14th Mar 2007 07:00
MTR Corporation Ltd14 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$0.28 per share || || Operational || || • Patronage for MTR Lines and Airport Express increased 1.1% to 876 million, market share maintained || • Growth in station commercial and property investment businesses || • Tseung Kwan O Area 86 Package 2 awarded in January 2006 || • Ngong Ping 360 opened in September 2006, patronage exceeding expectation || • Concession Agreement for Beijing Line 4 signed in April 2006 with majority of construction contracts let as at || year-end || • Memorandum of Understanding on rail merger with Kowloon-Canton Railway Corporation signed with HKSAR || Government on 11 April 2006 and the Rail Merger Bill was submitted to the Legislative Council on 5 July 2006 |+----------------------------------------------------------------------------------------------------------------------+ The Directors of MTR Corporation Limited ("the Company") are pleased to announcethe audited results of the Company and its subsidiaries ("the Group") for theyear ended 31 December 2006 as follows: CONSOLIDATED PROFIT AND LOSS ACCOUNT------------------------------------------------------------------------------------------------ Year ended 31 DecemberHK$ Million 2006 2005------------------------------------------------------------------------------------------------ Fare revenue 6,523 6,282Station commercial and other revenue 1,606 1,555Rental 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)businessesProperty 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 5,101before depreciationProfit on property developments 5,817 6,145 --------- ---------Operating profit before depreciation 11,018 11,246Depreciation (2,674) (2,682) --------- ---------Operating profit before interest and finance charges 8,344 8,564Interest and finance charges (1,398) (1,361)Change in fair value of investment properties 2,178 2,800Share of profits less losses of non-controlled 45 9subsidiaries and associates --------- ---------Profit before taxation 9,169 10,012Income 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 shareholdersof 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$1.55 CONSOLIDATED BALANCE SHEET---------------------------------------------------------------------------------------------- As at 31 DecemberHK$ Million 2006 2005---------------------------------------------------------------------------------------------- AssetsFixed assets - Investment properties 22,539 19,892 - Other property, plant and equipment 84,404 83,383 --------- --------- 106,943 103,275Railway construction in progress 232 1,006Property development in progress 3,297 2,756Deferred expenditure 565 281Prepaid land lease payments 594 608Interests in non-controlled subsidiaries 171 103Interests in associates 100 -Deferred tax assets 1 19Investments in securities 272 183Staff housing loans 25 34Properties held for sale 2,018 1,311Derivative financial assets 195 234Stores and spares 272 248Debtors, deposits and payments in advance 1,894 3,095Loan to a property developer 3,355 -Amounts due from the Government and other related parties 177 154Cash and cash equivalents 310 359 --------- --------- 120,421 113,666 --------- ---------LiabilitiesBank overdrafts 5 14Short-term loans 1,114 385Creditors, accrued charges and provisions 3,639 3,415Current taxation 1 2Contract retentions 193 170Amounts due to related parties - 17Loans and obligations under finance leases 27,033 27,865Derivative financial liabilities 515 307Deferred income 1,682 3,584Deferred tax liabilities 9,453 8,011 --------- --------- 43,635 43,770 --------- ---------Net assets 76,786 69,896 ========= ========= Capital and reservesShare capital, share premium and capital reserve 38,639 37,450Other reserves 38,128 32,425 --------- ---------Total equity attributable to equity shareholders of the 76,767 69,875CompanyMinority 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 accordancewith Hong Kong Standards on Auditing, issued by the Hong Kong Institute ofCertified Public Accountants ("HKICPA"), by KPMG whose unmodified audit reportis included in the annual report to be sent to shareholders. The results havealso been reviewed by the Group's Audit Committee. 