RNS Number:9091S
MTR Corporation Ltd
14 March 2007
MTR Corporation Limited
(Incorporated in Hong Kong with limited liability)
(Stock code: 66)
ANNOUNCEMENT OF AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
+----------------------------------------------------------------------------------------------------------------------+
| HIGHLIGHTS |
| |
| Financial |
| |
| * Turnover increased 4.2% to HK$9,541 million |
| * Operating profit from railway and related businesses before depreciation increased 2.0% to HK$5,201 million |
| with margin of 54.5% |
| * Property development profit reduced by 5.3% to HK$5,817 million |
| * Net profit attributable to equity shareholders, excluding investment properties revaluation and related |
| deferred tax (profit from underlying businesses), decreased 2.9% to HK$5,962 million |
| * Net profit attributable to equity shareholders, including investment properties revaluation and related |
| deferred tax, of HK$7,759 million |
| * Debt/equity ratio at year-end improved to 36.7% from 40.4% at 2005 year-end |
| * Final dividend of HK$0.28 per share |
| |
| Operational |
| |
| * Patronage for MTR Lines and Airport Express increased 1.1% to 876 million, market share maintained |
| * Growth in station commercial and property investment businesses |
| * Tseung Kwan O Area 86 Package 2 awarded in January 2006 |
| * Ngong Ping 360 opened in September 2006, patronage exceeding expectation |
| * Concession Agreement for Beijing Line 4 signed in April 2006 with majority of construction contracts let as at |
| year-end |
| * Memorandum of Understanding on rail merger with Kowloon-Canton Railway Corporation signed with HKSAR |
| Government on 11 April 2006 and the Rail Merger Bill was submitted to the Legislative Council on 5 July 2006 |
+----------------------------------------------------------------------------------------------------------------------+
The Directors of MTR Corporation Limited ("the Company") are pleased to announce
the audited results of the Company and its subsidiaries ("the Group") for the
year ended 31 December 2006 as follows:
CONSOLIDATED PROFIT AND LOSS ACCOUNT
------------------------------------------------------------------------------------------------
Year ended 31 December
HK$ Million 2006 2005
------------------------------------------------------------------------------------------------
Fare revenue 6,523 6,282
Station commercial and other revenue 1,606 1,555
Rental and management income 1,412 1,316
--------- ---------
Turnover 9,541 9,153
--------- ---------
Staff costs and related expenses (1,653) (1,614)
Energy and utilities (539) (541)
Operational rent and rates (65) (92)
Stores and spares consumed (120) (120)
Repairs and maintenance (511) (496)
Railway support services (80) (74)
Expenses relating to station commercial and other (443) (358)
businesses
Property ownership and management expenses (312) (238)
Project study and business development expenses (267) (142)
General and administration expenses (192) (207)
Other expenses (158) (170)
--------- ---------
Operating expenses before depreciation (4,340) (4,052)
--------- ---------
Operating profit from railway and related businesses 5,201 5,101
before depreciation
Profit on property developments 5,817 6,145
--------- ---------
Operating profit before depreciation 11,018 11,246
Depreciation (2,674) (2,682)
--------- ---------
Operating profit before interest and finance charges 8,344 8,564
Interest and finance charges (1,398) (1,361)
Change in fair value of investment properties 2,178 2,800
Share of profits less losses of non-controlled 45 9
subsidiaries and associates
--------- ---------
Profit before taxation 9,169 10,012
Income tax (1,411) (1,549)
--------- ---------
Profit for the year 7,758 8,463
========= =========
Attributable to:
- Equity shareholders of the Company 7,759 8,450
- Minority interests (1) 13
--------- ---------
Profit for the year 7,758 8,463
========= =========
Dividends paid and proposed to equity shareholders
of the Company attributable to the year:
- Interim dividend declared and paid during the 774 764
year
- Final dividend proposed after the balance sheet 1,554 1,535
date
--------- ---------
2,328 2,299
========= =========
Earnings per share:
- Basic HK$1.41 HK$1.55
- Diluted HK$1.41 HK$1.55
CONSOLIDATED BALANCE SHEET
----------------------------------------------------------------------------------------------
As at 31 December
HK$ Million 2006 2005
----------------------------------------------------------------------------------------------
Assets
Fixed assets
- Investment properties 22,539 19,892
- Other property, plant and equipment 84,404 83,383
--------- ---------
106,943 103,275
Railway construction in progress 232 1,006
Property development in progress 3,297 2,756
Deferred expenditure 565 281
Prepaid land lease payments 594 608
Interests in non-controlled subsidiaries 171 103
Interests in associates 100 -
Deferred tax assets 1 19
Investments in securities 272 183
Staff housing loans 25 34
Properties held for sale 2,018 1,311
Derivative financial assets 195 234
Stores and spares 272 248
Debtors, deposits and payments in advance 1,894 3,095
Loan to a property developer 3,355 -
Amounts due from the Government and other related parties 177 154
Cash and cash equivalents 310 359
--------- ---------
120,421 113,666
--------- ---------
Liabilities
Bank overdrafts 5 14
Short-term loans 1,114 385
Creditors, accrued charges and provisions 3,639 3,415
Current taxation 1 2
Contract retentions 193 170
Amounts due to related parties - 17
Loans and obligations under finance leases 27,033 27,865
Derivative financial liabilities 515 307
Deferred income 1,682 3,584
Deferred tax liabilities 9,453 8,011
--------- ---------
43,635 43,770
--------- ---------
Net assets 76,786 69,896
========= =========
Capital and reserves
Share capital, share premium and capital reserve 38,639 37,450
Other reserves 38,128 32,425
--------- ---------
Total equity attributable to equity shareholders of the 76,767 69,875
Company
Minority interests 19 21
--------- ---------
Total equity 76,786 69,896
========= =========
Notes:-
1. AUDITORS' REPORT
The results for the year ended 31 December 2006 have been audited in accordance
with Hong Kong Standards on Auditing, issued by the Hong Kong Institute of
Certified Public Accountants ("HKICPA"), by KPMG whose unmodified audit report
is included in the annual report to be sent to shareholders. The results have
also been reviewed by the Group's Audit Committee.
