MTR Corporation
2008 Interim Results
5 Aug 2008
MTR Corporation Limited 2008/8/5 Forward-looking statements
Certain statements contained in this presentation 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.
MTR Corporation Page 2 Results highlights and business overview
MTR Corporation Limited 2008/8/5 Solid First Half Achievements
Success of Merger demonstrated in strong financial results Strong Recurring businesses see significant increases in Revenue and EBITDA Financial Net cash generated in 1H08 over HK$4.2 billion Results Successful pre-sales of the Capitol and Palazzo; profit booking dependent only on Occupation Permit issuance
6 new lines being developed
3 new approvals: Significant Shatin to Central Link (SCL), Kwun Tong Line Network Extension (KTE), and Express Rail Link (XRL)
Extension Good progress on Kowloon Southern Link (KSL) , West Island Line (WIL) and South Island Line East (SIL(E))
MTR Corporation Page 4 Financial performance (HK$m) 1H1H 20082008 1H1H 20072007 ChangeChange
TotalTotal revenuerevenue 8,527 4,852 75.7%
EBITDAEBITDA 4,796 2,797 71.5%
EBITDAEBITDA marginmargin 56.2% 57.6% 1.4% pt
Property Property 348 1,664 79.1% developmentdevelopment profitprofit
Underlying profit (excl post-tax Underlying profit (excl post-tax 2,731 2,050 investmentinvestment propertyproperty revaluation)revaluation) 33.2%
Reported net profit Reported net profit 4,689 4,071 attributableattributable toto eequityquity shareholdersshareholders 15.2%
ReportedReported EPSEPS (HK$)(HK$) 0.83 0.73 13.7%
Underlying businesses Underlying businesses 0.49 0.37 EPSEPS (HK$)(HK$) 32.4%
InterimInterim dividenddividend perper shareshare (HK$)(HK$) 0.14 0.14
MTR Corporation Page 5 Business Review
- Railway
MTR Corporation Limited 2008/8/5 Fare Revenue
(HK$ in M)
0.9% 5,542 5,592
MTR 1H 2007 KCRC
vs 1H2007 pre-merger MTR network
% .2 vs 1H2007 pre-merger combined 2 7 3,247 network (MTR + KCRC)
1H2007 1H2008
MTR Corporation Page 7 Patronage Domestic Service (1) (m) Airport Express (m)
5.2 4.8 3% 1% 4. 8. 560.9 (2) 585.2
1H2007 1H2008 .3% 429.3 36 Cross Boundary Service (m)
43.9 9% 46.0 1H2007 1H2008 4.
MTR vs 1H2007 pre-merger MTR network
1H 2007 KCRC vs 1H2007 pre-merger combined network (MTR + KCRC)
1H2007 1H2008
1. Domestic Service in 1H08 include Tsuen Wan, Island, Kwun Tong, Tung
from 2 Dec 07 2. Excluded 28.6m passengers who interchanged
under respective MTR and KCRC systems. Wi MTR Corporation Page 8
between the MTR and KCRC networks. Before th the Rail Merger such interchangeChung, Tseung pass Kwan O, Disneyland Resort as well as East Rail
enger theis only Rail counted Merger, as passengers one passenger who intercha
Lines (excluding Cross Boundary), Ma On
nge between MTR and KCRC lines would
Shan Line and West Rail Line with effect
have been counted as one passenger Average fare
Average Fare – Domestic Service (1) Average Fare – Airport Express
HK$64.40 HK$64.72
5% 0. 4.7% HK$6.90 (2) HK$6.58
1H2007 1H2008 HK$6.84 3.8% Average Fare – Cross Boundary
HK$24.51 HK$24.27 1 .0%
1H2007 1H2008
MTR vs 1H2007 pre-merger MTR network 1H 2007 KCRC vs 1H2007 pre-merger combined 1H2007 1H2008 network (MTR + KCRC)
1. Domestic Service in 1H08 include Tsuen Wan, Island, Kwun Tong, Tung
effect from 2 Dec 07 2. Excluded 28.6m passengers who interchanged
under respectiveMTR Corporation MTR and KCRC systems. Wi Page 9
between the MTR and KCRC networks. Before th the Rail Merger such Chung,interchange Tseung pass Kwan O, Disneyland Resort as well as East Rail
enger theis only Rail counted Merger, as passengers one passenger who intercha
Lines (excluding Cross Boundary), Ma On
nge between MTR and KCRC lines would
Shan Line and West Rail Line with
have been counted as one passenger Market Share Hong Kong Franchised Public Transport
Green Green minibuses minibuses 14.4% 14.8%
Tram & Tram & ferries Buses Buses ferries 3.5% 41.5% 40.1% 3.5%
MTR 25.0%
MTR 41.6% KCRC 15.6%
1H2007 Jan – May 2008
Source: The Transport Department MTR Corporation Page 10 Business Review
- Station commercial and rail related businesses
MTR Corporation Limited 2008/8/5 Station commercial and rail related businesses
Station commercial & rail related businesses: Merger created a step increase in scale, scope and profitability HK$1,448m* vs pre-merger combined network Advertising 97%97% 29%29% ¾Strong growth from buoyant 1H 2007 vs 1H2007 pre-merger MTR network advertising market and higher HK$m patronage 1H 2008 vs 1H2007 pre-merger combined network (MTR + KCRC) 1H 2007 KCRC ¾Innovative advertising formats introduced
