n KKCRC_ar07_coverECRC_ar07_coverE FSCFSC 024.ai024.ai 4/2/084/2/08 5:41:025:41:02 PMPM Kowloon-Canton Railway Corporation Switching tracks C M A century of commitment, Y CM a decade of expansion MY CY Kowloon-Canton Railway Corporation CMY Fo Tan Railway House, 9 Lok King Street, Fo Tan, Hong Kong K www.kcrc.com Annual Report 2007 Kowloon-Canton Railway Corporation This Annual Report is printed on FSC certified paper using soy-based inks. Pulps used are elemental chlorine-free. Annual Report 2007 The FSC logo identifies products which contain wood from well-managed forests certified in accordance with the rules of the Forest Stewardship Council. Switching Tracks: A century of commitment, a decade of expansion For nearly 100 years KCRC has provided a world-class railway service for the people of Hong Kong, a service that over the past decade has undergone a rapid and dramatic programme of expansion. From the planning of West Rail in 1996, through the Light Rail Extensions, Tsim Sha Tsui Extension and Ma On Shan Rail to the completion of the Lok Ma Chau Spur Line in 2007, all of these projects have been completed on time and within budget. This is an achievement in which all of us at KCRC, and indeed all Hong Kong people, can justifi ably take pride. Today, as a consequence of the rail merger, we have switched tracks and assumed a new role of a railway asset holder. Although we are no longer an operator of railways, KCRC will continue contributing to Hong Kong by, for example, investing our revenues in a responsible manner and ensuring that the ongoing new capital projects will be funded to completion. 001_KCRC_AR07e_insidef-b_0409.inda11_KCRC_AR07e_insidef-b_0409.inda1 a1a1 44/16/08/16/08 22:45:06:45:06 PPMM Contents 2 Corporate Profile 60 Creating a Culture of Financial Statements in Sustainability Foreign Currencies 4 History and Milestones 63 The Environment 171 Consolidated Income Statement 8 KCR Network 65 Community Involvement 172 Consolidated Balance Sheet 10 Key Figures and Credit Ratings 65 Caring for Staff 173 Corporation Balance Sheet 12 2007 Highlights 66 Health and Safety 174 Consolidated Statement of 16 Managing Board Changes in Equity 18 Chairman’s Statement Finance and Board Reports 175 Consolidated Cash Flow 20 Chief Officer’s Statement 68 Investment and Statement Financing Strategies 26 Transport Corporate Information 70 Financial Review 28 Domestic and 176 Ten-year Statistics 74 Report of the Members of the Cross-boundary Services Managing Board 182 Banks and Financial Institutions 35 Light Rail and Bus 183 List of Consultants 37 Mainland Links Financial Statements and Notes 184 Glossary of Financial Terms and 82 Independent Auditor’s Report Further Information 40 Network Expansion 83 Consolidated Income Statement 43 Lok Ma Chau Spur Line 84 Consolidated Balance Sheet 43 The Kowloon Southern Link 85 Corporation Balance Sheet 46 Property Development and 86 Consolidated Statement of Other Businesses Changes in Equity 48 Property Development 87 Consolidated Cash Flow Statement 51 Property Services 88 Notes to the Financial 52 Other Businesses Statements 54 Human Resource and Quality Management 56 Human Resource 59 Quality Management 002_KCRC_AR07e_partA_0410.indd2_KCRC_AR07e_partA_0410.indd 1 44/16/08/16/08 22:48:24:48:24 PPMM Corporate Profi le 2 The Kowloon-Canton Railway came into service in 1910 and played a central role in the life of Hong Kong. In 1982 the Kowloon-Canton Railway Corporation (KCRC) was established through the enactment of the Kowloon-Canton Railway Corporation Ordinance. Until 1 December 2007 KCRC provided high quality mass transport services, including heavy rail, light rail and feeder bus networks, in the Hong Kong Special Administrative Region. Additionally, the Corporation designed and developed new railways and was active in property development and related commercial activities. KCRC also contributed significantly to Hong Kong’s social and economic development by providing cross-boundary rail services at two crossings, constructing and commissioning new railways, and extending rail services to growing areas of the New Territories. In February 2004 the Government invited KCRC and the MTR Corporation to commence discussions on a possible merger between the two corporations. In April 2006 the Government and the MTR Corporation signed a non-binding Memorandum of Understanding on the structure and terms for the proposed merger. In June 2007 the Legislative Council passed the Rail Merger Bill, and subsequently in July, the By-laws and regulations of the merged company were also passed. 002_KCRC_AR07e_partA_0410.indd2_KCRC_AR07e_partA_0410.indd Sec3:2Sec3:2 44/16/08/16/08 22:48:25:48:25 PPMM 3 On 2 December 2007 the Rail Merger Ordinance came into effect. The Rail Merger Ordinance expressly empowers KCRC to grant a service concession to MTR Corporation and expands the scope of the MTR Corporation’s franchise for taking up the operation of KCRC’s transport services. Following the merger, the MTR Corporation took up the operations of the merged KCR and MTR railway networks. KCRC today is an asset holding company with responsibility to invest its current significant cash revenues, service its outstanding debts and ensure its ongoing new capital projects will be funded to completion. 