Interim Results
Hongkong Land Hldgs Ld
03 August 2004
To: Business Editor 3rd August 2004
For immediate release
The following announcement was today issued to the London
Stock Exchange.
HONGKONG LAND HOLDINGS LIMITED
INTERIM REPORT 2004
Highlights
> Hong Kong office market recovering slowly
> Property values rise, anticipating rental growth
> Vacancy in Central portfolio at 6.2%
> Good residential sales
'Provided the global economy remains on its present positive
path, rents should continue to firm in Hong Kong, supporting
the recent rise in values of the investment property
portfolio. The rental reversion pattern in the office
sector, however, is expected to remain negative for some
time to come, delaying the impact of the market recovery on
earnings.'
Simon Keswick, Chairman
3rd August 2004
Results
--------------------------------------------------------------------------
(unaudited)
Six months ended 30th June
2004 2003 Change
US$m US$m %
--------------------------------------------------------------------------
Underlying profit attributable
to shareholders 104 84 +24
Profit/(loss) attributable
to shareholders 783 (773) n/m
Shareholders' funds 4,336 3,640* +19
Adjusted shareholders'funds# 5,050 4,215* +20
--------------------------------------------------------------------------
USc USc %
--------------------------------------------------------------------------
Underlying earnings per share 4.66 3.76 +24
Earnings/(loss) per share 35.18 (34.72) n/m
Interim dividend per share 2.00 2.00 -
--------------------------------------------------------------------------
US$ US$ %
--------------------------------------------------------------------------
Net asset value per share 1.95 1.64* +19
Adjusted net asset value per share# 2.27 1.89* +20
--------------------------------------------------------------------------
* At 31st December 2003
# In preparing the Group's financial statements under
International Financial Reporting Standards ('IFRS'),
the fair value model for investment properties has been
adopted. In accordance with this model, the Group's
investment properties have been included at their open
market value as determined by independent valuers. As
there is no capital gains tax in territories where the
Group has significant leasehold investment properties,
no tax would be payable if those properties were to be
sold at the amounts included in the financial
statements. In relation to leasehold investment
properties, however, IFRS require deferred tax on any
revaluation amount to be calculated using income tax
rates. This is in contrast to the treatment for the
revaluation of element of freehold properties where IFRS
require capital gains tax rates to be used. As
Management considers that the Group's long leasehold
properties have very similar characteristics to freehold
property, the adjusted shareholders' funds and adjusted
net asset value per share information is presented on
the basis that would be applicable if the leasehold
properties were freeholds. The adjustments made add
back the deferred tax provided in the financial
statements that would not have been provided if the
properties were freeholds, which in any event would not
be payable on a sale of the properties.
The interim dividend of USc2.00 per share will be payable on
20th October 2004 to shareholders on the register of members
at the close of business on 27th August 2004. The ex-
dividend date will be on 25th August 2004, and the share
registers will be closed from 30th August to 3rd September
2004, inclusive.
HONGKONG LAND HOLDINGS LIMITED
INTERIM REPORT 2004
OVERVIEW
The first half of 2004 saw a continuation of the recovery in the
Hong Kong office market that began towards the end of 2003.
While the pace of the recovery has moderated, vacancy in the
Central market is continuing to fall.
PERFORMANCE
The Group's underlying net profit rose by 24% to US$104 million
compared with the first half of 2003. Although rental
reversions in the office portfolio continued to be negative, the
resulting decline in commercial revenue was more than offset by
profits arising from residential sales. Net financing charges
were reduced following the fall in Hong Kong interest rates in
the second half of 2003. Underlying earnings per share rose by
24% to USc4.66.
The external valuation of the Group's investment property portfolio
undertaken at the half year produced an increase in value of
some 15% since 31st December 2003. The valuation surplus of
US$810 million was taken to profit and loss account in
accordance with International Financial Reporting Standards and
resulted in a net profit of US$783 million being reported for
the first half of the year.
The Directors are recommending that the interim dividend remains
unchanged at USc2.00 per share.
