The Group's unaudited profit after tax and minority interests for the half year ended 31st December, 1996 was $6,248 million, an increase of 21 per cent over the corresponding period of the previous year. Earnings per share was $2.61, an increase of 18 per cent over the same period last year.

The directors have declared an interim dividend of $0.70 per share, representing an increase of 17 per cent over last year's $0.60 per share. The dividend will be payable on 18th April, 1997 to shareholders whose names appear on the Register of Members of the Company on 18th April, 1997.

During the 6 months to 31st December, 1996, total property sales generated by the Group, both as principal and as agent, were $8,096 million, an over 3-fold increase as compared to $1,967 million for the same period last year. Major projects sold during the period include King's Park Villa in Kowloon and Villa Tiara in Tuen Mun.

Completion of properties in the first half and expected completion in the second half of the current financial year are analysed as follows:

During the first half of the financial year, the following projects were completed:

Other than 51 & 55 Deep Water Bay Road, which has been retained for rental, all marketed residential properties completed in the first half of the year have already been sold. All space in Ginza Plaza has also been sold.

Presale of the 2 major projects to be completed in the second half of the year, East Point City in Tseung Kwan O and Villa Tiara in Tuen Mun, has already commenced, with very encouraging results. Almost all residential units in both developments have already been sold.

Since the beginning of the current financial year, the Group has added 8 sites to its land bank through land use conversion, Letter B land exchange, public tender and private negotiation with owners. These sites, having a total attributable gross floor area of 3.8 million square feet, are as follows:-

The Group currently owns a land bank in Hong Kong of 47.8 million square feet in terms of attributable gross floor area, consisting of 15.1 million square feet of completed investment properties and 32.7 million square feet of properties under development. In addition, the Group owns 18 million square feet of agricultural land in the New Territories, the majority of which is in the process of land use conversion.

East Point City Shopping Centre, with a gross floor area of 415,000 square feet, is expected to open in October this year. Over 95 per cent of the shopping centre has already been leased. Grand Century Place, adjacent to the Mongkok Railway Station, has a total gross floor area of 1.6 million square feet, comprising a shopping centre, offices and a hotel. The project is scheduled for completion in the third quarter of 1997. Leasing has commenced and the response has been encouraging.

The grant conditions of the MTR Hong Kong Station Phase 1 development have been finalised. Phase 1, which comprises 785,000 square feet of offices and 131,000 square feet of retail space, is expected to be completed in late 1998.

The Group's investment properties are virtually fully let. Recently, the leasing market for luxury residential properties has been more active, with slightly higher rentals. Demand for offices has increased due to the expansion of companies in Hong Kong. The gradual recovery of the retail sector has pushed rentals of shopping space moderately upwards.

The Group's industrial buildings are almost fully leased. The sales market for these properties has shown signs of recovery in the past few months. All space in ComWeb Plaza, an I/O development, has been sold. The Group's industrial sites are in the process of conversion into commercial, office, hotel or I/O use.

The Group continues to expand its investment property portfolio, with an emphasis on the development of large-scale, high quality commercial complexes. The Group will complete more than 3 million square feet of new investment properties in the next 3 years. These projects include East Point City Shopping Centre in Tseung Kwan O, the entire Grand Century Place complex in Mongkok, and the commercial complexes at 81 How Ming Street and KTIL 726 in Kwun Tong.

Satisfactory growth in rental income is expected in coming years due to continuing positive rental reversion from the Group's existing properties and additional contributions from new investment properties to be completed. The Group will continue to undertake refurbishment and renovation programmes for its existing shopping centres so as to enhance their quality and rental value.

With increasing visitor arrivals and a limited supply of new hotel rooms in the short-term, the outlook for the hotel industry in the coming year is promising. The Royal Garden and Royal Park hotels both achieved very satisfactory results during the period, with occupancy rates reaching 97 per cent and 95 per cent respectively. The Group's hotel business will be further strengthened upon the completion of the 672-room Royal Plaza Hotel at Grand Century Place, Mongkok, in the third quarter of 1997.

SmarTone Telecommunications Holdings Limited was listed on the Hong Kong Stock Exchange on 31st October, 1996 by way of an initial public offering. Eighty-four million new shares of $17.25 per share were issued, raising a total of $1.45 billion. SmarTone's first interim result since the listing has been very encouraging. Its subscriber base has been growing at a faster rate than targeted and has already exceeded 340,000, with average revenue per subscriber being maintained at a satisfactory level. As the rapid expansion of Hong Kong's cellular phone market continues, the Group has great confidence in SmarTone's future prospects.

