ExperienceHysan
annual report 2014
stock code 00014
The Essential Read and Why
4
Key Facts about Hysan and its business
10
2014 financial and
non-financial performance
14
Chairman’s 2014 review and outlook
24
2014 market conditions
28
Results highlights
29
Review of our core leasing segments
34
Report on financial position
and management
37
Prudent treasury policy
42
Risk controls and management
48
Review of our sustainability
achievements
80
Governance structure and
the Board’s work in 2014
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Contents
Overview
4 Key Facts
4 Who We Are, How We Do Things, and Value Creation
6 A Balanced Portfolio
8 The Hysan Community
10 2014 Performance at a Glance
14 Chairman’s Statement
Financial Performance
20 Feature Stories: Creating a Unique and Satisfying
Experience (U.S.E.) for All
24 The Marketplace
28 Management’s Discussion and Analysis
28 Strategy and Review of Results
29 Review of Operations
34 Financial Review
37 Treasury Policy
42 Internal Controls and Risk Management Report
Responsible Business
50 Feature Stories: (i) Walking the Talk, and
(ii) Supporting our People at Work and Beyond
54 Guiding Principle
56 Environment
64 Workplace Quality
68 Health and Safety
70 Community Contributions
Corporate Governance
74 Board of Directors
80 Corporate Governance Report
98 Directors’ Report
105 Directors’ Remuneration and Interests Report
113 Audit Committee Report
Financial Statements,
Valuation and Other Information
118 Directors’ Responsibility for the Financial Statements
119 Independent Auditor’s Report
120 Financial Statements
186 Five-Year Financial Summary
188 Report of the Valuer
189 Schedule of Principal Properties
191 Shareholding Analysis
192 Shareholder Information
194 On The Stock Exchange of Hong Kong Limited’s
Environmental, Social and Governance Reporting Guide
Corporate Responsibility Reporting Verification Statement
Inside
Back
Cover
Experience Hysan
This Annual Report follows an “integrated” approach by
combining our financial and non-financial (environmental,
social and governance) performance into one document.
Underlying this is our belief that sustainable financial results
are only achieved if we do things the right way.
We have also improved the readability of this Report by
enhancing the inter-connectivity of the various sections,
including how we respond to the changing market environment
in terms of managing our operations, finances, risks, as well as
human talent. Feature stories are also used – all these towards
bringing to life our theme, “Experience Hysan”.
2
We begin by stating who we are, how we do
things and create value, as well as showcasing
our portfolio. This section then highlights
Hysan’s 2014 financial and non-financial
performance, while our Chairman’s Statement
details how Hysan responds successfully to
changes in Hong Kong’s business environment.
Overview
3
4
Key Facts
4 Who We Are, How We Do Things,
and Value Creation
A Balanced Portfolio
The Hysan Community
6
8
10 2014 Performance at a Glance
14 Chairman’s Statement
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
4 Key Facts
Who We Are
Hysan Development is a leading
property development, investment
and management company
based in Hong Kong. Hysan’s
roots run deep in Causeway Bay,
Hong Kong’s most vibrant
commercial district. It has an
investment property portfolio of
approximately 4.1 million square
feet of high quality retail, office
and residential space, excluding
properties under redevelopment.
It is one of the largest commercial
landlords in Causeway Bay.
How We Do Things
Vision
To be the PREMIER
property company that
is superior to its peers in
its market of choice.
Mission
Provide our stakeholders
with sustainable and
outstanding returns from
a property portfolio which
is strategically planned and
managed by passionate,
responsible and forward-
looking professionals.
Value Creation
Retail Leasing
Office Leasing
(with area branding)
Residential Leasing
Increase Yields
through active management
including tenant mix improvement
Asset Enhancement balancing
longer-term projects with those that
produce more immediate returns
Financial
Achievements
increase earnings
and enhance net
asset value
Share Price
Growth
Dividends
Risk Adjusted
Total Return –
Steady and
Measured Growth
Supported by Strong Underlying
Non-Financial Achievements:
Environment
Minimise our activities’ impact on the environment,
and achieve higher efficiency at the same time
Employees
Community
Governance
Maintain good working
Make positive contributions to
Strong governance is the heart of
environment to unleash potential
communities where we operate
long-term sustainable performance
Continue strong focus in Causeway Bay and
concurrently seek opportunities beyond our core portfolio
5
Values
Leadership
Excellence
Empowerment
Good Citizenship
Accountability
Respect
Driving / Driven
Entrepreneurship
Networking
Sustainability
Revenue Growth 2004 – 2014
HK$3,224 million
9%
35%
56%
2014
Compound
Annual
Growth Rate
10.8%
Retail
Office
Residential
HK$1,154 million
15%
45%
40%
2004
Hysan’s successful asset enhancement and active management
efforts ensured the Group’s revenue nearly tripled, on the basis of
the same lettable floor area, between 2004 and 2014.
Value Creation
Retail Leasing
Office Leasing
(with area branding)
Residential Leasing
Increase Yields
through active management
including tenant mix improvement
Asset Enhancement balancing
longer-term projects with those that
produce more immediate returns
Financial
Achievements
increase earnings
and enhance net
asset value
Share Price
Growth
Dividends
Risk Adjusted
Total Return –
Steady and
Measured Growth
Supported by Strong Underlying
Non-Financial Achievements:
Environment
Minimise our activities’ impact on the environment,
and achieve higher efficiency at the same time
Employees
Maintain good working
environment to unleash potential
Community
Make positive contributions to
communities where we operate
Governance
Strong governance is the heart of
long-term sustainable performance
Continue strong focus in Causeway Bay and
concurrently seek opportunities beyond our core portfolio
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 6
Key Facts
A Balanced Portfolio
We have a well-balanced and quality portfolio
comprising principally of retail and office segments.
For retail, we strategically created a diversified and
distinct retail portfolio with shops and eateries of
different price points and style, catering to shoppers
from different parts of the community, as well as
overseas visitors. Our office portfolio is home to a
well-balanced group of major international and
local tenants.
Overall
Investment Properties
(by Gross Floor Area excluding properties under redevelopment)
Investment Properties
(Turnover Contribution)
Gross Floor Area
4.1 million sq. ft. (approx.)
Residential
Office
Retail
17%
51%
32%
9%
35%
56%
Turnover
HK$3,224 million
Residential
Office
Retail
7
A Retail Portfolio that Caters to All
Hysan
Place
Lee Theatre
Retail Hub
Each of the three hubs accounts for
about one-third of the retail portfolio
gross floor area. Hysan Place is the
hip and trendy home 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.
An Office Portfolio for Different Businesses
35﹪
36﹪
29﹪
Lee Gardens
Retail Hub
21.6%
15.7%
4.7%
5.1%
5.9%
14.2%
12.5%
9.0%
11.3%
Insurance
Professional and Consulting
High-end Retailers
Banking and Finance
Semi-retail
Marketing
Information Technology
Consumer Products
Others
The top four industries in our office portfolio are insurance,
professional and consulting, high-end retailers and banking and
finance. They represent 53.7% of our office lettable floor area, but
no category takes up more than 20% of the total lettable area.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 8
Key Facts
The Hysan Community
A unique work, lifestyle and shopping destination
For more information
on our portfolios
Grade “A”
Offices
Lee Gardens
Retail Hub
Hysan Place
Residential
Lee Theatre
Retail Hub
HYSAN PLACE
BAMBOO
GROVE
Mid-Levels
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
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
Not to scale
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
HENNESSYROADSOGOCROSSHARBOURTUNNELTimesSquareLEE GARDEN ROADHYSAN AVENUELEIGHTON ROADPERCIVAL STREETCENTRALABERDEENTUNNELNORTHPOINTYUN PING ROAD 9
REtAiL PoRtfoLio
officE PoRtfoLio
RESiDENtiAL PoRtfoLio
• Owns, markets and manages
• Owns, markets and manages
approximately 2.1 million gross
square feet of premium office
space
• Our office portfolio is positioned
to be a credible alternative to
Central and Admiralty. It is
perfect for those companies that
want to better manage the
cost-benefit of their office space,
and also care about the work-life
integration of their employees
approximately 1.3 million gross
square feet of prime retail space
• Our retail portfolio consists of three
geographically separate hubs of
retailers at different price points, and 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
• Bamboo Grove in Hong Kong’s
Mid-Levels has a total area of
approximately 0.7 million gross
square feet
• It offers the luxury of a quality
and enriching international living
experience through top class
facilities, one-stop personalised
service, and easy access to work,
school and play
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 food
and beverage as well as luxurious
appliances and furniture offerings.
Approx. Gross Floor Area 80,000 ft2
Number of Floors 24
Completed 1988 / Renovated 2004
LEE THEATRE PLAZA
99 Percival Street, Causeway Bay
Like its predecessor, Lee Theatre,
the Lee Theatre Plaza is a Hong Kong
landmark, being one of the city’s best
known shopping and dining complexes,
housing many stylish and chic
international 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 Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
10
2014 Performance at a Glance
Financial Performance
Turnover
Recurring Underlying Profit
HK$3,224m
5.3%
HK$2,163m
5.9%
Retail Sector
HK$1,801m 7.3﹪
(HK$ million)
2,000
1
0
8
1
,
8
7
6
1
,
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5
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,
9
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7
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7
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Recurring Underlying Profit
HK$2,163m 5.9﹪
(HK$ million)
2,400
3
6
1
2
,
3
4
0
2
,
2
2
6
0 1
1
3
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2,100
1,800
1,500
1,200
900
600
300
0
8
4
1
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,
10
11
12
13
14
10
11
12
13
14
Office Sector
HK$1,136m 4.7﹪
6
3
1
1
,
5
8
0
8 1
0
0 9
2
8
,
(HK$ million)
1,200
1,000
0
7
7
800
600
400
200
0
Recurring Underlying Earnings per Share
HK203.34 cents 5.9﹪
(HK cents)
240
.
4
3
3
0
2
.
0
1
2
9
1
.
3
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210
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120
90
60
30
0
10
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10
11
12
13
14
Residential Sector
HK$287m 4.3﹪
(HK$ million)
350
8
2
3
3
1
3
4
9
2
0
0
3
7
8
2
300
250
200
150
100
50
0
Dividends per Share
HK123 cents 5.1﹪
3
2
1
7
1
1
(HK cents)
128
112
5
9
9
4 7
7
96
80
64
48
32
16
0
10
11
12
13
14
10
11
12
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Cost
11
12
13
14
Valuation Surplus
0
4
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7
6
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3
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(HK$ million)
70,000
60,000
50,000
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0
(HK$ million)
72,000
64,000
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
(HK$)
70
60
50
40
30
20
10
0
Net Asset Value per Share
HK$63.02
5.8%
Property Value
HK$68,735m 5.2﹪
5
3
7
8
6
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2
2
3
5
6
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11
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14
Valuation Surplus
Shareholders’ Funds
HK$67,040m 5.9﹪
0
4
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(HK$ million)
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Net Asset Value per Share
HK$63.02 5.8﹪
2
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11
Financial Prudence
Net Interest Coverage (Note 1)
17.1 times
(2013: 15.4 times)
Net Debt to Equity (Note 2)
4.2﹪
(31 Dec 2013: 5.3%)
Average Finance Costs
3.1﹪
(2013: 2.9%)
Average Debt Maturity
5.6 years
(31 Dec 2013: 6.0 years)
Fixed Rate Debt
76.3﹪
(31 Dec 2013: 68.0%)
Capital Market Issuances
83.0﹪
(31 Dec 2013: 73.5%)
Credit Ratings
Moody’s: A3
Standard and Poor’s: BBB+
Notes:
1 Net Interest Coverage is defined as gross profit less
administrative expenses before depreciation divided by net
interest expenses
2 Net Debt to Equity is defined as borrowings less short-term
investments, time deposits, cash and bank balances divided by
shareholders’ funds
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 12 2014 Performance at a Glance
Non-Financial Performance
Environment
-20.5%
• Reduced Greenhouse Gas
(GHG) emissions by 20.5%
(2005 as baseline)
>60%
• More than 60% of Sunning
Redevelopment Project’s
construction waste recycled
VIVA
• Hysan Place won VIVA
“Best of the Best” Sustainable
Design and Development Award,
organised by the International
Council of Shopping Centers
“AA-”
• “AA-” rating by Hang Seng Corporate
Sustainability Index (Hysan achieved
the highest score of 90.0 among
Hong Kong’s property and
construction companies in the
Environment subject score)
13
Social
• Constituent member of the FTSE4Good
index and Hang Seng Corporate
Sustainability Index
• Awarded 10 Years Plus Caring Company
Logo by the Hong Kong Council of
Social Service
• Gold Award for Volunteer
Service (Organisation) (in
2014) under the Steering
Committee on Promotion of
Volunteer Service of Social
Welfare Department
Governance
• Gold Award (Non-Hang Seng Index
• Bronze Award (General
Large Market Capitalisation
Category) in the Hong Kong
Institute of Certified Public
Accountants’ Best Corporate
Governance Disclosure Awards 2014
Category) in The Hong Kong
Management Association’s
2014 HKMA Best Annual
Reports Awards
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 14 Chairman’s Statement
‘‘
We will continue to create
value through a strategy
of differentiation to
provide a unique and
satisfying experience
(U.S.E.) for our visitors,
shoppers and tenants.
‘‘
Overview
Hong Kong’s economy continued its moderate growth of 2.3% in 2014. Mild improvements
in exports were recorded, supported by stronger U.S. GDP growth. The private consumption
expenditure growth slowed to 2.7% year-on-year.
Softer spending by locals and tourists was reflected in the 0.2% decline in 2014 retail sales,
the first such contraction since 2003. However, with tight labour market conditions, low
unemployment and a buoyant property market, Hong Kong’s consumer spending on items
related more to local consumption remained resilient. Limited supply gave support both to
retail leasing of prime mall spaces in core areas, as well as to the office leasing market.
A number of structural changes which have been evolving over the past few years will
present challenges going forward.
• Despite a year-on-year increase of 16% in Mainland visitors for 2014, spending
patterns have been changing to mid-priced items and goods which are novel and trendy,
yet affordable, due to the official drive to curb luxury gifts giving, compounded by the
slowdown in China’s economic growth
• Current political and social sentiment may diminish Mainlanders’ enthusiasm to visit and
shop in Hong Kong
• “Occupy Movement” had a short-term impact on some retailers. In the long run, concerns
about polarisation of political views and potential future large-scale protests cannot
be ignored
• Comparatively high cost of doing business in terms of resources and manpower will erode
Hong Kong’s competitiveness
15
• Even though e-commerce’s effect on Hong Kong’s brick and mortar retail experience has
been limited, shopping patterns may change when online shopping becomes easier and
more user-friendly
• Intense competition among retail landlords, who are increasing spending on crowd
drawing events, loyalty programmes and upgrading shopping malls
Hysan has been responsive to these developments to Hong Kong’s business environment,
including changes in shopping trends. We have refined and re-positioned our portfolio in
brand identity. The already
recent years, starting with strengthening the
brand represents quality and our commitment for the long term.
familiar
We continue to actively curate our retail and office portfolios’ tenant mix. We are
committed to establishing strong partnerships with our tenants, shoppers and visitors by
understanding their needs and working closely with them. In all, Hysan is dedicated to
providing them with a unique and satisfying experience, which can only be made possible
with our commitment to first class service and continuous asset enhancement, all within
an environment which seamlessly integrates lifestyle, work, play and shopping.
brand, the retail portfolio has been grouped into three hubs,
Under the
each with individual characteristics and price points to attract different clientele. From
premium brands to urban lifestyle offerings and trend-setting must-haves, our diverse yet
balanced hubs cater to the needs of all for every occasion. With Hong Kong people’s
growing appreciation of healthier lifestyles, our portfolio has become home to a number of
sports and leisure names, most prominently in Hysan Place and Leighton Centre. We
augmented our Lee Gardens Two renowned kids’ floor with toys and widened our children’s
product offerings. We launched a user-friendly state of the art app for our Club Avenue V.I.P.
clients to enter reward points, check on their spending rewards, and showcase Lee Gardens
offers through a few easy swipes on their mobile devices. Apart from the shops, our food
and beverage offerings were refined and significantly strengthened with some new to Hong
Kong eateries. These include our very own Seasons, where we partnered celebrity chef Olivier
Elzer to showcase French fare with a difference.
All these were complemented by placemaking activities hosted by Hysan or in partnership
with other stakeholders. Many eye-catching displays, from Marvel’s Captain America to our
Make a Wish Christmas baubles, dominated the Causeway Bay landscape and delighted
shoppers and visitors. Our “Leeisure” campaign highlighted our beautiful tree-lined
surroundings where modern high-rises meet historic old Hong Kong, inspiring phrases like
“Pace of Life” and “Business of Life”.
The Lee Theatre hub and Hysan Place have been well-placed to capture shoppers’
gravitation towards mid-priced spending. This is evidenced by the daily shopper traffic
figures that registered amongst the highest levels ever in the last quarter of the year,
despite the “Occupy Movement”.
In all, estimated retail sales within Hysan’s portfolio increased by 22% when compared to
the year before, a pleasing contrast to a 0.2% decline for Hong Kong’s overall retail sales
during the same period.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 16
Chairman’s Statement
For our office portfolio, we saw strong demand from a diverse group of international and
local firms, from insurance, banking and professional services, to high-end retailers and
technology companies, as evidenced by a 98% occupancy rate. In 2014, around 35% of
our office portfolio’s newly-let office space was taken up by tenants relocating from Central
and Admiralty. Lee Gardens, with its value proposition and its attractive work life integration,
has established itself as a strong credible alternative to Central. In this regard, we have
begun receiving a significant number of enquiries about our combined Sunning site
redevelopment project. The mixed-use building’s construction work is progressing smoothly
and is on schedule for an early 2018 completion.
To further highlight Lee Garden’s heritage and distinct character, Hysan will bring all the
brand name.
buildings in the eastern part of Hysan’s portfolio under the
We are proud of our long history and we will strive to develop Lee Gardens as a sustainable
community in the years to come.
Up on Hong Kong Island’s coveted residential neighbourhood of Mid-Levels, our
residential Bamboo Grove complex remains a favourite home, or home away from home,
for its predominantly international community. We will continue to refine our renowned
five-star service for Bamboo Grove, which is set in its open, tranquil and evergreen setting,
minutes away from what Hong Kong can best offer in terms of transport, workplace, shops
and schools.
Hysan Place was again recognised for its efforts in sustainability with the coveted
International Council of Shopping Center’s VIVA Best of the Best Sustainable Development
Award in 2014, one of only five VIVA winners worldwide. Hysan Place has become a regular
stop on all Hong Kong sustainable building visit agenda.
Business Performance
The Group’s 2014 turnover was HK$3,224 million, up 5.3% from HK$3,063 million
in 2013. Excluding the revenue attributable to Sunning Plaza and Sunning Court
(under redevelopment) in both years, the turnover would have increased by 9.2% (2013:
HK$2,952 million). At year-end 2014, our retail portfolio was fully-let. Occupancy of our
office and residential portfolios stood at 98% and 97% respectively.
Recurring Underlying Profit, the key measurement of our core leasing business performance,
was up 5.9% to HK$2,163 million (2013: HK$2,043 million). This reflected 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$2,163 million (2013: HK$2,043 million). Basic earnings per share based on Recurring
Underlying Profit correspondingly rose to HK203.34 cents (2013: HK192.10 cents), up 5.9%.
Our Reported Profit for 2014 was HK$4,902 million (2013: HK$6,158 million), reflecting a
smaller fair value gain on the Group’s investment properties valuation recorded this year.
At year-end 2014, the external valuation of the Group’s investment property portfolio
increased by 5.2% to HK$68,735 million (2013: HK$65,322 million), reflecting improved
17
rentals for our portfolio. Shareholders’ Fund increased by 5.9% to HK$67,040 million (2013:
HK$63,326 million).
Our financial position remains strong, with net interest coverage of 17.1 times (2013: 15.4
times) and net debt to equity ratio of 4.2% (2013: 5.3%).
Dividends
The Board of Directors (the “Board”) is pleased to declare a second interim dividend of
HK100 cents per share (2013: HK95 cents). Together with the first interim dividend of
HK23 cents per share (2013: HK22 cents), there is an aggregate distribution of HK123 cents
per share (2013: HK117 cents), representing a year-on-year increase of 5.1%. The dividend
will be payable in cash.
Outlook
We expect the Hong Kong economy will continue to achieve modest growth which is
affected by global headwind and normalised consumption growth locally. Hysan expects
steady performance from our portfolio. We will continue to create value through a strategy
of differentiation to provide a unique and satisfying experience (U.S.E.) for our visitors,
shoppers and tenants.
With a strong balance sheet, proven financial discipline and a record for value creation,
Hysan is now well-positioned to seek opportunities beyond our core portfolio in
Causeway Bay.
Appreciation
On behalf of the Board, I would like to thank our management team and colleagues for
their diligent work during the year. I would also like to thank my fellow directors for their
guidance and commitment throughout 2014. As part of our efforts to refresh and
further strengthen our Board, we welcome Professor Lawrence Juen-Yee Lau as our new
Independent non-executive Director. Professor Lau is best known as the former Chinese
University Vice-Chancellor (President), but is also a renowned expert on economic
development and growth in East Asia, including China. Professor Lau should be able to
further enrich our Board with his wealth of expertise.
Irene Yun Lien LEE
Chairman
Hong Kong, 11 March 2015
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 18
This section focuses first on the
Hong Kong economic and property
market dynamics in 2014. We then
provide details on how we responded
to the changing macro-environment,
with an analysis of our operations, our
finance, and how we managed risks.
Financial
Performance
19
20
Feature Stories: Creating a Unique and
Satisfying Experience (U.S.E.) for All
24 The Marketplace
28 Management’s Discussion
and Analysis
28
Strategy and Review of Results
29 Review of Operations
34
Financial Review
37 Treasury Policy
42
Internal Controls and
Risk Management Report
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
20
Feature Stories: Creating a Unique and Satisfying Experience (U.S.E.) for All
Retail –
A total shopping
experience
Hysan strives to provide a “unique
and satisfying experience” to our
clients, and none more so than to
those who come to shop. Our Club
Avenue is renowned for providing
personal service and offerings for
Lee Gardens’ VIPs. This is now
enhanced by “Mobile App for
Club Avenue”, a state-of-the-art app
which allows members to handle
Club activities with a few swipes
on screens.
“I really appreciate the thoughts your
colleagues put into the app design,”
says Karen Liu. “You care about the
users’ experience. Now it is so easy
for me to monitor my points earned
and Lee Gardens’ news.” “Technology
is one thing, of course, but Lee
Gardens’ service and the whole
ambience really makes this place the
best in Hong Kong to shop and
unwind. I come all the way from
Kowloon to shop all the time!”
Karen Liu
Lee Gardens Club Avenue member
“ Love the shops,
appreciate the service.”
For more stories on “Experience Hysan”
21
Smiley faces, LINE characters, towering Captain
Tsubasa footballers and legendary Captain America:
Hysan’s placemaking events all made their mark in
our 2014 collective memory. But it was the Xmas
baubles which truly captivated the public’s attention,
combining elements of upcycling, beautifully-
designed limited edition decorative items, a special
festive café, and unique performances.
“The events at your malls are full of surprises!” says
Corinne Cook. “For this Christmas event, you can feel
the atmosphere all over the Lee Gardens. I particularly
like the thoughts behind the upcycled Xmas baubles.
Both my boy and I love the fact that we are
contributing to help the environment while we shop.”
Retail – Awe-inspiring
placemaking
Corinne Cook
Lee Gardens shopper
“ Your events
are meaningful
and full of
surprises!”
Hysan Annual Report 2014 22
Feature Stories: Creating a Unique and Satisfying Experience (U.S.E.) for All
Office – Seamless
work life integration
Causeway Bay has it all. Shops that open till late;
restaurants that come in an amazing variety; health
clubs to stay fit, and transportation that takes you
everywhere in terms of minutes. On top of it all,
offices in the Lee Gardens district provide some of
the most up-to-date facilities and efficient spaces to
make work just that much more enjoyable.
“It’s a privilege to work in a city centre location,
especially somewhere like Lee Gardens district,” says
Mina Chung. “There are so many different types of
shops at every corner: from trendy clothing stores to
a cultural oasis full of books. The restaurants around
here serving a variety of cuisines are simply
amazing. On top of that, even when we work late,
the transportation network is so good we are spoilt
for choice. Did I even mention getting on the Hysan
Place rooftop to get in touch with nature at the
Urban Farm?”
Mina Chung
Assistant Manager
KPMG China
“ Lee Gardens district is a
perfect office venue!”
23
Our residential project, Bamboo Grove,
is renowned for its international living
experience, its community spirit, as well as
the high quality service provided by Hysan’s
ever-helpful staff members.
“We have made friends from all over the world
on the Bamboo Grove podium, at the pool,
in the playrooms and at some of the brilliant
social events,” says Sally Doe. “The staff is a
large part of why we enjoy living here. We love
seeing staff members at the various theme
days such as Chinese New Year, Christmas and
Halloween, as they really enjoy themselves
while helping everyone to have a good time.
My children will take home lots of happy
memories from Bamboo Grove.”
Residential –
Vibrant international
community
Sally Doe
Bamboo Grove resident
“ My children will take home lots
of happy memories from here!”
Hysan Annual Report 2014 24 The Marketplace
Hong Kong Economy
The Hong Kong economy recorded growth of 2.3% for the full year. Private consumption
maintained moderate growth of 2.7% under low level of unemployment while investment
expenditure was soft and contracted 0.3%. Exports of goods slightly grew by 1.0% and
exports of services by 0.5% due to the weakening Eurozone, Japan and China economies
and despite a resilient recovery in the U.S.
Real Gross Domestic Product*
Year-on-year % change
6.8%
4.8%
8
6
4
2
0
2.9%
1.5%
10
11
* In chained (2012) dollars
Source: Census and Statistics Department (data as of March 2015)
13
12
2.3%
14
Retail
Retail sales recorded an annual decline of 0.2% as compared to the previous year.
During the year, sales in the luxury sector experienced a notable drop. Most other categories,
including mid-priced and basic products, recorded a moderate growth. In addition, robust
sales of new launches of electronic goods and computers were recorded since the third
quarter of the year. However, these were not able to reverse the overall negative trend.
For Hysan’s response,
see “Retail Portfolio”
(page 30)
Despite an increase of 16.0% in Mainland China visitors for the whole year, structural
changes in the Mainland tourists’ spending patterns from luxury to mid-priced and basic
products was seen as reflected by the slower growth in per visitor spending.
Retail categories that recorded a year-on-year growth included i) other consumer durable
goods (up 19.4%, which included electronic goods and computers), ii) medicines and
cosmetics (up 9.3%), iii) food, alcoholic drinks and tobacco (up 6.6%), iv) clothing, footwear
and allied products (up 4.1%). By contrast, jewelry, watches and clocks and valuable gifts
recorded a decrease (down 13.7%).
25
Categories
Mainly mid-priced and
basic products
Other consumer durable goods
(included electronic goods and computers)
2014 growth rate
+19.4%
Medicines and cosmetics
Food, alcoholic drinks and tobacco
Clothing, footwear and allied products
+9.3%
+6.6%
+4.1%
Higher-priced products
Jewelry, watches and clocks, valuable gifts
-13.7%
Source: Census and Statistics Department (data as of March 2015)
Hong Kong Total Retail Sales
HK$ billion
Year-on-year
% change
493
Total Number of Visitors
Million
406
24.9%
325
18.3%
494
445
11.0%
9.8%
500
450
400
350
300
250
200
150
100
50
0
10
11
Total Retail Sales
12
13
Year-on-year % change
-0.2%
14
36
32
28
24
20
16
12
8
4
0
-4
70
60
50
40
30
20
10
0
61
22.3%
77.7%
54
25.0%
75.0%
49
28.2%
71.8%
42
33.0%
67.0%
36
37.0%
63.0%
10
11
Number of Other Visitors
12
Number of Mainland China Visitors
13
14
Source: Census and Statistics Department (data as of March 2015)
Source: Hong Kong Tourism Board (data as of March 2015)
According to Jones Lang LaSalle, rents for retail premises in prime shopping centres
were able to grow mildly at around 1% for the whole year under flattish retail sales
performance, largely due to sustained leasing demand from local and international retailers
together with limited supply pipeline. There was only one major prime retail development
(totaling around 66,000 square feet) completed in 2014.
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
12
14
11
13
10
Source: Jones Lang LaSalle (data as of March 2015)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 26
The Marketplace
Office
Amidst a divergent external environment, Grade “A” office market showed some
improvement. Leasing demand in Central was driven by both financial and non-financial
firms, including those from Mainland China. Multinational corporate tenants continued to
opt for decentralisation due to cost-saving considerations, although the pace has slowed
down compared to recent years.
According to Jones Lang LaSalle, new Grade “A” office supply totaled 1.0 million square feet
in 2014, with all of the space located in decentralised areas. Moreover, the new supply level
was far lower than the average for the last 10 years (1.8 million square feet), and also lower
than the average annual take-up (1.9 million square feet) of the same period.
