Energy, Infrastructure, Finance and Investment

The Group is one of the largest private investors in the Mainland's infrastructure sector and a leading cement and concrete manufacturer in Hong Kong and Southern China. Investments in Hongkong Electric and Husky Oil in Canada reflect the Group's diversification into power generation and distribution as well as oil and gas.

Profits from the Group's energy, infrastructure, finance and investment division, after a provision of HK$920 million in respect of the Group's portfolio of listed investments, totalled HK$4,363 million (1996 - HK$3,566 million). Finance and investment income was primarily derived from interest earned on surplus cash and dividends received.

Cheung Kong Infrastructure

The year was one of strong growth for Cheung Kong Infrastructure (CKI), in which the Group acquired an 84.58% interest through a restructuring of the Cheung Kong Group during the early part of 1997. As part of the restructuring, CKI acquired a 35.01% interest (subsequently increased to 36.11%) in Hongkong Electric Holdings Limited (HEH), the sole provider of electricity to Hong Kong and Lamma islands. In addition to strengthening its energy sector, the holding in HEH provides CKI with a strong recurrent income base. HEH recorded a profit of HK$4,709 million in 1997, compared with HK$4,154 million in 1996.

CKI is involved in three core areas: infrastructure materials; energy; and transportation. In 1997, CKI committed to invest a total of HK$4.3 billion in Mainland China, bringing the total amount of committed investment to HK$10.9 billion.

CKI's energy portfolio was further strengthened during the year through the signing of contracts for new power plant joint ventures in three provinces in the Mainland. Existing plants at Shantou and Nanhai operated smoothly during the year, while work proceeded on schedule on a 1,400 MW power plant in Zhuhai.

CKI's transportation activities made good progress, almost doubling the length of toll roads in which the company is involved to over 700 km. During the year, new contracts were signed for roads and bridges in six provinces in the Mainland.

CKI's cement and concrete businesses in Hong Kong performed satisfactorily and maintained market leadership. In the Mainland, CKI also expanded its activities into Southern China through a joint venture with Guangdong International Trust and Investment Corporation for the manufacture and distribution of cement and concrete.

Husky Oil

Husky Oil continued to perform well in 1997, making a positive contribution to the Group's results. During the year, Husky substantially increased its earnings and achieved significant growth in shareholder value, cash flow, production volumes and reserves. Husky's production in 1997 averaged 94,200 Boe (barrels of oil equivalent) per day, an increase of 5.1% over 1996. For 1997, Husky's Western Canadian reserve replacement rate was 123%.

Husky also significantly increased development and exploration activities in Canadian East Coast offshore oil projects, which are centred on the Jeanne d'Arc Basin offshore the province of Newfoundland. In February, Husky announced the opening of a regional office in St John's, Newfoundland, to manage these activities. The East Coast is considered a significant growth area for Husky's light oil production. Husky is one of the area's largest participants, with interests including 17.5% of Terra Nova, 43.8% of White Rose, 42.2% of North Ben Nevis and 50% of the Cape Race exploration licence.

At 31 December 1997, Husky had proved reserves of crude oil, liquids and natural gas of 387 million barrels.

During the year, Husky acquired the 50% interest which it did not already own in Western Canadian Place from Trizec Hahn for C$127 million. Concurrently, litigation with the vendor was terminated. Western Canadian Place is a 1.1 million sq ft office property in Calgary.

Husky also negotiated acquisition of the 50% interest it did not already own in the Bi-Provincial Upgrader at Lloydminster from the Government of Saskatchewan. The transaction was completed in early 1998 for C$310 million. The Upgrader processes heavy oil into high quality, low sulphur synthetic crude. Production in 1997 was 53,000 barrels per day.


The COMPASS credit card, in which the Group has a 50% interest, recorded a strong growth in its customer base, rising from 120,000 to more than 200,000. During the year, a new affiliation card, Everyday COMPASS Visa, was launched with Hutchison Telecommunications (Hong Kong).

Group Liquidity and Financial Resources

The Group's capital expenditure for the year, excluding expenditure for properties under development and for sale, totalled HK$7,236 million (1996 - HK$7,611 million), and were funded from cash on hand, internal cash generation, and to the extent required, by external borrowings. At 31 December 1997, the Group's borrowings, net of cash, managed funds and other listed investments, were HK$29,601 million (1996 - HK$10,416 million). Approximately 45% of the Group's total borrowings were denominated in HK dollars, 51% in US dollars, 3% in pounds sterling and the remaining 1% in other currencies. The non-HK dollar and non-US dollar loans are either directly tied in with the Group's businesses in the countries of the currencies concerned, or the loans are balanced by assets in the same currencies. Action was taken during the year to lengthen the maturity profile of the Group's borrowings and, excluding non-interest bearing loans from minority shareholders, the Group's borrowings at year end were repayable as shown below.