2. BASIS OF PREPARATION
These consolidated accounts have been prepared in accordance with all applicable
Hong Kong Financial Reporting Standards issued by the HKICPA. The accounting
policies adopted in the preparation of these accounts are consistent with those
used in the 2005 annual accounts except for changes made thereafter in adopting
the Amendment to Hong Kong Accounting Standard 39 "Financial instruments:
recognition and measurement on financial guarantee contracts". The adoption of
this amendment does not have a significant financial impact on the Group's
results of operations and financial position for financial years 2005 and 2006.
3. RETAINED PROFITS
The movements of the retained profits during the years ended 31 December 2006
and 2005 were as follows:
-----------------------------------------------------------------------------------------
HK$ Million 2006 2005
-----------------------------------------------------------------------------------------
Balance as at 1 January 31,698 25,521
Dividends declared or approved (2,309) (2,273)
Profit for the year attributable to equity 7,759 8,450
shareholders of the Company
--------- ---------
Balance as at 31 December 37,148 31,698
========= =========
4. PROFIT ON PROPERTY DEVELOPMENTS
-------------------------------------------------------------------------------------------
Year ended 31 December
HK$ Million 2006 2005
-------------------------------------------------------------------------------------------
Profit on property developments comprises:
Transfer from deferred income on
- upfront payments 1,213 1,794
- sharing in kind 555 95
Share of surplus from development 3,724 3,296
Income recognised from sharing in kind 342 971
Other overhead costs (17) (11)
--------- ---------
5,817 6,145
========= =========
5. INCOME TAX
-------------------------------------------------------------------------------------------
Year ended 31 December
HK$ Million 2006 2005
-------------------------------------------------------------------------------------------
Current tax - overseas 2 1
--------- ---------
Deferred tax expense relating to the origination
and reversal of temporary differences on:
- change in fair value of investment properties 381 490
- others 1,028 1,058
--------- ---------
1,409 1,548
--------- ---------
Income tax in the consolidated profit and loss 1,411 1,549
account
========= =========
Share of income tax of non-controlled subsidiaries 12 7
========= =========
No provision for current Hong Kong Profits Tax has been made in the consolidated
profit and loss account in respect of the Company and its subsidiaries, as the
Company and its subsidiaries either have substantial accumulated tax losses
brought forward which are available for set off against current year's
assessable profits or have sustained tax losses for the year ended 31 December
2006. Taxation for overseas subsidiaries is charged at the appropriate rates of
taxation ruling in the relevant countries.
Provision for deferred tax on temporary differences arising in Hong Kong is
calculated at Hong Kong Profits Tax rate at 17.5% (2005 : 17.5%).
6. DIVIDEND
The Board has recommended to pay a final dividend of HK$0.28 per share. The
Company proposes that a scrip dividend option will be offered to all
shareholders except shareholders with registered addresses in the United States
of America or any of its territories or possessions. Subject to the approval of
the shareholders at the forthcoming Annual General Meeting, the final dividend
will be distributed on or about 26 June 2007 to shareholders whose names appear
on the Register of Members of the Company as at the close of business on 17
April 2007. The Company's majority shareholder, The Financial Secretary
Incorporated, has agreed to elect to receive all or part of its entitlement to
dividends in the form of scrip to the extent necessary to ensure that a maximum
of 50% of the total dividend paid by the Company will be in the form of cash.
7. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit for the year
attributable to equity shareholders of HK$7,759 million (2005 : HK$8,450
million) and the weighted average number of ordinary shares of 5,510,345,238 in
issue during the year (2005 : 5,430,594,654).
The calculation of diluted earnings per share is based on the profit for the
year attributable to equity shareholders of HK$7,759 million (2005 : HK$8,450
million) and the weighted average number of ordinary shares of 5,516,115,460 in
issue during the year (2005 : 5,436,752,536) after adjusting for the number of
dilutive potential ordinary shares under the employee share option schemes.
Both basic and diluted earnings per share would have been HK$1.08 (2005 :
HK$1.13) if the calculation is based on profit from underlying businesses
attributable to equity shareholders, i.e. excluding increase in fair value of
investment properties net of related deferred tax.
