T H E H E A R T B E AT O F
HO NG KONG
2 0 1 7 A N N U A L R E P O R T
stock code 00014
Overview
1
2
Business
Performance
3
Corporate
Governance
Contents
12 Hysan’s Lee Gardens
13 Key Facts
13 Our Portfolio, How We Do Things
14 Value Creation
16 Our Assets
18 2017 Performance at a Glance
22 From the heartbeat of Causeway Bay...
... to the heartbeat of Hong Kong
24 Chairman’s Statement
32 The Marketplace
36 Management’s Discussion and Analysis
36 Strategy and Review of Results
37 Review of Operations
42 Financial Review
45 Treasury Policy
50 Risk Management and Internal Control Report
60 Our People
66 Corporate Governance Report
86 Audit Committee Report
90 Remuneration Committee Report
98 Nomination Committee Report
100 Strategy Committee Report
101 Corporate Responsibility Report – Summary
103 Directors’ Report
4
Financial
Statements,
Valuation
and Other
Information
114 Directors’ Responsibility for the Financial Statements
115 Independent Auditor’s Report
119 Financial Statements
173 Financial Risk Management
182 Five-Year Financial Summary
184 Report of the Valuer
185 Schedule of Principal Properties
186 Shareholding Analysis
187 Shareholder Information
189 Corporate Information
In an effort to reduce consumption of resources due to printing and distributing hard copies, the Hysan Corporate
Responsibility Report has been prepared for electronic distribution and is available for public viewing on Hysan
Development’s website (www.hysan.com.hk). Limited copies are printed and distributed, primarily to our shareholders.
A summary of the Corporate Responsibility Report is provided on pages 101 and 102 of this Annual Report.
The gloom lifted from both the global and
Hong Kong economies in 2017, but significant
structural change to Hysan’s retail and office
sectors remained. In this Annual Report,
we highlight our effort to address these
challenges, and more importantly, how we plan
ahead and provide stewardship to our unique
home base, Lee Gardens, where you will hear not
just the heartbeat of Causeway Bay, but the
heartbeat of Hong Kong.
120 7
Structural
Change
Retail
/
Generational shift: Millennials and Generation
Z’ers drive changes in where, what, how and
when products and services are delivered
/ Demographic changes: need to cater to the
needs of tourists, “New Hong Kong” and “Old
Hong Kong” residents
/
Technological advancements: challenges from
e-commerce, the prevalence of social media and
reliance on mobile technology
/ Mall operators and retailers: need to partner and
provide unique and personalised shopping
experience
/
Luxury sector changes: definition of luxury now
encompasses health and well-being as well as
children-centric offerings
Office
/
/
Younger and incoming office workers:
prefer to be more mobile and work in
more social settings
Co-working space: a major disruptor
and growing trend, with brands using
unique ways to attract space users
/
/
Traditional office leasing:
multinationals opting to relocate to
non-Central core areas to avoid record
high rents in Central
Causeway Bay as office destination:
convenient and cost effective, but
sees competition from other office
areas on the Island and Kowloon
3
Hysan’s Progress
in 2017
Continued to create an inclusive
retail and office ecosystem that
reflects the needs and demands of
modern-day users within a
community-friendly environment
Dynamic curation of our retail
portfolio with an exciting mix of
top name tenants and emerging
brands. Lee Garden Three is our
lifestyle extension which further
confirms our commitment to
lifestyle and food and beverage
Strong tenant collaboration
programmes attracted attention,
footfall and spending; sales
incentive programmes achieved
good sales
Offered offices at Leighton
Centre to up-and-coming
NGOs, representing Hysan’s
commitment to foster innovation
and serve the community
Loyalty programmes made
significant year-on-year percentage
growth on membership numbers
and healthy sales growth
5
Lee Garden Three
Completed in 2017, and first office
tenant moved in in December
Building is positioned as our area’s
lifestyle extension and office floors
welcome tenants from a diverse
business background
Wellness theme with
jogging track, green roof
and butterfly garden
Well-known community-based
co-working brand is a major tenant
Retail podium includes iconic
food and beverage and lifestyle
offerings
7
Looking Ahead
Promote lifestyle through food and
beverage, as well as health and
wellness in an environment with a
strong sense of community
like
Help define new retail where
emerging consumers demand
and define quality through
uniqueness, sustainability,
honesty and individuality
Provide more tech-enabled
environment, with more
collaboration and experience
sharing
Explore more aspects of the
sharing economy, including an
enhanced co-working community,
as well as co-living arrangements
tea time
Free
WiFi
Zone
style
meeting space
size
colour
find your workspace
Lee Garden Three
be our partner
co-working space
Grow sustainable community –
based working environment, where
work-life balance is valued
like
tea time
Free
WiFi
Zone
Strive to innovate and
curate relevant content for
the Lee Gardens community
style
meeting space
size
colour
find your workspace
Lee Garden Three
be our partner
co-working space
Continue to support
brands that offer
classic luxury
9
Overview
12
13
18
22
Hysan’s Lee Gardens
Key Facts
13 Our Portfolio,
How We Do Things
14 Value Creation
16 Our Assets
2017 Performance at a Glance
From the heartbeat of Causeway Bay...
... to the heartbeat of Hong Kong
24
Chairman’s Statement
1
11
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Hysan’s Lee Gardens
The heartbeat of
Causeway Bay
Hysan’s Lee Gardens is a community of contrast and diversity. Here classic labels and lifestyle
brands shape the retail landscape, merging seamlessly with a work-life balanced and tech-friendly
office environment. The district and its business setting, however, are facing structural challenges
in the forms of generational shift, demographic changes and relentless technological
advancements. The Group is addressing these challenges through repositioning and reimagining
its retail strategy and operation to provide the special touch, as well as embracing the
collaborative work model for its office portfolio. Adding to these is the push to innovate and
curate unique content for the Lee Gardens neighbourhood and community.
Reimagining
Retail
Curating
Community
Content
Repositioning
Office
Generational
Shift
Mature ones
Baby boomers
Millennials
Generation Z’ers
Technological
Advancement
e-Commerce
Mobile technology
Social media
Demographic
Change
Tourists
New Hong Kong residents
Old Hong Kong residents
12
Hysan Annual Report 2017 Key Facts
Our Portfolio
How We Do Things
VISION
To be the PREMIER property
company which 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.
VALUES
Leadership
Excellence
Empowerment
Good Citizenship
Accountability
Respect
Driving / Driven
Entrepreneurship
Networking
Sustainability
Hysan’s investment portfolio is set
predominantly in Lee Gardens, a unique part of
Hong Kong’s renowned commercial heart in
Causeway Bay. Our ownership concentration
makes us stand out, as it magnifies our ability
to create synergies from different tenants
within our remarkable community.
Within our approximately 4.5 million square
feet of retail, office and residential tenant
space, including the recently completed Lee
Garden Three, we strive to become close
partners with our tenants. By understanding
and connecting our tenants’ and our customers’
needs, we create a sustainable community.
A key feature of Hysan’s portfolio, which
comprises principally retail and office segments,
is its balanced and diversified nature.
Overall
Investment Properties
(by Gross Floor Area excluding
Lee Garden Three)
Investment Properties
(by Turnover Contribution)
Total Gross Floor Area
4.1 million sq. ft. (approx.)
Turnover
HK$3,548 million
17%
51%
32%
Residential
Office
Retail
8%
38%
54%
Residential
Office
Retail
13
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Key Facts
Value Creation
Financial Achievements:
• Steady and progressive total return
• Strong Balance Sheet
Retail
O
f
f
i
c
e
Interaction among our
business units drives synergies,
cross-sell opportunities to
optimise the full
potential of the portfolio
Residential
Financial
Achievements
increase earnings
Recurring Underlying Profit
2012-2017 (HK$ million)
2,283
2,369 2,349
2,163
2,043
1,622
Dividends per Share
provide steady growth
2012-2017 (HK cents)
5-year
CAGR
7.6%
5-year
CAGR
7.7%
123
117
95
132
135
137
2012
2013
2014
2015
2016
2017
Increase Yields
through active management
including tenant mix improvement
Turnover
2012-2017 (HK$ million)
3,430 3,535 3,548
3,224
3,063
2,486
5-year
CAGR
7.4%
Asset Enhancement
balance longer-term projects
with those that produce more
immediate returns
2012
2013
2014 2015 2016 2017
2012
2013
2014 2015 2016 2017
Supported by Strong
Underlying Non-Financial
Achievements:
Environment
Minimise our impact on the
environment, and achieve
higher efficiency at the
same time
Employees
Create working
environment for talent
to thrive
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
14
Hysan Annual Report 2017 Financial Achievements:
• Steady and progressive total return
• Strong Balance Sheet
Retail
O
f
f
i
c
e
Interaction among our
business units drives synergies,
cross-sell opportunities to
optimise the full
potential of the portfolio
Increase Yields
through active management
including tenant mix improvement
Turnover
2012-2017 (HK$ million)
3,430 3,535 3,548
3,224
3,063
2,486
5-year
CAGR
7.4%
Financial
Achievements
increase earnings
Recurring Underlying Profit
2012-2017 (HK$ million)
Dividends per Share
provide steady growth
2012-2017 (HK cents)
5-year
CAGR
7.6%
5-year
CAGR
7.7%
123
117
95
132
135
137
2,283
2,369 2,349
2,163
2,043
1,622
2012
2013
2014
2015
2016
2017
2012
2013
2014 2015 2016 2017
2012
2013
2014 2015 2016 2017
Residential
Asset Enhancement
balance longer-term projects
with those that produce more
immediate returns
Supported by Strong
Underlying Non-Financial
Achievements:
Environment
Minimise our impact on the
environment, and achieve
higher efficiency at the
same time
Employees
Create working
environment for talent
to thrive
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
15
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Key Facts
Our Assets
Hysan
Place
500 Hennessy Road, Causeway Bay
Completed 2012
Approx. Gross
Floor Area 716,000 ft2
Floors 40 Parking
Number of
Spaces 66
Greenest commercial
building and trendiest
shopping centre in town
Bamboo
Grove
74–86 Kennedy Road, Mid-Levels
Completed 1985 / Renovated 2002
Approx. Gross
Floor Area 691,000 ft2
Number of
Units 345 Parking
Spaces 436
Quality international living
in Mid-Levels
BAMBOO
GROVE
Mid-Levels
Lee Theatre Plaza
99 Percival Street, Causeway Bay
Completed 1994 /
Renovation of lower zone 2013
Approx. Gross
Floor Area 314,000 ft2
Number of
Floors 26
One of Hong Kong’s
best-loved shopping
and dining complexes
Leighton
Centre
One Hysan Avenue
77 Leighton Road, Causeway Bay
Completed 1977 / Renovated 2011
1 Hysan Avenue, Causeway Bay
Completed 1976 / Renovated 2011
Approx. Gross
Floor Area 430,000 ft2
Number of
Floors 28 Parking
Spaces 321
Approx. Gross
Floor Area 169,000 ft2
Number of
Floors 26
Popular office complex
amongst sports and
lifestyle shops
Efficient office
and retail building
in prime site
Lee Theatre
Retail Hub
HYSAN PLACE
LEE
GARDEN
ONE
LEE THEATRE
PLAZA
LEIGHTON
CENTRE
ONE HYSAN
AVENUE
LEE
GARDEN
TWO
LEE
GARDEN
FIVE
LEE
GARDEN
THREE
GARDEN
LEE
SIX
Not to scale
Retail
and
Office
Retail
only
Residential
16
HENNESSYROADCROSSHARBOURTUNNELLEE GARDEN ROADHYSAN AVENUELAN FONG ROADPAK SHA ROADLEIGHTON ROADPERCIVAL STREETCENTRALABERDEENTUNNELNORTHPOINTYUN PINGROADHysan Annual Report 2017 BAMBOO
GROVE
Mid-Levels
Lee Garden
One
33 Hysan Avenue, Causeway Bay
Completed 1997
Approx. Gross
Floor Area 903,000 ft2
Number of
Floors 53 Parking
Spaces 200
Home to international
corporations and
premium brands
Lee Garden
Two
28 Yun Ping Road, Causeway Bay
Completed 1992 /
Renovation of retail podium 2003
Approx. Gross
Floor Area 620,000 ft2
Number of
Floors 34 Parking
Spaces 167
Spacious offices plus
renowned children’s
concept floor
Lee Garden Three
1 Sunning Road, Causeway Bay
Completed 2017
Approx. Gross
Floor Area 467,000 ft2
Parking
Number of
Spaces 201
Floors 32
Brand new commercial
address in Lee Gardens
Lee Theatre
Retail Hub
HYSAN PLACE
LEE
GARDEN
ONE
LEE THEATRE
PLAZA
LEIGHTON
CENTRE
ONE HYSAN
AVENUE
LEE
GARDEN
TWO
LEE
GARDEN
FIVE
LEE
GARDEN
THREE
LEE
GARDEN
SIX
Retail
and
Office
Retail
only
Residential
Lee Garden
Five
Lee Garden
Six
Not to scale
18 Hysan Avenue, Causeway Bay
Completed 1989 / Renovated 2009
111 Leighton Road, Causeway Bay
Completed 1988 / Renovated 2004
Approx. Gross
Floor Area 132,000 ft2
Number of
Floors 25
Approx. Gross
Floor Area 80,000 ft2
Number of
Floors 24
A 25-level office and
retail complex
Convenient office location
with retail shops
17
HENNESSYROADCROSSHARBOURTUNNELLEE GARDEN ROADHYSAN AVENUELAN FONG ROADPAK SHA ROADLEIGHTON ROADPERCIVAL STREETCENTRALABERDEENTUNNELNORTHPOINTYUN PINGROADOverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 2017 Performance
at a Glance
Financial Performance
Turnover
HK$3,548m
0.4%
Recurring
Underlying
Profit
HK$2,349m
0.8%
Recurring
Underlying
Earnings
per Share
HK224.68cents
0.7%
(HK$ million)
2,400
(HK cents)
240
3
8
2
2
,
3
6
1
2
,
3
4
0
2
,
9
6
3
2
,
9
4
3
2
,
2,100
1,800
1,500
1,200
900
600
300
0
.
3
8
4
1
2
.
4
3
3
0
2
.
0
1
2
9
1
.
9
2
6
2
2
.
8
6
4
2
2
210
180
150
120
90
60
30
0
2
0
.
3
6
8
4
.
4
6
6
5
.
4
6
9
8
.
6
6
4
5
.
9
5
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Dividends
per Share
HK137cents
1.5%
Property
Value
HK$72,470m
4.1%
(HK cents)
144
2
3
1
5
3
1
7
3
1
3
2
1
7
1
1
126
108
90
72
54
36
18
0
(HK$ million)
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
5
3
7
8
6
,
0
1
8
9
6
,
3
3
6
9
6
,
0
7
4
2
7
,
2
2
3
5
6
,
0
4
0
,
7
6
2
7
1
,
8
6
0
9
4
,
7
6
3
5
9
,
9
6
6
2
3
,
3
6
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Cost
Valuation Surplus
(HK$)
70
60
50
40
30
20
10
0
(HK$ million)
72,000
64,000
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
Retail Sector
HK$1,925m 2.2%
(HK$ million)
2,000
2
0
9
1
,
9
6
9
1
,
5
2
9
1
,
1
0
8
1
,
8
7
6
1
,
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2013
2014
2015
2016
2017
Office Sector
HK$1,359m 5.2%
(HK$ million)
1,400
3
4
2
1
,
2
9
2
1
,
9
5
3
1
,
5
8
0
1
,
6
3
1
1
,
1,200
1,000
800
600
400
200
0
2013
2014
2015
2016
2017
Residential Sector
HK$264m 3.6%
(HK$ million)
350
0
0
3
7
8
2
5
8
2
4
7
2
4
6
2
2013
2014
2015
2016
2017
300
250
200
150
100
50
0
18
Hysan Annual Report 2017 Net Asset
Value per
Share
HK$66.89
3.6%
2
0
3
6
.
8
4
4
6
.
6
5
4
6
.
9
8
6
6
.
4
5
9
5
.
(HK$)
70
60
50
40
30
20
10
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Shareholders’
Funds
HK$69,953m
3.6%
0
4
0
7
6
,
2
7
1
8
6
,
0
9
4
7
6
,
3
5
9
9
6
,
6
2
3
3
6
,
(HK$ million)
72,000
64,000
56,000
48,000
40,000
32,000
24,000
16,000
8,000
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Cost
Valuation Surplus
(HK$ million)
2
0
9
,
1
9
6
9
,
1
5
2
9
,
1
1
0
8
,
1
8
7
6
,
1
(HK$ million)
(HK cents)
3
8
2
,
2
3
6
1
,
2
3
4
0
,
2
9
6
3
,
2
9
4
3
,
2
3
8
.
4
1
2
4
3
.
3
0
2
0
1
.
2
9
1
9
2
.
6
2
2
8
6
.
4
2
2
240
210
180
150
120
90
60
30
0
(HK$ million)
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2,400
2,100
1,800
1,500
1,200
900
600
300
0
(HK cents)
144
126
108
90
72
54
36
18
0
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,200
1,000
800
600
400
200
0
350
300
250
200
150
100
50
0
2013
2014
2015
2016
2017
(HK$ million)
1,400
3
4
2
,
1
2
9
2
,
1
9
5
3
,
1
5
8
0
,
1
6
3
1
,
1
(HK$ million)
0
0
3
7
8
2
5
8
2
4
7
2
4
6
2
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2
3
1
5
3
1
7
3
1
3
2
1
7
1
1
5
3
7
,
8
6
0
1
8
,
9
6
3
3
6
,
9
6
0
7
4
,
2
7
2
2
3
,
5
6
Financial
Prudence
Net Interest Coverage (Note 1)
17.1 times
(2016: 20.5 times)
Net Debt to Equity (Note 2)
5.0%
(31 Dec 2016: 5.4%)
Average Finance Cost
3.4%
(2016: 3.8%)
Average Debt Maturity
4.3 years
(31 Dec 2016: 4.3 years)
Fixed Rate Debt
74.9%
(31 Dec 2016: 73.4%)
Capital Market Issuances
74.9%
(31 Dec 2016: 73.4%)
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 time deposits,
cash and bank balances divided by shareholders’ funds
19
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 2017 Performance
at a Glance
Non-Financial Performance
Environment
“AA”
• MSCI Global Sustainability Indexes:
“AA” Rating
“AA”
• Hang Seng Corporate Sustainability
Index: “AA” Rating
• Lee Garden Three achieved United
States Green Building Council’s LEED
(Core and Shell) Gold pre-certification
• Lee Garden One Offices achieved
Final Platinum rating under Hong
Kong Green Building Council’s BEAM
Plus Existing Buildings; Lee Garden
Three and Hysan Place were given
Provisional Platinum rating under
BEAM Plus New Buildings and Existing
Buildings respectively
The inclusion of Hysan Development Company Limited in any MSCI index, and the use of
MSCI logos, trademarks, service marks or index names herein, do not constitute a
sponsorship, endorsement or promotion of Hysan Development Company Limited by MSCI
or any of its affiliates. The MSCI indexes are the exclusive property of MSCI. MSCI and the
MSCI index names and logos are trademarks or service marks of MSCI or its affiliates.
20
Hysan Annual Report 2017 Social
Governance
• Constituent member of FTSE4Good
• Gold Award (Non-Hang Seng Index
index
• MSCI Global Sustainability Indexes:
“Top 5 Industry Leaders” in the sub-
category of “human capital
development”
• Silver Award for Volunteer Service
(Organisation) (in 2017) under the
Steering Committee on Promotion of
Volunteer Service of Social Welfare
Department
Large Market Capitalisation
Category) in the Hong Kong Institute
of Certified Public Accountants’ Best
Corporate Governance Awards 2017
• Winner (Category 2: Main Board
Companies, Hang Seng Composite
Index Constituent Companies) in
The Chamber of Hong Kong Listed
Companies’ Hong Kong Corporate
Governance Excellence Awards 2017
• Bronze Award (General Category) in
The Hong Kong Management
Association’s 2017 HKMA Best
Annual Reports Awards
21
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance From the heartbeat of
Causeway Bay...
22
Hysan Annual Report 2017 ... to the heartbeat of
Hong Kong
Navigating through the structural challenges, we are determined to give Lee
Gardens added dimensions. The future direction of consumption will redefine the
how, when and what. The why will demand qualities which embrace sustainability
and individuality. This will be the era of “new retail” when both brands and
landlords need to re-examine how to best reach their audience in a world where
the online and offline have accelerated their collaboration. The office community
will be a hotbed for cooperation and experience sharing. We strive to turn Lee
Gardens into the heartbeat of Hong Kong.
23
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Chairman’s Statement
We are keen to foster
innovation within the
commercial real estate sector
and to implement disruptive
technology while still leveraging
our prime strengths to drive
long-term growth.
The global economy experienced reasonable growth in 2017, due to a combination of
monetary policy accommodation, fiscal policy stimulation and an overall improvement
in trade.
The Hong Kong economy also shrugged off the gloom of 2016. Good labour market
conditions, strong asset prices and stock market all helped to create a wealth effect
which drove an improvement in domestic spending. In addition, the statistics for visitor
arrivals were also encouraging, including an increase of 3.9% in inbound Mainland
Chinese tourists in 2017, as compared to 2016.
As a result of positive macro conditions, Hong Kong’s retail sales saw a slight uptick in
growth after several years of decline. Jewellery and watches were the strongest
performers, and almost all mid-priced to affordable item categories registered healthy
growth.
Although the economic recovery appears fairly robust, structural changes cannot be
ignored. In this report, we provide updates on the challenges we are facing. More
importantly, we highlight the actions we took in 2017 to address these issues, as well
as our plans to respond to these changes in the near to medium term.
Retail
Among the most significant retail structural changes is the “generational shift”. The
Millennials and Generation Z’ers have different needs to the older generations, and
these needs are driving changes in the where, what, how and when products and
services are delivered. There is also a clear “demographic change” in Hong Kong
24
Hysan Annual Report 2017 whereby Mainland Chinese tourists, as well as “New Hong Kong” residents are revealing
themselves as mature and sophisticated spenders who demand quality products and
services. We need to cater simultaneously to the needs of tourists, newer residents who
came to settle in Hong Kong over the past 10 to 20 years, and the “old” Hong Kong.
Technological advancements clearly represent another facet of structural change
within the retail industry. The relentless growth of e-commerce, the ever-increasing
dominance of mobile technology, the prevalence of social media in our everyday lives:
these factors place serious demands on retailers to make swift and drastic changes. As
the landlord and venue provider for a wide range of retailers, we have to constantly
enhance our retail environment to cater to these changes. Our tenant collaboration
programmes, as noted in the section on Hysan’s progress in 2017, highlight the
importance we place on our partnerships with tenants.
Generational and demographic changes, as well as the extensive use of technology are
causing many shoppers to look further into what they really want when they shop.
Brands and retailers, as well as online operators, are making their moves to address
these issues. Hysan, as a landlord mall operator, needs to re-invent and re-imagine
both strategically and operationally. Giving shoppers special attention is now just as
important as providing for the straightforward sale of goods. To provide that “extra
special” touch, retailers and mall operators now try to make the shopping experience
socially pleasant and interesting by offering personalised and unique services to
delight and surprise, while making use of technology to enhance these special
offerings. All shopping malls in Hong Kong are now seeking to entice shoppers with this
experiential approach. Hysan has started the journey into new retail and we will
continuously adapt our offerings.
The luxury sector has been challenging. Despite the fact that consumer sentiment for
purchasing certain luxury goods, such as jewellery and watches, has rebounded to a
level close to that seen earlier in the decade, consumer behaviour and taste for the
high-end subsectors have changed in the past few years. The definition of luxury
stretches beyond buying exclusive or expensive goods. It now encompasses health and
well-being as well as children-centric offerings, all within a highly demanding enhanced
environment.
Office
Office leasing faces its own set of significant challenges, much of which is related,
again, to generational change. The younger and incoming members of the workforce
now subscribe to a more fluid and mobile work style, instead of being tied down to a
desk, or even an office. They prefer to work in a social setting, not just with colleagues,
but in an environment where they can exchange ideas and contacts with people from
other fields and disciplines.
25
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Chairman’s Statement
Co-working space is a major disruptor and is a growing trend. Several internationally-
renowned co-working brands have obtained footholds in Hong Kong, while other more
regional and local names are making an impact by adopting unique ways to attract
short or longer-term office space users. Hysan has embraced the collaborative work
model with an increase of our office portfolio’s exposure to over 5%.
Looking at office leasing through a more traditional lens, Hong Kong’s Central district
is still the favourite destination of Mainland Chinese financial institutions, with a
number of professional firms servicing these clients also taking up Central spaces with
record or near-record high rents. Non-Central core areas are generally still supported by
the spill-over effect, with some multinational companies opting to relocate to these
popular districts, such as Causeway Bay, that are just two or three MTR stops away
from Central. Outside Central, we note that while the value for money differential
between Causeway Bay and other office areas on the Island and on Kowloon side still
exists, the competition from these areas remains strong.
Hysan’s Progress in 2017
Hysan continued to launch new initiatives to address challenges in our retail and office
portfolios.
A new addition to our already well-balanced Causeway Bay commercial portfolio is Lee
Garden Three. The building is positioned as our area’s lifestyle extension. The
commercial building received its first new office tenant in December 2017. A number
of other multinational enterprises, from a diverse business background, are putting the
final touches to their interior works and will soon be operating in the office portion of
the building. Spaces, a well-known community-based co-working brand, has chosen Lee
Gardens as its flagship base in Hong Kong. It highlights our commitment to participate
in the future growth of the co-working sector. In addition, the retail podium will see the
launch of a range of exciting food and beverage outlets, as well as lifestyle shops
complementing existing ones in the Lee Gardens area.
For our retail portfolio in general, while retaining top name tenants, we have also
enhanced the trade mix by introducing a significant number of popular lifestyle
brands. These complement our more established food and beverage venues.
We have focused our marketing efforts in new tenant collaboration programmes.
Some examples include a partnership with the revamped Louis Vuitton shop, a much-
talked-about eslite summer programme, and a colourful I.T. showcase. All of these
have attracted considerable media attention, extensive footfall and healthy spending.
Our popular sales incentive programmes have also achieved good sales figures. Our
loyalty clubs, including both the VIP Club Avenue and the general shoppers’ Lee
Gardens Plus, recorded significant percentage growth of year-on-year membership
numbers, and importantly, also achieved healthy sales growth.
26
Hysan Annual Report 2017 As for our office portfolio, we continued to provide tenancy for office users from
different business sectors and different types of users. We are creating an inclusive
office community that fits the needs and demands of modern-day users. We have a
diverse portfolio of office tenants which includes sales, banking, finance, insurance,
technology, health and wellness, as well as high-end brands.
Further, we have offered offices at Leighton Centre to three up-and-coming NGOs
from different backgrounds: design and elderly services, performing arts and
technological development. The initiative represents Hysan’s continuing commitment
to foster innovation and serve our community.
Looking Ahead
Lee Gardens’ retail portfolio has long been associated with brands that sell the finer
things in life. While we will continue to support brands that offer classic luxury, our
commitment to promote lifestyle through food and beverage, as well as health and
wellness in an environment with a strong sense of community, will define the new
retail where emerging consumers demand quality expressed through sustainability,
honesty and individuality.
We expect our office portfolio to be relatively stable. We will maintain our focus on
growing a sustainable, community-based working environment, where a balanced
lifestyle for tenants’ workers is valued. We will also provide a more technology-friendly
environment, with more opportunities for collaboration and experience sharing.
Looking ahead, we will explore more aspects of the sharing economy, including an
enhanced co-working community, as well as co-living arrangements.
For our two main business sectors, we need to bring new initiatives to the market with
speed. We are keen to foster innovation within the commercial real estate sector and
to implement disruptive technology while still leveraging our prime strengths to drive
long-term growth. Going forward, we will be more digitalised and more data driven,
but we will also ensure that technology is adopted at the consumer level to help
customers interact with the brand.
Finally, as we illustrated in our last annual report, Hysan always strives to innovate and
curate relevant content for the Lee Gardens community. Throughout 2017, we have
continued to introduce small-scale but significant improvements, such as supporting
Lee Gardens Association’s Egglette and Ice-Cream festivals, as well as providing the
setting for Cathay Pacific/HSBC’s Rugby Sevens Fan Walk. The year-end recreation of
Lee Gardens Hotel’s Yum Sing Bar also proved to be a nostalgia-filled success. We will
continue to explore short and longer-term ways to enhance the Lee Gardens area in
which a broad leafy avenue, quirky side streets, state-of-the-art high-rise buildings,
heritage low-rise, eclectic businesses, as well as workers and visitors fuse together to
form a unique community.
27
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Chairman’s Statement
Business Performance
The Group saw a slight turnover increase of 0.4% to HK$3,548 million, from HK$3,535
million in 2016. At year-end 2017, our retail portfolio occupancy was 97%. Occupancy
of our office portfolio was 96%, and the residential portfolio was 75%. The retail and
office occupancy percentages did not include Lee Garden Three which was completed
in Mid-December 2017.
Recurring Underlying Profit, our key core leasing business performance indicator,
experienced a slight decline of 0.8% to HK$2,349 million (2016: HK$2,369 million).
This reflected the small growth in turnover in light of the market conditions, as well as
the increase in expenses for Lee Garden Three after its completion. Basic earnings per
share based on Recurring Underlying Profit were HK224.68 cents (2016: HK226.29
cents), down 0.7%.
Underlying Profit, which excludes unrealised changes in fair value of investment
properties, was HK$2,491 million, increased by 5.1% from HK$2,369 million in 2016.
This principally reflected a one-off compensation of HK$142 million (2016: nil) (net of
taxation and non-controlling interests’ shares) from a retail tenant during the year.
Basic earnings per share based on Underlying Profit correspondingly rose to HK238.26
cents (2016: HK226.29 cents), up 5.3%.
The Group’s Reported Profit for 2017 was HK$3,636 million (2016: HK$1,218 million).
This reflected a fair value gain of HK$853 million (2016: fair value loss of HK$1,187
million) on the Group’s investment properties’ valuation. As at year-end 2017, the
external valuation of the Group’s investment property portfolio increased by 4.1% to
HK$72,470 million (2016: HK$69,633 million). This reflected a combination of factors:
a generally positive office rental outlook; a number of asset enhancement works
completed, as well as a higher valuation for the completed Lee Garden Three and an
improving retail outlook. The capitalisation rates used in valuing each portfolio
remained unchanged from those used as at 31 December 2016.
Shareholders’ Funds increased by 3.6% to HK$69,953 million (2016: HK$67,490
million), principally reflecting the valuation change of the investment properties.
Our financial position remained strong, with net interest coverage of 17.1 times (2016:
20.5 times) and net debt to equity ratio of 5.0% (2016: 5.4%).
28
Hysan Annual Report 2017 Capital Management
The Board of Directors (the “Board”) is pleased to declare a second interim dividend of
HK111 cents per share (2016: HK109 cents). Together with the first interim dividend of
HK26 cents per share (2016: HK26 cents), the total distribution is HK137 cents per
share (2016: HK135 cents), representing a year-on-year increase of 1.5%. The
dividend will be payable in cash.
Appreciation and Outlook
Although 2017 saw Hong Kong’s economy emerging from a difficult period, Hysan still
had to navigate through significant changes within our fields of operation. Our
management team and colleagues deserve full credit for developing and delivering
many successful projects. I would like to take this opportunity to thank them for their
hard work, and I would also like to thank our directors for their support and guidance.
The trend of global economic expansion is likely to continue in 2018, despite some
geopolitical uncertainties, a potential further U.S. rate hikes, and the possibility of a
slowdown in the Chinese economy. Hong Kong’s economy is expected to continue to
be buoyed by growth in consumer spending.
Hysan has implemented a range of measures to tackle the retail and office structural
changes head on. Lee Garden Three’s completion is adding greater impetus to the
changes in both sectors of our commercial portfolio. We also have a comprehensive
plan to further curate the Lee Gardens community with the support of our
neighbourhood stakeholders. We look forward to another fruitful year ahead.
Lee Irene Yun-Lien
Chairman
Hong Kong, 28 February 2018
29
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Business
Performance
32
The Marketplace
36 Management’s Discussion
and Analysis
36 Strategy and Review of Results
37 Review of Operations
42 Financial Review
45 Treasury Policy
50
Risk Management and
Internal Control Report
2
31
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance The Marketplace
Hong Kong economy
The Hong Kong economy grew by 3.8% year-on-year in 2017. Private consumption
expenditure increased by 5.4% supported by favourable employment and earnings.
Investment expenditure grew moderately by 4.2%. Exports of goods increased by 5.9%
and exports of services rebounded by 3.5% mainly due to a broad-based global
economic upturn.
Real Gross Domestic Product*
Year-on-year % change
5
4
3
2
1
0
3.8%
3.1%
2.8%
2.4%
2.1%
2013
2014
2015
2016
2017
* In chained (2015) dollars
Source: Census and Statistics Department (data as of March 2018)
Retail
Benefiting from good consumer sentiment, retail sales recorded an annual increase of 2.2%
as compared to the previous year. Key contributors were the medicines and cosmetics, and
luxury products sectors.
A 3.9% increase in Mainland China visitors during the year was one of the core factors in
the overall retail increase. Local consumers also contributed to the retail market upturn as
shown by the notably increase in private consumption expenditure.
