Consolidated Profit and Loss Account
For the six months ended 31st December 2002
(Expressed in millions of Hong Kong dollars)

Notes to Consolidated Profit and Loss Account
(Expressed in millions of Hong Kong dollars)

1. Basis of Preparation

The condensed interim financial statements have been prepared in accordance with the Statement of Standard Accounting Practice (SSAP) 25 "Interim Financial Reporting" issued by the Hong Kong Society of Accountants and the disclosure requirements set out in Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The accounting policies adopted are consistent with those set out in the annual financial statements for the year ended 30th June 2002, except for certain presentational changes made upon the Group's adoption of the new SSAP 1 (Revised) "Presentation of Financial Statements" and SSAP 15 (Revised) "Cash Flow Statements" which became effective on 1st January 2002.

The condensed interim financial statements are unaudited, but have been reviewed by the Audit Committee.

2. Segment Results

(a) The Company and its subsidiaries

The Group's turnover and contribution to profit from operations before finance cost by business segments are analyzed as follows:

Other business activities comprise revenue and profit derived from other activities including property management, car parking and transport infrastructure management, logistics business, construction, financial services, internet infrastructure and enabling services.

Less than 10 per cent of the operations of the Group in terms of turnover and operating results were carried on outside Hong Kong.

(b) Associates and jointly controlled entities

The Group's share of profits less losses of associates and jointly controlled entities by business segments are analyzed as follows:

(c) Combined results of the Group and its share of results of associates and jointly controlled entities by business segments

3. Net Finance Cost

4. Profit On Disposal Of Investments

5. Profit Before Taxation

Profit before taxation is arrived at after charging depreciation of fixed assets in the amount of HK$117 million (2001: HK$130 million).

6. Taxation

Hong Kong profits tax is provided at the rate of 17.5 per cent (2001: 16 per cent) based on the estimated assessable profits for the period.

7. Earnings Per Share

The calculation of earnings per share is based on HK$3,740 million (2001: HK$3,177 million) being profit attributable to shareholders and on 2,401 million shares (2001: 2,401 million shares) in issue during the period.

No diluted earnings per share is presented for the six months ended 31st December 2002 and 2001 as the exercises of all the share options outstanding during the periods have no dilutive effect on the earnings per share.

FINANCIAL REVIEW

Review of Results

The Group's profit attributable to shareholders for the six months ended 31st December 2002 was HK$3,740 million, an increase of HK$563 million or 18% compared to HK$3,177 million achieved for the corresponding period in 2001.

The Group's turnover totalled HK$13,574 million, an increase of HK$4,052 million over the same period last year mainly due to more property sales at the Group level than through joint venture companies as in the case of the previous year.

Profit generated from property sales, including share of results from jointly controlled entities and associates, amounted to HK$1,485 million (2001 : HK$1,510 million). Profit contributions mainly came from Park Central Phase I, Villa by the Park and 1 Po Shan Road.

Net rental income, including share of rental income from jointly controlled entities and associates, amounted to HK$2,105 million, declined by 6.8% compared to HK$2,259 million for the previous corresponding period, reflecting the pressure of negative rental reversions on lease renewals, primarily from office properties, during the period.

With the completion of the room renovation program in Royal Garden Hotel, profit contribution from the Group's hotel portfolio showed a remarkable increase by 18% to HK$111 million (2001 : HK$94 million). The improved results were also attributable to higher occupancy rates throughout the period and greater profit margin achieved through effective measures taken to improve operating efficiency.

All other business activities reported satisfactory results, contributing a total profit of HK$270 million (2001 : HK$192 million). The increase mainly arose from improved operating results on SUNeVision and steady profit growth on property management and insurance business.

Other revenue, which comprised mainly income from investment in securities and interest income from advances to joint venture companies, amounted to HK$53 million (2001 : HK$196 million).

Net finance cost for the period reduced substantially to HK$125 million (2001 : HK$317 million), due to reduced average borrowing levels and lower interest rates.

