Interim Results
Hongkong Land Hldgs Ld
26 July 2005
26th July 2005
For immediate release
To: Business Editor
The following announcement was today issued to the London Stock Exchange.
HONGKONG LAND HOLDINGS LIMITED
INTERIM REPORT 2005
Highlights
• Net assets per share up 21%
• Singapore joint-venture awarded further major commercial site
• Latest phase of Beijing residential project substantially pre-sold
'Office rents and capital values in Hong Kong's Central District have recovered
significantly. The resulting positive reversions will not, however, have an
impact on earnings this year. In our residential business, a lack of completions
will see a short-term reduction in profit in that segment.'
Simon Keswick, Chairman
26th July 2005
Results
----------------------------------------------------------------------------------
(unaudited)
Six months ended 30th June
2005 2004 Change
US$m US$m %
----------------------------------------------------------------------------------
Underlying profit attributable to shareholders 105 104 +2
Profit attributable to shareholders 1,195 783 n/m
Shareholders' funds 6,308 5,205* +21
Adjusted shareholders' funds# 7,397 6,072* +22
----------------------------------------------------------------------------------
USc USc %
----------------------------------------------------------------------------------
Underlying earnings per share 4.74 4.66 +2
Earnings per share 53.68 35.18 n/m
Interim dividend per share 2.00 2.00 -
----------------------------------------------------------------------------------
US$ US$ %
----------------------------------------------------------------------------------
Net asset value per share 2.83 2.34* +21
Adjusted net asset value per share# 3.32 2.73* +22
----------------------------------------------------------------------------------
* At 31st December 2004
# 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 12th October 2005
to shareholders on the register of members at the close of business on 19th August
2005. The ex-dividend date will be on 17th August 2005, and the share
registers will be closed from 22nd to 26th August 2005, inclusive.
HONGKONG LAND HOLDINGS LIMITED
INTERIM REPORT 2005
OVERVIEW
In the first half of 2005 the office market in Hong Kong's Central District
maintained the strong performance it has seen since its recovery began in the
last quarter of 2003. With vacancy in Grade A buildings falling to low levels,
rents continue to rise.
PERFORMANCE
As rental reversions began to turn positive, net rental income rose compared
with the second half of 2004 but fell short of the comparable first half result.
Residential sales were also lower than in the first half of last year. This
decline in profit was, however, offset by reduced financing charges, so that
underlying net profit of US$105 million was 2% higher than that for the first
half of 2004.
The Group's investment portfolio was independently valued at the half year,
resulting in a surplus of US$1,306 million being taken to profit and loss
account in accordance with International Financial Reporting Standards. After
this surplus, the reported profit for the first half of 2005 was US$1,195
million, an increase of 53% over the comparable period, when a valuation surplus
of US$810 million was recorded.
The Directors are recommending an unchanged interim dividend of USc2.00 per
share.
GROUP REVIEW
Commercial Property
With vacancy falling in the Hong Kong office market, rents have continued to
rise, particularly in buildings of the highest quality and occupancy. From a
location perspective, Central District has outperformed decentralised districts,
as is typical during a positive rental cycle. Vacancy in Hongkong Land's
portfolio had fallen to 4% by the end of June.
The Group's retail rents also continued to rise, reflecting not only market
demand but also the value added to the portfolio by the recent series of
renovations to the Group's retail product. The final element of that programme,
the refurbishment of The Landmark complex, is on schedule and will culminate in
the launch of The Landmark Mandarin Oriental Hotel and a series of major store
openings over the next six months. The new commercial building on the Landmark
East site will be completed in the second half of 2006.
In Singapore, One Raffles Quay is now close to 50% pre-let, ahead of its
completion in 2006. The consortium which is developing this site, in which the
Group has a one-third interest alongside Cheung Kong Group and Keppel Land, has
also won the tender to develop the neighbouring Business and Financial Centre.
This three and a half hectare site will provide the Group with the opportunity
to develop the New Downtown of Singapore over a period of up to 18 years. The
commitment under the tender is to construct the first 158,000 sq. m and acquire
options to develop the balance in later phases, with the Group funding its share
from existing corporate resources.
The Group is progressing the sale of its toll road investment in Indonesia. If a
sale is successfully completed, it will allow a further write-back of some of
the provision previously made against its value. The Tradeport logistics
terminal at Hong Kong International Airport will then be the Group's only
material investment remaining from the infrastructure portfolio of the 1990's.