GROUP REVIEW
Commercial Property
The recent firming of demand in the Hong Kong office market
continued in the first half of the year enabling some pricing
power to return to landlords. Yet the market remains
competitive, and despite occupancy levels in Central of over
90%, rentals are only rising gradually. Hongkong Land's success
in retaining existing tenants and attracting new ones continued,
with vacancy falling to 6.2%.
The Group's retail portfolio continued to perform well with average
rents rising further. The refurbishment of The Landmark complex
is making good progress with the first phase of new luxury
flagship stores already opening.
Outside Hong Kong, the Group's commercial buildings in Singapore and
Hanoi remain fully let, while its joint-venture development in
Singapore at One Raffles Quay is now attracting leasing interest
ahead of its completion in early 2006.
Residential Property
At Central Park in Beijing the Group's joint-venture development
with the Vantone Group has handed over its first Phase of 570
units, and the profit has been recognised in the first half.
Phase II is now under construction and is over 90% pre-sold.
Activity in the residential market in Hong Kong slowed in the second
quarter, after the rapid recovery seen during the winter.
Nevertheless, the Group's development in Western District, Ivy
on Belcher's, was completed in June with almost 80% of the units
pre-sold, while a similar percentage of the Group's town houses
at Stanley Court had also been sold by the end of the first
half.
The Grosvenor Land Property Fund, which the Group jointly manages
with Grosvenor Estates of the United Kingdom, made two
acquisitions in Tokyo during the first quarter and a further
purchase in Hong Kong in May. The Fund has also begun to
realise profits through the selective sale of assets purchased
in Hong Kong in the earlier years of the Fund's life.
Infrastructure
Of the assets remaining in the Group's infrastructure portfolio, the
37.5%-owned Tradeport logistics terminal at Hong Kong
International Airport continued to add customers, albeit at a
slow pace. Asia Container Terminals, where the Group has a
28.5% stake, took delivery of its two berths at CT8 West in May,
and marketing of this capacity is now underway.
Finance
Key objectives of the Group's financing strategy - extending
maturities and diversifying the funding base - were achieved
when the Group issued a second Global Bond of US$500 million in
April. Following that issue, the average maturity of the
Group's financing was increased to 5.6 years, with some 40%
raised in the bond market.
OUTLOOK
In conclusion, the Chairman, Simon Keswick said, 'Provided the
global economy remains on its present positive path, rents
should continue to firm in Hong Kong, supporting the recent rise
in values of the investment property portfolio. The rental
reversion pattern in the office sector, however, is expected to
remain negative for some time to come, delaying the impact of
the market recovery on earnings.'
-----------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Profit and Loss Account
-----------------------------------------------------------------------------
(unaudited) Year ended
Six months ended 31st
30th June December
2004 2003 2003
US$m US$m US$m
-----------------------------------------------------------------------------
Revenue (note 2) 197.6 183.8 383.7
Cost of sales (51.7) (39.3) (100.5)
-----------------------------------
Gross profit 145.9 144.5 283.2
Other income 0.9 0.2 0.3
Administrative and other expenses (12.1) (14.8) (27.9)
-----------------------------------
134.7 129.9 255.6
Increase/(decrease) in fair value of
investment properties 810.1 (951.8) (824.3)
Asset impairments and disposals (note 3) - 1.7 10.2
-----------------------------------
Operating profit/(loss)(note 4) 944.8 (820.2) (558.5)
Net financing charges (24.8) (33.1) (64.5)
Share of results of joint ventures (note 5) 17.7 (5.6) (5.3)
-----------------------------------
Profit/(loss) before tax 937.7 (858.9) (628.3)
Tax (note 6) (154.7) 86.2 60.0
-----------------------------------
Profit/(loss) for the period 783.0 (772.7) (568.3)
