Today’s Progress,
Tomorrow’s Foundation
Annual Report 2013
stock code 00014
THE ESSENTIAL READ AND WHY
4
Vision, Mission and Values
6
2013 financial and
non-financial performance
10
A year in review and 2014 outlook
26
2013 market conditions
32
Results highlights including
key performance indicators
34
Review of our core leasing segments
40
Report on financial position
and management
44
Prudent treasury policy
50
Risk controls and management
60
Governance structure and
the Board’s work in 2013
More information print and online
• corporate responsibility reporting with
independent verification
• visit us at www.hysan.com.hk
Contents
1
Overview
4 Who We Are
Vision
4
4 Mission
5
Values
6 2013 Performance at a Glance
10 Chairman’s Statement
2
Strategy in Action
26 The Marketplace
30 The Hysan Community –
Our Investment Property Portfolio
32 Management’s Discussion and Analysis
32 Review of Results
34 Review of Operations
40 Financial Review
44 Treasury Policy
Internal Controls and
Risk Management Report
50
3
Corporate Governance
56 Board of Directors
60 Corporate Governance Report
77 Directors’ Report
85 Directors’ Remuneration
and Interests Report
93 Audit Committee Report
4
Financial Statements
and Valuation
98 Directors’ Responsibility
for the Financial Statements
Independent Auditor’s Report
99
100 Financial Statements
170 Five-Year Financial Summary
172 Report of the Valuer
173 Schedule of Principal Properties
175 Shareholding Analysis
176 Shareholder Information
Front cover photo:
Looking beyond through Hysan Place office lobby skylight
Today’s Progress, Tomorrow’s Foundation
Hysan experienced another successful year in 2013, both in terms of
financial results and other achievements. While our core leasing business
performed well, we also strengthened our competitiveness through
effective asset enhancements, and realising our district vision for our
home base of Lee Gardens. This unique and vibrant district was first
developed exactly nine decades ago, and in our 2013 Annual Report,
we pay tribute to this premium core of Hong Kong. Together with the
accompanying Corporate Responsibility Report, this Annual Report
showcases how we have been progressing and how our accomplishments
form the foundation to build more successes for tomorrow.
2
1 Overview
We begin by stating our vision, mission and
values, which underpin everything we do.
This section then highlights Hysan’s 2013
financial and non-financial performance,
while our Chairman’s Statement details
our progress and explains the dynamics
between our shorter and longer-term projects.
3
4 Who We Are
4
Vision
4 Mission
5
Values
6
2013 Performance at a Glance
10 Chairman’s Statement
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
4 Who We Are
Vision
Mission
To be the PREMIER
Provide our stakeholders with
property company that
sustainable and outstanding
is superior to its peers
returns from a property
in its market of choice.
portfolio which is strategically
planned and managed by
passionate, responsible and
forward-looking professionals.
5
Values
Leadership
Excellence
Empowerment
Good Citizenship
Accountability
Respect
Driving / Driven
Entrepreneurship
Networking
Sustainability
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 6
2013 Performance at a Glance
Financial Performance
Turnover
Recurring Underlying Profit
HK$3,063m
+23.2%
HK$2,043m
+26.0%
Retail Sector’s Revenue
HK$1,678m +34.2%
(HK$ million)
1,800
8
7
6
1
,
0
5
2
1
,
8
4
6
0
0
7
9
8
7
1,600
1,400
1,200
1,000
800
600
400
200
0
Recurring Underlying Profit
HK$2,043m +26.0%
(HK$ million)
2,100
3
4
0
2
,
2
2
6
0 1
1
3
1
,
,
1,800
1,500
1,200
900
600
300
0
0
1
1
1
,
8
4
1
1
,
09
10
11
12
13
09
10
11
12
13
Office Sector’s Revenue
HK$1,085m +19.5%
5
8
0
1
,
(HK$ million)
1,200
1,000
8
0
0 9
2
8
7
4
7
0
7
7
800
600
400
200
0
Recurring Underlying Earnings per Share
HK192.10 cents +25.7%
(HK cents)
210
.
0
1
2
9
1
.
3
8
2
5
1
.
2
9
3
2
1
.
9
0
6
0
1
.
5
1
9
0
1
180
150
120
90
60
30
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
Residential Sector’s Revenue
HK$300m -8.5%
(HK$ million)
350
5
8
2
4
9
2
8
2
3
3
1
3
0
0
3
300
250
200
150
100
50
0
Dividends per Share
HK117 cents +23.2%
7
1
1
5
9
(HK cents)
128
112
9
4 7
8 7
6
96
80
64
48
32
16
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
(HK$ million)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
3
6
3
,
7
3
09
Cost
2
2
3
,
5
6
2
2
0
,
0
6
9
6
9
,
9
4
3
3
8
,
0
4
10
11
12
13
Valuation Surplus
6
2
3
,
3
6
3
2
1
,
8
5
3
5
7
,
8
4
7
7
6
,
0
4
6
1
2
,
7
3
4
5
.
9
5
8
6
.
4
0 5
0
.
6
4
1
6
.
8
3
2
4
.
5
3
(HK$ million)
72,000
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
7
Net Asset Value per Share
+8.9%
HK$59.54
Property Value
HK$65,322m +8.8%
(HK$ million)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
3
6
3
7
3
,
09
Cost
2
2
3
5
6
,
2
2
0
0
6
,
9
6
9
9
4
,
3
3
8
0
4
,
10
11
12
13
Valuation Surplus
Shareholders’ Funds
HK$63,326m +9.0%
(HK$ million)
72,000
6
2
3
3
6
,
3
2
1
8
5
,
3
5
7
8
4
,
7
7
6
0
4
,
6
1
2
7
3
,
64,000
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
Net Asset Value per Share
HK$59.54 +8.9%
09
10
11
12
13
09
10
11
12
13
8
7
6
,
1
0
5
2
,
1
8
4
6
0
0
7
9
8
7
5
8
0
,
1
8
0
0 9
2
8
7
4
7
0
7
7
(HK$ million)
5
8
2
4
9
2
8
2
3
3
1
3
0
0
3
(HK$ million)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
(HK$ million)
1,200
1,000
800
600
400
200
0
350
300
250
200
150
100
50
0
3
4
0
,
2
2
2
6
,
0 1
1
3
,
1
0
1
1
,
1
8
4
1
,
1
0
1
.
2
9
1
3
8
.
2
5
1
2
9
.
3
2
1
9
0
.
6
0
1
5
1
.
9
0
1
(HK cents)
128
112
7
1
1
5
9
9
4 7
8 7
6
(HK$ million)
2,100
1,800
1,500
1,200
900
600
300
0
(HK cents)
210
180
150
120
90
60
30
0
96
80
64
48
32
16
0
(HK$)
60
50
40
30
20
10
0
1
6
8
3
.
2
4
5
3
.
8
6
4
0 5
0
6
4
4
5
9
5
.
.
.
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 8 2013 Performance at a Glance
Non-Financial Performance
Governance
• Gold Award (Non-Hang Seng Index
Large Market Capitalisation Category)
in the Hong Kong Institute of Certified
Public Accountants’ Best Corporate
Governance Disclosure Awards 2013,
which was Hysan’s eleventh Best
Corporate Governance Disclosure
Award since 2000
• Bronze Award (General Category)
in The Hong Kong Management
Association’s 2013 HKMA Best
Annual Reports Awards
Environment
• Hysan Place awarded
BEAM Plus Platinum
certification for new
buildings
• Also received Sustainable Design Award
(New Development Category)
in the International Council of
Shopping Centers’ Asia Pacific
Shopping Center Awards 2013
9
Industry Achievements
• Hysan Place won the
• Also honoured with
Urban Land Institute’s
Global Awards for
Excellence, one of only
12 winners worldwide
in 2013
Gold Award
(New Development
Category) in the
International Council of
Shopping Centers’
Asia Pacific Shopping
Center Awards 2013
Community
• Constituent member of
• Awarded the 10 Years Plus
FTSE4Good Index and Hang
Seng Corporate Sustainability
Index, two of the best known
indices to track responsible
business practices in the world
Caring Company Logo by The
Hong Kong Council of Social Service
in recognition of Hysan’s efforts
towards promoting corporate
social responsibility
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 10 Chairman’s Statement
Year in Review
Hong Kong’s economy saw moderate growth in 2013. Its retail leasing market continued to
benefit from resilient local and tourist consumption. Grade “A” office leasing market
remained stable due to limited supply largely offsetting weak demand. Rental levels in core
areas, including Causeway Bay, were also stable.
Business Performance
The Group’s 2013 turnover was HK$3,063 million (2012: HK$2,486 million), representing
a year-on-year increase of 23.2% with Hysan Place’s first full year contribution. 11.4%
growth was recorded in the rest of the portfolio. Occupancy of retail, office and residential
sectors at year-end 2013 stood at 95%, 87% and 82% respectively. If excluding Sunning
Plaza and Sunning Court being vacated for a combined redevelopment project, the
occupancy rates would be 96%, 98% and 92% respectively.
Recurring Underlying Profit, the key measurement of our core leasing business
performance, was up 26.0% to HK$2,043 million (2012: HK$1,622 million). This again
reflected Hysan Place’s contribution and the increase in revenue generated from our retail
and office leasing activities. Our Underlying Profit, which excludes unrealised changes in
fair value of investment properties, was also HK$2,043 million (2012: HK$1,622 million).
Strong performance in these two profit indicators primarily reflected the improvement in
gross profit generated from our core leasing activities, as the Group normalised the
property expenses at HK$405 million (2012: HK$423 million) for 2013 and the expense
ratio at 13.2% (2012: 17.0%) of turnover for 2013 after the opening of Hysan Place.
Basic earnings per share based on Recurring Underlying Profit correspondingly rose to
HK192.10 cents (2012: HK152.83 cents), up 25.7%.
11
Our Reported Profit for 2013 was HK$6,158 million (2012: HK$9,955 million), principally
due to a smaller fair value gain on the Group’s investment properties valuation recorded
this year. Fair value gain recorded in 2012 also reflected a higher valuation for Hysan Place
after construction completion. At year-end 2013, the external valuation of the Group’s
investment property portfolio increased by 8.8% to HK$65,322 million (2012: HK$60,022
million), reflecting improved rentals for our portfolio. Shareholder’s Fund increased by 9.0%
to HK$63,326 million (2012: HK$58,123 million).
Our financial position remains strong, with net interest coverage of 15.4 times (2012: 16.8
times) and net debt to equity ratio of 5.3% (2012: 6.2%). Moody’s upgraded the Group’s
credit rating from Baa1 to A3 in May 2013 to reflect the stable recurring income of the
Group. Standard and Poor’s rating of the Group is BBB+.
Dividends
The Board of Directors (the “Board”) declares a second interim dividend of HK95 cents per
share (2012: HK78 cents). Together with the first interim dividend of HK22 cents per share
(2012: HK17 cents), there is an aggregate distribution of HK117 cents per share,
representing a year-on-year increase of 23.2%. The dividend will be payable in cash.
Lee Gardens: The Premier District for Retail and Offices
During the year under review, Hysan continues to define Lee Gardens district as the
premium core of Causeway Bay, and indeed, of Hong Kong. With top-class facilities for
retailers and other businesses, Lee Gardens in Causeway Bay continues to strengthen its
position as a unique work, lifestyle and shopping destination. During 2013, we have
enhanced and energised our different hubs within the district:
The Lee Theatre hub, our western gateway, is positioned to carry a more urban lifestyle
edge. The completion of Lee Theatre Plaza’s refurbishment in 2013, with new lower zone
flagship stores, created the desired tenant mix and the result was reflected in the mall’s
financial returns, as well as marked improvement in its visitors traffic.
Turning to the northern part of our portfolio, Hysan Place has secured a reputation as
Hong Kong’s major retail attraction in its first year of operation. It won the Urban Land
Institute’s Global Awards for Excellence, as well as International Shopping Center Awards’
Asia Pacific New Development Gold Award in recognition of its design and development.
The office portion of this iconic building, now also well-known for its top sustainability
credentials, has attracted major international businesses, and was fully occupied by the
end of the year in review.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 12
Chairman’s Statement
The Lee Gardens hub completes the district with its luxury premium retail space, as well as
prestigious Grade “A” office. Within this hub, the combined development of Sunning Plaza
and Sunning Court is progressing well and the mixed-use office and retail redevelopment
project is on schedule for its anticipated completion by 2018. We continue to carry out
renovations at parts of Lee Gardens Two, to be completed in 2014, further enhancing the
shopping and dining experience there.
We have further sharpened the brand identity of
to emphasize our district’s
uniqueness. Strong visual connectivity clearly defines the area for visitors to the district.
A great array of events and activities took place within Lee Gardens district also in the past
year to highlight the district’s dynamism and reinforce its identity. These culminated in the
much celebrated heritage exhibition, “Lee Gardens On Stage since 1923”, towards the end
of 2013, commemorating Lee Gardens development in the past 90 years.
While we continue to refine Lee Gardens as the must-visit district, we steadfastly remain
committed to being the premier property company that is superior to its peers in its market
of choice, as clearly stated in our corporate vision. In everything we do, we will remain
proactive, driven, progressive and strategic, while maintaining our core values of integrity,
professionalism and being a responsible business.
Our Community
We take pride in being a responsible business, and we strive to minimise our environmental
impact on the community. Our efforts were well recognised both locally and internationally.
Among the recognitions was the aforementioned Urban Land Institute’s Global Awards for
Excellence bestowed upon Hysan Place. The project was one of only 12 developments in
the world to receive the award in 2013. We are most proud to be honoured by what is
widely known as the property development industry’s most prestigious awards programme,
which recognises superior development efforts based on good design, leadership,
contribution to the community, innovations, public/private partnerships, environmental
protections and enhancement, response to societal needs, and financial success. To this
end, Hysan Place also won International Shopping Center Award’s Asia Pacific Sustainable
Design Award.
13
We will, of course, not rest on our laurels. We will continue to strive to care for the
environment and our community who experience, visit, shop, work, not just in one building,
but in the Lee Gardens district in general.
For our contributions throughout the past year, please refer to our Corporate Responsibility
Report 2013 for more information.
Outlook
Hong Kong’s economy is likely to continue to see moderate growth during 2014. Improving
global economy and resilient local private consumption should benefit our balanced retail
and office portfolio. We have in place an asset enhancement programme for our property
portfolio. We strive to balance and provide steady capital and revenue growth by
underpinning our large projects of longer durations, such as the combined Sunning site
redevelopment, with other asset enhancement projects that produce more immediate
returns. For 2014, we expect our overall performance to be steady.
Appreciation
I would like to thank our management team and our staff for their hard work throughout the
year to achieve the set of successful results. I would also like to thank my fellow directors
for their commitment and contribution, and look forward to working with everyone in 2014
to accomplish even more.
Irene Yun Lien LEE
Chairman
Hong Kong, 7 March 2014
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW Lee Gardens,
the unique
work, lifestyle
and shopping
destination
Lee Gardens was born in 1923 when the
Lee family purchased the then East Point Hill
from an established British trading company
and set up an amusement park. It is now
the triangular heart of Causeway Bay,
a world-renowned commercial district. Day or
night, whether you are strolling along tree-lined
Hysan Avenue admiring the latest couture,
enjoying the perfect work-life balance offerings
in a Hysan Place office, or sipping tea in a
sophisticated Lee Theatre eatery, you can sense
the area’s difference: the classic yet progressive
mood, perhaps. Lee Gardens is a district that is
steeped in Hong Kong’s history yet moves to a
contemporary rhythm at all hours of the day.
It perfectly echoes Hysan’s own core values
blending integrity and responsibility with
professionalism and progressiveness.
Hysan Annual Report 2013 A vibrant retail
triangle with
contrasting
styles
Lee Gardens’ retail triangle offers a
unique experience through diversity,
contrast and variety, being home to
luxury street shops, hip and trendy
malls, as well as urban lifestyle
image stores. These are complemented
by elegant restaurants, laid-back
cafes and old Hong Kong eateries
offering a broad range of styles and
price-points. The area also offers a
fabulous shopping environment set
in a triangle of thoughtful, contrasting
architecture against a bustling but
lush landscape. You see it, feel it
and breathe it: it is simply part of
your lifestyle.
Hysan Annual Report 2013 Perfect from 9 to 5 and
even better after 5
Lee Gardens Offices is a perfect choice for
companies that want to best manage the cost-
benefit of their office space, and care about
the work-life balance of their employees. It offers
Grade “A” office space and amenities comparable to
Central and Admiralty which reflects top value for
price paid, and has excellent transportation that
connects the centre of Hong Kong to the rest of the
city. Lee Gardens provides an ever-changing variety
of food and entertainment for staff and clients during
work hours, and for friends and family after hours.
Hysan Annual Report 2013 A successful and
responsible business
Hysan strives to be both successful
and responsible, encapsulating the
“triple bottom line” in financial, environmental
and social performances. This belief underlies
our aim to develop Lee Gardens into a
sustainable community, a choice location
for people to live and work, both now and
into the future. Hysan Place, for example,
is Hong Kong’s most sustainable commercial
building, winning accolades both locally and
internationally. Its Urban Farm is a unique
organic oasis that serves as a green
educational tool. One building does not make
a community, however, and we will continue to
explore ways to ensure that the district is
developed in a responsible way.
Hysan Annual Report 2013 Today’s progress,
tomorrow’s
foundation
Hysan is committed to continually
enhancing the asset value of our
investment property portfolio through
repositioning, refurbishment and
redevelopment. The combined
Sunning Plaza and Sunning Court
redevelopment project is well
underway, and is scheduled for
completion around 2018. This and
other forthcoming asset enhancement
projects will help establish
Lee Gardens as the heartbeat of
Hong Kong.
Hysan Annual Report 2013 24
2
Strategy in Action
This section focuses first on Hong Kong’s
economy and property market dynamics.
We then provide details on how we operated
in 2013 within this macro-environment,
with an analysis of our overall performance,
our finance and how we manage risks.
25
26 The Marketplace
30 The Hysan Community –
Our Investment Property Portfolio
32 Management’s Discussion
and Analysis
32 Review of Results
34 Review of Operations
40 Financial Review
44 Treasury Policy
50
Internal Controls and
Risk Management Report
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
26
The Marketplace
Hong Kong Economy
The Hong Kong economy expanded moderately in 2013 with a growth rate of 2.9% recorded
for the full year, driven by a slight improvement in all sectors of the economy. Private and
government consumption remained resilient, with increases of 4.2% and 2.7% respectively,
supported by the favourable employment and income environment. Investment spending
registered a moderate growth of 3.3%, with a pick-up in the growth of large-scale public
sector infrastructure works offsetting a decline in private sector construction activity.
Exports of goods showed a growth of 6.7%, which included exports of gold. Exports of
services also improved by 5.8%, attributable to the expansion of inbound tourism.
Real Gross Domestic Product*
Year-on-year % change
8
6
4
2
0
-2
-4
6.8%
4.8%
2.9%
1.5%
-2.5%
09
10
11
12
13
* In chained (2011) dollars
Source: Census and Statistics Department (data as of March 2014)
Retail
Retail sales continued to record a moderation of annual growth (11.0%) in 2013, a
phenomenon similar to that of 2012 (9.8%). The growth came mainly from the first half of
the year, which reflected robust sales in new models of electronic goods and computers,
and in gold related jewellery, which was in turn induced by a drop in gold prices. However,
the growth momentum slowed somewhat in the latter half of the year.
Despite the subsequent cooling down in gold purchases, retail sales in department stores
and medicines and cosmetics shops continued to witness stable growth throughout the
year. Mainland China visitors, whose arrivals increased by 16.7% in 2013, maintained
shopping focus on daily necessities and general merchandise.
27
In this context, some retail categories recorded good year-on-year growth, including other
consumer durable goods (up 43.9%, which included computers), jewellery, watches and
clocks and valuable gifts (up 22.9%), department stores (up 17.7%) and medicines and
cosmetics (up 11.9%).
Hong Kong Total Retail Sales
Total Number of Visitors
HK$ billion
Year-on-year % change
Million
500
450
400
350
300
250
200
150
100
406
24.9%
494
445
11.0%
9.8%
325
18.3%
275
0.6%
09
10
11
12
13
Total Retail Sales
Year-on-year % change
32
28
24
20
16
12
8
4
0
60
50
40
30
20
10
0
54
25.0%
75.0%
49
28.2%
71.8%
42
33.0%
67.0%
36
37.0%
63.0%
30
39.3%
60.7%
09
10
11
12
13
Number of Other Visitors
Number of Mainland China Visitors
Source: Census and Statistics Department (data as of March 2014)
Source: Hong Kong Tourism Board (data as of March 2014)
Demand for retail premises in prime shopping centres remained largely intact in spite of
the moderation of retail sales growth. Coupled with a limited supply pipeline, rents
continued to edge higher. According to Jones Lang LaSalle, there was only one major prime
retail development (totaling around 217,000 square feet) completed in 2013. For the whole
year, rents for premium prime shopping centres increased by 5.6%.
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
11
09
12
10
13
Source: Jones Lang LaSalle (data as of March 2014)
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 28
The Marketplace
Office
The external economic environment contributed to a slowdown in the Grade “A” office
market in 2013. As global business conditions remained uncertain, most multinational
corporate tenants continued to show reluctance to enter into an expansionary phase.
New lettings were largely bolstered by smaller-sized office requirements or companies
undergoing ‘rightsizing’, while tenants with larger floor plate needs opted for decentralised
locations due to cost-saving considerations.
According to Jones Lang LaSalle, new Grade “A” office supply totalled 1.1 million square
feet in 2013, with the majority (96%) of the space located in decentralised areas.
Moreover, the new supply level was far lower than the average of last 10 years (1.9 million
square feet), and also lower than the average annual take-up (2.1 million square feet) of
the same period.
Vacancy rate fell in Causeway Bay/Wanchai, while it remained stable in Hong Kong East and
Central, compared to 2012. On the other hand, Kowloon East recorded a rising vacancy
rate due to a large completion of new supply.
Among the Grade “A” office sub-markets, Central’s rents dropped 1.1% during 2013 in view
of slower demand from financial institutions. All other sub-markets remained stable.
Causeway Bay/Wanchai recorded an annual rental growth of 1.4%.
Grade “A” Office Vacancy Rate in 2012 and 2013
Grade “A” Office Rental Value
%
10
8
6
4
2
0
7.8%
4.4%
4.5%
4.6%
3.8%
3.0%
3.2%
2.2%
1.6%1.6%
Central
Causeway Bay/
Wanchai
Tsim Sha Tsui
Hong Kong
East
Kowloon East
HK$ per Square Foot
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
11
13
12
10
09
2012
2013
Central
Causeway Bay/Wanchai
Source: Jones Lang LaSalle (data as of March 2014)
Source: Jones Lang LaSalle (data as of March 2014)
29
Luxury Residential
Leasing demand for luxury residential properties remained soft. The level of new expatriate
family arrivals from the financial sector, traditionally the largest tenant group, continued to
be low. Furthermore, tightening corporate housing budgets drove tenants to trade down
the market.
