Annual report 2006 POSITIVE SIGNALS “The proposed merger of MTR Corporation and Kowloon-Canton Railway Corporation has moved closer following the signing by the Company in April of a Memorandum of Understanding with the Government of the Hong Kong SAR…”
Dr. Raymond Ch’ien Kuo-fung, Chairman
“The year also saw our growth strategy taking root with the signing of the Concession Agreement for the Beijing Metro Line 4 project after approval from the Central Government.”
C K Chow, Chief Executive Officer
Contents 2 Operating network with future extensions 3 MTR Corporation at a glance 4 Chairman’s letter 6 CEO’s review of operations and outlook 13 Key figures 14 Key events in 2006 16 Executive management’s report 16 – Railway operations 24 – Station commercial and other businesses 30 – Property business 38 – Hong Kong network expansion projects 42 – Overseas growth 46 – Human resources 49 Financial review 56 Ten-year statistics 58 Investor relations 60 Sustainability 61 Corporate governance report 68 Remuneration report 70 Board and Executive Directorate 75 Key corporate management 76 Report of the Members of the Board 85 Contents of accounts and notes 86 Independent auditor’s report 87 Consolidated profit and loss account 88 Consolidated balance sheet 89 Balance sheet 90 Consolidated statement of changes in equity 91 Consolidated cash flow statement 92 Notes to the accounts 164 Glossary
Vision To be a world class enterprise, growing in Hong Kong and beyond, focusing on rail, property and related businesses Mission Provide excellent value to our customers, enhancing their quality of life, and contributing to development of the communities in which we operate Provide opportunities for employees to grow and prosper with the Company and reward our investors Develop the rail network as the backbone of public transport in Hong Kong Grow in Mainland China and capture opportunities in Europe by building on our core competencies MTR CORPORATION LIMITED Extensions understudy Future extensions Projects inprogress Existing network Legend with futureextensions Operating network Cable CarNgongPing360 along TseungKwanOLine Proposed PropertyDevelopments Proposed InterchangeStation Proposed Station Interchange Station Station withDepot Station Ngong Ping 36 Cable Car West IslandLine South IslandLine(East) South IslandLine(West) Kwun TongLineExtension Tseung KwanOSouth Tung ChungLine Tsuen WanLine Tseung KwanOLine Kwun TongLine Island Line Disneyland ResortLine Airport Express Tseung KwanOLineExtension North IslandLine 0 Properties developedbytheCompany 01 11 10 09 08 07 06 05 04 03 02
Tung ChungCrescent/CitygateNovotel Two International Finance Centre/IFCMall One International Finance Centre Hongway Garden/VicwoodPlaza The Waterfront/SorrentoHarbourside HSBC Centre/OlympianCityOne Park Avenue/BankofChinaCentre Central Park/IslandHarbourview Argyle Centre Telford Gardens/PlazaIandII New KwaiFongGardens Sun KwaiHingGardens Luk YeungSunChuen/Galleria Tierra Verde/MaritimeSquare Four SeasonsHotel /FourSeasonsPlace The Arch/Elements Olympian CityTwo/HarbourGreen Coastal Skyline Seaview Crescent/CaribbeanCoast / / / / / / / 25 24 23 22 21 20 19 18 17 16 15 14 13 12
Metro Town No. 8ClearWaterBayRoad Central Heights/TheGrandiose Residence Oasis/TheLane New JadeGarden Heng FaChuen/Villa Perfect MountGardens Felicity Garden Kornhill /Gardens Fortress MetroTower Park Towers Southorn Garden Admiralty Centre/FairmontHouse World-wide House The Edge Paradise Mall 24
ANNUAL REPORT 2006
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Overseas growth Overseas Property business Property other businesses other Station commercial and and commercial Station Railway operations Railway Turnover in HK$ billion that at stations and depots. We believe commercial properties an urban rail network creates a convenient
whereby we work business model a “Rail and Property” We adopt with developersbuild to MTR Corporation at a glance at a Corporation MTR can in which high quality communities commercial environment be developed, approach has been effective in developingfor the railway. This and other cities. being emulated in MTR CORPORATION LIMITED “We and our counterparts at KCRC public will experience benefits” synergies, while the travelling The merger is expected to yield possible on Day One of the merger. ensure as smooth an integration as have been working together to Chairman’s letter property development profit and depreciation. However, 2005, leading to an increase of 2.0% in operating profit before increase our total revenue to HK$9,5 through our proven “Rail and Property” model combined to For the year, the sound economy and our ability to leverage this of recent years. Corporation for 2006, which continue the growth momentum I am pleased to present to you the annual results of MTR Dear Stakeholders, structures, but to keep staff