-----------------------------------
Profit/(loss) attributable to shareholders 782.9 (772.8) (568.5)
Profit attributable to minority interests 0.1 0.1 0.2
-----------------------------------
783.0 (772.7) (568.3)
-----------------------------------
-----------------------------------------------------------------------------
USc USc USc
-----------------------------------------------------------------------------
Earnings/(loss) per share (note 7) 35.18 (34.72) (25.54)
Underlying earnings per share (note 7) 4.66 3.76 7.80
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Balance Sheet
-----------------------------------------------------------------------------
(unaudited) At 31st
At 30th June December
2004 2003 2003
US$m US$m US$m
-----------------------------------------------------------------------------
Net operating assets
Tangible assets (note 8)
Investment properties 6,317.5 5,309.4 5,506.9
Others 11.8 12.5 12.2
-----------------------------------
6,329.3 5,321.9 5,519.1
Joint ventures 299.1 264.1 267.3
Other investments 3.7 3.7 3.7
Deferred tax assets 2.0 1.0 6.5
Pension assets 8.6 9.1 8.8
Other non-current assets 1.8 - 0.6
-----------------------------------
Non-current assets 6,644.5 5,599.8 5,806.0
Properties held for sale 36.7 46.5 38.1
Debtors, prepayments and others 121.9 201.4 146.1
Bank balances 579.1 560.9 599.6
-----------------------------------
Current assets 737.7 808.8 783.8
-----------------------------------
Creditors and accruals (182.6) (190.4) (178.6)
Borrowings (note 9) (81.0) (92.4) (81.5)
Current tax liabilities (15.8) (23.3) (9.5)
-----------------------------------
Current liabilities (279.4) (306.1) (269.6)
Net current assets 458.3 502.7 514.2
Long-term borrowings (note 9) (2,036.9) (2,075.9) (2,085.6)
Deferred tax liabilities (729.4) (564.0) (593.6)
-----------------------------------
4,336.5 3,462.6 3,641.0
-----------------------------------
Total equity
Share capital 229.5 229.5 229.5
Revenue and other reserves 4,183.8 3,310.0 3,488.4
Own shares held (77.7) (77.7) (77.7)
-----------------------------------
Shareholders' funds 4,335.6 3,461.8 3,640.2
Minority interests 0.9 0.8 0.8
-----------------------------------
4,336.5 3,462.6 3,641.0
-----------------------------------
-----------------------------------------------------------------------------
US$ US$ US$
-----------------------------------------------------------------------------
Net asset value per share (note 10) 1.95 1.56 1.64
Adjusted net asset value per share (note 10) 2.27 1.80 1.89
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Statement of Changes in Equity
-----------------------------------------------------------------------------
(unaudited) Year ended
Six months ended 31st
30th June December
2004 2003 2003
US$m US$m US$m
------------------------------------------------------------------------------
Total equity at beginning of period 3,641.0 4,310.9 4,310.9
Attributable to minority interests (0.8) (0.6) (0.6)
-----------------------------------
Shareholders' funds at beginning of
period 3,640.2 4,310.3 4,310.3
Net exchange translation differences
- amount arising in the period (10.4) (1.5) 10.7
Revaluation of other investments
- fair value losses (0.3) (0.1) -
Cash flow hedges
- fair value gains 0.1 1.0 4.9
- transfer to consolidated profit and loss
account 12.1 13.9 16.3
-----------------------------------
Net gains recognised directly in equity 1.5 13.3 31.9
Profit/(loss) for the period 783.0 (772.7) (568.3)
-----------------------------------
Total profit/(loss) recognised 784.5 (759.4) (536.4)
Attributable to minority interests (0.1) (0.1) (0.2)
784.4 (759.5) (536.6)
Dividends (note 11) (89.0) (89.0) (133.5)
-----------------------------------
Shareholders' funds at end of period 4,335.6 3,461.8 3,640.2
-----------------------------------
Total equity at end of period 4,336.5 3,462.6 3,641.0
Attributable to minority interests (0.9) (0.8) (0.8)
-----------------------------------
Shareholders' funds at end of period 4,335.6 3,461.8 3,640.2
-----------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Cash Flow Statement