8. SEGMENTAL INFORMATION
--------------------------------------------------------------------------------------
Turnover Contribution to profit
Year ended 31 December Year ended 31 December
HK$ Million 2006 2005 2006 2005
--------------------------------------------------------------------------------------
Railway operations 6,523 6,282 979 760
Station commercial and other 1,606 1,555 1,081 1,071
businesses
-------- -------- -------- --------
8,129 7,837 2,060 1,831
Property 1,412 1,316 1,096 1,074
ownership and management
-------- -------- -------- --------
9,541 9,153 3,156 2,905
======== ========
Property developments 5,817 6,145
-------- --------
8,973 9,050
Unallocated corporate (2,027) (1,847)
expenses
Change in fair 2,178 2,800
value of investment properties
Share of profits less losses of 45 9
non-controlled subsidiaries
and associates
Income tax (1,411) (1,549)
-------- --------
7,758 8,463
======== ========
Station commercial and other businesses comprise mainly letting of advertising
and retail space within the railway premises, bandwidth services on the railway
telecommunication system, international consultancy services and, commencing
from 18 September 2006, cable car operations and related businesses.
As substantially all the principal operating activities of the Group were
carried out in Hong Kong throughout the reporting periods, no geographical
analysis is provided.
9. LOAN TO A PROPERTY DEVELOPER
-----------------------------------------------------------------------------------------------------------------
As at 31 December 2006 As at 31 December 2005
HK$ Million Nominal Carrying Nominal Carrying
amount amount amount amount
-----------------------------------------------------------------------------------------------------------------
Interest-free loan to a property developer 4,000 3,355 - -
========= ========= ========= =========
The loan was provided to the developer of Package Two, Tseung Kwan O Area 86
property development project under the terms of the development agreement. The
loan is interest-free and guaranteed by the developer's ultimate holding company
and is repayable on completion of the respective phases of the project.
The difference between the nominal and carrying amount of the loan at inception,
amounting to HK$768 million, has been capitalised as property development in
progress.
10. DEBTORS AND CREDITORS
A The Group's debtors, deposits and payments in advance amounted to
HK$1,894 million (2005 : HK$3,095 million), out of which HK$825 million
(2005 : HK$2,042 million) relates to property development including
HK$478 million (2005 : HK$46 million) receivable from certain
stakeholding funds awaiting finalisation of the respective development
accounts, and HK$608 million (2005 : HK$604 million) receivable from
rentals, advertising and telecommunication activities with due dates
ranging from 7 to 50 days, swap interest receivable from debt portfolio
management activities due in accordance with the respective terms of the
agreements, and amounts receivable from consultancy services income due
within 30 days. As of 31 December 2006, HK$276 million (2005 : HK$185
million) were overdue out of which HK$174 million (2005 : HK$78 million)
were overdue by more than 30 days.
B Creditors, accrued charges and provisions amounted to HK$3,639 million
(2005 : HK$3,415 million), majority of which relate to capital project
payments to be settled upon certification of work in progress, as well as
swap interest payable under the terms of respective swap agreements for
debt portfolio management purposes. The Group has no significant balances
of trade creditors resulting from its provision of transportation and
related services. As at 31 December 2006, HK$645 million (2005 : HK$591
million) were amounts either due within 30 days or on demand.
11. PURCHASE, SALE OR REDEMPTION OF OWN SECURITIES
During the year ended 31 December 2006, neither the Company nor any of its
subsidiaries has purchased, sold or redeemed any of its listed securities.
12. CHARGE ON GROUP ASSETS
None of the Group's assets was charged or subject to any encumbrance as at 31
December 2006.
13. ANNUAL GENERAL MEETING
It is proposed that the Annual General Meeting of the Company will be held on 7
June 2007. For details of the Annual General Meeting, please refer to the Notice
of Annual General Meeting which is expected to be published on or about 26 April
2007.
14. CORPORATE GOVERNANCE
The Company has complied throughout the year ended 31 December 2006 with the
Code Provisions set out in the Code on Corporate Governance Practices contained
in Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the "Stock Exchange") except that, with respect
to Code Provision A.4.1, non-executive Directors of the Company are not
appointed for a specific term but are subject (save for those appointed pursuant
to Section 8 of the Mass Transit Railway Ordinance (Cap. 556 of the Laws of Hong
Kong)) to retirement by rotation and re-election at the Company's annual general
meetings in accordance with Articles 87 and 88 of the Company's Articles of
Association.
Dr. Raymond Ch'ien Kuo-fung, a Member of the Board, was appointed as the
non-executive Chairman of the Company with effect from 21 July 2003 for a term
of three years. In July 2006, he was re-appointed as the non-executive Chairman
of the Company with effect from 21 July 2006 until 31 July 2007.
Mr. Chow Chung-kong was appointed as the Chief Executive Officer of the Company
with effect from 1 December 2003 for a term of three years. He was also
appointed as a Member of the Board on the same date. His contract as the Chief
Executive Officer of the Company was renewed for a further term of three years
with effect from 1 December 2006.
15. PUBLICATION OF THE RESULTS ANNOUNCEMENT AND ANNUAL REPORT
This results announcement is published on the Company's website at
www.mtr.com.hk and the website of the Stock Exchange. The Annual Report will
also be available at the Company's and the Stock Exchange's website in late
April 2007 and will be despatched to shareholders of the Company in late April
2007.