Categories
2017 growth rate
Key dropping categories
Electrical goods and photographic equipment
Footwear, allied products and other clothing
accessories
Growing categories
Medicines and Cosmetics
Jewellery, watches and clocks, and valuable
gifts
- 9.0%
- 2.1%
+ 5.5%
+ 5.2%
Source: Census and Statistics Department (data as of March 2018)
32
Hysan Annual Report 2017 Hong Kong Total Retail Sales
Total Number of Visitors
HK$ billion
Year-on-year % change
Million
600
500
400
300
200
100
0
494
493
475
437
446
11.0%
-0.2%
2.2%
-3.7%
-8.1%
32
24
16
8
0
-8
-16
70
60
50
40
30
20
10
0
61
22%
78%
59
22%
78%
57
24%
76%
58
24%
76%
54
25%
75%
2013
2014
2015
Total Retail Sales
2016
Year-on-year % change
2017
Source: Census and Statistics Department (data as of March 2018)
2013
2014
2015
2016
2017
Number of Other Visitors
Number of Mainland China Visitors
Source: Hong Kong Tourism Board (data as of March 2018)
According to Jones Lang LaSalle, rents for retail premises in prime shopping centers picked
up marginally in the fourth quarter but still dropped mildly by 0.4% for the full year in 2017.
Premium Prime Shopping Centre Rental Index (2009 Q4=100)
Index
170
160
150
140
130
120
110
100
90
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015
2017
2016
2014
2013
Source: Jones Lang LaSalle (data as of December 2017)
33
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance The Marketplace
Office
Rents in the Grade “A” office market recorded good growth in general. The primary growth
driver was the demand from Mainland China firms, and co-working operators. Mainland
China companies took up about 48% of new lettings in Central during the year. However,
some sub-markets such as Kowloon East, experienced a decline due to mounting supply
pressure.
As at the end of December 2017, Kowloon East had a double digit vacancy while Central’s
vacancy rate remained low at 1.7%. The strong demand in Central pushed rentals upwards
to $118.6 per sq. feet in December 2017.
Grade “A” Office Vacancy Rate in 2016 and 2017
Grade “A” Office Monthly Net Effective Rental Value
12.5%
10.5%
3.0%
2.7%
1.7%
1.7%
2.3%
2.2%
1.6%
3.9%
Central
Causeway Bay/
Wanchai
Tsim Sha Tsui
Hong Kong
East
Kowloon East
HK$ per sq.ft., Net Floor Area
140
120
100
80
60
40
20
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015
2013
2014
2016
2017
2016 year-end
2017 year-end
Central
Causeway Bay/Wanchai
Source: Jones Lang LaSalle (data as of December 2017)
Source: Jones Lang LaSalle (data as of December 2017)
%
15
12
9
6
3
0
34
Hysan Annual Report 2017 Luxury Residential
Luxury residential rents began to pick up in 2017. Positive business outlook has supported
leasing demand.
According to Jones Lang LaSalle, luxury residential rents increased 2.9% for the full year
in 2017.
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
2015
2017
2016
2013
2014
Source: Jones Lang LaSalle (data as of December 2017)
35
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Management’s Discussion
and Analysis
Hysan’s portfolio of retail, office and residential investment properties has a total gross floor
area of approximately 4.1 million square feet. This does not include the newly completed
Lee Garden Three mixed-use commercial building, which has a gross floor area of around
467,000 square feet.
Strategy
The Group is committed to seeking a steady growth of return for our shareholders. The vast
majority of our properties are located in Hong Kong’s Causeway Bay, and the area will
remain our home base and the core of our focus. The Group also seeks investment
opportunities beyond our core. One recent project is a joint-venture residential project in
Hong Kong’s Tai Po.
We enhance the value of our properties through refurbishing, repositioning, redevelopment
and other means of portfolio management. We actively seek new investment opportunities
with an aim to enhance long-term value for shareholders. We also strive to curate a unique
community in the Lee Gardens area of Causeway Bay for our tenants and other
stakeholders. With sound financial management underpinning everything we do, we
execute our work through a dedicated team of professionals well versed in different aspects
of the real estate industry.
Review of Results
The Group saw a slight turnover increase of 0.4% to HK$3,548 million, from HK$3,535
million in 2016.
The turnover of each sector is shown as below:
Retail sector
Office sector
Residential sector
2017
HK$ million
2016
HK$ million
Change
%
1,925
1,359
264
3,548
1,969
1,292
274
3,535
-2.2
+5.2
-3.6
+0.4
Recurring Underlying Profit, our key core leasing business performance indicator,
experienced a slight decline of 0.8% to HK$2,349 million (2016: HK$2,369 million). This
reflected the small growth in turnover as a result of the market conditions, as well as the
increase in expenses for Lee Garden Three after its completion. Basic earnings per share
based on Recurring Underlying Profit were HK224.68 cents (2016: HK226.29 cents), down
0.7%.
Underlying Profit, which excludes unrealised changes in fair value of investment properties,
was HK$2,491 million, increased by 5.1% from HK$2,369 million in 2016. This principally
reflected a one-off compensation of HK$142 million (2016: nil) (net of taxation and non-
controlling interests’ shares) from a retail tenant during the year. Basic earnings per share
based on Underlying Profit correspondingly rose to HK238.26 cents (2016: HK226.29 cents),
up 5.3%.
36
Hysan Annual Report 2017 The Group’s Reported Profit for 2017 was HK$3,636 million (2016: HK$1,218 million). This
reflected a fair value gain of HK$853 million (2016: fair value loss of HK$1,187 million) on
the Group’s investment properties’ valuation. As at year-end 2017, the external valuation of
the Group’s investment property portfolio increased by 4.1% to HK$72,470 million (2016:
HK$69,633 million). This reflected a combination of factors: a generally positive office
rental outlook; a number of asset enhancement works completed; a higher valuation for the
completed Lee Garden Three; and an improving retail outlook. The capitalisation rates used
in valuing each portfolio remained unchanged from those used as at 31 December 2016.
Recurring Underlying Profit
One-off early surrender compensation income
(net of effect of taxation and non-controlling
interests’ shares)
Underlying Profit
Fair value gain (loss) on
investment properties located in
– Hong Kong (net of effect of non-controlling
interests’ shares)
– Shanghai*
Imputed interest income on
interest-free loan to a joint venture
2017
HK$ million
2016
HK$ million
2,349
2,369
142
2,491
–
2,369
1,106
(1,157)
11
28
6
–
Reported Profit
3,636
1,218
Change
%
-0.8
n/m
+5.1
n/m
+83.3
n/m
n/m
* The investment properties are held by an associate of the Group.
n/m: not meaningful
Review of Operations
As at 31 December 2017, excluding the new Lee Garden Three, about 83% of the Group’s
investment properties by gross floor area were retail and office properties in Causeway Bay.
The remaining 17% was represented by residential properties in the Mid-Levels.
In terms of turnover contributions by the different business portfolios, about 54% was
attributable to retail, 38% to office and 8% to residential properties.
37
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
Management’s Discussion and Analysis
KEY PERFORMANCE INDICATORS
The Group’s turnover growth and occupancy rate are the key measurements used for
assessment of our core leasing business performance. Cost effectiveness is assessed by the
Group’s management using the property expenses ratio (as a percentage of turnover).
Key Performance
Indicators
Turnover Growth
Occupancy Rate**
Definition
Business Performance
Rental revenue in 2017
vs that in 2016
Retail: -2.2% (2016 vs 2015: +3.5%)
Office: +5.2% (2016 vs 2015: +3.9%)
Residential: -3.6% (2016 vs 2015: -3.9%)
Percentage of total
area leased*/ total
lettable area* of each
portfolio at year end
Retail: 97% (2016: 99%)
Office: 96% (2016: 96%)
Residential: 75% (2016: 82%)
Property Expenses
Ratio
Property expenses
divided by turnover
12.7% (2016: 12.1%)
* Source of underlying data: Internal company data
** The retail and office occupancy percentages did not include Lee Garden Three which was completed in Mid-December 2017.
This definition is applied to the whole “Management’s Discussion and Analysis” section.
Note: No changes have been made to the source of data or calculation methods used compared to 2016.
RETAIL PORTFOLIO
like
The Group’s retail portfolio turnover saw a decline of 2.2% to HK$1,925 million (2016:
HK$1,969 million), which included turnover rent of HK$48 million (2016: HK$46 million).
With an ongoing tenant mix adjustment, some shop spaces experienced positive rental
reversion while others saw negative reversion in rental renewals, reviews and new lettings.
The portfolio’s occupancy was 97% as at 31 December 2017 (31 December 2016: 99%).
Foot traffic for Hysan’s retail portfolio decreased by around 5% in 2017, as compared to
2016. This was due mainly to major renovation and fit out works for a number of new
tenants. Some improvement in footfall was seen towards the end of the year.
The estimated overall tenant sales within the portfolio experienced a single-digit percentage
increase, as compared to 2016. This compared well to Hong Kong’s overall retail sales in
2017.
Newly joined tenants in 2017 included Brunello Cucinelli, Zeiss Vision Center by Puyi Optical,
Cha Ling and i.t. blue block. The latter in particular reinforced Hysan Place’s position as
Hong Kong’s top fashionable shopping venue. Our portfolio also welcomed a number of
new food and beverage establishments to further add to our reputation as a foodie
destination. BRICK LANE, The PHO, and IPPUDO were among the eateries that joined, as
well as FLIPPER’S, the popular pancake restaurant operating out of i.t. blue block. In early
2018, we welcomed 10 Shanghai and Sushi Ta-ke.
38
Hysan Annual Report 2017 2017 saw a number of show-stopping events taking place at Hysan’s portfolio. The Cathay
Pacific/HSBC Rugby Sevens Fan Walk in April attracted much attention both from the
sport’s hardcore fans who travelled to Hong Kong from different parts of the world, as well
as from casual local visitors who previously may have had less exposure to this international
sporting event. The dining and shopping promotions that complemented the weekend
event brought customers and sales to the restaurants and shops within the Hysan portfolio.
The weekend’s street carnival on Hysan Avenue and Yun Ping Road established Lee Gardens
as a true destination in the hearts and minds of thousands of international visitors.
The summer’s programme in cooperation with eslite was another highlight attracting
considerable attention. The lifestyle theme permeated the month-long event with books, a
selection of coffees and even cassette tapes playing major roles. The winter holiday period
saw Christmas markets in the Lee Gardens area, with a number of stalls hosted by renowned
celebrities. Giant baubles, adopted by charity donors, adorned the malls. Both these events
successfully reflected our commitment to providing interesting content and entertainment
for all those who come and shop in our spaces.
We made substantial use of social media to help promote our events and activities, as well
as our range of special offers provided throughout the year. On the topic of promotions, we
strengthened our cooperation with a number of Mainland Chinese social media
organisations to push our messages into the Mainland market. We also worked closely on
promotional projects with banks and credit card operators that are popular with Mainland
visitors.
2017 was a successful year for our two loyalty programmes: the VIP Club Avenue, and the
general shoppers’ Lee Gardens Plus. For Club Avenue, the number of members saw a low
double-digit percentage growth, as compared to 2016, while sales also experienced a similar
level of percentage growth. Tenant referral and collaboration were key to our success. For
Lee Gardens Plus, the number of members grew in multiples. More attractive promotional
offers and a simplified registration process helped to ensure significant membership growth.
Retail Lease Expiry Profile by Area Occupied
(As at 31 December 2017)
%
40
30
20
10
0
35%
27%
21%
14%
2018
2019
2020
2021 and beyond
39
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Management’s Discussion and Analysis
OFFICE PORTFOLIO
The Group’s office portfolio turnover increased by 5.2% to HK$1,359 million (2016:
HK$1,292 million). The results reflected overall positive rental reversion on renewals, reviews
and new lettings.
The office portfolio occupancy was 96% as at 31 December 2017 (31 December 2016:
96%).
Causeway Bay remained one of the most sought after areas for multinational and local
corporations seeking prestige, convenience and good value for money. Lee Garden Three’s
pre-leasing activities slowed down somewhat in the second half of 2017, but close to 55%
of its office space was committed for rental. Kim Eng Securities (HK) Ltd, a subsidiary of
Maybank Group was the building’s first moved-in tenant, while Spaces, a renowned full
service co-working environment provider, was among the in-coming tenants. Both workers
and visitors to the building would find it easy to park, since more than 200 spaces were
added upon the completion of the building.
Professional and Consulting remained the sector taking up the most space in Hysan’s office
portfolio. Banking and Finance, Insurance and Semi-Retail took up the second, third and
fourth spots. These four sectors combined to occupy around 50% of our lettable floor area.
Reflecting a diverse tenant mix, no category took up more than 20% of the total lettable
area.
Office Tenant Profile by Area Occupied as at Year-end
21.3%
15.7%
20.5%
16.1%
1.7%
7.2%
8.0%
2017
14.3%
14.2%
8.0%
9.6%
3.4%
7.5%
6.2%
13.9%
2016
13.3%
10.1%
9.0%
Professional and Consulting
Banking and Finance
Insurance
Semi-retail
High-end Retailers
Information Technology
Marketing
Consumer Products
Others
Office Lease Expiry Profile by Area Occupied
(As at 31 December 2017)
24%
29%
25%
18%
2018
2019
2020
2021 and beyond
%
40
30
20
10
0
40
Hysan Annual Report 2017 RESIDENTIAL PORTFOLIO
Hysan’s residential portfolio, comprising mainly the units in Kennedy Road’s Bamboo Grove,
experienced a 3.6% turnover decrease to HK$264 million (2016: HK$274 million). The
sector’s occupancy was 75% as at 31 December 2017 (31 December 2016: 82%). The
decline in occupancy was due to more units being renovated, as well as changes in demand
by expatriates.
The rental reversion was overall positive on renewals, reviews and new lettings.
LEE GARDEN THREE PROJECT
The construction project was completed in December 2017, upon the issuance of the
Occupation Permit. Lee Garden Three is a commercial building that promotes environmental
friendliness and work-life balance with a retail podium, a Roof Top Garden, a Sky Garden
with a 100 metre long running track, as well as a range of dining hotspots, all
complementing the lifestyle elements in the Lee Gardens portfolio. The first office tenants
have already moved in, and three levels of parking spaces are already open for use by
tenants and the visiting public.
TAI PO LO FAI ROAD PROJECT
Design development of our low density residential development project at Tai Po is making
good progress. Various statutory submissions are ongoing. Site formation and foundation
works will commence in Q2 2018.
41
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 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 increased by 4.9% to HK$449 million (2016: HK$428 million), mainly
due to higher marketing expenses to enhance shopping attractions; increased life-cycle
repairs and maintenance costs; agency fees to external leasing agents for Lee Garden Three;
and offsetting lower utility costs as a result of tariff reduction. As the increase in property
expenses is more than the relevant increase in turnover, property expenses to turnover ratio
thus increased slightly from 12.1% to 12.7% as compared to 2016.
Administrative expenses increased by 12.8% to HK$247 million (2016: HK$219 million).
This reflected human resources upskilling and the filling of previously vacant positions.
FINANCE COSTS
Finance costs, after capitalisation of HK$51 million (2016: HK$14 million) interest expenses
and related borrowing costs referable to the construction costs of Lee Garden Three,
recorded a decrease of 11.2% to HK$158 million (2016: HK$178 million). If the capitalised
interest expenses and related borrowing costs were included, the Group’s finance costs in
2017 would have been HK$209 million, an increase of 8.9% from HK$192 million in 2016.
The increase was attributable to the higher average debt level in 2017 as compared to 2016
after debt repayments in both years. The Group’s average cost of finance in 2017 was
3.4%, lower than the 3.8% reported for 2016 due to the increase in interest expenses,
which were relatively lower than the percentage increase in average debt level during 2017.
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
Fair value gain on investment properties (excluding capital expenditure spent on the
Group’s investment properties) of HK$853 million (2016: fair value loss of HK$1,187
million) was recognised in the Group’s consolidated statement of profit or loss for the year.
This figure reflected a combination of factors: a generally positive office rental outlook; a
number of asset enhancement works completed; as well as a higher valuation for the
completed Lee Garden Three and an improving retail outlook.
42
Hysan Annual Report 2017 As at 31 December 2017, the Group’s investment property portfolio (including property
under redevelopment) was HK$72,470 million, an increase of 4.1% from HK$69,633 million
as at 31 December 2016. This valuation was carried out by Knight Frank Petty Limited, an
independent professional valuer, on the basis of open market value. The capitalisation rates
used in valuing each portfolio remained unchanged from those used as at 31 December
2016.
The following shows the property valuation of each portfolio at year-end.
Retail
Office
Residential
Lee Garden Three*
2017
HK$ million
2016
HK$ million
33,188
31,325
7,957
–
72,470
33,082
23,832
7,859
4,860
69,633
Change
%
+0.3
+31.4
+1.2
n/m
+4.1
* Lee Garden Three’s construction works were completed during the year ended 31 December 2017
n/m: not meaningful
INVESTMENT IN AN ASSOCIATE
The Group’s share of results of an associate decreased to HK$220 million (2016: HK$237
million). This decline mainly reflected the impact from renovation of the Shanghai Grand
Gateway project, of which the Group owns 24.7%. As at 31 December 2017, 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, amounted to HK$11 million (2016: HK$6 million).
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. This measure helped to preserve
the Group’s liquidity and to enhance interest yields.
Excluding recognition of imputed interest income on the non-current interest-free loan to a
joint venture company for residential sites’ development in Tai Po of HK$28 million (2016:
nil), like-for-like interest income decreased by 18.0% to HK$41 million (2016: HK$50
million). This figure mainly reflected a lower average investment amount after the payment
of the construction costs of Lee Garden Three.
43
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Management’s Discussion and Analysis
Cash Flow
Cash flow of the Group during the year is summarised below.
Operating cash inflow
Investments
Net repayment from (advance to)
a joint venture company
Financing
Interest and taxation
Dividends paid and proceeds on exercise of options
Capital expenditure
Consideration for shares repurchased
Net cash inflow
n/m: not meaningful
2017
HK$ million
2016
HK$ million
2,900
1,020
935
(151)
(566)
(1,524)
(1,947)
–
667
3,326
1,331
(2,036)
1,427
(523)
(1,500)
(847)
(395)
783
Change
%
-12.8
-23.4
n/m
n/m
+8.2
+1.6
n/m
n/m
-14.8
The Group’s net operating cash inflow was HK$2,900 million (2016: HK$3,326 million),
HK$426 million lower than in 2016, reflecting a one-off compensation received from a
tenant during 2016.
Net cash from investments was HK$1,020 million (2016: HK$1,331 million), mainly
attributable to reduction in investments in time deposits with longer tenors.
Net repayment from a joint venture company was HK$935 million after completion of
project financing on land acquisition costs during the year. In 2016, cash in advance to a
joint venture company was HK$2,036 million for the payment of land acquisition costs.
Net cash used in financing was HK$151 million after net repayment during the year. In
2016, net cash from financing was HK$1,427 million. This principally reflected new bank
loans of HK$1,680 million for the payment of land acquisition costs, which offset the
repayment of a HK$250 million bank loan during 2016.
The Group paid dividends of HK$1,411 million (2016: HK$1,394 million), being the 2016
second interim dividend of HK109 cents per share (2015: HK107 cents) and the 2017 first
interim dividend of HK26 cents (2016: HK26 cents) per share.
The Group repurchased 12.59 million of its own shares in 2016, at an aggregate
consideration of HK$395 million. The average purchase price per share was HK$31.24.
CAPITAL EXPENDITURE AND MANAGEMENT
The Group is committed to enhancing the asset value of our investment property portfolio
through selective asset enhancement and redevelopment. The Group has also established a
portfolio-wide whole-life cycle maintenance programme as part of our ongoing strategy to
pro-actively implement preventive maintenance activities. Total cash outlay of capital
expenditure during the year was HK$1,947 million (2016: HK$847 million), including the
payment of the construction costs of Lee Garden Three.
44
Hysan Annual Report 2017
Treasury Policy
MARKET HIGHLIGHTS
2017 was a year of global growth recovery, driven by synchronised global expansion. On the
back of the falling U.S. unemployment rate, improving GDP growth and low inflation, the
Federal Reserve raised the federal funds rate by 25 basis points on three occasions in 2017.
The Federal Reserve has further stated that it will continue to withdraw liquidity by gradually
increasing the federal funds rate and tapering its balance sheet in the coming period. Under
the currency board system, Hong Kong interest rates rise in line with the Federal Reserve’s
progressive normalisation of monetary policy. HKD Hibor rates rose during the last quarter
of 2017 but the differential with the U.S. Libor rates has remained wide as a result of rising
U.S. interest rates and ample liquidity in Hong Kong. Asia also performed well in 2017 owing
to benign U.S. inflation and the strength of commodity prices. China also witnessed robust
growth in 2017. However, the rate of growth has slowed due to the tightening of financial
and environmental regulations.
Although global economic growth continues, concerns remain for the year ahead.
Geopolitical events such as those related to North Korea could impact sentiment and
destabilise the market. A more marked slowdown in the growth of China’s economy may
also impact the rest of the world. It is therefore important for the Group to continue our
policy of prudent financial management.
CAPITAL STRUCTURE MANAGEMENT
Despite the interest rate tightening in the U.S., there was ample liquidity in the banking
system of Hong Kong in 2017. The credit margin of bank loans for companies with
investment grade credit ratings saw a modest decline. The 3-month HKD Hibor increased
from around 1% at the end of 2016 to around 1.3% at the end of 2017.
During 2017, the Group arranged HK$1,500 million five-year bank facilities on competitive
terms. The outstanding gross debt1 of the Group was HK$6,176 million (2016: HK$6,305
million) at year-end 2017, a decrease of HK$129 million compared with 2016. All the
outstanding borrowings are on an unsecured basis.
The Group always strives to lower the borrowing margin, to diversify funding sources and to
maintain a suitable maturity profile relative to the overall use of funds. Because of the
repayment of bank loans in 2017, debts sourced from the capital market increased to
74.9% (2016: 73.4%) at year-end. The Group continued to maintain long-term
relationships with a number of local and overseas banks in order to diversify funding
sources. At year-end 2017, seven local and overseas banks provided bilateral banking
facilities to the Group as funding alternatives.
1 The gross debt represents the contractual principal payment obligations at 31 December 2017. However, in accordance with
the Group’s accounting policies, the debt is measured at amortised costs, using the effective interest method. As disclosed in
the consolidated statement of financial position as at 31 December 2017, the book value of the outstanding debt of the
Group was HK$6,185 million (31 December 2016: HK$6,293 million).
45
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Management’s Discussion and Analysis
The following graph shows the percentages of total outstanding gross debts sourced from
banks and the debt capital markets in the past five years.
Sources of Financing at Year-end
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
73.5%
26.5%
2013
83.0%
17.0%
2014
94.9%
5.1%
2015
73.4%
74.9%
26.6%
25.1%
2016
2017
Bilateral Bank Loans
Capital Market Issuances
The Group also strives to maintain an appropriate debt maturity profile. As at 31 December
2017, the average maturity of the debt portfolio was about 4.3 years (2016: 4.3 years), of
which about HK$150 million or 2.4% of the outstanding gross debt will be due in less than
one year. Given that the Group had cash and bank deposits of HK$2,662 million, the Group
is able to meet the debt repayment in 2018 without much refinancing pressure.
The graph below shows the debt maturity profile of the Group at year-end 2017 and 2016.
Debt Maturity Profile at 2016 and 2017 Year-end
2017
150 800
2,146
3,080
6,176
2016
1,180
150
1,365
3,610
6,305
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Gross Debt Amount (HK$ million)
Maturing in not exceeding one year
Maturing in more than one year but not exceeding two years
Maturing in more than two years but not exceeding five years
Maturing in more than five years
46
Hysan Annual Report 2017 Reflecting the stable recurring cash flows from our business, the Group maintained
investment-grade credit ratings of A3 as rated by Moody’s and BBB+ as rated by Standard
and Poor’s.
The Group’s gearing ratio, as measured by Net Debt to Equity ratio1, decreased from 5.4%
at year-end of 2016 to 5.0% at year-end of 2017, mainly due to debt repayment in 2017.
The Group’s Net Interest Coverage2 slightly reduced to 17.1 times for 2017 (2016: 20.5
times) mainly due to the drawdown of bank loans during 2016. The low gearing and strong
ability to meet interest payments reflected the Group’s resilience and capability to raise
further debt if necessary.
The graph below shows the level of leverage and our ability to meet interest payment
obligations in the past five years.
Net Debt to Equity and Net Interest Coverage at Year-end
%
25
20
15
10
5
0
15.4x
5.3%
17.1x
4.2%
2013
2014
19.5x
20.5x
17.1x
3.0%
2015
5.4%
5.0%
2016
2017
Times
25
20
15
10
5
0
Net Debt to Equity
Net Interest Coverage (times)
LIQUIDITY MANAGEMENT
As at 31 December 2017, the Group had cash and bank deposits totalling about HK$2,662
million (2016: HK$2,630 million). All the deposits are placed with banks with strong credit
ratings and the counterparty risk is monitored on a regular basis. In order to preserve
liquidity and enhance interest yields, the Group invested HK$737 million (2016: HK$1,155
million) in debt securities.
Further liquidity, if needed, is available from the undrawn committed facilities offered by
the Group’s relationship banks. These facilities, amounted to HK$950 million at year-end
2017 (2016: HK$500 million), essentially allowing the Group to obtain additional liquidity as
the need arises.
The fixed debt ratio increased to 74.9% at year-end 2017 from 73.4% at year-end 2016.
As the U.S. has entered the interest rate normalisation cycle, the Group believes that interest
rates will continue to rise in the coming years. We expect that the current fixed debt ratio
will allow the Group to weather the risk of an interest rate hike cycle.
1 Net Debt to Equity is defined as borrowings less time deposits, cash and bank balances divided by shareholders’ funds.
2 Net Interest Coverage is defined as gross profit less administrative expense before depreciation divided by net interest
expenses.
47
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Management’s Discussion and Analysis
The diagram below shows the fixed rate debt and floating rate debt portions in the past
five years.
Fixed Rate Debt and Floating Rate Debt Portions
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
32.0%
68.0%
23.7%
76.3%
5.1%
94.9%
26.6%
73.4%
25.1%
74.9%
2013
2014
2015
2016
2017
Fixed rate debt
Floating rate debt
The diagram below shows the Group’s debt levels and average cost of finance in the past
five years.
Debt Levels and Average Costs of Finance
7,540
3.1%
3,417
6,457
3.2%
3.5%
4,875
2,817
2,071
3.8%
6,305
3.4%
6,176
3,675
3,514
2013
2014
2015
2016
2017
%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Year-end Gross Debt
Year-end Net Debt
(Gross debt less time deposits,
cash and bank balances)
Average Cost of Finance
(Total finance costs before capitalisation
divided by average gross debt)
HK$ million
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
48
Hysan Annual Report 2017 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
borrowings were denominated in Hong Kong dollars. For the US$300 million fixed rate notes
issued in January 2013, a hedge was entered into to effectively convert the borrowing into
Hong Kong dollars.
On the investment side, as at 31 December 2017, the Group’s outstanding foreign currency
balances in cash, time deposits and debt securities amounted to US$128 million (2016:
US$180 million), of which US$70 million (2016: US$98 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$3,779
million (2016: HK$3,497 million) or 4.6% (2016: 4.4%) of total assets.
USE OF DERIVATIVES
As at 31 December 2017, outstanding derivatives were mainly related to the hedging of
foreign exchange exposures. Strict internal guidelines have been established to ensure
derivatives are used to manage volatilities or to 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 basically reflects the credit quality of the counterparty.
49
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Risk Management and
Internal Control Report
Responsibility
Responsibility for risk management is shared among the Board of Directors and the
management of the Group. The Board has the overall responsibility of reviewing and
maintaining sound and effective risk management and internal control systems.
Management’s role is to design and implement these systems, and report to the Board and
Audit Committee on the risks identified and how they are managed which are essential for
the Group to achieve its business objectives.
Our Risk Management and Internal Control Framework
The Audit Committee supports the Board in monitoring our risk exposures, the design and
operating effectiveness of the underlying risk management, and the internal control
systems. Acting on behalf of the Board, it oversees the following process on a regular basis:
(i) Reviewing the principal business risks and control measures in order to mitigate, reduce
or transfer such risks, the strengths and weaknesses of the overall risk management and
internal control systems, and action plans to address the weaknesses or improve the
assessment process;
(ii) Reviewing the business process and operations reported by Internal Audit, including
action plans to address the identified control weaknesses, as well as status updates and
monitoring the implementation of audit recommendations; and
(iii) Reporting by the external auditor of any control issues identified in the course of their
work and discussion with the external auditor of the scope of their respective review and
findings.
The Audit Committee will then report its findings to the Board, which then consider these
findings in forming its own view on the effectiveness of the Group’s risk management and
internal control systems.
Please also see the “Audit Committee Report” from pages 86 to 89 regarding the
Committee’s detailed review work, including the forms of assurance received from
management, the external auditor and internal auditor.
50
Hysan Annual Report 2017 Hysan’s Top-Down/Bottom-Up Risk Management Framework
THE BOARD
“Top-down”
Overseeing,
identifying,
assessing, and
mitigating risk at
corporate level
• Has overall
responsibility for
the Group’s risk
management
and internal
control systems
• Sets strategic
objectives
• Reviews the
effectiveness of our
risk management
and internal control
systems
• Monitors the
nature and
extent of risk
exposure for our
major risks
• Provides direction
on the
importance of
risk management
and risk
management
culture
RISK MANAGEMENT
COMMITTEE AND
MANAGEMENT
• Designs, implements,
and monitors risk
management and
internal control systems
• Assesses our risks and
mitigating measures
Company-wide
AUDIT
COMMITTEE
INTERNAL
AUDIT
• Supports the Board in
• Supports the Audit
Committee in reviewing
the effectiveness of our
risk management and
internal control systems
monitoring risk exposure,
design and operational
effectiveness of the
underlying risk
management and
internal control systems
OPERATIONAL LEVEL
• Risk identification, assessment
• Risk management process and internal
and mitigation performed across
the business
controls practised across business
operations and functional areas
“Bottom-up”
Overseeing,
identifying,
assessing, and
mitigating risk at
business unit
level and across
functional areas
2017 Review of Risk Management and Internal Control
Effectiveness
In respect of the year ended 31 December 2017, the Board, with confirmation from the
Chief Operating Officer, Chief Financial Officer, Head of Internal Audit and Company
Secretary, considered the risk management and internal control systems to be effective and
adequate. No significant areas of concern that may affect the financial, operational,
compliance controls, internal audit, risk management and internal controls functions of the
Group were identified. The risk management and internal control systems are designed to
manage rather than eliminate the risk of failure to achieve business objectives, and can only
provide reasonable, not absolute, assurance against material misstatement or loss.
During the review, the Board also considered the resources, qualifications/experience of
staff of the Group’s internal audit, accounting and financial reporting functions and their
training and budgets were adequate.
Our Risk Management and Internal Control Model
Our risk management and internal control model is based on that of the Committee of
Sponsoring Organisations of the U.S. Treadway Commission (“COSO”) for internal control,
but with due consideration given to our organisational structure and business nature.
51
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Risk Management and Internal Control Report
The COSO model has five components and how the model fit in to our operational and
control environment is described as follows:
• Control Environment – this sets the tone for risk management and internal control. As
Hysan is a tightly-knit organisation, the actions of management and its commitment to
effective governance are transparent to all.
We have a strong tradition of good corporate governance and a corporate culture based
on sound business ethics and accountability. We have in place a formal Code of Ethics
that is communicated to all staff (including new recruits). In 2016, we adopted a separate
Whistleblowing Policy, under which whistle blowers can raise concerns to a designated
independent third party who will report to the Audit Committee. Our overall aim is to build
risk awareness and control responsibility into our culture, which are the foundation of our
risk management and internal control systems.
• Risk Assessment – we continue to improve our risk management process and the quality
of information generated, while maintaining a simple and practical approach. Instead of
setting up a separate risk management department, we seek to embed risk management
into our operations (retail, office, residential, property management & technical services,
projects, marketing and development & investment) and functional areas (including
finance, human resources, IT, legal, secretarial and corporate communications).
On an annual basis, department heads review and update their risk registers, providing
assurances that controls are both embedded and effective.
Management is part of a risk management committee (consists of Executive Director(s),
Chief Operating Officer, Chief Financial Officer, Head of Legal and Head of Internal
Audit), which sets relevant policies and monitors potential weaknesses and action items
regularly. This committee 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 a bottom-up approach in which operating
unit heads identify operational risks. Together, these determine the Group’s major risks.
Discussion sessions with all department heads further enhance the participatory aspect of
the overall risk assessment process.
• Control Activities and Information and Communicating – our core property leasing
and management business involves well-established business processes. Control activities
have traditionally been built on top-level reviews, segregation of duties, and physical
controls. These control policies are now formalised as written policies and procedures, with
defined limits of delegated authority and segregated duties and controls. A greater use of
automation (information processing) is also being implemented.
The annual budgeting and planning process, one of our key control activities, has been
refined to take into consideration risk factors. In preparing their respective plans, all
operating units are required to identify material risks that may have an impact on the
achievement of their business objectives. Action items to mitigate identified risks are
developed for implementation as well as for finalising the budget and business objectives.
Variance analyses are regularly performed and reported to management and the Board,
which help to identify deficiencies for timely remedial actions to be taken.
52
Hysan Annual Report 2017 Another significant control activity is the monitoring of project expenditures, as they are a
particularly capital-intensive aspect of our property business. For each project, a detailed
analysis of expected risks and returns is submitted to the operating unit heads, Chief
Operating Officer, Chief Financial Officer, Executive Director(s) or the Board for approval.
Criteria used to assess financial feasibility are generally based on net present value,
payback period and internal rate of return from projected cash flow.
Management also conducts an internal control self-assessment annually. All department/
unit heads must complete a relevant control self-assessment questionnaire and confirm
with management that appropriate internal control policies and procedures have been
established and properly complied with.