During the year, leases were concluded with a diversified tenant mix, which saw more
tenants from the non-financial sectors. Local relocation of expatriates was comparatively
more active than new arrivals from overseas. Overall, luxury residential rents decreased by
3.3% in 2013, according to Jones Lang LaSalle.
Luxury Residential Rental Index (2009 Q4=100)
Index
130
125
120
115
110
105
100
95
90
85
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
11
09
10
13
12
Source: Jones Lang LaSalle (data as of March 2014)
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 30
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. This includes Sunning Plaza and Sunning
Court, which are currently under redevelopment.
BAMBOO
GROVE
HYSAN PLACE
Grade “A”
Offices
Lee Gardens
Retail Hub
Hysan Place
Residential
Lee Theatre
Retail Hub
LEE THEATRE
PLAZA
LEIGHTON
CENTRE
ONE HYSAN
AVENUE
THE LEE GARDENS/
LEE GARDENS ONE
LEE GARDENS
TWO/
CAROLINE
CENTRE
18 HYSAN
AVENUE
Under
redevelopment
111
LEIGHTON
ROAD
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.
Hysan Place is the hip and trendy home of a number of major
flagship stores. The Lee Gardens hub provides elegant and luxury
premium retail spaces for high-end brands. The Lee Theatre hub
is home to urban fashion and lifestyle shops, as well as
renowned restaurants.
HENNESSYROADSOGOCROSSHARBOURTUNNELTimes SquareLEE GARDEN ROADHYSAN AVENUELEIGHTON ROADPERCIVAL STREETMid-LevelsCENTRALABERDEENTUNNELNORTHPOINTYUN PING ROAD 31
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 fashion and lifestyle
brands as well as restaurants.
Approx. Gross Floor Area 317,000 ft2
Number of Floors 26
Completed 1994
Renovation of lower zone 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 PLAZA/SUNNING COURT
COMBINED REDEVELOPMENT
Causeway Bay
A future office and retail complex under
redevelopment.
HYSAN PLACE
500 Hennessy Road, Causeway Bay
Hysan Place includes 15 floors of Grade “A”
offices and 17 floors of retail outlets.
Situated at the northern gateway of Hysan’s
portfolio, 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
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 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
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
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 32 Management’s Discussion and Analysis
Hysan is principally engaged, together with its subsidiaries and associates, in investment,
development, marketing and management of quality properties in prime locations, and the
Group’s turnover and results are primarily derived from leasing of investment properties
located in Hong Kong. Our investment property interests totaled some 4.5 million gross
square feet of high-quality retail, office and residential space in Hong Kong.
Review of Results
The Group’s turnover continued to record growth and reached HK$3,063 million in 2013,
representing an increase of 23.2% from HK$2,486 million in 2012. The rise reflected
Hysan Place retail’s first full year contribution, full occupancy of its offices since third
quarter of 2013 and the increase in revenue generated by the rest of our portfolio.
The turnover of each sector is shown as below:
Retail sector
Office sector
Residential sector
2013
HK$ million
2012
HK$ million
Change
HK$ million
1,678
1,085
300
3,063
1,250
908
328
2,486
428
177
(28)
577
Change
%
+34.2
+19.5
-8.5
+23.2
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
HK$2,043 million, up 26.0% from HK$1,622 million in 2012. Our Underlying Profit, arrived
at by excluding the fair value change of investment properties, was also HK$2,043 million
(2012: HK$1,622 million). Strong performance in these two profit indicators primarily
reflected the improvement in gross profit generated from our core leasing activities, as the
Group managed to normalise the property expenses at HK$405 million (2012: HK$423
million) for 2013 and the expense ratio at 13.2% (2012: 17%) of turnover for 2013 after
the opening of Hysan Place. Basic earnings per share based on Recurring Underlying Profit
correspondingly rose to HK192.10 cents (2012: HK152.83 cents).
Our Reported Profit for 2013 was HK$6,158 million (2012: HK$9,955 million), principally
due to a smaller fair value gain on the Group’s investment properties valuation recorded
this year. Fair value gain recorded in 2012 also reflected a higher valuation for Hysan Place
after construction completion.
Recurring Underlying Profit
Underlying Profit
Fair value change on investment
properties located in
– Hong Kong
– Shanghai*
Reported Profit
2013
HK$ million
2012
HK$ million
Change
HK$ million
2,043
2,043
1,622
1,622
421
421
4,043
72
6,158
8,210
123
9,955
(4,167)
(51)
(3,797)
Change
%
+26.0
+26.0
-50.8
-41.5
-38.1
* The investment properties are held by an associate of the Group.
33
KEY PERFORMANCE INDICATORS
While many factors contributed to the results of the Group’s businesses, turnover
growth and occupancy rate are the key drivers used by the Group’s management for
assessment of the performance of our core leasing business. In addition, the
management uses property expenses and such expenses as a percentage of turnover
to assess cost effectiveness. The nature of these performance indicators, the way
they are measured and their significance to the Group are set out below.
Turnover Growth
Occupancy Rate
Property Expenses Ratio
Definition
The percentage change in
rental revenue in 2013 over
2012
The percentage of area leased
over total lettable area of each
sector
Property expenses as a
percentage of turnover
Measurement
How well the Group utilises and
prices its revenue-earning
assets
How effective the Group
manages its assets to produce
revenue
How efficient is the Group’s
business operations
Performance
Ratio improved in 2013 as a
result of the normalisation of
Hysan Place property expenses
following its opening
Property Expenses Ratio
13.2%
(17.0% for 2012)
• Hysan Place’s first full year
• Retail occupancy principally
contribution
• Healthy growth in commercial
properties offset turnover
decline in residential sector
which was partly impacted by
Sunning Court being vacated
for redevelopment
• About one-third of all
commercial leases, which
were renewed, re-let, or
subject to rent review during
the year, achieved an average
of around 50% increase in
rental level
reflected renovations at parts
of Lee Gardens Two
• Office occupancy remained
strong, excluding the impact
of combined Sunning Plaza
and Sunning Court
redevelopment
• Hysan Place offices fully
occupied as of September
2013
• Residential maintained
occupancy, if excluding
Sunning Court being vacated
for redevelopment, amidst
weak rental housing demand
Retail Sector
+34.2%
(+58.4% for 2012)
Office Sector
+19.5%
(+10.7% for 2012)
Retail Sector
95%
at year-end 2013
(93% at year-end 2012)
Excluding Sunning Plaza:
96% at year-end 2013
Office Sector
87%
at year-end 2013
(91% at year-end 2012)
Excluding Sunning Plaza:
98% at year-end 2013
Residential Sector
Residential Sector
- 8.5%
(+4.8% for 2012)
82%
at year-end 2013
(92% at year-end 2012)
Excluding Sunning Court:
92% at year-end 2013
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 34 Management’s Discussion and Analysis
Review of Operations
As at 31 December 2013, about 82% of the Group’s investment properties by gross floor
area were retail and office properties in Causeway Bay, and the remaining 18% was
residential. With its geographical location and dominance in the Lee Gardens area, the
Group pursues a differentiating strategy to market its commercial space with an objective
to creating a unique district of “Business of Life” where synergy exists among the retail and
office tenancies on one hand, and among various offerings to its customer groups on the
other. Both the retail and office sectors recorded healthy growth during the year, while the
residential sector registered a decline due partly to the impact of a property being vacated
for redevelopment. Currently, the retail sector is the largest contributor to the Group’s
turnover at around 55%, followed by the office and residential sectors. The area and
turnover share of each sector are as follows:
Gross Floor Area*
4.5 million sq.ft.
Turnover
HK$3,063 million
18%
52%
30%
10%
35%
55%
Residential
Office
Retail
* As at 31 December 2013
Their respective strategies and contribution to the Group’s performance are discussed in
detail below:
RETAIL SECTOR
Hysan owns, markets and manages 1.3 million gross square feet of prime retail space in
Causeway Bay. Its retail portfolio, which consists of three geographically separate hubs of
retailers at different price points, is positioned to differentiate itself from the typical shopping
malls by offering a unique experience with diversity, variety and contrast under the
brand. It is a multi-faceted yet integrated shopping environment that
combines a host of street-front shops with shopping malls of different characteristics, and is
complemented by a vibrant streetscape and a low-rise local neighbourhood. Together with a
plethora of merchandise, service, as well as food and beverage offerings, this creates a unique
and diversified shopping and lifestyle experience for our different target customer groups.
35
Each of the three hubs of the Hysan Retail Triangle accounts for about one-third of the
Group’s retail space, and they are:
Hysan
Place
Lee
Gardens
Hub
Lee
Theatre
Hub
• Hysan Place, a 17-storey vertical mall, is the winner of the Urban Land Institute’s
Global Awards for Excellence and the International Council of Shopping Centers Asia
Pacific Shopping Center’s Gold Award for design and development. It is positioned as
“hip and trendy” to target younger age groups. It also attracts new shoppers to
Causeway Bay as it is connected directly to the MTR. Hysan Place is home to the
unique Taiwanese bookstore eslite, Apple’s largest flagship store in Hong Kong, as
well as T Galleria by DFS, Gap, Hollister and many more.
• Lee Gardens hub (comprising Lee Gardens One, Lee Gardens Two and 18 Hysan
Avenue) provides elegant and luxury premium retail spaces, set along a tree-lined
environment with many street-front shops, and targets high-end shoppers both locally
and from abroad. Among the luxurious brands at Lee Gardens hub are Bottega Veneta,
Bvlgari, Cartier, Chanel, Christian Dior, Gucci, Hermes, Louis Vuitton, Piaget, Tod’s,
Valentino, Van Cleef & Arpels, and many others.
• Lee Theatre hub (comprising Lee Theatre Plaza, Leighton Centre and One Hysan
Avenue) at the western boundary of the Lee Gardens district and adjacent to another
popular shopping hub around Times Square, is home to urban fashion and lifestyle
shops and a great variety of restaurants. In 2013 Lee Theatre Plaza’s renovations
were completed with the opening of several flagship stores in the lower floor zone of
the 22-storey retail and restaurant vertical mall, which were complemented by a new
open piazza. Lee Theatre hub houses the mega-flagship stores of Aland, I.T., Jack
Wills, Muji, Sasa Supreme, Uniqlo, and others.
Retail sector revenue increased by 34.2% to HK$1,678 million (2012: HK$1,250 million),
including turnover rent of HK$106 million (2012: HK$104 million). This reflected mainly
Hysan Place mall’s first full year contribution, as well as the renovated Lee Theatre Plaza
lower zone’s contributions. In addition, there was positive rental reversion, an average
increase of around 50% in rent for renewals, rent reviews and new leases which became
effective during the year, as compared to existing leases. There was continuous
improvement in the tenant mix within our retail portfolio. During the year, retail space
subject to rental renegotiation accounted for about one-third of the total lease portfolio.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWHENNESSYROADLEE GARDEN ROADHYSAN AVENUELEIGHTON ROADPERCIVAL STREETYUN PINGROAD18 HYSANAVENUELEE GARDENS TWOUnderredevelopmentLEE GARDENSONEONE HYSANAVENUELEIGHTONCENTRELEE THEATRE PLAZATimes Square111 LEIGHTON ROAD 36
Management’s Discussion and Analysis
The overall retail portfolio occupancy was 95% as at 31 December 2013 (31 December
2012: 93%). If excluding Sunning Plaza which was being vacated for redevelopment,
occupancy was 96%. The vacancy mainly reflected the renovation of parts of Lee Gardens
Two, which is to be completed in the second quarter of 2014, as part of our asset
enhancement strategy.
During the festive days of December 2013, visitors to our retail portfolio averaged around
150,000 per day. We aim to attract both local shoppers and overseas visitors, with no
undue dependence on any particular group. During 2013, local shoppers accounted for
around 60% of estimated tenant sales in the portfolio.
Hysan Place saw its first full year of retail operation and remained a Hong Kong retail
landmark. The shopping mall hosted many popular marketing activities throughout the year,
including a Rugby Sevens promotion, Iron Man film tie-ins, and open-air theatre
performances. A recent survey conducted among more than a thousand Hysan Place
shoppers showed an overwhelming majority (73%) either agreed or strongly agreed with the
proposition that the mall was a “hip and trendy” shopping destination.
Lee Gardens luxury hub welcomed several new brands during the year, including Elie Saab,
Enoteca and Moncler. The Group also leased a 20,000 square feet two storey flagship
store to Ralph Lauren to house both its women and men’s fashion lines, with an opening
slated for the second half of 2014.
Lee Theatre Plaza saw the opening of new flagship stores that have fully occupied the lower
zone since the second quarter of 2013. The installing of apparel retailers with a broader
consumer appeal instead of high-end luxury products here has proved to be a right move to
create a balanced tenant mix for the entire portfolio, especially in face of the normalisation
in visitors’ spending. The complex has become the heart of an urban lifestyle image zone
known as the Lee Theatre hub, our western gateway.
district brand was reflected in our enhanced retail
The refining of
offerings and increased varieties within the area, and was complemented with clear and
multi-dimensional visual connectivity. There were also well-supported marketing and
promotional activities for the entire district, including the “Lee Gardens On Stage since
1923” heritage exhibition, which highlighted Lee Gardens’ development over the past 90
years. More marketing and promotional activities will be held to promote the
brand in 2014.
37
OFFICE SECTOR
Hysan owns, markets and manages 2.3 million gross square feet of premium office space
in Causeway Bay. Its Grade “A” office portfolio includes Hysan Place, The Lee Gardens,
Caroline Centre and 18 Hysan Avenue, while Sunning Plaza is vacated for redevelopment.
The portfolio is positioned to be a credible alternative to Central and Admiralty, and perfect
for companies that want to best manage cost-benefit of their office space and put high
priority on the work-life balance of their employees. Hysan Place is certified at the highest
Platinum level for the United States Green Building Council’s Leadership in Energy and
Environmental Design (USGBC LEED) and in 2013, also certified at Platinum level for the
Hong Kong Building Environmental Assessment Method (BEAM Plus standard). Significantly,
Hysan Place was honoured to receive the Urban Land Institute’s Global Awards of
Excellence, one of only twelve global winners for this top property development award.
Other office buildings in the portfolio, including One Hysan Avenue, 111 Leighton Road and
Leighton Centre, all offer quality office space for tenant use.
In 2013, with its top-class offices at Hysan Place, the Group succeeded in attracting a
U.S.-based international law firm, Cleary Gottlieb Steen & Hamilton, and National Australia
Bank to relocate from Central and Admiralty respectively. Together with the already tenanted
KPMG, these moves highlighted top tenants chose Causeway Bay and that it is gaining
traction to be considered as a credible alternative to Central as an office destination.
Our office sector’s revenue grew 19.5% to HK$1,085 million (2012: HK$908 million). This
principally reflected positive rental reversion, an average increase of around 50% in rent on
renewals, reviews and new lettings which became effective during the year, as compared to
existing leases, which were mainly concluded during the relatively weaker market of 2010.
It also reflected Hysan Place’s additional contributions with full occupancy achieved in
September of 2013. Sunning Plaza’s tenants began vacating for the site’s future
redevelopment in the fourth quarter of 2013 and the building was completely vacated by
the end of the year in review. The Group made great efforts to successfully relocate many
of these tenants in other office premises within our portfolio.
Our overall office portfolio occupancy was 87% on 31 December 2013 (31 December
2012: 91%). If excluding Sunning Plaza which was being vacated for redevelopment, the
occupancy was a strong 98%. Hysan Place’s office space was fully occupied as of the end
of 2013.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 38
Management’s Discussion and Analysis
The top four industry groups represented around 54.5% of our office tenant mix, namely
insurance, professional and consulting, high-end retailers, and banking and finance. The
overall tenant portfolio is balanced and no single category takes up more than 20% of total
lettable area. Hysan will continue to actively manage tenancy profile. The chart below
illustrates the office portfolio tenant profile as analysed by area occupied:
Office Tenant Profile by Area Occupied as at Year-end
19.8%
16.0%
18.7%
18.2%
5.2%
5.5%
5.9%
2013
13.8%
12.6%
9.1%
12.1%
4.8%
4.9%
6.1%
2012
14.6%
8.1%
12.8%
11.8%
Insurance
Professional and Consulting
High-end Retailers
Banking and Finance
Semi-retail
Marketing
Information Technology
Consumer Products
Others
With factors like excellent transportation connecting Causeway Bay to the rest of the city,
as well as the increasing variety of amenities for staff and clients during work hours and
families after hours, the portfolio provides a total Grade “A” office experience. This helps
tenant companies demonstrate great value due to their location in the area, and achieve
higher productivity, and offer a true sense of belonging to their staff. To effectively
communicate the value propositions of its Grade “A” offices to potential tenants, the Group
created taglines such as “A Small Step from Central, A Giant Leap in Value”, and “Perfect
from 9 to 5, and Even Better after 5” for its office leasing communications.
39
RESIDENTIAL SECTOR
Our residential portfolio comprises the Bamboo Grove development located in Mid-Levels,
while Sunning Court is vacated for redevelopment. The total area of our residential portfolio
is around 0.8 million gross square feet. We offer top class facilities and one-stop
personalised services to provide an international living experience for both expatriate and
locals alike. Residential leases are typically for two years.
Residential sector revenue declined by 8.5% to HK$300 million (2012: HK$328 million).
This principally reflected negative rental reversion as a whole, as well as the loss of
revenue due to Sunning Court’s tenants vacating for redevelopment during 2013. The
overall residential occupancy was 82% on 31 December 2013 (31 December 2012: 92%).
If excluding Sunning Court, the occupancy was 92%, amidst an overall weak market
environment.
Hysan continued to broaden its tenant base beyond the financial sector, which was still
affected by the macro environment. The Group also continued to diversify its marketing
channels, strengthen tenant relationships and direct marketing initiatives, as well as
enhance facilities, services and community activities.
CONTINUING ASSET ENHANCEMENT PROGRAMME
Preparations for the combined redevelopment of Sunning Plaza (commercial property) and
Sunning Court (residential property) are well underway. As at 31 December 2013, Sunning
Plaza was completely vacated, and Sunning Court was about to complete its vacating
process. The project is on schedule for anticipated completion around 2018.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 40
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 decreased by 4.3% to HK$405 million (2012: HK$423
million), mainly due to a reduction in expenses attributable to Hysan Place such as agency
fees. As a result, the property expenses to turnover ratio decreased from 17.0% to 13.2%
as compared to 2012. This reflected the normalisation of Hysan Place property expenses
following its opening.
Administrative expenses were 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 11.2% to HK$208 million
(2012: HK$187 million). This reflected human resources upskilling and the filling of
previously vacant positions, and salary increments.
FINANCE COSTS
Finance costs were HK$242 million in 2013, an increase of 55.1% from HK$156 million in
2012. The increase was the result of the Group’s higher average debt level after the
issuance of the US$300 million fixed rate notes at the beginning of the year. The new
financing helped to increase the liquidity and extend the maturity profile of the Group.
The Group’s average finance costs in 2013 were 2.9%, slightly higher than 2.7% reported
for 2012. This reflected the US$300 million fixed rate notes with a coupon of 3.5% issued
in January 2013.
Further discussion of the Group’s treasury policy, including debt and interest rate
management, is set out in the “Treasury Policy” section.
41
REvALUATION OF INvESTMENT PROPERTIES
The Group’s investment property portfolio was valued at 31 December 2013 by Knight
Frank Petty Limited, an independent professional valuer, on the basis of open market value.
The amount of this valuation was HK$65,322 million, an increase of 8.8% from HK$60,022
million at 31 December 2012. The valuation at year-end 2013 principally reflected
improved rental rates for the Group’s investment property portfolio. The following shows the
property valuation of each portfolio at year-end.
Retail portfolio
Office portfolio
Residential portfolio
2013
HK$ million
2012
HK$ million
Change
HK$ million
32,651
24,200
8,471
65,322
28,906
22,622
8,494
60,022
3,745
1,578
(23)
5,300
Change
%
+13.0
+7.0
-0.3
+8.8
Fair value gain on investment properties (excluding capital expenditure spent on the
Group’s investment properties) of HK$4,575 million (2012: HK$8,533 million) was
recognised in the Group’s consolidated income statement for the year.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
42
Management’s Discussion and Analysis
INvESTMENTS IN ASSOCIATES
The Group’s share of results of associates decreased by 7.5% to HK$309 million
(2012: HK$334 million), principally due to a smaller revaluation gain on the Shanghai
Grand Gateway project, of which the Group owns 24.7%, as compared to last year. At
31 December 2013, 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$72 million
(2012: HK$123 million).
The Shanghai Grand Gateway project continued to deliver a good performance in 2013. The
Group’s share of results, excluding revaluation gains on investment properties held by the
associate, recorded an 12.3% increase year-on-year. As at the end of 2013, 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 investment grade debt securities and principal-protected
investments. This helped to preserve the Group’s liquidity and enhance interest yields.
Investment income, principally being interest income, amounted to HK$76 million (2012:
HK$55 million). The growth was mainly due to a larger principal amount for investment
in time deposits and debt securities after the issuance of the US$300 million fixed
rate notes.
CASH FLOwS
Cash flow of the Group during the year is summarised below.
Operating cash inflow
Financing
Investments
Capital expenditure
Interest and taxation
Dividends paid and proceeds on
exercise of options
Net cash (outflow) inflow
* n/m – not meaningful
2013
HK$ million
2012
HK$ million
Change
HK$ million
Change
%
2,498
1,607
(2,236)
(704)
(350)
(1,157)
(342)
1,941
(738)
1,907
(1,626)
(333)
(842)
309
557
2,345
(4,143)
922
(17)
(315)
(651)
+28.7
n/m
n/m
-56.7
+5.1
+37.4
n/m
43
The Group reported operating cash inflow of HK$2,498 million (2012: HK$1,941 million) in
2013, reflecting the growth in our core leasing business. Net cash from financing rose to
HK$1,607 million (2012: net cash used in financing: HK$738 million), mainly due to the
new borrowings of US$300 million fixed rate notes at the beginning of the year, which was
partly offset by the cash outflow for debts repayment.
Net cash used in investments was HK$2,236 million (2012: net cash from investments:
HK$1,907 million), of which the majority were time deposits with longer tenors. Capital
expenditure in 2013 was HK$704 million (2012: HK$1,626 million), including the payment
of the construction costs of Hysan Place and other costs for building renovations.
