6
in accordance with previous plans, the Group has agreed with Government to proceed with the construction and operation of Terminal 6 at Kwai Chung. The new three-berth terminal, due for completion in 1989, will double the Group's existing capacity and will cost approximately HK$2,000 million. Agreement has already been finalised whereby the Group will sell Terminal 2 which will allow HIT to become the sole operator of the new Terminal 6.
Profits from the Group's trading and retailing operations have shown an increase over 1984 in a very com- petitive market and, in particular, Hutchison-Boag Engineering and the A.S. Watson group have shown improved results. The progress of Hutchison Telephone Company Limited has been satisfactory during its start up year and the Sheraton-Hong Kong Hotel enjoyed another very successful year. The quarrying, asphalt and ready mixed concrete operations performed well and showed improved results in very competitive market conditions.
During the year, the Group continued to invest in support of many of its subsidiaries with the acquisition of several new businesses to complement their existing activities. For example, full control was acquired of Ready Mixed Concrete (H.K.) Limited and the business of the Congain Concrete group. These acquisitions will enhance further the profitability of the Anderson Asia group. Hutchison-Boag Engineering Limited purchased Trifair Electrical Engineering Company Limited and Fortress Limited, thus strengthening its capabilities in building materials and electrical equipment and diversifying the company into electrical appliance retailing activities. In addition, the Group has expanded further its coal trading activities through the formation of a 50:50 joint venture with the Total Group of France which will contribute to profits during its first year.
Prospects
The financial soundness of the Hutchison Group is reflected in the balance sheet with shareholders' funds growing over the year from HK$5,078 million to HK$6,474 million. While the recent acquisitons have temporarily utilized the Group's cash resources, the overall gearing ratio remains low.
These acquisitions and the decision to proceed with the Terminal 6 project reflect the Group's continued commitment to and confidence in Hong Kong. During 1985, the Group made commitments of approximately HK$12,000 million to be spent in Hong Kong over the next four years. Most of this is in support of the expansion and growth of our subsidiaries.
Hong Kong remains the focal point for our activities and our first and main priority will be the continued expansion of our existing businesses here. However, our cashflow projections indicate that we should be able to support more than this ongoing business expansion and so we will also look at suitable investment opportunities overseas. It is our aim to become a more broadly based Group geographically with our headquarters and control resting firmly in Hong Kong on the very solid foundation of our proven ongoing businesses.
Activity in the residential property market in Hong Kong continues to be satisfactory with prices stabilising at healthy levels which are well within the payment capabilities of the end users. Rentals from investment properties and profits from the Whampoa Garden development will continue to make a significant contribution to Group earnings. With the exception of our ship repairing associated company, all sectors of the Group continue to perform well. The recent fall in oil prices should stimulate growth in the economies of our industrialised trading partners and help to reduce production costs in Hong Kong. These factors combined with the low exchange rate of the Hong Kong dollar resulting from its link with the weakening US dollar should increase the competitiveness of Hong Kong's exports. The industrial, trading, tourism and transportation sectors are all benefiting from Hong Kong's role as one of China's major trade partners and its strategic position as the focal point for China's rapidly expanding economic links with the rest of the world. Overall, the outlook for Hong Kong's economy is reasonably good. With its broad base of business activities and strong finances, I am confident that the Group is well placed to face potential challenges and to exploit new opportunities. Barring unforeseen circumstances, the Group's overall 1986 performance should be satisfactory and the total dividend for 1986 should be not less than that paid in respect of 1985.
Management and staff have performed well during 1985 and, on behalf of the shareholders and the directors, I extend to them my thanks and good wishes for 1986.
Li Ka-shing
Chairman
Hong Kong, 2nd April, 1986
HUTCHISON WHAMPOA LIMITED