002
384,981
1,052,685,242
1,046,628,231
For 2009, the computation of diluted earnings per share did not assume the exercise of certain of the Company’s outstanding
share options as the exercise prices of those options were higher than the average market price for shares.
(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 owners of the Company should be adjusted in the
calculation of basic earnings per share as follows:
Profit for the year attributable to owners of the Company
Change in fair value of investment properties
Effect of non-controlling interests’ shares
Share of change in fair value of investment properties
(net of deferred taxation) of an associate
Underlying profit attributable to owners of the Company
Net realised gain on disposal of available-for-sale
investments
2010
As restated
2009
Basic
earnings
per
share
HK cents
365.47
(246.63)
11.89
Profit
HK$ million
2,914
(1,249)
54
Basic
earnings
per
share
HK cents
278.52
(119.38)
5.16
Profit
HK$ million
3,844
(2,594)
125
(227)
(21.58)
(606)
(57.92)
1,148
109.15
1,113
106.38
–
–
(3)
(0.29)
Recurring underlying profit
1,148
109.15
1,110
106.09
The denominators used are the same as those detailed above for basic earnings per share.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
16. Investment Properties
Fair value
At 1 January
Additions
Disposals
Transfer from property, plant and equipment
Transfer to property, plant and equipment
Net change in fair value recognised in profit or loss
At 31 December
The carrying amount of investment properties shown above comprises:
Land in Hong Kong:
– Medium-term lease
– Long lease
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
37,363
926
(50)
–
–
2,594
40,833
35,850
261
–
3
–
1,249
37,363
35,711
355
–
–
(4)
(212)
35,850
The Group
2010
HK$ million
2009
HK$ million
7,130
33,703
40,833
6,400
30,963
37,363
The fair value of the Group’s investment properties at 31 December 2010 and 2009 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. 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 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 or for capital appreciation purposes are
measured using the fair value model and are classified and accounted for as investment properties.
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Hysan Annual Report 2010
17. Property, Plant and Equipment
Leasehold land
and 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 2009, as originally stated
Effect of changes in accounting
policies (note 2)
At 1 January 2009, as restated
Additions
Transfer to investment properties
Surplus on revaluation
At 31 December 2009, as restated
Additions
Surplus on revaluation
At 31 December 2010
Comprising:
At cost
At valuation 2010
Accumulated depreciation
At 1 January 2009
Provided for the year
Eliminated on revaluation
At 31 December 2009
Provided for the year
Eliminated on revaluation
At 31 December 2010
Carrying amounts
At 31 December 2010
At 31 December 2009
At 1 January 2009
68
307
375
–
(3)
9
381
–
32
413
–
413
413
–
2
(2)
–
2
(2)
–
413
381
375
56
–
56
3
–
–
59
3
–
62
62
–
62
48
3
–
51
3
–
54
8
8
8
22
–
22
5
–
–
27
4
–
31
31
–
31
19
2
–
21
2
–
23
8
6
3
1
–
1
–
–
–
1
–
–
1
1
–
1
–
–
–
–
1
–
1
–
1
1
147
307
454
8
(3)
9
468
7
32
507
94
413
507
67
7
(2)
72
8
(2)
78
429
396
387
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Notes to the Financial Statements continued
For the year ended 31 December 2010
17. Property, Plant and Equipment continued
Furniture,
fixtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
The Company
Cost
At 1 January 2009
Additions
At 31 December 2009
Additions
At 31 December 2010
Accumulated depreciation
At 1 January 2009
Provided for the year
At 31 December 2009
Provided for the year
At 31 December 2010
Carrying amounts
At 31 December 2010
At 31 December 2009
22
1
23
1
24
21
–
21
1
22
2
2
21
4
25
3
28
18
2
20
1
21
7
5
1
–
1
–
1
–
–
–
1
1
–
1
44
5
49
4
53
39
2
41
3
44
9
8
The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:
Leasehold land and 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 leasehold land and buildings were revalued at 31 December 2010 and 2009 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 gain of HK$34
million (2009: HK$11 million, as restated) arising on revaluation have been recognised in other comprehensive income and
accumulated in equity.
Had the Group’s land and buildings been measured on a historical cost basis, their carrying amounts would have been
HK$168 million (2009: HK$171 million, as restated) at the end of the reporting period.
Furniture, fixtures and equipment of the Group include assets carried at cost of HK$24 million (2009: HK$22 million) and
accumulated depreciation of HK$20 million (2009: HK$19 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 (2009: 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 end
of the reporting period.
120
Hysan Annual Report 2010
18. Investments in Subsidiaries
The Company’s investments in subsidiaries represent unlisted shares stated at cost.
The table below lists the principal subsidiaries of the Group at 31 December 2010 and 2009:
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
Teamfine Enterprises Limited
Bamboo Grove Recreational
Services Limited
Earn Extra Investments Limited
Gearup Investments Limited
HD Investment Limited
Kochi Investments Limited
Lee Theatre Realty Limited
Leighton Property Company Limited
Main Rise Development Limited
OHA Property Company Limited
Perfect Win Properties Limited
Silver Nicety Company Limited
Barrowgate Limited
Place of
incorporation/
operation
Issued
share capital
Proportion of
nominal value of
issued share capital
held by the Company
indirectly
directly
HK$2
HK$2
HK$2
US$1
Hong Kong
Hong Kong
Hong Kong
British Virgin Islands/
Hong Kong
HK$1
British Virgin Islands
HK$2
Hong Kong
HK$2
Hong Kong
HK$2
Hong Kong
HK$1
British Virgin Islands
HK$1,000
Hong Kong
HK$2
Hong Kong
HK$2
Hong Kong
Hong Kong HK$300,000
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
Hong Kong
Hong Kong
HK$2
HK$2
100%
–
–
100%
Hong Kong
Hong Kong
British Virgin Islands
British Virgin Islands
HK$1
HK$1
HK$1
HK$1
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$10,000
–
–
–
–
100%
100%
100%
100%
–
100%
–
100%
–
100%
–
100%
–
100%
100%
–
– 65.36%
Principal activities
Investment holding
Investment holding
Treasury operation
Treasury operation
Investment holding
Leasing administration
Property management
Treasury operation
Investment holding
Property investment
Property investment
Property investment
Provision of security
services
Investment holding
Resident club
management
Property investment
Property development
Investment holding
Capital market
investment
Property investment
Property investment
Investment holding
Property investment
Property investment
Property investment
Property investment
The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length and
therefore the above table contains only those subsidiaries which materially contribute to the net income of the Group or hold a
material portion of the assets or liabilities or otherwise are operating subsidiaries of the Group. Other than floating rate notes,
fixed rate notes and zero coupon notes issued by Hysan (MTN) Limited as disclosed in note 30, none of the subsidiaries had
issued any debt securities at the end of the reporting period.
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121
Notes to the Financial Statements continued
For the year ended 31 December 2010
19. Investments in Associates
Cost of unlisted investments
Share of post-acquisition profits and
other comprehensive income,
net of dividends received
Loan to an associate
Less: Loss allocated in excess of cost of investments
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
3
3
3
3,008
3,011
119
(116)
3
2,511
2,514
109
(106)
3
1,744
1,747
106
(103)
3
3,014
2,517
1,750
Loan to an associate of HK$119 million (2009: HK$109 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.
Details of the Group’s associates at 31 December 2010 and 2009 are as follows:
Name of associate
Form of
business structure
Place of
registration
and operation
Class of
share held/
registered
capital
Effective
interest
held by
the Group
Principal activities
Country Link
Enterprises Limited
Private limited
company
Hong Kong
Ordinary share
26.3%*
Investment holding
Shanghai Kong Hui
Property Development
Co., Ltd
Shanghai Grand
Gateway Plaza
Property Management
Co., Ltd
Sino-Foreign equity
joint venture
The PRC
US$165,000,000#
24.7%*
Property development
and leasing
Sino-Foreign equity
The PRC
US$140,000#
23.7%* Property management
joint venture
Wingrove Investment
Pte Ltd
Private company
limited by shares
Singapore
Ordinary share
25.0%*
Property development
and investment
(inactive in both
2010 and 2009)
*
#
Indirectly held
Registered capital
122
Hysan Annual Report 2010
19. Investments in Associates continued
The summarised financial information in respect of the Group’s associates based on the unaudited management accounts for
the year ended 31 December 2010 and 2009 is as follows:
Total assets
Total liabilities
Net assets
Group’s share of net assets of associates
Turnover
Profit for the year
Group’s share of results of associates for the year
2010
HK$ million
2009
HK$ million
16,690
(4,920)
11,770
2,895
1,184
1,498
394
14,973
(5,122)
9,851
2,408
1,085
2,939
768
20. Principal-Protected Investments
The carrying amounts of principal-protected investments based on the maturity dates of respective contracts are analysed as
follows:
Within 1 year
More than 1 year but not exceeding 5 years
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
84
378
462
118
82
200
40
85
125
The Group entered into certain contracts of structured investments with certain financial institutions. The structured
investments are principal-protected at the maturity dates and contain embedded derivatives which are not closely related to the
host contracts. The interest rates of such investments vary in relation to the relative movements of the underlying variables,
such as foreign exchange rates and HKD swap rates. The entire combined contracts have been designated as financial assets
at FVTPL on initial recognition.