As at the end of December 2014, all districts recorded a decline in vacancy rate due to
improved demand.
Among the Grade “A” office sub-markets, Central rents rose by 2.7%, Kowloon East
remained stable and Causeway Bay/Wanchai recorded an annual rental growth of 1.6%.
For Hysan’s response,
see “Office Portfolio”
(page 32)
Grade “A” Office Vacancy Rate in 2013 and 2014
Grade “A” Office Rental Value
%
10
8
6
4
2
0
7.8%
6.4%
4.6%
3.7%
3.0%
2.7%
3.2%
1.1%
1.6%
1.3%
Central
Causeway Bay/
Wanchai
Tsim Sha Tsui
Hong Kong
East
Kowloon East
HK$ per Square Foot
110
100
90
80
70
60
50
40
30
20
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
12
11
10
13
14
2013 year-end
2014 year-end
Source: Jones Lang LaSalle (data as of March 2015)
Central
Causeway Bay/Wanchai
Source: Jones Lang LaSalle (data as of March 2015)
27
For Hysan’s response,
see “Residential Portfolio”
(page 33)
Luxury Residential
Leasing demand for the luxury residential market remained low for the year as a result of
lackluster expatriate hiring and tight housing budgets in the financial sector which is
traditionally the biggest tenant group.
During the first half of the year, the market was generally quiet. Activity in the second half
slightly picked up, mainly in the lower-end market generated from the arrival of junior and
middle management level expatriates. However, the top-end market remained muted with
limited activity.
According to Jones Lang LaSalle, overall luxury residential rents further decreased 4.1% in
2014 compared to a drop of 3.3% in 2013.
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
12
13
11
10
14
Source: Jones Lang LaSalle (data as of March 2015)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 28 Management’s Discussion and Analysis
The aggregate gross floor area attributable to the Group was approximately 4.1 million
square feet of high-quality retail, office and residential investment properties in Hong Kong,
excluding Sunning Plaza and Sunning Court, which are currently under redevelopment.
Strategy
The Group has always strived to bring steady and risk-adjusted return to its shareholders.
Without increasing the total gross floor area of its overall investment portfolio in the
last few years, the Group worked to increase the yield of its existing space through the
re-positioning of its office, retail and residential portfolio, and complemented by
corresponding redevelopment and asset enhancement projects.
The Group believes that its core Causeway Bay portfolio continues to provide great
opportunities for value creation and will ensure we focus our main efforts there to bring
about further changes.
Review of Results
The Group’s turnover was HK$3,224 million in 2014, representing an increase of 5.3%
from HK$3,063 million in 2013. Excluding Sunning Plaza and Sunning Court (currently
under redevelopment) in both years, the like-for-like turnover would have increased by 9.2%
(2013: HK$2,952 million). The rise principally reflected the further improvement in
occupancy and positive rental reversion. The turnover of each sector is shown as below:
For principal risks we face,
see “Internal Controls and
Risk Management Report”
(page 47)
Retail sector
Office sector
Residential sector
2014
HK$ million
2013
HK$ million
Change
%
1,801
1,136
287
3,224
1,678
1,085
300
3,063
+7.3
+4.7
-4.3
+5.3
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) was HK$2,163 million, up 5.9% from HK$2,043 million in 2013.
Our Underlying Profit, arrived at by excluding the fair value change of investment properties,
was also HK$2,163 million (2013: HK$2,043 million). The performance of these two profit
indicators primarily reflected the continued improvement in gross profit generated from our
core leasing activities. Basic earnings per share based on Recurring Underlying Profit was
HK203.34 cents (2013: HK192.10 cents), up 5.9%.
Our Reported Profit for 2014 was HK$4,902 million (2013: HK$6,158 million) down by
20.4% and reflecting a smaller fair value gain on the Group’s investment properties
valuation recorded this year.
For our human resources
strategy to support growth,
see “Responsible Business”
section
(page 64)
Recurring Underlying Profit
Underlying Profit
Fair value change on
investment properties located in
– Hong Kong
– Shanghai*
Reported Profit
* The investment properties are held by an associate of the Group.
2014
HK$ million
2013
HK$ million
2,163
2,163
2,732
7
4,902
2,043
2,043
4,043
72
6,158
Change
%
+5.9
+5.9
-32.4
-90.3
-20.4
29
Review of Operations
As at 31 December 2014, about 83% of the Group’s investment properties by gross floor
area were retail and office properties in Causeway Bay, and the remaining 17% was
residential. In terms of turnover contribution by the different portfolios, about 56% was
attributable to the retail portfolio, while 35% and 9% derived from the office and the
residential portfolios respectively.
Turnover: both the retail and office portfolios saw healthy turnover growth in 2014 of
7.3% and 4.7% respectively. These successfully offset the loss of turnover attributable
to properties under redevelopment.
Occupancy: retail was fully-let (2013: 96%), and office occupancy remained strong at
98% (2013: 98%) while housing a well-balanced group of international and local blue
chip tenants. Residential occupancy improved to 97% (2013: 92%), amidst a generally
weak market environment, with turnover dropping 4.3% in 2014.
Property expenses ratio (as a percentage of turnover): improved to 12.5% in 2014
(2013: 13.2%) as a result of the healthy organic growth of turnover.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 30
Management’s Discussion and Analysis
For market environment,
see “The Marketplace”
(page 24)
For risk management, and
other principal risks we face,
see “Internal Controls and Risk
Management Report”
(page 47)
Retail PoRtfolio
Hysan’s retail portfolio turnover grew 7.3% to HK$1,801 million (2013: HK$1,678 million),
including turnover rent of HK$93 million (2013: HK$106 million). Lower turnover rent
reflects the Group’s strategy of increasing the base rent over the last two years, as a
response to its anticipation of the normalisation of retail sales growth. On a like-for-like
basis excluding Sunning Plaza in both years, the turnover would have increased by 8.5%
(2013: HK$1,660 million), reflecting healthy organic growth.
There were positive rental reversions in rental renewals, reviews and new lettings with an
average increase of around 50%, driven by our asset enhancement at Lee Gardens Two,
and further refinement of tenant mix. However, a relatively small portion (18%) of leases
was due for renewal and rent review in 2014.
Excluding Sunning Plaza, the portfolio was fully-let as at 31 December 2014 (31 December
2013: 96%, with Sunning Plaza already vacated). The improvement was due to the
completion of Lee Gardens Two’s enhancement programme.
Visitors’ traffic to our buildings saw healthy growth, about 10% over last year. For the
festive period of December 2014, footfall numbered around 170,000 per day. The growth
can be attributed to footfall increases in Lee Theatre hub and Hysan Place, while Lee
Gardens hub was steady. The newly renovated and repositioned Lee Theatre Plaza has been
drawing bigger crowds, as expected, with its lower price points and offerings, at a time when
the market has begun to see shifts in consumer spending patterns. Footfall there increased
by around 40% as compared to 2013. Hysan Place, with its cool architecture, iconic retailers
like Apple Store and eslite, as well as stand-out features like the Urban Farm, continued to
attract a faithful group of followers who appreciate something different to the ordinary
shopping mall.
Our strategy of creating a diversified and distinct retail portfolio, with shops and restaurants
of different price points and style, catering for shoppers from different segments of the
community, as well as overseas visitors, paid off. This success was further complemented by
our
received events.
area branding, which includes hosting a range of popular and well-
31
As a result, the estimated overall tenant sales within the retail portfolio improved by around
22% as compared to 2013, substantially outperforming Hong Kong’s overall retail sales
which showed a 0.2% decline.
Among our three retail hubs, Hysan Place showed double-digit percentage growth in tenant
sales, and is now a renowned gathering place for the younger crowd. It was the main site
for our 2014 placemaking events like Captain America, Captain Tsubasa x Adidas, Line and
Smiley World, all of which helped to enhance the shopping destination’s hip and
trendy image.
Lee Gardens hub experienced positive rental reversions, but its estimated tenant sales were
slightly lower than last year, which was principally attributable to the life cycles and
distribution strategies of a few brands. Lee Gardens Two saw the completion of an asset
enhancement project and the addition of Ralph Lauren’s store for men’s and women’s
fashion. The building is now also home to an additional half floor of children’s stores,
complementing the existing floor of successful shops for youngsters. Furthermore, Seasons
by Olivier E., where Hysan partnered top chef Olivier Elzer to present classical French cuisine
with a modern Asian twist, received a Michelin star within six months of its opening.
Lee Theatre hub’s flagship stores were the driving force behind the double-digit percentage
increase in estimated tenant sales growth in 2014. Lee Theatre Plaza’s lower zone stores
were particularly popular, complemented by a number of well-received new restaurants,
like Putien and Paradise Dynasty.
For corporate social
responsibility efforts
in marketing,
see “Responsible Business”
(page 51)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 32 Management’s Discussion and Analysis
office PoRtfolio
Hysan’s office portfolio turnover grew by 4.7% in 2014 to HK$1,136 million (2013: HK$1,085 million).
On a like-for-like basis excluding Sunning Plaza in both years, the turnover would have been a healthy
organic increase of 12.5% (2013: HK$1,010 million). This reflected Hysan Place’s full occupancy effect,
as well as positive rental reversions on renewals, reviews and new lettings in other buildings, with an
average rental increase of around 17%. These offset the redevelopment impact of Sunning Plaza,
which was completely vacated by the end of 2013.
Excluding Sunning Plaza, the office portfolio’s occupancy was 98% as at 31 December 2014
(31 December 2013: 98%, with Sunning Plaza vacated since year-end).
The portfolio is home to a well-balanced group of international and local blue chip tenants, with the top
four industries being insurance, professional and consulting, high-end retailers and banking and finance.
They represented 53.7% of our office lettable floor area, but no category took up more than 20% of the
total lettable area. The chart below illustrates the office portfolio tenant profile as analysed by area occupied:
For market
environment, see
“The Marketplace”
(page 26)
For risk management,
and other principal
risks we face, see
“Internal Controls and
Risk Management
Report”
(page 47)
Office Tenant Profile by Area Occupied as at Year-end
21.6%
15.7%
19.8%
16.0%
4.7%
5.1%
5.9%
2014
14.2%
12.5%
9.0%
11.3%
5.2%
5.5%
5.9%
2013
13.8%
12.6%
9.1%
12.1%
Insurance
Professional and Consulting
High-end Retailers
Banking and Finance
Semi-retail
Marketing
Information Technology
Consumer Products
Others
Among the well-known tenants from these industries are AIA, Gucci, KPMG, Manulife, National Australia
Bank and Sun Hung Kai Financial. Through our active marketing, the portfolio continues to be seen as a
credible alternative to Central and Admiralty offices. Commerzbank, Germany’s second largest bank, will
move its Hong Kong headquarters into Hysan’s office portfolio in the first half of 2015. Moreover, with
excellent amenities in the neighbourhood which provide quality service throughout the day, our offices
are also popular with renowned technology companies, with Apple, LinkedIn, Oracle and Yahoo among
those setting up offices in Lee Gardens.
33
Residential PoRtfolio
Our residential portfolio’s revenue declined slightly by 4.3% to HK$287 million
(2013: HK$300 million). On a like-for-like basis excluding Sunning Court in both years, the
turnover would have seen an increase of 1.8% (2013: HK$282 million). The performance
reflected the success of our occupancy optimising strategy, against a generally weak
market environment.
Excluding Sunning Court, the residential occupancy was 97% as at 31 December 2014
(31 December 2013: 92%, with Sunning Court being substantially vacated).
The tenant base for Bamboo Grove has now been broadened beyond the traditional
financial fields in light of weakened demand in recent years. Hysan is continuing to
strengthen its marketing efforts, as well as enhancing its tenant relationships and
services provided.
For market environment,
see “The Marketplace”
(page 27)
For risk management, and
other principal risks we face,
see “Internal Controls and Risk
Management Report”
(page 47)
sunning RedeveloPment
After the successful completion of the demolition work for Sunning Plaza and Sunning Court,
piling, excavation and other foundation works commenced in the third quarter of 2014, and
will be completed by early 2016. The project is on schedule for its anticipated completion
around 2018.
asset enhancement PRoject
The Lee Gardens One ground floor lobby and higher floors retail space enhancement project
began on schedule in the fourth quarter of 2014. The project will improve the accessibility
and circulation of the office and retail areas, and create new shop space and retail offerings.
A new space of 6,500 sq. ft. has been preleased to Valentino for a flagship store to be open
in Q3 2016. The first phase construction work, revamping the office lobby and adding
elevators, is on schedule for its target completion in the third quarter of 2015. The entire
project is scheduled to be completed in the second half of 2016.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 34 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 (direct costs and
front-line staff wages and benefits) and administrative expenses (indirect costs largely
representing payroll related costs of management and head office staff).
Property expenses were broadly the same, at HK$404 million (2013: HK$405 million).
Improved occupancy led to reduced agency fees and government rates payable by the
landlord, setting off increased repairs and maintenance costs and revenue-generating
promotion expenses. Coupled with an increase in rental income, the property expenses to
turnover ratio decreased from 13.2% to 12.5% as compared to 2013.
Administrative expenses rose by 2.9% to HK$214 million (2013: HK$208 million). This
reflected our increased investment in human capital and technology applications.
finance costs
Finance costs reduced by 5.8% to HK$228 million (2013: HK$242 million) in 2014. The
decrease was attributable to the lower average debt level in 2014 as compared to 2013
after repayment of around HK$900 million bank loans and HK$200 million floating rate
notes during the year. As these floating rate debts generally carried lower finance costs
compared with fixed rate debts, the Group’s average finance costs in 2014 were 3.1%,
slightly higher than 2.9% reported for 2013.
Further discussion of the Group’s treasury policy, including debt and interest rate
management, is set out in the “Treasury Policy” section.
Revaluation of investment PRoPeRties
The Group’s investment property portfolio was valued at 31 December 2014 by Knight
Frank Petty Limited, an independent professional valuer, on the basis of open market value.
The amount of this valuation was HK$68,735 million, an increase of 5.2% from HK$65,322
million at 31 December 2013. The valuation at year-end 2014 principally reflected improved
rental rates for the Group’s investment property portfolio. The following shows the property
valuation of each portfolio at year-end.
Retail
Office
Residential
Sunning Plaza and Sunning Court1
Property under redevelopment2
* n/m – not meaningful
2014
HK$ million
2013
HK$ million
Change
%
34,313
22,684
7,718
–
4,020
68,735
32,234
21,949
7,716
3,423
–
65,322
+6.4
+3.3
n/m
n/m
n/m
+5.2
1 2013 valuation figures of Sunning Plaza and Sunning Court have been reclassified from Retail, Office and Residential to
conform to current year presentation. Upon the commencement of the redevelopment of Sunning Plaza and Sunning Court
in 2014, its valuation is classified as and disclosed under “property under redevelopment”.
2 Property under redevelopment is valued at site value plus construction costs expended up to date.
For Treasury Policy, see
“Treasury Policy”
(page 37)
35
Fair value gain on investment properties (excluding capital expenditure spent on the
Group’s investment properties) of HK$2,940 million (2013: HK$4,575 million) was
recognised in the Group’s consolidated income statement for the year.
investments in associates
The Group’s share of results of associates decreased by 18.4% to HK$252 million
(2013: HK$309 million), principally due to a smaller revaluation gain of the Shanghai
Grand Gateway project, of which the Group owns 24.7%, as compared to last year. At
31 December 2014, 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$7 million
(2013: HK$72 million).
The Shanghai Grand Gateway project continued to deliver a good performance in 2014.
The Group’s share of results, excluding revaluation gain on investment properties held by
the associate, recorded a 3.4% increase year-on-year. As at the end of 2014, the retail units
were virtually fully-let while around 98% occupancy was achieved for office units.
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
for higher yields.
Investment income, comprising mainly of interest income, amounted to HK$68 million
(2013: HK$76 million). Although the average investment yields improved for 2014, the
increase yields were partially offset by the exchange loss arisen from time deposits and term
notes denominated in Renminbi.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 36 Management’s Discussion and Analysis
cash flow
Cash flow of the Group during the year is summarised below.
Operating cash inflow
Investments
Financing
Capital expenditure
Interest and taxation
Dividends paid and proceeds on exercise of
options
Net cash outflow
* n/m – not meaningful
2014
HK$ million
2013
HK$ million
2,712
750
(1,114)
(591)
(439)
(1,363)
(45)
2,498
(2,236)
1,607
(704)
(350)
(1,157)
(342)
Change
%
+8.6
n/m
n/m
-16.1
+25.4
+17.8
-86.8
The Group reported operating cash inflow of HK$2,712 million (2013: HK$2,498 million) in
2014, reflecting the growth in our core leasing business. Net cash from investments was
HK$750 million (2013: net cash used in investments: HK$2,236 million), mainly attributable
to reduction in investments in term notes and time deposits with longer tenors, and dividend
income received from an associate during the year. In 2013, net cash used in investments
was HK$2,236 million, of which the majority were time deposits with longer tenors.
Net cash used in financing was HK$1,114 million (2013: net cash from financing:
HK$1,607 million), principally reflecting the repayment of around HK$900 million bank loans
and HK$200 million floating rate notes during the year. In 2013, net cash from financing
was HK$1,607 million, mainly due to the new borrowings of 10-year US$300 million fixed
rate notes.
caPital exPendituRe and management
The Group is committed to enhancing the asset value of its investment property portfolio
through selective asset enhancement 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 during the year was HK$591 million (2013: HK$704 million).
For internal controls,
see “Internal Controls and
Risk Management Report”
(page 45)
37
For key performance
indicators, see “2014
Performance at a Glance”
(page 10)
Treasury Policy
maRket highlights
Divergent economic growth and prospects were the major characteristics of the leading
global economies in 2014. While the U.S. progressed with a moderate pace of economic
growth, Japan and the Euro zone recorded a weaker performance. The Chinese economic
growth decelerated in 2014 due to structural economic reform and slowdown in real estate
investment. Accordingly, different monetary policies were adopted in different countries.
The U.S. Federal Reserve ended its asset purchase program during the year. However, central
banks of Japan and the Euro zone adopted relaxing monetary policies. China also reduced its
benchmark lending and deposit rates in the fourth quarter of 2014. The long-term interest
rate of the U.S. Treasuries dropped noticeably in the year due to the uncertain outlook for
global economic growth and increasing global deflationary pressure. In the longer term,
the market is still expecting an increase in the US benchmark interest rate in 2015.
debt management
The debt capital markets remained active in 2014 and continued to be flushed with liquidity.
As the Group issued a 10-year US$300 million fixed rate notes with coupon at 3.5% in
January 2013 under the Medium Term Notes Programme to build up funds for future use,
the Group had no funding requirement to issue debt in the capital market again in 2014.
On the other hand, the Group repaid around HK$900 million bank loans and HK$200 million
floating rate notes during the year upon their maturities. No refinancing was arranged
during the year in the light of ample cash and bank deposits on hand, equivalent to
HK$3,640 million as at end of 2014 (2013: HK$4,123 million).
Net Debt to Equity ratio1 reduced from 5.3% to 4.2% as at 31 December 2014, mainly due
to debt repayment. The Group’s Net Interest Coverage2 also improved to 17.1 times for
2014 (2013: 15.4 times) as cash inflow from business further strengthened. The low gearing
and strong ability to meet interest payments underscored the Group’s strong ability to raise
further debt in case of need.
The graph below shows the level of leverage and our ability to meet interest payment
obligations in the past five years.
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%
16.8x
15.4x
17.1x
6.2%
5.3%
4.2%
10
Net Debt to Equity
11
12
13
14
Net Interest Coverage (times)
Times
18
16
14
12
10
8
6
4
2
0
1 Net Debt to Equity is defined as borrowings less short-term investments, time deposits, cash and bank balances divided by
shareholders’ funds
2 Net Interest Coverage is defined as gross profit less administrative expense before depreciation divided by net interest
expenses
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 38 Management’s Discussion and Analysis
The Group always strives to lower its borrowing margin, to diversify its funding sources
and to maintain a suitable maturity profile relative to the overall use of funds. As at
31 December 2014, the outstanding gross debt1 of the Group was HK$6,457 million
(2013: HK$7,540 million), a decrease of HK$1,083 million compared with 2013 as a result
of net repayment of around HK$1,100 million of debt during the year. All the outstanding
borrowings are on an unsecured basis.
At year-end of 2014, about 83.0% (2013: 73.5%) of the Group’s outstanding gross debts
were sourced from the capital market with the remaining from banking facilities. The Group
continued to maintain long-term relationships with a number of local and overseas banks in
order to diversify its funding sources. At year-end of 2014, eight local and overseas banks
had provided bilateral banking facilities to the Group as funding alternatives.
The following graph shows the percentages of total outstanding gross debts sourced from
banks and the debt capital markets in the past five years.
Sources of Financing at Year-end
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
56.9%
54.2%
43.1%
45.8%
73.5%
26.5%
70.3%
29.7%
10
Bilateral Bank Loans
11
12
13
Capital Market Issuances
83.0%
17.0%
14
The Group also strives to maintain an appropriate maturity profile. As at 31 December
2014, the average maturity of the debt portfolio was about 5.6 years (2013: 6.0 years), of
which about HK$1,581 million or 24.5% of the outstanding gross debt will be due not
exceeding one year. Given that the Group has cash and bank deposits of around HK$3,640
million, the Group is able to meet its debt repayment schedule in 2015 without much
refinancing pressure.
1 The gross debt represents the contractual principal payment obligations at 31 December 2014. 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
2014, the book value of the outstanding debt of the Group was HK$6,447 million (31 December 2013: HK$7,504 million).
39
The graph below shows the debt maturity profile of the Group at 2014 and 2013 year-end.
Debt Maturity Profile at 2014 and 2013 Year-end
2014
1,581
250 450
4,176
2013
1,100
1,250 400
4,790
0
1,000
2,000
3,000
4,000
5,000
6,000
8,000
Gross Debt Amount (HK$ 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
liquidity management
Recurring cash flows from our business continued to remain steady and strong. Accordingly,
the Group maintained investment-grade credit ratings of A3 as rated by Moody’s and BBB+
as rated by Standard and Poor’s.
As at 31 December 2014, the Group had cash and bank deposits totalling about HK$3,640
million (2013: HK$4,123 million). The decrease in deposits was mainly resulted from debt
repayment. 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$1,285 million (2013: HK$1,360 million) in debt
securities and principal-protected investments.
Further liquidity, if needed, is available from the undrawn committed facilities offered by
the Group’s relationship banks. These facilities, which amounted to HK$1,200 million at
year-end 2014 (2013: HK$900 million), essentially allow the Group to obtain additional
liquidity as the need arises.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business7,5406,457 40 Management’s Discussion and Analysis
inteRest Rate management
Appropriate hedging strategies are adopted to manage exposure to projected movements
in the interest rate. During the year, the 3-month Hong Kong Inter-bank Offered Rate
(“HIBOR”) remained low and was in a range bounded between 0.36% and 0.40%.
As a result of repayment of around HK$1,100 million floating rate debt that generally
carried a lower finance cost compared with fixed rate debts, the average cost of financing
increased to 3.1% in 2014 compared to 2.9% in 2013. The fixed debt ratio also increased
to 76.3% at year-end of 2014 from 68.0% at year-end of 2013.
As the Group believes that interest rates will rise in coming few years, we expect the higher
proportion of fixed rate debt will reduce the overall interest rate exposures.
The diagram below shows the fixed rate debt and floating rate debt portions in the past
five years.
Fixed Rate Debt and Floating Rate Debt Portions
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
53.6%
46.4%
10
Fixed rate debt
Floating rate debt
54.8%
47.0%
45.2%
53.0%
32.0%
68.0%
23.7%
76.3%
11
12
13
14
The diagram below shows the Group’s debt levels and average finance costs in the past five
years.
Debt Levels and Average Finance Costs
HK$ million
6,610
5,899
7,540
6,457
4,540
2,547
2.7%
3,649
3,588
3,417
2.7%
2.7%
2.9%
2,817
3.1%
%
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
10
11
Year-end Gross Debt
12
13
Year-end Net Debt
(Gross debt less short-term investments,
time deposits, cash and bank balances)
14
Average Finance Costs
0.0
41
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 US$300 million fixed rate notes,
which have been hedged by an appropriate hedging instrument, all of the Group’s other
borrowings were denominated in Hong Kong dollars. For the 10-year US$300 million fixed
rate notes issued in January 2013, hedge was entered to effectively convert the borrowing
into Hong Kong dollars. For the foreign exchange exposure on the investment side, the
Group’s outstanding balances in cash, time deposits, and debt securities amounted to
US$94 million and RMB800 million, of which US$66 million and RMB665 million were
hedged by foreign exchange forward contracts. Other foreign exchange exposure mainly
relates to investments in the Shanghai project. These unhedged foreign exchange exposures
amounted to the equivalent of HK$4,154 million (2013: HK$4,181 million) or 5.3%
(2013: 5.5%) of total assets.
use of deRivatives
As at 31 December 2014, outstanding derivatives were mainly related to the hedging of
interest rate and foreign exchange exposure. 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 42
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. Work and findings of the Committee are considered by the Board in forming
its own view on the effectiveness of the system.
(Please also see “Audit Committee Report” on page 113 regarding the Committee’s detailed
review work, including the forms of “assurance” received from management, external
auditor, and internal auditor).
On detailed work performed by
the Audit Committee,
see “Audit Committee Report”
(page 113)
Hysan Risk Management Framework Diagram
The Board
“Top-down”
Oversight,
identification,
assessment and
mitigation of risk
at corporate level
• Has overall
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
• Supports the Board in
• Supports the Audit
monitors our risk
management and
internal controls system
• Assesses our risks and
mitigating measures
Company-wide
monitoring risk exposure,
design and operating
effectiveness of the
underlying risk
management and
internal controls systems
Operational Level
Committee in reviewing
the effectiveness of our
risk management and
internal controls system
• 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
43
2014 Review of Internal Controls Effectiveness
In respect of the year ended 31 December 2014, 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.
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 Activities. 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. The initial phase of the plan
focused on adopting a more risk-based (instead of process-based) approach in risk
identification and assessment. This approach enriches our ability to analyse risks and
respond to opportunities as we pursue our strategic objectives. Management reporting
to the Audit Committee has also been enhanced, including the presentation of special
reports on selected risk topics.
In the current phase, we aim to further integrate internal controls and risk management
into our business processes, including in annual budgeting and planning. The COSO
framework has been revised, effective December 2013. Instead of treating this as a
framework-update exercise, a holistic approach has been 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). All these further our ultimate objective to
make our risk management system a “live” one that is practised on a day-to-day basis by
operating units.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business For our underlying corporate
governance system and
culture, see “Corporate
Governance Report”
(page 80)
44
Internal Controls and Risk Management Report
• 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. It is also responsible for identifying and assessing risks of a
more macro and strategic nature, including emerging risks.
This “top-down” approach is complemented by the “bottom-up” aspects and the
involvement of operating unit heads in identifying operational risks. These together
determine the Group’s top risks. Discussion sessions with all department heads led by
the Chief Executive Officer were held, with the view to further enhancing the
“participatory” aspect of the overall risk assessment process.
45
• Control Activities; Information and Communication – 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 policies and procedures. Written policies and procedures with
defined limits of delegated authority are in place, which facilitate effective
segregation of duties and controls. A greater use of automation (information
processing) is also being implemented.
The annual budgeting and planning process is one of our key control activities, which
has been refined to take into consideration risk factors. All operating units prepare
their respective operating plans pursuant to corporate objectives for consideration. In
this process, they 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. An annual budget with financial targets, as approved by the Board,
provides the foundation for the allocation of resources. Variance analyses are
regularly performed, and reported to management and the Board. These help identify
deficiencies and enable timely remedial actions to be taken.
Capital expenditures monitoring is also significant given the capital-intensive nature
of our property business. Depending on strategic importance, cost / benefit and the
size of the projects, detailed analysis of expected risks and returns is submitted to
operating 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.
• Monitoring Activities – the Board and Audit Committee oversee the process,
assisted by our Internal Audit team. Management has enhanced its update reports to
the Audit Committee on movements of top risks and appropriate mitigating
measures. There are three Audit Committee meetings annually, with one meeting
substantially devoted to special risks items.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 46
Internal Controls and Risk Management Report
Further Strengthening of Our Underlying Systems
We have made further progress in strengthening our internal controls and risk management
systems, highlighted as follows:
Risk Assessment – enhanced monitoring of “emerging risks”
• Further strengthened the monitoring of “emerging risks” (i.e. risks that are
new or evolving, which have potentially significant impact even though the
likelihood of their happening may not be certain). Management’s Risk
Management Committee takes a key role in identifying and tracking these
risks. The Chief Executive Officer also led further discussions with all
department heads.
Examples include political / socio risks, hazards / catastrophic loss
(for example, natural disasters).
Risk Assessment – strengthening fraud risks assessment
• Refined our Fraud Handling Policy, including providing for periodic fraud risk
assessments.
• Fraud risk assessment performed, by a combined “top-down” (by
management) and “bottom-up” (by departments) process. Improvement
areas identified and completed include the performance by Human
Resources Department of credit check for promotions and transfers to critical
positions of responsibility, and the refinement of the exit interview process
for leaving staff to identify potential fraud opportunities.