• Monitoring Activities – the Board and Audit Committee oversee the control process,
assisted by our Internal Audit team. Management provides update reports to the Audit
Committee on major risks and appropriate mitigating measures. Among the three Audit
Committee meetings held annually, one is substantially given over to the risk
management and internal control systems.
Strengthening our Underlying Systems
Since 2012, we have been progressively making improvements to our risk management and
internal control systems. The initial phase focused on adopting a more risk-based — rather
than process-based — approach to risk identification and assessment. This new 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.
Our goal is to further integrate risk management and internal control into our business
processes, including annual budgeting and planning. In December 2013, we revised the
COSO framework to adopt a holistic approach to risk management, taking into
consideration the Company’s circumstances, including its ongoing risk management and
internal control improvement plan as well as strategic initiatives such as corporate social
responsibility. Ultimately, our objective is to make risk management a “living” process that is
practised on a day-to-day basis by operating units.
53
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Risk Management and Internal Control Report
HYSAN’S “THREE LINES OF DEFENCE” MODEL
Clear responsibilities and robust controls are vital to help manage risks and build trust.
During the year 2017, we further reinforced our risk governance structure by adopting a
“Three Lines of Defence” model to address how specific duties related to risk and control
could be assigned and coordinated within the Group. It reinforces Hysan’s risk management
capabilities and compliance culture across all divisions and functions.
Risk Management Committee & Senior Management
Board / Audit Committee
1st
LINE OF
DEFENCE
2nd LINE OF
DEFENCE
3rd LINE OF
DEFENCE
Management Controls
Financial Control
System of Internal Control &
Risk Management
HR Capability
Internal Control Measures
Public Communication
E
x
t
e
r
n
a
l
a
u
d
i
t
R
e
g
u
a
t
o
r
l
Internal
Audit
Compliance
Information Security
RISK CONTROL AND
COMPLIANCE
RISK ASSURANCE
Control functions
Internal Audit
RISK OWNERS /
MANAGERS
Business divisions &
supporting units
The model aims to reinforce Hysan’s risk management capabilities and compliance culture
throughout the Group. The responsibilities of each of the defence lines are as follows:
Relevant units
Responsibilities
First Line
Business and supporting units
Ultimately accountable for all risks and
controls in all business processes
Second Line
Corporate oversight and control
functions
Third Line
Group internal audit
Responsible for the Group’s policy
framework and independent risk
assessment
Responsible for ensuring independent
and objective assurance on the
effectiveness of risk management,
internal controls and governance
processes
54
Hysan Annual Report 2017
HYSAN’S REGULATORY COMPLIANCE AND GOVERNANCE FRAMEWORK
The Board, supported by the Audit Committee, shall have overall regulatory compliance
authority in all matters. During the year 2017, we have reviewed our regulatory compliance
and governance framework taking the house of governance initiative. This forms a central
part of our commitment to high standard of internal control governance.
5
Monitor
• Semi-annual compliance
reported to the Audit
Committee, and the Board.
• Quarterly legal and regulatory
updated to the Board.
• Corporate governance
policies regularly
reviewed by
the Board.
Board
1
Identify
• Each Business Unit confirms
compliance semi-annually
(including compliance with
laws affecting operation).
• Compliance/Non-
compliance is properly
identified and recorded.
Control & B
u
s
i
n
e
s
s
U
n
i
t
s
REGULATORY
COMPLIANCE AND
GOVERNANCE
FRAMEWORK
C
o
m
mittee E x e
c
u tiv e Com
A
u
d
i
t
e
e
mitt
2
Assess
• Review and assess the
impact. Seek external legal
advisors, where necessary.
• Report to Executive
Committee.
4
Respond
• Advise Business Unit on
appropriate legal steps/
actions.
• Assist the department to
initiate and follow up on
the required action.
• Report to the Executive
Committee.
3
Prioritize
• Prioritize for immediate action,
corporate governance/policy
planning and follow up.
55
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
Risk Management and Internal Control Report
OUR PAST EFFORTS IN ENHANCING THE INTERNAL CONTROL ENVIRONMENT
AND ACTIVITIES
In addition to the above major enhancements during the year, the following are examples
of the improvements we have made over the past few years to strengthen our risk
management and internal control system:
Control Environment – policy of compliance
• Policy of compliance together with the compliance framework, key
owners of compliance and a non-compliance checklist developed and
enhanced. General Counsel of the Group presented the “Risk
Management and Internal Control Framework” to the senior
management and department heads.
Ongoing review/
refinement of processes
and structures to enhance
compliance.
Risk Assessment – enhanced monitoring of “emerging risks”
• Strengthened the monitoring of material risks and “emerging risks”,
i.e. new or evolving risks with potential significant impact, such as
socio-political, economic or cybersecurity risks.
The Risk Management Committee plays a key role in identifying and
tracking these risks, with top management leading discussions with
all department heads.
In the context of a
fast-changing global and
local environment, the
monitoring of “emerging
risks” will be a focus.
Control Activities – procedures for monitoring connected transactions
• Automation of exceptional report for monitoring connected
transactions has been reviewed and enhanced. Connected
transactions seminars had been conducted for all departments
by General Counsel.
Control Activities – internal controls and policies
• Enhanced the procedure for handling and reporting a data breach
(jointly developed by legal and IT departments) to support
compliance of Personal Data (Privacy) Ordinance.
• A new procurement manual has been developed to tighten the
internal controls, in particular, the setup of Tender Committee and
the segregation of duties in handling technical and financial matters
during tendering.
• Regular trainings and education across the Group during the year,
including leasing, intellectual property, etc.
Continual review and
refinement of policies
and procedures in the
changing external and
internal environment.
Continual review and
refinement of risk
management and
internal controls for
handling concerns raised
by whistle blowers.
Monitoring Activities – enhanced “management assurance” to Audit Committee and Board
• Enhanced management update reports to the Audit Committee and
Board on major risks, including deep-dive reports on topics such as
risk management in procurement and tender process.
To strengthen management’s “assurance” to the Audit Committee
and Board, self-assessment questionnaires were rolled out across all
departments. Department heads were required to review and certify
the effectiveness of their departmental controls, including the
identification of any control issues. This backs up management’s
certification to the Audit Committee and Board.
Facilitation and
enhancement of the work
of the Audit Committee
and the Board in
monitoring our risk
exposure.
56
Hysan Annual Report 2017 Our Risk Profile
Our approach for managing risk is underpinned by our understanding of our current risk
exposures, and how our risks are changing over time. The following illustrates the nature of
our major risks. Further analysis of our strategies is set out in other sections of the Annual
Report as indicated below:
Risk
Risk change
during 2017 Description of risk change
Impact of macroeconomic developments on:
1. Office
2. Retail
3. Residential
4. Projects
5. Human Resources
The office rental market on Hong Kong Island core area benefited
from limited new supply and demand from Chinese institutions.
However, due to global economic headwinds, there was a drop in the
overall demand for office space across the market from
multinational companies. Further, new supply from Hong Kong
Island East and lower rent in the non-core business areas has driven
cost-conscious tenants to move out of core areas. The rise of co-work
concept is also a disruptor to traditional office leasing business.
The retail market was challenging during 2017 as Hong Kong retail
sales continue to record a decline during first half 2017, owing to a
fall in tourist numbers as well as the downturn in local sentiment.
However, the decline trend reversed in later 2017 with some growth
in retail sales and tourist numbers. Although early sign of recovery is
seen, retail tenants are still cautious in expanding their retail
enterprises, shop numbers or footprints. Pressure on rental may
continue for a while until a solid growth in retail sales and higher
confidence is seen.
Reduced demand from expatriates and tighter rent budget, higher
market vacancy rates and keen competition continued to exert
pressure on the luxury residential leasing market leading to higher
vacancies at our property.
> For more analysis and mitigating measures of the above risks, see “The Marketplace”
& “Review of Operations”
Lee Garden Three obtained its occupation permit in December 2017
with the first batch of tenants already moved-in. Other tenants are
also preparing their premises for occupation.
Together with HKR International Limited (“HKR”), the Group
acquired two pieces of adjacent land in Tai Po with a view to
develop into a low-rise residential development for sale. With the
HKR’s and Hysan’s amplified expertise, we believe the project will be
executed professionally and meet market demand. The project has
been in good progress.
> For more analysis and mitigating measures of the above risks, see “Review of
Operations”
The service industry in Hong Kong continues to experience
widespread labour shortages and structural changes in workforce.
We are facing increased competition for skilled personnel, especially
experienced front-line staff, to provide good services and support
the Group’s growth strategy.
> For more analysis and mitigating measures of the above risks, see “Corporate
Responsibility Report 2017” separately available on Hysan’s website:
www.hysan.com.hk
Notes:
where “inherent risks” (i.e. before taking into consideration mitigating activities) increased
where “inherent risks” remained broadly the same
57
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Corporate
Governance
60 Our People
66
Corporate Governance Report
86
Audit Committee Report
90
Remuneration Committee Report
98 Nomination Committee Report
100 Strategy Committee Report
101 Corporate Responsibility Report – Summary
103 Directors’ Report
3
59
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Our People
Board of Directors
EXECUTIVE DIRECTOR
The Board is responsible for
the stewardship of the
Company, overseeing its
conducts and affairs to
create sustainable value for
the benefit of its
shareholders.
Lee Irene Yun-Lien
Chairman of the Board
Board appointment Ms. Lee was appointed a Non-Executive Director in
March 2011, Non-Executive Chairman in May 2011, and executive
Chairman in March 2012. She also serves as a director of certain
subsidiaries of the Group. She is aged 64.
Competencies and experience Ms. Lee leads the Group in her executive
Chairman role. Ms. Lee is an independent non-executive director of Cathay
Pacific Airways Limited, CLP Holdings Limited, HSBC Holdings plc, The
Hongkong and Shanghai Banking Corporation Limited and Hang Seng
Bank 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, and 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 the Australian Stock
Exchange), a non-executive director of ING Bank (Australia) Limited, QBE
Insurance Group Limited and The Myer Family Company Pty Limited, an
independent non-executive director of Noble Group Limited (listed on
Singapore Exchange 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. Lee Anthony
Hsien Pin (Non-Executive Director) and his alternate on the Board.
Qualifications 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.
Committees Ms. Lee is both the Chairman of the Nomination Committee
and the Strategy Committee.
60
Hysan Annual Report 2017 NON-EXECUTIVE DIRECTORS
Churchouse Frederick Peter
Independent Non-Executive
Director
Fan Yan Hok Philip
Independent Non-Executive
Director
Board appointment Mr. Churchouse was appointed an
Independent Non-Executive Director in December 2012
and is aged 68.
Board appointment Mr. Fan was appointed an
Independent Non-Executive Director in January 2010.
He is aged 68.
Competencies and experience 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.
Qualifications Mr. Churchouse gained a Bachelor of Arts
degree and a Master of Social Sciences degree from the
University of Waikato in New Zealand.
Committee Mr. Churchouse is a member of the Audit
Committee.
Competencies and experience Mr. Fan is an
independent non-executive director of China Everbright
International Limited, First Pacific Company Limited,
China Aircraft Leasing Group Holdings Limited and PFC
Device Inc. He was previously an independent non-
executive director of Guolian Securities Co., Ltd. and an
independent director of Goodman Group.
Qualifications 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 the
Massachusetts Institute of Technology.
Committees Mr. Fan is the Chairman of the
Remuneration Committee, and a member of the Audit
Committee, the Nomination Committee and the
Strategy Committee.
61
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Our People
NON-EXECUTIVE DIRECTORS (CONTINUED)
Lau Lawrence Juen-Yee
Independent Non-Executive
Director
Poon Chung Yin Joseph
Independent Non-Executive
Director
Board appointment Professor Lau was appointed an
Independent Non-Executive Director in December 2014.
He is aged 73.
Board appointment Mr. Poon was appointed an
Independent Non-Executive Director in January 2010. He is
aged 63.
Competencies and experience 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 was the former chairman of
Hang Seng Index Advisory Committee, Hang Seng Indexes
Company Limited, a former member of the Board of Inland
Revenue of Hong Kong Special Administrative Region and
the Environment and Conservation Fund Investment
Committee, and a former committee member of the
Chinese General Chamber of Commerce.
Qualifications 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.
Committees Mr. Poon is the Chairman of the Audit
Committee, and a member of the Nomination Committee,
the Remuneration Committee and the Strategy Committee.
Competencies and experience Professor Lau is currently
Ralph and Claire Landau Professor of Economics at The
Chinese University of Hong Kong. He serves as Chairman of
the Board of Directors for The Chinese University of Hong
Kong (Shenzhen) Finance Institute, aka Shenzhen Finance
Institute. He is also an independent non-executive director
of AIA Group Limited, CNOOC Limited and Far EasTone
Telecommunications Co., Ltd. (listed on the Taiwan Stock
Exchange). Professor Lau 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 Exchange Fund Advisory Committee of the
Hong Kong Monetary Authority, Chairman of its
Governance Sub-committee and member of its Currency
Board Sub-committee and Investment Sub-committee,
Vice-Chairman of Our Hong Kong Foundation, a member
and Chairman of the Prize Recommendation Committee,
LUI Che Woo Prize Company and a member of Hong Kong
Trade Development Council (HKTDC) Belt and Road
Committee. He was appointed a Justice of the Peace in July
2007, awarded the Gold Bauhinia Star in 2011 by the
Government of the Hong Kong Special Administrative
Region and served as a member of the 12th National
Committee of the Chinese People’s Political Consultative
Conference and a Vice-Chairman of its Economics Sub-
committee.
Qualifications 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.
Committee Professor Lau is a member of the Nomination
Committee.
62
Hysan Annual Report 2017 Jebsen Hans Michael B.B.S.
Non-Executive
Director
Lee Chien
Non-Executive
Director
Board appointment Mr. Jebsen was appointed a
Non-Executive Director in 1994 and is aged 61.
Board appointment Mr. Lee was appointed a Non-
Executive Director in 1988 and is aged 64.
Competencies and experience Mr. Lee is a private investor
and a non-executive director of Swire Pacific Limited and a
number of private companies. He is a member of the
founding Lee family, a director of Lee Hysan Estate
Company, Limited and a director of Lee Hysan Company
Limited. (Lee Hysan Estate Company, Limited, a wholly-
owned subsidiary of Lee Hysan Company Limited, is a
substantial shareholder of the Company.) Mr. Lee is a
Council member of The Chinese University of Hong Kong
and St. Paul’s Co-educational College and a Trustee
Emeritus of Stanford University. He is also a director of
Stanford Health Care and CUHK Medical Centre.
Qualifications 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.
Committees Mr. Lee is member of both the Nomination
Committee and the Strategy Committee.
Competencies and experience 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.
Committee Mr. Jebsen is a member of the Strategy
Committee.
Lee Anthony Hsien Pin
Non-Executive
Director
Board appointment Mr. Lee was appointed a
Non-Executive Director in 1994 and is aged 60.
Competencies and experience 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, a director of Lee Hysan
Estate Company, Limited and a director of Lee Hysan
Company Limited. (Lee Hysan Estate Company, Limited, a
wholly-owned subsidiary of Lee Hysan Company Limited, is
a substantial shareholder of the Company.) He is the
brother of Ms. Lee Irene Yun-Lien, Chairman.
Qualifications 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.
Committee Mr. Lee is a member of the Audit Committee.
63
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Our People
NON-EXECUTIVE DIRECTORS (CONTINUED)
Lee Tze Hau Michael
Non-Executive
Director
Board appointment Mr. Lee joined the Board in January
2010, having previously served as a Director from 1990 to
2007. He is aged 56.
Competencies and experience Mr. Lee is currently a
director of Oxer Limited, a private investment company.
He is also an independent non-executive director of Chen
Hsong Holdings Limited, Trinity Limited; and a Steward of
The Hong Kong Jockey Club. He was previously an
independent non-executive director of Hong Kong
Exchanges and Clearing Limited and an independent
non-executive director and chairman of OTC Clearing Hong
Kong Limited. Mr. Lee was also 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, a director of Lee Hysan Estate
Company, Limited and a director of Lee Hysan Company
Limited. (Lee Hysan Estate Company, Limited, a wholly-
owned subsidiary of Lee Hysan Company Limited, is a
substantial shareholder of the Company.)
Qualifications Mr. Lee received his Bachelor of Arts Degree
from Bowdoin College and his Master of Business
Administration Degree from Boston University.
Committee Mr. Lee is a member of the Remuneration
Committee.
64
Hysan Annual Report 2017
SENIOR MANAGEMENT
Lui Kon Wai Ricky MBA, MCIOB
Chief Operating Officer
Choy Man Wai Kitty BEcon, MSc, MBA
Director, Retail
Ms. Choy is responsible for the Group’s retail portfolio
and asset management strategies, and serves as a
director of certain Hysan subsidiaries. She joined the
Group in 2000 and prior to joining Hysan, Ms. Choy
held a supervisory position at a major property
development company. She is aged 45.
Lam Tze Pon Tiffany B.Soc.Sc. (Information Management)
Director, Marketing and Customer Experience
Ms. Lam is responsible for the Group’s marketing
strategies. She has recently joined the Group in January
2018. Prior to joining the Group, Ms. Lam accumulated
extensive experience in retail and brand management
in the premium luxury sector and the hospitality
industry while holding senior positions in international
retail corporations. She is aged 46.
Yip Mo Ching Jessica
BSc (Surveying), MBA, MRICS, MHKIS, RPS
Director, Office and Residential
Ms. Yip is responsible for managing the office and
residential portfolio of the Group, and serves as a
director of certain Hysan subsidiaries. Prior to joining
the Group in 2012, Ms. Yip fulfilled various roles in
international consultancies, occupiers and developers.
She has extensive experience in the real estate industry.
She is aged 41.
Mr. Lui joined Hysan as the Group’s Chief Operating Officer
in December 2016. He assists the Chairman in translating
and executing the Group’s strategy and vision into
operational and financial attainment. Mr. Lui also drives the
Group’s business growth, development and investment and
serves as a director of certain Hysan subsidiaries. Mr. Lui has
over 25 years of experience as a senior executive in the
property industry globally, covering acquisitions,
development and asset management for residential, office,
retail and large scale mixed use developments in Hong
Kong, mainland China and overseas. He is aged 52.
Hao Shu Yan Roger BBA (Hons), CPA, ACA, ACCA
Chief Financial Officer
Mr. Hao is responsible for the Group’s financial control,
treasury and information technology functions, and serves
as a director of certain Hysan subsidiaries. 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 52.
Chan Wing Chung Sunny
BEng (Hons), CEng, MCIBSE, MHKIE, LEEDTM AP, BEAM Pro
Director, Projects
Mr. Chan is responsible for the Group’s development and
project management function in regard to major property
investments as well as significant refurbishment projects,
and serves as a director of certain Hysan subsidiaries. He
joined the Group in 2008. Mr. Chan accumulated extensive
experience in developing, designing and managing high-
quality and sustainable building projects while holding
senior positions in property development corporations. He is
aged 52.
Senior management are Executive Director(s) and the personnels as set out in “Senior Management” section.
65
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Governance at a Glance
2 Board
Effectiveness
BALANCE/DIVERSITY OF SKILLS AND EXPERTISE
• Board Diversity Policy
• Diversity of skills and expertise (see “Balance, Diversity
and Skills” section)
COMMITMENT
• All Directors are devoted, with time commitment
INDEPENDENCE
• Meetings of Non-Executive Directors without the
Executive Director(s) or Board members relating to the
founding Lee family
EVALUATION
• Formal board evaluation process via an electronic
platform. The Board discusses the findings in detail at
meetings (see “Board Evaluation 2017” section)
INFORMATION & SUPPORT
• Good information flow between the Board and the
management
• Access to independent professional advice and company
secretary
CONTINUOUS PROFESSIONAL DEVELOPMENT
• Directors receive trainings to refresh their skills and
knowledge and to keep up to date with current
developments
THE ROLE OF THE COMPANY SECRETARY
• Review and implement corporate governance practices
• Provide advice and support to Directors
• Keep Directors updated on legislative, regulatory and
governance matters
1 Board
Leadership
THE ROLE OF THE BOARD
• Board of Directors Mandate
• List of Matters Reserved for the Board Decisions
COMPOSITION OF THE BOARD
• Balance of 4 INEDs and 4 NEDs
• All Directors are appointed with a specific term of
3 years and are subject to rotation
DIVISION OF RESPONSIBILITIES
• Board of Directors Mandate
• Roles Requirements of Non-Executive Directors
66
Hysan Annual Report 2017 4 Relations with
Stakeholders &
Shareholders
CONSTRUCTIVE USE OF GENERAL MEETINGS
• Accessible AGM
• Committee Chairmen available at AGM to answer
questions (in person or via dial-in)
• Notice sent out more than 20 business days before
meeting (exceeds requirement under Corporate
Governance Code)
DIALOGUE WITH SHAREHOLDERS
• Enhance shareholder communication by electronic
channels
• Organise shareholders’ visits for understanding the
Group, its portfolio, history and sustainable activities
and other business areas
3 Accountability
BOARD COMMITTEES
• 3 governance-related Board Committees have been
established
• Board Committees report to the Board (see
“Audit Committee Report” on pages 86 to 89,
“Remuneration Committee Report” on pages 90 to 97,
“Nomination Committee Report” on pages 98 to 99
and “Strategy Committee Report” on page 100)
RISK MANAGEMENT AND INTERNAL CONTROL
• Review and monitor management’s risk management
process and assess effectiveness of financial controls and
other internal controls (see “Risk Management and
Internal Control Report” on pages 50 to 57 and “Audit
Committee Report” on pages 86 to 89)
FINANCIAL REPORTING
• Independent Auditor’s Report (see pages 115 to 118)
AUDIT COMMITTEE AND AUDITORS
• Audit Committee Report (see pages 86 to 89)
• Internal Audit function
• External Auditor appointment
67
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Beyond Compliance: Corporate Governance at Hysan
Hysan embraces strong governance as the foundation for delivering its strategic objective
of consistent and sustainable performance. During the year 2017, Hysan continued to
comply fully with the requirements of the provisions contained in the Corporate Governance
Code (the “Corporate Governance Code”) set out in Appendix 14 to the Rules Governing the
Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the
“Stock Exchange”).
The following are among the major areas in which Hysan’s system of corporate governance
practices exceed the Corporate Governance Code.
Exceed Corporate
Governance Code
Provisions
✓
✓
✓
✓
✓
✓
✓
✓
✓
Best Practices in Corporate Governance at Hysan
Formal Corporate Governance Guidelines* since 2004
Formal Board of Directors Mandates* and a detailed List of Matters
reserved for the Board Decisions* provide a clear division of roles
established between the Board and management
Formal criteria and requirements* established for Non-Executive Director
appointments with expected time commitment
Board evaluation of its own performance and that of its committees by
completion of questionnaires through an electronic platform. Directors’
feedback was analysed and discussed in meetings
Code of Ethics* applicable to all staff and Directors since 2005; a
separate Whistleblowing Policy* since 2016
Corporate Disclosure Policy* and a Disclosure Committee to guide and
promote timely and accurate disseminated disclosure of inside
information and stakeholder communications
Auditor Services Policy* for the engagement of auditors
Fraud handling policy and procedures to control and aid in the detection
and prevention of fraud
Publication of separate Corporate Governance Report, Audit Committee
Report, Remuneration Committee Report, Nomination Committee
Report, Strategy Committee Report and Risk Management and Internal
Control Report
68
Hysan Annual Report 2017 Exceed Corporate
Governance Code
Provisions
✓
✓
✓
✓
✓
✓
✓
✓
✓
Best Practices in Corporate Governance at Hysan
Formal Corporate Responsibility Policy under which the Corporate
Responsibility Report is published
More than 20 clear business days’ notice for the AGMs, which include a
detailed business review
All voting at AGMs conducted by poll since 2004
Early announcement of audited financial results within 2 months and
publication of Annual Report within 3 months after the financial year-
end
Continuous enhancement of shareholder communication, including
introduction of shareholders’ visits since 2016
Proposal to adopt 10% limit of and set a discount of not more than
10% on the share issue price to issue additional shares under general
mandate in 2018 AGM
Arrangements have been made since December 2015 to ascertain the
shareholders’ preference as to the means of receiving corporate
communications, with an aim to protect environment and enhance the
use of the Group’s corporate website as a means of shareholder
communications
Proactive invitation to major nominee companies by Hysan to forward
communication materials to the ultimate beneficial shareholders at the
Group’s expense
Additional assurance from Internal Audit on the review of continuing
connected transactions
* Detailed policies/terms of reference are available on the Company’s website: www.hysan.com.hk/governance.
In an effort to reduce consumption of resources from printing and distributing hard copies,
the Hysan Corporate Responsibility Report has been prepared for electronic distribution and
is made available for public viewing on Hysan’s website: www.hysan.com.hk. Limited copies
are printed and distributed, primarily to our shareholders. A summary of the Corporate
Responsibility Report is provided on pages 101 to 102 of this Annual Report.
69
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Our Governance Framework
Hysan operates within a clear and effective governance structure. The Board is collectively
responsible for the long-term success of the Group and for its leadership, strategy planning,
control and risk management, culture, values, corporate governance and financial
performance.
The Board has established an Audit Committee, Remuneration Committee, Nomination
Committee and Strategy Committee. The Committees enable the Board to operate
effectively and ensure a strong governance framework for decision-making.
The Board retains control of the key decisions and has identified certain “reserved matters”
that only it can approve. Other matters, responsibilities and authorities have been delegated
to its Committees and senior management, as above. This ensures there is a clear division of
responsibilities at the top of the Company between the running of the Board and the
running of the Company’s business.
The Board and each Committee receive sufficient, reliable and timely information in
advance of meetings and are provided with or given access to all necessary resources and
expertise to enable them to fulfil their responsibilities and undertake their duties in an
effective matter.
The Board’s governance guidelines, policies, and procedures are normally reviewed on an
annual basis. The Board also regularly assesses and enhances its governance framework,
practices and principles according to developments in regulatory regimes and international
best practices, as well as the Company’s needs.
The following are the key guidelines and components of Hysan’s governance framework:
• Corporate Governance Guidelines
• Board of Directors Mandate
• Roles and Responsibilities of Non-Executive Directors
• List of Matters Reserved for the Board Decisions
• Terms of Reference of the various corporate governance-related Board Committees
• Board Diversity Policy
• Auditor Services Policy
• Code of Ethics for Directors and Employees
• Corporate Disclosure Policy
• Whistleblowing Policy
• Procedures for Shareholders to Convene General Meetings/Put Forward Proposals
• Shareholders Communications Policy
70
Hysan Annual Report 2017 THE BOARD
Collectively responsible for long-term success of the Group
Oversees overall governance, financial performance and sustainable
development of the Group
Leadership
Strategy Planning
Provides leadership and
direction for the business of
the Group
Sets strategy and oversees
its implementation
Risk Management and
Internal Control
Ensures only acceptable
risks are taken
Culture and Values
Focuses on the long-term
sustainability of business
BOARD COMMITTEES
AUDIT COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
STRATEGY
COMMITTEE
• Reviews risk
management and
internal control systems
• Monitors internal and
external auditors
• Oversees financial
reporting process
• Sets remuneration
policy for Executive
Director(s) and senior
management
• Determines Executive
Director(s)’ and senior
management’s
remuneration and
incentives
• Recommends Board
appointments
• Reviews Board
structure, composition
and diversity
• Assesses independence
of Independent Non-
Executive Director
• Oversees succession
planning
• Oversees the Group’s
strategic activities
• Aligns corporate
responsibility initiatives
with the corporate
strategy
EXECUTIVE COMMITTEE
A management committee that operates daily business under the Board’s delegation.
It comprises Executive Director(s), Chief Operating Officer, Chief Financial Officer and
other senior management of the Group as delegated from time to time. It assists the
Board and the Company in preparing and agreeing operating plans, policies and
procedures, and managing the operational and financial performance of the Group. It
also addresses other key business and corporate related matters.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
The Board in
2017
The Board meets regularly and there is an annual cycle of topics to be
considered, including business and financial updates. Each Committee
provides a summary of business discussed to the Board. Whilst strategy is
considered at every Board meeting, one meeting each year is dedicated to
this topic.
Employees below Board level are invited to present to the Board on
operational topics during the year. Non-Executive Directors have direct and
open access to employees below Board level.
Key areas of Board activities
during the year
Strategy
1
• Reviewed the Group’s strategy, in particular an
in-depth review of the Group’s next 10-year
plan in Strategy Committee Meeting in
November
• Reviewed the Group’s performance versus
budgets
• Considered and approved acquisitions and
investments strategies
3
Governance, Stakeholders
and Shareholders
• Considered the general mandate and proposed the
adoption of 10% limit of and set a discount of not more
than 10% on the share issue price to issue additional
shares at 2018 AGM
• Considered and approved the Group’s funding
• Reviewed and approved an enhanced Policy on
strategy
2
Risk Management
and Internal Control
• Reviewed the Group’s risk registers and assessed
the risks with action plans
• Reviewed the effectiveness of Hysan’s risk
management and internal control framework
and introduced the “Three Lines Of Defence”
model to the existing framework based on
COSO
• Reviewed and approved an enhanced company-
wide regulatory compliance and governance
framework and policy
“Procedures for Shareholders to Convene General
Meetings / Put Forward Proposals”
• Reviewed and approved an enhanced “Shareholders
Communication Policy”
• Discussed the outcome of the Board evaluation and
effectiveness review, and agreed improvement
opportunities
• Reviewed key corporate governance related reports
• Reviewed the developments in corporate governance
and received key legal and regulatory updates
• Received regular meeting reports from Chairmen of the
Audit Committee, Remuneration Committee and
Nomination Committee
• Reviewed and approved the fees for Directors
• Reviewed List of Matters Reserved for the Board
• Reviewed corporate structure
Decisions
72
Hysan Annual Report 2017 BOARD AND COMMITTEE MEETINGS IN 2017
B
AC
RC
B
B
B
AC
January
February
March
April
AGM
May
B
AC
NC
SC
June
July
August
September
October
November
December
B
AC
Board Meeting
Audit Committee Meeting
RC
NC
Remuneration Committee Meeting
Nomination Committee Meeting
SC
AGM
Strategy Committee Meeting
Annual General Meeting
4
People
and Leadership
• Appointed Advisor to the Board, Ms. Li Xinzhe Jennifer
• Reviewed the Board structure, size, composition and
diversity, as well as “independence” of Directors
• Revised Terms of Reference of Strategy Committee,
appointment of all committees’ chairmen to the
Strategy Committee
• Reviewed the development of people and
compensation for the senior management and other
department heads
5
Financial and Operational
Performance
• Considered the financial performance of the
business and approved the annual budget
• Reviewed the interim and annual results,
approved the interim and annual reports
• Reviewed and approved funding and treasury
investment plan
• Reviewed and discussed financial forecasts
and analyst feedback
• Declared dividends
• Reviewed operating results and regular
updates for the Group’s core leasing business
(Office, Retail and Residential segments)
2017 AGM
of participants 541
Total no.
Share
voted 82%
of total issued shares
191
Individual
Shareholders
43
Authorised
representatives
of HKSCC
Nominees
Limited
307
Shareholders appointing representatives /
proxies to attend the 2017 AGM
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Attendance at Meetings
The following table shows Directors’ attendance at Board, Committee and general meetings
held in 2017:
Attended
Attended by tele-conference
Attended by alternate
◆ Attended the meetings (or part of meetings) as invitee
Directors
BOARD
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
STRATEGY
COMMITTEE
ANNUAL
GENERAL MEETING
(Total: 5)
(Total: 3)
(Total: 1)
(Total: 1)
(Total: 1)
(Annually)
Meetings Held/Attended
Executive Director
Lee Irene Yun-Lien
Independent
Non-Executive Directors
Churchouse Frederick Peter
Fan Yan Hok Philip
Lau Lawrence Juen-Yee
Poon Chung Yin Joseph (Note 1)
Non-Executive Directors
Jebsen Hans Michael
Lee Anthony Hsien Pin
Lee Chien
Lee Tze Hau Michael
●
◆ ◆ ◆
◆ (Note 2)
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. Poon Chung Yin Joseph was appointed a member of the Strategy Committee with effect from 22 February 2017.
2. Excused from the session to discuss the Executive Director’s own compensation package.
3. Lau Siu Chuen ceased as a Non-Executive Director with effect from the conclusion of the annual general meeting held on
15 May 2017 (the “2017 AGM”).
On an annual basis, the Board reviews the performance of the Directors to ensure they are
contributing to the Board in a manner that allows them to perform their responsibilities to
the Company and that they are spending sufficient time doing so. Through this review, the
Board was satisfied that the Directors had a strong commitment to the Company and
positively contributed to the Board through their participation in the Company’s affairs and
the Board’s discussions and decisions, as reflected in their high attendance record on the
Board and its Committee meetings during the year.
All Non-Executive Directors are engaged by formal letters of appointment with a specific
term of 3 years, and they commit to Hysan that they will be able to give sufficient time and
attention to meeting the high expectations placed upon them.
74
Hysan Annual Report 2017
Board Leadership
The Board is governed by a formal Board of Directors Mandate (see the Company’s
website at www.hysan.com.hk/governance for details). This sets out the Board’s stewardship
role and shows how the Board is collectively responsible for strategic planning, risk
management and internal control, as well as outlining the Group’s culture and values,
capital management, corporate governance, and Board succession.
Day-to-day management of the Group is delegated to the Executive Committee. The Board
retains control of the key decisions and has identified certain “reserved matters” that only it
can approve. The List of Matters Reserved for the Board Decisions is reviewed annually.
Executive Committee members include the Executive Director(s), the Chief Operating
Officer, Chief Financial Officer, and other members as may be appointed by the Board from
time to time.
