Half Year Results

The Group's unaudited consolidated net profit after taxation and after exceptional provisions for the half year ended 30 June 1998 amounted to HK$4,310 million compared to HK$7,848 million for the same period last year. Exceptional profits of HK$3,332 million realized during the period on the sale of a portion of the Group's interest in Procter & Gamble - Hutchison Limited were offset by exceptional provisions of HK$1,700 million and HK$750 million against the Group's property developments at Tung Chung and Wan Hoi Street respectively and HK$1,000 million in respect of its portfolio of listed investments.

The unaudited profit and loss account for the six months ended 30 June 1998 and the comparisons with last year are set out in the accompanying table.

DIVIDEND

The Directors have today declared an interim dividend for 1998 of 40 cents per share (1997 - 48 cents) payable on 16 October 1998 to those persons registered as shareholders on 15 October 1998.

The share register of members will be closed from 8 October 1998 to 15 October 1998, both days inclusive.

OPERATIONS

Property

The property division has recorded a profit below the comparable period last year. In June, the Group pre-sold the first phase of the Tierra Verde project (60% interest), a large scale residential development complex above the Tsing Yi Mass Transit Railway station and, subject to occupation permit being obtained, the profit will be recorded in the second half of the year. In July, the second phase was substantially pre-sold and the profit is expected to be recorded in 1999.

The Group's investment properties in Hong Kong continue to be substantially fully let with satisfactory rental levels achieved on leases renewed during the period. The construction of Cheung Kong Center, a 62 storey first class office tower of approximately 1.27 million sq ft with extensive underground parking, is progressing on schedule and the first 25 floors are expected to be ready for occupation in the fourth quarter of 1998. The remaining floors are expected to be ready for occupancy in the middle of next year. The Group is in active leasing discussions and the response is encouraging.

In Hong Kong, the Group's residential development projects and its investment property office and hotel developments are all progressing on schedule. In March, a consortium in which the Group has a 42.5% interest won the tender to develop a one million sq ft residential and commercial complex on Canton Road. In the same month, the Group was awarded the tender for an approximately 86,000 sq ft site in Ma On Shan for the development of a hotel (49% interest). Both projects are scheduled for completion in 2001.

In the Mainland, the construction of a hotel tower (49% effective interest) and an office tower (50% effective interest) in Chongqing, totalling approximately one million sq ft, has just been completed. In Shanghai, construction of 96 houses in Huamu, Pudong (50% interest) has been completed and a marketing campaign has commenced. The Group's other property projects in the Mainland are progressing as expected.

Overseas, the Group has a number of property development projects in London, Tokyo and Singapore which are progressing satisfactorily.

Ports and Related Services

In March this year, the Group increased its interest in Hongkong International Terminals Limited (HIT) from 85% to 88%. HIT's facility at Kwai Chung includes ten berths at Terminals 4, 6 and 7 and a 50% owned two berth facility at Terminal 8 (East). Although the combined throughput handled by both facilities was slightly below the same period last year, the combined profit was in line with 1997's comparable profit due to improved cost controls. Throughput volumes, adversely affected by the overall economic conditions in Hong Kong and the region, are not expected to improve in the second half.

Despite lower throughput and heightened competition, Mid-Stream Holdings (HK) Limited, a 95.5% owned subsidiary, performed ahead of the same period last year as a result of stringent operating and cost controls.

River Trade Terminal Limited, in which the Group holds a 33% interest, is developing in two phases a 65-hectare site at Tuen Mun into a facility which will provide a broad range of services including container and breakbulk cargo handling, marine shuttle lighter services, CFS warehousing, container storage and container maintenance and repair. The first phase is on schedule for completion later this year.

Shanghai Container Terminals Limited, effectively 40% owned by the Group, continues to perform well with improved throughput and profits as compared with the same period last year.

During the period, the Group increased its effective interest in Yantian International Container Terminals Limited from 47.75% to 49.95% and throughput and profits have improved as compared with last year. The second phase of the port's capacity expansion construction programme is continuing with the first expansion berth expected to be completed this year. On completion of this expansion phase in 2000, the port's annual capacity will be increased from one million to approximately two million TEUs.

Hutchison Delta Ports, which operates river and coastal ports in China, has interests in joint venture facilities in Jiuzhou, Nanhai, Gaolan, Jiangmen, Shantou and Xiamen and reported combined throughput marginally ahead of the same period last year, although profits were behind due to the start up losses incurred in 1998 at the ports in Shantou and Xiamen.

The Port of Felixstowe in the UK, in which the Group now has an effective 90% interest, maintained its ranking as the UK's leading container facility with a 6% increase in throughput to 1.18 million TEUs and reported profits comparable to last year. During the period, the Group's 90% owned subsidiary, Hutchison Ports (UK) Limited, expanded its port operations in the UK with the acquisition of Thamesport container port and Harwich International Port. Both businesses have made a positive contribution to the Group's profit for the period, strengthened the Group's competitive position in the UK and are expected to contribute increased profits in the near term. A programme is currently underway to integrate these businesses and operations with the Felixstowe operation.

