CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1998

                                 Note        1998         1997
                                          HK$'000      HK$'000

Turnover                                5,510,365    4,862,601
                                        =========    =========
Operating profit                          678,681      554,610
Share of losses of associated
 company                                        -           (3)
Share of losses of jointly
 controlled entity                            (52)         (39)
                                        ---------    ---------
Profit before taxation                    678,629      554,568
Taxation                         2        (92,754)      (3,985)
                                        ---------    ---------
Profit after taxation                     585,875      550,583
Transfer from development
 fund                                           -          224
                                        ---------    ---------
                                          585,875      550,807
Minority interests                           (425)          (9)
                                        ---------    ---------
Profit attributable to
 shareholders                             585,450      550,798
                                        =========    =========
Earnings per share               3          $1.45        $1.36
                                        =========    =========

Notes:-

1. Basis of consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from or to the date of their acquisition or disposal, as appropriate. All material intercompany transactions and balances are eliminated on consolidation.

2. Taxation

Hong Kong Profits Tax has been provided at the rate of 16% (1997 - 16.5%) on the estimated assessable profits for the year. No provision for deferred taxation has been made as the Directors consider that no liability would be likely to arise as a result of the reversal of timing differences in the foreseeable future.

3. Earnings per share

The calculation of earnings per share is based on the profit attributable to shareholders of HK$585,450,000 (1997 -HK$ 550,798,000) and 403,639,413 shares in issue during the two years.

RESULTS

The Group's profit attributable to shareholders for the year ended 31 December 1998 was HK$585.5 million, representing an increase of 6.3% over the HK$550.8 million for the previous year. Earnings per share for the year amounted to HK$1.45 compared with HK$1.36 the year earlier. The Group's results were mainly derived from the operation of franchised bus services.

DIVIDENDS

At the forthcoming Annual General Meeting to be held on 10 June 1999, the Directors will recommend the payment to shareholders registered on that date a final dividend of 88 cents per share (1997 - 82 cents per share), totalling HK$355.2 million (1997 - HK$331 million), for the year ended 31 December 1998. Together with the interim dividend of 27 cents per share (1997 - 26 cents per share) paid on 9 October 1998, dividends for the year ended 31 December 1998 will amount to HK$1.15 per share (1997 - HK$1.08 per share), totalling HK$464.2 million (1997 - HK$435.9 million). Subject to the approval of shareholders at the forthcoming Annual General Meeting, the final dividend will be payable on 11 June 1999.

The Transfer Books of the Company will be closed from 31 May 1999 to 10 June 1999, both dates inclusive. To qualify for the proposed final dividend, transfers must be lodged with the Company's Share Registrars, Central Registration Hong Kong Limited of 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong by not later than 4:00 p.m. on 28 May 1999.

BUSINESS REVIEW

The Kowloon Motor Bus Company (1933) Limited ("KMB")

The profit from the franchised bus operations of KMB for the year amounted to HK$598.4 million (1997 - HK$556 million), representing an increase of 7.6% over the previous year. Revenue and operating costs related to KMB's franchised bus operations increased by 10.6% and 11.2% respectively as compared with the previous year. The increase in revenue was mainly due to the fare increase which came into effect on 1 December 1997 and the introduction of more air-conditioned buses and new bus routes. The increase in operating costs was mainly due to a rise in payroll costs, an increase in interest expense and additional costs incurred for enhancement of the quality of service. An average pay increase of 5.39% was awarded to all daily-rated employees with effect from 1 June 1998 and to all monthly-rated employees with effect from 1 September 1998.

In 1998, a total of 1,034.4 million passenger trips (1997 -1,051 million) was made on KMB's buses, amounting to a daily average of 2.83 million passenger trips (1997 - 2.88 million). This represents a slight decrease in the daily average ridership of 1.6% compared with 1997. The decrease in ridership reflected the economic downturn in Hong Kong and the region that led to higher unemployment, which had an impact on our commuter passengers, and the decrease in the number of visitors to Hong Kong. The magnitude of the decrease was offset to a certain extent by the influx of newcomers from the Mainland China and the growth of new towns. The actual distance travelled by KMB buses totalled 302.5 million kilometres (1997 - 301 million kilometres). The increase in distance travelled was mainly due to the introduction of new routes and improved frequencies on certain routes.