BOARD SIZE, COMPOSITION, AND APPOINTMENTS
As at 31 December 2017, there were 9 Directors on the Board: the Chairman and 8 Non-
Executive Directors (including 4 Independent Non-Executive Directors). Lee Irene Yun-Lien is
currently the executive 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 reviews its structure, size and composition from time to time; the last review was
held in November 2017.
Non-Executive Directors are appointed for a specific term of 3 years and are subject to
re-election at the first AGM following their appointment. Every Director will be subject to
retirement by rotation at least once every 3 years under the Company’s Articles of
Association. Retiring Directors are eligible for re-election at the AGM at which they retire.
There is no cumulative voting in Director elections. The election of each candidate is
executed through a separate resolution.
Lau Lawrence Juen-Yee, Lee Tze Hau Michael and Poon Chung Yin Joseph will retire at the
forthcoming AGM to be held on 8 May 2018. All of them being eligible, they would offer
themselves for re-election. Details with respect to the candidates standing for re-election as
Directors are set out in the AGM circular to shareholders.
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).
Board Effectiveness
BALANCE, DIVERSITY AND SKILLS
Hysan recognises the importance of diversity among its Board members, which not only
contributes to the effectiveness of the Board but also the success of the Group’s business.
Our Non-Executive Directors (including 4 Independent Non-Executive Directors) have diverse
backgrounds in areas such as economics, finance, business management, professional
practices, and property investment. Biographies of each Director can be found on pages 60
to 64 as well as on the Company’s website at www.hysan.com.hk/about-us.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Recognising the vitality of diversity for Board, the Board has adopted a separate Board
Diversity Policy in 2016. The Board remains committed to ensure that the selection of
candidates for Board appointments is based on a range of diverse perspectives, including
gender, age, cultural / educational and professional background, skills and experience.
Decisions with regard to Board appointments are based on merit balanced against the
contributions that a prospective candidate will bring to the Board. The Board is also
committed to strengthening the diversity across the Group. Similar considerations are used
when selecting key management and other personnel across the Group’s operations. For
details on our hiring practices, please refer to our Corporate Responsibility Report.
Our 8 Non-Executive Directors are from diverse and complementary backgrounds. The
valuable experience and expertise they bring to our business are critical for the long-term
growth of the Group:
Skills/
Experience
Summary
Combined
Customer and
Retail
Experience in major retail, customer products, services or
distribution companies.
Property
Investment
Experience in major companies in property investment,
development or facilities management, or related
industry.
Financial
Services and
Investment
Experience in the financial services industry or in
overseeing financial transactions and investment
management.
Governance
Experience and commitment to exceptional corporate
governance standards.
Risk
Management
Experience in anticipating and identifying key risks to the
organisation and monitoring the effectiveness of risk
management framework and controls.
Strategy
Financial
Acumen
Experience in defining strategic objectives, assessing
business plans and driving execution in large and
complex organisations.
Understand financial drivers of the business, and
experience in implementing or overseeing financial
accounting, reporting and internal controls.
People and
Culture
Experience in monitoring a company’s culture,
overseeing people management and succession
planning, and setting remuneration frameworks.
Legend
● Extensive
● Moderate
76
Hysan Annual Report 2017 The
Board
9
The
Board
Gender
9
Category
Woman
Man
Executive
Non-Executive
Gender
Independent Non-Executive
Category
Woman
Man
Age
Executive
Non-Executive
Board Tenure (Years)
Independent Non-Executive
50-59
60+
0-3
4-6
7+
Age
Board Tenure (Years)
50-59
60+
0-3
4-6
7+
(Directors’ full biographies, including relationships among members of the Board, are set
out on pages 60 to 64 and are also available on the Company’s website:
www.hysan.com.hk/about-us)
The
Board 9
Key Operational
Management 14
Board Diversity
by Gender
The
Board 9
Key Operational
Gender Diversity of
Key Operational Management*
Management 14
Woman
Woman
Man
Man
Board Diversity
31 December 2017
by Gender
Woman
Man
Gender Diversity of
Key Operational Management*
* Key operational management is defined as the 14 heads of departments/units of the Group, but does not include the
Executive Director(s), who also maintains a management/supervisory role for operations.
Woman
Woman
Man
Man
Woman
Man
31 December 2017
31 December 2017
31 December 2017
31 December 2017
31 December 2017
77
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
INDEPENDENCE OF DIRECTORS
Hysan is a listed company with a major shareholder family. The Board remains committed
to maintaining independence.
• The Board has policies and processes in place to avoid conflicts of interest or perception
of conflicts of interest in compliance with the Hong Kong Companies Ordinance. Board
members are reminded every half year of this requirement through an explanatory note
from the Company Secretary.
• Non-Executive Directors hold separate discussion sessions every year, without the
presence of Executive Director(s) or Board members relating to the founding Lee family.
There were 2 separate discussions in 2017.
• Any dealings with persons and entities regarded as “connected transactions” with the
Group under the Listing Rules are subject to the approval of the full Board, as described in
the List of Matters Reserved for the Board Decisions. “Exempted transactions” as
defined by the Listing Rules’ disclosure requirements must also be reported to the full
Board after management approval.
• The Company has clear Corporate Governance Guidelines, Directors are considered to
be independent only if they are free from any business or other relationship that may
interfere with the exercise of their independent judgment.
During the reporting year, the Nomination Committee carried out a detailed review of the
directors’ independence and was satisfied that each of the 4 Independent Non-Executive
Directors was independent at the time of review.
CHECKS AND BALANCES
“Connected Transactions” with related
persons subject to full Board decision
This is covered in our List of Matters Reserved for the
Board Decisions. The relevant requirements are more
stringent than those under the Listing Rules.
Appointment of 4 Independent
Non-Executive Directors with diverse
backgrounds
4 Independent Non-Executive Directors have been drawn
from diverse backgrounds, including economics, financial
services and investment, business management,
professional (accounting), and property investment.
Clear “independence” standards for
individual Directors
These are laid down in our Corporate Governance
Guidelines.
Detailed annual review of independence of
individual Directors
The Nomination Committee carries out a detailed
review of Directors’ independence annually.
78
Hysan Annual Report 2017 INDEPENDENCE STATUS
Name
Management Independent
Not
Independent
November 2017 Review
– Reason for
Independence Status
Churchouse Frederick
Peter
Fan Yan Hok Philip
Jebsen Hans Michael
Lau Siu Chuen (Note 1)
Lau Lawrence Juen-Yee
✓
✓
✓
Lee Anthony Hsien Pin
Lee Chien
Lee Irene Yun-Lien
✓
Lee Tze Hau Michael
Poon Chung Yin Joseph
✓
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 2)
No business or other
relationships with the
Group or management
that will affect
independence
✓
✓
✓
✓
✓
Notes:
1. Lau Siu Chuen ceased as a Non-Executive Director with effect from the conclusion of the 2017 AGM.
2. Lau Lawrence Juen-Yee’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 provides taxation services principally as tax representative of the Company and certain
subsidiaries, which are routine services 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.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
BOARD EVALUATION 2017
This year’s review of the Board’s effectiveness was conducted internally and was led by the
Chairman with the support of the Company Secretary. The evaluation required each
Director to complete anonymously an online questionnaire that focused on matters such as
Board’s performance, the nature and content of Board meetings. The survey encouraged
the Directors to provide comments or enabled them to raise any concerns.
The Chairman, supported by the Company Secretary, collated the output of the
questionnaires and formulated a detailed report. The report was prepared based on the
collective comments from all the Directors, and reports from the Audit Committee,
Remuneration Committee, Nomination Committee and Strategy Committee. These reports
were considered and discussed by the Board.
The conclusion from this year’s evaluation was that the Board and its Committees
continued to operate to a high standard, and work well effectively. The results overall
ranged from positive to very positive, and there were no specific concerns raised by any of
the Directors to the Chairman or anonymously through the online questionnaires. Areas that
were assessed as being particularly strong included the culture and integrity in the Board
room, the Board’s collective judgement and overall performance, Board information and the
involvement of Directors in the discussions.
As with every high performing Board, the Directors continue to look for areas of
improvement. The Board will ensure that its meeting agendas are forward looking in terms
of investment opportunities and strategic development. The Chairman will continue to lead
the process of building on current strengths of the Board and innovating further to build on
the points outlined above, with the support from the Directors.
PROFESSIONAL DEVELOPMENT, SUPPORT AND TRAINING FOR DIRECTORS AND
SENIOR MANAGEMENT
The Board held several specific knowledge development sessions during the year, ranging
from wider market retail “new normal” presented by a notable market researcher to Portfolio
Tour of Bamboo Grove led by senior management. Directors continued to receive regular
reports facilitating greater awareness and understanding of the Group’s business and the
compliance regulatory updates.
Directors have expressed that the trainings over the past year have been stimulating and
very relevant. Directors indicated that there were adequate training opportunities.
When newly-appointed Directors join the Group, they will receive an induction briefing that
gives them an understanding of the Group, its businesses and operations (including the
major risks it faces).
Ongoing development sessions are also arranged to the senior management and
subsidiaries directors to update their skills and knowledge as appropriate. Throughout the
year, various seminars on regulatory obligations and compliance and best practices and
procedures were provided to the senior management and subsidiaries directors.
Hysan has a new management trainee programme in 2017 to cultivate our future leaders,
which aims at developing our talent pipelines to meet our long term business needs.
80
Hysan Annual Report 2017 DIRECTORS’ CONTINUOUS PROFESSIONAL DEVELOPMENT IN 2017
Attending
trainings
organised by
Hysan
Attending expert briefings /
seminars / conferences organised
by third parties relating to the
business or directors’ duties
Perusing legal
and regulatory
updates
prepared by
Hysan quarterly
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Directors
Executive Director
Lee Irene Yun-Lien
Independent Non-Executive Directors
Churchouse Frederick Peter
Fan Yan Hok Philip
Lau Lawrence Juen-Yee
Poon Chung Yin Joseph
Non-Executive Directors
Jebsen Hans Michael
Lee Anthony Hsien Pin
Lee Chien
Lee Tze Hau Michael
INDEPENDENT ADVICE
When occasions arise where Directors feel that they require independent professional advice
in order to fulfil their obligations as Board members, this advice may be obtained at the
Company’s expense as stated in our Corporate Governance Guidelines.
Accountability
BOARD COMMITTEES IN 2017
The Board has 3 governance-related Board Committees that provide effective oversight and
leadership in accordance with the Group’s Corporate Governance Guidelines. Each
Committee has access to independent professional advice and counsel as required, and
each is supported by the Company Secretary. These committees report to the Board.
Full details of the Committee activities during the year are set out in their respective reports:
• “Audit Committee Report” on pages 86 to 89
• “Remuneration Committee Report” on pages 90 to 97
• “Nomination Committee Report” on pages 98 to 99
• “Strategy Committee Report” on page 100
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Relations with Stakeholders &
Shareholders
Hysan is committed to maintaining an open dialogue
with shareholders and providing them with the
information they require to make sound investment
decisions.
Accountability to Shareholders and
Corporate Reporting
• Annual Report, Interim Report, press releases and
announcements are disclosed in a timely manner.
• Shareholder enquiries can be made via the
Investor Relations function by email to
investor@hysan.com.hk.
Information via Internet
Constructive Use of AGM
• AGMs act as a means of conducting a dialogue
with private shareholders.
• Individual shareholders can put questions to the
• Key corporate governance policies, terms of
Chairman at the AGM.
reference of Board Committees, Group’s financial
reports, press releases and announcements are
available on the website.
• Shareholders have the option to receive corporate
communications by electronic means. Hard copies
of the Hysan website information are also
available free of charge upon request to the
Company Secretary.
Institutional Shareholders
• Ongoing dialogue and meetings between Chief
Operating Officer, Chief Financial Officer, and
institutional investors, fund managers and
analysts.
• Regular presentations or conference calls are
made to analysts and investors.
• Results announcement presentations to analysts
are disseminated by webcasts as well.
• Board Committees Chairmen attend AGMs to
respond to shareholders’ questions.
• Since 2004, a business review session has been
included in our AGMs. Topics at the last AGM
included: the business environment in 2016, a
review of business activities, and the Company’s
outlook for 2017.
Shareholders’ Visit
• The shareholders’ visit is an opportunity every
year for the management to communicate with
the shareholders, who gain insights into the
Company’s history, sustainable activities and
other business areas.
Corporate Disclosure Policy
• The Group’s Corporate Disclosure Policy guides
the disclosure of material information to investors,
analysts and media.
• This policy also identifies who may speak on
Hysan’s behalf and outlines the responsibilities for
communication with various stakeholder groups.
• Details are available at the Company’s website:
www.hysan.com.hk/governance.
82
Hysan Annual Report 2017 Shareholder Communication via
Nominee Companies
Relevant Provisions in Articles of
Association and Hong Kong Law
• A general meeting of shareholders can be
convened by the Board or with a written request
signed by shareholders holding at least 5% of the
total voting rights of all the shareholders (“5%
Shareholder”), in accordance with the Company’s
Articles of Association and Hong Kong Companies
Ordinance.
• A 5% Shareholder may request to have
resolutions passed by way of written resolution.
• Shareholders may put forward proposals for
consideration at a general meeting according to
the Hong Kong Companies Ordinance and the
Articles of Association.
• All requests shall state the general nature of the
business to be dealt with at the meeting and
deposited at the Company’s registered office
(49/F, Lee Garden One, 33 Hysan Avenue, Hong
Kong. Attention: The Company Secretary).
• There are no limitations imposed by Hong Kong
law or our Articles of Association on the right of
non-residents or foreign persons to hold or vote on
the Company’s shares, other than those that
would generally apply to all shareholders.
• Changes to allow Directors to signify agreement
to a director’s written resolution by electronic
means were proposed and approved at the AGM
held in May 2017. Amendments have been made
to our Articles of Association in May 2017 to
reflect this.
• Details of Procedures for Shareholders to Convene
General Meetings / Put Forward Proposals is
available on the Company’s website.
• Since 2005, we have been inviting major nominee
companies to forward communication materials
to shareholders at our expense.
Electronic Communication
• Since December 2015, shareholders can receive
corporate communications via electronic means.
• Greater use of the Group’s website is being made
for our corporate communications.
Provision of Sufficient and Timely
Information
• AGM notice, Annual Report, and financial
statements are dispatched to shareholders more
than 30 days prior to the AGM, exceeding the
statutory requirement of 21 days.
• Comprehensive information is sent on each
resolution to be proposed.
Policy
• Shareholders’ Communication Policy recognises
our commitment to provide our shareholders and
the investment community with ready, equal and
timely access to balanced and understandable
information about the Company.
Voting
• Since 2004, we have conducted all voting at 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 explained at
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.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Governance Report
Directors’ Interests in Shares
As at 31 December 2017, 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 (the “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
Number of ordinary shares held
Name
Personal
interests
Family
interests
Corporate
interests
Other
interests
Total
% of the
total no. of
issued shares
(Note a)
Jebsen Hans Michael
60,984
Lee Chien
Lee Irene Yun-Lien
800,000
304,000
–
–
–
2,473,316
(Note b)
–
–
–
2,534,300
0.242
–
–
800,000
304,000
0.076
0.029
Notes:
(a) This percentage was compiled based on the total number of issued shares of the Company (i.e. 1,045,824,891 ordinary
shares) as at 31 December 2017.
(b) Such shares were held through a corporation in which Jebsen Hans Michael was a member entitled to exercise no less than
one-third of the voting power at general meeting.
Executive Director(s) of the Company have been granted share options under the share
option schemes (details are set out in the section headed “Long-term incentives: Share
Option Schemes” below). 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
Jebsen Hans Michael
Number of ordinary shares held
Corporate
interests
1,000
Other
interests
–
Total
1,000
% of the total
no.of issued
shares
10
(Note)
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. Jebsen Hans Michael 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 2017 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.
84
Hysan Annual Report 2017 COMPLIANCE WITH 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 had interests, directly or indirectly, in contracts with the Group. These contracts
constituted 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)
(ii)
Lee Irene Yun-Lien, Lee Anthony Hsien Pin, Lee Chien, Lee Tze Hau Michael and Lau Siu Chuen (ceased as a
Non-Executive Director with effect from the conclusion of the 2017 AGM) 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.
Jebsen Hans Michael and his alternate, Yang Chi Hsin Trevor, 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) Lee Chien 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 Lee Irene Yun-Lien, 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
Lee Irene Yun-Lien
Chairman
Hong Kong, 28 February 2018
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview
Audit Committee
Report
COMPOSITION
Majority are Independent Non-Executive Directors
HIGHLIGHTS
• Reviewed the adequacy and effectiveness of the
Company’s risk management and internal control
systems
• Reinforced the risk management structure by adopting
the “Three Lines of Defence” Model and an enhanced
Group compliance framework and policy
COMMITTEE MEMBERS
KEY RESPONSIBILITIES
Poon Chung Yin Joseph* (Chairman)
Churchouse Frederick Peter*
Fan Yan Hok Philip*
Lee Anthony Hsien Pin
*Independent Non-Executive Director
• Oversees the integrity of the Group’s
reporting process and financial
management
• Reviews the major risks identified and
ensure an effective risk management
and internal control systems are in place
• Reviews the risk management and
internal control framework
• Reviews the relationships with the
external auditors
Meetings Schedule
The Audit Committee held 3 meetings during the year. At the invitation of the Audit
Committee, these meetings were also attended by the Board Chairman and members of
management (including the Chief Operating Officer and the Chief Financial Officer).
Pre-meeting sessions with external and internal auditors were held without management’s
presence.
Roles and Authority
• Oversees the Company’s financial reporting process and the respective work of
management and the external auditor to endorse the processes and safeguards
employed by them. In this process, 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. Formal
statements of Directors’ Responsibility for the Financial Statements are contained in
“Financial Statements, Valuation and Other Information” of this Annual Report.
• Reviews the Company’s risk management and internal control systems.
• Reviews report on major risks which the Group is facing in a designated meeting held in
November.
• Reviews the adequacy of resources, qualifications and experience of staff of the Group’s
internal audit, accounting and financial reporting functions, and their training
programmes and budget.
• Reviews the Group’s Whistleblowing Policy. Under this policy, employees and related third
parties who deal with the Group (e.g. consultants, contractors and suppliers) can raise
concerns, in confidence or anonymously, about misconduct, malpractice or irregularities in
any matters related to the Group. The Audit Committee ensures that the concerns raised
are investigated and followed up as appropriate.
• Reviews the effectiveness of the Company’s internal audit function.
• Reviews its relationship with the external auditor.
• Reports to the Board on its findings after each Committee meeting.
86
Hysan Annual Report 2017 Activities
Details on the meeting held in February 2017 were set out in the 2016 Annual Report.
From March 2017 up to February 2018, the Audit Committee held 3 meetings to:
FINANCIAL REPORTING
• Review and discuss with management and the external auditor, and recommend to the
Board to approve, the unaudited financial statements for the first 6 months ended 30
June 2017, the audited financial statements for the year ended 31 December 2017 and
the Independent Auditor’s Report for the year ended 31 December 2017, prior to their
publication based on the following and the external auditor’s review work:
– Discuss with the external auditor and internal auditor the scope of their respective
review and findings.
– Discuss with management on significant judgments affecting the Group’s financial
statements, including valuation of investment properties and investments under
redevelopment as at 30 June 2017 and 31 December 2017. In particular, there were
discussions on the residual valuation approach/income capitalisation approach (as
appropriate) adopted by the independent professional valuer, Knight Frank Petty
Limited, for Lee Garden Three, with the Group’s independent professional valuer
present at meetings to answer the Committee’s questions.
– Review with both management and the external auditor the Key Audit Matters
included in the Independent Auditor’s Report for the year ended 31 December 2017.
RELATIONSHIP WITH EXTERNAL AUDITOR
• Review and consider the terms of engagement of the external auditor in respect of the
2017 final results (including 2017 annual audit, the related results announcement, and
annual review of continuing connected transactions) and the annual update of the
Group’s MTN Programme.
• Review the audit progress report of the external auditor.
• Annually assess and declare satisfaction with the auditor’s qualifications, expertise and
services, and independence. In particular, it was satisfied that the auditor’s independence
and objectivity have not been impaired by reason of the provision of non-audit services.
All services have been pre-approved by the Audit Committee. Appropriate policies and
procedures have been established to identify audit and non-audit services as well as
prohibited non-audit services that impair the independence of the auditor. An
arrangement for lead audit partner rotation was also established by the auditor, who is
required to comply with professional ethics and independence polices and requirements
applicable to the work performs, as well as to issue an annual confirmation on auditor’s
independence.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Audit Committee Report
External Auditor’s Services and Fees
Audit Services
Non-audit Services (Note)
Total
2017
HK$ million
2016
HK$ million
2.66
0.99
3.65
2.50
0.94
3.44
Note:
“Non-audit services” referred to agreed-upon-procedure reports or statutory compliance, regulatory or government procedures
required to comply with financial, accounting or regulatory report matters. Specifically, these included reviews of interim
financial statements, issue of assurance reports for continuing connected transactions, and reviews of financial information in
connection with the annual updates of the Group’s MTN Programmes in 2017 and 2016 respectively.
• Review and consider the 2018 audit service plan of the external auditor, and the terms of
its engagement in respect of the 2018 interim results review.
• Recommend to the Board that the shareholders be asked to re-appoint Deloitte Touche
Tohmatsu as the Group’s external auditor for 2018.
REVIEW OF RISK MANAGEMENT AND INTERNAL CONTROL SYSTEMS
• Consider and approve an enhanced risk management and internal control framework by
introducing “Three Lines of Defence” Model to our existing risk management model based
on COSO.
• Review and approve an enhanced Group compliance framework and policy.
• Discuss with management the new procurement system for property services function.
• Review and assess the existing corporate structure and make recommendation of ongoing
structure.
• Discuss with management the major risks the Group is facing.
• Review the adequacy of resources, qualifications and experience of staff of the internal
audit, accounting and financial reporting functions, and their training programmes and
budget.
• Review the whistleblowing reports.
• Review 2017 annual risk management and internal control systems based on:
– reports of the Internal Audit on the review of the Company’s continuing connected
transactions for the year ended 31 December 2017 and the adequacy and
effectiveness of the related internal control procedures
– regular reports by management of major risks, and special reports on selected major
risk items
– regular reports of the Internal Audit, including status of implementation of its
recommendations
– certification and confirmation of controls effectiveness by management, covering
financial, operational, compliance controls, risk management and internal controls,
noting the adoption of a control self-assessment questionnaire across the operating
departments
– confirmation from the external auditor that it had not identified any control
weaknesses during the course of its audit.
88
Hysan Annual Report 2017 The Committee was satisfied as to the adequacy and effectiveness of the Company’s risk
management and internal control systems (including the adequacy of resources,
qualifications and experience of staff of the Group’s accounting, financial reporting and
internal audit functions, and their training programmes and budget). No significant areas
of concern which might affect financial, operational, compliance controls, internal audit,
risk management and internal controls functions were identified.
INTERNAL AUDIT
• Review the management responses to audit reports issued during the year; and the
progress made in implementing improvement actions.
• Consider and approve the scope of work to be undertaken by the Internal Audit function
in 2018.
Members’ attendance records are disclosed in the table on page 74.
EVALUATION
The Board and Committee evaluation process, which took place during the year, concluded
that the Committee was effective in fulfilling its roles in 2017. For details, please refer to
Corporate Governance Report – “Board Evaluation 2017” (page 80).
Members of the Audit Committee
Poon Chung Yin Joseph (Chairman)
Churchouse Frederick Peter
Fan Yan Hok Philip
Lee Anthony Hsien Pin
Hong Kong, 28 February 2018
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Committee Report
COMPOSITION
HIGHLIGHTS
• Approved Executive Director compensation package
• Reviewed remuneration for Non-Executive Directors and
senior management
Majority are Independent Non-Executive Directors
• Considered the long term incentive scheme
COMMITTEE MEMBERS
KEY RESPONSIBILITIES
Fan Yan Hok Philip* (Chairman)
Lee Tze Hau Michael
Poon Chung Yin Joseph*
*Independent Non-Executive Director
• Reviews Hysan’s framework or general
policies for the remuneration of the
Executive Director(s) and the senior
management
• Reviews the remuneration packages of
the Executive Director(s), Non-Executive
Director(s) and senior management
• Reviews share incentive plans
Meeting Schedule
The Remuneration Committee generally meets at least once every year. On matters other
than those concerning them, the Executive Director(s) and management may be invited to
the Committee meetings. No Director is involved in deciding his own remuneration.
Roles and Authority
• Reviews Hysan’s framework or general policies for the remuneration of the Executive
Director(s) and members of the senior management as recommended by the
Management and makes recommendations to the Board.
• Reviews the remuneration of Executive Director(s) and senior management.
• Reviews the fees payable to Non-Executive Directors and Board Committee members
prior to approval at the AGM.
• 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.
Activities
During the year 2017, the Remuneration Committee held a meeting to:
• Approve the 2017 Executive Director compensation package (including annual fixed base
salary and annual special fee in recognition of the extra responsibilities she assumed), and
the 2016 performance-based bonus.
• Review the fees for Non-Executive Directors and Board Committee members.
• Review compensation of senior management and other department heads.
• Review and consider the long term incentive scheme.
90
Hysan Annual Report 2017 In February 2018, the Remuneration Committee also held a meeting to:
• Approve the 2018 Executive Director compensation package (including annual fixed base
salary and annual special fee in recognition of the extra responsibilities she assumed), and
the 2017 performance-based bonus.
• Review the fees for Non-Executive Directors and Board Committee members.
• Review compensation of senior management and other department heads.
• Review and consider the long term incentive scheme.
Members’ attendance records are disclosed in the table on page 74.
Executive Director(s) and Senior Management Remuneration
Policy
The Group’s remuneration policy aims to provide a fair market remuneration to attract,
retain and motivate high quality employees. At the same time, awards must be aligned with
the shareholders’ interests.
The following principles have been established:
• Remuneration packages consist of (i) a fixed part (base salary and benefits); (ii) a
performance-based component (bonus); and (iii) long-term incentives (executive share
options). The structure will reflect a fair system of reward for all the participants,
emphasising performance.
• Remuneration packages are set at levels to ensure comparability and competitiveness
with Hong Kong-based companies competing for a similar talent pool, with emphasis on
the property industry. Independent professional advice will be sought 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.
• Participants will develop significant personal shareholdings 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 Director(s) and senior management will be
reviewed regularly, independently of executive management.
Details of Directors’ (including individual Executive Director(s)) and senior management
emoluments for the year 2017 and option movements for Executive Director(s) during the
year are set out in notes 11, 12 and 38 respectively to the consolidated financial
statements.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Remuneration Committee Report
Non-Executive Director Remuneration Policy
Key elements of our Non-Executive Director remuneration policy include the following:
• Remuneration should be at an appropriate level to attract and retain first class non-
executive talent.
• Remuneration of Non-Executive Directors is (subject to shareholders’ approval) set by the
Board and should be proportional to their commitment and contribution towards the
Company.
• Remuneration practice should be consistent with the recognised best practice standards
for Non-Executive Director 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 received any pension benefits from
the Company, nor did they participate in any bonus or incentive schemes.
Non-Executive Directors (including the Independent Non-Executive Directors) received fees
totalling HK$2,563,823 for the year 2017.
Director Fee Levels
Director fees are subject to shareholders’ approval at general meetings. Taking into
consideration the level of responsibility, experience, abilities required of the Directors, level
of care and amount of time required, as well as fees offered for similar positions in
companies requiring the same talent, it is proposed for shareholders’ consideration and
approval that Director fees for Non-Executive Directors are revised. The current fee scale for
Non-Executive Directors and Board Committee members and the proposed fees are set out
below. Executive Director(s) will not receive any director fee(s).
Current Fee
Per annum
HK$
Proposed Fee
Per annum
HK$
225,000 (Note 3)
250,000
135,000 (Note 3)
no change
70,000 (Note 3)
no change
60,000 (Note 2)
no change
40,000 (Note 1)
no change
30,000
no change
30,000 (Note 3)
no change
30,000
20,000
no change
no change
Board of Directors
Non-Executive Director
Audit Committee
Chairman
Member
Remuneration Committee
Chairman
Member
Strategy Committee
Chairman
Member
Other Committees
Chairman
Member
Notes:
1. Approved by shareholders in 2011 AGM.
2. Approved by shareholders in 2014 AGM.
3. Approved by shareholders in 2016 AGM
92
Hysan Annual Report 2017 Human Resources Practices
The Group aims to attract, retain and develop high calibre individuals committed to
attaining our objectives. The total number of employees as at 31 December 2017 was 482.
We have changed our skillset mix requirements to satisfy our strategic and operational
needs, as well as to enhance our productivity and efficiency for 2017 and beyond. The
Group’s human resources practices are aligned with our corporate objectives so as to
maximise shareholder value and achieve growth. Details on our human resources programs,
training and development are set out in the “2017 Corporate Responsibility Report”.
Long-term incentives: Share Option Schemes
The Company can grant options under executive share option schemes adopted from time
to time. The purpose of the schemes is to strengthen the link between individual staff and
shareholders’ interests. The power of grant to Executive Director(s) is vested in the
Remuneration Committee and endorsed by all Independent Non-Executive Directors as
required under the Listing Rules. The Chairman or the Chief Executive Officer may make
grants to management staff below Executive Director level.
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 expired on 9 May 2015. All outstanding options granted under the
2005 Scheme will continue to be valid and exercisable in accordance with the provisions of
the 2005 Scheme. No further option will be granted under the 2005 Scheme.
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 Director(s)) 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 the
number of shares required under the Listing Rules, 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).
The maximum entitlement of each participant under the 2005 Scheme must not during any
12-month period exceed the number of shares required under the Listing Rules (which is 1%
of the total shares in issue as at the date of shareholders’ approval, being 10,499,636
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 options, with full payment for the exercise price to be made on
exercise of the relevant options.
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Remuneration Committee Report
THE 2015 SHARE OPTION SCHEME (THE “NEW SCHEME”)
The Company adopted the New Scheme (together with the 2005 Scheme, both are referred
to as the “Schemes”) at its AGM held on 15 May 2015, which has a term of 10 years and will
expire on 14 May 2025. Terms of the New Scheme are substantially the same as those
under the 2005 Scheme.
Under the New Scheme, options to subscribe for ordinary shares of the Company may be
granted to employees of the Company or any subsidiaries (including Executive Director(s))
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 New
Scheme and any other share option schemes of the Company shall not in aggregate exceed
the number of shares required under the Listing Rules, currently being 10% of the shares in
issue as at 15 May 2015, the date of the AGM approving the New Scheme (being
106,389,669 shares). Under the Listing Rules, a listed issuer may seek approval by its
shareholders in general meeting for “refreshing” the 10% limit under the New 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 New Scheme and any other share option schemes
of the Company must not exceed 30% of the shares in issue from time to time (or the
number of shares required under the Listing Rules). No options may be granted if such a
grant will result in this 30% limit being exceeded.
The maximum entitlement of each participant under the New Scheme must not during any
12-month period exceed the number of shares required under the Listing Rules (which is 1%
of the total shares in issue as at the date of shareholders’ approval, being 10,638,966
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$1 and is required to be paid within 30 days
from the date of grant of options, with full payment for the exercise price to be made on
exercise of the relevant options.
GRANT AND VESTING STRUCTURES
Under the Company’s current policy, grants will be made on a periodic basis. The exercise
period is 10 years. The vesting period is 3 years in equal proportions starting from the 1st
anniversary and shares will become fully vested on the 3rd anniversary of the grant. The size
of the grant will be determined with reference to a base salary multiple and job grades. A
clear performance criterion will be a key driver. The Board will review the grant and vesting
structures from time to time.
94
Hysan Annual Report 2017 MOVEMENT OF SHARE OPTIONS
During the year, a total of 727,000 shares options were granted under the New Scheme.
The 2005 Scheme expired on 9 May 2015 and no further option will be granted under the
2005 Scheme.
As at the date of this Annual Report:
(i) 1,677,667 share options granted (including 1,504,330 fully-vested share options)
under the 2005 Scheme remained outstanding, representing approximately 0.16% of
the total number of issued shares of the Company;
(ii) 1,426,000 share options granted (including 219,328 fully-vested share options) under
the New Scheme remained outstanding, representing approximately 0.14% of the
total number of issued shares of the Company; and
(iii) 104,883,738 shares are issuable under the New Scheme representing approximately
10% of the total number of issued shares of the Company.
Details of options granted, exercised, cancelled/lapsed and outstanding under the Schemes
during the year are as follows:
Date of
grant
Exercise
price
HK$
Exercise period
(Note a)
Balance
as at
1.1.2017
Granted
Exercised
Cancelled/
lapsed
(Note b)
Balance
as at
31.12.2017
Changes during the year
Name
2005 Scheme
Executive Director
Lee Irene Yun-Lien
14.5.2012
7.3.2013
10.3.2014
12.3.2015
33.50
39.92
32.84
36.27
14.5.2013 – 13.5.2022
87,000
7.3.2014 – 6.3.2023
265,000
10.3.2015 – 9.3.2024
325,000
12.3.2016 – 11.3.2025
300,000
Eligible employees
(Note c)
31.3.2008
21.96
31.3.2009 – 30.3.2018
11,000
31.3.2009
13.30
31.3.2010 – 30.3.2019
128,000
31.3.2010
22.45
31.3.2011 – 30.3.2020
126,334
31.3.2011
32.00
31.3.2012 – 30.3.2021
125,000
30.3.2012
31.61
30.3.2013 – 29.3.2022
160,001
28.3.2013
39.20
28.3.2014 – 27.3.2023
276,000
31.3.2014
33.75
31.3.2015 – 30.3.2024
338,000
31.3.2015
34.00
31.3.2016 – 30.3.2025
359,000
2,500,335
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,000)
(Note d)
(69,000)
(Note d)
(56,000)
(Note d)
(39,000)
(Note e)
(47,667)
(Note f)
–
–
–
–
–
–
–
87,000
265,000
325,000
300,000
–
59,000
70,334
(32,000)
54,000
(7,000)
105,334
–
(123,000)
153,000
(139,000)
(Note g)
(60,267)
(Note h)
(45,000)
154,000
(94,066)
204,667
(421,934)
(301,066) 1,777,335
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Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Remuneration Committee Report
Date of
grant
Exercise
price
HK$
Exercise period
(Note a)
Balance
as at
1.1.2017
Granted
Exercised
Cancelled/
lapsed
(Note b)
Balance
as at
31.12.2017
Changes during the year
Name
New Scheme
Executive Director
Lee Irene Yun-Lien
9.3.2016
33.15
9.3.2017 – 8.3.2026
375,000
–
23.2.2017
36.25
(Note i)
23.2.2018 – 22.2.2027
–
300,000
–
–
–
–
375,000
300,000
Eligible employees
(Note c)
31.3.2016
33.05
31.3.2017 – 30.3.2026
610,000
–
(74,598)
(Note j)
(157,734)
377,668
31.3.2017
35.33
(Note k)
31.3.2018 – 30.3.2027
–
427,000
–
(18,000)
409,000
985,000
727,000
(74,598)
(175,734) 1,461,668
Notes:
(a) All options granted have a vesting period of 3 years in equal proportions starting from the 1st anniversary and become fully
vested on the 3rd anniversary of the grant. 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) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of
the Employment Ordinance.