The notional amount and the maturity period of the principal-protected investments are as follows:
Within 1 year
More than 1 year but not exceeding 5 years
The Group
2010
2009
Notional
amount
HK$ million
Fair
value
HK$ million
Notional
amount
HK$ million
Fair
value
HK$ million
81
382
463
84
378
462
111
81
192
118
82
200
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Notes to the Financial Statements continued
For the year ended 31 December 2010
21. Term Notes
Term notes, at amortised cost, comprise:
Held-to-maturity investments:
– Debt securities listed in Hong Kong
– Debt securities listed in overseas
Loans and receivables:
– Unlisted debt securities
Total
Analysed for reporting purposes as:
Current assets
Non-current assets
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
–
216
216
47
263
95
168
263
–
–
–
–
–
–
–
–
491
209
700
–
700
700
–
700
As at 31 December 2010, the effective yield of the debt securities ranged from 1.73% to 3% (2009: nil) per annum, payable
quarterly or semi-annually, and the securities will mature from November 2011 to July 2013 (2009: nil). None of these assets
are past due or impaired at the end of the reporting period.
124
Hysan Annual Report 2010
22. Available-For-Sale Investments
The Group
The Company
At
31 Dec 2010
HK$ million
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
At
31 Dec 2010
HK$ million
At
31 Dec 2009
HK$ million
Available-for-sales investments comprise:
Listed investments:
– Equity securities listed in Hong Kong,
at fair value
Unlisted investments:
– Overseas equity securities, at cost
Less: Impairment loss recognised
– Club debentures, at fair value
1,147
997
982
58
(55)
3
2
58
(55)
3
2
93
(55)
38
2
1,152
1,002
1,022
–
–
–
–
2
2
–
–
–
–
2
2
The overseas equity securities 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 the end of the reporting period 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 2009, one of the private entities incorporated in Singapore was dissolved. The carrying
amount of the unlisted equity security issued by the entity was HK$35 million before dissolution, which approximated the
Group’s share of the net assets of the investee upon its dissolution. The Group received an advance of HK$35 million from this
investee in prior years which was included in other payables. The payable owed to the investee by the Group was settled by the
distribution to which the Group was entitled at the time of dissolution of the investee, which constituted a non-cash transaction.
No gain or loss resulted from the dissolution of the unlisted equity investment.
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125
Notes to the Financial Statements continued
For the year ended 31 December 2010
23. Other Financial Assets/Liabilities
At
31 Dec 2010
HK$ million
Current
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
At
31 Dec 2010
HK$ million
Non-current
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
The Group
Other financial assets
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
– Cross currency swaps
– Interest rate swaps
– Basis swaps
Fair value hedges
– Interest rate swaps
– Cross currency swaps
Other derivatives classified as held for
trading (not under hedge accounting):
– Cross currency swaps
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):
– Net basis swaps
Total
1
–
–
1
–
–
2
–
2
–
–
–
–
–
–
1
1
–
2
–
2
–
–
–
1
–
–
–
–
–
1
–
1
–
–
–
–
2
–
–
50
–
52
38
90
48
4
52
1
2
1
–
29
–
33
62
95
27
9
36
1
2
–
–
71
83
157
–
157
31
10
41
(a) Cash flow hedges
(i) Foreign currency risk
During the year, the Group designated forward foreign exchange contracts and cross currency swaps as cash flow hedges to
manage its foreign currency exposure. The principal terms of the forward foreign exchange contracts and cross currency swaps
have been negotiated to match the major terms of the respective designated hedged items and the management considers that
the hedges are highly effective.
126
Hysan Annual Report 2010
23. Other Financial Assets/Liabilities continued
(a) Cash flow hedges continued
(i) Foreign currency risk continued
The table below is prepared based on the maturity dates of respective contracts. The major terms of these forward foreign
exchange contracts and cross currency swaps are as follows:
2010
2009
The Group
Average
exchange
rate*
Notional amount
uS$ million
HK$ million
Fair
value
HK$ million
Average
exchange
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Forward foreign
exchange contracts
Buy USD (Note a)
Within 1 year
More than 1 year but
not exceeding 5 years
Sell USD (Note b)
Within 1 year
More than 1 year but
not exceeding 5 years
Cross currency swaps
Hedging interest and
principal of USD
bank loans (Note c)
More than 1 year but
not exceeding 5 years
Total
7.6169
7.6059
7.6134
7.7373
–
7.7373
4
2
6
16
–
16
30
15
45
125
–
125
7.7753
51
73
399
569
1
–
1
–
–
–
2
3
7.6366
7.6137
7.6231
7.7479
7.7254
7.7450
5
6
11
27
4
31
35
49
84
209
31
240
7.7753
51
93
399
723
–
1
1
–
–
–
2
3
*
Average exchange rate represented the average HKD:USD exchange rate weighted by the notional amounts of the contracts or the swaps.
Notes:
(a) The Group designated HK$45 million (2009: HK$84 million) forward foreign exchange contracts as cash flow hedges to hedge the foreign
exchange rate risk in relation to the semi-annual coupon payment of US$57 million (2009: US$65 million) out of the US$174 million (2009:
US$182 million) fixed rate notes.
(b) The Group designated HK$125 million (2009: HK$240 million) forward foreign exchange contracts as cash flow hedges to hedge the
foreign exchange rate risk of part of the principal amount of term notes and principal-protected investments denominated in USD at their
respective maturity dates.
(c) The Group used HK$399 million (2009: HK$399 million) cross currency swaps to convert USD interest and principal of US$51 million (2009:
US$51 million) bank loans into HKD.
As at 31 December 2010, cumulative fair value gains of HK$3 million (2009: HK$4 million) from the forward foreign exchange
contracts and cross currency swaps have been recognised in other comprehensive income and accumulated in equity, and are
expected to be released to the consolidated income statement at various dates when the hedged items impact the profit or
loss.
During the year, gains of HK$3 million (2009: HK$2 million) on forward foreign exchange contracts and cross currency swaps
were reclassified from equity to profit or loss as finance costs.
The fair values of forward foreign exchange contracts and cross currency swaps are measured using quoted forward exchange
rates and yield curves from quoted interest rates matching maturities of the contracts and swaps.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
Interest rate risk
23. Other Financial Assets/Liabilities continued
(a) Cash flow hedges continued
(ii)
During the year, the Group used interest rate swaps and basis swaps to hedge its interest rate risk exposure. The terms of the
swaps have been negotiated to match the major terms of the respective hedged underlying items so that the management
considers that the interest rate swaps and basis swaps are highly effective hedging instruments.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these interest rate swaps
and basis swaps are as follows:
2010
2009
The Group
Average
interest
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Average
interest
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Interest rate swaps
Hedging interest of
HKD bank loans
(Note a)
More than 1 year but
not exceeding 5 years
More than 5 years
Hedging floating–
interest–rate
payments
of financial
instruments (Note b)
Within 1 year
More than 1 year but
not exceeding 5 years
Basis swaps
Hedging interest of
HKD bank loans
(Note c)
Within 1 year
Hedging interest of
USD bank loans
(Note d)
Within 1 year
Total
3.32%
–
3.32%
–
3.39%
3.39%
n/a
–
n/a
–
n/a
n/a
525
–
525
(26)
–
3.12%
3.65%
(26)
3.32%
n/a
n/a
n/a
325
200
525
–
–
2.96%
n/a
200
400
400
(22)
3.39%
(22)
3.25%
n/a
n/a
400
600
(12)
1
(11)
–
(15)
(15)
0.11%
n/a
325
–
0.48%
n/a
325
–
0.14%
51
399
1
0.29%
51
399
1,649
(47)
1,849
1
(25)
*
For interest rate swaps, the average interest rate represented the average fixed interest rate paid by the Group against receipts of 3-month
Hong Kong Interbank Offered Rate (“HIBOR”) or 6-month HIBOR weighted by the notional amounts of the swaps. For basis swaps, the
average interest rate represented the average spread (weighted by the notional amounts of the swaps) that was added to 1-month HIBOR
or 1-month London-Interbank Offered Rate (“LIBOR”) received by the Group against 3-month HIBOR or 3-month LIBOR paid by the Group.
n/a – not applicable
128
Hysan Annual Report 2010
23. Other Financial Assets/Liabilities continued
(a) Cash flow hedges continued
(ii)
Notes:
Interest rate risk continued
(a) The Group entered into HK$525 million (2009: HK$525 million) interest rate swaps to manage its exposure to interest rate changes of
the monthly or quarterly interest payments of HKD bank loans. HK$200 million of the swaps will be effective in 2012 for hedging forecast
transactions of borrowings at that time.