KEY STATISTICS
------------------------------------------------------------------------------------------------
Year ended 31 December
2006 2005
------------------------------------------------------------------------------------------------
Total passenger boardings
- MTR Lines (in millions) 866.8 858.0
- Airport Express (in thousands) 9,576 8,493
Average number of passengers (in thousands)
- MTR Lines (weekday) 2,523 2,497
- Airport Express (daily) 26.2 23.3
Operating profit from railway and related businesses 54.5% 55.7%
before depreciation as a percentage of turnover
MANAGEMENT REVIEW AND OUTLOOK
I am pleased to report that steady progress from all our recurring businesses
enabled MTR Corporation to post good financial results in 2006. For the year,
the Company increased revenue by 4.2% to HK$9,541 million, and operating profit
before property development profit and depreciation by 2.0% to HK$5,201 million.
Net profit attributable to shareholders, excluding revaluation of investment
properties, decreased marginally by 2.9% to HK$5,962 million. The slight
decrease in underlying profit was due to the very strong property development
profit recognised in 2005, the magnitude of which was not repeated in 2006.
Including investment property revaluation, net profit attributable to equity
shareholders was HK$7,759 million. Corresponding earnings per share were HK$1.08
before investment property revaluation and HK$1.41 after such revaluation. The
Board, after considering the cash requirements of the proposed rail merger with
Kowloon-Canton Railway Corporation (KCRC), has recommended a final dividend of
HK$0.28, which when combined with the interim dividend of HK$0.14, brings the
full year dividend to HK$0.42.
In April 2006, the Company signed a Memorandum of Understanding (the MOU) with
the Government of the Hong Kong SAR (Government) with regard to the proposed
rail merger with KCRC. The year also saw our growth strategy taking root with
the signing of the Concession Agreement for the Beijing Metro Line 4 (BJL4)
project after approval from the Central Government.
Operational Review
Hong Kong Railway Operations
For the year, total patronage on the MTR Lines and Airport Express increased by
1.1% to 876 million.
Patronage on the MTR Lines increased by 1.0% to 867 million. Our overall market
share of the total franchised public transport market was maintained at 25%.
Cross-harbour market share was also broadly unchanged at 61%. Patronage on the
Airport Express increased by 12.8% to 9.6 million, mainly due to the opening of
the AsiaWorld-Expo (AWE) Station in December 2005. Airport Express' estimated
market share of passengers travelling to and from the airport increased from 22%
in 2005 to 23%.
Competition in the public transport sector remained intense and after a strong
first quarter of patronage growth, the effect of the Football World Cup, when
many people stayed at home, led to softened demand in the second quarter.
However, in the second half of the year patronage growth on the MTR Lines
resumed. The full year increase in patronage benefited from a full year
contribution from the Disneyland Resort Line (DRL), which entered service in
August 2005, and from the AWE Station, which opened in December 2005. The
reduction in certain bus fares as a result of the introduction of their new fare
adjustment mechanism during the year had little impact on our businesses, as
such reduction applies mainly to travellers from outlying areas not directly
served by our network.
Average fare revenue per passenger on MTR Lines increased from HK$6.67 in 2005
to HK$6.82, due to the full-year effect of both changes in certain promotion
programmes and the opening of DRL operations.
Despite rising costs, our rail operations achieved improved financial results.
Hong Kong's economic growth has fed into wage pressure, which we were able to
offset through increased efficiency.
As in previous years, patronage was underpinned by MTR's high performance
standard and service quality. Our customer service performance continued to
surpass both the Government's minimum requirement under the Operating Agreement,
and our own more stringent Customer Service Pledges. During the year, MTR
passenger journeys on time and train service delivery were both at 99.9%, while
Service Quality Index, based on customer satisfaction surveys, for the MTR Lines
and Airport Express registered 71 and 81 respectively on a 100-point scale. We
also maintained our leading position in the 12-member Community of Metros
(CoMET) benchmarking report in areas of customer service, service reliability
and cost efficiency.
We continued to invest not only in expansion of the network, but in service
quality and efficiency to meet the ever changing expectations of the travelling
public. The programme to retrofit platform screen doors at all 74 platforms of
our underground stations was completed in the first half of 2006, and three new
pedestrian links were added to improve access at Choi Hung, Kwai Fong and Tiu
Keng Leng stations. We commissioned three new trains on the Tung Chung Line to
increase train frequency and replaced the motor alternator sets on 78 trains on
MTR Lines with the state-of- the-art static inverters. We also launched a major
project to install noise barriers on sections of the Tung Chung Line to minimise
the noise impact to nearby residents from the increased train frequency, and a
new rail replacement programme to progressively upgrade the rail infrastructure
on the Kwun Tong and Tsuen Wan lines designed to improve ride quality and
service reliability.
Our efforts to market the rail network again achieved results. A "Ride 10 Redeem
Hello Kitty Stamps" promotion not only generated additional patronage but also
contributed to income as the stamps became a collectible item. Innovation was
again to the fore, as we launched our first game, the Happy Index Promotion, and
two TV projects, a tailor-made game show and sponsorship of a situation comedy,
which successfully reinforced perceptions of our customer service.
On Airport Express, the increasingly popular Airport Express "Ride to Rewards"
loyalty programme was enhanced with the additional option of award points from
Dragonair VISA card. We also made efforts to expand the reach of the programme
by offering it to shareholders. To attract more local leisure travellers, fare
promotions including discounts on return journeys and free rides for children
using Child Octopus card were offered during festive seasons. Overseas
passengers, meanwhile, were offered fare discounts on tourist products through a
partnership with the Hong Kong Tourism Board and the UnionPay Discover Hong Kong
Club. An advertising campaign was launched to increase awareness of the newly
opened AWE Station.
