2015 Annual Report THE WHARF (HOLDINGS) LIMITED Stock Code: 4 CORPORATE PROFILE Founded in 1886, The Wharf (Holdings) Limited (Stock code: 4) is a premier company with HK$444 billion of total assets. Backed by a long standing mission of “Building for Tomorrow” and a proven execution track record, the Group has produced consistent and productive performance over the years. As one of only seven constituent stocks from the original Hang Seng Index of 50 years ago, Wharf is among the top local blue chips that are most actively traded and widely held. Over the past 10 years, earnings per share have doubled and dividends per share have increased by 138%, for a compound annual growth rate of 9%. The Group is active in Hong Kong and Mainland China with prime real estate as primary strategic focus. Site acquisition, development and marketing are its core competencies while mall development and retail management remain its strategic differentiation. The Group also owns an emerging hotel business under Wharf Hotels, valuable port assets under Modern Terminals, and Communications, Media & Entertainment assets in Hong Kong. Investment Properties (“IP”) in Hong Kong and China continues to grow over the years and has been a key growth driver for the Group. With a book value of HK$310 billion, it accounted for 76% of the Group’s core profit in 2015. Harbour City and Times Square are flagships in this portfolio. The former is a global landmark with international showcase effect for retailers and a regional landmark for shoppers. The latter, with its prominent 17-level mall design and expertly-managed trade mix, is among the most successful vertical malls globally. The portfolio also extends to the prime Central business district, the Peak and the new CBD2 in Kowloon East. In Central, recent acquisitions included the iconic Murray Building (for conversion into a unique urban chic hotel) in 2013, Crawford House in Queen’s Road Central in 2014 and the office tower and a prime shop in Wheelock House in Pedder Street subsequent to the year end. On the Peak, home to the ultimate in exclusive and exquisite residences, the portfolio displays a landmark collection of the most luxurious residences with a total attributable GFA of about 400,000 square feet. In Kowloon East, immense untapped potential is being unlocked with the exceptional “Kowloon East Waterfront Portfolio” which comprises Kowloon Godown and Wharf T&T Square, as well as parent company Wheelock’s One Bay East, all located in the new vibrant CBD2 and span a 500-metre coastline with a stunning Victoria Harbour view. China IP has started to bear fruit, with addition of a series of five IFSs. Phase one of Chengdu opened in early 2014 and the smaller Wuxi opened in late 2014. Chongqing is scheduled to open in 2017, followed by Changsha and Suzhou. Among them, Chengdu IFS and Changsha IFS are set to match Harbour City in scale and dominance to become landmarks. Times Outlet represents another product strategy with Chengdu having already established itself and Changsha to open soon. On China Development Properties (“DP”), attributable contracted sales in 2015 increased to a record RMB26 billion, 21% over 2014. Net order book at year-end increased to RMB25 billion (net of business tax). With a land bank of about 8.4 million square metres spanning 15 cities in the Mainland, the Group continues to be selective in land acquisition focusing on first-tier and top second-tier cities. Marco Polo currently operates 14 hotels in the Asia Pacific region, six of which owned by the Group. A solid pipeline of new hotels is set to expand Marco Polo’s portfolio in Asia Pacific over the next few years. The Group introduces an exclusive collection of “sophisticated urban chic” hotels under the luxury brand Niccolo, with the first one opening in Chengdu IFS in April 2015. Conversion of Murray Building in Central, Hong Kong, into a Niccolo hotel is scheduled for opening in 2017. “Building for Tomorrow” also extends to Wharf’s ”Business-in-Community” pursuit. In addition to the flagship school improvement programme “Project WeCan”, the Wharf Hong Kong Secondary School Art Competition and Wharf Architectural Design Internship have gained traction over the years. Backed by 1,000 staff volunteers, the Group has also supported a series of “Business-in-Community” initiatives benefitting different segments of society. The Group was named a constituent member of the “Hang Seng Corporate Sustainability Index” in 2015, an index that covers the top 30 corporate sustainability leaders in Hong Kong, in recognition of the Group’s sound performance in corporate social responsibility. CONTENTS 1 Corporate Profi le 4 Corporate Information 5 Group Business Structure 7 Chairman’s Statement 16 HARBOUR CITY 12 Financial Highlights 14 Business Review 24 TIMES SQUARE 64 Awards and Recognitions 68 Corporate Social Responsibility 32 PLAZA HOLLYWOOD 80 Financial Review 86 Corporate