(d) The weighted average closing price of the shares of the Company immediately before the date on which the options were
exercised was HK$37.25.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were
exercised was HK$38.95.
(f) The weighted average closing price of the shares of the Company immediately before the date on which the options were
exercised was HK$38.99.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were
exercised was HK$38.86.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were
exercised was HK$37.79.
(i) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 22 February 2017) was
HK$36.00.
(j) The weighted average closing price of the shares of the Company immediately before the date on which the options were
exercised was HK$38.69.
(k) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2017) was
HK$35.00.
Apart from the above, the Company did not grant any share option under the Schemes to
any other persons during the year that is required to be disclosed under Rule 17.07 of the
Listing Rules.
Particulars of the Schemes are set out in note 38 to the consolidated financial statements.
96
Hysan Annual Report 2017 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 statement of profit or loss over the three-
year vesting period of the options.
The fair values of share options granted by the Company were determined by using the
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 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
31.3.2017
23.2.2017
HK$35.250
HK$36.250
HK$35.330
HK$36.250
1.331%
5 years
1.488%
5 years
19.133%
20.238%
HK$1.204
HK$1.204
HK$4.374
HK$4.958
Notes:
(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 over the past 5
years immediately before the date of grant.
(d) Expected dividend per annum: being the approximate average annual cash dividend over the past 5 financial years.
Members of the Remuneration Committee
Fan Yan Hok Philip (Chairman)
Lee Tze Hau Michael
Poon Chung Yin Joseph
Hong Kong, 28 February 2018
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Committee Report
COMPOSITION
HIGHLIGHTS
• Considered Board’s evaluation results thoroughly
• Considered the re-appointment and independence of
directors
• Nominated Ms. Li Xinzhe Jennifer as an advisor to the
Majority are Independent Non-Executive Directors
Board
COMMITTEE MEMBERS
KEY RESPONSIBILITIES
Lee Irene Yun-Lien (Chairman)
Fan Yan Hok Philip*
Lau Lawrence Juen-Yee*
Lee Chien
Poon Chung Yin Joseph*
*Independent Non-Executive Director
• Reviews the structure, size, composition
and diversity of the Board and makes
recommendations to the Board
• Assess independence of Independent
Non-Executive Director
Meeting Schedule
The Nomination Committee generally meets at least once every year.
Roles and Authority
• Reviews and makes recommendations on the structure, size, composition and diversity of
the Board to complement the Company’s corporate strategies.
• Reviews the Board Diversity Policy.
• Nominates candidates to fill Board vacancies after careful consideration of the attributes
and values required to help the effective functioning of the Board based on a
combination of skills, knowledge and experience.
• Reviews the independence of Directors pursuant to the Listing Rules’ requirements.
• Generally oversees succession planning of the Board.
Activities
During the year 2017, the Nomination Committee held a meeting to:
• Review the Board’s structure, size, composition and diversity, monitor the progress made
towards enriching the skills and experience of the Board members and improving the
diversity within the Board. The Committee was satisfied that the current composition and
size of the Board remained appropriate for the time being but these are kept under
regular review.
98
Hysan Annual Report 2017 • Consider and nominate Ms. Li Xinzhe Jennifer as an advisor to the Board, to further enrich
the Board’s skills and diversity.
• Consider the results of the Board’s evaluations, recognising that such process is an
important means of monitoring the Company’s progress. The Committee is pleased to
report that the recent Board performance evaluation concluded that it operated very well.
The Committee was satisfied that all Directors were strongly committed to the Company
and had contributed to the Board through their participation in the Company’s affairs
and discussions at the Board and Board Committees’ meetings during the year, as
reflected in their high attendance records.
• Consider the issue of re-appointment of the Directors who are due to retire at the
forthcoming Annual General Meeting with the support of the Board.
• Assess the independence, effectiveness and commitment of each of the Company’s
Independent Non-Executive Directors. The Committee was satisfied that notwithstanding
the length of service of such Directors, as well as their number and nature of office held in
other public companies and their significant commitments, they remained highly
committed to the Company, independent and impartial, and continued to be in a position
to discharge their duties and responsibilities in the coming year.
Members’ attendance records are disclosed in the table on page 74.
Members of the Nomination Committee
Lee Irene Yun-Lien (Chairman)
Fan Yan Hok Philip
Lau Lawrence Juen-Yee
Lee Chien
Poon Chung Yin Joseph
Hong Kong, 28 February 2018
99
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Strategy
Committee Report
COMMITTEE MEMBERS
Lee Irene Yun-Lien (Chairman)
Fan Yan Hok Philip*
Jebsen Hans Michael
Lee Chien
Poon Chung Yin Joseph*
*Independent Non-Executive Director
HIGHLIGHTS
• Discussed business plans, as well as longer-term
directional strategy for the growth of the Group
KEY RESPONSIBILITIES
• Reviews and recommends to the Board
on the Group’s strategic matters
• Aligns corporate responsibility initiatives
with the Group’s strategy
Meeting Schedule
The Strategy Committee generally meets at least once every year. Full Board members are also invited
and attended.
Roles and Authority
The Strategy Committee is responsible for reviewing and making recommendations to the Board on the
Group’s strategic matters.
Activities
During the year 2017, the Strategy Committee held a meeting (with full Board members and senior
management joined and actively participated) to:
• Review the Group’s position and all the challenges the Group will be facing, the Company’s culture, the
impact of technology, changes in consumer behaviours as well as the resources and skills the business
might require in future.
• Discuss business plans, as well as longer-term directional strategy for the growth of the Group.
• Discuss the Group strategy and emphasize the continuity of the Company’s vision and mission and
focus on the impact of global and Hong Kong changes and developments, and how the Group’s
business model might be affected.
The Board recognised the importance of formulating the Group’s strategy and long term objectives for
the future. The Board fully supported the strategy of strengthening our core and non-core operations
today and for the next generations, and to position and transform the Lee Gardens to achieve stronger
attainment. This commitment is to 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.
Members’ attendance records are disclosed in the table on page 74.
Members of the Strategy Committee
Lee Irene Yun-Lien (Chairman)
Fan Yan Hok Philip
Jebsen Hans Michael
Lee Chien
Poon Chung Yin Joseph
Hong Kong, 28 February 2018
100
Hysan Annual Report 2017 Corporate Responsibility Report –
Summary
This section provides a summary of Hysan Development’s corporate responsibility strategy
and accomplishments. As a “Business of Life”, Hysan continues to provide sustainable and
outstanding returns for our shareholders, while also engaging our stakeholders in the
creation of a sustainable community by using resources wisely and minimising negative
social and ecological impacts.
Hysan is a constituent member of some of the leading international sustainability indices,
including FTSE4Good Index and Hang Seng Corporate Sustainability Index (with an “AA”
rating). Hysan’s efforts have also been recognised in MSCI’s Global Sustainability Index
with an “AA” ESG rating. In regard to community initiatives, we were awarded the 15 Years
Plus Caring Company logo by the Hong Kong Council of Social Service.
For details about Hysan’s corporate responsibility initiatives, please refer to the 2017
Corporate Responsibility Report on the Company’s website: www.hysan.com.hk
Hysan’s Corporate Responsibility Policy sets the framework for the way we manage our
corporate responsibilities. Maintaining the highest ethical standards, focusing on health and
safety, minimising environmental impacts, contributing to communities, respecting our
staff, and encouraging partners to set high standards: these are our main corporate
responsibility themes.
In regard to the Policy’s implementation, we strive to integrate our contribution to society
into our core business operations and partnerships, and to provide expertise, manpower,
venues and financial support to community projects.
Under the Corporate Responsibility umbrella, Hysan’s Environmental Policy focuses on
measuring and reporting our carbon reduction efforts, promoting waste reduction at source,
enhancing green purchasing and improving stakeholder engagement.
Highlights of 2017
Environmental
Achievements
A N I N T E G R A L PA R T O F
TH E COM MUNIT Y
2 0 1 7 C O R P O R A T E R E S P O N S I B I L I T Y R E P O R T
Hysan Development Company Limited
49/F Lee Garden One, 33 Hysan Avenue, Hong Kong
T 852 2895 5777 F 852 2577 5153
www.hysan.com.hk
C M Y
K
C022951
stock code 00014
• Lee Garden One achieving Final Platinum rating under
BEAM Plus Existing Buildings for its offices; Lee Garden
Three and Hysan Place obtaining Provisional Platinum
rating under BEAM Plus New Buildings and Existing
Buildings respectively
• Lee Garden Three achieving United States Green
Building Council’s LEED for Building Design and
Construction: Core and Shell Development pre-
certification at the Gold level
• Installing Well#, a smart water refill station at Hysan
Place, taking a lead to reduce the use of disposable
plastic bottles
• Further extending our Energy Accounting System to
Lee Garden Five
• Reducing our energy use by over 11% by the end of
2017, using 2005 as a baseline
• Achieving “Excellent Class” or “Good Class”
certifications from the Hong Kong Government’s
Indoor Air Quality Certification Scheme, and “Class of
Excellence” Wastewi$e labels under the Government’s
Hong Kong Green Organisation Certification Scheme
• Reducing total potable water use by 2.5% as
compared to 2016
101
Corporate GovernanceFinancial Statements and ValuationBusiness PerformanceOverview Corporate Responsibility Report – Summary
In the area of Workplace Quality, Hysan takes pride in having passionate, responsible and
forward-looking professionals who provide our stakeholders with sustainable and
outstanding returns from our quality property portfolio. Our Code of Ethics and Employment
and Staff Policy are well observed. In 2017, one of our highlights in the human resources
area was the implementation of a range of technology-based changes that are aimed at
reducing the time and resources formerly expended on our manual systems. For example,
we developed a mobile learning system to provide a more flexible solution for the training
and communications of staff members, affording access to the system via smartphones,
computers or other mobile devices.
Hysan also kick-started a new management trainee programme in 2017 in a bid to meet our
long-term business needs. The programme is designed to develop talented university
graduates with high potential to supply our leadership pipeline.
Our Health and Safety Policy focuses on the provision and maintenance of a safe and
healthy environment within Hysan’s portfolio for all staff, tenants, and members of the
general public. The Head of the Property Services Division chairs a Safety Committee, which
oversees how the Policy is delivered in daily operations and reports back to senior
management. More than 1,560 hours of safety and health training were recorded by our
staff members in 2017.
With reference to Community Contributions, Hysan is proud to maintain its strong
association with the Lee Gardens Association, which it helped establish in 2016. In 2017, the
Association’s membership grew to include 16 members. Not only did the Association host a
number of popular and exciting events in the Lee Gardens area, it also became a platform
for area businesses to share views and engage with government departments and the local
District Council. Art Fun in Causeway Bay Night Parade, “EGGssentially Art!” egglette festival,
and Hong Kong Tennis Open’s Lee Gardens Street Tennis were among the most popular
events in the neighbourhood.
Hysan’s Urban Farm remained one of Hong Kong’s best-loved environmental attractions,
with 16 local and international organisations visiting the rooftop facility in 2017. Over 300
urban farmers enjoyed sessions growing organic produce at Hysan Place, and around 400
children and parents participated in our Green Wonders programme to learn more about
green building and urban farming.
Hysan became one of the sponsors for Hong Kong’s best known international sporting
events, Cathay Pacific/HSBC Rugby Sevens, and we hosted the event’s Fan Walk, which was
a major street carnival that lasted three days.
In the area of arts and culture promotion, the visit by Rachel Barton Pine, a top international
violinist, was one of the highest profile performing arts events ever held at Hysan Place.
Other major artistic events in Lee Gardens included:
• Po Leung Kuk’s celebration of Hong Kong SAR’s 20th anniversary and the Kuk’s Education
Services 70th anniversary concert and performance
• Hong Kong Institute of Architects Biennale Foundation’s Bi-City Biennale of Urbanism/
Architecture
• Lee Hysan Foundation’s “Sing Out” musical preview
• Food Angel’s Construction
Our volunteer team contributed 424 hours of their time to services for the community in
2017. Another 288 hours were recorded as contributions by team members’ friends and
families, who also took part in Hysan’s activities. Hysan was the winner of a Silver Award for
Volunteer Service.
102
Hysan Annual Report 2017 The Directors submit their report together with the audited consolidated financial statements for the year ended 31 December
2017, which were approved by the Board of Directors on 28 February 2018.
PrinciPal activities
The principal activities of the Group continued throughout 2017 to be property investment, management, and development.
Details of the Group’s principal subsidiaries, associates and a joint venture as at 31 December 2017 are set out in notes 17 to
19 respectively to the consolidated financial statements.
The turnover and results of the Group are principally derived from the 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 consolidated financial statements.
results and aPProPriations
The results of the Group for the year ended 31 December 2017 are set out in the consolidated statement of profit or loss on
page 119.
The first interim dividend of HK26 cents per share, amounting to approximately HK$272 million, was paid to shareholders
during the year.
The Board declared a second interim dividend of HK111 cents per share to the shareholders on the register of members on 15
March 2018, absorbing approximately HK$1,161 million. The dividends declared and paid for ordinary shares in respect of the
full year 2017 will absorb approximately HK$1,433 million, and the balance of the profit will be retained.
Business review and Performance
A fair review of the business of the Company and a discussion and analysis of the Group’s performance during the year, the
material factors underlying its results and financial position and material attributable factors of the development and likely
future developments of the Group’s business, are provided throughout this Annual Report, particularly in the following separate
sections:
(a) Review of the Company’s business – “Management’s Discussion and Analysis”;
(b) The Company’s risk management framework, the principal risks the Company is facing and the controls in place – “Risk
Management and Internal Control Report”;
(c) Future development of the Company’s business – “Key Facts” and “Chairman’s Statement”;
(d) Analysis using financial key performance indicators – “Management’s Discussion and Analysis”;
(e) Discussion of the Company’s environmental policies and performance – “Corporate Responsibility Report – Summary”;
(f) Discussion of the Company’s compliance with the relevant laws and regulations that have a significant impact on the
Company – “Corporate Governance Report” and “Independent Auditor’s Report”; and
(g) An account of the Company’s key relationships with its employees, customers, suppliers and others that have a significant
impact on the Company and on which the Company’s success depends – “Directors’ Report” and “Corporate Responsibility
Report – Summary”.
A detailed discussion of the Company’s environmental policies and performance, its compliance with the relevant laws and
regulations that have a significant impact on the Company and its key relationships with stakeholders is contained in the
separate Corporate Responsibility Report 2017 available on the Company’s website: www.hysan.com.hk.
103
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness PerformanceDirectors’ Report 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 122 and 123 and note 30 to the consolidated financial statements respectively.
investment ProPerties
All of the Group’s investment properties were revalued by an independent professional valuer as at 31 December 2017 using
the fair value model. Details of movements during the year in the investment properties of the Group are set out in note 15 to
the consolidated financial statements.
Details of the major investment properties of the Group as at 31 December 2017 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 are set out in note 16 to the
consolidated financial statements.
share caPital
Details of movements in the share capital of the Company during the year are set out in note 29 to the consolidated financial
statements.
corPorate Governance
The Company is committed to maintaining a high standard of corporate governance and meets the requirements of the code
provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules.
Further information on the Company’s corporate governance practices is set out in the following separate reports:
(a) “Corporate Governance Report” (pages 66 to 85) – this gives detailed information on the Company’s compliance with the
Corporate Governance Code and the relevant laws and regulations, its adoption of local and international best practices,
Directors’ service contracts, Directors’ interests in shares, contracts and competing business;
(b) “Audit Committee Report” (pages 86 to 89) – this sets out the terms of reference, work performed and findings of the
Audit Committee for the year;
(c) “Remuneration Committee Report” (pages 90 to 97) – this gives detailed information on Directors’ remuneration and
interests (including information on Directors’ compensation);
(d) “Nomination Committee Report” (pages 98 to 99) – this sets out the terms of reference, work performed and findings of
the Nomination Committee for the year;
(e) “Strategy Committee Report” (page 100) – this sets out the terms of reference, work performed and findings of the
Strategy Committee for the year; and
(f)
“Risk Management and Internal Control Report” (pages 50 to 57) – this sets out the Company’s framework for risk
assessment and internal control (including control environment, control activities and work done during the year).
Further information on the Company’s corporate responsibility policies and practices is contained in the separate Corporate
Responsibility Report 2017 available on the Company’s website: www.hysan.com.hk.
104
Hysan Annual Report 2017Directors’ Report continued the Board
The Board is currently chaired by Lee Irene Yun-Lien, Chairman. There are 8 other Non-Executive Directors.
Lau Siu Chuen ceased as a Non-Executive Director with effect from the conclusion of the 2017 Annual General Meeting of the
Company held on 15 May 2017.
Lee Irene Yun-Lien and Yang Chi Hsin Trevor served as alternate Directors to Lee Anthony Hsien Pin and Jebsen Hans Michael
respectively throughout the year.
Save as otherwise mentioned above, other Directors whose names and biographies appear on pages 60 to 64 have been
Directors of the Company throughout the year and up to the date of this report.
Under Article 114 of the Company’s current Articles of Association (“Articles”), 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 at each Annual General Meeting (“AGM”).
A retiring Director is eligible for re-election.
Particulars of Directors seeking re-election at the forthcoming AGM are set out in the related circular to shareholders.
The Company received from each Independent Non-Executive Director an annual confirmation of his independence with
regard to 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 2017. (See
“Corporate Governance Report” and “Nomination Committee Report”.)
The names of Directors who have served on the boards of the subsidiaries of the Company during the year and up to the date
of this report are available on the Company’s website: www.hysan.com.hk.
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 “Corporate Governance Report” on pages 66 to 85.
105
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance suBstantial shareholders’ and other Persons’ interests in shares
As at 31 December 2017, 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 SFO, or as
otherwise notified to the Company, were as follows:
Aggregate long positions in shares and underlying shares of the Company
Name
Lee Hysan Estate Company, Limited
Capacity
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)
Silchester International Investors LLP
Investment manager
95,187,000
First Eagle Investment Management, LLC
Investment manager
52,460,214
% of the
total no. of
issued
shares
(Note a)
41.42
41.42
9.10
5.02
Notes:
(a) The percentage was compiled based on the total number of issued shares of the Company as at 31 December 2017 (i.e. 1,045,824,891 ordinary
shares).
(b) These interests represented 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 was 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 that is required to be kept under section 336 of the SFO as at 31 December 2017.
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 and which were negotiated on
normal commercial terms and on an arm’s length basis. Further details are set out in note 36 to the consolidated financial
statements.
Some of these transactions also constituted “Continuing Connected Transactions” under the Listing Rules, as identified below.
106
Hysan Annual Report 2017Directors’ Report continued
continuinG connected transactions
Certain transactions entered into by the Group constituted continuing connected transactions which were subject to the
notification and announcement requirements but exempt from the circular and shareholders’ approval requirements under
Rule 14A.76(2) of the Listing Rules during the year (the “Transactions”). Details of the Transactions required to be disclosed are
set out as follows:
Leases granted by the Group
I.
(a) lee Garden two, 28 yun Ping road, hong Kong (“lee Garden two”)
The following lease arrangements were entered into by Barrowgate Limited (“Barrowgate”), a 65.36% subsidiary of the
Company and the property owner of Lee Garden Two, as landlord, with the following connected persons:
Connected person
Date of agreement
Term
Premises
(i)
Jebsen and
Company
Limited
(Note b)
28 March 2013
(Lease and Carpark
Licence Agreement)
(as amended – Note c)
Office units on the
5 years commencing
from 1 September 2013 28th, 30th and
31st Floors and
(Note d)
3 carparking
spaces
(ii) Treasure Matrix
(1) 28 March 2014
Limited
(Notes e & f)
(Lease and Licence
Agreements)
(as amended –
Notes g & i)
5 years commencing
from 28 March 2014
(Note d)
Shop Nos. 308 & 311
on the 3rd Floor
(connected to an
outdoor garden)
Annual consideration
(Note a)
2017: HK$37,212,720
2018: HK$25,065,304
(on pro-rata basis)
(Note j)
2017: HK$6,553,765
2018: HK$8,804,400
2019: HK$2,106,429
(on pro-rata basis)
(Notes k & l)
(2) 20 October 2014
(Existing Licence
3 years commencing
from 1 December 2014 Floor
Portion 1 on the 3rd
Agreement)
(Notes h & i)
(3) 27 March 2017
(New Licence
Agreement to
renew item (2))
(Notes h & i)
Renewed for a
further 1 year,
3 months and 27 days
commencing from
1 December 2017
(4) 20 October 2014
(Existing Licence
Agreement)
(Notes h & i)
3 years commencing
from 1 November
2014
Various storerooms
and advertising
spaces
(5) 27 March 2017
(New Licence
Renewed for a
further 1 year,
Agreement to renew 4 months and 27 days
item (4))
(Notes h & i)
commencing from
1 November 2017
107
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
continuinG connected transactions continued
Leases granted by the Group continued
I.
(b) one hysan avenue, causeway Bay, hong Kong (“one hysan avenue”)
The following lease arrangement was entered into by OHA Property Company Limited, a wholly-owned subsidiary of the
Company and the 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 a 41.42% interest). Details of the lease are
set out below:
Connected person
Date of agreement
Term
Premises
Atlas Corporate
Management Limited
21 August 2014
3 years commencing
from 1 November 2014
Whole of 21st Floor
Annual consideration
(Note a)
2017: HK$2,526,440
(on pro-rata basis)
(Note m)
II. Provision of leasing and property management services to a non wholly-owned subsidiary regarding Lee Garden 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 in respect of
Lee Garden Two:
Connected person
Date of agreement
Term
Premises
Barrowgate Limited
22 March 2016
3 years commencing
from 1 April 2016
Whole premises of
Lee Garden Two
Consideration
received during
the year
HK$27,122,283
(Note n)
(b) The following management agreement was entered into by Hysan Property Management Limited, a wholly-owned
subsidiary of the Company, with Barrowgate for the provision of property management services to Lee Garden Two:
Connected person
Date of agreement
Term
Premises
Barrowgate Limited
22 March 2016
3 years commencing
from 1 April 2016
Whole premises of
Lee Garden Two
Consideration
received during
the year
HK$3,440,016
(Note n)
108
Hysan Annual Report 2017Directors’ Report continued
continuinG connected transactions continued
Notes:
(a) The annual considerations were 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”) is a beneficial substantial shareholder of Barrowgate and has an equity interest of 10% in
Barrowgate. Jebsen Hans Michael, Non-Executive Director of the Company, is a controlling shareholder of Jebsen and Company.
(c) On 16 August 2016, a memorandum was entered into, pursuant to which the rent for the period from 1 September 2016 to 31 August 2018 was
reviewed and revised to the then prevailing market rent.
(d) The terms of the agreements mentioned under I(a)(i) and I(a)(ii)(1) above exceed 3 years. According to the 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.
(e) Treasure Matrix Limited (“Treasure Matrix”) is a wholly-owned subsidiary of the Company.
(f) Under this transaction, Barrowgate was considered a connected person of the Company under the Listing Rules by virtue of it being a non wholly-
owned subsidiary of the Company and also having a substantial shareholder which is an associate of Jebsen Hans Michael, Non-Executive
Director of the Company.
(g) On 27 March 2017, a memorandum was entered into, pursuant to which the rent for the period from 28 March 2017 to 27 March 2019 was
reviewed and revised to the then prevailing market rent.
(h) On 27 March 2017, new licence agreements were entered into to renew the existing licence agreements. The existing and new licence agreements
on their own constituted continuing connected transactions of the Company which were fully exempted from Chapter 14A requirements as the
annual consideration under the existing and new licence agreements fall below the applicable de minimis threshold under the Listing Rules.
(i) As the aggregated annual consideration under the lease and various licence agreements entered into with Treasure Matrix exceeds the applicable
de minimis threshold under the Listing Rules, they constituted continuing connected transactions of the Company being subject to announcement
requirements but exempted from independent shareholders’ approval requirements.
(j) Office monthly operating charges for Lee Garden Two were revised with effect from 1 January 2018.
(k) Annual consideration for 2017 included actual turnover rent received for the year 2017.
(l)
Retail monthly operating charges and promotion levies for Lee Garden Two were revised with effect from 1 January 2017 and further revised on
1 January 2018.
(m) Office extra air-conditioning operating charges for One Hysan Avenue were revised with effect from 1 January 2017.
(n) These represent the actual consideration received for the year ended 31 December 2017, 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 within the Group
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 insofar as they are
applicable.
109
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 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 (Revised) “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 its unqualified letter containing its findings and conclusions in respect
of the continuing connected transactions disclosed by the Group on pages 107 to 109 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.
The Company’s Internal Audit has reviewed the Transactions and the related internal control procedures, and concluded
that the internal control procedures are adequate and effective. 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 Group;
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 interests of
the Company’s shareholders as a whole.
connected transactions
Certain transactions entered into by the Group constituted connected transactions which were subject to the notification and
announcement requirements but exempt from the circular and shareholders’ approval requirements under the Listing Rules
during the year. Certain details of the transactions are set out as follows:
I. Acquisitions of No. 9 Lan Fong Road (the “Property”) and the Remaining Portion of Inland Lot No. 29 (the
“Land”), Hong Kong
On 17 March 2017, Jayton Investments Limited (“Jayton”) and Oretta Limited (“Oretta”), both wholly-owned subsidiaries
of the Company, entered into the following agreements:
(1) Jayton entered into a conditional agreement with Dowling Development Ltd. (“Dowling Development”), a wholly-
owned subsidiary of LHE to acquire the entire issued share capital of Sparkling Touch Investments Ltd., which owns
the Property, for a consideration of HK$75 million, with LHE guaranteeing the due and punctual performance of the
obligations of Dowling Development; and
(2) Oretta entered into an agreement with LHE to acquire the Land for a consideration of HK$100.
Completion of the sale and purchase under the above agreements took place on 31 March 2017.
Dowling Development was dissolved on 2 January 2018. At the time of entering into the agreements, Dowling
Development was a wholly-owned subsidiary of LHE, which in turn was interested in approximately 41.42% of the issued
shares of the Company and was a substantial shareholder and connected person of the Company under the Listing Rules.
The entering into of the agreements constituted connected transactions of the Company under Rule 14A.76(2) of the
Listing Rules.
The abovementioned acquisitions are in line with the core business and strategic policy of the Group. Details of the
acquisitions were disclosed in the Company’s announcement dated 17 March 2017.
110
Hysan Annual Report 2017Directors’ Report continued connected transactions continued
II. Project Financing
Gainwick Limited (“Gainwick”), a 60%-owned subsidiary undertaking (as defined in Schedule 1 to the Companies
Ordinance (Cap. 622 of the Laws of Hong Kong)) of the Company, entered into a facility agreement with, among others,
certain lenders (including Hang Seng Bank Limited (“Hang Seng”) and The Hongkong and Shanghai Banking Corporation
Limited (“HSBC”)), pursuant to which the lenders agreed to severally provide to Gainwick their respective portion of the
facility (with each of Hang Seng and HSBC providing a facility in the maximum amount of HK$1,120 million (collectively
the “Facilities”)) bearing non-refundable front end fee of 0.75% on the facility amount, and interest rate at sum of HIBOR
and interest margin of 0.65% per annum of the relevant interest period.
Hang Seng holds approximately 24.64% equity interest in Barrowgate, a non wholly-owned subsidiary of the Company,
and therefore is a substantial shareholder of Barrowgate. HSBC is the holding company of Hang Seng. Accordingly, both
Hang Seng and HSBC are connected persons of the Company at the subsidiary level under the Listing Rules. The provisions
of the Facilities constituted connected transactions of the Company under Rule 14A.101 of the Listing Rules.
The Facilities serve to finance the costs of land premium, construction cost and all related costs to be incurred for
developing the residential sites at Tai Po Town Lot Nos. 223 and 229, Lo Fai Road, Tai Po, New Territories, Hong Kong.
Details of the Facilities were disclosed in the Company’s announcement dated 26 May 2017.
interest in contracts of siGnificance
The lease and carpark licence agreement between Jebsen and Company and Barrowgate is considered a contract of
significance under paragraph 15 of Appendix 16 to the Listing Rules due to its annual consideration having a percentage ratio
of 1.05% from the calculation of the revenue test (the percentage ratios for assets ratio and consideration ratio are 0.05% and
0.09% respectively). Details of the transaction are set out under I(a)(i) of “Continuing Connected Transactions”.
major customers and suPPliers
During the year, 24.73% of the aggregate amount of purchases were attributable to the Group’s 5 largest suppliers with the
largest supplier accounting for 6.30% to 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 close associates or any shareholder (which to the knowledge of the Directors owns more than 5%
of the Company’s issued shares) had any interest in the Group’s 5 largest suppliers.
Purchase, sale or redemPtion of the comPany’s listed securities
During the year ended 31 December 2017, neither the Company nor its subsidiaries purchased, sold or redeemed any of the
Company’s listed securities.
issuance of securities
In October 2017, Hysan (MTN) Limited, a wholly-owned subsidiary of the Company, established the US$1.5 billion Medium
Term Note Programme (“MTN Programme”), which was listed on the Stock Exchange. Notes issued under the MTN Programme
are unconditionally and irrevocably guaranteed by the Company. No notes have been issued under the MTN Programme for
the year under review.
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.
111
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Permitted indemnity Provision
Pursuant to the Company’s Articles, every Director shall be entitled to be indemnified out of the assets of the Company against
all losses or liabilities incurred by him or her in the execution the duties of his or her office or in relation thereto. The Directors
and Officers Liability Insurance (“D&O Insurance”) taken out by the Company throughout the year provides adequate cover for
such indemnities to all the Directors of the Company and its subsidiaries. The relevant provisions in the Company’s Articles and
the D&O Insurance were in force during the financial year ended 31 December 2017 and as of the date of this report.
auditor
A resolution for the re-appointment of Deloitte Touche Tohmatsu as auditor of the Company is to be proposed at the 2018
AGM.
By Order of the Board
lee irene yun-lien
Chairman
Hong Kong, 28 February 2018
112
Hysan Annual Report 2017Directors’ Report continued 4
Financial
Statements,
Valuation
and Other
Information
114 Directors’ Responsibility for the
134 Notes to the Consolidated Financial
Financial Statements
Statements
115 Independent Auditor’s Report
173 Financial Risk Management
119 Consolidated Statement
182 Five-Year Financial Summary
of Profit or Loss
120 Consolidated Statement
of Comprehensive Income
121 Consolidated Statement
of Financial Position
122 Consolidated Statement
of Changes in Equity
124 Consolidated Statement
of Cash Flows
125 Significant Accounting Policies
184 Report of the Valuer
185 Schedule of Principal Properties
186 Shareholding Analysis
187 Shareholder Information
189 Corporate Information
113
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance The Hong Kong 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.
114
Hysan Annual Report 2017Directors’ Responsibility forthe Financial Statements indePendent auditor’s rePort
to the memBers of hysan develoPment comPany limited
(incorporated in Hong Kong with limited liability)
Opinion
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 119 to 181, which comprise the consolidated statement
of financial position as at 31 December 2017, and the consolidated statement of profit or loss and the consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year
then ended, and notes to the consolidated financial statements, including significant accounting policies and financial risk
management.
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the
Group as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified
Public Accountants (“HKICPA”) and have been properly prepared in compliance with the Hong Kong Companies Ordinance.
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics
for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
115
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness PerformanceIndependent Auditor’s Report
Key Audit Matters continued
Key audit matter
valuation of investment properties
We identified the valuation of investment properties as a
key audit matter due to the inherent level of complex and
subjective judgements and estimates required in determining
the fair values.
The Group’s investment property portfolio comprises retail,
office and residential properties mainly located in Causeway
Bay, Hong Kong and is stated at fair value of HK$72,470
million, accounting for approximately 88% of the Group’s
total assets as at 31 December 2017 with a fair value gain of
HK$853 million recognised in the consolidated statement of
profit or loss for the year then ended.
