Notes:

1) Share of profits less losses of jointly controlled companies

The share of profits less losses of jointly controlled companies includes an attributable profit of HK$66 million arising from sale of Carlsberg Marketing (Singapore) Pte Limited.

2) Share of profits less losses of associated companies

The share of profits less losses of associated companies includes an attributable profit of HK$217 million arising on sale of investments in Equant N.V. by Cathay Pacific Airways group and an attributable loss of HK$35 million relating to severance payments arising from staff retrenchment in Hong Kong Aircraft Engineering Company.

3) Taxation

Hong Kong profits tax is calculated at 16.0% (1998: 16.0%) on the estimated assessable profits for the year. Overseas tax is calculated at tax rates applicable in countries in which the group is assessable for tax.

4) Earnings per share

Earnings per share are calculated by dividing the profit attributable to shareholders of HK$4,435 million (1998: HK$1,763 million) by the weighted average number of 940,111,885 'A' shares and 3,059,301,271 'B' shares in issue throughout both 1999 and 1998.

5) Comparative amounts

Certain comparative amounts have been reclassified to conform with the current year's presentation.

In particular, the comparatives have been adjusted or extended to take into account Hong Kong Statements of Standard Accounting Practice No. 1 and 2 which became effective during the year and to reflect a prior year adjustment.

Review of Operating Results

The principal activities of the Swire Pacific group together with the contribution of each activity to group results are as follows:

The Company and its subsidiaries:

Jointly controlled companies:

Associated companies:

The activities of the Swire Pacific group are mainly based in Hong Kong. An analysis of group turnover and contribution to group operating profit by principal markets is outlined below:

Shipowning and operating activities are carried out internationally and cannot be attributed to specific geographical areas.

An analysis of group attributable profit/(loss) by division is as follows:

Dividends

The Directors recommend the payment of final dividends for 1999 of HK¢76.0 per 'A' share and HK¢15.2 per 'B' share which, together with the interim dividends paid on 4th October 1999 of HK¢34.0 per 'A' share and HK¢6.8 per 'B' share, make total dividends for the year of HK¢110.0 per 'A' share and HK¢22.0 per 'B' share: an increase of 31.0% over those for 1998. This represents a total distribution for the year of HK$1,707 million. Subject to the approval of the 1999 final dividends by the shareholders at the Annual General Meeting on 18th May 2000, it is expected that those dividends will be paid on 1st June 2000 to shareholders registered on 18th May 2000. The share registers will be closed from 15th May 2000 to 18th May 2000, both dates inclusive.

Share capital

During the year under review, the group did not purchase, sell or redeem any shares in Swire Pacific Limited.

Corporate governance

The Company has complied throughout the year with the Code of Best Practice as set out in the Listing Rules.

In compliance with the Code of Best Practice, the Company has established an Audit Committee, with written terms of reference, comprising D G Eldon as Chairman and C Lee and P A Johansen as members.

Movements on reserves

The 1999 valuation at open market value of the group's investment properties, both completed and under development, was HK$59,946 million. This valuation resulted in an increase of HK$2,716 million in the group's property valuation reserve. Taking into account the retained earnings and the increase in the valuation of investment properties, the net asset value of the Swire Pacific group at 31st December 1999 was HK$68,509 million, a 9.5% increase on the prior year.

Capital Resources & Liquidity

Swire Pacific's total shareholders' funds have increased to HK$68,509 million at the end of 1999 as compared with HK$62,591 million at the end of 1998, mainly due to the upward revaluation of the group's investment property portfolio.

At 31st December 1999 the Swire Pacific group held cash deposits of HK$660 million whilst bank loans and other borrowings due within one year amounted to HK$3,390 million.