From now on, this business, which saw improved revenue in the first half but has
yet to record a profit, will be reported under the Commercial Property segment.
Residential Property
In Beijing, the Group's Central Park joint-venture development saw the
completion and handover of most of the second phase units. Profit from these
sales has accordingly been recognised in the first half. Phase III is under
construction, with some 80% of the units already pre-sold.
In Hong Kong, the residential market saw some slowing of activity in the first
half, as buyers came to terms with higher pricing and interest rate rises. All
but one of the houses at Stanley Court has now been sold, while Ivy on the
Belcher's sales now exceed 92% of the development.
The Group's joint-venture property fund, Grosvenor Land, has now sold three of
its Tokyo investments, releasing cash, and will continue to market its remaining
properties in Hong Kong and Japan.
Finance
Short-term interest rates rose in Asian markets, as the US Federal Reserve
tightened monetary policy. Hedging contracts entered into at the beginning of
the year increased the proportion of the Group's debt that is fixed for 2005 to
62%. Financing charges fell, largely as a result of mark-to-market hedging gains
and the impact of increasing US dollar deposit interest rates on the Group's
surplus cash balances. The Group has no major re-financing requirement this
year.
OUTLOOK
In conclusion, the Chairman, Simon Keswick said, 'Office rents and capital
values in Hong Kong's Central District have recovered significantly. The
resulting positive reversions will not, however, have an impact on earnings this
year. In our residential business, a lack of completions will see a short-term
reduction in profit in that segment.'
--------------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Profit and Loss Account
--------------------------------------------------------------------------------
(unaudited) Year ended
Six months ended 31st
30th June December
Restated
2005 2004 2004
US$m US$m US$m
--------------------------------------------------------------------------------
Revenue (note 2) 180.2 197.6 409.1
Cost of sales (42.6) (51.7) (116.4)
-------- -------- --------
Gross profit 137.6 145.9 292.7
Other income - 0.9 0.9
Administrative and other expenses (12.5) (12.1) (25.6)
-------- -------- --------
125.1 134.7 268.0
Increase in fair value of investment properties 1,306.1 810.1 1,701.3
Asset impairments and disposals (note 3) 1.0 - 62.7
-------- -------- --------
Operating profit (note 4) 1,432.2 944.8 2,032.0
Net financing charges (11.5) (24.8) (53.1)
Share of results of joint ventures (note 5) 7.8 17.7 23.7
-------- -------- --------
Profit before tax 1,428.5 937.7 2,002.6
Tax (note 6) (233.8) (154.7) (314.3)
-------- -------- --------
Profit for the period 1,194.7 783.0 1,688.3
-------- -------- --------
Attributable to:
Shareholders of the Company 1,194.6 782.9 1,688.0
Minority interests 0.1 0.1 0.3
-------- -------- --------
1,194.7 783.0 1,688.3
-------- -------- --------
--------------------------------------------------------------------------------
USc USc USc
--------------------------------------------------------------------------------
Earnings per share (note 7) 53.68 35.18 75.84
Underlying earnings per share (note 7) 4.74 4.66 8.86
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Balance Sheet
--------------------------------------------------------------------------------
(unaudited) At 31st
At 30th June December
Restated
2005 2004 2004
US$m US$m US$m
--------------------------------------------------------------------------------
Net operating assets
Tangible assets (note 8)
Investment properties 8,652.1 6,317.5 7,289.0
Others 11.6 11.8 11.7
--------- --------- ---------
8,663.7 6,329.3 7,300.7
Joint ventures 338.2 299.1 288.1
Other investments 0.3 3.7 0.3
Deferred tax assets 1.4 2.0 2.3
Pension assets 9.6 7.4 9.7
Other non-current assets 7.5 1.8 1.9
--------- --------- ---------
Non-current assets 9,020.7 6,643.3 7,603.0
Properties for sale 69.1 36.7 15.8
Debtors, prepayments and others 176.2 121.9 144.6
Bank balances 659.3 579.1 749.9
--------- --------- ---------
Current assets 904.6 737.7 910.3
--------- --------- ---------
Creditors and accruals (204.6) (182.6) (174.3)
Borrowings (note 9) (80.0) (81.0) (79.5)