Risk Assessment – strengthening non-financial reporting objective
• Introduced independent third-party verification (HKQAA) for our corporate
social responsibility report in March 2014
Control Activities – policies and procedures
• Identified and in the process of implementing new policies to address cross-
departmental issues. For instance, corporate policies relating to privacy, in
addition to departmental policies and procedures already in place. This
ensures that a more holistic approach is taken. It also signifies the
importance we place on the subject, which has become more important in
light of fast-changing regulatory requirements and heightened stakeholder
expectations.
Crucial in the context of a fast
changing global as well as local
environment.
Further strengthened the anti-fraud
aspects of our Code of Ethics, which
is particularly important as the Group
evolves and looks into other growth
opportunities.
Reflected our commitment to being
a responsible business, stressing
financial performance as well as the
manner of achieving such financial
results.
Continual review and refinement of
policies and procedures in light of the
changing external and internal
environment.
Monitoring – enhanced “management assurance” to the Audit Committee and the Board in their
respective reviews
• To further strengthen management’s “assurance” to Audit Committee and
the Board, control self-assessment questionnaires were rolled out across all
departments. Department heads were required to certify their departmental
controls effectiveness including identifying any control issues. This in turn
backs up management’s certification to Audit Committee and the Board.
Facilitates and enhances the work of
the Audit Committee and the Board
in monitoring our risk exposure.
Way Forward
In the context of a fast-changing global and local environment, the monitoring of
“emerging risks” will be a focus. In general, 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.
47
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
some of our principal risks, although it does not represent an exhaustive list of the risks we
face. Further analysis of our strategies is set out in other sections of the Annual Report as
indicated below:
Risk
Risk change
during 2014
Description of risk change
Impact of Hong Kong and global
macroeconomic developments on:
1. Office leasing operations
2. Retail leasing operations
3. Residential leasing operations
4. Projects (including combined
Sunning site redevelopment)
5. Human resources
6. Emerging risks including political
risks / hazards / catastrophic loss
(health epidemics, natural
disasters, man-made hazards like
fire, flooding)
Considering the impact of changes in demand and
competition on the three leasing units, which continued to
be challenging during the year. When compared with good
growth over the past few years, Hong Kong retail sales
declined slightly during the year. New supply remains,
however, tight for all three units. For Hysan, a relatively
small portion of commercial leases were due for renewal or
rent review during the year.
For more analysis and mitigating measures,
see “The Marketplace” (pages 24 to 27) &
“Review of Operations” (pages 29 to 33)
Asset enhancement at Lee Gardens Two shopping centre
completed. Demolition work for the Sunning buildings
completed in Q3 2014. Excavation and other foundation
works had commenced. The project is on schedule for its
anticipated completion around 2018.
See “Review of Operations” (pages 29 to 33)
Greater competition for skilled personnel, and labour
shortage for front-line staff, to support the Group’s growth
strategy.
For more analysis and mitigating measures,
See “Responsible Business” section –
“Workplace Quality” (pages 64 to 67)
We maintain comprehensive emergency handling
procedures covering all our properties. Their effectiveness
were demonstrated during Q4 2014, when some main
roads in Hong Kong (including Causeway Bay) were blocked
by the “Occupy Central” protests. Our Property Services
team implemented special measures and successfully
mitigated their adverse impact on our tenants, visitors and
shoppers.
For operations performance during the period,
see pages 30 to 31
Note:
where “inherent risks” (i.e. before taking into consideration mitigating activities) increased
where “inherent risks” remain broadly the same
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
48
Hysan has an established Guiding Principle of
being a responsible business. We place a strong
emphasis not only on our financial results,
but also on how we achieve the same. In this
section, we highlight our policies in the areas
of environment, workplace quality, health and
safety, and community contributions, as well
as our accomplishments in those areas in 2014.
Responsible
Business
49
50
Feature Stories: (i) Walking the Talk,
and (ii) Supporting Our People at Work
and Beyond
54 Guiding Principle
56
Environment
64 Workplace Quality
68 Health and Safety
70 Community Contributions
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 50
Feature Stories: Walking the Talk
Engaging our Stakeholders
Hysan walks the talk when it comes to recycling.
In 2014, we partnered Greeners Action to bring the
food waste reduction message to Hysan Place and
engage our shoppers and restaurant tenants.
Hysan also promoted collecting food waste using
specially-marked bags, making it easy to recycle into
fishmeal, and as fertilisers for its Urban Farm.
“It was a real success,” says Angus Ho. “We had
training sessions with frontline staff, online and
onsite games with diners. With high-profile mall
activities, we even had the chance to reach out to
groups we did not have a chance to contact before,
like tourists and office workers.”
Angus Ho
Greeners Action Founder
“ We brought our
anti-food waste
message to the
trendiest shopping
landmark!”
For more stories on
“Experience Hysan”
51
In Redevelopment Project
Another thought-provoking
project saw some of the wood
reclaimed from Sunning Court’s
redevelopment turned into two
benches for shoppers at Lee
Theatre Plaza. Social enterprise
Woodrite, which took on the
wood, designed and produced
the benches in conjunction with
Hysan. The effort hopes to send
a message that wood discarded
from renovations can still be
used productively.
In Marketing Activities
For our 2014 Christmas project, Hysan led
its partners to collect and upcycle more
than 30,000 plastic water bottles and
turned them into 40,000 plus designer
Christmas baubles. These limited edition
decorations were so popular that they
were sold out two weeks after the launch,
more than a fortnight before Christmas
day. Hysan was most encouraged by the
strong media attention on this story,
which carried a clear message on the need
to recycle and preferably, to upcycle.
Around half a million Hong Kong dollars
was collected during this successful
campaign, benefitting seriously ill children
from Make a Wish foundation.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 52
Feature Stories: Supporting our People at Work and Beyond
Committed
Talent
Development
Each day close to 100,000 people visit
Hysan Place. They may want burgers
and fries from the food court, or attend
important meetings in the office floors.
Others come in for the precious
peacefulness of the book store, but
some are ready to harvest at the Urban
Farm on its rooftop.
“Hysan’s training for our younger staff
members helps them deal with all
manners of customer requests, and
respond swiftly to different types of
incidents,” says Venus Lam. “We may
be coordinating an art exhibition one
minute, and trying to help out a lost
child the next,” says Albert Fung.
“Different levels of staff now learn
using different modules. They have
more structured training from
grooming to language skills. If you run
a place that’s as busy as a small town,
you really have to be up-to-date with
all aspects of property management
knowledge.”
Venus Lam and Albert Fung
Hysan Place Senior Manager and
Assistant Manager
“ Running Hysan Place is like
running a busy town!”
53
Our Volunteer Team
Hysan is a “Business of Life” and contributing to the
community is high on its corporate responsibility agenda.
The volunteer team took on projects to help build houses in
Guangdong, China, raised money in charitable football
matches, visited the elderly during festive seasons, and most
popular of all, served disadvantaged children.
“It’s the smiles and laughs which are priceless,” says
Carrie Chan. “It may only be one day for us, but a visit to
the Tai Po Treetop Cottage, for example, is something that
may stay in the minds of these kids for a long time. We are
just proud to be part of Hysan’s team to give something
back to the community.”
Carrie Chan
member of Hysan’s
volunteer team
“ We love it. We can have fun
while helping out others.”
Hysan Annual Report 2014 54 Responsible Business
Guiding Principle
Hysan has an established Guiding Principle of being a responsible business. We place a
strong emphasis not just on our financial results, but also on our non-financial
achievements. As a “Business of Life” Hysan has been creating sustainable and outstanding
returns for our shareholders, while also making positive impact on the lives of our
stakeholders: tenants, business partners, employees, and members of the community.
For key performance
indicators, see “2014
Performance at a Glance”
(page 12)
In 2014, Hysan was rewarded for its achievements with a number of awards
and recognitions.
– For details on our
compliance with the ESG
Guide, see page 194
– For verification statement
by Hong Kong Quality
Assurance Agency, see
inside back cover
Corporate Responsibility Reporting
We have adopted an “integrated” approach in corporate responsibility reporting, as we
believe that sustainable financial results are only achieved if we do things the right way.
We have early-adopted the The Stock Exchange of Hong Kong Limited’s Environmental,
Social and Governance Reporting Guide (ESG Guide). Evidencing our commitment in this
area of reporting, we have also started to obtain independent verification since our
2013 Annual Report.
Corporate Responsibility Policy
Hysan’s approach to being a responsible business is underpinned by our Corporate
Responsibility Policy, which sets the framework for the way we manage our corporate
responsibilities.
Maintain highest ethical standards
• We aim to maintain the highest ethical standards in the conduct of our business. We are
committed to maintaining the highest standards of corporate governance
Focus on health and saFety
• Health and safety issues are of fundamental concern to us
MiniMise environMental iMpact
• We aim to minimise the impact of our activities on the environment
contribute to coMMunities
• We make positive contributions to the communities in which we operate
respect our staFF
• We treat our staff with fairness and respect, and maintain a working environment to
realise their full potential
encourage partners to set high standards
• We encourage our suppliers and contractors to embrace high standards similar to our own
55
How the Policy is implemented:
Hysan’s Corporate Responsibility Model
We believe in the importance of the manner in which we deliver our business results. For the
implementation of our Corporate Responsibility Policy, we have two major considerations.
Firstly, we strive to integrate our contribution to society into our core everyday business
operations and partnerships. Good examples are found in our environmental, as well as in
our workplace quality solutions. Secondly, in regard to community involvement and giving,
while we sometimes provide financial support, we prefer to offer expertise, manpower and
venues, as well as to set up platforms to network talent and resources. We believe this is the
best way for those in need to receive maximum benefits from Hysan and other givers.
Hysan’s Corporate Responsibility Model
Contributions through regular
business activities including:
• Environment
• Workplace Quality
Giving through community
involvement
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 56
Responsible Business
Environment
our environMental iMpacts
As a property company with a focus on investment and management, we believe our
impacts on the environment are mainly as follows:
• Greenhouse Gas (GHG) emissions from our operations
• Indoor environmental quality
• Waste generation
• Water consumption
our new environMental policy
Previously, Hysan’s Environment, Health and Safety Policy combined our strategies on two
distinct fronts within one policy. Now that both our operations and the surrounding
environment have undergone many changes, we believe it is appropriate to set out a
separate Environmental Policy to signify the issue’s importance, and to show how it has
become an integral part of our culture and thinking.
Among our focuses within the new Policy are our measuring and reporting efforts for carbon
reduction, setting targets on environmental performance, promoting waste reduction at
source, and enhancing green purchasing. On top of all, the significance of stakeholder
engagement has also been further underlined. In all, Hysan will:
• Ensure compliance with all applicable environmental and related legislation and
encourage staff, business partners and other stakeholders to meet their environmental
obligations
• Identify environmental impacts associated with our operations, and set targets to
continually improve our environmental performance
• Improve energy efficiencies by adopting best practicable designs and technologies
without compromising service
• Measure and report our GHG emissions, and actively encourage our stakeholders to
reduce their carbon footprint
• Minimise waste generation whenever practical in daily operations through source
reduction and recycling
• Embrace green purchasing practices and adopt best practicable technologies to conserve
natural resources where applicable
• Provide good indoor environmental quality in our buildings to ensure that all the working/
living environments are healthy
• Provide regular environmental training to employees and continue to raise their
awareness on the issues
57
highlights oF 2014
The establishment of a new Environmental Policy has helped to guide us and sharpen our
focus on the main areas where we impact upon the environment, as well as to enhance our
capabilities to make improvements.
Among the most important parts of the Policy is stakeholder engagement. We provided
comprehensive information kits to aid our Hysan Place office tenants to achieve highest
international environmental certification for their interiors. We also helped highlight food
waste recycling in our retail portfolio. Moreover, we conducted talks and visits on recycling
and other green topics for our business partners, as well as for our own colleagues.
Also on the topic of recycling but on a much larger scale, our Sunning Plaza and Sunning
Court redevelopment project recycled a significant amount of the materials generated from
the buildings’ demolition.
We also continued to help broaden the scope of how to tackle green issues through using
both hardware and software: like new green roofs and walls, quick chargers for electric cars,
and major seasonal placemaking events.
Finally, we enhanced our external sustainability reporting, as well as unveiling a new energy
accounting system across our commercial portfolio to help identify energy improvement
opportunities.
energy eFFiciency
hysan’s energy ManageMent Model
Identify Objectives
Site Survey, Data Analysis and Audit
Recommendation of Energy Management Opportunities
Implementation and Verification – Budget and Timeline
Monitoring and Reporting
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 58
Responsible Business
identiFy objectives and phases in project iMpleMentation
We began by identifying energy management objectives for the portfolio back in 2003, and
started on projects that would produce results quickly and easily. These were operational
schedule adjustments like lighting, fresh air supply and lift operation. The next phase was to
install new energy efficient hardware. The air-conditioning system conversion to a more
energy-efficient water-cooled system began in 2006 and was completed in 2012. This was a
major move in our effort to integrate environmental performance and resources efficiency
considerations into the full life-cycle maintenance programme. Also in 2012, we completed
Hysan Place, which became the first LEED Core and Shell Platinum mixed-use office and
vertical mall complex in Greater China. We have since moved into a new phase that
emphasises stakeholder engagement, and will continue to work in a systematic way based
on the Energy Management Model.
Monitoring and reporting
Hysan is a strong believer in improvement through monitoring and reporting. We will
continue with independent verification of our sustainability results, which we began with our
Corporate Responsibility Report in 2014. In the meantime, we have also begun to install a
brand new energy accounting system with energy meters at the common areas of our
commercial buildings in phases to measure and analyse energy consumption within each
building. After the completion of the installation, we shall better understand our energy
usage within our Group’s portfolio as a whole, and come up with ways to meet targets and
further reduce energy waste.
59
energy savings initiatives oF 2014
As part of our efforts to integrate environmental performance and resources efficiency
considerations into our full cycle maintenance programme, we are in progress to install
higher efficiency motors for our air handling units and chilled water pumps for our air
conditioning systems. These were complemented by new heat pumps, using waste heat
from cooling systems, to provide hot water in selected retail and residential areas. We have
also put in place all the preliminary work to replace an aging air-cooled chiller in Lee Theatre
Plaza to help improve the system’s efficiency, with the work anticipated to be completed in
2015. To further cut down on electricity use, we have finalised a plan to acquire more
energy efficient lighting equipment, for example, LED lamps, for use in shopping malls,
office lift lobbies and car parks.
energy savings and reduction oF greenhouse gas eMissions
achieveMents: 2005 baseline and FroM 2012 to 2014
Issue
2005
baseline
2012
including HP(c)
2012
excluding HP
2013
incl. SP/SC(d)
2013
excl. SP/SC
2014(d)
GHG Emissions
for Scope 1 &
2 (a) (b)
Total
(tonnes
CO2e)
Purchased
Electricity
Total
(MWh)
48,421
34,155
29,295
40,610
38,137
38,515
52,598
44,718
38,349
50,829
47,747
49,353
(a) According to Guidelines to account for Report on Greenhouse Gas Emissions and Removals for Buildings in Hong Kong (2010
Edition) issued by Electrical and Mechanical Services Department and Environmental Protection Department, Scope 1 (Direct
emission and removals e.g. diesel, refrigerant) and Scope 2 (energy indirect emissions e.g. electricity and Towngas) are
included
(b) The emission associated with the electricity purchased based on emission factors provided by Hong Kong Electric in 2014
(c) Data record period of Hysan Place (HP): August to December 2012
(d) Sunning Plaza (SP) vacated in November 2013, Sunning Court (SC) vacated in January 2014. The 2014 data include (where
applicable) SP and SC data
* The data have been adjusted upwards (based on past consumption pattern) for periods with significant vacancy during
renovations
We continued to make efforts to reduce GHG emissions. Using 2005 figures as a baseline, a
reduction of around 20.5% was achieved by the end of 2014. The electricity purchased was
also reduced by 6.2% using a 2005 baseline. On a like-for-like basis, excluding properties
under redevelopment, there was a 1% increase in GHG emissions and 3% increase in
electricity purchased between 2013 and 2014. This was due to more air-conditioning use,
partly attributable to improved office occupancy, and partly to climatic reasons, when
Hong Kong experienced one of the warmest summers on record.
We have been a signatory to the Carbon Reduction Charter as promulgated by the
Hong Kong Government to combat climate change since 2008. In 2014, we provided
comprehensive data on our carbon footprint to the Carbon Footprint Repository for Listed
Companies in Hong Kong.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 60
Responsible Business
environMental Quality
building certiFications
For our Sunning redevelopment project, we target three different green building
certification standards, including U.S. Green Building Council’s LEED, the locally renowned
BEAM Plus, as well as the China Green Building Label.
In regard to our existing properties, Hysan is in the process of obtaining a BEAM Plus
pre-certification for The Lee Gardens. Making changes to existing buildings to adapt to
green requirements presents a different set of challenges as compared to incorporating
green features into a new building. However, Hysan is ready to grasp the opportunity to
ensure our community can benefit not just from sustainable new buildings, but also from
existing ones.
Our stakeholder engagement efforts are also bearing fruit in this area. Hysan is proud of the
fact that more than 45% of Hysan Place’s office space (7 out of 15 floors) has been
awarded LEED Commercial Interiors Platinum certification. Tenants including KPMG,
National Bank of Australia and LinkedIn have put in the green efforts to ensure that their
offices incorporate some of the most sustainable designs in Hong Kong and internationally,
making full use of the environmental features already included in Hysan Place’s original
design, as well as information and support from Hysan’s staff.
air Quality
Hysan has long been a proponent of good indoor environmental quality and has vigourously
monitored and provided solutions to improve air quality of our buildings’ public areas. All
our buildings, including the newest Hysan Place, achieved either “Excellent Class” or “Good
Class” standards in the Hong Kong Government’s IAQ Certification Scheme.
We do not just focus on our own indoor air quality, but also contribute to the improvement
of air quality in the surrounding areas. Hysan partnered with Tesla Motors to install two
Superchargers at The Lee Gardens/Lee Gardens One car park. This allows the popular Tesla
Model S vehicles to be replenished with a half charge in 20 minutes. Hysan is keen to
promote the use of electric vehicles which help reduce pollution at street level and improve
overall air quality.
urban MicrocliMate and biodiversity
Preparation work for a new green roof began for Lee Gardens One in 2014, complementing
our Urban Farm on top of Hysan Place. These are all aimed at further reducing the heat
island effect within our portfolio’s area and help improve its microclimate.
Another advantage of having more green spaces is the opportunity to further improve the
biodiversity within this urban area of Causeway Bay. Hysan is taking the lead in adding
green spaces to help plants and living organisms grow in an otherwise hostile urban
landscape. One more green wall was added on the 4th floor Sky Garden of Hysan Place for
this cause.
In 2015, Hysan plans to promote the importance of urban biodiversity through hosting or
sponsoring activities to raise the topic’s profile.
waste ManageMent, recycling and water consuMption
Hysan is keen to conserve natural resources through reduction in water usage and increase
recycling, including the waste from our daily operations, as well as construction waste. We
have adopted a high recycling and upcycling profile through a series of stakeholder
engagement activities.
61
waste ManageMent
Among the stakeholder engagement activities are ones which promoted curbing food waste.
We collected more than 30 tonnes of food waste from Hysan Place’s popular food court,
Kitchen 11, and extended its collection service to restaurant tenants within the building. The
effort was complemented by the fact that a portion of the food waste collected was turned
into compost for Hysan Place’s Urban Farm during the year, thereby completing a very
sustainable cycle. Moreover, Hysan joined the Government Environmental Protection
Department and Greeners Action’s Food Waste Reduction Programme, both spearheading its
promotion on Hong Kong Island through an opening event, and arranging visits by the mascot
“Big Waster” to remind eaters not to waste food.
Hysan’s malls and office lobbies now provide biodegradable plastic bags for umbrella on rainy
days, and we have also installed a number of umbrella dryers on site to help cut down on bag
use. Extra waste separation bins have also been placed in malls and office buildings common
areas to provide more recycling incentives.
In 2014, Hysan was awarded another full set of “Class of Excellence” Wastewi$e labels for all
buildings in the portfolio, under the Government’s Hong Kong Awards for Environmental
Excellence Scheme, except the new Hysan Place, where the first full set of data will be
submitted in 2015. In addition, The Lee Gardens and Lee Gardens Two were honoured as
being among “The Top 3 organisations which achieved cumulatively the most number of goals
in Wastewi$e Label in 2013”.
sunning redevelopMent project’s recycling
The demolition of Sunning Plaza and Sunning Court’s superstructure was completed in 2014.
Close to 40,000 tonnes of construction waste was generated, but more than 60%, including
around 19,000 tonnes of concrete and close to 5,000 tonnes of metal were recycled.
We plan to also recycle 60% of our construction waste from Sunning’s basement upon its
demolition.
waste ManageMent achieveMents (except construction waste)
2005 baseline, and FroM 2012 to 2014 (a)
Issue
2005
2012(b)
2013(c)
2014
Paper recycled (kg)
741,502
895,412
991,817
936,873
Aluminium cans recycled (kg)
1,098
1,931
2,214
2,382
Plastic bottles recycled (kg)
1,529
2,290
2,412
2,704
Old clothing donation (kg)
Toner/Cartridge recycled (pcs)
Computer and equipment recycled (pcs)
Food waste recycled (kg)(d)
960
206
100
–
5,400
3,840
3,500
531
189
–
475
99
–
309
77
33,231
(a) Data record period from 1 September (of previous year) to 31 August (of year stated)
(b) As Hysan Place opened in August 2012, no data was available during the data record period
(c) Hysan Place included
(d) Data record period from March to December 2014
Reduced paper recycled and old clothing donations were due to Sunning Plaza and Sunning
Court being vacated in November 2013 and January 2014.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 62
Responsible Business
tenant engageMent on recycling
During the year, Hysan provided sustainability-related workshops for staff of a number of
tenants, further promoting the advantages of upcycling. Food and beverage tenants were
engaged on food waste collection. The issue was further highlighted during food waste
recycling seminars and a visit to a food waste recycling plant organised for tenants by
Hysan. At a more operational level, Hysan joined a Lai See packet recycling programme to
encourage shoppers and tenants to reuse and reduce waste.
water ManageMent
In Hysan Place’s second full year of operation, we have succeeded in achieving a more
optimal level of water use. On a like-for-like basis, excluding properties under redevelopment,
potable water usage for properties and landscaping in 2014 decreased by 3%, when
compared to 2013.
Cooling in the commercial portfolio’s air-conditioning systems remained the main consumer
of water. In 2014 air-conditioning usage increased, leading to more cooling water being
used. The increased usage was due to improved office occupancy, as well as Hong Kong
experiencing one of the warmest summers on record. However, we have also been successful
in reusing more cooling water for flushing.
water ManageMent achieveMents 2005 baseline,
and FroM 2012 to 2014
Issue
2005
2012
including HP(a)
2012
excluding HP
2013
incl. SP/SC
2013
excl. SP/SC
2014(b)
Potable water used for properties
and landscaping (m3)
62,665
64,514
58,182
83,821
81,230
78,706
Potable water used for cooling (m3)
Wastewater reused for flushing (m3)
–
–
135,669
113,655
171,012
162,060
167,748
13,567
11,366
17,101
16,206
16,775
Wastewater discharged from
properties and landscaping (m3)
56,399
58,063
52,364
75,439
73,107
70,836
(a) 2012 data record period of Hysan Place: August to December 2012
(b) Sunning Plaza (SP) vacated in November 2013, Sunning Court (SC) vacated in January 2014. The 2014 data include (where
applicable) SP and SC data
Our Hysan Place Sky Wetland obtained its permit from the Government to release filtered
water within Victoria Harbour, an encouraging move to highlight the quality of water we
recycle at the premises. The Wetland on the 16th floor of the building also provides a
relaxing environment for our office tenants on top of its main function of recycling grey
water.
63
green procureMent
Environmental issues have long been taken into consideration regarding procurement in a
number of areas. With regards to the redevelopment of Sunning Plaza/Court, we plan to use
materials extracted and manufactured locally for around 10% of the total materials value.
On the daily operations front, all existing buildings now use hand towels made from recycled
paper and degradable umbrella bags. Painting work in all buildings is now carried out using
no or low VOC paints. Moreover, the use of green cleaning products will be extended to
more buildings within our portfolio.
other green partnerships with stakeholders
tenants and visitors
Hysan staff made good use of farming sessions at the Urban Farm to share environmental
messages with our retail, office and residential tenants, as well as other visitors. Those who
visited ranged from long-time Wanchai urban farmers, to students from the U.K.’s University
of Manchester, as well as senior environmental officials from the U.S. government.
Hysan Place was the venue partner of Standard Chartered and Friends of the Earth’s
well-regarded “Take A Brake” programme to promote sustainable living and a green lifestyle.
Visitors were impressed by the fun education sessions for the younger audience, as well as
the chance to help recycle the event set on the last day of the exhibition. The shopping mall
also hosted Redress’ EcoChic Design Award to inspire fashion designers to create
mainstream clothing with minimal waste.
staFF engageMent
Our Go Green Committee continued to stimulate colleagues’ interest in the topic of
sustainability. A “Low Carbon Photo Competition” took place during the year to spread the
message. It also organised visits to a food waste composting facility and grease trap waste
recycling facilities to enhance our staff members’ understanding of food waste.
Environmental news and tips were disseminated through our staff intranet, while enhanced
environmental information was used in the induction training for new staff.
green organisations
We continue to support green organisations with staff participation and sponsorships. They
include:
• Business Environment Council
• The Conservancy Association
• Environmental Protection Department (Carbon Reduction Charter)
• Friends of the Earth
• Greeners Action
• Green Sense
• Hong Kong Green Building Council
• Smiley Planet
• World Wide Fund for Nature
We will also maintain our dialogue with other green organisations in order to partner with
them on sustainability projects in the future.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 64
Responsible Business
Workplace Quality
staFF coMposition
In 2014, we continued with our focus on talent management and staff engagement. As at
31 December 2014, we employed a total of 687 staff, including our Head Office
management team, and frontline building management colleagues. All our staff members
are located in Hong Kong.
Age-group of Staff
1%
10%
17%
28%
Number of
staff
202
27%
4%
Number of
staff
485
44%
22%
27%
20%
Age 20 – 30
Age 31 – 40
Age 41 – 50
Age 51 – 60
Age over 60
Head Office
Frontline Staff (including the
Building Management Team)
our values
Our values underpin everything with respect to how we do business, and Hysan’s Code of
Ethics makes clear our three main guiding principles that form those values: firstly respect
for people; secondly ethics and business integrity; and thirdly meeting our responsibilities.
The Code applies to Directors, officers and employees of the Group, and is clearly
communicated to all, including new recruits.
For details of the Code of Ethics, updated in October 2014, please visit our website.
Our Code of Ethics covers a range of topics, including data privacy, protection of copyright
and anti-bribery, and has in place a “whistle-blowing system” which is monitored by an
independent third party service provider with direct reporting to the Audit Committee
Chairman. In line with the Group’s efforts to further enhance internal controls and risk
management effectiveness, we have updated our Code of Ethics, and refined our anti-fraud
policy, expressly providing for regular anti-fraud assessment and monitoring.
training and developMent
The comprehensive training curriculum for Building Management Team colleagues of
various levels of seniority was launched in 2014. The aim was to further improve their
professional customer service standards or management skills. The curriculum was
structured into seven different modules and relevant colleagues would complete them
within set time periods. The modules included a new hire transition programme, customer
services, grooming, personal effectiveness, management development for supervisors,
languages and legislation/ordinances updates. The way the course is structured helps
colleagues learn new skills at regular intervals, further benefitting their career development.
For details of the
Code of Ethics
For its significance on risk
management, see
“Internal Controls and
Risk Management Report”
(page 46)
65
For Head Office colleagues, after the successful completion of the Leadership Excellence
Programme, we decided to provide more intensive training on marketing and trends-related
issues to support our ever-growing retail and client-centric tasks. Leasing and marketing teams,
for example, attended more advanced sessions on how to apply marketing fundamentals to
developing business plans. Property Services colleagues received further training on property
management to be enhanced with a marketing angle. Meanwhile, as our leasing and marketing
colleagues have to interface increasingly with visitors from different parts of the world, we
began to provide a number of language courses for their training needs.
It is also heartening to see that more staff members are making use of our training sponsorships
to enhance their work-related knowledge, benefitting both the colleagues and the Group.
Examples of training courses attended include BEAM Plus green building certification courses
to legal studies for property management. Education sponsorships were provided from
professional diploma in construction site supervision, all the way to Master of Business
Administration.
In 2014, Hysan provided an average of 17 hours of training per Head Office staff, and
11 hours of training per Building Management Team employee.
attracting and retaining talent through successFul
eMployee engageMent
Our efforts to maintain our staff retention competitiveness through enhanced staff
development began to bear fruit. Operating in the tight labour markets of property and service
industries, we managed to keep our Head Office employee turnover rate down to 15%, and
the Building Management Team to 21%. Both figures improved from those of 2013, and also
bettered the 26% Hong Kong property sector turnover rate (sourced from a Towers Watson
survey). Much of 2014’s talent retention successes may be credited to easy and constructive
communications which help nurture the relationships between the employer and employees.
