Chairman's Statement

I am pleased to present my report to the shareholders:

Results

The Group's profit after taxation and minority interests for the year ended 30th June 2000 was HK$10,822 million, an increase of 17 per cent compared with last year's profit of HK$9,278 million. Earnings per share for the year was HK$4.51, representing an increase of 17 per cent compared with HK$3.87 for the previous year.

Dividends

The Directors have recommended the payment of a final dividend for the year ended 30th June 2000 of HK$1.20 per share. Together with the interim dividend of HK$0.55 per share, the total dividend for the full year is HK$1.75 per share, representing an increase of 13 per cent when compared with the previous year.

Review

Sales

During the year ended 30th June 2000, total property sales generated by the Group, both as principal and as agent, amounted to HK$9,733 million, as compared to HK$21,904 million in the previous year. Major projects marketed during the period included Prima Villa in Shatin, Ocean Shores Phase 1 in East Kowloon, Grand Pacific Views and Grand Pacific Heights on Castle Peak Road and Villa Premiere in Yuen Long.

During the year under review, the Group completed the following seven projects, with an attributable gross floor area of about four million square feet, as follows:

Approximately 95 per cent of the residential units completed during the year have been sold. Millennium City Phase 2 and the shops at Castello in Shatin have been retained for investment.

Land Bank

During the year, the Group added a total of five million square feet of attributable gross floor area to its land bank through land use conversion, public tender, auction and private negotiation, as follows:

*  Planning for conversion to office use
** In the process of lease modification to residential use

At the end of June this year, the Group owned a land bank of 52.1 million square feet in Hong Kong, in terms of attributable gross floor area. In early September, the Group won the tender for the Airport Railway Kowloon Station Development Packages 5, 6 and 7, of which the Group's attributable gross floor area is 4.7 million square feet, increasing its land bank to 56.8 million square feet. The Group's current land bank consists of 18.8 million square feet of completed investment properties and 38 million square feet of properties under development. The Group also owns 22 million square feet of agricultural land in the New Territories, primarily along existing or planned rail lines, the majority of which is in the process of land use conversion.

Kowloon Station Development Packages 5, 6 and 7 are strategically located on the Airport Railway Kowloon Station, in the heart of a key future commercial area and cultural centre of Hong Kong. This is also a transport hub offering convenient access to Central, the airport, the New Territories and the border. It will include a 102-storey tower, which together with the 88-storey second phase of the Group's International Finance Centre to be completed above Hong Kong Station on the Island's waterfront by 2003, will form a ¡¥Harbour Gateway' of new landmarks spanning Victoria Harbour. Given the fact that the supply of grade-A office space and five-star hotels in the core commercial areas will be limited in coming years, the Group has full confidence in this project.

Property Development

Hong Kong showed strong economic growth this year, topping the list in Asia. Total exports rose quickly and tourists arrivals jumped by double digits. Employment conditions improved and consumer confidence strengthened.

Sentiment in the residential property market improved over recent months, with volume of transactions higher and prices stabilized. A variety of Government initiatives introduced mid-year have boosted homebuyer confidence, and the Hong Kong Mortgage Corporation also brought in a new mortgage insurance programme, under which banks can offer loans of up to 90 per cent of a property's value, helping to increase transactions in the second-hand market.

Credit conditions are favourable and banks are offering very attractive mortgage interest rates to homebuyers, with the nominal mortgage rate at its lowest in 12 years. Residential property prices are now back to 1993 levels and affordability for homebuyers is at its strongest since 1990.

The supply of new residential properties to be completed in the next two years is expected to remain steady. This, together with brighter economic prospects, falling unemployment and more positive Government policies should result in a steady growth in transaction volume and residential property prices.

In the long term, continuous economic growth, an expanding population and Government policies to encourage home ownership will underpin increasing demand. Future prospects for the residential market are promising.

The Group will continue to focus on its core business of property development in Hong Kong, primarily with large-scale residential projects in a wide range of sizes concentrating on small to medium units. Besides enhancing premium quality and comprehensive facilities in its developments, the Group will incorporate broadband Internet access and the latest technology in its residential and commercial properties to increase their competitiveness. The Group has launched a corporate branding campaign to reinforce its standing as a premium-quality developer, as well as a programme to increase staff consciousness of the importance of quality and customer service.

The Group will keep increasing its land bank through various means, in line with its long-term strategy of raising the number of residential units completed for sale. The conversion of agricultural land to residential use will remain one of its principal sources of new land, and the Group is now in on-going negotiations with the Government on land premiums for approved land use conversion.

