IN A CLEAR DIRECTION 2002ANNUAL REPORT Mission Hysan Development is committed to building and owning quality buildings, and being the occupier’s partner of choice in the provision of real estate accommodation and services, thereby delivering attractive and sustainable returns to shareholders. Contents 1 Highlights 2002 2 Chairman’s Statement 4 Operating and Financial Review 11 Case Studies 18 Social Responsibility 19 Human Resources 20 Principal Investment Properties 22 Report of the Valuer 23 Schedule of Principal Properties 24 Directors, Officers and Advisers 30 Corporate Governance 38 Audit Committee Report 39 Directors’ Report 42 Auditors’ Report 43 Consolidated Income Statement 44 Consolidated Balance Sheet 46 Balance Sheet 47 Consolidated Statement of Changes in Equity 48 Consolidated Cash Flow Statement 50 Notes to the Financial Statements 78 Five-Year Financial Summary Inside back cover Shareholder Information ANNUAL REPORT 2002 1 Highlights 2002 Year 2002 remained a difficult one for the Hong Kong economy generally. We regard it of paramount importance that we keep a clear focus amidst the challenging environment and continue to invest in areas that will enhance our asset value and underlying competitiveness. ■ Achieved strong occupancy: office: 95%, retail: 96% ■ Strong balance sheet with maturity profile further strengthened ■ Asset enhancement programme: re-launch of Bamboo Grove residential property well-received; works on Caroline Centre retail podium commenced Year ended 31 December 2002 2001 Change HK$’000 HK$’000 % Operating Profit 926,839 1,066,738 (13.1) Net Profit 543,874 600,343 (9.4) Gross rental income 1,229,599 1,351,892 (9.0) Gross rental income=(excluding Bamboo Grove)* 1,170,497 1,231,024 (4.9) HK¢ HK¢ % Earnings per share (basic) 52.66 58.26 (9.6) Earnings per share (diluted) 52.66 58.24 (9.6) Dividend per share 36.5 38 (3.9) HK$ HK$ % Net asset value per share (before final dividend) 18.45 20.62 (10.5) Note: *in the light of renovations of Bamboo Grove residential property Hysan Development Company Limited ANNUAL 2 REPORT 2002 Chairman’s Statement We regard it of paramount importance that we keep a clear focus amidst the challenging environment. Our goal is to continue investing in areas which will enhance our asset value and underlying competitiveness. Our objective is asset management: we constantly ask ourselves how to put our properties to the highest and best use. Mr. Peter T.C. Lee RESULTS Bamboo Grove residential property. Detailed commentary on our The property investment sector, like If Bamboo Grove is excluded, the fall performance and assets valuation are the rest of the Hong Kong economy, in gross rental income was 4.9%. set out in “Operating and Financial experienced another challenging year Review” on pages 4 to 10. in 2002. In this context, I am pleased Earnings per share were HK52.66 cents, to report that the overall occupancy a decrease of 9.6% (HK58.26 cents DIVIDENDS levels throughout the Group’s for the same period in 2001). The Board recommends the payment commercial property portfolio of a final dividend of HK26.5 cents per remained strong during the review The Group’s investment property share, which together with the interim year (office: 95%, retail: 96%). portfolio, as valued externally by dividend of HK10 cents per share, independent professional valuers, represents an aggregate distribution of Net profit for the year ended was HK$24,841 million as at HK36.5 cents per share, a decrease of 31 December 2002 was 31 December 2002 (2001: 3.9% for the year. Subject to HK$543.9 million, 9.4% lower than HK$26,639 million). Largely due shareholder approval, the final dividend in 2001 (HK$600.3 million). The fall to the net valuation deficit, will be payable in cash with a scrip in gross rental income (2002: shareholders’ funds at 2002 year-end dividend alternative. Details on the HK$1,229.6 million; 2001: were HK$19,087 million, compared to payment of final dividend, including HK$1,351.9 million) was largely HK$21,267 million in 2001. Net asset the scrip dividend arrangements, are attributable to negative rental value per share (before final dividend) set out in “Shareholder Information” reversions and the upgrading decreased by 10.5% to HK$18.45. on the inside back cover. renovation works at the Hysan Development Company Limited ANNUAL REPORT 2002 3 A CHALLENGING YEAR Details of these initiatives and the of experience and skills. The past year remained a difficult one progress we made in implementing The Company has been further for the Hong Kong economy generally. our strategic principles, are further strengthened by the appointment of discussed in the “Operating and Michael T.H. Lee as Chief Operating We regard it of paramount Financial Review” on pages 4 to 10. Officer as from June 2002. My importance that we keep a clear thanks go to our staff for their hard focus amidst the challenging CORPORATE GOVERNANCE work and all they have achieved over environment. Our goal is to continue AND FINANCIAL the very challenging year, while investing in areas which