(b) The Group used HK$400 million (2009: HK$600 million) interest rate swaps to hedge the interest rate risk in relation to the quarterly
floating-interest-rate payments of certain financial instruments.
(c) The Group used HK$325 million (2009: HK$325 million) basis swaps to combine with interest rate swaps referred to note (a) to hedge
the interest rate changes of the monthly or quarterly interest payments of HK$325 million (2009: HK$325 million) bank loans.
(d) The Group used HK$399 million (2009: HK$399 million) basis swaps to combine with cross currency swaps referred to note (c) of “foreign
currency risk” to hedge the interest rate changes of the monthly or quarterly interest payments of US$51 million (2009: US$51 million)
bank loans.
As at 31 December 2010, net cumulative fair value losses of HK$47 million (2009: HK$26 million) from the interest rate swaps
and basis swaps under cash flow hedges have been recognised in other comprehensive income and accumulated in equity,
and are expected to be released to the consolidated income statement at various dates during the lives of the swaps when the
hedged interest expenses are recognised and impact the profit or loss.
During the year, losses of HK$21 million (2009: HK$19 million) on interest rate swaps and basis swaps were reclassified from
equity to profit or loss as finance costs.
The fair values of interest rate swaps and basis swaps are measured at the present value of future cash flows estimated and
discounted based on the applicable yield curves derived from quoted interest rates.
(b) Fair value hedges
The Group uses interest rate swaps to minimise its exposure to fair value changes of its HKD fixed rate notes and zero
coupon notes by swapping the notes from fixed rates to floating rates. The major terms of the interest rate swaps match the
corresponding notes and the management considers that the swaps are highly effective hedging instruments.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these interest rate swaps
are as follows:
2010
2009
The Group
Average
interest
rate*
Notional amount
uS$ million
HK$ million
Fair
value
HK$ million
Average
interest
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Interest rate swaps (Note)
Within 1 year
More than 1 year but
not exceeding 5 years
More than 5 years
1.42%
4.18%
4.50%
4.03%
n/a
n/a
n/a
n/a
65
300
264
629
–
1.17%
n/a
200
30
20
50
1.42%
4.32%
3.32%
n/a
n/a
n/a
65
551
816
1
–
29
30
*
The average interest rate represented the average fixed interest rate (weighted by the notional amounts of the interest rate swaps)
received by the Group against payments of 3-month HIBOR.
Note:
The Group designated HK$365 million (2009: HK$565 million) fixed-to-floating interest rate swaps to hedge interest rate risk related to part of
the coupon payments of the HK$365 million (2009: HK$565 million) fixed rate notes. The Group also designated a fixed-to-floating interest rate
swap with nominal amount of HK$264 million (2009: HK$251 million) as at 31 December 2010 to hedge the zero coupon notes with nominal
amount of HK$430 million by converting a fixed rate of 5.19% per annum to HIBOR plus 0.69% per annum.
n/a – not applicable
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Notes to the Financial Statements continued
For the year ended 31 December 2010
23. Other Financial Assets/Liabilities continued
(b) Fair value hedges continued
As a result of the hedge accounting, the carrying amount of the fixed rate notes as at 31 December 2010 was adjusted by a net
loss of HK$30 million (2009: net gain of HK$1 million) while the carrying amount of the zero coupon notes as at 31 December
2010 was adjusted by losses of HK$20 million (2009: HK$7 million). The changes in fair values of the notes for the hedged
risk were included in profit or loss at the same time that the changes in fair value of the swaps were included in profit or loss.
The fair values of interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates.
(c) Other derivatives classified as held for trading (not under hedge accounting)
At the end of the reporting period, the Group had certain derivatives classified as held for trading and not under hedge
accounting. The table below is prepared based on the maturity dates of respective contracts. The major terms of these
derivatives are as follows:
2010
2009
The Group
Average
interest/
exchange
rate*
Notional amount
uS$ million
HK$ million
Fair
value
HK$ million
Average
interest/
exchange
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Net basis swaps
(Note a)
More than 1 year but
not exceeding 5 years
Cross currency
swaps (Note b)
More than 1 year but
not exceeding 5 years
Interest rate
swap (Note c)
Within 1 year
More than 1 year but
not exceeding 5 years
7.8000
57
445
(4)
7.8000
65
507
(9)
7.7998
117
913
38
7.7998
117
913
62
1.49%
–
1.49%
n/a
–
n/a
65
–
65
–
–
–
–
1.49%
1.49%
–
n/a
n/a
–
65
65
–
–
–
*
For net basis swaps and cross currency swaps, the average exchange rate represented the average HKD:USD exchange rate weighted by
their notional amounts. For interest rate swap, the average interest rate represented the fixed interest rate received by the Group against
payment of 3-month HIBOR.
Notes:
(a) The Group entered into US$57 million (2009: US$65 million) net basis swaps to minimise the foreign currency exposure in relation to the
principal payment and part of the coupon payment of the US$57 million (2009: US$65 million) of the US$174 million (2009: US$182
million) fixed rate notes at maturity.
(b) The Group entered into US$117 million (2009: US$117 million) cross currency swaps to manage the interest rate and foreign exchange
risks of US$117 million (2009: US$117 million) of the US$174 million (2009: US$182 million) fixed rate notes.
(c) The Group used HK$65 million (2009: HK$65 million) fixed-to-floating interest rate swap to manage the interest rate risk in relation to the
quarterly interest payment of part of the Group’s borrowings.
n/a – not applicable
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Hysan Annual Report 2010
24. Accounts Receivable
Rents from leasing of investment properties are normally received in advance. At the end of the reporting period, accounts
receivable of the Group with carrying amount of HK$5 million (2009: HK$8 million) mainly represented rents receipts in arrears,
which were aged less than 90 days.
25. Amounts due from/to Subsidiaries
The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand.
26. Amount due from an Associate
The amount due from an associate is unsecured, interest-free and repayable on demand.
27. Time Deposits/Cash and Bank Balances
Time deposits
Cash and bank balances
Cash and deposits with banks shown in the
consolidated statement of financial position
Less: Time deposits with original maturity over three months
Add: Held-to-maturity debt securities maturing within three months
Cash and cash equivalents shown in the
consolidated statement of cash flows
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
1,930
63
1,993
(1,433)
–
1,945
39
1,984
(1,551)
–
964
51
1,015
–
700
560
433
1,715
Included in the Company’s time deposits as at 31 December 2010, were HK$497 million (2009: HK$455 million) of time
deposits with original maturity over three months. The bank balances and remaining time deposits of the Company were with
original maturity of three months or less.
Time deposits, cash and bank balances comprise cash and bank deposits carrying effective interest rates ranging from 0.005%
to 1.55% (2009: 0.0001% to 1.17%) per annum.
28. Accounts Payable
At the end of the reporting period, accounts payable of the Group with carrying amount of HK$229 million (2009: HK$139
million) were aged less than 90 days.
29. Amounts due to Non-controlling Interests
The amounts due to non-controlling interests are unsecured, interest-free and repayable on demand.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
30. Borrowings
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
At
31 Dec 2010
HK$ million
Current
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
At
31 Dec 2010
HK$ million
Non-current
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
The Group
650
–
–
–
650
400
–
–
–
400
–
550
–
–
550
699
200
2,750
288
3,937
1,049
200
1,980
262
3,491
920
–
2,003
278
3,201
In the current year, the average finance cost of the Group’s total borrowings calculated based on their contracted interest rates
was 3.9% (2009: 4.2%). To manage the interest rate and foreign exchange risks, the Group used certain derivatives to hedge
part of the borrowings, which resulted in a reduction of the Group’s average finance cost to 2.7% (2009: 3.1%). As at 31
December 2010, the floating rate debt ratio was 53.6% (2009: 64.9%).
(a) Unsecured bank loans
The unsecured bank loans of HK$1,349 million (2009: HK$1,449 million) are guaranteed as to principal and interest by the
Company and are repayable, based on the scheduled repayment dates set out in the respective loan agreements, as follows:
Within 1 year
More than 1 year, but not exceeding 2 years
More than 2 years, but not exceeding 5 years
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
650
–
699
400
650
399
1,349
1,449
–
70
850
920
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 0.69% to 1.51% (2009: 0.35% to 1.48%) per annum at the end of the reporting period.