CAPITAL ExPENDITURE AND MANAGEMENT
The Group is committed to enhancing the asset value of its investment property portfolio
through selective re-positioning, refurbishment and redevelopment. 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$696 million (2012: HK$1,595 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 44
Management’s Discussion and Analysis
Treasury Policy
MARKET HIGHLIGHTS
The global economy continued its slow recovery in 2013 as the economies of the United
States, Europe and Japan were recovering at varying speeds. The United States economy
finally showed signs of improvement in its housing market while Japan and the eurozone
began to pick up under accommodative monetary policies. Following the United States
Federal Reserve’s announcement of the plan to taper its stimulative monetary policy,
long-term interest rates moved higher towards the year-end. To lock in a relatively low
interest cost for long-term funding, the Group issued a US$300 million 10-year fixed rate
notes with a coupon of 3.5% in January 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;
KEY PERFORMANCE INDICATORS
Average Finance Costs
Source of borrowings
Average Debt Maturity
Floating Rate Debt
Net Interest Coverage
Net Debt to Equity
Definition
Interest expenses over
average gross debt for
the year
The percentage of borrowings
from banks and from capital
markets
The weighted average
remaining tenure of the
Group’s gross debt
The percentage of total debt
Gross profit before
Borrowings less liquidity on
that is effectively floating
depreciation less
hand divided by
rate based
administrative expense
shareholders’ funds
divided by net interest
expense
Measurement
The average costs of debt
financing
How diversified is the funding
source
The timing of repayment
needs of the Group
The likely impact on interest
The Group’s ability in meeting
The level of net leverage of
expenses by changes in
the interest payment
the Group and its ability to
market interest rates
obligations from its operation
raise further debt
Performance
A higher average finance
costs reflected the US$300
million fixed rate notes with
a coupon of 3.5% issued in
January 2013.
During the year, US$300 million
fixed rate notes were issued and
HK$700 million bank loans
matured. The portion from capital
markets at year-end 2013 was
higher than the level in 2012.
The average maturity was
lengthened with the US$300
million 10-year fixed rate
notes issued.
The ratio was lower
compared with 2012
Ratio reflects our stable
The ratio remains low after
profit against higher net
the issuance of the US$300
because more borrowings
interest expenses.
million fixed rate notes and
the Group’s ability to raise
further debt is strong.
were issued at fixed interest
rates under a relatively low
interest rate environment.
Average Finance Costs
2.9%
(2.7% for 2012)
bank Loans vs.
Capital Market Issuance
26.5% : 73.5%
at year-end 2013
(45.8% : 54.2% at year-end 2012)
Average Debt Maturity
6.0 years
at year-end 2013
(5.0 years at year-end 2012)
Floating Rate Debt
Net Interest Coverage
Net Debt to Equity
32.0%
at year-end 2013
(47.0% at year-end 2012)
15.4 times
(16.8 times for 2012)
5.3%
at year-end 2013
(6.2% at year-end 2012)
45
• 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.
Moody’s upgraded the Group’s credit rating from Baa1 to A3 in May 2013 to reflect the
stable recurring income of the Group. Standard and Poor’s rating of the Group is BBB+.
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.
KEY PERFORMANCE INDICATORS
Average Finance Costs
Source of borrowings
Average Debt Maturity
Floating Rate Debt
Net Interest Coverage
Net Debt to Equity
Definition
Interest expenses over
The percentage of borrowings
The weighted average
average gross debt for
from banks and from capital
remaining tenure of the
the year
markets
Group’s gross debt
Measurement
The average costs of debt
How diversified is the funding
The timing of repayment
financing
source
needs of the Group
The percentage of total debt
that is effectively floating
rate based
Gross profit before
depreciation less
administrative expense
divided by net interest
expense
Borrowings less liquidity on
hand divided by
shareholders’ funds
The likely impact on interest
expenses by changes in
market interest rates
The Group’s ability in meeting
the interest payment
obligations from its operation
The level of net leverage of
the Group and its ability to
raise further debt
Performance
A higher average finance
During the year, US$300 million
The average maturity was
costs reflected the US$300
fixed rate notes were issued and
lengthened with the US$300
million fixed rate notes with
HK$700 million bank loans
million 10-year fixed rate
a coupon of 3.5% issued in
matured. The portion from capital
notes issued.
January 2013.
markets at year-end 2013 was
higher than the level in 2012.
The ratio was lower
compared with 2012
because more borrowings
were issued at fixed interest
rates under a relatively low
interest rate environment.
Ratio reflects our stable
profit against higher net
interest expenses.
The ratio remains low after
the issuance of the US$300
million fixed rate notes and
the Group’s ability to raise
further debt is strong.
Average Finance Costs
bank Loans vs.
Average Debt Maturity
Floating Rate Debt
Net Interest Coverage
Net Debt to Equity
2.9%
(2.7% for 2012)
Capital Market Issuance
26.5% : 73.5%
6.0 years
at year-end 2013
at year-end 2013
(5.0 years at year-end 2012)
(45.8% : 54.2% at year-end 2012)
32.0%
at year-end 2013
(47.0% at year-end 2012)
15.4 times
(16.8 times for 2012)
5.3%
at year-end 2013
(6.2% at year-end 2012)
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 46
Management’s Discussion and Analysis
DEbT MANAGEMENT
The debt capital market was active in 2013, particularly in the first half of the year
when the market was still flushed with liquidity. Quality issuers took the opportunity to tap
the market while the interest rate remained low. Liquidity in the local bank loan market
also improved during the year as reflected by the reduced credit margin for top tier
companies borrowing from the market. To lock in a relatively low interest cost for long tenor
funding and to build up funds for future use, the Group issued US$300 million 10-year fixed
rate notes with a coupon of 3.5% in January 2013 under the Medium Term Notes
Programme. The long term borrowing lengthened the average maturity of the debt profile
to 6.0 years at year-end of 2013 (2012: 5.0 years).
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
%
18
16
14
12
10
8
6
4
2
0
14.0x
6.4%
12.3x
7.6%
11.7x
5.1%
16.8x
15.4x
6.2%
5.3%
09
10
11
12
13
Net Debt to Equity
Net Interest Coverage (times)
Times
18
16
14
12
10
8
6
4
2
0
The Group always strives to lower the borrowing margin, to diversify the funding sources
and to maintain a suitable maturity profile relative to the overall use of funds. As at 31
December 2013, the outstanding gross debt1 of the Group was HK$7,540 million (2012:
HK$5,899 million), an increase of HK$1,641 million compared with 2012 as a result of the
issuance of the US$300 million fixed rate notes and repayment of HK$700 million bank
loans 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. At year-end of 2013, about 26.5% of
the Group’s outstanding gross debts were sourced from these banking facilities.
1 The gross debt represents the contractual principal payment obligations at 31 December 2013. 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 2013, the book value of the outstanding debt
of the Group was HK$7,504 million (31 December 2012: HK$5,941 million).
47
The following graph shows the percentages of total outstanding gross debts sourced from
banks and the debt capital markets in the past five years.
Sources of Financing at Year- end
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
62.8%
37.2%
09
70.3%
29.7%
10
56.9%
54.2%
43.1%
45.8%
73.5%
26.5%
11
12
13
Bilateral Bank Loans
Capital Market Issuances
The Group also strives to maintain an appropriate maturity profile. As at 31 December
2013, the average maturity of the debt portfolio was about 6.0 years, of which about
HK$1,100 million or 14.6% of the outstanding gross debt will be due in less than one year,
reflecting little re-financing pressure for 2014.
The graph below shows the debt maturity profile of the Group at 2013 and 2012 year-end.
Debt Maturity Profile at 2013 and 2012 Year - end
2013
1,100
1,250 400
4,790
2012
700
1,100
1,500
2,599
0
1,000
2,000
3,000
4,000
5,000
6,000
8,000
Gross Debt Amount (HK$ million)
7,000
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
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW5,8997,540 48
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 2013, the
Group had cash and bank deposits totaling about HK$4,123 million (2012: HK$2,311
million). The increase of deposit was mainly resulted from the issuance of the US$300
million fixed rate notes. 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$1,360 million (2012: HK$1,288
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$900 million at year-end
2013 (2012: HK$1,000 million), essentially allow the Group to obtain additional liquidity as
the need arises.
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 of the US$300 million 10-year fixed rate notes with a coupon of 3.5% issued in
2013, the average cost of financing increased to 2.9% in 2013 compared to 2.7% in 2012.
The fixed debt ratio also increased to 68.0% at year-end of 2013 from 53.0% at year-end
of 2012.
As the Group believes that interest rates will rise in the next few years, we expect the
issuance will reduce the overall interest rate exposures over the 10-year period.
The diagram below shows the Group’s debt levels and average finance costs in the past
five years.
Debt Levels and Average Finance Costs
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
3,889
3.1%
1,905
4,540
2,547
2.7%
09
10
Year-end Gross Debt
6,610
5,899
7,540
3,649
3,588
2.7%
2.7%
3,417
2.9%
11
12
13
%
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Year-end Net Debt
(Gross debt less short-term investments,
time deposits, cash and bank balances)
Average Finance Costs
49
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 AUD37 million bank
loan and US$300 million fixed rate notes, which have been hedged by appropriate hedging
instruments, all of the Group’s other borrowings were denominated in Hong Kong dollars.
For the US$300 million fixed rate notes issued in January 2013, hedges were entered to
effectively convert the borrowing into Hong Kong dollar. For the foreign exchange exposure
on the investment side, the Group’s outstanding in amount in cash, time deposits, principal-
protected investments and debt securities amounted to US$109 million and RMB322
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$4,181 million (2012:
HK$3,759 million) or 5.5% (2012: 5.5%) of total assets.
USE OF DERIvATIvES
As at 31 December 2013, 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 50
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. 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 regular 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. Internal
Audit regularly reports on reviews of the business processes and activities, including action
plans to address any identified control 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 and
reports to the Board on such reviews.
(Please also see “Audit Committee Report” on page 93 regarding the Committee’s detailed
review work.)
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
• Designs, implements,
and monitors our risk
management and
internal controls system
• Assesses our risks
and mitigating measures
Company-wide
• 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
51
Hysan’s Internal Controls Model and Continuous Improvement
in our System
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. Since 2012, we have put in place a phased improvement
plan and progressed to further enhance our internal controls and risk management system
as described below:
• 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 department, 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. Management also forms a risk management
committee (headed by the Chief Executive Officer) which sets the relevant policies and
monitors potential weaknesses and action items regularly.
Since 2012, we have refined the process by adopting a more risk-based (instead of
process-based) approach in risk identification and assessment, 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.
Training/refresher sessions and workshops were provided to department heads, with
guidance, facilitation, and discussions throughout. We have also adopted a more
“participatory” approach in determining the Group’s corporate-level “top risks”, by
enhancing the “bottom-up” aspects and the involvement of department heads.
• 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. In particular, we have put in place a greater use of key
performance indicators, which facilitates top-level reviews. A greater use of automation
(information processing) is also being implemented.
• Monitoring – oversight by the Board and Audit Committee, assisted by our Internal Audit
team. Management has enhanced its update reports to Audit Committee on movements
on top risks and appropriate mitigating measures. From 2012 onwards, an additional Audit
Committee meeting has been held to review and monitor risk management activities.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 52
Internal Controls and Risk Management Report
2013 Review of Internal Controls Effectiveness
In respect of the year ended 31 December 2013, the Board considered the internal
controls system effective and adequate. No significant areas of concern that might affect
the financial, operational, compliance controls, and risk management functions of the
Group were identified. The scope of this review covers the adequacy of resources,
qualification/experience of staff of the Group’s accounting and financial reporting function,
and their training and budget.
Further Strengthening of Our Underlying Systems in 2013
Integration of internal controls and risk management into other business processes
• In budgeting and business planning processes,
operating units are required to identify material risks
that may impact the achievement of their business
objectives. Action items to mitigate the identified risks
are developed for implementation as well as for
finalising the budget and business objectives
These further 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.
• Formalised the adoption of key risk indicators in
management reporting
• Integrated our refined Visions / Missions / Values,
which stress accountability, in our performance
appraisal system
Monitoring – enhanced “management assurance” to the Board and Audit Committee in
their respective reviews
Facilitates and enhances the work of
the Audit Committee and the Board in
monitoring our risk exposure.
We have enhanced the “assurance” aspects in the
following ways:
• enhanced management update reports to Audit
Committee and the Board on top risks , with special
reports on selected topics
• a more structured approach implemented for the
purpose of management’s certification of controls
effectiveness, adopting a control self-assessment
approach cascading to department heads where
appropriate.
Way Forward
Achieving a “live” risk management system practised on a day-to-day basis by our operating
units is a continuous journey. We shall continue this path, with further integration of
internal controls and risk management into our business processes.
The COSO framework (on which the Group’s internal controls system is based) has been
revised, effective December 2013. Instead of treating this as a framework-update exercise,
a holistic approach will be adopted, taking into consideration the Company’s circumstances,
including its ongoing internal controls and risk management improvement plan as well as
other strategic initiatives. (e.g. corporate social responsibility strategy and reporting)
53
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 2013
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
Considering the impact of changes in demand and
competition on the three leasing units, which
continued to be 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 26 to 29) &
“Review of Operations” (pages 34 to 39)
4. Projects (including combined
Sunning site redevelopment, and
Lee Theatre Plaza asset
enhancement)
Lee Theatre Plaza asset enhancement completed
with new anchor tenants commencing operations
New (combined
Sunning site
redevelopment)
Announcement made in March 2013 for the new
combined Sunning site redevelopment project.
Preparations for demolition underway, with tenants
began vacating in Q4 2013.
5. Finance (funding and liquidity
risks, given U.S. tapering of asset
purchases and impact on
financial markets)
6. Hazards / catastrophic loss
(health epidemics, natural
disasters, man-made hazards like
fire, flooding)
7. Human resources
See “ Review of Operations” (pages 34 to 39)
The Group successfully made a US$300 million
10-year bond issuance in January 2013.
For more analysis,
see “Treasury Policy” (pages 44 to 49)
We maintain comprehensive emergency handling
procedures covering all our properties.
Greater competition for skilled personnel, and labour
shortage for front-line staff, to support the Group’s
growth strategy.
For more analysis,
see Corporate Responsibility Report 2013 –
“Workplace Quality”
Note:
where “inherent risks” (i.e. before taking into consideration mitigating activities) increased
where “inherent risks” decreased
where “inherent risks” remain broadly the same
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
54
3
Corporate Governance
This “Corporate Governance” section
presents Hysan’s Board of Directors, as well
as our governance structure, systems and
best practices. We also highlight the Board’s
actions during the year.
55
56 Board of Directors
60 Corporate Governance Report
77 Directors’ Report
85 Directors’ Remuneration
and Interests Report
93 Audit Committee Report
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 56
Board of Directors
THE BOARD
THE BOARD
THE BOARD
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 an independent non-executive director of Cathay Pacific Airways Limited, CLP
Holdings Limited, The Hongkong and Shanghai Banking Corporation Limited and Noble
Group Limited (listed on Singapore Exchange Limited). She has held senior positions in
investment banking and fund management in a number of renowned international financial
institutions. Previously, Ms. Lee was 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.
She was also the non-executive chairman of Keybridge Capital Limited (listed on Australian
Stock Exchange), a non-executive director of ING Bank (Australia) Limited, QBE Insurance
Group Limited, and The Myer Family Company Pty Limited; and a member of the Advisory
Council of JP Morgan Australia. 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 60.
57
Deputy Chairman and
Chief Executive Officer (S)
Siu Chuen LAU
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 55.
Independent non-executive
Director (N, S, chairing A)
Nicholas Charles ALLEN
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 58.
Independent non-executive
Director
Frederick Peter
CHURCHOUSE
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 64.
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 Goodman Group. He is a member
of the Asian Advisory Committee of AustralianSuper Pty Ltd
(a pension fund in Australia). He was previously an
independent director of Suntech Power Holdings Co., Ltd.
and Zhuhai Zhongfu Enterprise Co. Ltd. Mr. Fan holds a
Bachelor’s Degree in Industrial Engineering and a Master’s
Degree in Operations Research from Stanford University, as
well as a Master’s Degree in Management Science from
Massachusetts Institute of Technology. He was appointed
Independent non-executive Director in January 2010. He is
aged 64.
(A) Audit Committee (R) Remuneration Committee (N) Nomination Committee (S) Strategy Committee
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 58
Board of Directors
Independent non-executive
Director (R, N)
Joseph Chung Yin POON
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 Environment and Conservation Fund
Investment Committee and 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, and a former
member of the Board of Inland Revenue of Hong Kong
Special Administrative Region. 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 59.
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 57.
Non-executive Director (A)
Anthony Hsien Pin LEE
Mr. Lee is a director and substantial shareholder of the
Australian-listed Beyond International Limited, principally
engaged in television programme production and
international sales of television programmes and feature
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 56.
Non-executive Director (N, S)
Chien LEE
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 60.
(A) Audit Committee (R) Remuneration Committee (N) Nomination Committee (S) Strategy Committee
59
Our Team Members
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 48.
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
Non-executive Director (R)
Michael Tze Hau LEE
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; an independent non-executive director and chairman
of OTC Clearing Hong Kong Limited; and a Steward of The
Hong Kong Jockey Club. Mr. Lee was 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 52.
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 a member of the Hong Kong Institute of Certified Public
Accountants, a Fellow of the Hong Kong Institute of
Chartered Secretaries; and sits on a number of panels of
the two institutes respectively. Her public services include
serving as a member of the Securities and Futures Appeal
Panel, Standing Committee on Company Law Reform, a
co-opted member of the Audit and Risk Committee of the
Hospital Authority, and the Hong Kong Selection Committee
of the Rhodes Scholarships respectively. She is aged 52.
(A) Audit Committee (R) Remuneration Committee (N) Nomination Committee (S) Strategy Committee
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 60 Corporate Governance Report
Refreshing of the Board and Board Diversity
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. Our Corporate Governance
Guidelines, first adopted by the Board in 2003, reflects this broad concept of diversity.
It was further refined during the year to more clearly bring out the Board’s endorsement of
this approach.
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 diversity of 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, professional
practices, and property industry have joined our Board. The Board last reviewed its size and
composition in December 2013.
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 “Stock Exchange”), 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 2013:
Non-Hang Seng Index (Large Market Capitalisation)
Category – Gold Award
Organised by the Hong Kong Institute of Certified Public Accountants
“The company’s report indicates continuous efforts and improvement in
internal controls and risk management. The 2012 review of internal
controls effectiveness, presented in a summary table, illustrates where
there has been a further strengthening of the company’s underlying risk
management system. Hysan discloses its risk profile to help readers
understand the company’s current risk exposures and to indicate how its
risks are changing over time.”
– Judges’ Report
61
Exceed
Code Provisions
Best Practices in Corporate Governance in Place at Hysan
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
The Board first established formal Corporate Governance Guidelines* 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: For the past few years, this has taken the form of meetings of the
Non-executive Directors without the presence of management. In 2014, the board evaluation
process was formalised with the adoption of an evaluation questionnaire.
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 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 then proposed environmental, social and
governance reporting guidelines under the Listing Rules in 2013.
Since 2004, the Group has operated a new form of Annual General Meeting (“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 continually enhances its communications with shareholders. It 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.
At the same time, it also continually enhances the use of its corporate website as a means
of shareholder communications.
* Detailed policies/terms of reference are available on the Company’s website: www.hysan.com.hk.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 62
Corporate Governance Report
The Board in 2013: driving continuous improvement
During the year, 4 Board meetings were held. Pursuant to its roles under the formal Board Mandate, the Board
discussed, acted on, and yielded results on the following themes. It was also supported by the work of various Board
committees, which had an active year. Moving forward, an additional scheduled Board meeting will be held from 2014
onwards for discussions on Group strategy matters.
1. Leadership
• refined the Board diversity policy (being part of
the Corporate Governance Guidelines) and
reviewed the size and composition of the
Board in this light
• Board effectiveness and evaluation:
• further enhanced the Board process
including the workings of the Board between
formal Board meetings, pursuant to
feedback of Non-executive Directors
• adopted a formal board evaluation process
in 2014. To reflect the Board’s commitment
to the principle of board effectiveness and
evaluation, the Corporate Governance
Guidelines were refined accordingly. (see
section on “Board Evaluation”)
2.
Strategic Planning
• received and discussed strategic plans and regular
updates for the Group’s core leasing (Office, Retail,
and Residential segments) to meet short-term
objectives; and medium-term directional plans to
further strengthen the competitiveness of the
Group’s Causeway Bay portfolio
• asset enhancement projects: received and
discussed management’s regular updates on the
Lee Theatre Plaza renovation project (completed in
2013) and the combined redevelopment of Sunning
Plaza and Sunning Court
• talent management: Board committee received, and
reported back to the Board, updates on succession
planning; the Board approved the proposed
refinement of compensation structure for senior
management to drive performance and hence
long-term success of the Group
Formal Board Mandate:
board roles
• Strategic Planning
• Internal Controls and
Risk Management
• Culture and Values
• Capital Management
• Corporate Governance
• Board Succession
4. Relations with Shareholders
• investor relations reporting (describing
investor and analyst opinions) is a regular
Board agenda item
• endorsed management’s plans to further
enhance shareholder communications by
further exploiting the electronic channels
3.
Risk Management
• Audit Committee reviewed and monitored
management’s plans to further strengthen the risk
management process, including further integrating
the same with other key business processes
(including budgeting and the adoption of formal
key risk indicators in management reporting); the
review process was further strengthened
• assessed effectiveness of financial controls, and
other internal controls
(Please refer to separate “Internal Controls and
Risk Management Report”, “Audit Committee
Report”)
• legal and regulatory compliance is a regular
agenda item for each Board meeting
63
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 64
Corporate Governance Report
Board Leadership
FORMAL BOARD MANDATE
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)
BOARD SIZE, COMPOSITION, AND APPOINTMENTS
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.
Irene Yun Lien LEE is currently the Board Chairman. 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. 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.
Further description of the backgrounds of the Non-executive Directors is set out in the
section “Board Effectiveness – Skills, Balance, and Diversity” 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 13 May 2014, Irene Yun Lien LEE, Nicholas Charles ALLEN, Hans
Michael JEBSEN, and Anthony Hsien Pin LEE 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.
65
Balance of Non-executive Directors
and Executive Directors
31 December 2013
Length of tenure of Non-executive Directors
31 December 2013
4
3
4
Executive Directors
Independent non-executive Directors
Non-executive Directors
4
4
0-5 years (being the four Independent non-executive Directors)
6 years and above (being the four Non-executive Directors)
The table below sets out the number of meetings of the Board and its committees in 2013,
individual attendance by Board and committee members at these meetings and the
attendance of the Board members at the 2013 AGM:
Directors
Executive
Irene Yun Lien LEE
Siu Chuen LAU
Wendy Wen Yee YUNG
Board
(Note 1)
4/4
4/4
4/4
Independent non-executive
Nicholas Charles ALLEN
4/4
Frederick Peter CHURCHOUSE 4/4
4/4
Philip Yan Hok FAN
(1 by telephone
conference)
Joseph Chung Yin POON
4/4
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Michael Tze Hau LEE
Chien LEE
3/4 (Note 2)
(1 by telephone
conference)
4/4
4/4
(1 by telephone
conference)
4/4
Audit
Committee
(Note 1)
Remuneration
Committee
(Note 1)
Nomination
Committee
(Note 1)
AGM
(Note 1)
3/3
1/3
3/3
2/2
2/2
2/2
1/1
1/1
0/1
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. Mr. Jebsen’s alternate attended the remaining meeting.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
66
Corporate Governance Report
Board Effectiveness
SKILLS, BALANCE, AND DIVERSITY
During 2013, 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
1. General management
Broad business experience through senior level position
in another major company.
Name of Directors
Philip Yan Hok FAN
Joseph Chung Yin POON
2. Property Industry
Experience as a senior executive in another major
company in property investment, development or facilities
management; or related industry.