65% 272% Station Retail 774 ¾Increased rentals from Retail and Duty Free shops ¾Total kiosks area at 52,727 sq m
469 20% 40% Telecommunications
346 ¾Negative impact from 3G/2G cannibalization 288 1.5% 17% 22% External Consultancy 131 129 248 ¾Reduction of consultancy 208 82 64 revenue as the result of a more 110 focused strategy Advertising Station Retail Telecom Consultancy
*Excludes Services to KCRC revenue of $197m MTR Corporation Page 12 Business Review
- Property and other businesses
MTR Corporation Limited 2008/8/5 Property development
Major profit contributors: Property development profit • Disposal of properties held for HK$348m sale include The Arch and Harbour Green • Deferred income from Coastal Skyline, Caribbean Coast and Elements
Deferred Pre-sales of The Capitol was income successfully completed with all Disposal of 38% units sold properties held for sale Pre-sales of The Palazzo in May 62% with over 80% sold Profit to be recognized upon issuance of Occupation Permits Che Kung Temple awarded in 1H 2008 April
MTR Corporation Page 14 Property rental and management Property rental & management revenues: HK$1,222m 54.7%54.7% Growth driven by Elements vs. pre-merger Phase 1 and favourable rental 30% combined network 30% reversions MTR vs 1H2007 pre-merger MTR network
1H 2007 KCRC vs 1H2007 pre-merger combined Average of 21% increase on network (MTR + KCRC) rental reversion at shopping 1,222 HK$m centres % 103 30 Management Income Investment portfolio at Jun 08 938 attributable share of lettable floor area amounted to 252,086 sq m 80 Management 1,119 Income Retail: 12 shopping centres Rental revenue 7% 4. totalling 200,668 sq m 710 5 Rental revenue Office: 2 offices totalling 41,215 sq m
1H2007 1H2008 Others: 10,203 sq m MTR Corporation Page 15 Other businesses
17.4M cards in circulation with average daily transaction value of HK$86.2M up to Jun 08 Octopus MTR’s share of net profit amounted to HK$78M, up 85.7%
Contributed revenue of HK$68M Over 770k guests carried for the first six months of Ngong Ping 360 2008 A number of attractions and events launched to promote usage
MTR Corporation Page 16 Growth opportunities
MTR Corporation Limited 2008/8/5 New projects in Hong Kong
Express Rail Link
Shatin to Central Link Kwun Tong Line Extension Kowloon Southern Link
West Island Line South Island Line (E)
MTR Corporation Page 18 New projects in Hong Kong – “Rail +Property” Model
Kwun Tong Line Extension
South Island Line (E)
MTR Corporation Page 19 New projects in Hong Kong – Capital Grant by Government
West Island Line
MTR Corporation Page 20 New projects in Hong Kong – Service Concession
Express Rail Link
Shatin to Central Link
Kowloon Southern Link
MTR Corporation Page 21 New projects in HK - Service Concession - Shatin-to-Central Link
Lo Wu
Lok Ma Chau
East West Corridor East Rail Line
Wu Kai Sha Ma On Shan Line North South Corridor Tuen Mun Tai Wai Tai Wai West Rail Line
Diamond Hill Diamond Hill
Nam Cheong SCL(Tai Wai to Hung Hom Kowloon Southern Link Section) Hung Hom Hung Hom
Admiralty Admiralty SCL (Cross Harbour Section)
MTR Corporation Page 22 New projects in Hong Kong – Service Concession
Express Rail Link
MTR Corporation Page 23 Growth outside of Hong Kong Mainland of China Europe Beijing Metro Line 4 London (LOROL)
Construction progressing Cost based operating concession for 7
Target completion by end 2009 years started Nov 07
Financial and operating performance Shenzhen Metro Line 4 on target
Progress being made in NDRC approval
Other potential projects
Submitted bid in Hangzhou
Continue to pursue opportunities in Shenyang, Suzhou and Wuhan
MTR Corporation Page 24 Financial Results
MTR Corporation Limited 2008/8/5 Income statement (HK$m) 1H 2008 1H 2007 % change
Fare revenue 5,592 3,247 72.2 Non-fare and rental and management income 2,935 1,605 82.9 Turnover 8,527 4,852 75.7 Operating expenses (3,731) (2,055) (81.6) EBITDA 4,796 2,797 71.5
Property development profit 348 1,664 (79.1) Total operating profit 5,144 4,461 15.3 Depreciation & amortisation (1,517) (1,348) (12.5) Merger related expenses (24) - NA Interest and finance charges (1,078) (654) (64.8) Investment properties revaluation gain 2,080 2,450 (15.1)
