HANG LUNG GROUP LIMITED HANG LUNG GROUP LIMITED STOCK CODE: 00010 STOCK CODE 00010 2015 ANNUAL REPORT HONING OUR EDGE 2015 Annual Report Printed on FSC™ certied paper © Hang Lung Group Limited 恒隆集團有限公司 PMS 3298 C Black Silver (K Foil) 016 DEBOSS 過光水油 HLG Cover 2015 www.format.com.hk 設計：化美設計顧問有限公司 PMS 5513U Black 過光水油 HLG Inside Front & Back 2015 DESIGN CONCEPT 23-39 Blue Pool Road, Hong Kong Forum 66, Shenyang Heartland 66, Wuhan Olympia 66, Dalian Center 66, Parc 66, Wuxi Jinan Plaza 66, Shanghai Palace 66, Grand Gateway 66, Riverside 66, Shenyang Shanghai Tianjin Spring City 66, Kunming Fashion Walk, Hong Kong and competitive edge built upon solid foundations, for which the Hung Lung brand stands. And together, The 2015 Annual Report of Hang Lung Group the shapes form an infinity symbol ∞ to express Limited (stock code: 00010) themed the boundless creativity and innovation that have Honing Our Edge adopts a twin-cover design contributed to our business. approach integrating with the Hang Lung Properties Limited (stock code: 00101) Annual Report. The five main sections in the annual reports are represented by images of an arrow, a light The covers showcase 12 aerial overviews of bulb, a block, a heart and a star, respectively, Hang Lung’s world-class properties across signifying the Company’s emphasis on factors mainland China and Hong Kong, which are that promote excellence, namely insightful vision, testaments to the Company’s design innovation. innovative ideas, solid foundations, sincerity to The debossed contour lines connote the strength sustainability and star management. insightful innovative solid sincerity to star vision ideas foundations sustainability management 2 WE DO IT RIGHT We Do It Right is a business philosophy that extends beyond our core business and embraces the initiatives we undertake on behalf of our staff, the community and the environment. We believe this is fundamental to our success and helps us win the trust of our stakeholders. In this annual report we describe the progress we have made during the year, using meaningful metaphors to signify our efforts to create unmatched value for our cherished shareholders, tenants and customers. As Hang Lung’s business continues to grow, we will continue to maintain our high standards in order to become a highly admired national commercial property developer in Hong Kong and mainland China. CONTENTS 04 Financial Highlights 86 Corporate Governance Report 195 Ten-Year Financial Summary 08 Chairman’s Letter to Shareholders 112 Profile of the Directors 196 Glossary 20 Review of Operations 117 Profile of Key Executives 198 Corporate Information 64 Financial Review 118 Report of the Directors 199 Financial Calendar 76 Sustainable Development 128 Independent Auditor’s Report 200 Listing Information 82 Risk Management 129 Financial Statements CORPORATE PROFILE 3 Hang Lung Group Limited (stock code: 00010) is one of the most established listed companies in Hong Kong with more than 50 years of experience in the property development market. Through Hang Lung Properties Limited (stock code: 00101), we have built a leading reputation as a top-tier property developer in Hong Kong and on the Mainland, with a recognized commitment to quality. Through Hang Lung Properties, the businesses in Hong Kong include property development for sale and lease. Our substantial portfolio encompasses well-planned large-scale mall/commercial, office and residential developments in prominent locations. We made our first investment on the Mainland in the early 1990s as the foremost step in our future business expansion. Adhering to the strategy of developing prime sites in major cities, our portfolio of investment properties currently comprises two large-scale developments in Shanghai – the mall/commercial, office and residential complex Grand Gateway 66, and the commercial and office complex Plaza 66. Together with our prime landmark complexes of Parc 66 in Jinan, Center 66 in Wuxi, Riverside 66 in Tianjin, and Olympia 66 in Dalian, as well as Palace 66 and Forum 66 in Shenyang, we are vigorously building on our successes to develop similar properties in major cities including Kunming and Wuhan. We will continue not only to expand our horizons on the Mainland, but also to invest in our portfolio in Hong Kong, as we aim to become a highly admired national commercial property developer. 