Our most recent Company Day, hosted by the Chairman, Chief Executive Officer and Heads of
Departments, was an excellent example of direction and strategy being shared by host speakers
with Head Office staff and building managers. The information was then cascaded down to the
attendees’ departments and teams. Non-executive directors were invited to the event and
they appreciated the opportunity to get to know the managers and staff better in an informal
setting. The genuinely friendly atmosphere created by the host speakers prompted useful
exchanges during and after the event.
For other principal risks
we face, see “Internal
Controls and Risk
Management Report”
(page 47)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 66
Responsible Business
Apart from the annual Company Day, we also brief staff members on the Group’s latest
news and achievements after each annual and interim results announcement. These are
also useful occasions for staff members to understand more about the operations of the
Group and to ask questions.
The Group intranet system has become a must-read every morning when colleagues turn on
their computers at work. With fast and regular updates, the Group’s new company events,
placemaking efforts, volunteer team news, tenants’ latest offers can now all be easily
received by colleagues. Among those who bring the most company news and information to
our colleagues is the Environmental team, providing plenty of sustainability and green
knowledge to benefit our staff members.
Our “Lunch and Learn” series, created to broaden employees’ horizons, also flourished, with
talks on speech-giving, the art of tea-making and family well-being being among the most
well-attended events. The Friday afternoon gatherings, to help colleagues get to know each
other better informally, also began to acquire themes, including one which celebrated the
2014 success of the Hysan Trailwalker team which bested their 2013 effort, and members
shared the pleasures and pains of the challenging event.
Our Recreation Club had a very fruitful year in 2014. Their events have always been good
occasions for colleagues from different parts of the Group to get to know others, thereby
helping to promote adhesion and team spirit among staff members. Apart from the well-
organised film premieres and outdoor explorations, we added a number of popular
handicraft classes, plus cooking sessions where members could learn from seasoned
professionals.
reward and recognition
Our performance appraisal system remains the core of our staff reward system, which is
based firmly on our belief in the importance of recognising staff members through their
work performance and contribution to the Group. Aligning pay with performance ensures
the Group can move onwards and upwards led by professionals who are passionate and
forward-looking.
67
huMan resources policies
Our human resources thoughts and actions are underpinned by a set of detailed human
resources policies and a well-planned system. We have an Employment and Staff Policy that
deals with recruitment, employee movement, salary adjustments and promotions,
separation of employment, and equal opportunities (non-discrimination against gender,
marital status, disability, age, race, family status, sexual orientation, nationality and
religion). Our Code of Ethics, which applies to our directors, officers and employees, has a
key focus on anti-discrimination. In 2014, we did not identify any material non-compliance
or breach of legislation related to equal opportunities.
We do not believe that we operate in environments that carry high risks for child labour and
forced labour, as we are based in Hong Kong and have our core operations in the city. We
fully comply with labour or other relevant legislations that prohibits child labour and forced
labour. We did not identify any breach in the said areas in 2014.
Hysan respects the right of association and ensures employees enjoy the freedom of joining
trade unions. We did not identify any material breach of any right to exercise freedom of
association and freedom of joining trade unions in our core operations in 2014.
The Hong Kong Government does not explicitly recognise the right to collective bargaining.
While Hysan does not have a collective bargaining policy nor is a party to a collective
bargaining agreement, we strongly believe company management and employees should
maintain a clear and constructive dialogue on company issues. As part of the process, we
have developed written policies on compensation, work hours, staff training, health and
safety, as well as grievance mechanisms, including a “whistle-blowing” system monitored by
an independent third-party service provider directly reporting to the Audit Committee
Chairman (as detailed in our Code of Ethics).
We closely monitor our compliance with the above said laws through a cross-company
compliance programme.
We also have a minority interest in a commercial and residential joint venture development
in Mainland China. Having made appropriate enquiries, we are not aware of any incident of
staff discrimination or rights violations in 2014.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 68
Responsible Business
Health and Safety
As a property investment and management company, the nature of our daily operations
ensure we have a relatively low safety risk profile. The potential injury hazards are ones of
slips, trips and falls, as well as manual handling issues faced by our Building Management
Team colleagues. In addition, in redevelopment and asset enhancement construction
projects where contractors deal with the bulk of health and safety risks, we also have to
remain vigilant. Apart from risks to physical health, we believe our colleagues’ mental
wellness needs to be taken care of. We offer an Employee Assistance Programme of
counseling services, which is operated by a non-governmental organisation on our behalf.
This has proven to be useful in helping to resolve work or personal issues faced by
employees.
new health and saFety policy
Our previous health and safety policy was only a part of the Environment, Health and Safety
Policy which generally encouraged safety practices and health and safety training to
employees. We believe it is time to have an independent Health and Safety Policy to provide
clear guiding principles on all such issues.
Under our new Health and Safety Policy, Hysan is committed to providing and maintaining
a safe and healthy workplace for all staff, tenants, contractors and members of the general
public. This Policy will:
• Ensure health and safety standards are given prime consideration in the operation and
management of our properties, for which a Safety Management Plan to ensure regulatory
compliance has been developed
• Ensure employees at every level are committed to, and accountable for, the delivery of
the safety initiatives contained in this Plan, with a view to maintaining a vigorous and
injury-free culture
• Provide employees with appropriate induction and external/internal training, as well as
protective equipment in accordance with established procedures
• Encourage staff to engage actively in the Plan and to exceed and improve upon the
safety measures that have been set
• Mandate our contractors, who are equally responsible for establishing their own
organisational structure, work processes, supervision and training, to avoid or minimise
risks to health and safety, particularly in the services which they provide us
• Conduct regular reviews on the Health and Safety Policy so that it reflects changes in the
products, services and activities of the Company
• Raise further awareness through the use of third-party health and safety experts to
conduct regular safety audits
69
health and saFety in action
Our General Manager of Property Services chairs the Safety Committee, which deals with
all Building Management Team staff in regard to the bulk of Hysan’s health and safety issues.
The Committee’s role is to oversee the implementation of the Health and Safety Policy
among Property Services colleagues, to monitor the results, and to report back to senior
management. In the process, the Committee not only helps to promote things that are being
done right, but also seek solutions for areas that require improvement. General ideas espoused
by the Health and Safety Policy are further elaborated in a detail Safety Management Plan
with an aim to provide clear safety procedures for Building Management Team colleagues.
In 2014, third-party safety audits were carried out for all buildings within our portfolios to
assess the effectiveness of our safety management system. Fire safety audits were also
provided by all buildings, while a comprehensive review of the fire safety manual also
took place.
We were also active in encouraging our staff to take work safety to heart. A number of
colleagues joined the “Sixth Hong Kong Outstanding Employees in Occupational Safety and
Health Award competition”, and Hysan Place’s Poon Kar Man was a merit award winner.
There were 16 work injury cases at Hysan in 2014, the majority of which did not incur more
than five sick leave days. There were 737 lost days due to work injury, including 392 days
brought forward to 2014 from 2013 (one case of 365 days), as well as 273 days from one
particular 2014 case.
health and saFety: our partners
We place great emphasis on health and safety, and also actively encourage our business
partners to aim for high standards here. In 2014, demolition work for our Sunning Plaza and
Sunning Court combined redevelopment project was completed. The project’s safety
committee, with the developer, contractor, independent safety advisor and other consultants
as members, oversees all safety-related aspects and ensures all such standards are maintained
at the highest levels by the contractor and its sub-contractors.
To further mandate contractors to put health and safety high on the agenda, our Property
Services department also implemented a work permit system for our service contractors, as
well as those of our tenants. Contractors now have to sign and agree that they comply with
both statutory regulations and our own house rules, before they are issued work permits by
Hysan. Throughout the contractors’ work sessions, Hysan staff check to see whether they
follow the relevant regulations and rules, and they also review their work periodically and at
the end of the sessions.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 70
Responsible Business
Community Contributions
Hysan’s community involvement has long been recognised by the Hong Kong Council of
Social Services, which again awarded the Group a 10 Years Plus Caring Company logo in
2014.
activities to proMote environMental issues and healthy living
In the Environment section, we highlighted a host of our upcycling activities involving
different Hysan stakeholders. Aside from upcycling, another main theme for our community
activities was “work life integration”. Hysan’s Urban Farm on the rooftop of Hysan Place
continued to serve stakeholders including tenants (e.g. Apple Asia, Jebsen, Valentino, Tod’s
Hong Kong) members of local community groups, professional groups as well as schools. In
addition to the regular farmers visits, we played host to visits from organisations like the
Urban Land Institute, Hong Kong General Chamber of Commerce, Business Environment
Council, Hong Kong Council of Social Services as well as local Wanchai farming groups.
Our Hysan Healthy Hike and Run went from strength to strength, attracting a record-
breaking number of 1,300 entries to tackle the scenic Tai Lam trail. On the topic of running,
the Hysan Trailwalker team performed better in 2014 than the year before, despite the bad
weather encountered. The team inspired dozens of colleagues to become supporting team
members and helped spread the message of healthy living throughout the Group.
Unfortunately, our strongly-themed “Work Life Jam” corporate games day was cancelled
due to venue uncertainties within Causeway Bay towards the end of the year. However, we
are determined as ever to support “work life integration”, both here in Lee Gardens and
throughout Hong Kong.
activities to bring hysan and the coMMunity closer
Hysan has long provided venues to support community causes. Due to high visitor traffic
volume in the heart of the city, community groups relish the opportunity to place their
activities and exhibitions at these venues. Since its opening in 2012, Hysan Place has
become “a place to be” for such displays and activities.
In 2014, we hosted several events that aimed to improve the lives of underprivileged
youngsters. Hundreds of film fans jammed the atrium for the promotion of the upbeat film
“My Voice My Life”, which documented how a summer musical transformed a group of
“down and out” teenagers. The atrium also saw celebratory events for Evangelical Lutheran
Church’s Uncle Long Legs letter box service programme, as well as Plan International’s
pencil donations to support underprivileged girls in different parts of the world. Primary and
secondary school age visitors sponsored by St. James’ Settlement and Make a Wish
Foundation also enjoyed afternoons at our placemaking exhibitions and took part in fun
activities. Hysan staff members who served them also appreciated the opportunity to share
the joy.
Our summer ethnic minority youngsters study-and-career programme went from strength to
strength and in 2014, it became a much more comprehensive activity serving more than
100 children. “Exploration for Hope” as the programme is now known, became the first ever
ethnic minority social enterprise competition in Hong Kong, encouraging these special
young people to come up with ideas to help not just their own ethnic communities, but for
others in need in Hong Kong. Throughout the summer months our partners, including Hong
Kong Christian Service and the Hong Kong University of Science and Technology’s Business
School provided time, space and manpower to guide our young social entrepreneurs. We
believe the programme will grow further in 2015.
71
We were also a strong supporter of community arts and cultural performances. Hysan Place
hosted an exhibition of Hong Kong’s theatre set designs, as well as concerts organised by
the Hong Kong Federation of Youth Groups and the Leisure and Cultural Services
Department. Arts in the Park’s Night Parade, held so successfully in Lee Gardens in 2013,
unfortunately had to be moved to Victoria Park for 2014 due to Occupy Movement’s road
blockage. We hope to bring it back to Lee Gardens in 2015.
our volunteer teaM
Hysan colleagues put in more than 1,050 hours of volunteer service in 2014, encouraging
their friends and families to clock another 622 hours service to help with good causes. We
are proud that our staff members are not only serving the community by themselves, but
are influencing people around them to help the disadvantaged.
In all, the Team organised 15 events in the year, including helping to build houses in
Guangdong, China; touring Sai Kung’s Hoi Ha with underprivileged children; taking part in
the Homeless World Cup fundraising football matches; and visiting different groups of
elderly during festive seasons.
The organisations Hysan partnered were:
• Habitat for Humanity Hong Kong
• Helping Hand
• Hong Chi Association
• Hong Kong Breast Cancer Foundation
• Hong Kong Movie Star Sports Association Charities Ltd
• The Hong Kong Society for the Protection of Children
• Oxfam Hong Kong
• St. James’ Settlement and its Food Bank
• Wofoo Social Enterprises
Hysan was given the Gold Award for Volunteer Service under the Steering Committee on
Promotion of Volunteer Service of Social Welfare Department. Among our staff, two families
also collected Gold Awards, while one family took Silver. Seven individuals were also
honoured with Bronze Awards.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 72
Good corporate governance is the foundation
to delivering consistent and sustainable
performance. This “Corporate Governance”
section presents Hysan’s Board of Directors,
as well as our governance structure, systems
and best practices. 2014 was a busy year for
our Board. In this section, we also highlight
the Board’s actions during the year.
Corporate
Governance
73
74 Board of Directors
80 Corporate Governance Report
98 Directors’ Report
105 Directors’ Remuneration
and Interests Report
113 Audit Committee Report
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 74
Board of Directors
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.
For analysis of the
significance of a strong
corporate governance
culture on risk management,
see “Internal Controls and
Risk Management Report”
(page 44)
THE BOARD
MANAGEMENT
Audit Committee
(A)
Remuneration Committee
(R)
Nomination Committee
(N)
Strategy Committee
(S)
Why Corporate Governance matters – An Institutional Investor’s Perspective
“A primary goal, and the focus of our governance work, is to assess the quality of
the leadership at companies in which we invest. We appreciate that successful
companies come in many shapes and sizes and that good governance alone does not
generate financial returns. But in our experience, well-managed, well-led companies
with clearly understood strategies, sound operational practices and a focus on the
future tend to deliver more consistent returns over time, withstanding short-term
shocks by building trust with long-term shareholders and other stakeholders.
This kind of good governance is the ultimate risk-management strategy, which is
crucial to us as investors. Accordingly, we encourage companies to engage with us in
an ongoing dialogue addressing specific governance issues, an approach we consider
more productive and less distracting than taking high-profile “activist” positions.”
Larry Fink
Chairman and CEO
BlackRock
(extracts from BlackRock’s “2013 Corporate Governance and Responsible Investment Report:
Taking the Long View”)
75
Governance calendar for 2014
The overall calendar of meetings of the Board and its Committees for 2014 is shown below:
Board
Further
report
Page 82
Audit Committee
Page 113
Remuneration
Committee
Nomination
Committee
AGM
Page 105
Page 94
Jan
Feb Mar
Apr May
Jun
Jul
Aug
Sep Oct Nov Dec
✓
✓
✓
✓
✓
✓
✓
✓
✓
(Note 1)
✓
✓
Note:
1 A full-day Board meeting was held, covering 2015 budget and business plan, as well as longer-term directional strategy for further growth.
Meeting attendance by Directors in 2014
The attendance of Directors at the meetings of the Board and its Committees is shown below:
Attended
Attended by alternate
Attended by tele-conference
Attended all or part of meetings as invitee
Directors
Executive
Irene Yun Lien LEE
Siu Chuen LAU
Wendy Wen Yee YUNG
Independent non-executive
Nicholas Charles ALLEN
Frederick Peter CHURCHOUSE (Note 2)
Philip Yan Hok FAN
Lawrence Juen-Yee LAU (Note 3)
Joseph Chung Yin POON
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Board
Meetings
(total: 5)
(Note 1)
Audit
Committee
Meetings
(total: 3)
(Note 1)
Remuneration
Committee
Meeting
(total: 1)
(Note 1)
Nomination
Committee
Meeting
(total: 1)
(Note 1)
Annual
General
Meeting
(“AGM”)
(Note 1)
(Note 4)
(Note 4)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Notes:
1 The attendance figure represents actual attendance a Director is entitled to attend or invited to attend.
2 Effective 25 November 2014, Frederick Peter CHURCHOUSE was appointed member of Audit Committee.
3 Effective 12 December 2014, Lawrence Juen-Yee LAU was appointed Independent non-executive Director.
4 Except the session regarding the director’s own compensation package.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
76
Board of Directors
Chairman (chairing N, S)
Irene Yun Lien LEE
Deputy Chairman and
Chief Executive Officer (S)
Siu Chuen LAU
Ms. Lee is an independent non-executive director of
Cathay Pacific Airways Limited, CLP Holdings Limited,
Hang Seng Bank 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 61.
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 56.
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 59.
Note: (A) Audit Committee
(R) Remuneration Committee
(N) Nomination Committee
(S) Strategy Committee
77
Independent non-executive
Director
Lawrence Juen-Yee LAU
Professor Lau is currently Ralph and Claire Landau Professor
of Economics at The Chinese University of Hong Kong.
He is also an independent non-executive director of AIA
Group Limited and CNOOC Limited. Professor Lau is an
independent director of Far EasTone Telecommunications
Co., Ltd. (listed on the Taiwan Stock Exchange).
Professor Lau received his B.S. degree (with Great
Distinction) in Physics from Stanford University and his M.A.
and Ph.D. degrees in Economics from the University of
California at Berkeley. He joined the faculty of the
Department of Economics at Stanford University in 1966,
and had a long and distinguished career there. Upon his
retirement in 2006, he became Kwoh-Ting Li Professor in
Economic Development, Emeritus, at Stanford University.
From 2004 to 2010, Professor Lau served as Vice-Chancellor
(President) of The Chinese University of Hong Kong. From
September 2010 to September 2014, he served as
Chairman of CIC International (Hong Kong) Co., Limited, a
subsidiary of China Investment Corporation. Professor Lau
was also a non-executive director of Semiconductor
Manufacturing International Corporation.
Professor Lau is a member of the 12th National Committee
of the Chinese People’s Political Consultative Conference
and a Vice-Chairman of its Economics Sub-committee. He
also serves as a member of the Exchange Fund Advisory
Committee of the Hong Kong Monetary Authority and
Chairman of its Governance Sub-committee. He was
appointed a Justice of the Peace in July 2007 and awarded
the Gold Bauhinia Star in 2011 by the Government of the
Hong Kong Special Administrative Region. He was
appointed Independent non-executive Director in
December 2014. He is aged 70.
Independent non-executive
Director (A)
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 Company Ltd.
He is an independent non-executive director of Longfor
Properties Co. Ltd. He is also the publisher and author of
“The Churchouse Letter”. 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. He was also a board
member of Macquarie Retail Management (Asia) Limited.
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 65.
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 China Aircraft Leasing Group Holdings Limited,
and an independent director of Goodman Group. He is a
member of the Asia Advisory Committee of AustralianSuper
Pty Ltd (a pension fund in Australia). He was previously an
independent non-executive director of HKC (Holdings)
Limited, and an independent director of Suntech Power
Holdings Co., Ltd. (under provisional liquidation) 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 65.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 78
Board of Directors
Independent non-executive
Director (R, N)
Joseph Chung Yin POON
Non-executive Director (A)
Anthony Hsien Pin LEE
Mr. Poon is group managing director and deputy chief
executive officer of a private company and an independent
non-executive director of AAC Technologies Holdings Inc.
He was formerly managing director and deputy chief
executive of Hang Seng Bank Limited and had held senior
management posts in HSBC Group and a number of
international renowned financial institutions. Mr. Poon is a
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 and
the Environment and Conservation Fund Investment
Committee. Mr. Poon holds a Bachelor of Commerce degree
from the University of Western Australia, is a member of
Chartered Accountants Australia and New Zealand, and the
Hong Kong Institute of Certified Public Accountants.
Mr. Poon is also a Fellow of the Hong Kong Institute of
Directors. He was appointed Independent non-executive
Director in January 2010. He is aged 60.
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 58.
Mr. Lee is a director and substantial shareholder of the
Australian-listed Beyond International Limited, principally
engaged in television programme production and
international sales of television programmes and feature
films. He is also a non-executive director of Television
Broadcasts Limited. 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.
Mr. Lee received a Bachelor of Arts Degree from Princeton
University and a Master of Business Administration
Degree from The Chinese University of Hong Kong. He
was appointed a Non-executive Director in 1994 and is
aged 57.
Non-executive Director (N, S)
Chien LEE
Mr. Lee is a private investor and a non-executive director
of Swire Pacific Limited and a number of private
companies. He was previously an independent
non-executive director of Television Broadcasts Limited.
He is a member of the founding Lee family and a director
of Lee Hysan Estate Company, Limited, a substantial
shareholder of the Company. Mr. Lee received a Bachelor
of Science Degree in Mathematical Science, a Master of
Science Degree in Operations Research and a Master of
Business Administration Degree from Stanford University.
Mr. Lee was appointed a Non-executive Director in 1988
and is aged 61.
79
Non-executive Director (R)
Michael Tze Hau LEE
Executive Director and
Company Secretary
Wendy Wen Yee YUNG
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 53.
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 and a Fellow of
the Hong Kong Institute of Chartered Secretaries. Her
public services include serving as a member of the Main
Board and Growth Enterprise Market Listing Committee of
The Stock Exchange of Hong Kong Limited, Standing
Committee on Company Law Reform, a co-opted member
of the Audit and Risk Committee of the Hospital Authority,
and (representing Hong Kong Institute of Certified Public
Accountants) a member of the Professional Accountants in
Business Committee of the International Federation of
Accountants. She is aged 53.
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 49.
General Manager, Project Management
Sunny Wing Chung CHAN
BEng (Hons), CEng, MCIBSE, MHKIE, LEEDTM 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
Director, Office Leasing
Jessica Mo Ching YIP
MBA, MHKIS, MRICS
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 80 Corporate Governance Report
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.
While the Remuneration Committee does not determine staff compensation below Executive
Director-level, its terms of reference have been expanded to cover (inter alia) the review of key
terms of new compensation and benefits plans with material financial, reputational and strategic
impact. 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.
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. Our Corporate Governance Guidelines
were refined in this light. Director feedback was analysed and discussed at the May Board meeting.
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.
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 Corporate Responsibility
Report. It has early-adopted the environmental, social and governance reporting guidelines under
the Listing Rules. An “integrated” approach is adopted for the 2014 Annual Report, to provide a
more holistic view of the Group’s financial as well as non-financial performance.
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.
81
Governance Framework
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.
Best Corporate Governance Disclosure Awards 2014:
Non-Hang Seng Index (Large Market Capitalisation)
Category – Gold Award
Organised by the Hong Kong Institute of Certified Public Accountants
“The corporate governance report is very extensive and highlights the
company’s overall governance structure. A concise summary table is prepared
showing that Hysan’s corporate governance practices exceed the revised Code
in a number of key areas. This provides positive information to readers and
evidence of a well-embedded governance culture in the company.”
– Judges’ Report
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 82
Corporate Governance Report
The Board in 2014: driving continuous improvement
During the year, 5 Board meetings were held including an additional meeting for discussions on Group strategy
matters. 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.
1. Leadership
2. Strategic Planning
• appointment of a new Independent
non-executive Director to bring new insights to
the Board
• Board effectiveness:
adopted a formal board evaluation process
during the year. To reflect the Board’s
commitment to the principle of board
effectiveness and evaluation, the Corporate
Governance Guidelines were refined
accordingly. The responses to the evaluation
questionnaire were thoroughly analysed
and discussed. (see section on “Evaluation”)
• 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 longer-term
directional strategy for further growth
• re-development and asset enhancement
projects: received and discussed management’s
regular updates on the combined redevelopment
of Sunning Plaza and Sunning Court
• talent management: Board committee received,
and reported back to the Board, implementation
status of new compensation structure for senior
management to drive performance, and
updates on succession planning. These
actions are important for the
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 enhance
shareholder communications by further
exploiting the electronic channels
3. Risk Management
• assessed effectiveness of financial controls,
and other internal controls (Please refer to
separate “Internal Controls and Risk
Management Report”, “Audit Committee
Report”)
• 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
transition to the new “COSO” (Committee of
Sponsoring Organisations of the U.S. Treadway
Commission) standard
• legal and regulatory update is a regular agenda
item for each Board meeting
83
Board Calendar 2014
Special items
March
april – Special strategy
meeting
august
november
Review and discussions of:
• Group strategy
Review of reports from:
• Audit Committee; and
May
Analysis of feedback and
discussions of:
• Board and Board
Committees evaluation
questionnaires
review of internal controls
and risk management
effectiveness
Review and approval of
2014 interim results,
including:
• Interim results
announcement
• Interim report
• Declaration of 2014
1st interim dividend
Review of reports from:
• Nomination Committee
(including review of Board
size and composition;
“independence” of
Directors; and
appointment of a new
Independent
non-executive Director)
• Audit Committee (focusing
on internal controls and
risk management matters)
Review and discussions of:
• 2015 budget
• Longer-term directional
strategy
Review of corporate
governance matters – annual
review of Schedule of
Matters reserved for the full
Board (related to 2015
budget and business plan)
Review of reports from:
• Remuneration Committee
• Audit Committee; and
review of internal controls
and risk management
effectiveness
Review and approval of
2013 annual results,
including:
• Preliminary announcement
• Declaration of 2013
2nd interim dividend
• Other key reports
– Corporate
Governance Report
– Internal Controls and
Risk Management
Report
– Audit Committee Report
– Directors’ Remuneration
and Interests Report
– Directors’ Report
Approval of proposals to be
submitted to the AGM
Annual review of corporate
governance matters
Regular items
Review and discussions of reports on:
• Operating results and regular updates for the Group’s core
leasing business (Office, Retail and Residential segments)
• Current development and asset enhancement projects
Update on:
• Analysts feedback
• Legal and regulatory issues
update (including the combined redevelopment of Sunning
Plaza and Sunning Court)
Review and approval of:
• Minutes of previous meeting
Review and discussions of:
• Financial forecasts
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 84
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.
(These documents are available on the Company’s website: www.hysan.com.hk)
reFreSHInG THe Board – Board SIZe, CoMPoSITIon, and aPPoInTMenTS
There are currently twelve Directors on the Board: the Chairman, two other Executive
Directors, and nine Non-executive Directors (including five 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. 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, six
Non-executive Directors (including five Independent non-executive Directors) with
backgrounds in the areas of economics, finance, general management, professional
practices, and property industry have joined our Board. The Board last reviewed its size and
composition in November 2014. Lawrence Juen-Yee LAU was appointed Independent
non-executive Director effective 12 December 2014.
85
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 15 May 2015, Siu Chuen LAU, Philip Yan Hok FAN,
Michael Tze Hau LEE, Joseph Chung Yin POON and Lawrence Juen-Yee LAU 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.
Board Effectiveness
SKIllS, BalanCe, and dIVerSITY
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 2004, reflects this broad concept of diversity.
It was further refined in 2014 to more clearly bring out the Board’s endorsement of
this approach.
Balance of Non-executive Directors
and Executive Directors
31 December 2014
Length of tenure of
Non-executive Directors
31 December 2014
Board Diversity by Gender
31 December 2014
3
4
4
5
5
17%
83%
Executive Directors
Independent non-executive Directors
Non-executive Directors
0 – 5 years
(being the five Independent
non-executive Directors)
6 years and above
(being the four Non-executive Directors)
Men
Women
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 86
Corporate Governance Report
During 2014, we have 9 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
Frederick Peter CHURCHOUSE
Experience as a senior executive in another major company in property investment,
development or facilities management; or related industry.
3. Financial Services and investment
Experience in the financial services industry or experience in overseeing financial
transactions and investment management.
4. Marketing
Experience as a senior executive in a major retail, customer products, services or
distribution company.
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Joseph Chung Yin POON
Hans Michael JEBSEN
5. Macro-environment affecting the Group
Lawrence Juen-Yee LAU
Expertise in the economic, political or social environment affecting the Group and its
operations, with a special focus on Hong Kong and China.
6.
“Audit Committee” Accounting Expertise
Expertise based on definition of “Audit Committee accounting expertise” under Listing
Rules.
Nicholas Charles ALLEN
7. 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.
8. 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
Lawrence Juen-Yee LAU
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 76 to 79 and are also available on the Company’s website: www.hysan.com.hk)
87
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 reviewed the proposed appointment of a new Independent
non-executive Director in November 2014. At the same meeting, the Committee carried out a
detailed review of director independence. It concluded that each of the 5 Independent
non-executive Directors (including the then proposed appointee) was independent as at that
time. Independent non-executive Directors are identified in our Annual and Interim Reports and
other communications with shareholders. The Board will continually monitor and review whether
there are relationships or circumstances that are likely to affect (or could appear to affect)
independence.
“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 five
independent Directors with
a diverse background
We have five Independent non-executive
Directors drawn from a diverse background,
spanning economics, financial services and
investment, general management,
professional (accounting), and property
industry
(See page 86)
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 88
summarising 2014 review)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
88
Corporate Governance Report
Independence Status
Name
Management
Independent
Not
Independent
November 2014 Review–
Reason for Independence Status
Nicholas Charles ALLEN
Frederick Peter
CHURCHOUSE
Philip Yan Hok FAN
Hans Michael JEBSEN
Siu Chuen LAU
Lawrence Juen-Yee 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 that will
affect independence
No business or other relationships with
the Group or management that will
affect independence
No business or other relationships with
the Group or management that will
affect independence
No business or other relationships with
the Group or management that will
affect independence (Note 1)
No business or other relationships with
the Group or management that will
affect independence
✓
✓
✓
✓
Note:
1 Professor Lau’s spouse is Partner in-charge, Tax, Hong Kong, at KPMG China, and a board member of KPMG China. KPMG is a
tenant of the Group and provided taxation services principally in acting as tax representative of the Company and certain
subsidiaries, which are routine in nature. Mrs. Lau has not been involved in any business negotiations with the Group, or in the
provision of any services, and will refrain from doing so. The Board and its Nomination Committee had assessed the
independence of Professor Lau in light of the circumstances, including (i) Professor Lau’s background, experience,
achievements, as well as character; (ii) the nature of the Company’s relationship with KPMG and Mrs. Lau’s roles as described
above; and concluded that his independence would not be affected.
