Main Board Executives
	Deputy Chairman and Managing Director Stephen T H Ng (centre) with (from left): Executive Director John Hung, and Directors Quinn Law, K H Leung and T Y Ng

Business Review and Prospects

The overall performance of the Wharf Group met expectations for the first half of 2000 and continual uptrend is expected for the remainder of the year. The Wharf Group is now riding the wave of attractive growth in most areas of its operations.

An unaudited Group profit of HK$1,119.7 million was reported, representing an increase of 5.3 per cent over the same period last year. Earnings per share were HK$0.46. An interim dividend of 28 cents per share has been recommended.

The Group continues to exercise maximum financial prudence. Debt to total assets ratio remains at a conservative 25.1 per cent despite some capital spending because improved sales have begun to accrue from nearly all of the business units. The Group can be said to have gone past a heavy capital investment phase and moving into a phase of positive financial returns.

In recognition of the improving climate, Moody's Investors' Service raised the outlook for Wharf 's long term foreign currency ratings from "negative" back to "stable" in July. In the same month, Moody's also upgraded Wharf's CMBS (Commercial Mortgage Backed Securities) papers by a notch each in five categories of the issue. They noted that their decision reflected the robust performance of the properties at Harbour City and, in particular, the substantial increase in occupancy and the resultant cashflow generated.

Property

With supply diminishing and demand rising, the property market generally looks to be on the verge of stronger recovery. The year-end overall vacancy rate is expected to fall substantially. Consumer spendings have visibly increased and hotel occupancy rates are probably at their highest since the beginning of the economic turmoil in the second half of 1997.

In tandem with the improving economic climate, the overall occupancy of the Group's core investment portfolio has recovered to about 90 per cent, with retail occupancy particularly strong at 96 per cent.

Gateway II, the modern and competitive leader in quality in Tsimshatsui, has been performing well since its opening. The retail podium is virtually fully occupied; offices and serviced apartments are over 80 per cent leased. The third tower of Gateway II is likely to be officially launched in the last quarter of 2000 to capitalise on the cyclical turnaround.

With Gateway II's 2.7 million square feet completed, the Wharf Group's overall core investment property portfolio now exceeds 11 million square feet in Hong Kong. When optimal occupancy is achieved, the total Group rental billings could amount to HK$4.25 billion per annum.

The construction of residential properties has made steady progress. Superstructure works for Phases I and II of the Sham Tseng development commenced at the end of 1999, while those for Phase I of Kowloon Station Package II commenced in May. Pre-launches for these projects are scheduled for 2001.

The construction of three luxury development projects, totalling some 180,000 square feet and collectively named "Wharf Peak Portfolio", is also on schedule. Superstructure works at Mountain Court and Chelsea Court are at the final stage and completion is expected by the fourth quarter of 2000. Superstructure works at Hillview Court in Plantation Road are in steady progress and completion is scheduled for the first half of 2002. Forward sales for these projects will depend on market conditions.

Tourism-related business was expected to grow by 14 per cent over 1999, a positive trend of which Marco Polo Hotels are well positioned to take advantage. All three Hong Kong hotels reported strong growth in performance for the first half of 2000 and the year-end results are expected to reflect a continuation of this growth. Turnover for food and beverages and average room rates have also gone up.

Discussions are in an advanced stage for the Marco Polo Hotels Group to manage a hotel to be named "The Marco Polo, Beijing" which is located at the centre of the business and financial district of Western Beijing.

The Marco Polo Hotels Group will unify the Marco Polo brand in Hong Kong in October 2000. At that time, the three existing hotels will be known as "The Marco Polo Hongkong Hotel", "The Marco Polo Gateway" and "The Marco Polo Prince".

Communications

• i-CABLE
• New T&T

i-CABLE was well placed to take advantage of the opportunities provided by the convergence of video, data and voice services. i-CABLE's broadband HFC network permits the implementation of a unique triple play strategy with three direct major revenue streams from pay TV, broadband Internet and voice over the same infrastructure. The Group regards the bundling of the three solutions as the only strategic formula for success in an increasingly competitive environment.

i-CABLE¡¦s cohesive management over these years has enabled the company to meet all targets despite two deep recessions during four of the first six years of its operation. Significant growth has been seen across all aspects of its operations in the first half of 2000.

Pay TV subscriptions grew by 14 per cent to 480,000. The pay TV EBITDA margin grew by nine points to 30 per cent and viewership share has risen to 30 per cent. Pay TV EBITDA grew by 63 per cent to HK$220 million and net profit was achieved for this core business for the first time.

Internet subscribers grew by 370 per cent to 180,000, and total i-CABLE revenue grew by 21 per cent to HK$775 million with EBITDA increasing by 57 per cent to HK$176 million. Net loss improved by 68 per cent to HK$40 million.

High speed cable modem Internet service was introduced in March, and early mover advantage has enabled the infrastructure rollout and subscriber penetration to rank amongst the fastest in the world. Broadband service is now available to 700,000 homes and this will reach one million homes by year end and over 1.7 million homes by the end of 2001, which will reflect market coverage of more than 95 per cent. The number of broadband Internet subscribers has reached the 20,000 target. Dial-up subscribers now number 163,000, which accounts for about 10 per cent of the total dial-up traffic in the market.

In the meantime, voice-over-IP telephony trials are due to commence this year with commercial rollout expected towards the end of 2001.

New T&T continued to be an innovative mover in the telecommunication industry with its "Building e-Connections" vision. In the period under review, dramatic growth has been seen in all areas of New T&T's services.

Installed fixed lines grew by 90 per cent to over 110,000; and IDD lines increased by 35 per cent to over 610,000. Fixed lines revenue increased by 70 per cent to HK$133 million. Total revenue was HK$323 million, with contribution from fixed lines having risen by 18 points to 41 per cent.

New T&T's infrastructure capabilities have been, and continue to be, enhanced to meet the challenges of the future. A second gateway switch was commissioned in February and the third local switch will be commissioned shortly. The rapid increase in traffic demand has necessitated fourth and fifth local switches to be commissioned in the near future. The fourth is currently on order and the fifth is being sourced.

External facilities connecting directly with the Mainland and major international routes have been completed, and New T&T became the first operator to offer International Private Leased Circuits after ending the last chapter of telecoms monopoly in Hong Kong in January 2000. New broadband and IP products have been launched to provide services to ISPs, ICPs and ASPs.

Terminals

As a result of strong consumer demand in the US and improvements in intra Asian trade, Modern Terminals continue to register significant growth. For the first half of 2000, throughput grew by 9.8 per cent compared to the same period last year.

The CT9 civil construction contract was signed in May 2000 and the first berth of CT9 is expected to be operational in the first half of 2002.

On completion, Modern Terminals will have four contiguous berths at CT9, which will give the company a net increase of two berths, following the contractual commitment to swap its two berths at CT8. Modern Terminals'capacity will then increase from the present 3.4 million TEUs to 4.5 million TEUs.

Development of CT9 and the strategic engagement by Modern Terminals in Western Shenzhen ports are both fortuitously timed in view of the impending entry of China into the World Trade Organisation.