2. BASIS OF PREPARATION These consolidated accounts have been prepared in accordance with all applicableHong Kong Financial Reporting Standards issued by the HKICPA. The accountingpolicies adopted in the preparation of these accounts are consistent with thoseused in the 2005 annual accounts except for changes made thereafter in adoptingthe Amendment to Hong Kong Accounting Standard 39 "Financial instruments:recognition and measurement on financial guarantee contracts". The adoption ofthis amendment does not have a significant financial impact on the Group'sresults 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 2006and 2005 were as follows: ----------------------------------------------------------------------------------------- HK$ Million 2006 2005----------------------------------------------------------------------------------------- Balance as at 1 January 31,698 25,521Dividends declared or approved (2,309) (2,273)Profit for the year attributable to equity 7,759 8,450shareholders of the Company --------- ---------Balance as at 31 December 37,148 31,698 ========= ========= 4. PROFIT ON PROPERTY DEVELOPMENTS ------------------------------------------------------------------------------------------- Year ended 31 DecemberHK$ Million 2006 2005------------------------------------------------------------------------------------------- Profit on property developments comprises:Transfer from deferred income on - upfront payments 1,213 1,794 - sharing in kind 555 95Share of surplus from development 3,724 3,296Income recognised from sharing in kind 342 971Other overhead costs (17) (11) --------- --------- 5,817 6,145 ========= ========= 5. INCOME TAX ------------------------------------------------------------------------------------------- Year ended 31 DecemberHK$ Million 2006 2005------------------------------------------------------------------------------------------- Current tax - overseas 2 1 --------- ---------Deferred tax expense relating to the originationand 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 1,549account ========= ========= Share of income tax of non-controlled subsidiaries 12 7 ========= ========= No provision for current Hong Kong Profits Tax has been made in the consolidatedprofit and loss account in respect of the Company and its subsidiaries, as theCompany and its subsidiaries either have substantial accumulated tax lossesbrought forward which are available for set off against current year'sassessable profits or have sustained tax losses for the year ended 31 December2006. Taxation for overseas subsidiaries is charged at the appropriate rates oftaxation ruling in the relevant countries. Provision for deferred tax on temporary differences arising in Hong Kong iscalculated 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. TheCompany proposes that a scrip dividend option will be offered to allshareholders except shareholders with registered addresses in the United Statesof America or any of its territories or possessions. Subject to the approval ofthe shareholders at the forthcoming Annual General Meeting, the final dividendwill be distributed on or about 26 June 2007 to shareholders whose names appearon the Register of Members of the Company as at the close of business on 17April 2007. The Company's majority shareholder, The Financial SecretaryIncorporated, has agreed to elect to receive all or part of its entitlement todividends in the form of scrip to the extent necessary to ensure that a maximumof 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 yearattributable to equity shareholders of HK$7,759 million (2005 : HK$8,450million) and the weighted average number of ordinary shares of 5,510,345,238 inissue during the year (2005 : 5,430,594,654). The calculation of diluted earnings per share is based on the profit for theyear attributable to equity shareholders of HK$7,759 million (2005 : HK$8,450million) and the weighted average number of ordinary shares of 5,516,115,460 inissue during the year (2005 : 5,436,752,536) after adjusting for the number ofdilutive potential ordinary shares under the employee share option schemes. Both basic and diluted earnings per share would have been HK$1.08 (2005 :HK$1.13) if the calculation is based on profit from underlying businessesattributable to equity shareholders, i.e. excluding increase in fair value ofinvestment properties net of related deferred tax. 8. SEGMENTAL INFORMATION -------------------------------------------------------------------------------------- Turnover Contribution to profit Year ended 31 December Year ended 31 DecemberHK$ Million 2006 2005 2006 2005-------------------------------------------------------------------------------------- Railway operations 6,523 6,282 979 760Station commercial and other 1,606 1,555 1,081 1,071businesses -------- -------- -------- -------- 8,129 7,837 2,060 1,831 Property 1,412 1,316 1,096 1,074ownership 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 2,800value of investment properties Share of profits less losses of 45 9non-controlled subsidiariesand associatesIncome tax (1,411) (1,549) -------- -------- 7,758 8,463 ======== ======== Station commercial and other businesses comprise mainly letting of advertisingand retail space within the railway premises, bandwidth services on the railwaytelecommunication system, international consultancy services and, commencingfrom 18 September 2006, cable car operations and related businesses. As substantially all the principal operating activities of the Group werecarried out in Hong Kong throughout the reporting periods, no geographicalanalysis is provided. 