Going Forward
Annual Report 2012
stock code 00014
Contents
1
Overview
16 Who We Are
16 Vision
17 Mission
17 Values
18 2012 Performance at a Glance
24 Chairman’s Statement
2
Strategy in Action
30 The Marketplace
34 The Hysan Community –
Our Investment Property Portfolio
36 Management’s Discussion and Analysis
36 Review of Results
38 Review of Operations
44 Financial Review
48 Treasury Policy
Internal Controls and
Risk Management Report
54
3
Corporate Governance
60 Board of Directors
64 Corporate Governance Report
81 Directors’ Report
89 Directors’ Remuneration
and Interests Report
97 Audit Committee Report
4
Financial Statements
and Valuation
100 Directors’ Responsibility
for the Financial Statements
101 Independent Auditor’s Report
102 Financial Statements
170 Five-Year Financial Summary
172 Report of the Valuer
173 Schedule of Principal Properties
175 Shareholding Analysis
176 Shareholder Information
THE ESSENTIAL READ AND WHY
16
Our refined Vision, Mission and Values
18
2012 Hysan Place contributions,
2012 financial and
non-financial performance
24
A year in review and 2013 outlook
30
2012 market conditions
36
Results highlights including
key performance indicators
38
Review of our core leasing segments
44
Report on financial position
and management
48
Prudent treasury policy
54
Risk controls and management
64
Governance structure and
the Board’s work in 2012
More information
print and online
• enhanced corporate responsibility reporting
• visit us at www.hysan.com.hk
Photos on front and back covers: Going forward with Hysan Place
Going Forward
2012 was an important year for Hysan. Our core
leasing business delivered a good performance,
amid uncertainties in the global economic environment.
Hysan Place’s completion and opening was a significant
milestone for the Group, further enhancing and balancing
our overall commercial properties portfolio. It was also
a perfect showcase of our impeccable teamwork, where
everyone contributed to make Hysan Place a reality.
We believe we have a strong foundation to realise our
ambition to make the Lee Gardens district the heartbeat
of Hong Kong, which inspires active participation and
discovery in a close-knit, sustainable community of
unparalleled energy.
Prelude: Wanchai District Councillors and
other stakeholders celebrate Hysan Place’s
linkage to all points in Hong Kong through
the Mass Transit Railway
Enthusiastic shoppers await
Hysan Place’s opening at its
main entrance
Serious moments:
putting final touches for
the Hysan Place opening
We, in our different roles,
are all ready to serve you
Three storeys of books and lifestyle
products bring something new and
trend-setting to the heart of Causeway Bay
Internationally renowned
tenants help bring more
shoppers to benefit our district
1
Overview
Overview
This section starts with our refreshed Vision, Mission
and Values, anchored by our core belief of being a
responsible company. It also highlights Hysan’s financial
and non-financial achievements in 2012, focusing on
Hysan Place’s strategic contributions to the Group and
the community. Finally, the Chairman’s Statement
reviews our work in the past year, and looks beyond the
successful opening of Hysan Place to the future.
16 Who We Are
16 Vision
17 Mission
17 Values
18 2012 Performance at a Glance
24 Chairman’s Statement
OVERVIEW
Who We Are
“ During the year, we have
refined our corporate vision
and refreshed our corporate
values. In addition to our
long﹣established core values
of integrity, professionalism
and being a responsible
business, we have further
Vision
To be the PREMIER
property company that is
superior to its peers in its
emphasised our commitment
market of choice.
to be proactive, driven,
progressive, forward﹣looking
and strategic, in order to
enhance and deliver value for
our stakeholders. ”
Irene Yun Lien LEE
Chairman
16
Hysan Annual Report 2012
Mission
Values
Provide our stakeholders with
sustainable and outstanding
returns from a property portfolio
which is strategically planned
and managed by passionate,
responsible and forward-looking
professionals.
Leadership
Excellence
Empowerment
Good Citizenship
Accountability
Respect
Driving / Driven
Entrepreneurship
Networking
Sustainability
17
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 2012 Performance at a Glance
Hysan Place Contributions
18
Hysan Annual Report 2012 Financial
Contributions
Non-Financial
Contributions
HK$431m
Revenue contribution
(mall opened in August)
83,000
Average daily visitors in December 2012;
additional footfall benefits the
entire district
+50%
Retail space in portfolio;
also making commercial
property portfolio more balanced
Sustainability
• LEED Platinum certification
• BEAM Plus
Provisional Platinum certification
See pages 22 and 23 for details
Industry Awards
• MIPIM Gold Award
• Green Building Award 2012 Merit Award
See pages 22 and 23 for details
19
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
2012 Performance at a Glance
Financial Performance
“ 2012 was an important year for
Hysan. We delivered a good
business performance, and
maintained a strong financial
position. The completion of
Hysan Place was also a
significant milestone for the
Group. We continued to set
ourselves the highest standards
of corporate governance and
seek to operate in a socially
responsible and ethical way.”
Irene Yun Lien LEE
Chairman
Turnover
HK$2,486m
+29.3%
Retail Sector’s Revenue
HK$1,250m +58.4%
(HK$ million)
1,400
(HK cents)
180
• Increase in turnover
1,200
1,000
800
600
400
200
0
0
5
2
1
,
9
8
7
0
0
7
6
2
6
8
4
6
150
reflects rental contribution
from Hysan Place; growth
also recorded in the rest
120
of portfolio
5
1
90
9
• Occupancy at 93%, mainly
0
1
reflects the renovation of
part of Lee Theatre Plaza
(like-for-like: 91%)
9
0
6
0
1
7
5
2
0
1
60
30
.
.
.
.
3
8
2
5
1
.
2
9
3
2
1
3
2
1
,
8
5
3
5
7
,
8
4
7
7
6
,
0
4
6
1
2
,
7
3
1
1
8
,
4
3
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
0
Office Sector’s Revenue
HK$908m +10.7%
(HK$ million)
1,000
(HK$ million)
1,800
• Positive rental reversions
1,200
achieved, with 29%
1,500
increase in rental levels on
renewals/new lettings
0
1
1
1
6
• Occupancy at 91%
6
900
0
(like-for-like: 98%)
1
600
• Balanced tenant mix
8
4
1
1
,
,
,
300
ensures stability amid slow
market demand, especially
from the banking and
0
09
finance sector
10
08
2
2
6
1
,
0
1
3
1
,
2
2
0
,
0
6
9
6
9
,
9
4
3
3
8
,
0
4
0
5
8
,
5
3
3
6
3
,
7
3
11
12
08
09
10
11
12
Cost
Valuation Surplus
8
0
9
0
2
8
7
4
7
0
7
7
0
2
7
800
600
400
200
0
08
09
10
11
12
Residential Sector’s Revenue
HK$328m +4.8%
(HK$ million)
350
8
2
3
3
1
3
2
9
2
5
8
2
4
9
2
300
250
200
150
100
50
0
(HK cents)
112
• Overall: positive
rental reversion
96
• Occupancy at 92%
80
amid a slow market
64
environment
8
6
8 7
6
5
9
9
4 7
48
32
16
0
20
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
(HK$ million)
64,000
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
(HK$ million)
64,000
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
(HK$)
60
50
40
30
20
10
0
8
6
.
4
0 5
0
.
6
4
1
6
.
8
3
2
4
.
5
3
4
4
.
3
3
Hysan Annual Report 2012
Recurring Underlying Profit
Net Asset Value per Share
HK$1,622m
+23.8%
HK$54.68
+18.9%
Recurring Underlying Profit
HK$1,622m +23.8%
Property Value
HK$60,022m +20.1%
(HK$ million)
1,000
(HK$ million)
1,000
(HK$ million)
1,800
(HK$ million)
1,800
(HK$ million)
64,000
7
4
7
0
7
7
0
2
7
0
2
7
8
0
9
800
0
2
8
600
400
200
0
1,500
0
7
7
1,200
7
4
7
900
600
300
0
10
8
0
9
0
1
1
1
,
0
2
8
6
6
0
1
,
0
1
3
1
,
8
4
1
1
,
1,500
2
2
6
1
,
1,200
900
600
300
0
,
48,000
• Increase reflects the
2
2
6
1
56,000
rental contribution from
Hysan Place; performance
also improved for the rest
of portfolio
6
6
0
1
including those related to
the opening of Hysan Place,
also increased
8,000
0
5
• Property expenses,
8
5
3
40,000
8
4
1
32,000
1
24,000
3
6
3
7
3
0
1
1
1
0
1
3
1
16,000
,
,
,
,
,
,
3
3
8
0
4
,
0
(HK$ million)
64,000
9
6
9
9
4
,
,
2
56,000
2
0
48,000
0
6
40,000
32,000
24,000
16,000
8,000
0
3
3
8
0
4
,
0
5
8
5
3
,
3
6
3
7
3
,
2
2
0
0
6
,
9
6
9
9
4
,
• Investment property
portfolio valued by an
independent professional
valuer, on the basis of
open market value
• Valuation principally
reflects improved rental
for our portfolio as well
as a higher valuation
for Hysan Place after
construction completion
08
09
10
11
12
08
09
11
08
12
09
10
11
12
08
09
10
11
08
09
12
Cost
10
11
12
Valuation Surplus
08
09
Cost
10
11
12
Valuation Surplus
Recurring Underlying Earnings per Share
HK152.83 cents +23.3%
Shareholders’ Funds
HK$58,123m +19.2%
(HK$ million)
1,400
(HK$ million)
1,400
(HK cents)
180
(HK cents)
180
(HK$ million)
64,000
• Being Recurring
(HK$ million)
64,000
9
8
7
0
0
7
6
2
6
8
4
6
0
5
2
1
,
1,200
1,000
150
120
800
600
400
200
0
6
2
6
8
4
6
0
0
7
90
60
30
0
9
8
7
.
7
5
2
0
1
0
5
2
1
,
.
9
0
6
0
1
.
5
1
9
0
1
.
2
9
3
2
1
150
120
.
3
8
2
5
1
90
60
30
0
.
56,000
Underlying Profit divided
by weighted average
48,000
number of ordinary
40,000
shares
5
7
1
32,000
5
9
2
0
0
24,000
1
1
6
1
2
7
3
9
0
6
0
1
2
9
3
2
1
3
8
2
5
1
,
.
.
.
.
1
1
8
4
3
,
3
5
7
8
4
,
7
7
6
0
4
,
16,000
8,000
0
10
3
2
1
8
5
,
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
7
7
6
0
4
,
6
1
2
7
3
,
1
1
8
4
3
,
08
09
10
11
12
08
09
10
08
11
09
12
10
11
12
08
09
11
08
12
09
10
11
12
08
09
10
11
12
• Increase reflects a rise in
valuation of investment
properties and rental
contribution, particularly
from the new Hysan Place
3
2
1
8
5
,
3
5
7
8
4
,
Dividends per Share
HK95 cents +20.3%
Net Asset Value per Share
HK$54.68 +18.9%
(HK$ million)
(HK$ million)
350
2
9
2
5
8
2
4
9
2
3
1
3
300
8
2
3
250
2
9
2
5
8
2
(HK cents)
112
96
4
9
80
2
3
1
3
8
2
3
9
4 7
8
6
8 7
6
200
150
100
50
0
08
09
10
11
12
08
09
64
48
32
16
0
10
(HK cents)
112
(HK$)
60
• Declared a second
interim dividend of HK78
50
cents per share
5
9
40
30
8 7
6
9
• Together with the first
4 7
8
2
interim dividend of
6
4
HK17 cents, an
5
3
aggregate distribution of
20
HK95 cents per share
10
4
4
3
3
.
.
1
6
8
3
.
5
9
96
80
64
48
32
16
0
• Being shareholders’
funds divided by
number of issued
shares at year-end
.
8
6
4
0 5
0
6
4
.
1
6
8
3
.
2
4
5
3
.
4
4
3
3
.
(HK$)
60
.
8
6
4
0 5
0
6
4
.
50
40
30
20
10
0
11
08
12
09
10
11
12
08
09
10
0
11
12
08
09
10
11
12
08
09
10
11
12
21
800
600
400
200
0
1,200
1,000
800
600
400
200
0
350
300
250
200
150
100
50
0
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 2012 Performance at a Glance
Non-Financial Performance
Governance
Environment
• Gold Award (Non-Hang Seng Index Large
Market Capitalisation Category) in the
Hong Kong Institute of Certified Public
Accountants’ Best Corporate Governance
Disclosure Awards 2012, which was
Hysan’s tenth Best Corporate Governance
Disclosure Award since 2000
• Hysan Place awarded Leadership in Energy
and Environmental Design standard
(LEED) Platinum certification for Core and
Shell by the United States Green Building
Council, and is the first mixed-use office
and vertical mall complex in Greater China
to be awarded at this level
• Best Ranked Corporate Governance
Practices in Asia and Pacific
IR Global Rankings 2012
• Best Practice in Enterprise Governance
Award in Best Practice Management’s
Best Practice Awards 2012
22
• Also received provisional certification
at the highest Platinum level by the
BEAM Plus standard for new buildings
Hysan Annual Report 2012 Industry
Achievements
Community
• Constituent member of Dow Jones
Sustainability Index, FTSE4Good Index
and Hang Seng Corporate
Sustainability Index, three of the best
known indices to track responsible
business practices in the world
• Awarded the 5 Years Plus Caring
Company Logo by The Hong Kong Council
of Social Service in recognition of
Hysan’s efforts in promoting corporate
social responsibility
• Hysan Place received Gold Award,
Best Mixed-Use Development in
MIPIM Asia Awards 2012
• Also honoured with Merit Award,
New Building – Hong Kong
(Building Under Construction) in
Green Building Award 2012
23
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Chairman’s Statement
Year in Review
Hong Kong’s economy remained steady during 2012, although its economic performance,
and exports in particular, continued to be impacted by the macro environment in Europe
and the United States. Private consumption remained resilient. Retail sales recorded an
annual growth of 9.8% when compared to 2011, a good performance but one that also
reflected more subdued growth in Mainland tourist spending. This continued to benefit the
local retail leasing market. Tight supply supported the Grade “A” office leasing market,
despite weaker demand, particularly from financial institutions. Rental levels in Causeway
Bay remained stable.
Business Performance
The Group’s 2012 turnover was HK$2,486 million, representing a year-on-year increase of
29.3% from HK$1,922 million in 2011. If the rental contribution (HK$431 million) from the
new Hysan Place (its shopping mall opened in August) is excluded, the like-for-like turnover
increase would be 6.9% to HK$2,055 million. As at 31 December 2012, solid occupancy
was recorded across our portfolio (Retail: 93% (like-for-like: 91%); Office: 91% (like-for-like:
98%); and Residential: 92%). Retail portfolio vacancies mainly reflected the renovation of
part of Lee Theatre Plaza.
Recurring Underlying Profit, the key measurement of our core leasing business
performance, was HK$1,622 million, up 23.8% from HK$1,310 million in 2011. This
principally reflected the rental contribution from the new Hysan Place and the improved
performance recorded in the rest of the portfolio. Property expenses, including those
related to the opening of Hysan Place, also increased. Our Underlying Profit, which excludes
unrealised changes in fair value of investment properties, was also HK$1,622 million
(2011: HK$1,310 million). Basic earnings per share based on Recurring Underlying Profit
correspondingly rose to HK152.83 cents (2011: HK123.92 cents), up 23.3%.
Our Reported Profit for 2012 was HK$9,955 million (2011: HK$8,545 million), reflecting a
higher fair value gain on the Group’s investment properties valuation recorded this year.
At year-end 2012, the external valuation of the Group’s investment property portfolio
increased by 20.1% to HK$60,022 million (2011: HK$49,969 million), principally
reflecting improved rentals for our portfolio and a higher valuation for Hysan Place after
construction completion. Shareholders’ Fund increased by 19.2% to HK$58,123 million
(2011: HK$48,753 million).
24
Hysan Annual Report 2012 Our financial position remains strong, with improved net interest coverage of 16.8 times
(2011: 12.3 times) and net debt to equity ratio of 6.2% (2011: 7.6%). Standard and Poor’s
upgraded the Group’s credit rating from BBB to BBB+ in December 2012 to reflect the
Group’s improved position following the opening of Hysan Place. Moody’s rating of the
Group is Baa1.
Dividends
Currently, Hysan pays an interim dividend and a final dividend (in June, after the Annual
General Meeting and the completion of procedures regarding scrip dividends).
With effect from the year ended 31 December 2012, the Company intends to pay two
interim dividends. The second interim dividend will be in lieu of a final dividend. In the light
of past responses, we shall not be offering a scrip alternative.
Shareholders shall receive an earlier payment of the second interim dividend (in April
instead of June); thus the timing of dividend payments will also be more evenly spread over
the year (in April and September). The total amount of dividend paid to shareholders for the
year under review will remain the same.
The Board of Directors (the “Board”) declares a second interim dividend of HK78 cents
per share (2011: final dividend of HK64 cents). Together with the first interim dividend
of HK17 cents per share (2011: HK15 cents), there is an aggregate distribution of
HK95 cents per share, representing a year-on-year increase of 20.3%.
Leadership and Vision
2012 saw the appointment of Mr. Siu Chuen LAU, Deputy Chairman, as Chief Executive
Officer and my assuming an executive role. It was also the year that Hysan further refined
its vision by reinforcing our Lee Gardens district’s position as the premium core district in
Causeway Bay, offering top-class facilities for businesses and retailers. It also acts as a
magnet for an exciting collection of fashion, lifestyle, hospitality, dining and entertainment
venues, making it a destination that is among the most dynamic and progressive in
the world.
The completion of Hysan Place at the northern gateway of our Lee Gardens district is a
significant milestone for the Group. It has not only increased our retail space by 50%, but
has also become a showcase for the rich diversity of our retail offerings, including some
brands that are new to Causeway Bay or Hong Kong. With its direct mass transit (MTR)
connectivity, Hysan Place has significantly enhanced the area into a major attraction for
shoppers from all over the city, thus further strengthening our Lee Gardens district. At the
western gateway, a fresh range of new chic and stylish shops in the refurbished Lee Theatre
Plaza will open as from mid-year. This will complete the transformation of the western side,
which includes One Hysan Avenue and Leighton Centre retail podia re-launched in 2011,
creating one of the most fashion-forward areas of Hong Kong.
district brand was launched during the third quarter of
The new, yet familiar
2012. Visual connectivity, as well as promotional and marketing campaigns will continue to
position the Lee Gardens district as an integrated, unique and must-visit district.
The connectivity and integration of the northern and western gateways, together with the
luxurious, tree-lined Lee Gardens complex at Hysan Avenue, lie at the heart of the Lee
Gardens district vision. They constitute a retail triangle that combines significant retail
street frontage with shopping malls of different characteristics, complemented by a vibrant
streetscape; thereby offering a unique yet diversified shopping and lifestyle experience.
25
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Chairman’s Statement
In order to support this vision, the Group is committed to continually enhancing the asset
value of our investment property portfolio through selective re-positioning, refurbishment
and re-development. Our next re-development target is the combined development of
Sunning Plaza and Sunning Court into a mixed-use office and retail complex. Planning is
underway, for the project to be completed around 2018.
Values and People
With our district vision in place, we have also refined our corporate vision – to be the
premier property company that is superior to its peers in its market of choice. Our vision
lies at the heart of everything we do, driving both our internal and external behaviour. We
have also refreshed our corporate values. In addition to our long established core values of
integrity, professionalism and being a responsible business, we have further emphasised
our commitment to be proactive, driven, progressive, forward-looking and strategic, in order
to enhance and deliver value for our stakeholders.
Delivery of excellent performance is core to our commitment. We recognise that the source
of excellence lies in our people. We are determined to attract, develop and retain the very
best people. Only world-class talent and leadership can deliver the results we strive for. Our
new branding and the articulation of the Lee Gardens district vision are underpinned by our
refreshed corporate values and vision. They have been embedded in the language we use
in our learnings, such as the series of interactive workshops that we delivered to all our
people during 2012, as well as in our performance management systems.
Our Community
Hysan is committed to a sustainable future. We are particularly proud that Hysan Place
received the prestigious LEED Platinum (core and shell) certification from the United States
Green Building Council, the first mixed-use office and vertical mall complex in Hong Kong
and Greater China to be so honoured.
We set ourselves the highest standards of corporate governance and seek to operate
in a socially responsible and ethical way. We recognise the importance of positive and
constructive interaction with the communities we live in and we support and encourage our
employees to be more involved in community activities. To this end, we have adopted a new
and more comprehensive approach to our corporate responsibility reporting. Please read
our Corporate Responsibility Report 2012 for highlights of our contributions to the
community during the year.
26
Hysan Annual Report 2012 Outlook
The Hong Kong economy is expected to continue to be impacted by the conditions of our
global economic partners. Private consumption should, however, remain resilient. In this
light, the performance of our balanced and more diversified retail and office portfolio is
expected to be steady, and further supported by the full-year contribution from Hysan Place.
Hysan is well placed to continue to enhance and promote an already significant retail and
office hub in one of the most vibrant areas in Hong Kong. We believe we have a strong
foundation on which to build towards our ambition to establish the Lee Gardens district as
the heartbeat of Hong Kong, a district that inspires active participation and discovery in a
close-knit, sustainable community of unparalleled energy.
Appreciation
On behalf of the Board, I would like to acknowledge the contribution of our management
team and our staff. We thank you for your commitment and hard work during an eventful
year, the highlight of which was the successful opening of Hysan Place. I would like to
welcome Mr. Siu Chuen LAU, Deputy Chairman, who took on the role of Chief Executive
Officer in May, and to wish Mr. Gerry Lui Fai YIM, our former Chief Executive Officer every
success in his future endeavours.
As part of our ongoing commitment to further strengthening board composition and
performance, we welcome Mr. Frederick Peter CHURCHOUSE, an Asian property investment
veteran, as our new Independent non-executive Director.
Finally, I wish to thank my fellow directors for their diligence and valuable advice to and
support of the management team during a year of exciting transition.
Irene Yun Lien LEE
Chairman
Hong Kong, 6 March 2013
27
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 2
Strategy in
Action
Strategy in
Action
This section begins with an overview of Hong Kong’s
economic environment and property leasing markets.
This is followed by Hysan’s strategic actions in 2012
against this backdrop, as detailed by an analysis of
our operations, performance, finance, as well as
our enhanced risk management and controls during
the year.
30 The Marketplace
34 The Hysan Community –
Our Investment Property Portfolio
36 Management’s Discussion
and Analysis
36 Review of Results
38 Review of Operations
44 Financial Review
48 Treasury Policy
54
Internal Controls and
Risk Management Report
STRATEGY IN ACTION
The Marketplace
Hong Kong Economy
The Hong Kong economy generally remained steady in 2012 with a growth rate of 1.4%
recorded for the full year. Exports, in particular, were affected by the macro environment
in Europe and the United States. Private consumption, however, remained resilient.
Investment spending (including investment in large-scale public projects) also helped
cushion the impact of more subdued international trade. The fourth quarter saw a more
solid performance with a 2.5% growth year-on-year, following three successive quarters of
around 1% growth.
Real Gross Domestic Product*
Year-on-year % change
8%
6%
4%
2%
0%
-2%
-4%
6.8%
4.9%
2.1%
1.4%
08
-2.5%
09
10
11
12
* In chained (2010) dollars
Source: Census and Statistics Department (data as of March 2013)
Retail
Retail sales recorded an annual growth of 9.8% as compared to 2011, a good performance
but one that also shows a moderation of growth when compared with the phenomenal
growth experienced in 2011 (24.9%). The growth momentum became more subdued as
from the second half of the year. However, some improvement was noted towards the end
of the year (in the months of November and December).
This also reflected a moderation in the growth of PRC tourist spending, despite an
increase in arrival number by 24.2% for the whole year. We believe that this moderation
represents a normalisation of the exceptional growth experienced in 2011 and that the
long-term story of the rise of the Chinese consumer should remain positive.
30
Hysan Annual Report 2012 In this context, some retail categories continued to record good year-on-year growth,
including consumer durable goods (up 19.5%; 2011: 28.6%) and medicines and cosmetics
(up 15%; 2011: 21.5%). By contrast, jewellery, watches and clocks, and valuable gifts
categories recorded a much less marked 7.7% year-on-year increase (2011: 46.6%).
Hong Kong Total Retail Sales
HK$ billion
Year-on-year % change
Total Number of Visitors
Million
480
420
360
300
240
180
120
60
0
406
24.9%
325
18.3%
445
9.8%
273
275
10.6%
0.6%
08
09
10
11
12
Total Retail Sales
Year-on-year % change
32
28
24
20
16
12
8
4
0
50
40
30
20
10
0
49
28.2%
71.8%
42
33.0%
67.0%
36
37.0%
63.0%
30
42.9%
30
39.3%
57.1%
60.7%
08
09
10
11
12
Number of Other Visitors
Number of Mainland China Visitors
Source: Census and Statistics Department (data as of March 2013)
Source: Hong Kong Tourism Board (data as of March 2013)
Hong Kong Total Retail Sales 2012:
Performance of Selected Categories
Type of retail outlet
Jan-Jun
2012
(YoY)
Jul-Oct
2012
(YoY)
Nov
2012
(YoY)
Dec
2012
(YoY)
Full year
2012
(YoY)
All retail outlets
+13.1%
+5.3%
+9.4%
+9.1%
+9.8%
Clothing, footwear and
allied products
Jewellery, watches and clocks,
and valuable gifts
Consumer durable goods
Including electrical goods
and others (electronic goods
and computers)
+11.5%
+2.4%
+8.1%
+6.1%
+7.6%
+11.8%
-0.5%
+13.4%
+11.3%
+7.7%
+27.7%
+10.9%
+10.1%
+20.6%
+19.5%
Medicines and cosmetics
+17.0%
+16.4%
+12.7%
+3.2%
+15.0%
Source: Census and Statistics Department (data as of March 2013)
31
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 The Marketplace
Demand from new entrants and international retailers for prime shopping centres and high
street shops remained strong during the year. New retail space supply remained low, with
the completion of two major prime retail developments (totalling around 700,000 square
feet). Hysan Place welcomed its first shoppers in Causeway Bay in August, and another
retail outlet opened in Tuen Mun, the New Territories. Throughout the year, rents for
premium prime shopping centres continued to rise, by 12.8% year-on-year.
Premium Prime Shopping Centre Rental Index
(2009 Q4=100)
Index
160
150
140
130
120
110
100
90
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
10
08
09
11
12
Source: Jones Lang LaSalle (data as of March 2013)
The Chinese Consumer’s Potential for Growth in Context:
GDP Per Capita (Current Prices) in 2011
USD
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
m
a
n
t
e
V
i
i
a
d
n
I
s
e
n
p
p
i
i
l
i
h
P
d
n
a
l
i
a
h
T
i
a
s
e
n
o
d
n
I
i
a
n
h
C
Source: IMF (data as of March 2013)
a
i
l
a
r
t
s
u
A
a
d
a
n
a
eC
r
o
p
a
g
n
S
i
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a
p
a
J
g
n
o
K
g
n
o
H
K
U
a
c
i
r
f
A
h
t
u
o
S
i
a
s
y
a
a
M
l
a
e
r
o
K
i
n
a
w
a
aT
s
s
u
R
i
l
i
z
a
r
B
Population size
Office
Uncertainties in the external economic environment continued to weigh on Grade “A” office
demand during the year, especially in the banking and finance sector. Leasing activities
were driven largely by cost-saving relocations, including decentralisation.
New Grade “A” office supply totalled 1.3 million square feet in 2012, with more than half
(65%) of the space located in decentralised areas. Moreover, the new supply level was far
lower than that of 2008 (3.7 million square feet), which at that time coincided with reduced
demand due to the global financial crisis.
