Gonzaga W. J. Li
heelock and Company Limited’s consolidated profit attributable to shareholders for the year ended 31 March 2001 was HK$516.6 million, compared to HK$864.4 million for the previous year.
Earnings per share were 25.4 cents, compared to 42.6 cents for the previous year.
Wheelock’s investment properties were revalued at 31 March 2001, those
owned by its associates were revalued at the respective year end dates. In accordance with the current established accounting standards, Wheelock’s investments in listed securities were also stated at market value. On these bases, the consolidated net asset value of the Company as at 31 March 2001 was HK$13.92 per share, compared to HK$13.41 per share a year earlier.
GROUP FOCUS
Wheelock and Company Limited and its subsidiaries/associates are engaged in property development/sales and quality retailing in Hong Kong, China Mainland, Singapore and Taiwan. Through its substantial associate Wharf Holdings, Wheelock is also engaged in core investment businesses in property, CME (communications, media and entertainment) and logistics (container and air cargo terminals).
ECONOMIC REVIEW
The perceived downturn of the US economy since the beginning of 2001 has slowed down Hong Kong’s impressive economic recovery. Despite the strong momentum from last year’s double digit GDP growth and a series of interest rate cuts, the major leading indicators of Hong Kong’s economy such as GDP growth, unemployment rate,
Stephen T. H. Ng
Main Board Executives
T. Y. Ng
Nevertheless, we remain cautiously optimistic that the Hong Kong economy should improve within the next six to 12 months on the expectation of a US economic recovery and the effect of the interest rate cuts filtering through the real economy. Further, the stimulus of China’s impending entry into the WTO continues to bring some optimism based
on reports that since July 2000, at least one overseas company per week has set up a regional office in Hong Kong aggregating in more than 3,000 regional
offices in Hong Kong – the highest in Asian cities. China trade is also estimated to double within the five years following its entry into the WTO. Hong Kong has traditionally serviced close to 40 per cent
of China trade and this speaks well for Hong Kong’s macro economic prospects.
PROPERTY
Despite a slowdown of transaction activities, rental sentiments have improved and this augurs well for rental earnings improvements related to Wheelock’s large investment property portfolio, particularly when all the excessive supply of offices has now been largely absorbed. The success of Wharf’s Harbour City and Times Square projects offers great comfort to the Group as a whole, and the passage of time should only bring further improvements. The Gateway project within Harbour City is particularly
Harry S. S. Wong
John T. Hung
successful in that all three sectors of retail, offices and luxury serviced apartments have leased extremely well.
As a major property owner and developer, the Wheelock group of companies through Wharf, New Asia Realty (“NART”) and Realty Development (“RDC”) holds some 7.5 million square
feet GFA in developable properties in its portfolio. The Wheelock Group conducts its own property development and manages its own properties as well as its subsidiaries as co-investor.
Wheelock has seen further progress in construction of two focus projects, namely, the 2.3-million-square-foot
GFA MTRC Kowloon Station Two development “Sorrento”, and the 2.8-million-square-foot GFA Sham Tseng project “Bellagio”. Both these developments are making good progress in construction and in time should yield high revenue potential. Wharf is also close to the launching of three attractive projects on The Peak, namely, Mountain Court, Chelsea Court and the substantial construction at Plantation Road where returns should be enhanced by the scarce supply in the top-end luxury market.
Wheelock has a robust and successful presence in Singapore through Marco Polo Developments Limited (“MPDL”), a publicly listed Singapore
vehicle held through NART. MPDL is a leading luxury residential developer in Singapore and recognized to be one of the best managed. It is also one of the largest Hong Kong-owned property companies in the Island Republic. With the successful Ardmore Park development generating approximately S$1 billion profit before tax and the
current redevelopment of the now demolished Marco Polo Hotel, MPDL is now cash rich and on the lookout for good investment opportunities.
RETAIL
Wheelock’s retail initiatives are led by the well-known Lane Crawford brand which has performed with noticeable improvements in merchandizing and consumer attraction. Acquired last year, Joyce Boutique is focusing on consolidating its businesses and strengthening its core. These two, with the high-end supermarket and lifestyle brand of City’Super, bring together a meaningful retail presence of the Wheelock Group with a geographical coverage of Hong Kong, China Mainland, Taiwan and Singapore on a scale that is unmatched in the region, with a high level of trust established with their customers.
Despite difficulties in the economic climate caused by relatively inactive financial and property markets, Lane Crawford continues to sustain its turnover and positive operating profit. However, the continuing deflationary syndrome has imposed restrictions for pricing flexibility resulting in margins being put under pressure. The company’s efforts in customer-oriented promotion strategies, relationship marketing, and effective cost rationalization systems have brought stability to its operations, and the Board is pleased to see Lane Crawford maintaining its lead position in the market with a strong and loyal customer base.