During the year, 17 new routes were launched including one cross-harbour route, 13 routes from the new towns in the New Territories, two Airport Railway feeder routes in urban Kowloon, one recreation and special service route. At the end of 1998, KMB operated a total of 387 routes with a fleet of 3,989 vehicles comprising 3,714 double-deck and 275 single-deck buses. The number of KMB's air-conditioned buses was increased by 321 to 2,115 which represents 53% of the total fleet.

Long Win Bus Company Limited ("LWB")

The opening of Hong Kong's new International Airport at Chek Lap Kok marked the full scale launching of LWB. In addition to the two routes introduced in 1997, 11 new routes were launched between April and July 1998 to service Tung Chung new town and the airport, and the fourteenth route was introduced in November 1998. At the end of 1998, LWB's young fleet comprised 160 air-conditioned double-deck buses.

In 1998, a total of 14.4 million passenger trips (1997 - 2.88 million) was made on LWB's buses, representing a daily average of 39,500 passenger trips (1997 - 13,500). The actual distance travelled by LWB's buses totalled 15 million kilometres (1997 - 1.43 million). This made LWB one of the largest non-rail, land-based operators serving North Lantau and the airport. However, due to a sharp decline in Hong Kong's tourism industry, the number of passenger trips in 1998 was significantly lower than expected resulting in a loss of HK$27.1 million incurred by LWB in 1998 against a profit of HK$1.5 million in 1997. The Government's plan for new towns in the New Territories will see a steady population growth in the LWB's operating area where it has a competitive edge in direct routing and attractive pricing.

Non-Franchised Service

Sun Bus Limited ("SB"), one of the first business units in the Group's Non-Franchised Transport Services Division, began operations on 1 January 1998. Its monthly turnover grew from zero to HK$2.5 million by the year-end. Servicing urban and sub-urban areas throughout Hong Kong, including the new airport, SB provides bus services on contract to large residential estates, shopping centres and major employers. The upward trend in demand for residential, commercial and employee bus services in areas with no direct mass transit link is expected to continue. SB will capitalise on this by expanding its presence in the market.

Interests in Associated Company and Jointly Controlled Entity

As at 31 December 1998, the Group's total interest in associated company and jointly controlled entity amounted to HK$11.9 million (1997 - HK$17.8 million). The investments were in respect of the operation of 3 bus routes in Dalian, China and a cross-boundary shuttle bus service between Lok Ma Chau and Huanggang, China which started operations in 1997. Contributions from these bus operations to the Group were insignificant during the year.

YEAR 2000 ISSUE

The Group is fully aware of the impact of the Year 2000 issue and has rigorously conducted contingency planning including scenario analyses and impact assessments. Appropriate actions have been taken, including the adoption of the Year 2000 conformity requirements issued by the British Standards Institution (DISC PD2000-1), i.e. neither performance nor functionality is affected by dates prior to, during and after the Year 2000.

A Year 2000 programme was implemented to address all critical areas. The programme is closely monitored by a project team led by a Year 2000 co-ordinator who provides regular progress reports to the management. The programme covers all relevant computer systems and applications, including equipment with embedded systems. Also, business partners and major suppliers were requested to provide assurances that the Group is not exposed to risk arising from any Year 2000 non-compliance on their part.

Information technology ("IT") is widely used by the Group and most applications were self-developed. Since 1997, the Group's IT staff have been converting those applications which were not Year 2000 compliant. As at 31 December 1998, 91% of the applications conversion was completed, including all mission critical applications. The Group intends to achieve Year 2000 compliance by 30 June 1999. Such date is extended from the previous target date of 31 March 1999 due to more time being required to complete the rectification and testing of certain non-critical systems.

It is expected that the aggregate costs for the Year 2000 modifications will not have a significant effect on the Group's operating results. As at 31 December 1998, there were no material commitments and no major financial implications in respect of the Year 2000 modifications.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the year, the Company and its subsidiaries have not purchased, sold or redeemed any of the Company's own shares.

COMPLIANCE WITH THE CODE OF BEST PRACTICE

None of the Directors of the Company is aware of information which would reasonably indicate that the Company is or was at any time during the year ended 31 December 1998 not in compliance with paragraphs 1 to 13 of the Code of Best Practice, as set out by the Stock Exchange of Hong Kong Limited in Appendix 14 to the Listing Rules, except that the independent non-executive Directors of the Company are not appointed for a specific term but are subject to retirement by rotation and re-election at the Annual General Meeting in accordance with the Bye-laws of the Company. From 10 December 1998, the Company has also complied with paragraph 14 of Appendix 14 to the Listing Rules.

By Order of the Board
John C Y Choy
Secretary

Hong Kong, 15 April 1999

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