Interest rates of the loans are normally re-fixed at every one to six months.
As disclosed in note 23(a), cross currency swaps and interest rate swaps were designated as cash flow hedges to hedge the
foreign exchange and interest rate risks of part of the Group’s unsecured bank loans at the end of the reporting period.
(b) Floating rate notes
In October 2009, HK$200 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) of 1.30% (2009: 1.19%) per annum at the end of reporting period and are repayable in full in
2014.
The HK$200 million five-year floating rate notes were not hedged by any derivative at the end of the reporting period.
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Hysan Annual Report 2010
30. Borrowings continued
(c) Fixed rate notes
Fixed rate notes – principal amount
Add: Net loss (gain) attributable to hedged risks
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
2,720
30
2,750
1,981
(1)
1,980
At
1 Jan 2009
HK$ million
1,981
22
2,003
Details of the Group’s fixed rate notes at 31 December 2010 and 2009 are as follows:
Principal amount
US$174 million*
HK$300 million
HK$100 million
HK$165 million
HK$400 million
HK$200 million
HK$200 million
Contracted
interest rate
per annum
7.00%
5.25%
5.10%
5.38%
3.78%
4.00%
3.70%
Coupon
payment term
semi-annual basis
quarterly basis
annual basis
annual basis
quarterly basis
annual basis
quarterly basis
Issue date
Maturity date
February 2002
August 2008
August 2008
September 2008
August 2010
September 2010
October 2010
February 2012
August 2015
August 2015
September 2020
August 2020
September 2025
October 2022
*
In February 2002, US$200 million 10-year fixed rate notes were issued by Hysan (MTN) Limited. In 2006 and 2010, US$18 million and
US$8 million of the notes were repurchased and cancelled respectively. The outstanding amount of the notes at the end of the reporting
period was US$174 million (2009: US$182 million).
All the fixed rate notes were issued by Hysan (MTN) Limited. The notes are guaranteed as to principal and interest by the
Company and bear an effective interest rate equal to their respective contracted interest rate.
As detailed in note 23, forward foreign exchange contracts, interest rate swaps, cross currency swaps and net basis swaps were
used to hedge or manage the foreign exchange and interest rate risks of the Group’s fixed rate notes at the end of the reporting
period.
As at 31 December 2010, the net loss of HK$30 million represented the change in fair value attributable to the hedged interest
rate risk of the HK$365 million fixed rate notes under fair value hedge.
As at 31 December 2009, the net gain of HK$1 million represented (i) the change in fair value attributable to the hedged
interest rate risk of the HK$565 million fixed rate notes under fair value hedge and (ii) the unamortised fair value gain adjusted
to the US$117 million fixed rate notes upon the discontinuation of hedge accounting over the cross currency swaps.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
30. Borrowings continued
(d) Zero coupon notes
Zero coupon notes
Add: Net loss attributable to hedged risk
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
268
20
288
255
7
262
242
36
278
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 23(b) for details).
The net loss of HK$20 million (2009: HK$7 million) represented changes in fair value attributable to the hedged interest rate
risk of the zero coupon notes under fair value hedge.
31. Deferred Taxation
The following are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the current
and prior years:
Accelerated tax
depreciation
HK$ million
Revaluation of
properties
HK$ million
Tax
losses
HK$ million
Total
HK$ million
The Group
At 1 January 2009, as originally stated
Effect of changes in accounting policies (note 2)
At 1 January 2009, as restated
Charge to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2009, as restated
Charge to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2010
250
–
250
16
–
266
31
–
297
3,412
(3,379)
33
–
2
35
–
5
40
(14)
–
(14)
10
–
(4)
4
–
–
3,648
(3,379)
269
26
2
297
35
5
337
At the end of the reporting period, the Group has unused estimated tax losses of HK$570 million (2009: HK$534 million), of
which HK$253 million (2009: HK$252 million) has not been agreed by the IRD, available for offset against future profits. As
at 31 December 2009, a deferred tax asset has been recognised in respect of HK$24 million of such losses. No deferred tax
asset has been recognised in respect of the estimated tax losses of HK$570 million (2009: HK$510 million) as the utilisation
of these estimated tax losses is uncertain. These estimated tax losses may be carried forward indefinitely.
The Company does not have any unused tax loss at the end of the reporting period.
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Hysan Annual Report 2010
32. Share Capital
Ordinary shares of HK$5 each
Authorised:
At 1 January and 31 December
Issued and fully paid:
At 1 January
Issue of shares pursuant to
scrip dividend schemes
Exercise of share options
Number of shares
2010
2009
Share capital
2010
HK$ million
2009
HK$ million
1,450,000,000
1,450,000,000
7,250
7,250
1,050,608,090
1,041,114,578
5,253
5,206
2,762,879
55,666
9,413,512
80,000
14
–
47
–
At 31 December
1,053,426,635
1,050,608,090
5,267
5,253
(a) Issue of shares pursuant to scrip dividend schemes
For the year ended 31 December 2010
On 3 June 2010 and 21 September 2010 respectively, the Company issued and allotted a total of 1,321,595 shares and
1,441,284 shares of HK$5 each in the Company at HK$21.68 and HK$24.19 to the shareholders who elected to receive
shares in the Company in lieu of cash for the 2009 final and 2010 interim dividends pursuant to the scrip dividend schemes
announced by the Company on 11 May 2010 and 26 August 2010. These shares rank pari passu in all respects with other
shares in issue.
For the year ended 31 December 2009
On 9 June 2009 and 22 September 2009 respectively, the Company issued and allotted a total of 8,672,003 shares and
741,509 shares of HK$5 each in the Company at HK$14.852 and HK$19.204 to the shareholders who elected to receive
shares in the Company in lieu of cash for the 2008 final and 2009 interim dividends pursuant to the scrip dividend schemes
announced by the Company on 18 May 2009 and 27 August 2009. 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 2010
During the year ended 31 December 2010, options to subscribe for a total of 21,666 shares, 10,000 shares, 16,000 shares
and 8,000 shares were exercised at the exercise prices of HK$13.30, HK$21.96, HK$21.25 and HK$22.00 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 39.
For the year ended 31 December 2009
During the year ended 31 December 2009, options to subscribe for a total of 80,000 shares were exercised at the exercise
price of HK$15.85 per share. 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 39.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
33. Reserves of the Company
The Company’s reserves available for distribution to its owners as at 31 December 2010 amounted to HK$5,739 million (2009:
HK$5,860 million), being its general reserve and retained profits at that date.
Share
premium
HK$ million
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
General
reserve
HK$ million
(Note)
Retained
profits
HK$ million
Total
HK$ million
At 1 January 2009
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
Profit for the year
Dividends paid during the year (note 14)
At 31 December 2009
Issue of shares pursuant to
scrip dividend schemes
Issue of shares under
share option schemes
Recognition of equity-settled
share-based payments
Profit for the year
Dividends paid during the year (note 14)
1,606
96
1
–
–
–
–
1,703
50
1
–
–
–
9
–
–
6
(5)
–
–
10
–
–
6
–
–
276
100
5,694
7,685
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
770
(709)
96
1
6
–
770
(709)
276
100
5,760
7,849
–
–
–
–
–
–
–
–
–
–
–
–
–
593
(714)
50
1
6
593
(714)
At 31 December 2010
1,754
16
276
100
5,639
7,785
Note: General reserve was set up from the transfer of retained profits.
34. 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$6 million (2009: HK$6 million). Forfeited contributions
for the year amounting to HK$1 million (2009: HK$1 million) were refunded to the Group.
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Hysan Annual Report 2010
35. Contingent Liabilities
At the end of the reporting period, there were contingent liabilities in respect of the following:
Corporate guarantee to note holders
– for issue of floating rate notes
– for issue of fixed rate notes
– for issue of zero coupon notes
Guarantees to banks for providing
financing facilities to subsidiaries
The Group
2010
HK$ million
2009
HK$ million
The Company
2010
HK$ million
2009
HK$ million
–
–
–
–
–
–
–
–
–
–
200
2,722
430
3,352
200
1,985
430
2,615
1,349
1,449
36. Capital Commitments
At the end of the reporting period, the Group and the Company had the following capital commitments in respect of its
investment properties and property, plant and equipment:
Authorised but not contracted for
Contracted but not provided for
The Group
2010
HK$ million
2009
HK$ million
The Company
2010
HK$ million
2009
HK$ million
535
1,535
432
1,768
11
–
6
–
37. Lease Commitments
(a) The Group as lessor
At the end of the reporting period, 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
2010
HK$ million
2009
HK$ million
1,260
1,586
252
3,098
1,252
1,293
49
2,594
Operating lease payments represent rents 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.
