RESULTS ANNOUNCEMENTS

RESULTS

The Board of Directors of Guoco Group Limited ("the Company" or "the Group") is pleased to announce the unaudited consolidated net profit of the Group, after exceptional items, taxation and minority interests, for the six months ended 31st December, 1998 together with comparative figures for the corresponding period last year as follows :

Notes:

1. Group turnover for the period includes reinsurance, brokerage, underwriting and other commission, interest income, insurance premiums earned, dividend income, rental income and net investment income, property development income and the value of goods sold. It also includes net interest income, commissions, fees and other revenues earned from banking.

2. Exceptional items



3. Taxation



Provision for Hong Kong profits tax is based on the estimated assessable profits for the period at the rate of 16% (1997: 16.5%). Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the countries in which they operate.

Deferred taxation is provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure, which are expected with reasonable probability to crystallize in the foreseeable future.

4. Earnings per share

   The calculation of earnings per share is based on the profit attributable to shareholders for the period ended 31st December, 1998 of HK$62,926,000 (1997: HK$362,750,000) and on the 426,631,086 shares (1997: 426,631,086 shares)in issue during the period.

5. The accounts of the Company are maintained in United States dollars. The accounting figures shown above have been translated from United States dollars into Hong Kong dollar equivalents at the rates ruling at the respective financial period ends for presentation purposes only (1998: US$1=HK$7.7475; 1997: US$1=HK$7.7495).

6. Post balance sheet event

   The exercise of the put option to dispose of the Group's interest in ABN AMRO Asia (Holdings) Ltd was completed on 1st February, 1999. The resultant exceptional gain of US$166 million will be taken up in the Group's second half results of the financial year.

Against the backdrop of the prevailing financial malaise, the Group has consolidated its operations during the period under review. Amongst the various initiatives was the exercise of the put option to dispose of the Group's interest in ABN AMRO Asia (Holdings) Ltd resulting in an exceptional profit of US$166 million (HK$1,286 million) for the Group which will be taken up in the second half of the financial year. The funds will be used to reduce bank borrowings and to strengthen the Group's existing businesses with growth potential.

Dao Heng Bank Group Limited ("DHBG")

Financial services remain the backbone of the Group's core business. DHBG which accounts for 78% of the Group's turnover, achieved an acceptable level of profit despite the economic downturn.

DHBG, the Group's 71.73% owned Hong Kong listed subsidiary, recorded an unaudited interim consolidated net profit of HK$506 million, representing a 38.4% decrease from the corresponding period for the previous fiscal year.

Net interest income declined 7.6%, due primarily to higher funding costs which were not fully covered by increased interest income earnings. As a result, the net interest margin declined 13 basis points to 2.26% for the period. The drop in net interest income however was more than fully compensated by a strong performance in other operating income, which grew 27.6% as a result of a one time net gain of HK$152 million from the early redemption of US$81 million face value in the Dao Heng Bank Limited US$350 million subordinated bond issue maturing in the year 2007. With operating expenses maintained at a similar level, operating profit before provisions registered a modest increase of 3.1%. The cost to income ratio improved to 38.8% from 39.6% in the comparable period last year.

DHBG experienced increased problem loans in its trade finance, corporate, taxi, PRC and credit card portfolios. Much of DHBG's credit exposure is secured by tangible assets, and its preferred course of action is to work with its customers to the maximum extent possible if the customer's financial condition is considered to be viable. Hence the total level of rescheduled advances has grown considerably. DHBG has a modest level of exposure to China related customers. As of 31st December 1998, gross loans to PRC related entities totalled approximately 0.84% of total assets. About 44% of this exposure was covered by tangible security and less than HK$30 million was granted to the ITIC sector.

DHBG's domestic branch network has been reconfigured to better serve its customers by providing them with multiple options for satisfying their individual banking needs. These delivery channel options encompass a wide network of personal banking branches throughout the SAR, an advanced call centre, a widespread ATM network, an in-store banking centre, as well as an array of credit and debit card services. Together these diverse delivery channels provide DHBG's customers with the capability to access our financial services on a virtual 24 hour, 365 day a year basis.

The Personal Banking Division of DHBG is in the process of reconfiguring its branches into a more modern and customer friendly format as a tangible demonstration of our corporate motto, "Reaching Out to You." This repositioning will also support DHBG's strategy of broadening its revenue base through the sale of a full range of financial service products.