All of the Group’s investment properties are measured using
the fair value model based on a valuation performed by an
independent qualified professional valuer (the “Valuer”). As
disclosed in note 3 of the Notes to the Consolidated Financial
Statements section of the consolidated financial statements,
in determining the fair values of the Group’s investment
properties, the Valuer has applied a market value basis which
involves, inter-alia, certain estimates, including appropriate
capitalisation rates, reversionary income potential and
redevelopment potential of the investment properties in
determining the fair values.
how our audit addressed the key audit matter
Our procedures in relation to the valuation of investment
properties included:
•
•
•
Evaluating the competence, capabilities, and objectivity
of the Valuer and obtaining an understanding of the
Valuer’s scope of work and their terms of engagement;
Evaluating the appropriateness of the Valuer’s valuation
approaches to assess if they meet the requirements of
the HKFRSs and industry norms;
Challenging the reasonableness of the key assumptions
applied based on available market data and our
knowledge of the property industry in Hong Kong; and
• Obtaining the detailed work of the Valuer on selected
investment properties to evaluate the accuracy and
relevance of key data inputs underpinning the valuation,
such as rental income, term of existing leases by
comparing them to the existing leases summary of the
Group or reversionary income potential by comparing
fair market rents estimated by the Valuer against recent
lease renewals and evaluating whether capitalisation
rates adopted are comparable to the market.
Other Information
The Directors of the Company are responsible for the other information. The other information comprises the information
included in the annual report, but does not include the consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
in this regard.
116
Hysan Annual Report 2017Independent Auditor’s Report continued Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements
The Directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and
fair view in accordance with HKFRSs issued by the HKICPA and the Hong Kong Companies Ordinance, and for such internal
control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion solely
to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance, and for no other purpose. We do
not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going
concern.
•
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision
and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
117
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements continued
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in the independent auditor’s report is Wong Wang Hei.
deloitte touche tohmatsu
Certified Public Accountants
Hong Kong
28 February 2018
118
Hysan Annual Report 2017Independent Auditor’s Report continued Turnover
Property expenses
Gross profit
Other income
Investment income
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
4
25
6
7
8
9
14
2017
hK$ million
2016
HK$ million
3,548
(449)
3,099
261
69
(247)
(158)
853
220
4,097
(484)
3,613
3,636
(23)
3,613
3,535
(428)
3,107
–
50
(219)
(178)
(1,187)
237
1,810
(463)
1,347
1,218
129
1,347
347.78
116.35
347.68
116.33
119
Consolidated Statement of Profit or LossFor the year ended 31 December 2017OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
Profit for the year
Other comprehensive income
Item 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 associates
Other comprehensive income (expenses) for the year (net of tax)
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
2017
hK$ million
3,613
2016
HK$ million
1,347
Note
10
38
(55)
240
185
223
3,836
3,859
(23)
3,836
18
78
(236)
(158)
(140)
1,207
1,078
129
1,207
120
Hysan Annual Report 2017Consolidated Statement ofComprehensive IncomeFor the year ended 31 December 2017
Non-current assets
Investment properties
Property, plant and equipment
Investments in associates
Loans to associates
Investment in a joint venture
Loans to a joint venture
Fund investment
Term notes
Other financial assets
Other receivables
Current assets
Loans to a joint venture
Accounts and other receivables
Term notes
Other financial assets
Time deposits
Cash and bank balances
Current liabilities
Accounts payable and accruals
Other financial liabilities
Rental deposits from tenants
Amounts due to non-controlling interests
Borrowings
Taxation payable
Net current assets
Total assets less current liabilities
Non-current liabilities
Borrowings
Other financial liabilities
Rental deposits from tenants
Deferred taxation
Net assets
Capital and reserves
Share capital
Reserves
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Notes
2017
hK$ million
2016
HK$ million
15
16
18
18
19
19
20
21
22
23
19
23
21
22
24
24
25
22
26
27
27
22
28
29
72,470
751
3,779
10
147
982
21
228
2
332
78,722
–
226
509
1
2,505
157
3,398
736
1
389
327
150
158
1,761
1,637
80,359
6,035
30
506
787
7,358
69,633
720
3,497
–
145
873
–
733
13
135
75,749
1,018
196
422
6
2,551
79
4,272
935
–
339
327
1,180
112
2,893
1,379
77,128
5,113
1
578
751
6,443
73,001
70,685
7,692
62,261
69,953
3,048
73,001
7,673
59,817
67,490
3,195
70,685
The consolidated financial statements on pages 119 to 181 were approved and authorised for issue by the Board of Directors
on 28 February 2018 and are signed on its behalf by:
Lee Irene Y.L.
Director
Lee T.H. Michael
Director
121
Consolidated Statement ofFinancial PositionAt 31 December 2017OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
At 1 January 2016
Profit for the year
Net gains arising from hedging instruments
Reclassification adjustments for net gains 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 28)
Share of translation reserve of an associate
Total comprehensive income (expenses) for the year
Issue of shares under share option schemes
Recognition of equity-settled share-based payments
Forfeiture of share options
Cancellation upon repurchase of own shares
Dividends paid during the year (note 13)
At 31 December 2016
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 28)
Share of translation reserve of associates
Total comprehensive (expenses) income for the year
Issue of shares under share option schemes
Recognition of equity-settled share-based payments
Forfeiture of share options
Dividends paid during the year (note 13)
Deemed acquisition of additional equity interest in a subsidiary
At 31 December 2017
Attributable to owners of the Company
Share
capital
HK$ million
7,642
Share
options
reserve
HK$ million
General
reserve
HK$ million
30
100
–
–
–
–
–
–
–
31
–
–
–
–
7,673
–
–
–
–
–
–
–
19
–
–
–
–
7,692
–
–
–
–
–
–
–
(7)
5
(4)
–
–
24
–
–
–
–
–
–
–
(4)
4
(3)
–
–
21
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
(4)
96
Attributable to owners of the Company
Investments
revaluation
reserve
HK$ million
Hedging
reserve
HK$ million
Properties
revaluation
reserve
HK$ million
Translation
reserve
HK$ million
353
274
Retained
profits
HK$ million
59,838
1,218
Non-
controlling
interests
HK$ million
3,196
129
(236)
(236)
1,218
129
371
38
(395)
(1,394)
59,271
3,636
(130)
3,195
(23)
Total
HK$ million
68,172
1,218
77
1
22
(4)
(236)
1,078
24
5
–
(395)
(1,394)
67,490
3,636
(49)
(6)
46
(8)
240
15
4
–
(1,411)
(4)
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
3
–
Total
HK$ million
71,368
1,347
77
1
22
24
5
–
(4)
(236)
1,207
(395)
(1,524)
70,685
3,613
(49)
(6)
46
(8)
240
15
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
–
–
22
(4)
–
18
–
–
–
–
–
–
–
–
–
–
–
–
–
46
(8)
–
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
240
240
3,636
3,859
(23)
3,836
(1,411)
(128)
(1,539)
(43)
409
278
61,499
69,953
3,048
73,001
1
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
1
(66)
–
77
78
12
–
(49)
(6)
(55)
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
122
Hysan Annual Report 2017Consolidated Statement ofChanges in EquityFor the year ended 31 December 2017
At 1 January 2016
Profit for the year
Net gains arising from hedging instruments
Reclassification adjustments for net gains 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 28)
Share of translation reserve of an associate
Total comprehensive income (expenses) for the year
Issue of shares under share option schemes
Recognition of equity-settled share-based payments
Forfeiture of share options
Cancellation upon repurchase of own shares
Dividends paid during the year (note 13)
At 31 December 2016
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 28)
Share of translation reserve of associates
Total comprehensive (expenses) income for the year
Issue of shares under share option schemes
Recognition of equity-settled share-based payments
Forfeiture of share options
Dividends paid during the year (note 13)
Deemed acquisition of additional equity interest in a subsidiary
At 31 December 2017
Attributable to owners of the Company
Share
capital
7,642
Share
options
reserve
General
reserve
30
100
HK$ million
HK$ million
HK$ million
7,673
24
100
31
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19
7,692
(7)
5
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
4
(3)
–
–
21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
96
Attributable to owners of the Company
Investments
revaluation
reserve
HK$ million
Hedging
reserve
HK$ million
Properties
revaluation
reserve
HK$ million
Translation
reserve
HK$ million
Retained
profits
HK$ million
Total
HK$ million
Non-
controlling
interests
HK$ million
Total
HK$ million
1
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
1
(66)
353
274
59,838
68,172
3,196
71,368
–
77
1
–
–
–
78
–
–
–
–
–
12
–
(49)
(6)
–
–
–
(55)
–
–
–
–
–
–
–
–
22
(4)
–
18
–
–
–
–
–
–
–
–
–
–
(236)
(236)
–
–
–
–
–
1,218
–
–
–
–
–
1,218
–
–
4
(395)
(1,394)
1,218
77
1
22
(4)
(236)
1,078
24
5
–
(395)
(1,394)
129
–
–
–
–
–
129
–
–
–
–
(130)
1,347
77
1
22
(4)
(236)
1,207
24
5
–
(395)
(1,524)
371
38
59,271
67,490
3,195
70,685
–
–
–
46
(8)
–
38
–
–
–
–
–
–
–
–
–
–
240
240
–
–
–
–
–
3,636
–
–
–
–
–
3,636
–
–
3
(1,411)
–
3,636
(49)
(6)
46
(8)
240
3,859
15
4
–
(1,411)
(4)
(23)
–
–
–
–
–
(23)
–
–
–
(128)
4
3,613
(49)
(6)
46
(8)
240
3,836
15
4
–
(1,539)
–
(43)
409
278
61,499
69,953
3,048
73,001
123
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
Operating activities
Profit before taxation
Adjustments for:
Other income
Net interest income
Loss on disposal of property, plant and equipment
Share-based payment expenses
Finance costs
Change in fair value of investment properties
Depreciation of property, plant and equipment
Share of results of associates
Operating cash flows before movements in working capital
(Increase) decrease in accounts and other receivables
Increase in accounts payable and accruals
(Decrease) increase in rental deposits from tenants
Cash generated from operations
Hong Kong Profits Tax paid
Hong Kong Profits Tax refunded
Net cash from operating activities
Investing activities
Payments in respect of additions of investment properties
Acquisition of investment properties through acquiring subsidiaries
Purchases of property, plant and equipment
Advance to associates
Dividends received from an associate
Advance to a joint venture
Repayment from a joint venture
Payment in respect of fund investment
Proceeds upon maturity of term notes
Purchases of term notes
Interest received
Additions to time deposits with original maturity
over three months
Proceeds upon maturity of 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
New bank loans
Repayment of bank loans
Consideration paid for repurchase of shares
Proceeds on exercise of share options
Dividends paid
Dividends paid to non-controlling interests of a subsidiary
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
124
Notes
2017
hK$ million
2016
HK$ million
4,097
(261)
(69)
7
4
158
(853)
22
(220)
2,885
(12)
49
(22)
2,900
(416)
6
2,490
(1,472)
(654)
(14)
(10)
178
(63)
998
(21)
431
–
38
1,810
–
(50)
–
5
178
1,187
22
(237)
2,915
42
342
27
3,326
(412)
5
2,919
(832)
–
(15)
–
187
(2,036)
–
–
414
(227)
66
(2,647)
(2,521)
3,282
46
(194)
(19)
(2)
1,410
(1,540)
–
15
(1,411)
(128)
(1,869)
667
1,367
2,034
3,478
(1,486)
(182)
(1)
(2)
1,680
(250)
(395)
24
(1,394)
(130)
(650)
783
584
1,367
31
32
32
24
Hysan Annual Report 2017Consolidated Statement ofCash FlowsFor the year ended 31 December 2017
These consolidated 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. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
These consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards
(“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). In addition, the consolidated financial
statements include applicable disclosures required by the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock
Exchange of Hong Kong Limited (the “Stock Exchange”) and by the Hong Kong Companies Ordinance (“CO”).
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 statement of profit or loss 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 attributable to owners of the
Company 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 associates and a joint venture
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.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require unanimous consent of parties sharing control.
The results, assets and liabilities of associate or joint venture are incorporated in the consolidated financial statements using
the equity method of accounting. The financial statements of associate or joint venture used for equity accounting purposes
are prepared using uniform accounting policies as those of the Group for like transactions and events in similar circumstances.
Under the equity method, investments in associate or joint venture 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 associate or joint venture. When the Group’s share of losses of an associate or joint venture equals or exceeds its
interest in that associate or joint venture (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
or joint venture.
125
Significant Accounting PoliciesFor the year ended 31 December 2017OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 2. investments in associates and a joint venture continued
The requirements of Hong Kong Accounting Standard (“HKAS”) 39 Financial Instrument:Recognition and Measurement
are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment
in associate or joint venture. When necessary, the entire carrying amount of the investment is tested for impairment in
accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use
and fair value less cost of disposal) with its carrying amount, any impairment loss recognised forms part of the carrying amount
of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the
recoverable amount of the investment subsequently increases.
Where a group entity transacts with its associate or joint venture, profits or losses resulting from the transactions with the
associate or joint venture are recognised in the Group’s consolidated financial statements only to the extent of the interests in
the associate or joint venture that are not related to the Group.
3. 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.
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.
4. 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.
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.
126
Hysan Annual Report 2017Significant Accounting Policies continuedFor the year ended 31 December 2017 5. imPairment of non-financial assets
At the end of the reporting period, the Group 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, except for certain properties which are carried at a revalued amount,
in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised
immediately in profit or loss, except for certain properties which are carried at revalued amount, in which case the reversal of
the impairment loss is treated as a revaluation increase.
6. 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.
(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
Consolidated Financial Statements section.
127
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 6. financial instruments continued
Financial assets continued
(a) Classification of financial assets continued
(ii) financial assets at fvtPl
Financial assets at FVTPL include derivatives that are not designated and effective as hedging instruments, club debentures
and fund investment.
Investments in equity instruments are classified as FVTPL, unless the Group designates such investment that is not held for
trading as at fair value through other comprehensive income (“FVTOCI”) on initial recognition.
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.
Fair value is determined in the manner described in note 4 of the Financial Risk Management section.
The Group 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.
Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting
payments, observable changes in national or local economic conditions that correlate with default on receivables.
An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as
the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the
original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all categories with the exception of
accounts receivable, 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 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 loss 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.
128
Hysan Annual Report 2017Significant Accounting Policies continuedFor the year ended 31 December 2017 6. financial instruments continued
Financial assets continued
(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 has transferred substantially all the risks and rewards of ownership of the financial assets.
On derecognition of a financial asset, except for a financial asset that is classified as FVTOCI, the difference between the
asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.
On derecognition of a financial asset that is classified as at FVTOCI, the cumulative gain or loss previously accumulated in the
investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained profits.
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 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 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.
(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) financial liabilities at amortised cost
Financial liabilities (including accounts payable and accruals, 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 7 of the Notes to the Consolidated Financial Statements
section.
(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.
129
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 6. financial instruments continued
Financial liabilities and equity instruments continued
(a) Classification and measurement continued
(v) financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a
loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by the Group are initially measured at their fair values and, if not designated as at FVTPL,
are subsequently measured at the higher of:
(i)
the amount of obligation under the contract, as determined in accordance with HKAS 37 Provisions, Contingent Liabilities
and Contingent Assets; and
(ii) the amount initially recognised less, where appropriate, cumulative amortisation recognised over the guarantee period.
(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 foreign exchange rate risks,
including foreign exchange forward contracts. Further details of derivative financial instruments are disclosed in note 22 of the
Notes to the Consolidated 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.
Hedge accounting
The Group designates certain derivatives as hedging instruments as 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 Consolidated Financial Statements section sets out details of the fair values of the derivative
instruments used for hedging purposes.
130
Hysan Annual Report 2017Significant Accounting Policies continuedFor the year ended 31 December 2017 6. financial instruments continued
Hedge accounting continued
(a) 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.
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 statement of profit
or loss 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.
(b) 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).
7. 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 is 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 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.
8. 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.
For early termination of leases, surrender compensation from tenant is recognised in profit or loss only upon fulfilment of all
conditions set out in the surrender agreement.
9. 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.
131
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 9. foreiGn currencies continued
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.
10. 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.
11. 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.
12. 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 before taxation as reported
in the consolidated statement of profit or loss 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 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 consolidated
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 an
associate, and interests in a joint venture, except where the Group 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.
132
Hysan Annual Report 2017Significant Accounting Policies continuedFor the year ended 31 December 2017 12. taXation continued
(b) Deferred tax continued
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which the Group 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).
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other
comprehensive income or directly in equity respectively.
13. 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 revises its 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. 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.
14. 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 Share-based Payment, leasing
transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are
not fair value, such as value in use in HKAS 36 Impairment of Assets.
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.
15. acquisition of suBsidiaries not constitutinG a Business
When the Group acquires a group of assets and liabilities that do not constitute a business, the Group identifies and recognises
the individual identifiable assets acquired and liabilities assumed by allocating the purchase price first to investment properties
which are subsequently measured under fair value model and financial assets and liabilities at the respective fair values, the
remaining balance of the purchase price is then allocated to the other individual identifiable assets and liabilities on the basis
of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill or bargain purchase gain.
133
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 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 consolidated 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 has applied all of the amendments to HKFRSs 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 2017. The adoption of these amendments to HKFRSs had no material effect on the results and financial position of
the Group for the current and/or prior accounting years.
Except for HKFRS 9, which has been partially adopted by the Group as stated below, the Group has not early applied the
following new, revised and amendments to standards that have been issued but are not yet effective.
HKFRS 9
HKFRS 15
HKFRS 16
HKFRS 17
HK (IFRIC) – Int 22
HK (IFRIC) – Int 23
Amendments to HKFRS 2
Amendments to HKFRS 4
Amendments to HKFRS 9
Amendments to HKFRS 10 and HKAS 28
Amendments to HKAS 28
Amendments to HKAS 28
Amendments to HKAS 40
Amendments to HKFRSs
Financial Instruments2
Revenue from Contracts with Customers and the related Amendments1
Leases3
Insurance Contract5
Foreign Currency Transactions and Advance Consideration1
Uncertainty over Income Tax Treatments3
Classification and Measurement of Share-based Payment Transactions1
Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts1
Prepayment Features with Negative Compensation3
Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture4
Long-term interests in Associates and Joint Ventures3
As part of the Annual Improvements to HKFRSs 2014 – 2016 Cycle1
Transfers of Investment Property1
Annual Improvements to HKFRSs 2015 – 2017 Cycle3
1 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted.
2 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 has early adopted.
3 Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted.
4 Effective for annual periods beginning on or after a date to be determined.
5 Effective for annual periods beginning on or after 1 January 2021, with earlier application permitted.
Except for the new HKFRSs mentioned below, the Directors of the Company anticipate that the application of these new
standards, amendments and interpretations to HKFRSs will have no material impact on the Group’s accounting policies, results
and financial position.
134
Hysan Annual Report 2017Notes to the ConsolidatedFinancial StatementsFor the year ended 31 December 2017
2. aPPlication of new and revised honG KonG financial rePortinG standards (“hKfrss ”)
continued
The application of HKFRS 9 (except for those sections that were early adopted by the Group) may result in changes in the
Group’s accounting policies in respect of measuring debt instruments at fair value through other comprehensive income, if
applicable, and recognition of impairment of financial assets at amortised cost by applying the expected credit loss model of
HKFRS 9. Based on the financial instruments and business model of the Group as at 31 December 2017, the Directors of the
Company anticipated that the application of HKFRS 9 will have no material impact on the results and financial position of the
Group.
The Group currently considers refundable rental deposits received of HK$895 million as at 31 December 2017 as obligations
under leases to which HKAS 17 applies. Based on the definition of lease payments under HKFRS 16, such deposits are not
payments relating to the right to use the underlying assets, accordingly, the carrying amounts of rental deposits may be
adjusted to amortised cost upon application of HKFRS 16. Adjustments to refundable rental deposits received would be
considered as advance lease payments from lessees. The Directors of the Company are in the process of assessing the impact
on the application of HKFRS 16 in the foreseeable future.
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 Group 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$72,470 million (2016:
HK$69,633 million) based on the valuation performed by an independent qualified professional valuer. In determining the
fair value, the valuer has applied a market value basis which involves, inter-alia, certain estimates, including appropriate
capitalisation rates and reversionary income potential taking into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in
its highest and best use.
In relying on the valuation, management has exercised their judgment and is satisfied that the method of valuation is reflective
of the current market conditions.
Fair value of financial instruments
Financial instruments, such as cross currency swap 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 Consolidated Financial Statements
section. The management of the Group uses its judgment in selecting an appropriate valuation technique for financial
instruments not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. For
derivative financial instruments, assumptions are made based on quoted market rates. Most of the financial instruments are
valued using a discounted cash flow analysis based on assumptions supported, where possible, by observable market prices or
rates. Details of the assumptions used and of the results of sensitivity analyses regarding these assumptions are provided in the
“Financial Risk Management” section.
4. turnover
Turnover represents gross rental income from investment properties and management fee income for the year.
The Group’s principal activities are property investment, management and development, and its turnover and results are
principally derived from investment properties located in Hong Kong.
135
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 5. seGment information
Based on the internal reports about components of the Group that are regularly reviewed by the chief operating decision maker
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
Property development segment – development and sale of properties
In 2017, the Group’s management began to monitor and review the operation of the Group’s joint venture separately from
other segments of the Group on a regular basis. Therefore, a separate operating and reportable segment is disclosed as
property development. The figures for the year ended 31 December 2016 has been represented accordingly for comparative
purpose.
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
Property
Development
HK$ million
Consolidated
HK$ million
For the year ended 31 December 2017
Turnover
Gross rental income from investment properties
Management fee income
Segment revenue
Property expenses
Segment profit
Other income
Investment income
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 2016
Turnover
Gross rental income from investment properties
Management fee income
Segment revenue
Property expenses
Segment profit
Investment income
Administrative expenses
Finance costs
Change in fair value of investment properties
Share of results of an associate
Profit before taxation
136
1,781
144
1,925
(253)
1,672
1,210
149
1,359
(142)
1,217
236
28
264
(54)
210
1,829
140
1,969
(227)
1,742
1,142
150
1,292
(149)
1,143
244
30
274
(52)
222
–
–
–
–
–
–
–
–
–
–
3,227
321
3,548
(449)
3,099
261
69
(247)
(158)
853
220
4,097
3,215
320
3,535
(428)
3,107
50
(219)
(178)
(1,187)
237
1,810
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
5. seGment information continued
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 other income, investment income, 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 operating decision maker of the Group for the purpose of resource allocation and performance assessment.
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
Property
Development
HK$ million
Consolidated
HK$ million
As at 31 December 2017
Segment assets
Investments in and loans to associates
Fund investment
Other assets
Consolidated assets
As at 31 December 2016
Segment assets
Investment properties under redevelopment (Note)
Investment in an associate
Other assets
Consolidated assets
33,195
31,325
7,961
1,129
33,089
23,833
7,859
2,036
73,610
3,789
21
4,700
82,120
66,817
4,860
3,497
4,847
80,021
Segment assets represented the investment properties and accounts receivable of each segment and investment in and loans
to a joint venture under property development segment without allocation of investment properties under redevelopment,
property, plant and equipment, investments in and loans to associates, fund investment, term notes, other financial assets,
other receivables, time deposits, cash and bank balances. This is the measure reported to the chief operating decision maker 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 investment in an associate, which operates in the People’s Republic of China (the “PRC”) with carrying amounts
of HK$3,779 million (2016: HK$3,497 million), all the Group’s assets are located in Hong Kong.
137
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
5. seGment information continued
Other segment information
For the year ended 31 December 2017
Additions to non-current assets
Acquisition of investment properties
through acquiring subsidiaries (note 31)
Additions to investment properties
under redevelopment (Note)
For the year ended 31 December 2016
Additions to non-current assets
Additions to investment properties
under redevelopment (Note)
Retail
HK$ million
Office
HK$ million
Residential
HK$ million
Property
Development
HK$ million
Consolidated
HK$ million
172
654
22
–
7
–
–
–
201
654
1,129
1,984
325
95
20
–
440
570
1,010
Note:
The investment properties under redevelopment were completed during the year ended 31 December 2017.
6. investment income
The following is an analysis of investment income:
Financial assets measured at amortised cost
Reclassification of net (gain) losses from hedging reserve on
financial instruments designated as cash flow hedges
Imputed interest income on interest-free loan to a joint venture
2017
hK$ million
2016
HK$ million
51
(10)
28
69
49
1
–
50
138
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
7. finance costs
Finance costs comprise:
Interest on unsecured bank loans
Interest on unsecured fixed rate notes
Total interest expenses
Other finance costs
Less: amounts capitalised (Note)
Net exchange losses on borrowings
Reclassification of net (loss) gain from hedging reserve on
financial instruments designated as cash flow hedges
Medium Term Note Programme expenses
2017
hK$ million
2016
HK$ million
22
175
197
7
(51)
153
19
(16)
2
158
7
175
182
4
(14)
172
2
2
2
178
Note:
Interest expenses have been capitalised to investment properties under redevelopment at an average interest rate of 3.41% (2016: 2.61%) per
annum.
8. taXation
Current tax
Hong Kong profits tax
– current year
– overprovision in prior years
Deferred tax (note 28)
2017
hK$ million
2016
HK$ million
458
(2)
456
28
484
400
(1)
399
64
463
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.
139
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
8. taXation continued
The taxation for the year can be reconciled to the profit before taxation per the consolidated statement of profit or loss 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
Recognition of previously unrecognised tax losses
Overprovision in prior years
Taxation for the year
2017
hK$ million
4,097
2016
HK$ million
1,810
676
(36)
245
(393)
18
(24)
(2)
484
298
(39)
284
(89)
11
(1)
(1)
463
In addition to the amount charged to the consolidated statement of profit or loss, 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 28).
9. 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$48 million (2016: HK$46 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 11)
– Other staff costs including share-based payments of HK$2 million (2016: HK$3 million)
Share of income tax of associates (included in share of results of associates)
2017
hK$ million
2016
HK$ million
3
22
3
22
(3,227)
(3,215)
400
49
410
18
(2,778)
(2,787)
25
246
271
94
23
236
259
101
140
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
10. 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 (losses) gains arising during the year
Reclassification adjustments for net (losses) gains included in profit or loss
Share of translation reserve of associates
Other comprehensive income (expenses) for the year (net of tax)
Tax effect relating to other comprehensive income (expenses):
2017
hK$ million
2016
HK$ million
46
(8)
38
(49)
(6)
(55)
240
185
223
22
(4)
18
77
1
78
(236)
(158)
(140)
Gains on revaluation of properties
held for own use
Net adjustments to hedging reserve
Share of translation reserve of associates
11. directors’ emoluments
Directors’ fees
Other emoluments
Basic salaries, housing and other allowances
Bonus (Notes d & f)
Share-based payments
2017
Before-tax
amount
hK$ million
tax
expense
hK$ million
net-of-tax
amount
hK$ million
Before-tax
amount
HK$ million
2016
Tax
expense
HK$ million
Net-of-tax
amount
HK$ million
46
(55)
240
231
(8)
–
–
(8)
38
(55)
240
223
22
78
(236)
(136)
(4)
–
–
(4)
18
78
(236)
(140)
2017
hK$ million
2016
HK$ million
3
7
13
2
25
2
8
11
2
23
141
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
11. directors’ emoluments continued
The emoluments paid or payable to each of the Directors of the Company for the two years ended 31 December 2017 and
2016, calculated with reference to their employment as Directors of the Company or for provision of other services to the
Company and the Group, are set out below:
Basic salaries,
housing
and other
allowances
hK$’000
(Note d)
directors’
fees
hK$’000
(Note e)
Bonus
hK$’000
(Note d)
share-based
payments
hK$’000
(Note g)
retirement
benefits
scheme
contributions
hK$’000
total
hK$’000
–
7,103
13,150
1,872
18
22,143
255
295
275
265
83
295
405
245
446
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
255
295
275
265
83
295
405
245
446
2,564
7,103
13,150
1,872
18
24,707
Basic salaries,
housing
and other
allowances
HK$’000
(Note f)
Directors’
fees
HK$’000
(Note e)
Bonus
HK$’000
(Note f)
Share-based
payments
HK$’000
(Note g)
Retirement
benefits
scheme
contributions
HK$’000
Total
HK$’000
–
5,083
10,543
2,298
18
17,942
232
93
280
260
254
132
280
385
227
359
–
2,969
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(726)
–
–
–
–
–
–
–
–
–
12
–
–
–
–
–
–
–
–
232
2,348
280
260
254
132
280
385
227
359
2,502
8,052
10,543
1,572
30
22,699
For the year ended 31 December 2017
Executive Director (Note a)
Lee Irene Yun-Lien
Non-Executive Directors (Note b)
Jebsen Hans Michael
Lee Anthony Hsien Pin
Lee Chien
Lee Tze Hau Michael
Lau Siu Chuen (Note h)
Independent Non-Executive Directors
(Note c)
Churchouse Frederick Peter
Fan Yan Hok Philip
Lau Lawrence Juen-Yee
Poon Chung Yin Joseph (Note i)
For the year ended 31 December 2016
Executive Director (Note a)
Lee Irene Yun-Lien
Non-Executive Directors (Note b)
Jebsen Hans Michael (Note j)
Lau Siu Chuen (Note k)
Lee Anthony Hsien Pin
Lee Chien
Lee Tze Hau Michael
Independent Non-Executive Directors
(Note c)
Allen Nicholas Charles (Note l)
Churchouse Frederick Peter
Fan Yan Hok Philip
Lau Lawrence Juen-Yee (Note m)
Poon Chung Yin Joseph (Note n)
142
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
11. directors’ emoluments continued
Notes:
(a) The Executive Director’s emoluments shown above were for the services in connection with the management of the affairs of the Company and
the Group.
(b) The Non-Executive Directors’ emoluments shown above were for the services as Directors of the Company.
(c) The Independent Non-Executive Directors’ emoluments shown above were for the services as Directors of the Company.
(d) Year 2017:
The Remuneration Committee met in February 2017 to approve the 2017 annual fixed base salary and the annual special fee and determine the
2016 performance-based bonus of the Company’s Executive Director.
The annual cash compensations of Lee Irene Yun-Lien, Chairman, was revised to HK$15,386,000 based on market benchmark, and the
jobholder’s experience, qualification, and performance. Annual base salary of Lee Irene Yun-Lien remained unchanged at HK$5,129,000 and
annual special fee in recognition of extra responsibilities she assumed was HK$2,564,000 (making up 50% of the total package).
For the year ended 31 December 2017, the bonus of HK$13,150,000 represented the 2017 bonus of HK$12,693,000 approved by the Committee
in February 2018, and adjustments for 2016 bonus accrued in 2016. The performance-based bonus for 2016 approved by the Committee and
paid to Executive Director in March 2017 was amounted to HK$10,257,000.
(e)
Last revision of annual Directors’ fees for serving on the Board and certain of its Committees (effective 1 June 2016) were approved by
shareholders at the 2016 AGM. Details are set out in Remuneration Committee Report.
Directors’ fees are calculated on annual basis and paid semi-annually. For Directors not having served the full year on a position, the fees will be
calculated and paid on pro rata basis.
Breakdown of Directors’ fees of each of the Directors of the Company for the year ended 31 December 2017 is set out below:
Board
HK$’000
Audit Remuneration
Committee
HK$’000
Committee
HK$’000
Strategy Nomination
Committee
HK$’000
Committee
HK$’000
2017
total
hK$’000
2016
Total
HK$’000
Executive Director
Lee Irene Yun-Lien
Non-Executive Directors
Jebsen Hans Michael (Note j)
Lee Anthony Hsien Pin
Lee Chien
Lee Tze Hau Michael
Lau Siu Chuen (Notes h and k)
Independent Non-Executive Directors
Allen Nicholas Charles (Note l)
Churchouse Frederick Peter
Fan Yan Hok Philip
Lau Lawrence Juen-Yee (Note m)
Poon Chung Yin Joseph (Notes i and n)
–
225
225
225
225
83
–
225
225
225
225
1,883
–
–
70
–
–
–
–
70
70
–
135
345
–
–
–
–
40
–
–
–
60
–
40
–
30
–
30
–
–
–
–
30
–
26
140
116
–
–
–
20
–
–
–
–
20
20
20
80
–
255
295
275
265
83
–
295
405
245
446
–
232
280
260
254
93
132
280
385
227
359
2,564
2,502
(f)
Year 2016:
The Remuneration Committee met in March 2016 to approve the 2016 annual fixed base salary and determine the 2015 performance-based
bonus of the Company’s Executive Directors.
The annual cash compensations of Lee Irene Yun-Lien, Chairman, and Lau Siu Chuen, then Deputy Chairman and Chief Executive Officer, were
revised to HK$10,257,000 and HK$11,108,000 respectively, based on market benchmark, and the jobholder’s experience, qualification, and
performance. Annual base salaries of Lee Irene Yun-Lien and Lau Siu Chuen revised to HK$5,129,000 and HK$5,554,000 (making up 50% of the
total package) respectively.
For the year ended 31 December 2016, the bonus figures of HK$10,543,000 represented the 2016 target bonus figures of HK$9,800,000 pending
finalised by the Committee after year-end in February 2017, and included adjustments for 2015 bonus accrued in 2015 (following finalisation of
bonus by the Committee in March 2016). The performance-based bonus for 2015 approved by the Committee and paid to Executive Directors in
March 2016 was amounted to HK$13,443,000.
(g) 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. Details of the share option schemes are set out in note 38 of the Notes to the Consolidated Financial
Statements section.
(h)
Lau Siu Chuen ceased as a Non-Executive Director with effect from the conclusion of the 2017 AGM.
(i)
Poon Chung Yin Joseph was appointed as a member of the Strategy Committee with effect from 22 February 2017.
143
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
11. directors’ emoluments continued
Notes: continued
(j)
(k)
(l)
Jebsen Hans Michael was appointed a member of the Strategy Committee with effect from the conclusion of the 2016 AGM.
Lau Siu Chuen stepped down as Deputy Chairman and Chief Executive Officer. He was re-designated as Non-Executive Director and ceased to be
a member of the Strategy Committee with effect from the conclusion of the August 2016 Board Meeting.