Lane Crawford’s joint venture associate Maison Mode in Shanghai is now generating reasonable profits, and Lane Crawford has opened a store in Shanghai Times Square as a critical step towards Greater China retail coverage which will include Taipei towards the end of 2001.
WHARF
The Wharf group’s corporate structure is anchored by property investment with Kowloon Point
representing half of its assets. Other properties take up 25 per cent. The other core investments are completed by two other principal arms, namely, CME and logistics. This portfolio offers significant revenue growth and value creation through brands in the coming years.
PROPERTY
With the recovery of the Hong Kong’s economy last year, and the absorption of the previous over-supply, the rental market in commercial space has
significantly improved and gathering momentum.
Canton Road is substantially revitalized and will be further enhanced with time. Street front major deluxe retailers have added greatly to the look of the Canton Road promenade. Substantial premises improvements are being planned by adding value to Ocean Terminal and the revamping of The Marco Polo Hongkong Hotel arcade, including active planning to enhance the quality and look of the Ocean Terminal roof top as well as the praya from Ocean Terminal to the concourse of the “Star” Ferry. Kowloon Point dominates Tsimshatsui as the centre of gravity for commercial and leisure activities with
transport links to all parts of the territory. The Government’s “Dragon” theme Beautification Project along the Tsimshatsui promenade currently promoted by the Hong Kong Tourism Board will further enhance the value of Harbour City.
The new retail extension underneath the Gateway II Towers completed in 1998 has strengthened the prominent position of Harbour City, which enjoys heavy traffic flow and the presence of high brand name stores. Substantial asset value has therefore been added.
Times Square Hong Kong is another major property asset under active management. With a strong brand recognition, Times Square is one of the top ten tourist attractions nominated by the Hong Kong Tourism Board. Being a retail focus in the Causeway Bay hub, it is the most-sought-after exhibition venue for consumer products in Hong Kong.
The branding initiatives of China Times Squares are underway with Beijing and Shanghai successfully marketed, and Chongqing under construction.
CME
The year 2000 was a milestone growth year for Wharf ’s CME businesses. This division is growing strongly despite keen competition arising from what is a regulatory-driven business. The tough entry barrier has been overcome and its high operating leverage will offer attractive incremental
profit margin growth from the increase of revenue.
i-CABLE
CABLE TV reported a healthy net profit in the second half of the year, at least a year earlier than expected. The Multimedia division launched a Broadband Internet access service in March 2000 and started to report a positive EBITDA before the end of the year. The bundling services to customers through the “Triple Play” strategy will bring three potentially high earnings streams from video, data and voice. Delivery of voice service is being
than its competitors. On consolidation, a net profit of HK$20 million was reported for the year, representing a huge improvement of HK$257 million over the previous year of 1999.
NEW T&T
New T&T has rapidly transformed its core business from IDD to high value fixed lines where entry barriers are higher. In doing so, New T&T has consolidated its position as the fastest growing and most successful competitor to the former monopoly in fixed telecom network services. Where fixed lines represented only 10 per cent of total revenue in 1998, it grew to 27 per cent in 1999 and 50 per cent in 2000.
2000 revenue was 25 per cent higher than 1999. By managing costs at below the 1999 level, New T&T reported an improvement in EBITDA of over HK$200 million, and came close to breaking even
As suggested in my Economic Review, China trade is estimated to double within the five years following its entry into the WTO, and Hong Kong has traditionally serviced close to 40 per cent of China trade and this will directly improve the potential at Modern Terminals, now a 55 per cent subsidiary of Wharf with stable growth in earnings.
Container Terminal No. 9 will generate extra capacity from 3.4 million TEUs to 4.5 million TEUs, and the aggregate
terminals within this company will occupy some 9.5 million square feet of land.
Modern Terminals is conservatively leveraged and all financing is non-recourse to the shareholders. This solid financial position will enable Modern Terminals to also expand into other areas particularly at the Western Shenzhen ports in Southern China.
PROSPECTS AND OUTLOOK
The Wheelock Group will continue to build assets and value, and we have achieved visible improvements. The completed property projects are now reaping returns. Wharf ’s investment in i-CABLE is now in
profit and New T&T is on positive EBITDA. The retail brands of Lane Crawford, Joyce and City’Super are all doing reasonably well within a highly competitive market, and this improvement of our retail platform is encouraging.
The Group refinanced the majority of its secured debts by unsecured loan facilities with longer maturity periods and substantial reduction in interest charges. With the gradual reduction of interest rates, borrowing cost could further reduce in the future.
Looking forward, we shall continue to build on the success. Encouraged by the imminence of China’s entry into the WTO, we look at the future with a good degree of confidence.
On behalf of Shareholders and Directors, I wish to record my heartfelt thanks to the Group’s management and staff for their contribution.
Gonzaga W. J. Li, Chairman