The Company's marketing, branding and passenger awareness efforts achieved
considerable external recognition during the year. We won the "Top Ten Most
Popular TV Commercials Award" and "Most Impressive TV Commercial" in the 12th
Annual Most Popular TV Commercial competition held by ATV. The Company took the
"Prime Awards for Brand Excellence 2006 - Transport Services" award given by
Prime Magazine, and the "Hong Kong Brands - Classic" award jointly presented by
East Week and Sing Tao Publishing. In addition, MTR Corporation's print campaign
on train boarding safety was named one of Hong Kong's Top Ten Print
Advertisements in the "Metro Global Print Awards 2006" organised by Metropolis
Daily.
MTR was ranked as the best value for money and best customer service provider
amongst all public transport services in Hong Kong, based on the "Public
Transportation Study" conducted in June by an independent research agency.
Station Commercial and Other Businesses
Our station commercial and other businesses again saw solid growth during the
year as we continue to leverage our rail assets and expertise resulting in
revenue increasing 3.3% to HK$1,606 million. In 2005 there was a one-off income
from termination of a telecommunication agreement; excluding this one-off item
and another similar, albeit much smaller one-off item in 2006, revenue from our
station commercial and other businesses would have increased by 8.0% from last
year.
In advertising, revenue grew 4.7% to HK$534 million as we continued to set the
pace in outdoor advertising in Hong Kong through an expanded plasma network and
innovation in formats, which included "Real-Time Projection Zone" and a new
advertising train - the "Spectacular Mobile Showcase". Airport Express meanwhile
saw the introduction of a new multimedia system that offers more flexibility to
advertisers.
Station kiosk rental grew 13.7% to HK$391 million. Station commercial space
totaled 16,867 square metres at year end with the completion of 11 additional
stations under the station renovation programme. This brings to 38 stations
having been renovated in this programme since 2001. We also added 32 new shops
and 15 new brands to our station commercial business.
Telecommunications revenue declined by 22.5% to HK$259 million, due to the
one-off items mentioned earlier. Excluding the one-offs, such revenue would have
decreased marginally by 3.2% due to the continued erosion of 2G mobile telephone
revenue by less profitable 3G usage. TraxComm however, continued to expand its
optical fibre business and at year-end their optical fibre network covered 40
locations.
2006 saw an encouraging start to operations for Ngong Ping 360, which is owned
by the Company and operated by Skyrail-ITM (Hong Kong) Ltd (Skyrail). Since its
opening in September, the cable car and associated themed village have proven
very popular, generating revenue of HK$64 million as at end of 2006. This new
tourist attraction has now received over 1 million local and overseas visitors
to date. Despite some teething problems, it has operated, by international
standard of cableway systems, at a high level of reliability. The Company has
worked closely with Skyrail to seek continuous improvement so as to make Ngong
Ping 360 a "must see" tourist attraction in Hong Kong.
In external consultancy, in line with our strategy to focus on key cities that
could lead to investment opportunities, revenue declined 5.7% to HK$199 million.
In the Mainland of China, we successfully concluded a number of contracts,
progressed our project management consultancy work on Shanghai Metro Line 9 and
signed major new contracts in Beijing and Chengdu. In Hong Kong, the project to
construct an Automated People Mover System to connect the Hong Kong
International Airport to SkyPlaza and the SkyPier saw good progress. In Taiwan,
the Company was awarded a three year contract with the Kaohsiung Rapid Transit
Corporation and a two year contract with the Taiwan High Speed Rail Company. We
also secured consultancy assignments in Dubai and the UK.
Octopus Holdings Limited, in which we hold a 57.4% stake, increased its
contribution to the Company's profit by 70% to HK$68 million, with cards in
circulation rising to 14.7 million while average daily transactions increased by
13.3% to HK$73.3 million.
Hong Kong Extension Projects
In Hong Kong, we continue to pursue new railway extension projects with a view
to maintaining our growth in the local market.
We completed the preliminary design study on the West Island Line in 2006 and
submitted a project proposal to the Government's Environment, Transport and
Works Bureau. Negotiations with Government on the implementation plan and
funding support have continued throughout the year. The project continues to
enjoy strong community support.
Our proposal for the South Island Line (East) remains with Government for
consideration.
Works to improve the connectivity to our stations continue. The new departure
platform connecting the Airport Express with SkyPlaza, which houses the second
terminal of the Hong Kong International Airport, was opened in February 2007.
The Queensway Subway linking Admiralty Station with Three Pacific Place was also
opened in February 2007. Elsewhere, work is expected to begin on a new
pedestrian subway at Lai Chi Kok Station in the first quarter of 2007, while
other new pedestrian links are under consideration at Prince Edward, Causeway
Bay, Tsim Sha Tsui, Kwai Hing, Kowloon Bay, Choi Hung, Sheung Wan and Olympic
stations.
Property Businesses
The Hong Kong property market was steady in 2006 benefiting our property
development business.