89
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.
In 2014, the board evaluation process was formalised, by adopting a board evaluation
questionnaire for the full Board as well as Board Committees. 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 were thoroughly analysed and discussed at Board meeting held in May 2014.
Areas covered in the questionnaire included the Board’s roles (including Director
responsibilities, relationship with Board Committees); Board composition (size; balance of
knowledge, experience and skills; independence); Board meetings and processes (including
satisfaction with integrity of financial statements and accounting policies; risk management
process); Board in action (including strengths and weaknesses); and training.
Out of a total of 29 questions, none has a scoring that is lower than 3 (“Agree”) according to
a scale of 1 (“Strongly Disagree”) to 4 (“Strongly Agree”).
Items that received the highest score (with over 70% indicated a scoring of “Strongly
Agree”) are: satisfaction with integrity of financial statements and accounting policies;
Board independence; and clarity in providing for the roles of the Board as well as individual
director responsibilities.
Valuable feedback received include the need to continually review the Board’s size, balance
of knowledge, experience, and skills as the Group evolves. In terms of the Board process,
suggestions for agenda items included more coverage of customer feedback (including
customer satisfaction surveys), corporate social responsibility, and more frequent updates
on new initiatives. For Directors’ training, refresher seminars on corporate governance,
directors’ duties, and the regulatory framework were suggested. Other proposals include
visits to emerging districts and shopping malls, and further exposure to international trends.
These feedback, duly noted by management, are being incorporated in the continual
improvement of the Board’s programmes and processes.
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 2014
without the presence of executive members or Board members relating to the founding
Lee family.
Extracts from responses to Board Evaluation Questionnaires
On the significance of having a strong and independent element
on the Board –
“This is particularly important given our Company has a major family
shareholder.”
– Feedback of a founding Lee family Non-executive Director
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 90
Corporate Governance Report
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 further strengthened. In addition to receiving presentations from
non-Board management members at Board meetings, Non-executive Directors are also invited
to attend Company events. Such events 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. All these facilitate the build-up of constructive
relations and dialogue between the Board and the management team, as well as first-hand
experience of our people and culture.
91
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.
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 and operations (including the key risks it faces), and an overview of the
additional responsibilities of Non-executive Directors. Site visits to the Group’s property
portfolios are also arranged.
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 Board training during the
year, ranging from the macro socio-political environment affecting the Group, corporate
governance from the investor perspective, 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.
Example of Board training – interactive discussions on corporate
governance from investor perspective
“BlackRock was invited to meet with the Board of Hysan in May 2014. The Board
wanted to understand how BlackRock viewed corporate governance from an
investor perspective. In addition, it would like to know how BlackRock viewed its
corporate governance and what was considered best practice. Hysan has high
standards of corporate governance. The meeting gave BlackRock the opportunity to
communicate how it assesses corporate governance issues and also to understand
the key corporate governance issues facing Hong Kong listed companies.”
Pru Bennett
Head of Corporate Governance and
Responsible Investment for Asia-Pacific
BlackRock
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 92
Corporate Governance Report
Directors
2014 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
Lawrence Juen-Yee LAU
a, b, c
a, b, c
a, b, c
a, b, c
a, b, c
a, b, c
(appointed effective 12 December 2014)
Joseph Chung Yin POON
Not applicable
a, b , c
Non-executive
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
c
a, b
a, b, c
a, b, c
Notes:
a. regulatory updates:-
– an overview of the new COSO framework for internal controls
– new Competition Ordinance
b. broad macro environment:-
– update on the changing socio-political dynamics in Hong Kong
– discussion session on corporate governance with a corporate governance expert (focusing on institutional
investor perspective)
c. training organised by third parties, with invitation extended to Hysan Directors – these included 2014 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 and
implemented 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.
Board Committees in 2014
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.
93
Pre-meeting sessions
with external and
internal auditors held
without management
presence
Strategic planning is an important function of the Board. An additional scheduled Board
meeting was held in 2014 and will be held 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 (Independent non-executive
Director), Philip Yan Hok FAN (Independent non-executive Director) and Chien LEE
(Non-executive Director).
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 Philip Yan Hok FAN (Independent
non-executive Director), Anthony Hsien Pin LEE (Non-executive Director), and
Frederick Peter CHURCHOUSE (Independent non-executive Director, appointed as a
member of Audit Committee in November 2014). There is an overall majority of
Independent non-executive Directors. Nicholas Charles ALLEN (Committee 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 Board 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.
aCTIVITIeS and rePorT In 2014 and To daTe
Full details of the activities of the Audit Committee are also set out in the “Audit Committee
Report” on pages 113 to 116. Three meetings were held during the year. Attendance of
Audit Committee meetings is set out in the table on page 75. In addition to reviewing and
approving annual and interim financial statements, the Committee had a separate meeting
substantially 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). (Details are also set out in the “Internal
Controls and Risk Management” Report on pages 42 to 47)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 94
Corporate Governance Report
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.
aCTIVITIeS and rePorT In 2014 and To daTe
Full details of the activities of the Remuneration Committee are set out in the “Directors’
Remuneration and Interests Report” on pages 105 to 112. A meeting was held during the
year. Attendance of Remuneration Committee meeting is set out in the table on page 75.
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 Nicholas Charles ALLEN (Independent non-executive Director),
Philip Yan Hok FAN (Independent non-executive Director), Chien LEE (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; (ii) assess the independence of Independent non-executive Directors; and (iii)
consider the appointment of Lawrence Juen-Yee LAU as Independent non-executive
Director. Attendance of Nomination Committee meeting is set out in the table on page 75.
– See “Directors'
Remuneration and
Interests Report”
(page 105)
– For Attendance (page 75)
For Attendance (page 75)
95
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 96
Corporate Governance Report
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 2013,
a review of business activities, and the Company’s outlook for 2014. 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
97
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.
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 meeting; 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.
During the year, changes reflecting the impact of the new Companies Ordinance (effective
3 March 2014) were made to the Company’s Memorandum and Articles of Association by
removing/amending provisions that are in conflicts with the new Companies Ordinance.
Such changes were proposed and approved by shareholders at the AGM held in May 2014.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 98
The Directors submit their report together with the audited financial statements for the year ended 31 December 2014, which
were approved by the Board of Directors (the “Board”) on 11 March 2015.
PrinciPal activities
The principal activities of the Group continued throughout 2014 to be property investment, management, and development.
Details of the Group’s principal subsidiaries and associates as at 31 December 2014 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 2014 are set out in the consolidated income statement on page 120.
The first interim dividend of HK23 cents per share, amounting to approximately HK$245 million, was paid to shareholders
during the year.
The Board declares a second interim dividend of HK100 cents per share to the shareholders on the register of members on
26 March 2015, absorbing approximately HK$1,064 million. The dividends declared and paid for ordinary shares in respect of
the full year 2014 will absorb approximately HK$1,309 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 124 and 125 and note 31 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 2014 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 2014 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 30 to the financial statements.
Directors’ Report 99
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 80 to 97) – 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 105 to 112) – 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 113 to 116) – 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 42 to 47) – 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 2015); and
(e) “Responsible Business” section (pages 48 to 71) – 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 nine other Non-executive
Directors.
Lawrence Juen-Yee LAU was appointed Independent non-executive Director effective 12 December 2014.
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 76 to 79 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 2014. (see
Corporate Governance Report)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 100
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 105 to 112.
suBstantial shareholders’ and other Persons’ interests in shares
As at 31 December 2014, the interests or short positions of substantial shareholders and other persons of the Company, in the
shares and underlying shares of the Company as recorded in the register required to be kept under section 336 of the Securities
and Futures Ordinance (“SFO”), or as otherwise notified to the Company, were as follows:
Aggregate long positions in shares and underlying shares of the Company
Name
Capacity
Lee Hysan Estate Company, Limited
Beneficial owner and
interests of
a controlled corporation
Number of
ordinary
shares held
433,130,735
(Note b)
Lee Hysan Company Limited
Interests of
controlled corporations
433,130,735
(Note b)
% of
total no. of
issued
shares
(Note a)
40.71
40.71
Silchester International Investors LLP
Investment manager
74,457,000
7.00
Notes:
(a) The percentage has been compiled based on the total number of shares of the Company in issue as at 31 December 2014 (i.e.
1,063,871,692 ordinary shares).
(b) These interests represent the same block of shares of the Company. 393,321,734 shares were held by Lee Hysan Estate Company, Limited (“LHE”)
and 39,809,001 shares were held by a subsidiary of LHE. LHE is a wholly-owned subsidiary of Lee Hysan Company Limited.
Apart from the above, no other interest or short position in the shares or underlying shares of the Company were recorded in
the register required to be kept under section 336 of the SFO as at 31 December 2014.
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.
Directors’ Report continued
101
continuinG connected transactions
Certain transactions entered into by the Group constituted continuing connected transactions (the “Transactions”) under
Rule 14A.76(2) 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) 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 b)
28 March 2013
(Lease and Carpark
Licence Agreement)
Office units on the
5 years commencing
from 1 September 2013 28th, 30th and
31st Floors and
(Note c)
3 carparking
spaces
(ii) Hang Seng
Bank
Limited
(Note b)
16 August 2013
(Lease and Licence
Agreement)
(as amended – Note e) 15 October 2013
2 years, 4 months
and 15 days
commencing from
Shop G13A on the
Ground Floor and
Shops 2-10 and
11-12 on the Lower
Ground Floor and
certain areas on
the Lower Ground
Floor and Ground
Floor
Annual consideration
(Note a)
2014: HK$28,884,708
2015: HK$29,115,636
2016: HK$29,115,636
2017: HK$29,115,636
2018: HK$19,410,424
(on pro-rata basis)
(Notes d & j)
2014: HK$27,618,660
2015: HK$26,756,100
2016: HK$23,944,700
(Note j)
(iii) Pearl Investments 24 May 2011
(HK) Limited
(Note f)
(Lease and Carpark
Licence Agreement)
3 years commencing
from 15 May 2011
(Note g)
Room 1401C on the 2014:
14th Floor and
1 carparking space
HK$770,130
(on pro-rata basis)
(Note j)
(iv) Treasure Matrix
Limited
(Note h)
28 March 2014
(Lease and Licence
Agreements)
5 years commencing
from 28 March 2014
(Note c)
Shop Nos. 308 & 311 2014: HK$4,601,567
on the 3rd Floor
(on pro-rata basis)
2015: HK$7,830,800
(connected to an
2016: HK$7,830,000
outdoor garden)
2017: HK$7,830,000
2018: HK$7,830,000
2019: HK$1,873,306
(on pro-rata basis)
(Notes i & j)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
102
continuinG connected transactions continued
I.
(b) one hysan avenue, causeway Bay, hong Kong (“one hysan avenue”)
Leases granted by the Group continued
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 40.71% interest). Details of the lease are set out
below:
Connected person
Date of agreement
Terms
Premises
Atlas Corporate
Management
Limited
(i) 4 November 2011 3 years commencing
Whole of 21st Floor
from 1 November 2011
(ii) 21 August 2014
(Renewal)
3 years commencing
from 1 November 2014
Whole of 21st Floor
Annual consideration
(Note a)
2014: HK$2,343,100
(on pro-rata basis)
2014:
HK$495,566
(on pro-rata basis)
2015: HK$3,003,864
2016: HK$3,003,864
2017: HK$2,503,220
(on pro-rata basis)
(Note j)
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, 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
28 March 2013
3 years commencing
from 1 April 2013
Whole premises of
Lee Gardens Two
Consideration
received during
the year
HK$30,611,348
(Note k)
(b) The following management agreement was entered into by Hysan Property Management Limited, a wholly-owned
subsidiary of the Company, with Barrowgate for the provision of property management services to Lee Gardens Two:
Connected person
Date of agreement
Terms
Premises
Barrowgate
Limited
28 March 2013
3 years commencing
from 1 April 2013
Whole premises of
Lee Gardens Two
Consideration
received during
the year
HK$2,919,245
(Note k)
Directors’ Report continued
103
continuinG connected transactions continued
Notes:
(a) The annual considerations are based on current rates of rental (including estimated turnover rent, where applicable), operating charges, (for retail
premises) promotion levies and (for carparking spaces) licence fees for each of the relevant financial years as provided in the relevant agreements.
The rental, operating charges, promotion levies and licence fees (as the case may be) are payable monthly in advance.
(b)
Jebsen and Company Limited (“Jebsen and Company”) and Hang Seng Bank Limited are beneficial substantial shareholders of Barrowgate and
having equity interest of 10% and 24.64% respectively in Barrowgate.
(c) The term of the agreements mentioned under I(a)(i) and I(a)(iv) 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.
(d) 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.
(e) On 1 December 2014, a partial surrender agreement had been entered into and pursuant to which the lease for Shop G13A on the Ground Floor
at Lee Gardens Two will be early surrendered effective 31 October 2015. On 15 December 2014, a new lease and licence agreement had been
entered into and pursuant to which the remaining spaces had been renewed for a further term of 3 years commencing from 1 March 2016 to
28 February 2019. As the annual consideration under the renewed lease and licence agreement falls below the applicable de minimis threshold
under the Listing Rules, it constitutes an exempted continuing connected transaction of the Company.
(f)
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.
(g) On 30 May 2014, the lease and carpark licence agreement had been renewed for a further term of 3 years commencing from 15 May 2014
to 14 May 2017. As the annual consideration under the renewed lease and carpark licence agreement falls below the applicable de minimis
threshold under the Listing Rules, it constitutes an exempted continuing connected transaction of the Company. (Total consideration for 2014:
HK$2,259,562)
(h) Treasure Matrix Limited (“Treasure Matrix”) is a non-wholly owned subsidiary of the Company. Under this transaction, Barrowgate was considered
a connected person of the Company under the Listing Rules by virtue of its being a non-wholly owned subsidiary of the Company and also having
a substantial shareholder which is an associate of a Director of the Company.
(i)
The rent for the period from 28 March 2017 to 27 March 2019 will be reviewed at the then prevailing market rent and to be agreed by
Barrowgate and Treasure Matrix.
(j) Office and retail monthly operating charges and carpark licence fee for Lee Gardens Two were revised with effect from 1 January 2014 and
further revised on 1 January 2015. Office monthly operating charges for One Hysan Avenue were revised with effect from 1 January 2015.
(k) These represent the actual consideration received for the year ended 31 December 2014, calculated on the basis of the fee schedules as
prescribed in the respective management agreements.
All the Transactions were entered in the ordinary and usual course of business of the respective companies after due
negotiations on an arm’s length basis with reference to the prevailing market conditions.
Announcements were published regarding the Transactions in accordance with the Listing Rules. The Company confirms that
it has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules in so far as they are
applicable.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 104
continuinG connected transactions continued
Pursuant to Rule 14A.56 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 101 to 103 of the Annual Report in accordance with Rule 14A.56 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
No agreement is considered a contract of significance under paragraph 15 of Appendix 16 of the Listing Rules.
major customers and suPPliers
During the year, 35.33% of the aggregate amount of purchases were attributable to the Group’s 5 largest suppliers with the
largest supplier accounting for 16.23% 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.
auditor
A resolution for the re-appointment of Messrs. Deloitte Touche Tohmatsu as auditor of the Company is to be proposed at the
2015 AGM.
By Order of the Board
irene yun lien lee
Chairman
Hong Kong, 11 March 2015
Directors’ Report continued 105
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 2014 and options movement during the year
are set out in notes 12 and 38 respectively to the financial statements.
Directors’ Remuneration and Interests ReportHysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 106
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$2,124,631 for 2014.
2014 Review
The Committee met in March 2014 with all members present to (i) approve the 2014 annual fixed base salary and determine
the 2013 performance-based bonus of the Executive Directors; (ii) review the fee for Non-executive Directors and Board
Committee members; and (iii) review and discuss an update on the implementation of a new compensation structure for
(non-Director) management staff of the Group. The portion of performance-based variable pay was increased, to better align
pay and performance so as to drive the long-term success of the Company.
The executive packages were set at levels to ensure comparability and competitiveness with Hong Kong based companies
competing within a similar talent pool, with particular emphasis on the property industry. Clear performance targets were set.
March 2015 Review
The Committee met in March 2015 to (i) approve 2015 Executive Director compensation packages and 2014 performance-based
bonus; (ii) review the fee for Non-executive Directors and Board Committee members; and (iii) review a new share option
scheme of the Group. All members attended the meeting.
Directors’ Remuneration and Interests Report continued 107
comPensation revieW continued
Current Director Fee Levels
Director fees are subject to shareholder approval at general meeting. Revision to fees of the respective chairmen of the Audit
Committee and Remuneration Committee were approved at the Annual General Meeting (“AGM”) held in May 2014. The
current fee scale for Directors and Board Committee members are set out below. Executive Directors will not receive any fee.
Board of Directors (Non-executive Directors only)
Chairman
Director
Audit Committee
Chairman
Member
Remuneration Committee
Chairman
Member
Other Committees
Chairman
Member
Per annum
HK$
400,000
200,000
120,000
60,000
60,000
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. A new share option scheme will be proposed for consideration and adoption by the shareholders at the AGM to
be held on 15 May 2015. Details are set out in the circular to shareholders accompanying the AGM notice.
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; and (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.
Consideration on each grant of option is HK$1 and is required to be paid within 30 days from the date of grant of option, with
full payment for exercise price to be made on exercise of the relevant option.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
108
comPensation revieW continued
Long-term incentives: Share Option Scheme continued
Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Exercise period is 10 years. Vesting period is 3
years in equal proportions starting from the 1st anniversary and become fully vested on the 3rd anniversary of the grant. Size of
grant will be determined by reference to base salary multiple and job grades. A clear performance criterion will be a key driver.
The Board will review the grant and vesting structures from time to time.
Movement of share options
During the year, a total of 1,187,000 shares options were granted under the 2005 Scheme.
As at 31 December 2014, an aggregate of 3,435,704 shares are issuable for options granted (including 1,392,884 fully-vested
shares options) under the 2005 Scheme, representing approximately 0.32% of the total number of issued shares of the
Company.
As at the date of this Report, 94,611,428 shares are issuable under the 2005 Scheme representing 8.89% of the total number
of issued shares.
Details of options granted, exercised, cancelled/lapsed and outstanding under the 2005 Scheme during the year are as follows:
Name
Date of grant
Executive Directors
Exercise
price
HK$
Exercise period
(Note a)
Balance
as at
1.1.2014
Granted
Exercised
Balance
as at
31.12.2014
Cancelled/
lapsed
(Note b)
Changes during the year
Irene Yun Lien LEE
14.5.2012
33.50
7.3.2013
39.92
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
261,000
265,000
–
–
10.3.2014
32.84 10.3.2015 –
9.3.2024
(Note c)
–
325,000
Siu Chuen LAU
14.5.2012
33.50
7.3.2013
39.92
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
161,334
246,000
–
–
10.3.2014
32.84 10.3.2015 –
9.3.2024
(Note c)
–
302,000
Wendy Wen Yee YUNG 10.3.2011
35.71
9.3.2012
33.79
7.3.2013
39.92
10.3.2012 –
9.3.2021
9.3.2013 –
8.3.2022
7.3.2014 –
6.3.2023
103,000
113,000
106,700
–
–
–
10.3.2014
32.84 10.3.2015 –
9.3.2024
(Note c)
–
95,000
–
–
–
–
–
–
–
–
–
–
–
261,000
–
265,000
–
325,000
–
161,334
–
246,000
–
302,000
–
103,000
–
113,000
–
106,700
–
95,000
Directors’ Remuneration and Interests Report continued
109
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 d)
31.3.2008
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
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
Balance
as at
1.1.2014
17,000
164,000
251,334
246,001
336,335
362,000
Changes during the year
Granted
Exercised
Balance
as at
31.12.2014
Cancelled/
lapsed
(Note b)
–
–
–
–
–
–
–
–
17,000
(30,000)
(Note e)
(97,000)
(Note f)
(63,666)
(Note g)
(47,983)
(Note h)
–
134,000
–
154,334
(1,334)
181,001
(26,017)
262,335
–
(64,000)
298,000
31.3.2014
33.75
(Note i)
31.3.2015 –
30.3.2024
–
465,000
–
(54,000)
411,000
2,632,704 1,187,000
(238,649)
(145,351) 3,435,704
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 7 March 2014) was HK$32.95.
(d) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.35.
(f)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.95.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.04.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.07.
(i)
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 28 March 2014) was HK$33.30.
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
110
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:
31.3.2014
10.3.2014
HK$33.750
HK$33.750
1.529%
5 years
33.517%
HK$0.866
HK$8.422
HK$32.200
HK$32.840
1.328%
5 years
33.509%
HK$0.866
HK$7.712
(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 111
directors’ interests in shares
As at 31 December 2014, 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
Total
% of the
total no. of
issued shares
(Note a)
–
60,984
80,666
30,000
800,000
758,000
–
–
–
–
–
–
–
20,000
(Note b)
20,000
0.002
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. 1,063,871,692 ordinary shares) as at
31 December 2014.
(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
–
Total
1,000
% of the
total no. of
issued shares
10
(Note)
Jebsen and Company Limited (“Jebsen and Company”) held a 10% interest in the total number of issued shares 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 2014 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
112
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 Jebsen and Company. Business
activities of some of its subsidiaries 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, 11 March 2015
Directors’ Remuneration and Interests Report continued
113
The Audit Committee has 4 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 Frederick Peter CHURCHOUSE
(Independent non-executive Director, appointed as a member of the Committee effective 25 November 2014),
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 the external auditor. The Committee also has the
responsibility to review the adequacy of resources, qualifications and experience of staff of the Group’s accounting and
financial reporting function, and their training programmes and budget. The Committee Chairman reports to the Board on its
findings after each Committee meeting.
The Committee held 3 meetings during the year, on 5 March, 6 August and 21 November 2014. The meetings in March
2014 and August 2014 were held to consider the financial statements for the 2013 annual report and 2014 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 6 March 2015 to consider the financial statements for the year ended 31 December 2014.
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 of the meeting held in March 2014 were set out in the 2013 Annual Report. Significant matters, as reviewed and
discussed in the other meetings, include the following:
how the audit committee spent its time in 2014 (%)
12%
34%
42%
12%
Financial reporting
External audit
Internal controls and risk management
Internal audit
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 2014
:
The Committee reviewed and recommended to the Board for approval of the unaudited financial
statements for the first 6 months of 2014, 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.
Audit Committee ReportHysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 114
• March 2015
:
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 2014, and valuation of investment in an associate with principal assets in Shanghai,
China as at 30 June 2014. In particular, there were discussions on the valuation methodology of
the Group’s investment properties under development (being Sunning Plaza and Sunning Court).
Following the demolition of the buildings, the valuation approach based on capitalisation of net
income would no longer be applicable. No further revenue could be derived from the properties. The
properties had been valued by using the “residual method” as a hypothetical development, using
assumptions including land use, maximum gross floor area minus costs and an allowance for profit
required for the re-development.
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, the Committee 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, the Committee also noted that
external auditors had obtained management accounts of the relevant associate for the 6 months
ended 30 June 2014 and valuation reports for the investment properties held by such associate.
The Committee noted that external auditor 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 such 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 2014.
The Committee reviewed and discussed with management and external auditor the 2014 financial
statements included in the 2014 Annual Report, prior to public announcement and filing. The
Committee received reports from and met with the 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 2014, and valuation of investment in an associate with
principal assets in Shanghai, China as at 31 December 2014. In particular, there were discussions on
the valuation methodology of the Group’s investment properties under development (being Sunning
Plaza and Sunning Court).
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, the Committee 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, the Committee also noted that
external auditors had obtained management accounts of the relevant associate for the year ended
31 December 2014, valuation reports for the investment properties held by such associate, and the
latest available audited financial statements of such associate. The Committee 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 2014, with the Independent Auditor’s Report thereon.
Audit Committee Report continued
115
relationshiP With eXternal auditor
• August 2014
:
The Committee reviewed and considered the terms of engagement of the external auditor in respect
of: 2014 final results (including 2014 annual audit, the related results announcement, and annual
review of continuing connected transactions); and annual update of the Group’s Medium-Term
Notes programme.
• November 2014 :
The Committee reviewed the audit progress report of the external auditor.
• March 2015
:
Annual Assessment: The Committee assessed and is satisfied as to the auditor’s qualification,
expertise and services and independence. In particular, it is satisfied itself that the auditor’s
independence and objectivity have not been 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 2014, external auditor received a total fee of HK$2,927,000 (audit services:
HK$2,160,000 and non-audit services: HK$767,000). “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 2014 review of
interim financial statements, issue of confirmation letters for continuing connected transactions, and
review of financial information in connection with the annual update of the Group’s Medium-Term
Notes programme.
The Committee also reviewed and considered the 2015 audit service plan of the external auditor,
and the terms of its engagement in respect of the 2015 interim results review.
The Committee recommended to the Board that the shareholders be asked to re-appoint Deloitte
Touche Tohmatsu as the Group’s external auditor for 2015.
:
revieW of internal controls and risK manaGement systems
• August and
November
2014
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,
being the impact of “Occupy Central”; and cyber security of the Group; (iii) progress report on
implementing an improvement programme to further strengthen agreed aspects of the Group’s
internal controls and risk management system including transition to new COSO (Committee of
Sponsoring Organisations of the U.S. Treadway Commission) standards. 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.
At the November 2014 meeting, the Committee also reviewed the adequacy of resources,
qualifications and experience of staff of the accounting and financial reporting function, and their
training programmes and budget.
• March 2015
:
2014 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 questionnaire across the
operating departments
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
116
internal audit
:
• August and
November 2014,
March 2015
For each of the meeting: reviewed management responses to audit reports issued during the year;
and progress made in implementing improvement actions.
• November 2014 :
Considered and approved the scope of work to be undertaken by the Internal Audit function in 2015.
evaluation
The Committee was concluded to be effective in fulfilling its roles in 2014, as reflected in the Board and Committee evaluation
process which took place during the year. (For details, please refer to Corporate Governance Report – “Evaluation”. (page 89)).