informed of progress throughout. have worked assiduously not only to put in place the right the needs of staff and of the two different corporate cultures, and To achieve these goals, we recognise the need to take account of including lower fares and improved integration of the networks. synergies, while the travelling public will experience benefits on Day One of the merger. The merger is expected to yield working together to ensure as smooth an integration as possible In the meantime, we and our counterparts at KCRC have been shareholders will then be invited to vote on the merger. Bills Committee on the bill. Should LegCo pass the bill, independent (LegCo) in July, shortly followed by the first meeting of the LegCo The Rail Merger Bill was submitted to the Legislative Council operations, together with the acquisition of a property package. SAR (Government) setting out the terms of the merger of the rail Understanding (MOU) with the Government of the Hong Kong signing by the Company in April of a Memorandum of Railway Corporation (KCRC) has moved closer following the The proposed merger of MTR Corporation and Kowloon-Canton Proposed merger efforts towards ensuring sustainable growth. the proposed merger, our growth strategy and our continuing For the year, three issues stand out which I would like to discuss: dividend of HK$0.28, the same as in 2005. were HK$1. equity shareholders was HK$7,759 million and earnings per share investment property revaluation, our net profit attributable to the magnitude of which was not repeated in 2006. Including to very strong property development profit recognised in 2005, properties, decreased marginally by 2.9% to HK$5,962 million due underlying profit, excluding revaluation gain on investment 4 1. Your Board of Directors has recommended a final 4 1 million, 4 .2% higher than
ANNUAL REPORT 2006
Chairman categories, making it the largest event of its kind in Hong Hong in kind its of event largest the it making categories, 4 Association. The objective of this event is to encourage people to to people encourage to is event this of objective The Association. in walkers 1,000 attracted It exercise. daily of form a as more walk 1 Authority’s Hospital the for million HK$1.2 over raised and Kong, to difference a make to ability Our campaign. education health through community our in fortunate less the of some of lives the has and satisfaction personal great me gives programmes such their expand to employees Company of hundreds allowed activities. such in participation their through horizons fellow my thank to opportunity this take would I Finally, Company the of staff all and management Members, Board of objective our of support in year the during efforts their for growth. continued Kuo-fung, Ch’ien Raymond Dr. 2007 March 13 Kong, Hong Our efforts in sustainability have garnered increasing recognition recognition increasing garnered have sustainability in efforts Our seventh ranked were we year, the during and internationally sustainability in leaders corporate global 100 the amongst by undertaken survey 2006 Reporters Global a in reporting the with association in SustainAbility, tank, think UK-based Poor’s. & Standard and Programme Environment Nations United and governance excellence, reporting our for out Singled the corporation, Asia-based only the were we strategy, business non-OECD two only the of one and organisation transport only in named companies ten leading the amongst companies survey. the out reach to continued schemes community various our Locally, Caring the awarded was Company the and need in people to and 2005/06 for years consecutive two for Logo Company “More The Service. Social of Council Kong Hong the by 2006/07 launched programme, volunteering Community” Reaching Time 81 to led has and success great a been has 2005, November in causes. of variety wide a addressing 2006, in projects community Walking Race KONG HONG “MTR the co-organised we April, In Athletic Amateur Kong Hong the with together 2006”
project with with project 4 project. At the same time, time, same the At project. 4 leading contribution to the Action Blue Sky Campaign launched launched Campaign Sky Blue Action the to contribution leading SAR. Kong Hong the of Executive Chief the by July in the risks posed by climate change by becoming one of the most most the of one becoming by change climate by posed risks the our of companies sustainable ecologically and efficient resource a make to hope we initiative, this Through world. the in kind policy of the International Union of Public Transport (UITP), (UITP), Transport Public of Union International the of policy chair. currently we Commission Development Sustainable whose mitigate and to adapt to us commits policy change climate Our In 2006, we officially adopted the MTR Corporation Climate Climate Corporation MTR the adopted