RNS Number:8908P
MTR Corporation Ltd
12 March 2008
MTR CORPORATION LIMITED
(Incorporated in Hong Kong with limited liability)
(Stock code: 66)
ANNOUNCEMENT OF AUDITED RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2007
+------------------------------------------------------------------------------+
| |
|HIGHLIGHTS |
| |
|Financial |
| |
|* Results included the impact of the Rail Merger from 2 December 2007 |
| |
|* Revenue increased 12% to HK$10,690 million |
| |
|* EBITDA, excluding merger related expenses, increased 13.7% to |
| HK$5,912 million |
| |
|* Property development profit increased 42.8% to HK$8,304 million |
| |
|* Net profit attributable to equity shareholders excluding investment |
| property revaluations and related deferred tax (profit from underlying |
| businesses)increased 43.8% to HK$8,571 million |
| |
|* Net profit attributable to equity shareholders including investment |
| property revaluations and related deferred tax of HK$15,180 million |
| |
|* Net assets increased 18.6% to HK$91,037 million at 2007 year-end |
| |
|* Net debt / equity ratio increased from 36.3% at 2006 year-end to 48.5% at |
| 2007 year-end |
| |
|* Final dividend of HK$0.31 per share recommended by the Board resulting in |
| total dividend for the year of HK$0.45 per share, representing a 7.1% |
| increase |
| |
|Operational |
| |
|* Rail Merger completed on 2 December 2007 |
| |
|* Average weekday patronage of Domestic Service increased from 2.5 million in|
| 2006 to 3.5 million after Rail Merger |
| |
|* Ginza Mall in Beijing and Elements at Kowloon Station opened in January and|
| October 2007 respectively |
| |
|* Tseung Kwan O Area 56 and LOHAS Park Package Three developments awarded in |
| February and November 2007 respectively |
| |
|* West Island Line gazetted under Railway Ordinance in October and design |
| funding granted in December 2007 |
| |
|* Government requested the Company to proceed with preliminary planning and |
| design of South Island Line (East) in December 2007 |
| |
|* Government requested the Company on 11 March 2008 to proceed with further |
| planning and design of Shatin-to-Central Link and the Kwun Tong Line |
| extension to Whampoa |
| |
|* Ngong Ping 360 resumed service on 31 December 2007 |
+------------------------------------------------------------------------------+
The Directors of MTR Corporation Limited ("the Company") are pleased to announce
the audited results of the Company and its subsidiaries ("the Group") for the
year ended 31 December 2007 as follows:
CONSOLIDATED PROFIT AND LOSS ACCOUNT (HK$ MILLION)
________________________________________________________________________________
Year ended 31 December
2007 2006
________________________________________________________________________________
Fare revenue 7,115 6,523
Station commercial and rail related revenue 1,741 1,542
Rental, management and other revenue 1,834 1,476
------ -----
Turnover 10,690 9,541
------ -----
Staff costs and related expenses (1,802) (1,653)
Energy and utilities (576) (539)
Operational rent and rates (99) (65)
Stores and spares consumed (130) (120)
Repairs and maintenance (521) (511)
Railway support services (86) (80)
Expenses relating to station commercial and rail (410) (410)
related businesses
Expenses relating to property ownership, (540) (345)
management and other businesses
Project study and business development expenses (268) (267)
General and administration expenses (183) (192)
Other expenses (163) (158)
------ -----
Operating expenses before depreciation and (4,778) (4,340)
amortisation ------ -----
Operating profit from railway and related 5,912 5,201
businesses before depreciation and amortisation
Profit on property developments 8,304 5,817
------ -----
Operating profit before depreciation and
amortisation 14,216 11,018
Depreciation and amortisation (2,739) (2,674)
Merger related expenses (193) -
------ -----
Operating profit before interest and finance 11,284 8,344
charges
Interest and finance charges (1,316) (1,398)
Change in fair value of investment properties 8,011 2,178
Net gain on acquisition of subsidiaries 187 -
Share of profits less losses of non-controlled 99 45
subsidiaries and associates ------ -----
Profit before taxation 18,265 9,169
Income tax (3,083) (1,411)
------ -----
Profit for the year 15,182 7,758
====== =====
Attributable to:
- Equity shareholders of the Company 15,180 7,759
- Minority interests 2 (1)
------ -----
Profit for the year 15,182 7,758
====== =====
Dividends paid and proposed to equity
shareholders of the Company attributable to the
year:
- Interim dividend declared and paid during the 782 774
year
- Final dividend proposed after the balance 1,740 1,554
sheet date ------ -----
2,522 2,328
====== =====
Earnings per share:
- Basic HK$2.72 HK$1.41
- Diluted HK$2.72 HK$1.41
CONSOLIDATED BALANCE SHEET (HK$ MILLION)
________________________________________________________________________________
As at 31 December
2007 2006
________________________________________________________________________________
Assets
Fixed assets
- Investment properties 37,723 22,539
- Other property, plant and equipment 79,444 84,404
- Service concession assets 15,250 -
------- -------
132,417 106,943
Property management rights 40 -
Railway construction in progress 424 232
Property development in progress 9,066 3,297
Deferred expenditure 825 565
Prepaid land lease payments 581 594
Interests in non-controlled subsidiaries 268 171
Interests in associates 205 100
Deferred tax assets 4 1
Investments in securities 333 272
Staff housing loans 15 25
Properties held for sale 756 2,018
Derivative financial assets 273 195
Stores and spares 642 272
Debtors, deposits and payments in advance 5,167 1,894
Loan to a property developer 3,532 3,355
Amounts due from the Government and other 544 177
related parties
Cash and cash equivalents 576 310
------- -------
155,668 120,421
------- -------
Liabilities
Bank overdrafts 2 5
Short-term loans 507 1,114
Creditors, accrued charges and provisions 5,412 3,639
Current taxation 3 1
Contract retentions 225 193
Amounts due to related parties 975 -
Loans and obligations under finance leases 33,541 27,033
Derivative financial liabilities 192 515
Obligations under service concession 10,685 -
Deferred income 515 1,682
Deferred tax liabilities 12,574 9,453
------- -------
64,631 43,635
------- -------
Net assets 91,037 76,786
======= =======
Capital and reserves
Share capital, share premium and capital reserve 39,828 38,639
Other reserves 51,186 38,128
------- -------
Total equity attributable to equity shareholders 91,014 76,767
of the Company
Minority interests 23 19
------- -------
Total equity 91,037 76,786
======= =======
Notes: -
1. AUDITORS' REPORT
The results for the year ended 31 December 2007 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 (HKFRS) issued by the HKICPA. The
accounting policies adopted in the preparation of these accounts are consistent
with those used in the 2006 annual accounts except for changes in accounting
policies made thereafter in adopting HKFRS 7 "Financial instruments:
Disclosures" and the Amendment to Hong Kong Accounting Standard (HKAS) 1
"Presentation of financial statements - Capital disclosures" in 2007. The
adoption of both HKFRS 7 and the amendment to HKAS 1 does not have any material
impact on the operating results and financial position apart from the additional
disclosures in the accounts.