Frederick Peter
CHURCHOUSE
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,
consumer products, services or distribution company.
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Joseph Chung Yin POON
Hans Michael JEBSEN
5. “Audit Committee” Accounting Expertise
Nicholas Charles ALLEN
Expertise based on definition of “Audit Committee
accounting expertise” under Listing Rules.
6. Risk Governance and Risk Management
An understanding of the Board’s role in the oversight of
risk management principles and practices, including an
understanding of current risk management principles and
practices, which may have been gained through 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
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.
Nicholas Charles ALLEN
Philip Yan Hok FAN
Chien LEE
Michael Tze Hau LEE
Joseph Chung Yin POON
Philip Yan Hok FAN
Joseph Chung Yin POON
(Directors’ full biographies are set out on pages 56 to 59 and are also available on the Company’s website:
www.hysan.com.hk)
67
INDEPENDENCE
As a listed company with the presence of a major shareholder family, the Board has put in
place appropriate policies and processes to avoid conflicts of interest or perception of
the same.
“Connected transactions” with persons and entities regarded as connected with the Group
under the Listing Rules are subject to the approval of the full Board, as provided under the
List of Matters Reserved for Board Decisions. In addition, transactions that are exempt
from Listing Rule requirements are also subject to reporting to the full Board after
management approval, with full particulars of key terms and conditions as well as
justification.
The Board has established “independence” standards for individual Directors 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 carried out a detailed review of director independence in
November 2013. It concluded that each of the 4 Independent non-executive Directors 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.
“Connected Transactions”
with related persons
subject to full Board
decision
This is expressly provided in our List of
Matters Reserved for Board Decisions.
The relevant requirements are more
stringent than those under the Listing
Rules.
Appointment of four
independent Directors
with a diverse background
We have four Independent non-executive
Directors drawn from a diverse
background, spanning general
management, property industry, financial
services and investment, and
professional (accounting).
(See page 66)
INDEPENDENCE
Checks and Balances
Clear “independence”
standards for individual
Directors
This is laid down in our Corporate
Governance Guidelines.
Detailed annual review of
independence of
individual Directors
The Nomination Committee carries out
a detailed review of Director
independence annually.
(See table on page 68 summarising 2013 review)
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 68
Corporate Governance Report
Independence Status
Name
Management
Independent
Not
Independent
November 2013 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
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
EVALUATION
Traditionally, 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 two discussion sessions during 2013
without the presence of executive members or Board members relating to the founding Lee
family. As a result of the feedback received, the Board process regarding the workings of
the Board between formal Board meetings was strengthened. Where urgent full-board
decisions have to be made in-between formal Board meetings, telephone conferences
(supplemented by formal written resolutions) will be arranged as far as practicable.
In 2014, the board evaluation process was formalised, by adopting a board evaluation
questionnaire. To reflect the Board’s commitment to the principle of board effectiveness
and evaluation, the Corporate Governance Guidelines were refined in March 2014
accordingly. The responses to the questionnaire will be thoroughly analysed and discussed
at Board meetings to be held in Q2 2014.
69
How The Board Works Together
BOARD AND MANAGEMENT
The Board and management fully appreciate their respective roles and are supportive of the
development and maintenance of a healthy corporate governance culture.
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.
HOW MANAGEMENT SUPPORTS THE EFFECTIVE WORKINGS OF THE BOARD
SUPPLY OF INFORMATION
Management 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 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.
During the year, the interaction of Non-executive Directors with non-Director members of the
management team was strengthened. In addition to receiving presentations from non-Board
management members at Board meetings, Non-executive Directors also interacted with the
management team in company events. These included the annual “Company Day” when
the management team shared management objectives for the coming year with all Head
office staff and supervisors of the building offices. These facilitate the build-up of
constructive relations and dialogue between the Board and the management team.
Directors are also kept updated of any material developments from time to time through
notifications and circulars detailing the relevant background and explanatory information.
As described above, 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.
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 70
Corporate Governance Report
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.
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, management has further strengthened the provision of presentations,
presentations by industry experts on macro and market environment affecting the Group
and 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
2013 Training Matters organised by Hysan (Note)
Executive
Irene Yun Lien LEE
Siu Chuen LAU
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
Chien LEE
Michael Tze Hau LEE
a, b, c, d
a, b, c
a, b, c, d
a, b, c, d
a, b, c
a, b, c, d
a, c
d
a, b, c
a, b, c, d
b, c
Notes:
a. regulatory update (new Companies Ordinance)
b. market environment and competitive landscape affecting the Group’s leasing business (China property (including
retail) market overview and implications for Hong Kong; Hong Kong office market: changing trends and
considerations from tenant perspective)
c. broad macro environment – changing social-political dynamics in Hong Kong
d. training organised by third parties, with invitation extended to Hysan Directors – these included 2013 Hong Kong
budget discussion forum and quarterly independent non-executive director forums organised by Big Four accounting
firms
BOARD PROCESS AND ADMINISTRATION PROCEDURES
Board discussions are held in a collaborative atmosphere of mutual respect and open
discussions allowing for questions, and constructive challenge where appropriate. In this
light, we aim to continually enhance the Board process. Improvement areas identified
include convening an additional meeting in 2014 for discussion on group strategy matters,
and allowing more time for discussions at each Board meetings.
INDEPENDENT ADVICE
It is recognised 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.
71
Pre-meeting sessions
with external and
internal auditors held
without management
presence
Board Committees in 2013
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. These committees
report to the Board. The terms of reference of these Committees are available on the
Company’s website. It was an active year for the Audit Committee and the Remuneration
Committee in particular, as detailed below.
Strategic planning is an important function of the Board. Moving forward, an additional
scheduled Board meeting will be held from 2014 onwards for discussions on strategy
matters. The Board also has a Strategy Committee to support it in this regard.
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.
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 (Non-executive
Director) and Philip Yan Hok FAN (Independent non-executive Director). 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 72
Corporate Governance Report
How the Audit Committee spent its time (%)
34%
42%
12%
12%
Financial reporting
Internal audit
External audit
Internal controls and risk management
ACTIVITIES AND REPORT IN 2013 AND TO DATE
Full details of the activities of the Audit Committee are also set out in the “Audit Committee
Report” on pages 93 to 96. Three meetings were held during the year. Attendance of Audit
Committee meetings is set out in the table on page 65. 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 integrating our internal controls and risk management system with other key
business processes (including budgeting and the formalisation of key risk performance
indicators in management reporting), and further enhancing the internal controls
effectiveness review process. (Details are also set out in the “Internal Controls and Risk
Management” Report on pages 50 to 53)
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 (Non-executive Director) and Joseph Chung Yin POON
(Independent non-executive Director). 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.
73
How the Remuneration Committee spent its time (%)
50%
50%
Executive Director Compensation
Broad policy matters relating
to the Group's senior executive
compensation structure
ACTIVITIES AND REPORT IN 2013 AND TO DATE
Full details of the activities of the Remuneration Committee are set out in the “Directors’
Remuneration and Interests Report” on pages 85 to 92. Two meetings were held during the
year. An additional meeting was held in December 2013 to consider and approve proposed
refinement of (non-Board) senior management team’s compensation structure so as to
better align pay and performance and drive long-term success of the Company. Attendance
of Remuneration Committee meeting is set out in the table on page 65.
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 (Independent non-executive Director), Chien LEE
(Non-executive Director), Nicholas Charles ALLEN (Independent non-executive Director), and
Joseph Chung Yin POON (Independent non-executive Director).
ROLES AND AUTHORITY
The Nomination Committee is responsible for nominating candidates, for Board approval, to
fill Board vacancies as and when they arise, and for evaluating the balance of skills,
knowledge and experience of the Board. The Committee also reviews the independence of
Directors pursuant to 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 the structure, size, and composition of the
Board; and (ii) assess the independence of Independent non-executive Directors.
Attendance of Nomination Committee meeting is set out in the table on page 65.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 74
Corporate Governance Report
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.
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 regular presentations to or conference calls
with analysts and investors, also at the time of announcement of results. Results
announcement presentations to analysts are also disseminated to a broader audience by
way of webcast. Investor relations reports describing investor and analyst opinions are
provided regularly to the Board.
75
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 2012, a review of business activities, and the Company’s outlook for 2013.
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. We have balanced this with the Group’s aim to
further enhance the use of its corporate website as a means of shareholder
communications. Greater publicity of the Group’s website is being made.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 76
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 Registrar
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 Stock Exchange and the Company.
RELEVANT PROVISIONS IN ARTICLES OF ASSOCIATION AND HONG KONG LAW
Under the current Articles of Association of the Company and Hong Kong Companies
Ordinance (with new amendments effective 3 March 2014), shareholders holding not less
than 5% of the total voting rights of shareholders of the Company (“5% Shareholder”) may
convene a 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 passing of resolutions by way of written resolutions. Any shareholders
holding not less than 2.5% of the total voting rights of shareholders of the Company (or 50
or more shareholders entitled to vote) may requisition for the circulation of resolutions to
be moved at annual general meetings; and circulation of statements regarding resolutions
proposed at general meetings. 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. The amended Ordinance also provides for disinterested shareholder approval
(excluding these shareholders related to the relevant directors) for certain transactions with
directors as well as their connected entities, and ratification of director misconduct.
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. Changes reflecting the impact of the amended Companies Ordinance will
be proposed and considered by shareholders at the AGM to be held in May 2014.
77
The Directors submit their report together with the audited financial statements for the year ended 31 December 2013, which
were approved by the Board of Directors (the “Board”) on 7 March 2014.
PRINCIPAL ACTIVITIES
The principal activities of the Group continued throughout 2013 to be property investment, management, and development.
Details of the Group’s principal subsidiaries and associates as at 31 December 2013 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 to the financial statements. 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 2013 are set out in the consolidated income statement on page 100.
The first interim dividend of HK22 cents per share, amounting to approximately HK$234 million, was paid to shareholders
during the year.
The Board declares a second interim dividend of HK95 cents per share to the shareholders on the register of members on
24 March 2014, absorbing approximately HK$1,010 million. The dividends declared and paid for ordinary shares in respect of
the full year 2013 will absorb approximately HK$1,244 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 104 and 105 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 2013 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 2013 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWDirectors’ Report 78
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 60 to 76) – 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 85 to 92) – 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 93 to 96) – 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 50 to 53) – 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 2014); 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.
Kam Wing LI and Irene Yun Lien LEE served as alternate Directors throughout the year.
Save as otherwise mentioned, other Directors whose names and biographies appear on pages 56 to 59 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 2013. (see
Corporate Governance Report)
Directors’ Report continued 79
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 85 to 92.
SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS IN SHARES
As at 31 December 2013, 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
Silchester International Investors LLP
EII Capital Holding, Inc.
Christian LANGE
Notes:
Beneficial owner and
interests of
controlled corporations
Interests of controlled
corporations
Investment manager
Interests of controlled
corporations
Interests of controlled
corporations
Number of
ordinary
shares held
433,130,735
(Note b)
433,130,735
(Note b)
64,956,000
53,445,602
(Note c)
53,445,602
(Note c)
% of the
issued
share
capital
(Note a)
40.72
40.72
6.11
5.02
5.02
(a) The percentage has been compiled based on the total number of shares of the Company in issue as at 31 December 2013 (i.e.
1,063,633,043 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.
(c) These interests represent the same block of shares of the Company. Such shares were held through EII Capital Holding, Inc. in which
Christian LANGE holds 43.16% interest.
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 2013.
RELATED PARTY TRANSACTIONS
The Group entered into certain transactions with parties regarded as “Related Parties” under applicable accounting principles.
These mainly relate to contracts entered into by the Group in the ordinary course of business, which contracts were negotiated
on normal commercial terms and on an arm’s length basis. Further details are set out in note 37 to the financial statements.
Some of these transactions also constitute “Continuing Connected Transactions” under the Listing Rules, as identified below.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
80
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
(Note c)
Rooms 3703 and
3704 on the 37th
Floor and
1 carparking
space
Annual consideration
(Note a)
2013:
HK$821,238
(on pro-rata basis)
(b) Lee Gardens Two, 28 Yun Ping Road, Hong Kong (“Lee Gardens Two”)
The following lease arrangements were entered into by Barrowgate Limited (“Barrowgate”), a 65.36% subsidiary of the
Company and property owner of Lee Gardens Two, as landlord, with the following connected persons:
Connected person
Date of agreement
Terms
Premises
(i)
Jebsen and
Company
Limited
(Note d)
(1) 31 March 2010 3 years commencing
(Lease)
from 1 September 2010
(2) 28 March 2013 5 years commencing
from 1 September 2013
(Lease and
Carpark Licence (Note e)
Agreement)
(Renewal)
Office units on the
28th, 30th and
31st Floors
Office units on the
28th, 30th and
31st Floors and
3 carparking
spaces
Annual consideration
(Note a)
2013: HK$13,868,368
(on pro-rata basis)
2013: HK$9,570,800
(on pro-rata basis)
2014: HK$28,884,708
2015: HK$28,884,708
2016: HK$28,884,708
2017: HK$28,884,708
2018: HK$19,256,472
(on pro-rata basis)
(Notes f & l)
Directors’ Report continued
81
Annual consideration
(Note a)
2013: HK$14,267,446
(on pro-rata basis)
(Notes h & i)
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
(ii) Hang Seng
Bank
Limited
(Note d)
(1) 15 October 2007
(Note g)
72 months commencing Shop G13A on the
Ground Floor and
from 15 October 2007
Shops 2-10 and
(for Shops 2-10
11-12 on the Lower
on the Lower
Ground Floor)
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 e)
(2) 16 August 2013
(Lease and
Licence
Agreement)
(Renewal)
2 years, 4 months
and 15 days
commencing from
15 October 2013
(iii) Pearl Investments 24 May 2011
(HK) Limited
(Note j)
(Lease and Carpark
Licence Agreement)
3 years commencing
from 15 May 2011
(iv) MF Jebsen
7 September 2010
International
Limited
(Note k)
3 years commencing
from 1 February 2011
(Note k)
2013: HK$5,830,620
Shop G13A on the
(on pro-rata basis)
Ground Floor and
Shops 2-10 and
2014: HK$27,455,580
11-12 on the Lower 2015: HK$27,455,580
2016: HK$4,575,930
Ground Floor and
certain areas on
(on pro-rata basis)
the Lower Ground
Floor and Ground
Floor
Room 1401C on the 2013: HK$2,061,096
HK$770,130
14th Floor and
(on pro-rata basis)
1 carparking space
(Note l)
2014:
Office units on
the 25th Floor
2013:
HK$601,129
(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 40.72% 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 1 November 2011
Whole of 21st Floor
Annual consideration
(Note a)
2013: HK$2,811,720
2014: HK$2,343,100
(on pro-rata basis)
(Note l)
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
82
CONTINUING CONNECTED TRANSACTIONS continued
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
Barrowgate
Limited
(1) 31 March 2010
3 years commencing
from 1 April 2010
Whole premises of
Lee Gardens Two
(2) 28 March 2013
(Renewal)
3 years commencing
from 1 April 2013
Whole premises of
Lee Gardens Two
Consideration
HK$8,798,739
(Note m)
HK$34,779,176
(Note n)
(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
Barrowgate
Limited
(1) 31 March 2010
3 years commencing
from 1 April 2010
Whole premises of
Lee Gardens Two
(2) 28 March 2013
(Renewal)
3 years commencing
from 1 April 2013
Whole premises of
Lee Gardens Two
Consideration
HK$606,635
(Note m)
HK$2,536,584
(Note n)
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 lease and carpark licence agreement had been renewed for a term of 9 months commencing from 1 July 2013 to 31 March 2014 and
a further term of 3 months commencing from 1 April 2014 to 30 June 2014. The carpark licence agreement had been early terminated on
30 April 2014.
(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) The term of the agreements mentioned under I(b)(i) and I(b)(ii) above exceeds 3 years. According to Listing Rules requirement, an
independent financial adviser to the Board was engaged in each case. It formed the view, in each case, that the term with duration longer
than 3 years was required and it was normal business practice for leases of this type to be of such duration.
(f)
The rent for the period from 1 September 2016 to 31 August 2018 will be reviewed at the then prevailing market rent and to be agreed by
Barrowgate and Jebsen and Company.
(g) 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.
(h) Pursuant to an endorsement dated 22 November 2010 as mentioned in Note (g) above, the rent for the period from 15 October 2010 to
14 October 2013 was revised at the then prevailing market rent.
(i)
(j)
The retail monthly operating charges and promotional levies for Lee Gardens Two were revised with effect from 1 January 2013.
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.
(k) 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.
(l)
The office monthly operating charges for One Hysan Avenue were revised with effect from 1 January 2013. The office monthly operating
charges and carpark licence fees for Lee Gardens Two were both revised with effect from 1 January 2014.
(m) These represent the actual consideration received for the period from 1 January 2013 to 31 March 2013, calculated on the basis of the
fee schedules as prescribed in the respective management agreements.
(n) These represent the actual consideration received for the period from 1 April 2013 to 31 December 2013, calculated on the basis of the
fee schedules as prescribed in the respective management agreements.
Directors’ Report continued
83
CONTINUING CONNECTED TRANSACTIONS continued
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.
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 80 to 83 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
The management agreement between Barrowgate and Hysan Leasing is considered a contract of significance under
paragraph 15 of Appendix 16 of the Listing Rules due to its annual consideration having a percentage ratio of 1.75% from
the calculation of the revenue test (the percentage ratios for assets ratio and consideration ratio are 0.06% and 0.12%
respectively). Details of the transaction are set out under II(a) of “Continuing Connected Transactions”.
MAJOR CUSTOMERS AND SUPPLIERS
During the year, 35.91% of the aggregate amount of purchases were attributable to the Group’s 5 largest suppliers with the
largest supplier accounting for 20.13% of the Group’s total purchases. The aggregate amount of turnover attributable to the
Group’s 5 largest customers was less than 30% (being the Listing Rule disclosure threshold) of total turnover of the Group.
None of the Directors, their associates or any shareholder (which to the knowledge of the Directors owns more than 5% of the
Company’s issued share capital) has any interest in the Group’s 5 largest suppliers.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES
During the year, neither the Company nor its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.
PUBLIC FLOAT
Based on the information that is publicly available to the Company and within the knowledge of the Directors, the Company has
maintained the prescribed amount of public float during the year and up to the date of this report as required under the Listing
Rules.
DONATIONS
During the year, the Group made donations of approximately HK$0.5 million to charitable and non-profit-making organisations.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 84
AUDITOR
A resolution for the re-appointment of Messrs. Deloitte Touche Tohmatsu as auditor of the Company is to be proposed at the
2014 AGM.
By Order of the Board
Irene Yun Lien LEE
Chairman
Hong Kong, 7 March 2014
Directors’ Report continued 85
COMPENSATION REVIEW
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. Its terms of reference
have been expanded to cover review of share option plans, changes to key terms of service pension plans, and key terms of
new compensation and benefits plan with material financial, reputational, and strategic impact.
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.
The remuneration policy for Executive Directors will be reviewed regularly, independently of executive management.
Details of Director (including individual Executive Director) emoluments for year 2013 and options movement during the year are
set out in notes 12 and 38 respectively to the financial statements.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWDirectors’ Remuneration and Interests Report 86
COMPENSATION REVIEW continued
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.
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$2,090,003.95 for 2013.
2013 Review
The Committee met in February 2013 with all members present to approve the 2013 annual fixed base salary and determine
the 2012 performance-based bonus of the Executive Directors.
The executive packages were set at levels to ensure comparability and competitiveness with Hong Kong based companies
competing within a similar talent pool, with particular emphasis on the property industry. Clear performance targets were set.
The Committee held an additional meeting in December 2013 to consider and approve a new compensation structure for
(non-Director) management staff of the Group. A phased plan to increase the portion of performance-based variable pay was
approved, to better align pay and performance so as to drive the long-term success of the Company.
March 2014 Review
The Committee met in March 2014 to review (i) 2014 Executive Director compensation packages and 2013 performance-based
bonus; and (ii) the fee for Non-executive Directors and Board Committee members. All members attended the meeting.
Current Director Fee Levels
Director fees are subject to shareholder approval at general meeting. The current fee scale for Directors and Board
Committee members are set out below. Executive Directors will not receive any fee. It will be proposed for consideration by
the shareholders at the Annual General Meeting (“AGM”) to be held in May 2014 that the fee payable to Audit Committee
Chairman and Remuneration Committee Chairman respectively be increased. Details are set out in the circular to shareholders
accompanying the AGM Notice.
Directors’ Remuneration and Interests Report continued COMPENSATION REVIEW continued
Current Director Fee Levels continued
Board of Directors (Non-executive Directors only)
Chairman
Director
Audit Committee
Chairman
Member
Remuneration Committee
Chairman
Member
Other Committees
Chairman
Member
87
Per annum
HK$
400,000
200,000
100,000
60,000
50,000
40,000
30,000
20,000
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 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$1 and is required to be paid within 30 days
from the date of grant of option, with full payment for exercise price to be made on exercise of the relevant option.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
88
COMPENSATION REVIEW continued
Long-term incentives: Share Option Scheme continued
Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Vesting period is 3 years in equal proportions
starting from the 1st anniversary and become fully vested on the 3rd anniversary of the grant. Size of grant will be determined
by reference to base salary multiple and job grades. A clear performance criterion will be a key driver. The Board will review the
grant and vesting structures from time to time.
Movement of share options
During the year, a total of 994,700 shares options were granted under the 2005 Scheme.
As at 31 December 2013, an aggregate of 2,632,704 shares are issuable for options granted (including 884,990 fully-vested
shares options) under the 2005 Scheme, representing approximately 0.25% of the issued share capital of the Company.
As at the date of this Report, 95,653,077 shares are issuable under the 2005 Scheme representing 8.99% of the issued share
capital.