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Notes to the Financial Statements continued
For the year ended 31 December 2010
37. Lease Commitments continued
(b) The Company as lessee
At the end of the reporting period, 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
2010
HK$ million
2009
HK$ million
22
9
31
20
27
47
Operating lease payments represent rents payable by the Company to its subsidiaries for its office premises which are
negotiated and rentals are fixed for three years.
At the end of the reporting period, the Group had no commitment under non-cancellable operating lease.
38. 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
end of the reporting period:
Gross rental income
received from
(Note a)
The Group
Amount due to
a non-controlling interest
(Note b)
2010
HK$ million
2009
HK$ million
At
31 Dec 2010
HK$ million
At
31 Dec 2009
HK$ million
At
1 Jan 2009
HK$ million
3
1
25
3
1
24
–
–
94
–
–
94
–
–
94
Substantial shareholder
Directors
Companies controlled by
Directors or their associates
Notes:
(a) The sum of transactions with substantial shareholder represented the aggregate gross rental income received from Atlas Corporate
Management Limited, a wholly-owned subsidiary of Lee Hysan Estate Company, Limited, which holds 41.12% beneficial interest in the
Company.
(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 end of the reporting period:
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 25 to the financial statements.
The Company
At
31 Dec 2010
HK$ million
At
31 Dec 2009
HK$ million
12,919
(248)
12,991
(248)
12,671
12,743
175
192
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Hysan Annual Report 2010
38. 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 were as
follows:
Salaries and other short-term employee benefits
Share-based payments
Retirement benefits scheme contributions
2010
HK$ million
2009
HK$ million
16
4
–
20
20
4
1
25
The remuneration of the Directors and key executives is determined by the Emoluments Review Committee and Chief Executive
Officer respectively having regard to the performance of individuals and market trends.
39. 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 to subscribe for ordinary shares of the Company may be granted to employees of the
Company or any of its wholly-owned subsidiaries selected by the Board at its discretion.
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) was 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 to subscribe for ordinary shares of the Company 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.
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Hysan Annual Report 2010
139
Notes to the Financial Statements continued
For the year ended 31 December 2010
39. Share-Based Payment Transactions continued
(a) Equity-settled share option schemes continued
The 2005 Share Option Scheme (the “2005 Scheme”) continued
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.
The maximum entitlement of each participant under the 2005 Scheme must not during any 12-month period exceed such
number of shares as required under the Listing Rules (which is 1% of the total shares in issue as at the date of shareholders’
approval, 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$1 and is required to be paid within 30 days from the
date of grant of option, with full payment for exercise price to be made on exercise of the relevant option.
(b) Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Vesting period is 3 years in equal proportion. Size
of grant will be determined by reference to base salary multiple and job grades. A clear performance criterion will be a key driver.
The Board will review the grant and vesting structures from time to time.
140
Hysan Annual Report 2010
39. Share-Based Payment Transactions continued
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Directors and eligible employees during
the current year:
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Changes during the year
Balance
as at
1.1.2010
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2010
1995 Scheme
Executive Directors
Wendy Wen Yee YUNG
2005 Scheme
Executive Directors
Peter Ting Chang LEE
(Note b)
30.3.2005
15.850
30.3.2005 –
29.3.2015
96,000
–
–
–
96,000
6.3.2007
21.380
13.3.2008
21.450
11.3.2009
11.760
Gerry Lui Fai YIM
1.12.2009
22.800
Wendy Wen Yee YUNG
26.6.2006
20.110
30.3.2007
21.250
31.3.2008
21.960
11.3.2009
11.760
11.3.2010
22.100
(Note c)
6.3.2007 –
16.1.2011
13.3.2008 –
16.1.2011
11.3.2009 –
16.1.2011
1.12.2009 –
30.11.2019
26.6.2006 –
25.6.2016
30.3.2007 –
29.3.2017
31.3.2008 –
30.3.2018
11.3.2009 –
10.3.2019
11.3.2010 –
10.3.2020
235,000
260,000
500,000
218,000
110,000
95,000
100,000
300,000
–
–
–
–
–
–
–
–
– 185,000
–
–
–
–
–
–
–
–
–
– 235,000
– 260,000
– 500,000
– 218,000
– 110,000
–
95,000
– 100,000
– 300,000
– 185,000
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Hysan Annual Report 2010
141
Notes to the Financial Statements continued
For the year ended 31 December 2010
39. Share-Based Payment Transactions continued
(c) Movement of share options continued
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Changes during the year
Balance
as at
1.1.2010
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2010
2005 Scheme continued
Eligible employees
(Note d)
30.3.2006
22.000
30.3.2007
21.250
31.3.2008
21.960
2.5.2008
23.900
2.10.2008
20.106
31.3.2009
13.300
31.3.2010
22.450
(Note h)
30.3.2006 –
29.3.2016
30.3.2007 –
29.3.2017
31.3.2008 –
30.3.2018
2.5.2008 –
1.5.2018
2.10.2008 –
1.10.2018
31.3.2009 –
30.3.2019
31.3.2010 –
30.3.2020
23,000
31,000
88,000
95,000
85,000
411,000
–
–
–
–
–
–
(8,000)
(Note e)
(16,000)
(Note e)
(10,000)
(Note e)
–
–
–
15,000
–
15,000
–
78,000
–
95,000
–
85,000
(21,666)
(Note f)
(26,000) 363,334
(Note g)
– 529,000
–
(6,000) 523,000
(Note g)
2,647,000
714,000
(55,666)
(32,000) 3,273,334
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions.
(b) The late Chairman, Peter Ting Chang LEE, passed away on 17 October 2009. An extension in time (to 16 January 2011) for exercising
his options was granted to his legal personal representative pursuant to the 2005 Scheme. Share options of 235,000, 173,333 and
166,666, which were granted to him on 6 March 2007, 13 March 2008 and 11 March 2009 respectively, were exercised by his sole
executrix to his estate on 3 January 2011. The outstanding share options of 420,001 lapsed on 17 January 2011.
(c) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 10 March 2010) was HK$22.40.
(d) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.40.
(f)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$28.62.
(g) The options lapsed during the year upon resignation of certain eligible employees.
(h) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2010) was HK$22.55.
Apart from the above, the Company had not granted any share option under the Schemes to any other persons as required to
be disclosed under Rule 17.07 of the Listing Rules.
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Hysan Annual Report 2010
39. Share-Based Payment Transactions continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and eligible employees in prior
year:
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2009
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2009
(Note b)
Changes during the year
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
96,000
80,000
13,000
1995 Scheme
Executive Directors
Wendy Wen Yee YUNG
Ricky Tin For TSANG
(Note c)
Eligible employees
(Note e)
2005 Scheme
Executive Directors
Peter Ting Chang LEE
(Note f)
Gerry Lui Fai YIM
(Note h)
6.3.2007
21.380
13.3.2008
21.450
11.3.2009
1.12.2009
11.760
(Note g)
22.800
(Note i)
Wendy Wen Yee YUNG
26.6.2006
20.110
Ricky Tin For TSANG
(Note c)
30.3.2007
21.250
31.3.2008
21.960
11.3.2009
11.760
(Note g)
30.3.2006
22.000
30.3.2007
21.250
31.3.2008
21.960
11.3.2009
11.760
(Note g)
–
–
–
–
–
–
–
96,000
(80,000)
(Note d)
–
–
(13,000)
–
–
–
–
–
–
–
–
–
–
– 235,000
– 260,000
– 500,000
– 218,000
– 110,000
–
95,000
– 100,000
– 300,000
235,000
260,000
– 500,000
– 218,000
110,000
95,000
100,000
–
–
–
– 300,000
120,000
95,000
100,000
–
–
–
–
(120,000)
–
(95,000)
–
(100,000)
– 250,000
–
(250,000)
–
–
–
–
6.3.2007 –
16.1.2011
13.3.2008 –
16.1.2011
11.3.2009 –
16.1.2011
1.12.2009 –
30.11.2019
26.6.2006 –
25.6.2016
30.3.2007 –
29.3.2017
31.3.2008 –
30.3.2018
11.3.2009 –
10.3.2019
30.3.2006 –
29.3.2016
30.3.2007 –
29.3.2017
31.3.2008 –
30.3.2018
11.3.2009 –
10.3.2019
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Hysan Annual Report 2010
143
Notes to the Financial Statements continued
For the year ended 31 December 2010
39. Share-Based Payment Transactions continued
(c) Movement of share options continued
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
2005 Scheme continued
Eligible employees
(Note e)
30.3.2006
22.000
6.3.2007
21.380
30.3.2007
21.250
31.3.2008
21.960
2.5.2008
23.900
9.9.2008
21.300
2.10.2008
20.106
31.3.2009
13.300
(Note j)
30.3.2006 –
29.3.2016
6.3.2007 –
30.6.2009
30.3.2007 –
29.3.2017
31.3.2008 –
30.3.2018
2.5.2008 –
1.5.2018
9.9.2008 –
8.9.2018
2.10.2008 –
1.10.2018
31.3.2009 –
30.3.2019
Balance
as at
1.1.2009
67,000
108,000
73,000
164,000
95,000
85,000
85,000
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2009
(Note b)
–
–
–
–
–
–
–
–
(44,000)
23,000
–
(108,000)
–
–
(42,000)
31,000
–
(76,000)
88,000
–
–
95,000
–
(85,000)
–
–
–
85,000
– 472,000
–
(61,000) 411,000
1,981,000 1,740,000
(80,000) (994,000) 2,647,000
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions.