Profit for the year from property developments was HK$5,817 million. During
2006, profit recognised from Airport Railway projects included mainly deferred
income recognition, in line with construction progress, at Harbour Green
(Olympic Package Three), Coastal Skyline and Caribbean Coast (respectively, Tung
Chung Packages Two and Three) and fit out works at Elements, together with
sharing in kind on receipt of an additional gross floor area of 7,609 square
metres of this shopping centre. Along the Tseung Kwan O Line, development profit
came primarily from surplus proceeds from Central Heights (Area 57a), Metro Town
(Tiu Keng Leng) Phase 1 and The Grandiose (Area 55b).
With residential property prices stabilising, sales and pre-sales during the
year saw steady progress both along the Airport Railway including flats at
Harbour Green and La Rossa in Coastal Skyline, as well as, at Le Point, The
Grandiose and Central Heights over in Tseung Kwan O.
The year also saw property tender activity, with the award in January of the
tender of Package Two of Tseung Kwan O Area 86 to Rich Asia Investments Limited,
a subsidiary of Cheung Kong (Holdings) Limited. For this package, MTR
Corporation extended a HK$4 billion interest free loan to the developer in
return for an increased sharing in kind of the development.
In January 2007, tenders were invited for Area 56 of Tseung Kwan O with the
award in February 2007 to Lansmart Ltd, a subsidiary of Sun Hung Kai Properties
Ltd. The proposed development will be a mixed-use project comprising hotel,
office, residential, commercial and car parking accommodations with a total
gross floor area of not more than 168,537 square metres.
Total revenue from property investment and property management increased by 7.3%
to HK$1,412 million.
Revenue from property investment increased by 6.8% to HK$1,263 million as
shopping centre rental rates moved higher, and the portfolio remained fully let
except for small areas of Luk Yeung Galleria that were repossessed for
renovation work. MTR Corporation's total investment property portfolio as at end
of 2006 was 174,916 square metres, being the total lettable floor area
attributable to the Company.
One new shopping centre was added to the MTR Corporation's portfolio, taking the
total to six, with an aggregate lettable floor area of 119,619 square metres
attributable to the Company. The Edge, 70% owned by the Company, with a lettable
floor area of 7,683 square metres opened at Tseung Kwan O Station in November.
Later in 2007 the portfolio will be joined by Phase 1 of Elements, our upscale
mall with gross floor area of 82,750 square metres at Kowloon Station. This
development is scheduled for opening by the end of 2007 and about 90% of the
retail space has already been committed to date. In addition, our wholly owned
wet market in Tung Chung as well as the 51% owned Choi Hung Park n' Ride Carpark
opened during the year.
We continued to enhance the retail environment of our shopping centres through
renovations and well planned marketing campaigns. In 2006, the major renovation
programme at Telford Plaza I was completed in December and the Heng Fa Chuen wet
market re-opened in August, following renovation works. Competition in this
sector is expected to intensify in the coming years as many new shopping centres
are expected to open.
Revenue from property management recorded strong growth of 12.0% to HK$149
million. Our property management business added 4,518 residential units to the
portfolio, bringing the total number of residential units managed by the Company
to 58,876 at year end. In addition, 16,546 square metres of commercial
properties were added, bringing to 582,073 square metres the total area of
commercial and office space under MTR Corporation's property management.
In the Mainland of China, following extensive re-decoration and re-positioning,
the Ginza Mall which is a shopping centre with a lettable floor area of 19,349
square metres situated in the Dong Cheng district of Beijing, was opened in
January 2007 with close to 90% of its shops let. Three new property management
contracts for luxury office/commercial developments in Beijing's central
business district were signed during the year with SOHO China Ltd.
Merger
One of the most significant events for the Company in 2006 was the signing in
April of the MOU with the Hong Kong SAR Government, setting out the terms for
the proposed rail merger with KCRC, together with the acquisition of a property
package.
The signing of the MOU marked a milestone for railway development in Hong Kong.
The merger package carefully balances the interest of our stakeholders and, if
completed, would be value accretive to the Company. For the travelling public,
the merger will bring immediate reduced fares and better integration of the two
rail networks.
The merger requires the passage of a Rail Merger Bill as well as approval by our
independent shareholders. The Rail Merger Bill was submitted to the Legislative
Council (LegCo) of Hong Kong SAR by the Government on the 5th of July 2006 and
is currently under deliberation. Should LegCo approve the bill, the proposal
will become effective only after obtaining approval from independent
shareholders.
While the approval processes are being progressed, various integration
committees and working groups at all levels of the two rail companies have been
working strenuously as one team to ensure that a high level of integration is
achieved on Day One of the merger, so that the travelling public will benefit
from immediate fare reductions.
Overseas Growth
Expansion into overseas markets is part of our growth strategy. As noted before,
our strategy overseas is to pursue metro investment opportunities in the
Mainland of China, while pursuing "asset light" railway operating franchises in
Europe.
Mainland of China
In the Mainland of China, the most significant event of 2006 was the signing in
April of the Concession Agreement for the RMB15.3 billion BJL4 project with the
Beijing Municipal Government, which marked our overseas growth strategy taking
root. Approximately RMB4.6 billion, or 30% of the total cost, is being borne by
a Public-Private Partnership (PPP) company which is 49% owned by MTR
Corporation, 2% by Beijing Infrastructure Investment Co. Ltd. and 49% by Beijing
Capital Group. The balance of the capital cost will be funded by the Beijing
Municipal Government. Under the Concession Agreement, the PPP company will
invest in the electrical and mechanical railway systems and the rolling stock,
and operate the line for 30 years. With the business licence now granted and the
Concession Agreement, Lease Agreement and Financing Agreement all signed, work
has moved on rapidly. Contracts for the rolling stock, signalling and automatic
fare collection systems have already been awarded, and 23 of the 24 stations are
now under construction. Construction is expected to be completed by 2009.