9. LOAN TO A PROPERTY DEVELOPER ----------------------------------------------------------------------------------------------------------------- As at 31 December 2006 As at 31 December 2005HK$ 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 86property development project under the terms of the development agreement. Theloan is interest-free and guaranteed by the developer's ultimate holding companyand 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 inprogress. 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 itssubsidiaries 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 31December 2006. 13. ANNUAL GENERAL MEETING It is proposed that the Annual General Meeting of the Company will be held on 7June 2007. For details of the Annual General Meeting, please refer to the Noticeof Annual General Meeting which is expected to be published on or about 26 April2007. 14. CORPORATE GOVERNANCE The Company has complied throughout the year ended 31 December 2006 with theCode Provisions set out in the Code on Corporate Governance Practices containedin Appendix 14 of the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited (the "Stock Exchange") except that, with respectto Code Provision A.4.1, non-executive Directors of the Company are notappointed for a specific term but are subject (save for those appointed pursuantto Section 8 of the Mass Transit Railway Ordinance (Cap. 556 of the Laws of HongKong)) to retirement by rotation and re-election at the Company's annual generalmeetings in accordance with Articles 87 and 88 of the Company's Articles ofAssociation. Dr. Raymond Ch'ien Kuo-fung, a Member of the Board, was appointed as thenon-executive Chairman of the Company with effect from 21 July 2003 for a termof three years. In July 2006, he was re-appointed as the non-executive Chairmanof 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 Companywith effect from 1 December 2003 for a term of three years. He was alsoappointed as a Member of the Board on the same date. His contract as the ChiefExecutive Officer of the Company was renewed for a further term of three yearswith effect from 1 December 2006. 15. PUBLICATION OF THE RESULTS ANNOUNCEMENT AND ANNUAL REPORT This results announcement is published on the Company's website atwww.mtr.com.hk and the website of the Stock Exchange. The Annual Report willalso be available at the Company's and the Stock Exchange's website in lateApril 2007 and will be despatched to shareholders of the Company in late April2007. 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 8,493Average number of passengers (in thousands) - MTR Lines (weekday) 2,523 2,497 - Airport Express (daily) 26.2 23.3Operating 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 businessesenabled 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 profitbefore property development profit and depreciation by 2.0% to HK$5,201 million.Net profit attributable to shareholders, excluding revaluation of investmentproperties, decreased marginally by 2.9% to HK$5,962 million. The slightdecrease in underlying profit was due to the very strong property developmentprofit recognised in 2005, the magnitude of which was not repeated in 2006.Including investment property revaluation, net profit attributable to equityshareholders was HK$7,759 million. Corresponding earnings per share were HK$1.08before investment property revaluation and HK$1.41 after such revaluation. TheBoard, after considering the cash requirements of the proposed rail merger withKowloon-Canton Railway Corporation (KCRC), has recommended a final dividend ofHK$0.28, which when combined with the interim dividend of HK$0.14, brings thefull year dividend to HK$0.42. In April 2006, the Company signed a Memorandum of Understanding (the MOU) withthe Government of the Hong Kong SAR (Government) with regard to the proposedrail merger with KCRC. The year also saw our growth strategy taking root withthe 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 by1.1% to 876 million. Patronage on the MTR Lines increased by 1.0% to 867 million. Our overall marketshare of the total franchised public transport market was maintained at 25%.Cross-harbour market share was also broadly unchanged at 61%. Patronage on theAirport Express increased by 12.8% to 9.6 million, mainly due to the opening ofthe AsiaWorld-Expo (AWE) Station in December 2005. Airport Express' estimatedmarket 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 strongfirst quarter of patronage growth, the effect of the Football World Cup, whenmany 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 Linesresumed. The full year increase in patronage benefited from a full yearcontribution from the Disneyland Resort Line (DRL), which entered service inAugust 2005, and from the AWE Station, which opened in December 2005. Thereduction in certain bus fares as a result of the introduction of their new fareadjustment mechanism during the year had little impact on our businesses, assuch reduction applies mainly to travellers from outlying areas not directlyserved by our network. Average fare revenue per passenger on