-----------------------------------------------------------------------------
(unaudited) Year ended
Six months ended 31st
30th June December
2004 2003 2003
US$m US$m US$m
-----------------------------------------------------------------------------
Cash flows from operating activities
Operating profit/(loss) 944.8 (820.2) (558.5)
Depreciation 0.5 0.6 1.1
(Increase)/decrease in fair value of
investment properties (810.1) 951.8 824.3
Asset impairments and disposals - (1.7) (10.2)
Decrease/(increase)in properties held for sale 7.4 (1.2) 8.9
Increase in debtors, prepayments and others (9.5) (13.0) (22.5)
Increase/(decrease)in creditors and accruals 18.8 (3.6) 3.1
Interest received 8.6 10.2 18.8
Interest and other financing charges paid (36.9) (42.5) (83.2)
Tax paid (5.3) (14.4) (31.9)
Dividends received 0.2 0.5 0.9
118.5 66.5 150.8
Cash flows from investing activities
Major renovations expenditure (8.6) (10.2) (25.0)
Developments capital expenditure (18.4) (14.5) (47.0)
Investments in and loans to joint ventures (16.4) (27.0) (59.3)
Disposal of joint ventures and other
investments - 79.6 118.1
(43.4) 27.9 (13.2)
Cash flows from financing activities
Net proceeds from issue of bonds/notes 493.8 190.5 190.5
Repayment of secured bank loans - (262.9) (262.9)
Drawdown of unsecured bank loans 5.4 91.2 349.5
Repayment of unsecured bank loans (505.9) (12.8) (231.3)
Dividends paid by the Company (88.3) (88.5) (133.2)
(95.0) (82.5) (87.4)
Effect of exchange rate changes (0.5) (0.3) 0.6
-----------------------------------
Net (decrease)/increase in cash and
cash equivalents (20.4) 11.6 50.8
Cash and cash equivalents at beginning
of period 597.4 546.6 546.6
-----------------------------------
Cash and cash equivalents at end of period 577.0 558.2 597.4
-----------------------------------
-----------------------------------------------------------------------------
USc USc USc
-----------------------------------------------------------------------------
Cash flow per share (note 12) 4.94 2.53 5.65
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Hongkong Land Holdings Limited
Notes
-----------------------------------------------------------------------------
1. ACCOUNTING POLICIES AND BASIS OF PREPARATION
The unaudited interim condensed financial statements have been
prepared in accordance with IAS 34 - Interim Financial
Reporting.
In 2004, the Group early adopted the following International
Financial Reporting Standards ('IFRS'):
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
IAS 36 (revised 2004) Impairment of Assets
IAS 38 (revised 2004) Intangible Assets
IAS 39 (amended 2004) Financial Instruments: Recognition and Measurement
In accordance with IFRS 2, provision of cash-settled share
appreciation rights to employees is measured at fair value
of the rights at the balance sheet date. This is a change
in accounting policy as in previous periods the provision
was measured at the difference between market price of the
shares and the exercise price. The early adoption of this
standard, however, has no material effect on amounts
reported in the prior period.
The early adoption of IFRS 3, IAS 36 (revised 2004) and IAS 38
(revised 2004) resulted in a change in the accounting policy
for goodwill. Until 31st December 2003, goodwill was
amortised on a straight line basis over a period not
exceeding 20 years and assessed for an indication of
impairment at each balance sheet date. In accordance with
the provisions of IFRS 3, amortisation of goodwill is not
permitted from 1st January 2004. From the year ending 31st
December 2004 onwards, goodwill is tested annually for
impairment, and when there are indications of impairment.
The application of IFRS 3, IAS 36 (revised 2004) and IAS 38
(revised 2004) does not impact on the prior-period financial
statements.
The early adoption of IFRS 5 has resulted in a change in the
accounting policy for non-current assets (or disposal
groups) held for sale. The non-current assets (or disposal
groups) held for sale were previously neither classified nor
presented as current assets or liabilities. The application
of IFRS 5 does not impact on the prior-period financial
statements.