Members of the Audit Committee
nicholas charles allen (Chairman)
frederick Peter churchouse
Philip yan hok fan
anthony hsien Pin lee
Hong Kong, 11 March 2015
Audit Committee Report continued
Financial
Statements,
Valuation and
Other Information
118 Directors’ Responsibility for the
Financial Statements
119 Independent Auditor’s Report
127 Significant Accounting Policies
137 Notes to the Financial
Statements
120 Consolidated Income Statement
176 Financial Risk Management
121 Consolidated Statement
of Comprehensive Income
122 Consolidated Statement
of Financial Position
186 Five-Year Financial Summary
188 Report of the Valuer
123 Statement of Financial Position
189 Schedule of Principal Properties
124 Consolidated Statement
of Changes in Equity
126 Consolidated Statement
of Cash Flows
191 Shareholding Analysis
192 Shareholder Information
194 On The Stock Exchange of
Hong Kong Limited’s
Environmental, Social and
Governance Reporting Guide
Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible BusinessHysan Annual Report 2014 118
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 119
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 120 to 185, which comprise the consolidated and
Company’s statements of financial position as at 31 December 2014, 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 (Cap. 622) (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 80 of Schedule 11 to 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 2014, 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
11 March 2015
Independent Auditor’s ReportHysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 120
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
2014
hK$ million
2013
HK$ million
4
6
7
8
9
10
15
3,224
(404)
2,820
68
(2)
(214)
(228)
2,940
252
5,636
(386)
5,250
4,902
348
5,250
3,063
(405)
2,658
76
1
(208)
(242)
4,575
309
7,169
(372)
6,797
6,158
639
6,797
460.82
460.69
579.04
578.84
Consolidated Income StatementFor the year ended 31 December 2014
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Gains on revaluation of properties held for own use
Items that may be reclassified subsequently to profit or loss:
Net adjustments to hedging reserve
Share of translation reserve of an associate
Other comprehensive income for the year (net of tax)
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
121
2014
hK$ million
5,250
2013
HK$ million
6,797
Note
11
16
20
51
(16)
35
51
(53)
117
64
84
5,301
6,881
4,953
348
5,301
6,242
639
6,881
Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2014Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
122
Non-current assets
Investment properties
Property, plant and equipment
Investments in associates
Principal-protected investments
Term notes
Other financial assets
Other receivables
Current assets
Accounts and other receivables
Principal-protected investments
Term notes
Other financial assets
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Borrowings
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
2014
hK$ million
2013
HK$ million
16
17
19
20
21
22
23
23
20
21
22
25
25
26
27
28
22
28
22
29
30
68,735
710
4,154
–
720
3
226
74,548
255
80
485
15
3,534
106
4,475
481
306
327
1,589
2
104
2,809
1,666
65,322
604
4,181
81
622
32
231
71,073
241
77
580
–
4,042
81
5,021
500
190
327
1,055
48
101
2,221
2,800
76,214
73,873
4,858
30
569
628
6,085
6,449
74
610
559
7,692
70,129
66,181
7,640
59,400
67,040
3,089
70,129
5,318
58,008
63,326
2,855
66,181
The consolidated financial statements on pages 120 to 185 were approved and authorised for issue by the Board of Directors
on 11 March 2015 and are signed on its behalf by:
irene y. l. lee
Director
s. c. lau
Director
Consolidated Statement of Financial PositionAt 31 December 2014
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 recoverables
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
123
Notes
2014
hK$ million
2013
HK$ million
17
18
22
24
24
25
24
29
30
31
11
1,422
2
3,514
4,949
2
9,194
2
1
9,199
43
1,051
1,094
8,105
16
1,471
2
3,711
5,200
3
9,167
–
67
9,237
44
1,275
1,319
7,918
13,054
13,118
1
1
13,053
13,117
7,640
5,413
13,053
5,318
7,799
13,117
The financial statements on pages 120 to 185 were approved and authorised for issue by the Board of Directors on 11 March
2015 and are signed on its behalf by:
irene y. l. lee
Director
s. c. lau
Director
Statement of Financial PositionAt 31 December 2014Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
124
At 1 January 2013
Profit for the year
Net losses arising from hedging instruments
Reclassification adjustments for net losses included in profit or loss
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
(note 29)
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)
At 31 December 2013
5,318
2,038
Profit for the year
Net gains arising from hedging instruments
Reclassification adjustments for net gains included in profit or loss
Amortisation of forward element excluded from hedge designation
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
(note 29)
Share of translation reserve of an associate
Total comprehensive income (expenses) for the year
Transfer upon abolition of par value under the new Hong Kong
Companies Ordinance (note 30(a))
Issue of shares under share option schemes on or after 3 March 2014
Recognition of equity-settled share-based payments
Forfeiture of share options
Dividends paid during the year (note 14)
At 31 December 2014
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,314
8
–
–
–
7,640
(2,038)
–
–
–
–
–
Attributable to owners of the Company
Share
capital
HK$ million
Share
premium
HK$ million
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
5,315
2,022
14
276
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
16
–
–
–
–
–
–
–
–
–
(4)
10
–
20
–
–
–
–
–
–
–
–
–
(2)
10
(1)
–
27
–
–
–
–
–
–
–
–
–
–
276
–
–
–
–
–
–
–
–
(276)
–
–
–
–
–
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
100
(3)
308
413
49,702
58,123
6,158
2,324
639
60,447
6,797
(105)
(24)
–
(105)
52
–
(53)
(77)
–
95
(51)
–
–
–
–
–
7
–
–
–
–
–
–
–
–
51
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24
(4)
–
20
–
–
–
–
–
–
–
–
–
–
–
–
19
(3)
–
16
117
117
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(16)
(16)
6,158
6,242
639
6,881
(1,064)
(1,064)
(108)
(1,172)
4,902
4,902
2,855
348
66,181
5,250
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
6,158
(105)
52
24
(4)
117
15
10
95
(51)
7
19
(3)
(16)
–
6
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52
24
(4)
117
15
10
95
(51)
7
19
(3)
(16)
–
6
10
–
4,902
4,953
348
5,301
100
(3)
(26)
344
514
58,444
67,040
3,089
70,129
(1,255)
(1,255)
(114)
(1,369)
100
(3)
328
530
54,796
63,326
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Consolidated Statement of Changes in EquityFor the year ended 31 December 2014
At 1 January 2013
Profit for the year
Net losses arising from hedging instruments
Reclassification adjustments for net losses included in profit or loss
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
(note 29)
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)
At 31 December 2013
Profit for the year
Net gains arising from hedging instruments
Reclassification adjustments for net gains included in profit or loss
Amortisation of forward element excluded from hedge designation
Gain on revaluation of properties held for own use
Deferred taxation arising on revaluation of properties held for own use
(note 29)
Share of translation reserve of an associate
Total comprehensive income (expenses) for the year
Transfer upon abolition of par value under the new Hong Kong
Companies Ordinance (note 30(a))
Issue of shares under share option schemes on or after 3 March 2014
Recognition of equity-settled share-based payments
Forfeiture of share options
Dividends paid during the year (note 14)
At 31 December 2014
Attributable to owners of the Company
Share
capital
HK$ million
Share
premium
HK$ million
Share
options
reserve
Capital
redemption
reserve
HK$ million
HK$ million
5,315
2,022
14
276
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
8
–
–
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
10
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
10
(1)
–
27
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,314
(2,038)
(276)
125
Attributable to owners of the Company
General
reserve
HK$ million
Investments
revaluation
reserve
HK$ million
Hedging
reserve
HK$ million
Properties
revaluation
reserve
HK$ million
Translation
reserve
HK$ million
Retained
profits
HK$ million
Total
HK$ million
Non-controlling
interests
HK$ million
Total
HK$ million
100
(3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,318
2,038
276
100
(3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24)
–
(105)
52
–
–
–
(53)
–
–
–
(77)
–
95
(51)
7
–
–
–
51
–
–
–
–
–
308
413
49,702
58,123
2,324
60,447
–
–
–
24
(4)
–
20
–
–
–
–
–
–
–
–
117
117
–
–
–
6,158
–
–
–
–
–
6,158
–
–
(1,064)
6,158
(105)
52
24
(4)
117
6,242
15
10
(1,064)
639
–
–
–
–
–
639
–
–
(108)
6,797
(105)
52
24
(4)
117
6,881
15
10
(1,172)
328
530
54,796
63,326
2,855
66,181
–
–
–
–
19
(3)
–
16
–
–
–
–
–
–
–
–
–
–
–
(16)
(16)
–
–
–
–
–
4,902
–
–
–
–
–
–
4,902
95
(51)
7
19
(3)
(16)
348
–
–
–
–
–
–
5,250
95
(51)
7
19
(3)
(16)
4,902
4,953
348
5,301
–
–
–
1
(1,255)
–
6
10
–
(1,255)
–
–
–
–
(114)
–
6
10
–
(1,369)
7,640
100
(3)
(26)
344
514
58,444
67,040
3,089
70,129
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
126
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
Net interest income
Depreciation of property, plant and equipment
Share-based payment expenses
Operating cash flows before movements in working capital
Decrease (increase) in accounts and other receivables
Decrease in accounts payable and accruals
Increase in rental deposits from tenants
Cash generated from operations
Hong Kong profits tax paid
Hong Kong profits tax refund
Net cash from operating activities
Investing activities
Interest received
Dividends received from an associate
Proceeds upon maturity of principal-protected investments
Proceeds upon maturity of term notes
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
Purchase of principal-protected investment
Purchases of term notes
Acquisition of an investment property through a subsidiary
Additions to time deposits with original maturity over three months
Net cash from (used in) investing activities
Financing activities
Interest paid
Payment of other finance costs
Medium Term Note Programme expenses
Dividends paid
Dividends paid to non-controlling interests of a subsidiary
Repayment of bank loans
Repayment of floating rate notes
Issue of fixed rate notes
Proceeds on exercise of share options
Net cash (used in) from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Notes
2014
hK$ million
2013
HK$ million
5,636
7,169
2
228
(2,940)
(252)
(68)
17
10
2,633
32
(28)
75
2,712
(323)
6
2,395
71
263
140
574
5,483
–
(335)
(24)
(64)
(601)
(232)
(5,045)
230
(193)
(12)
(2)
(1,255)
(114)
(900)
(200)
–
6
(2,670)
(45)
621
576
(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)
(161)
(18)
(1)
(1,064)
(108)
(700)
–
2,326
15
289
(342)
963
621
32
25
Consolidated Statement of Cash FlowsFor the year ended 31 December 2014
127
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 which concern the preparation
of financial statements, which for this financial year and the comparative period continue to be those of the predecessor
Companies Ordinance (Cap. 32), in accordance with transitional and saving arrangements set out in Part 9 of Schedule 11 of
the Hong Kong Companies Ordinance (Cap. 622) (“New 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.
Significant Accounting PoliciesFor the year ended 31 December 2014Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 128
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, profits or losses 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.
4. investment ProPerties
Investment properties are properties held to earn rental and/or for capital appreciation including properties under
redevelopment for such proposes.
Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial
recognition, investment properties are measured at their fair values using the fair value model. Gains or losses arising
from changes in the fair value of investment properties are included in profit or loss for the period in which they arise. If
an investment property becomes an item of property, plant and equipment because its use has changed as evidenced by
commencement of owner-occupation, the property’s deemed cost for subsequent accounting is its fair value at the date of
change in use.
Construction costs incurred for investment properties under redevelopment are capitalised as part of the carrying amount of
the investment properties under redevelopment. Investment properties under redevelopment are measured at fair value at the
end of the reporting period. Any difference between the fair value of the investment properties under redevelopment and their
carrying amount is recognised in profit or loss in the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or
no future economic benefits are expected from its disposal. Any gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the
period in which the item is derecognised.
5. ProPerty, Plant and equiPment
Property, plant and equipment including land and buildings held for use in the production or supply of goods or services,
or for administrative purposes are stated at cost or fair value less subsequent accumulated depreciation and accumulated
impairment losses.
Any revaluation increase arising on revaluation of land and buildings is recognised in other comprehensive income and
accumulated in the properties revaluation reserve, except to the extent that it reverses a revaluation decrease of the same
asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease
previously charged. A decrease in 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.
Significant Accounting Policies continuedFor the year ended 31 December 2014 129
5. ProPerty, Plant and equiPment continued
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.
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 FVTPL 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 FVTPL 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 130
7. financial instruments continued
Financial assets continued
(a) classification of financial assets continued
(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.
(ii) financial assets at fvtPl
Financial assets at FVTPL comprise derivatives that are not designated and effective as hedging instruments, principal-
protected investments and club debentures.
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 the 2010 version of the Hong Kong Financial Reporting Standard (“HKFRS”) 9.
Interest income on debt instruments at FVTPL is included in the other gains or losses described above.
(b) impairment of financial assets
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.
Significant Accounting Policies continuedFor the year ended 31 December 2014 131
7. financial instruments continued
Financial assets continued
(b) impairment of financial assets continued
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, the difference between the asset’s carrying amount and the sum of the consideration
received and receivable is recognised in profit or loss.
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) 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.
(ii) 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.
(iii) 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 132
7. financial instruments continued
Financial liabilities and equity instruments continued
(a) classification and measurement continued
(iv) 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.
(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.
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 22 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 effective in offsetting changes in fair values or cash flows of the hedged item
attributable to the hedged risk, which is when the hedging relationships meets all of the following hedge effectiveness
requirements:
•
•
•
there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the
Group actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of
hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk
management objective for that designated hedging relationship remains the same, the Group adjusts the hedge ratio of the
hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
Note 22 of the Notes to the Financial Statements sets out details of the fair values of the derivative instruments used for
hedging purposes.
Significant Accounting Policies continuedFor the year ended 31 December 2014 133
7. financial instruments continued
Hedge accounting continued
(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.
(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.
Upon discontinuation of the hedging relationship of a cash flow hedge, 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 the Group separates the spot element of a forward contract and designates only the change in the fair value of the
spot element as hedging instrument, the change in fair value of the spot element that is determined to be an effective hedge
is recognised in other comprehensive income in hedging reserve and the ineffective portion is recognised in profit or loss. The
amount that has been accumulated in hedging reserve is reclassified to profit or loss as a reclassification adjustment in the
same period during which the relevant hedged items affect profit or loss.
If the forward elements of a forward contract have the character of a cost for obtaining protection against a risk over a
particular period of time, the change in fair value of the forward element is recognised in other comprehensive income in
hedging reserve to the extent it relates to the hedged item. The value of the aligned forward element that exists at the date of
designation of the forward contract is amortised from hedging reserve to profit or loss on a rational basis over the period during
which the hedge adjustment for the forward contract could affect profit or loss. At the end of reporting period, the amortisation
amount is reclassified from hedging reserve to profit or loss as a reclassification adjustment.
(c) discontinuation of hedges
The Group discontinues hedge accounting prospectively only when the hedging relationship (or a part of a hedging
relationship) ceases to meet the qualifying criteria (after taking into account any rebalancing of the hedging relationship, if
applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. Discontinuing
hedge accounting can either affect a hedging relationship in its entirety or only a part of it (in which case hedge accounting
continues for the remainder of the hedging relationship).
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.
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 134
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.
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.
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.
Significant Accounting Policies continuedFor the year ended 31 December 2014 135
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 136
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 capital (to share premium prior to New Companies Ordinance became effective on 3 March 2014). 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.
Significant Accounting Policies continuedFor the year ended 31 December 2014 137
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 Amendments to Standards and Interpretation 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 2014. The adoption of these Amendments to Standards and Interpretation had
no material effect on the results and financial position of the Group or the Company for the current and/or prior accounting
years.
In addition, the Group had applied the new requirements for hedge accounting under the 2013 version of the Hong Kong
Financial Reporting Standard (“HKFRS”) 9 in advance of its effective date further to the Group’s early application of the 2010
version of HKFRS 9 in prior years.
HKFRS 9 “Financial instrument: 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 accordance with the transitional provision for hedge accounting of HKFRS 9, the Group is only required to prospectively
apply the new requirements for hedge accounting under HKFRS 9 except for certain limited exceptions from the date of initial
application on 1 January 2014. At initial application, hedging relationships that qualified for hedge accounting in accordance
with Hong Kong Accounting Standard (“HKAS”) 39 “Financial Instruments: Recognition and Measurement” that also qualify
for hedge accounting in accordance with the criteria of the new requirements after taking into account any rebalancing of the
hedging relationship on transition were regarded as continuing hedging relationships.
Upon the early application of these new requirements for hedge accounting under HKFRS 9, the Group separates the spot
element of certain forward contracts and designated only the change in the fair value of the spot elements of these forward
contracts as hedging instruments during the year. The relevant accounting policies of these changes are disclosed in note 7 of
the “Significant Accounting Policies” section and have had no material impact on the results and financial position of the Group
or the Company for the current and/or prior years.
Notes to the Financial StatementsFor the year ended 31 December 2014Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 138
2. aPPlication of neW and revised honG KonG financial rePortinG standards
(“hKfrss”) continued
The Group and the Company have not early applied the following new Standards and Amendments to Standards that have
been issued but are not yet effective.
HKFRS 9
HKFRS 15
Amendments to HKFRSs
Amendments to HKFRSs
Amendments to HKFRSs
Amendments to HKFRS 10 and HKAS 28
Amendments to HKFRS 10, HKFRS 12 and HKAS 28
Amendments to HKFRS 11
Amendments to HKAS 1
Amendments to HKAS 16 and HKAS 38
Amendments to HKAS 16 and HKAS 41
Amendments to HKAS 19
Amendments to HKAS 27
Financial Instruments5
Revenue from Contracts with Customers4
Annual Improvements to HKFRSs 2010-2012 Cycle2
Annual Improvements to HKFRSs 2011-2013 Cycle1
Annual Improvements to HKFRSs 2012-2014 Cycle3
Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture3
Investment Entities: Applying the Consolidation Exception3
Accounting for Acquisitions of Interests in Joint Operations3
Disclosure Initiative3
Clarification of Acceptable Methods of Depreciation and Amortisation3
Agriculture: Bearer Plants3
Defined Benefit Plans: Employee Contributions1
Equity Method in Separate Financial Statements3
1 Effective for annual periods beginning on or after 1 July 2014.
2 Effective for annual periods beginning on or after 1 July 2014, with limited exceptions.
3 Effective for annual periods beginning on or after 1 January 2016.
4 Effective for annual periods beginning on or after 1 January 2017.
5 Effective for annual periods beginning on or after 1 January 2018, except for the 2010 version of HKFRS 9 and the new requirements for hedge
accounting issued in 2013, which the Group early adopted.
HKFRS 9 “Financial Instruments”
A revised version of HKFRS 9 was issued in 2014 mainly to include (a) impairment requirements for the financial assets and
(b) limited amendments to the classification and measurement requirements by introducing a fair value through other
comprehensive income (“FVTOCI”) measurement category for certain debt instruments.
In terms of the amendments, debt instruments that are held within a business model whose objective is achieved by both
collecting contractual cash flows and selling, and that have contractual terms that give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI.
In relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred
credit loss model under HKAS 39. Under the impairment approach of HKFRS 9, it is no longer necessary for a credit event to
have occurred before credit losses are recognised. The expected credit loss model requires an entity to account for expected
credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial
recognition.
The Directors of the Company have reviewed the Group’s and the Company’s financial assets as at 31 December 2014 and
anticipate that the application of the 2014 version of HKFRS 9 in the future is not likely to have material impact on the results
and financial position of the Group or the Company based on an analysis of the Group’s and the Company’s existing business
model.
The Directors of the Company anticipate that the application of the other new Standards and Amendments to Standards will
have no material impact on the results and financial position of the Group or the Company.
In addition, the annual report requirements of Part 9 “Accounts and Audit” of the new Hong Kong Companies Ordinance
(Cap. 622) (“New Companies Ordinance”) will come into operation as from the Company’s financial year commencing on 1
January 2015. The Group is in the process of making an assessment of expected impact of the changes in the New Companies
Ordinance on the consolidated financial statements in the period of initial application of Part 9 of the New Companies
Ordinance. The Directors of the Company have concluded that the impact is unlikely to be significant and will primarily only
affect the presentation and disclosure of information in the consolidated financial statements.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
139
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$ 68,735 million (2013:
HK$65,322 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 and redevelopment 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 22 of the
Notes to the Financial Statements 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 140
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
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 2014
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 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
1,674
127
1,801
(226)
1,575
1,002
134
1,136
(118)
1,018
1,553
125
1,678
(212)
1,466
952
133
1,085
(128)
957
257
30
287
(60)
227
270
30
300
(65)
235
2,933
291
3,224
(404)
2,820
68
(2)
(214)
(228)
2,940
252
5,636
2,775
288
3,063
(405)
2,658
76
1
(208)
(242)
4,575
309
7,169
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
141
5. seGment information continued
Segment assets
The following is an analysis of the Group’s assets by operating and reportable segment.
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
As at 31 December 2014
Segment assets
Investment properties under redevelopment (Note)
Investments in associates
Other assets
34,315
22,685
7,718
Consolidated assets
As at 31 December 2013
Segment assets
Investments in associates
Other assets
Consolidated assets
Note:
32,655
24,205
8,472
64,718
4,020
4,154
6,131
79,023
65,332
4,181
6,581
76,094
During the year ended 31 December 2014, certain investment properties were under redevelopment and transferred out from segment assets (see note
16).
Segment assets represented the investment properties and accounts receivable of each segment without allocation of
investment properties under redevelopment, property, plant and equipment, investments in associates, principal-protected
investments, term notes, other financial assets, other receivables, 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$4,154 million (2013: HK$4,181 million), all the Group’s assets are located in Hong Kong.
Other segment information
For the year ended 31 December 2014
Additions to non-current assets
Additions to investment properties
under redevelopment
For the year ended 31 December 2013
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Consolidated
HK$ million
315
68
4
387
166
553
Additions to non-current assets
679
50
10
739
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
142
6. investment income
Investment income comprises net interest income of HK$68 million (2013: HK$76 million).
The following is an analysis of investment income:
Financial assets measured at amortised cost
Reclassification of net gains from hedging reserve on
financial instruments designated as cash flow hedges
Amortisation of forward element excluded from hedge designation
2014
hK$ million
2013
HK$ million
61
14
(7)
68
76
–
–
76
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
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 wholly repayable within five years
Imputed interest on zero coupon notes not wholly repayable within five years
Total interest expenses
Other finance costs
Net interest receipts on interest rate swaps
Net exchange losses (gains) on borrowings
Reclassification of net (gains) losses from hedging reserve on
financial instruments designated as cash flow hedges
Medium Term Note Programme expenses
2014
hK$ million
2013
HK$ million
(2)
(22)
22
(2)
–
(25)
26
1
2014
hK$ million
2013
HK$ million
20
2
38
157
17
–
234
8
242
(25)
46
(37)
2
228
32
3
26
166
–
17
244
9
253
(24)
(40)
52
1
242
Notes to the Financial Statements continuedFor the year ended 31 December 2014
9. taXation
Current tax
Hong Kong profits tax
– current year
– (overprovision) underprovision in prior years
Deferred tax (note 29)
143
2014
hK$ million
2013
HK$ million
323
(3)
320
66
386
250
1
251
121
372
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.
The taxation for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:
Profit before taxation
Tax at Hong Kong profits tax rate of 16.5%
Tax effect of share of results of associates
Tax effect of expenses not deductible for tax purposes
Tax effect of income not taxable for tax purposes
Tax effect of estimated tax losses not recognised
Reversal of previously recognised taxable temporary differences
Utilisation of estimated tax losses previously not recognised
(Overprovision) underprovision in prior years
Taxation for the year
2014
hK$ million
5,636
930
(42)
31
(551)
21
–
–
(3)
386
2013
HK$ million
7,169
1,183
(51)
49
(812)
5
(1)
(2)
1
372
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 29).
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$93 million (2013: HK$106 million)
Less:
– Direct operating expenses arising from properties that generated rental income
– Direct operating expenses arising from properties that did not generate rental income
Staff costs, comprising:
– Directors’ emoluments (note 12)
– Share-based payments
– Other staff costs
Share of income tax of an associate (included in share of results of associates)
2014
hK$ million
2013
HK$ million
3
17
2
16
(2,933)
(2,775)
399
5
400
5
(2,529)
(2,370)
35
4
224
263
106
32
4
218
254
119
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
144
11. other comPrehensive income
Other comprehensive income comprises:
Items that will not be reclassified subsequently to profit or loss:
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 gains (losses) arising during the year
Reclassification adjustments for net (gains) losses included in profit or loss
Amortisation of forward element excluded from hedge designation
Share of translation reserve of an associate
Other comprehensive income for the year (net of tax)
Tax effect relating to other comprehensive income:
2014
hK$ million
2013
HK$ million
19
(3)
16
95
(51)
44
7
51
(16)
35
51
24
(4)
20
(105)
52
(53)
–
(53)
117
64
84
Net adjustments to hedging reserve
Gains on revaluation of properties
held for own use
Share of translation reserve
of an associate
12. directors’ emoluments
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus
Share-based payments
Retirement benefits scheme contributions
Before-tax
amount
hK$ million
2014
tax
expense
hK$ million
net-of-tax
amount
hK$ million
Before-tax
amount
HK$ million
2013
Tax
expense
HK$ million
Net-of-tax
amount
HK$ million
51
19
(16)
54
–
(3)
–
(3)
51
16
(16)
51
(53)
24
117
88
–
(4)
–
(4)
(53)
20
117
84
2014
hK$ million
2013
HK$ million
2
13
13
6
1
35
2
13
10
6
1
32
Notes to the Financial Statements continuedFor the year ended 31 December 2014
145
12. directors’ emoluments continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2014,
calculated with reference to their employment as Directors of the Company, are set out below:
For the year ended 31 December 2014
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 (Note e)
Philip Yan Hok FAN
Lawrence Juen-Yee LAU (Note f)
Joseph Chung Yin POON
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
Basic salaries,
housing
and other
allowances
HK$’000
(Note a)
Directors’
fees
HK$’000
(Note b)
Bonus
HK$’000
(Note a)
Share-based
payments
HK$’000
(Note d)
Retirement
benefits
scheme
contributions
HK$’000
Total
HK$’000
–
–
–
200
260
240
240
352
206
356
11
260
4,931
5,340
3,042
6,082
5,176
1,474
2,819
2,618
992
17
17
281
13,849
13,151
5,789
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200
260
240
240
352
206
356
11
260
2,125
13,313
12,732
6,429
315
34,914
Basic salaries,
housing
and other
allowances
HK$’000
(Note c)
Directors’
fees
HK$’000
(Note b)
Bonus
HK$’000
(Note c)
Share-based
payments
HK$’000
(Note d)
Retirement
benefits
scheme
contributions
HK$’000
Total
HK$’000
–
–
–
200
260
240
240
340
200
350
260
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
2,090
13,314
9,777
6,485
311
31,977
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
146
12. directors’ emoluments continued
Notes:
a.
Year 2014:
The Remuneration Committee met in March 2014 to approve the 2014 annual fixed base salary and determine the 2013 performance-based
bonus of the Company’s Executive Directors. The annual cash compensation of Siu Chuen LAU, Deputy Chairman and Chief Executive Officer,
was revised to HK$8,900,667, based on market benchmark, and the jobholder’s experience, qualification, and performance. His annual base
salary remained unchanged at HK$5,340,400 (making up 60% of the total package instead of 65% as in 2013). Annual fixed base salary of all
Executive Directors remained the same for 2014. The stated bonus figures show the 2013 performance-based bonus approved by the Committee
and paid to Executive Directors.
b.
Directors’ fees scales for Board and Board Committees were approved by shareholders at the annual general meeting held on 9 May 2011.
Revision to fees of chairmen of Audit Committee and Remuneration Committee (effective 1 June 2014) were approved by shareholders at the
annual general meeting held on 13 May 2014. Details are set out in Directors’ Remuneration and Interests Report.
Director’s fees are calculated on annual basis and paid semi-annually. For Directors not having served the full year on a position, the fees will be
calculated and paid on pro rata basis.
Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2014 is set out below:
Executive Directors
Irene Yun Lien LEE
Siu Chuen LAU
Wendy Wen Yee YUNG
Non-executive Directors
Hans Michael JEBSEN
Anthony Hsien Pin LEE
Chien LEE
Michael Tze Hau LEE
Independent non-executive Directors
Nicholas Charles ALLEN
Frederick Peter CHURCHOUSE
Philip Yan Hok FAN
Lawrence Juen-Yee LAU
Joseph Chung Yin POON
Board
HK$’000
Audit Remuneration
Committee
HK$’000
Committee
HK$’000
Strategy Nomination
Committee
HK$’000
Committee
HK$’000
2014
total
hK$’000
2013
Total
HK$’000
–
–
–
200
200
200
200
200
200
200
11
200
1,611
–
–
–
–
60
–
–
112
6
60
–
–
238
–
–
–
–
–
–
40
–
–
56
–
40
136
–
–
–
–
–
20
–
20
–
20
–
–
60
–
–
–
–
–
20
–
20
–
20
–
20
80
–
–
–
200
260
240
240
352
206
356
11
260
–
–
–
200
260
240
240
340
200
350
–
260
2,125
2,090
c.
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$4,931,096 (making up 60% of the total package instead of 80% as in 2012). Annual fixed base salary of all Executive Directors remained the
same for 2013. The stated bonus figures show the 2012 performance-based bonus approved by the Committee and paid to Executive Directors.
Share-based payments are the fair values of share options granted to Executive Directors, which are determined at the date of grant and
expensed over the vesting period (except where options are forfeited before vesting), regardless of whether the Executive Directors exercise the
share options or not during the year.
Frederick Peter CHURCHOUSE was appointed a member of Audit Committee effective 25 November 2014.
Lawrence Juen-Yee LAU was appointed Independent non-executive Director effective 12 December 2014.
d.
e.
f.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
147
13. emPloyees’ emoluments
Of the five individuals with the highest emoluments in the Group, three (2013: three) were Directors of the Company, details of
whose emoluments are included in note 12 of the Notes to the Financial Statements section. The emoluments of all of the five
individuals with the highest emoluments for the year ended 31 December 2014 and 2013 were as follows:
Basic salaries, housing and other allowances
Bonus
Share-based payments (Note)
Note:
2014
hK$ million
2013
HK$ million
19
15
7
41
19
11
8
38
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$5,500,001 to HK$6,000,000
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
HK$13,000,001 to HK$13,500,000
HK$13,500,001 to HK$14,000,000
Number of individuals
2014
2013
2
–
1
–
–
–
1
1
5
1
1
–
1
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$5,500,001 to HK$6,000,000
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
HK$13,000,001 to HK$13,500,000
HK$13,500,001 to HK$14,000,000
Number of individuals
2014
2013
1
1
–
–
–
1
1
4
1
–
1
1
1
–
–
4
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
148
14. dividends
(a) Dividends recognised as distribution during the year:
2014 first interim dividend paid – HK23 cents per share
2013 first interim dividend paid – HK22 cents per share
2013 second interim dividend paid – HK95 cents per share
2012 second interim dividend paid – HK78 cents per share
(b) Dividends declared after the end of the reporting period:
Second interim dividend (in lieu of a final dividend)
– HK100 cents per share (2013: HK95 cents per share)
2014
hK$ million
2013
HK$ million
245
–
1,010
–
1,255
–
234
–
830
1,064
2014
hK$ million
2013
HK$ million
1,064
1,010
The second interim dividend is not recognised as a liability as at 31 December 2014 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 2015.
The declared second interim dividend will be payable in cash.