MTR Lines increased from HK$6.67 in 2005to HK$6.82, due to the full-year effect of both changes in certain promotionprogrammes 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 tooffset through increased efficiency. As in previous years, patronage was underpinned by MTR's high performancestandard and service quality. Our customer service performance continued tosurpass both the Government's minimum requirement under the Operating Agreement,and our own more stringent Customer Service Pledges. During the year, MTRpassenger journeys on time and train service delivery were both at 99.9%, whileService Quality Index, based on customer satisfaction surveys, for the MTR Linesand Airport Express registered 71 and 81 respectively on a 100-point scale. Wealso maintained our leading position in the 12-member Community of Metros(CoMET) benchmarking report in areas of customer service, service reliabilityand cost efficiency. We continued to invest not only in expansion of the network, but in servicequality and efficiency to meet the ever changing expectations of the travellingpublic. The programme to retrofit platform screen doors at all 74 platforms ofour underground stations was completed in the first half of 2006, and three newpedestrian links were added to improve access at Choi Hung, Kwai Fong and TiuKeng Leng stations. We commissioned three new trains on the Tung Chung Line toincrease train frequency and replaced the motor alternator sets on 78 trains onMTR Lines with the state-of- the-art static inverters. We also launched a majorproject to install noise barriers on sections of the Tung Chung Line to minimisethe noise impact to nearby residents from the increased train frequency, and anew rail replacement programme to progressively upgrade the rail infrastructureon the Kwun Tong and Tsuen Wan lines designed to improve ride quality andservice reliability. Our efforts to market the rail network again achieved results. A "Ride 10 RedeemHello Kitty Stamps" promotion not only generated additional patronage but alsocontributed to income as the stamps became a collectible item. Innovation wasagain to the fore, as we launched our first game, the Happy Index Promotion, andtwo 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 fromDragonair VISA card. We also made efforts to expand the reach of the programmeby offering it to shareholders. To attract more local leisure travellers, farepromotions including discounts on return journeys and free rides for childrenusing Child Octopus card were offered during festive seasons. Overseaspassengers, meanwhile, were offered fare discounts on tourist products through apartnership with the Hong Kong Tourism Board and the UnionPay Discover Hong KongClub. An advertising campaign was launched to increase awareness of the newlyopened AWE Station. The Company's marketing, branding and passenger awareness efforts achievedconsiderable external recognition during the year. We won the "Top Ten MostPopular TV Commercials Award" and "Most Impressive TV Commercial" in the 12thAnnual Most Popular TV Commercial competition held by ATV. The Company took the"Prime Awards for Brand Excellence 2006 - Transport Services" award given byPrime Magazine, and the "Hong Kong Brands - Classic" award jointly presented byEast Week and Sing Tao Publishing. In addition, MTR Corporation's print campaignon train boarding safety was named one of Hong Kong's Top Ten PrintAdvertisements in the "Metro Global Print Awards 2006" organised by MetropolisDaily. MTR was ranked as the best value for money and best customer service provideramongst all public transport services in Hong Kong, based on the "PublicTransportation 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 theyear as we continue to leverage our rail assets and expertise resulting inrevenue increasing 3.3% to HK$1,606 million. In 2005 there was a one-off incomefrom termination of a telecommunication agreement; excluding this one-off itemand another similar, albeit much smaller one-off item in 2006, revenue from ourstation commercial and other businesses would have increased by 8.0% from lastyear. In advertising, revenue grew 4.7% to HK$534 million as we continued to set thepace in outdoor advertising in Hong Kong through an expanded plasma network andinnovation in formats, which included "Real-Time Projection Zone" and a newadvertising train - the "Spectacular Mobile Showcase". Airport Express meanwhilesaw the introduction of a new multimedia system that offers more flexibility toadvertisers. Station kiosk rental grew 13.7% to HK$391 million. Station commercial spacetotaled 16,867 square metres at year end with the completion of 11 additionalstations under the station renovation programme. This brings to 38 stationshaving been renovated in this programme since 2001. We also added 32 new shopsand 15 new brands to our station commercial business. Telecommunications revenue declined by 22.5% to HK$259 million, due to theone-off items mentioned earlier. Excluding the one-offs, such revenue would havedecreased marginally by 3.2% due to the continued erosion of 2G mobile telephonerevenue by less profitable 3G usage. TraxComm however, continued to expand itsoptical fibre business and at year-end their optical fibre network covered 40locations. 