During the period, the Group disposed of its 25% equity interests in two commercial complexes in the New Territories generating a capital profit of HK$303 million.

Share of profits before taxation from associates and jointly controlled entities totalled HK$472 million (2001 : HK$1,085 million). The decrease was due to less property development activities compared to the previous year. Of this, KMB contributed a pre-tax profit of HK$291 million (2001 : HK$315 million) and SmarTone recorded an attributable pre-tax profit of HK$71 million against an attributable loss of HK$12 million for the previous corresponding period.

Financial Resources and Liquidity

Shareholders' funds as at 31st December 2002 totalled HK$128,180 million (30th June 2002 : HK$128,598 million). The Group's net borrowings as at 31st December 2002, made up of HK$23,284 million in borrowings and HK$6,801 million in bank deposits and balances, amounted to HK$16,483 million (30th June 2002: HK$20,057 million).

The Group's borrowings are all unsecured and mainly arranged on a medium to long term committed basis with a maturity profile set out as follows :

The Group's financial position remains strong with a low debt leverage and high interest cover. Gearing ratio at 31st December 2002, calculated on the basis of net borrowings to shareholders' funds, reduced to 12.9% from 15.6% at 30th June 2002. Profit from operations covered 14.6 times the net interest expenses before capitalization compared to 5.9 times for the same period in 2001.

With the continuous cash inflow from property sales and rental income, substantial committed banking facilities and cash in hand, the Group is in a strong liquidity position to meet its commitments and ongoing working capital requirements.

All the Group's funding activities are centrally managed and controlled at the corporate level. As at 31st December 2002, 97.5% of the Group's borrowings were raised through its wholly-owned finance subsidiaries and the remaining 2.5% through operating subsidiaries.

With approximately 94% of the borrowings denominated in Hong Kong dollars and the balance in US dollars and Reminbi, the Group has no significant exposure to foreign exchange rate fluctuations. The Group's borrowings are principally arranged on a floating rate basis. For fixed rate notes issued under the Euro Medium Term Note Programme, interest rate swaps have been utilized to convert them into floating rate debts. The use of financial derivative instruments is strictly controlled and solely for management of the Group's interest rate and foreign exchange rate exposures in connection with its borrowings. As at 31st December 2002, the Group has entered into various interest rate swaps transactions with reputable financial institutions in the aggregate amount of HK$3,305 million (30th June 2002 : HK$3,050 million) for swapping fixed interest rate borrowings into floating rate borrowings. The Group also entered into currency swaps in the total sum of HK$235 million (30th June 2002 : HK$235 million) for swapping US dollar denominated borrowings to effectively become HK dollar currency loans.

Contingent Liabilities

The Group has provided guarantees to banks and financial institutions in respect of facilities drawn by jointly controlled entities totalling approximately HK$3,802 million (30th June 2002 : HK$3,789 million).

Employees

As of 31st December 2002, the Group had about 19,000 employees. The Group provides competitive remuneration packages to employees commensurable to market level in the business in which the Group operates and their qualifications. Incentive schemes composed of discretionary bonus and other merit payments to reward employees based on performance are also offered. The Group also provides retirement schemes, medical benefits and both in-house and external training programs for all staff.

Interim Dividend

The Directors declared an interim dividend of HK$0.60 per share (2001: HK$0.55 per share) payable in cash on 8th April 2003 to shareholders on the Register of Members as at 7th April 2003.

The Register of Members will be closed from Friday, 28th March 2003 to Monday, 7th April 2003, both days inclusive. In order to qualify for the interim dividend, all transfer forms accompanied by the relevant share certificates must be lodged with the Company's Share Registrars, Computershare Hong Kong Investor Services Limited, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong for registration not later than 4:00 p.m. on Thursday, 27th March 2003.

Interim Report

The interim report containing all the information required by the Listing Rules of The Stock Exchange of Hong Kong Limited will be published on the Exchange's website and printed copies will be sent to shareholders before the end of March 2003.

By Order of the Board
Lai Ho-kai, Ernest
Company Secretary

12th March, 2003

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