The Cristobal and Balboa ports in Panama, which are located respectively at the Atlantic Ocean and Pacific Ocean entrances to the Panama Canal, have performed in line with expectations and the two berth Freeport Container Port on Grand Bahama Island, in which the Group has an effective 45% interest, is also performing satisfactorily.

Retail and Other Services

The A S Watson Group overall produced lower profits than last year due to reduced contributions from the operations in the Mainland and South East Asia and the effect of unfavourable weather on manufacturing operations in the first half of this year. In Hong Kong, PARKnSHOP supermarkets and superstores, and Fortress electronics and electrical appliances store chains continued to record year on year sales growth as a result of management initiatives and strong marketing. Despite the adverse effects of both lower local consumer demand and the reduced number of tourists visiting Hong Kong, Watson's Personal Care Stores reported sales at the same level as the comparable period last year. In Taiwan, Watson's Personal Care Stores reported increased sales and profits. All of the Group's retailing operations are pursuing aggressive cost reduction exercises, together with supply and inventory management initiatives to mitigate the impact of continuing slow economies.

The manufacturing division continued to further expand its product range of distilled water, soft drinks, fruit juices and ice cream with the successful launch of several new product types, although sales and profits in Hong Kong and the Mainland were affected by cooler and more rainy weather during the first half of the year.

The performance of Sheraton Hong Kong Hotel and Towers, in which the Group has a 39% interest, and the wholly owned Harbour Plaza Hong Kong both continuedto be adversely affected by the reduced levels of visitor arrivals which has resulted in lower occupancy levels and room rates compared to the same period last year. The Great Wall Sheraton Hotel Beijing (49.8% interest) reported lower occupancy levels and room rates. The Harbour Plaza Beijing (95% interest) re-opened for business on 1 April after a renovation programme and the Harbour Plaza Chongqing (49% interest), a 425 rooms and suites hotel, opened for business in June this year. The Group's Harbour Plaza hotel chain is managed by the Group's 50% owned joint venture trading under the name Harbour Plaza Hotels and Resorts.

Telecommunications

The Group's telecommunication operations in Hong Kong which provide cellular, fixed-line and paging services, continued to operate profitably and ahead of last year in an environment of increasingly aggressive competition for subscribers by all network operators and also reduced consumer spending. During the period, Hutchison Telecommunications improved its operations and strengthened its marketing strategies resulting in a 20% increase in its mobile subscriber base to 714,000 subscribers at the end of June. The Group's paging operations in Hong Kong successfully completed the implementation of cost reduction programmes, as well as the development of new revenue streams, resulting in profits ahead of the same period last year, despite a decline in its subscriber base as subscribers shift to more affordable cellular telephones.

The Group's wholly owned IDD 0080 service has made good progress and is reporting profits ahead of expectations and the comparable period last year. The construction and development of the Group's fixed-line network infrastructure is continuing according to plan.

The Group's Asia Pacific operations performed satisfactorily against the background of the financial crisis in most of the region. The Group's 70% owned cellular service provider and paging operations in Australia recorded strong profit growth well ahead of the same period last year. In June, the Group was awarded licences in Sydney and in Melbourne to establish digital cellular networks in both cities and their surrounding areas. The Group's associated company Hutchison Max Telecom Ltd (HMT) in India recently reorganised its shareholding structure whereby the Group increased its effective equity interest from 29.4% to 49.5% and subscribed to preference shares issued by a company holding a substantial interest in HMT. The redeployment in Sri Lanka of the first phase of the TACS network previously installed in Hong Kong has been completed and this phase of the network was soft launched in July.

In April, a consortium in which the Group has an effective 46.7% interest was awarded a licence to operate the first digital GSM mobile telephony service in Israel. Launch of the network is scheduled for October this year and a nationwide service with 80% population coverage is expected to be achieved in the first half of 1999.

Orange plc, the Group's 49% owned associated company listed on the London Stock Exchange continues to perform well and the current market value of the Group's investment has more than doubled since 31 December 1997. Currently Orange has over 1.5 million subscribers and a 15.1% share of the national cellular market. The installation of the third GSM network in Austria, in which Orange has a 17.45% interest, is progressing satisfactorily with network launch expected later in the year. In April, Orange Communications SA, in which Orange has a 35% interest, was awarded a licence to operate a GSM 1800 network in Switzerland. In June, KPN Orange Belgium, in which Orange has a 50% interest, was awarded a licence to build and operate a GSM 1800 network, including GSM 900 extended band spectrum, in Belgium. Orange's paging business and cellular services provider operations in the UK as well as its cellular services provider businesses in France and Germany continue to perform in line with expectations.