officially we 2006, In established recently the on modelled is which Policy, Change strategy and people, which when integrated with our cost cost our with integrated when which people, and strategy help will processes, engagement stakeholder and optimisation Company. the for advantage competitive sustainable a foster to Inherent in our commitment to achieving growth is the aim aim the is growth achieving to commitment our in Inherent in strategy a have We sustainable. is growth the that ensure to process, community, of areas key four the on focuses that place company SJ bidding for concessions in Sweden and Denmark. and Sweden in concessions for bidding SJ company Sustainability meanwhile, our joint-venture with the UK’s Laing Rail is now now is Rail Laing UK’s the with joint-venture our meanwhile, Rail London the for bidders remaining two the among railway Swedish with partnership in are we while Concession, we are actively pursuing other opportunities in key cities such as as such cities key in opportunities other pursuing actively are we Europe, In Suzhou. and Wuhan Hangzhou, Shenzhen, Beijing, Outside of Hong Kong, in the Mainland of China, we signed the the signed we China, of Mainland the in Kong, Hong of Outside Line Metro Beijing the for Agreement Concession final awaiting are and April in Government Municipal Beijing the Line Metro Shenzhen the on approval proposed West Island Line as well as the South Island Line (East), (East), Line Island South the as well as Line Island West proposed of level considerable receiving been have which of both support. community have performed well compared to original projections. We We projections. original to compared well performed have Hong in opportunities expansion network explore to continue the on Government with discussions close maintain and Kong Ping 360 cable car service on Lantau Island, and the opening of of opening the and Island, Lantau on service car cable 360 Ping The O. Kwan Tseung in Edge The centre, shopping sixth our attractions both notwithstanding, problems teething former’s further expansion. further Ngong the of commencement the saw year this Kong, Hong In The merger clearly forms a part of our strategy for growth, which which growth, for strategy our of part a forms clearly merger The will we where markets, overseas and Kong Hong both covers in invest but have, we skills and assets the leverage only not Growth strategy Growth MTR CORPORATION LIMITED “Steady progress from all our and depreciation by 2.0%” before property development profit by 4.2%… and operating profit results in 2006… increased revenue Corporation to post good financial recurring businesses enabled MTR operations andoutlook CEO’s reviewof increased by 12.8% to 9. Patronage on the MTR Lines increased by 1.0% to 8 2.9% to HK$5,9 revaluation of investment properties, decreased marginally by million. Net profit attributable to shareholders, excluding development profit and depreciation by 2.0% to HK$5,201 by 4.2% to HK$9,541 million, and operating profit before property results in 200 businesses enabled MTR Corporation to post good financial I am pleased to report that steady progress from all our recurring Dear Stakeholders, from the airport increased from 22% in 2005 to 23%. Express’ estimated market share of passengers travelling to and the AsiaWorld-Expo (AWE) Station in December 2005. Airport also broadly unchanged at market was maintained at 25%. Cross-harbour market share was Our overall market share of the total franchised public transport Express increased by 1.1% to 87 For the year, total patronage on the MTR Lines and Airport Hong Kong railway operations Operational review Central Government. the Beijing Metro Line 4 (BJL4) project after approval from the taking root with the signing of the Concession Agreement for rail merger with KCRC. The year also saw our growth strategy Hong Kong SAR (Government) with regard to the proposed Understanding (MOU) with the Government of the In April 200 of HK$0.14, brings the full year dividend to HK$0.42. HK$0.28, which when combined with the interim dividend Corporation (KCRC), has recommended a final dividend of of the proposed rail merger with Kowloon-Canton Railway revaluation. The Board, after considering the cash requirements investment property revaluation and HK$1.41 after such Corresponding earnings per share were HK$1.08 before attributable to equity shareholders was HK$7,759 million. recognised in 2005, the magnitude of which was not repeated was due to the very strong property development profit in 200 6 . Including investment property revaluation, net profit 6 , the Company signed a Memorandum of 6 . For the year, the Company increased revenue 6 2 million. The slight decrease in underlying profit 6 million, mainly due to the opening of 6 1%. Patronage on the Airport Express 6 million. 6
7 million.