32
Hysan Annual Report 2012
Amid increasing corporate austerity, the overall net take-up in Hong Kong amounted to
1.6 million square feet in the year, 0.4 million square feet less than that of 2011.
Decentralised Kowloon East recorded a significant net-absorption. Among the core districts,
Causeway Bay/Wanchai and Tsim Sha Tsui saw positive take-up. Negative net absorption
was experienced in Central.
Among the Grade “A” office sub-markets, Central’s rents dropped 11.2% during 2012. All
other sub-markets, however, remained stable. Causeway Bay/Wanchai recorded an annual
rental growth of 2.0%.
Grade “A” Office Vacancy Rate in 2011 and 2012
Grade “A” Office Rental Value
HK$ per Square Foot
10%
8%
6%
4%
2%
0%
9.0%
4.4%
4.5%
3.6%
3.8%
1.9%
2.9%
2.2%
Central
Causeway Bay/
Wanchai
2011
2012
Tsim Sha Tsui
Kowloon East
120
110
100
90
80
70
60
50
40
30
20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
10
12
08
11
09
Central
Causeway Bay/Wanchai
Source: Jones Lang LaSalle (data as of March 2013)
Source: Jones Lang LaSalle (data as of March 2013)
Luxury Residential
Leasing demand for luxury residential properties remained lacklustre on the back of
weakened expatriate demand in the financial sector, traditionally the biggest tenant group.
Some multinational corporations placed new expatriate headcount plans on hold, while
others implemented cost-cutting exercises and tightened housing budgets for expatriate
staff at all levels. Overall, market luxury residential rents fell 10.9% in 2012.
Leasing activities in this sector were principally due to the housing moves of expatriates
already in Hong Kong, and to newly arriving expatriates from non-financial companies.
Luxury Residential Rental Index (2009 Q4=100)
Index
135
130
125
120
115
110
105
100
95
90
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
10
08
11
12
09
Source: Jones Lang LaSalle (data as of March 2013)
33
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 HYSAN PLACE
500 Hennessy Road, Causeway Bay
Hysan Place is our newest building which
includes 15 floors of Grade “A” offices and
17 floors of retail outlets. Situated at the
northern gateway of Hysan’s portfolio and the
heart of bustling Causeway Bay, Hysan Place
offers full harbour view offices, a shopping
mall of exciting tenant mix and green building
features that conform to the highest
international sustainability standards.
Approx. Gross Floor Area: 716,000 ft2
Number of Floors 40 / Parking Spaces 66
Completed 2012
Grade “A”
Offices
Lee Gardens
Retail Hub
Hysan Place
Residential
Lee Theatre
Retail Hub
NORTH
POINT
The Hysan Community –
Our Investment Property Portfolio
Our investment property portfolio
totals some 4.5 million gross
square feet of high quality office,
retail and residential space in
Hong Kong.
SOGO
H E N N E S S Y
R O A D
HYSAN PLACE
CROSS
HARBOUR
TUNNEL
BAMBOO
GROVE
Mid-Levels
CENTRAL
Times Square
P
E
R
C
I
V
A
L
S
T
R
E
E
T
LEE THEATRE
PLAZA
LEIGHTON
CENTRE
Y
U
N PIN
G R
O
A
D
L
E
E
G
A
R
D
E
N
R
O
A
D
THE LEE GARDENS/
LEE GARDENS ONE
LEE GARDENS
TWO/
CAROLINE
CENTRE
18 HYSAN
AVENUE
SUNNING
PLAZA
111
LEIGHTON
ROAD
SUNNING
COURT
ONE HYSAN
AVENUE
E
E N U
V
A
A N
S
H Y
LEIG
HTO
N R
O
A
D
ABERDEEN
TUNNEL
Not to scale
OFFICE
RETAIL
Our office portfolio’s Grade “A” offices provide a core location
with premium facilities and prestige for tenants and their clients.
Our Grade “A” office positioning has been strengthened by
Hysan Place’s world-class building specifications. Other office
buildings offer quality office space for tenants’ diversified use.
The Lee Gardens hub 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.
Hysan Place represents an increase of 50% by gross floor area to
our overall retail portfolio, offering a new and exciting shopping
destination with international brands new to Hong Kong or
Causeway Bay.
34
Hysan Annual Report 2012
THE LEE GARDENS/LEE GARDENS ONE
33 Hysan Avenue, Causeway Bay
This property comprises an office tower and
the high-end Lee Gardens One 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 900,000 ft2
Number of Floors 53 / Parking Spaces 200
Completed 1997
LEE GARDENS TWO/CAROLINE CENTRE
28 Yun Ping Road, Causeway Bay
This office and retail complex is conveniently
linked to the neighbouring The Lee Gardens/
Lee Gardens One. The Caroline Centre office
tower is home to many international
corporations, whereas the shopping centre
offers luxury fashion brands, renowned
restaurants and a children’s concept floor.
Approx. Gross Floor Area 627,000 ft2
Number of Floors 34 / Parking Spaces 167
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.
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 is a 25-level office and
retail complex at the corner of Hysan
Avenue. The building boasts a bright and
spacious lobby.
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 luxurious furniture and
household appliances brands.
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 stylish
and chic international lifestyle brands
and restaurants.
Approx. Gross Floor Area 317,000 ft2
Number of Floors 26
Completed 1994 / Renovation of lower zone to be
completed in 2013
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.
Its completed renovation in 2011 has given
a fresh look to its office lobby, while the
retail podium has become a stylish shopping
venue of international brands.
Approx. Gross Floor Area 430,000 ft2
Number of Floors 28 / Parking Spaces 321
Completed 1977 / Renovations completed 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. Its retail floors house a popular
fashion flagship store.
Approx. Gross Floor Area 169,000 ft2
Number of Floors 26
Completed 1976 / Renovations completed 2011
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
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
35
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
Hysan is principally engaged, together with its subsidiaries and associates, in the
investment, development and management of quality properties in prime locations, and the
Group’s turnover and results are primarily derived from the leasing of investment properties
located in Hong Kong. Our investment property interests currently total some 4.5 million
gross square feet of high-quality retail, office and residential space in Hong Kong, including
the new Hysan Place.
The Group adopts a portfolio approach in its investment properties management, which
aims at maintaining a well-balanced portfolio while targeting to achieve a steady and
measured growth.
Review of Results
The Group’s turnover continued to grow and recorded HK$2,486 million in 2012,
representing an increase of 29.3% from HK$1,922 million in 2011. If the rental
contribution of HK$431 million from the new Hysan Place (whose shopping mall opened in
August) is excluded, the like-for-like turnover increase would be 6.9% to HK$2,055 million.
The turnover of each sector is shown as below:
Retail sector
Office sector
Residential sector
2012
HK$ million
2011
HK$ million
Change
HK$ million
1,250
908
328
2,486
789
820
313
1,922
461
88
15
564
Change
%
+58.4
+10.7
+4.8
+29.3
KEY PERFORMANCE
INDICATORS
Although 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 in this table.
36
Turnover
Growth
Measurement
Rental revenue in 2012
as compared to that in
2011
Significance
Reflects the combined
effect of changes in rental
rate and occupancy rate
Performance
• Significant contribution by Hysan Place
• Growth was recorded in all three leasing
sectors in the rest of the portfolio
Occupancy
Rate
Property
Expenses
Measurement
Percentage of total area
leased to tenants over
total lettable area of each
sector
Measurement
Principally being costs
directly associated with
day-to-day operations of
the Group’s property
portfolio
Significance
• Rental revenue and
management fees are
directly proportional to
occupancy rate
• Optimises revenue by
balancing occupancy rate
and rental level
Significance
Measures the costs
incurred in operating the
Group’s property portfolio
Property Expenses
to Turnover Ratio
Measurement
Calculated by dividing
property expenses by
turnover
Significance
An indication of the gross
margin of our business
Retail Sector
+58.4%
for 2012
Like-for-like:
+9.5% for 2012
(+12.7% for 2011)
Retail Sector
93%
at year-end 2012
Like-for-like:
91% at year-end 2012
(virtually fully-let at year-end 2011)
Total Property Expenses
HK$423 million for 2012
Like-for-like:
HK$271 million for 2012
(HK$262 million for 2011)
Performance
• Retail portfolio occupancy principally
reflected renovations at Lee Theatre
Plaza
• Office portfolio occupancy remained
strong; Hysan Place leasing continued
• Residential recorded 92% occupancy
amidst a slow market
Performance
• Rise in property expenses principally
attributable to Hysan Place costs,
a significant part of which were
related to revenue-generating activities
such as agency fees
• Like-for-like property expenses also
increased (see “Property Expenses
to Turnover Ratio” in the next row)
Performance
Property Expenses to Turnover Ratio
• Ratio increased in 2012 as a result of
costs attributable to the Hysan Place
opening, as compared to 2011
• On a like-for-like basis, ratio remained
largely stable
17.0% for 2012
Like-for-like:
13.2% for 2012
(13.6% for 2011)
Hysan Annual Report 2012 Recurring Underlying Profit, arrived at by excluding the fair value change of investment
properties and items that are non-recurring in nature (such as gains or losses on disposal
of long-term assets; impairment or its reversal; and tax provisions for prior years), was the
key measurement of the Group’s core leasing business. In 2012, our Recurring Underlying
Profit was HK$1,622 million, up 23.8% from HK$1,310 million in 2011. Our Underlying
Profit, which excludes unrealised changes in fair value of investment properties, was also
HK$1,622 million (2011: HK$1,310 million). Both profit indicators primarily reflect the
improvement in gross profit generated from our core leasing activities, including
contribution from the new Hysan Place. Property expenses, including those related to the
opening of Hysan Place, also increased.
Our Reported Profit for 2012 was HK$9,955 million (2011: HK$8,545 million), reflecting a
higher fair value gain on the Group’s investment properties valuation recorded in this year.
Basic earnings per share based on Recurring Underlying Profit correspondingly rose to
HK152.83 cents (2011: HK123.92 cents).
2012
HK$ million
2011
HK$ million
Change
HK$ million
Recurring Underlying Profit
Underlying Profit
Fair value change on investment
properties located in
– Hong Kong
– Shanghai
Reported Profit
Turnover
Growth
Measurement
Rental revenue in 2012
as compared to that in
2011
Significance
Reflects the combined
effect of changes in rental
rate and occupancy rate
Performance
• Significant contribution by Hysan Place
• Growth was recorded in all three leasing
sectors in the rest of the portfolio
1,622
1,622
8,210
123
9,955
1,310
1,310
7,177
58
8,545
Retail Sector
+58.4%
for 2012
Like-for-like:
+9.5% for 2012
(+12.7% for 2011)
Change
%
+23.8
+23.8
+14.4
+112.1
+16.5
312
312
1,033
65
1,410
Office Sector
Residential Sector
+10.7%
for 2012
Like-for-like:
5.2% for 2012
(+6.5% for 2011)
+4.8%
for 2012
(+6.5% for 2011)
Occupancy
Rate
Property
Expenses
Measurement
Significance
Percentage of total area
leased to tenants over
total lettable area of each
sector
• Rental revenue and
management fees are
directly proportional to
occupancy rate
• Optimises revenue by
balancing occupancy rate
and rental level
Significance
Measures the costs
incurred in operating the
Group’s property portfolio
Measurement
Principally being costs
directly associated with
day-to-day operations of
the Group’s property
portfolio
Property Expenses
Measurement
to Turnover Ratio
Calculated by dividing
property expenses by
turnover
Significance
An indication of the gross
margin of our business
Performance
• Retail portfolio occupancy principally
reflected renovations at Lee Theatre
Plaza
• Office portfolio occupancy remained
strong; Hysan Place leasing continued
• Residential recorded 92% occupancy
amidst a slow market
Performance
• Rise in property expenses principally
attributable to Hysan Place costs,
a significant part of which were
related to revenue-generating activities
such as agency fees
• Like-for-like property expenses also
increased (see “Property Expenses
to Turnover Ratio” in the next row)
Performance
• Ratio increased in 2012 as a result of
costs attributable to the Hysan Place
opening, as compared to 2011
• On a like-for-like basis, ratio remained
largely stable
Retail Sector
Office Sector
Residential Sector
93%
at year-end 2012
Like-for-like:
91% at year-end 2012
(virtually fully-let at year-end 2011)
91%
at year-end 2012
Like-for-like:
98% at year-end 2012
(96% at year-end 2011)
92%
at year-end 2012
(95% at year-end 2011)
Total Property Expenses
HK$423 million for 2012
Like-for-like:
HK$271 million for 2012
(HK$262 million for 2011)
Property Expenses to Turnover Ratio
17.0% for 2012
Like-for-like:
13.2% for 2012
(13.6% for 2011)
37
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
Review of Operations
All three leasing sectors continued to record growth during the year, and their respective
strategies and contribution to the Group’s performance are discussed in detail below.
RETAIL SECTOR
Hysan owns and manages 1.3 million gross square feet of prime retail space in Causeway
Bay, one of the world’s best known retail districts. The opening of Hysan Place mall in
August 2012 basically completed the Group’s multi-year strategic re-positioning of its retail
portfolio. The Group views its retail portfolio in the Lee Gardens district as a multi-faceted,
yet integrated shopping environment that combines significant street frontage with
shopping malls of different characteristics, and that is complemented by a vibrant
streetscape. This creates a unique and diversified shopping and lifestyle experience.
Three hubs anchor the corners of this Hysan Retail Triangle:
H E N N E S S Y
R O A D
Hysan
Place
P
E
R
C
I
V
A
L
S
T
R
E
E
T
L
E
E
G
A
R
D
E
N
R
O
A
D
Tim es Squ are
Y
U
N PIN
G R
O
A
D
Lee
Gardens
Hub
Lee
Theatre
Hub
E
E N U
V
A
A N
S
H Y
LEIG
HTO
N R
O
A
D
• The environmentally friendly and award-winning (Gold Award, Best Mixed-Use
Development in MIPIM Asia Awards 2012, which recognise excellence and innovation
in regional real estate development) Hysan Place adds 50% to our retail portfolio
size on the northern boundary of the Lee Gardens district, and is positioned as a
“hip and trendy” hub to target the younger age groups. It also aims to attract new
shoppers from other areas to Causeway Bay with its direct connections to the mass
transit system, the MTR.
• The tree-lined avenue and street-front shops at Lee Gardens hub (comprising
Lee Gardens One, Lee Gardens Two, Sunning Plaza and 18 Hysan Avenue) are well-
recognised landmarks of the hub. They are positioned to provide elegant and luxury
premium retail spaces aimed at high-end shoppers both local and from overseas.
• The Lee Theatre hub (comprising Lee Theatre Plaza, Leighton Centre and
One Hysan Avenue), is located on the western boundary of the Lee Gardens
district, and also adjacent to another popular shopping hub around Times Square.
The Lee Theatre hub is positioned to bring in stylish and chic lifestyle shops and
restaurants. The anticipated completion of Lee Theatre Plaza’s rejuvenation is the
last phase in the re-positioning of this hub, which leverages on the success and
heavy traffic of both shopping hubs.
38
SUNNING PLAZA18 HYSANAVENUELEE GARDENS TWOLEE GARDENSONEONE HYSANAVENUELEIGHTONCENTRELEE THEATRE PLAZA111 LEIGHTON ROADSUNNING COURTHysan Annual Report 2012
Reflecting Hysan Place mall’s opening in August 2012, retail sector revenue increased
by 58.4% to HK$1,250 million (2011: HK$789 million), including turnover rent of
HK$104 million (2011: HK$89 million). On a like-for-like basis, a healthy growth of 9.5% to
HK$864 million was recorded.
Overall retail portfolio occupancy was 93% on 31 December 2012. On a like-for-like basis,
the occupancy was 91% on 31 December 2012 (30 June 2012: 92%; 31 December 2011:
virtually fully-let). These figures reflect the renovation of part of Lee Theatre Plaza.
Since its opening, Hysan Place has been able to fulfil our three key retail objectives. Firstly,
it achieved its financial targets. Secondly, as demonstrated by the gradual transformation of
retail mix in its neighbourhood, many synergies have been created by Hysan Place mall’s
opening that have enhanced the area’s shopping experience. Finally, the mall has brought
more shoppers to Causeway Bay, which benefits the entire retail district. The December
2012 figures, following the opening of all anchor tenant shops, showed an average daily of
83,000 visitors with peak days hitting above 100,000 visitors. We will continue to work
with our tenants to fully capitalise on Hysan Place’s potential to attract new shoppers to
both Hysan Place and to the Lee Gardens district.
In terms of strategic contribution to our entire commercial property portfolio, Hysan Place
further strengthened our retail sector with a more diversified tenant mix, and with anchor
tenants that are internationally renowned but new to either Hong Kong or Causeway Bay.
The enlarged and more diversified retail portfolio helped to give Hysan’s overall commercial
property portfolio a better balance.
39
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
Our Lee Gardens luxury hub continued to see healthy retail sales growth at 7.7% (noting a
number of shops were under renovation), which was contributed by local shoppers as well
as tourists. Through targeted marketing efforts, tenant sales to our VIP Club Avenue
customers increased by 26%. There was also strong demand for our street front shops
when they became available.
Upon opening a fresh range of shops in the renovated lower zone of Lee Theatre Plaza as
from mid-2013, Lee Theatre retail hub will complete its transformation as our chic and
stylish western gateway. All the renovated shop space has been leased. One Hysan Avenue
and Leighton Centre, the other two venues forming the hub, have already seen significant
changes to their retail positioning and offerings, bringing benefits to the Group.
In light of our portfolio re-positioning, we launched our district branding initiatives in the
third quarter of 2012. In September, we strengthened our district branding with the new
but familiar
connectivity. Multi-hub promotions have been organised to generate cross marketing
leveraging on the footfalls generated by Hysan Place and the mall’s popular tenants.
as the brand name, initially focusing on creating visual
A series of marketing efforts and activities will take place in 2013 to further make the
Hysan Retail Triangle a must-visit place for enjoying unique shopping and lifestyle
experiences, with the ultimate objective of enhancing Lee Gardens district’s
competitiveness as a top shopping destination.
40
Hysan Annual Report 2012 OFFICE SECTOR
Hysan’s office portfolio owns and manages 2.3 million gross square feet of premium space
in Causeway Bay. The 15-floor Hysan Place office space is our latest addition to the Group’s
Grade “A” office hub. The hub counts among its constituents The Lee Gardens, Caroline
Centre, Sunning Plaza and 18 Hysan Avenue. It is positioned to be a credible alternative
to Central and Admiralty. Hysan Place has been certified at the highest Platinum level for
the U. S. Green Building Council’s Leadership in Energy and Environmental Design
(USGBC LEED), and pre-certified at Platinum level for the Hong Kong Building Environmental
Assessment Method (BEAM Plus) standard. Other office buildings within our portfolio
(comprising One Hysan Avenue, 111 Leighton Road and Leighton Centre) provide quality
office space for tenant use.
Our office sector’s revenue grew 10.7% to HK$908 million (2011: HK$820 million).
On a like-for-like basis, a growth of 5.2% to HK$863 million was recorded. This principally
reflected positive rental reversions, an increase of 29% in rent on renewals and new
lettings, when compared with existing leases. Our portfolio occupancy was 91% on
31 December 2012. Our like-for-like office occupancy was 98% on 31 December 2012
(98% on 30 June 2012 and 96% on 31 December 2011). 53% of Hysan Place’s office
space had been committed as of 31 December 2012. In view of the limited supply of Grade
“A” office space in competing core localities in the next two years, we shall continue to
balance occupancy with tenant profile, with the aim of further enhancing the positioning of
our entire office portfolio.
41
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
The top four industry groups represented around 57.4% of our office tenant mix, namely
insurance, professional and consulting, banking and finance and high-end retailers. The
overall tenant portfolio is balanced, and no single category takes up more than 20% of total
lettable area. The Group continues to actively manage its tenancy profile. The charts below
illustrate our office portfolio tenant profile as analysed by area occupied.
Office Tenant Profile by Area Occupied as at Year-end
18.7%
18.2%
19.3%
19.8%
Professional and Consulting
Insurance
4.8%
4.9%
6.1%
2012
14.6%
5.1%
4.6%
5.8%
2011
12.6%
8.1%
12.8%
8.9%
13.9%
11.8%
10.0%
Banking and Finance
High-end Retailers
Semi-retail
Marketing
Trading
Consumer Products
Others
We shall continue to upgrade our office facilities, raise property service standards, as well
as foster close and trusting tenant relationships. All these measures aim to offer our
best-in-value proposition to our tenants, and deliver a total Grade “A” office experience.
42
Hysan Annual Report 2012 RESIDENTIAL SECTOR
Our residential portfolio comprises the Bamboo Grove residential development located in
Mid-Levels and Sunning Court in Causeway Bay, totalling 0.8 million gross square feet. We
offer top-class facilities and one-stop personalised services to provide an expatriate-
focused living experience. Residential leases are typically for two years.
Residential sector revenue increased 4.8% to HK$328 million (2011: HK$313 million). The
sector recorded 92% occupancy at the end of the year, amidst the slow market environment
(95% on both 30 June 2012 and 31 December 2011). In terms of rental levels, however,
positive rental reversion was achieved as a whole. During the year, the Group continued to
broaden its tenant base beyond the financial sector, as demand from the latter was
affected by the macro environment.
At the same time, we continued to diversify our marketing channels. Strengthened tenant
relations and direct marketing initiatives helped increase tenant referrals and deals made
directly with us, which also further improved cost effectiveness.
Our tenant retention rate remained healthy, reflecting our continued efforts to enhance our
facilities, services and communal activities.
43
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
Financial Review
A review of the Group’s results and operations is featured in the preceding sections.
This section deals with other significant financial matters.
OPERATING COSTS
The Group’s operating costs are generally classified as property expenses and
administrative 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. Property expenses increased to HK$423 million (2011: HK$262 million).
The increase was principally due to the costs attributable to Hysan Place, a significant part
of which related to revenue-generating activities such as agency fees. As a result, the
property expenses to turnover ratio increased from 13.6% to 17.0% as compared to 2011.
We expect property expenses regarding Hysan Place to become more stable following its
opening, also to be measured against full-year contribution of Hysan Place beginning
2013. Like-for-like property expenses increased by 3.4% to HK$271 million
(2011: HK$262 million). This reflected an increase in repairs and maintenance costs,
cleaning expenses (following the implementation of statutory minimum wages) as well as
front-line staff costs. The like-for-like property expenses to turnover ratio remained stable at
13.2% (2011: 13.6%).
Administrative expenses are the costs indirectly associated with day-to-day operations
of our investment properties, largely representing payroll related costs of management
and head-office staff. Administrative expenses rose by 8.1% to HK$187 million
(2011: HK$173 million). This reflected continuing human resources upskilling for
Hysan’s existing portfolio and additional hiring for Hysan Place. Consulting expenses were
also incurred for the review and application for judicial review of the government’s proposed
Outline Zoning Plans, which affect the long-term re-development of the Group’s
Causeway Bay properties portfolio.
FINANCE COSTS
Finance costs, after capitalisation of HK$17 million (2011: HK$44 million) interest
expenses and related borrowing costs referable to Hysan Place construction costs, were
HK$156 million in 2012, an increase of 27.9% from HK$122 million in 2011. If the
capitalised interest expenses and related borrowing costs were included, the Group’s
finance costs in 2012 would have been HK$173 million, an increase of HK$7 million or
4.2% as compared to last year (2011: HK$166 million).
The increase principally reflected the increase in the Group’s average debt levels, as new
financings were arranged from the second half of 2011 onwards, including measures for
re-financing borrowings due in 2012. The Group’s average finance costs in 2012 (defined
as interest expenses divided by average gross debt for the year) were 2.7%, at the same
level for 2011.
Further discussion of the Group’s treasury policy, including debt and interest rate
management, is set out in the “Treasury Policy” section on pages 48 to 53.
44
Hysan Annual Report 2012 REvALUATION OF INvESTMENT PROPERTIES
The Group’s investment property portfolio was valued at 31 December 2012 by Knight
Frank Petty Limited, an independent professional valuer, on the basis of open market value.
The amount of this valuation was HK$60,022 million, an increase of 20.1% from
HK$49,969 million at 31 December 2011. The valuation at year-end 2012 principally
reflected improved rental rates for the Group’s investment property portfolio, and a higher
valuation for Hysan Place after construction completion. The following shows the property
valuation of each portfolio at year-end.
Retail portfolio
Office portfolio
Residential portfolio
Property under re-development
(Hysan Place)*
2012
HK$ million
2011
HK$ million
Change
HK$ million
28,906
22,622
8,494
–
60,022
15,089
16,954
8,426
9,500
49,969
13,817
5,668
68
(9,500)
10,053
Change
%
+91.6
+33.4
+0.8
-100.0
+20.1
* Property under re-development was valued at site value plus construction costs. Hysan Place’s valuation was
compiled on this basis for 2011 year-end valuation.
Fair value gain on investment properties (excluding capital expenditure spent on the
Group’s investment properties) of HK$8,533 million (2011: HK$7,532 million) was
recognised in the Group’s consolidated income statement for the year.
45
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
INvESTMENTS IN ASSOCIATES
The Group’s share of results of associates increased by 31.5% to HK$334 million
(2011: HK$254 million), principally due to the increase in revaluation gain on the Shanghai
Grand Gateway project, of which the Group owns 24.7%, as compared to last year.
At 31 December 2012, properties at Shanghai Grand Gateway had 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$123 million
(2011: HK$58 million).
The Shanghai Grand Gateway project continued to deliver a good performance in 2012.
The Group’s share of results, excluding revaluation gains on investment properties held by
the associate, recorded an 7.7% increase year-on-year. As at the end of 2012, the retail
units were fully-let while satisfactory occupancy was achieved for both the office and
residential properties.
OTHER INvESTMENTS
In addition to placing surplus funds as time deposits in banks with strong credit ratings, the
Group also invested in debt securities and principal-protected investments. This helped to
preserve the Group’s liquidity and to diversify counterparty risk exposure.
During the year, the Group disposed of all listed equity securities to reduce our exposure to
equity market volatility and placed the proceeds as bank deposits and debt securities.
Investment income, comprising principally dividend income and interest income, amounted
to HK$55 million (2011: HK$90 million). The decrease mainly reflected lower dividend
income derived from the Group’s equity investments, after taking into consideration
disposals made during the year.
CASH FLOwS
Cash flow of the Group during the year is summarised below.
2012
HK$ million
2011
HK$ million
Change
HK$ million
Change
%
+21.9
n/m
+5.1
n/m
+22.0
349
2,947
(79)
(2,779)
(60)
(163)
215
+24.0
+228.7
Operating cash inflow
Investments
Capital expenditure
Financing
Interest and taxation
Dividends paid and proceeds
on exercise of options
Net cash inflow
* n/m – not meaningful
1,941
1,907
(1,626)
(738)
(333)
(842)
309
1,592
(1,040)
(1,547)
2,041
(273)
(679)
94
46
Hysan Annual Report 2012 Including the movements of working capital, the Group reported operating cash inflow of
HK$1,941 million (2011: HK$1,592 million) in 2012, reflecting the growth in our core
leasing business. Net cash from investments was HK$1,907 million (2011: net cash used
in investments: HK$1,040 million), principally attributable to the proceeds from disposal of
listed equity securities during the year and the reduction in time deposits at year-end 2012.
Capital expenditure in 2012 was HK$1,626 million (2011: HK$1,547 million), including
the payment of the construction costs of Hysan Place. Net cash used in financing was
HK$738 million (2011: net cash from financing: HK$2,041 million), mainly due to the
repayment of US$174 million fixed rate notes maturing during the year, which was partly
offset by new borrowings of HK$781 million fixed rate notes.