Current tax liabilities (14.8) (15.8) (8.8)
--------- --------- ---------
Current liabilities (299.4) (279.4) (262.6)
Net current assets 605.2 458.3 647.7
Long-term borrowings (note 9) (2,209.2) (2,036.9) (2,159.6)
Deferred tax liabilities (1,107.1) (729.4) (885.2)
--------- --------- ---------
6,309.6 4,335.3 5,205.9
--------- --------- ---------
Total equity
Share capital 229.5 229.5 229.5
Revenue and other reserves 6,156.6 4,182.6 5,053.0
Own shares held (77.7) (77.7) (77.7)
--------- --------- ---------
Shareholders' funds (note 10) 6,308.4 4,334.4 5,204.8
Minority interests 1.2 0.9 1.1
--------- --------- ---------
6,309.6 4,335.3 5,205.9
--------- --------- ---------
--------------------------------------------------------------------------------
US$ US$ US$
--------------------------------------------------------------------------------
Net asset value per share (note 11) 2.83 1.95 2.34
Adjusted net asset value per share
(note 11) 3.32 2.27 2.73
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Statement of Recognised Income and Expense
--------------------------------------------------------------------------------
(unaudited) Year ended
Six months ended 31st
30th June December
Restated
2005 2004 2004
US$m US$m US$m
--------------------------------------------------------------------------------
Net exchange translation differences (4.7) (10.4) 7.2
Actuarial gains on defined benefit
pension plans - - 2.7
Gain/(loss) on revaluation of other
investments 0.5 (0.3) (0.2)
Gains/(losses) on cash flow hedges 19.8 0.1 (16.5)
Tax on items taken directly to equity - - (0.6)
--------- --------- ---------
Net income/(expense) recognised
directly in equity 15.6 (10.6) (7.4)
Transfer to profit and loss in respect
of cash flow hedges 4.7 12.1 18.7
Profit for the period 1,194.7 783.0 1,688.3
--------- --------- ---------
Total recognised income and expense
for the period 1,215.0 784.5 1,699.6
--------- --------- ---------
Attributable to:
Shareholders of the Company 1,214.9 784.4 1,699.3
Minority interests 0.1 0.1 0.3
--------- --------- ---------
1,215.0 784.5 1,699.6
--------- --------- ---------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Hongkong Land Holdings Limited
Consolidated Cash Flow Statement
--------------------------------------------------------------------------------
(unaudited) Year ended
Six months ended 31st
30th June December
Restated
2005 2004 2004
US$m US$m US$m
--------------------------------------------------------------------------------
Operating activities
Operating profit 1,432.2 944.8 2,032.0
Depreciation 0.4 0.5 0.9
Increase in fair value of investment
properties (1,306.1) (810.1) (1,701.3)
Asset impairments and disposals (1.0) - (62.7)
(Increase)/decrease in properties
for sale (19.7) 7.4 24.4
(Increase)/decrease in debtors,
prepayments and others (5.8) (9.5) 1.6
(Decrease)/increase in creditors and
accruals (3.7) 18.8 (12.4)
Interest received 9.3 8.6 11.7
Interest and other financing charges
paid (28.5) (36.9) (57.6)
Tax paid (5.4) (5.3) (18.7)
Dividends received 0.7 0.2 0.3
Cash flows from operating activities 72.4 118.5 218.2
Investing activities
Major renovations expenditure (5.1) (8.6) (14.9)
Developments capital expenditure (46.7) (18.4) (56.7)
Investments in and loans to joint
ventures (47.0) (16.4) (20.0)
Disposal of joint ventures and other
investments - - 93.9
Cash flows from investing activities (98.8) (43.4) 2.3
Financing activities
Net proceeds from issue of bonds - 493.8 493.8
Drawdown of unsecured bank loans 52.1 5.4 11.0
Repayment of unsecured bank loans (5.9) (505.9) (443.4)
Dividends paid by the Company (110.7) (88.3) (132.8)
Cash flows from financing activities (64.5) (95.0) (71.4)
Effect of exchange rate changes (0.2) (0.5) 1.2
-------- -------- --------
Net (decrease)/increase in cash
and cash equivalents (91.1) (20.4) 150.3
Cash and cash equivalents at
beginning of period 747.7 597.4 597.4
-------- -------- --------
Cash and cash equivalents at end of
period 656.6 577.0 747.7
-------- -------- --------
--------------------------------------------------------------------------------
USc USc USc
--------------------------------------------------------------------------------
Cash flow per share (note 13) 3.02 4.94 9.13
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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.