ANNUAL REPORT 2006
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from our station commercial and other businesses would have have would businesses other and commercial station our from year. last from 8.0% by increased The Company’s marketing, branding and passenger awareness awareness passenger and branding marketing, Company’s The the during recognition external considerable achieved efforts Award” Commercials TV Popular Most Ten “Top the won We year. Most Annual 12th the in Commercial” TV Impressive “Most and Company The ATV. by held competition Commercial TV Popular 200 Excellence Brand for Awards “Prime the took by given award Services” by presented jointly award Classic” – Brands print Corporation’s MTR addition, In Publishing. Tao Sing and Hong of one named was safety boarding train on campaign Print Global “Metro the in Advertisements Print Ten Top Kong’s 200 Awards customer best and money for value best the as ranked was MTR Hong in services transport public all amongst provider service in conducted Study” Transportation “Public the on based Kong, agency. research independent an by June businesses other and commercial Station solid saw again businesses other and commercial station Our assets rail our leverage to continue we as year the during growth HK$1, to 3.3% increasing revenue in resulting expertise, and of termination from income one-off a was there 2005, In million. and item one-off this excluding agreement; telecommunication a 200 in item one-off smaller much albeit similar, another Our efforts to market the rail network again achieved results. results. achieved again network rail the market to efforts Our only not promotion Stamps” Kitty Hello Redeem 10 “Ride A income to contributed also but patronage additional generated to again was Innovation item. collectible a became stamps the as Index Happy the game, first our launched we as fore, the and show game tailor-made a projects, TV two and Promotion, reinforced successfully which comedy, situation a of sponsorship service. customer our of perceptions Express Airport popular increasingly the Express, Airport On the with enhanced was programme loyalty Rewards” to “Ride card. VISA Dragonair the from points award of option additional by programme the of reach the expand to efforts made also We travellers, leisure local more attract To shareholders. to it offering free and journeys return on discounts including promotions fare during offered were card Octopus Child using children for rides offered were meanwhile, passengers, Overseas seasons. festive with partnership a through products tourist on discounts fare Hong Discover UnionPay the and Board Tourism Kong Hong the increase to launched was campaign advertising An Club. Kong Station. AWE opened newly the of awareness
, and three new new three and , 6 .82, due to the full-year effect of both both of effect full-year the to due .82, 6 7 in 2005 to HK$ to 2005 in 7 6 . 6 programme to progressively upgrade the rail infrastructure on on infrastructure rail the upgrade progressively to programme ride improve to designed lines, Wan Tsuen and Tong Kwun the reliability. service and quality major project to install noise barriers on sections of the Tung Tung the of sections on barriers noise install to project major residents nearby to impact noise the minimise to Line Chung replacement rail new a and frequency, train increased the from new trains on the Tung Chung Line to increase train frequency frequency train increase to Line Chung Tung the on trains new Lines MTR on trains 78 on sets alternator motor the replaced and a launched also We inverters. static state-of-the-art the with pedestrian links were added to improve access at Choi Hung, Hung, Choi at access improve to added were links pedestrian three commissioned We stations. Leng Keng Tiu and Fong Kwai but in service quality and efficiency to meet the ever changing changing ever the meet to efficiency and quality service in but retrofit to programme The public. travelling the of expectations underground our of platforms 74 all at doors screen platform 200 of half first the in completed was stations of Metros (CoMET) benchmarking report in areas of customer customer of areas in report benchmarking (CoMET) Metros of efficiency. cost and reliability service service, network, the of expansion in only not invest to continued We satisfaction surveys, for the MTR Lines and Airport Express Express Airport and Lines MTR the for surveys, satisfaction also We scale. 