DHBG's Direct Banking Division is in the forefront of applying information technology to the task of providing new delivery channel opportunities to its customers. Additional telemarketing and teleservicing products are continuously being added to serve DHBG's customers. The in-store banking centre at Sogo Department Store is also proving to be a valuable alternative to reach out to customers due to its convenient location and seven day a week availability. Likewise the Park'N Shop ATM kiosks provide further options for customers to access Dao Heng Bank Group services.

DHBG's Premier Banking and Global Private Banking Divisions are giving it the capability to further differentiate its product and service offerings to meet diverse customer needs and preferences. A milestone was reached in the evolution of DHBG's credit card business with the intra-group transfer of the card business from OTB Card Company to Dao Heng Bank Limited in January 1999.

The Commercial Banking Division is now engaged in streamlining its operations to provide greater responsiveness to its customers needs in order to help them compete in an increasingly difficult market environment. Evidence of DHBG's support to this important segment was shown by the joining of both Dao Heng Bank and Overseas Trust Bank in the government sponsored SME scheme.

Dao Heng Finance provides hire purchase and leasing facilities to DHBG's customers, most notably to the transportation sector. The taxi financing business, in which Dao Heng Finance is one of the market leaders, is undergoing its most challenging operating conditions in recent memory. Dao Heng Finance is committed to helping its customers get through this difficult period and is working with them to this end.

Corporate Banking Division serves the needs of larger businesses including listed companies. While corporate loan demand has been somewhat slack during the period, the division continues to develop its customer base by offering a wide range of products including structured finance and advisory services through its Investment Banking Division.

DHBG's Treasury Division was relaunched as "Dao Heng Markets" in October 1998 to better reflect the enlarged scope and scale of its market activities. Primary among these are its active market making status in Hong Kong Government Exchange Fund Bills and Notes and as well as in The Hong Kong Mortgage Corporation's fixed income securities.

First Capital Corporation Ltd ("FCC")

The performance of FCC, the Group's 57.99% owned listed subsidiary in Singapore, continues to be affected by the depressed residential property market. FCC's operating profit before tax (before interest and exchange loss) is 96% lower at S$2.2 million (HK$10.3 million) compared to the previous corresponding period. Foreseeable losses of about S$30.1 million (HK$140.6 million) was provided for some of the development properties. As a result of the improvement in the stock market in the 4th quarter of 1998, FCC wrote back S$12.3 million (HK$57.5 million) of provisions for diminution in value of short-term quoted investments.

Although sentiment in the residential property market in Singapore is improving, the state of the Singapore economy is dependent on the regional economies. The countries in the region are still adjusting to the problems from last year's financial crisis. The operating environment for the second half year is expected to continue to be difficult and challenging.

Other Property Interests

During the period under review, the Group's listed property subsidiary in Hong Kong, Guoco Land Limited ("GLL"), which is 53% owned by the Group and 20% by FCC, recorded loss before tax of HK$104 million. GLL continues to derive steady recurring rental income from its Hong Kong investment properties. The property projects under joint venture arrangements with major property developers in Tai Hang Road and Tsim Sha Tsui are targeted to be completed in December 2000 and November 2001 respectively. The property project in Tai Po of which GLL has a 30% interest was put up for sale in September last year at prevailing competitive market price. The response was encouraging and the remaining units are expected to be sold in the first quarter of this year. It is anticipated that the forthcoming HKSAR Government land sales will provide a benchmark indicator of future Hong Kong property values. In line with the Group's prudent normal accounting policies, property portfolios will be objectively assessed and appropriately valued to market as of the Group's financial year end.

Guoco Properties Limited ("GPL") a 45%/55% joint venture between FCC and the Company, holds a 75% stake in Corporate Square, a 17-storey office development in Finance Street, Beijing. As at to date, approximately 30% of the office space has either been sold or leased.

Guoco Holdings (Philippines), Inc. ("GHPI")

GHPI, the Group's 36.61% associate listed on the Philippines Stock Exchange incurred a consolidated net loss of P493 million (HK$97.6 million) for the six months ended December 1998. The loss was attributable to higher financing cost resulting from higher interest rates and labour costs as well as the Peso depreciation which increased raw material costs. These cost factors, which affected all of GHPI's operating divisions, outweighed the 9% improvement in consolidated revenues from P3.4 billion (HK$0.67 billion) to P3.7 billion (HK$0.73 billion). Necessary measures for rightsizing of investments and reduction of gearing and operating costs are being undertaken to improve financial performance.

Pepsi-Cola Products Philippines, Inc. (PCPPI), a subsidiary of GHPI, has entered into an agreement with an indirect subsidiary of PepsiCo Inc. ("PCI") to acquire an equity interest in PCPPI. The completion of this transaction together with the Group's existing investment in PCPPI will result in PCI and the Group holding a 32.8% and 26.5% respective interest in this company. The purpose of this capital injection is to strengthen PCPPI's long term fundamentals.