04 Financial Highlights 86 Corporate Governance Report 195 Ten-Year Financial Summary 08 Chairman’s Letter to Shareholders 112 Profile of the Directors 196 Glossary 20 Review of Operations 117 Profile of Key Executives 198 Corporate Information 64 Financial Review 118 Report of the Directors 199 Financial Calendar 76 Sustainable Development 128 Independent Auditor’s Report 200 Listing Information 82 Risk Management 129 Financial Statements HANG LUNG GROUP LIMITED 2015 ANNUAL REPORT 4 FINANCIAL HIGHLIGHTS RESULTS Rental Revenue Underlying Net Prot For the year ended December 31 Overall -53% in HK$ Million (unless otherwise stated) 2015 2014 HK$ Million +7% HK$ Million HK$2,700 Million Revenue 10,000 HK$8,330 Million 6,000 5,000 Property leasing 8,330 7,792 8,000 Property 4,000 Leasing 6,000 Mainland China 4,625 4,354 Property 3,000 Sales Hong Kong 3,705 3,438 4,000 2,000 Gain on Disposal of Property sales 1,198 9,814 2,000 1,000 Investment Total revenue 9,528 17,606 0 0 Properties 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Net profit attributable to shareholders 3,211 6,825 Dividends 1,084 1,097 Shareholders’ equity 75,470 76,026 Mainland China Net Assets per Share Per share data Earnings $2.37 $5.04 +6% -3% HK$ Million HK$ HK$ Million Dividends 5,000 4,625 120 HK$103.5 4,500 Total $0.80 $0.81 4,000 100 Interim $0.19 $0.19 3,500 80 3,000 Final $0.61 $0.62 2,500 60 2,000 Shareholders’ equity $55.7 $56.1 1,500 40 1,000 20 Net assets $103.5 $106.8 500 0 0 Financial ratio 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Payout ratio 34% 16% Net debt to equity ratio 4.2% Net cash Hong Kong Debt to equity ratio 26.6% 27.7% Dividends per Share +8% HK$ Million HK$ -1% HK$ Million 4,000 3,705 1.0 UNDERLYING RESULTS HK$0.80 3,500 For the year ended December 31 0.8 3,000 2,500 0.6 in HK$ Million (unless otherwise stated) 2015 2014 2,000 1,500 0.4 Underlying net profit attributable to shareholders 2,700 5,730 1,000 0.2 Earnings per share (Note 1) $1.99 $4.23 500 Final 0 0 Interim Payout ratio (Note 1) 40% 19% 2011 2012 2013 2014 2015 7-12/ 2012 2013 2014 2015 2011# Note: 1. The relevant calculations are based on the underlying net profit attributable to shareholders. 5 Rental Revenue Underlying Net Prot Overall -53% HK$ Million +7% HK$ Million HK$2,700 Million 10,000 HK$8,330 Million 6,000 5,000 8,000 Property 4,000 Leasing 6,000 Property 3,000 Sales 4,000 2,000 Gain on Disposal of 2,000 1,000 Investment 0 0 Properties 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Mainland China Net Assets per Share +6% -3% HK$ Million HK$ HK$ Million 5,000 4,625 120 HK$103.5 4,500 4,000 100 3,500 80 3,000 2,500 60 2,000 1,500 40 1,000 20 500 0 0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Hong Kong Dividends per Share +8% HK$ Million HK$ -1% HK$ Million 4,000 3,705 1.0 HK$0.80 3,500 0.8 3,000 2,500 0.6 2,000 1,500 0.4 1,000 0.2 500 Final 0 0 Interim 2011 2012 2013 2014 2015 7-12/ 2012 2013 2014 2015 2011# # Final dividend for the six-month financial period from July 1, 2011 to December 31, 2011 HANG LUNG GROUP LIMITED 2015 ANNUAL REPORT Fashion Walk, Hong Kong Olympia 66, Dalian Plaza 66, Shanghai Insightful Vision Upholding our business philosophy, We Do It Right, Hang Lung looks ahead in all of our areas of business. From market timing, location choice, architectural design, to daily operations and talent development, our pledge of excellence is to act with foresight to develop the Company into a highly admired national commercial developer in China. 8 CHAIRMAN’S LETTER TO SHAREHOLDERS Ronnie C. Chan Chairman RESULTS AND DIVIDEND Revenue for the year ended December 31, 2015 declined 46% to HK$9,528 million as fewer residential apartments were sold against a year ago. Coupled with a smaller amount of property revaluation gain recorded against the previous year, net profit attributable to shareholders fell 53% to HK$3,211 million. Correspondingly, earnings per share fell to HK$2.37. When excluding revaluation gain and all related effects, underlying net profit attributable to shareholders decreased 53% to HK$2,700 million. Underlying earnings per share declined similarly to HK$1.99. The Board recommends a final dividend of HK61 cents per share. If approved by shareholders, total dividends per share will be HK80 cents for the year ended December 31, 2015. Final dividend is payable on May 18, 2016 to shareholders of record on May 5, 2016. 9 BUSINESS REVIEW It has been almost a quarter century since we bought our first piece of land on the Mainland. During this period, both international and domestic economies have undergone many ups and downs. The most severe situations were the Asian Financial Crisis of 1997 and the Global Great Recession of 2008.