In the coming financial year, the Group expects to complete properties with a total attributable gross floor area of 4.3 million square feet as follows:

Property Investment

Leasing demand for various types of properties increased on the back of Hong Kong's strong economic growth. While rentals of retail and residential property showed signs of firming up, grade-A office rentals fared much better, particularly for top-quality buildings in core commercial areas. The Group's gross rental income for the financial year, including its share of jointly-controlled entities, saw a two per cent decline from the previous year to HK$5,670 million. Occupancy of the Group's investment property portfolio rose to 96 per cent.

With the economy expected to continue growing, leasing demand should remain robust. Anticipated rent increases on new leases, coupled with fresh contributions from newly-completed investment properties, should mean the Group's future rental income will perform satisfactorily.

One International Finance Centre is now virtually fully let. Building on this success, the Group is constructing the second phase, comprising a 1.95 million square-foot, 88-storey office tower, 0.5 million square feet of shopping centre and 1.1 million square feet of hotel space. The development is planned for completion in stages between 2002 and 2004. The Group has a 47.5 per cent interest in the project. The office tower will provide comprehensive facilities and a flexible, interactive design, accommodating sophisticated information technology and communication systems to meet tenants' needs. At a height of 420 metres, this will be the tallest building and a new landmark for Hong Kong upon completion. Leasing of the office space will begin in the coming months.

The Group continues to transform Kwun Tong into one of the major business hubs of Hong Kong. The completion of the entire Millennium City, prominently located in East Kowloon, will provide over 3.7 million square feet of office and retail space. Phase 2 was finished by the end of 1999, and the leasing results for both Phases 1 and 2 are very encouraging with 100 per cent occupancy. Construction of Millennium City Phase 3 will begin soon, providing 155,000 square feet of office space when it is completed in 2002. Planning for Phase 4, consisting of more than 1.2 million square feet of office and retail space, is under way. Of that, 700,000 square feet of office and retail space will be available for occupation by the end of 2002. Both Phases 3 and 4 will be retained for investment. Phases 1 to 4 of Millennium City are expected to bring the Group rental income amounting to HK$650 million annually.

The Group will continue renovating and refurbishing its investment properties to strengthen their quality and facilities, enhancing their rental and capital value. To meet emerging market demand, the Group is introducing theme shopping malls, starting with the recent opening of a 40,000 square-foot Snoopy's World in New Town Plaza Phase 1. In addition, the Group will continue organizing promotional programmes in its shopping centres to boost consumption and increase pedestrian flows.

To maintain an optimal rental portfolio, the Group reviews its existing holdings regularly and continues to develop new premium projects for rental. It will also consider the disposal of some non-core investment properties.

Information Technology and Telecommunications

SUNeVision

Last year, the Group launched its Internet flagship company, SUNeVision Holdings Limited, which aspires to be the leader and partner of choice in Asia for technology infrastructure and enabling solutions. SUNeVision was listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong on 17th March 2000. There was an overwhelming response to the international placing and public offer, being oversubscribed 55 and 217 times respectively, and the company raised HK$3,380 million. The Group now owns 83.8 per cent of the company.

SUNeVision's business operations have been progressing smoothly, exceeding targets. The company will carry on strengthening its management team and making new business initiatives, while continuing its efforts to expand in the region. This demonstrates the company's management strength and an ability to move quickly in the rapidly-changing technology environment, resulting in good performance. Each of its business divisions is already generating revenue and poised for profitability.

iAdvantage speedily rolled out Internet services centres in Hong Kong, Beijing, Shanghai and Singapore, with operational centres covering approximately 220,000 square feet and another 350,000 square-foot centre to be completed by the end of the year. These will provide quality revenue streams over the long term. iAdvantage also entered into several strategic alliances that enable the provision of fibre-optic backbone and connectivity, both locally and in other parts of the globe.

Super-office has already provided applications and e-commerce services to several major industries in Hong Kong, and it offers a comprehensive range of all-in-one business solutions, professionally-tailored applications and e-market solutions to small and medium sized enterprises in Hong Kong and the Greater China region.

SuperHome introduced its intelligent home portal service delivering neighbourhood-specific information in Tseung Kwan O with 40,000 registered users, and it is going to launch services in other districts, including Shatin and Tsuen Wan. It also entered into an agreement with the MTR Corporation in July this year to provide on-line estate management and community information to 57,000 households in MTRC managed estates and Airport Railway developments.

SUNeVision has installed a fibre-optic broadband network in Royal Peninsula in Hung Hom, and will continue providing broadband Internet connectivity to the Group's residential and commercial properties.