Allen Nicholas Charles retired as Independent Non-Executive Director, the chairman of the Audit Committee, a member of the Nomination
Committee and a member of the Strategy Committee with effect from the conclusion of the 2016 AGM.
(m) Lau Lawrence Juen-Yee was appointed a member of the Nomination Committee with effect from the conclusion of the 2016 AGM.
(n) Poon Chung Yin Joseph was appointed the chairman of the Audit Committee with effect from the conclusion of the 2016 AGM.
There was no arrangement under which a Director waived or agreed to waive any remuneration during both years.
There was no payment to a Director as inducement for Director to join the Group or compensation for the loss of office as a
Director in connection with the management of the affairs of any member of the Group during both years.
Details of material interests of the Directors of the Company in transactions, arrangements or contracts entered into by
subsidiaries of the Company are disclosed in the Directors’ Report.
12. emPloyees’ emoluments
Of the five individuals with the highest emoluments in the Group, one (2016: two) was Director of the Company, details of
whose emoluments are included in note 11 of the Notes to the Consolidated Financial Statements section. The emoluments of
all of the five individuals with the highest emoluments for the years ended 31 December 2017 and 2016 were as follows:
Basic salaries, housing and other allowances
Bonus
Share-based payments (Note)
2017
hK$ million
2016
HK$ million
20
17
3
40
17
16
2
35
Note:
Share-based payments are the fair values of share options granted to Executive Director 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 Director 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$4,500,001 to HK$5,000,000
HK$17,500,001 to HK$18,000,000
HK$22,000,001 to HK$22,500,000
Number of individuals
2017
2016
–
3
1
–
1
5
1
3
–
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 Director and other members of senior management of the Group. Their emoluments are
within the following bands.
Nil to HK$1,000,000
HK$2,000,001 to HK$3,000,000
HK$3,000,001 to HK$4,000,000
HK$4,000,001 to HK$5,000,000
HK$17,000,001 to HK$18,000,000
HK$22,000,001 to HK$23,000,000
144
Number of individuals
2017
2016
–
–
–
5
–
1
6
1
1
2
2
1
–
7
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
13. dividends
(a) Dividends recognised as distribution during the year:
2017 first interim dividend paid – HK26 cents per share
2016 first interim dividend paid – HK26 cents per share
2016 second interim dividend paid – HK109 cents per share
2015 second interim dividend paid – HK107 cents per share
(b) Dividends declared after the end of the reporting period:
Second interim dividend (in lieu of a final dividend)
– HK111 cents per share (2016: HK109 cents per share)
2017
hK$ million
2016
HK$ million
272
–
1,139
–
1,411
–
272
–
1,122
1,394
2017
hK$ million
2016
HK$ million
1,161
1,139
The second interim dividend is not recognised as a liability as at 31 December 2017 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 2018.
The declared second interim dividend will be payable in cash.
14. 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
2017
hK$ million
2016
HK$ million
3,636
1,218
Number of shares
2017
2016
1,045,495,841 1,046,870,824
283,181
170,710
1,045,779,022 1,047,041,534
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.
145
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
14. 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:
2017
2016
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 associates
Imputed interest income on interest-free loan
to a joint venture
Underlying Profit
One-off early surrender compensation income
(net of effect of taxation and
non-controlling interests’ shares)
Recurring Underlying Profit
Profit
hK$ million
3,636
(853)
(253)
(11)
(28)
2,491
(142)
2,349
Basic
earnings
per
share
hK cents
347.78
(81.59)
(24.20)
(1.05)
(2.68)
238.26
(13.58)
224.68
Profit
HK$ million
1,218
1,187
(30)
(6)
–
Basic
earnings
per
share
HK cents
116.35
113.39
(2.87)
(0.58)
–
2,369
226.29
–
2,369
–
226.29
Notes:
(a) Recurring Underlying Profit is arrived at by excluding from Underlying Profit items that are non-recurring in nature. As there were no such
adjustments in 2016, the Recurring Underlying Profit was the same as the Underlying Profit.
(b) The denominators used in calculating the adjusted earnings per share are the same as those detailed above for basic earnings per share.
15. investment ProPerties
Fair Value
At 1 January
Additions
Acquisition of investment properties through
acquiring subsidiaries (note 31)
Change in fair value recognised in profit or loss – unrealised
At 31 December
2017
hK$ million
2016
HK$ million
69,633
1,330
654
853
72,470
69,810
1,010
–
(1,187)
69,633
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.
146
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
15. investment ProPerties continued
Fair value measurements and valuation processes
The fair value of the Group’s investment properties at 31 December 2017 and 2016 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.
There has been no change to the valuation technique during the year for completed properties.
For investment properties under redevelopment as at 31 December 2016, 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
redevelopment proposal 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.
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 as below.
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 2016
Additions
Change in fair value recognised in profit or loss
– unrealised
At 31 December 2016
Additions
Acquisition of investment properties through
acquiring subsidiaries
Change in fair value recognised in profit or loss
– unrealised
Transfer upon completion
Retail
HK$ million
Office
HK$ million
34,230
325
(1,473)
33,082
172
23,110
95
627
23,832
22
654
–
(1,994)
1,274
1,773
5,698
Investment
properties under
redevelopment
HK$ million
Residential
HK$ million
Total
HK$ million
69,810
1,010
4,637
570
(347)
(1,187)
4,860
1,129
69,633
1,330
–
983
(6,972)
654
853
–
7,833
20
6
7,859
7
–
91
–
At 31 December 2017
33,188
31,325
7,957
–
72,470
147
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
15. 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
Retail
Fair value as at
31 December
2017
hK$ million
2016
HK$ million
33,188
33,082
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%
(2016: 5.00% –
5.25%)
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$132 per
square foot
(2016: HK$143
per square foot)
The higher the
market rent,
the higher the
fair value.
Office
31,325
23,832
Income
capitalisation
approach
(i) Capitalisation
rate
4.25% – 5.00%
(2016: 4.25% –
5.00%)
Residential
7,957
7,859
Income
capitalisation
approach
(ii) Market rent
per month
HK$54
per square foot
(2016: HK$50
per square foot)
(i) Capitalisation
rate
3.75%
(2016: 3.75%)
The higher the
capitalisation
rate, the lower
the fair value.
The higher the
market rent,
the higher the
fair value.
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$36
per square foot
(2016: HK$35
per square foot)
The higher the
market rent,
the higher the
fair value.
Investment
properties
under
redevelopment
(Note)
–
4,860
Residual method
(i) Capitalisation
rate
–
(2016: 4.25% –
5.00%)
(ii) Market rent
per month
–
(2016: HK$76
per square foot)
The higher the
capitalisation
rate, the lower
the fair value.
The higher the
market rent,
the higher the
fair value.
Note:
The investment properties under redevelopment were completed during the year ended 31 December 2017.
148
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
16. ProPerty, Plant and equiPment
Leasehold
land and
buildings in
Hong Kong
HK$ million
(Note)
Furniture,
fixtures and
equipment
HK$ million
Computers
HK$ million
Motor
vehicles
HK$ million
Total
HK$ million
COST OR VALUATION
At 1 January 2016
Additions
Disposals
Surplus on revaluation
At 31 December 2016
Additions
Disposals
Surplus on revaluation
At 31 December 2017
Comprising:
At cost
At valuation 2017
ACCUMULATED DEPRECIATION
At 1 January 2016
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2016
Provided for the year
Eliminated on disposals
Eliminated on revaluation
At 31 December 2017
CARRYING AMOUNTS
At 31 December 2017
At 31 December 2016
666
–
–
16
682
–
–
40
722
–
722
722
–
6
–
(6)
–
6
–
(6)
–
722
682
113
4
(1)
–
116
3
(20)
–
99
99
–
99
84
12
(1)
–
95
10
(13)
–
92
7
21
49
11
–
–
60
11
(1)
–
70
70
–
70
40
4
–
–
44
6
(1)
–
49
21
16
2
–
–
–
2
–
–
–
2
2
–
2
1
–
–
–
1
–
–
–
1
1
1
830
15
(1)
16
860
14
(21)
40
893
171
722
893
125
22
(1)
(6)
140
22
(14)
(6)
142
751
720
149
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
16. ProPerty, Plant and equiPment continued
The above items of property, plant and equipment are depreciated on a straight-line basis over the following terms or at the
following rates per annum:
Leasehold land and buildings
Furniture, fixtures and equipment
Computers
Motor vehicles
Over the term of the lease or 40 years
20%
20%
25%
Note:
fair value measurements and valuation processes
The fair value of the Group’s leasehold land and buildings in Hong Kong at 31 December 2017 and 2016 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 as below.
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.
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
2017
hK$ million
2016
HK$ million
722
682
Description
Leasehold
land and
buildings in
Hong Kong
Valuation
techniques
Unobservable inputs
Income
capitalisation
approach
(i) Capitalisation
rate
Range/
weighted average
of unobservable
inputs
4.25% – 5.25%
(2016: 4.25% –
5.25%)
Relationship of
unobservable
inputs to fair
value
The higher the
capitalisation
rate, the lower
the fair value.
(ii) Market rent
per month
HK$62
per square foot
(2016: HK$58
per square foot)
The higher
the market rent,
the higher the
fair value.
The gains of HK$46 million (2016: HK$22 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 at historical cost less subsequent accumulated depreciation, their
carrying amounts would have been HK$243 million (2016: HK$249 million) at the end of the reporting period.
Furniture, fixtures and equipment of the Group include assets carried at cost of HK$34 million (2016: HK$33 million) and
accumulated depreciation of HK$29 million (2016: HK$27 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 (2016: HK$2 million).
150
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
Proportion of
ownership interests/
voting rights
held by the Company
directly
indirectly
Principal activities
17. Particulars of PrinciPal suBsidiaries of the comPany
The table below lists the principal subsidiaries of the Company at 31 December 2017 and 2016:
Name of subsidiary
Admore Investments Limited
HD Treasury Limited
Hysan (MTN) Limited
Hysan China Holdings Limited
Hysan Corporate Services Limited
Place of
incorporation/
operation
Issued
share capital
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%
–
–
–
–
–
–
–
–
–
–
–
–
–
Alpha Ace Limited
Bamboo Grove Recreational
Services Limited
Earn Extra Investments Limited
HD Investment Limited
Lee Theatre Realty Limited
Leighton Property Company
Limited
Main Rise Development Limited
Mariner Bay Limited
OHA Property Company Limited
Perfect Win Properties Limited
Silver Nicety Company Limited
Barrowgate Limited
Hong Kong
Hong Kong
Hong Kong
British Virgin Islands
Hong Kong
Hong Kong
Hong Kong
British Virgin Islands/
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
HK$1
HK$2
HK$1
HK$1
HK$10
HK$2
HK$2
US$1
–
–
–
–
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
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
Property development
Resident club
management
Property investment
Investment holding
Property investment
Property investment
Investment holding
Investment holding
HK$2
HK$2
HK$20
HK$10,000
100%
–
100%
–
–
100%
– 65.36%
Property investment
Property investment
Property investment
Property investment
The Directors are of the opinion that a complete list of all subsidiaries and their particulars will be of excessive length and
therefore the above table contains only those subsidiaries which materially contribute to the net income of the Group or hold
a material portion of the assets or liabilities or otherwise are operating subsidiaries of the Group. Other than unsecured fixed
rate notes issued by Hysan (MTN) Limited (“Hysan MTN”) as disclosed in note 27 of the Notes to the Consolidated Financial
Statements section, none of the subsidiaries had issued any debt securities at the end of the reporting period.
151
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
17. Particulars of PrinciPal suBsidiaries of the comPany continued
The summarised financial information in respect of the Group’s subsidiary that has material non-controlling interests is set out
below. The summarised financial information below represents amounts before intragroup eliminations.
Barrowgate Limited
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the Company
Non-controlling interests
Turnover
(Loss) profit and total comprehensive (expenses) income for the year
(Loss) profit and total comprehensive (expenses) income attributable
to owner of the Company
(Loss) profit and total comprehensive (expenses) income attributable
to the non-controlling interests
Dividends paid to non-controlling interests
Net cash inflows from operating activities
Net cash outflows from investing activities
Cash outflows from financing activities
Net cash (outflows) inflows
18. investments in associates and loans to associates
Cost of unlisted investments
Share of post-acquisition profits and other comprehensive income,
net of dividends received
Loans to associates classified as:
Non-current assets
2017
hK$ million
2016
HK$ million
699
9,427
(1,160)
(166)
5,752
3,048
628
(62)
(40)
(22)
128
400
(571)
(370)
(541)
714
10,123
(1,418)
(187)
6,034
3,198
645
379
248
131
130
823
(9)
(375)
439
2017
hK$ million
2016
HK$ million
2
3,777
3,779
2
3,495
3,497
10
–
The balances of loans to associates are unsecured, interest-free and have no fixed repayment terms. The Directors of the
Company are of the opinion that the Group will not demand repayment from the associates within the next twelve months
from the end of the reporting period and the loans are therefore classified as non-current assets.
152
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
18. investments in associates and loans to associates continued
The Directors of the Company are of the opinion that a complete list of all associates will be of excessive length and the Group
summarises details of the Group’s material associate at 31 December 2017 and 2016 as follows:
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$140,000#
23.7%
Property management
Name of associate
Form of
business
structure
Country Link
Enterprises Limited (Note)
Private limited
company
Shanghai Kong Hui
Property Development
Co., Ltd. (Note)
Shanghai Grand
Gateway Plaza
Property Management
Co., Ltd. (Note)
Sino-Foreign
equity joint
venture
Sino-Foreign
equity joint
venture
#
Fully paid-up registered capital
Note:
Shanghai Kong Hui Property Development Co., Ltd. and Shanghai Grand Gateway Plaza Property Management Co., Ltd. are non-wholly owned
subsidiaries of Country Link Enterprises Limited, together known as “Country Link”.
The summarised consolidated financial information in respect of the Group’s material associate is set out below. The
summarised consolidated financial information below represents amounts shown in the associate’s consolidated financial
statements prepared in accordance with HKFRSs. The associates are accounted for using the equity method in the Group’s
consolidated financial statements.
Country Link
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Turnover
Profit for the year
Other comprehensive income (expenses) for the year
Total comprehensive income for the year
Group’s share of results of an associate for the year
Group’s share of other comprehensive income of an associate for the year
Dividends received from the associate during the year
2017
hK$ million
2016
HK$ million
2,179
18,328
(991)
(4,234)
1,432
897
974
1,871
220
240
178
2,241
16,556
(1,052)
(3,613)
1,571
967
(954)
13
237
(236)
187
153
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
18. investments in associates and loans to associates continued
Country Link continued
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
19. investment in a joint venture and loan to a joint venture
Details of the Group’s investment in and loans to a joint venture are as follow:
Investment in a joint venture
Unlisted shares, at cost
Deemed capital contribution in a joint venture (Note a)
Loans to a joint venture classified as:
Current assets
Non-current assets (Note b)
Notes:
2017
hK$ million
15,282
(901)
2016
HK$ million
14,132
(829)
14,381
26.3%
3,784
(5)
3,779
13,303
26.3%
3,500
(3)
3,497
2017
hK$ million
2016
HK$ million
–
147
147
–
982
982
–
145
145
1,018
873
1,891
(a) The deemed capital contribution in a joint venture represents the fair value adjustments in relation to the loan to a joint venture at initial
recognition based on the estimated timing on future cash flows.
(b) The loans to a joint venture are unsecured and have no fixed repayment terms. As at 31 December 2017, except for the loans to a joint venture
with aggregate carrying amounts of HK$63 million (2016: nil) which are carrying variable rates ranging from 2.36% to 3.00% per annum, the
remaining loan to a joint venture of the Group is interest-free. The Directors are of the opinion that the Group will not demand repayment of
the loan from the joint venture within the next twelve months from the end of the reporting period and the loans are therefore classified as non-
current assets. The effective interest rate for imputed interest income on the interest-free portion is determined based on the cost of fund of the
borrower per annum.
154
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
19. investment in a joint venture and loan to a joint venture continued
Details of the Group’s joint venture at 31 December 2017 and 2016 are as follows:
Name of joint venture
Place of
incorporation
and operation
Strongbod Limited (Note a)
British Virgin Islands
Class of
share held
Ordinary shares
of US$10
Effective
ownership
interest and
voting rights
held by
the Group
60%
(Note b)
Principal activities
Investment holding
Gainwick Limited (Note a)
Hong Kong
Ordinary share
of HK$1
60%
(Note b)
Property development
and investment
Notes:
(a) Gainwick Limited is a wholly owned subsidiary of Strongbod Limited, together known as “Strongbod”.
(b) Pursuant to the shareholder’s agreement dated 5 December 2016, entered into by the Group, the joint venture partner and Strongbod, decisions
on all relevant business and operation activities of Strongbod require unanimous board approval from Directors of Strongbod appointed by the
Group and those appointed by the joint venture partner. Therefore, the Group recognised the investment in Strongbod as a joint venture.
The summarised consolidated financial information in respect of the Group’s material joint venture is set out below. The
summarised consolidated financial information below represents amounts shown in the joint venture’s consolidated financial
statements prepared in accordance with HKFRSs. The joint venture is accounted for using the equity method in the Group’s
consolidated financial statements. There was no share of post-acquisition profits and other comprehensive income in both
years.
Strongbod
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2017
hK$ million
2016
HK$ million
23
3,490
11
3,502
–
3,393
1,696
1,697
Reconciliation of the above summarised consolidated financial information to the carrying amount of the interest in the joint
venture that is material to the Group recognised in the consolidated financial statements:
Net assets of the joint venture
Proportion of the Group’s ownership interest in the joint venture
Group’s share of net assets of the joint venture
Add: Deemed capital contribution in the joint venture
Carrying amount of the Group’s interest in the joint venture
2017
hK$ million
2016
HK$ million
–
60%
–
147
147
–
60%
–
145
145
20. fund investment
The balance represents the Group’s interest in a fund investment as limited partner. The fund investment will engage in
property investment in Hong Kong and overseas projects. The fund investment is classified as fair value through profit or loss
(“FVTPL”).
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OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
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
2017
hK$ million
2016
HK$ million
604
102
31
737
509
228
737
817
187
151
1,155
422
733
1,155
As at 31 December 2017, the effective yield of the debt securities ranged from 1.81% to 2.60% (2016: 1.81% to 3.27%) per
annum, payable quarterly, semi-annually or annually, and the securities will mature from January 2018 to July 2019 (2016:
from January 2017 to July 2019). 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
2017
hK$ million
2016
HK$ million
2017
hK$ million
2016
HK$ million
Other financial assets
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
– Cross currency swap
Financial assets measured at FVTPL:
Club debenture
Total
Other financial liabilities
Derivatives under hedge accounting:
Cash flow hedges
– Forward foreign exchange contracts
– Cross currency swap
Total
1
–
1
–
1
1
–
1
6
–
6
–
6
–
–
–
1
–
1
1
2
–
30
30
1
11
12
1
13
1
–
1
156
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
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 swap to manage its foreign currency
exposure. The principal terms of the forward foreign exchange contracts and cross currency swap 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 swap at the end of the reporting period are as follows:
Hedging instruments
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
Cross currency swap
Hedging interest and
principal of USD
fixed rate notes
(Note c)
More than 5 years
Total
2017
2016
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
7.8021
usd
7.7996
7.8011
usd
usd
42
28
70
329
218
547
–
1
1
7.7704
USD
7.8011
7.7922
USD
USD
28
70
98
221
547
768
–
–
–
–
–
1.2185
RMB
55
67
7.7519
usd
300 2,326
2,873
(30)
(29)
7.7519
USD
300
2,326
3,161
–
–
–
6
11
17
*
Average exchange rate represented the average exchange rate of HKD versus respective currencies weighted by the notional amounts of the
contracts or the swap.
Notes:
(a) The Group used HK$547 million (2016: HK$768 million) forward foreign exchange contracts to hedge the foreign exchange rate risk of part of
the principal amount of term notes denominated in USD at their respective maturity dates.
(b)
In 2016, the Group used HK$67 million 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 was
excluded from the cash flow hedge. All the RMB forward foreign exchange contracts were matured during 2017.
(c) The Group used HK$2,326 million (2016: HK$2,326 million) cross currency swap to convert USD interest and principal of US$300 million (2016:
US$300 million) fixed rate notes into HKD.
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OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
22. other financial assets/liaBilities continued
(a) Cash flow hedges continued
(i) foreign currency risk continued
Hedged items
Carrying amount of
the hedged item
Assets
Liabilities
Cash flow
hedge
reserves
2017
hK$ million
2016
HK$ million
2017
hK$ million
2016
HK$ million
2017
hK$ million
2016
HK$ million
USD term notes
RMB term notes & time deposits
USD fixed rate notes
548
–
–
764
61
–
–
–
2,338
–
–
2,317
1
–
(44)
1
1
10
The hedging ineffectiveness for the years ended 31 December 2017 and 2016 was insignificant.
Change in the value
of the hedging instrument
recognised in other
comprehensive income
Amount
reclassified from the
cash flow hedge reserve
to profit or loss
Line item affected in
profit or loss
because of the
reclassification
2017
hK$ million
2016
HK$ million
2017
hK$ million
2016
HK$ million
Forward foreign exchange contracts
Cross currency swap
(6)
(43)
(1)
78
10
(16)
(1)
2
Investment income
Finance costs
The fair values of forward foreign exchange contracts and cross currency swap are measured using quoted forward exchange
rates and yield curves from quoted interest rates matching maturities of the contracts and swap.
(b) Financial assets measured at FVTPL
club debenture
Amount represented investment in unlisted club debenture. The Group’s investment in unlisted club debenture has been
classified as financial assets measured at FVTPL.
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
2017
hK$ million
2016
HK$ million
11
44
283
220
558
226
332
558
8
50
76
197
331
196
135
331
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$11 million (2016: HK$8 million) mainly represented rents receipts in
arrears, which were aged less than 90 days.
At the end of the reporting period, HK$3 million (2016: nil) of the accounts receivable were past due but not impaired as the
accounts receivables are generally fully covered by the rental deposits from corresponding tenants.
158
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
24. time dePosits/cash and BanK Balances
Time deposits
Cash and bank balances
Cash and deposits with banks shown in the consolidated statement of financial position
Less: Time deposits with original maturity over three months
Cash and cash equivalents shown in the consolidated statement of cash flows
2017
hK$ million
2016
HK$ million
2,505
157
2,662
(628)
2,034
2,551
79
2,630
(1,263)
1,367
Time deposits, cash and bank balances include bank deposits carrying effective interest rates ranging from 0.15% to 2.56%
(2016: 0.15% to 1.78%) per annum.
25. accounts PayaBle and accruals
Accounts payable
Interest payable
Other payables
Compensation received in advance (Note)
2017
hK$ million
2016
HK$ million
215
74
447
–
736
149
75
450
261
935
Note:
The amount represented a one-off early surrender compensation received from a tenant which has been recognised as compensation income under
other income during the year ended 31 December 2017 at the date of fulfilment of all conditions set out in the surrender agreement.
At the end of the reporting period, accounts payable of the Group with carrying amount of HK$157 million (2016: HK$103
million) were aged less than 90 days.
26. amounts due to non-controllinG interests
The amounts due to non-controlling interests are unsecured, interest-free and repayable on demand.
27. BorrowinGs
The analysis of the carrying amounts of borrowings is as follows:
Unsecured bank loans
Unsecured fixed rate notes
Current
Non-current
2017
hK$ million
2016
HK$ million
2017
hK$ million
2016
HK$ million
–
150
150
1,180
–
1,180
1,550
4,485
6,035
500
4,613
5,113
In the current year, the average cost of finance of the Group’s total borrowings calculated based on their contracted interest
rates was 3.3% (2016: 3.7%) per annum. To manage the foreign exchange risks, the Group used certain derivative to hedge
part of the borrowings, which resulted in the Group’s average cost of finance to be 3.4% (2016: 3.8%) per annum. As at 31
December 2017, the floating rate debt ratio relative to gross total debt after considering the hedges was 25.1% (2016: 26.6%).
159
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
27. BorrowinGs continued
(a) Unsecured bank loans
The unsecured bank loans of HK$1,550 million (2016: HK$1,680 million) are guaranteed as to principal and interest by the
Company and are repayable, based on the scheduled repayment dates set out in the respective loan agreement, as follows:
Within 1 year
More than 1 year, but not exceeding 2 years
More than 2 years, but not exceeding 5 years
2017
hK$ million
2016
HK$ million
–
500
1,050
1,550
1,180
–
500
1,680
All the Group’s unsecured bank loans are variable-rate borrowings with effective interest rates (which were also equal to
contracted interest rates) at 1.97% (2016: 1.44%) per annum at the end of the reporting period. Interest rates of the loans are
normally re-fixed at every one to three months.
(b) Unsecured fixed rate notes
Within 1 year
More than 1 year, but not exceeding 2 years
More than 2 years, but not exceeding 5 years
More than 5 years
2017
hK$ million
2016
HK$ million
150
300
1,094
3,091
4,635
–
150
864
3,599
4,613
Details of the Group’s unsecured fixed rate notes as at 31 December 2017 and 2016 are as follows:
Principal amount
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$300 million
Contracted
interest rate
per annum
5.38%
3.78%
4.00%
3.70%
3.86%
4.10%
4.00%
3.90%
4.50%
3.50%
Coupon
payment term
annual basis
quarterly basis
annual basis
quarterly basis
quarterly basis
annual basis
quarterly basis
quarterly basis
annual basis
semi-annual basis
Issue date
Maturity date
September 2008
August 2010
September 2010
October 2010
May 2011
December 2011
January 2012
March 2012
March 2012
January 2013
September 2020
August 2020
September 2025
October 2022
May 2018
December 2023
January 2022
March 2019
March 2027
January 2023
All the unsecured fixed rate notes were issued by Hysan MTN, a wholly-owned subsidiary of the Company. The notes are
guaranteed as to principal and interest by the Company and bear an effective interest rate equal to their respective contracted
interest rate.
As detailed in note 22 of the Notes to the Consolidated Financial Statements section, during the years ended 31 December
2017 and 2016, cross currency swap was used to hedge or manage the foreign exchange rate risks of the Group’s US$ fixed
rate notes.
160
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
28. deferred taXation
The following are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the current
and prior years:
At 1 January 2016
Charge (credit) to profit or loss (note 8)
Charge to other comprehensive income
At 31 December 2016
Charge (credit) to profit or loss (note 8)
Charge to other comprehensive income
at 31 december 2017
Accelerated
tax
depreciation
HK$ million
Revaluation
of
properties
HK$ million
Tax losses
HK$ million
Total
HK$ million
614
65
–
679
125
–
804
69
(1)
4
72
(1)
8
79
–
–
–
–
(96)
–
(96)
683
64
4
751
28
8
787
At the end of the reporting period, the Group has unused estimated tax losses of HK$1,243 million (2016: HK$767 million)
available for offset against future profits. A deferred tax asset has been recognised in respect of HK$580 million (2016: nil) of
such losses. No deferred tax asset has been recognised in respect of the remaining HK$663 million (2016: HK$767 million) due
to the unpredictability of future profit streams and the tax losses may be carried forward indefinitely.
29. share caPital
Ordinary shares, issued and fully paid:
At 1 January 2016
Issue of shares under share option scheme
Cancellation upon repurchase of own shares (Note)
At 31 December 2016
Issue of shares under share option schemes
At 31 December 2017
Note:
Number of shares
Share capital
HK$ million
1,057,177,692
744,667
(12,594,000)
1,045,328,359
496,532
1,045,824,891
7,642
31
–
7,673
19
7,692
The Company was authorised at its AGMs to repurchase its own ordinary shares not exceeding 10% of the total number of its issued shares as at
the dates of the resolutions being passed. In 2016, the Company repurchased its ordinary shares on the Stock Exchange when they were trading at a
significant discount to the Company’s net asset value.
During the year of 2016, the Company repurchased its own ordinary shares on the Stock Exchange as follows:
Month of
repurchase in 2016
January
February
March
April
May
June
November
Number of shares
repurchased
8,560,000
325,000
299,000
304,000
2,180,000
65,000
861,000
12,594,000
Consideration per share
Highest
HK$
31.85
30.60
32.50
31.70
33.60
33.20
34.90
Lowest
HK$
28.95
29.75
32.05
31.30
31.60
32.45
33.55
Aggregate
consideration
paid
HK$ million
263
10
10
9
71
2
30
395
The above ordinary shares were cancelled upon repurchase during 2016. None of the Company’s subsidiaries purchased, sold or redeemed any of the
Company’s listed securities during both years.
161
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
30. statement of financial Position and reserves of the comPany
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
Cash and bank balances
Current liabilities
Other payables and accruals
Amounts due to subsidiaries
Taxation payable
Net current assets
Net assets
Capital and reserves
Share capital (note 29)
Reserves
Total equity
2017
hK$ million
2016
HK$ million
–
1,318
1
3,735
5,054
3
10,309
11
10,323
60
2,288
–
2,348
7,975
3
1,307
1
3,815
5,126
4
10,026
2
10,032
38
2,228
1
2,267
7,765
13,029
12,891
7,692
5,337
13,029
7,673
5,218
12,891
The Company’s statement of financial position was approved and authorised for issue by the Board of Directors on
28 February 2018 and are signed on its behalf by:
Lee Irene Y.L.
Director
Lee T.H. Michael
Director
162
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
30. statement of financial Position and reserves of the comPany continued
Movement in the Company’s reserve
Share
options
reserve
HK$ million
General
reserve
HK$ million
(Note)
Retained
profits
HK$ million
Total
HK$ million
30
(7)
5
(4)
–
–
–
24
(4)
4
(3)
–
–
21
100
–
–
–
–
–
–
100
–
–
–
–
–
100
5,281
–
–
4
(395)
1,598
(1,394)
5,094
–
–
3
1,530
(1,411)
5,216
5,411
(7)
5
–
(395)
1,598
(1,394)
5,218
(4)
4
–
1,530
(1,411)
5,337
At 1 January 2016
Issue of shares under share option schemes
Recognition of equity-settled share-based payments
Forfeiture of share option
Cancellation upon repurchase of own shares
Profit and total comprehensive income for the year
Dividends paid during the year (note 13)
At 31 December 2016
Issue of shares under share option schemes
Recognition of equity-settled
share-based payments
Forfeiture of share option
Profit and total comprehensive income for the year
Dividends paid during the year (note 13)
At 31 December 2017
Note:
General reserve was set up from the transfer of retained profits.
The Company’s reserves available for distribution to its owners as at 31 December 2017 amounted to HK$5,316 million (2016:
HK$5,194 million), being its general reserve and retained profits at that date.
31. acquisition of suBsidiaries
During the year ended 31 December 2017, the Group acquired 100% equity interests in four companies of which three
companies are from independent third parties and a company is from Lee Hysan Estate Company, Limited (“LHE”), for
aggregate cash consideration of HK$570 million and HK$75 million, respectively. LHE holds 41.42% (2016: 41.43%) beneficial
interest and has significant influence over the Company. The major assets of these acquired companies are investment
properties situated in Hong Kong. The Directors of the Company are of the opinion that the subsidiaries acquired do not
constitute a business as defined in HKFRS 3 Business Combination, therefore, such acquisitions have been accounted for as
acquisitions of assets rather than business combination. Acquisition-related costs amounting to HK$9 million were capitalised
as part of the carrying amount of the investment properties.
32. reconciliation of assets/liaBilities relatinG to financinG activities
Net debt (Note a)
Other financial asset/liability (Note b)
Interest payable
2017
hK$ million
(3,523)
(30)
(74)
(3,627)
163
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
32. reconciliation of assets/liaBilities relatinG to financinG activities continued
The Table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in
the Group’s consolidated statement of cash flows from financing activities.
Cash
and
Bank
balances
HK$ million
79
78
–
–
–
–
As at 1 January 2017
Cash flows, net
Other non-cash changes:
Foreign exchange
adjustments
Fair value adjustments
Interest expenses
Dividend declared
as at 31 december 2017
157
2,505
Notes:
Time
deposits
HK$ million
2,551
(46)
Other
financial
asset/
liability
HK$ million
Bank
loans
HK$ million
Fixed
rate
notes
HK$ million
Interest
payable
HK$ million
Dividend
payable
HK$ million
11
–
(1,680)
130
(4,613)
–
(75)
196
–
1,411
Total
HK$ million
(3,727)
1,769
–
–
–
–
19
(57)
(3)
–
(30)
–
–
–
–
(19)
–
(3)
–
(1,550)
(4,635)
–
–
(195)
–
(74)
–
–
–
(1,411)
–
–
(57)
(201)
(1,411)
(3,627)
(a) Net debt represents borrowings less time deposits, cash and bank balances as disclosed under note 5 of the Financial Risk Management section.
(b) Other financial asset/liability represents the hedging instrument (cross currency swap) that was used to hedge against the foreign exchange rate
risk arising from financing activities.
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$7 million (2016: HK$4 million).
34. commitments
At the end of the reporting period, the Group had the following capital commitments in respect of its investment properties,
property, plant and equipment and subscription to a newly set up fund investment as limited partner:
(a) Capital commitment:
Contracted but not provided for investment properties and
property, plant and equipment
(b) Other commitment:
Subscription to a newly set up fund investment as limited partner
2017
hK$ million
2016
HK$ million
1,233
1,276
369
–
164
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
35. 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
2017
hK$ million
2016
HK$ million
3,065
4,754
53
7,872
2,916
4,572
334
7,822
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 as lessee had no commitment under non-cancellable operating lease.