15. earninGs Per share
(a) Basic and diluted earnings per share
The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following
data:
Earnings for the purposes of basic and diluted earnings per share:
Profit for the year attributable to owners of the Company
Weighted average number of ordinary shares
for the purpose of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options issued by the Company
Weighted average number of ordinary shares
for the purpose of diluted earnings per share
Earnings
2014
hK$ million
2013
HK$ million
4,902
6,158
Number of shares
2014
2013
1,063,758,157 1,063,488,216
298,254
365,948
1,064,056,411 1,063,854,164
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
149
15. earninGs Per share continued
(b) Adjusted basic earnings per share
For the purpose of assessing the performance of the Group’s principal activities (i.e. leasing of investment properties), the
management is of the view that the profit for the year attributable to the 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:
2014
2013
Basic
earnings
per
share
hK cents
460.82
(276.38)
19.55
(0.65)
203.34
203.34
Profit
HK$ million
6,158
(4,575)
532
(72)
2,043
2,043
Basic
earnings
per
share
HK cents
579.04
(430.19)
50.02
(6.77)
192.10
192.10
Profit
hK$ million
4,902
(2,940)
208
(7)
2,163
2,163
(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-term assets). 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.
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
2014
hK$ million
2013
HK$ million
65,322
553
–
(80)
2,940
68,735
60,022
733
6
(14)
4,575
65,322
The Group
2014
hK$ million
2013
HK$ million
7,718
61,017
68,735
7,716
57,606
65,322
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
150
16. investment ProPerties continued
Fair value measurements and valuation processes
The fair value of the Group’s investment properties at 31 December 2014 and 2013 and at the date of transfer to and from
property, plant and equipment has been arrived at on the basis of a valuation carried out on those dates 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 The Hong Kong Institute of Surveyors Valuation Standards.
In estimating the fair value of the investment properties, the management of the Group has considered the highest and best
use of the investment properties.
The value of the completed investment properties is derived from the basis of capitalisation of net income with due allowance
for the reversionary income and redevelopment potential, where appropriate.
For investment properties under redevelopment as at 31 December 2014, residual method of valuation was adopted. The
value is based on the redevelopment potential of the properties as if they were completed in accordance with the existing
development controls at the date of valuation. The value has also taken into consideration all costs of redevelopment and
allowance of profit required for the redevelopment, which duly reflected the risks associated with the redevelopment.
There has been no change to the valuation technique during the year for completed properties. For the investment properties
under redevelopment, the valuation technique has been changed from income capitalisation approach to residual method
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.
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
Additions
Transfer to property, plant and equipment
Transfer to investment properties under
redevelopment
Change in fair value recognised in profit or loss
– unrealised
At 31 December 2014
Retail
HK$ million
Office
HK$ million
28,906
679
–
–
3,066
32,651
315
(80)
22,622
44
6
(14)
1,542
24,200
68
–
The Group
Investment
properties under
redevelopment
HK$ million
Residential
HK$ million
8,494
10
–
–
(33)
8,471
4
–
–
–
–
–
–
–
166
–
Total
HK$ million
60,022
733
6
(14)
4,575
65,322
553
(80)
(417)
(2,251)
(755)
3,423
–
1,844
34,313
667
(2)
22,684
7,718
431
4,020
2,940
68,735
Notes to the Financial Statements continuedFor the year ended 31 December 2014
151
16. investment ProPerties 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 investment properties by
operating and reportable segment and unobservable inputs used in the valuation models.
Description
Fair value as at
31 December
2014
2013
HK$ million
Retail
34,313
32,651
Office
22,684
24,200
Residential
7,718
8,471
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
5.00% – 5.25%
(2013: 5.00% –
5.25%)
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$141
per square foot
(2013: HK$132
per square foot)
The higher
the market rent,
the higher the
fair value.
Income
capitalisation
approach
(i) Capitalisation
rate
4.25% – 5.00%
(2013: 4.25% –
5.00%)
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$47
per square foot
(2013: HK$46
per square foot)
The higher
the market rent,
the higher the
fair value.
Income
capitalisation
approach
(i) Capitalisation
rate
3.75%
(2013: 3.75% –
4.00%)
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$35
per square foot
(2013: HK$34
per square foot)
The higher
the market rent,
the higher the
fair value.
Investment
properties
under
redevelopment
N/A: not applicable
4,020
–
Residual
method
(i) Capitalisation
rate
4.25% – 5.00%
(2013: N/A)
(ii) Market rent
per month
HK$100
per square foot
(2013: N/A)
The higher the
capitalisation
rate, the lower
the fair value.
The higher
the market rent,
the higher the
fair value.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
152
17. ProPerty, Plant and equiPment
Leasehold land
and buildings
in Hong Kong
HK$ 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 2013
Additions
Disposal
Transfer from investment properties
Transfer to investment properties
Surplus on revaluation
At 31 December 2013
Additions
Disposals
Transfer from investment properties
Surplus on revaluation
At 31 December 2014
Comprising:
At cost
At valuation 2014
Accumulated depreciation
At 1 January 2013
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2013
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2014
Carrying amounts
At 31 December 2014
At 31 December 2013
539
–
–
14
(6)
20
567
–
–
80
15
662
–
662
662
–
4
–
(4)
–
4
–
(4)
–
662
567
91
4
(1)
–
–
–
94
20
(4)
–
–
110
110
–
110
62
8
(1)
–
69
9
(4)
–
74
36
25
40
3
–
–
–
–
43
4
–
–
–
47
47
–
47
29
4
–
–
33
3
–
–
36
11
10
2
1
(1)
–
–
–
2
–
–
–
–
2
2
–
2
1
–
(1)
–
–
1
–
–
1
1
2
672
8
(2)
14
(6)
20
706
24
(4)
80
15
821
159
662
821
92
16
(2)
(4)
102
17
(4)
(4)
111
710
604
Notes to the Financial Statements continuedFor the year ended 31 December 2014
153
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 2013
Disposal
At 31 December 2013 and 2014
Accumulated depreciation
At 1 January 2013
Provided for the year
Eliminated on disposal
At 31 December 2013
Provided for the year
At 31 December 2014
Carrying amounts
At 31 December 2014
At 31 December 2013
40
–
40
24
4
–
28
3
31
9
12
31
–
31
25
2
–
27
2
29
2
4
1
(1)
–
1
–
(1)
–
–
–
–
–
72
(1)
71
50
6
(1)
55
5
60
11
16
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 2014 and 2013 and at the date of transfer to property,
plant and equipment has been arrived at on the basis of a valuation carried out on those dates 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 The Hong Kong Institute of Surveyors Valuation Standards. In estimating the fair value of the properties, the
management of the Group has considered the highest and best use of the properties. The value was derived from the basis of capitalisation of net
income with due allowance for the reversionary income potential. 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
154
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
2014
HK$ million
662
2013
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% – 5.25%
(2013: 4.25% –
5.00%)
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$57
per square foot
(2013: HK$55
per square foot)
The higher
the market rent,
the higher the
fair value.
The gains of HK$19 million (2013: HK$24 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$261
million (2013: HK$185 million) at the end of the reporting period.
Furniture, fixtures and equipment of the Group include assets carried at cost of HK$29 million (2013: HK$31 million) and
accumulated depreciation of HK$23 million (2013: HK$24 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 (2013: HK$2 million).
There is no property, plant and equipment of the Company held for renting out under operating leases for the year or at the
end of the reporting period.
18. investments in suBsidiaries
Investments in subsidiaries comprise:
Unlisted shares, at cost
Deemed capital contribution in subsidiaries (Note)
The Company
2014
hK$ million
2013
HK$ million
–
1,422
1,422
–
1,471
1,471
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 2014
18. investments in suBsidiaries continued
The table below lists the principal subsidiaries of the Group at 31 December 2014 and 2013:
Place of
incorporation/
operation
Issued
share capital
Proportion of
ownership interests/
voting rights
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
Hong Kong
Hong Kong
Hong Kong
British Virgin Islands
Hong Kong
Hong Kong
Hong Kong
Hong Kong
HK$2
HK$2
HK$2
HK$1
HK$1,000
HK$2
HK$2
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
Alpha Ace 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%
155
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 28 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
156
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
Details of the Group’s associates at 31 December 2014 and 2013 are as follows:
2014
hK$ million
2013
HK$ million
188
10,007
(1,063)
(215)
5,828
3,089
567
1,004
656
348
114
419
(28)
(330)
61
112
9,357
(1,030)
(196)
5,388
2,855
463
1,844
1,205
639
108
360
(27)
(310)
23
The Group
2014
hK$ million
2013
HK$ million
2
4,152
4,154
2
4,179
4,181
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$1,000,000
25.0%*
Inactive
Indirectly held
Fully paid-up registered capital
The company is under liquidation as at 31 December 2014 and 2013. This associate is not material to the Group during both years or as at the
end of the reporting period.
*
#
^
Note:
Shanghai Kong Hui Property Development Co., Ltd and Shanghai Grand Gateway Plaza Property Management Co., Ltd are non-wholly owned
subsidiaries of Country Link Enterprises Limited, together known as “Country Link”.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
157
19. investments in associates continued
The summarised consolidated financial information in respect of the Group’s material associate is set out below. The
summarised consolidated financial information below represents amounts shown in the associate’s consolidated financial
statements prepared in accordance with HKFRSs. The associate is accounted for using the equity method in these consolidated
financial statements.
Country Link
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Turnover
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Group’s share of results of associates for the year
Group’s share of other comprehensive income
of associates for the year
2014
hK$ million
2013
HK$ million
3,171
18,639
(957)
(4,048)
1,595
1,022
(63)
959
252
(16)
3,048
18,660
(902)
(3,960)
1,526
1,248
474
1,722
309
117
Reconciliation of the above summarised consolidated 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
2014
hK$ million
16,805
(1,005)
2013
HK$ million
16,846
(944)
15,800
26.3%
4,157
(3)
4,154
15,902
26.3%
4,184
(3)
4,181
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
2014
hK$ million
2013
HK$ million
80
–
80
77
81
158
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
158
20. PrinciPal-Protected investments continued
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
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
The Group
2014
2013
notional
amount
hK$ million
fair
value
hK$ million
Notional
amount
HK$ million
Fair
value
HK$ million
80
–
80
80
–
80
78
80
158
77
81
158
The Group
2014
hK$ million
2013
HK$ million
213
197
795
1,205
485
720
1,205
110
168
924
1,202
580
622
1,202
As at 31 December 2014, the effective yield of the debt securities ranged from 1.20% to 3.27% (2013: 1.11% to 3.27%) per
annum, payable quarterly, semi-annually or annually, and the securities will mature from January 2015 to October 2017 (2013:
from January 2014 to June 2016). At the end of the reporting period, none of these assets were past due but not impaired.
22. other financial assets/liaBilities
Current
Non-current
The Group
2014
hK$ million
2013
HK$ million
2014
hK$ million
2013
HK$ million
Other financial assets
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
Fair value hedges
– Interest rate swaps
Financial assets measured at FVTPL:
Club debentures
Total
Other financial liabilities
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
– Cross currency swaps
– Interest rate swaps
Total
7
8
15
–
15
1
–
1
2
–
–
–
–
–
–
45
3
48
1
–
1
2
3
–
30
–
30
–
30
30
2
32
–
68
6
74
Notes to the Financial Statements continuedFor the year ended 31 December 2014
159
22. 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:
2014
2013
The Group
average
exchange
foreign
rate* currency
fair
value
hK$
million million million
notional amount
hK$
Average
exchange
Foreign
rate* currency
Notional amount
HK$
million
million
Fair
value
HK$
million
Forward foreign
exchange contracts
Sell US dollars (“USD”)
(Note a)
Within 1 year
More than 1 year but
not exceeding 5 years
Sell Renminbi (“RMB”)
(Note b)
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 c)
Within 1 year
Hedging interest and
principal of USD
fixed rate notes
(Note d)
More than 5 years
Total
7.7520
usd
7.7612
7.7598
usd
usd
10
56
66
77
434
511
1.2484
rmB
610
762
1.2185
1.2459
rmB
rmB
55
665
67
829
–
–
–
6
1
7
7.7426
USD
7.7435
7.7429
USD
USD
–
–
–
–
–
–
25
12
37
–
–
–
194
89
283
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.1497
AUD
37
300
(45)
7.7519
usd
300 2,326
3,666
(30)
(23)
7.7519
USD
300
2,326
(68)
2,909
(113)
*
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:
(a) The Group used HK$511 million (2013: HK$283 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$829 million (2013: nil) forward foreign exchange contracts to hedge the foreign exchange rate risk of part of the principal
amount of term notes and time deposits denominated in RMB at their respective maturity dates. The forward element of forward contracts has
been excluded from the cash flow hedge.
(c) As at 31 December 2013, the Group used HK$300 million cross currency swap to convert AUD interest and principal of AUD37 million bank loan
into HKD. The swap matured in September 2014.
(d) The Group used HK$2,326 million (2013: HK$2,326 million) cross currency swap to convert USD interest and principal of US$300 million (2013:
US$300 million) fixed rate notes into HKD.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
160
22. other financial assets/liaBilities continued
(a) Cash flow hedges continued
(i) foreign currency risk continued
As at 31 December 2014, net cumulative fair value losses of HK$25 million (2013: HK$68 million) from the forward foreign
exchange contracts and cross currency swaps have been recognised in other comprehensive income and accumulated in
hedging reserve, and are expected to be released to the consolidated income statements at various dates when the hedged
items impact the profit or loss.
During the year, net gains of HK$47 million (2013: losses of HK$36 million) on cross currency swaps were reclassified from
hedging reserve to profit or loss as finance costs.
For the year ended 31 December 2014, net gains of HK$14 million (2013: nil) on forward foreign exchange contracts were
reclassified from hedging reserves to profit or loss as investment income. The forward element of forward contracts has been
excluded from the cash flow hedge. During the year, the Group amortised HK$7 million (2013: nil) of forward premium to profit
or loss against investment income.
The fair values of forward foreign exchange contracts and cross currency swaps are measured using quoted forward exchange
rates and yield curves from quoted interest rates matching maturities of the contracts and swaps.
(ii) interest rate risk
During the year, the Group used interest rate swaps to hedge its interest rate risk exposure. The terms of the swaps have been
negotiated to match the major terms of the respective hedged underlying items so that the management considers that the
interest rate swaps are highly effective hedging instruments.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding interest
rate swaps at the end of the reporting period are as follows:
The Group
2014
2013
average
interest
rate*
notional
amount
hK$ 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
Total
3.65%
–
3.65%
–
200
–
200
–
200
–
3.65%
3.65%
2.99%
(1)
–
(1)
–
(1)
–
200
200
200
400
–
(6)
(6)
(3)
(9)
*
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 (2013: HK$200 million) interest rate swaps to manage its exposure to interest rate changes of the quarterly
interest payments of HKD bank loans.
(b) As at 31 December 2013, the Group used HK200 million interest rate swaps to hedge the interest rate risk in relation to the quarterly floating-
interest-rate payments of certain financial instruments. The swap matured in July 2014.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
161
22. other financial assets/liaBilities continued
(a) Cash flow hedges continued
(ii) interest rate risk continued
As at 31 December 2014, cumulative fair value losses of HK$1 million (2013: HK$9 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$10 million (2013: HK$16 million) on interest rate swaps were reclassified from hedging reserve to
profit or loss as finance costs.
The fair values of interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates.
(b) Fair value hedges
The Group used interest rate swaps to minimise its exposure to fair value changes of its HKD fixed rate notes and zero
coupon notes by swapping the notes from fixed rates to floating rates. The major terms of the interest rate swaps match the
corresponding notes and the management considers that the swaps are highly effective hedging instruments.
The table below is prepared based on the maturity dates of respective contracts. The major terms of these outstanding interest
rate swaps at the end of the reporting period are as follows:
Interest rate swaps (Note)
Within 1 year
More than 1 year but
not exceeding 5 years
More than 5 years
2014
2013
The Group
average
interest
rate*
4.34%
–
–
4.34%
notional
amount
hK$ million
fair
value
hK$ million
624
–
–
624
8
–
–
8
Average
interest
rate*
–
4.18%
4.50%
4.34%
Notional
amount
HK$ million
Fair
value
HK$ million
–
300
308
608
–
17
13
30
*
The average interest rate represented the average fixed interest rate (weighted by the notional amounts of the interest rate swaps) received by
the Group against payments of 3-month HIBOR.
Note:
The Group designated HK$300 million (2013: 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 (2013: HK$300 million) fixed rate notes. The Group also designated a fixed-to-floating interest rate swap
with notional amount of HK$324 million (2013: HK$308 million) as at 31 December 2014 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 at 9 February 2015, the zero coupon notes and
the respective fixed-to-floating interest rate swap were redeemed or terminated by the Group and the counterparty respectively.
As a result of the hedge accounting, the carrying amount of the fixed rate notes as at 31 December 2014 was adjusted by
cumulative losses of HK$7 million (2013: HK$17 million) while the carrying amount of the zero coupon notes as at 31 December
2014 was adjusted by cumulative losses of HK$1 million (2013: HK$13 million). The changes in fair values of the notes for the
hedged risk were included in profit or loss at the same time that the changes in fair value of the swaps were included in profit or
loss.
The fair values of interest rate swaps are measured at the present value of future cash flows estimated and discounted based
on the applicable yield curves derived from quoted interest rates.
(c) Financial assets measured at FVTPL
club debentures
Other financial assets of the Company represented investments in unlisted club debentures. The Group’s and the Company’s
investments in unlisted club debentures have been classified as financial assets measured at FVTPL.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
162
23. accounts and other receivaBles
Accounts receivable
Interest receivable
Prepayments in respect of investment properties
Other receivables and prepayments
Total
Analysed for reporting purposes as:
Current assets
Non-current assets
The Group
2014
hK$ million
2013
HK$ million
3
93
71
314
481
255
226
481
10
80
47
335
472
241
231
472
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$3 million (2013: HK$10 million) mainly represented rents receipts in
arrears, which were aged less than 90 days.
At the end of the reporting period, none of the accounts receivable were past due but not impaired.
24. amounts due from/to suBsidiaries
Amounts due from subsidiaries are classified as:
Current assets (Note a)
Non-current assets (Note b)
Amounts due to subsidiaries (Note a)
Notes:
The Company
2014
hK$ million
2013
HK$ million
9,194
3,514
12,708
1,051
9,167
3,711
12,878
1,275
(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.
25. 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
2014
hK$ million
2013
HK$ million
3,534
106
3,640
(3,064)
576
4,042
81
4,123
(3,502)
621
The Company’s cash and bank balances represent cash on hand and bank balances with original maturity of three months or
less.
Time deposits, cash and bank balances include bank deposits carrying effective interest rates ranging from 0.10% to 4.65%
(2013: 0.08% to 3.75%) per annum.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
26. accounts PayaBle and accruals
Accounts payable
Interest payable
Other payables
163
The Group
2014
hK$ million
2013
HK$ million
173
83
225
481
162
83
255
500
At the end of the reporting period, accounts payable of the Group with carrying amount of HK$173 million (2013: HK$162
million) were aged less than 90 days.
27. amounts due to non-controllinG interests
The amounts due to non-controlling interests are unsecured, interest-free and repayable on demand.
28. BorroWinGs
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Floating rate notes
Fixed rate notes
Zero coupon notes
Current
Non-current
The Group
2014
hK$ million
2013
HK$ million
2014
hK$ million
2013
HK$ million
850
–
407
332
855
200
–
–
1,589
1,055
250
–
4,608
–
4,858
1,100
–
5,022
327
6,449
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 3.3% (2013: 3.1%). 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 3.1% (2013: 2.9%). As at 31 December 2014, the floating rate debt ratio relative to gross total debt after
considering the hedges was 23.7% (2013: 32.0%).
(a) Unsecured bank loans
The unsecured bank loans of HK$1,100 million (2013: HK$1,955 million) are guaranteed as to principal and interest by the
Company and are repayable, based on the scheduled repayment dates set out in the respective loan agreement, as follows:
Within 1 year
More than 1 year, but not exceeding 2 years
More than 2 years, but not exceeding 5 years
The Group
2014
hK$ million
2013
HK$ million
850
250
–
1,100
855
850
250
1,955
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 0.68% to 1.15% (2013: 0.69% to 3.52%) 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 22(a) of the Notes to the Financial Statements section, during the years ended 31 December 2014 and
2013, 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
164
28. 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. The floating rate notes were matured
and repaid in full in October 2014.
The HK$200 million five-year floating rate notes were not hedged by any derivative in both years.
(c) Fixed rate notes
Fixed rate notes – principal amount
Add: Net losses attributable to hedged risks
The Group
2014
hK$ million
2013
HK$ million
5,008
7
5,015
5,005
17
5,022
Details of the Group’s fixed rate notes as at 31 December 2014 and 2013 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 22 of the Notes to the Financial Statements section, during the years ended 31 December 2014 and 2013,
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$7 million (2013: HK$17 million) represented the change in fair value attributable to the
hedged interest rate risk of the HK$300 million (2013: HK$300 million) fixed rate notes under fair value hedge.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
28. BorroWinGs continued
(d) Zero coupon notes
Zero coupon notes
Add: Loss attributable to hedged risk
165
The Group
2014
hK$ million
2013
HK$ million
331
1
332
314
13
327
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 exercised the option to redeem the zero coupon notes on 9 February 2015 at a price of about 77.4% of
the nominal amount.
The Group used an interest rate swap to hedge against the interest rate risk of the zero coupon notes under fair value hedge
(see note 22(b) for details). The counterparty exercised the option to terminate the interest rate swap on 9 February 2015.
The cumulative losses of HK$1 million (2013: HK$13 million) represented changes in fair value attributable to the hedged
interest rate risk of the zero coupon notes under fair value hedge.
29. deferred taXation
The following are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the current
and prior years:
The Group
At 1 January 2013
Charge to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2013
Charge to profit or loss (note 9)
Charge to other comprehensive income
At 31 December 2014
Accelerated tax
depreciation
HK$ million
Revaluation of
properties
HK$ million
Tax
losses
HK$ million
Total
HK$ million
462
56
–
518
42
–
560
61
–
4
65
–
3
68
(89)
65
–
(24)
24
–
–
434
121
4
559
66
3
628
At the end of the reporting period, the Group has unused estimated tax losses of HK$674 million (2013: HK$697 million), of
which HK$273 million (2013: HK$290 million) has not been agreed by the Hong Kong Inland Revenue Department, available
for offset against future profits. No deferred tax asset has been recognised in respect of the estimated tax losses of HK$674
million (2013: HK$550 million) as the utilisation of these estimated tax losses is uncertain. These estimated tax losses may be
carried forward indefinitely. As at 31 December 2013, a deferred tax asset had been recognised in respect of HK$147 million of
such losses.
The Company does not have any unused tax loss at the end of the reporting period. As at 31 December 2014, the Company
has deferred tax liability of HK$1 million (2013: HK$1 million).
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
166
30. share caPital
Authorised:
At 1 January 2013 and 31 December 2013
Ordinary shares of HK$5 each
at 31 december 2014 (Note a)
Issued and fully paid:
Ordinary shares of HK$5 each
At 1 January 2013
Issue of shares under share option scheme (Note b)
At 31 December 2013
Transfer from share premium and capital redemption reserve
upon abolition of par value (Note a)
Issue of shares under share option scheme prior to 3 March 2014 (Note b)
Issue of shares under share option scheme on or after 3 March 2014
Ordinary shares with no par value
at 31 december 2014 (Note a)
Notes:
(a) abolition of par value under the new companies ordinance
Number of shares
Share capital
HK$ million
1,450,000,000
–
1,063,007,056
625,987
1,063,633,043
–
3,999
234,650
7,250
–
5,315
3
5,318
2,314
–
8
1,063,871,692
7,640
The New Companies Ordinance came into effect on 3 March 2014, which abolishes the concepts of nominal (par) value, share premium and
authorised share capital for all shares of Hong Kong incorporated companies. As such, in accordance with the transitional provisions set out in
section 37 of Schedule 11 to the said Ordinance, the existing share premium and capital redemption reserve as of 3 March 2014 became part of
the Company’s share capital. There is no impact on the number of shares in issue or the relative entitlement of any of the shareholders as a result
of this transition. Comparative figures in the financial statements are not required to be restated.
(b)
issue of shares under share option schemes prior to 3 march 2014
Prior to 3 March 2014, options to subscribe for shares of the Company were exercised at various exercise prices and credited to share capital
and share premium account in accordance with the predecessor Hong Kong Companies Ordinance (Cap.32). 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.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
167
Share
options
reserve
HK$ million
Capital
redemption
reserve
HK$ million
General
reserve
HK$ million
(Note a)
Retained
profits
HK$ million
Total
HK$ million
276
100
5,461
7,873
Share
premium
HK$ million
2,022
16
–
–
–
2,038
31. reserves of the comPany
At 1 January 2013
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)
At 31 December 2013
Transfer upon abolition of par value
under the new Hong Kong
Companies Ordinance (Note b)
Issue of shares under
share option schemes on or after
3 March 2014
Recognition of equity-settled
share-based payments
Forfeiture of share option
Profit for the year
Dividends paid during the year (note 14)
At 31 December 2014
14
(4)
10
–
–
20
–
–
–
–
–
–
–
–
276
100
(2,038)
–
(276)
–
–
–
–
–
–
(2)
10
(1)
–
–
27
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
968
12
10
968
(1,064)
5,365
(1,064)
7,799
–
–
–
1
1,175
(1,255)
5,286
(2,314)
(2)
10
–
1,175
(1,255)
5,413
Notes:
(a) General reserve was set up from the transfer of retained profits.
(b) The Company has no authorised share capital and its shares have no par value from the commencement date of the new Hong Kong Companies
Ordinance (i.e. 3 March 2014).
The Company’s reserves available for distribution to its owners as at 31 December 2014 amounted to HK$5,386 million (2013:
HK$5,465 million), being its general reserve and retained profits at that date.
32. acquisition of a suBsidiary
During the year ended 31 December 2014, the Group acquired 100% interest in Max Strength Limited (“Max Strength”) from
an independent third party, for a cash consideration of HK$229 million. The major asset of Max Strength is an investment
property situated in Hong Kong. The Directors of the Company are of the opinion that the subsidiary acquired does not
constitute a business as defined in HKFRS 3, therefore, the acquisition has been accounted for as acquisition of an asset rather
than a business combination. Acquisition-related costs amounting to HK$3 million were capitalised as part of the carrying
amount of the investment property.
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$9 million (2013: HK$8 million).
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
168
34. continGent liaBilities
At the end of the reporting period, there were contingent liabilities in respect of the following:
Corporate guarantee to note holders
– for issue of floating rate notes
– for issue of fixed rate notes
– for issue of zero coupon notes
Guarantees to banks for providing
financing facilities to subsidiaries
The Group
The Company
2014
hK$ million
2013
HK$ million
2014
hK$ million
2013
HK$ million
–
–
–
–
–
–
–
–
–
–
–
5,026
430
5,456
1,100
200
5,026
430
5,656
2,000
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
The Company
2014
hK$ million
2013
HK$ million
2014
hK$ million
2013
HK$ million
476
561
410
258
–
–
–
–
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
2014
hK$ million
2013
HK$ million
2,664
4,891
1,309
8,864
2,582
4,988
1,751
9,321
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2014
169
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:
Related company controlled by a shareholder (Note a)
Related companies controlled by Directors
(Note b (i) & (ii))
Non-controlling shareholder of a subsidiary
(Note c (i) & (ii))
Notes:
The Group
Gross rental income
received from
Amount due to
non-controlling interests
2014
hK$ million
2013
HK$ million
2014
hK$ million
2013
HK$ million
3
39
31
3
30
21
–
94
233
–
94
233
(a) The sum of transactions represents the aggregate gross rental income received from Atlas Corporate Management Limited, a wholly-owned
subsidiary of Lee Hysan Estate Company, Limited (“LHE”). LHE holds 40.71% (2013: 40.72%) 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
2014
hK$ million
2013
HK$ million
12,713
(5)
12,708
1,051
13,054
(176)
12,878
1,275
During the year, HK$171 million (2013: nil) of allowances on amount due from a subsidiary was written off.
Details of amounts due from/to subsidiaries are disclosed in note 24 of the Notes to the Financial Statements section.
(b) Compensation of key management personnel
The remuneration of key management personnel of the Group and the Company (being Directors and an officer) are as follows.
Directors’ fees, salaries and other short-term employee benefits
Share-based payments
Retirement benefits scheme contributions
2014
hK$ million
2013
HK$ million
32
7
–
39
29
7
–
36
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
170
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; and (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.
Consideration on each grant of option is HK$1 and is required to be paid within 30 days from the date of grant of option, with
full payment for exercise price to be made on exercise of the relevant option.
(b) Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. Exercise period is 10 years. Vesting period is 3
years in equal proportions starting from the 1st anniversary and become fully vested on the 3rd anniversary of the grant. Size of
grant will be determined by reference to base salary multiple and job grades. A clear performance criterion will be a key driver.
The Board will review the grant and vesting structures from time to time.