SUNeVision is well positioned to thrive in the emerging global business environment. It has strong financial backing, with net cash of about HK$2,800 million. With its capable and experienced management, premium brand name, built-in market strength and prudent approach to investment, SUNeVision will emerge even stronger after the current period of industry adjustment. While exercising cost controls, it will continue to seek strategic alliances and partnerships, and investment opportunities for technology infrastructure, e-commerce solutions and other businesses in Hong Kong and globally. The Group is confident in SUNeVision's growth prospects in the Internet era.

SmarTone

SmarTone reported a net loss during the year as a result of the exceptional item arising from the write-off of handset subsidies and other provisions. The company's subscriber base expanded by more than 40 per cent over the year to 867,000, representing about 19 per cent of the market, and it now stands at 930,000. SmarTone became a constituent member of the Hang Seng Index in November 1999, signalling its leading position in the telecommunications industry. The company will maintain its prudent management approach to ensure cost efficiency and high productivity. SmarTone was the world's first operator to introduce wireless data service with WAP technology and to launch live operational General Packet Radio Service on its local network. It is actively transforming itself into a full service broadband multimedia communication provider by expanding into broadband Internet and wireless data, as well as preparing for a 3G licence and keenly assessing the prospects for 3G mobile communications in the region. The Group is confident in the future prospects for SmarTone, and will continue to hold its stake in the company as a long-term strategic investment.

Transportation, Infrastructure and Logistics

The Kowloon Motor Bus Holdings Limited (KMB) recorded encouraging growth for the 1999 financial year, mainly because of taking on new routes and improving the frequency on certain other journeys. With the goal of creating a better environment, the company is actively investigating the use of ultra-low sulphur diesel in its fleet. The company will keep adding new air-conditioned buses to meet the increasing demand and raise the operational efficiency of its service. It will also maintain convenient, reliable and quality customer service in a cost-effective manner. KMB will explore new business opportunities in Hong Kong and Mainland China, and will continue to contribute stable recurrent income to the Group.

The Route 3 (Country Park Section) increased its toll for the Tai Lam Tunnel in April 2000. Traffic volume during the year registered steady growth, currently averaging about 47,000 vehicles daily. The expected steady increase in trade between Hong Kong and the Mainland will ensure good business prospects for the toll road. Construction of the entire River Trade Terminal in Tuen Mun was completed in late 1999, and the volume of cargo handled is increasing gradually. The Airport Freight Forwarding Centre continued to operate smoothly.

Asia Container Terminals Limited, in which the Group has a 28.5 per cent interest, is engaged in the development of two berths in Container Terminal 9. Bank financing of HK$3,400 million is already in place, and construction began in July this year. Upon completion in 2004, the berths will be exchanged for two existing berths in Container Terminal 8.

In June 2000, the Group started E-Supply Chain Management (ESCM), which is Hong Kong's first total supply chain solution provider. A wholly-owned subsidiary of the Group, ESCM is engaged in the provision of one-stop, state-of-the-art information technology applications and logistics services covering the entire supply chain. Leveraging the Group's existing infrastructure network, logistics resources and expertise, the company will offer end-to-end supply chain management to meet the intense demand from the business community.

All of the Group's infrastructure projects are now in Hong Kong, and should provide a steady stream of recurrent income over the long term. The Group will continue to explore new infrastructure and logistics investment opportunities in Hong Kong and Mainland China.

Hotel Business

Tourist arrivals continue to show double-digit growth this year, further boosting hotel occupancy. As China will soon join the WTO, business arrivals are expected to increase, and this, coupled with Hong Kong's efforts to become a major tourist destination in the region, makes prospects for the tourism industry promising.

Occupancy of the Group's three hotels remained high in the year under review, and their performance should continue to be satisfactory in the coming year. In addition, the Group is developing five-star hotels in both the Hong Kong and Kowloon Airport Railway stations. Given these excellent locations and the short supply of first-class hotels predicted for the future, the Group is confident in the prospects for these projects.

Mainland China Business

Given that China will soon join the WTO and open up the development of its central and western regions, it will provide more business and investment opportunities to Hong Kong and overseas investors. The Group will continue to pursue opportunities on the Mainland to invest selectively in property development, infrastructure, logistics, technology and telecommunications, with property development focusing on projects in four cities: Beijing, Shanghai, Guangzhou and Shenzhen.

The progress of retail and office leasing at Sun Dong An Plaza in Beijing is encouraging, with occupancy at 94 per cent. As one of the most popular shopping centres in the capital, the mall attracts more than 200,000 daily visitors on holidays.

Shanghai Central Plaza has 455,000 square feet of office space and 133,000 square feet of retail space, which is more than 96 per cent let. Glorious City Garden Phase 2 in Guangzhou, comprising 1.2 million square feet of residential space, was completed during the year and is 85 per cent sold.