In addition, as the merger of the Company with Kowloon-Canton Railway
Corporation (KCRC) is considered to include a service concession arrangement
under the Hong Kong (International Financial Reporting Interpretations
Committee) (HK(IFRIC)) Interpretation 12, which provides guidance on the
accounting by operators in service concession arrangements for reporting periods
commencing on or after 1 January 2008, the Company has early adopted the
Interpretation in the 2007 accounts.
3. RAIL MERGER WITH KOWLOON-CANTON RAILWAY CORPORATION
A. On 2 December 2007 (the Appointed Day), the Company's operations merged
with those of KCRC (Rail Merger). The structure and key terms of the
Rail Merger were set out in a series of transaction agreements entered
into between, inter alia, the Government of the Hong Kong Special
Administrative Region (HKSAR), KCRC and the Company including the Service
Concession Agreement, Property Package Agreements and Merger Framework
Agreement. Key elements of the Rail Merger include the following:-
* The expansion of the Company's existing franchise under the Mass Transit
Railway Ordinance (MTR Ordinance) to cover the construction, operation
and regulation of railways in addition to the MTRC railway for an initial
period of 50 years from the Appointed Day (Franchise Period), which may
be extended pursuant to the provisions of the MTR Ordinance;
* The Service Concession Agreement (SCA) pursuant to which KCRC granted the
Company the right to access, use and operate the KCRC system for an
initial term of 50 years (the Concession Period), which will be extended
if the Franchise Period (as it relates to the KCRC railway) is
extended. The SCA also sets out the basis on which the KCRC system will
be returned at the end of the Concession Period. In accordance with the
terms of the SCA, the Company paid an upfront lump sum to KCRC on the
Appointed Day and is obliged to pay an annual fixed payment to KCRC for
the duration of the Concession Period. Additionally, commencing after
three years from the Appointed Day, the Company is obliged to pay an
annual variable fee to KCRC based on the revenue generated from the KCRC
system above certain thresholds;
* Under the SCA, the Company is responsible for the expenditure incurred in
relation to the maintenance, repair, replacement and upgrade of the KCRC
system (with any new assets acquired being classified as "additional
concession property"). To the extent that such expenditure exceeds an
agreed threshold (Capex Threshold), the Company will be reimbursed for
any above threshold expenditure at the end of the Concession Period with
such reimbursement to be on the basis of depreciated book value;
* In the event that the Concession Period is extended, the fixed annual
payment and the variable annual payment will continue to be payable by
the Company. On such extension, the Capex Threshold may also be adjusted;
* With effect from the Appointed Day, staff of the Company and KCRC have
been employed by the Company on their prevailing terms and conditions of
employment. In connection with the Rail Merger, a Staff Voluntary
Separation Scheme has been offered to eligible staff;
* Property Package Agreements whereby property assets comprising certain
investment and own-used properties, property management rights and
property development rights were acquired by the Company;
* Merger Framework Agreement setting out the framework for the Rail Merger
including the implementation of the Fare Adjustment Mechanism whereby the
extent to which fares may be adjusted is linked to certain public
indices, the provision of a fare reduction starting from the Appointed
Day and the guarantee of job security for frontline staff employed at the
time of the Rail Merger;
* Pursuant to the above and the vesting and novation of certain contracts,
the Company assumed certain assets and liabilities of KCRC on the
Appointed Day. The assumption of the liabilities of deposits refundable
to third parties was subject to compensation by KCRC on the Appointed
Day; and
* Other post-Appointed Day arrangements between the Company and KCRC such
as the arrangements documented by the Kowloon Southern Link (KSL) Project
Management Agreement, the West Rail Agency Agreement and the Outsourcing
Agreement.
B. The principal financial terms of the Rail Merger and their financial
impact on the 2007 accounts are described in the following paragraphs.
For the acquisition of the service concession, the Company has settled or
is liable to settle the following payments to KCRC in respect of the
service concession:
* Upfront payment of HK$4,250 million was paid on the Appointed Day, of
which HK$326 million was in respect of stores and spares, with the
balance of HK$3,924 million for the right to access, use and operate the
KCRC system (initial concession property), which is capitalised as a
service concession asset on the balance sheet and amortised on a
straight-line basis over the Concession Period;
* Fixed annual payments of HK$750 million are payable by the Company to
KCRC throughout the Concession Period. The present value of the total
fixed annual payments discounted at the Company's estimated long-term
incremental borrowing rate of 6.75% amounting to HK$10,687 million was
capitalised as a service concession asset on the balance sheet and
amortised on a straight-line basis over the Concession Period with a
corresponding liability for obligations under the service concession
recognised on the balance sheet; and
* Variable annual payments are payable by the Company to KCRC commencing
after the third year from the Appointed Day to the end of the Concession
Period. The payments are calculated on a tiered basis by reference to the
revenues generated from the operation of the service concession over
certain thresholds.
As at 31 December 2007, HK$49 million was incurred on additional concession
property which will be amortised over the shorter of the assets' useful lives
and the remaining period of the service concession.
The assumption of the liability of deposits refundable to third parties and
other liabilities subject to cash compensation by KCRC on the Appointed Day
amounted to HK$663 million. The assumption of other assets and liabilities not
subject to compensation by KCRC on the Appointed Day amounted to a net liability
amount of HK$226 million, formed part of the cost of acquiring the service
concession and was capitalised accordingly.
