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THE KOWLOON MOTOR BUS HOLDINGS LIMITED
(Incorporated in Bermuda with limited liability)


INTERIM REPORT 1998

UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 1998


Notes:

1. The Kowloon Motor Bus Holdings Limited ("the Company") became the new holding company of the Group under a Scheme of Arrangement with effect from 18 November 1997. The Group has been treated as a continuing entity and accordingly the consolidated accounts for the six months ended 30 June 1997 have been prepared on the basis that the Company was the holding company of the Group commencing from 1 January 1997. In the opinion of the Directors, the above basis of preparation of accounts for the six months ended 30 June 1997 would provide a more meaningful comparative for the results of the Group for the six months ended 30 June 1998.

2. Turnover comprises fares, trading receipts and other income derived from passenger transport operations.

3. Taxation represents provision for Hong Kong Profits Tax calculated at the rate of 16% (1997 -16.5%) on the estimated assessable profits for the period.

4. The calculation of earnings per share is based on the profit attributable to shareholders of HK$287,600,000 (1997 - HK$264,100,000) and 403,639,413 shares in issue during the period.

RESULTS

The Group's unaudited profit attributable to shareholders for the six months ended 30 June 1998 amounted to HK$287.6 million (1997 - HK$264.1 million). Earnings per share for the period amounted to 71.3 cents (1997 - 65.4 cents). These represent an increase of 8.9% over the same period of 1997. The Group's result was mainly derived from the operation of franchised bus services by the Company's wholly-owned subsidiaries, The Kowloon Motor Bus Company (1933) Limited and Long Win Bus Company Limited.

INTERIM DIVIDEND

The Board has declared an interim dividend of 27 cents per share (1997 - 26 cents per share), totalling HK$109 million (1997 - HK$104.9 million), for the year ending 31 December 1998. This interim dividend will be paid on 9 October 1998 to the shareholders who are on the Register of Members at the close of business on 5 October 1998. The Register will be closed from 28 September to 5 October 1998, both dates inclusive. To qualify for the interim dividend, all transfer forms accompanied by the relevant share certificates must be lodged with the Company's Hong Kong share registrars, Central Registration Hong Kong Limited at Rooms 1901-1905, 19th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong not later than 4:00 p.m. on 25 September 1998.

OPERATIONS

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

Long Win Bus Company Limited ("LWB")

Sun Bus Limited ("SBL")

Interest in associated companies

DEALINGS IN THE COMPANY'S LISTED SECURITIES

During the period, 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 six months ended 30 June 1998, not in compliance with the Code of Best Practice as set out in Appendix 14 to the Rules Governing the Listing of The Stock Exchange of Hong Kong Limited, 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.

The Company is in the process of setting up an audit committee with written terms of reference.

YEAR 2000 COMPLIANCE

For its Year 2000 compliance, the Group adopts the definition of 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.

The management is fully aware of the impact of the Year 2000 issue and has seriously assessed its effect on the Group's operations. A Year 2000 programme ("the Programme") is implemented to ensure that all critical areas will have been properly addressed. The Programme is closely monitored by a project team under the leadership of a Year 2000 Co-ordinator who reports directly to the management on the progress on a regular basis. The Programme covers all relevant computer systems and applications, including equipment with embedded systems. Business partners and major suppliers are further requested to provide assurances that the Group is not exposed to risk arising from their Year 2000 non-compliance.

Information technology ("IT") is widely used in the Group and most applications were self-developed. In 1997, the Group's IT staff have begun to convert those applications which are not Year 2000 compliant. As at 30 June 1998, about 50% of the applications conversion was completed. By the end of 1998, it is expected that all mission critical applications will have been converted. The Group intends to achieve full compliance by the first quarter of 1999.

It is expected that the total additional costs for the Year 2000 modifications will not have a significant effect on the Group's operating results. As at 30 June 1998, there were no material commitments in respect of the Year 2000 modifications.

PROSPECTS

As the leading bus transport provider in Hong Kong, the Group will continue to strive to provide safe and reliable bus services to our customers. The unfavourable economic environment has had an adverse impact on every sector of the economy and the public at large. In order not to aggravate the burden of the community, the Company has earlier announced that it would not apply for a fare increase in 1998. The Company will seek to continue to improve the quality of its passenger transport services and enhance its cost efficiency to achieve the best value for its customers and shareholders. Population growth and the on-going development of the New Territories, Tung Chung New Town and the Airport will provide scope for further development of bus services serving the areas. The Group will also focus its resources to explore the growth potential in non-franchised passenger transport business. Your Directors are confident that the Group will be able to continue its growth in the future.

P C Woo
Chairman

Hong Kong, 10 September 1998


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