There have been no changes to the accounting policies described in the 2004
annual financial statements. In 2005, the Group early adopted two amendments to
IAS 39 Financial Instruments: Recognition and Measurement - Cash Flow Hedge
Accounting of Forecast Intragroup Transactions, and The Fair Value Option,
neither of which has had a significant impact on the Group's financial
statements. The comparative figures for the six months ended 30th June 2004 have
been restated to reflect the change in accounting policy for defined benefit
pension plans which was adopted in the preparation of the 2004 annual financial
statements.
2. REVENUE
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
By business
Commercial property
Rental income 134.1 143.9
Service and management charges 30.7 30.5
164.8 174.4
Residential property
Rental income 0.8 0.8
Sales of residential properties 14.6 22.4
15.4 23.2
-------- --------
180.2 197.6
-------- --------
3. ASSET IMPAIRMENTS AND DISPOSALS
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
Other asset impairment reversals 1.0 -
-------- --------
By business
Residential property 1.0 -
-------- --------
4. OPERATING PROFIT
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
By business
Commercial property 126.6 137.6
Residential property 7.5 5.2
Corporate (9.0) (8.1)
-------- --------
125.1 134.7
Increase in fair value of investment properties 1,306.1 810.1
Asset impairments and disposals (note 3) 1.0 -
-------- --------
1,432.2 944.8
-------- --------
5. SHARE OF RESULTS OF JOINT VENTURES
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
By business
Commercial property (0.2) 0.2
Residential property 8.0 18.3
Corporate - (0.8)
-------- --------
7.8 17.7
-------- --------
Results are shown after tax and minority interests.
6. TAX
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
Current tax 11.4 11.7
Deferred tax
- changes in fair value of investment properties 220.5 139.7
- other temporary differences 1.9 3.3
-------- --------
233.8 154.7
-------- --------
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$1,194.6 million (2004: US$782.9 million) and on the weighted average
number of 2,225.6 million (2004: 2,225.6 million) shares in issue during the
period, which excludes 69.6 million shares in the Company held by a
wholly-owned subsidiary.
Earnings per share are additionally calculated based on underlying profit
attributable to shareholders. The difference between underlying profit
attributable to shareholders and profit attributable to shareholders is
reconciled as follows:
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
Profit attributable to shareholders 1,194.6 782.9
Increase in fair value of investment properties (1306.1) (810.1)
Deferred tax on changes in fair value of
investment properties 220.5 139.7
Share of increase in fair value of
investment properties of joint ventures (2.7) (8.7)
Asset impairments and disposals (1.0) -
Minority interests 0.1 -
-------- --------
Underlying profit attributable to shareholders 105.4 103.8
-------- --------
8. TANGIBLE ASSETS
Year ended
31st
Six months ended 30th June December
2005 2004 2004
US$m US$m US$m
---------------------------------------
Net book value at beginning of
period 7,300.7 5,519.1 5,519.1
Exchange rate adjustments (3.7) (26.4) 2.5
Additions 61.0 27.0 78.7
Depreciation (0.4) (0.5) (0.9)
Increase in fair value of investment
properties 1,306.1 810.1 1,701.3
--------- --------- ---------
Net book value at end of period 8,663.7 6,329.3 7,300.7
--------- --------- ---------
9. BORROWINGS
At 31st
At 30th June December
2005 2004 2004
US$m US$m US$m
---------------------------------------
Current
Bank overdrafts 2.7 2.1 2.2
Short-term borrowings 77.2 76.9 77.1
Current portion of long-term
borrowings 0.1 2.0 0.2
80.0 81.0 79.5
Long-term borrowings
Bank loans 855.8 731.7 818.0
7% United States Dollar bonds due
2011 647.4 630.0 648.7
3% Hong Kong Dollar notes due 2006 192.4 191.1 192.1
5.5% United States Dollar bonds
due 2014 513.6 484.1 500.8
2,209.2 2,036.9 2,159.6
--------- --------- ---------
2,289.2 2,117.9 2,239.1
--------- --------- ---------
Secured - 2.0 -
Unsecured 2,289.2 2,115.9 2,239.1
--------- --------- ---------
