Fact Sheet THSRC Milestones Date of Incorporation: May 1998 Construction Stage: March 2000 – December 2006 Operation Stage: Started in January 2007 Capitalization: NT$56.28 billion Key Operating Statistics for 2016 Number of Train Services: 51,106 Punctuality (defined as departure within five minutes of scheduled time): 99.43% Annual Ridership: 56.59 million Annual Revenues: NT$40.6 billion Loading Factor: 63.52% Passenger Kilometers: 10,488 million Total Route Length: 350 km Number of Cities/Counties Passed Through: 11 Maximum Operating Speed: 300 km/hr Number of Seats Per Train: 989 (923 in standard and 66 in business class carriages) Stations in Service: 12 (Nangang, Taipei, Banqiao, Taoyuan, Hsinchu, Miaoli, Taichung, Changhua, Yunlin, Chiayi, Tainan and Zuoying) Maintenance Depots in Service: 5 (Liujia/Hsinchu, Wuri/Taichung, Taibao/Chiayi, Zuoying/ Kaohsiung and Yanchao Main Workshop/Kaohsiung) Note: Loading Factor = Passenger-kilometers/seat-kilometers x100% Passenger-Kilometers = Sum of the mileage traveled by each passenger Seat-Kilometers = ∑ (Number of seats per trainset x sum of the mileage of trains operated in revenue service) Table of Contents 01 Chairman’s Letter to Shareholders 02 02 Overview 06 • Company Profile 08 • Company History 11 03 Our Business 15 • Five Years in Review 16 • Results of Operations 18 • The Way Ahead 22 04 Corporate Governance 23 • Overview 24 • Internal Control 31 • The Disclosure of Relationship among the Top 10 Stockholders who are Related Parties, or a Relative up to the Second Degree of Kinship or a Spouse to One Another 32 05 Corporate Activities 34 • Corporate Social Responsibility 35 • Exchange and Events 41 06 Financial Report 46 • Financial Highlights 47 • Financial Statements 50 THSRC Annual Report 2016 Chairman's Letter to Shareholders Discover a New Way of Life with THSR Chairman’s Letter to Shareholders Chairman Dear Fellow Shareholders, 2016 Results 2016 was a breakthrough year for Taiwan High Speed Rail We have carried over 400 million passengers since we launched Corporation (THSRC). We welcomed our 400 millionth passenger Taiwan High Speed Rail (THSR) connecting the western Taiwan in in December, a decade after we opened our high-speed rail line. January 2007. Last year was our 10th anniversary, and we continued Reaching this milestone is a testament to the hard work and to increase ridership despite a difficult operating environment. dedication of our employees. Another milestone we achieved last year was the inauguration of Nangang HSR Station, which During 2016, our passenger volume increased to 56.59 million, increases connectivity between the Greater Taipei area and and we provided a total of 51,106 train services, up by 574 the eastern counties of Ilan and Hualien while easing the compared with 50,532 train services in 2015. Daily northbound congestion at Taipei HSR Station during peak travel times. More and southbound train services reached a maximum of 158, or importantly, this new station enhances service levels and quality 197 during the holiday season. Our loading factor was 63.52%, by allowing more efficient and flexible fleet management to up by 3.87 percentage points compared to 59.65% in 2015. The meet the projected capacity demand and providing much- total passenger-kilometers reached 10,488 million in 2016, up by needed space for maintenance facilities. 8.63% compared to the year before. The average daily passenger volume was at its lowest in September at 147,400 and at its highest Throughout our history as a rail service provider, we have in February at 166,900. Even with this increase in volume, we brought significant changes to people’s lifestyles, connected achieved excellent on-time performance with 99.43% punctuality urban and rural communities closer together, and catalyzed and 100.00% reliability, excluding delays due to force majeure growth and employment opportunities. We are excited about events. what the future holds as we continue to deliver on our promise of service excellence, customer satisfaction and corporate We are proud of our zero accident record over the past year – citizenship, with the principle of “Go Extra Mile”guiding every no accidents or injuries to passengers or the public on railway action we take. 4 premises were caused by train service operations or malfunctions of railway equipment. In 2016, we continued to offer Early Bird ticketing, discounts for college students, enhanced business class offerings and vacation packages and deals under our T Holiday Program in order to promote train travel and attract new passengers. We worked to improve the way train tickets are purchased, including at convenience stores, via smartphone, and using a contactless EasyCard. We also improved accessibility to our HSR stations