On the Appointed Day, the Company paid a total consideration of HK$7,790 million
for the transfer of the economic benefits of the property package from KCRC as
follows:
* Acquisition of certain properties or property holding subsidiaries from
KCRC at a consideration of HK$2,840 million. The excess of the fair value
of these properties at the balance sheet date over the consideration has
been recognised as a gain in the profit and loss account;
* Acquisition of property development rights for eight development sites
for a consideration of HK$4,910 million, which was recognised at cost as
property development in progress on the balance sheet. Pursuant to the
transaction agreements, when the development sites which have not been
awarded as at the Appointed Day are subsequently awarded, the Company is
obliged to pay KCRC an agreed amount of HK$875 million in respect of
enabling works carried out by KCRC for such sites, which will be settled
by the receipt of mandatory payments from property developers when the
sites are awarded;
* Acquisition of certain property management rights from KCRC in respect of
existing and future managed properties at a consideration of HK$40
million. The amount was capitalised and subject to amortisation on a
straight-line basis over the period of the management rights;
* Assumption of certain assets and liabilities with a net liability amount
of HK$123 million relating to the property package with corresponding
cash settlement from KCRC; and
* Acquisition of certain other subsidiaries of KCRC.
The Rail Merger also gave rise to the following:
* The Company obtained a new loan financing facility of HK$10 billion as
part of the financing for the above arrangements; and
* Deferred expenditure of HK$492 million incurred in connection with the
acquisition of the respective assets was capitalised.
Income and expenditure and assets and liabilities in relation to the operation
of the service concession are accounted for in the respective line items of the
Group's profit and loss account and balance sheet.
4. RETAINED PROFITS
The movements of the retained profits during the years ended 31 December 2007
and 2006 were as follows:
________________________________________________________________________________
HK$ Million 2007 2006
________________________________________________________________________________
Balance as at 1 January 37,148 31,698
Dividends declared or approved (2,336) (2,309)
Profit for the year attributable to equity 15,180 7,759
shareholders of the Company ------- -------
Balance as at 31 December 49,992 37,148
======= =======
5. PROFIT ON PROPERTY DEVELOPMENTS
________________________________________________________________________________
Year ended 31 December
HK$ Million 2007 2006
________________________________________________________________________________
Profit on property developments comprises:
Transfer from deferred income on
- up-front payments 861 1,213
- sharing in kind 363 555
Share of surplus from development 7,077 3,724
Income recognised from sharing in kind 21 342
Other overhead costs (18) (17)
------- -------
8,304 5,817
======= =======
6. INCOME TAX
________________________________________________________________________________
Year ended 31 December
HK$ Million 2007 2006
________________________________________________________________________________
Current tax - overseas 3 2
------- -------
Deferred tax - origination and reversal of
temporary differences on:
- change in fair value of investment properties 1,402 381
- utilisation of tax losses 1,608 1,197
- others 70 (169)
------- -------
3,080 1,409
------- -------
Income tax in the consolidated profit and loss 3,083 1,411
account ======= =======
Share of income tax of non-controlled subsidiaries 28 12
Share of income tax of associates 1 -
======= =======
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 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 2007. Taxation for
overseas subsidiaries is charged at the appropriate current 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% (2006: 17.5%).
7. DIVIDEND
The Board has recommended to pay a final dividend of HK$0.31 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 18 June 2008 to shareholders whose names appear
on the Register of Members of the Company as at the close of business on 15
April 2008. 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.
8. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit for the year
attributable to equity shareholders of HK$15,180 million (2006: HK$7,759
million) and the weighted average number of ordinary shares of 5,573,736,592 in
issue during the year (2006: 5,510,345,238).
The calculation of diluted earnings per share is based on the profit for the
year attributable to equity shareholders of HK$15,180 million (2006: HK$7,759
million) and the weighted average number of ordinary shares of 5,578,838,104 in
issue during the year (2006: 5,516,115,460) 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$1.54 (2006:
HK$1.08) if the calculation is based on profit from underlying businesses
attributable to equity shareholders, i.e. excluding increase in fair value of
investment properties net of related deferred tax.
9. SEGMENTAL INFORMATION
____________________________________________________________________________________
Turnover Contribution to profit
Year ended 31 December Year ended 31 December
HK$ Million 2007 2006 2007 2006
____________________________________________________________________________________
Railway operations 7,115 6,523 1,355 997
Station commercial and 1,741 1,542 1,258 1,050
rail related businesses ------- ------ ------- -------
8,856 8,065 2,613 2,047
Property ownership, 1,834 1,476 1,226 1,109
management and other
businesses ------- ------ ------- -------
10,690 9,541 3,839 3,156
======= ======
Property developments 8,304 5,817
------- -------
12,143 8,973
Unallocated corporate (666) (629)
expenses
Merger related expenses (193) -
Interest and finance (1,316) (1,398)
charges
Change in fair value of 8,011 2,178
investment properties
Net gain on acquisition 187 -
of subsidiaries
Share of profits less 99 45
losses of non-controlled
subsidiaries and
associates
Income tax (3,083) (1,411)
------- -------
15,182 7,758
======= =======
Railway operations comprise the operation of an urban mass transit railway
system within Hong Kong and an Airport Express serving both the Hong Kong
International Airport and the AsiaWorld-Expo at Chek Lap Kok and following the
Rail Merger, with effect from 2 December 2007, the KCR System consisting of KCR
Lines (comprising the East Rail excluding Cross-boundary Service, West Rail and
Ma On Shan lines), Cross-boundary Service, Light Rail, Bus and Intercity
passenger services.
Station commercial and rail related businesses comprise mainly letting of
advertising and retail space, bandwidth services on the railway
telecommunication system, railway consultancy services, freight and rail related
subsidiaries' businesses.
Property ownership, management and other businesses comprise mainly property
rental, property management and, commencing from September 2006, operations
relating to Ngong Ping 360.
Property developments comprise property development at locations relating to the
railway system.
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.
10. DEBTORS AND CREDITORS
A The Group's debtors, deposits and payments in advance amounted to
HK$5,167 million (2006: HK$1,894 million), out of which HK$3,774 million (2006:
HK$825 million) relates to property development which are mainly due according
to terms of the sales and purchases agreements; and HK$687 million (2006: HK$608
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 at 31 December 2007, HK$260 million (2006: HK$276 million)
were overdue out of which HK$88 million (2006: HK$174 million) were overdue by
more than 30 days.
B Creditors, accrued charges and provisions amounted to HK$5,412
million (2006: HK$3,639 million), majority of which relate to capital project
payments to be settled upon certification of work in progress and 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 2007, HK$1,354 million (2006: HK$645 million) were amounts either due
within 30 days or on demand, and the remaining were amounts not yet due.
11. PURCHASE, SALE OR REDEMPTION OF OWN SECURITIES
During the year ended 31 December 2007, neither the Company nor any of its
subsidiaries has purchased, sold or redeemed any of its listed securities.