Energy, Infrastructure, Finance and Other Investment

Husky Oil, the Group's 49% owned Canada based integrated oil and gas corporation, recorded a profit ahead of the same period last year despite oil and gas prices reaching new lows during the period. In early 1998, Husky Oil acquired the remaining 50% interest it did not already own in the Bi-Provincial Upgrader facility in Lloydminster, Saskatchewan and this acquisition has already contributed increased profits to the Group. In June, Husky Oil reached an agreement to purchase interests in a number of resource properties off the East Coast of Canada, including interests in White Rose, Terra Nova and North Ben Nevis which will increase Husky Oil's existing interest in these properties to a controlling ownership position. On 7 July, a friendly joint offer to purchase all the shares of Mohawk Canada Ltd became unconditional which will result in Husky Oil acquiring Mohawk's 300 retail gasoline station network in Western Canada for C$103 million. This acquisition will double the size of Husky Oil's retail network and market share.

Cheung Kong Infrastructure (CKI), the Group's 84.6% owned subsidiary, is a diversified infrastructure company with a 36.1% interest in Hongkong Electric Holdings (HEH). CKI's cement, asphalt and aggregates business performed in line with expectations while CKI's transportation division, which currently has joint venture interests in toll roads and bridges in six provinces in the Mainland, has contributed significantly increased profits compared to the previous year. The energy division, which holds HEH and currently has joint venture interests in power projects in four provinces in the Mainland, also reported profits significantly ahead of the same period last year. The CKI group announced a 20% increase in its consolidated profit compared to the same period last year and the outlook for the group is good.

OUTLOOK

The interim results have been achieved during a period of continued turmoil in the Asian financial markets which has had an unprecedented adverse effect on the economies in the region. As a result, the Hong Kong property market and economy has been adversely affected. It is envisaged that the remainder of 1998 will continue to be difficult and challenging. Under these circumstances, the Group has made provisions against certain property developments and its portfolio of listed investments.

The Group, however, is in a strong financial position benefiting from the actions taken in 1997 to raise long term debt capital at attractive interest rates and also to lengthen the maturity profile of the Group's existing borrowings. In addition, the Group's principal subsidiaries and associates overseas have, in general, achieved better than expected results and are financially self sufficient in the countries in which they operate. The Group is pleased with these overseas investment experiences and it is anticipated they will continue to be successful and contribute to the Group's profit. The Group's geographic spread together with its diverse core businesses and strong balance sheet provide a solid base to meet the current challenges. The Group will continue to uphold its long-term strategy of exploring investment opportunities in Hong Kong, the Mainland and overseas on a selective and prudent basis.

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

Li Ka-shing
Chairman
Hong Kong, 27 August 1998

PURCHASE, SALE OR REDEMPTION OF SHARES

The Company has not redeemed any of its ordinary shares during the six months ended 30 June 1998. Neither the Company nor any of its subsidiaries has purchased or sold any of the Company's ordinary shares during this period.

THE YEAR 2000

The Group's assessment of the Year 2000 issues has been completed on the basis of the Year 2000 compliance definition as laid down by the British Standards Institution and the action plan formulated based on such assessment is being implemented. It is targeted that a substantial part of the work to achieving Year 2000 compliance would be completed by the end of the year with the remaining work by the second quarter of 1999. A more detailed narrative of the Group's Year 2000 initiative will be included in the Group's Interim Report.

Notes:

1. Included in operating profit is an amount of HK$170 million (30 June 1997 and 31 December 1997 - HK$1,142 million and HK$1,145 million respectively) transferred from properties revaluations reserves upon disposal of the relevant properties.

2. Exceptional items comprise of the profit of HK$3,332 million on disposal of a portion of the Group's shareholding in Procter & Gamble-Hutchison Limited less provisions of HK$2,450 million and HK$1,000 million for property developments and diminution in value of the Group's portfolio of listed investments respectively.

3. Hong Kong profits tax has been provided for at the rate of 16% (1997 - 16.5%) on the estimated assessable profits for the period less available tax losses. Overseas taxation has been provided for at the applicable rate on the estimated assessable profits less available tax losses.

4. The calculation of earnings per share is based on profit attributable to shareholders and on the weighted average of 3,875,068,423 shares in issue during the period ended 30 June 1998 (30 June 1997 and 31 December 1997 - 3,777,219,952 shares and 3,825,914,582 shares respectively). Fully diluted earnings per share is not shown as the dilution is not material.

5. The Group has adopted effective 1 January 1998 the accounting for jointly controlled entities in accordance with the Hong Kong Society of Accountants' Statement of Standard Accounting Practice 21. The adoption has no effect on the Group's profit attributable to shareholders or reserves. However, the Group's share of profit less losses of jointly controlled entities are required to be disclosed separately and the comparative results have been reclassified accordingly.

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