(b) The options lapsed during the year upon resignations or retirement of certain Directors and eligible employees.
(c) Ricky Tin For TSANG resigned as Executive Director, Finance on 29 September 2009.
(d) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$19.240.
(e) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance.
(f)
Peter Ting Chang LEE passed away on 17 October 2009. An extension in time (to 16 January 2011) for exercising his options was granted
to his legal personal representative pursuant to the 2005 Scheme.
(g) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 10 March 2009) was HK$11.180.
(h) Gerry Lui Fai YIM was appointed as Executive Director on 1 December 2009.
(i)
(j)
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 November 2009) was HK$22.250.
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2009) was HK$12.900.
144
Hysan Annual Report 2010
39. Share-Based Payment Transactions continued
(d) Fair values of share options
The Group has applied HKFRS 2 “Share-based Payments” to account for its share options granted after 7 November 2002 and
vested after 1 January 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$6 million (2009: HK$6 million) in relation to share
options granted by the Company, of which HK$2 million (2009: HK$4 million) related to the Directors (see note 12), 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
31.3.2010
11.3.2010
1.12.2009
31.3.2009
11.3.2009
Closing share price at the date of grant
Exercise price
Risk free rate (Note a)
Expected life of option (Note b)
Expected volatility (Note c)
Expected dividend per annum (Note d)
Estimated fair value per share option
HK$22.450
HK$22.450
2.843%
10 years
35.489%
HK$0.582
HK$8.598
HK$22.100
HK$22.100
2.780%
10 years
35.459%
HK$0.582
HK$8.425
HK$22.800
HK$22.800
2.160%
10 years
35.090%
HK$0.526
HK$8.560
HK$13.100
HK$13.300
1.936%
10 years
47.740%
HK$0.526
HK$4.299
HK$11.760
HK$11.760
1.970%
10 years
48.240%
HK$0.526
HK$3.671
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 for the options granted before 1 December 2009. For options granted on or after 1 December 2009,
management considers that it would be more appropriate that the expected volatility be the appropriate historical volatility of closing prices
of the shares of the Company in the past 10 years immediately before the date of grant in order to match the expected life of the options
of 10 years.
(d) Expected dividend per annum: being the approximate average annual cash dividend for the past 5 financial years.
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Hysan Annual Report 2010
145
Financial Risk Management
For the year ended 31 December 2010
1. Financial Risk Management Objectives and Policies
The Group’s major financial instruments include cash and bank balances, time deposits, principal-protected investments, term
notes, amount due from an associate, accounts receivable, other receivables, available-for-sale financial assets, accounts
payable, accruals, rental deposits from tenants, amounts due to non-controlling interests, 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 or the Company are primarily attributable to rents receivable from tenants, amounts due from
subsidiaries, amount due from an associate, principal-protected investments, derivative financial instruments, term notes, 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 is arising from:
(i)
(ii)
the carrying amount of the respective recognised financial assets as stated in the consolidated and Company’s statement
of financial position; and
the amount of contingent liabilities in relation to financial guarantee issued by the Company as disclosed in note 35 of the
notes to the financial statements section.
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 the
end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts.
For derivative financial instruments, principal-protected investments, term notes, time deposits and bank balances, the Group
and the Company only deal with financial institutions and invest in debt securities issued by issuers that have strong credit
ratings to mitigate counterparty risk. In order to limit exposure to each financial institution and debt securities issuer, exposure
limit was set with each counterparty according to their credit rating with regular review by management.
Credit exposure to financial institutions and debt securities issuers are monitored and reported regularly to the management.
The exposure to each counterparty was based on the net positive value of financial assets and liabilities (including time
deposits, derivative financial instruments, principal-protected investments and term notes). In addition, the Group adopted a
more conservative approach in 2010 by including potential exposures to derivative financial instruments which are based on the
remaining term and the notional amount of the derivative financial instruments. The table below provides a high level summary
of the Group’s exposure to each counterparty at the end of the reporting period.
Category of counterparty
Credit rating of AA- or above
or note issuing banks
Credit rating BBB- to A+
2010
Number of
counterparty
Exposure
HK$ million
2009
Number of
counterparty
Exposure
HK$ million
5
13
9 to 379
10 to 297
5
7
79 to 389
4 to 288
To minimise the credit risk of amounts due from subsidiaries and an associate, the management reviews the recoverable
amount of each individual balance at the end of the reporting period 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 2010
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 based on the agreed repayment terms. 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 are 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 end of the reporting period. For cash flows denominated in currency other than Hong Kong dollars
(“HKD”), the prevailing foreign exchange rates at the end of the reporting period are used to convert the cash flows into HKD.
Total
contractual
Carrying undiscounted
cash flow
amount
Within
1 year or
on demand
More than
5 years
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
More than
1 year
but not
exceeding
2 years
More than
2 years
but not
exceeding
5 years
The Group
As at 31 December 2010
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
As at 31 December 2009
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
(433)
(451)
(327)
(1,349)
(200)
(2,750)
(288)
(433)
(451)
(327)
(1,374)
(210)
(3,405)
(430)
(433)
(175)
(327)
(658)
(3)
(155)
–
–
(100)
–
(8)
(2)
(1,460)
–
–
(150)
–
(708)
(205)
(577)
–
–
(26)
–
–
–
(1,213)
(430)
(5,798)
(6,630)
(1,751)
(1,570)
(1,640)
(1,669)
(314)
(400)
(327)
(1,449)
(200)
(1,980)
(262)
(314)
(400)
(327)
(1,476)
(211)
(2,442)
(430)
(314)
(127)
(327)
(410)
(2)
(129)
–
–
(122)
–
(656)
(2)
(128)
–
–
(126)
–
(410)
(207)
(1,550)
–
–
(25)
–
–
–
(635)
(430)
(4,932)
(5,600)
(1,309)
(908)
(2,293)
(1,090)
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Hysan Annual Report 2010
147
Financial Risk Management continued
For the year ended 31 December 2010
1. Financial Risk Management Objectives and Policies continued
(b) Liquidity risk continued
Total
contractual
Carrying undiscounted
cash flow
amount
Within
1 year or
on demand
More than
5 years
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
More than
1 year
but not
exceeding
2 years
More than
2 years
but not
exceeding
5 years
The Company
As at 31 December 2010
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
As at 31 December 2009
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
(38)
(175)
(38)
(175)
(38)
(175)
(213)
(213)
(213)
(34)
(192)
(34)
(192)
(34)
(192)
(226)
(226)
(226)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 financial 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 end of the reporting
period. For cash flows denominated in currency other than HKD, the prevailing foreign exchange rates at the end of the reporting
period are used to convert the cash flows into HKD.
Total
contractual
Carrying undiscounted
cash flow
amount
Within
1 year or
on demand
More than
5 years
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
More than
1 year
but not
exceeding
2 years
More than
2 years
but not
exceeding
5 years
The Group
As at 31 December 2010
Derivative settled net
Interest rate swaps and basis swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency and net basis swaps
Outflow
Inflow
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Hysan Annual Report 2010
3
1
36
114
3
(3)
41
73
(171)
171
(156)
156
(15)
15
–
–
(1,805)
1,866
(28)
70
(1,374)
1,391
(403)
405
–
–
–
–
1. Financial Risk Management Objectives and Policies continued
(b) Liquidity risk continued
Total
contractual
Carrying undiscounted
cash flow
amount
Within
1 year or
on demand
More than
5 years
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
More than
1 year
but not
exceeding
2 years
More than
2 years
but not
exceeding
5 years
As at 31 December 2009
Derivative settled net
Interest rate swaps and basis swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency and net basis swaps
Outflow
Inflow
5
1
55
118
3
2
16
97
(324)
326
(244)
245
(66)
66
(14)
15
(1,891)
1,991
(27)
69
(26)
69
(1,838)
1,853
–
–
–
–
At the end of the reporting period, the Company has no derivative financial instruments.