12. CHARGE ON GROUP ASSETS
As at 31 December 2007, certain assets held by MTR Corporation (Shenzhen)
Limited, an indirect wholly owned subsidiary of the Company, in the Mainland of
China were pledged as security for a RMB400 million short-term bank loan
facility granted to it.
Apart from the above, none of the other Group's assets was charged or subject to
any encumbrance as at 31 December 2007.
13. ANNUAL GENERAL MEETING
It is proposed that the Annual General Meeting of the Company will be held on 29
May 2008. 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 25 April
2008.
14. CORPORATE GOVERNANCE
The Company has complied throughout the year ended 31 December 2007 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.
On 8 August 2007, the Government of HKSAR appointed Dr. Raymond Ch'ien Kuo-fung
as the non-executive Chairman of the Company for a term of 24 months with effect
from the Rail Merger. The Rail Merger took effect from 2 December 2007. Dr.
Raymond Ch'ien, a Member of the Board since 1998, was first appointed as the
non-executive Chairman of the Company with effect from 21 July 2003 for a term
of three years, which was renewed in 2006 for a further term up to 31 July 2007.
In July 2007, Dr. Ch'ien was re-appointed as the non-executive Chairman of the
Company with effect from 1 August 2007 for a term up to 31 December 2007 or the
day to be appointed by the Secretary for Transport and Housing by notice
published in the Gazette under the Rail Merger Ordinance, whichever was the
earlier. The Rail Merger Ordinance relates to the Rail Merger between the
Company and Kowloon-Canton Railway Corporation.
On 8 August 2007, the Government of HKSAR selected Mr. Chow Chung-kong as the
Chief Executive Officer of the Company after the Rail Merger. Mr. Chow 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 2008 and will be despatched to shareholders of the Company in late April
2008.
KEY STATISTICS
____________________________________________________________________________________
Year ended 31 December
2007 2006
____________________________________________________________________________________
Total passenger boardings
- Domestic Service (in millions) (full-year) 915.8 866.8
- Cross-boundary Service (in thousands) (post-merger) 8,243 -
- Airport Express (in thousands) (full-year) 10,175 9,576
- Light Rail (in thousands) (post-merger) 11,100 -
Average number of passengers (in thousands)
- Domestic Service (weekday)
- Pre-merger 2,595 2,513
- Post-merger 3,544 -
- Cross-boundary Service (daily) (post-merger) 274.8 -
- Airport Express (daily) (full-year) 27.9 26.2
- Light Rail (weekday) (post-merger) 380 -
Operating profit from railway and related businesses 55.3% 54.5%
before depreciation, amortisation and merger related
expenses as a percentage of turnover
MANAGEMENT REVIEW AND OUTLOOK
2007 was a successful year for the Company. Firstly, on 2 December, we
completed the merger of our rail operations with those of the KCRC and acquired
from KCRC a portfolio of properties (Rail Merger). Secondly, in Hong Kong, a
number of new rail lines saw progress. The West Island Line was gazetted by the
Hong Kong SAR Government, and good construction progress was made on the Kowloon
Southern Link, which is part of the Rail Merger. Hong Kong SAR's Chief Executive
highlighted in his Policy Speech three additional rail lines as infrastructural
priority projects, these being the South Island Line (East), the
Shatin-to-Central Link and the Hong Kong section of the Guangzhou-Shenzhen-Hong
Kong Express Rail Link (Express Rail Link). We welcome Government's latest
decision for the Company to proceed with the further planning and design
of Shatin-to-Central Link and the Kwun Tong Line extension to Whampoa. Thirdly,
outside of Hong Kong, we won the London Overground Concession together with our
partner, Laing Rail, whilst work progressed in Beijing on the construction of
Beijing Metro Line 4.
2007 also saw strong financial results for MTR Corporation as we continued to
make steady progress in all our businesses. For the year, our revenue increased
by 12.0% to HK$10,690 million, due to the continued growth in our recurring
businesses and the effect of the Rail Merger. Operating profit from railway and
related businesses before depreciation, amortisation and merger related expenses
rose by 13.7% to HK$5,912 million. Property development profit recognised in the
period was HK$8,304 million. Excluding investment property revaluation and the
related deferred tax, net profit from underlying businesses attributable to
equity shareholders was HK$8,571 million, 43.8% higher than 2006. This
significant increase in underlying profits was primarily the result of the very
significant property development profits recognised in 2007, in particular from
Le Point at Tiu Keng Leng Station. Earnings per share were HK$1.54 before
investment property revaluation and HK$2.72 after such revaluation. With the
strong financial results, your Board has recommended a final dividend of
HK$0.31, which when combined with the interim dividend of HK$0.14 per share,
brings full year dividend to HK$0.45, an increase of 7.1% over 2006.
The Rail Merger
Following the Memorandum of Understanding between the Company and the Hong Kong
SAR Government on 11 April 2006, the Rail Merger Ordinance was approved by the
Legislative Council of Hong Kong (LegCo) on 8 June 2007. Formal transaction
documents were entered into between the Government, the Company and KCRC in
August 2007, and independent shareholders of the Company approved the Rail
Merger on 9 October. The completion of the Rail Merger on 2 December marked a
new era not only for the Company but also for public transportation in Hong
Kong.
For our customers, the Rail Merger brought fare reductions as well as better
integration of the rail network in Hong Kong. For the Company and our
shareholders, the Rail Merger represents a significant increase in the size and
scale of our rail and property portfolio as well as growth opportunities in the
form of new railway lines throughout Hong Kong and connecting to the Mainland of
China. The expansion of our rail and rail related businesses together with the
Rail Merger transaction structure increases our recurrent profitability and
enhances the long term sustainability of the Company. This will benefit all
stakeholders of the Company and will provide a platform for the sustainable
development of Hong Kong's public transportation services.
Operational Review
Hong Kong Railway Operations
For the year, total patronage on the Integrated MTR System, including the effect
of the Rail Merger since 2 December, increased by 8.2% to 948.3 million. For
the period before the Rail Merger, total patronage increased by 2.9% as compared
to the same period in 2006.
Average weekday patronage on pre-Merger MTR Lines increased by 3.3% to 2.6
million as compared to the same period last year. After the Rail Merger, our
Domestic Service, which now also includes the KCR Lines (comprising the East
Rail excluding Cross-boundary Service, West Rail, and Ma On Shan lines), saw
average weekday patronage increasing significantly to 3.5 million.