will enhance TRANSPARENCY extending my welcome to new our asset value and underlying A commitment to good corporate executives who bring different skills competitiveness. As a property governance and financial transparency and thinking to the Group. investment company, we look clearly has always been a clear element of our beyond leasing as our key activity. management philosophy. I am pleased THE FUTURE Our objective is asset management: that our efforts in this area are being At the strategic level, our aim is to we constantly ask ourselves how to recognized, with our board having been operate a property investment put our properties to the highest and elected Directors of the Year by the company of choice, capable of delivering best use. This involves developing a Hong Kong Institute of Directors. attractive returns for investors. building, leasing, managing as well General progress we made in these as servicing it; and most important of areas are set out in the “Corporate Looking into 2003, works have all, constantly reviewing and Governance Statement” in this report. commenced for a market assessing it within its particular repositioning of the retail podium of market segment, and following up SOCIAL RESPONSIBILITY Caroline Centre. We are committed with appropriate enhancement Hysan is committed to playing its to further enhancing our portfolio programmes including market role as a responsible corporate value generally. repositioning and upgrades. citizen. Additional information on our policies in this area can be found in a Of course, we are not immune from In addition to having achieved strong separate section later in this report. economic or financial pressure occupancy rates, we have further outside our control. Current global enhanced the asset value of our DIRECTORS AND STAFF political and general economic portfolio during the year. We Our Company owes much to its uncertainties may continue to completed the market repositioning supportive Board of Directors and I adversely impact the Hong Kong of our Bamboo Grove residential would like to extend my thanks to economy. Well-judged management property, which was well-received them for their wise counsel. Dr. Victor decisions, implementation and risk by the market. Upgrades have been K. K. Fung, having served on the management will thus be as completed for some of our other board since 1998, gave notice that he important as ever. I am confident that buildings. would not stand for re-election as at we have, as demonstrated in the year the forthcoming annual general under review, a clear focus as well as We further improved our property meeting to be held in May. The Board the financial and management service levels and our operating is greatly indebted to Dr. Fung for his capabilities to face these challenges. efficiency generally. invaluable guidance and contribution to the success of Hysan. Our balance sheet remains strong with our maturity profile further It is important that any organization Peter T. C. Lee strengthened. which is facing a challenging Chairman and Managing Director environment has a combination Hong Kong, 11 March 2003 Hysan Development Company Limited ANNUAL 4 REPORT 2002 Operating and Financial Review We have had an active year, making ■ Seek asset enhancements: completed market repositioning further progress in implementing the of Bamboo Grove and renovations of One Hysan strategic principles mapped out two Avenue. Improvement works for Leighton Centre and Sunning years ago. Market conditions continued Court are in progress; with works having commenced for to be challenging, but our underlying repositioning the retail podium of Caroline Centre in March 2003 strategic principles remained the same. ■ Aggressively pursuing revenue generation opportunities by stepping up carpark marketing and leasing ■ Maximize operating efficiency: set clear benchmarks for OPERATING REVIEW ■ Maximize tenant retention through property services; promoted the provision of superior energy efficiency. Also further In summing up the work of the past customer-focused services and enhanced credit control year, we have followed these enhancement of our properties measures and kept rental arrears general directions: at a very low level. In progress in ■ Diligently pursuing leasing implementing an enterprise ■ Optimize occupancy levels opportunities by closely managing resource planning system to across the portfolio (achieved: lease renewals and securing enhance administrative office: 95%; retail: 96%) new leases efficiency generally. Hysan Development Company Limited ANNUAL REPORT 2002 5 The case studies on pages 11 to 17 In this way, we minimize illustrate how we have put these vacancy levels and the directions in action. associated disruption to a stable rental income stream. INVESTMENT PROPERTIES Office Retail ■ Market Overview ■ Market Overview The office market continued to While the general economy and be soft in the light of the overall consumer confidence remained economic conditions, leading to weak, the retail sector had some weakening rentals.