Details of options granted, exercised, cancelled/lapsed and outstanding under the 2005 Scheme during the year are as follows:
Name
Date of grant
Executive Directors
Exercise
price
HK$
Exercise period
(Note a)
Balance
as at
1.1.2013
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2013
(Note b)
Changes during the year
Irene Yun Lien LEE
14.5.2012
33.50 14.5.2013 –
13.5.2022
261,000
–
7.3.2013
39.92
(Note c)
7.3.2014 –
6.3.2023
–
265,000
–
–
Siu Chuen LAU
14.5.2012
33.50 14.5.2013 –
13.5.2022
242,000
–
(80,666)
(Note d)
–
261,000
– 265,000
–
161,334
7.3.2013
39.92
(Note c)
7.3.2014 –
6.3.2023
–
246,000
–
– 246,000
Wendy Wen Yee YUNG 30.3.2007
21.25 30.3.2008 –
29.3.2017
95,000
31.3.2008
21.96 31.3.2009 –
30.3.2018
100,000
11.3.2009
11.76 11.3.2010 –
10.3.2019
100,000
11.3.2010
22.10 11.3.2011 –
10.3.2020
185,000
10.3.2011
35.71 10.3.2012 –
9.3.2021
103,000
9.3.2012
33.79
9.3.2013 –
8.3.2022
113,000
–
–
–
–
–
–
7.3.2013
39.92
(Note c)
7.3.2014 –
6.3.2023
–
106,700
(95,000)
(Note e)
(100,000)
(Note e)
(100,000)
(Note e)
(185,000)
(Note e)
–
–
–
–
–
–
–
–
–
–
–
– 103,000
– 113,000
– 106,700
Directors’ Remuneration and Interests Report continued
89
COMPENSATION REVIEW continued
Long-term incentives: Share Option Scheme continued
Movement of share options continued
Name
Date of grant
Exercise
price
HK$
Exercise period
(Note a)
Eligible employees
(Note f)
31.3.2008
21.96 31.3.2009 –
30.3.2018
Balance
as at
1.1.2013
17,000
31.3.2009
13.30 31.3.2010 –
30.3.2019
170,000
31.3.2010
22.45 31.3.2011 –
30.3.2020
272,668
31.3.2011
32.00 31.3.2012 –
30.3.2021
261,000
30.3.2012
31.61 30.3.2013 –
29.3.2022
372,000
Changes during the year
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2013
(Note b)
–
–
–
–
–
–
–
17,000
(6,000)
(Note g)
(21,334)
(Note h)
(13,659)
(Note i)
(24,328)
(Note j)
–
164,000
–
251,334
(1,340) 246,001
(11,337) 336,335
28.3.2013
39.20 28.3.2014 –
27.3.2023
(Note k)
–
377,000
–
(15,000) 362,000
2,291,668
994,700
(625,987)
(27,677) 2,632,704
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. In this table, “exercise period” begins with the 1st anniversary of the grant date.
(b) The options lapsed during the year upon resignations of certain eligible employees.
(c) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 6 March 2013) was HK$39.55.
(d) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.90.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$39.45.
(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$32.65.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.54.
(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$38.26.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.97.
(k) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 27 March 2013) was HK$38.60.
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 38 to the financial statements.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
90
COMPENSATION REVIEW 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
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:
28.3.2013
7.3.2013
HK$39.200
HK$39.200
0.515%
5 years
41.272%
HK$0.768
HK$12.051
HK$39.850
HK$39.920
0.533%
5 years
41.256%
HK$0.768
HK$12.439
(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).
Directors’ Remuneration and Interests Report continued 91
DIRECTORS’ INTERESTS IN SHARES
As at 31 December 2013, 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
Nicholas Charles ALLEN
Hans Michael JEBSEN
Siu Chuen LAU
Irene Yun Lien LEE
Chien LEE
Wendy Wen Yee YUNG
Notes:
Number of ordinary shares held
Personal
interests
Family
interests
Corporate
interests
Other
interests
–
60,984
80,666
30,000
800,000
758,000
–
–
–
–
–
–
Total
% of the issued
share capital
(Note a)
20,000
0.002
–
20,000
(Note b)
2,473,316
(Note c)
100,115
(Note d)
–
–
–
–
2,534,300
0.238
–
–
–
–
180,781
0.017
30,000
800,000
758,000
0.003
0.075
0.071
(a) This percentage has been compiled based on the total number of shares of the Company in issue (i.e. 1,063,633,043 ordinary shares)
as at 31 December 2013.
(b) Such shares were held jointly by Nicholas Charles ALLEN and his wife.
(c) Such shares were held through a corporation in which Hans Michael JEBSEN was a member entitled to exercise no less than one-third of
the voting power at general meeting.
(d) 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
Hans Michael JEBSEN
Note:
Number of ordinary shares held
Corporate
interests
1,000
Other
interests
% of the issued
share capital
Total
–
1,000
10
(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 2013 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
92
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, 7 March 2014
Directors’ Remuneration and Interests Report continued
93
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 4 March, 1 August and 14 November 2013. The meetings in March
2013 and August 2013 were held to consider the financial statements for the 2012 annual report and 2013 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 5 March 2014 to consider the financial statements for the year ended 31 December 2013.
At the invitation of the Audit Committee, meetings are also attended by the Chairman and other members of management
(including the Chief Executive Officer and the Chief Financial Officer). Pre-meeting sessions with external and internal auditors
are held without management presence.
Details on the meeting held in March 2013 were set out in the 2012 Annual Report. Significant matters, as reviewed and
discussed in the other meetings, include the following:
How the Audit Committee spent its time in 2013 (%)
34%
42%
12%
12%
Financial reporting
Internal audit
External audit
Internal controls and risk management
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 2013
:
The Committee reviewed and recommended to the Board for approval of the unaudited financial
statements for the first 6 months of 2013, prior to public announcement and filing. The Committee
received reports from and met with the external auditor and internal auditor to discuss the scope of
their respective review and findings.
STRATEGY IN ACTIONHysan Annual Report 2013OVERVIEWAudit Committee ReportCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATION 94
• March 2014
:
Judgmental issues considered: The Committee had discussions with management on significant
judgments affecting Group’s financial statements. These included valuation of investment properties
as at 30 June 2013, and valuation of investment in an associate with principal assets in Shanghai,
China as at 30 June 2013.
For valuation of investment properties, also noted that external auditor had performed various
procedures before relying on the valuation prepared by the Group’s independent professional
valuer, Knight Frank Petty Limited. As regards valuation of investment in associates, also noted that
external auditors had obtained management accounts of the relevant associate for the 6 months
ended 30 June 2013 and valuation reports for the investment properties held by such associate.
Further noted that external auditors performed additional procedures to conclude that the Group’s
investments in associates had been properly accounted for in the Group’s relevant financial
statements.
Based on these review and discussions, and the external auditor’s review work, the Audit Committee
recommended to the Board approval of the financial statements for the first 6 months ended
30 June 2013.
The Committee reviewed and discussed with management and external auditor the 2013 financial
statements included in the 2013 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.
Judgmental issues considered: The Committee had discussions with management with regard
to significant judgments affecting the Group’s financial statements. These included valuation of
investment properties as at 31 December 2013, and valuation of investment in an associate with
principal assets in Shanghai, China as at 31 December 2013. In particular, there were discussions
on the valuation methodology of the Group’s investment properties under development (being
Sunning Plaza and Sunning Court). The existing use basis was adopted, reflecting the factual
situation that construction plan had not yet been finalised as at that date.
The Group’s independent professional valuer, Knight Frank Petty Limited, was also present at the
meeting to answer the Committee’s questions.
For valuation of investment properties, also noted that external auditor had performed various
procedures before relying on the valuation prepared by the Group’s independent professional valuer.
As regards valuation of investment in associates, also noted that external auditors had obtained
management accounts of the relevant associate for the year ended 31 December 2013, valuation
reports for the investment properties held by such associate, and the latest available audited
financial statements of such associate. Further noted that external auditors performed additional
procedures to conclude that the Group’s investments in associates had been properly accounted for
in the Group’s relevant financial statements.
Based on these review and discussions, and the report of the external auditor, the Audit Committee
recommended to the Board for approval of the financial statements for the year ended 31 December
2013, with the Independent Auditor’s Report thereon.
Audit Committee Report continued
95
REVIEW OF INTERNAL CONTROLS AND RISK MANAGEMENT SYSTEMS
•
:
August and
November
2013
The Committee received from, and discussed with, management (i) update report on
top risks facing the Group; (ii) (for November meeting) special reports on selected top risks facing
the Company, including the combined Sunning site re-development; and an update on succession
planning; (iii) progress report on implementing an improvement programme to further strengthen
agreed aspects of the Group’s internal controls and risk management system. These included further
integrating the internal controls and risk management system in other key business processes. The
ultimate aim is to make the system a “live” one practised on a day-to-day basis by operating units.
The Committee considered the reports of Internal Audit, including status in implementing its
recommendations.
• March 2014
:
2013 annual internal controls review – based on:
•
•
•
•
regular reports by management of top risks, and special reports on selected top risk items
regular reports of Internal Audit, including status in implementing its recommendations
certification of controls effectiveness by management, covering financial, operational, and
compliance controls, noting the adoption of a control self-assessment approach where
appropriate
confirmation from external auditor that it had not identified any control weaknesses during the
course of its audit
The Committee 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). No significant areas
of concern which might affect financial, operational, compliance controls and risk management
functions were identified.
STRATEGY IN ACTIONHysan Annual Report 2013OVERVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATION
96
RELATIONSHIP WITH EXTERNAL AUDITOR
•
August 2013
:
The Committee reviewed and considered the terms of engagement of the external auditor in respect
of: 2013 annual audit, the related results announcement, and annual review of continuing connected
transactions.
• March 2014
:
Annual Assessment: The Committee assessed and is satisfied as to the auditor’s qualification,
expertise and services and independence. In particular, it was satisfied itself that the auditor’s
independence and objectivity are not impaired by reason of the provision of non-audit services.
An arrangement for lead audit partner rotation is also in place by the auditor. For the year ended
31 December 2013, external auditor received a total fee of HK$2,301,000 (audit services:
HK$2,080,000 and non-audit services: HK$221,000). “Non-audit services” refer to agreed-upon-
procedures reports or statutory compliance, regulatory or government procedures required to comply
with financial, accounting or regulatory report matters. Specifically, these included 2013 review of
interim financial statements, issue of confirmation letters for continuing connected transactions.
The Committee recommended to the Board that the shareholders be asked to re-appoint Deloitte
Touche Tohmatsu as the Group’s external auditor for 2014.
The Committee also reviewed and considered the 2014 Audit Services Plan of the external auditor,
and the terms of its engagement in respect of the 2014 interim results review.
Members of the Audit Committee
Nicholas Charles ALLEN (Chairman)
Philip Yan Hok FAN
Anthony Hsien Pin LEE
Hong Kong, 7 March 2014
Audit Committee Report continued 4
Financial Statements
and Valuation
98 Directors’ Responsibility
108 Significant Accounting
for the Financial
Statements
99
Independent Auditor’s
Report
100 Consolidated Income
Statement
Policies
118 Notes to the Financial
Statements
159 Financial Risk Management
101 Consolidated Statement
of Comprehensive Income
170 Five-Year Financial
Summary
102 Consolidated Statement
of Financial Position
172 Report of the Valuer
103 Statement of Financial
173 Schedule of Principal
Position
Properties
104 Consolidated Statement
of Changes in Equity
175 Shareholding Analysis
106 Consolidated Statement
176 Shareholder Information
of Cash Flows
O
V
E
R
V
I
E
W
S
T
R
A
T
E
G
Y
I
N
A
C
T
I
O
N
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
N
D
V
A
L
U
A
T
I
O
N
98
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.
Directors’ Responsibility for the Financial Statements 99
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 100 to 169, which comprise the consolidated and
Company’s statements of financial position as at 31 December 2013, 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 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 2013, 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
7 March 2014
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWIndependent Auditor’s Report 100
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
2013
HK$ million
2012
HK$ million
4
6
7
8
9
10
15
3,063
(405)
2,658
76
1
(208)
(242)
4,575
309
7,169
(372)
6,797
6,158
639
6,797
2,486
(423)
2,063
55
18
(187)
(156)
8,533
334
10,660
(289)
10,371
9,955
416
10,371
579.04
938.02
578.84
937.59
Consolidated Income StatementFor the year ended 31 December 2013
101
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Net gains arising from equity investments designated
as at fair value through other comprehensive income
Gains on revaluation of properties held for own use
Items that may be reclassified subsequently to profit or loss:
Net (losses) gains arising from derivatives designated
as cash flow hedges
Share of translation reserve of an associate
Other comprehensive income for the year (net of tax)
2013
HK$ million
2012
HK$ million
6,797
10,371
Note
11
–
20
20
(53)
117
64
84
115
33
148
16
2
18
166
Total comprehensive income for the year
6,881
10,537
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
6,242
639
6,881
10,121
416
10,537
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWConsolidated Statement of Comprehensive IncomeFor the year ended 31 December 2013
102
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
2013
HK$ million
2012
HK$ million
16
17
19
20
21
22
23
24
24
20
21
23
26
26
27
28
29
23
29
23
30
31
65,322
604
4,181
81
622
1
32
230
71,073
241
77
580
–
–
4,042
81
5,021
500
190
327
1,055
48
101
2,221
2,800
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
73,873
66,656
6,449
74
610
559
7,692
5,242
25
508
434
6,209
66,181
60,447
5,318
58,008
63,326
2,855
66,181
5,315
52,808
58,123
2,324
60,447
The consolidated financial statements on pages 100 to 169 were approved and authorised for issue by the Board of Directors
on 7 March 2014 and are signed on its behalf by:
Irene Y.L. LEE
Director
S. C. LAU
Director
Consolidated Statement of Financial PositionAt 31 December 2013
103
Notes
2013
HK$ million
2012
HK$ million
17
18
23
25
25
26
26
25
30
31
32
16
1,471
2
3,711
5,200
3
9,167
–
–
67
9,237
44
1,275
1,319
7,918
22
1,603
2
3,797
5,424
3
8,984
2
55
93
9,137
35
1,337
1,372
7,765
13,118
13,189
1
1
13,117
13,188
5,318
7,799
5,315
7,873
13,117
13,188
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
Net current assets
Total assets less current liabilities
Non-current liability
Deferred taxation
Net assets
Capital and reserves
Share capital
Reserves
Total equity
The financial statements on pages 100 to 169 were approved and authorised for issue by the Board of Directors on 7 March
2014 and are signed on its behalf by:
Irene Y.L. LEE
Director
S. C. LAU
Director
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWStatement of Financial PositionAt 31 December 2013
104
At 1 January 2012
5,299
1,934
15
276
100
805
(40)
275
411
39,678
48,753
1,991
50,744
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 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)
308
413
49,702
58,123
2,324
60,447
Profit for the year
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 under share option schemes
Recognition of equity-settled share-based payments
Dividends paid during the year (note 14)
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
16
–
–
At 31 December 2013
5,318
2,038
–
–
–
–
–
–
–
(4)
10
–
20
–
–
–
–
–
–
–
–
–
–
276
100
(3)
(77)
328
530
54,796
63,326
2,855
66,181
115
16
9,955
10,121
416
10,537
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
115
(923)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24)
–
(105)
52
–
–
–
–
–
40
(7)
–
33
–
–
–
–
–
–
–
–
–
24
(4)
–
20
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
117
117
9,955
416
10,371
9,955
115
–
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
12
4
40
(7)
2
90
10
8
–
–
6,158
(105)
52
24
(4)
117
15
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
115
12
4
40
(7)
2
90
10
8
–
–
6,797
(105)
52
24
(4)
117
15
10
(859)
923
(859)
(83)
(942)
6,158
639
(53)
6,158
6,242
639
6,881
(1,064)
(1,064)
(108)
(1,172)
Consolidated Statement of Changes In EquityFor the year ended 31 December 2013
105
Attributable to owners of the Company
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
General
reserve
HK$ million
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
805
–
115
–
–
–
–
–
115
–
–
–
–
–
(923)
(40)
275
411
39,678
48,753
1,991
50,744
–
–
12
4
–
–
–
16
–
–
–
–
–
–
(24)
–
(105)
52
–
–
–
(53)
–
–
–
–
–
–
–
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)
–
308
413
49,702
58,123
2,324
60,447
–
–
–
24
(4)
–
20
–
–
–
–
–
–
–
–
117
117
–
–
–
6,158
–
–
–
–
–
6,158
(105)
52
24
(4)
117
639
–
–
–
–
–
6,797
(105)
52
24
(4)
117
6,158
6,242
639
6,881
–
–
(1,064)
15
10
(1,064)
–
–
(108)
15
10
(1,172)
5,315
2,022
14
276
100
(3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2013
5,318
2,038
276
100
(3)
(77)
328
530
54,796
63,326
2,855
66,181
At 1 January 2012
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
At 31 December 2012
Profit for the year
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 under share option schemes
Recognition of equity-settled share-based payments
Dividends paid during the year (note 14)
Attributable to owners of the Company
Share
capital
Share
premium
Share
options
reserve
Capital
redemption
reserve
HK$ million
HK$ million
HK$ million
HK$ million
5,299
1,934
15
276
14
76
12
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
8
(5)
–
–
(4)
10
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
106
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
(Decrease) increase in accounts payable and accruals
Increase in rental deposits from tenants
Cash generated from operations
Hong Kong profits tax paid
Hong Kong profits tax refund
Net cash from operating activities
Investing activities
Interest received
Dividends received from 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
Additions to time deposits with original maturity over three months
Net cash (used in) from investing activities
2013
HK$ million
2012
HK$ million
7,169
10,660
(1)
242
(4,575)
(309)
–
(76)
16
10
2,476
(34)
(46)
102
2,498
(231)
6
2,273
36
–
–
218
403
–
3,826
5
(696)
(8)
(708)
(5,980)
(2,904)
(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
Consolidated Statement of Cash FlowsFor the year ended 31 December 2013
107
Note
2013
HK$ million
2012
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
Issue of fixed rate notes
Proceeds on exercise of share options
Net cash from (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
26
(161)
(18)
(1)
(1,064)
(108)
(700)
–
2,326
15
289
(342)
963
621
(189)
(3)
(2)
(769)
(83)
(150)
(1,357)
774
10
(1,769)
309
654
963
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
108
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 and its subsidiaries. Control is achieved when the Company:
•
•
•
has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses
control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included
in the consolidated income statement from the date the Group gains control until the date when the Group ceases to control
the subsidiary.
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. The financial statements of associates used for equity accounting purposes are prepared using uniform
accounting policies as those of the Group for like transaction and events in similar circumstances. 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 associates, profit or loss resulting from the transactions with the associates are
recognised in the Group’s consolidated financial statements only to the extent of the interests in the associates that are not
related to the Group.
Significant Accounting PoliciesFor the year ended 31 December 2013 109
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 110
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.
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.
(a) 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.
(i) 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.
Significant Accounting Policies continuedFor the year ended 31 December 2013 111
7. FINANCIAL INSTRUMENTS continued
Financial assets continued
(a) Classification of financial assets continued
(ii) Financial assets at FVTPL
Financial assets at FVTPL comprise derivatives that are not designated and effective as hedging instruments.
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)(iii) below).
Debt instruments that do not meet the amortised cost criteria (see (a) 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 4 of 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 at FVTPL is included in the other gains or losses described above.
(iii) 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 112
Impairment of financial assets
7. FINANCIAL INSTRUMENTS continued
Financial assets continued
(b)
Financial assets subsequently measured at amortised cost are assessed for indicators of impairment at the end of the
reporting period. These financial assets are impaired when there is objective evidence that, as a result of one or more events
that occurred after their initial recognition, the estimated future cash flows have been affected.
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, 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.
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 categories with the exception of
accounts receivable 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.
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, 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.
Significant Accounting Policies continuedFor the year ended 31 December 2013 113
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 instruments
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 payables and accruals, 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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 114
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 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 method 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.
Significant Accounting Policies continuedFor the year ended 31 December 2013 115
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.
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 116
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.
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.
Significant Accounting Policies continuedFor the year ended 31 December 2013 117
14. EQUITY-SETTLED SHARE-BASED PAYMENTS 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.
15. FAIR VALUE MEASUREMENT
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of
the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the
measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on
such a basis, except for share-based payment transactions that are within the scope of HKFRS 2, leasing transactions that are
within the scope of HKAS 17, and measurements that have some similarities to fair value but are not fair value, such as value
in use in HKAS 36.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in
its highest and best use.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 118
1. GENERAL
The Company is a public listed company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong
Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of the Company
are disclosed in the “Shareholder Information” section of the annual report.
The principal activities of the Company and its subsidiaries (collectively referred to as the “Group”) are property investment,
management and development.
These financial statements are presented in Hong Kong dollars (“HKD”), which is the same as the functional currency of the
Company.
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
(“HKFRSs”)
In the current year, the Group and the Company have applied all of the new and revised Standards and Amendments to
Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are relevant to its operations and
effective for the Group’s financial year beginning on 1 January 2013.
Except as described below, the adoption of these new and revised Standards and Amendments to Standards had no material
effect on the results and financial position of the Group or the Company for the current and/or prior accounting years.
Amendments to HKAS 1 “Presentation of Items of Other Comprehensive Income”
The amendments to Hong Kong Accounting Standard (“HKAS”) 1 require items of other comprehensive income to be grouped
into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit
or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Income tax on
items of other comprehensive income is required to be allocated on the same basis – the amendments do not change the
option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied
retrospectively, and hence the presentation of items of other comprehensive income has been modified to reflect the changes.
Other than the above mentioned presentation changes, the application of the amendments to HKAS 1 has had no impact on
the results or financial position of the Group.
Amendments to HKFRS 7 “Disclosures – Offsetting Financial Assets and Financial Liabilities”
The amendments to Hong Kong Financial Reporting Standard (“HKFRS”) 7 require entities to disclose information about
rights of offset and related arrangements for financial instruments under an enforceable master netting agreement or similar
arrangement. The Group has outstanding derivative instruments presented as other financial assets and other financial
liabilities in the consolidated statement of financial position which are under master netting agreements.
The amendments have been applied retrospectively. The application of the amendments has had no impact on the results or
financial position of the Group but results in additional disclosures included in note 3 of the Financial Risk Management section.
HKFRS 12 “Disclosure of Interests in Other Entities”
HKFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries and associates. In
general, the application of HKFRS 12 has resulted in more extensive disclosures in the consolidated financial statements.
Accordingly, the Group has included additional disclosures in notes 18 and 19 of the Notes to the Financial Statements section.
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.
Notes to the Financial StatementsFor the year ended 31 December 2013 119
2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
(“HKFRSs”) continued
HKFRS 13 “Fair Value Measurement” continued
HKFRS 13 requires prospective application from 1 January 2013. In addition, specific transitional provisions were given to
entities such that they need not apply the disclosure requirements set out in the Standard in comparative information provided
for periods before the initial application of the Standard. In accordance with these transitional provisions, the Group has not
made any new disclosures required by HKFRS 13 for the 2012 comparative year. The application of HKFRS 13 has had no
impact on the results or financial position of the Group but results in more disclosures in the Group’s annual consolidated
financial statements for the year ended 31 December 2013. Accordingly, the Group has included additional disclosures in notes
16 and 17 of the Notes to the Financial Statements section and note 4 of the Financial Risk Management section.
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.
Amendments to HKFRSs
Amendments to HKFRSs
HKAS 19 (Amendments)
HKAS 32 (Amendments)
HKAS 36 (Amendments)
HKAS 39 (Amendments)
HKFRS 9
HKFRS 10, HKFRS 12 and
HKAS 27 (Amendments)
HK(IFRIC) – Int 21
Annual Improvements to HKFRSs 2010-2012 Cycle3
Annual Improvements to HKFRSs 2011-2013 Cycle2
Defined Benefit Plans: Employee Contributions2
Offsetting Financial Assets and Financial Liabilities1
Recoverable Amount Disclosures for Non-Financial Assets1
Novation of Derivatives and Continuation of Hedge Accounting1
Financial Instruments: Hedge Accounting4
Investment Entities1
Levies1
1 Effective for annual periods beginning on or after 1 January 2014.
2 Effective for annual periods beginning on or after 1 July 2014.
3 Effective for annual periods beginning on or after 1 July 2014 with certain exceptions.
4 Available for application – the mandatory effective date will be determined when the outstanding phases of HKFRS 9 are finalised.