(c) Interest rate risk
The Group manages its interest rate exposure by assessing the potential impact on the Group’s financial position arising from
any interest rate movements based on interest rate level and outlook. The management will review the proportion of borrowings
in fixed rates and floating rates and ensure that they are 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 the end of the
reporting period and until the hedging instrument expires or is terminated or the hedge no longer meets the criteria for hedge
accounting. The Group mainly uses comparison of change in fair value of the hedging instruments and the hedged items
attributable to the hedged risk for assessing the hedging effectiveness.
As at 31 December 2010, about 53.6% (2009: 64.9%) of the Group’s gross debts was effectively on a floating rate basis.
The ratio could be adjusted according to views about changes in 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 fixed-rate debt securities investments. Other than the
concentration of interest rate risk related to the movements in Hong Kong Interbank Offered Rate, 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 end of
the reporting period 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 +100 and -5 basis points (“bps”) (2009: +100 and -5 bps) was applied to the yield
curves at the end of the reporting period. The applied change of bps represented management’s assessment of the reasonably
possible change in interest rates based on the current market conditions. The increase in positive change reflected potential
interest rate increase in 2011 and the decrease in negative change is due to the low level of prevailing market interest rates at
the end of the reporting period.
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.
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Financial Risk Management continued
For the year ended 31 December 2010
1. Financial Risk Management Objectives and Policies continued
(c) Interest rate risk continued
The Group
Increase (decrease) in
profit or loss
100 bps
increase
HK$ million
5 bps
decrease
HK$ million
Increase (decrease) in
equity
100 bps
increase
HK$ million
5 bps
decrease
HK$ million
As at 31 December 2010
(13)
1
21
(1)
100 bps
increase
HK$ million
5 bps
decrease
HK$ million
100 bps
increase
HK$ million
5 bps
decrease
HK$ million
As at 31 December 2009
(24)
1
29
(2)
(d) Currency risk
The Group aims to minimise its currency risk and does not speculate in currency movements. The majority of the Group’s
assets are located and all rental income are derived in Hong Kong, and denominated in HKD. At the end of the reporting period,
the Group has the following monetary assets and monetary liabilities denominated in US dollars (“USD”).
Assets
Time deposits
Principal-protected investments
Term notes
Liabilities
Unsecured bank loans
Fixed rate notes
2010
2009
uS$ million
HK$ million
US$ million
HK$ million
The Group
–
30
34
64
51
174
225
–
233
263
496
399
1,356
1,755
23
8
–
31
51
182
233
178
62
–
240
399
1,394
1,793
At the end of the reporting period, all of the Company’s assets and liabilities were denominated in HKD. As at 31 December
2009, all of the Company’s assets and liabilities were denominated in HKD with exception of US$15 million time deposits.
Other than concentration of currency risk of the above items denominated in USD, the Group and the Company have no other
significant currency risk.
The Group has entered into appropriate hedging instruments, mentioned in note 23 of the notes to the financial statements
section, to hedge against part of the potential currency risk of the above items. The Group reviews the continuing effectiveness
of hedging instruments at least at the end of the reporting period and until the hedging instrument expires or is terminated or
the hedge no longer meets the criteria for hedge accounting.
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Hysan Annual Report 2010
1. Financial Risk Management Objectives and Policies continued
(d) Currency risk continued
Sensitivity analysis
The sensitivity analysis below has been determined assuming that a change in exchange rate had occurred at the end of the
reporting period and had been applied to both derivative and non-derivative financial instruments that would have affected the
profit or loss and equity. A change of 500 bps (2009: 500 bps) was applied to the HKD:USD spot and forward rates at the end
of the reporting period. The applied change of bps represented management’s assessment of the reasonably possible change
in foreign exchange rates.
The Group
Increase (decrease) in
profit or loss
500 bps
increase
HK$ million
500 bps
decrease
HK$ million
Increase (decrease) in
equity
500 bps
increase
HK$ million
500 bps
decrease
HK$ million
As at 31 December 2010
3
(3)
–
–
500 bps
increase
HK$ million
500 bps
decrease
HK$ million
500 bps
increase
HK$ million
500 bps
decrease
HK$ million
As at 31 December 2009
1
(1)
–
–
(e) Equity price risk
The Group is exposed to equity price risks in relation to its available-for-sale investments in listed securities which are measured
at fair value at the end of the reporting period with reference to the listed share price. The management will monitor the price
movements and take appropriate actions when it is required.
Sensitivity analysis
The sensitivity analysis below has been determined assuming that a change in the corresponding equity prices had occurred
at the end of the reporting period and had been applied to the investments that would have affected the equity. A change of
25% (2009: 25%) in stock prices was applied at the end of the reporting period. The applied change of percentage represented
management’s assessment of the reasonably possible change in stock prices.
As at 31 December 2010
As at 31 December 2009
The Group
Increase (decrease) in
equity
25%
increase
HK$ million
25%
decrease
HK$ million
287
(287)
25%
increase
HK$ million
25%
decrease
HK$ million
249
(249)
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Financial Risk Management continued
For the year ended 31 December 2010
2. Categories of Financial Instruments
At
31 Dec 2010
HK$ million
The Group
At
31 Dec 2009
HK$ million
The Company
At
1 Jan 2009
HK$ million
At
31 Dec 2010
HK$ million
At
31 Dec 2009
HK$ million
Financial assets
Fair value through profit or loss (“FVTPL”)
– designated as at FVTPL
– held for trading
Derivative instruments under
hedge accounting
Held-to-maturity investments
462
38
54
216
200
62
35
–
125
–
158
700
Available-for-sale financial assets
1,152
1,002
1,022
–
–
–
–
2
–
–
–
–
2
Loans and receivables (including
cash and cash equivalents)
Financial liabilities
FVTPL
– held for trading
Derivative instruments under
hedge accounting
Amortised cost
2,356
4,278
4
48
5,347
5,399
2,467
3,766
1,728
3,733
13,256
13,258
13,321
13,323
9
27
4,532
4,568
10
31
4,398
4,439
–
–
213
213
–
–
226
226
3. Fair Value
The fair value of financial assets and financial liabilities are determined as follows:
•
•
•
the fair value of listed investments traded in active liquid markets are determined with reference to the published price
quotations;
the fair value of financial assets and financial liabilities (excluding derivative instruments) are based on quoted prices from
independent financial institutions or 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 based on quoted prices from independent financial institutions or calculated
using discounted cash flow analysis based on the applicable yield curve derived from quoted interest rates and based on
the quoted spot and forward foreign exchange rates.
The Directors consider that the carrying amounts of financial assets and financial liabilities measured at amortised costs in the
consolidated and the Company’s financial statements approximate their fair values, except for the carrying amount of HK$2,750
million (2009: HK$1,980 million) fixed rate notes as stated in note 30 of the notes to the financial statements section with fair
value of HK$2,787 million (2009: HK$2,128 million).
152
Hysan Annual Report 2010
3. Fair Value continued
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair
value, grouped into Levels 1 and 2 based on the degree to which the fair value is observable.
•
•
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets.
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
level 1
HK$ million
2010
level 2
HK$ million
Total
HK$ million
Level 1
HK$ million
2009
Level 2
HK$ million
Total
HK$ million
Financial assets
Derivatives under hedge accounting
Forward foreign exchange contracts
Cross currency swaps
Interest rate swaps
Basis swaps
Other derivatives classified as
held for trading (not under
hedge accounting)
Cross currency swaps
Financial assets at FVTPL
Principal-protected investments
Available-for-sale financial assets
Listed equity securities
Unlisted club debentures
Financial liabilities
Derivatives under hedge accounting
Interest rate swaps
Other derivatives classified as
held for trading (not under
hedge accounting)
Net basis swaps
–
–
–
–
–
–
1
2
50
1
1
2
50
1
38
38
462
462
–
–
–
–
–
–
1
2
31
1
1
2
31
1
62
62
200
200
1,147
–
1,147
–
2
1,147
2
556
1,703
997
–
997
–
2
997
2
299
1,296
–
48
48
–
27
27
–
–
4
52
4
52
–
–
9
36
9
36
There were no transfers between Levels 1 and 2 for both years.
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153
Financial Risk Management continued
For the year ended 31 December 2010
4. 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 equity ratio. For this purpose, the Group defines net debt
as borrowings as shown in the consolidated statement of financial position less time deposits, cash and bank balances.