Governance Report 34 THE PEAK PORTFOLIO & 106 Directors’ Report OTHER HK PROPERTIES 123 Independent Auditor’s Report 124 Consolidated Income Statement 40 CHINA INVESTMENT 125 Consolidated Statement of PROPERTIES Comprehensive Income 126 Consolidated Statement of Financial Position 50 CHINA DEVELOPMENT 127 Consolidated Statement of Changes in Equity PROPERTIES 128 Consolidated Statement of Cash Flows 130 Notes to the Financial Statements 54 WHARF HOTELS 170 Principal Accounting Policies 183 Principal Subsidiaries, Associates and 58 MODERN TERMINALS Joint Ventures 188 Schedule of Principal Properties 62 COMMUNICATIONS, 198 Ten-year Financial Summary MEDIA & ENTERTAINMENT CORPORATE INFORMATION BOARD OF DIRECTORS Mr Stephen T H Ng, Chairman & Managing Director Mr Andrew O K Chow, Deputy Chairman Ms Doreen Y F Lee, Vice Chairman Mr Paul Y C Tsui, Vice Chairman & Group Chief Financial Officer Ms Y T Leng Mr K P Chan Independent Non-executive Directors Mr Alexander S K Au, OBE Professor Edward K Y Chen, GBS, CBE, JP Hon Vincent K Fang, SBS, JP Mr Hans Michael Jebsen, BBS Mr David M Turnbull Professor E K Yeoh, GBS, OBE, JP COMPANY SECRETARY Mr Kevin C Y Hui, FCCA, CPA AUDITORS KPMG, Certified Public Accountants PRINCIPAL BANKER The Hongkong and Shanghai Banking Corporation Limited REGISTRARS Tricor Tengis Limited Level 22, Hopewell Centre 183 Queen’s Road East Hong Kong REGISTERED OFFICE 16th Floor, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong Telephone: (852) 2118 8118 Fax: (852) 2118 8018 Website: www.wharfholdings.com 4 The Wharf (Holdings) Limited | Annual Report 2015 GROUP BUSINESS STRUCTURE Stephen Ng Chairman & MD Andrew Chow Doreen Lee Paul Tsui Deputy Chairman Vice Chairman Vice Chairman & Group CFO HOTELS, LOGISTICS, DEVELOPMENT INVESTMENT COMMUNICATIONS, PROPERTIES PROPERTIES MEDIA & (CHINA) (HK/CHINA) ENTERTAINMENT Wharf China Wharf Wharf Wharf Development Estates China Estates Hotels KP Chan Y T Leng Executive Director Executive Director The Wharf (Holdings) Limited | Annual Report 2015 5 In Building for Tomorrow, Wharf has achieved a few “firsts” in the past decades. That includes the first all- weather mall in Hong Kong (Ocean Terminal), the first and only mall with retail sales reaching 7% of Hong Kong retail sales (Harbour City), the first 17-storey vertical mall in Hong Kong (Times Square) and the first 40-storey industrial building in Hong Kong (CABLE TV Tower). Wharf has also been Building for Tomorrow in other sectors. That includes building and operating of the first cruise terminal in Hong Kong (Ocean Terminal), the first container terminal in Hong Kong (Modern Terminals), the first cross-harbour tunnel in Hong Kong (Hunghom Tunnel), the first electronic toll collection system in Hong Kong (Autopass), the first multi-channel Pay TV service in Hong Kong (CABLE TV), and the first 24-hour news channel in Cantonese in the world (i-CABLE News). CHAIRMAN'S STATEMENT CHAIRMAN'S STATEMENT It is my great honour to present my first statement to Shareholders as Chairman of Wharf. I wish to begin by expressing my sincerest gratitude to my predecessor, Hon Peter K C Woo. Mr Woo retired from the Board, after 37 years, at the AGM in May 2015. His leadership during these years has transformed the Company and taken it to the forefront among local companies. GENERAL ECONOMY 2015 was a tough year on all fronts for Hong Kong. The global economy had entered an era of low growth. Developed economies remained stagnant and emerging economies were slowing down. Interest rate hike in the U.S., currency instability, as well as the reform in transition in China further clouded the global economic outlook. China’s economy grew by 6.9% in 2015, its slackest pace in a quarter century, underlining a “new normal” of slower but high-quality growth for a more sustainable and environmentally friendly development. A structural transition towards services and consumption was making good headway as consumer spending contributed 66% of GDP growth, the biggest contribution since 2001. For the fi rst time, a booming services sector accounted for over half of the economy, climbing to 50.5%. In the property market, against the backdrop of a slowing economy, a string of easing measures stimulated buying activities. However, it would be prudent to plan on a slower-growth China as the substantial catch up phase of China’s development has concluded several years ago. In Hong Kong, the economy recorded a modest 2.4% growth rate in 2015. An increase in outbound travels by locals and a decrease in tourist arrivals, caused principally by a strong Hong Kong dollar, combined to cast a further shadow on the bumpy retail and hospitality sectors. The perceptions of an unwelcoming or even unsafe Hong Kong, which worried some travellers, have worsened the situation. As a result, total visitor arrivals decreased by 2.5% to 59.3 million and total retail sales dropped by 3.7% to HK$475.2 billion.