HKFRS 9 “Financial instrument: Hedge Accounting”
The Group had early adopted HKFRS 9 as amended in 2010 in prior years. HKFRS 9 has been further amended in 2013 to
include the new requirements for hedge accounting.
The new general hedge accounting requirements retain the three types of hedge accounting. However, greater flexibility has
been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that
qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting.
In addition, the effectiveness test has been overhauled and replaced with the principle of an “economic relationship”.
Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an
entity’s risk management activities have also been introduced.
In the opinion of the Directors of the Company, it is not practicable to provide a reasonable estimate of that effect on the
Group’s financial instruments under hedge accounting, until a detailed review has been completed.
Other than as described above, the Directors of the Company anticipate that the application of the other Amendments to
Standards and Interpretation will have no material impact on the results and financial position of the Group or the Company.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 120
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$ 65,322 million (2012:
HK$60,022 million) based on the valuation performed by an independent qualified professional valuer. In determining the
fair value, the valuer has applied a market value basis which involves, inter-alia, certain estimates, including appropriate
capitalisation rates and reversionary income potential taking into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in
its highest and best use.
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 principal-protected investments, interest rate swaps, cross currency swaps and foreign exchange
derivatives, are carried in the Group’s consolidated statement of financial position at fair value, as disclosed in note 23 of
the Notes to the Financial Statement section. 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
Notes to the Financial Statements continuedFor the year ended 31 December 2013 121
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 2013
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 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
1,553
125
1,678
(212)
1,466
952
133
1,085
(128)
957
270
30
300
(65)
235
1,154
96
1,250
(208)
1,042
781
127
908
(150)
758
297
31
328
(65)
263
2,775
288
3,063
(405)
2,658
76
1
(208)
(242)
4,575
309
7,169
2,232
254
2,486
(423)
2,063
55
18
(187)
(156)
8,533
334
10,660
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
122
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 2013
Segment assets
Investments in associates
Other assets
Consolidated assets
As at 31 December 2012
Segment assets
Investments in associates
Other assets
Consolidated assets
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
32,655
24,205
8,472
28,918
22,623
8,494
65,332
4,181
6,581
76,094
60,035
3,759
4,629
68,423
Segment assets represented the investment properties and accounts receivable of each segment without allocation of property,
plant and equipment, investments in associates, equity investments, principal-protected investments, term notes, other
financial assets, other receivables, tax recoverable, time deposits, cash and bank balances. This is the measure reported
to the Chief Executive Officer of the Group 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”) with carrying amounts
of HK$4,181 million (2012: HK$3,755 million), all the Group’s assets are located in Hong Kong.
As at 31 December 2012, the Group’s investment in associate operated in Singapore with carrying amounts of HK$4 million.
Other segment information
For the year ended 31 December 2013
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
Additions to non-current assets
679
50
10
739
For the year ended 31 December 2012
Additions to non-current assets
Additions to investment properties under
re-development (Note)
958
55
3
1,016
504
1,520
Note:
The investment properties under re-development were completed during the year ended 31 December 2012.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
6. INVESTMENT INCOME
Investment income comprises:
Dividends from listed investments
Interest income
The following is an analysis of investment income:
Dividends from equity investments designated
as at fair value through other comprehensive income (“FVTOCI”)
Financial assets measured at amortised cost
Reclassification of gains from hedging reserve on
financial instruments designated as cash flow hedges
123
2013
HK$ million
2012
HK$ million
–
76
76
3
52
55
2013
HK$ million
2012
HK$ million
–
76
–
76
3
48
4
55
Fair value gains and losses and interest income on financial assets classified as at fair value through profit or loss (“FVTPL”)
are disclosed in note 7 of the Notes to the Financial Statements section.
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 on hedging instruments under fair value hedge
Gains on adjustment for hedged items under fair value hedge
2013
HK$ million
2012
HK$ million
–
(25)
26
1
18
(11)
11
18
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
124
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
Net exchange (gains) losses on borrowings
Reclassification of net losses from hedging reserve on financial instruments
designated as cash flow hedges
Medium Term Note Programme expenses
2013
HK$ million
2012
HK$ million
32
3
26
166
17
244
9
–
253
(24)
(40)
52
1
242
40
3
29
89
15
176
8
(17)
167
(27)
6
8
2
156
Note:
For the year ended 31 December 2012, interest expenses had been capitalised to investment properties under re-development at an average
interest rate of 3.16% per annum.
9. TAXATION
Current tax
Hong Kong profits tax
– current year
– underprovision (overprovision) in prior years
Deferred tax (note 30)
2013
HK$ million
2012
HK$ million
250
1
251
121
372
224
(2)
222
67
289
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
125
9. TAXATION continued
The taxation for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:
Profit before taxation
Tax at Hong Kong profits tax rate of 16.5%
Tax effect of share of results of associates
Tax effect of expenses not deductible for tax purposes
Tax effect of income not taxable for tax purposes
Tax effect of estimated tax losses not recognised
Reversal of previously recognised taxable temporary differences
Utilisation of estimated tax losses previously not recognised
Underprovision (overprovision) in prior years
Taxation for the year
2013
HK$ million
7,169
1,183
(51)
49
(812)
5
(1)
(2)
1
372
2012
HK$ million
10,660
1,759
(55)
78
(1,493)
5
(1)
(2)
(2)
289
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$106 million
(2012: HK$104 million)
Less:
– Direct operating expenses arising from properties that generated rental income
– Direct operating expenses arising from properties that did not generate rental income
Staff costs, comprising:
– Directors’ emoluments (note 12)
– Share-based payments
– Other staff costs
Share of income tax of an associate (included in share of results of associates)
2013
HK$ million
2012
HK$ million
2
16
2
11
(2,775)
(2,232)
400
5
418
5
(2,370)
(1,809)
32
4
218
254
119
21
4
193
218
134
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
126
11. OTHER COMPREHENSIVE INCOME
Other comprehensive income comprises:
Items that will not be reclassified subsequently to profit or loss:
Equity investments designated as at FVTOCI:
Net gains arising during the year
Revaluation of properties held for own use:
Gains on revaluation of properties held for own use
Deferred taxation arising on revaluation
Items that may be reclassified subsequently to profit or loss:
Derivatives designated as cash flow hedges:
Net (losses) gains arising during the year
Reclassification adjustments for net losses included in profit or loss
Share of translation reserve of an associate
Other comprehensive income for the year (net of tax)
Tax effect relating to other comprehensive income:
2013
HK$ million
2012
HK$ million
–
24
(4)
20
20
(105)
52
(53)
117
64
84
115
40
(7)
33
148
12
4
16
2
18
166
2013
2012
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 arising from equity
investments designated as at FVTOCI
Net (losses) 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
–
(53)
24
117
88
–
–
(4)
–
(4)
–
115
(53)
20
117
84
16
40
2
173
–
–
(7)
–
(7)
115
16
33
2
166
12. DIRECTORS’ EMOLUMENTS
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus
Share-based payments
Retirement benefits scheme contributions
2013
HK$ million
2012
HK$ million
2
13
10
6
1
32
2
12
2
4
1
21
Notes to the Financial Statements continuedFor the year ended 31 December 2013
127
12. DIRECTORS’ EMOLUMENTS continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2013,
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 2013
Executive Directors
Irene Yun Lien LEE
Siu Chuen LAU
Wendy Wen Yee YUNG
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Independent non-executive Directors
Nicholas Charles ALLEN
Frederick Peter CHURCHOUSE
Philip Yan Hok FAN
Joseph Chung Yin POON
For the year ended 31 December 2012
Executive Directors
Irene Yun Lien LEE (Note c)
Siu Chuen LAU (Note c)
Gerry Lui Fai YIM (Notes c & e)
Wendy Wen Yee YUNG (Note c)
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)
–
–
–
4,931
5,341
3,042
4,952
3,187
1,638
2,715
2,519
1,251
15
15
281
12,613
11,062
6,212
200
260
240
240
340
200
350
260
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
260
240
240
340
200
350
260
2,090
13,314
9,777
6,485
311
31,977
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
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
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
128
12. DIRECTORS’ EMOLUMENTS continued
Notes:
a.
Year 2013:
The Remuneration Committee met in February 2013 to approve the 2013 annual fixed base salary and determine the 2012 performance-
based bonus of the Company’s Executive Directors. The annual cash compensation of Irene Yun Lien Lee, Chairman, was revised to
HK$8,218,493, based on market benchmark, and the jobholder’s experience, qualification, and performance. Her annual base salary
remained unchanged at HK$4,931,096 (making up 60% of the total package instead of 80% as in 2012). Annual fixed base salary of all
Executive Directors remained the same for 2013. The stated bonus figures show the 2012 performance-based bonus approved by the
Committee and paid to Executive Directors.
b. Directors’ fees scales for Board and Board Committees were approved by shareholders at the annual general meeting held on 9 May
2011. Details are set out in Directors’ Remuneration and Interests Report.
Director’s fees (payable only to Non-executive Directors as from 1 June 2011) are calculated on annual basis and paid semi-annually. For
Directors not having served the full year on a position, the fees will be calculated and paid on pro rata basis.
Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2013 is set out below:
Executive Directors
Irene Yun Lien LEE
Siu Chuen LAU
Wendy Wen Yee YUNG
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Independent non-executive Directors
Nicholas Charles ALLEN
Frederick Peter CHURCHOUSE
Philip Yan Hok FAN
Joseph Chung Yin POON
Board
HK$’000
Audit Remuneration
Committee
HK$’000
Committee
HK$’000
Strategy Nomination
Committee
HK$’000
Committee
HK$’000
2013
Total
HK$’000
2012
Total
HK$’000
–
–
–
200
200
200
200
200
200
200
200
1,600
–
–
–
–
60
–
–
100
–
60
–
220
–
–
–
–
–
–
40
–
–
50
40
130
–
–
–
–
–
20
–
20
–
20
–
60
–
–
–
–
–
20
–
20
–
20
20
80
–
–
–
200
260
240
240
340
200
350
260
84
81
–
200
260
240
240
337
12
349
252
2,090
2,055
c.
Year 2012:
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$5,340,400) upon his appointment
as Deputy Chairman and Chief Executive Officer. The Committee has determined the total cash package of Wendy Wen Yee YUNG taking
into consideration changes in her roles.
d. Share-based payments are the fair values of share options granted to Executive Directors, which are determined at the date of grant
and expensed over the vesting period (except where options are forfeited before vesting), regardless of whether the Executive Directors
exercise the share options or not during the year.
e.
There were the following changes in the composition of the Nomination Committee effective 20 February 2012:
(i) Nicholas Charles ALLEN and Joseph Chung Yin POON were appointed members; and
(ii) Gerry Lui Fai YIM ceased to be a member.
f.
There were the following changes in the composition of the Remuneration Committee effective 20 February 2012:
(i)
Philip Yan Hok FAN was appointed Chairman of the Committee; and
(ii)
Joseph Chung Yin POON was appointed a member.
g.
Frederick Peter CHURCHOUSE was appointed Independent non-executive Director effective on 10 December 2012.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
129
13. EMPLOYEES’ EMOLUMENTS
Of the five individuals with the highest emoluments in the Group, three (2012: three) were Directors of the Company, details of
whose emoluments are included in note 12 of the Notes to the Financial Statements section. The emoluments of all of the five
individuals with the highest emoluments for the year ended 31 December 2013 and 2012 were as follows:
Basic salaries, housing and other allowances
Bonus
Share-based payments (Note)
Note:
2013
HK$ million
2012
HK$ million
19
11
8
38
16
3
5
24
Share-based payments are the fair values of share options granted to Executive Directors and eligible employees, which are determined at the
date of grant and expensed over the vesting period (except where options are forfeited before vesting), regardless of whether the Executive
Directors or eligible employees exercise the share options or not during the year.
Their emoluments are within the following bands:
HK$3,500,001 to HK$4,000,000
HK$4,000,001 to HK$4,500,000
HK$5,000,001 to HK$5,500,000
HK$6,000,001 to HK$6,500,000
HK$11,000,001 to HK$11,500,000
HK$12,500,001 to HK$13,000,000
Number of individuals
2013
2012
1
1
–
1
1
1
5
1
2
1
1
–
–
5
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.
HK$3,500,001 to HK$4,000,000
HK$4,000,001 to HK$4,500,000
HK$5,000,001 to HK$5,500,000
HK$6,000,001 to HK$6,500,000
HK$11,000,001 to HK$11,500,000
HK$12,500,001 to HK$13,000,000
Number of individuals
2013
2012
1
–
–
1
1
1
4
2
1
1
1
–
–
5
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
130
14. DIVIDENDS
(a) Dividends recognised as distribution during the year:
2013 first interim dividend paid – HK22 cents per share
2012 first interim dividend paid – HK17 cents per share
2012 second interim dividend paid – HK78 cents per share
2011 final dividend paid – HK64 cents per share
2013
HK$ million
2012
HK$ million
234
–
830
–
1,064
–
180
–
679
859
Scrip dividend alternatives were offered to the shareholders in respect of the 2012 first interim dividend and 2011 final
dividend. These alternatives were accepted by the shareholders as follows:
2013 first interim dividend (2012 first interim dividend):
– Cash payment
– Share alternative
2012 second interim dividend (2011 final dividend):
– Cash payment
– Share alternative
(b) Dividends declared after the end of the reporting period:
Second interim dividend (in lieu of a final dividend)
– HK95 cents per share (2012: HK78 cents per share)
2013
HK$ million
2012
HK$ million
234
–
830
–
1,064
135
45
634
45
859
2013
HK$ million
2012
HK$ million
1,010
829
The second interim dividend is not recognised as a liability as at 31 December 2013 because it has been declared after the
end of the reporting period. Such dividend will be accounted for as an appropriation of the retained profits in the year ending 31
December 2014.
The declared second interim dividend will be payable in cash.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
131
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
Earnings
2013
HK$ million
2012
HK$ million
6,158
9,955
Number of shares
2013
2012
1,063,488,216
1,061,276,321
365,948
486,784
Weighted average number of ordinary shares for the purpose of
diluted earnings per share
1,063,854,164
1,061,763,105
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:
2013
2012
Basic
earnings
per
share
HK cents
579.04
(430.19)
50.02
Profit
HK$ million
9,955
(8,533)
323
Basic
earnings
per
share
HK cents
938.02
(804.03)
30.43
Profit
HK$ million
6,158
(4,575)
532
(72)
(6.77)
(123)
(11.59)
2,043
2,043
192.10
192.10
1,622
1,622
152.83
152.83
(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 asset; 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 used in calculating the adjusted earnings per share are the same as those detailed above for basic earnings per share.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
132
16. INVESTMENT PROPERTIES
Fair Value
At 1 January
Additions
Transfer from property, plant and equipment
Transfer to property, plant and equipment
Change in fair value recognised in profit or loss – unrealised
At 31 December
The carrying amount of investment properties shown above comprises:
Land in Hong Kong:
– Medium-term lease
– Long lease
The Group
2013
HK$ million
2012
HK$ million
60,022
733
6
(14)
4,575
65,322
49,969
1,510
10
–
8,533
60,022
The Group
2013
HK$ million
2012
HK$ million
7,716
57,606
65,322
7,740
52,282
60,022
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.
Fair value measurements and valuation processes
The fair value of the Group’s investment properties at 31 December 2013 and 2012 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. The valuation was derived from the basis of capitalisation of net income
with due allowance for the reversionary income potential. In estimating the fair value of the investment properties, including
properties with an intention to re-develop, the management of the Group has considered the highest and best use of the
investment properties upon application of HKFRS 13 “Fair Value Measurement”. There has been no change to the valuation
technique during the year.
All of the fair value measurements of the Group’s investment properties were categorised into Level 3 of the fair value hierarchy.
Details of fair value hierarchy are set out in note 4 of the Financial Risk Management section.
There were no transfers into or out of Level 3 during the year.
At the end of the reporting period, the management of the Group works with Knight Frank Petty Limited to establish and
determine the appropriate valuation techniques and inputs for Level 3 fair value measurements. Where there is a material
change in the fair value of the assets, the causes of the fluctuations will be reported to the Directors of the Company.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
133
16. INVESTMENT PROPERTIES continued
Fair value measurements using significant unobservable inputs (Level 3)
The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements of
the Group’s investment properties by operating and reportable segment.
At 1 January 2013
Additions
Transfer from property, plant and equipment
Transfer to property, plant and equipment
Change in fair value recognised in profit or loss
– unrealised
At 31 December 2013
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Total
HK$ million
The Group
28,906
679
–
–
3,066
32,651
22,622
44
6
(14)
1,542
24,200
8,494
10
–
–
(33)
8,471
60,022
733
6
(14)
4,575
65,322
Information about fair value measurements using significant unobservable inputs (Level 3)
The following table shows the valuation techniques used in the determination of fair values for investment properties by
operating and reportable segment and unobservable inputs used in the valuation models.
The Group
Valuation
techniques
Unobservable
inputs
Range/
weighted average
of unobservable
inputs
Relationship of
unobservable
inputs to fair
value
Description
Fair value as at
31 December
2013
HK$ million
Retail
32,651
Income
capitalisation
approach
(i) Capitalisation rate
5.00% – 5.25%
(ii) Market rent
HK$132
per square foot
Office
24,200
Income
capitalisation
approach
(i) Capitalisation rate
4.25% – 5.00%
(ii) Market rent
HK$46
per square foot
Residential
8,471
Income
capitalisation
approach
(i) Capitalisation rate
3.75% – 4.00%
(ii) Market rent
HK$34
per square foot
The higher the
capitalisation
rate, the lower
the fair value.
The higher
the market rent,
the higher the
fair value.
The higher the
capitalisation
rate, the lower
the fair value.
The higher
the market rent,
the higher the
fair value.
The higher the
capitalisation
rate, the lower
the fair value.
The higher
the market rent,
the higher the
fair value.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
134
17. PROPERTY, PLANT AND EQUIPMENT
Leasehold land
and buildings
in Hong Kong
HK$ million
(Note)
Furniture,
fixtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
The Group
Cost or valuation
At 1 January 2012
Additions
Transfer to investment properties
Surplus on revaluation
At 31 December 2012
Additions
Disposals
Transfer from investment properties
Transfer to investment properties
Surplus on revaluation
At 31 December 2013
Comprising:
At cost
At valuation 2013
Accumulated depreciation
At 1 January 2012
Provided for the year
Eliminated on revaluation
At 31 December 2012
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2013
Carrying Amounts
At 31 December 2013
At 31 December 2012
512
–
(10)
37
539
–
–
14
(6)
20
567
–
567
567
–
3
(3)
–
4
–
(4)
–
567
539
66
25
–
–
91
4
(1)
–
–
–
94
94
–
94
57
5
–
62
8
(1)
–
69
25
29
35
5
–
–
40
3
–
–
–
–
43
43
–
43
26
3
–
29
4
–
–
33
10
11
1
1
–
–
2
1
(1)
–
–
–
2
2
–
2
1
–
–
1
–
(1)
–
–
2
1
614
31
(10)
37
672
8
(2)
14
(6)
20
706
139
567
706
84
11
(3)
92
16
(2)
(4)
102
604
580
Notes to the Financial Statements continuedFor the year ended 31 December 2013
135
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 2012
Additions
At 31 December 2012
Disposal
At 31 December 2013
Accumulated depreciation
At 1 January 2012
Provided for the year
At 31 December 2012
Provided for the year
Eliminated on disposal
At 31 December 2013
Carrying amounts
At 31 December 2013
At 31 December 2012
25
15
40
–
40
23
1
24
4
–
28
12
16
31
–
31
–
31
23
2
25
2
–
27
4
6
1
–
1
(1)
–
1
–
1
–
(1)
–
–
–
57
15
72
(1)
71
47
3
50
6
(1)
55
16
22
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, whichever is shorter
20%
20%
25%
The carrying amount of the Group’s leasehold land shown above represents the property situated in Hong Kong with long lease.
Note:
Fair value measurements and valuation processes
The fair value of the Group’s leasehold land and buildings in Hong Kong at 31 December 2013 and 2012 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 leasehold land and buildings in Hong Kong have been valued individually, on market value basis, which conforms to Hong Kong
Institute of Surveyors Valuation Standards. The valuation was derived from the basis of capitalisation of net income with due allowance for the
reversionary income potential. In estimating the fair value of the properties, the management of the Group has considered the highest and best
use of the properties upon application of HKFRS 13 “Fair Value Measurement”. There has been no change to the valuation technique during the
year.
All of the fair value measurements of the Group’s leasehold land and buildings in Hong Kong were categorised into Level 3 of the fair value
hierarchy. Details of fair value hierarchy are set out in note 4 of the Financial Risk Management section.
There were no transfers into or out of Level 3 during the year.
At the end of the reporting period, the management of the Group works with Knight Frank Petty Limited to establish and determine the
appropriate valuation techniques and inputs for Level 3 fair value measurements. Where there is a material change in the fair value of the
assets, the causes of the fluctuations will be reported to the Directors of the Company.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
136
17. PROPERTY, PLANT AND EQUIPMENT continued
Information about fair value measurements using significant unobservable inputs (Level 3)
The following table shows the valuation techniques used in the determination of fair values for the Group’s leasehold land and
buildings in Hong Kong and unobservable inputs used in the valuation models.
Fair value as at
31 December
2013
HK$ million
567
Description
Leasehold
land and
buildings in
Hong Kong
The Group
Valuation
Techniques
Unobservable
inputs
Range/
weighted average
of unobservable
inputs
Relationship of
unobservable
inputs to fair
value
Income
capitalisation
approach
(i) Capitalisation rate
4.25% – 5.00%
(ii) Market rent
HK$55
per square foot
The higher the
capitalisation
rate, the lower
the fair value.
The higher the
market rent,
the higher the
fair value.
The gains of HK$24 million (2012: HK$40 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$185
million (2012: HK$179 million) at the end of the reporting period.
Furniture, fixtures and equipment of the Group include assets carried at cost of HK$31 million (2012: HK$28 million) and
accumulated depreciation of HK$24 million (2012: HK$22 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$2 million (2012: HK$1 million).
There is no property, plant and equipment of the Company held for renting out under operating leases for the year or at the end
of the reporting period.
18. INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries comprise:
Unlisted shares, at cost
Deemed capital contribution in subsidiaries (Note)
The Company
2013
HK$ million
2012
HK$ million
–
1,471
1,471
–
1,603
1,603
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
18. INVESTMENTS IN SUBSIDIARIES continued
The table below lists the principal subsidiaries of the Group at 31 December 2013 and 2012:
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%
137
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 of the Notes to the Financial
Statements section, none of the subsidiaries had issued any debt securities at the end of the reporting period.
