STOCK CODE : 0004 ANNUAL REPORT 2019 CORPORATE PROFILE Founded in 1886 with Hong Kong as its base, The Wharf (Holdings) Limited (Stock code: 0004) was the 17th company incorporated in Hong Kong and a premier company with strong connection to the history of Hong Kong. As one of the 30 constituent stocks in the original Hang Seng Index since more than 50 years ago, Wharf is backed by a long standing mission of “Building for Tomorrow” and a proven track record in management and execution. The Group’s businesses are largely property-focused, comprising Investment Properties, Hotels and Development Properties in Hong Kong and mainland China. Other businesses include Logistics through Modern Terminals and Hong Kong Air Cargo Terminals. In Hong Kong, Wharf’s Peak Portfolio redefines the concept of luxury living with a collection of the most rare and prestigious residences, epitomising a unique and exclusive lifestyle at the most sought-after addresses in town. In Kowloon, the Kowloon Tong Residential Project and projects in Kowloon East are in the development pipeline. The overall land bank has been enriched with the addition of a harbourfront land site (developable GFA of 1.2 million square feet) on the runway of the former Kai Tak airport, bringing the Group’s total GFA in Hong Kong to 3.3 million square feet. Through years of expansion, the Group’s Mainland Investment Properties portfolio has established leading market positions in top tier cities and delivered incremental contribution to Group results. A series of new International Finance Square (IFS) at the very heart of CBD or new CBD in up and coming cities are trendsetting landmarks with unrivalled locations, superior planning and design, top-notch retail management, and gathering retailer and shopper critical mass. Changsha IFS and Chengdu IFS are comparable to Harbour City in Hong Kong in scale and prominence. The smaller-in-scale Chongqing IFS features the largest cluster of first-tier brands in Chongqing. The Mainland Development Property landbank at year-end was 3.5 million square metres. The Group continues to adopt a selective land acquisition policy with strategic focus on Tier 1 or 1.5 cities in order to secure high quality land bank with attractive returns. Wharf Hotels manages an expanding portfolio of 17 hotels in Asia, spearheaded by four contemporary, urban, chic Niccolo hotels and 13 Marco Polo hotels in Hong Kong, mainland China and the Philippines. It owns four of the hotels it operates. The next addition to the Niccolo family will be Niccolo Suzhou, scheduled to open in 2021. The Group also owns and operates Modern Terminals and is a founding partner in Hong Kong Air Cargo Terminals, key components in Hong Kong’s success as a hub for international trade and transportation for decades. “Building for Tomorrow” also extends to Wharf’s “Business-in-Community” (“BIC”) pursuit. With the flagship school improvement programme “Project WeCan” growing from strength to strength, the Group supports a series of BIC initiatives with an aim of promoting BIC and bringing benefits to different segments of society in Hong Kong and the Mainland. In 2019, the Group received a host of awards for its business achievements and contributions to the community. The Group remains a constituent member of Hang Seng Corporate Sustainability Index, has received the 5 years Plus Caring Company Logo from The Hong Kong Council of Social Service and was named the Responsible Brand in the 8th China Charity Festival. CONTENTS HONG KONG MAINLAND CHINA PROPERTIES 16 INVESTMENT 28 PROPERTIES MAINLAND CHINA DEVELOPMENT 22 WHARF PROPERTIES HOTELS 38 LOGISTICS 42 1 Corporate Profile 102 Consolidated Income Statement 4 Corporate Information Consolidated Statement of 103 Comprehensive Income 5 Shareholder Information Consolidated Statement of Financial 104 6 Group Business Structure Position 7 Chairman’s Statement Consolidated Statement of Changes 105 in Equity 12 Financial Highlights 106 Consolidated Statement of Cash Flows 14 Business Review 109 Notes to the Financial Statements 46 Awards & Recognitions 152 Principal Accounting Policies Corporate Sustainability 48 Principal Subsidiaries, Associates and 172 52 Financial Review Joint Ventures 59 Corporate Governance Report 180 Schedule of Principal Properties 77 Directors’ Report 190 Ten-year Financial Summary 96 Independent Auditor’s Report CORPORATE INFORMATION BOARD OF DIRECTORS Mr Stephen T H Ng, Chairman and Managing Director Mr Andrew O K Chow, Deputy Chairman and Executive Director Ms Doreen Y F Lee, Vice Chairman and Executive Director Mr Paul Y C Tsui, Vice Chairman, Executive Director and Group Chief Financial Officer Mr Kevin K P Chan Independent Non-Executive Directors Professor Edward K Y Chen, GBS, CBE, JP Mr Vincent K Fang, GBS, JP Mr Hans Michael Jebsen, BBS Ms Elizabeth Law, MH, JP Mr David Muir Turnbull COMPANY SECRETARY Mr Kevin C Y Hui, FCCA, CPA, FCIS, FCS AUDITORS