2006 saw an encouraging start to operations for Ngong Ping 360, which is ownedby the Company and operated by Skyrail-ITM (Hong Kong) Ltd (Skyrail). Since itsopening in September, the cable car and associated themed village have provenvery popular, generating revenue of HK$64 million as at end of 2006. This newtourist attraction has now received over 1 million local and overseas visitorsto date. Despite some teething problems, it has operated, by internationalstandard of cableway systems, at a high level of reliability. The Company hasworked closely with Skyrail to seek continuous improvement so as to make NgongPing 360 a "must see" tourist attraction in Hong Kong. In external consultancy, in line with our strategy to focus on key cities thatcould 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 andsigned major new contracts in Beijing and Chengdu. In Hong Kong, the project toconstruct an Automated People Mover System to connect the Hong KongInternational Airport to SkyPlaza and the SkyPier saw good progress. In Taiwan,the Company was awarded a three year contract with the Kaohsiung Rapid TransitCorporation and a two year contract with the Taiwan High Speed Rail Company. Wealso secured consultancy assignments in Dubai and the UK. Octopus Holdings Limited, in which we hold a 57.4% stake, increased itscontribution to the Company's profit by 70% to HK$68 million, with cards incirculation rising to 14.7 million while average daily transactions increased by13.3% to HK$73.3 million. Hong Kong Extension Projects In Hong Kong, we continue to pursue new railway extension projects with a viewto maintaining our growth in the local market. We completed the preliminary design study on the West Island Line in 2006 andsubmitted a project proposal to the Government's Environment, Transport andWorks Bureau. Negotiations with Government on the implementation plan andfunding support have continued throughout the year. The project continues toenjoy strong community support. Our proposal for the South Island Line (East) remains with Government forconsideration. Works to improve the connectivity to our stations continue. The new departureplatform connecting the Airport Express with SkyPlaza, which houses the secondterminal of the Hong Kong International Airport, was opened in February 2007.The Queensway Subway linking Admiralty Station with Three Pacific Place was alsoopened in February 2007. Elsewhere, work is expected to begin on a newpedestrian subway at Lai Chi Kok Station in the first quarter of 2007, whileother new pedestrian links are under consideration at Prince Edward, CausewayBay, Tsim Sha Tsui, Kwai Hing, Kowloon Bay, Choi Hung, Sheung Wan and Olympicstations. Property Businesses The Hong Kong property market was steady in 2006 benefiting our propertydevelopment business. Profit for the year from property developments was HK$5,817 million. During2006, profit recognised from Airport Railway projects included mainly deferredincome recognition, in line with construction progress, at Harbour Green(Olympic Package Three), Coastal Skyline and Caribbean Coast (respectively, TungChung Packages Two and Three) and fit out works at Elements, together withsharing in kind on receipt of an additional gross floor area of 7,609 squaremetres of this shopping centre. Along the Tseung Kwan O Line, development profitcame 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 theyear saw steady progress both along the Airport Railway including flats atHarbour Green and La Rossa in Coastal Skyline, as well as, at Le Point, TheGrandiose and Central Heights over in Tseung Kwan O. The year also saw property tender activity, with the award in January of thetender of Package Two of Tseung Kwan O Area 86 to Rich Asia Investments Limited,a subsidiary of Cheung Kong (Holdings) Limited. For this package, MTRCorporation extended a HK$4 billion interest free loan to the developer inreturn for an increased sharing in kind of the development. In January 2007, tenders were invited for Area 56 of Tseung Kwan O with theaward in February 2007 to Lansmart Ltd, a subsidiary of Sun Hung Kai PropertiesLtd. The proposed development will be a mixed-use project comprising hotel,office, residential, commercial and car parking accommodations with a totalgross 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 asshopping centre rental rates moved higher, and the portfolio remained fully letexcept for small areas of Luk Yeung Galleria that were repossessed forrenovation work. MTR Corporation's total investment property portfolio as at endof 2006 was 174,916 square metres, being the total lettable floor areaattributable to the Company. One new shopping centre was added to the MTR Corporation's