CAPITAL ExPENDITURE AND MANAGEMENT
The Group is committed to enhancing the asset value of its investment property portfolio
through selective re-positioning, refurbishment and re-development. The Group has also in
place a portfolio-wide whole-life cycle maintenance programme as part of its ongoing
strategy to pro-actively implement preventive maintenance activities. Total cash outlay of
capital expenditure (excluding principally purchase of plant and equipment) during the year
was HK$1,595 million (2011: HK$1,520 million), including the payment of the construction
costs of Hysan Place.
The Group has an internal control system for scrutinising capital expenditures. Depending
on strategic importance, cost/benefit and the size of the projects, detailed analysis of
expected risks and returns is submitted to business unit heads, Executive Directors or the
Board for consideration and approval. 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.
47
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
Treasury Policy
MARKET HIGHLIGHT
Global economic growth continued to be subdued in 2012, amidst economic contraction in
Japan and the Euro zone, decelerated growth in China and limited recovery in the United
States. Signs of stabilisation emerged during the latter part of the year as a result of
stimulatory monetary policies providing liquidity to the market. This, together with the low
interest rate environment, led to robust debt capital market activities in 2012. The Group
took the opportunity to arrange new and longer-term financing through the Medium Term
Note Programme in 2012 and early 2013.
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 re-financing and liquidity risks by attaining a 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 with prudent investment guidelines.
To achieve the objective of financial prudence, Hysan’s Treasury policy manual lays down
the acceptable range of operational parameters and gives guidance on our key performance
indicators as set out in the table.
Standard and Poor’s upgraded the Group’s credit rating from BBB to BBB+ in December
2012 to reflect the Group’s improved position following the opening of Hysan Place.
Moody’s rating of the Group is Baa1.
Treasury has an overall objective of optimising borrowing costs and management of
associated risks: that is, to minimise the finance costs subject to the constraints of the
operational parameters. The average finance costs for 2012 was 2.7%, same as 2011.
KEY PERFORMANCE
INDICATORS
Average Finance Costs
bank Facilities:
Capital Market
Issuance
Average Debt Maturity
Floating Rate Debt
(% on Total Debt)
Net Interest Coverage
Net Debt to Equity
48
Measurement
Interest expenses divided
by average gross debt for
the year
Significance
Our treasury aims to
manage and optimise
finance costs
Performance
Average Finance Costs
HIBOR in 2012 continued
to remain low at a level
similar to 2011
2.7%
for 2012
(2.7% for 2011)
Measurement
The proportion of the
from capital markets
relative to gross debt
Significance
As a measure of
source
borrowings from banks and
diversification of funding
Performance
bank Facilities:
During 2012, US$174
million fixed rate notes
matured and HK$781
million notes were issued.
The ratio at year-end 2012
was similar to 2011.
Capital Market Issuance
45.8%: 54.2%
at year-end 2012
(43.1% : 56.9% at year-end 2011)
Measurement
The weighted average of
the remaining maturity
period of the Group’s
gross debt
Significance
Performance
An indicator of the
pressure for re-financing or
repaying the existing
borrowings in the near term
The average maturity was
lengthened with HK$781
million fixed rate notes
issued with tenors ranging
from 7 to 15 years
Average Debt Maturity
5.0 years
at year-end 2012
(4.2 years at year-end 2011)
Measurement
Significance
Performance
Floating Rate Debt
Debt effectively in floating
interest rate divided by
gross debt
A measure to calculate the
percentage of borrowings
subject to fluctuations in
market interest rates
The ratio was lower
compared with 2011
because more borrowings
were issued at fixed
interest rates under a
relatively low interest rate
environment
47.0%
at year-end 2012
(54.8% at year-end 2011)
Measurement
Gross profit less
administrative expenses
before depreciation divided
by net interest expenses
Significance
Performance
It represents the Group’s
financial ability from
Improved ratio reflects our
higher profit offsetting
operating activities to meet
higher net interest
its interest payment
obligations
expenses
Net Interest Coverage
16.8 times
for 2012
(12.3 times for 2011)
Measurement
Borrowings less time
deposits, cash and bank
balances divided by
shareholders’ funds
Significance
A benchmark as to the
healthy debt level as well
as an indicator of the
Group’s ability to raise
further debt
Performance
Net Debt to Equity
The ratio remains low and
the Group’s ability to raise
further debt is strong. The
10-year US$300 million
fixed rate notes were
issued in January 2013.
6.2%
at year-end 2012
(7.6% at year-end 2011)
Hysan Annual Report 2012 KEY PERFORMANCE
INDICATORS
Average Finance Costs
bank Facilities:
Capital Market
Issuance
Average Debt Maturity
Floating Rate Debt
(% on Total Debt)
Net Interest Coverage
Net Debt to Equity
Measurement
Interest expenses divided
by average gross debt for
the year
Significance
Our treasury aims to
manage and optimise
finance costs
Performance
HIBOR in 2012 continued
to remain low at a level
similar to 2011
Average Finance Costs
2.7%
for 2012
(2.7% for 2011)
Measurement
The proportion of the
borrowings from banks and
from capital markets
relative to gross debt
Significance
As a measure of
diversification of funding
source
Performance
During 2012, US$174
million fixed rate notes
matured and HK$781
million notes were issued.
The ratio at year-end 2012
was similar to 2011.
bank Facilities:
Capital Market Issuance
45.8%: 54.2%
at year-end 2012
(43.1% : 56.9% at year-end 2011)
Measurement
The weighted average of
the remaining maturity
period of the Group’s
gross debt
Significance
An indicator of the
pressure for re-financing or
repaying the existing
borrowings in the near term
Performance
The average maturity was
lengthened with HK$781
million fixed rate notes
issued with tenors ranging
from 7 to 15 years
Average Debt Maturity
5.0 years
at year-end 2012
(4.2 years at year-end 2011)
Measurement
Debt effectively in floating
interest rate divided by
gross debt
Significance
A measure to calculate the
percentage of borrowings
subject to fluctuations in
market interest rates
Performance
The ratio was lower
compared with 2011
because more borrowings
were issued at fixed
interest rates under a
relatively low interest rate
environment
Floating Rate Debt
47.0%
at year-end 2012
(54.8% at year-end 2011)
Measurement
Gross profit less
administrative expenses
before depreciation divided
by net interest expenses
Significance
It represents the Group’s
financial ability from
operating activities to meet
its interest payment
obligations
Performance
Improved ratio reflects our
higher profit offsetting
higher net interest
expenses
Net Interest Coverage
16.8 times
for 2012
(12.3 times for 2011)
Measurement
Borrowings less time
deposits, cash and bank
balances divided by
shareholders’ funds
Significance
A benchmark as to the
healthy debt level as well
as an indicator of the
Group’s ability to raise
further debt
Performance
The ratio remains low and
the Group’s ability to raise
further debt is strong. The
10-year US$300 million
fixed rate notes were
issued in January 2013.
Net Debt to Equity
6.2%
at year-end 2012
(7.6% at year-end 2011)
49
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
DEbT MANAGEMENT
Liquidity in the local banking loan market improved in the second half of 2012, particularly
after China began to relax its monetary policy as inflation was contained. In the debt capital
market, credit premium for companies with strong credit standing significantly decreased.
Investors showed high demand for quality financial assets in the low interest rate
environment. As a result, transaction volumes increased substantially in the debt capital
market. To replenish liquidity used for repayment of debt maturing in 2012 and to lengthen
the average debt maturity, the Group issued fixed rate notes totalling HK$781 million, with
tenors ranging from 7 to 15 years, under the Medium Term Note Programme. These long
term borrowings lengthened the average maturity of the debt profile to 5.0 years as at end
of 2012 (2011: 4.2 years). The fixed rate nature of those notes, with coupons ranging from
3.9% to 4.5%, allowed the Group to lock in relatively low interest costs for long tenor
funding. In January 2013, the Group issued 10-year US$300 million fixed rate notes with
coupon at 3.5% to further lengthen the debt maturity.
The graph below shows the financial strength of the Group and our ability to meet interest
payment obligations and to raise further debts if necessary.
Net Interest Coverage and Net Debt to Equity at Year - end
%/times
18
16
14
12
10
8
6
4
2
0
10.2x
5.9%
11.7x
5.1%
14.0x
6.4%
12.3x
7.6%
16.8x
6.2%
08
09
10
11
12
Net Debt to Equity
Net Interest Coverage (times)
The Group always strives to lower the borrowing margin, to diversify funding sources and
to maintain a suitable maturity profile relative to the overall use of funds. As at 31
December 2012, the outstanding gross debt1 of the Group was HK$5,899 million
(2011: HK$6,610 million), a decrease of HK$711 million compared to 2011 as a result of
debt repayment during the year. 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. Ten local and overseas banks have provided bilateral
banking facilities to the Group as funding alternatives. As at the end of 2012, about
45.8% (2011: 43.1%) of the Group’s outstanding gross debts were sourced from these
banking facilities.
1 The gross debt represents the contractual principal payment obligations at year-end 2012. However, in accordance
with the Group’s accounting policies, the debt is measured at amortised costs, using the effective interest
method. Also, if the Group designates certain derivatives as hedging instruments (i.e. interest rate swaps) for
fair value hedge, the net cumulative gains/losses attributable to the hedged interest rate risk of the hedged items
(i.e. fixed rate notes and zero coupon notes) are adjusted to the hedged items. Therefore, as disclosed in the
consolidated statement of financial position as at 31 December 2012, the book value of the outstanding debt of
the Group was HK$5,941 million (2011: HK$6,663 million).
50
Hysan Annual Report 2012 The following graph shows the percentages of total outstanding gross debts sourced from
banks and the debt capital markets in the past five years.
Sources of Financing at Year- end
HK$ million
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
75.1%
62.8%
70.3%
56.9%
54.2%
43.1%
45.8%
24.9%
08
37.2%
29.7%
09
10
11
12
Bilateral Bank Loans
Capital Market Issuances
The Group also strives to maintain an appropriate maturity profile. As at 31 December
2012, the average maturity of the debt portfolio was about 5.0 years (2011: 4.2 years), of
which about HK$700 million or 11.9% (2011: HK$1,507 million or 22.8%) of the
outstanding gross debt will be due in less than one year, reflecting minimal re-financing
pressure for 2013.
The graph below shows the debt maturity profile of the Group at year-end 2012 and 2011.
Debt Maturity Profile at Year- end 2012 and 2011
2012
700
1,100
1,500
2,599
2011
1,507
700
2,600
1,803
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Gross Debt Amount (HK$ million)
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
51
5,8996,610STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Management’s Discussion
and Analysis
LIqUIDITY MANAGEMENT
The Group always places great emphasis on liquidity management. Recurring cash flows
from our business continued to remain steady and strong. As at 31 December 2012, the
Group had cash and bank deposits totalling about HK$2,311 million (2011: HK$2,961
million). 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$1,288 million (2011: HK$1,060 million) in debt
securities and investments, which are principal-protected in nature.
Further liquidity, if needed, is available from the undrawn committed facilities offered by the
Group’s relationship banks. These facilities, which amounted to HK$1,000 million at
year-end 2012 (2011: HK$1,000 million), essentially allow the Group to obtain additional
liquidity as the needs arise. During the year, the securities investment listed on The Stock
Exchange of Hong Kong Limited was fully disposed of.
INTEREST RATE MANAGEMENT
Interest expenses account for a significant proportion of the Group’s total expenses and
warrant close monitoring. Appropriate hedging strategies are adopted to manage exposure
to projected movements in the interest rate.
During the year, 3-month Hong Kong Inter-bank Offered Rate (“HIBOR”) remained low and
the range bounded between 0.38% and 0.40%. As a result, the Group maintained the
average cost of financing at 2.7% in 2012, same as 2011.
The Group managed the fixed debt ratio at 53.0% at year-end of 2012, increased from
45.2% at year-end of 2011.
The diagram below shows the Group’s debt levels and average finance costs in the past
five years.
6,610
5,899
7.0%
6.0%
5.0%
3,649
3,588
4.0%
2.7%
2.7%
4,540
2,547
2.7%
3.0%
2.0%
1.0%
0.0%
10
11
12
Year-end Net Debt
(Gross debt less short-term investments,
time deposits, cash and bank balances)
Average Finance Costs
Debt Levels and Average Finance Costs
HK$ million
7,000
6,000
5,000
4.4%
4,000
3,698
3,889
3.1%
3,000
2,000
1,000
0
1,983
1,905
08
09
Year-end Gross Debt
52
Hysan Annual Report 2012 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$26 million and
AUD37 million bank loans, which have been hedged by appropriate hedging instruments, all
of the Group’s other borrowings are denominated in Hong Kong dollars. For the 10-year
US$300 million fixed rate notes issued in January 2013, hedges were entered to effectively
convert the borrowings into Hong Kong dollars. In regard to foreign exchange exposure on
the investment side, the Group’s outstanding investment in time deposits, principal-
protected investments and debt securities amounted to US$79 million and RMB163
million, of which US$37 million was hedged by foreign exchange forward contracts. Other
foreign exchange exposure mainly relates to investments in the Shanghai project. These
foreign exchange exposures amounted to the equivalent of HK$3,759 million (2011:
HK$3,423 million) or 5.5% (2011: 5.8%) of total assets.
USE OF DERIvATIvES
As at 31 December 2012, outstanding derivatives were mainly 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.
53
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Internal Controls and
Risk Management Report
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.
Our Risk Management Framework
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. The Audit Committee
supports the Board in monitoring our risk exposures, the design and operating
effectiveness of the underlying risk management and internal controls systems.
Management assesses and presents reports to the Audit Committee on its own
assessments of key risks, 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.
Hysan Risk Management Framework Diagram
Hysan Risk Management Framework Diagram
The Board
“Top-down”
• Has overall
Oversight,
identification,
assessment and
mitigation of risk
at corporate level
responsibility for
the Group’s risk
management and
internal controls
system
• Sets strategic
objectives
• Reviews the
effectiveness of our
risk management
and internal
controls systems
• Monitors the
nature and extent
of risk exposure for
our principal risks
• Provides direction
on the importance
of risk management
and risk management
culture
Management
Audit Committee
Internal Audit
• Assesses our risks
and mitigating measures
Company-wide
• Designs, implements,
and monitors our risk
management and
internal controls system
• Supports the Board
in monitoring risk
exposure, design and
operating effectiveness
of the underlying
risk management
and internal controls
systems
• Supports the Audit
Committee in reviewing
the effectiveness of
our risk management
and internal controls
system
Operational Level
• Risk identification, assessment
and mitigation performed across
the business
• Risk management process and internal
controls practised across business
operations and functional areas
“Bottom-up”
Identification,
assessment and
mitigation of risk
at business unit
level and across
functional areas
54
Hysan Annual Report 2012 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”) for internal controls, 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 600 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.
• Risk Assessment – we continue to drive improvements to our risk management process
and the quality of risk information generated, while at the same time maintaining a
simple and practical approach. Instead of setting up a separate risk management
function, we instead seek to have risk management features embedded within our
operations (leasing, property management, and project) as well as functional areas
(including finance, human resources, IT and legal). We aim to have a “live” risk
management system that is practised on a day-to-day basis by our operating units. On an
annual basis, department heads review and update their risk registers, providing
assurances that controls are both embedded and effective within the business. Potential
weaknesses and action items are regularly monitored by the management team.
• Control Activities; Information and Communicating – our core property leasing and
management business involves well-established business processes. Control activities
have traditionally been built on top-level reviews, segregation of duties; and physical
controls. Over the past few years, we have been formalising and documenting the control
processes in line with a general desire to move towards a management style based on
systematic and structured control principles. A greater use of automation (information
processing) is being implemented. We have made further progress during the year.
• Monitoring – oversight by the Board and Audit Committee, assisted by our Internal Audit
team.
2012 Review of Internal Controls Effectiveness
In respect of the year ended 31 December 2012, the Board considered the internal
controls system effective and adequate. No significant areas of concern that might affect
the operational, financial reporting, and compliance controls 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.
55
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Internal Controls and
Risk Management Report
Further Strengthening of Our Underlying
Systems in 2012
Risk Assessment: a more risk-based approach adopted
A more risk-based (instead of process-based) approach
in risk identification and assessment was adopted, with
clearer description of risks in light of changes in internal
as well as external circumstances.
This enriches our ability to analyse
risks and respond to opportunities as
we pursue our strategic objectives,
also considering year-on-year changes.
Risk Assessment: a more “participatory” approach involving operating units
Our approach for risk identification and assessment
of top risks facing the Group incorporates “top-down”
as well as “bottom-up” aspects. We have enhanced the
“bottom-up” process, which involved the identification
and assessment of risks by department heads at the
business unit level and across functional areas.
This furthers our aim to make our risk
management system a “live” one that
is practised on a day-to-day basis by
operating units, and generally
strengthens risk awareness and culture
across the organization.
For the annual update of risk registers, training sessions
and workshops were provided to department heads,
with guidance, facilitation, and discussions throughout
the process. A more “participatory” approach has been
adopted in determining the Group’s corporate-level
“top risks”. Sessions attended by department heads
were held to share and discuss the Group’s top-tier
risks as distilled from department risk registers.
Control Activities refined
Enhanced our Control Activities by a greater use of
performance indicators, which also facilitates top-level
reviews. Our documented policies and procedures are
being refined, and a greater use of automation
(information processing) is being implemented.
The enhancements adopted furthered
our general desire to have a
management style based on
systematic and structured control
principles.
Monitoring – more structured and frequent reporting to Audit Committee
Management enhances its update reports to Audit
Committee on movements on top risks and appropriate
mitigating measures.
In addition to two meetings scheduled primarily for
reviewing annual and interim results, an additional Audit
Committee meeting will be held as from 2012 onwards
to review and monitor risk management activities.
Facilitates and enhances the Audit
Committee’s work in monitoring our
risk exposure; design and operating
effectiveness of the underlying internal
control systems.
Way Forward
Now that we have enhanced risk identification, assessment and monitoring processes,
a main priority is to further integrate the risk management processes into our business
planning and operational practices. We have begun with the 2013 budgetary process,
by ensuring that business and operating units align the nature and extent of significant
risks with the overall corporate goals and strategic objectives.
56
Hysan Annual Report 2012 Our Risk Profile
Our approach for managing risk is underpinned by our understanding of our current risk
exposures, and how our risks are changing over time. The following illustrates the nature of
our principal risks. Further analysis of our strategies is set out in other sections of the
Annual Report as indicated below:
Risk
Risk change
during 2012
Description of risk change
Impact of Hong Kong and global
macroeconomic developments on:
1. Office leasing operations
2. Retail leasing operations
3. Residential leasing
operations
4. Projects (including Hysan
Place re-development and
mall opening)
5. Finance (funding and
liquidity risks given Euro
sovereign crisis and
impact on financial
markets)
6. Hazards / catastrophic
loss (health epidemics,
natural disasters,
man-made hazards like
fire, flooding)
7. Human resources
Considering the impact of changes in demand and
competition on the three leasing units, which
became more challenging during the year. New
supply remains, however, tight for all three units.
The retail environment has been more resilient.
For more analysis,
see “The Marketplace” (pages 30 to 33) &
“Review of Operations” (pages 38 to 43)
Hysan Place completed with successful mall
opening in August.
For more analysis,
see “2012 Performance at a Glance —
Hysan Place Contributions” (pages 18 and 19)
The Group successfully made a US$300 million
10-year bond issuance in January 2013; and the
financial markets generally became more stable
towards the latter part of 2012.
For more analysis,
see “Treasury Policy” (pages 48 to 53)
We maintain comprehensive emergency handling
procedures covering all our properties. These were
updated during the year to integrate the new
Hysan Place.
Greater competition for skilled personnel to support
the Group’s growth strategy.
For more analysis,
see Corporate Responsibility Report 2012
Note:
where “inherent risks” (i.e. before taking into consideration mitigating activities) increased
where “inherent risks” decreased
where “inherent risks” remain broadly the same
57
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
3
Corporate
Governance
Corporate
Governance
This section features our corporate governance.
It begins by introducing our Board of Directors, then
goes on to explain our governance structure and
systems, followed by our best practices in corporate
governance. It also highlights the emphasis of
the Board’s work in 2012, and its drive for
continuous improvement.
60 Board of Directors
64 Corporate Governance Report
81 Directors’ Report
89 Directors’ Remuneration
and Interests Report
97 Audit Committee Report
CORPORATE GOVERNANCE Board of Directors
THE BOARD
Remuneration Committee (R)
Audit Committee
(A)
Remuneration Committee (R)
Nomination Committee
(N)
MANAGEMENT
Strategy Committee
(S)
Finance
Corporate Services
Property
Investment
Property
Services
Property
Development
Chairman (chairing N, S)
Irene Yun Lien LEE
Ms. Lee is a non-executive director of Cathay Pacific Airways Limited, CLP Holdings
Limited, QBE Insurance Group Limited (listed on the Australian Stock Exchange) and
Noble Group Limited (listed on Singapore Exchange 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 the non-executive chairman of Keybridge
Capital Limited; 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; and a
non-executive director of ING Bank (Australia) Limited and The Myer Family Company Pty
Limited. Ms. Lee was formerly a member of the Australian Government Takeovers Panel.
She is a member of the founding Lee family, sister of Mr. Anthony Hsien Pin LEE
(Non-executive Director) 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, Non-executive Chairman in
May 2011, and Executive Chairman in March 2012. She is aged 59.
60
Hysan Annual Report 2012 Deputy Chairman and
Chief Executive Officer (S)
Siu Chuen LAU
Independent non-executive
Director
Frederick Peter
CHURCHOUSE
Mr. Lau was the acting Head of Finance of Hysan Group in
1999. He has also worked as a management consultant
at McKinsey & Company, a consumer analyst at Morgan
Stanley Asia, and a brand manager of French luxury
products. He subsequently co-founded and became a
Responsible Officer of a SFC licensed investment advisory
firm. Mr. Lau is a member of the founding Lee family and
an alternate director of Lee Hysan Company Limited, a
substantial shareholder of the Company. Mr. Lau holds a
Bachelor of Social Sciences Degree in Management and
Economics from The University of Hong Kong, and a
Master of Business Administration Degree from INSEAD,
France. He was appointed a Non-executive Director in
May 2011, Non-executive Deputy Chairman in March
2012, Deputy Chairman and Chief Executive Officer in
May 2012. He is aged 54.
Independent non-executive
Director (N, S, chairing A)
Nicholas Charles ALLEN
Mr. Churchouse has been involved in Asian securities and
property investment markets for more than 30 years.
Currently, he is a private investor including having his own
private family office company, Portwood Co. Ltd. He is
also an independent non-executive director of Longfor
Properties Limited and a board member of Macquarie
Retail Asset Management Limited. He is also the
publisher and author of “Asia Hard Assets Report”.
In 2004, Mr. Churchouse set up an Asian investment
fund under LIM Advisors. He acted as a director of
LIM Advisors and as Responsible Officer until the end of
2009. Prior to this, Mr. Churchouse worked at Morgan
Stanley as a managing director and advisory director from
early 1988. He acted in a variety of roles including head
of regional research, regional strategist and head of
regional property research. Mr. Churchouse gained a
Bachelor of Arts degree and a Master of Social Sciences
degree from the University of Waikato in New Zealand.
He was appointed an Independent non-executive Director
in December 2012 and is aged 63.
Mr. Allen is an independent non-executive director of
CLP Holdings Limited, Lenovo Group Limited, VinaLand
Limited and Texon International Group 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 and Futures Appeal Panel;
Member of the Takeovers & Merger 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 57.
Independent non-executive
Director (A, N, S, chairing R)
Philip Yan Hok FAN
Mr. Fan is an independent non-executive director of
China Everbright International Limited, First Pacific
Company Limited and HKC (Holdings) Limited, and an
independent director of Suntech Power Holdings Co., Ltd.,
Zhuhai Zhongfu Enterprise Co. Ltd. and Goodman Group.
He is a member of the Asian Advisory Committee of
AustralianSuper Pty Ltd (a pension fund in Australia).
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 63.
(A) Audit Committee
(R) Remuneration Committee
(N) Nomination Committee
(S) Strategy Committee
61
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Board of Directors
Independent non-executive
Director (R, N)
Joseph Chung Yin POON
Non-executive Director (A)
Anthony Hsien Pin LEE
Mr. Poon is group managing director and deputy chief
executive officer of a private company and an independent
non-executive director of AAC 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 58.
Mr. Lee is a director and substantial shareholder of the
Australian-listed Beyond International Limited, principally
engaged in television programme production and
international sales of television programmes and feature
films. He is also a non-executive 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 is the brother of Ms. Irene Yun Lien LEE,
Chairman. He was appointed a Non-executive Director in
1994 and is aged 55.
Non-executive Director (N, S)
Chien LEE
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 56.
Mr. Lee is a private investor and a non-executive director
of Swire Pacific Limited, 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 59.
(A) Audit Committee
(R) Remuneration Committee
(N) Nomination Committee
(S) Strategy Committee
62
Hysan Annual Report 2012 Non-executive Director (R)
Michael Tze Hau LEE
Our Team Members
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 The 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 51.
Officer – Chief Financial Officer
Roger Shu Yan HAO
BBA (Hons), CPA, ACA, ACCA
Mr. Hao is responsible for the Group’s financial control,
treasury and information technology function. He joined
the Group in 2008. Mr. Hao accumulated extensive
experience in auditing, financial management and control,
while holding senior positions in multinational
corporations. He is aged 47.
Director, Design and Project
Lai Kiu CHAN
PhD, BArch, BA, HKIA, Registered Architect
AP (List 1), PRC Registered Architect
LEED AP, BEAM Pro
General Manager, Retail Leasing
Kitty Man Wai CHOY MSc
General Manager, Property Services
Lawrence Wai Leung LAU
MSc (Eng), CEng, MCIBSE, MHKIE, RPE (BS), BEAM Pro
Executive Director and
Company Secretary
Wendy Wen Yee YUNG
Director, Office Leasing
Jessica Mo Ching YIP
MBA, MHKIS, MRICS
Ms. Yung joined the Group in 1999 and was appointed an
Executive Director in 2008. She advises the Board on all
matters of corporate governance, and is responsible for the
Group’s shareholder communications and key stakeholder
relations management. In addition, she has an oversight of
all aspects of the Group’s legal matters. As a member of
the management team, she participates in the Group’s
strategic planning matters. 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. Her public
services include serving as a member of the Securities and
Futures Appeal Panel, Standing Committee on Company
Law Reform, and the Hong Kong Selection Committee of
the Rhodes Scholarships respectively. She is aged 51.
(A) Audit Committee
(R) Remuneration Committee
(N) Nomination Committee
(S) Strategy Committee
63
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
Refreshing of the Board and Board Leadership
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
(including four Independent non-executive Directors) with backgrounds in the areas of
finance, general management and professional practices have joined our Board.
Effective 8 March 2012, Irene Yun Lien LEE, Chairman, assumed an executive capacity.
In addition to her role in leading the Board, she advises, supports and coaches the
management team, particularly regarding the long-term strategic development of the Group
and management matters that drive shareholder value. Siu Chuen LAU was appointed
Non-executive Deputy Chairman at the same time to deputize and support the Chairman
in her Board leadership role. After the resignation of Gerry Lui Fai YIM as Chief Executive
Officer, Siu Chuen LAU was appointed executive Deputy Chairman and Chief Executive Officer,
both effective as from the conclusion of the Annual General Meeting (“AGM”) held on
14 May 2012.
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 Remuneration 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
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.
Best Corporate Governance Disclosure Awards 2012:
Non-Hang Seng Index (Large Market Capitalisation)
Category – Gold Award
Organised by the Hong Kong Institute of Certified
Public Accountants
“Particular strengths of its corporate governance report are the diagrams
of the company’s perception of the roles and focus of the board’s work
and the CG framework. The schedule of corporate matters reserved for
the board provides shareholders with a clear picture regarding important
agenda issues for the board in 2011.”