100-point a on respectively 81 and 71 registered Community 12-member the in position leading our maintained own more stringent Customer Service Pledges. During the year, year, the During Pledges. Service Customer stringent more own were delivery service train and time on journeys passenger MTR customer on based Index, Quality Service while 99.9%, at both performance standard and service quality. Our customer service service customer Our quality. service and standard performance Government’s the both surpass to continued performance our and Agreement, Operating the under requirement minimum which we were able to offset through increased efficiency. increased through offset to able were we which high MTR’s by underpinned was patronage years, previous in As DRL operations. DRL financial improved achieved operations rail our costs, rising Despite pressure, wage into fed has growth economic Kong’s Hong results. Average fare revenue per passenger on MTR Lines increased from from increased Lines MTR on passenger per revenue fare Average HK$ of opening the and programmes promotion certain in changes impact on our businesses, as such reduction applies mainly to to mainly applies reduction such as businesses, our on impact network. our by served directly not areas outlying from travellers August 2005, and from the AWE Station, which opened in December December in opened which Station, AWE the from and 2005, introduction August the of result a as fares bus certain in reduction The little 2005. had year the during mechanism adjustment fare new their of of the year patronage growth on the MTR Lines resumed. The full full The resumed. Lines MTR the on growth patronage year the of contribution year full a from benefited patronage in increase year in service entered which (DRL), Line Resort Disneyland the from after a strong first quarter of patronage growth, the effect of the the of effect the growth, patronage of quarter first strong a after to led home, at stayed people many when Cup, World half Football second the in However, quarter. second the in demand softened Competition in the public transport sector remained intense and and intense remained sector transport public the in Competition MTR CORPORATION LIMITED “Station commercial and other businesses saw solid growth “Total patronage increased to 876 million” 200 Hong Kong. as to make Ngong Ping 3 worked closely with Skyrail to seek continuous improvement so cableway systems, at a high level of reliability. The Company has problems, it has operated, by international standards for local and overseas visitors to date. Despite some teething popular, generating revenue of HK$ the cable car and associated theme village have proven very (Hong Kong) Ltd (Skyrail). Since its opening in September, which is owned by the Company and operated by Skyrail-ITM 200 its optical fibre network covered 40 locations. continued to expand its optical fibre business and at year-end revenue by less profitable 3G usage. TraxComm, however, by 3.2% due to the continued erosion of 2G mobile telephone the one-offs, such revenue would have decreased marginally million, due to the one-off items mentioned earlier. Excluding Telecommunications revenue declined by 22.5% to HK$259 commercial business. added 32 new shops and 15 new brands to our station have been renovated in this programme since 2001. We also station renovation programme. This brings to 38 stations that end with the completion of 11 additional stations under the Station commercial space totalled 1 Station kiosk rental revenue grew 13.7% to HK$391 million. system that offers more flexibility to advertisers. Express meanwhile saw the introduction of a new multimedia advertising train – the “Spectacular Mobile Showcase”. Airport which included “Real-Time Projection Zones” and a new through an expanded plasma network and innovation in formats, continued to set the pace in outdoor advertising in Hong Kong In advertising, revenue grew 4.7% to HK$534 million as we as we continue to leverage our rail assets and expertise” CEO’s reviewofoperationsandoutlook 6 6 . This new tourist attraction has now received over 1 million saw an encouraging start to operations for Ngong Ping 3 6 0 a “must see” tourist attraction in 6 6 ,8 4 million as at the end of 6 7 square metres at year
6