An analysis of the group's net borrowings by currency at 31st December 1999, including the US$600 million Perpetual Capital Securities issued, is shown below:

Sources of Finance

At 31st December 1999, committed loan facilities and other financing in place amounted to HK$20,293 million of which 17% remained undrawn. In addition, there were uncommitted facilities undrawn at year-end amounting to HK$2,110 million. Sources of funds at the end of 1999 comprised:

Maturity Profile

It is group policy to secure adequate funding so as to match cash flows associated with both current and planned investments. The maturity profile of the group's gross borrowings as at 31st December 1999 is set out below:

Maturity Profile

Interest Rate Profile

In addition to raising funds on a fixed rate basis, the group uses interest rate swaps and other instruments, where appropriate, in the management of its interest rate profile. At 31st December 1999, 58% of the group's gross borrowings were on a floating rate basis and 42% were on a fixed rate basis.

Interest Cover and Gearing

Interest cover for the year ended 31st December 1999 was 8.01 times while cash interest cover, calculated by reference to total interest charges including those capitalised, was 2.93 times. The gearing ratio was 0.23/1 at the end of 1999.

Year 2000

In the 1998 Annual Report, we defined Year 2000 (Y2K) compliance as meaning, in relation to the Swire Pacific group's own relevant equipment and systems, the modification of all such equipment and systems that fail the group's Y2K compliance test. In respect of suppliers of such equipment and systems, all critical suppliers will have passed the group's Y2K compliance audit, or will have been replaced where possible by those that have.

The group achieved compliance in accordance with its plan and timetable. During the Y2K exercise, a number of Y2K-related problems were identified and rectified before 31st December 1999. As a consequence of this, although a small number of Y2K-related incidents occurred early in January 2000, none of these was serious, and none of them caused any operational difficulties.

The Swire Pacific group has spent a total of HK$118 million in the course of addressing the Y2K problem, of which HK$33 million has been spent on upgrading existing systems which were in need of replacement, and has been capitalised.

Chairman's Statement

The group profit attributable to shareholders for 1999 was HK$4,435 million, an increase of 151.6% from 1998 (HK$1,763 million). These results are after non-recurring net profits of HK$111 million in 1999 and exceptional charges of HK$2,486 million in 1998. Excluding these items from both years, the group's attributable profit increased by 1.8% largely as a result of an improved performance by Cathay Pacific, offset by lower net rental income and profits from property trading.

Dividends

Interim dividends of HK¢34.0 per 'A' share and HK¢6.8 per 'B' share were declared on 12th August 1999. Directors have recommended final dividends for 1999 of HK¢76.0 per 'A' share and HK¢15.2 per 'B' share. The total distribution per share paid and proposed for 1999 is 31.0% higher than that for 1998. Subject to approval by shareholders, dividend payments will be made on 1st June, 2000.

Operating results

Occupancy levels in Swire Properties' investment property portfolio have been reasonable, in a difficult market. As the supply of high-quality space in the Central business district reduces, and the available space in Island East is increasingly let, we may expect some firming of rental levels. Margins in the trading portfolio were lower than in previous years, although demand has recently shown some sign of firming.

Companies within the Aviation Division have continued their efforts to control and reduce costs. Cathay Pacific saw a welcome return to profitability after a most difficult year in 1998. With continuing strong demand for cargo in particular, the airline is well placed, although rising fuel costs remain a worry. The oneworld alliance is expected to continue to demonstrate its value with significant revenue benefits during 2000. The growth in cargo traffic has also had a very positive effect on HACTL and Air Hong Kong. HAECO will start to benefit from structural cost-saving measures effected in 1999. The airport at Chek Lap Kok is operating well and we have every expectation that it will provide the efficient aviation hub that Hong Kong deserves.

The Beverages Division businesses as a whole suffered from slower growth in all markets, with a consequent impact on profitability. Nevertheless, Beverages Division's operations in Mainland China are now generating good operating cashflows, which are being reinvested in improving its distribution network.

In the Industrial Division, with the exception of Swire SITA, operating losses continued to be incurred by the industrial associates and jointly controlled entities, although these reduced significantly in 1999. However, the markets in which these businesses operate, principally Mainland China, continue to be over-supplied.