- Judges’ Report
64
Hysan Annual Report 2012 Exceeded
Code Provisions
Best Practices in Corporate Governance in Place at Hysan
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
The Board first established a formal Corporate Governance Policy* in 2004.
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. The Board has a detailed list of Matters Reserved for Board Decisions* that are
retained for the decision of the full Board, which covers all major policies and directions of
the Group.
Board evaluation: The (executive) Chairman and Non-executive Directors meet at least once a
year without management presence. The Non-executive Directors also have separate sessions
without the presence of management or Board members relating to them.
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 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. It was updated during the year in light of the new inside information disclosure
regime under the Securities and Futures Ordinance, effective January 2013.
The Group has established an Auditor Services 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. It has early-adopted the proposed environmental, social and governance
reporting under the Listing Rules.
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 2013, 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.
* Detailed policies/terms of reference are available on the Company’s website: www.hysan.com.hk.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
The Board in 2012: driving continuous improvement
During the year, 5 Board meetings were held. In addition to the quarterly Board meetings, a Strategy Committee
meeting (for which invitation was extended to all Directors) was held to discuss the long-term growth strategy of the
Group. The focus of these meetings included the following topics of discussion and yielded the following results:
1.
Leadership
2.
Strategy
• approved Chairman’s assuming an executive
• received strategic plans and regular updates for
role; appointment of executive Deputy
Chairman and Chief Executive Officer
• reviewed and approved division of roles and
responsibilities between Chairman, Deputy
Chairman and Chief Executive Officer
• appointment of a new Independent
non-executive Director who brings new
insights to the Board
• reviewed and refined terms of reference of
Nomination Committee; formalised terms of
reference of Strategy Committee
the Group’s core leasing (Office, Retail, and
Residential segments) to meet short-term
objectives; and medium-term directional plans to
further strengthen competitiveness
• ongoing assessment of Hysan Place project, with
a view to enabling it to take the Group to another
level of commercial success and sustainability
• received management’s presentation on further
strengthening the district branding and marketing
of our core property portfolio in Causeway Bay as
a choice location for work and play
• reviewed further opportunities in our core
property portfolio with management
• reviewed and approved the US$300 million
10-year bond issuance
Roles of Board
• Strategic Planning
• Internal Controls and
Risk Management
• Culture and Values
• Capital Management
• Corporate Governance
• Board Succession
3.
Risk Management
4.
Relations with Shareholders
• Audit Committee reviewed and monitored
• investor relations reporting (describing
management’s plans to further strengthen the
risk identification and assessment process, and
to adopt more frequent and structured reporting
to the Audit Committee and the Board
• assessed effectiveness of financial controls, and
other internal controls
(Please refer to separate “Internal Controls and
Risk Management Report”)
• legal and regulatory compliance is a regular
agenda item for each Board meeting
investor and analyst opinions) is a regular
Board agenda item
• enhanced investor relations programme to
expand coverage by analysts
66
Hysan Annual Report 2012 Governance Framework
The Group operates within a clear governance structure, which is illustrated in the diagram
that follows.
Shareholders
Auditors
Board of Directors
Management
Audit
Committee
Remuneration
Committee
Nomination
Committee
Strategy
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.
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
• Roles Requirements of Non-executive Directors
• Matters Reserved for Board Decisions
• Terms of Reference of the various corporate governance related Board Committees
• Code of Ethics for Employees
• Auditor Services Policy
• Corporate Disclosure Policy
These are reviewed periodically, typically on an annual basis.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
Board Leadership
BOARD SIZE AND COMPOSITION
There are currently eleven Directors on the Board: the Chairman, two other Executive
Directors, and eight Non-executive Directors (including four Independent non-executive
Directors). The roles of the Chairman and the Chief Executive Officer are currently separate.
The Board will review its size and composition from time to time to ensure there is an
appropriate and diverse mix of skills and experience.
During the year, Frederick Peter CHURCHOUSE was appointed Independent non-executive
Director effective 10 December 2012. Changes in Executive Directors (including Chairman’s
assuming an executive role) are set out in “Refreshing of the Board and Board Leadership”
section above.
Further description of the backgrounds of the Non-executive Directors 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 15 May 2013, Chien LEE, Michael Tze Hau LEE, Joseph Chung Yin
POON, Wendy Wen Yee YUNG and Frederick Peter CHURCHOUSE will retire and, being
eligible, offer themselves for re-election. Details with respect to the candidates standing for
election as Directors are set out in the AGM circular to shareholders.
Balance of Non-executive Directors and
Executive Directors
31 December 2012
Length of tenure of Non-executive Directors
31 December 2012
4
3
4
4
4
(Independent
non-executive
Directors)
Executive Directors
Independent non-executive Directors
Non-executive Directors
0-3 years
4 years and above
68
Hysan Annual Report 2012 The table below sets out the number of meetings of the Board and its committees in 2012,
individual attendance by Board and committee members at these meetings and the
attendance of the Board members at the 2012 AGM:
Remuneration Nomination
Audit
Committee Committee
(Note 1)
(Notes 1 & 3)
Directors
Executive
Irene Yun Lien LEE
Siu Chuen LAU
Gerry Lui Fai YIM
Wendy Wen Yee YUNG
Independent non-executive
Nicholas Charles ALLEN
Frederick Peter CHURCHOUSE
Philip Yan Hok FAN
Joseph Chung Yin POON
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Michael Tze Hau LEE
Chien LEE
Board
(Notes 1 & 2)
5/5
5/5
2/2
5/5
3/3
3/3
5/5
–
5/5
(1 by telephone
conference)
5/5
4/5
(and 1 by alternate)
5/5
5/5
5/5
3/3
1/1
1/1
1/1
Committee AGM
(Note 1)
(Notes 1 & 4)
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
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. Gerry Lui Fai YIM resigned as Director on 14 May 2012. Frederick Peter CHURCHOUSE was appointed Director
effective 10 December 2012.
3. Effective 20 February 2012, Philip Yan Hok FAN and Joseph Chung Yin POON were appointed chairman and
member of the Remuneration Committee respectively.
4. Effective 20 February 2012, Gerry Lui Fai YIM stepped down as member of the Nomination Committee while
Nicholas Charles ALLEN and Joseph Chung Yin POON were appointed members of the Nomination Committee.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
Corporate Governance Report
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. These are strategic planning,
internal controls and risk management, culture and values, capital management, corporate
governance, and Board succession.
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, which covers all major policies and directions
of the Company. These matters include: long-term objectives and strategies; the extension
of Group activities into new business areas; capital management framework and policy;
treasury policies; annual budgets, annual funding plan and annual treasury investment
plan; material acquisitions/disposals of fixed assets; connected transactions; preliminary
announcements of interim and final results; and the declaration of dividends; internal
controls; Board membership; Corporate Governance matters; major prosecution, defence or
settlement of litigation.
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.
(The document is available on the Company’s website: www.hysan.com.hk)
70
Hysan Annual Report 2012 Board Effectiveness
SKILLS AND BALANCE
During 2012, we have 8 Non-executive Directors drawn from diverse and complementary
backgrounds. They bring valuable experience and insight in the following areas of
experience and expertise, driving the corporate strategy and growth of the Group:
Experience / Expertise
Name of Directors
1. General management
Broad business experience through senior level position
Philip Yan Hok FAN
Joseph Chung Yin POON
in another major company.
2. Property Industry
Experience as a senior executive in another major
company in property investment, development or
facilities management; or related industry.
3. Financial Services and investment
Experience in the financial services industry or
experience in overseeing financial transactions and
investment management.
4. Marketing
Experience as a senior executive in a major retail
customer products, services or distribution company.
5. “Audit Committee” Accounting Expertise
Expertise based on definition of “Audit Committee
accounting expertise” under Listing Rules.
Frederick Peter CHURCHOUSE
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Joseph Chung Yin POON
Hans Michael JEBSEN
Nicholas Charles ALLEN
6. Risk Governance and Risk Management
An understanding of the Board’s role in the oversight of
Nicholas Charles ALLEN
Philip Yan Hok FAN
risk management principles and practices, including an Chien LEE
understanding of current risk management principles
and practices, which may have been gained through
Michael Tze Hau LEE
Joseph Chung Yin POON
current or previous experience on another public company
board committee that oversees risk management; role
at another public company as “chief risk officer” or risk
management executive; role at another public company
as chief executive officer or chief financial officer.
7. Human Resources / Compensation
An understanding of the principles and practices relating Joseph Chung Yin POON
Philip Yan Hok FAN
to Human Resources and / or actual “hands-on”
experience in managing or overseeing Human Resources
in another major company, including experience in:
compensation plan design and administration;
leadership development / talent management;
succession planning; and compensation decision-making,
including risk-related aspects of compensation.
(Directors’ full biographies are set out on pages 60 to 63 and are also available on the Company’s website:
www.hysan.com.hk)
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
Corporate Governance Report
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 Nomination Committee reviewed the proposed appointment of a new Independent
non-executive Director in November 2012. At the same meeting, the Committee carried out
a detailed review of director independence. It concluded that each of the 4 Independent
non-executive Directors (including the then proposed appointee) was independent as at that
time. Independent non-executive Directors are identified in our Annual and Interim Reports
and other communications with shareholders. The Board will continually monitor and review
whether there are relationships or circumstances that are likely to affect (or could appear to
affect) independence.
Independence Status
Name
Management
Independent
Not
Independent
November 2012 Review –
Reason for Independence Status
Nicholas Charles ALLEN
Frederick Peter
CHURCHOUSE
Philip Yan Hok FAN
Hans Michael JEBSEN
Siu Chuen LAU
Anthony Hsien Pin LEE
Chien LEE
Irene Yun Lien LEE
Michael Tze Hau LEE
Joseph Chung Yin POON
Gerry Lui Fai YIM
(up to 14 May 2012)
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
72
Hysan Annual Report 2012
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.
The Board also moved to electronic Board papers via iPad – a contribution, albeit small,
towards supporting our objective of reducing the use of printed paper across our business in
light of sustainability. It also clearly demonstrates the Board’s willingness to embrace new
technology and further enhance the effectiveness of communications.
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. Monthly reports to Non-executive Directors are
issued, 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 purposes 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, BUSINESS AWARENESS AND DEVELOPMENT
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 briefing 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.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
Directors’ Induction Package
The contents of the induction package are reviewed from time to time in light of the nature of
the Group’s activities and the needs of the individuals concerned. They cover the following:
Directors’ Duties
• Memorandum on the Duties and Responsibilities of Directors
• The Company’s Code for Securities Dealing by Directors
• Checklist for disclosure of interests by Directors
• Checklist of circumstances that require notification by Director to the Company
The Company’s Business
• Annual business plan, treasury investment and financing plan
• Company organisation and corporate structure charts
• Details of any major litigation
• Summary details of major group insurance policies including Directors and Officers’
Liabilities Insurance
Board Process and Current Board Issues
• Minutes of Board and Board committee meetings
• Brief biographical details of all Directors, the Company Secretary and other key executives
• Details of Board committees together with terms of references
• Key corporate governance documents
Through the course of their directorship, Directors are updated on any developments or
changes affecting the Company and their obligations to it at regular Board meetings.
In order to ensure that Directors continue to further their understanding of the issues
facing the Group, we have further strengthened the provision of management presentations,
visits to our property portfolio, presentations by industry experts on market environment
affecting the property leasing industry, and regulatory issues. The following is a summary of
Director training provided by us and participated by Directors during the year. In addition to
activities organised by us, Directors also participated in other forms of training.
Directors
Executive
Irene Yun Lien LEE
Siu Chuen LAU
Wendy Wen Yee YUNG
Independent non-executive
Nicholas Charles ALLEN
Frederick Peter CHURCHOUSE
(appointed on 10 December 2012)
Philip Yan Hok FAN
Joseph Chung Yin POON
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
2012 Training Matters organised by Hysan
(Note)
a, b, c
a, b, c
a, b, c
a, b, c
Not applicable
a, b
a, b, c
a, c
a, b, c
a, b
a, b
Note:
a. regulatory update
b. macro environment and competitive landscape affecting the Group’s leasing business
c. update relating to sustainability
74
Hysan Annual Report 2012
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.
To further strengthen the independence of the Non-executive Directors and to enable them
to discuss more freely the evaluation of performance of the Board as well as the Group’s
management, the Non-executive Directors also had an additional formal meeting during
2012 without the presence of executive members or Board members relating to the
founding Lee family.
Board Committees in 2012
In order to provide effective oversight and leadership and pursuant to its Corporate
Governance Guidelines, the Board has established 3 governance-related Board Committees
as detailed below. 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.
In addition, the Board established a Strategy Committee to review the long-term strategy of
the Group. It is currently chaired by Irene Yun Lien LEE, Board Chairman, and its other
members are Siu Chuen LAU (Deputy Chairman and Chief Executive Officer), Nicholas
Charles ALLEN, Philip Yan Hok FAN and Chien LEE. During the year, one meeting was held,
with invitations extended to all Board members.
AUDIT COMMITTEE
COMPOSITION AND MEETINGS SCHEDULE
The Audit Committee is currently chaired by Nicholas Charles ALLEN (Independent
non-executive Director), and its other members are Anthony Hsien Pin LEE and
Philip Yan Hok FAN. There is an overall majority of Independent non-executive Directors.
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 a “Big Four” international firm. The Audit Committee had three meetings
during the year. At the invitation of the Audit Committee, meetings are also attended by the
Chairman and members of management (including the Chief Executive Officer and the
Chief Financial Officer).
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. Formal statements of
responsibilities of Directors in relation thereto are contained elsewhere in this Annual
Report. 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 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.
Pre-meeting sessions
with external and
internal auditors held
without management
presence
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
ACTIVITIES AND REPORT IN 2012 AND TO DATE
Full details of the activities of the Audit Committee are also set out in the “Audit Committee
Report” on pages 97 and 98. Three meetings were held during the year. Attendance of
Audit Committee meetings is set out in the table on page 69. In addition to reviewing and
approving annual and interim financial statements, the Committee had a separate meeting
focusing on internal controls and risk management. During the year, a focus was placed on
further strengthening our risk identification and assessment process, and adopting more
frequent and structured internal controls and risk management reporting to the Committee
and the Board. (Details are also set out in the “Internal Controls and Risk Management”
Report on pages 54 to 57)
REMUNERATION COMMITTEE
COMPOSITION AND MEETINGS SCHEDULE
The Group established the Remuneration Committee in 1987 to review the compensation
of Executive Directors. The current Remuneration Committee is chaired by Philip Yan Hok
FAN, Independent non-executive Director. The other members of the Remuneration
Committee are Michael Tze Hau LEE and Joseph Chung Yin POON (Independent
non-executive Director, appointed in March 2012). It currently has an overall majority of
Independent non-executive Directors. The Remuneration Committee generally meets at
least once every year.
ROLES AND AUTHORITY
Management makes recommendations to the Remuneration Committee on Hysan’s
framework for, and cost of, Executive Director remuneration. The Committee then reviews
these, and makes recommendations to the Board. The Remuneration Committee also
reviews the fee payable to Non-executive Directors prior to its being submitted for approval
at the AGM. In addition, it also reviews 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. No Director is involved in deciding his or her
own remuneration.
ACTIVITIES AND REPORT IN 2012 AND TO DATE
Full details of the activities of the Remuneration Committee are set out in the “Directors’
Remuneration and Interests Report” on pages 89 to 96. A meeting was held during the
year. Attendance of Remuneration Committee meeting is set out in the table on page 69.
NOMINATION COMMITTEE
COMPOSITION AND MEETINGS SCHEDULE
The Board established a Nomination Committee in 2005. The Nomination Committee is
currently chaired by Irene Yun Lien LEE, Chairman of the Board and has a majority of
Independent non-executive Directors. The other members of the Nomination Committee
during the year are Philip Yan Hok FAN and Chien LEE. Nicholas Charles ALLEN and
Joseph Chung Yin POON, both Independent non-executive Directors, were appointed in
March 2012. Gerry Lui Fai YIM (then Chief Executive Officer) resigned from the Committee
at the same time, in line with good corporate governance practices. It currently has a
majority of Independent non-executive Directors.
76
Hysan Annual Report 2012 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. During the year, its role has been extended to
cover review of independence of Directors pursuant to new Listing Rules requirements. 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.
A meeting was held during the year to (i) review and refine terms of reference of the
Nomination Committee in light of new Listing Rules requirements; (ii) review the structure,
size, and composition of the Board; (iii) consider the appointment of Frederick Peter
CHURCHOUSE as Independent non-executive Director; and (iv) assess the independence of
Independent non-executive Directors. Attendance of Nomination Committee meeting is set
out in the table on page 69.
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.
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.
77
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
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. Shareholders are 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.
Shareholders may raise enquiries to the Board by contacting the Group’s Investors
Relations function.
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 Chief
Executive Officer, Chief Financial Officer, 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. There are presentations to or conference calls with
analysts and investors at the time of announcement of results. During the year, we have
further strengthened our programme and extended the scope of our coverage of investors
and analysts, including attending investor roadshows. To provide more detailed knowledge
of the Group, the Company also arranged analyst visits to Company properties and project
site. Investor relations reports describing investor and analyst opinions are provided
regularly to the Board.
78
Hysan Annual Report 2012 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 to our AGMs, in addition to the
statutory part of the meeting. Topics covered at the last AGM included the business
environment in 2011, a review of business activities, and the Company’s outlook for 2012.
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. It has been
updated in light of the new “inside information” disclosure regime under the Securities and
Futures Ordinance, effective January 2013. (Details of the Corporate Disclosure Policy are
available at the Company’s website: www.hysan.com.hk)
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.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 Corporate Governance Report
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 were 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
(“5% Shareholder”) 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 (49/F, The Lee Gardens, 33 Hysan Avenue, Hong Kong. Attention: The Company
Secretary). Any 5% Shareholder may also requisition for the circulation of resolutions to be
moved at a general meeting; and circulation of statements regarding resolution proposed.
The special documents should be deposited at the Company’s registered address as
detailed above.
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.
No changes have been made to the Company’s Memorandum and Articles of Association
during the year.
80
Hysan Annual Report 2012 The Directors submit their report together with the audited financial statements for the year ended 31 December 2012, which
were approved by the Board of Directors (the “Board”) on 6 March 2013.
PRINCIPAL ACTIVITIES
The principal activities of the Group continued throughout 2012 to be property investment, management, and development.
Details of the Group’s principal subsidiaries and associates as at 31 December 2012 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 operating 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 2012 are set out in the consolidated income statement on page 102.
The first interim dividend of HK17 cents per share, amounting to approximately HK$180 million, was paid to shareholders
during the year.
With effect from the year ended 31 December 2012, the Company intends to pay two interim dividends instead of final
dividends. Second interim dividends will be in lieu of final dividends. It will not be accompanied by a scrip alternative.
The Board declares a second interim dividend of HK78 cents per share to the shareholders on the register of members on
21 March 2013, absorbing approximately HK$829 million. The dividends declared and paid for ordinary shares in respect of the
full year 2012 will absorb approximately HK$1,009 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 106 and 107 and note 32 to the financial statements respectively.
INVESTMENT PROPERTIES
All of the Group’s investment properties were revalued by an independent professional valuer as at 31 December 2012 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 2012 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 31 to the financial statements.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Directors’ Report 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 64 to 80 – 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 89 to 96) – it gives detailed information of Directors’ remuneration
and interests (including information on Directors’ compensation, service contracts, Directors’ interests in shares; contracts
and competing business);
(c) “Audit Committee Report” (pages 97 and 98) – 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 54 to 57) – it sets out the Company’s framework on internal
controls and risks assessment including control environment, control activities, work done during the year and the focus for
2013; 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 Irene Yun Lien LEE, Chairman, with Siu Chuen LAU as Deputy Chairman and Chief Executive Officer.
Wendy Wen Yee YUNG serves as Executive Director and Company Secretary. There are eight other Non-executive Directors.
Irene Yun Lien LEE, Chairman, assumed an executive capacity effective 8 March 2012. Siu Chuen LAU was appointed
Non-executive Deputy Chairman effective 8 March 2012. He was appointed Deputy Chairman and Chief Executive Officer after
the resignation of Gerry Lui Fai YIM as Chief Executive Officer, both effective as from the conclusion of the May 2012
Annual General Meeting.
Frederick Peter CHURCHOUSE was appointed Independent non-executive Director effective 10 December 2012.
Kam Wing LI served as alternate Director throughout the year.
Save as otherwise mentioned, other Directors whose names and biographies appear on pages 60 to 63 have been Directors of
the Company throughout the year.
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. The Nomination Committee also reviewed director independence in a meeting held in November 2012. (see
Corporate Governance Report)
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Hysan Annual Report 2012Directors’ Report continued 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 89 to 96.
SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS IN SHARES
As at 31 December 2012, the interests or short positions of substantial shareholders and other persons of the Company, in
the shares and underlying shares of the Company as recorded in the register required to be kept under section 336 of the
Securities and Futures Ordinance (“SFO”), or as otherwise notified to the Company, were as follows:
Aggregate long positions in shares and underlying shares of the Company
Name
Capacity
Lee Hysan Estate Company, Limited
Lee Hysan Company Limited
Beneficial owner and
interests of
controlled corporations
Interests of controlled
corporations
Number of
ordinary
shares held
433,130,735
(Note b)
433,130,735
(Note b)
% of the
issued
share
capital
(Note a)
40.75
40.75
Silchester International Investors LLP
Investment manager
63,614,000
5.98
Notes:
(a) The percentage has been compiled based on the total number of shares of the Company in issue as at 31 December 2012 (i.e.
1,063,007,056 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 2012.
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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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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 arrangement was entered into by Perfect Win Properties Limited, a wholly-owned subsidiary of the
Company and property owner of The Lee Gardens, as landlord, with Oxer Limited (“Oxer”), 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
Oxer Limited
(Note b)
14 June 2010
(Lease and Carpark
Licence Agreement)
3 years commencing
from 1 July 2010
Rooms 3703 and
3704 on the 37th
Floor and
1 carparking
space
Annual consideration
(Note a)
2012: HK$1,639,176
HK$821,238
2013:
(on pro-rata basis)
(Note c)
(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)
(ii) Hang Seng
Bank Limited
(Note d)
31 March 2010
3 years commencing from
1 September 2010
Office units on the
28th, 30th and
31st Floors
2012: HK$20,802,552
2013: HK$13,868,368
(on pro-rata basis)
15 October 2007
(Note e)
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)
Shop G13A on the
Ground Floor and
Shops 2-10 and
11-12 on the Lower
Ground Floor
2012: HK$17,869,680
2013: HK$14,267,446
(on pro-rata basis)
(Notes g & h)
84
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Hysan Annual Report 2012Directors’ Report continued
CONTINUING CONNECTED TRANSACTIONS continued
I.
(b) Lee Gardens Two, 28 Yun Ping Road, Hong Kong (“Lee Gardens Two”) continued
Leases granted by the Group continued
Connected person
Date of agreement
Terms
Premises
Annual consideration
(Note a)
(iii) Pearl
Investments
(HK) Limited
(Note i)
24 May 2011
(Lease and Carpark
Licence Agreement)
3 years commencing
from 15 May 2011
Room 1401C on the 2012: HK$2,057,796
2013: HK$2,061,096
14th Floor and
HK$764,600
1 carparking space 2014:
(on pro-rata basis)
(Note c)
(iv) MF Jebsen
7 September 2010
International
Limited
(Note j)
3 years commencing from
1 February 2011
(Note j)
Office units on
the 25th Floor
2012: HK$7,213,548
HK$601,129
2013:
(on pro-rata basis)
(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 40.75% interest). Details of the lease are set out
below:
Connected person
Date of agreement
Terms
Premises
Atlas Corporate
Management
Limited
4 November 2011
3 years commencing from Whole of 21st Floor
1 November 2011
Annual consideration
(Note a)
2012: HK$2,799,540
2013: HK$2,799,540
2014: HK$2,332,950
(on pro-rata basis)
II. Provision of leasing and property management services to a non wholly-owned subsidiary regarding Lee Gardens Two
(a) The following management agreement was entered into by Hysan Leasing Company Limited (“Hysan Leasing”), a
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
31 March 2010
3 years commencing from Whole premises of
Lee Gardens Two
1 April 2010
HK$21,065,721
(Note k)
(b) The following management agreement was entered into by Hysan Property Management Limited, a 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
31 March 2010
3 years commencing from Whole premises of
Lee Gardens Two
1 April 2010
HK$3,064,207
(Note k)
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
CONTINUING CONNECTED TRANSACTIONS continued
Notes:
(a) The annual considerations are based on current rates of rental, operating charges, (for retail premises) promotional levies and (for
carparking spaces) licence fees for each of the relevant financial years as provided in the relevant agreements. 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 licence fees of fixed carparking spaces were revised with effect from 1 December 2012 while the rental and operating charges of the
leases 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.
(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) Pursuant to an endorsement dated 22 November 2010 as mentioned in Note (e) above, the rent for the period from 15 October 2010 to
14 October 2013 was revised at the then prevailing market rent.
(h) The retail monthly operating charges were revised with effect from 1 January 2012 and further revised on 1 January 2013. The
promotional levies were revised with effect from 1 January 2013.
(i)
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.
(j) MF Jebsen International Limited is a connected person of the Company by virtue of its being controlled (more than 50%) by the brother of
Hans Michael JEBSEN, Non-executive Director of the Company. The lease was early terminated on 31 January 2013.
(k) These represent the actual consideration received for the year ended 31 December 2012, 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 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.
86
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Hysan Annual Report 2012Directors’ Report continued CONTINUING CONNECTED TRANSACTIONS continued
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 84 to 87 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 1.08% from the calculation of the revenue test (the percentage ratios for assets ratio and
consideration ratio are 0.03% 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 1.10% from the calculation of the revenue test (the percentage ratios for assets
ratio and consideration ratio are 0.03% and 0.05% respectively).
Details of the above Transactions are set out under I(b)(i) and II(a) of “Continuing Connected Transactions”.
MAJOR CUSTOMERS AND SUPPLIERS
During the year, 31.31% of the aggregate amount of purchases were attributable to the Group’s 5 largest suppliers with the
largest supplier accounting for 13.69% 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.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 DONATIONS
During the year, the Group made donations of approximately HK$0.5 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
2013 AGM.
By Order of the Board
Irene Yun Lien LEE
Chairman
Hong Kong, 6 March 2013
88
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Hysan Annual Report 2012Directors’ Report continued DIRECTOR COMPENSATION
Remuneration Committee
The Board recognises the significance of having in place a transparent and objective process for determining Executive Director
compensation. The Remuneration Committee (first established in 1987) reviews and determines the remuneration of Executive
Directors as well as recommending for shareholder approval fees payable to Non-executive Directors.
The Remuneration Committee currently has 3 members (with a majority of Independent non-executive Directors). It is chaired
by Philip Yan Hok FAN, Independent non-executive Director and the other members are Joseph Chung Yin POON, 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. Fees payable to other Non-executive Directors are
reviewed from time to time. Independent professional advice will be sought where appropriate. On matters other than those
concerning them, the Chairman and Chief Executive Officer may be invited to Committee meetings. No Director is involved in
deciding his own remuneration.
Executive Director 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); and (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.
Details of Director (including individual Executive Director) emoluments for year 2012 and options movement during the year are
set out in notes 12 and 39 respectively to the financial statements.
Non-executive Director Remuneration Policy
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 semi-annually.
• Non-executive Directors do not receive share options from the Company.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Directors’ Remuneration and Interests Report DIRECTOR COMPENSATION continued
Non-executive Director Remuneration Policy continued
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$1,889,726.78 for 2012.