Hong Leong Credit Berhad ("HLC")

HLC, the Group's 20.88% associate listed on the Kuala Lumpur Stock Exchange, achieved a consolidated profit before tax and minority interests (PBT) of RM18.0 million (HK$36.7 million) for the first 6 months of the financial year. After accounting for minority interests' share of profit and tax, HLC recorded a profit of RM1.0 million (HK$2.0 million). Earnings per share for the period was RM0.2 sen (HK$0.4 cents) compared to a loss per share of RM13.3 sen (HK$27.1 cents) in the same period last year.

HLC's banking and finance group's pre-tax profit dropped 25.4% to RM73 million (HK$148.8 million) against the same period last year. Net Non Performing Loans (NPL) ratio for the banking and finance group was 9.5%. The capital adequacy ratio stood at 11.8% which is well above the minimum requirement.

HLC's insurance division reported a strong increase in pre-tax profit of RM50.0 million (HK$101.9 million). The property division of HLC reported a lower pre-tax profit of RM20.2 million (HK$41.2 million). Earnings were affected by the slowdown in the construction sector.

HLC's PBT was reduced mainly by a RM66.0 million (HK$134.6 million) loss from its stockbroking business arising from bad debt provisioning and by the share of loss amounting to RM19.9 million (HK$40.6 million) in its associated company, Perdana Merchant Bankers, also mainly arising from loan provisioning.

Other Financial Services

The business of Dao Heng Securities Limited ("DHS"), the Group's stockbroking vehicle, while affected by the low daily turnover volume, still managed to produce a satisfactory result. No loss in the share margin finance business has been incurred as a result of prudent and disciplined operational control.

Dao Heng Insurance Co., Limited's ("DHI") business continues to be affected adversely by the economic downturn. In particular, the depressed property market affected the company's fire insurance business. However, DHI has reported acceptable profit during the period. DHI is successfully expanding its product line by cross-selling personal lines of insurance products through DHBG's various retail distribution channels.

Dao Heng Fund Management Limited is undertaking necessary steps to assure sound infrastructure to participate in the Mandatory Provident Fund business.

Year 2000 Project

With respect to the Group's activities on the Year 2000 Project, it has completed the validation and implementation of mission critical computer systems by 31st December, 1998, for its Banking and Financial Services Operations and is in the process of:-

• Coordinating the upgrading and testing of its computer systems (for the rest of the Group).
• Testing and validating various external interfaces with counterparties as well as participating in industry-wide testing activities where applicable.
• Following up with other significant entities such as suppliers, business partners, creditors, borrowers and customers to assess their respective Year 2000 compliance efforts.
• Reviewing contractual terms and establishing contingency plans.

Outlook

The financial turmoil in the region since mid 1997 has entered a phase which is generally characterised as a malaise. While the underlying market fundamentals are being addressed, the timing of a market recovery is difficult to predict. The Group will nonetheless continue to rationalise its operations. One initiative was the exercise of the put option to dispose of the Group's interest in ABN AMRO Asia (Holdings) Ltd. In view of the difficult economic scenarios in the countries in which the Group operates, the surplus from the sale of its interest in ABN AMRO Asia (Holdings) Ltd will cushion such provisions which the Board may have to address at the end of the year in accordance with the Group's accounting policies.

DIVIDEND

The Directors have declared an interim dividend of HK$0.10 per share amounting to HK$42,663,000 (1997/98 interim dividend: HK$0.20 per share amounting to HK$85,326,000) for the financial year ending 30th June, 1999 which will be payable on 16th April, 1999 to the shareholders whose names appear on the Register of Members on 15th April, 1999.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SHARES

During the period, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company's listed shares.

COMPLIANCE WITH THE CODE OF BEST PRACTICE

No Director of the Company is aware of information which would reasonably indicate that the Company was not in compliance with the Code of Best Practice, as adopted by the Company, at any time during the six months ended 31st December, 1998.

In compliance with the additional requirement of The Stock Exchange of Hong Kong Limited to the Code of Best Practice adopted by the Company, a Board Audit Committee has been established on 9th October, 1998.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members will be closed from 12th April, 1999 to 15th April, 1999, both days inclusive, during which period no transfer of shares can be effected.

In order to qualify for the above dividend, all share transfers accompanied by the requisite share certificates must be lodged with the Company's Branch Share Registrars in Hong Kong, Central Registration Hong Kong Limited, at 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong, for registration not later than 4:00 p.m. on 9th April, 1999.