2. REVENUE
Six months ended 30th June
2004 2003
US$m US$m
------------------------------
Property
Rental income 144.6 154.0
Service and management charges 30.6 29.8
Sales of residential properties 22.4 -
------------------------------
197.6 183.8
------------------------------
3. ASSET IMPAIRMENTS AND DISPOSALS
Six months ended 30th June
2004 2003
US$m US$m
------------------------------
Impairment provisions on properties - (3.0)
Other asset impairment reversals - 4.7
------------------------------
- 1.7
------------------------------
By business
Property - (2.7)
Infrastructure - 4.4
------------------------------
- 1.7
------------------------------
4. OPERATING PROFIT
Six months ended 30th June
2004 2003
US$m US$m
------------------------------
By business
Property 142.8 140.9
Infrastructure 0.8 (0.7)
Corporate (8.9) (10.3)
------------------------------
134.7 129.9
Increase/(decrease) in fair value of
investment properties 810.1 (951.8)
Asset impairments and disposals (note 3) - 1.7
------------------------------
944.8 (820.2)
------------------------------
5. SHARE OF RESULTS OF JOINT VENTURES
Six months ended 30th June
2004 2003
US$m US$m
------------------------------
By business
Property
- share of results excluding changes
in fair value of investment properties 10.7 0.2
- increase/(decrease) in fair value of
investment properties 8.7 (5.6)
------------------------------
19.4 (5.4)
Infrastructure (1.7) (0.2)
------------------------------
17.7 (5.6)
------------------------------
6. TAX
Six months ended 30th June
2004 2003
US$m US$m
------------------------------
Current tax (11.7) (10.9)
Deferred tax
- changes in fair value of investment
properties (139.7) 99.3
- other temporary differences (3.3) (2.2)
------------------------------
(154.7) 86.2
------------------------------
Tax on profits is provided at the rates of taxation prevailing
in the territories in which the Group operates.
7. EARNINGS PER SHARE
Earnings per share are calculated on profit attributable to
shareholders of US$782.9 million (2003: loss of US$772.8
million) and on the weighted average number of
2,225.6 million (2003: 2,225.6 million) shares in issue
during the period, which excludes 69.6 million shares in the
Company held by a wholly-owned subsidiary.
Earnings per share are additionally calculated based on
underlying profit attributable to shareholders. The
difference between underlying profit attributable to
shareholders and profit attributable to shareholders is
reconciled as follows:
Six months ended 30th June
2004 2003
US$m US$m
------------------------------
Profit/(loss) attributable to shareholders 782.9 (772.8)
(Increase)/decrease in fair value of
investment properties (810.1) 951.8
Deferred tax charge/(credit) on changes
in fair value of investment properties 139.7 (99.3)
Share of (increase)/decrease in fair value
of investment properties of joint ventures (8.7) 5.6
Asset impairments and disposals - (1.7)
Minority interests - 0.1
------------------------------
Underlying profit attributable to shareholders 103.8 83.7
------------------------------
8. TANGIBLE ASSETS
Year ended
31st
Six months ended 30th June December
2004 2003 2003
US$m US$m US$m
---------------------------------------
Net book value at beginning
of period 5,519.1 6,262.8 6,262.8
Exchange rate adjustments (26.4) (2.2) 27.6
Additions 27.0 13.7 54.1
Depreciation (0.5) (0.6) (1.1)
Increase/(decrease) in fair value
of investment properties 810.1 (951.8) (824.3)
---------------------------------------
Net book value at end of period 6,329.3 5,321.9 5,519.1
---------------------------------------
9. BORROWINGS
At 31st
At 30th June December
2004 2003 2003
US$m US$m US$m
---------------------------------------
Current
Bank overdrafts 2.1 2.7 2.2
Short-term borrowings 76.9 57.7 77.3
Current portion of long-term
borrowings 2.0 32.0 2.0
81.0 92.4 81.5
Long-term borrowings
Bank loans 731.7 1,175.3 1,238.7
7% United States Dollar bonds
due 2011 630.0 710.0 655.2
3% Hong Kong Dollar notes due 2006 191.1 190.6 191.7
5.5% United States Dollar
bonds due 2014 484.1 - -
2,036.9 2,075.9 2,085.6
---------------------------------------
2,117.9 2,168.3 2,167.1
---------------------------------------
Secured 2.0 2.0 2.0
Unsecured 2,115.9 2,166.3 2,165.1
---------------------------------------
2,117.9 2,168.3 2,167.1
---------------------------------------
Hong Kong Dollar 1,773.5 1,827.3 1,820.0
Singapore Dollar 275.6 274.7 280.9
United States Dollar 68.4 65.9 66.0
Vietnamese Dong 0.4 0.4 0.2
---------------------------------------
2,117.9 2,168.3 2,167.1
---------------------------------------
10. NET ASSET VALUE PER SHARE
Net asset value per share is calculated on shareholders' funds
of US$4,335.6 million (2003: US$3,461.8 million) and on 2,225.6 million
(2003: 2,225.6 million) shares in issue at the period end, which excludes
69.6 million shares in the Company held by a wholly-owned
subsidiary.