36. related Party transactions and Balances
(a) Transactions and balances with related parties
During the year, the Group has several transactions with related parties including imputed interest income on interest free loan
to joint venture and acquisition of investment properties through acquiring subsidiaries as disclosed under note 6 and note
31 of the Notes to the Consolidated Financial Statements sections. At the end of the reporting period, the Group has several
balances with related parties including loans to a joint venture and loans to associates as disclosed under note 18 and note 19
of the Notes to the Consolidated Financial Statements sections. The Group has also granted guarantees to banks for facilities
granted to a joint venture as disclosed under note 37 of the Notes to the Consolidated Financial Statements section.
In addition, the Group has the following transactions with other 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 the Directors of
the Company (Note b (i) & (ii))
Non-controlling shareholder of a subsidiary
(Note c (i) & (ii))
Director (Note d)
Notes:
Gross rental income
received from
Year ended 31 December
Amount due to
non-controlling interests
At 31 December
2017
hK$ million
2016
HK$ million
2017
hK$ million
2016
HK$ million
3
41
29
1
3
36
28
1
–
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 LHE. LHE holds 41.42% (2016: 41.43%) 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 of the
Company have controlling interests over these related companies.
(ii) The balance represents outstanding loan advanced to a non wholly-owned subsidiary of the Group, Barrowgate by Jebsen Capital Limited
(formerly known as Mightyhall Limited), a wholly-owned subsidiary of Jebsen and Company, of which Jebsen Hans Michael 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 (“Hang Seng”), the intermediate holding
company of Imenson Limited (“Imenson”) and The Hongkong and Shanghai Banking Corporation Limited, the holding company of Hang
Seng. 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.
(d) The transaction represents the gross rental income received from a Director of the Company.
165
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
36. related Party transactions and Balances continued
(b) Compensation of key management personnel
The remuneration of Directors and other members of senior management of the Group are as follows:
Directors’ fees, salaries and other short-term employee benefits
Share-based payments
Retirement benefits scheme contributions
2017
hK$ million
2016
HK$ million
43
3
–
46
36
3
–
39
The remuneration of the Directors and key executives is determined by the Remuneration Committee having regard to the
performance of individuals and market trends.
37. continGent liaBility
At the end of the reporting period, the Group had contingent liabilities as follows:
Guarantees given to banks in respect of:
Banking facilities of a joint venture attributable to the Group
– Utilised
– Unutilised
2017
hK$ million
2016
HK$ million
999
2,001
3,000
–
–
–
During the year ended 31 December 2017, the Group issued corporate financial guarantees to banks in respect of banking
facilities granted to a joint venture. At the end of the reporting period, the Group did not recognise any liabilities in respect of
such corporate financial guarantees as the Directors of the Company consider that the fair value of the financial guarantee
contracts at its initial recognition is insignificant.
Other than the financial guarantees as disclosed above, several funding undertakings have been also provided by the Group to
the extent not having been financed by drawdown made under the relevant banking facilities of the joint venture in relation to
the completion of the underlying project of the joint venture.
38. share-Based Payment transactions
(a) Equity-settled 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 expired on 9 May
2015. All outstanding options granted under the 2005 Scheme will continue to be valid and exercisable in accordance with the
provisions of the 2005 Scheme.
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 Director) 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).
166
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
38. share-Based Payment transactions continued
(a) Equity-settled share option scheme continued
the 2005 scheme continued
The maximum entitlement of each participant under the 2005 Scheme must not during any 12-month period exceed such
number of shares as required under the Listing Rules (which is 1% of the total shares in issue as at the date of shareholder
approval, being 10,499,636 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 options, with
full payment for exercise price to be made on exercise of the relevant options.
the new scheme
The Company adopted the New Scheme (together with the 2005 Scheme are referred to as the “Schemes”) at its AGM held on
15 May 2015, which has a term of 10 years and will expire on 14 May 2025. Terms of the New Scheme are substantially the
same as those under the 2005 Scheme.
The purpose of the New Scheme is to provide an incentive for employees of the Company and its subsidiaries to work with
commitment towards enhancing the value of the Company and its shares for the benefit of its shareholders.
Under the New Scheme, options to subscribe for ordinary shares of the Company may be granted to employees of the
Company or any subsidiaries (including Executive Director) 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 New Scheme and any other share option
schemes of the Company shall not in aggregate exceed such number of shares as required under the Listing Rules, currently
being 10% of the shares in issue as at 15 May 2015, the date of the AGM approving the New Scheme (being 106,389,669
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 New Scheme and any other share option schemes 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 New 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 10,638,966 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$1 and is required to be paid within 30 days from the date of grant of options, with
full payment for exercise price to be made on exercise of the relevant options.
During the year, a total of 727,000 (2016: 1,397,000) share options were granted under the New Scheme. The 2005 Scheme
expired on 9 May 2015 and no further option will be granted under the 2005 Scheme.
(b) Grant and vesting structures
Under the Company’s current policy, grants will be made on a periodic basis. For the Schemes, the exercise period is 10
years and vesting period is 3 years in equal proportions starting from the 1st anniversary and become fully vested on the
3rd anniversary of the grant. Size of grant will be determined by reference to base salary multiple and job grades. A clear
performance criterion will be a key driver. The Board will review the grant and vesting structures from time to time.
167
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 38. share-Based Payment transactions continued
(c) Movement of share options
The following table discloses movements of the Company’s share options held by the Director and eligible employees during
the current year:
Name
2005 Scheme
Executive Director
Lee Irene Yun-Lien
Eligible employees
(Note c)
Date
of grant
Exercise
price
HK$
Exercise period
(Note a)
14.5.2012
33.50
7.3.2013
39.92
10.3.2014
32.84
12.3.2015
36.27
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
31.3.2014
33.75
31.3.2015
34.00
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
10.3.2015 –
9.3.2024
12.3.2016 –
11.3.2025
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
31.3.2016 –
30.3.2025
Balance
as at
1.1.2017
87,000
265,000
325,000
300,000
11,000
128,000
126,334
125,000
160,001
276,000
338,000
359,000
Changes during the year
Granted
Exercised
Balance
as at
31.12.2017
Cancelled/
lapsed
(Note b)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11,000)
(Note d)
(69,000)
(Note d)
(56,000)
(Note d)
(39,000)
(Note e)
(47,667)
(Note f)
–
(139,000)
(Note g)
(60,267)
(Note h)
–
–
–
–
–
–
–
87,000
265,000
325,000
300,000
–
59,000
70,334
(32,000)
54,000
(7,000)
105,334
(123,000)
153,000
(45,000)
154,000
(94,066)
204,667
2,500,335
–
(421,934) (301,066) 1,777,335
168
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
38. share-Based Payment transactions continued
(c) Movement of share options continued
Name
New Scheme
Executive Director
Lee Irene Yun-Lien
Eligible employees
(Note c)
Date
of grant
Exercise
price
HK$
Exercise period
(Note a)
Changes during the year
Balance
as at
1.1.2017
Granted
Exercised
Balance
as at
31.12.2017
Cancelled/
lapsed
(Note b)
9.3.2016
33.15
23.2.2017
36.25
(Note i)
31.3.2016
33.05
31.3.2017
35.33
(Note k)
9.3.2017 –
8.3.2026
23.2.2018 –
22.2.2027
31.3.2017 –
30.3.2026
31.3.2018 –
30.3.2027
375,000
–
–
300,000
–
–
–
–
375,000
300,000
610,000
–
(74,598) (157,734)
(Note j)
377,668
–
427,000
–
(18,000)
409,000
985,000
727,000
(74,598) (175,734) 1,461,668
Exercisable at the end of the year
1,824,992
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) Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance.
(d) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.25.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$38.95.
(f)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$38.99.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$38.86.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.79.
(i)
(j)
The closing price of the shares of the Company immediately before the date of grant (i.e. as of 22 February 2017) was HK$36.00.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$38.69.
(k) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2017) was HK$35.00.
In respect of the share options exercised during the year ended 31 December 2017, the weighted average share price at the
dates of exercise was HK$38.68.
Apart from the above, the Company had not granted any share option under the Schemes to any other person as required to
be disclosed under Rule 17.07 of the Listing Rules in 2017.
169
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
38. share-Based Payment transactions continued
(c) Movement of share options continued
The following table discloses movements of the Company’s share options held by the Directors and eligible employees in prior
year:
Date
of grant
Exercise
price
HK$
Exercise period
(Note a)
14.5.2012
33.50
7.3.2013
39.92
10.3.2014
32.84
12.3.2015
36.27
14.5.2012
33.50
7.3.2013
39.92
10.3.2014
32.84
12.3.2015
36.27
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
31.3.2014
33.75
31.3.2015
34.00
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
10.3.2015 –
9.3.2024
12.3.2016 –
11.3.2025
14.5.2013 –
13.5.2022
7.3.2014 –
6.3.2023
10.3.2015 –
9.3.2024
12.3.2016 –
11.3.2025
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
31.3.2016 –
30.3.2025
Balance
as at
1.1.2016
261,000
265,000
325,000
300,000
161,334
246,000
302,000
300,000
17,000
134,000
152,334
172,001
250,335
288,000
396,000
404,000
Changes during the year
Granted
Exercised
Balance
as at
31.12.2016
Cancelled/
lapsed
(Note b)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(174,000)
(Note c)
–
–
–
(161,334)
(Note c)
–
–
–
–
–
–
(246,000)
(201,333) (100,667)
(Note e)
–
(300,000)
87,000
265,000
325,000
300,000
–
–
–
–
(6,000)
(Note g)
(6,000)
(Note g)
(26,000)
(Note h)
(40,667)
(Note i)
(76,334)
(Note j)
–
(36,666)
(Note k)
(16,333)
(Note l)
–
–
–
11,000
128,000
126,334
(6,334)
125,000
(14,000)
160,001
(12,000)
276,000
(21,334)
338,000
(28,667)
359,000
3,974,004
–
(744,667) (729,002) 2,500,335
Name
2005 Scheme
Executive Directors
Lee Irene Yun-Lien
Lau Siu Chuen
(Note d)
Eligible employees
(Note f)
170
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
38. share-Based Payment transactions continued
(c) Movement of share options continued
Name
New Scheme
Executive Directors
Lee Irene Yun-Lien
Lau Siu Chuen
(Note d)
Eligible employees
(Note f)
Date
of grant
Exercise
price
HK$
Exercise period
(Note a)
Changes during the year
Balance
as at
1.1.2016
Granted
Exercised
Balance
as at
31.12.2016
Cancelled/
lapsed
(Note b)
9.3.2016
9.3.2016
33.15
(Note m)
33.15
(Note m)
9.3.2017 –
8.3.2026
9.3.2017 –
8.3.2026
–
375,000
–
–
375,000
–
375,000
–
(375,000)
–
31.3.2016
33.05
(Note n)
31.3.2017 –
30.3.2026
–
647,000
–
(37,000)
610,000
– 1,397,000
– (412,000)
985,000
Exercisable at the end of the year
1,826,654
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 re-designations of an executive Director and resignations of certain eligible employees.
(c) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.35.
(d)
Lau Siu Chuen stepped down as Deputy Chairman and Chief Executive Officer and was re-designated as Non-Executive Director with effect from
the conclusion of the August 2016 Board Meeting. All the options granted to Lau Siu Chuen have been lapsed at the date following the
re-designation.
(e) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$36.30.
(f)
Eligible employees are working under employment contracts that are regarded as “continuous contracts” for the purposes of the Employment
Ordinance.
(g) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$33.25.
(h) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$34.27.
(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$36.95.
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$35.88.
(k) The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.78.
(l)
The weighted average closing price of the shares of the Company immediately before the date on which the options were exercised was
HK$37.84.
(m) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 8 March 2016) was HK$33.70.
(n) The closing price of the shares of the Company immediately before the date of grant (i.e. as of 30 March 2016) was HK$32.85.
In respect of the share options exercised during the year ended 31 December 2016, the weighted average share price at the
dates of exercise was HK$36.37.
Apart from the above, the Company had not granted any share option under the Schemes to any other persons as required to
be disclosed under Rule 17.07 of the Listing Rules in 2016.
171
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
38. share-Based Payment transactions continued
(d) Fair values of share options
The Group has applied HKFRS 2 to account for its share options granted. 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$4
million (2016: HK$5 million) in relation to share options granted by the Company, of which HK$2 million (2016: HK$2 million)
related to the Director (see note 11), 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
31.3.2017
23.2.2017
31.3.2016
9.3.2016
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$35.250
hK$35.330
1.331%
5 years
19.133%
hK$1.204
hK$4.374
hK$36.250
hK$36.250
1.488%
5 years
20.238%
hK$1.204
hK$4.958
HK$33.050
HK$33.050
0.931%
5 years
27.323%
HK$1.092
HK$6.127
HK$33.150
HK$33.150
1.019%
5 years
27.339%
HK$1.092
HK$6.190
(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 over the past 5 years immediately
before the date of grant.
(d) Expected dividend per annum: being the approximate average annual cash dividend over the past 5 financial years.
172
Hysan Annual Report 2017Notes to the Consolidated Financial Statements continuedFor the year ended 31 December 2017
1. financial risK manaGement oBjectives and Policies
The Group’s major financial instruments include loans to associates, loans to a joint venture, fund investment, term notes,
accounts receivable, other receivables, time deposits, cash and bank balances, accounts payable, accruals, amounts due to
non-controlling interests, borrowings and derivative financial instruments. Details of these financial instruments are disclosed
in respective Notes to the Consolidated Financial Statements sections. 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 is primarily attributable to loans to associates, loans to a joint venture, rents receivable from
tenants, derivative financial instruments, term notes, time deposits and bank balances. The Group’s maximum exposure to
credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising
from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial
position.
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, term notes, time deposits and bank balances, the Group only deals 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 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+
2017
number of
counterparty
exposure
hK$ million
2016
Number of
counterparty
Exposure
HK$ million
6
14
5 to 681
8 to 468
4
22
19 to 631
9 to 677
To minimise the credit risk of loans to associates and loan to a joint venture, 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.
173
Financial Risk ManagementFor the year ended 31 December 2017OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
1. financial risK manaGement oBjectives and Policies continued
(b) Liquidity risk
The Group closely monitors 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 for their non-derivative financial liabilities based on
the agreed repayment terms. Maturity of the Group’s financial guarantee contract is presented separately. The table has been
drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group is required
to pay. The table includes both interest and principal cash flows. The interest payments are computed using contractual rates
or, if floating, based on the prevailing market rate at the 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.
As at 31 December 2017
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans
Unsecured fixed rate notes
As at 31 December 2016
Non-derivative financial liabilities
Accounts payable and accruals
Rental deposits from tenants
Amounts due to non-controlling interests
Unsecured bank loans
Unsecured fixed rate notes
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
(736)
(895)
(327)
(1,550)
(4,635)
(736)
(895)
(327)
(1,655)
(5,507)
(736)
(389)
(327)
(32)
(322)
–
(269)
–
(528)
(461)
–
(227)
–
(1,095)
(1,509)
–
(10)
–
–
(3,215)
(8,143)
(9,120)
(1,806)
(1,258)
(2,831)
(3,225)
(935)
(917)
(327)
(1,680)
(4,613)
(8,472)
(935)
(917)
(327)
(1,707)
(5,659)
(935)
(339)
(327)
(1,192)
(175)
(9,545)
(2,968)
–
(288)
–
(9)
(322)
(619)
–
(274)
–
(506)
(1,312)
–
(16)
–
–
(3,850)
(2,092)
(3,866)
Note:
In addition to the items as set out in the above liquidity risk table, the maximum amount the Group could be required to settle under a financial
guarantee provided by the Group in respect of banking facilities granted to a joint venture is HK$3,000 million, if such amount is claimed by the
counterparties to the guarantee at any time within the guaranteed period. Based on expectations at the end of the reporting period, the Directors of
the Company consider that it is more likely than not that no amount will be payable by the Group under such financial guarantee arrangement.
174
Hysan Annual Report 2017Financial Risk Management continuedFor the year ended 31 December 2017
1. financial risK manaGement oBjectives and Policies continued
(b) Liquidity risk continued
The following table details the Group’s remaining contractual maturity for its derivative financial instruments. The table has
been drawn up based on the undiscounted gross inflows (outflows) on those derivatives that require gross settlement. When
the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the prevailing
market rate at the end of the reporting period. For cash flows denominated in currency other than HKD, the prevailing foreign
exchange rates at the end of the reporting period are used to convert the cash flows into HKD.
Total
contractual
Carrying undiscounted
cash flow
amount
HK$ 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
As at 31 December 2017
derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency swap
Outflow
Inflow
As at 31 December 2016
derivative settled gross
Forward foreign exchange contracts
Outflow
Inflow
Cross currency swap
Outflow
Inflow
1
(30)
6
11
(548)
547
(329)
329
(219)
218
–
–
–
–
(2,772)
2,797
(85)
82
(85)
82
(255)
246
(2,347)
2,387
(824)
834
(281)
288
(326)
328
(217)
218
–
–
(2,857)
2,855
(85)
81
(85)
81
(255)
244
(2,432)
2,449
(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. The Group is exposed to
fair value interest rate risk in relation to fixed rate term notes (see note 21 of the Notes to Consolidated Financial Statements
section).
As at 31 December 2017, about 25.1% (2016: 26.6%) 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 cash flow interest rate risk as the interest income derived from time deposits and bank balances is subject to interest
rate changes. 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.
175
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
1. financial risK manaGement oBjectives and Policies continued
(c) Interest rate risk continued
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 non-derivative financial
instruments that would have affected the profit or loss and equity. A change of +100 and -25 basis points (“bps”) (2016: +100
and -25 bps) was applied to the HKD and US dollars (“USD”) yield curves at the end of the reporting period. As at 31 December
2016, a change of +125 and -125 bps (2016: +125 and -125 bps) was applied to the RMB yield curve. 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.
As at 31 December 2017
As at 31 December 2016
Increase (decrease) in
profit or loss
Increase (decrease) in
equity
bps
increase
HK$ million
bps
decrease
HK$ million
bps
increase
HK$ million
bps
decrease
HK$ million
11
14
(3)
(4)
(2)
(7)
4
2
(d) Currency risk
The Group aims to minimise its currency risk and does not speculate in currency movements for debt management. To cover
foreign exchange exposures arising from debts, the Group’s foreign currency denominated monetary liabilities must be hedged
back to HKD unless the liabilities are naturally hedged by the underlying asset in the same foreign currency. In managing the
Group’s monetary assets, the Group limits the aggregate net foreign currency exposures to a certain threshold. Exposures
exceeding that threshold will be hedged back to HKD. 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 USD. The Group’s unsecured fixed rate notes are hedged by cross currency
swap.
Assets
Cash
Time deposits
Term notes
Liabilities
Unsecured fixed rate notes
–
–
–
–
–
2
32
94
128
12
248
737
997
300
2,338
–
–
55
55
–
2017
2016
rmB
million
us$
million
total
equivalent
to
hK$
million
RMB
million
US$
million
Total
equivalent
to
HK$
million
3
409
1,036
1,448
1
53
126
180
300
2,317
Other than concentration of currency risk of the above items denominated in USD (2016: USD and RMB), the Group has no
other significant currency risk.
The Group has entered into appropriate hedging instruments, mentioned in note 22 of the Notes to the Consolidated 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.
176
Hysan Annual Report 2017Financial Risk Management continuedFor the year ended 31 December 2017
1. financial risK manaGement oBjectives and Policies continued
(d) Currency risk continued
sensitivity analysis
The sensitivity analysis below has been determined assuming that a change in exchange rate had occurred at the end of the
reporting period and 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. Change of 500 percentage in points (“pips”) (2016:
500 pips and 1,000 pips) was applied to the HKD:USD (2016: HKD:USD and HKD:RMB) spot and forward rates at the end of the
reporting period.
In management’s opinion, the sensitivity analysis is unrepresentative of the currency risk as the year end exposure does not
reflect the exposure during the year.
As at 31 December 2017
– USD
As at 31 December 2016
– USD
2. cateGories of financial instruments
Financial assets
Fair value through profit or loss (“FVTPL”)
Derivative instruments under hedge accounting
Amortised cost (including cash and cash equivalents)
Financial liabilities
Derivative instruments under hedge accounting
Amortised cost
Increase (decrease) in
profit or loss
Increase (decrease) in
equity
pips
increase
HK$ million
pips
decrease
HK$ million
pips
increase
HK$ million
pips
decrease
HK$ million
9
4
(9)
(4)
4
1
(4)
(1)
2017
hK$ million
2016
HK$ million
22
2
4,448
4,472
31
7,248
7,279
1
18
5,737
5,756
1
7,555
7,556
177
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
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.
(a) Financial assets subject to enforceable master netting arrangements or similar agreements
As at 31 December 2017
Derivatives under hedge accounting
As at 31 December 2016
Derivatives under hedge accounting
Gross amounts of
recognised
financial assets
HK$ million
2
18
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
2
18
(b) Net financial assets subject to enforceable master netting arrangements or similar agreements, by counterparty
As at 31 December 2017
Counterparty B
Counterparty C
Total
As at 31 December 2016
Counterparty A
Counterparty B
Total
Net amounts of
financial assets
presented in the
consolidated statement
of financial position
HK$ million
Financial liabilities
not set off in the
consolidated
statement of
financial position
HK$ million
1
1
2
11
7
18
–
(1)
(1)
–
–
–
Net amount
HK$ million
1
–
1
11
7
18
(c) Financial liabilities subject to enforceable master netting arrangements or similar agreements
Gross amounts of
recognised
financial liabilities
HK$ million
(31)
(1)
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
–
–
(31)
(1)
As at 31 December 2017
Derivatives under hedge accounting
As at 31 December 2016
Derivatives under hedge accounting
178
Hysan Annual Report 2017Financial Risk Management continuedFor the year ended 31 December 2017
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 2017
Counterparty A
Counterparty C
Total
As at 31 December 2016
Counterparty C
Net amounts of
financial liabilities
presented in the
consolidated
statement of
financial position
HK$ million
Financial assets
not set off in the
consolidated
statement of
financial position
HK$ million
(30)
(1)
(31)
(1)
–
1
1
–
Net amount
HK$ million
(30)
–
(30)
(1)
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 of the Company 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$4,635 million (2016: HK$4,613 million) unsecured fixed rate notes as stated in note 27 of the Notes to the Consolidated
Financial Statements section with fair value of HK$4,737 million (2016: HK$4,672 million).
The fair value of HK$2,391 million (2016: HK$2,340 million) of the unsecured 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$2,346 million (2016: HK$2,332 million) of the unsecured fixed rate notes is categorised into Level 2 of the
fair value hierarchy, in which the fair value was measured using discounted cash flow methodology based on observable yield
curves of the respective currency taking into account the credit margin of the Group as appropriate.
179
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
4. fair value measurement continued
(b) Fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis
The following table provides an analysis of financial instruments that are measured at fair value on a recurring basis, grouped
into Levels 1 to 3 based on the degree to which the inputs to the fair value measurements are observable.
•
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets
and liabilities.
•
Level 2: fair value measurements are those derived from inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
•
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
level 1
hK$ million
level 2
hK$ million
level 3
hK$ million
total
hK$ million
2017
–
–
–
–
–
–
–
2
1
21
24
1
30
31
2016
–
–
–
–
–
–
–
2
1
21
24
1
30
31
Level 1
HK$ million
Level 2
HK$ million
Level 3
HK$ million
Total
HK$ million
–
–
–
–
–
–
7
11
18
1
19
1
–
–
–
–
–
–
7
11
18
1
19
1
Financial assets
derivatives under hedge accounting
Forward foreign exchange contracts
financial assets at fvtPl
Unlisted club debenture
Fund investment
Total
Financial liabilities
derivatives under hedge accounting
Forward foreign exchange contracts
Cross currency swap
Total
Financial assets
derivatives under hedge accounting
Forward foreign exchange contracts
Cross currency swap
Total
financial assets at fvtPl
Unlisted club debenture
Total
Financial liabilities
derivatives under hedge accounting
Forward foreign exchange contracts
There were no transfers between Levels 1 and 2 for both years.
180
Hysan Annual Report 2017Financial Risk Management continuedFor the year ended 31 December 2017
4. fair value measurement continued
(c) Valuation techniques and inputs used in fair value measurements categorised within Level 2
Forward foreign exchange contracts and cross currency swap 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.
Fund investment is measured with reference to the fair value of underlying assets and liabilities held under the fund as at the
end of the reporting period.
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
Unsecured fixed rate notes
Borrowings
Less: Time deposits
Cash and bank balances
Net debt
Equity attributable to owners of the Company
Net debt to equity
2017
hK$ million
2016
HK$ million
1,550
4,635
6,185
(2,505)
(157)
3,523
1,680
4,613
6,293
(2,551)
(79)
3,663
69,953
67,490
5.0%
5.4%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
181
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
for the year ended 31 december
Results
Turnover
Property expenses
Gross profit
Other income
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$)
Year-end share price (HK$)
2017
hK$ million
2016
HK$ million
2015
HK$ million
2014
HK$ million
2013
HK$ million
3,548
(449)
3,099
261
69
–
(247)
(158)
853
220
4,097
(484)
3,613
23
3,636
2,491
2,349
3,535
(428)
3,107
–
50
–
(219)
(178)
(1,187)
237
1,810
(463)
1,347
(129)
1,218
2,369
2,369
3,430
(414)
3,016
–
54
–
(234)
(204)
695
246
3,573
(438)
3,135
(232)
2,903
2,283
2,283
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
1,411
1,161
137.00
1,394
1,139
135.00
1,330
1,122
132.00
1,255
1,064
123.00
1,064
1,010
117.00
3.48
3.48
2.38
2.25
5.0%
17.1x
66.89
3.37
41.45
1.16
1.16
2.26
2.26
5.4%
20.5x
64.56
3.50
32.05
2.73
2.73
2.15
2.15
3.0%
19.5x
64.48
1.94
31.75
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
182
Hysan Annual Report 2017Five-Year Financial Summary
At 31 December
Assets and liabilities
Investment properties
Investments in associates
Loans to associates
Investment in a joint venture
Loan to a joint venture
Fund investment
Time deposits, cash and bank balances
Other assets
Total assets
Borrowings
Taxation
Other liabilities
Total liabilities
Net assets
Non-controlling interests
Shareholders’ funds
Definitions:
2017
hK$ million
2016
HK$ million
2015
HK$ million
2014
HK$ million
2013
HK$ million
72,470
3,779
10
147
982
21
2,662
2,049
82,120
(6,185)
(945)
(1,989)
(9,119)
73,001
(3,048)
69,953
69,633
3,497
–
145
1,891
–
2,630
2,225
80,021
(6,293)
(863)
(2,180)
(9,336)
70,685
(3,195)
67,490
69,810
3,683
–
–
–
–
2,804
2,491
78,788
(4,859)
(803)
(1,758)
(7,420)
71,368
(3,196)
68,172
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
(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
(3) Net debt to equity: borrowings less 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 time deposits, cash and bank balances divided by number of issued shares at year end
183
OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
To the Board of Directors
Hysan Development Company Limited
Dear Sirs,
Annual Revaluation of Investment Properties as at 31 December 2017
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 2017 was in the approximate sum of Hong Kong Dollars Seventy-Two Billion Four Hundred and
Seventy Million Only (ie HK$72,470 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.
Yours faithfully
Knight Frank Petty Limited
Hong Kong, 20 February 2018
184
Hysan Annual Report 2017Report of the Valuer investment ProPerties
Address
Lot No.
1. lee Garden one
33 Hysan Avenue
Causeway Bay
Hong Kong
Sec. DD of I.L. 29, Sec. L of I.L. 457,
Sec. MM of I.L. 29,
the R.P. of Sec. L of I.L. 29,
and the R.P. of I.L. 457
Use
Category
of the Lease
Percentage
held by
the Group
Commercial
Long lease
100%
2. Bamboo Grove
I.L. 8624
Residential Medium term lease
100%
74-86 Kennedy Road
Mid-Levels
Hong Kong
3. lee Garden 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. lee Garden three
4-14 Hoi Ping Road
10 Hysan Avenue and
1-11 Sunning Road
Causeway Bay
Hong Kong
7. one hysan avenue
1 Hysan Avenue
Causeway Bay
Hong Kong
8. lee Garden five
18 Hysan Avenue
Causeway Bay
Hong Kong
Commercial
Long lease
65.36%
Sec. G of I.L. 29,
Sec. A, O, F and H of I.L. 457,
the R.P. of Sec. C, D, E and G of I.L. 457,
Subsec. 1 of Sec. C, D, E and G of I.L. 457,
Subsec. 2 of Sec. E of I.L. 457 and
Subsec. 1, 2, 3 and
the R.P. of Sec. C of I.L. 461
Sec. B, C and the R.P. of I.L. 1451
Commercial
Long lease
100%
I.L. 1452, the R.P. of I.L. 472 and 476
Commercial
Long lease
100%
The R.P. of Subsec. 1 of Sec. J of I.L. 29,
Subsec. 2 of Sec. J of I.L. 29
and the R.P. of Sec. J of I.L. 29
Commercial
Long lease
100%
The R.P. of Sec. GG of I.L. 29
Commercial
Long lease
100%
Sec. N of I.L. 457 and Sec. LL of I.L. 29
Commercial
Long lease
100%
9. lee Garden six
Sec. KK of I.L. 29
Commercial
Long lease
100%
111 Leighton Road
Causeway Bay
Hong Kong
10. 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%
185
Schedule of Principal PropertiesAt 31 December 2017OverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance
share caPital
At 31 December 2017
Issued and fully paid-up capital
There was one class of ordinary shares with equal voting rights.
distriBution of shareholdinGs
(At 31 December 2017, as per register of members of the Company)
HK$
Number of
Ordinary Shares
7,691,655,205.74
1,045,824,891
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
ordinary shares
Number of % of the total no.
of issued shares
(Note)
2,349
788
73
49
3
8
3,270
71.83
24.10
2.23
1.50
0.09
0.25
3,711,789
12,159,722
5,521,518
9,882,333
1,869,043
1,012,680,486
0.35
1.16
0.53
0.95
0.18
96.83
100.00
1,045,824,891
100.00
tyPes of shareholders
(At 31 December 2017, as per register of members of the Company)
Type of shareholders
Atlas Corporate Management Limited
Lee Hysan Estate Company, Limited
Other corporate shareholders
Individual shareholders
total
location of shareholders
(At 31 December 2017, 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)
39,809,001
393,321,734
581,731,181
30,962,975
3.81
37.61
55.62
2.96
1,045,824,891
100.00
ordinary shares held
Number of % of the total no.
of issued shares
(Note)
1,043,243,180
2,249,924
119,085
212,702
1,045,824,891
99.75
0.22
0.01
0.02
100.00
The percentage was compiled based on the total number of issued shares of the Company as at 31 December 2017 (i.e. 1,045,824,891 ordinary
shares).
186
Hysan Annual Report 2017Shareholding Analysis
financial calendar
Full year results announced
Ex-dividend date for second interim dividend
Closure of register of members and record date for second interim dividend
28 February 2018
13 March 2018
15 March 2018
Dispatch of second interim dividend warrants
(on or about) 29 March 2018
Closure of register of members for Annual General Meeting
Annual General Meeting
2018 interim results to be announced
* subject to change
3 to 8 May 2018
8 May 2018
7 August 2018*
dividend
The Board declares the payment of a second interim dividend of HK111 cents per share. The second interim dividend will be
payable in cash to shareholders on the register of members as at Thursday, 15 March 2018.
The register of members will be closed on Thursday, 15 March 2018, for the purpose of determining shareholders’ entitlement
to the second interim dividend, on which date 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, 14 March 2018.
Dividend warrants will be dispatched to shareholders on or about Thursday, 29 March 2018.
The register of members will also be closed from Thursday, 3 May 2018 to Tuesday, 8 May 2018, both dates inclusive, for the
purpose of determining shareholders’ entitlement to attend and vote at the Annual General Meeting to be held on 8 May
2018, 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, 2 May 2018.
187
Shareholder InformationOverviewCorporate GovernanceFinancial Statements and ValuationBusiness Performance 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
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.), Lee Garden One
33 Hysan Avenue
Hong Kong
Telephone: (852) 2895 5777
Facsimile: (852) 2577 5153
188
Hysan Annual Report 2017Shareholder Information continued Corporate Information
Board of directors
Lee Irene Yun-Lien (Chairman)
Churchouse Frederick Peter**
Fan Yan Hok Philip **
Lau Lawrence Juen-Yee**
Poon Chung Yin Joseph **
Jebsen Hans Michael B.B.S.*
(Yang Chi Hsin Trevor as his alternate)
Lee Anthony Hsien Pin*
(Lee Irene Yun-Lien as his alternate)
Lee Chien*
Lee Tze Hau Michael *
audit committee
Poon Chung Yin Joseph**(Chairman)
Churchouse Frederick Peter**
Fan Yan Hok Philip**
Lee Anthony Hsien Pin*
remuneration committee
Fan Yan Hok Philip** (Chairman)
Poon Chung Yin Joseph**
Lee Tze Hau Michael*
nomination committee
Lee Irene Yun-Lien (Chairman)
Fan Yan Hok Philip**
Lau Lawrence Juen-Yee**
Poon Chung Yin Joseph**
Lee Chien*
* Non-Executive Director
** Independent Non-Executive Director
strateGy committee
Lee Irene Yun-Lien (Chairman)
Fan Yan Hok Philip**
Poon Chung Yin Joseph**
Jebsen Hans Michael B.B.S.*
Lee Chien*
comPany secretary
Cheung Ka Ki Maggie
reGistered office
49/F. (Reception: 50/F)
Lee Garden One
33 Hysan Avenue
Hong Kong
our weBsite
Press releases and other information of the Group can be
found at our internet website: www.hysan.com.hk.
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
auditor
Deloitte Touche Tohmatsu
Certified Public Accountants
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Hysan Development Company Limited
49/F Lee Garden One, 33 Hysan Avenue, Hong Kong
T 852 2895 5777 F 852 2577 5153
www.hysan.com.hk