Patronage on the Airport Express rose 6.3% to 10.2 million in 2007, as the
number of air travellers using Hong Kong International Airport continued to
rise, and the number of exhibitions and other events at AsiaWorld-Expo
increased.
For Cross-boundary Service at Lo Wu and Lok Ma Chau, patronage for the full year
recorded an increase of 4.7% to 92.1 million, of which 8.2 million was
attributable to the Company from the Rail Merger for the period after 2
December. Light Rail, Bus and Intercity recorded patronage of 14.1 million for
the period from 2 December to the end of 2007.
Our overall share of the franchised public transport market increased from 25.0%
in 2006 to 25.3% in the period before the Rail Merger. After the Rail Merger
including all rail and bus passenger services, our market share increased
further to 41.6%.
In the period prior to the Rail Merger, average fare per passenger on the MTR
Lines was HK$6.83, which was similar to the comparable period in 2006. After
the Rail Merger, average fare per passenger on Domestic Service was HK$6.39 with
the reduction in average fares being due to the fare reduction given as part of
the Rail Merger and the lower average fares on KCR Lines as compared to the MTR
Lines. Average fare per passenger for Airport Express was HK$64.34 in 2007, an
increase of 0.8% over 2006. Average fare per passenger on Cross-boundary
Service was HK$24.51 in 2007, similar to that of 2006. Total fare revenue from
all passenger services for 2007 increased by 9.1% to HK$7,115 million.
The successful integration of the two networks on 2 December 2007 reflected the
very high level of integration planning, service and operational performance
that was demonstrated throughout the year. Passengers on time performance on
the pre-Merger MTR System achieved a level of 99.9%. A new operating agreement
came into effect on 2 December 2007 as a result of the Rail Merger that will
govern the performance levels of the Integrated MTR System.
To meet the constantly rising expectations of our customers, we invested not
only in the expansion of the network but also in service and efficiency
improvements. To enhance accessibility, we opened new pedestrian links and
entrances at various stations including a pedestrian link at Admiralty Station
connecting to Three Pacific Place, and two new entrances at Kowloon Station
linking up to Elements shopping centre.
The new Airport Express platform serving SkyPlaza in Hong Kong International
Airport Terminal 2 was put into operation. The noise enclosure project in the
Tung Chung area to reduce noise impact for residents was completed and some rail
sections along north Lantau were replaced for the same purpose. To improve
passenger comfort, five new trains are being procured for the Tsuen Wan, Kwun
Tong, Island and Tseung Kwan O lines.
To promote customer service and to help attract new patronage, various marketing
programmes were launched, including the selection of a lucky couple to
participate in the first MTR Hello Kitty Dream Wedding in Hong Kong Station, the
MTR Hello Kitty Heroes Redemption Programme and the Ride 5 Get Free Breakfast
Promotion. A tailor-made shopping guide entitled "MTR Easy Ride to Hong Kong
Shopping Festival" was developed together with the Hong Kong Tourism Board for
the use of overseas tourists in July and August.
On Airport Express, the popular "Ride to Rewards" programme was enhanced with
new rewards. We also arranged same-day return trips on Airport Express as well
as discounted prices for visitors travelling to private events or public
concerts at AsiaWorld-Expo.
On the through train business to the Mainland of China, which we took on after
the Rail Merger, the fare promotion on Intercity services to Beijing and
Shanghai in non-peak periods continued. To promote the new Lok Ma Chau Station
of the Cross-boundary Service, free ride promotions over the New Year and Lunar
New Year holidays and weekly ticket promotions were provided to customers who
used the new station.
Station Commercial and Rail Related Businesses
Revenue growth for our station commercial and rail related businesses benefited
from a robust economy, rising patronage and the effect of the Rail Merger,
resulting in revenue increasing 12.9% to HK$1,741 million despite decreases in
telecommunications and consultancy revenues. Excluding the Rail Merger effect
from 2 December to the year end, such revenues would have increased by 4.8% to
HK$1,616 million.
Advertising revenue increased by 11.0% to HK$593 million (9.6% to HK$585 million
excluding the Rail Merger effect), underpinned by higher passenger volumes,
advertising innovations and station zone segmentation with the objectives of
optimizing revenue for the Company and advertising impact for our customers.
Revenue also benefited from the replacement of seatback TV with the new
multimedia system on the Airport Express, and the enhancement of the MTR Plasma
TV network. With the Rail Merger, our advertising coverage now extends to an
integrated network with larger patronage, including the cross-boundary market.
Station retail revenue rose 27.6% to HK$499 million (9.7% to HK$429 million
excluding the Rail Merger effect). Renovations and new layouts were completed in
the retail zones of nine stations in 2007 and altogether, 41 stations in the MTR
System have been renovated since 2001. During the year, 31 new trades/brands
were added to the station retail network in the MTR System to enhance customer
satisfaction. With the Rail Merger, the number of shops at stations totaled
1,230 at the end of the year, including nine Duty Free shops at Lo Wu, Lok Ma
Chau and Hung Hom stations.
Revenue from telecommunications services decreased by 10.0% to HK$233 million as
compared to 2006 due to the cannibalisation of the 2G service by the less
profitable 3G service. However, our fixed network services provider TraxComm
Limited achieved higher revenue and by the end of the year had sold more than
220 Gbps of bandwidth services to carrier customers. With the Rail Merger, we
took over the telecoms business of the KCR System, which is similar to MTR
Corporation's own telecoms business, and our fibre network coverage expanded
from 156 kilometres to 324 kilometres.
As part of the Rail Merger, we also gained KCRC's relatively small freight
transportation business, which generated revenue of HK$3 million from 2 December
to the year end.
In external consultancy, we made progress on existing consultancy projects and
the signing of new contracts. Project management consultancy work continued on
Shanghai Metro Line 9 and Phase 1 (12 stations) opened on schedule on 29
December 2007. Overall, external consultancy activities generated a revenue of
HK$193 million in 2007, a decrease of 3.0% compared to 2006, which was mainly
due to programme delays of some projects caused by the changing requirements of
our customers.
Property and Other Businesses
The Hong Kong property market was very active in 2007. The office and retail
rental markets continued to enjoy good growth with supply being limited in the
office market, and strong retail market driven by consumer and tourist spending.
The development rights for eight property development sites totalling 1.2
million square metres GFA were acquired as part of the Rail Merger. The Company
will act as the Government's agent for property developments at West Rail sites.