portfolio, taking thetotal to six, with an aggregate lettable floor area of 119,619 square metresattributable to the Company. The Edge, 70% owned by the Company, with a lettablefloor 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 upscalemall with gross floor area of 82,750 square metres at Kowloon Station. Thisdevelopment is scheduled for opening by the end of 2007 and about 90% of theretail space has already been committed to date. In addition, our wholly ownedwet market in Tung Chung as well as the 51% owned Choi Hung Park n' Ride Carparkopened during the year. We continued to enhance the retail environment of our shopping centres throughrenovations and well planned marketing campaigns. In 2006, the major renovationprogramme at Telford Plaza I was completed in December and the Heng Fa Chuen wetmarket re-opened in August, following renovation works. Competition in thissector is expected to intensify in the coming years as many new shopping centresare expected to open. Revenue from property management recorded strong growth of 12.0% to HK$149million. Our property management business added 4,518 residential units to theportfolio, bringing the total number of residential units managed by the Companyto 58,876 at year end. In addition, 16,546 square metres of commercialproperties were added, bringing to 582,073 square metres the total area ofcommercial 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 19,349square metres situated in the Dong Cheng district of Beijing, was opened inJanuary 2007 with close to 90% of its shops let. Three new property managementcontracts for luxury office/commercial developments in Beijing's centralbusiness 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 inApril of the MOU with the Hong Kong SAR Government, setting out the terms forthe proposed rail merger with KCRC, together with the acquisition of a propertypackage. 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, ifcompleted, would be value accretive to the Company. For the travelling public,the merger will bring immediate reduced fares and better integration of the tworail networks. The merger requires the passage of a Rail Merger Bill as well as approval by ourindependent shareholders. The Rail Merger Bill was submitted to the LegislativeCouncil (LegCo) of Hong Kong SAR by the Government on the 5th of July 2006 andis currently under deliberation. Should LegCo approve the bill, the proposalwill become effective only after obtaining approval from independentshareholders. While the approval processes are being progressed, various integrationcommittees and working groups at all levels of the two rail companies have beenworking strenuously as one team to ensure that a high level of integration isachieved on Day One of the merger, so that the travelling public will benefitfrom 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 theMainland of China, while pursuing "asset light" railway operating franchises inEurope. Mainland of China In the Mainland of China, the most significant event of 2006 was the signing inApril of the Concession Agreement for the RMB15.3 billion BJL4 project with theBeijing Municipal Government, which marked our overseas growth strategy takingroot. Approximately RMB4.6 billion, or 30% of the total cost, is being borne bya Public-Private Partnership (PPP) company which is 49% owned by MTRCorporation, 2% by Beijing Infrastructure Investment Co. Ltd. and 49% by BeijingCapital Group. The balance of the capital cost will be funded by the BeijingMunicipal Government. Under the Concession Agreement, the PPP company willinvest 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 theConcession Agreement, Lease Agreement and Financing Agreement all signed, workhas moved on rapidly. Contracts for the rolling stock, signalling and automaticfare collection systems have already been awarded, and 23 of the 24 stations arenow under construction. Construction is expected to be completed by 2009. In Shenzhen, we await final approval from the National Development and ReformCommission on the RMB6 billion Shenzhen Metro Line 4 project which incorporatesthe "Rail and Property" model. This follows our signing in 2004 of the Agreementin Principle and initialling in 2005 of the Concession Agreement with theShenzhen Municipal Government to build Phase 2 of the line and to operate Phases1 and 2 for 30 years. Related utilities diversion and land resumption havebegun. Initial preparatory work is near completion and civil work is ready tobegin. While making progress on these projects, we have been pursuing other similarprojects 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 remainingbids and we expect the result by mid 2007. The LRC currently serves 60 stationsover 60 route miles in the Greater London region, and carries approximately 23million passengers per year. In February 2007, in joint venture with a Swedishrailway company (SJ), we also submitted a bid for the Oresundsag concessions inSweden and Denmark. Financial