An ongoing reinvention of itself as a diversified Hong Kong-China play has severely affected the interim results of Wharf (Holdings), with chairman Gonzaga Li Wei-jen warning investors to expect short-term pain but long-term gain during the transformation. The company yesterday announced attributable profit of $1.3 billion for the six months to June, a 57 per cent fall due mainly to a $1.94 billion exceptional gain for the same period last year. Excluding exceptionals, operating profit increased 37 per cent to $1.32 billion. Earnings per share before exceptionals were 55 cents, up 12 per cent. A dividend of 26 cents a share was declared, up 8 per cent from a year earlier. The company has been involved in a complicated series of asset shuffles over the past year which removed its international operations and focused the company on property, broadcasting, telecommunications and infrastructure in Hong Kong and China. 'Wharf has set out to build new assets, new businesses and new sources of earnings,' Mr Li said. '[This] demands some earnings sacrifice in the short term. The returns should be rewarding after these new businesses stabilise.' The company disposed of its North American hotel operations this year and increased its holding in Modern Terminals to 50.8 per cent, making it a subsidiary rather than an associate. Last year it sold its interest in Singapore-listed Marco Polo Developments, which resulted in the huge exceptional gain last year. The reshuffle affected the company's performance for the first six months of the year, although spokesman Nick Thompson said it was 'virtually impossible to compare apples with apples when it comes to Wharf as it was in 1995 and as it is today'. The company experienced problems in its communications operations with Wharf Cable and New T&T dragging earnings down. Wharf Cable needs about 450,000 subscribers to break even and has incurred very high start-up costs. It is now viewed in about 260,000 households, although this is expected to increase to 300,000 by the end of the year. Wharf deputy chairman and managing director Stephen Ng Tin-hoi said: 'The industry's history shows that cable television start-ups experience operating deficits in their initial years.' New T&T, one of three new fixed-line telephone operators in Hong Kong, also incurred what the company referred to as 'start-up deficits', although it added New T&T was already running 'ahead of original revenue expectations'. BZW Securities analyst Kendal Law said Wharf's reorganisation had tended to 'pick businesses where there is a lot of competition and start-up costs are enormous'. On the property side, the outlook was more positive with the Gateway II development expected to become earnings generative in 1998-99, contributing about $1.2 billion a year to company coffers.