The Merger also increased our investment property portfolio by 40,957 square
metres lettable, particularly in the New Territories.
Profit for the year from property developments increased significantly to
HK$8,304 million. Amongst this, surplus proceeds contributed HK$7,077 million,
particularly from the sale of residential flats from Le Point at Tiu Keng Leng
Station and to a lesser extent from Harbour Green at Olympic Station. Deferred
income contributed HK$1,224 million being profit recognition mainly from the
newly opened Elements in Kowloon Station, and from Coastal Skyline and Caribbean
Coast in Tung Chung.
In February 2007, the tender for Area 56 in Tseung Kwan O town centre was
awarded to Lansmart Ltd, a subsidiary of Sun Hung Kai Properties Limited, with
the plan to develop a hotel, residential, office and retail complex. In
November, a subsidiary of Cheung Kong (Holdings) Limited was awarded Tseung Kwan
O Area 86 Package Three, a residential development with up to 1,648 units. Area
86 was formally named LOHAS Park in September.
Revenues from our property rental, management and other businesses benefited
from additions to the portfolio, increased by 24.3% to HK$1,834 million as
compared to 2006; the Rail Merger effect from 2 December to the end of 2007
contributed HK$22 million to this total. Within this total, rental income rose
by 25.2% over last year to HK$1,581 million (23.5% to HK$1,560 million excluding
the Rail Merger effect), driven by positive rental renewals and new lettings, as
well as contributions from Phase 1 of Elements with lettable area of 39,210
square metres and Ginza Mall in Beijing with lettable area of 19,307 square
metres, both of which opened in 2007.
Our latest up-market flagship shopping centre, Elements on top of Kowloon
Station, was successfully opened in October 2007. It quickly became a unique
attraction for premier shopping and recreation both for Hong Kong residents and
for visitors. Commercially, Elements was equally successful with 100% of its
shops leased at the time of the opening.
The investment properties portfolio acquired as part of the Rail Merger
comprises five shopping centres in the New Territories totalling 36,487 square
metres lettable, 20 residential units at Royal Ascot and an office at Hung Hom
of 1,686 square metres lettable.
Property management income rose by 12.8% to HK$168 million. During the year,
3,121 residential units were added to our property management portfolio at
Coastal Skyline, Caribbean Coast and Harbour Green, which together with the
9,854 units under management acquired in the Rail Merger, brings the total
number of residential units managed by the Company in Hong Kong to 71,851 units
at the end of 2007.
Prior to the Rail Merger, total commercial properties managed by the Company
increased by 81,457 square metres mainly due to the inclusion of Elements Phase
1. With the Rail Merger, an additional 93,026 square metres of commercial area
was added to our property management portfolio to give a total of 756,556 square
metres at year end.
Our managed property portfolio in the Mainland also increased in 2007, with a
total new intake of 480,000 square metres. Altogether, total contracts in hand
under management in the Mainland of China amounted to 820,254 square metres.
The Ngong Ping 360 cable car and associated theme village on Lantau Island,
opened in September 2006. In June 2007, during the annual testing outside of
operation hours, one of the gondolas dislodged from the cable. There were no
injuries but operations were immediately suspended, followed by detailed
investigations and a period of intensive testing of safety and operational
procedures. In September, the Company took over the management and operation of
the cable car system from the previous contractor through the acquisition of its
Hong Kong subsidiary, with a senior management team of our experienced engineers
and international cable car professionals. After extensive testing, the system
was confirmed to be safe and reliable and the cable car service resumed on 31
December 2007. Patronage quickly returned to previous levels and we are
optimistic about the future of this project. The revenue contributed for the
year from Ngong Ping 360 was HK$85 million.
The Company's share of Octopus' net profit for 2007 was HK$97 million, a 42.6%
increase over 2006. The increase was partly a result of an increase in average
daily Octopus usage of 11.7% to HK$81.9 million per day in 2007, brought about
by a rise in the number of service providers and improvements in the general
economy. Cards in circulation rose to 16.5 million and average daily
transaction volume rose to 10.2 million. By the end of 2007, the total number of
service providers had risen to 490 from 431.
Hong Kong Network Expansion
With the completion of the Rail Merger, our key focus will be directed to the
construction of new rail lines over the next decade, which will significantly
contribute to Hong Kong's future growth.
As the first of these new extension projects, the West Island Line (WIL) was
gazetted under the Railways Ordinance in October 2007 followed by approval of
design funding by Government in December 2007. WIL is a 'community railway'
that aims to rejuvenate the Western District of Hong Kong by enhancing
connectivity for the community through rail service, station exits, lifts and
escalators.
Works on the Kowloon Southern Link (KSL) connecting the existing East Rail
Line's East Tsim Sha Tsui Station with West Rail Line's Nam Cheong Station,
continued throughout the year. Completion is scheduled for late 2009. The
Company took the project management responsibility of KSL under the Rail Merger
agreement. However, it will continue to be funded and owned by KCRC, and will
form part of the Service Concession when it opens for service.
In his Policy Address in October 2007, the Chief Executive of Hong Kong SAR
identified a number of new rail lines as priority infrastructure projects. These
include the South Island Line (East), the Shatin-to-Central Link and the Hong
Kong Section of the Express Rail Link.
A revised proposal for the South Island Line (East) with updated financial data
and enhanced interchange arrangements at Admiralty Station was submitted to
Government in June 2007. Government has since requested the Company to proceed
with preliminary planning and design. In addition, feasibility studies were
completed in 2007 for the Express Rail Link. The Express Rail Link will provide
cross-boundary high speed train service connecting Hong Kong to the new high
speed rail network in the Mainland of China.
The Government announced on 11 March 2008 its decision for the Company to
proceed with the further planning and design of Shatin-to-Central Link and
the Kwun Tong Line extension to Whampoa. The 17-km Shatin-to-Central Link, which
will be based on the scheme proposed by the Company under the Rail Merger, will
run from Tai Wai to Hong Kong Island connecting a number of rail lines to
provide more convenient rail services to passengers. The section from Tai Wai to
Hung Hom connecting Ma On Shan Line to West Rail Line is expected to be
completed in 2015. The other section which will extend the existing East Rail
Line from Hung Hom across the harbour to Hong Kong Island is expected to be
completed in 2019. The Company will continue discussions with Government on the
operation of Shatin-to-Central Link by way of a Service Concession. The 3-km
Kwun Tong Line extension will run from the existing Yau Ma Tei Station via Ho
Man Tin to Whampoa and is expected to be completed by 2015. The Company will
discuss the implementation details of this project with Government based on the
ownership approach and has proposed to use property development rights relating
to a site at the former Valley Road Estate site to bridge the funding gap.
