Chairman's Statement

The Group's audited consolidated net profit after tax for the year ended 31 December 1996 was HK$12,020 million compared with HK$9,567 million earned in 1995, an increase of 25.6%. Earnings per share were HK$3.32 compared with HK$2.65 in 1995. Your directors will recommend a final dividend of HK$1.08 per share at the forthcoming Annual General Meeting. This, together with the interim dividend of HK$0.42 paid on 18 October 1996, gives a total dividend of HK$1.50 per share for the year and represents a 27.1% increase on the HK$1.18 paid in respect of 1995.

Overall Review

The Group continued its growth during 1996 with the five core businesses achieving solid results in challenging market conditions. The property market showed a significant recovery during 1996 and, with an increase in purchasing power, this upward trend has continued into 1997.

The Group's rental income is showing steady growth as the property investment portfolio continues to expand. The portfolio will be further enlarged when the first phase of the new office tower, which is being built on the site of the former Hongkong Hilton Hotel, is completed in 1998. The entire redevelopment of this site will be completed in the year 2000. The land premium for this development has already been paid and work is progressing on schedule. Profits generated from property development have declined in relation to previous years as a result of the south Horizons and Laguna City developments having been completed. However, the increase in income from our investment portfolios and other sectors of the Group more than offset the reduction in contribution from the property development sector. Since the beginning of last year, further progress was made in replenishing the Group's land bank through acquisitions which include 50% interests in sites at Hung Shui Kiu and Tung Chung as well as the right to construct a commercial complex which will serve as a screen between the soon to be developed Container Terminal No 9 and the nearby residential complexes. The new development projects acquired to date in Hong Kong, together with our existing projects in China, provide the potential for future growth in profitability.

While throughput growth at our container terminal operations at Kwai Chung slowed in line with the downturn in Hong Kong's export performance, headway continued to be made in improving operational efficiency and strengthening relationships with international shipping lines. During the year, Hongkong International Terminals Limited was awarded the rights to develop, commission and operate two berths at Terminal 9 on Tsing Yi Island. In addition, a consortium in which the Group has a 33% interest has acquired the right to develop a site in Tuen Mun into a new river trade container handling facility. In the UK, the Group's port facilities at Felixstowe performed well, and our joint venture container port operations in China also continued to make steady progress. The new container port which is being developed in phases at Yantian has grown rapidly since commencing operations in 1995, and as a result, construction of the second phase, three-berth facility has already begun. In line with the Group's strategy to further enhance its container terminal operations and profitability, steps have also been taken to expand the Group's container terminal operations internationally through investments in port operations in the Bahamas, Myanmar, Indonesia and Panama. Container terminal opportunities in other countries are also being considered.

During the year, A S Watson & Company made solid progress and further expanded its retailing presence in Asian markets in addition to strengthening its retailing and manufacturing activities in China. Through improved efficiencies and cost controls, this division was able to record a strong increase in profit. Park'N Shop continued to establish its operations in China, while Watson's personal care stores bolstered its position as the largest such retailing network in Asia. The addition of new product lines together with improved customer service helped Fortress achieve increased profits. The Group will maintain its policy of selective expansion of its retail operations.

1996 was a significant year for the Group's telecommunications businesses in Hong Kong, with the virtual completion of the change-over from two limited capacity analogue systems to two digital systems with substantially greater subscriber capacity. The overall capacity has been further increased with the awarding of a Personal Communications Services (PCS) licence to the Group. While profitability was down as a result of operating duplicate systems, the change-over is now virtually complete and has resulted in a substantially increased subscriber capacity. During the year, the businesses continued to build on strong foundations by consolidating resources, enhancing service standards and expanding subscriber base. The Group's cellular telephone subscriber base, which now stands at approximately 340,000, has tripled since the end of 1995, and the prospects for continued growth are encouraging. The establishment of Hutchison Telecommunications (Hong Kong) Limited has improved efficiency for the telecommunications group through the streamlining of its marketing and operational resources for mobile telephone, paging and fixed-line network services. Steady progress has also been made on the infrastructural development of the Network Eight fixed-line service. The PCS licence which was awarded in July will provide additional spectrum for subscriber growth in the years ahead as well as allow the Group to introduce a variety of new products and services.

In the UK, the Orange plc business continued its rapid growth with the subscriber base more than doubling that of the previous year to now stand at 888,000. Orange has acquired an impressive 11% share of the overall UK market since the launching of its wirefree network. The flotation of Orange was completed in April, at which time the Group's effective interest was reduced to 48.22%. This has subsequently been increased to 49.02% as a result of the recent acquisition of additional shares in the company from British Aerospace.

Husky oil performed very well during the year, and steady progress was made in its on-going drilling and exploration programme. In addition, Husky obtained an investment grade rating through two international rating agencies and successfully refinanced its debt on a stand alone basis.

The Group's overall strategy is to continue to expand its core businesses in Hong Kong, China and elsewhere, particularly in Asia. As part of its overall strategy, the Group also seeks to enlarge its recurrent income base and to maximise the co-ordination of its businesses. The recent re-organisation saw the consolidation of the Hongkong Electric group shareholding into its subsidiary, Cheung Kong Infrastructure. This will further enable the Group to focus on its core businesses in China and the region. The Group is most active in China in the areas of port operations, property development, infrastructure, power generation, manufacturing and retailing.

During 1996 we witnessed a gradual recovery in Hong Kong's economy with rallies in both the stock market and property sectors. This recovery is likely to be further enhanced in the months ahead with expected increases in china's exports and imports. Hong Kong will maintain its pre-eminent regional role given the on-going strengthening of economic ties between itself and China. The Group has complete confidence in the future of Hong Kong. Against that background, the Group is committed to continue developing its core businesses in markets with good potential and in those areas in which it has the resources and expertise. With its solid base of recurrent quality income, strong cash flow and financial position, the Group is well positioned to move forward to the next century with confidence.

Mr Charles Lee resigned as director on 12 March 1997 to devote himself to his public duties. Mr Albert Chow Nin Mow will resign as a director with effect from 30 April 1997 for personal reasons. I would like to thank both gentlemen for their services and the valuable contributions they have made to the Group.

I also wish to thank the Board of Directors and all the employees of the Group for their support, dedication and hard work throughout the year.

Li Ka-shing
Chairman

Hong Kong, 26 March 1997