The summarised financial information in respect of the Group’s subsidiary that has material non-controlling interests is set out
below. The summarised financial information below represents amounts before intragroup eliminations.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
138
18. INVESTMENTS IN SUBSIDIARIES continued
Barrowgate Limited
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the Company
Non-controlling interests
Turnover
Profit and total comprehensive income for the year
Profit and total comprehensive income attributable to owner of the Company
Profit and total comprehensive income attributable to the non-controlling interests
Dividends paid to non-controlling interests
Net cash inflows from operating activities
Net cash outflows from investing activities
Cash outflows from financing activities
Net cash inflows
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
2013
HK$ million
2012
HK$ million
112
9,357
(1,030)
(196)
5,388
2,855
463
1,844
1,205
639
108
360
(27)
(310)
23
84
7,780
(1,037)
(118)
4,385
2,324
390
1,201
785
416
83
294
(26)
(240)
28
The Group
2013
HK$ million
2012
HK$ million
2
2
4,179
4,181
116
(116)
–
3,753
3,755
125
(121)
4
4,181
3,759
Loan to an associate of HK$116 million (2012: HK$125 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.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
139
19. INVESTMENTS IN ASSOCIATES continued
Details of the Group’s associates at 31 December 2013 and 2012 are as follows:
Name of associate
Form of
business structure
Country Link
Enterprises Limited (Note)
Private limited
company
Shanghai Kong Hui
Property Development
Co., Ltd (Note)
Shanghai Grand
Gateway Plaza
Property Management
Co., Ltd (Note)
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$1,000,000
25.0%*
Inactive
*
#
^
Indirectly held
Fully paid-up registered capital
The company is under liquidation as at 31 December 2013
Note:
Shanghai Kong Hui Property Development Co., Ltd and Shanghai Grand Gateway Plaza Property Management Co., Ltd are non-wholly owned
subsidiaries of Country Link Enterprises Limited, together known as “Country Link”.
The summarised financial information in respect of the Group’s material associate is set out below. The summarised financial
information below represents amounts shown in the associate’s financial statements prepared in accordance with HKFRSs. The
associate is accounted for using the equity method in these consolidated financial statements.
Country Link
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Turnover
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Group’s share of results of associates for the year
Group’s share of other comprehensive income
of associates for the year
2013
HK$ million
2012
HK$ million
3,048
18,660
(902)
(3,960)
1,526
1,248
474
1,722
309
1,943
17,691
(795)
(3,678)
1,451
1,358
5
1,363
334
117
2
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
140
19. INVESTMENTS IN ASSOCIATES continued
Country Link continued
Reconciliation of the above summarised financial information to the carrying amount of the interest in the associate that is
material to the Group recognised in the consolidated financial statements:
Net assets of the associate
Non-controlling interests of the associate
Net assets of the associate after deducting
non-controlling interests of the associate
Proportion of the Group’s ownership interest in the associate
Group’s share of net assets of the associate
Others
Carrying amount of the Group’s interest in the associate
Information of the associate that is not individually material
Group’s share of loss, other comprehensive expenses
and total comprehensive expenses for the year
Carrying amount of the Group’s interest in the associate
2013
HK$ million
2012
HK$ million
16,846
(944)
15,902
26.3%
4,184
(3)
4,181
15,161
(877)
14,284
26.3%
3,758
(3)
3,755
2013
HK$ million
2012
HK$ million
–
–
–
4
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
2013
HK$ million
2012
HK$ million
77
81
158
218
160
378
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. 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
2013
2012
Notional
amount
HK$ million
Fair
value
HK$ million
Notional
amount
HK$ million
Fair
value
HK$ million
78
80
158
77
81
158
213
158
371
218
160
378
Notes to the Financial Statements continuedFor the year ended 31 December 2013
21. TERM NOTES
Term notes, at amortised cost, comprise:
– Debt securities listed in Hong Kong
– Debt securities listed in overseas
– Unlisted debt securities
Total
Analysed for reporting purposes as:
Current assets
Non-current assets
141
The Group
2013
HK$ million
2012
HK$ million
110
168
924
1,202
580
622
1,202
19
161
730
910
383
527
910
As at 31 December 2013, the effective yield of the debt securities ranged from 1.11% to 3.27% (2012: 1.05% to 3.27%) per
annum, payable quarterly, semi-annually or annually, and the securities will mature from January 2014 to June 2016 (2012:
from February 2013 to December 2014). At the end of the reporting period, none of these assets were past due but not
impaired.
22. EQUITY INVESTMENTS
Unlisted investments:
– Overseas equity securities, at fair value
The Group
2013
HK$ million
2012
HK$ million
1
1
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.
23. OTHER FINANCIAL ASSETS/LIABILITIES
Current
Non-current
The Group
2013
HK$ million
2012
HK$ million
2013
HK$ million
2012
HK$ million
Other financial assets
Derivatives under hedge accounting:
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
Club debentures
Total
Other financial liabilities
Derivatives under hedge accounting:
Cash flow hedges
– Cross currency swaps
– Interest rate swaps
Total
–
–
–
–
–
45
3
48
–
2
–
2
2
1
4
5
30
–
2
2
32
68
6
74
55
–
2
2
57
4
21
25
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
142
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:
2013
2012
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
Sell US dollars (“USD”)
(Note a)
Within 1 year
More than 1 year but
not exceeding 5 years
Cross currency swaps
Hedging interest and
principal of Australian
dollars (“AUD”)
bank loan (Note b)
Within 1 year
More than 1 year but
not exceeding 5 years
Hedging interest and
principal of USD
bank loans (Note c)
Within 1 year
Hedging interest and
principal of USD
fixed rate notes (Note d)
More than 5 years
Total
7.7426
USD
25
194
7.7435
7.7429
USD
USD
12
37
89
283
–
–
–
–
–
7.7309
7.7309
USD
USD
–
10
10
–
77
77
8.1497
AUD
37
300
(45)
–
–
–
–
–
–
8.1497
AUD
–
37
–
–
8.1497
300
(45)
8.1497
AUD
AUD
37
37
300
300
–
–
–
–
(4)
(4)
–
–
–
–
–
7.8000
USD
26
200
(1)
7.7519
USD
300 2,326
(68)
–
–
–
2,909
(113)
–
577
–
(5)
*
Average exchange rate represented the average exchange rate of HKD versus respective currencies weighted by the notional amounts of
the contracts or the swaps.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
143
23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges continued
(i) Foreign currency risk continued
Notes:
(a) The Group used HK$283 million (2012: HK$77 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.
(b) The Group used HK$300 million (2012: HK$300 million) cross currency swap to convert AUD interest and principal of AUD37 million
(2012: AUD37 million) bank loan into HKD.
(c) As at 31 December 2012, The Group used HK$200 million cross currency swap to convert USD interest and principal of US$26 million
bank loan into HKD. The swap matured in July 2013.
(d) The Group used HK$2,326 million (2012: nil) cross currency swap to convert USD interest and principal of US$300 million (2012: nil)
fixed rate notes into HKD.
As at 31 December 2013, net cumulative fair value losses of HK$68 million (2012: gains of HK$1 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 losses of HK$36 million (2012: gains of HK$18 million) on forward foreign exchange contracts and cross
currency swaps were reclassified from hedging reserve to profit or loss as finance costs.
For the year ended 31 December 2012, gains of HK$4 million on forward foreign exchange contracts were reclassified from
hedging reserves to profit or loss as investment income.
The fair values of forward foreign exchange contracts and cross currency swaps are measured using quoted forward exchange
rates and yield curves from quoted interest rates matching maturities of the contracts and swaps.
Interest rate risk
(ii)
During the year, the Group used interest rate swaps to hedge its interest rate risk exposure. The terms of the swaps have been
negotiated to match the major terms of the respective hedged underlying items so that the management considers that the
interest rate swaps are highly effective hedging instruments.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 144
23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(a) Cash flow hedges continued
(ii)
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding interest
rate swaps at the end of the reporting period are as follows:
Interest rate risk continued
The Group
2013
2012
Average
interest
rate*
Notional
amount
HK$ million
Fair
value
HK$ million
Average
interest
rate*
Notional
amount
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
Total
–
3.65%
3.65%
2.99%
–
2.99%
–
200
200
200
–
200
400
3.12%
3.65%
3.32%
–
2.99%
2.99%
–
(6)
(6)
(3)
–
(3)
(9)
325
200
525
–
200
200
725
(4)
(13)
(17)
–
(8)
(8)
(25)
*
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.
Notes:
(a) The Group used HK$200 million (2012: HK$525 million) interest rate swaps to manage its exposure to interest rate changes of the
monthly or quarterly interest payments of HKD bank loans.
(b) The Group used HK$200 million (2012: HK$200 million) interest rate swaps to hedge the interest rate risk in relation to the quarterly
floating-interest-rate payments of certain financial instruments.
As at 31 December 2013, cumulative fair value losses of HK$9 million (2012: HK$25 million) from the interest rate 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$16 million (2012: HK$26 million) on interest rate swaps were reclassified from hedging reserve
to profit or loss as finance costs.
The fair values of interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
145
23. OTHER FINANCIAL ASSETS/LIABILITIES continued
(b) Fair value hedges
The Group used interest rate swaps to minimise its exposure to fair value changes of its HKD fixed rate notes and zero
coupon notes by swapping the notes from fixed rates to floating rates. The major terms of the interest rate swaps match the
corresponding notes and the management considers that the swaps are highly effective hedging instruments.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding interest
rate swaps at the end of the reporting period are as follows:
Interest rate swaps (Note)
More than 1 year but
not exceeding 5 years
More than 5 years
2013
2012
The Group
Notional
amount
HK$ million
Fair
value
HK$ million
Average
interest
rate*
Notional
amount
HK$ million
Fair
value
HK$ million
300
308
608
17
13
30
4.18%
4.50%
4.33%
300
293
593
29
26
55
Average
interest
rate*
4.18%
4.50%
4.34%
*
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 (2012: 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 (2012: HK$300 million) fixed rate notes. The Group also designated a fixed-to-floating interest rate
swap with notional amount of HK$308 million (2012: HK$293 million) as at 31 December 2013 to hedge the zero coupon notes with notional
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 2013 was adjusted by
cumulative losses of HK$17 million (2012: HK$29 million) while the carrying amount of the zero coupon notes as at 31
December 2013 was adjusted by cumulative losses of HK$13 million (2012: HK$27 million). The changes in fair values of
the notes for the hedged risk were included in profit or loss at the same time that the changes in fair value of the swaps were
included in profit or loss.
The fair values of interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates.
(c) Financial assets measured at FVTPL
Club debentures
Other financial assets of the Company represented investments in unlisted club debentures. The Group’s and the Company’s
investments in unlisted club debentures have been classified as financial assets measured at FVTPL.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
146
24. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Accounts receivable
Interest receivable
Prepayments in respect of investment properties
Other receivables and prepayments
Total
Analysed for reporting purposes as:
Current assets
Non-current assets
The Group
2013
HK$ million
2012
HK$ million
10
80
47
334
471
241
230
471
13
27
59
302
401
158
243
401
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$10 million (2012: HK$13 million) mainly represented rents receipts in
arrears, which were aged less than 90 days.
At the end of the reporting period, none of the accounts receivable were past due but not impaired.
25. AMOUNTS DUE FROM/TO SUBSIDIARIES
Amounts due from subsidiaries are classified as:
Current assets (Note a)
Non-current assets (Note b)
Amounts due to subsidiaries (Note a)
Notes:
The Company
2013
HK$ million
2012
HK$ million
9,167
3,711
12,878
8,984
3,797
12,781
1,275
1,337
(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
2013
HK$ million
2012
HK$ million
4,042
81
4,123
(3,502)
621
2,158
153
2,311
(1,348)
963
The Company’s cash and bank balances represent cash on hand and bank balances with original maturity of three months
or less. As at 31 December 2012, time deposits of HK$55 million with original maturity over three months were held by the
Company.
Time deposits, cash and bank balances include bank deposits carrying effective interest rates ranging from 0.08% to 3.75%
(2012: 0.1% to 3.45%) per annum.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
27. ACCOUNTS PAYABLE AND ACCRUALS
Accounts payable
Interest payable
Other payables
147
The Group
2013
HK$ million
2012
HK$ million
162
83
255
500
198
32
239
469
At the end of the reporting period, accounts payable of the Group with carrying amount of HK$162 million (2012: HK$198
million) were aged less than 90 days.
28. AMOUNTS DUE TO NON-CONTROLLING INTERESTS
The amounts due to non-controlling interests are unsecured, interest-free and repayable on demand.
29. BORROWINGS
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
The Group
Current
Non-current
2013
HK$ million
2012
HK$ million
2013
HK$ million
2012
HK$ million
855
200
–
–
1,055
699
–
–
–
699
1,100
–
5,022
327
6,449
1,996
200
2,722
324
5,242
In the current year, the average finance costs (excluding net exchange gains or losses) of the Group’s total borrowings
calculated based on their contracted interest rates was 3.1% (2012: 3.0%). 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 2.9% (2012: 2.7%). As at 31 December 2013, the floating rate debt ratio relative to gross total debt after
considering the hedges was 32.0% (2012: 47.0%).
(a) Unsecured bank loans
The unsecured bank loans of HK$1,955 million (2012: HK$2,695 million) are guaranteed as to principal and interest by the
Company and are repayable, based on the scheduled repayment dates set out in the respective loan agreement, as follows:
Within 1 year
More than 1 year, but not exceeding 2 years
More than 2 years, but not exceeding 5 years
The Group
2013
HK$ million
2012
HK$ million
855
850
250
1,955
699
896
1,100
2,695
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 0.69% to 3.52% (2012: 0.70% to 4.04%) 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) of the Notes to the Financial Statements section, during the years ended 31 December 2013 and
2012, cross currency swaps and interest rate swaps were designated as cash flow hedges to hedge the foreign exchange and
interest rate risks of part of the Group’s unsecured bank loans.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
148
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 1.36% (2012: 1.38%) per annum at the end of reporting period and are repayable in full in
2014.
The HK$200 million five-year floating rate notes were not hedged by any derivative in both years.
(c) Fixed rate notes
Fixed rate notes – principal amount
Add: Net losses attributable to hedged risks
The Group
2013
HK$ million
2012
HK$ million
5,005
17
5,022
2,693
29
2,722
Details of the Group’s fixed rate notes at 31 December 2013 and 2012 are as follows:
Principal amount
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
US$300 million
Contracted
interest rate
per annum
5.25%
5.10%
5.38%
3.78%
4.00%
3.70%
3.86%
4.10%
4.00%
3.90%
4.50%
3.50%
Coupon
payment term
quarterly basis
annual basis
annual basis
quarterly basis
annual basis
quarterly basis
quarterly basis
annual basis
quarterly basis
quarterly basis
annual basis
semi-annual basis
Issue date
Maturity date
August 2008
August 2008
September 2008
August 2010
September 2010
October 2010
May 2011
December 2011
January 2012
March 2012
March 2012
January 2013
August 2015
August 2015
September 2020
August 2020
September 2025
October 2022
May 2018
December 2023
January 2022
March 2019
March 2027
January 2023
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 of the Notes to the Financial Statements section, during the year ended 31 December 2013 and 2012,
interest rate swaps and cross currency swaps were used to hedge or manage the foreign exchange and interest rate risks of
the Group’s fixed rate notes.
The net cumulative losses of HK$17 million (2012: HK$29 million) represented the change in fair value attributable to the
hedged interest rate risk of the HK$300 million (2012: HK$300 million) fixed rate notes under fair value hedge.
(d) Zero coupon notes
Zero coupon notes
Add: Loss attributable to hedged risk
The Group
2013
HK$ million
2012
HK$ million
314
13
327
297
27
324
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
149
29. BORROWINGS continued
(d) Zero coupon notes continued
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 losses of HK$13 million (2012: HK$27 million) represented changes in fair value attributable to the hedged
interest rate risk of the zero coupon notes under fair value hedge.
30. DEFERRED TAXATION
The following are the major deferred tax liabilities recognised by the Group and movements thereon during the current and prior
years:
The Group
At 1 January 2012
Charge (credit) to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2012
Charge to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2013
Accelerated tax
depreciation
HK$ million
Revaluation of
properties
HK$ million
Tax
losses
HK$ million
Total
HK$ million
327
135
–
462
56
–
518
54
–
7
61
–
4
65
(21)
(68)
–
(89)
65
–
(24)
360
67
7
434
121
4
559
At the end of the reporting period, the Group has unused estimated tax losses of HK$697 million (2012: HK$1,072 million), of
which HK$290 million (2012: HK$684 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$147 million (2012: HK$538 million)
of such losses. No deferred tax asset has been recognised in respect of the estimated tax losses of HK$550 million (2012:
HK$534 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. For the year ended 31 December 2012,
deferred tax liability of the Company had been recognised in respect of the accelerated tax depreciation of HK$1 million. At the
end of the reporting period, the Company has deferred tax liability of HK$1 million (2012: HK$1 million).
31. SHARE CAPITAL
Ordinary shares of HK$5 each
Authorised:
At 1 January and 31 December
Issued and fully paid:
At 1 January
Issue of shares pursuant to
scrip dividend schemes (Note a)
Issue of shares under share
option scheme (Note b)
Number of shares
2013
2012
Share capital
2013
HK$ million
2012
HK$ million
1,450,000,000
1,450,000,000
1,063,007,056
1,059,754,415
–
2,745,307
625,987
507,334
7,250
5,315
–
3
7,250
5,299
14
2
At 31 December
1,063,633,043
1,063,007,056
5,318
5,315
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
150
31. SHARE CAPITAL continued
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$33.51 to the shareholders who elected to receive shares in the Company in lieu of cash
for the 2011 final and 2012 interim dividends pursuant to the scrip dividend schemes announced by the Company on 22 May 2012 and 22
August 2012. These shares rank pari passu in all respects with other shares in issue.
(b) Issue of shares under share option schemes
During the year, options to subscribe for shares of the Company for a total of 625,987 shares (2012: 507,334 shares) were exercised at
various exercise prices. These shares rank pari passu in all respects with other shares in issue. Details of options outstanding and movements
during the year are set out in note 38 of the Notes to the Financial Statements section.
32. RESERVES OF THE COMPANY
Share
premium
HK$ million
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
General
reserve
HK$ million
(Note)
Retained
profits
HK$ million
Total
HK$ million
1,934
15
276
100
5,480
7,805
At 1 January 2012
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 2012
Issue of shares under
share option schemes
Recognition of equity-settled
share-based payments
Profit for the year
Dividends paid during the year (note 14)
76
12
–
–
–
–
2,022
16
–
–
–
At 31 December 2013
2,038
Note:
General reserve was set up from the transfer of retained profits.
–
(4)
8
(5)
–
–
14
(4)
10
–
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
835
(859)
76
8
8
–
835
(859)
276
100
5,461
7,873
–
–
–
–
–
–
–
–
–
12
–
968
(1,064)
10
968
(1,064)
276
100
5,365
7,799
The Company’s reserves available for distribution to its owners as at 31 December 2013 amounted to HK$5,465 million
(2012: HK$5,561 million), being its general reserve and retained profits at that date.
33. RETIREMENT BENEFITS PLANS
With effect from 1 December 2000, the Group set up an enhanced Mandatory Provident Fund Scheme (the “Enhanced MPF
Scheme”), a defined contribution scheme, for all qualifying employees. The Enhanced MPF Scheme is registered with the
Mandatory Provident Fund Schemes Authority under Section 124(1) of the Mandatory Provident Fund Schemes (General)
Regulation.
Pursuant to the rules of the Enhanced MPF Scheme, the Group’s contributions to the plan are based on fixed percentages of
members’ salaries, ranging from 5% of MPF Relevant Income to 15% of basic salary. Members’ mandatory contributions are
fixed at 5% of MPF Relevant Income, in compliance with MPF legislation.
Total contributions made by the Group during the year amounted to HK$8 million (2012: HK$7 million).
Notes to the Financial Statements continuedFor the year ended 31 December 2013
151
34. CONTINGENT LIABILITIES
At the end of the reporting period, there were contingent liabilities in respect of the following:
Corporate guarantee to note holders
– for issue of floating rate notes
– for issue of fixed rate notes
– for issue of zero coupon notes
Guarantees to banks for providing
financing facilities to subsidiaries
The Group
2013
HK$ million
2012
HK$ million
The Company
2013
HK$ million
2012
HK$ million
–
–
–
–
–
–
–
–
–
–
200
5,026
430
5,656
200
2,700
430
3,330
2,000
2,700
35. 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
2013
HK$ million
2012
HK$ million
The Company
2013
HK$ million
2012
HK$ million
410
258
336
214
–
–
–
–
36. LEASE COMMITMENTS
At the end of the reporting period, the Group as lessor 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
2013
HK$ million
2012
HK$ million
2,582
4,988
1,751
9,321
2,260
4,315
1,890
8,465
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.
At the end of the reporting period, the Group and the Company as lessee had no commitment under non-cancellable operating
lease.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
152
37. RELATED PARTY TRANSACTIONS AND BALANCES
(a) Transactions and balances with related parties
The Group has the following transactions with related parties during the year and has the following balances with them at the
end of the reporting period:
The Group
Gross rental income
received from
Amount due to
non-controlling interests
2013
HK$ million
2012
HK$ million
2013
HK$ million
2012
HK$ million
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))
3
30
21
3
26
18
–
94
233
–
94
233
Notes:
(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 40.72% (2012: 40.75%) 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
The Company
2013
HK$ million
2012
HK$ million
13,054
(176)
12,878
1,275
13,029
(248)
12,781
1,337
Details of amounts due from/to subsidiaries are disclosed in note 25 of the Notes to the Financial Statements section.
(b) Compensation of key management personnel
The remuneration of key management personnel of the Group and the Company (being Directors and an officer) are as follows.
Directors’ fees, salaries and other short-term employee benefits
Share-based payments
Retirement benefits scheme contributions
2013
HK$ million
2012
HK$ million
29
7
–
36
21
4
–
25
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
153
38. SHARE-BASED PAYMENT TRANSACTIONS
(a) Equity-settled share option scheme
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 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$1 and is required to be paid within 30 days
from the date of grant of option, with full payment for exercise price to be made on exercise of the relevant option.