The funding model for these new rail projects will take different forms, each
appropriately designed for the project. As always, the Company will seek to
create a commercial return on its investments above its cost of capital and at
rates commensurate with the risk of the projects. For the West Island Line, the
Government has indicated that it would consider a capital grant model whereby
Government grants to the Company a sum of money, currently estimated at HK$6
billion, to establish the financial viability of the project. The South Island
Line (East) will likely follow the Company's traditional "Rail and Property"
approach, whereby property development rights will be granted to us. A third
model that could be used for future rail lines would be the Service Concession
model used in the Rail Merger, whereby Government (or KCRC, which is wholly
owned by the Government) pays for the initial capital costs of the rail line and
the Company operates the line by paying an annual concession payment as well as
being responsible for maintenance and upgrades; KSL has adopted this approach.
For the new station at LOHAS Park (in Tseung Kwan O South), civil and structural
works were substantially completed in October 2007, and track installation was
substantially completed in December 2007. Design of the railway electrical and
mechanical systems has been completed, manufacturing of major plant and
equipment is in progress, and installation works are on schedule for completion
of the station in 2009.
Construction Work for the pedestrian subway at Cheung Lai Street connecting Lai
Chi Kok Station with the new developments to the south of Lai Chi Kok Road began
in August 2007.
Overseas Expansion
Our overseas expansion took a step forward with the award of the London
Overground concession to London Overground Rail Operations Ltd (LOROL), our 50:
50 joint venture with UK's Laing Rail (now being acquired by Deutsche Bahn
group). Works on the Beijing Metro Line 4 (BJL4) project made steady progress
and the process to gain approval of the Shenzhen Metro Line 4 (SZL4) project
continued.
In Beijing, tendering for the Electrical & Mechanical (E&M) Works Contracts of
BJL4 was substantially completed. Design works and manufacturing for E&M
equipment advanced smoothly. Testing and commissioning works of the first two
trains commenced in December 2007.
In Shenzhen, we continued to support the Shenzhen Municipal Government in
obtaining approval on the SZL4 project from the National Development and Reform
Commission. Preparatory work and expanded trial section work continue with
undertakings from the Shenzhen Municipal Government to reimburse certain of the
costs incurred if the project is not approved. Under the current policy
relating to property development in China, the public sector funding support to
this project is likely to take other forms than the grant of property
development rights. The Company will ensure that the project, if approved, will
provide satisfactory returns to its shareholders. We continue to pursue other
projects in the Mainland of China, such as the BJL4 Extension to Daxing
District, as well as the development of new lines in Hangzhou, Suzhou, Tianjin
and Wuhan.
In Europe, our joint venture with Laing Rail, LOROL, was awarded the London
Overground concession on 19 June 2007. On 11 November, LOROL successfully took
over the concession, which allows it to operate services on five existing lines
in Greater London for seven years.
Financial Review
The Group achieved strong financial results in 2007. Total fare revenues
increased by 9.1% from HK$6,523 million to HK$7,115 million with fare revenue
from Domestic Service (including KCR Lines after the Rail Merger) increasing by
5.1% in 2007 to HK$6,213 million. Fare revenues from Airport Express increased
by 7.0% to HK$655 million whilst Cross-boundary, Light Rail, Bus and Intercity
services contributed total revenue of HK$247 million for the period after the
Rail Merger. Non-fare revenues increased by 18.5% in 2007 to HK$3,575 million
comprising HK$1,741 million of station commercial and rail related business
incomes and HK$1,834 million of property rental, management and other incomes.
Total revenues for 2007 therefore increased by 12.0% to HK$10,690 million.
Total operating costs, excluding merger related expenses, increased by 10.1% in
2007 to HK$4,778 million after accounting for the incremental operating costs
following the Rail Merger in December. Operating profit from railway and
related business before depreciation and amortisation therefore increased by
13.7% to HK$5,912 million before accounting for merger related expenses. We
estimate that the Rail Merger contributed approximately HK$284 million to such
operating profit from 2 December to the year end before merger related costs.
Operating margin also increased from 54.5% in 2006 to 55.3%.
Property development profits for 2007 increased significantly from HK$5,817
million to HK$8,304 million mainly due to profit recognition from Le Point at
Tiu Keng Leng Station. As noted in the 2006 Annual Report, costs relating to
the Le Point property development had been accounted for in 2006 and hence
profit recognition for Le Point in 2007 was based predominately on our share of
the revenue from sales of units at the development, leading to significant
profit booking in 2007. Depreciation and amortisation charges for 2007
increased by 2.4% to HK$2,739 million while interest and finance charges
declined by 5.9% to HK$1,316 million as a result of substantial cash inflows
during the early part of the year. With the Rail Merger, merger related
expenses charged to the 2007 profit and loss account were HK$193 million.
Acquisitions of assets in 2007 included investment property subsidiaries from
KCRC as part of the Rail Merger and the Ngong Ping 360 operation management
company from the previous contractor; fair market adjustments for such assets
produced a net gain of HK$187 million.
Excluding investment property revaluation, net profit attributable to
shareholders of the Company from underlying businesses for 2007 increased by
43.8% to HK$8,571 million, or HK$1.54 per share as compared with HK$1.08 in
2006. After accounting for the revaluation of investment properties, reported
earnings attributable to shareholders of the Company were HK$15,180 million with
earnings per share of HK$2.72.
The Company's balance sheet showed an 18.6% increase in net assets from
HK$76,786 million as at 31 December 2006 to HK$91,037 million as at 31 December
2007. Total assets increased from HK$120,421 million in 2006 to HK$155,668
million as at 31 December 2007 mainly attributable to the addition of the
Service Concession assets and property package acquired in the Rail Merger as
well as the appreciation in market values of investment properties. Total
liabilities increased from HK$43,635 million in 2006 to HK$64,631 million at
2007 year end mainly due to the additional borrowings, obligations under the
Service Concession and other liabilities arising from the Rail Merger.
Including the obligations under the Service Concession of HK$10,685 million as a
component of debt, the Group's net debt-to-equity ratio increased from 36.3% at
2006 year-end to 48.5% at 2007 year end.