Corporate Finance

The Group will continue its conservative financial policies, with a low gearing and high liquidity. Capitalizing on property market conditions in the past year, the Group added to its land bank through various means. Although land acquisitions and premium payments increased, the Group's financial position remains very strong. Gearing remains low and the net debt to shareholders' funds ratio is 15 per cent. The Group also has substantial undrawn facilities on a committed basis to fund future business expansion.

All the Group's bank credit facilities are unsecured, and its foreign exchange risk is negligible as the overwhelming majority of its borrowings are denominated in Hong Kong dollars. In keeping with its long-standing policy of diversifying its funding base and lengthening its debt maturity profile, the Group successfully arranged a five-year, HK$7,000 million loan facility with over 30 leading international banks, and the response has been tremendous. Since July 1999, the Group has issued several notes under its Euro Medium Term Note programme (EMTN), raising the equivalent of HK$2,634 million to mature within three to ten years. The proceeds from the syndicated loan and notes will be used as a standby fund for future financing and to refinance short-term debt.

Since starting its EMTN programme in February 1999, the Group has issued notes totalling the equivalent of HK$4,636 million. It also successfully arranged a six-year, HK$7,000 million syndicated term loan for the One International Finance Centre consortium, in which it holds a 47.5 per cent interest.

Customer Service

The Group is committed to providing premium-quality products and services. Not only will it continue to look after every aspect of residents' lives, the Group will also dedicate itself to providing dream homes of the future with broadband Internet access and creating e-communities.

Privilege Home Services from the Group's two property management subsidiaries offers residents added convenience in daily living. To cater for individual needs, referrals to suppliers of household services can also be arranged.

The Group places great emphasis on environmental protection. In addition to using eco-friendly designs and construction methods in projects under development, it has introduced a wide range of environmental initiatives, including bringing the first electric shuttle bus service to Hong Kong and pioneering organic farming for residents. The Group's property management subsidiaries have won numerous awards for 'green' management in their estates with energy-saving practices and recycling campaigns.

Building on its solid foundations, the SHKP Club continues to enhance the quality of its service to members. Membership growth is also encouraging, now exceeding 115,000. The Club introduced a show flat preview loyalty scheme and a number of preferential Internet services for members, including on-line application for Club activities and e-coupons for shopping discounts.

Prospects

Mainland China's economic prospects are bright. The anticipated acceleration of economic development and market liberalization accompanying its entry to the WTO will increase overseas investment and international trade, leading China's economy into a new era.

Hong Kong's cost structure has become more competitive, and as the gateway to China and an international centre of business, trade and finance, the territory is in a unique position to capitalize on all of the opportunities that will arise with China's WTO membership. With rising exports, improving domestic demand and increasing investment confidence, Hong Kong's economy should continue to flourish. While employment opportunities are improving, the easing of deflationary pressure is expected to continue.

Hong Kong's property sector is healthy, with transactions growing gradually and prices showing a steady rise. Affordability for homebuyers is favourable, and banks are enthusiastic about mortgage lending, offering attractive terms for buyers. These factors, along with Government policies, should help fuel demand for residential properties. The Group is confident in the prospects for residential property; and it anticipates that the demand for commercial property will increase. Office space in core business areas, fitted out with the latest technology, should show better rental performance.

The Group will continue to focus on Hong Kong property as its core business. It aims to sustain long-term growth by increasing its production of both residential units for sale and rental properties, maintaining standards of quality while implementing strict cost control measures.

With substantial recurrent income and the proceeds from residential pre-sales on the rise, combined with its solid financial position, the Group is in an ideal situation to take advantage of opportunities for new investment and business expansion. It will continue to capture new business in the fast-growing information technology sector through SUNeVision, as well as making use of its existing infrastructure network to selectively explore strategic investment opportunities in the logistics business, locally and in China. In addition, the Group will take a progressive approach to increasing its investments in property, infrastructure, logistics, technology and telecommunications on the Mainland.

The proceeds from pre-sales of residential properties continue to bring in cash revenue. Major properties expected to be sold in the coming six months include The Leighton Hill in Happy Valley, Oscar by the Sea in Tseung Kwan O, Ocean Shores Phase 2 in East Kowloon and Park Island on Ma Wan, with a total value of over HK$13,000 million.

More than 60 per cent of the residential properties to be completed in the coming financial year have been pre-sold, and barring unforeseen circumstances, the Group's results for the coming year should be satisfactory.

I would also like to take this opportunity to express my gratitude to my fellow directors for their guidance, and to all the staff for their dedication and hard work.

Kwok Ping-sheung, Walter
Chairman & Chief Executive

Hong Kong, 28th September 2000

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