Annual Report 2011 - Hysan Development Company Limited

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Management’s Discussion and Analysis Hysan is principally engaged, together with its subsidiaries and associates, in investment, development and management of quality properties in prime locations, and the Group’s turnover and results are primarily derived from leasing of investment properties located in Hong Kong. Throughout the year, our investment property interests totaled some 3.8 million gross square feet of high-quality office, retail and residential space in Hong Kong, excluding Hysan Place at 500 Hennessy Road, which is currently under redevelopment. Review of Results The Group’s turnover continued to record growth and reached HK$1,922 million in 2011, representing an increase of 9.0% from HK$1,764 million in 2010. The rise principally reflected the further improvement in occupancy and positive rental reversion. Higher retail turnover rent also contributed to the revenue growth of our retail sector. The turnover of each sector was recorded as below: 2011 HK$ million 2010 HK$ million Change HK$ million Change % Office sector 820 770 50 +6.5 Retail sector 789 700 89 +12.7 Residential sector 313 294 19 +6.5 1,922 1,764 158 +9.0 Key Performance Indicators While many factors contribute to the results of the Group’s businesses, turnover growth and occupancy rate are the key drivers used by the Group’s management for assessment of the performance of our core leasing business. In addition, the management uses property expenses and such expenses as a percentage of turnover to assess cost effectiveness. The nature of these performance indicators, the way they are measured and their significance to the Group are set out in this table. Turnover Growth Occupancy Rate Property Expenses Property Expenses as a Percentage of Turnover How is it measured Rental revenue in 2011 as compared to that in 2010 How is it measured Percentage of total area leased to tenants over total lettable area of each sector How are they measured Principally being costs directly associated with the day-to-day operations of the Group’s property portfolio How is it measured Calculated by dividing property expenses by turnover 30 Hysan Annual Report 2011
Recurring Underlying Profit, arrived at by excluding the fair value change of investment properties and items that are non-recurring in nature (such as gains or losses on disposal of long-term assets; impairment or its reversal; and tax provisions for prior years), was the key measurement of the Group’s core leasing business. In 2011, our Recurring Underlying Profit was HK$1,310 million, up 14.1% from HK$1,148 million in 2010. Our Underlying Profit*, arrived at by excluding the fair value change of investment properties only, was also HK$1,310 million, up 14.1% from HK$1,148 million in 2010. Both profit indicators primarily reflected the improvement in gross profit generated from our core leasing activities. Higher investment income was also recorded. Taking into consideration the fair value change of investment properties, our Reported Profit* was HK$8,545 million, an increase of 122.3% from HK$3,844 million in 2010. Basic earnings per share based on Recurring Underlying Profit correspondingly rose to HK123.92 cents (2010: HK109.15 cents). Why is it significant Reflects the combined effect of changes in rental rate and occupancy rate Why is it significant • Rental revenue and management fees are directly proportional to occupancy rate • Optimises revenue by balancing occupancy rate and rental level Why are they significant Measures the costs incurred in operating the Group’s property portfolio Why is it significant An indication of the gross margin of our business 2011 HK$ million Performance Growth was recorded in all three leasing sectors Performance • Retail sector was virtually fully-let • Occupancy levels were further improved in both office and residential sectors Performance Property expenses rose principally due to higher marketing expenses (including for new Hysan Place promotion), partly offset by lower agency fees on account of strong occupancy Performance Ratio improved slightly in 2011 2010 HK$ million Change HK$ million Office Sector 6.5% for 2011 ( 3.1% for 2010) Office Sector 96% at year- end 2011 (95% at year- end 2010) Change % Recurring Underlying Profit 1,310 1,148 162 +14.1 Underlying Profit 1,310 1,148 162 +14.1 Fair value change on investment properties located in – Hong Kong 7,177 2,469 4,708 +190.7 – Shanghai 58 227 (169) -74.4 Reported Profit 8,545 3,844 4,701 +122.3 * In 2011, the Group had applied Hong Kong Financial Reporting Standard 9 (“HKFRS 9”) (as revised in December 2011) prospectively in advance of its effective date of 1 January 2015. Following the application of HKFRS 9, the Group’s Underlying Profit and Reported Profit in 2011 was decreased by HK$31 million as the cumulative gain of HK$33 million on disposal of investments in listed equity securities which would have been reclassified from investments revaluation reserve to profit or loss is now recognised as a transfer from investments revaluation reserve to retained profits, as well as the impairment loss of HK$2 million on investments in unlisted equity securities which would have been recognised as impairment loss in profit or loss is now recognised in investments revaluation reserve. Retail Sector 12.7% for 2011 ( 8.0% for 2010) Retail Sector Virtually Fully-Let at year- end 2011 (96% at year- end 2010) Total Property Expenses HK$262million for 2011 (HK$250 million for 2010) Property Expenses to Turnover Ratio 13.6% for 2011 (14.2% for 2010) Residential Sector 6.5% for 2011 ( 3.2% for 2010) Residential Sector 95% at year- end 2011 (94% at year- end 2010) Overview Strategy in Action Corporate Governance Financial Statements and Valuation Hysan Annual Report 2011 31