Net asset value per share is additionally calculated based on
adjusted shareholders' funds. The difference between
shareholders' funds and adjusted shareholders' funds is
reconciled as follows:
At 31st
At 30th June December
2004 2003 2003
US$m US$m US$m
--------------------------------
Shareholders' funds 4,335.6 3,461.8 3,640.2
Deferred tax on revaluation
surpluses of investment
properties 709.6 545.5 572.5
Share of deferred tax on revaluation
surpluses of investment properties
of joint ventures 4.4 2.1 2.7
--------------------------------
Adjusted shareholders' funds 5,049.6 4,009.4 4,215.4
--------------------------------
11. DIVIDENDS
Six months ended 30th June
2004 2003
US$m US$m
--------------------------------
Final dividend in respect of 2003
of USc4.00 (2002: USc4.00) per share 89.0 89.0
--------------------------------
An interim dividend in respect of 2004 of USc2.00 (2003: USc2.00)
per share ammounting to a total of US$44.5 million (2003: US$44.5 million)
is declared by the Board and will be accounted as an appropriation of
revenue reserves in the year ending 31st December 2004.
12. CASH FLOW PER SHARE
Cash flow per share is based on cash flows from operating
activities less major renovations expenditure amounting to
US$109.9 million (2003: US$56.3 million) and is calculated
on the weighted average of 2,225.6 million (2003: 2,225.6
million) shares in issue during the period, which excludes
69.6 million shares in the Company held by a wholly-owned
subsidiary.
13. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
At 31st
At 30th June December
2004 2003 2003
US$m US$m US$m
-----------------------------
Capital commitments 521.0 611.4 570.4
-----------------------------
Guarantees in respect of
- facilities made available to
joint ventures 57.1 23.3 24.1
- container terminal development
in Hong Kong - 74.2 39.1
-----------------------------
The interim dividend of USc2.00 per share will be payable on
20th October 2004 to shareholders on the register of members
at the close of business on 27th August 2004. The ex-
dividend date will be on 25th August 2004, and the share
registers will be closed from 30th August to 3rd September
2004, inclusive. Shareholders will receive their dividends
in United States Dollars, unless they are registered on the
Jersey branch register where they will have the option to
elect for Sterling. These shareholders may make new
currency elections by notifying the United Kingdom transfer
agent in writing by 30th September 2004. The Sterling
equivalent of dividends declared in United States Dollars
will be calculated by reference to a rate prevailing on 6th
October 2004. Shareholders holding their shares through The
Central Depository (Pte) Limited ('CDP') in Singapore will
receive United States Dollars unless they elect, through
CDP, to receive Singapore Dollars.
- end -
For further information, please contact:
Hongkong Land Limited
N R Sallnow-Smith (852) 2842 8300
Matheson & Co Limited
Martin Henderson (44) 20 7816 8135
Golin/Harris Forrest
C T Hew (852) 2501 7963
Weber Shandwick Square Mile
Richard Hews/ Katie Hunt/ Helen Thomas (44) 20 7067 0700
This and other Group announcements can be accessed through the
Internet at 'www.hkland.com'.
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