RETAILING
Hong Kong
Wellcome increased both sales and profit in 1997 and maintained its market share. The chain opened 10 new stores, bringing the year end total to 217. Operating expenses remain under pressure as the company continues to improve its service to customers. Some relief can be expected in 1998, however, as the decline in the property market which started in the second half of last year is being reflected in lower rentals. Our Fresh Food Processing Centre will be operational by mid-1998. This investment will enhance Wellcome's fresh food offer, which is expected to provide much of the sales growth in the coming years.

The 7-Eleven chain of 334 convenience stores achieved satisfactory sales growth and a much improved profit as the business benefited from the major upgrade in systems and logistics started in 1996.

Mannings, our drugstore chain, showed good growth in sales following a comprehensive review of its product range and a store refurbishment program, both of which were well accepted by customers. Five stores were opened, bringing the total to 101 at year end.

Oliver's, our chain of delicatessens and sandwich bars, also had another good year with strong growth in sales. At the end of 1997, we had five delicatessens and 23 sandwich bars.

Mainland China
The limited spending power and high operating costs in Mainland China continue to cause our retail businesses there to operate at a loss. We remain confident, however, that these operations will provide profitable growth opportunities in the longer term. We currently operate 25 7-Eleven stores in Shenzhen and 19 in Guangzhou. Wellcome operates 10 supermarkets in Shenzhen, and our newly established joint venture in Sichuan opened three supermarkets during the year.

India
Under a Technical Assistance Agreement with Dairy Farm, the RPG group is now operating 10 Foodworld supermarkets in Chennai, Bangalore and Hydrabad, up from eight in 1996. Our pharmacy joint venture, also with RPG, has opened three Health & Glow stores since its launch in 1997.

Indonesia
We continue to provide technical assistance to the 15-store Mitra supermarket chain and to the 17-store Guardian drugstore chain. The performance of both these businesses has been adversely affected by the difficult economic environment, which is expected to continue throughout 1998.

In February 1998, we acquired for some US$36 million a 31.2% effective interest in PT Hero Supermarket which, with 71 outlets, is the leading supermarket chain in Indonesia.

Japan
Since opening in September 1995, a number of existing, conventional Japanese supermarkets have become aggressive low-cost promoters and have significantly weakened Wellsave's competitive advantage. As a result, we have decided to discontinue the operation of this joint venture with the Seiyu group during the first half of 1998.

Malaysia
Our Wellsave supermarket joint venture increased its network from five to seven in 1997 and is actively looking for further expansion opportunities. We have a 30% interest in the Guardian pharmacy chain which operates 59 outlets in Malaysia.

Singapore
Cold Storage achieved improved sales in all its businesses and now has 21 supermarkets, 84 7-Eleven convenience stores, 51 Guardian pharmacies (70% held) and five Oliver's Supersandwich Bars. Opportunities for further expansion, however, are limited by the scarcity of new sites.

Taiwan
Wellcome supermarkets, despite disappointing sales which declined slightly over 1996, increased its profit. As competition from hypermarkets intensified, the company refined its position as a neighbourhood supermarket chain, providing the best service and value in each catchment area. At the end of the year it had 96 stores in operation.

We have continued to invest in the development of DFI Géant, our 50% hypermarket joint venture with Casino S.A., which is expecting to open its first store by the end of 1998.

Following a review of the drugstore business in Taiwan, we closed the loss-making Mannings chain. The company did not believe it could achieve an acceptable level of profitability in the medium term.

RESTAURANTS
Maxim's (50% owned) had another good year in difficult conditions. The Hong Kong market was particularly challenging in the second half, primarily as a result of a significant downturn in tourism. Sales increased by 8% and profit rose as a strong focus on cost control enabled the business to maintain margins.

At the year end, Maxim's operated 281 restaurants, fast food outlets and cake shops in Hong Kong, Manila and Tokyo. In addition, the company has an interest in 36 restaurants, fast food outlets and cake shops in Beijing, Guangzhou and Shanghai, and continues to participate in joint venture air catering businesses in seven cities in Mainland China.

TRADING AND MANUFACTURING
Mainland China and Hong Kong Sims Trading's sales were in line with last year but profit was adversely affected by the loss of a major agency representation in Mainland China. However, the business continued its expansion in Mainland China, where much of the future growth will be generated. The company's storage and distribution joint venture in Guangzhou, Jing Yun, strengthened its position in this market.

Ice Manufacturing in Hong Kong was affected by a decline in demand from the construction industry. While not a core business, this remains a valuable contributor to profit.