The management reviews the Group’s net debt to equity 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 equity ratio at the year end was as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Borrowings
Less: Time deposits
Cash and bank balances
Net debt
Equity attributable to owners of the Company
Net debt to equity
The Group
At
31 Dec 2010
HK$ million
As restated
At
31 Dec 2009
HK$ million
1,349
200
2,750
288
4,587
(1,930)
(63)
2,594
1,449
200
1,980
262
3,891
(1,945)
(39)
1,907
40,677
37,216
6.4%
5.1%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
154
Hysan Annual Report 2010
Five-Year Financial Summary
For the year ended 31 December
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
Profit before taxation
Taxation
Profit for the year
Non-controlling interests
Profit attributable to owners 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$), based on:
Profit for the year
– basic
– diluted
Underlying profit for the year – basic
Recurring underlying profit for the year – basic
Performance indicators
Net debt to equity
Net interest coverage (times)
Net asset value per share (HK$)
Net debt per share (HK$)
Year end share price (HK$)
2010
HK$ million
As restated
2009
HK$ million
(Note)
As restated
2008
HK$ million
(Note)
As restated
2007
HK$ million
(Note)
As restated
2006
HK$ million
(Note)
1,764
(250)
1,514
49
(42)
(140)
(117)
2,594
394
4,252
(201)
4,051
(207)
3,844
1,148
1,148
714
632
74.00
3.65
3.65
1.09
1.09
6.4%
14.0x
38.61
2.46
36.60
1,680
(235)
1,445
38
(3)
(133)
(131)
1,249
768
3,233
(189)
3,044
(130)
2,914
1,113
1,110
709
567
68.00
2.79
2.79
1.06
1.06
5.1%
11.7x
35.42
1.82
22.05
1,638
(217)
1,421
63
146
(134)
(155)
(212)
590
1,719
(237)
1,482
(118)
1,364
1,201
1,066
644
562
68.00
1.31
1.31
1.16
1.03
5.9%
10.2x
33.44
1.96
12.52
1,368
(208)
1,160
98
302
(106)
(175)
3,131
452
4,862
(205)
4,657
(190)
4,467
1,158
950
549
498
60.00
4.24
4.24
1.10
0.90
6.8%
7.8x
33.94
2.29
22.25
1,268
(240)
1,028
147
201
(111)
(163)
2,576
120
3,798
(110)
3,688
(162)
3,526
1,012
755
474
422
50.00
3.34
3.34
0.96
0.72
7.9%
6.9x
29.25
2.31
20.35
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155
Five-Year Financial Summary continued
At 31 December
Assets and liabilities
Investment properties
Interests in associates
Available-for-sale investments
Time deposits, cash and bank balances
Other assets
Total assets
Borrowings
Taxation
Other liabilities
Total liabilities
Net assets
Non-controlling interests
Shareholders’ funds
Note:
2010
HK$ million
As restated
2009
HK$ million
(Note)
As restated
2008
HK$ million
(Note)
As restated
2007
HK$ million
(Note)
As restated
2006
HK$ million
(Note)
40,833
3,153
1,152
1,993
1,423
37,363
2,886
1,002
1,984
807
35,850
2,340
1,022
1,015
1,493
35,711
1,601
2,479
484
789
32,473
1,272
1,745
385
536
48,554
44,042
41,720
41,064
36,411
(4,587)
(387)
(1,263)
(3,891)
(342)
(1,077)
(3,751)
(620)
(1,076)
(2,861)
(565)
(1,001)
(2,821)
(496)
(950)
(6,237)
(5,310)
(5,447)
(4,427)
(4,267)
42,317
(1,640)
38,732
(1,516)
36,273
(1,462)
36,637
(1,423)
32,144
(1,285)
40,677
37,216
34,811
35,214
30,859
The figures for the years 2006 to 2009 have been restated to reflect the prior year adjustments arising from (i) reclassification of leasehold
land that qualifies for finance lease from prepaid lease payments to property, plant and equipment in accordance with the amendments to HKAS
17 “Leases”; and (ii) recognition of deferred taxation in respect of revalued investment properties that have been presumed to be recovered
through sale in accordance with the amendments to HKAS 12 “Income Taxes”.
Definitions:
(1) Underlying profit for the year: profit adjusted for group’s share of unrealised fair value changes on investment properties
(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 tax provision for prior year(s)
(3) Net debt to equity: borrowings less short-term investments, time deposits, cash and bank balances divided by shareholders’ funds
(4) Net interest coverage: gross profit less administrative expenses before depreciation divided by net interest expenses
(5) Net asset value per share: shareholders’ funds divided by number of issued shares at year end
(6) Net debt per share: borrowings less short-term investments, time deposits, cash and bank balances divided by number of issued shares
at year end
156
Hysan Annual Report 2010
Report of the Valuer
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual Revaluation of Investment Properties as at 31 December 2010
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 2010 was in the approximate sum of Hong Kong Dollars Forty Billion Eight Hundred Thirty Three
Million Only (i.e. HK$40,833 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, 25 January 2011
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157
Schedule of Principal Properties
At 31 December 2010
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
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%
5. Lee Theatre Plaza
I.L. 1452, the R.P. of I.L. 472 and 476
Commercial
Long lease
100%
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
Commercial
Long lease
100%
Residential
Long lease
100%
The R.P. of Sec. GG of I.L. 29
Commercial
Long lease
100%
Sec. N of I.L. 457 and Sec. LL of I.L. 29
Commercial
Long lease
100%
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
9. 18 Hysan Avenue
18 Hysan Avenue
Causeway Bay
Hong Kong
158
Hysan Annual Report 2010
Address
Lot No.
Use
Category
of the Lease
Percentage
held by
the Group
10. 111 Leighton Road
111 Leighton Road
Causeway Bay
Hong Kong
11. Hysan Place*
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. Superstructure construction is up to 20/F with curtain wall, express escalators and building services
installation commenced, leading to scheduled topping-out of the building in Q3 2011. The redevelopment has a projected gross floor area
of around 710,000 square feet and is expected to be open in 2012.
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Hysan Annual Report 2010
159
Shareholding Analysis
Share Capital
At 31 December 2010
Number of
Ordinary Shares
HK$
Nominal Value
HK$
Authorised share capital
Issued and fully paid-up capital
7,250,000,000 1,450,000,000
5,267,133,175 1,053,426,635
5
5
There was one class of ordinary shares of HK$5 each with equal voting rights.
Distribution of Shareholdings
(At 31 December 2010, 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
ordinary shares
% of the issued
share capital
(Note)
2,435
924
83
61
3
18
3,524
4,349,190
69.10
14,352,304
26.22
6,256,671
2.36
11,604,643
1.73
0.08
1,869,646
0.51 1,014,994,181
0.41
1.36
0.60
1.10
0.18
96.35
100.00 1,053,426,635
100.00
Types of Shareholders
(At 31 December 2010, as per register of members of the Company)
Type of shareholders
Number of
ordinary shares held
% of the issued
share capital
(Note)
Lee Hysan Company Limited, Lee Hysan Estate Company, Limited and their subsidiaries
Other corporate shareholders
Individual shareholders
433,130,735
576,036,451
44,259,449
41.12
54.68
4.20
Total
1,053,426,635
100.00
Location of Shareholders
(At 31 December 2010, as per register of members of the Company)
Location of shareholders
Hong Kong
United States and Canada
United Kingdom
Singapore
Others
Total
Note:
Number of
ordinary shares held
% of the issued
share capital
(Note)
1,047,722,929
4,301,825
1,135,446
64,217
202,218
99.46
0.40
0.11
0.01
0.02
1,053,426,635
100.00
The percentages have been compiled based on the total number of shares of the Company in issue as at 31 December 2010
(i.e. 1,053,426,635 ordinary shares).
160
Hysan Annual Report 2010
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
2011 interim results to be announced
* subject to change
Dividend
The Board recommends the payment of a final dividend of
HK60 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, 9 May 2011. 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
Thursday, 12 May 2011. 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 Friday, 27 May 2011.
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 Thursday, 2 June 2011.
The register of members will be closed from Thursday, 5 May
2011 to Monday, 9 May 2011, both dates inclusive, for the
purpose of determining shareholders’ entitlements to attend
and vote at the Annual General Meeting to be held on 9 May
2011 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 Annual General Meeting 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, 4 May 2011.
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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9 March 2011
3 May 2011
5 to 9 May 2011
9 May 2011
9 May 2011
(on or about) 12 May 2011
(on or about) 2 June 2011
9 August 2011*
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.
Platform for Growth
A N N U A L R E P O R T 2 0 1 0
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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
STOCK CODE 00014