Results

The Group's turnover for the first half of 1998 amounted to HK$1,516.263 million, an increase of about 12% from the same period in 1997. This increase was due largely to additional rental contribution from The Lee Gardens and Entertainment Building. Profit before interest and taxation also improved by around 10% compared to last year. However, to reflect the current difficult market conditions, a provision of HK$450 million has been taken in relation to the Group's holding in marketable securities. Combined with higher interest cost, the Group's unaudited consolidated net profit after taxation and minority interest for this period amounted to HK$171.973 million, a decrease of about 80%. Earnings per share dropped to 16.72 cents from the same period last year (1997 : 84.03 cents).

The Group's unaudited consolidated results for the six months ended 30th June 1998 with comparative figures for the corresponding period in 1997 are as follows:-

Notes:

1. Turnover figure for 1997 has been adjusted to conform to current period presentation.

2. Taxation:

3. Earnings per share are based on the consolidated net profit after taxation and minority interest and the weighted average number of shares in issue of 1,028,776,044 throughout the half year ended 30th June 1998 (1997 : 1,028,996,868 shares). The exercise of the subscription rights attached to the outstanding warrants, convertible bonds and executive share options would not materially dilute the earnings per share.

Interim Dividend

Your Directors have declared an interim dividend of 10 cents per share (1997 : 44 cents). The dividend will be payable in cash with a scrip dividend alternative. Shareholders who elect for the scrip dividend will be allotted with new ordinary shares of HK$5 each credited as fully paid subject to the Listing Committee of The Stock Exchange of Hong Kong Ltd agreeing to grant the listing of and permission to deal in the new shares to be issued by way of scrip dividend. A circular containing details of the scrip dividend and the form of election will be mailed to shareholders on or about 19th October 1998 and elections will be required to be made on or before 5th November 1998.

The share register will be closed from 16th to 19th October 1998, both dates inclusive. Definitive share certificates in respect of the scrip dividend and cheques (for those shareholders who do not elect for scrip dividend) will be despatched to shareholders on or about 11th November 1998.

Refinancing of the Group's Borrowings

The Group, in August, successfully arranged a HK$1,500 million unsecured term loan due in Year 2001 to refinance the secured construction loan for The Lee Gardens. With this financing completed, about 90% of the Group's total borrowings are financed by borrowings with maturity in excess of one year.

Investment Properties

The general economic slowdown in Hong Kong has affected all sectors of the property market. More specifically, oversupply has affected the office leasing market while reduced consumer spending and tourist arrivals have put pressure on retail leasing. The residential sector has experienced the reducing number of expatriates as well as housing allowance reductions. Rentals for new leases and renewals for all sectors have declined. The occupancy rates for the Group's office, retail and residential portfolio are about 93%, 98% and 91%, respectively.

Development Projects

Singapore

The Group has several residential property projects in Singapore. Stratford Court, in which the Group has a 10% interest, is scheduled for completion by the end of 1998. About 60% of the 268 units, with gross floor area of 35,976 square metres (387,100 square feet), have been successfully pre-sold.

Regarding the 522-unit Tanjong Rhu development, in which the Group has a 10% interest, piling work has been completed. At the 760-unit Sin Ming Avenue development, in which the Group has a 10% interest, piling work is scheduled for completion by the end of this year. As for the Newton Grove project with an area of 34,920 square metres (375,878 square feet), in which the Group has a 25% interest, it is in the process of seeking government approval of the building plans.

In light of the weak property market, the Singapore authorities have agreed to grant extensions for the completion of government tendered residential projects. Accordingly, further works on the above three projects which are still in the early development stages have been postponed.

Shanghai, The People's Republic of China

The property market in Shanghai remains soft. Sale of the units in Phase 1 of Peace Garden has been slow. The consortium has decided to postpone the development of Phase 2 and has obtained approval for an extension of the land use rights for this phase. As for Grand Gateway, in which the Group has a 15% interest, the furnished apartment tower is scheduled for completion by the end of this year and the retail podium will be completed by the end of next year.

Strata Sale of Broadwood Park

A total of forty-seven units (including six units sold in 1997) at Broadwood Park, a luxury residential property consisting of 62 units, have been sold. Seven units were completed in the first half of 1998 and the others are scheduled for completion in the second half of this year. The remaining units are expected to be sold before the end of the year. Total proceeds generated from the sale in 1998 will be about HK$900 million on completion.

Prospects

Hong Kong has recorded two successive quarters of negative growth and experienced high stock market volatility along with a sharp fall in property prices. The rest of the year is likely to remain challenging.

The property market faces continued difficulties with the oversupply of office space and weak demand in residential and retail sectors. Further pressure on rentals is anticipated. As interest rates are likely to remain high, priority measures are continuing to be taken to reduce the Group's debt level by the sale of non-core investment properties and marketable securities. The new scrip dividend alternative scheme could further enhance the Group's cashflow. With these determined goals and measures, I am confident that the Group will be in a solid position to face the challenges ahead.

Purchase, Sale or Redemption of the Company's Listed Securities

During the six months ended 30 June 1998, 2,405,000 ordinary shares of the Company were repurchased at an average price of HK$7.42 per share and US$8.5 million convertible bonds of a subsidiary of the Group were also repurchased at an average price of 96.24% of the par value.

Year 2000 Compliance

The Group recognises the importance of ensuring that all computerised systems are Year 2000 compliant. All operating systems have been reviewed and tested. Contractors and suppliers have also been asked to confirm their products/services for Year 2000 compliance. The Group is working under a programme where full compliance will be achieved by mid-1999. Details on the Group's Year 2000 plan and progress will be set out in the Interim Report to be sent to our shareholders.

H. C. Lee
Chairman & Managing Director
Hong Kong, 18th September 1998

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