Review The Company continued to achieve good financial performance in 2006. Farerevenue for the MTR Lines increased by 3.3% from 2005 to HK$5,911 million whilethat for Airport Express increased by 9.1% to HK$612 million. Non-fare revenuefrom station commercial and other businesses as well as property rental andmanagement activities grew by 5.1% to HK$3,018 million. Excluding the one-offincome from telecommunication, the increase in non-fare related revenue wouldhave been 7.7%. As a result, total revenue in 2006 was HK$9,541 million, anincrease of 4.2% from 2005. Operating costs in 2006 amounted to HK$4,340 million, an increase of 7.1% from2005, mainly attributable to an increase in expenses relating to non-farebusiness activities in line with their business growth, as well as projectstudies and new business development in the Mainland of China and Europe.Operating profit from railway and related businesses before depreciation in 2006therefore increased by 2.0% from 2005 to HK$5,201 million while operating margindeclined from 55.7% to 54.5%. Profit from property development amounted to HK$5,817 million, mainly comprisingsurplus proceeds from developments along the Tseung Kwan O Line and deferredincome recognition and the receipt of an additional gross floor area of 7,609square metres of the Elements. This was a reduction of 5.3% from propertydevelopment profit recognised in 2005 of HK$6,145 million. Depreciation chargewas maintained at similar level to 2005, at HK$2,674 million while net interestexpense increased by 2.7% to HK$1,398 million mainly due to increase in interestrates. Excluding investment property revaluation, net profit after tax fromunderlying businesses was HK$5,962 million, or HK$1.08 per share, a slightdecrease of 2.9% and 4.4% respectively from 2005. After accounting for therevaluation of investment properties, reported earnings attributable to theshareholders of MTR Corporation for 2006 were HK$7,759 million with earnings pershare of HK$1.41. The Company's cash flow position remained strong during the year with net cashinflow of HK$5,400 million generated from recurring businesses and HK$4,400million of cash receipts from property developers and purchasers. After paymentsfor capital expenditure, interest expenses, changes in working capital anddividend payments, the Company recorded positive cash flow of HK$3,866 millionfor the year, before a one-off interest-free loan of HK$4,000 million providedto a property developer. After such one-off loan advance, there was a cashdeficit of HK$134 million which was financed by increase in debt of HK$94million and drawdown of cash balances of HK$40 million. The Financial Secretary Incorporated ("FSI") has committed, for dividendsdeclared relating to financial years up to 31 December 2006, to receive all orpart of its entitlement to such dividends in the form of shares (where a scripdividend is offered by the Company) to the extent necessary to ensure that amaximum of 50% of the Company's total dividend will be paid in cash. FSI hasagreed to extend this commitment to dividends declared in respect of each of thethree financial years ending 31 December 2009. People We have continued our effort in retaining and developing high calibreindividuals to align with the development of our growth strategy. The pay-for-performance culture was reinforced through an effective rewardmechanism, more attractive remuneration packages and career progression foryoung professional talents. At the same time, we continued to stress theimportance of achieving a work/life balance through education on this topic andprovision of a 24-hour hotline counselling service for staff and their families. We have always regarded people as our most valuable asset. The dedication andprofessionalism of our staff have always been the foundation of MTRCorporation's success. The proposed rail merger with KCRC represents asignificant step for the Company. It is of critical importance that we keep ourpeople informed of the process and to consult them on matters that may impact ontheir future. Tremendous effort was put into communicating with staff about the proposedmerger, beginning with some 60 communication sessions held in April. Since then,staff has been kept abreast of progress through various channels, including avideo and letters from myself and my colleagues, small group briefings, mergerhotline and email. In addition, a special merger newsletter has been publishedjointly by MTR Corporation and KCRC. We have also worked hard during the year toalign human resource functions, work cultures and practices between the twocompanies. Training initiatives in 2006 included those focusing on safety and customerservice, and were delivered through many channels, including e-learning. Companyapprentices gained Outstanding Apprentices/Trainees Awards from the VocationalTraining Council, while trainers successfully acquired China's NationalEnterprise Trainer Qualification. During the year, we have undertaken three