0, Company was awarded a three year contract with the Kaohsiung SkyPlaza and the SkyPier saw good progress. In Taiwan, the System to connect the Hong Kong International Airport to Kong, the project to construct an Automated People Mover and signed major new contracts in Beijing and Chengdu. In Hong project management consultancy work on Shanghai Metro Line 9 successfully concluded a number of contracts, progressed our declined 5.7% to HK$199 million. In the Mainland of China, we key cities that could lead to investment opportunities, revenue In external consultancy, in line with our strategy to focus on Government for consideration. Our proposal for the South Island Line (East) remains with The project continues to enjoy strong community support. and funding support have continued throughout the year. Negotiations with Government on the implementation plan Government’s Environment, Transport and Works Bureau. We completed the preliminary design study on the West market. projects with a view to maintaining our growth in the local In Hong Kong, we continue to pursue new railway extension Hong Kong extension projects average daily transactions increased by 13.3% to HK$73.3 million. HK$ increased its contribution to the Company’s profit by 70% to Octopus Holdings Limited, in which we hold a 57.4% stake, assignments in Dubai and the UK. Taiwan High Speed Rail Company. We also secured consultancy Rapid Transit Corporation and a two year contract with the Island Line in 200 6 8 million, with cards in circulation rising to 14.7 million while 6 and submitted a project proposal to the
ANNUAL REPORT 2006
6 .8% to to .8% 6 square metres of commercial commercial of metres square 6 ,54 6 , the major renovation programme at Telford Telford at programme renovation major the , 6 square metres, being the total lettable floor floor lettable total the being metres, square 6 19 square metres attributable to the Company. The The Company. the to attributable metres square 19 6 3 million as shopping centre rental rates moved higher, higher, moved rates rental centre shopping as million 3 6 was 174,91 was 6 83 square metres, opened at Tseung Kwan O Station in in Station O Kwan Tseung at opened metres, square 83 6 at year end. In addition, 1 addition, In end. year at Ltd. China SOHO with year the during signed were district business wholly owned wet market in Tung Chung as well as the 51% 51% the as well as Chung Tung in market wet owned wholly year. the during opened Carpark Ride n’ Park Hung Choi owned shopping our of environment retail the enhance to continued We marketing planned well and renovations through centres 200 In campaigns. wet Chuen Fa Heng the and December in completed was I Plaza works. renovation following August, in re-opened market coming the in intensify to expected is sector this in Competition open. to expected are centres shopping new many as years of growth strong recorded management property from Revenue business management property Our million. HK$149 to 12.0% total the bringing portfolio, the to units residential 4,518 added 58,87 to Company the by managed units residential of number the metres square 582,073 to bringing added, were properties MTR under space office and commercial of area total management. property Corporation’s and re-decoration extensive following China, of Mainland the In lettable a with centre shopping a Mall, Ginza the re-positioning, Cheng Dong the in situated metres square 19,349 of area floor 90% to close with 2007 January in opened was Beijing, of district for contracts management property new Three let. shops its of central Beijing’s in developments office/commercial luxury Total revenue from property investment and property property and investment property from revenue Total million. HK$1,412 to 7.3% by increased management by increased investment property from Revenue HK$1,2 Luk of areas small for except let fully remained portfolio the and MTR work. renovation for repossessed were that Galleria Yeung of end at as portfolio property investment total Corporation’s 200 Company. the to attributable area Corporation’s MTR the to added was centre shopping new One floor lettable aggregate an with six, to total the taking portfolio, 119, of area of area floor lettable a with Company, the by owned 70% Edge, 7, 1 Phase by joined be will portfolio the 2007 in Later November. 82,750 of area floor gross with mall upscale our Elements, of is development This Station. Kowloon at metres square the of 90% about and 2007 of end the by opening for scheduled our addition, In date. to committed been already has space retail 6