Share of profit of non-controlled subsidiaries & associates 91 42 116.7 Profit before tax 4,696 4,951 (5.2) Taxation (8) (879) 99.1
Reported net profit attributable to equity shareholders* 4,689 4,071 15.2 Reported earnings per share (HK$) 0.83 0.73 13.7
Profit from underlying businesses (excl. inv. property revaluation net of deferred tax) 2,731 2,050 33.2
Underlying businesses EPS (HK$) 0.49 0.37 32.4
Interim dividend per share (HK$) 0.14 0.14
* Exclude minority interest of HK$1 million
MTR Corporation Page 26 Segmental income statement of underlying businesses
(HK$m) 1H2008 1H2007
Railway and related businesses 1,265 206
Property ownership, management and 913 615 other businesses
Property developments 347 1,638
Tax and others (1) (2) 206 (409)
Underlying net profit attributable to equity 2,731 2,050 shareholders
Note: All segmental incomes shown are pre-tax profits. Interest cost relating to the interest-free loan to developer has been allocated to property development. 1. Excludes deferred tax on investment property revaluation 2. 1H2008 income tax includes effect of the decrease in Hong Kong Profits Tax rate from 17.5% to 16.5% on deferred tax balances
MTR Corporation Page 27 Balance sheet (HK$m) 30 Jun 2008 31 Dec 2007
Assets Investment properties 39,856 37,723 Other property, plant and equipment 78,658 79,444 Service concession assets 15,274 15,250 Property management rights 37 40 Railway construction in progress 538 424 Property development in progress 10,973 9,066 Cash and cash equivalents 660 576 Debtors, deposits and payments in advance 2,471 5,167 Loan to a property developer 3,624 3,532 Properties held for sale 511 756 Others 4,717 3,690 157,319 155,668 Liabilities Debt 29,978 34,050 Obligations under service concession 10,671 10,685 Deferred income 246 515 Deferred tax liabilities 12,578 12,574 Others 8,793 6,807 62,266 64,631 Total equity 95,053 91,037
MTR Corporation Page 28 Cash flow (HK$m) 1H2008 1H2007 Cash from operations 4,669 2,981 Receipts from property 3,222 3,136 Government grant for WIL 400 - Receipts from investments in non-controlled subsidiary 132 - and associate Total inflows 8,423 6,117
Capital expenditure (1,930) (1,062) Net interest paid (630) (786) Investment in Beijing Line 4 (515) (103) Merger related expenditures (204) (50) Changes in working capital (32) (56) Dividends paid (870) (777) Total outflows (*) (4,181) (2,834) Net cash generated 4,242 3,283
Net facilities repaid (4,183) (3,176) Increase in cash 59 107
*Cash outflows to meet financial obligations and capital investment MTR Corporation Page 29 Operating expenses
Total operating expenses before interest, depreciation and amortisation in 1H2008: HK$3,731M 81.6%81.6%
vs. pre-merger combined network 3.8%3.8% Operating margin 1.4% pointx% Service contracts, of 56.2% point materials and overheads
15% Staff costs and Non-fare Related expenses businesses expenses 41% 20%
Project study & business development costs Repair & Energy maintenance & utilities 2%
9% 13%
MTR Corporation Page 30 Financing and credit ratios
Debt profile (30 June 2008) Total borrowings outstanding: Unhedged HK$29,978m; reduction of HK$4,072m >5 years US$ 31% from 31 Dec 2007 <1% Fixed 61% Average borrowing cost: 1.0% 2-5 years 4.7% point 38% HK$ >99% Up to Net interest expense: 2 years Floating HK$1,078m 64.8% 31% 39%
Maturity Fixed/Floating Currency Compared to 1H2007 figures
JunJun 20082008 DecDec 20072007
NetNet Debt/EquityDebt/Equity ratioratio 42.1% 48.5%
JunJun 20082008 JunJun 20072007
InterestInterest coveragecoverage 4.2x 5.7x
Note: Interest coverage for Dec 2007 was 9.0x MTR Corporation Page 31 2008 Outlook
MTR Corporation Limited 2008/8/5 Outlook for second half of 2008
Uncertainties and volatilities in global economy could impact Hong Kong in 2H
Rail and rail-related businesses:
¾ Full year impact of Merger’s enhancement to rail and rail related businesses
Property development
¾ Profit bookings for The Capitol and Palazzo, depend on issuance of Occupation Permits. For acquired KCRC sites such as Palazzo, profit recognition will be net of acquisition costs
¾ Tendering of Tsuen Wan West 7, which is a West Rail property project, will take place shortly. MTR acts only as an agent
¾ Elements Phase 2 is expected to open in Q4 2008
MTR Corporation Page 33