In Shenzhen, we await final approval from the National Development and Reform
Commission on the RMB6 billion Shenzhen Metro Line 4 project which incorporates
the "Rail and Property" model. This follows our signing in 2004 of the Agreement
in Principle and initialling in 2005 of the Concession Agreement with the
Shenzhen Municipal Government to build Phase 2 of the line and to operate Phases
1 and 2 for 30 years. Related utilities diversion and land resumption have
begun. Initial preparatory work is near completion and civil work is ready to
begin.
While making progress on these projects, we have been pursuing other similar
projects in key cities such as Shenzhen, Beijing, Hangzhou, Wuhan and Suzhou.
Europe
In January 2007, our joint bid with Laing Rail for the London Rail Concession
(LRC) entered the final stages of the selection process as one of two remaining
bids and we expect the result by mid 2007. The LRC currently serves 60 stations
over 60 route miles in the Greater London region, and carries approximately 23
million passengers per year. In February 2007, in joint venture with a Swedish
railway company (SJ), we also submitted a bid for the Oresundsag concessions in
Sweden and Denmark.
Financial Review
The Company continued to achieve good financial performance in 2006. Fare
revenue for the MTR Lines increased by 3.3% from 2005 to HK$5,911 million while
that for Airport Express increased by 9.1% to HK$612 million. Non-fare revenue
from station commercial and other businesses as well as property rental and
management activities grew by 5.1% to HK$3,018 million. Excluding the one-off
income from telecommunication, the increase in non-fare related revenue would
have been 7.7%. As a result, total revenue in 2006 was HK$9,541 million, an
increase of 4.2% from 2005.
Operating costs in 2006 amounted to HK$4,340 million, an increase of 7.1% from
2005, mainly attributable to an increase in expenses relating to non-fare
business activities in line with their business growth, as well as project
studies and new business development in the Mainland of China and Europe.
Operating profit from railway and related businesses before depreciation in 2006
therefore increased by 2.0% from 2005 to HK$5,201 million while operating margin
declined from 55.7% to 54.5%.
Profit from property development amounted to HK$5,817 million, mainly comprising
surplus proceeds from developments along the Tseung Kwan O Line and deferred
income recognition and the receipt of an additional gross floor area of 7,609
square metres of the Elements. This was a reduction of 5.3% from property
development profit recognised in 2005 of HK$6,145 million. Depreciation charge
was maintained at similar level to 2005, at HK$2,674 million while net interest
expense increased by 2.7% to HK$1,398 million mainly due to increase in interest
rates. Excluding investment property revaluation, net profit after tax from
underlying businesses was HK$5,962 million, or HK$1.08 per share, a slight
decrease of 2.9% and 4.4% respectively from 2005. After accounting for the
revaluation of investment properties, reported earnings attributable to the
shareholders of MTR Corporation for 2006 were HK$7,759 million with earnings per
share of HK$1.41.
The Company's cash flow position remained strong during the year with net cash
inflow of HK$5,400 million generated from recurring businesses and HK$4,400
million of cash receipts from property developers and purchasers. After payments
for capital expenditure, interest expenses, changes in working capital and
dividend payments, the Company recorded positive cash flow of HK$3,866 million
for the year, before a one-off interest-free loan of HK$4,000 million provided
to a property developer. After such one-off loan advance, there was a cash
deficit of HK$134 million which was financed by increase in debt of HK$94
million and drawdown of cash balances of HK$40 million.
The Financial Secretary Incorporated ("FSI") has committed, for dividends
declared relating to financial years up to 31 December 2006, to receive all or
part of its entitlement to such dividends in the form of shares (where a scrip
dividend is offered by the Company) to the extent necessary to ensure that a
maximum of 50% of the Company's total dividend will be paid in cash. FSI has
agreed to extend this commitment to dividends declared in respect of each of the
three financial years ending 31 December 2009.
People
We have continued our effort in retaining and developing high calibre
individuals to align with the development of our growth strategy.
The pay-for-performance culture was reinforced through an effective reward
mechanism, more attractive remuneration packages and career progression for
young professional talents. At the same time, we continued to stress the
importance of achieving a work/life balance through education on this topic and
provision of a 24-hour hotline counselling service for staff and their families.
We have always regarded people as our most valuable asset. The dedication and
professionalism of our staff have always been the foundation of MTR
Corporation's success. The proposed rail merger with KCRC represents a
significant step for the Company. It is of critical importance that we keep our
people informed of the process and to consult them on matters that may impact on
their future.
Tremendous effort was put into communicating with staff about the proposed
merger, beginning with some 60 communication sessions held in April. Since then,
staff has been kept abreast of progress through various channels, including a
video and letters from myself and my colleagues, small group briefings, merger
hotline and email. In addition, a special merger newsletter has been published
jointly by MTR Corporation and KCRC. We have also worked hard during the year to
align human resource functions, work cultures and practices between the two
companies.