Page 1 and 2: A BETTER FUTURE TODAY Annual Report
Page 3 and 4: A BETTER FUTURE TODAY 2011 was a pr
Page 6: Asset enhancements: Lee Theatre are
Page 10: Hysan Place at the northern gateway
Page 14: An energetic and unique district in
Page 17 and 18: Overview 16 18 20 Who We Are 16 16
Page 19 and 20: OUR VALUES We foster the highest bu
Page 21 and 22: NON-FINANCIAL PERFORMANCE 789 700 4
Page 23 and 24: Further Transformation of Hysan’s
Page 25 and 26: 24 28 30 45 48 Our Marketplace and
Page 27 and 28: 6% 4% Real Gross Domestic Product*
Page 29 and 30: Index 140 130 120 110 100 90 80 Q1
Page 31: THE LEE GARDENS 33 Hysan Avenue, Ca
Page 35 and 36: Overview Our office has a balanced
Page 37 and 38: Overview Residential Sector Our res
Page 39 and 40: Financial Review A review of the Gr
Page 41 and 42: Cash Flows Cash flow of the Group d
Page 43 and 44: How are they measured Interest expe
Page 45 and 46: The following graph shows the perce
Page 47 and 48: Internal Controls and Risk Manageme
Page 49 and 50: Our Approach to Risk Management We
Page 51 and 52: Talent Management Our people manage
Page 53 and 54: 52 56 73 81 89 Board of Directors a
Page 55 and 56: Non-executive Deputy Chairman (S) S
Page 57 and 58: Overview Senior management team (fr
Page 59 and 60: Exceeded Code Provisions ✓ ✓
Page 61 and 62: Governance Framework The Group oper
Page 63 and 64: Board and Management At the core of
Page 65 and 66: Board Effectiveness Skills and Bala
Page 67 and 68: Independent Advice The Board recogn
Page 69 and 70: Audit Committee Composition and Mee
Page 71 and 72: Shareholders The Board and manageme
Page 73 and 74: Shareholder Rights Self-funded Prog
Page 75 and 76: Directors’ Report The Directors s
Page 77 and 78: THE BOARD continued According to Ar
Page 79 and 80: CONTINUING CONNECTED TRANSACTIONS c
Page 81 and 82: CONTINUING CONNECTED TRANSACTIONS c
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Directors’ Remuneration and Inter
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DIRECTOR COMPENSATION continued Lon
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DIRECTOR COMPENSATION continued Lon
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DIRECTORS’ INTERESTS IN SHARES As
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Audit Committee Report The Audit Co
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Overview 4 Financial Statements and
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Independent Auditor’s Report Over
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Consolidated Statement of Comprehen
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Statement of Financial Position At
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Attributable to owners of the Compa
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2011 2010 Note HK$ million HK$ mill
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4. Investment Properties Investment
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7. FINANCIAL INSTRUMENTS continued
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13. TAXATION continued Deferred tax
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2. APPLICATION OF NEW AND REVISED H
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5. SEGMENT INFORMATION continued Se
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6. INVESTMENT INCOME Investment inc
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9. TAXATION continued The taxation
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12. DIRECTORS’ EMOLUMENTS continu
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12. DIRECTORS’ EMOLUMENTS continu
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15. EARNINGS PER SHARE (a) Basic an
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17. PROPERTY, PLANT AND EQUIPMENT L
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18. Investments in Subsidiaries Inv
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19. Investments in Associates conti
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22. Equity Investments/Available-fo
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23. Other Financial Assets/Liabilit
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27. TIME DEPOSITS/CASH AND BANK BAL
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30. BORROWINGS continued (c) Fixed
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32. SHARE CAPITAL Number of shares
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36. CONTINGENT LIABILITIES At the e
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39. RELATED PARTY TRANSACTIONS AND
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40. SHARE-BASED PAYMENT TRANSACTION
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1. Financial Risk Management Object
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3. FAIR VALUE continued The followi
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4. CAPITAL RISK MANAGEMENT The Grou
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At 31 December As restated As resta
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Schedule of Principal Properties At
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Shareholding Analysis Share Capital
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It is not just our quality assets t
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