2012 Review
The Committee met in March 2012 with all members present to approve the 2012 annual fixed base salary and determine the
2011 performance-based bonus of the Executive Directors including new package of the Chairman (who assumed an executive
capacity as from 8 March 2012). The Chairman’s new package was set at the same level as the former Executive Chairman,
with inflationary adjustment since 2010. In May 2012, the Committee considered and approved the annual remuneration
package of Deputy Chairman and Chief Executive Officer (whose appointment was effective 14 May 2012).
The executive packages and fee levels were set at levels to ensure comparability and competitiveness with Hong Kong based
companies competing within a similar talent pool, with particular emphasis on the property industry. Clear performance targets
were set for Executive Directors.
March 2013 Review
The Committee met in March 2013 to review 2013 Executive Director compensation packages and 2012 performance–based
bonus. All members attended the meeting.
Current Director Fee Levels
Director fees are subject to shareholder approval at general meeting. The current fee scale for Directors and Board Committee
members are set out below. Executive Directors will not receive any fee.
Board of Directors (Non-executive Directors only)
Chairman
Director
Audit Committee
Chairman
Member
Remuneration Committee
Chairman
Member
Other Committees
Chairman
Member
Per annum
HK$
400,000
200,000
100,000
60,000
50,000
40,000
30,000
20,000
90
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DIRECTOR COMPENSATION continued
Long-term incentives: Share Option Scheme
The Company has outstanding options under an executive share option scheme. The purpose of the scheme was to strengthen
the link between individual staff and shareholder interests. The power of grant to Executive Directors is vested in the
Remuneration 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 scheme of the Company are summarised as follows:
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 be expiring on 9 May 2015.
The maximum number of shares in respect of which options may be granted under the 2005 Scheme and any other share
option scheme of the Company shall not exceed such number of shares as required under the Listing Rules, currently being
10% of the shares in issue 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$1 and is required to be paid within 30 days
from the date of grant of option, with full payment for exercise price to be made on exercise of the relevant option.
Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Vesting period is 3 years in equal proportions
starting from the 1st anniversary and become fully vested on the 3rd anniversary of the grant. Size of grant will be determined
by reference to base salary multiple and job grades. A clear performance criterion will be a key driver. The Board will review the
grant and vesting structures from time to time.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 DIRECTOR COMPENSATION continued
Long-term incentives: Share Option Scheme continued
Movement of share options
During the year, a total of 1,334,000 shares options were granted under the 2005 Scheme.
As at 31 December 2012, an aggregate of 2,291,668 shares are issuable for options granted (including 898,323 fully-vested
shares options) under the 2005 Scheme, representing approximately 0.22% of the issued share capital of the Company.
As at the date of this Report, 96,620,100 shares are issuable under the 2005 Scheme representing 9.09% of the issued share
capital.
Details of options granted, exercised, cancelled/lapsed and outstanding under the 2005 Scheme during the year are as follows:
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2012
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2012
(Note b)
Changes during the year
Executive Directors
Irene Yun Lien LEE
Siu Chuen LAU
14.5.2012 33.500 14.5.2012 –
13.5.2022
(Note c)
14.5.2012 33.500 14.5.2012 –
13.5.2022
(Note c)
–
261,000
–
242,000
–
–
–
261,000
–
242,000
Gerry Lui Fai YIM
(Note d)
1.12.2009 22.800 1.12.2009 –
30.11.2019
218,000
10.3.2011 35.710 10.3.2011 –
9.3.2021
217,000
–
–
(145,333)
(Note e)
(72,667)
–
(217,000)
9.3.2012 33.790
(Note f)
9.3.2012 –
8.3.2022
–
239,000
–
(239,000)
–
–
–
Wendy Wen Yee YUNG 30.3.2007 21.250 30.3.2007 –
29.3.2017
95,000
31.3.2008 21.960 31.3.2008 –
30.3.2018
100,000
11.3.2009 11.760 11.3.2009 –
10.3.2019
100,000
11.3.2010 22.100 11.3.2010 –
10.3.2020
185,000
10.3.2011 35.710 10.3.2011 –
9.3.2021
103,000
–
–
–
–
–
9.3.2012 33.790
(Note f)
9.3.2012 –
8.3.2022
–
113,000
–
–
–
–
–
–
–
95,000
– 100,000
– 100,000
– 185,000
– 103,000
– 113,000
92
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Hysan Annual Report 2012Directors’ Remuneration and Interests Report continued
DIRECTOR COMPENSATION continued
Long-term incentives: Share Option Scheme continued
Movement of share options continued
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Eligible employees
(Note g)
31.3.2008 21.960 31.3.2008 –
30.3.2018
2.5.2008 23.900
2.5.2008 –
1.5.2018
2.10.2008 20.106 2.10.2008 –
1.10.2018
Balance
as at
1.1.2012
23,000
95,000
85,000
31.3.2009 13.300 31.3.2009 –
30.3.2019
262,668
31.3.2010 22.450 31.3.2010 –
30.3.2020
441,001
31.3.2011 32.000 31.3.2011 –
30.3.2021
370,000
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2012
(Note b)
–
–
–
–
–
–
(6,000)
(Note h)
(95,000)
(Note i)
(85,000)
(Note j)
(69,668)
(Note k)
(102,333)
(Note l)
(4,000)
(Note m)
–
–
–
17,000
–
–
(23,000) 170,000
(66,000) 272,668
(105,000) 261,000
30.3.2012 31.610 30.3.2012 –
29.3.2022
(Note n)
–
479,000
–
(107,000) 372,000
2,294,669 1,334,000
(507,334)
(829,667) 2,291,668
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions starting from the 1st anniversary and become fully vested on the
3rd anniversary of the grant.
(b) The options lapsed during the year upon resignations of a Director and certain eligible employees.
(c) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 11 May 2012) was HK$33.00.
(d) Gerry Lui Fai YIM resigned as Chief Executive Officer and Executive Director of the Company as from the conclusion of 2012 AGM held on
14 May 2012.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.60.
(f)
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 8 March 2012) was HK$33.45.
(g) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$35.35.
(i)
(j)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$32.55.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.60.
(k) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$32.95.
(l)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$31.03.
(m) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.10.
(n) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 29 March 2012) was HK$31.10.
Apart from the above, the Company had not granted any share option under the 2005 Scheme to any other persons as required
to be disclosed under Rule 17.07 of the Listing Rules.
Particulars of the 2005 Scheme are set out in note 39 to the financial statements.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
DIRECTOR COMPENSATION continued
Long-term incentives: Share Option Scheme 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 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
14.5.2012
30.3.2012
9.3.2012
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:
HK$33.500
HK$33.500
0.449%
5 years
40.715%
HK$0.698
HK$10.212
HK$31.100
HK$31.610
0.606%
5 years
40.389%
HK$0.698
HK$9.210
HK$33.050
HK$33.790
0.535%
5 years
40.197%
HK$0.698
HK$9.740
(a) Risk free rate: being the approximate yields of 5-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 5 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 5 years
immediately before the date of grant.
(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).
94
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Hysan Annual Report 2012Directors’ Remuneration and Interests Report continued DIRECTORS’ INTERESTS IN SHARES
As at 31 December 2012, 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
60,984
Siu Chuen LAU
Irene Yun Lien LEE
Chien LEE
Wendy Wen Yee YUNG
Notes:
–
30,000
800,000
378,000
–
–
–
–
–
2,473,316
(Note b)
100,115
(Note c)
–
–
–
–
2,534,300
0.238
–
–
–
–
100,115
0.009
30,000
800,000
378,000
0.003
0.075
0.036
(a) This percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,063,007,056 ordinary shares)
as at 31 December 2012.
(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) 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 2005 Scheme (details are set out in the
section headed “Long-term incentives: Share Option Scheme” 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 2012 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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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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, in accordance with Listing
Rules disclosure requirements) 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)
Irene Yun Lien LEE, Siu Chuen LAU, Anthony Hsien Pin LEE, Chien LEE and Michael Tze Hau LEE 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, save
and except Irene Yun Lien LEE and Siu Chuen LAU, 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.
The Board also has a process in place to regularly review and resolve situations where a Director may have a conflict of interest.
By Order of the Board
Wendy W.Y. YUNG
Executive Director and Company Secretary
Hong Kong, 6 March 2013
96
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Hysan Annual Report 2012Directors’ Remuneration and Interests Report continued
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.
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 3 meetings during the year, on 5 March, 3 August and 15 November 2012. All the meetings were attended
by Nicholas Charles ALLEN, Philip Yan Hok FAN and Anthony Hsien Pin LEE. The meetings in March 2012 and August 2012
were held to consider the financial statements for the 2011 annual report and 2012 interim report respectively. An additional
meeting was held in November to review the Group’s internal controls and risk management process; and miscellaneous issues
not directly related to the approval of financial statements and results announcements. The Committee last met on 4 March
2013 to consider the financial statements for the year ended 31 December 2012.
Details on the meeting held in March 2012 were set out in the 2011 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 the Group’s financial statements
including the selection of suitable accounting policies. The external auditor is responsible for auditing and attesting to the
Group’s 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 2012
:
• March 2013
:
The Committee reviewed and recommended to the Board for approval of the unaudited financial
statements for the first 6 months of 2012, 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 2012 financial
statements included in the 2012 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’s 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
2012, with the Independent Auditor’s Report thereon.
REVIEW OF INTERNAL CONTROLS AND RISK MANAGEMENT SYSTEMS
•
August and
:
November 2012
The Committee considered the reports of Internal Audit, including status in implementing its
recommendations.
The Committee received update reports from management on key risks facing the Group; and
progress in implementing an improvement programme to further strengthen agreed aspects of
the Group’s internal controls and risk management system, including the risk identification and
assessment process. The ultimate aim is to make system a “live” one practised on a day-to-day
basis by operating units.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Audit Committee Report
REVIEW OF INTERNAL CONTROLS AND RISK MANAGEMENT SYSTEMS continued
• March 2013
:
2012 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 which might affect financial,
operational and compliance controls and risk management functions.
RELATIONSHIP WITH EXTERNAL AUDITOR
•
August 2012
:
The Committee reviewed and considered the terms of engagement of the external auditor in respect
of: 2012 annual audit, the related results announcement, and annual review of continuing connected
transactions.
• November 2012 :
The Committee reviewed the Group’s Auditor Services Policy.
• March 2013
:
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 2013.
The Committee also reviewed and considered the 2013 Audit Service Plan of the external auditor,
and the terms of its engagement in respect of the 2013 interim results review.
For the year ended 31 December 2012, external auditor received a total fee of HK$2,352,000 (audit
services: HK$2,020,000 and non-audit services: HK$332,000).
Members of the Audit Committee
Nicholas Charles ALLEN (Chairman)
Philip Yan Hok FAN
Anthony Hsien Pin LEE
Hong Kong, 6 March 2013
98
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Hysan Annual Report 2012Audit Committee Report continued 4
Financial Statements
and Valuation
100 Directors’ Responsibility
108 Consolidated Statement
for the Financial
Statements
of Cash Flows
110 Significant Accounting
101 Independent Auditor’s
Policies
Report
120 Notes to the Financial
102 Consolidated Income
Statements
Statement
103 Consolidated Statement
of Comprehensive Income
104 Consolidated Statement
of Financial Position
105 Statement of Financial
Position
106 Consolidated Statement
of Changes in Equity
161 Financial Risk Management
170 Five-Year Financial
Summary
172 Report of the Valuer
173 Schedule of Principal
Properties
175 Shareholding Analysis
176 Shareholder Information
Hysan AR E.indb 99
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99
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 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.
100
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Hysan Annual Report 2012Directors’ Responsibility for the Financial Statements To the Members of Hysan Development Company Limited
(incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of Hysan Development Company Limited (the “Company”) and its
subsidiaries (collectively referred to as the “Group”) set out on pages 102 to 169, which comprise the consolidated and
Company’s statements of financial position as at 31 December 2012, 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 Consolidated Financial Statements
The directors of the Company are responsible for the preparation of consolidated 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 consolidated 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 consolidated financial statements based on our audit and to report our
opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other
purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We
conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public
Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the
Group as at 31 December 2012, and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong
Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
6 March 2013
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101
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Independent Auditor’s Report 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
2012
HK$ million
2011
HK$ million
4
6
7
8
9
10
15
2,486
(423)
2,063
55
18
(187)
(156)
8,533
334
10,660
(289)
10,371
9,955
416
10,371
938.02
937.59
1,922
(262)
1,660
90
(34)
(173)
(122)
7,532
254
9,207
(217)
8,990
8,545
445
8,990
808.34
807.71
102
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Hysan Annual Report 2012Consolidated Income StatementFor the year ended 31 December 2012
Profit for the year
Other comprehensive income:
Net gains (losses) arising from equity investments designated as at
fair value through other comprehensive income
Net gains arising from derivatives designated as 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
2012
HK$ million
2011
HK$ million
10,371
8,990
115
16
33
2
166
(121)
4
71
155
109
10,537
9,099
10,121
416
10,537
8,654
445
9,099
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103
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2012
Non-current assets
Investment properties
Property, plant and equipment
Investments in associates
Principal-protected investments
Term notes
Equity investments
Other financial assets
Other receivables
Current assets
Accounts receivable and other receivables
Principal-protected investments
Term notes
Other financial assets
Tax recoverable
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Borrowings
Other financial liabilities
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
Notes
2012
HK$ million
2011
HK$ million
16
17
19
20
21
22
23
24
24
20
21
23
26
26
27
28
29
23
29
23
30
31
60,022
580
3,759
160
527
1
57
243
65,349
158
218
383
2
2
2,158
153
3,074
469
190
327
699
5
77
1,767
1,307
49,969
530
3,423
365
259
989
68
163
55,766
134
265
171
71
–
2,899
62
3,602
532
170
327
1,507
19
73
2,628
974
66,656
56,740
5,242
25
508
434
6,209
5,156
50
430
360
5,996
60,447
50,744
5,315
52,808
58,123
2,324
60,447
5,299
43,454
48,753
1,991
50,744
The consolidated financial statements on pages 102 to 169 were approved and authorised for issue by the Board of Directors
on 6 March 2013 and are signed on its behalf by:
Irene Y.L. LEE
Director
S. C. LAU
Director
104
Hysan AR E.indb 104
13年3月21日 下午7:05
Hysan Annual Report 2012Consolidated Statement of Financial PositionAt 31 December 2012
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Other financial assets
Amounts due from subsidiaries
Current assets
Other receivables
Amounts due from subsidiaries
Tax recoverable
Time deposits
Cash and bank balances
Current liabilities
Other payables and accruals
Amounts due to subsidiaries
Taxation payable
Net current assets
Total assets less current liabilities
Non-current liability
Deferred taxation
Net assets
Capital and reserves
Share capital
Reserves
Total equity
Notes
2012
HK$ million
2011
HK$ million
17
18
23
25
25
26
26
25
30
31
32
22
1,603
2
3,797
5,424
3
8,984
2
55
93
9,137
35
1,337
–
1,372
7,765
13,189
10
1,904
2
5,126
7,042
5
6,088
–
466
25
6,584
36
480
5
521
6,063
13,105
1
1
13,188
13,104
5,315
7,873
5,299
7,805
13,188
13,104
The financial statements on pages 102 to 169 were approved and authorised for issue by the Board of Directors on 6 March
2013 and are signed on its behalf by:
Irene Y.L. LEE
Director
S. C. LAU
Director
Hysan AR E.indb 105
13年3月21日 下午7:05
105
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Statement of Financial PositionAt 31 December 2012
At 1 January 2011
5,267
1,754
16
276
100
959
(44)
204
256
31,889
40,677
1,640
42,317
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
Profit for the year
Net losses arising from equity 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
(note 30)
Share of translation reserve of an associate
Total comprehensive (expenses) income 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)
Transfer to retained profits upon disposal of equity investments
–
–
–
–
–
–
–
–
26
6
–
–
–
–
–
–
–
–
–
–
–
–
159
21
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
7
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2011
5,299
1,934
15
276
100
(40)
275
411
39,678
48,753
1,991
50,744
Profit for the year
Net gains arising from equity 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
(note 30)
Share of translation reserve of an associate
Total comprehensive income 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)
Transfer to retained profits upon disposal of equity investments
–
–
–
–
–
–
–
–
14
2
–
–
–
–
–
–
–
–
–
–
–
–
76
12
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
8
(5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2012
5,315
2,022
14
276
100
(3)
(24)
308
413
49,702
58,123
2,324
60,447
(121)
8,545
8,654
445
9,099
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(121)
(33)
805
115
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(923)
–
–
(25)
29
–
–
–
4
–
–
–
–
–
–
–
–
12
4
–
–
–
–
–
–
–
–
–
–
–
–
–
85
(14)
–
71
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40
(7)
–
33
155
155
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
8,545
445
(791)
33
(791)
(94)
(885)
9,955
416
10,371
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
5
8,545
(121)
(25)
29
85
(14)
155
185
21
7
–
–
9,955
115
12
4
40
(7)
2
90
10
8
–
–
8,990
(121)
(25)
29
85
(14)
155
185
21
7
–
–
115
12
4
40
(7)
2
90
10
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(859)
923
(859)
(83)
(942)
115
16
9,955
10,121
416
10,537
106
Hysan AR E.indb 106
13年3月21日 下午7:05
Hysan Annual Report 2012Consolidated Statement of Changes in EquityFor the year ended 31 December 2012
Attributable to owners of the Company
Share
capital
Share
premium
Share
options
reserve
Capital
redemption
reserve
HK$ million
HK$ million
HK$ million
HK$ million
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
At 1 January 2011
Profit for the year
Net losses arising from equity 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
(note 30)
Share of translation reserve of an associate
Total comprehensive (expenses) income 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)
Transfer to retained profits upon disposal of equity investments
At 31 December 2011
Profit for the year
Net gains arising from equity 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
(note 30)
Share of translation reserve of an associate
Total comprehensive income 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)
Transfer to retained profits upon disposal of equity investments
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
26
159
21
14
76
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
7
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
8
(5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,267
1,754
16
276
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,299
1,934
15
276
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
959
–
(121)
–
–
–
–
–
(121)
–
–
–
–
–
(33)
805
–
115
–
–
–
–
–
115
–
–
–
–
–
(923)
(44)
–
–
(25)
29
–
–
–
4
–
–
–
–
–
–
204
256
31,889
40,677
1,640
42,317
–
–
–
–
85
(14)
–
71
–
–
–
–
–
–
–
–
–
–
–
–
155
155
–
–
–
–
–
–
8,545
–
–
–
–
–
–
8,545
(121)
(25)
29
85
(14)
155
445
–
–
–
–
–
–
8,990
(121)
(25)
29
85
(14)
155
8,545
8,654
445
9,099
–
–
–
2
(791)
33
185
21
7
–
(791)
–
–
–
–
–
(94)
–
185
21
7
–
(885)
–
(40)
275
411
39,678
48,753
1,991
50,744
–
–
12
4
–
–
–
16
–
–
–
–
–
–
–
–
–
–
40
(7)
–
33
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
9,955
–
–
–
–
–
–
9,955
115
12
4
40
(7)
2
416
–
–
–
–
–
–
10,371
115
12
4
40
(7)
2
9,955
10,121
416
10,537
–
–
–
5
(859)
923
90
10
8
–
(859)
–
–
–
–
–
(83)
–
90
10
8
–
(942)
–
At 31 December 2012
5,315
2,022
14
276
100
(3)
(24)
308
413
49,702
58,123
2,324
60,447
Hysan AR E.indb 107
13年3月21日 下午7:05
107
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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 (decrease) 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 equity investments
Proceeds on disposal of equity investments
Proceeds upon maturity of principal-protected investments
Proceeds upon maturity of term notes
Proceeds upon maturity of other financial assets
Proceeds upon maturity of time deposits with original maturity
over three months
Repayment from an associate
Payments in respect of investment properties
Purchases of property, plant and equipment
Purchases of term notes
Purchases of other financial assets
Additions to principal-protected investments
Acquisition of a subsidiary
Additions to time deposits with original maturity over three months
Net cash from (used in) investing activities
Note
2012
HK$ million
2011
HK$ million
10,660
9,207
(18)
156
(8,533)
(334)
(3)
(52)
11
8
1,895
(168)
116
98
1,941
(227)
7
1,721
76
3
1,103
265
469
61
2,902
–
(1,595)
(31)
(953)
–
–
–
(1,943)
357
34
122
(7,532)
(254)
(54)
(36)
8
7
1,502
(28)
(31)
149
1,592
(185)
–
1,407
40
54
40
85
91
–
1,928
139
(1,520)
(8)
(264)
(60)
(251)
(19)
(2,802)
(2,547)
33
108
Hysan AR E.indb 108
13年3月21日 下午7:05
Hysan Annual Report 2012Consolidated Statement of Cash FlowsFor the year ended 31 December 2012
Note
2012
HK$ million
2011
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 fixed rate notes
New bank loans
Issue of fixed rate notes
Proceeds on exercise of share options
Net cash (used in) from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
26
(189)
(3)
(2)
(769)
(83)
(150)
(1,357)
–
774
10
(1,769)
309
654
963
(128)
(12)
(2)
(606)
(94)
(849)
–
2,350
554
21
1,234
94
560
654
Hysan AR E.indb 109
13年3月21日 下午7:05
109
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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 “Stock Exchange”). 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.
2. INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are included in the Company’s statement of financial position at cost (including deemed capital
contribution) 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.
110
Hysan AR E.indb 110
13年3月21日 下午7:05
Hysan Annual Report 2012Significant Accounting PoliciesFor the year ended 31 December 2012 4. INVESTMENT PROPERTIES
Investment properties are properties held to earn rental and/or for capital appreciation including properties under
re-development 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 re-development are capitalised as part of the carrying amount of
the investment properties under re-development. Investment properties under re-development are measured at fair value at the
end of the reporting period. Any difference between the fair value of the investment properties under re-development 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 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 properties 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.
Hysan AR E.indb 111
13年3月21日 下午7:05
111
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 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 (“FVTPL”)) 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
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on
the classification of the financial assets.
(i) Classification of financial assets
Debt instruments and hybrid contracts that meet the following conditions are subsequently measured at amortised cost less
impairment loss (except for debt investments that are designated as at fair value through profit or loss on initial recognition):
•
•
the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
All other financial assets are subsequently measured at fair value.
(ii) Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument 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 and points paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the debt instrument, 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 measured subsequently at amortised cost.
Interest income is recognised in profit or loss and is included in the investment income as disclosed in note 6 of the Notes to
the Financial Statements section.
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Hysan Annual Report 2012Significant Accounting Policies continuedFor the year ended 31 December 2012 7. FINANCIAL INSTRUMENTS continued
(a) Financial assets continued
(iii) Financial assets at FVTPL
Investments in equity instruments are classified as at FVTPL, unless the Group designates such investment that is not held for
trading as at fair value through other comprehensive income (“FVTOCI”) on initial recognition (see (a)(iv) below).
Debt instruments that do not meet the amortised cost criteria (see (a)(i) above) are measured at FVTPL. In addition, debt
instruments that meet the amortised cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument
may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or
recognition inconsistency that would arise from measuring assets or liabilities or recognising the gains and losses on them on
different bases.
Debt instruments are reclassified from amortised cost to FVTPL when the business model is changed such that the amortised
cost criteria are no longer met. Reclassification of debt instruments that are designated as at FVTPL on initial recognition is not
allowed.
Financial assets at FVTPL are measured at fair value at the end of the reporting period, with any gains or losses arising on
remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss is included in other gains and
losses as disclosed in note 7 of the Notes to the Financial Statements section. Fair value is determined in the manner
described in note 3 of the notes to the Financial Risk Management section.
The Group or the Company has not designated any debt instrument as at FVTPL or reclassified any debt instruments to or from
FVTPL since the application of Hong Kong Financial Reporting Standard (“HKFRS”) 9.
Interest income on debt instruments as at FVTPL is included in the other gains or losses described above.
(iv) Financial assets at FVTOCI
A financial asset is held for trading if it has been acquired principally for the purpose of selling it in the near term or it is a
derivative that is not designated and effective as a hedging instrument.
On initial recognition, the Group or the Company can make an irrevocable election (on an instrument-by-instrument basis) to
designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is
held for trading.
Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are
measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and
accumulated in the investments revaluation reserve.
The Group or the Company has designated all investments in equity instruments (listed or unlisted) that are not held for trading
as at FVTOCI since the application of HKFRS 9.
Dividends on these investments in equity instruments are recognised in profit or loss when the Group’s or the Company’s right
to receive the dividends is established in accordance with Hong Kong Accounting Standard (“HKAS”) 18 “Revenue”, unless the
dividends clearly represent a recovery of part of the cost of the investment. Dividends earned are recognised in profit or loss
and are included in investment income as disclosed in note 6 of the Notes to the Financial Statements section.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 7. FINANCIAL INSTRUMENTS continued
(b) Impairment of financial assets
Financial assets, other than those at FVTPL and FVTOCI, 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 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, 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.
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, 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 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.
(c) 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 in its entirety, except for a financial asset that is classified as at FVTOCI, the difference
between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.
On derecognition of a financial asset that is classified as at FVTOCI, the cumulative gain or loss previously accumulated in the
investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained profits.
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Hysan Annual Report 2012Significant Accounting Policies continuedFor the year ended 31 December 2012 7. FINANCIAL INSTRUMENTS continued
Financial liabilities and equity instruments
(a) Classification and measurement
Financial liabilities and equity instruments issued by a group entity are classified as financial liabilities or equity instrument
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 subsequently measured at amortised cost. 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, representing those 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 and is included in other gains and losses as disclosed in note 7 of the Notes to the Financial Statements
section.
(ii) Other financial liabilities subsequently measured at amortised cost
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.
Interest expense that is not capitalised as part of costs of an asset is included in finance costs as disclosed in note 8 of the
Notes to the Financial Statements section.
(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.
(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
(including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the 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 at
FVTPL, of which the interest expense is included in other gains or losses as disclosed in note 7 of the Notes to the Financial
Statements section.
(b) 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.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 7. FINANCIAL INSTRUMENTS continued
Derivative financial instruments and hedging
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange
rate risks, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial
instruments are disclosed in note 23 of the Notes to the Financial Statements section.
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.
Embedded derivatives
Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of HKFRS 9 (e.g. financial
liabilities) 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 FVTPL. Derivatives embedded in hybrid contracts that contain financial
asset hosts within the scope of HKFRS 9 are not separated. The entire hybrid contracts are classified and subsequently
measured as either amortised cost or FVTPL as appropriate.
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.
Note 23 of the Notes to the Financial Statements section sets out details of the fair values of the derivative instruments used
for hedging purposes.
(a) 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.
(b) 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 and accumulated in hedging reserve. The gain or loss relating to the ineffective
portion is recognised immediately in profit or loss, and is included in other gains or losses as disclosed in note 7 of the Notes
to the Financial Statements section.
Amounts previously recognised in other comprehensive income and accumulated in hedging reserve are reclassified to profit or
loss in the periods when the hedged item is recognised in profit or loss, in the same line of the consolidated income statement
as the recognised hedged item.
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
hedging reserve 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 hedging reserve
is recognised immediately in profit or loss.
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Hysan Annual Report 2012Significant Accounting Policies continuedFor the year ended 31 December 2012 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. Turnover rent is recognised when
earned.
Management fee income and security service income are recognised when services are rendered.
Dividends on investments in equity instruments are recognised in profit or loss 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), unless the dividends clearly represent a recovery of part of the cost of
the investment in equity instruments designated as at FVTOCI.
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.
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.
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.
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 translation reserve and will be reclassified from translation reserve 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 translation
reserve.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 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.
12. RETIREMENT BENEFIT COSTS
Payments to the Enhanced 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 the initial recognition of 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 is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of
the reporting period.