KPMG, Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance PRINCIPAL BANKER The Hongkong and Shanghai Banking Corporation Limited REGISTRARS Tricor Tengis Limited Level 54, 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 The Wharf (Holdings) Limited 4 Annual Report 2019 SHAREHOLDER INFORMATION LISTING Ordinary Shares The Stock Exchange of Hong Kong Limited Stock Code: 4 As at 31 December 2019 Number of issued shares 3,049,227,327 FINANCIAL CALENDAR Record Date and Time for 2019 2nd Interim Dividend 6:00 p.m., 6 April 2020 Payment Date of 2019 2nd Interim Dividend 23 April 2020 Closure of Register of Members 5 May 2020 to (Shareholders’ right to attend and 8 May 2020 vote at Annual General Meeting) (both days inclusive) Annual General Meeting 11:15 a.m., 8 May 2020 (at Centenary Room, Ground Floor The Marco Polo Hongkong Hotel 3 Canton Road, Kowloon, Hong Kong) CONTACTS Shareholder enquiries: [email protected] Investor enquiries: [email protected] Media enquiries: [email protected] The Wharf (Holdings) Limited 5 Annual Report 2019 GROUP BUSINESS STRUCTURE MAINLAND CHINA MAINLAND CHINA HONG KONG DEVELOPMENT INVESTMENT HOTELS LOGISTICS PROPERTIES PROPERTIES PROPERTIES 3.3 Million Sq.Ft. 3.5 Million Sq.M. 1.7 Million Sq.M. 17 Hotels of Landbank* of Landbank* of GFA* 5,750 Rooms INTERNATIONAL PEAK MODERN FINANCE NICCOLO PORTFOLIO TERMINALS SQUARES (IFS) KOWLOON TONG WHEELOCK MARCO HONG KONG PORTFOLIO SQUARE POLO AIR CARGO TERMINALS KOWLOON EAST TIMES PORTFOLIO SQUARES *Attributable The Wharf (Holdings) Limited 6 Annual Report 2019 Mika Tajima, Art D’ameublement (Mataveri) (2019), © Mika Tajima courtesy of TARO NASU, photo by Charles Benton The Wharf (Holdings) Limited 7 Annual Report 2019 Chairman’s stATEMENT 2019 went down in history as an exceptionally difficult year for Hong Kong and mainland China due to both external and internal factors. The virus outbreak in 2020 has triggered a new crisis that has not only stricken the Mainland but is still unfolding around the world. China’s economy remains under test amidst the tense China-US relation across multiple aspects. GENERAL ECONOMY Trade-related headwinds and geopolitical uncertainties prevailed throughout 2019. Amid soft trade and manufacturing activity, global economic growth slipped to the slowest pace since the financial crisis. In Asia, growth in major economies has retreated sharply, hit by ripple effects from China’s slowing growth and prolonged China-U.S. trade negotiations. The Mainland’s policy commitment to control housing cost has affected markets and shifted goal posts for developers. When government administratively controls price levels at which developers are allowed to sell to below levels at which buyers are well prepared to buy, a controlled market may form to the detriment of market balances. On the other hand, domestic consumption on the Mainland continued to gather momentum with both breadth and depth. The growing middle class with rising disposable income and sophistication has spread beyond the traditional “first tier” cities and big international brands are entering these under-served markets with fervor to make sure they are not left behind by competition. Back in Hong Kong, apart from macroeconomic issues, social unrests took further toll on economic growth. The city witnessed the first GDP contraction since 2009 and rising unemployment. Cargo volume receded in the midst of global protectionism for trade and economic slowdown. However, with limited supply and sturdy demand, the ultra-luxury home market is relatively less affected. The Wharf (Holdings) Limited 8 Annual Report 2019 BUSINESS PERFORMANCE Through years of expansion, the Mainland Investment Properties (“IP”) portfolio has established market leading positions in the cities where we operate. Revenue increased by 14% to HK$3,924 million, operating profit by 23% to HK$2,311 million and underlying net profit by 49% to HK$1,509 million. In particular, the malls in Chengdu IFS and Changsha IFS (in its first full year of business) reported robust retail sales growth to place them among the highest in Western and Central China, respectively. The nearly- full occupancies underline retailers’ confidence in respective markets’ potential and in our malls. The award-winning Niccolo Hotels in Chengdu, Chongqing and Changsha IFSs are well established as best of class hospitality destinations. Niccolo Chengdu and Changsha consistently outperform the direct competition and are recognised as market leaders. Mainland Development Properties (“DP”) met operating plans. However, in view of strict government controls on selling price, unrealized provisions totaling HK$3,790 million were booked to mark the projects in hand to market. Inclusive of joint ventures and associates on an attributable basis, revenue during the year decreased by 33% to HK$14,806 million, operating profit by 38% to HK$4,927 million and underlying net profit (net of provisions) by 94% to HK$219 million.