, benefiting benefiting , 6 of Tseung Kwan Kwan Tseung of 6 8,537 square metres. metres. square 8,537 6 , profit recognised from Airport Railway Railway Airport from recognised profit , 6 09 square metres of this shopping centre. Along Along centre. shopping this of metres square 09 6 commercial and car parking accommodations with a total gross gross total a with accommodations parking car and commercial 1 than more not of area floor In January 2007, tenders were invited for Area 5 Area for invited were tenders 2007, January In subsidiary a Ltd, Lansmart to 2007 February in award the with O will development proposed The Ltd. Properties Kai Hung Sun of residential, office, hotel, comprising project mixed-use a be increased sharing in kind of the development. the of kind in sharing increased to Rich Asia Investments Limited, a subsidiary of Cheung Kong Kong Cheung of subsidiary a Limited, Investments Asia Rich to extended Corporation MTR package, this For Limited. (Holdings) an for return in developer the to loan free interest billion HK$4 a in Tseung Kwan O. O. Kwan Tseung in in award the with activity, tender property saw also year The 8 Area O Kwan Tseung of Two Package of tender the of January during the year saw steady progress both along the Airport Airport the along both progress steady saw year the during Coastal in Rossa La and Green Harbour at flats including Railway, Heights Central and Grandiose The Point, Le at as, well as Skyline, ( Tiu Keng Leng Phase 1) and The Grandiose (Area 55b). (Area Grandiose The and 1) Phase Leng Keng Tiu ( pre-sales and sales stabilising, prices property residential With the Tseung Kwan O Line, development profit came primarily from from primarily came profit development Line, O Kwan Tseung the Town Metro 57a), (Area Heights Central from proceeds surplus Three), Coastal Skyline and Caribbean Coast (respectively, Tung Tung (respectively, Coast Caribbean and Skyline Coastal Three), Elements, at works out fit and Three) and Two Packages Chung gross additional an of receipt on kind in sharing with together 7, of area floor projects included mainly deferred income recognition, in line line in recognition, income deferred mainly included projects Package (Olympic Green Harbour at progress, construction with The Hong Kong property market was steady in 200 in steady was market property Kong Hong The business. development property our HK$5,817 was developments property from year the for Profit 200 During million. and Olympic stations. stations. Olympic and businesses Property Station in the first quarter of 2007, while other new pedestrian pedestrian new other while 2007, of quarter first the in Station Bay, Causeway Edward, Prince at consideration under are links Wan Sheung Hung, Choi Bay, Kowloon Hing, Kwai Tsui, Sha Tsim Queensway Subway linking Admiralty Station with Three Pacific Pacific Three with Station Admiralty linking Subway Queensway is work Elsewhere, 2007. February in opened also was Place Kok Chi Lai at subway pedestrian new a on begin to expected The new departure platform connecting the Airport Express Express Airport the connecting platform departure new The Hong the of terminal second the houses which SkyPlaza, with The 2007. February in opened was Airport, International Kong Works to improve the connectivity to our stations continue. continue. stations our to connectivity the improve to Works 10 MTR CORPORATION LIMITED taking root. Approximately RMB4. the Concession Agreement, Lease Agreement and Financing the line for 30 years. With the business licence now granted and mechanical railway systems and the rolling stock, and operate Agreement, the PPP company will invest in the electrical and by the Beijing Municipal Government. Under the Concession Capital Group. The balance of the capital cost will be funded Beijing Infrastructure Investment Co. Ltd. and 49% by Beijing company which is 49% owned by MTR Corporation, 2% by cost, is being borne by a Public-Private Partnership (PPP) Government, which marked our overseas growth strategy RMB15.3 billion BJL4 project with the Beijing Municipal was the signing in April of the Concession Agreement for the In the Mainland of China, the most significant event of 200 Mainland of China pursuing “asset light” railway operating franchises in Europe. investment opportunities in the Mainland of China, while As noted before, our strategy overseas is to pursue metro Expansion into overseas markets is part of our growth strategy. Overseas growth immediate fare reductions. of the merger, so that the travelling public will benefit from to ensure that a high level of integration is achieved on Day One two rail companies have been working strenuously as one team integration committees and working groups at all levels of the While the approval processes are being progressed, various independent shareholders. become effective only after obtaining approval from deliberation. Should LegCo approve the bill, the proposal will SAR by the Government on 5 July 200 was submitted to the Legislative Council (LegCo) of Hong Kong approval by our independent shareholders. The Rail Merger Bill The merger requires the passage