Training initiatives in 2006 included those focusing on safety and customer
service, and were delivered through many channels, including e-learning. Company
apprentices gained Outstanding Apprentices/Trainees Awards from the Vocational
Training Council, while trainers successfully acquired China's National
Enterprise Trainer Qualification.
During the year, we have undertaken three major initiatives to develop
management talents in order to meet future requirements of the Company. These
initiatives are designed for capable staff with high potential at various levels
in the organisation. They are selected through a rigorous process, and are
offered individualised programmes which include academic or professional
training, cross functional placements and planned career movements. The People
Development Initiative provides opportunities to executives and senior managers.
The Executive Associate Scheme is designed to develop young managers with high
potential. The Graduate Trainee Scheme expands its activities to top university
graduates in the Mainland of China and overseas, in addition to Hong Kong.
During the year we established a designated HR team to specifically support our
colleagues working overseas as part of our overseas growth strategy. A "
Stay-in-touch Employee Care & Communication Programme" was launched to enhance
communication with our staff working outside Hong Kong.
Outlook
Barring any major external shocks, we hold a positive view on economic
conditions in Hong Kong in 2007.
Our rail business should benefit from the expected economic growth. However,
this growth may slow down in 2007 as a result of continued intense competition
and no fare increases for 24 months from April 2006 as part of the merger MOU.
Our station commercial and other businesses will also benefit from the positive
economic condition as well as the full year impact of Ngong Ping 360. However,
the telecommunications business will continue to face challenges with the
migration of 2G users to 3G, which carries less attractive commercial returns to
the Company.
In our property businesses, the property investment and management businesses
will benefit from the opening of Ginza Mall in Beijing, the expected opening of
the Elements shopping centre in Kowloon Station towards the end of 2007, and the
full year impact of The Edge. However, it should be noted that new shopping
centres generally achieve lower margins than established centres in their
initial years of operations. Renovation work will be undertaken at the Luk Yeung
Galleria in 2007.
Property developments along both the Airport Railway and Tseung Kwan O Line
should continue to contribute to profit in 2007. Along the Airport Railway,
deferred income will be recognised in accordance with construction progress and
pre-sales. Given current market conditions, we expect the balance of property
deferred income to be recognised over the next two years with a large portion of
such balance being recognised in 2007. Also along the Airport Railway, depending
on pre-sales, there will be surplus proceeds recognised from Harbour Green at
Olympic Station. Along the Tseung Kwan O Line, depending on the timing of
issuance of Occupation Permit, surplus proceeds will be booked from Le Point at
Tiu Keng Leng Station. As I noted last year, in accordance with the Development
Agreement and our accounting policy, costs relating to Le Point have already
been accounted for when we booked profit from Metro Town (Tiu Keng Leng) Phase 1
in 2006.
Finally, I would like to take the opportunity to thank my fellow directors and
all of our staff for their support during the year. They are the heroes of MTR.
By Order of the Board
C K Chow
Chief Executive Officer
Hong Kong, 13 March 2007
The financial information relating to the financial year ended 31 December 2006
set out above does not constitute the Group's statutory consolidated accounts
for the year ended 31 December 2006, but is derived and represents an extract
from those consolidated accounts. Statutory consolidated accounts for the year
ended 31 December 2006, which contain an unqualified auditor's report, will be
delivered to the Registrar of Companies.
Certain statements contained in this Press Announcement may be viewed as
"forward-looking statements" within the meaning of Section 27A of the U.S.
Securities Act of 1933, as amended, and Section 21E of the U.S. Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors, which may cause the actual
performance, financial condition or results of operations of the Company to be
materially different from any future performance, financial condition or results
of operations implied by such forward-looking statements. Further information
regarding these risks, uncertainties and other factors is included in the Annual
Report on Form 20-F for the year ended 31 December 2005 filed with the U.S.
Securities and Exchange Commission (the "SEC") and in the Company's other
filings with the SEC.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 10 April 2007 to 17
April 2007 (both dates inclusive). In order to qualify for the final dividend,
all transfers, accompanied by the relevant share certificates, must be lodged
with the Company's Registrar, Computershare Hong Kong Investor Services Limited
at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong
Kong for registration not later than 4 : 30 p.m. on 4 April 2007. It is expected
that the final dividend will be paid on or about 26 June 2007.
Members of the Board: Dr. Raymond Ch'ien Kuo-fung (Chairman)**, Chow Chung-kong
(Chief Executive Officer), Professor Cheung Yau-kai*, David Gordon Eldon*,
Christine Fang Meng-sang*, Edward Ho Sing-tin*, Lo Chung-hing*, T. Brian
Stevenson*, Frederick Ma Si-hang (Secretary for Financial Services and the
Treasury)**, Secretary for the Environment, Transport and Works (Dr. Sarah Liao
Sau-tung)** and Commissioner for Transport (Alan Wong Chi-kong)**
Members of the Executive Directorate: Chow Chung-kong, Russell John Black,
William Chan Fu-keung, Thomas Ho Hang-kwong, Lincoln Leong Kwok-kuen, Francois
Lung Ka-kui, Andrew McCusker and Leonard Bryan Turk
* independent non-executive Directors
** non-executive Directors
This information is provided by RNS
The company news service from the London Stock Exchange
END
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