To Our Shareholders,

After a short-term stabilisation in 2010, external risks include slow economic recovery in US, sovereign debt crisis in Europe, social unrest in North Africa and Middle East are increasing economic uncertainties. Among all countries, China’s economy is expected to deliver the best growth.

While the system risk of global economy is increasing, Hong Kong has still achieved a reasonable economic growth with GDP increased by 5.1% in real terms over a year earlier in the second quarter of 2011 and its unemployment rate was at a record low of 3.2% from June to August 2011. Favourable conditions still persist in Hong Kong property market. Mortgage rate is expected to stay low for a while. Though there is more land supply released by the Hong Kong Government, the shortage of physical market has not been jeopardised as the demand remains stable.

The Group has re-launched The Masterpiece in August 2011 with satisfactory response. So far, over 40 units were sold. In the coming 12 months, the Group will launch six residential projects to provide attributable 1,949 units according to market condition.

To take care of the underprivileged, Premier Wen Jia-Bao has just depicted publicly again the determination to provide affordable housing and has introduced the idea of public rental housing. This act is good for long-term development of housing market as the underprivileged will gradually migrate to middle income class with the government “subsidy”. Like a lot of developed countries, the abundance of middle-income class is crucial for the healthy development of the property market.

Recently, apart from implementation of tightening measures on certain cities, the Central Government also allows a reasonable advancement of residential property prices based on local economic improvement such as GDP growth. It is expected by the market that the Central Government will further fine-tune those austerity measures in order to consolidate and enhance the positive results of austerity and effectively manage inflation to ensure stable development of the market in due regard to the situation of the local and the global economic development.

Overall, the Group is cautiously optimistic about the Mainland China property market. We will continue our development plan to tap into the huge opportunities brought by the urbanisation in Mainland China according to the good side of the market. At the same time, we also hold a prudent approach in developing our Mainland China operations by appropriately adjusting our plan according to market and policy variations.

Service and Infrastructure businesses generate sustainable cashflow. In the 12th Five-Year Plan, the reinforcement of expressway network remains an important target for Mainland China. Road operators will not only benefit from greater investment opportunities, but also a more developed and comprehensive road network. NWSH announced the acquisition of 58.66% effective interest in Hangzhou Ring Road in September 2011, which substantially strengthens the investment contribution in the infrastructure segment.

Environmental issues remain as a top priority on the Mainland Government’s agenda. The Central Government’s increased support for environmental initiatives, such as wastewater and sludge treatment, has created investment opportunities for this segment. Water demand is expected to grow healthily in line with the continuous development in Mainland China. NWSH will continue to explore opportunities for investing in waste water and sludge treatment projects.

Driven by the increasing volume of logistics and transportation business in China, as well as the need for more environmental friendly transportation mode, the demand for rail freight transportation is expected to accelerate at a fast pace in the coming years. The China United International Rail Containers Co., Ltd. terminals are well-positioned to capture future growth in rail freight volume.

In view of the increasing demand for logistics and distribution facilities in Hong Kong, the Group capitalised on the opportunity in developing a new logistics warehouse in Kwai Chung with a total leasable area of approximately 920,000 sq ft and the facility is scheduled to be operational in late 2011. This warehouse project is expected to generate a steady operating profit as the Group has already entered into an agreement with one of the world’s leading global logistics companies to lease the entire warehouse.

The Free Duty business is expected to thrive with the increase in the number of high-spending visitors from Mainland China. As part of the business development plan in conjunction with upcoming contract renewals, the Group will consider different duty free concessions in Hong Kong and abroad.

Department stores will be benefited by steady growth in China domestic consumption. NWDS will carry on with the expansion strategy, targeting to add 25 new self-owned stores in next five years, amounting to about 10% to 20% gross floor spaces increase per annum. NWDS plans to add five stores and complete the expansion of one existing store in FY2012 and FY2013. Extra spaces amount to approximate GFA of over 248,000 sq m.

On the whole, the Group will keep monitoring the risks affecting our operations and adjust our plans and executions for the best interests of the Group’s stakeholders.

Dr Cheng Kar-Shun, Henry
Managing Director
Hong Kong, 29 September 2011