(b) Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Vesting period is 3 years in equal proportions
starting from the 1st anniversary and become fully vested on the 3rd anniversary of the grant. Size of grant will be determined
by reference to base salary multiple and job grades. A clear performance criterion will be a key driver. The Board will review the
grant and vesting structures from time to time.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 154
38. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Directors and eligible employees during
the current year:
Name
Date of grant
Exercise
price
HK$
Balance
as at
1.1.2013
Exercise
period
(Note a)
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2013
(Note b)
Changes during the year
Executive Directors
Irene Yun Lien LEE
14.5.2012
33.50
7.3.2013
Siu Chuen LAU
14.5.2012
7.3.2013
Wendy Wen Yee YUNG
30.3.2007
39.92
(Note c)
33.50
39.92
(Note c)
21.25
Eligible employees
(Note f)
31.3.2008
21.96
11.3.2009
11.76
11.3.2010
22.10
10.3.2011
35.71
9.3.2012
33.79
7.3.2013
31.3.2008
39.92
(Note c)
21.96
31.3.2009
13.30
31.3.2010
22.45
31.3.2011
32.00
30.3.2012
31.61
28.3.2013
39.20
(Note k)
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
30.3.2008 –
29.3.2017
31.3.2009 –
30.3.2018
11.3.2010 –
10.3.2019
11.3.2011 –
10.3.2020
10.3.2012 –
9.3.2021
9.3.2013 –
8.3.2022
7.3.2014 –
6.3.2023
31.3.2009 –
30.3.2018
31.3.2010 –
30.3.2019
31.3.2011 –
30.3.2020
31.3.2012 –
30.3.2021
30.3.2013 –
29.3.2022
28.3.2014 –
27.3.2023
261,000
–
– 265,000
–
–
242,000
–
(80,666)
(Note d)
– 261,000
– 265,000
– 161,334
– 246,000
–
– 246,000
95,000
100,000
100,000
185,000
103,000
113,000
–
–
–
–
–
–
– 106,700
17,000
170,000
272,668
261,000
372,000
–
–
–
–
–
(95,000)
(Note e)
(100,000)
(Note e)
(100,000)
(Note e)
(185,000)
(Note e)
–
–
–
–
(6,000)
(Note g)
(21,334)
(Note h)
(13,659)
(Note i)
(24,328)
(Note j)
–
–
–
–
–
–
–
–
– 103,000
– 113,000
– 106,700
–
17,000
– 164,000
– 251,334
(1,340) 246,001
(11,337) 336,335
– 377,000
–
(15,000) 362,000
2,291,668
994,700
(625,987)
(27,677) 2,632,704
Notes to the Financial Statements continuedFor the year ended 31 December 2013
155
38. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options continued
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. In this table, “exercise period” begins with the 1st anniversary of the grant date.
(b) The options lapsed during the year upon resignations of certain eligible employees.
(c) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 6 March 2013) was HK$39.55.
(d) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.90.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$39.45.
(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$32.65.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.54.
(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$38.26.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.97.
(k) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 27 March 2013) was HK$38.60.
Apart from the above, the Company had not granted any share option under the 2005 Scheme to any other persons as required
to be disclosed under Rule 17.07 of the Listing Rules.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 156
38. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and eligible employees in prior
year:
Name
Date of grant
Executive Directors
Irene Yun Lien LEE
14.5.2012
Siu Chuen LAU
14.5.2012
Gerry Lui Fai YIM
(Note d)
1.12.2009
Exercise
price
HK$
33.500
(Note c)
33.500
(Note c)
22.800
10.3.2011
35.710
9.3.2012
Wendy Wen Yee YUNG
30.3.2007
33.790
(Note f)
21.250
Eligible employees
(Note g)
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)
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)
Exercise period
(Note a)
14.5.2013 –
13.5.2022
14.5.2013 –
13.5.2022
1.12.2010 –
30.11.2019
10.3.2012 –
9.3.2021
9.3.2013 –
8.3.2022
30.3.2008 –
29.3.2017
31.3.2009 –
30.3.2018
11.3.2010 –
10.3.2019
11.3.2011 –
10.3.2020
10.3.2012 –
9.3.2021
9.3.2013 –
8.3.2022
31.3.2009 –
30.3.2018
2.5.2009 –
1.5.2018
2.10.2009 –
1.10.2018
31.3.2010 –
30.3.2019
31.3.2011 –
30.3.2020
31.3.2012 –
30.3.2021
30.3.2013 –
29.3.2022
Changes during the year
Balance
as at
1.1.2012
Granted
Exercised
Cancelled/
Balance
as at
lapsed 31.12.2012
(Note b)
– 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
–
–
–
–
–
–
23,000
95,000
85,000
262,668
441,001
370,000
–
–
–
–
–
–
(6,000)
(Note h)
(95,000)
(Note i)
(85,000)
(Note j)
(69,668)
(Note k)
(102,333)
(Note l)
–
95,000
– 100,000
– 100,000
– 185,000
– 103,000
– 113,000
–
–
–
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 to the Financial Statements continuedFor the year ended 31 December 2013
157
38. SHARE-BASED PAYMENT TRANSACTIONS continued
(c) Movement of share options continued
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. In this table, “exercise period” begins with the 1st anniversary of the grant date.
(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.
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.
(f)
(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
(i)
(j)
HK$35.35.
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
(l)
HK$32.95.
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW 158
38. 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$10 million (2012: HK$8 million) in relation to share
options granted by the Company, of which HK$6 million (2012: HK$4 million) related to the Directors (see note 12), with a
corresponding adjustment recognised in the Group’s share options reserve.
The fair values of share options granted by the Company were determined by using Black-Scholes option pricing model
(the “Model”). The Model is one of the commonly used models to estimate the fair value of an option. The variables and
assumptions used in computing the fair value of the share options are based on the management’s best estimate. The value
of an option varies with different variables of a number of subjective assumptions. Any change in the variables so adopted may
materially affect the estimation of the fair value of an option.
The inputs into the Model were as follows:
Date of grant
28.3.2013
7.3.2013
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$39.200 HK$39.850 HK$33.500 HK$31.100 HK$33.050
HK$39.200 HK$39.920 HK$33.500 HK$31.610 HK$33.790
0.535%
5 years
40.197%
HK$0.698
HK$9.740
0.449%
0.533%
5 years
5 years
40.715%
41.256%
HK$0.698
HK$0.768
HK$12.051 HK$12.439 HK$10.212
0.606%
5 years
40.389%
HK$0.698
HK$9.210
0.515%
5 years
41.272%
HK$0.768
(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 appropriate 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.
Notes to the Financial Statements continuedFor the year ended 31 December 2013
159
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, 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, 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 34 of the
Notes to the Financial Statements section.
For rents receivable from tenants, credit checks are part of the normal leasing process and stringent monitoring procedures are
in place to deal with overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the
end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts.
For derivative financial instruments, principal-protected investments, term notes, time deposits and bank balances, the Group
and the Company only deal with financial institutions and invest in debt securities issued by issuers that have strong credit
ratings to mitigate counterparty risk. In order to limit exposure to each financial institution and debt securities issuer, 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; (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+
2013
Number of
counterparty
Exposure
HK$ million
2012
Number of
counterparty
Exposure
HK$ million
5
25
80 to 781
1 to 489
5
27
140 to 355
1 to 290
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.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWFinancial Risk ManagementFor the year ended 31 December 2013
160
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 2013
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 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)
(500)
(800)
(327)
(1,955)
(200)
(5,022)
(327)
(500)
(800)
(327)
(2,002)
(203)
(6,621)
(430)
(500)
(190)
(327)
(877)
(203)
(195)
–
–
(278)
–
(870)
–
(592)
–
–
(320)
–
(255)
–
(672)
–
–
(12)
–
–
–
(5,162)
(430)
(9,131)
(10,883)
(2,292)
(1,740)
(1,247)
(5,604)
(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)
Financial Risk Management continuedFor the year ended 31 December 2013
161
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 2013
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
As at 31 December 2012
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
Note:
(44)
(1,275)
(44)
(1,275)
(44)
(1,275)
(1,319)
(1,319)
(1,319)
(35)
(1,337)
(35)
(1,337)
(35)
(1,337)
(1,372)
(1,372)
(1,372)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
These amounts also represent the maximum amounts the Company could be required to settle under the arrangement for the full guaranteed
amounts if these 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.
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 2013
Derivative settled net
Interest rate swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency swaps
Outflow
Inflow
21
105
14
20
45
26
–
(113)
(283)
283
(3,415)
3,361
(194)
194
(388)
343
–
–
(89)
89
–
–
(85)
81
(255)
244
(2,687)
2,693
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
162
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 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
–
–
–
–
–
–
–
–
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) 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 2013, about 32.0% (2012: 47.0%) 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”)
(2012: +100 and -25 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 (2012: +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.
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.
Financial Risk Management continuedFor the year ended 31 December 2013
163
1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued
(c) Interest rate risk continued
As at 31 December 2013
As at 31 December 2012
The Group
Increase (decrease) in
profit or loss
bps
increase
HK$ million
bps
decrease
HK$ million
Increase (decrease) in
equity
bps
increase
HK$ million
bps
decrease
HK$ million
18
(2)
(5)
–
8
8
(2)
(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.
2013
2012
The Group
AUD million RMB million
Total
equivalent
to
US$ million HK$ million
AUD million RMB million
Total
equivalent
to
US$ million HK$ million
Assets
Cash
Time deposits
Principal-protected
investments
Term notes
Liabilities
Unsecured bank loans
Fixed rate notes
–
–
–
–
–
37
–
37
2
259
–
61
322
–
–
–
–
4
10
95
2
361
78
815
109
1,256
–
300
300
255
2,312
2,567
–
–
–
–
–
37
–
37
1
30
–
133
164
–
–
–
–
10
32
37
79
26
–
26
1
115
247
449
812
495
–
495
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”)
(2012: 500 pips) was applied to the HKD:RMB and HKD:USD spot and forward rates while a change of 10,000 pips (2012:
10,000 pips) was applied to the HKD:AUD spot and forward rates at the end of the reporting period.
In management’s opinion, the sensitivity analysis is unrepresentative of the currency risk as the year end exposure does not
reflect the exposure during the year.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
164
1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued
(d) Currency risk continued
As at 31 December 2013
– AUD
– RMB
– USD
As at 31 December 2012
– 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
Derivative instruments under hedge accounting
Amortised cost
The Group
Increase (decrease) in
profit or loss
pips
increase
HK$ million
pips
decrease
HK$ million
Increase (decrease) in
equity
pips
increase
HK$ million
pips
decrease
HK$ million
–
16
5
–
8
–
–
(16)
(5)
–
(8)
(2)
–
–
(1)
–
–
1
–
–
1
–
–
(1)
The Group
2013
HK$ million
2012
HK$ million
The Company
2013
HK$ million
2012
HK$ million
160
30
1
5,420
5,611
122
8,331
8,453
382
55
1
3,266
3,704
30
6,737
6,767
2
–
–
2
–
–
12,948
12,950
12,930
12,932
–
1,319
1,319
–
1,372
1,372
3. FINANCIAL ASSETS AND FINANCIAL LIABILITIES SUBJECT TO ENFORCEABLE MASTER
NETTING ARRANGEMENTS OR SIMILAR AGREEMENTS
The Group has entered certain derivative transactions that are covered by the International Swaps and Derivatives Association
Master Agreements (“ISDA Agreements”) signed with various banks. These derivative instruments are not offset in the
consolidated statement of financial position as the ISDA Agreements are in place with a right of set off only in the event of
default, insolvency or bankruptcy so that the Group currently has no legally enforceable right to set off the recognised amounts.
Other than derivatives transactions mentioned above, the Group has no other financial assets and financial liabilities which are
offset in the Group’s consolidated statement of financial statements or are subject to similar netting arrangements.
Financial Risk Management continuedFor the year ended 31 December 2013
165
3. FINANCIAL ASSETS AND FINANCIAL LIABILITIES SUBJECT TO ENFORCEABLE MASTER
NETTING ARRANGEMENTS OR SIMILAR AGREEMENTS continued
(a) Financial assets subject to enforceable master netting arrangements or similar agreements
As at 31 December 2013
Derivatives under hedge accounting
As at 31 December 2012
Derivatives under hedge accounting
Other derivatives classified as held for trading
Total
The Group
Gross amounts of
recognised financial
liabilities set off in
the consolidated
statement of
financial position
HK$ million
Net amounts of
financial assets
presented in the
consolidated
statement of
financial position
HK$ million
Gross amounts of
recognised
financial assets
HK$ million
30
55
2
57
–
–
–
–
30
55
2
57
(b) Net financial assets subject to enforceable master netting arrangements or similar agreements, by counterparty
As at 31 December 2013
Counterparty A
Counterparty B
Total
As at 31 December 2012
Counterparty A
Counterparty B
Counterparty C
Total
Net amounts of
financial assets
presented in the
consolidated
statement of
financial position
HK$ million
The Group
Financial liabilities
not set off in the
consolidated
statement of
financial position
HK$ million
17
13
30
29
26
2
57
(17)
–
(17)
(10)
–
–
(10)
Net amount
HK$ million
–
13
13
19
26
2
47
(c) Financial liabilities subject to enforceable master netting arrangements or similar agreements
As at 31 December 2013
Derivatives under hedge accounting
As at 31 December 2012
Derivatives under hedge accounting
The Group
Gross amounts of
recognised financial
assets set off in
the consolidated
statement of
financial position
HK$ million
–
–
Net amounts of
financial liabilities
presented in the
consolidated
statement of
financial position
HK$ million
(122)
(30)
Gross amounts of
recognised
financial liabilities
HK$ million
(122)
(30)
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
166
3. FINANCIAL ASSETS AND FINANCIAL LIABILITIES SUBJECT TO ENFORCEABLE MASTER
NETTING ARRANGEMENTS OR SIMILAR AGREEMENTS continued
(d) Net financial liabilities subject to enforceable master netting arrangements or similar agreements, by counterparty
As at 31 December 2013
Counterparty A
Counterparty D
Counterparty E
Counterparty F
Total
As at 31 December 2012
Counterparty A
Counterparty D
Counterparty E
Counterparty F
Counterparty G
Total
Net amounts of
financial liabilities
presented in the
consolidated
statement of
financial position
HK$ million
The Group
Financial assets
not set off in the
consolidated
statement of
financial position
HK$ million
(71)
(3)
(3)
(45)
(122)
(10)
(7)
(8)
(3)
(2)
(30)
17
–
–
–
17
10
–
–
–
–
10
Net amount
HK$ million
(54)
(3)
(3)
(45)
(105)
–
(7)
(8)
(3)
(2)
(20)
4. FAIR VALUE MEASUREMENT
(a) Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis (but fair
value disclosures are required)
The fair values of financial assets and financial liabilities measured at amortised cost are determined in accordance with
generally accepted pricing models based on discounted cash flow methodology taking into account the market interest rate and
credit risk of the counterparties and of the Group as appropriate.
The Directors consider that the carrying amounts of financial assets and financial liabilities measured at amortised cost in
the consolidated financial statements approximate their fair values, except for the carrying amount of HK$5,022 million (31
December 2012: HK$2,722 million) fixed rate notes as stated in note 29 of the Notes to the Financial Statements section with
fair value of HK$4,890 million (31 December 2012: HK$3,112 million).
The fair value of HK$2,155 million of the fixed rate notes is categorised into Level 1 of the fair value hierarchy, in which the fair
value was derived from quoted prices in an active market translated at the spot foreign exchange rate of the respective currency
at year end.
The fair value of HK$2,735 million of the fixed rate notes is categorised into Level 2 of the fair value hierarchy, in which the
fair value was measured using discounted cash flow methodology based on observable yield curves of the respective currency
taking into account the credit margin of the Group as appropriate.
Financial Risk Management continuedFor the year ended 31 December 2013
167
4. FAIR VALUE MEASUREMENT continued
(b) Fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis
The following table provides an analysis of financial instruments that are measured at fair value on a recurring basis, grouped
into Levels 1 to 3 based on the degree to which the inputs to the fair value measurements are observable.
•
•
•
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets
and liabilities.
Level 2: fair value measurements are those derived from inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
Level 1
HK$ million
Level 2
HK$ million
Level 3
HK$ million
Total
HK$ million
2013
Financial assets
Derivatives under hedge accounting
Interest rate swaps
Financial assets at FVTPL
Principal-protected investments
Unlisted club debentures
Financial assets at FVTOCI
Unlisted equity securities
Total
Financial liabilities
Derivatives under hedge accounting
Cross currency swaps
Interest rate swaps
Total
–
–
–
–
–
–
–
–
30
158
2
–
190
113
9
122
–
–
–
1
1
–
–
–
30
158
2
1
191
113
9
122
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
168
4. FAIR VALUE MEASUREMENT continued
(b) Fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis continued
Level 1
HK$ million
Level 2
HK$ million
Level 3
HK$ million
Total
HK$ million
2012
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
Total
Financial liabilities
Derivatives under hedge accounting
Cross currency swaps
Interest rate swaps
Total
–
–
–
–
–
–
–
–
–
55
378
2
2
–
437
5
25
30
–
–
–
–
1
1
–
–
–
55
378
2
2
1
438
5
25
30
There were no transfers between Levels 1 and 2 for both years.
(c) Valuation techniques and inputs used in fair value measurements categorised within Level 2
•
Interest rate swaps are measured using discounted cash flow methodology based on observable yield curves of the
respective currencies taking into account the credit risk of the counterparties and of the Group as appropriate.
•
•
Forward foreign exchange contracts and cross currency swaps are measured using discounted cash flow methodology
based on observable spot and forward exchange rates as well as the yield curves of the respective currencies taking into
account the credit risk of the counterparties and of the Group as appropriate.
Principal-protected investments are measured using discounted cash flow methodology based on the observable yield
curves of the respective currencies, as well as variable returns linked to certain forward exchange rates, forward prices of
certain commodities and relevant indices with foreign exchange rates, interest rates and commodities prices as underlying
and taking into account the credit risk of the counterparties.
Financial Risk Management continuedFor the year ended 31 December 2013
169
5. 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
2013
HK$ million
2012
HK$ million
1,955
200
5,022
327
7,504
(4,042)
(81)
3,381
63,326
5.3%
2,695
200
2,722
324
5,941
(2,158)
(153)
3,630
58,123
6.2%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
170
For the year ended 31 December
Results
Turnover
Property expenses
Gross profit
Investment income
Other gains and losses
Administrative expenses
Finance costs
Change in fair value of investment properties
Share of results of associates
Profit before taxation
Taxation
Profit for the year
Non-controlling interests
Profit attributable to owners of the Company
Underlying profit for the year
Recurring underlying profit for the year
Dividends
Dividends paid
Dividends proposed
Dividends per share (HK cents)
Earnings per share (HK$), based on:
Profit for the year
– basic
– diluted
Underlying profit for the year – basic
Recurring underlying profit for the year – basic
Performance indicators
Net debt to equity
Net interest coverage (times)
Net asset value per share (HK$)
Net debt per share (HK$)
Year end share price (HK$)
2013
HK$ million
2012
HK$ million
2011
HK$ million
(Note b)
2010
HK$ million
(Note b)
As restated
2009
HK$ million
(Notes a & b)
3,063
(405)
2,658
76
1
(208)
(242)
4,575
309
7,169
(372)
6,797
(639)
6,158
2,043
2,043
1,064
1,010
117.00
5.79
5.79
1.92
1.92
5.3%
15.4x
59.54
3.18
33.40
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
Five-Year Financial Summary
171
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:
2013
HK$ million
2012
HK$ million
2011
HK$ million
(Note b)
2010
HK$ million
(Note b)
65,322
4,181
1
–
–
4,123
2,467
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
As restated
2009
HK$ million
(Notes a & b)
37,363
2,886
–
1,002
–
1,984
807
76,094
68,423
59,368
48,554
44,042
(7,504)
(660)
(1,749)
(5,941)
(511)
(1,524)
(6,663)
(433)
(1,528)
(4,587)
(387)
(1,263)
(3,891)
(342)
(1,077)
(9,913)
(7,976)
(8,624)
(6,237)
(5,310)
66,181
(2,855)
60,447
(2,324)
50,744
(1,991)
42,317
(1,640)
38,732
(1,516)
63,326
58,123
48,753
40,677
37,216
(a) The figures for the year 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
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEW
172
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual Revaluation of Investment Properties as at 31 December 2013
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 2013 was in the approximate sum of Hong Kong Dollars Sixty Five Billion Three hundred and
Twenty Two Million Only (i.e. HK$65,322 million).
The investment properties have been valued individually, on market value basis, on the basis of capitalisation of the net
income with due allowance for the reversionary income potential, without allowances for any expenses or taxation which may be
incurred in effecting a sale and cross reference by sales comparables, where appropriate.
Yours faithfully,
Knight Frank Petty Limited
Hong Kong, 10 February 2014
Report of the Valuer 173
Use
Category
of the Lease
Percentage
held by
the Group
Commercial
Long lease
100%
Residential
Medium term
lease
100%
Commercial
Long lease
65.36%
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
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. 10 Hysan Avenue*
Causeway Bay
Hong Kong
7. 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%
Commercial
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%
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWSchedule of Principal PropertiesAt 31 December 2013
174
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%
*
The properties are currently under redevelopment. Demolition work on the existing buildings which commenced in October 2013 are
currently underway. The combined redevelopment site has an overall registered site area of approximately 31,000 square feet. The new
development has a projected gross floor area of approximately 467,000 square feet and is targeted for completion around 2018.
Schedule of Principal Properties continuedAt 31 December 2013
175
SHARE CAPITAL
At 31 December 2013
Authorised share capital
Issued and fully paid-up capital
Number of
Ordinary Shares
HK$
Nominal Value
HK$
7,250,000,000 1,450,000,000
5,318,165,215 1,063,633,043
5
5
There was one class of ordinary shares of HK$5 each with equal voting rights.
DISTRIBUTION OF SHAREHOLDINGS
(At 31 December 2013, 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)
2,407
889
83
60
4
17
3,460
4,169,745
69.57
13,985,535
25.69
6,299,798
2.40
12,056,842
1.73
0.12
2,368,031
0.49 1,024,753,092
0.39
1.32
0.59
1.13
0.22
96.35
100.00
1,063,633,043
100.00
TYPES OF SHAREHOLDERS
(At 31 December 2013, as per register of members of the Company)
Type of shareholders
Lee Hysan Company Limited, Lee Hysan Estate Company, Limited and their subsidiaries
Other corporate shareholders
Individual shareholders
Total
LOCATION OF SHAREHOLDERS
(At 31 December 2013, 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)
433,130,735
589,413,095
41,089,213
1,063,633,043
40.72
55.42
3.86
100.00
Number of
ordinary shares held
% of the issued
share capital
(Note)
1,057,617,855
4,543,424
1,233,167
238,597
1,063,633,043
99.43
0.43
0.12
0.02
100.00
The percentages have been compiled based on the total number of shares of the Company in issue as at 31 December 2013
(i.e. 1,063,633,043 ordinary shares).
STRATEGY IN ACTIONCORPORATE GOVERNANCEFINANCIAL STATEMENTS AND VALUATIONHysan Annual Report 2013OVERVIEWShareholding Analysis
176
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
2014 interim results to be announced
* subject to change
DIVIDEND
The Board declares the payment of a second interim dividend
of HK95 cents per share. The second interim dividend will be
payable in cash to shareholders on the register of members
as at Monday, 24 March 2014.
The register of members will be closed on Monday,
24 March 2014, 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 Registrar not later than
4:00 p.m. on Friday, 21 March 2014.
Dividend warrants will be dispatched to shareholders on or
about Thursday, 3 April 2014.
The register of members will also be closed from Monday,
12 May 2014 to Tuesday, 13 May 2014, both dates
inclusive, for the purpose of determining shareholders’
entitlement to attend and vote at the Annual General Meeting
to be held on 13 May 2014, 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 Registrar not later than
4:00 p.m. on Friday, 9 May 2014.
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
7 March 2014
20 March 2014
24 March 2014
(on or about) 3 April 2014
12 to 13 May 2014
13 May 2014
8 August 2014*
SHAREHOLDER SERVICES
For enquiries about share transfer and registration, please
contact the Company’s Registrar, Tricor Standard Limited
(the following new address effective 31 March 2014).
Tricor Standard Limited
Level 22, Hopewell Centre
183 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
Registrar 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 Registrar 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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Shareholder 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