major initiatives to developmanagement talents in order to meet future requirements of the Company. Theseinitiatives are designed for capable staff with high potential at various levelsin the organisation. They are selected through a rigorous process, and areoffered individualised programmes which include academic or professionaltraining, cross functional placements and planned career movements. The PeopleDevelopment Initiative provides opportunities to executives and senior managers.The Executive Associate Scheme is designed to develop young managers with highpotential. The Graduate Trainee Scheme expands its activities to top universitygraduates in the Mainland of China and overseas, in addition to Hong Kong. During the year we established a designated HR team to specifically support ourcolleagues working overseas as part of our overseas growth strategy. A "Stay-in-touch Employee Care & Communication Programme" was launched to enhancecommunication with our staff working outside Hong Kong. Outlook Barring any major external shocks, we hold a positive view on economicconditions 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 competitionand 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 positiveeconomic condition as well as the full year impact of Ngong Ping 360. However,the telecommunications business will continue to face challenges with themigration of 2G users to 3G, which carries less attractive commercial returns tothe Company. In our property businesses, the property investment and management businesseswill benefit from the opening of Ginza Mall in Beijing, the expected opening ofthe Elements shopping centre in Kowloon Station towards the end of 2007, and thefull year impact of The Edge. However, it should be noted that new shoppingcentres generally achieve lower margins than established centres in theirinitial years of operations. Renovation work will be undertaken at the Luk YeungGalleria in 2007. Property developments along both the Airport Railway and Tseung Kwan O Lineshould continue to contribute to profit in 2007. Along the Airport Railway,deferred income will be recognised in accordance with construction progress andpre-sales. Given current market conditions, we expect the balance of propertydeferred income to be recognised over the next two years with a large portion ofsuch balance being recognised in 2007. Also along the Airport Railway, dependingon pre-sales, there will be surplus proceeds recognised from Harbour Green atOlympic Station. Along the Tseung Kwan O Line, depending on the timing ofissuance of Occupation Permit, surplus proceeds will be booked from Le Point atTiu Keng Leng Station. As I noted last year, in accordance with the DevelopmentAgreement and our accounting policy, costs relating to Le Point have alreadybeen accounted for when we booked profit from Metro Town (Tiu Keng Leng) Phase 1in 2006. Finally, I would like to take the opportunity to thank my fellow directors andall of our staff for their support during the year. They are the heroes of MTR. By Order of the BoardC K ChowChief Executive Officer Hong Kong, 13 March 2007 The financial information relating to the financial year ended 31 December 2006set out above does not constitute the Group's statutory consolidated accountsfor the year ended 31 December 2006, but is derived and represents an extractfrom those consolidated accounts. Statutory consolidated accounts for the yearended 31 December 2006, which contain an unqualified auditor's report, will bedelivered 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. SecuritiesExchange Act of 1934, as amended. Such forward-looking statements involve knownand unknown risks, uncertainties and other factors, which may cause the actualperformance, financial condition or results of operations of the Company to bematerially different from any future performance, financial condition or resultsof operations implied by such forward-looking statements. Further informationregarding these risks, uncertainties and other factors is included in the AnnualReport 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 otherfilings with the SEC. CLOSURE OF REGISTER OF MEMBERS The Register of Members of the Company will be closed from 10 April 2007 to 17April 2007 (both dates inclusive). In order to qualify for the final dividend,all transfers, accompanied by the relevant share certificates, must be lodgedwith the Company's Registrar, Computershare Hong Kong Investor Services Limitedat Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, HongKong for registration not later than 4 : 30 p.m. on 4 April 2007. It is expectedthat 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. BrianStevenson*, Frederick Ma Si-hang (Secretary for Financial Services and theTreasury)**, Secretary for the Environment, Transport and Works (Dr. Sarah LiaoSau-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, FrancoisLung 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 ExchangeRelated Shares:
MTR.L