2,289.2 2,117.9 2,239.1
--------- --------- ---------
Hong Kong Dollar 1,927.0 1,773.5 1,875.8
Singapore Dollar 293.7 275.6 294.7
United States Dollar 68.5 68.4 68.5
Vietnamese Dong - 0.4 0.1
--------- --------- ---------
2,289.2 2,117.9 2,239.1
--------- --------- ---------
10. SHAREHOLDERS' FUNDS
Year ended
31st
Six months ended 30th June December
2005 2004 2004
US$m US$m US$m
---------------------------------------
At beginning of period
- as previously reported 5,204.8 3,640.2 3,640.2
- change in accounting policy (note 1) - (1.2) (1.2)
--------- --------- ---------
- as restated 5,204.8 3,639.0 3,639.0
Recognised income and expense attributable
to shareholders of the Company 1,214.9 784.4 1,699.3
Dividends (note 12) (111.3) (89.0) (133.5)
--------- --------- ---------
At end of period 6,308.4 4,334.4 5,204.8
--------- --------- ---------
11. NET ASSET VALUE PER SHARE
Net asset value per share is calculated on shareholders' funds of US$6,308.4
million (2004: US$4,334.4 million)and on 2,225.6 million (2004: 2,225.6
million) shares in issue at the period end, which excludes 69.6 million shares
in the Company held by a wholly-owned subsidiary.
Net asset value per share is additionally calculated based on adjusted
shareholders' funds. The difference between shareholders' funds and adjusted
shareholders' funds is reconciled as follows:
At 31st
At 30th June December
2005 2004 2004
US$m US$m US$m
---------------------------------------
Shareholders' funds 6,308.4 4,334.4 5,204.8
Deferred tax on increase in fair value
of investment properties 1,081.8 709.6 860.9
Share of deferred tax on increase in
fair value of investment properties of
joint ventures 6.4 4.4 5.9
--------- --------- ---------
Adjusted shareholders' funds 7,396.6 5,048.4 6,071.6
--------- --------- ---------
12. DIVIDENDS
Six months ended 30th June
2005 2004
US$m US$m
--------------------------
Final dividend in respect of 2004 of USc5.00
(2003: USc4.00) per share 111.3 89.0
------- -------
An interim dividend in respect of 2005 of USc2.00 (2004: USc2.00) per share
amounting to a total of US$44.5 million (2004: US$44.5 million) is declared
by the Board and will be accounted for as an appropriation of revenue
reserves in the year ending 31st December 2005.
13. CASH FLOW PER SHARE
Cash flow per share is based on cash flows from operating activities less
major renovations expenditure amounting to US$67.3 million (2004: US$109.9
million) and is calculated on the weighted average of 2,225.6 million
(2004: 2,225.6 million) shares in issue during the period, which excludes
69.6 million shares in the Company held by a wholly-owned subsidiary.
14. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
At 31st
At 30th June December
2005 2004 2004
US$m US$m US$m
---------------------------------------
Capital commitments 566.1 521.0 493.4
---------- --------- ---------
Guarantees in respect of facilities
made available to joint ventures 17.2 57.1 19.7
---------- --------- ---------
15. POST BALANCE SHEET EVENT
In July 2005, a consortium in which the Group has a 33.3% interest was
awarded the right to develop the Business and Financial Centre site in
Singapore. The consortium's commitment for the first phase of the
development of approximately 158,000 sq. m, including option fees, will be
in order of US$450 million.
The interim dividend of USc2.00 per share will be payable on 12th October 2005
to shareholders on the register of members at the close of business on 19th
August 2005. The ex-dividend date will be on 17th August 2005, and the share
registers will be closed from 22nd to 26th August 2005, 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 22nd September 2005.
The Sterling equivalent of dividends declared in United States Dollars will be
calculated by reference to a rate prevailing on 28th September 2005.
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
G M Brown (852) 2842 8138
Matheson & Co Ltd
Martin Henderson (44) 207 816 8135
GolinHarris
C T Hew (852) 2501 7963
Weber Shandwick Square Mile
Richard Hews/Helen Thomas (44) 207 067 0700
This and other Group announcements can be accessed through the Internet at
'www.hkland.com'.
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