002_KCRC_AR07e_partA_0410.indd2_KCRC_AR07e_partA_0410.indd Sec3:3Sec3:3 44/16/08/16/08 22:48:30:48:30 PPMM History and Milestones 4 A Century of The British section of the Kowloon-Canton Railway, or KCR, came into service in 1910 as a single track system, running from Tsim Sha Tsui in Kowloon through Commitment the New Territories and up to the border at Lo Wu. This section of the railway later became known as East Rail. Trains were initially steam hauled, but diesel traction was gradually introduced in the 1950s and by 1962 had replaced all steam trains. The year 1978 marked the commencement of the railway’s modernisation and electrification programme. The first stage of electrification was completed with the start of an inner suburban service between Kowloon and Sha Tin on 6 May 1982. Just over a year later, on 15 July 1983, electrification was extended to Lo Wu. Prior to 1982, the railway had operated as a Government department, but in December of that year the Kowloon-Canton Railway Corporation was created through the enactment of the Kowloon-Canton Railway Corporation Ordinance. The Corporation was wholly government owned, and a Managing Board appointed by the Chief Executive of the Hong Kong Special Administrative Region monitored its operations. Up to the merger with MTR Corporation in 2007, the Kowloon-Canton Railway Corporation was one of the world’s most successful railway operators. 002_KCRC_AR07e_partA_0410.indd2_KCRC_AR07e_partA_0410.indd Sec3:4Sec3:4 44/16/08/16/08 22:48:32:48:32 PPMM 5 Its network of 120 kilometres, currently managed by MTR Corporation, provides three domestic passenger rail services: East Rail, which operates between East Tsim Sha Tsui and the boundary at Lo Wu and Lok Ma Chau and branches off to Ma On Shan at Tai Wai; West Rail, which runs between the North West New Territories and urban Kowloon; and Light Rail, which acts as a feeder service for West Rail while serving as a major mode of transport within the North West New Territories. All of these railways are supported by feeder buses. Furthermore, the Corporation also designed and built new railways. The Lok Ma Chau Spur Line, which began operation in 2007, provides a second railway boundary crossing between Hong Kong and the Mainland. Another major project, the Kowloon Southern Link, will link West Rail Nam Cheong Station to East Rail East Tsim Sha Tsui Station. It is targeted for completion in 2009. In addition to its core territorial rail services, KCRC was also in the business of operating intercity passenger and freight services as well as property development and related commercial activities. Over the nearly 100 years of its existence, KCRC demonstrated a strong commitment to corporate responsibility through an extensive range of community programmes and environmental initiatives. 002_KCRC_AR07e_partA_0410.indd2_KCRC_AR07e_partA_0410.indd Sec3:5Sec3:5 44/16/08/16/08 22:48:35:48:35 PPMM History and Milestones 6 1910 – 1979 1980 – 1999 1910 1936 1982 October October December The British (Hong Kong) section Non-stop journeys from Kowloon Kowloon-Canton Railway of the Kowloon-Canton Railway to Guangzhou begin, in the record Corporation incorporated. (KCR) begins operation, with time of 2 hours 15 minutes. stations at Yau Ma Tei, Sha Tin, 1983 1955 Tai Po and Fanling. July August Full electric train service to The first two diesel locomotives Lo Wu begins. come into service. 1962 1986 September September Steam locomotives are totally Introduction of feeder bus services. replaced by diesel trains. 1911 1988 1975 October August The Chinese section of the KCR November Tuen Mun Pierhead Garden, becomes operational, and through Tsim Sha Tsui Terminus is replaced KCRC’s first property project, is train service to Guangzhou by a new terminus at Hung Hom. completed. commences. 1979 September 1916 April Light Rail system commences March Intercity service to Guangzhou operation. Tsim Sha Tsui Terminus opens. resumes since its suspension in 1949. 1921 March The clock tower at Tsim Sha Tsui Terminus comes into operation. 1995 March Phase 1 of the Royal Ascot development in Sha Tin is launched. Kowloon-Canton Railway Corporation 002_KCRC_AR07e_partA_0410.indd2_KCRC_AR07e_partA_0410.indd Sec3:6Sec3:6 44/16/08/16/08 22:48:37:48:37 PPMM 7 2000 – 2007 1997 2001 2005 May February November Intercity service to Beijing and Construction of Ma On Shan Rail Construction of the Kowloon Shanghai is launched. commences. Southern Link commences. April 2006 November Construction of the Tsim Sha Tsui KCRC becomes the first public Extension commences. April transport operator in Asia to The Government announces the structure and terms for the obtain a corporation-wide 2002 proposed merger of the KCR and ISO 9001 certificate.