by providing free shuttle bus services to and from downtown areas. As to our financial performance, we generated NT$40.61 billion in revenue. Profit before tax and net profit was at NT$5 billion and NT$4.15 billion, respectively. Research & Development During 2016, we continued to enhance our maintenance capabilities and reduce the cost and risk of loss resulting from the delayed or failed delivery of spare parts. To meet these objectives, we secured local suppliers for spare parts and improved our maintenance facilities, in particular those for the repair of electronic equipment. Through extensive research, we developed solutions for maintaining and managing critical track and signaling assets. Looking Ahead CEO (1) Management objective The high-speed rail has become the most important means of travel along Taiwan’s western corridor, serving as a catalyst for growth in the regional economies and enhancing the lives of those we serve. anticipate and meet passenger expectations in order to remain In the year ahead, we plan to bring to passengers new service competitive, gain market share and increase ridership. In the offerings as well as enhanced safety, reliability and comfort. year ahead, we will focus on seven major initiatives. They We also will grow our affiliated businesses in order to drive include: revenue and profit growth. As part of our commitment to • ensuring safe and stable transport supporting local development, we will continue giving back to • planning new products and services the communities in which we work and serve. • broadening the breadth and depth of services to increase passenger revenues (2) Growth target • expanding cooperation with partners beyond the transportation We will continue to develop innovative services that meet industry customer needs and explore new opportunities for growth. We • improving the quality of service and enabling the sharing of have set an annual ridership target of 57.8 million for 2017. information and knowledge through one common platform across the organization (3) Main initiatives • accelerating the development of affiliated businesses Since the commencement of our operation, we have investigated • reiterating our vision of a smart, sustainable and competitive all aspects of passenger behaviors and researched their needs railway system in the spirit of four Ts – Transportation, and satisfaction levels. We have also tailored our services to Technology, Taiwan and Touch 5 THSRC Annual Report 2016 Overview Travel Safe. Travel Fast. Travel Right. Company Profile Business scope B. Affiliated businesses THSRC’s business scope covers the operation of the high-speed To serve the needs of the traveling public, at high-speed rail rail and the affiliated businesses. stations, we provide various commercial outlets that supply goods and services, including food, beverages, newspapers A. High-speed rail service and other reading materials, souvenirs, car rental and travel THSRC provides high-speed rail services along Taiwan’s services, and car parking facilities. western corridor via 12 stations: Nangang, Taipei, Banqiao, Taoyuan, Hsinchu, Miaoli, Taichung, Changhua, Yunlin, Advertising, both in stations and on board trains, makes a Chiayi, Tainan and Zuoying. A total of 51,106 train services significant contribution to revenues, offering passengers were delivered in 2016 with maximum traffic volume within the rail system a unique blend of distinctive artwork reaching as many as 197 daily services on one of the and information. consecutive holidays. Offering speed, convenience and dependability, THSRC has become the transport of choice for All these commercial outlets and facilities are designed to residents and travelers alike. add value to passengers’ high-speed rail experience and 8 demonstrate THSRC’s commitment to providing high-quality services in its stations, which play an important role in the communities served by the high-speed rail network. Business strategy and vision THSRC not only identifies itself as a major participant in Taiwan’s transport industry, but also plays a significant role in supporting economic activities in areas served by high-speed rail. THSRC enhances mobility by improving access to modes of transportation and works to identify and meet the needs of those traveling along Taiwan’s western corridor. THSRC continually works to improve the quality and standard of its services by ensuring that its stations are well connected and accessible via the high-speed rail network and through connections with other transport modes. Five core values – Discipline, Integrity, Efficiency, Innovation and Sensibility – form the basis of THSRC’s objective of establishing and developing long-term partnerships with those choosing to travel by high-speed rail.