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Hysan Annual Report 2012Significant Accounting Policies continuedFor the year ended 31 December 2012 13. TAXATION continued
(b) Deferred tax continued
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 for investment properties that are measured using the fair
value model in accordance with HKAS 40 “Investment Property”, 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 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 for such investment properties are measured in
accordance with the above general principles set out in HKAS 12 “Income Taxes” (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.
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 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.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 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”)
The Group and the Company had early applied the Amendments to Hong Kong Accounting Standard (“HKAS”) 12 “Income
Taxes”, in respect of the recognition of deferred tax on investment properties carried at fair value under HKAS 40 “Investment
Property” since the financial year beginning on 1 January 2010. In the current year, the Group and the Company have applied
the Amendments to Standard issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are relevant to
its operations and effective for the financial year beginning on 1 January 2012. The adoption of the Amendments to Standard
had no material effect on the results and financial position of the Group or the Company for the current and/or prior accounting
years.
The Group and the Company have not early applied the following new Standards, Amendments to Standards and Interpretation
that have been issued but are not yet effective.
HKAS 1 (Amendments)
HKAS 19 (2011)
HKAS 27 (2011)
HKAS 28 (2011)
HKAS 32 (Amendments)
HKFRS 7 (Amendments)
HKFRS 10
HKFRS 11
HKFRS 12
HKFRS 13
HKFRS 10, HKFRS 11 and
HKFRS 12 (Amendments)
HKFRS 10, HKFRS 12 and
HKFRS 27 (Amendments)
HKFRSs (Amendments)
HK (IFRIC) – Int 20
Presentation of Items of Other Comprehensive Income1
Employee Benefits2
Separate Financial Statements2
Investments in Associates and Joint Ventures2
Offsetting Financial Assets and Financial Liabilities3
Disclosures – Offsetting Financial Assets and Financial Liabilities2
Consolidated Financial Statements2
Joint Arrangements2
Disclosure of Interests in Other Entities2
Fair Value Measurement2
Consolidation Financial Statements, Joint Arrangements and Disclosure of Interests
in Other Entities: Transition Guidance2
Investment Entities3
Annual Improvements to HKFRSs 2009 – 2011 cycle2
Stripping Costs in the Production Phases of a Surface Mine2
1 Effective for annual periods beginning on or after 1 July 2012.
2 Effective for annual periods beginning on or after 1 January 2013.
3 Effective for annual periods beginning on or after 1 January 2014.
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Hysan Annual Report 2012Notes to the Financial StatementsFor the year ended 31 December 2012 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
(“HKFRSs”) continued
Amendments to HKAS 32 “Offsetting Financial Assets and Financial Liabilities” and
Amendments to HKFRS 7 “Disclosures – Offsetting Financial Assets and Financial Liabilities”
The amendments to HKAS 32 clarify existing application issues relating to the offsetting requirements. Specifically, the
amendments clarify the meaning of “currently has a legally enforceable right of set-off” and “simultaneous realisation and
settlement”.
The amendments to Hong Kong Financial Reporting Standard (“HKFRS”) 7 require entities to disclose information about rights
of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable
master netting agreement or similar arrangement.
The amended offsetting disclosures are required for annual periods beginning on or after 1 January 2013 and interim periods
within those annual periods. The disclosures should also be provided retrospectively for all comparative periods. However,
the amendments to HKAS 32 are not effective until annual periods beginning on or after 1 January 2014, with retrospective
application required.
The Directors of the Company anticipate that the application of these amendments may result in more disclosures in the
consolidated financial statements.
HKFRS 13 “Fair Value Measurement”
HKFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements.
The Standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value
measurements. The scope of HKFRS 13 is broad; it applies to both financial instrument items and non-financial instrument
items for which other HKFRSs require or permit fair value measurements and disclosures about fair value measurements,
except in specified circumstances. In general, the disclosure requirements in HKFRS 13 are more extensive than those in the
current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently
required for financial instruments only under HKFRS 7 “Financial Instruments: Disclosures” will be extended by HKFRS 13 to
cover all assets and liabilities within its scope.
HKFRS 13 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted.
The Directors of the Company anticipate that the application of this new Standard may result in more extensive disclosures in
the consolidated financial statements.
Other than as described above, the Directors of the Company anticipate that the application of the other new Standards,
Amendments to Standards and Interpretation will have no material impact on the results and the financial position of the Group
or the Company.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 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$60,022 million (2011:
HK$49,969 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 re-development potential. In relying on the
valuation, management has exercised their judgment and is satisfied that the method of valuation is reflective of the current
market conditions.
Fair value of financial instruments
Financial instruments, such as interest rate swaps, cross currency swaps and foreign exchange derivatives, are carried in the
Group’s and Company’s statements of financial position at fair value, as disclosed in note 23. The management of the Company
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 operating and reportable segments are as follows:
Retail segment – leasing of space and related facilities to a variety of retail and leisure operators
Office segment – leasing of high quality office space and related facilities
Residential segment – leasing of luxury residential properties and related facilities
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012 5. SEGMENT INFORMATION continued
Segment turnover and results
The following is an analysis of the Group’s turnover and results by operating and reportable segment.
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
For the year ended 31 December 2012
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 2011
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
1,154
96
1,250
(208)
1,042
781
127
908
(150)
758
721
68
789
(104)
685
701
119
820
(102)
718
297
31
328
(65)
263
283
30
313
(56)
257
2,232
254
2,486
(423)
2,063
55
18
(187)
(156)
8,533
334
10,660
1,705
217
1,922
(262)
1,660
90
(34)
(173)
(122)
7,532
254
9,207
All of the segment turnover reported above is from external customers.
The accounting policies of the operating and 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, other gains and losses, administrative expenses (including central administrative costs and directors’
salaries), finance costs, change in fair value of investment properties and share of results of associates. This is the measure
reported to the Chief Executive Officer of the Group for the purpose of resource allocation and performance assessment.
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5. SEGMENT INFORMATION continued
Segment assets
The following is an analysis of the Group’s assets by operating and reportable segment.
As at 31 December 2012
Segment assets
Investments in associates
Other assets
Consolidated assets
As at 31 December 2011
Segment assets
Investment properties under re-development (Note)
Investments in associates
Other assets
Consolidated assets
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
28,918
22,623
8,494
15,092
16,957
8,426
60,035
3,759
4,629
68,423
40,475
9,500
3,423
5,970
59,368
Segment assets represented the investment properties and accounts receivable of each segment without allocation of property,
plant and equipment, investments in associates, 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$3,756 million (2011: HK$3,420 million) and HK$3 million (2011: HK$3 million) respectively, all the
Group’s assets are located in Hong Kong.
Other segment information
For the year ended 31 December 2012
Additions to non-current assets
Additions to investment properties under
re-development (Note)
For the year ended 31 December 2011
Additions to non-current assets
Additions to investment properties under
re-development (Note)
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
958
55
3
444
37
21
1,016
504
1,520
502
1,118
1,620
Note:
The investment properties under re-development were completed during the year.
124
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
6. INVESTMENT INCOME
Investment income comprises:
Dividends from
– listed investments
– unlisted investments
Interest income
The following is an analysis of investment income:
Dividends from equity investments designated as at FVTOCI
Financial assets measured at amortised cost
Reclassification of gains (losses) from hedging reserve on financial instruments
designated as cash flow hedges
2012
HK$ million
2011
HK$ million
3
–
52
55
43
11
36
90
2012
HK$ million
2011
HK$ million
3
48
4
55
54
40
(4)
90
Fair value gains and losses and interest income on financial assets classified as at FVTPL are disclosed in note 7.
7. OTHER GAINS AND LOSSES
Other gains and losses comprise:
Change in fair value of financial assets or financial liabilities classified as at FVTPL
(Losses) gains on hedging instruments under fair value hedge
Gains (losses) on adjustment for hedged items under fair value hedge
2012
HK$ million
2011
HK$ million
18
(11)
11
18
(33)
16
(17)
(34)
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
8. FINANCE COSTS
Finance costs comprise:
Interest on bank loans 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
Other finance costs
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
Medium Term Note Programme expenses
2012
HK$ million
2011
HK$ million
40
3
29
89
15
176
14
(17)
173
(27)
8
2
156
24
2
116
44
14
200
7
(44)
163
(68)
25
2
122
Note:
Interest expenses have been capitalised to investment properties under re-development at an average interest rate of 3.16% (2011: 2.88%) per
annum.
9. TAXATION
Current tax
Hong Kong profits tax
– current year
– (overprovision) underprovision in prior years
Deferred tax (note 30)
2012
HK$ million
2011
HK$ million
224
(2)
222
67
289
207
1
208
9
217
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.
126
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
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
Tax effect of previously unrecognised unused tax losses now recognised as
deferred tax assets
Reversal of previously recognised taxable temporary differences
Utilisation of estimated tax losses previously not recognised
(Overprovision) underprovision in prior years
Taxation for the year
2012
HK$ million
2011
HK$ million
10,660
1,759
(55)
78
(1,493)
5
–
(1)
(2)
(2)
289
9,207
1,519
(42)
46
(1,298)
3
(10)
(2)
–
1
217
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 properties valuation reserve (see note 30).
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
including contingent rentals of HK$104 million
(2011: HK$89 million)
Less:
– Direct operating expenses arising from properties that generated rental income
– Direct operating expenses arising from properties that did not generate rental income
Staff costs, comprising:
– Directors’ emoluments (note 12)
– Share-based payments
– Other staff costs
Share of income tax of an associate (included in share of results of associates)
2012
HK$ million
2011
HK$ million
2
11
2
8
(2,232)
(1,705)
418
5
233
29
(1,809)
(1,443)
21
4
193
218
134
21
4
168
193
92
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
11. OTHER COMPREHENSIVE INCOME
Other comprehensive income comprises:
Equity investments designated as at FVTOCI:
– Net gains (losses) arising during the year
Derivatives designated as cash flow hedges:
– Gains (losses) arising during the year
– Reclassification adjustments for losses included in profit or loss
Gains on revaluation of properties held for own use
Share of translation reserve of an associate
Other comprehensive income (before tax)
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:
2012
HK$ million
2011
HK$ million
115
(121)
12
4
16
40
2
173
(7)
166
(25)
29
4
85
155
123
(14)
109
2012
2011
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
Net gains (losses) arising from equity
investments designated as at FVTOCI
Net gains arising from derivatives
designated as cash flow hedges
Gains on revaluation of properties held for own use
Share of translation reserve of an associate
115
16
40
2
173
–
–
(7)
–
(7)
115
(121)
–
(121)
16
33
2
166
4
85
155
123
–
(14)
–
(14)
4
71
155
109
12. DIRECTORS’ EMOLUMENTS
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus
Share-based payments
Retirement benefits scheme contributions
2012
HK$ million
2011
HK$ million
2
12
2
4
1
21
2
8
7
3
1
21
128
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
12. DIRECTORS’ EMOLUMENTS continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2012,
calculated with reference to their employment as Directors of the Company, are set out below:
Basic salaries,
housing
and other
allowances
HK$’000
(Note a)
Directors’
fees
HK$’000
(Note b)
Share-based
Retirement
benefits
scheme
payments contributions
HK$’000
HK$’000
(Note d)
Bonus
HK$’000
(Note a)
Total
HK$’000
For the year ended 31 December 2012
Executive Directors
Irene Yun Lien LEE (Notes a & h)
Siu Chuen LAU (Notes a & i)
Gerry Lui Fai YIM (Notes a & e)
Wendy Wen Yee YUNG (Note a)
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Independent non-executive Directors
Nicholas Charles ALLEN (Note e)
Frederick Peter CHURCHOUSE (Note g)
Philip Yan Hok FAN (Note f)
Joseph Chung Yin POON (Notes e & f)
For the year ended 31 December 2011
Executive Directors
Gerry Lui Fai YIM
Wendy Wen Yee YUNG
Non-executive Directors
Irene Yun Lien LEE (Note h)
Hans Michael JEBSEN
Siu Chuen LAU (Note i)
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Dr. Deanna Ruth Tak Yung RUDGARD (Note j)
Independent non-executive Directors
Sir David AKERS-JONES (Note k)
Nicholas Charles ALLEN
Philip Yan Hok FAN
Joseph Chung Yin POON
84
81
–
–
200
260
240
240
337
12
349
252
4,023
3,388
1,830
3,042
–
–
1,000
1,638
1,086
1,007
710
1,228
12
10
5
281
5,205
4,486
3,545
6,189
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
260
240
240
337
12
349
252
2,055
12,283
2,638
4,031
308
21,315
Basic salaries,
housing
and other
allowances
HK$’000
(Note c)
Directors’
fees
HK$’000
(Note b)
Share-based
Retirement
benefits
scheme
payments contributions
HK$’000
HK$’000
(Note d)
Bonus
HK$’000
(Note c)
Total
HK$’000
57
38
5,255
2,977
4,424
2,520
1,880
1,351
12
274
11,628
7,160
318
159
140
206
201
191
35
177
265
281
159
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
318
159
140
206
201
191
35
177
265
281
159
2,227
8,232
6,944
3,231
286
20,920
129
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
12. DIRECTORS’ EMOLUMENTS continued
Notes:
(a) By way of background, there were the following management changes:
(i) Gerry Lui Fai YIM resigned as Chief Executive Officer, effective 14 May 2012.
(ii)
Irene Yun Lien LEE, Chairman, assumed an executive role effective 8 March 2012.
(iii) Siu Chuen LAU, was appointed (executive) Deputy Chairman and Chief Executive Officer, effective 14 May 2012.
The Remuneration Committee met in March 2012 to approve the 2012 annual fixed base salary and determine the 2011 performance-
based bonus of the Company’s Executive Directors. The stated bonus figures show the 2011 performance-based bonus approved by the
Committee and paid to Executive Directors. In May 2012, following the appointment of the Deputy Chairman and Chief Executive Officer,
the Committee considered and approved his annual remuneration package.
Irene Yun Lien LEE’s annual fixed base salary was determined to be HK$4,931,096, at the same level as the former Executive Chairman,
with inflationary adjustment since 2010. The annual fixed base salary of Gerry Lui Fai YIM remained at the same level during 2012
(HK$5,340,400) until his last working day. Siu Chuen LAU received the same annual base salary (HK$5,340,400) upon his appointment
as Deputy Chairman and Chief Executive Officer. The Committee has determined the total cash package of Wendy Wen Yee YUNG taking
into consideration changes in her roles.
(b) Directors’ fees scales for Board and Board Committees were approved by shareholders at the annual general meeting held on 9 May
2011. Details are set out in Directors’ Remuneration and Interests Report.
Director’s fees (payable only to Non-executive Directors as from 1 June 2011) are calculated on annual basis and paid semi-annually. For
Directors not having served the full year on a position, the fees will be calculated and paid on pro rata basis.
Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2012 is set out below:
Executive Directors
Irene Yun Lien LEE (Notes a & h)
Siu Chuen LAU (Notes a & i)
Gerry Lui Fai YIM (Notes a & e)
Wendy Wen Yee YUNG
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Dr. Deanna Ruth Tak Yung RUDGARD
(Note j)
Independent non-executive Directors
Sir David AKERS-JONES (Note k)
Nicholas Charles ALLEN (Note e)
Frederick Peter CHURCHOUSE
(Note g)
Philip Yan Hok FAN (Note f)
Joseph Chung Yin POON (Notes e & f)
Board
HK$’000
Audit Remuneration
Committee
HK$’000
Committee
HK$’000
Strategy Nomination
Committee
HK$’000
Committee
HK$’000
2012
Total
HK$’000
2011
Total
HK$’000
74
74
–
–
200
200
200
200
–
–
200
12
200
200
1,560
–
–
–
–
–
60
–
–
–
–
100
–
60
–
220
–
–
–
–
–
–
–
40
–
–
–
–
49
35
124
5
7
–
–
–
–
20
–
–
–
20
–
20
–
72
5
–
–
–
–
–
20
–
–
–
17
–
20
17
79
84
81
–
–
200
260
240
240
–
–
337
12
349
252
318
140
57
38
159
206
201
191
35
177
265
–
281
159
2,055
2,227
(c) Year 2011:
The Remuneration Committee met in March 2011 to approve the 2011 annual fixed base salary and determine the 2010 performance-
based bonus of the Company’s Executive Directors. The stated bonus figures show the 2010 performance-based bonus approved by the
Committee and paid to Executive Directors.
(d) 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.
(e) There were the following changes in the composition of the Nomination Committee effective 20 February 2012:
(i) Nicholas Charles ALLEN and Joseph Chung Yin POON were appointed members; and
(ii) Gerry Lui Fai YIM ceased to be a member.
(f)
There were the following changes in the composition of the Remuneration Committee effective 20 February 2012:
(i)
Philip Yan Hok FAN was appointed Chairman of the Committee; and
(ii)
Joseph Chung Yin POON was appointed a member.
130
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
12. DIRECTORS’ EMOLUMENTS continued
(g) Frederick Peter CHURCHOUSE was appointed Independent non-executive Director effective 10 December 2012.
(h)
Irene Yun Lien LEE was appointed Non-executive Director and member of the Strategy Committee on 9 March 2011. She was appointed
Non-executive Chairman of the Board, Chairman of the Nomination Committee and the Strategy Committee respectively as from the
conclusion of 2011 Annual General Meeting held on 9 May 2011.
(i) Siu Chuen LAU (as alternate to Deanna Ruth Tak Yung RUDGARD) was appointed member of the Strategy Committee on 9 March 2011.
He was also appointed Non-executive Director as from the conclusion of 2011 Annual General Meeting held on 9 May 2011, and
Non-executive Deputy Chairman on 8 March 2012.
(j) Dr. Deanna Ruth Tak Yung RUDGARD stepped down as Non-executive Director as from the conclusion of 2011 Annual General Meeting
held on 9 May 2011.
(k) Sir David AKERS-JONES stepped down as Independent non-executive Chairman and Chairman of the Remuneration Committee, the
Nomination Committee and the Strategy Committee respectively as from the conclusion of 2011 Annual General Meeting held on 9 May
2011.
13. EMPLOYEES’ EMOLUMENTS
Of the five individuals with the highest emoluments in the Group, three (2011: two) 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 2012 and 2011 were as follows:
Basic salaries, housing and other allowances
Bonus
Share-based payments (Note)
2012
HK$ million
2011
HK$ million
16
3
5
24
16
9
5
30
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$3,000,001 to HK$3,500,000
HK$3,500,001 to HK$4,000,000
HK$4,000,001 to HK$4,500,000
HK$4,500,001 to HK$5,000,000
HK$5,000,001 to HK$5,500,000
HK$6,000,001 to HK$6,500,000
HK$7,000,001 to HK$7,500,000
HK$11,500,001 to HK$12,000,000
Number of individuals
2012
2011
–
1
2
–
1
1
–
–
5
1
1
–
1
–
–
1
1
5
131
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
13. EMPLOYEES’ EMOLUMENTS continued
Senior management (for the purpose of the Rules Governing the Listing of Securities on the Stock Exchange (“the Listing
Rules”)) during the year are Executive Directors and an officer. Their emoluments are within the following bands. (For 2011,
senior management were also the five individuals with the highest emoluments).
HK$3,000,001 to HK$3,500,000
HK$3,500,001 to HK$4,000,000
HK$4,000,001 to HK$4,500,000
HK$4,500,001 to HK$5,000,000
HK$5,000,001 to HK$5,500,000
HK$6,000,001 to HK$6,500,000
HK$7,000,001 to HK$7,500,000
HK$11,500,001 to HK$12,000,000
14. DIVIDENDS
(a) Dividends recognised as distribution during the year:
2012 interim dividend paid – HK17 cents per share
2011 interim dividend paid – HK15 cents per share
2011 final dividend paid – HK64 cents per share
2010 final dividend paid – HK60 cents per share
Number of individuals
2012
2011
–
2
1
–
1
1
–
–
5
1
1
–
1
–
–
1
1
5
2012
HK$ million
2011
HK$ million
180
–
679
–
859
–
159
–
632
791
Scrip dividend alternatives were offered to the shareholders in respect of the above dividends. These alternatives were accepted
by the shareholders as follows:
2012 interim dividend (2011 interim dividend):
– Cash payment
– Share alternative
2011 final dividend (2010 final dividend):
– Cash payment
– Share alternative
(b) Dividends declared/proposed after the end of the reporting period:
2012 second interim dividend (in lieu of a final dividend) declared
on 6 March 2013 of HK78 cents per share
2011 final dividend proposed
on 8 March 2012 of HK64 cents per share
2012
HK$ million
2011
HK$ million
135
45
634
45
859
142
17
464
168
791
2012
HK$ million
2011
HK$ million
829
–
829
–
678
678
The 2012 second interim dividend is not recognised as a liability as at 31 December 2012 because it has been declared and
approved after the reporting period. Such dividend will be accounted for as an appropriation of the retained profits in the year
ending 31 December 2013.
The 2012 second interim dividend will be payable in cash.
132
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
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
2012
HK$ million
2011
HK$ million
9,955
8,545
Number of shares
2012
2011
1,061,276,321
1,057,109,763
486,784
817,621
1,061,763,105
1,057,927,384
In both years, the computation of diluted earnings per share does not assume the exercise of certain of the Company’s
outstanding share options as the exercise prices of those options are 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
Recurring Underlying Profit
Notes:
2012
2011
Basic
earnings
per
share
HK cents
938.02
(804.03)
30.43
Profit
HK$ million
8,545
(7,532)
355
Basic
earnings
per
share
HK cents
808.34
(712.51)
33.58
Profit
HK$ million
9,955
(8,533)
323
(123)
(11.59)
(58)
(5.49)
1,622
1,622
152.83
152.83
1,310
1,310
123.92
123.92
(1) Recurring Underlying Profit is arrived at by excluding from Underlying Profit items that are non-recurring in nature (such as gains or losses
on disposal of long-terms assets; impairment or its reversal; and tax provisions for prior years). As there were no such adjustments in both
years, the Recurring Underlying Profit is the same as the Underlying Profit.
(2) The denominators in calculating the adjusted earnings per share used are the same as those detailed above for basic earnings per share.
Hysan AR E.indb 133
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
16. INVESTMENT PROPERTIES
Fair value
At 1 January
Additions
Acquisition of a subsidiary (note 33)
Transfer from (to) property, plant and equipment
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
The Group
2012
HK$ million
2011
HK$ million
49,969
1,510
–
10
8,533
60,022
40,833
1,601
19
(16)
7,532
49,969
The Group
2012
HK$ million
2011
HK$ million
7,740
52,282
60,022
7,680
42,289
49,969
The fair value of the Group’s investment properties at 31 December 2012 and 2011 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 re-development potential, where appropriate. For the investment properties under re-development
as at 31 December 2011, residual method of valuation was adopted. The valuation was mainly arrived at by reference to actual
sales or rental information publicly available to determine the value of the proposed development as if it were completed as at
the date of valuation.
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.
134
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
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 2011
Additions
Transfer from investment properties
Surplus on revaluation
At 31 December 2011
Additions
Transfer to investment properties
Surplus on revaluation
At 31 December 2012
Comprising:
At cost
At valuation 2012
Accumulated depreciation
At 1 January 2011
Provided for the year
Eliminated on revaluation
At 31 December 2011
Provided for the year
Eliminated on revaluation
At 31 December 2012
Carrying amounts
At 31 December 2012
At 31 December 2011
413
–
16
83
512
–
(10)
37
539
–
539
539
–
2
(2)
–
3
(3)
–
539
512
62
4
–
–
66
25
–
–
91
91
–
91
54
3
–
57
5
–
62
29
9
31
4
–
–
35
5
–
–
40
40
–
40
23
3
–
26
3
–
29
11
9
1
–
–
–
1
1
–
–
2
2
–
2
1
–
–
1
–
–
1
1
–
507
8
16
83
614
31
(10)
37
672
133
539
672
78
8
(2)
84
11
(3)
92
580
530
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135
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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 2011
Additions
At 31 December 2011
Additions
At 31 December 2012
Accumulated depreciation
At 1 January 2011
Provided for the year
At 31 December 2011
Provided for the year
At 31 December 2012
Carrying amounts
At 31 December 2012
At 31 December 2011
24
1
25
15
40
22
1
23
1
24
16
2
28
3
31
–
31
21
2
23
2
25
6
8
1
–
1
–
1
1
–
1
–
1
–
–
53
4
57
15
72
44
3
47
3
50
22
10
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 term of the lease or 40 years
20%
20%
25%
The Group’s leasehold land and buildings were revalued at 31 December 2012 and 2011 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, where appropriate.
The gains of HK$40 million (2011: HK$85 million) arising on revaluation have been recognised in other comprehensive income
and accumulated in properties revaluation reserve.
Had the Group’s land and buildings been measured on a historical cost basis, their carrying amounts would have been HK$179
million (2011: HK$182 million) at the end of the reporting period.
Furniture, fixtures and equipment of the Group include assets carried at cost of HK$28 million (2011: HK$25 million) and
accumulated depreciation of HK$22 million (2011: HK$21 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 (2011: HK$1 million).
There is no property, plant and equipment of the Company held for renting out under operating leases for the year or at the end
of the reporting period.
136
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
18. INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries comprise:
Unlisted shares, at cost
Deemed capital contribution in subsidiaries (Note)
The Company
2012
HK$ million
2011
HK$ million
–
1,603
1,603
–
1,904
1,904
Note:
The deemed capital contribution in subsidiaries represents the adjustment to the amounts due from subsidiaries based on the estimated timing
on future cash flows.
The table below lists the principal subsidiaries of the Group at 31 December 2012 and 2011:
Place of
incorporation/
operation
Issued
share capital
Proportion of
nominal value of
issued share capital
held by the Company
indirectly
directly
Name of subsidiary
Admore Investments Limited
HD Treasury Limited
Hysan (MTN) Limited
Hysan China Holdings Limited
Hysan Corporate Services Limited
Hong Kong
Hong Kong
British Virgin Islands/
Hong Kong
British Virgin Islands
Hong Kong
HK$2
HK$2
US$1
HK$1
HK$2
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
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
Hong Kong
HK$2
Hong Kong HK$300,000
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
Teamfine Enterprises Limited
Bamboo Grove Recreational
Services Limited
Earn Extra Investments Limited
Gearup Investments Limited
HD Investment Limited
Lee Theatre Realty Limited
Leighton Property Company
Limited
Main Rise Development Limited
OHA Property Company Limited
Perfect Win Properties Limited
Silver Nicety Company Limited
Barrowgate Limited
Hong Kong
Hong Kong
HK$2
HK$2
100%
–
–
100%
Hong Kong
Hong Kong
British Virgin Islands
Hong Kong
Hong Kong
HK$1
HK$1
HK$1
HK$10
HK$2
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
HK$2
HK$2
HK$2
HK$20
HK$10,000
–
–
–
–
–
100%
100%
100%
100%
100%
100%
–
100%
–
100%
–
100%
–
– 65.36%
Principal activities
Investment holding
Treasury operation
Treasury operation
Investment holding
Provision of corporate
services
Leasing administration
Property management
Treasury operation
Investment holding
Property investment
Property investment
Property investment
Provision of security
services
Investment holding
Resident club
management
Property investment
Property development
Investment holding
Property investment
Property investment
Investment holding
Property investment
Property investment
Property investment
Property investment
The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length and
therefore the above table contains only those subsidiaries which materially contribute to the net income of the Group or hold a
material portion of the assets or liabilities or otherwise are operating subsidiaries of the Group. Other than floating rate notes,
fixed rate notes and zero coupon notes issued by Hysan (MTN) Limited as disclosed in note 29, none of the subsidiaries had
issued any debt securities at the end of the reporting period.