Tsing Ma Management Limited, 40 per cent owned by the Group, was recently awarded a 4-year contract to manage and maintain the Tsing Ma Control Area (including the Tsing Ma Bridge) which will open to traffic in May this year.

Construction of the River Trade Terminal in Tuen Mun commenced at the end of last year. The first phase initial operating area is scheduled to go into service in the fourth quarter of 1998, with the entire project to be completed by the end of 1999. The Airport Freight Forwarding Centre at the new airport is expected to be completed by early 1998 as scheduled and over 65 per cent of the 1.3 million square feet of cargo handling space has been let. Construction of Route 3 (Country Park Section) is progressing smoothly. The breakthrough of the Tai Lam Tunnel will take place in mid-1997, and the entire route will be operational in August 1998.

The completion of these infrastructure projects will not only strengthen the Group's cash flow, but will also enhance its recurrent income.

The Group continues to adopt a prudent and selective policy in China, with investments not exceeding 10 per cent of the Group's total assets. Current projects are located mainly in the 3 major cities of Beijing, Shanghai and Guangzhou, with most developments to be held for rental purposes. Sun Dong An Plaza in Beijing will be completed in the second half of 1997.

China's open-door policy and economic reforms are expected to continue. Prospects for the Chinese economy remain positive as economic growth continues and inflation is kept to a low level. Hong Kong's economic fundamentals are solid. Consumer spending has undergone a gradual recovery, helped in part by the appreciation of property prices. Household income continues to rise steadily amid lower unemployment rates. Greater confidence among Hong Kong people recently towards the handover has boosted investment and the consumer market. The change of sovereignty and related celebrations will also benefit the tourist industry. Office rentals in Hong Kong are expected to remain at a reasonable level, helping Hong Kong to maintain its position as an international centre for finance, trade and business.

Residential property prices in Hong Kong went up by an average of 30 per cent during 1996, mainly due to limited supply and strong buyers' demand. Lower mortgage rates, and population growth as a result of increasing numbers of overseas returnees and immigrants from China have also boosted sales of residential properties. In view of the higher level of speculative activity in recent months, the Group will continue to co-operate with the Government and adopt effective measures to curb speculation when launching new projects for sale. As the supply of new private residential units in 1997 remains low while supply in future years is expected to be adequate, it would be desirable for the Government to consider relaxing the 12-month presale period for new projects so that the immediate availability of residential units for sale will increase. With rising income, low interest rates and continuing population growth, the demand for housing will remain strong. The Group is optimistic about the prospects for the residential market in Hong Kong.

The Group's land bank, acquired at a cost substantially below current market prices, is sufficient for its development needs in the next 5 years. The Group will continue to acquire new sites on a selective basis.

The Group's future business will remain focused on property development in Hong Kong. Continuous efforts will be made to provide premium quality products and after-sales service. Established to improve communication with and services to our customers, SHKP Club currently has over 25,000 members. The Group will continue to develop a diverse portfolio of properties in Hong Kong, by usage and geographic location. Efforts will also be made to further strengthen recurrent income by investing more in new prestigious rental properties and infrastructure projects, in order to achieve the Group's long-term objective of an equal balance between profit from property development and recurrent income.

The Group is in a strong financial position, with low gearing and a significant recurrent income base. With substantial liquidity and increasing confidence within the Hong Kong financing market, the Group has recently been able to procure new banking facilities at more favourable terms to replace existing ones. The Group's liquidity will be further enhanced by the launch, in the near future, of more projects such as Parkside Villa and Ha Yau Tin in Yuen Long, TLTL 66 in Tsing Lung Tau and Lam Tei in Tuen Mun.

Most residential properties scheduled for completion in the current financial year have been presold. With a buoyant property market, the Group's results for the current year are expected to show considerable growth.

The Company's non-executive director, Mr. Charles Y.K. Lee, resigned from the board recently due to his appointment to the Executive Council of the Hong Kong Special Administrative Region. On behalf of the board of directors, I wish to thank Mr. Lee for his valuable contributions to the Group over the past 21 years.

I would also like to take this opportunity to express my gratitude to my fellow directors for their guidance and to all staff for their hard work. They have all contributed to the excellent results of the Group.

1997 marks the 25th anniversary of the Group's public listing. During the past 25 years, the Group has grown with Hong Kong. Under the efforts of all staff, and with the support of the business community, the Group has established firm foundations as a developer of high-quality properties in Hong Kong. Entering this new era, and with the smooth transfer of sovereignty of Hong Kong to China, the Group will further strengthen its efforts to achieve new heights of excellence.

Kwok Ping-sheung, Walter
Chairman & Chief Executive

Hong Kong, 20th March, 1997