Three businesses in the Trading Division were sold during the year: Swire & Maclaine, Camberley Enterprises and The Eagle's Eye. A fourth company, Swire Loxley, was sold shortly after the year-end. The remaining businesses in motor vehicle and sports shoe distribution performed satisfactorily despite weak consumer demand.

Within the Marine Services Division, Swire Pacific Offshore reported reduced profits, reflecting a downturn in oil exploration which resulted in lower vessel utilisation and charter rates. Contributions from marine associates, with the exception of Hongkong United Dockyards, showed satisfactory growth. The Division is expecting a recovery in oil exploration activity in the second half of 2000, which should feed through to the support industry.

Finance

At 31st December 1999, consolidated net borrowings amounted to HK$16,882 million. When related to shareholders' funds and minority interests totalling HK$72,789 million, this resulted in a gearing ratio of 0.23. The decrease in the gearing ratio from that of 31st December 1998 reflects decreased borrowings during 1999, largely due to the increased profitability of a number of businesses, the inflow of sales proceeds from trading developments by Swire Properties and a small increase in property investment revenue. As at 31st December 1999, the group had committed loan facilities and other financing in place amounting to HK$20,293 million, of which 17% remained undrawn. In addition, there were uncommitted facilities undrawn at the year-end of HK$2,110 million.

Community Relations

During the year, Swire Pacific has continued its charitable activities in Hong Kong. These included support for the Community Chest, the Hong Kong Association for the Mentally Handicapped, the Society for the Promotion of Hospice Care, the Hong Kong Red Cross and the Sunnyside Club.

We have committed further funding to environmental research facilities at the Swire Institute of Marine Science, in association with Hong Kong University. We are a major sponsor of the Life Education Activity Programme (LEAP), which educates young people on the dangers of drug abuse. Swire Pacific also funds a number of university scholarships in a range of disciplines in Hong Kong and overseas.

Environment

As a major group involved in operations that include aviation, shipping, property development and manufacturing we are conscious of the potential impact of these activities upon the environment. In Hong Kong, Swire Pacific is a founder member of the Private Sector Committee on the Environment, and we are committed to ensuring that we apply environmental best practices wherever we can.

Staff

The Swire Pacific group of companies employs some 60,000 people and their hard work and dedication have helped the group to weather the recent Asian economic downturn. On behalf of the shareholders, I should like to take this opportunity to thank them for their efforts, often under trying circumstances, during the past year. The improvement we have seen over 1998's results is a credit to their commitment.

Prospects

There are encouraging signs of recovery in economic activity in the region. Although average achieved rentals in the Property Division are still declining as older leases come up for renewal, conditions in the Hong Kong property market have stabilised and medium-term prospects have improved. The more positive environment in Asia, together with Cathay Pacific's continued focus on cost-containment combined with a first-rate product, augurs well for further growth in profits in the Aviation Division.

The economy of Mainland China has achieved a high level of growth, and market reforms should accelerate as a result of the proposed accession of the People's Republic of China to the World Trade Organisation. The group's beverage, aviation and industrial interests should benefit accordingly and we look for further growth in our Mainland China businesses.

The extraordinary growth in e-commerce awareness and activity in Asia presents a range of opportunities for all our businesses. We are fully committed to investment in e-business where we can identify opportunities to enhance our existing business activities.

Swire Pacific remains in a strong financial position; our focus will continue to be on growth in those sectors where the group has existing positions of strength or expertise.

Annual Report

The 1999 annual report will be sent to shareholders on 14th April 2000.

J W J Hughes-Hallett
Chairman
Hong Kong, 10th March 2000

For further information, please contact:

Mr. Andrew Herdman, GM Group Public Affairs, (852) 2840-8092
Mrs. Maisie Shun Wah, Manager Group Public Affairs, (852) 2840-8097

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