137
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
19. INVESTMENTS IN ASSOCIATES
Cost of unlisted investments
Share of post-acquisition profits and
other comprehensive income,
net of dividends received
Loan to an associate
Less: Loss allocated in excess of cost of investments
The Group
2012
HK$ million
2011
HK$ million
3
3
3,753
3,756
125
(122)
3
3,417
3,420
118
(115)
3
3,759
3,423
Loan to an associate of HK$125 million (2011: HK$118 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 2012 and 2011 are as follows:
Name of associate
Country Link
Enterprises Limited
Shanghai Kong Hui
Property Development
Co., Ltd
Shanghai Grand
Gateway Plaza
Property Management
Co., Ltd
Form of
business structure
Private limited
company
Sino-Foreign
equity joint
venture
Sino-Foreign
equity joint
venture
Place of
incorporation/
establishment
and operation
Hong Kong
Class of
share held/
registered
capital
Effective
interest
held by
the Group
Principal activities
Ordinary share
of HK$5,000,000
26.3%*
Investment holding
The PRC
US$165,000,000#
24.7%*
Property development
and leasing
The PRC
US$140,000#
23.7%* Property management
Wingrove Investment
Pte Ltd
Private company
limited by shares
Singapore
Ordinary share
of S$1,000,000
25.0%*
Inactive
*
#
Indirectly held
Fully paid-up registered capital
138
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
19. INVESTMENTS IN ASSOCIATES continued
The summarised financial information in respect of the Group’s associates based on the unaudited management accounts for
the year ended 31 December 2012 and 2011 is as follows:
Total assets
Total liabilities
Net assets
Group’s share of net assets of associates
Turnover
Profit for the year
Group’s share of results of associates for the year
2012
HK$ million
2011
HK$ million
19,656
(4,976)
14,680
3,634
1,451
1,272
334
18,055
(4,677)
13,378
3,305
1,317
964
254
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
The Group
2012
HK$ million
2011
HK$ million
218
160
378
265
365
630
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 interest rates. The entire combined contracts have been classified as financial assets at
FVTPL.
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
2012
Notional
amount
HK$ million
Fair value
HK$ million
2011
Notional
amount
HK$ million
Fair value
HK$ million
213
158
371
218
160
378
262
371
633
265
365
630
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139
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
21. TERM NOTES
Term notes, at amortised cost, comprise:
– Debt securities listed in Hong Kong
– Debt securities listed in overseas
– Unlisted debt securities
Analysed for reporting purposes as:
Current assets
Non-current assets
The Group
2012
HK$ million
2011
HK$ million
19
161
730
910
383
527
910
19
120
291
430
171
259
430
As at 31 December 2012, the effective yield of the debt securities ranged from 1.05% to 3.27% (2011: 1.05% to 3.13%) per
annum, payable quarterly, semi-annually or annually, and the securities will mature from February 2013 to December 2014 (2011:
from January 2012 to June 2014). None of these assets are past due or impaired at the end of the reporting period.
22. EQUITY INVESTMENTS
Equity investments comprise:
Listed investments:
– Equity securities listed in Hong Kong, at fair value
Unlisted investments:
– Overseas equity securities, at fair value
The Group
2012
HK$ million
2011
HK$ million
–
1
1
988
1
989
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
and are inactive during both years.
140
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
23. OTHER FINANCIAL ASSETS/LIABILITIES
Current
Non-current
The Group
2012
HK$ million
2011
HK$ million
2012
HK$ million
2011
HK$ million
Other financial assets
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
Fair value hedges
– Interest rate swaps
Financial assets measured at FVTPL:
Other derivatives classified as held for
trading (not under hedge accounting):
– Forward foreign exchange contracts
Zero coupon convertible note
Club debentures
Total
Other financial liabilities
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
– Cross currency swaps
– Interest rate swaps
Financial liabilities measured at FVTPL:
Other derivatives classified as held for
trading (not under hedge accounting):
– Net basis swaps
– Asset swap
Total
–
–
–
2
–
–
2
2
–
1
4
5
–
–
–
5
1
–
1
–
70
–
70
71
2
–
5
7
2
10
12
19
–
55
55
–
–
2
2
57
–
4
21
25
–
–
–
25
–
66
66
–
–
2
2
68
–
10
40
50
–
–
–
50
Hysan AR E.indb 141
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges
(i) Foreign currency risk
During the year, the Group used forward foreign exchange contracts and cross currency swaps 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.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding forward
foreign exchange contracts and cross currency swaps at the end of the reporting period are as follows:
2012
2011
The Group
Average
exchange
Foreign
rate* currency
Fair
value
HK$
million million million
Notional amount
HK$
Average
exchange
Foreign
rate* currency
Notional amount
HK$
Fair
value
HK$
million million
million
Forward foreign
exchange contracts
Buy US dollars (“USD”)
(Note a)
Within 1 year
Sell USD (Note b)
Within 1 year
More than 1 year but
not exceeding 5 years
Sell Renminbi (“RMB”)
(Note c)
Within 1 year
Cross currency swaps
Hedging interest and
principal of Australian
dollars (“AUD”)
bank loan (Note d)
More than 1 year but
not exceeding 5 years
Hedging interest and
principal of USD
bank loans (Note e)
Within 1 year
More than 1 year but
not exceeding 5 years
Total
–
–
–
–
7.7309
USD
7.7309
USD
–
–
10
10
–
–
77
77
–
7.6059
USD
2
15
–
–
–
7.7865
USD
18
140
7.7309
USD
7.7667
USD
10
28
77
217
1
–
–
–
–
–
–
–
–
1.2065
RMB
167
202
(2)
8.1497
AUD
37
300
(4)
8.1497
AUD
37
300
(10)
7.8000
USD
26
200
(1)
–
–
–
–
–
–
–
–
–
7.8000
USD
26
200
–
–
577
(5)
934
(11)
*
Average exchange rate represented the average exchange rate of HKD versus respective currencies weighted by the notional amounts of
the contracts or the swaps.
142
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges continued
(i) Foreign currency risk continued
Notes:
(a) As at 31 December 2011, the Group used HK$15 million forward foreign exchange contract to hedge the foreign exchange rate risk in
relation to the semi-annual coupon payment of US$57 million out of the US$174 million fixed rate notes. The notes and the forward
foreign exchange contract matured in February 2012.
(b) The Group used HK$77 million (2011: HK$217 million) forward foreign exchange contracts 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) As at 31 December 2011, the Group used HK$202 million forward foreign exchange contracts to hedge the foreign exchange rate risk
of the principal and interest amount of a time deposit denominated in RMB at its maturity date. The time deposit and the forward foreign
exchange contract matured in January 2012.
(d) The Group used HK$300 million (2011: HK$300 million) cross currency swap to convert AUD interest and principal of AUD37 million (2011:
AUD37 million) bank loan into HKD.
(e) The Group used HK$200 million (2011: HK$200 million) cross currency swap to convert USD interest and principal of US$26 million (2011:
US$26 million) bank loan into HKD.
As at 31 December 2012, net cumulative fair value gains of HK$1 million (2011: HK$5 million) from the forward foreign
exchange contracts and cross currency swaps have been recognised in other comprehensive income and accumulated in
hedging reserve, and are expected to be released to the consolidated income statements at various dates when the hedged
items impact the profit or loss.
During the year, net gains of HK$18 million (2011: losses of HK$3 million) on forward foreign exchange contracts and cross
currency swaps were reclassified from hedging reserve to profit or loss as finance costs and gains of HK$4 million (2011:
losses of HK$4 million) on forward foreign exchange contracts were reclassified from hedging reserve to profit or loss as
investment income.
The fair values of forward foreign exchange contracts and cross currency swaps are measured using quoted forward exchange
rates and yield curves from quoted interest rates matching maturities of the contracts and swaps.
Interest rate risk
(ii)
During the year, the Group used interest rate swaps and basis swaps to hedge its interest rate risk exposure. The terms of the
swaps have been negotiated to match the major terms of the respective hedged underlying items so that the management
considers that the interest rate swaps and basis swaps are highly effective hedging instruments.
Hysan AR E.indb 143
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143
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012 23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges continued
(ii)
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding interest
rate swaps and basis swaps at the end of the reporting period are as follows:
Interest rate risk continued
The Group
2012
2011
Average
interest
rate*
Notional amount
US$ 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)
Within 1 year
More than 1 year but
not exceeding 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
3.12%
3.65%
3.32%
–
2.99%
2.99%
–
–
n/a
n/a
n/a
–
n/a
n/a
–
–
325
200
525
–
200
200
(4)
0.32%
(13)
(17)
3.32%
2.49%
–
3.80%
(8)
(8)
2.99%
3.39%
n/a
n/a
n/a
n/a
n/a
n/a
200
525
725
200
200
400
–
–
0.08%
n/a
325
–
(28)
(28)
(5)
(12)
(17)
–
–
–
725
–
0.07%
26
200
(25)
1,650
(45)
*
For interest rate swaps, the average interest rate represented the average fixed interest rate paid by the Group against receipts of 3-month
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.
Notes:
(a) The Group used HK$525 million (2011: HK$725 million) interest rate swaps to manage its exposure to interest rate changes of the
monthly or quarterly interest payments of HKD bank loans.
(b) The Group used HK$200 million (2011: HK$400 million) interest rate swaps to hedge the interest rate risk in relation to the quarterly
floating-interest-rate payments of certain financial instruments.
(c) As at 31 December 2011, the Group used 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 payment of HK$325 million bank loan. The basis swaps matured in July and
August 2012.
(d) As at 31 December 2011, the Group used HK$200 million basis swaps to combine with cross currency swaps referred to note (e) of “foreign
currency risk” to hedge the interest rate changes of the monthly or quarterly interest payments of US$26 million bank loan. The basis
swaps matured in October 2012.
144
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
Interest rate risk continued
23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges continued
(ii)
As at 31 December 2012, net cumulative fair value losses of HK$25 million (2011: HK$45 million) from the interest rate swaps
and basis swaps under cash flow hedges have been recognised in other comprehensive income and accumulated in hedging
reserve, 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$26 million (2011: HK$22 million) on interest rate swaps and basis swaps were reclassified from
hedging reserve to profit or loss as finance costs.
The fair values of interest rate swaps and basis swaps are measured at the present value of future cash flows estimated and
discounted based on the applicable yield curves derived from quoted interest rates.
(b) Fair value hedges
The Group used interest rate swaps to minimise its exposure to fair value changes of its HKD fixed rate notes and zero
coupon notes by swapping the notes from fixed rates to floating rates. The major terms of the interest rate swaps match the
corresponding notes and the management considers that the swaps are highly effective hedging instruments.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding interest
rate swaps at the end of the reporting period are as follows:
The Group
2012
2011
Average
interest
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Average
interest
rate*
Notional amount
US$ million
HK$ million
Fair
value
HK$ million
Interest rate swaps
(Note)
More than 1 year but
not exceeding 5 years
More than 5 years
4.18%
4.50%
4.33%
n/a
n/a
n/a
300
293
593
29
26
55
4.18%
4.50%
4.33%
n/a
n/a
n/a
300
278
578
35
31
66
*
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$300 million (2011: HK$300 million) fixed-to-floating interest rate swaps to hedge interest rate risk related to part of
the coupon payments of the HK$300 million (2011: HK$300 million) fixed rate notes. The Group also designated a fixed-to-floating interest rate
swap with nominal amount of HK$293 million (2011: HK$278 million) as at 31 December 2012 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.
As a result of the hedge accounting, the carrying amount of the fixed rate notes as at 31 December 2012 was adjusted by
cumulative losses of HK$29 million (2011: HK$35 million) while the carrying amount of the zero coupon notes as at 31
December 2012 was adjusted by cumulative losses of HK$27 million (2011: HK$32 million). The changes in fair values of
the notes for the hedged risk were included in profit or loss at the same time that the changes in fair value of the swaps were
included in profit or loss.
The fair values of interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates.
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23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(c) Other derivatives classified as held for trading (not under hedge accounting)
At the end of the reporting period, the Group had certain derivatives classified as held for trading and not under hedge
accounting. The table below is prepared based on the maturity dates of respective contracts. The major terms of these
derivatives are as follows:
2012
2011
The Group
Average
exchange
rate*
Notional amount
US$ 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)
Within 1 year
Cross currency swaps
(Note b)
Within 1 year
Forward foreign
exchange contracts
(Note c)
Within 1 year
More than 1 year but
not exceeding 5 years
Asset swap (Note d)
Within 1 year
–
–
7.8400
–
7.8400
–
–
–
27
–
27
–
–
–
212
–
212
–
–
7.8000
57
445
(2)
–
7.7998
117
913
–
7.8400
7.8400
–
27
27
–
212
212
2
–
2
–
2.00%
n/a
60
(10)
–
–
–
–
*
For net basis swaps, cross currency swaps and forward foreign exchange contracts, the average exchange rate represented the average
HKD:USD exchange rate weighted by their notional amounts. For asset swap, the interest rate represented the spread added to 3-months
HIBOR received by the Group.
Notes:
(a) As at 31 December 2011, the Group used US$57 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 of the US$174 million fixed rate notes at maturity. The notes and
the net basis swaps matured in February 2012.
(b) As at 31 December 2011, the Group used US$117 million cross currency swaps to manage the interest rate and foreign exchange risks
of US$117 million of the US$174 million fixed rate notes. The notes and the cross currency swaps matured in February 2012.
(c) The Group used HK$212 million (2011: HK$212 million) forward foreign exchange contracts to manage the foreign exchange rate risk in
relation to investment amount of US$27 million (2011: US$27 million) of term notes and principal-protected investments. The contracts
will effectively manage the foreign exchange rate risk if HKD:USD is above 7.74 at the respectively maturity dates. If HKD:USD is at or
below 7.74, the contracts will be knocked out and the Group will have no obligation on the settlement of the contracts.
(d) As at 31 December 2011, the Group used a HK$60 million asset swap to convert the return of a zero coupon convertible note of
investment amount of HK$60 million into a floating rate note with interest income of 3-month HIBOR plus 2%. The mark-to-market losses
were offset by corresponding mark-to-market gains of the note. The note and the asset swap matured in February 2012.
(d) Financial assets measured at FVTPL
(i) Zero coupon convertible note
During the year ended 31 December 2011, the Group purchased a zero coupon convertible note of HK$60 million with an
embedded equity option of a listed company in Hong Kong. The note matured in February 2012. As disclosed in note (c) of
other derivatives classified as held for trading, an asset swap was used to manage the fair value exposure to the note for the
year ended 31 December 2011. The entire combined contract had been classified as financial assets measured at FVTPL on
initial recognition.
(ii) Club debentures
Other financial assets of the Company represented investments in unlisted club debentures. The Group’s and the Company’s
investments in unlisted club debentures have been classified as financial assets measured at FVTPL.
146
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
24. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Accounts receivable
Interest receivable
Prepayments in respect of investment properties
Other receivables
Analysed for reporting purposes as:
– Current assets
– Non-current assets
The Group
2012
HK$ million
2011
HK$ million
13
27
59
302
401
158
243
401
6
51
98
142
297
134
163
297
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$13 million (2011: HK$6 million) mainly represented rents receipts in
arrears, which were aged less than 90 days.
25. AMOUNTS DUE FROM/TO SUBSIDIARIES
Amounts due from subsidiaries are classified as:
– Current assets (Note a)
– Non-current assets (Note b)
Amounts due to subsidiaries (Note a)
Notes:
The Company
2012
HK$ million
2011
HK$ million
8,984
3,797
6,088
5,126
12,781
11,214
1,337
480
(a) The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand.
(b) The amounts due from subsidiaries are unsecured, interest-free with no fixed terms of repayment and classified as non-current assets as
they are not expected to be recoverable within the next twelve months.
26. 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
Cash and cash equivalents shown in the consolidated statement of cash flows
The Group
2012
HK$ million
2011
HK$ million
2,158
153
2,311
(1,348)
963
2,899
62
2,961
(2,307)
654
Included in the Company’s time deposits as at 31 December 2012, were HK$55 million (2011: HK$395 million) of time
deposits with original maturity over three months. The bank balances and remaining time deposits of the Company were with
original maturity of three months or less.
Time deposits, cash and bank balances include bank deposits carrying effective interest rates ranging from 0.1% to 3.45% (2011:
0.205% to 2.46%) per annum.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
27. ACCOUNTS PAYABLE AND ACCRUALS
Accounts payable
Interest payable
Other payables
The Group
2012
HK$ million
2011
HK$ million
261
32
176
469
324
70
138
532
At the end of the reporting period, accounts payable of the Group with carrying amount of HK$261 million (2011: HK$324
million) were aged less than 90 days.
28. AMOUNTS DUE TO NON-CONTROLLING INTERESTS
The amounts due to non-controlling interests are unsecured, interest-free and repayable on demand.
29. BORROWINGS
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Current
Non-current
The Group
2012
HK$ million
2011
HK$ million
2012
HK$ million
2011
HK$ million
699
–
–
–
699
150
–
1,357
–
1,507
1,996
200
2,722
324
5,242
2,690
200
1,952
314
5,156
In the current year, the average finance cost of the Group’s total borrowings calculated based on their contracted interest
rates was 3.0% (2011: 3.7%). 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% (2011: 2.7%). As at
31 December 2012, the floating rate debt ratio relative to gross total debt after considering the hedges was 47.0% (2011:
54.8%).
(a) Unsecured bank loans
The unsecured bank loans of HK$2,695 million (2011: HK$2,840 million) are guaranteed as to principal and interest by the
Company and are repayable, based on the scheduled repayment dates set out in the respective loan agreement, as follows:
Within 1 year
More than 1 year, but not exceeding 2 years
More than 2 years, but not exceeding 5 years
The Group
2012
HK$ million
2011
HK$ million
699
896
1,100
2,695
150
699
1,991
2,840
All the Group’s unsecured bank loans are variable-rate borrowings with effective interest rates (which were also equal to
contracted interest rates) ranging from 0.70% to 4.04% (2011: 0.59% to 5.37%) per annum at the end of the reporting period.
Interest rates of the loans are normally re-fixed at every one to three months.
As disclosed in note 23(a), during the years ended 31 December 2012 and 2011, cross currency swaps, interest rate swaps
and basis 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.
148
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
29. BORROWINGS continued
(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 1.38% (2011: 1.26%) per annum at the end of reporting period and are repayable in full in
2014.
The HK$200 million five-year floating rate notes were not hedged by any derivative in both years.
(c) Fixed rate notes
Fixed rate notes – principal amount
Add: Net loss attributable to hedged risks
The Group
2012
HK$ million
2011
HK$ million
2,693
29
2,722
3,274
35
3,309
Details of the Group’s fixed rate notes at 31 December 2012 and 2011 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
HK$150 million
HK$404 million
HK$331 million
HK$300 million
HK$150 million
Contracted
interest rate
per annum
7.00%
5.25%
5.10%
5.38%
3.78%
4.00%
3.70%
3.86%
4.10%
4.00%
3.90%
4.50%
Coupon
payment term
semi-annual basis
quarterly basis
annual basis
annual basis
quarterly basis
annual basis
quarterly basis
quarterly basis
annual basis
quarterly basis
quarterly basis
annual basis
Issue date
Maturity date
February 2002
August 2008
August 2008
September 2008
August 2010
September 2010
October 2010
May 2011
December 2011
January 2012
March 2012
March 2012
February 2012
August 2015
August 2015
September 2020
August 2020
September 2025
October 2022
May 2018
December 2023
January 2022
March 2019
March 2027
*
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 notes matured in February 2012.
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, during the years ended 31 December 2012 and 2011, 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.
The net cumulative loss of HK$29 million (2011: HK$35 million) represented the change in fair value attributable to the hedged
interest rate risk of the HK$300 million (2011: HK$300 million) fixed rate notes under fair value hedge.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
29. BORROWINGS continued
(d) Zero coupon notes
Zero coupon notes
Add: Loss attributable to hedged risk
The Group
2012
HK$ million
2011
HK$ million
297
27
324
282
32
314
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 used 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 cumulative loss of HK$27 million (2011: HK$32 million) represented changes in fair value attributable to the hedged
interest rate risk of the zero coupon notes under fair value hedge.
30. DEFERRED TAXATION
The following are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the current
and prior years:
The Group
At 1 January 2011
Charge (credit) to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2011
Charge (credit) to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2012
Accelerated tax
depreciation
HK$ million
Revaluation of
properties
HK$ million
Tax
losses
HK$ million
Total
HK$ million
297
30
–
327
135
–
462
40
–
14
54
–
7
61
–
(21)
–
(21)
(68)
–
(89)
337
9
14
360
67
7
434
At the end of the reporting period, the Group has unused estimated tax losses of HK$1,072 million (2011: HK$648 million), of
which HK$684 million (2011: HK$327 million) has not been agreed by the Hong Kong Inland Revenue Department, available
for offset against future profits. A deferred tax asset has been recognised in respect of HK$538 million (2011: HK$126 million)
of such losses. No deferred tax asset has been recognised in respect of the estimated tax losses of HK$534 million (2011:
HK$522 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. During the year, deferred tax liability of the
Company has been recognised in respect of the accelerated tax depreciation of HK$1 million (2011: HK$1 million). At the end
of the reporting period, the Company has deferred tax liability of HK$1 million (2011: HK$1 million).
150
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
Number of shares
Share capital
2012
2011
2012
HK$ million
2011
HK$ million
31. 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
1,450,000,000
1,450,000,000
7,250
1,059,754,415
1,053,426,635
5,299
7,250
5,267
26
6
scrip dividend schemes (Note a)
2,745,307
5,136,783
Issue of shares under share
option scheme (Note b)
507,334
1,190,997
14
2
At 31 December
1,063,007,056
1,059,754,415
5,315
5,299
Notes:
(a)
Issue of shares pursuant to scrip dividend schemes
For the year ended 31 December 2012
On 14 June 2012 and 13 September 2012 respectively, the Company issued and allotted a total of 1,426,624 shares and 1,318,683 shares
of HK$5 each in the Company at HK$31.78 and HK$33.51 to the shareholders who elected to receive shares in the Company in lieu of cash
for the 2011 final and 2012 interim dividends pursuant to the scrip dividend schemes announced by the Company on 22 May 2012 and
22 August 2012. These shares rank pari passu in all respects with other shares in issue.
For the year ended 31 December 2011
On 2 June 2011 and 20 September 2011 respectively, the Company issued and allotted a total of 4,584,611 shares and 552,172 shares
of HK$5 each in the Company at HK$36.55 and HK$30.43 to the shareholders who elected to receive shares in the Company in lieu of
cash for the 2010 final and 2011 interim dividends pursuant to the scrip dividend schemes announced by the Company on 9 May 2011 and
25 August 2011. These shares rank pari passu in all respects with other shares in issue.
(b)
Issue of shares under share option schemes
During the year, options to subscribe for shares of the Company for a total of 507,334 shares (2011: 1,190,997 shares) were exercised at
various exercise prices. These shares rank pari passu in all respects with other shares in issue. Details of options outstanding and movements
during the year are set out in note 39.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
32. RESERVES OF THE COMPANY
At 1 January 2011
Issue of shares pursuant to
scrip dividend schemes
Issue of shares under
share option schemes
Recognition of equity-settled
share-based payments
Forfeiture of share options
Profit for the year
Dividends paid during the year (note 14)
At 31 December 2011
Issue of shares pursuant to
scrip dividend schemes
Issue of shares under
share option schemes
Recognition of equity-settled
share-based payments
Forfeiture of share options
Profit for the year
Dividends paid during the year (note 14)
Share
premium
HK$ million
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
General
reserve
HK$ million
(Note)
Retained
profits
HK$ million
Total
HK$ million
1,754
16
276
100
5,639
7,785
159
21
–
–
–
–
–
(6)
7
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
630
(791)
159
15
7
–
630
(791)
1,934
15
276
100
5,480
7,805
76
12
–
–
–
–
–
(4)
8
(5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
835
(859)
76
8
8
–
835
(859)
At 31 December 2012
2,022
14
276
100
5,461
7,873
Note:
General reserve was set up from the transfer of retained profits.
The Company’s reserves available for distribution to its owners as at 31 December 2012 amounted to HK$5,561 million (2011:
HK$5,580 million), being its general reserve and retained profits at that date.
33. ACQUISITION OF A SUBSIDIARY
During the year ended 31 December 2011, the Group acquired 100% interest in Moral Hill Investment Limited (“Moral Hill”)
from an independent third party, for a cash consideration of HK$19 million. The major asset of Moral Hill is an investment
property situated in Hong Kong and as such, the acquisition has been accounted for as acquisition of an asset rather than a
business combination.
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$7 million (2011: HK$6 million). Forfeited contributions
for the year amounting to HK$1 million (2011: HK$1 million) were refunded to the Group.
152
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
35. CONTINGENT LIABILITIES
At the end of the reporting period, there were contingent liabilities in respect of the following:
Corporate guarantee to note holders
– for issue of floating rate notes
– for issue of fixed rate notes
– for issue of zero coupon notes
Guarantees to banks for providing
financing facilities to subsidiaries
The Group
The Company
2012
HK$ million
2011
HK$ million
2012
HK$ million
2011
HK$ million
–
–
–
–
–
–
–
–
–
–
200
2,700
430
3,330
200
3,276
430
3,906
2,700
2,850
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
The Company
2012
HK$ million
2011
HK$ million
2012
HK$ million
2011
HK$ million
336
214
505
885
–
–
7
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
2012
HK$ million
2011
HK$ million
2,260
4,315
1,890
8,465
1,795
3,708
2,229
7,732
Operating lease payments represent rentals receivable by the Group from leasing of its investment properties. Typically, leases
are negotiated and rentals are fixed for lease term of one to three years. Certain leases include contingent rentals calculated
with reference to turnover of the tenants.
(b) The Company as lessee
As at 31 December 2011, the Company had commitments for future minimum lease payments of HK$7 million under non-
cancellable operating leases which fall due within one year.
Operating lease payments represented rentals payable by the Company to its subsidiaries for its office premises which are
negotiated and rentals were fixed for three years.
At the end of the reporting period, the Group and the Company had no commitment under non-cancellable operating lease.
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38. RELATED PARTY TRANSACTIONS AND BALANCES
(a) Transactions and balances with related parties
The Group has the following transactions with related parties during the year and has the following balances with them at the
end of the reporting period:
Related company controlled by a shareholder (Note a)
Related companies controlled by Directors
(Note b (i) & (ii))
Non-controlling shareholder of a subsidiary
(Note c (i) & (ii))
Notes:
The Group
Gross rental income
received from
2012
HK$ million
2011
HK$ million
Amount due to
non-controlling interests
2012
HK$ million
2011
HK$ million
3
26
18
3
26
18
–
94
–
94
233
233
(a) The sum of transactions represents the aggregate gross rental income received from Atlas Corporate Management Limited, a wholly-owned
subsidiary of Lee Hysan Estate Company, Limited (“LHE”). LHE holds 40.75% (2011: 40.87%) beneficial interest and has significant
influence over the Company.
(b)
(i)
The sum of transactions represents the aggregate gross rental income received from related companies where the directors have
controlling interests over these related companies.
(ii) The balance 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
a controlling 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.
(c)
(i)
The transaction represents the gross rental income received from Hang Seng Bank Limited, the intermediate holding company of
Imenson Limited (“Imenson”). Imenson is a non-controlling shareholder with significant influence over Barrowgate.
(ii) The balance represents outstanding loan advanced to Barrowgate by Imenson, 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.
The Company
2012
HK$ million
2011
HK$ million
13,029
(248)
12,781
1,337
11,462
(248)
11,214
480
154
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
38. RELATED PARTY TRANSACTIONS AND BALANCES continued
(b) Compensation of key management personnel
The remuneration of key management personnel of the Group and the Company during the year (being Directors and an officer)
are as follows. (For 2011, the key management personnel were the Non-executive Directors, and the five individuals with the
highest emoluments (including two Executive Directors)).