Notes to the Financial Statements continuedFor the year ended 31 December 2014 171
38. share-Based Payment transactions continued
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Directors and eligible employees during
the current year:
Changes during the year
Name
Executive Directors
Irene Yun Lien LEE
Date
of grant
Exercise
price
HK$
Exercise period
(Note a)
14.5.2012
33.50
7.3.2013
39.92
Granted Exercised
Cancelled/
Balance
as at
lapsed 31.12.2014
Balance
as at
1.1.2014
261,000
265,000
–
–
–
325,000
161,334
246,000
–
–
–
302,000
103,000
113,000
106,700
–
–
–
–
95,000
17,000
164,000
251,334
246,001
336,335
362,000
–
–
–
–
–
–
–
465,000
(Note b)
–
261,000
–
265,000
–
–
325,000
161,334
–
246,000
–
–
302,000
103,000
–
113,000
–
106,700
–
–
–
–
95,000
17,000
134,000
154,334
(1,334) 181,001
(26,017) 262,335
(64,000) 298,000
(54,000) 411,000
–
–
–
–
–
–
–
–
–
–
–
(30,000)
(Note e)
(97,000)
(Note f)
(63,666)
(Note g)
(47,983)
(Note h)
–
–
2,632,704 1,187,000
(238,649) (145,351) 3,435,704
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
10.3.2015 –
9.3.2024
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
10.3.2015 –
9.3.2024
10.3.2012 –
9.3.2021
9.3.2013 –
8.3.2022
7.3.2014 –
6.3.2023
10.3.2015 –
9.3.2024
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
31.3.2015 –
30.3.2024
10.3.2014
Siu Chuen LAU
14.5.2012
32.84
(Note c)
33.50
7.3.2013
39.92
10.3.2014
Wendy Wen Yee YUNG
10.3.2011
32.84
(Note c)
35.71
Eligible employees
(Note d)
9.3.2012
33.79
7.3.2013
39.92
10.3.2014
31.3.2008
32.84
(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
31.3.2014
33.75
(Note i)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
172
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 7 March 2014) was HK$32.95.
(d) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.35.
(f)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.95.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.04.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.07.
(i)
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 28 March 2014) was HK$33.30.
Apart from the above, the Company had not granted any share option under the 2005 Scheme to any other persons as
required to be disclosed under Rule 17.07 of the Listing Rules.
Notes to the Financial Statements continuedFor the year ended 31 December 2014 173
38. share-Based Payment transactions continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and eligible employees in prior
year:
Changes during the year
Name
Date
of grant
Exercise
price
HK$
Exercise period
(Note a)
Balance
as at
1.1.2013
Granted Exercised
Cancelled/
Balance
as at
lapsed 31.12.2013
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)
–
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)
(Note b)
–
–
–
–
–
–
–
–
261,000
265,000
161,334
246,000
–
–
–
–
–
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
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
174
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.
Notes to the Financial Statements continuedFor the year ended 31 December 2014 175
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 (2013: HK$10 million) in relation to share
options granted by the Company, of which HK$6 million (2013: HK$6 million) related to the Directors (see note 12), with a
corresponding adjustment recognised in the Group’s share options reserve.
The fair values of share options granted by the Company were determined by using Black-Scholes option pricing model
(the “Model”). The Model is one of the commonly used models to estimate the fair value of an option. The variables and
assumptions used in computing the fair value of the share options are based on the management’s best estimate. The value of
an option varies with different variables of a number of subjective assumptions. Any change in the variables so adopted may
materially affect the estimation of the fair value of an option.
The inputs into the Model were as follows:
Date of grant
31.3.2014
10.3.2014
28.3.2013
7.3.2013
Closing share price at the date of grant
Exercise price
Risk free rate (Note a)
Expected life of option (Note b)
Expected volatility (Note c)
Expected dividend per annum (Note d)
Estimated fair values per share option
Notes:
hK$33.750
hK$33.750
1.529%
5 years
33.517%
hK$0.866
hK$8.422
hK$32.200
hK$32.840
1.328%
5 years
33.509%
hK$0.866
hK$7.712
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 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
176
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, 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, 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)
the carrying amount of the respective recognised financial assets as stated in the consolidated and Company’s statements
of financial position; and
(ii) 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+
2014
number of
counterparty
exposure
hK$ million
2013
Number of
counterparty
Exposure
HK$ million
6
21
17 to 728
13 to 485
5
25
80 to 781
1 to 489
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.
Financial Risk ManagementFor the year ended 31 December 2014
177
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
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
The Group
As at 31 December 2014
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans (Note)
Fixed rate notes (Note)
Zero coupon notes (Note)
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)
(481)
(875)
(327)
(1,100)
(5,015)
(332)
(481)
(875)
(327)
(1,112)
(6,426)
(333)
(481)
(306)
(327)
(861)
(592)
(333)
(8,130)
(9,554)
(2,900)
(500)
(800)
(327)
(1,955)
(200)
(5,022)
(327)
(500)
(800)
(327)
(2,002)
(203)
(6,621)
(430)
(500)
(190)
(327)
(877)
(203)
(195)
–
–
(237)
–
(251)
(175)
–
(663)
–
(278)
–
(870)
–
(592)
–
–
(310)
–
–
(957)
–
–
(22)
–
–
(4,702)
–
(1,267)
(4,724)
–
(320)
–
(255)
–
(672)
–
–
(12)
–
–
–
(5,162)
(430)
(9,131)
(10,883)
(2,292)
(1,740)
(1,247)
(5,604)
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
178
1. financial risK manaGement oBjectives and Policies continued
(b) Liquidity risk continued
Total
contractual
Carrying undiscounted
cash flow
amount
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
The Company
As at 31 December 2014
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
As at 31 December 2013
Non-derivative financial liabilities
Other payable and accruals
Amounts due to subsidiaries
Note:
(43)
(1,051)
(43)
(1,051)
(43)
(1,051)
(1,094)
(1,094)
(1,094)
(44)
(1,275)
(1,319)
(44)
(1,275)
(44)
(1,275)
(1,319)
(1,319)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
The Group
As at 31 December 2014
Derivative settled net
Interest rate swaps
Derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency swaps
Outflow
Inflow
7
7
30
15
15
–
–
(1,341)
1,340
(839)
839
(369)
369
(133)
132
–
–
–
(3,027)
3,019
(85)
81
(85)
82
(255)
244
(2,602)
2,612
Financial Risk Management continuedFor the year ended 31 December 2014
179
1. financial risK manaGement oBjectives and Policies continued
(b) Liquidity risk continued
Total
contractual
Carrying undiscounted
cash flow
amount
HK$ million
HK$ million
Within
1 year or
on demand
HK$ million
More than
1 year
but not
exceeding
2 years
HK$ million
More than
2 years
but not
exceeding
5 years
HK$ million
More than
5 years
HK$ million
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
28
14
14
–
–
(113)
(283)
283
(194)
194
–
–
(89)
89
–
–
–
(3,415)
3,361
(388)
343
(85)
81
(255)
244
(2,687)
2,693
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 2014, about 23.7% (2013: 32.0%) 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”)
(2013: +100 and -25 bps) was applied to the HKD and US dollars (“USD”) yield curves at the end of the reporting period. For the
RMB yield curve, a change of +125 and -125 bps (2013: +100 and -25 bps) was applied. A greater change is adopted in view
of a greater change of the RMB yield curve occurred in 2014. For the Australian dollars (“AUD”) yield curve as at 31 December
2013, a change of +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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
180
1. financial risK manaGement oBjectives and Policies continued
(c) Interest rate risk continued
As at 31 December 2014
As at 31 December 2013
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
23
18
(12)
(5)
2
8
–
(2)
(d) Currency risk
The Group aims to minimise its currency risk and does not speculate in currency movements for debt management. 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 Renminbi
(“RMB”) and USD (2013: RMB, AUD and USD). The Group’s foreign currency bank loans and fixed rate notes are hedged by
cross currency swaps. During the year ended 31 December 2014, forward contracts were entered to hedge part of the RMB
exposure in view of depreciation of RMB against HKD.
2014
2013
The Group
total
equivalent
to
aud million rmB million us$ million hK$ million AUD million
RMB million
US$ million
–
–
–
–
–
–
–
–
–
565
–
235
800
1
6
–
87
94
5
753
–
966
1,724
–
–
–
–
300
300
–
2,314
2,314
–
–
–
–
–
37
–
37
2
259
–
61
322
–
–
–
–
4
10
95
109
–
300
300
Total
equivalent
to
HK$ million
2
361
78
815
1,256
255
2,312
2,567
Assets
Cash
Time deposits
Principal-protected
investments
Term notes
Liabilities
Unsecured bank loans
Fixed rate notes
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 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 22 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”)
(2013: 500 pips) was applied to the HKD:RMB and HKD:USD spot and forward rates at the end of the reporting period while a
change of 10,000 pips was applied to the HKD:AUD spot and forward rates as at 31 December 2013.
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.
Financial Risk Management continuedFor the year ended 31 December 2014
181
1. financial risK manaGement oBjectives and Policies continued
(d) Currency risk continued
As at 31 December 2014
– RMB
– USD
As at 31 December 2013
– 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
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
7
1
–
16
5
(7)
(1)
–
(16)
(5)
–
2
–
–
(1)
–
(2)
–
–
1
The Group
The Company
2014
hK$ million
2013
HK$ million
2014
hK$ million
2013
HK$ million
82
16
4,944
5,042
32
7,255
7,287
160
30
5,420
5,610
122
8,331
8,453
2
–
12,711
12,713
–
1,094
1,094
2
–
12,948
12,950
–
1,319
1,319
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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
182
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 2014
Derivatives under hedge accounting
As at 31 December 2013
Derivatives under hedge accounting
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
16
30
Gross amounts of
recognised
financial assets
HK$ million
16
30
(b) Net financial assets subject to enforceable master netting arrangements or similar agreements, by counterparty
As at 31 December 2014
Counterparty A
Counterparty B
Counterparty D
Counterparty F
Total
As at 31 December 2013
Counterparty A
Counterparty B
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
8
1
2
5
16
17
13
30
(8)
–
(1)
–
(9)
(17)
–
(17)
Net amount
HK$ million
–
1
1
5
7
–
13
13
(c) Financial liabilities subject to enforceable master netting arrangements or similar agreements
As at 31 December 2014
Derivatives under hedge accounting
As at 31 December 2013
Derivatives under hedge accounting
Gross amounts of
recognised financial
liabilities
HK$ million
(32)
(122)
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
(32)
(122)
Financial Risk Management continuedFor the year ended 31 December 2014
183
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 and similar agreements, by
counterparty
As at 31 December 2014
Counterparty A
Counterparty D
Counterparty E
Total
As at 31 December 2013
Counterparty A
Counterparty D
Counterparty E
Counterparty F
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
(30)
(1)
(1)
(32)
(71)
(3)
(3)
(45)
(122)
8
1
–
9
17
–
–
–
17
Net amount
HK$ million
(22)
–
(1)
(23)
(54)
(3)
(3)
(45)
(105)
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$5,015 million (2013:
HK$5,022 million) fixed rate notes as stated in note 28 of the Notes to the Financial Statements section with fair value of
HK$5,110 million (2013: HK$4,890 million).
The fair value of HK$2,317 million (2013: 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$2,793 million (2013: 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.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
184
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).
Financial assets
derivatives under hedge accounting
Forward foreign exchange contracts
Interest rate swaps
financial assets at fvtPl
Principal-protected investments
Unlisted club debentures
Total
Financial liabilities
derivatives under hedge accounting
Forward foreign exchange contracts
Cross currency swaps
Interest rate swaps
Total
Financial assets
derivatives under hedge accounting
Interest rate swaps
financial assets at fvtPl
Principal-protected investments
Unlisted club debentures
Total
Financial liabilities
derivatives under hedge accounting
Cross currency swaps
Interest rate swaps
Total
There were no transfers between Levels 1 and 2 for both years.
level 1
hK$ million
level 2
hK$ million
level 3
hK$ million
total
hK$ million
2014
–
–
–
–
–
–
–
–
–
8
8
80
2
98
1
30
1
32
–
–
–
–
–
–
–
–
–
8
8
80
2
98
1
30
1
32
Level 1
HK$ million
Level 2
HK$ million
Level 3
HK$ million
Total
HK$ million
2013
–
–
–
–
–
–
–
30
158
2
190
113
9
122
–
–
–
–
–
–
–
30
158
2
190
113
9
122
Financial Risk Management continuedFor the year ended 31 December 2014
185
4. fair value measurement continued
(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 and commodities prices as underlying and taking
into account the credit risk of the counterparties.
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
2014
hK$ million
2013
HK$ million
1,100
–
5,015
332
6,447
(3,534)
(106)
2,807
1,955
200
5,022
327
7,504
(4,042)
(81)
3,381
67,040
63,326
4.2%
5.3%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
186
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$)
Year end share price (HK$)
2014
hK$ million
2013
HK$ million
2012
HK$ million
2011
HK$ million
(Note)
2010
HK$ million
(Note)
3,224
(404)
2,820
68
(2)
(214)
(228)
2,940
252
5,636
(386)
5,250
(348)
4,902
2,163
2,163
3,063
(405)
2,658
76
1
(208)
(242)
4,575
309
7,169
(372)
6,797
(639)
6,158
2,043
2,043
1,255
1,064
123.00
1,064
1,010
117.00
4.61
4.61
2.03
2.03
4.2%
17.1x
63.02
2.64
34.65
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
Five-Year Financial Summary
187
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
Note:
2014
hK$ million
2013
HK$ million
2012
HK$ million
2011
HK$ million
(Note)
2010
HK$ million
(Note)
68,735
4,154
–
–
–
3,640
2,494
79,023
(6,447)
(732)
(1,715)
(8,894)
70,129
(3,089)
67,040
65,322
4,181
–
–
–
4,123
2,468
76,094
(7,504)
(660)
(1,749)
(9,913)
66,181
(2,855)
63,326
60,022
3,759
1
–
2
2,311
2,328
68,423
(5,941)
(511)
(1,524)
(7,976)
60,447
(2,324)
58,123
49,969
3,423
989
–
–
2,961
2,026
59,368
(6,663)
(433)
(1,528)
(8,624)
50,744
(1,991)
48,753
40,833
3,153
–
1,152
–
1,993
1,423
48,554
(4,587)
(387)
(1,263)
(6,237)
42,317
(1,640)
40,677
Other than the changes in classification of certain financial assets, the early adoption of the 2010 version of the HKFRS 9 on 1 January 2011 had no
material financial impact on the amounts recognised on the financial statements of the Group for the year 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)
(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
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
188
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual Revaluation of Investment Properties as at 31 December 2014
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 2014 was in the approximate sum of Hong Kong Dollars Sixty Eight Billion Seven hundred and
Thirty Five Million Only (i.e. HK$68,735 million).
The completed 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.
For the investment properties under redevelopment, residual method of valuation has been adopted. The valuation was
mainly arrived at by reference to sales or rental evidences as available on the market to determine the value of the proposed
redevelopment as if it were completed in accordance with the existing development controls as at the date of valuation. All
costs of the redevelopment, namely cost of construction, cost of finance, professional fees and allowance of profit required for
the redevelopment were then deducted from the completion value of the proposed redevelopment to derive the market value
of the properties as at the date of valuation.
Yours faithfully,
Knight Frank Petty Limited
Hong Kong, 9 February 2015
Report of the Valuer 189
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
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%
9. 18 Hysan Avenue
Sec. N of I.L. 457 and Sec. LL of I.L. 29
Commercial
Long lease
100%
18 Hysan Avenue
Causeway Bay
Hong Kong
Schedule of Principal PropertiesAt 31 December 2014Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
190
investment ProPerties continued
Address
Lot No.
Use
Category
of the Lease
Percentage
held by
the Group
10. 111 Leighton Road
Sec. KK of I.L. 29
Commercial
Long lease
100%
111 Leighton Road
Causeway Bay
Hong Kong
11. Hysan Place
500 Hennessy Road
Causeway Bay
Hong Kong
Sec. FF of I.L. 29 and
the R.P. of Marine Lot 365
Commercial
Long lease
100%
*
The properties are currently under redevelopment. Demolition work on the existing above-ground structure was completed in July 2014. The
lateral support works are currently underway in good progress for the next construction stage including demolition of existing basement,
excavation and foundation construction. 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 2014
191
HK$
Number of
Ordinary Shares
7,640,080,563
1,063,871,692
share caPital
At 31 December 2014
Issued and fully paid-up capital
There was one class of ordinary shares with equal voting rights.
distriBution of shareholdinGs
(At 31 December 2014, 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 % of the total no.
ordinary shares
of issued shares
(Note)
2,347
867
78
61
3
11
3,367
69.70
25.75
2.32
1.81
0.09
0.33
3,997,678
13,635,603
5,990,681
11,797,807
1,874,206
1,026,575,717
0.38
1.28
0.56
1.11
0.18
96.49
100.00
1,063,871,692
100.00
tyPes of shareholders
(At 31 December 2014, as per register of members of the Company)
Type of shareholders
Lee Hysan Company Limited, Lee Hysan Estate Company, Limited and their subsidiary
Other corporate shareholders
Individual shareholders
total
ordinary shares held
Number of % of the total no.
of issued shares
(Note)
433,130,735
590,610,308
40,130,649
1,063,871,692
40.71
55.52
3.77
100.00
location of shareholders
(At 31 December 2014, as per register of members of the Company)
Location of shareholders
Hong Kong
United States and Canada
United Kingdom
Others
total
Note:
ordinary shares held
Number of % of the total no.
of issued shares
(Note)
1,057,866,741
4,541,924
1,233,668
229,359
1,063,871,692
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 2014
(i.e. 1,063,871,692 ordinary shares).
Shareholding AnalysisHysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business
192
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
2015 interim results to be announced
* subject to change
11 March 2015
24 March 2015
26 March 2015
(on or about) 9 April 2015
14 to 15 May 2015
15 May 2015
5 August 2015 *
dividend
The Board declares the payment of a second interim dividend of HK100 cents per share. The second interim dividend will be
payable in cash to shareholders on the register of members as at Thursday, 26 March 2015.
The register of members will be closed on Thursday, 26 March 2015, 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 Wednesday, 25 March 2015.
Dividend warrants will be dispatched to shareholders on or about Thursday, 9 April 2015.
The register of members will also be closed from Thursday, 14 May 2015 to Friday, 15 May 2015, both dates inclusive, for the
purpose of determining shareholders’ entitlement to attend and vote at the Annual General Meeting to be held on 15 May
2015, 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 Wednesday, 13 May 2015.
share listinG
Hysan’s shares are listed on The Stock Exchange of Hong Kong Limited. It has a sponsored American Depositary Receipts (ADR)
Programme in the New York market.
stocK code
The Stock Exchange of Hong Kong Limited: 00014
Bloomberg: 14HK
Reuters: 0014.HK
Ticket Symbol for ADR Code: HYSNY
CUSIP reference number: 449162304
Shareholder Information 193
shareholder services
For enquiries about share transfer and registration, please contact the Company’s Registrar, Tricor Standard Limited:
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.
Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible BusinessHysan Annual Report 2014 194
On The Stock Exchange of Hong Kong Limited’s
Environmental, Social and Governance Reporting Guide
A. Workplace Quality
A1 Working conditions
• Information on policies; and compliance and material
non-compliance with relevant standards, rules and
regulations on compensation and dismissal, recruitment and
promotion, working hours, rest periods, equal opportunity,
diversity, benefits and welfare
Reference in “Responsible Business” section
• “Workplace Quality – Human Resources Policies”
• Not aware of any material non-compliance
• KPI A1.1 Total workforce by employment type, age group
• “Workplace Quality – Staff Composition”
and geographical region
• KPI A1.2 Employee turnover rate by age group and
• “Workplace Quality – Staff Composition”
geographical region
A2 Health and safety
• Information on policies; and compliance and material
non-compliance with relevant standards, rules and
regulations on providing a safe working environment and
protecting employees from occupational hazards
• “Health and Safety”
• Not aware of any material non-compliance
• KPI A2.1 Number and rate of work-related fatalities
• No fatality
• KPI A2.2 Lost days due to work injury
• “Health and Safety – Health and Safety in Action”
• KPI A2.3 Description of occupational health and safety
measures adopted, how they are implemented and
monitored
A3 Development and training
• “Health and Safety – Health and Safety in Action”
• Policies on improving employees’ knowledge and skills for
discharging duties at work. Description of training activities
• “Workplace Quality – Training and Development”
• Our focus in 2014 included the introduction of a
• KPI A3.1 The percentage of employees trained by employee
category
• KPI A3.2 Average training hours completed per employee by
employee category
A4 Labour standards
• Information on policies; and compliance and material
non-compliance with relevant standards, rules and
regulations on preventing child or forced labour
comprehensive training curriculum for Building Management
Team colleagues of various levels. We shall continue to
strengthen our staff capabilities through training
programmes and activities.
• “Workplace Quality – Human Resources Policies”
• We believe our property investment and management
business (primarily in Hong Kong) has a very low risk profile
on use of forced or child labour. We are not aware of any
material non-compliance with applicable provisions. We are
against the use of forced or child labour.
• KPI A4.1 Description of measures to review employment
• Not applicable
practices to avoid child and forced labour
• KPI A4.2 Description of steps taken to eliminate such
• Not applicable
practices when discovered
195
B. Environmental Protection
Reference in “Responsible Business” section
B1 Emissions
• Information on policies; and compliance and material
non-compliance with relevant standards, rules and
regulations on air and greenhouse gas emissions, discharges
into water and land, generation of hazardous and non-
hazardous wastes, etc.
• “Environment – Our New Environmental Policy”
• “Environment – Energy Efficiency”
• “Environment – Waste Management, Recycling and Water
Consumption”
• Not aware of any material non-compliance
• KPI B1.1 Types of emissions and data
• “Environment – Energy Efficiency”
• “Environment – Waste Management, Recycling and Water
Consumption”
• KPI B1.2 Greenhouse gas emission in total
• “Environment – Energy Efficiency”
• KPI B1.3 Total hazardous waste produced
• We believe our business does not generate a material
amount of hazardous waste.
• KPI B1.4 Total non-hazardous waste produced
• KPI B1.5 Description of measures to mitigate emissions and
results achieved
• “Environment – Energy Efficiency”
• “Environment – Waste Management, Recycling and Water
Consumption”
• KPI B1.6 Description of how wastes are handled, reduction
• “Environment – Waste Management, Recycling and Water
initiatives and results achieved
Consumption”
B2 Use of resources
• Policies on efficient use of resources like energy, water and
• “Environment – Our New Environmental Policy”
other raw materials
• KPI B2.1 Energy consumption by type in total and intensity
• “Environment – Energy Efficiency”
• KPI B2.2 Water consumption in total and intensity
• “Environment – Waste Management, Recycling and Water
Consumption”
• KPI B2.3 Description of energy use efficiency initiatives and
• “Environment – Energy Efficiency”
results achieved
• KPI B2.4 Description of whether there is any issue in sourcing
water that is fit for purpose, water efficiency initiatives and
results achieved
• “Environment – Waste Management, Recycling and Water
Consumption”
• KPI B2.5 Total packaging material used for finished products
• Not applicable
B3 The environment and natural resources
• Policies on minimising the operation’s significant impact on
• “Environment – Our New Environmental Policy”
the environment and natural resources
• KPI B3.1 Description of the significant impacts of activities
on the environment and natural resources and actions taken
to manage them
• “Environment – Our Environmental Impacts”
• “Environment – Energy Efficiency”
• “Environment – Waste Management, Recycling and Water
Consumption”
Hysan Annual Report 2014Corporate GovernanceFinancial Statements and ValuationFinancial PerformanceOverviewResponsible Business 196
On The Stock Exchange of Hong Kong Limited’s
Environmental, Social and Governance Reporting Guide
C. Operating Practices
C1 Supply chain management
• Policies on risk management of supply chain
Reference in “Responsible Business” section
• “Health and Safety – New Health and Safety Policy”;
“Health and Safety – Health and Safety: Our Partners”
• “Environment – Our New Environmental Policy”;
“Environment – Highlights of 2014”
(covered stakeholder engagement)
• KPI C1.1 Number of suppliers by geographical region
• “Environment – Green Procurement”
• KPI C1.2 Description of practices relating to engaging
suppliers, number of suppliers, and how practices are
implemented and monitored
C2 Product responsibility
(With regards to the redevelopment of Sunning Plaza/Court,
we plan to use materials extracted and manufactured locally
for around 10% of total materials value.)
• “Health and Safety – Health and Safety: Our Partners”
• “Environment – Green Procurement”
• Information on policies and compliance and material
non-compliance with relevant standards, rules and
regulations on health and safety, advertising, labelling,
privacy and methods of redress
• “Health and Safety – New Health and Safety Policy”
• “Workplace Quality – Our Values” (including the reference to
“Code of Ethics”, which covers data privacy)
• Not aware of any material non-compliance
• KPI C2.1 Percentage of total products sold or shipped subject
• Not applicable
to recalls for safety and health reasons
• KPI C2.2 Number of products and service related complaints
• Our “Service Scan” highlights customer complaint and
received and how they are dealt with
request handling. For each service, the service levels are
stated, each with an accompanying KPI and monitoring
methodology.
• KPI C2.3 Description of practices related to observing and
• “Workplace Quality – Our Values” (including the reference to
protecting intellectual property rights
“Code of Ethics”, which covers protection of copyrights)
• KPI C2.4 Description of quality assurance process and recall
procedures
• “Service Scan” details standard service levels and their related
KPIs and methods of measurement. It is used regularly to
measure tenants’ satisfaction levels for service
improvements.
• KPI C2.5 Description of consumer data protection and
• “Workplace Quality – Our Values” (including the reference to
privacy policies, how they are implemented and monitored
“Code of Ethics”)
C3 Anti-corruption
• Information on policies; and compliance and material
• “Workplace Quality – Our Values” (including the reference to
non-compliance with relevant standards, rules and regulations
on bribery, extortion, fraud and money laundering
“Code of Ethics”, which covers anti-bribery)
• Not aware of any material non-compliance
• KPI C3.1 Number of concluded legal cases regarding corrupt
practices brought against the issuer or its employees during
the reporting period and the outcomes of the cases
• No such cases
• KPI C3.2 Description of preventive measures and whistle-
blowing procedures, how they are implemented and
monitored
• “Workplace Quality – Our Values” (including the reference to
“Code of Ethics”, which covers our whistle-blowing
procedures)
D. Community Investment
Reference in “Responsible Business” Section
• Policies on community engagement to understand the
community’s needs where it operates and to ensure its
activities takes into consideration of communities’ interests
• KPI D1.1 Focus areas of contribution
• KPI D1.2 Resources contributed
• “Corporate Responsibility Policy”
• “Corporate Responsibility Policy – How the Policy is
implemented: Hysan’s Corporate Responsibility Model”
(contributions through regular business activities and also
giving through community involvement)
• “Community Contributions”
• “Community Contributions”
Corporate Responsibility Reporting
Verification Statement
Third-party Independent Verification
Scope and Objective
VERIFICATION STATEMENT
Hong Kong Quality Assurance Agency (“HKQAA”) conducted an independent verification of the
Responsible Business Section of the Annual Report of Hysan Development Company Limited
(“Hysan”) The content of the Responsible Business Section depicts Hysan’s commitments and
progress on sustainability for the period of 1st January 2014 to 31st December 2014.
The aim of this verification was to provide a reasonable assurance on the completeness and accuracy
of the information stated in the Responsible Business Section, which is the second reporting of Hysan
that prepared in accordance with the Environmental, Social and Governance Reporting Guide (ESG
Reporting Guide) issued by the Hong Kong Stock Exchange.
Methodology
The process applied in this verification was based on the current best practices such as the “ISAE
3000- Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”.
The verification process included reviewing of relevant documentation, interviewing responsible
personnel with accountability for preparing the reporting contents and verifying the selected
representative sample of data and information. Raw data and supporting evidence of the selected
samples were thoroughly examined.
Independence
HKQAA was not involved in collecting and calculating data, or in the development of the reporting
contents. HKQAA’s activities are independent from Hysan.
Conclusion
The results of our verification provided confidence in the systems and processes used by Hysan for
managing and reporting sustainability performance information. It is confirmed that the contents stated
within the Responsible Business Section of the Annual Report are accurate and reliable. The key
performance indicators specified in the ESG Reporting Guide has been adequately addressed. The
information presents in the Responsible Business Section is fair in all material respects, and the
reporting contents articulate a balanced account of Hysan’s sustainability performance during the
reporting period.
Hysan has established effective mechanism to proactively engage with its stakeholders. Feedbacks
from stakeholders were taken into account very seriously for incorporating into the company’s
sustainability strategies and for preparing the reporting contents. Also, Hysan has been responsive to
stakeholder concerns and expectations, a number of highlighted cases are demonstrated within the
Responsible Business Section. Overall, the Responsible Business Section itself was found to be
inclusive of Hysan’s commitments, progress and achievement of its material sustainability issues.
Signed on behalf of Hong Kong Quality Assurance Agency
Connie Sham
Head of Audit
March 2015
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Hysan Development Company Limited
49/F The Lee Gardens, 33 Hysan Avenue, Hong Kong
T 852 2895 5777 F 852 2577 5153
www.hysan.com.hk