Chairman's Statement

The Group's audited consolidated net profit after tax and after exceptional provisions for the year ended 31 December 1997 was HK$12,266 million compared with HK$12,020 million earned in 1996. The Group has made exceptional provisions of HK$750 million against the Group's property development at Wan Hoi Street and HK$920 million in respect of its portfolio of listed investments. Earnings per share were HK$3.21 compared with HK$3.32 in 1996.

Your Directors will recommend a final dividend of HK$1.10 at the forthcoming Annual General Meeting. This, together with the interim dividend of HK$0.48 paid on 17 October 1997, gives a total dividend of HK$1.58 per share and represents a 5.3% increase on the HK$1.50 paid in respect of 1996.

Overall Review

The successful implementation of the "one country-two systems" principle since the reunification has provided a positive and stable framework for businesses in the Hong Kong SAR. The Group's operations in Hong Kong, the Mainland and in over 20 other countries around the globe have continued to grow steadily. Although the Asian region has experienced unprecedented financial turmoil over the past several months, the impact on the Group in respect of 1997 was nominal, with the exception of a property project in Hong Kong, due to the diversification of the Group's businesses both in sectorial and geographic terms.

The Group's portfolio of investment properties recorded improved rental levels during the year, which together with increased earnings from other divisions compensated for lower property development profits. However, the recent financial turmoil in Hong Kong and South East Asia is likely to exert some pressures on rental levels in 1998, particularly as new office space comes onto the market.

Cheung Kong Center is being built on the site of the former Hilton Hotel. Part of the tower will be ready for occupation by the end of 1998, with the second phase of underground parking and the remainder of the development to be completed in 2000. Meanwhile, the Group's replenished land bank of development properties in Hong Kong and the Mainland provides the potential for strong growth and profitability. Several of the properties are in various stages of development and, depending on prevailing market conditions, the Tsing Yi and Tai Po projects could start contributing to the Group's results this year.

The Group's ports and related services activities recorded a strong performance for the year with the combined throughput of its operations worldwide up significantly over 1996. In Hong Kong, we have increased our shareholding in Kwai Chung's Hongkong International Terminals ("HIT") from 77.5% to 85%. HIT's operations continued to expand, with total throughput handled during the year up by 13%, exceeding the port average. Operations also benefited from programmes designed to achieve improvements in cost-control, capacity and the overall efficiency of the port. Progress continued to be made by the Group and its consortium partners in the development of a site in Tuen Mun which will serve the water-borne trade between the Pearl River Delta and Hong Kong. On the Mainland, all the Group's container terminal operations performed well and construction of the second phase at the Yantian facility is progressing satisfactorily. The Port of Felixstowe in the UK had a good year and consolidated its ranking as the UK's leading container port facility. The Group's presence in the UK is in the process of being further strengthened as a result of the recent agreements to acquire the Thamesport and Harwich ports. Similarly, our activities in the Caribbean were broadened during the year through the acquisition of a number of transportation, hotel and leisure properties for redevelopment on Grand Bahama Island.

Although faced with difficult retail market conditions during the second half of the year, A S Watson & Company made a solid contribution to the Group through expansion of its operations in the region and strengthening manufacturing and distribution on the Mainland. Park'N Shop had a successful year, increasing market share in Hong Kong and making good headway on the Mainland, particularly in the southern area. Watson's The Chemist's regional operations grew profitably, although earnings were marginally affected by the decline in Asian currency values. The Fortress consumer electronics and electrical appliance chain in Hong Kong recorded strong sales and another year of profit growth. During the year, Pan Asian Systems was merged with Fortress and new areas of operation are being explored.

The Group's telecommunications businesses operated profitably during the year despite difficult regional economic conditions and heightened competition in all markets. In Hong Kong, the Group has made impressive gains in market share, increasing the total number of subscribers to its GSM, CDMA and PCS networks to approximately 616,000 at present. The launch of our PCS network was well received by consumers, and considerable progress was made in the development of this network, which will provide the Group with additional capacity to meet future demand. Construction of the Group's fixed-line network continued satisfactorily and is proceeding ahead of schedule. As well as increasing its availability in key business districts, several high-density housing estates and private residential developments were connected to the network. Operating in a highly competitive environment, the IDD 0080 service more than doubled its subscriber base and generated a respectable increase in the number of call minutes. The Group's paging business in Hong Kong maintained its dominant position although the market continues to experience significant decline. Going forward, these businesses will continue to pursue the strict cost-control programmes initiated during the year as well as selectively pursue new service offerings.

Internationally, the Group increased cellular subscriber levels in India and Australia and acquired a cellular operator in Sri Lanka. As part of an ongoing initiative to take advantage of investment opportunities globally, and a first step into the vast US mobile market, an interest was acquired in a US-based PCS business providing service to an area with a total population of 66 million. In Europe, Orange passed the one million subscribers milestone in July to account for 25% of the UK's net market growth. Currently, Orange has approximately 1,300,000 subscribers, and a 14% share of the national market. During the year, Orange acquired a 17% interest in the consortium which was awarded the third mobile phone licence in Austria, further enhancing its business opportunities in Europe.

Husky Oil in Canada performed well in 1997, substantially increasing its earnings and achieving significant growth in shareholder value, cash flow, production volumes and reserves. International operations progressed at an encouraging pace with the conclusion of agreements for an incremental oil recovery project in China.

Cheung Kong Infrastructure (CKI), in which the Group acquired an 84.58% interest through the reorganisation of the Cheung Kong Group, had a year of strong growth. During the year, the company has signed up projects totalling HK$4.3 billion. In line with the growing participation of private firms in the development of the Mainland's infrastructure, the pace of CKI's investments on the Mainland is expected to continue in the years ahead. Hongkong Electric again provided satisfactory earnings growth achieving a 13.4% increase in net profits over 1996.

Outlook

The prolonged financial turmoil in the Asian region has had a significant negative impact on Hong Kong's economic growth. Both consumer spending power and sentiment have declined, which will in turn affect the prospects of Hong Kong's many businesses. With reduced growth, volatile interest rates and heightened competition, 1998 will be particularly challenging.

The Group's fundamentals and financial position are strong. During the past year, steps were taken to lengthen the term of the Group's financing, thereby further strengthening its financial position and enhancing its cash flow and liquidity. As a result, the Group is well positioned to take advantage of emerging opportunities to expand its existing core businesses and to face this economic situation with strong financial resources.

The Group has made investments in overseas countries over the past years in projects where the Group has the experience and expertise. The Group is pleased with the investment experience brought about by these overseas projects which in general have achieved better than expected results. These investments are also expected to bring substantial returns to the Group in the near term.

As the Mainland further strengthens its reform policies, there will be even greater expansion opportunities for the Group. We have full confidence in the economic future of Hong Kong and the Mainland. Hong Kong will always be the main and home base for our operations and the Group will continue to uphold its long-term policy of exploring every available investment opportunity both in Hong Kong and the Mainland, and to make selective investments overseas on a prudent basis.

Mr William Shurniak retired as group finance director on 31 December 1997 and will continue to be associated with the Group as Hutchison Whampoa's non-executive director and as Husky Oil's deputy chairman. I would like to thank Bill for his loyalty and the valuable contribution he made to the Group during his fourteen years of service.

I would like to thank the Board of Directors and all the Group's employees for their support, dedication and hard work.

Li Ka-shing
Chairman

Hong Kong, 26 March 1998