Directors’ fees, salaries and other short-term employee benefits
Share-based payments
Retirement benefits scheme contributions
2012
HK$ million
2011
HK$ million
21
4
–
25
27
5
–
32
The remuneration of the Directors and key executives is determined by the Remuneration 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. As
at 31 December 2011, all options granted under the 1995 Scheme had been exercised.
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 be expiring on 9 May 2015 (together with the 1995 Scheme 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.
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$1 and is required to be paid within 30 days
from the date of grant of option, with full payment for exercise price to be made on exercise of the relevant option.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
39. SHARE-BASED PAYMENT TRANSACTIONS continued
(b) Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Vesting period is 3 years in equal proportions
starting from the 1st anniversary and become fully vested on the 3rd anniversary of the grant. Size of grant will be determined
by reference to base salary multiple and job grades. A clear performance criterion will be a key driver. The Board will review the
grant and vesting structures from time to time.
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Directors and eligible employees during
the current year:
Exercise
price
HK$
Exercisable
period
(Note a)
Balance
as at
1.1.2012
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2012
(Note b)
Changes during the year
Name
Date of grant
2005 Scheme
Executive Directors
Irene Yun Lien LEE
14.5.2012
Siu Chuen LAU
14.5.2012
33.500
(Note c)
33.500
(Note c)
Gerry Lui Fai YIM
(Note d)
1.12.2009
22.800
10.3.2011
35.710
9.3.2012
33.790
(Note f)
Wendy Wen Yee YUNG
30.3.2007
21.250
31.3.2008
21.960
11.3.2009
11.760
11.3.2010
22.100
10.3.2011
35.710
9.3.2012
33.790
(Note f)
14.5.2012 –
13.5.2022
14.5.2012 –
13.5.2022
1.12.2009 –
30.11.2019
10.3.2011 –
9.3.2021
9.3.2012 –
8.3.2022
30.3.2007 –
29.3.2017
31.3.2008 –
30.3.2018
11.3.2009 –
10.3.2019
11.3.2010 –
10.3.2020
10.3.2011 –
9.3.2021
9.3.2012 –
8.3.2022
– 261,000
– 242,000
–
–
– 261,000
– 242,000
218,000
217,000
–
–
(145,333)
(Note e)
(72,667)
–
(217,000)
– 239,000
–
(239,000)
–
–
–
95,000
100,000
100,000
185,000
103,000
–
–
–
–
–
– 113,000
–
–
–
–
–
–
–
95,000
– 100,000
– 100,000
– 185,000
– 103,000
– 113,000
156
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
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 g)
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
31.3.2011
32.000
30.3.2012
31.610
(Note n)
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
31.3.2011 –
30.3.2021
30.3.2012 –
29.3.2022
Balance
as at
1.1.2012
23,000
95,000
85,000
262,668
441,001
370,000
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2012
(Note b)
–
–
–
–
–
–
(6,000)
(Note h)
(95,000)
(Note i)
(85,000)
(Note j)
(69,668)
(Note k)
(102,333)
(Note l)
–
17,000
–
–
–
–
(23,000) 170,000
(66,000) 272,668
(4,000) (105,000) 261,000
(Note m)
– 479,000
–
(107,000) 372,000
2,294,669 1,334,000
(507,334)
(829,667) 2,291,668
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions starting from the 1st anniversary and become fully vested on the
3rd anniversary of the grant.
(b) The options lapsed during the year upon resignations of a Director and certain eligible employees.
(c) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 11 May 2012) was HK$33.00.
(d) Gerry Lui Fai YIM resigned as Chief Executive Officer and Executive Director of the Company as from the conclusion of 2012 AGM held on
14 May 2012.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.60.
(f)
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 8 March 2012) was HK$33.45.
(g) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$35.35.
(i)
(j)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$32.55.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.60.
(k) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$32.95.
(l)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$31.03.
(m) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.10.
(n) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 29 March 2012) was HK$31.10.
Apart from the above, the Company had not granted any share option under the 2005 Scheme to any other persons as required
to be disclosed under Rule 17.07 of the Listing Rules.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
39. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and eligible employees in prior
year:
Name
Date of grant
Exercise
price
HK$
Exercisable
period
(Note a)
Changes during the year
Balance
as at
1.1.2011
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2011
30.3.2005
15.850
30.3.2005 –
29.3.2015
96,000
–
(96,000)
(Note b)
1995 Scheme
Executive Director
Wendy Wen Yee YUNG
2005 Scheme
Executive Directors
Peter Ting Chang LEE
(Note c)
6.3.2007
21.380
13.3.2008
21.450
11.3.2009
11.760
Gerry Lui Fai YIM
1.12.2009
22.800
10.3.2011
35.710
(Note e)
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
10.3.2011
35.710
(Note e)
–
–
(86,667)
–
–
–
–
235,000
260,000
–
–
(235,000)
(Note d)
(173,333)
(Note d)
500,000
–
(166,666) (333,334)
218,000
–
– 217,000
110,000
95,000
100,000
300,000
185,000
–
–
–
–
–
– 103,000
(Note d)
–
–
(110,000)
(Note b)
–
–
(200,000)
(Note b)
–
–
– 218,000
– 217,000
–
–
–
95,000
– 100,000
– 100,000
– 185,000
– 103,000
6.3.2007 –
16.1.2011
13.3.2008 –
16.1.2011
11.3.2009 –
16.1.2011
1.12.2009 –
30.11.2019
10.3.2011 –
9.3.2021
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
10.3.2011 –
9.3.2021
158
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Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
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
1.1.2011
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2011
2005 Scheme continued
Eligible employees
(Note f)
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
31.3.2011
32.000
(Note m)
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
31.3.2011 –
30.3.2021
15,000
15,000
78,000
95,000
85,000
363,334
523,000
–
–
–
–
–
–
–
(15,000)
(Note g)
(15,000)
(Note h)
(55,000)
(Note i)
–
–
–
–
–
–
–
23,000
–
95,000
–
85,000
(86,999)
(Note j)
(13,667) 262,668
(Note k)
(37,999)
(Note l)
(44,000) 441,001
(Note k)
– 393,000
–
(23,000) 370,000
(Note k)
3,273,334 713,000 (1,190,997) (500,668) 2,294,669
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions starting from the 1st anniversary and become fully vested on the
3rd anniversary of the grant.
(b) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.25.
(c) 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 the sole
executrix to his estate on 3 January 2011. The unvested share options of 420,001 lapsed on 17 January 2011.
(d) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.60.
(e) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 9 March 2011) was HK$35.70.
(f)
Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the
Employment Ordinance.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.65.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.25.
(i)
(j)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.68.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.98.
(k) The unvested options lapsed during the year upon resignations of certain eligible employees.
(l)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$35.06.
(m) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2011) was HK$31.95.
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.
159
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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$8 million (2011: HK$7 million) in relation to share
options granted by the Company, of which HK$4 million (2011: HK$3 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
14.5.2012
30.3.2012
9.3.2012
31.3.2011
10.3.2011
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:
HK$33.500 HK$31.100 HK$33.050 HK$32.000 HK$34.000
HK$33.500 HK$31.610 HK$33.790 HK$32.000 HK$35.710
2.717%
2.687%
0.535%
10 years
10 years
5 years
34.026%
34.151%
40.197%
HK$0.698
HK$0.640
HK$0.640
HK$9.740 HK$12.409 HK$12.553
0.449%
5 years
40.715%
HK$0.698
HK$10.212
0.606%
5 years
40.389%
HK$0.698
HK$9.210
(a) Risk free rate: being the approximate yields of 5-year or 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 5 years or 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 appropriate historical volatility of closing prices of the shares of the Company in the past 5 years (2011: 10
years) immediately before the date of grant.
(d) Expected dividend per annum: being the approximate average annual cash dividend for the past 5 financial years.
40. EVENT SUBSEQUENT TO THE END OF THE REPORTING PERIOD
Subsequent to 31 December 2012, Hysan (MTN) Limited, a wholly-owned subsidiary of the Company, issued US$300 million
Medium Term Notes. The notes are guaranteed as to principal and interest by the Company bearing interest at 3.5% and are
repayable in full in 2023.
160
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13年3月21日 下午7:05
Hysan Annual Report 2012Notes to the Financial Statements continuedFor the year ended 31 December 2012
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, accounts receivable, other receivables, equity investments, zero coupon convertible note, accounts payable, accruals,
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
payables 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 is primarily attributable to rents receivable from tenants, amounts due from
subsidiaries, principal-protected investments, derivative financial instruments, zero coupon convertible note, 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 statements
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, zero coupon convertible note, 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, an 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 comprised (i) investment value of financial assets (including time deposits, principal-
protected investments and term notes); (ii) net positive value of derivative financial instruments and zero coupon convertible
note and; (iii) potential exposures to derivatives 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+
2012
Number of
counterparty
Exposure
HK$ million
2011
Number of
counterparty
Exposure
HK$ million
5
27
140 to 355
1 to 290
5
23
180 to 385
1 to 295
To minimise the credit risk of amounts due from subsidiaries, 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. 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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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Financial Risk ManagementFor the year ended 31 December 2012
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 2012
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans (Note)
Floating rate notes (Note)
Fixed rate notes (Note)
Zero coupon notes (Note)
As at 31 December 2011
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans (Note)
Floating rate notes (Note)
Fixed rate notes (Note)
Zero coupon notes (Note)
(469)
(698)
(327)
(2,695)
(200)
(2,722)
(324)
(469)
(698)
(327)
(2,766)
(206)
(3,636)
(430)
(469)
(190)
(327)
(735)
(3)
(114)
–
–
(184)
–
(919)
(203)
(114)
–
–
(306)
–
(1,112)
–
(698)
–
–
(18)
–
–
–
(2,710)
(430)
(7,435)
(8,532)
(1,838)
(1,420)
(2,116)
(3,158)
(532)
(600)
(327)
(2,840)
(200)
(3,309)
(314)
(532)
(600)
(327)
(2,956)
(208)
(4,040)
(430)
(532)
(170)
(327)
(190)
(3)
(1,482)
–
–
(167)
–
(739)
(3)
(83)
–
–
(230)
–
(2,027)
(202)
(623)
–
–
(33)
–
–
–
(1,852)
(430)
(8,122)
(9,093)
(2,704)
(992)
(3,082)
(2,315)
Note:
These amounts represent the maximum amounts the Company could be required to settle under the arrangement for the full guaranteed
amounts if that amounts are claimed by the counterparties to the guarantee. Based on expectations at the end of the reporting period, the
Company considers that it is not likely that amount will be payable under the arrangement.
162
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Hysan Annual Report 2012Financial Risk Management continuedFor the year ended 31 December 2012
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 2012
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
As at 31 December 2011
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
(35)
(1,337)
(35)
(1,337)
(35)
(1,337)
(1,372)
(1,372)
(1,372)
(36)
(480)
(516)
(36)
(480)
(516)
(36)
(480)
(516)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 2012
Derivative settled net
Interest rate swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency swaps
Outflow
Inflow
30
111
6
14
49
42
2
(5)
(287)
289
(508)
517
(209)
212
(205)
212
(78)
77
(303)
305
–
–
–
–
–
–
–
–
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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 2011
Derivative settled net
Interest rate swaps, basis swaps
and asset swap
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency and net basis swaps
Outflow
Inflow
11
(1)
(12)
98
(13)
6
48
57
(646)
646
(359)
357
(1,883)
1,923
(1,375)
1,404
(210)
212
(205)
217
(77)
77
(303)
302
–
–
–
–
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 used (i) interest
rate swaps to hedge the interest rate risk of the Group’s floating rate bank loans; 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 used 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 2012, about 47.0% (2011: 54.8%) 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. 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 all other variables were held constant. Such change has 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 -25 basis points (“bps”)
(2011: +100 and -5 bps) was applied to the HKD and US dollars (“USD”) yield curves at the end of the reporting period. For the
Australian dollars (“AUD”) yield curve, a change of +100 and -100 bps (2011: +100 and -100 bps) was applied. The applied
change of bps represented management’s assessment of the reasonably possible change in interest rates based on the current
market conditions. For the HKD and USD yield curve, the increase in negative change reflected potential interest rate decrease
in 2013, especially for the instruments with longer maturity.
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.
164
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Hysan Annual Report 2012Financial Risk Management continuedFor the year ended 31 December 2012
1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued
(c) Interest rate risk continued
As at 31 December 2012
As at 31 December 2011
The Group
Increase (decrease) in
profit or loss
Increase (decrease) in
equity
bps increase
HK$ million
bps decrease
HK$ million
bps increase
HK$ million
bps decrease
HK$ million
(2)
(6)
–
–
8
18
(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 AUD, Renminbi (“RMB”) and USD.
2012
2011
The Group
AUD million RMB million
Total
equivalent
to
US$ million HK$ million
Total
equivalent
to
AUD million RMB million US$ million HK$ million
Assets
Time deposits
Principal-protected
investments
Term notes
Liabilities
Unsecured bank loans
Fixed rate notes
–
–
–
–
37
–
37
30
–
133
163
–
–
–
10
32
37
79
26
–
26
115
247
449
811
495
–
495
–
–
–
–
37
–
37
167
–
150
317
–
–
–
–
39
21
60
26
174
200
204
300
347
851
490
1,357
1,847
At the end of the reporting period, all of the Company’s assets and liabilities were denominated in HKD.
Other than concentration of currency risk of the above items denominated in AUD, RMB and 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.
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 all other variable were held constant. Such change has been applied to both derivative and non-derivative
financial instruments that would have affected the profit or loss and equity. A change of 500 percentage in points (“pips”)
(2011: 500 pips) was applied to the HKD:RMB and HKD:USD spot and forward rates while a change of 10,000 pips (2011:
5,000 pips) was applied to the HKD:AUD spot and forward rates at the end of the reporting period. The applied change of pips
represented management’s assessment of the reasonably possible change in foreign exchange rates. As a result of the volatile
changes on the HKD:AUD spot and forward rates, the management adjusted the sensitivity rate from 5,000 pips to 10,000 pips
for the purpose of assessing foreign currency risk.
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued
(d) Currency risk continued
As at 31 December 2012
– AUD
– RMB
– USD
As at 31 December 2011
– AUD
– RMB
– USD
2. CATEGORIES OF FINANCIAL INSTRUMENTS
Financial assets
Fair value through profit or loss (“FVTPL”)
– financial assets measured at FVTPL
Derivative instruments under hedge accounting
Fair value through other comprehensive income (“FVTOCI”)
Amortised cost (including cash and cash equivalents)
Financial liabilities
FVTPL
– held for trading
Derivative instruments under hedge accounting
Amortised cost
The Group
Increase (decrease) in
profit or loss
Increase (decrease) in
equity
pips increase
HK$ million
pips decrease
HK$ million
pips increase
HK$ million
pips decrease
HK$ million
–
8
–
–
8
(2)
–
(8)
(2)
–
(8)
2
–
–
1
–
–
1
–
–
(1)
–
–
(1)
The Group
2012
HK$ million
2011
HK$ million
The Company
2012
HK$ million
2011
HK$ million
382
55
1
3,266
3,704
–
30
6,737
6,767
702
67
989
3,447
5,205
12
57
7,522
7,591
2
–
–
2
–
–
12,930
12,932
11,710
11,712
–
–
1,372
1,372
–
–
516
516
3. FAIR VALUE
The fair values of financial assets and financial liabilities are determined as follows:
•
•
•
the fair values of listed investments traded in active liquid markets are determined with reference to the published price
quotations;
the fair values 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 values 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 or calculated using an option pricing model based on quoted share
prices, time to maturity, volatility and interest rates.
The Directors consider that the carrying amounts of financial assets and financial liabilities measured at amortised cost in the
consolidated and the Company’s financial statements approximate their fair values, except for the carrying amount of HK$2,722
million (2011: HK$3,309 million) fixed rate notes as stated in note 29 of the Notes to the Financial Statements section with
fair value of HK$3,112 million (2011: HK$3,484 million).
166
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Hysan Annual Report 2012Financial Risk Management continuedFor the year ended 31 December 2012
3. FAIR VALUE continued
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair
value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
•
•
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets.
Level 2: fair value measurements are those derived from inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
•
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
Level 1
HK$ million
2012
Level 2
HK$ million
Level 3
HK$ million
Total
HK$ million
Financial assets
Derivatives under hedge accounting
Interest rate swaps
Financial assets at FVTPL
Principal-protected investments
Unlisted club debentures
Forward foreign exchange contracts
Financial assets at FVTOCI
Unlisted equity securities (Note)
Total
Financial liabilities
Derivatives under hedge accounting
Cross currency swaps
Interest rate swaps
Total
Note:
–
–
–
–
–
–
–
–
–
55
378
2
2
–
437
5
25
30
–
–
–
–
1
1
–
–
–
55
378
2
2
1
438
5
25
30
The carrying amounts of the unlisted equity securities approximated their fair values of HK$1 million as at 31 December 2012 and 2011. The
fair value measurements of the Group’s unlisted equity securities are grouped into Level 3, which are derived from valuation techniques that
include inputs for the assets that are not based on observable market data (unobservable inputs).
There were no transfers between Levels 1 and 2 for both years.
Hysan AR E.indb 167
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
3. FAIR VALUE continued
Financial assets
Derivatives under hedge accounting
Forward foreign exchange contracts
Interest rate swaps
Financial assets at FVTPL
Principal-protected investments
Unlisted club debentures
Zero coupon convertible note
Financial assets at FVTOCI
Listed equity securities
Unlisted equity securities (Note a)
Total
Financial liabilities
Derivatives under hedge accounting
Forward foreign exchange contracts
Cross currency swaps
Interest rate swaps
Other derivatives classified as
held for trading (not under
hedge accounting)
Net basis swaps
Asset swap (Note b)
Total
Notes:
Level 1
HK$ million
Level 2
HK$ million
Level 3
HK$ million
Total
HK$ million
2011
–
–
–
–
70
988
–
1,058
–
–
–
–
–
–
1
66
630
2
–
–
–
699
2
10
45
2
–
59
–
–
–
–
–
–
1
1
–
–
–
–
10
10
1
66
630
2
70
988
1
1,758
2
10
45
2
10
69
(a) The carrying amounts of the unlisted equity securities approximated their fair values of HK$3 million as at 1 January 2011. During the
year ended 31 December 2011, net fair value losses of HK$2 million have been recognised as other comprehensive expense. The fair
value measurements of the Group’s unlisted equity securities are grouped into Level 3, which are derived from valuation techniques that
include inputs for the assets that are not based on observable market data (unobservable inputs).
(b) As at December 2011, the Group entered an asset swap with notional amount of HK$60 million. During the year ended 31 December
2011, the unrealised fair value loss of HK$10 million was included in other gains and losses. The asset swap matured in February 2012.
There were no transfers between Level 1 and Level 2 for both years.
168
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Hysan Annual Report 2012Financial Risk Management continuedFor the year ended 31 December 2012
4. CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from
prior year.
The Group monitors its capital structure on the basis of a net debt to equity ratio. For this purpose, the Group defines net debt
as borrowings as shown in the consolidated statement of financial position less time deposits, cash and bank balances.
The management reviews the Group’s net debt to equity ratio regularly and adjusts the ratio through the payment of dividends,
the issue of new share or debt, the repurchase of shares and the redemption of existing debt.
The net debt to equity ratio at the year end was as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Borrowings
Less: Time deposits
Cash and bank balances
Net debt
Equity attributable to owners of the Company
Net debt to equity
The Group
2012
HK$ million
2011
HK$ million
2,695
200
2,722
324
5,941
(2,158)
(153)
3,630
2,840
200
3,309
314
6,663
(2,899)
(62)
3,702
58,123
48,753
6.2%
7.6%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
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169
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
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 declared/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$)
Year end share price (HK$)
2012
HK$ million
2011
HK$ million
(Note b)
2010
HK$ million
(Note b)
As restated
2009
HK$ million
(Notes a & b)
As restated
2008
HK$ million
(Notes a & b)
2,486
(423)
2,063
55
18
(187)
(156)
8,533
334
10,660
(289)
10,371
(416)
9,955
1,622
1,622
859
829
95.00
9.38
9.38
1.53
1.53
6.2%
16.8x
54.68
3.41
37.25
1,922
(262)
1,660
90
(34)
(173)
(122)
7,532
254
9,207
(217)
8,990
(445)
8,545
1,310
1,310
791
678
79.00
8.08
8.08
1.24
1.24
7.6%
12.3x
46.00
3.49
25.50
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
170
Hysan AR E.indb 170
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Hysan Annual Report 2012Five-Year Financial Summary
At 31 December
Assets and liabilities
Investment properties
Interests in associates
Equity investments
Available-for-sale investments
Tax recoverable
Time deposits, cash and bank balances
Other assets
Total assets
Borrowings
Taxation
Other liabilities
Total liabilities
Net assets
Non-controlling interests
Shareholders’ funds
Notes:
2012
HK$ million
2011
HK$ million
(Note b)
2010
HK$ million
(Note b)
As restated
2009
HK$ million
(Notes a & b)
As restated
2008
HK$ million
(Notes a & b)
60,022
3,759
1
–
2
2,311
2,328
49,969
3,423
989
–
–
2,961
2,026
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
68,423
59,368
48,554
44,042
41,720
(5,941)
(511)
(1,524)
(6,663)
(433)
(1,528)
(4,587)
(387)
(1,263)
(3,891)
(342)
(1,077)
(3,751)
(620)
(1,076)
(7,976)
(8,624)
(6,237)
(5,310)
(5,447)
60,447
(2,324)
50,744
(1,991)
42,317
(1,640)
38,732
(1,516)
36,273
(1,462)
58,123
48,753
40,677
37,216
34,811
(a) The figures for the years 2008 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”.
(b) Other than the changes in classification of certain financial assets, the early adoption of HKFRS 9 on 1 January 2011 had no material
financial impact on the amounts recognised on the financial statements of the Group for each of the 3 years ended 31 December 2010.
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 items that are non-recurring in nature (such as gains or losses on
disposal of long-term assets; impairment or its reversal; and tax provision for prior years)
(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
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STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual Revaluation of Investment Properties as at 31 December 2012
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 2012 was in the approximate sum of Hong Kong Dollars Sixty Billion and Twenty Two Million Only
(i.e. HK$60,022 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 potential, where appropriate,
without allowances for any expenses or taxation which may be incurred in effecting a sale.
Yours faithfully,
Knight Frank Petty Limited
Hong Kong, 29 January 2013
172
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Hysan Annual Report 2012Report of the Valuer 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
2. Bamboo Grove
I.L. 8624
Use
Category
of the Lease
Percentage
held by
the Group
Commercial
Long lease
100%
Residential
Medium term
lease
100%
Commercial
Long lease
65.36%
74-86 Kennedy Road
Mid-Levels
Hong Kong
3. Lee Gardens Two
28 Yun Ping Road
Causeway Bay
Hong Kong
4. Leighton Centre
77 Leighton Road
Causeway Bay
Hong Kong
5. Lee Theatre Plaza
99 Percival Street
Causeway Bay
Hong Kong
6. Sunning Plaza
10 Hysan Avenue
Causeway Bay
Hong Kong
7. Sunning Court
8 Hoi Ping Road
Causeway Bay
Hong Kong
8. One Hysan Avenue
1 Hysan Avenue
Causeway Bay
Hong Kong
9. 18 Hysan Avenue
18 Hysan Avenue
Causeway Bay
Hong Kong
Sec. G of I.L. 29,
Sec. A, O, F and H of I.L. 457,
the R.P. of Sec. C, D, E and G of I.L. 457,
Subsec. 1 of Sec. C, D, E and G of I.L. 457,
Subsec. 2 of Sec. E of I.L. 457 and
Subsec. 1, 2, 3 and
the R.P. of Sec. C of I.L. 461
Sec. B, C and the R.P. of I.L. 1451
Commercial
Long lease
100%
I.L. 1452, the R.P. of I.L. 472 and 476
Commercial
Long lease
100%
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
Commercial
Long lease
100%
Residential
Long lease
100%
The R.P. of Sec. GG of I.L. 29
Commercial
Long lease
100%
Sec. N of I.L. 457 and Sec. LL of I.L. 29
Commercial
Long lease
100%
Hysan AR E.indb 173
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173
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Schedule of Principal PropertiesAt 31 December 2012
INVESTMENT PROPERTIES continued
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%
*
Re-development of the property was completed during the year. The site has a registered site area of approximately 47,738 square feet.
The re-development has a projected gross floor area of around 716,000 square feet and was open in August 2012.
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Hysan Annual Report 2012Schedule of Principal Properties continuedAt 31 December 2012
SHARE CAPITAL
At 31 December 2012
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
5,315,035,280 1,063,007,056
5
5
There was one class of ordinary shares of HK$5 each with equal voting rights.
DISTRIBUTION OF SHAREHOLDINGS
(At 31 December 2012, 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)
2,416
924
89
64
4
17
3,514
4,290,044
68.75
14,280,554
26.30
6,815,038
2.53
12,783,351
1.82
0.12
2,353,259
0.48 1,022,484,810
0.41
1.34
0.64
1.20
0.22
96.19
100.00
1,063,007,056
100.00
TYPES OF SHAREHOLDERS
(At 31 December 2012, 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
586,382,706
43,493,615
40.75
55.16
4.09
Total
1,063,007,056
100.00
LOCATION OF SHAREHOLDERS
(At 31 December 2012, as per register of members of the Company)
Location of shareholders
Hong Kong
United States and Canada
United Kingdom
Others
Total
Note:
Number of
ordinary shares held
% of the issued
share capital
(Note)
1,056,992,672
4,542,424
1,233,167
238,793
99.43
0.43
0.12
0.02
1,063,007,056
100.00
The percentages have been compiled based on the total number of shares of the Company in issue as at 31 December 2012
(i.e. 1,063,007,056 ordinary shares).
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13年3月21日 下午7:05
175
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONOVERVIEWHysan Annual Report 2012Shareholding Analysis
FINANCIAL CALENDAR
Full year results announced
Ex-dividend date for second interim dividend
Closure of register of members and record date for second interim dividend
Dispatch of second interim dividend warrants
Closure of register of members for Annual General Meeting
Annual General Meeting
2013 interim results to be announced
* subject to change
6 March 2013
19 March 2013
21 March 2013
(on or about) 2 April 2013
14 to 15 May 2013
15 May 2013
5 August 2013*
DIVIDEND
The Board declares the payment of a second interim dividend
of HK78 cents per share. The second interim dividend will be
payable in cash to shareholders on the register of members
as at Thursday, 21 March 2013.
The register of members will be closed on Thursday,
21 March 2013, for the purpose of determining
shareholders’ entitlement to the second interim dividend,
during which period no transfer of shares will be registered.
In order to qualify for the second interim 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, 20 March 2013.
Dividend warrants will be dispatched to shareholders on or
about Tuesday, 2 April 2013.
The register of members will also be closed from Tuesday,
14 May 2013 to Wednesday, 15 May 2013, both dates
inclusive, for the purpose of determining shareholders’
entitlement to attend and vote at the Annual General Meeting
to be held on 15 May 2013, during which period no transfer
of shares will be registered. In order to qualify for attending
and voting at the Annual General Meeting, 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 Monday, 13 May 2013.
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
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. (Reception: 50/F.), The Lee Gardens
33 Hysan Avenue
Hong Kong
Telephone: (852) 2895 5777
Facsimile: (852) 2577 5153
OUR WEBSITE
Press releases and other information of the Group can be
found at our internet website: www.hysan.com.hk.
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Hysan AR E.indb 176
13年3月21日 下午7:05
Hysan Annual Report 2012Shareholder Information
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