Others Total

within 1 year
in years 2 to 4
in year 5
in years 6 to 10
in years 11 to 20
beyond 20 years


Committed borrowing facilities available to Group companies, but not drawn at 31 December 1997, amounted to the equivalent of HK$8,823 million.

Two important borrowing facilities which were arranged during the year are:

(i) A HK$12,000 million, five year loan facility with a syndicate of financial institutions. The facility was fully drawn down in July and the proceeds used to repay short term debt. The Group was the recipient of the "1997 Asian Loan of the Year Award" from International Financing Review and IFR Asia for this loan.

(ii) On 1 August 1997, the Group entered the global bond market with a US$2,000 million, four tranche issue which was more than three times oversubscribed. The issue was split into 10 year US$750 million, 20 year US$500 million, 30 year US$500 million and 40 year US$250 million (with a put after 12 years) tranches. The bonds were sold in the Rule 144a market in the USA and also listed in Luxembourg. The issue was assigned an A3 credit rating by Moody's Investor Service and A+ by Standard and Poor's. The bonds bear interest at fixed rates varying from 6.95% to 7.5% per annum. The proceeds from the bond issue are being used for general corporate purposes including the funding of capital expenditures. For this issue, the Group was the recipient of six awards from leading international financial and business magazines.

The two borrowing facilities earned the Group the "1997 Asian Borrower of the Year" award from International Financing Review and IFR Asia.

Treasury Policies and Capital Structure

The Group's overall treasury and funding policy is one of risk management and control, with transactions being directly related to the underlying businesses of the Group. We endeavour to match the Group's assets located in other countries and denominated in the currencies of those countries with an appropriate level of borrowings, where possible, in the same currencies. Forward foreign exchange contracts and interest and currency swaps are utilised when suitable opportunities arise and, when considered appropriate, to hedge against major non-HK and non-US dollar exposures as well as assist in managing the Group's interest rate exposures.

Community Service

As an organisation that places a strong emphasis on the achievement of high goals, the Group is a keen supporter of a range of activities and organisations which benefit people from all walks of life throughout the community.

During the year, the Group assisted a number of charities, including the Community Chest, which provides funds to more than 140 member agencies and concentrates on providing assistance and opportunities to youth, the handicapped and the elderly throughout the territory. Among the many other charities and organisations whose activities were sponsored were Helping Hand, the Save the Children Fund, the Hong Kong Red Cross, the Hong Kong Cancer Fund, Friends of the Earth, Oxfam Hong Kong, the Children's Miracle Charity, the Spastics Association of Hong Kong and Lifeline Express.

In recognition of the valuable role played by education and the arts in the community, the Group supported the China National Symphony Orchestra Trust, the Hong Kong Arts Festival Society, the Hong Kong Philharmonic Society, the Chinese Cultural Exchange Fund and the Sir Edward Youde Scholars' Association.

Employee Relations

Excluding associated companies, the Group employs 31,271 people (1996 - 27,733 people) of whom 17,306 (1996 - 16,946) are employed in Hong Kong. Employee costs, excluding Directors' emoluments, totalled HK$5,766 million (1996 - HK$5,301 million). All subsidiary operating companies of the Group are equal-opportunity employers, with the selection and promotion of individuals being based on suitability for the position offered. The pay levels of the Group's employees are kept at a competitive level and employees are rewarded on a performance-related basis within the general framework of the Group's salary and bonus system which is reviewed annually. A wide range of benefits including medical coverage, provident funds and retirement plans and long-service awards are also provided to the employees.

Many social, sporting and recreational activities were arranged during the year for employees on a Group-wide basis. Group employees also participated in charity walks as well as other community-oriented events. In addition, training and development programmes are provided on an on-going basis throughout the Group. Financial assistance is also available to qualifying employees who wish to further their education through part-time diploma or degree courses.


The unprecedented financial turmoil which has affected Asian economies has had an adverse impact on most countries in the region. Depending on the severity of the crises and the length of time it will take for the economies to recover, 1998 is likely to be a challenging year not only for Hong Kong but for the Asian region as a whole.

The Group, however, is in a strong financial position. With its longer-term debt capital structure, strong liquid financial position and a stream of quality recurrent earnings, the Group will not only be able to meet the challenges of the current Asian crises but also take advantage of attractive investment opportunities that may arise locally and/or regionally.

The Group remains firmly committed to its policy of focused strategy and controlled growth of its core businesses.

The results for 1997 were achieved through the hard work and dedication of the employees of the Group, and I would like to join our Chairman in thanking them for their efforts throughout the year.

Canning K N Fok
Group Managing Director

Hong Kong, 26 March 1998

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