Cash flow of the Company remained strong during the year with net cash inflow of
HK$5,965 million generated from railway and related activities and HK$5,824
million of cash receipts from our property development business. After payments
for capital projects, interest expense, working capital and dividends, a net
cash inflow of HK$6,122 million was generated before payments for the Rail
Merger. Upfront payments of HK$12,040 million were incurred while reimbursement
of HK$786 million was received in respect of the assumption of certain KCRC
assets and liabilities for the Rail Merger, resulting in a cash deficit of
HK$5,132 million for the year, which was financed by increase in debt of
HK$5,401 million.
In view of the strong financial performance in 2007, the Board has recommended a
final dividend of HK$0.31 per share which, when added to the interim dividend of
HK$0.14, will give a total dividend of HK$0.45 per share for the year ,
representing an increase of HK$0.03 or 7.1% as compared to last year. As in
previous years, the Financial Secretary Incorporated has agreed to receive its
entitlement to dividends in the form of shares to the extent necessary to ensure
that a maximum of 50% of the Company's total dividend will be paid in cash.
Human Resources
The commitment, loyalty and professionalism of our staff have long been the
foundation of our success. In the preparations for the Rail Merger, we
consistently followed the principle of "One Company, One Team", and consulted
our colleagues on all matters that affected their future. The Rail Merger was
not simply a financial transaction involving physical assets and operational
integration; it was a process that involved people. To help our colleagues to
learn about the merger process, and to provide an opportunity for them to
interact with each other, 99 Cultural Integration workshops were held. Every one
of our colleagues attended at least one of these workshops. Their views were
sought and they were kept abreast of developments through many different
channels, including publications, newsletters and communication sessions. These
programmes were designed to make the merger process more transparent and to
reduce uncertainties.
Our numerous training and development programmes to enhance skills and maintain
motivation continued throughout the year, with courses covering issues such as
empathetic listening, empowerment and railway safety. In order to meet the
future requirements of the Company, several major initiatives were undertaken to
develop management and leadership talents, including an Executive Associate
Scheme and a graduate trainee programme with graduates from both Hong Kong SAR
and the Mainland of China. We also continued to devote resources to developing
and resourcing staff for our expanding overseas business and to create our
culture at our operations offshore.
Outlook
Uncertainties in the global economy continued in the latter part of 2007 and
into 2008, with the risk of a slowdown in the U.S.. However, with continued
growth in the Mainland of China and barring any further major external shocks,
we hold a positive view on the economic prospects of Hong Kong in 2008.
The Rail Merger will have a positive full-year impact on our businesses in 2008.
We remain confident of achieving the HK$450 million per year in merger
synergies over three years. In 2008, we are of the view that approximately
HK$130 million of such synergies could be achieved through energy optimisation,
combined procurements and revenue enhancements through the enlarged network.
However rail operating margin is expected to be lower in 2008 as the result of
the fare reduction and also the lower margin of the KCR System. Station
commercial and related businesses will benefit from economic growth in Hong Kong
as well as the full year impact of the Duty Free shop tenancies in Hung Hom, Lo
Wu and Lok Ma Chau. However, we will continue to see pressure on our
telecommunications business with further cannibalisation of 2G service by 3G.
In our property and other businesses, our property investment and management
business will benefit from the full year effect of Elements Phase 1 as well as
the expected opening of Elements Phase 2 of around 7,609 square metres gross
towards the end of 2008. We should also benefit from the full year effect of the
re-opening of Ngong Ping 360 and the acquired investment property portfolio
under the Rail Merger.
In our property development business, depending on the progress of constructions
and pre-sale, we expect to recognise most of our remaining property deferred
income balance (before deduction of related cost) of HK$400 million in the next
18 months, which mainly relates to properties along the Airport Railway, such as
Elements in Kowloon Station, Coastal Skyline and Caribbean Coast in Tung Chung
Station. In Tseung Kwan O, pre-sales have been successfully completed for The
Capitol, LOHAS Park Package 1, and depending on the issuance of the Occupation
Permit, we may be able to recognise surplus proceeds from this development in
the second half of 2008. Pre-sales should also commence this year for Ho Tung
Lau, one of the eight property development projects acquired in the Rail Merger.
Once again depending on the progress of pre-sales and with the Occupation
Permit expected to be received before the year end, there is a possibility of
profit recognition from this development in 2008. From an accounting
perspective, our acquisition costs for the property developments (such as Ho
Tung Lau) acquired under the Rail Merger will have to be accounted for before
profits can be recognised. Another of the eight projects acquired in the Rail
Merger, Wu Kai Sha, will likely start pre-sales in 2008 but as the Occupation
Permit is not expected until after 2008, it is unlikely that profits will be
recognised on the project in 2008. The magnitude of property development
profits in 2007 were mainly the result of the profit accounting of Le Point in
Tiu Keng Leng, whereby the costs for that project were already accounted for in
2006. Hence, we do not expect the magnitude of development profits in 2007 to
be repeated in 2008. In our property tender activities, we are likely to tender
the Che Kung Temple site in 2008, for which the Expression of Interest was
launched in early March 2008. Meanwhile, as the development agent for West Rail
property developments, we will recommend the sites at Tsuen Wan West (TW5 and
TW7) for tender invitation within the next 12 months, subject to market
conditions. These three railway related property development sites are planned
to provide a total of about 6,200 flats.
Finally, I would like to take this opportunity to thank my fellow directors and
all my colleagues for their tremendous energy and dedication in a truly
memorable year for the Company.
By Order of the Board
C K Chow
Chief Executive Officer
Hong Kong, 11 March 2008
The financial information relating to the financial year ended 31 December 2007
set out above does not constitute the Group's statutory consolidated accounts
for the year ended 31 December 2007, but is derived and represents an extract
from those consolidated accounts. Statutory consolidated accounts for the year
ended 31 December 2007, which contain an unqualified auditor's report, will be
delivered to the Registrar of Companies.
Certain statements contained in this Announcement may be viewed as
forward-looking statements. 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.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Company will be closed from 8 April 2008 to 15
April 2008 (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 7 April 2008. It is expected
that the final dividend will be paid on or about 18 June 2008.
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*, Ng Leung-sing*,
Abraham Shek Lai-him*, T. Brian Stevenson*, Professor Chan Ka-keung, Ceajer
(Secretary for Financial Services and the Treasury)**, Secretary for Transport
and Housing (Eva Cheng) ** 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 announcement is made in English and Chinese. In the case of any
inconsistency, the English version shall prevail.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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