of a Rail Merger Bill as well as better integration of the two rail networks. public, the merger will bring immediate reduced fares and would be value accretive to the Company. For the travelling balances the interests of our stakeholders and, if completed, development in Hong Kong. The merger package carefully The signing of the MOU marked a milestone for railway with KCRC, together with the acquisition of a property package. Government, setting out the terms for the proposed rail merger was the signing in April of the MOU with the Hong Kong SAR One of the most significant events for the Company in 200 Merger CEO’s reviewofoperationsandoutlook 6 billion, or 30% of the total 6 and is currently under
6 6
As a result, total revenue in 200 in 200 Europe Wuhan and Suzhou. similar projects in key cities such as Shenzhen, Beijing, Hangzhou, While making progress on these projects, we have been pursuing ready to begin. Initial preparatory work is near completion and civil work is Related utilities diversion and land resumption have begun. Phase 2 of the line and to operate Phases 1 and 2 for 30 years. Agreement with the Shenzhen Municipal Government to build Agreement in Principle and initialling in 2005 of the Concession and Property” model. This follows our signing in 2004 of the Shenzhen Metro Line 4 project which incorporates the “Rail Development and Reform Commission on the RMB In Shenzhen, we await final approval from the National by 2009. under construction. Construction is expected to be completed have already been awarded, and 23 of the 24 stations are now the rolling stock, signalling and automatic fare collection systems Agreement all signed, work has moved on rapidly. Contracts for million while operating margin declined from 55.7% to 54.5% profit from railway and related businesses before depreciation development in the Mainland of China and Europe. Operating their business growth, as well as project studies and new business in expenses relating to non-fare business activities in line with an increase of 7.1% from 2005, mainly attributable to an increase Operating costs in 200 increase of 4.2% from 2005. increase in non-fare related revenue would have been 7.7%. Excluding the one-off income from telecommunication, the and management activities grew by 5.1% to HK$3,018 million. commercial and other businesses as well as property rental by 9.1% to HK$ 2005 to HK$5,911 million, while that for Airport Express increased in 200 The Company continued to achieve good financial performance Financial review Öresundståg concessions in Sweden and Denmark. Swedish railway company SJ, we also submitted a bid for the passengers per year. In February 2007, in joint venture with the Greater London region, and carries approximately 23 million 2007. The LRC currently serves as one of two remaining bidders and we expect the result by mid Concession (LRC) entered the final stages of the selection process In January 2007, our joint bid with Laing Rail for the London Rail 6 6 therefore increased by 2.0% from 2005 to HK$5,201 . Fare revenue for the MTR Lines increased by 3.3% from 6 12 million. Non-fare revenue from station 6 amounted to HK$4,340 million, 6 6 0 stations over was HK$9,541 million, an 6 0 route miles in 6 billion
11 ANNUAL REPORT 2006
included those focusing on safety and and safety on focusing those included 6 0 communication sessions held in April. Since then, staff has has staff then, Since April. in held sessions communication 0 6 Council, while trainers successfully acquired China’s National National China’s acquired successfully trainers while Council, Qualification. Trainer Enterprise achieving a work / life balance through education on this topic topic this on education through balance life / work a achieving staff for service counselling hotline 24-hour a of provision and families. their and asset. valuable most our as people regarded always have We been always have staff our of professionalism and dedication The rail proposed The success. Corporation’s MTR of foundation the Company. the for step significant a represents KCRC with merger of informed people our keep we that importance critical of is It their affect may that matters on them consult to and process the communicating into put therefore was effort Tremendous future. some with beginning merger, proposed the about staff with channels, various through progress of abreast kept been colleagues, my and myself from letters and video a including addition, In email. and hotline merger a briefings, group small MTR by jointly published been has newsletter merger special a year the during hard worked also have We KCRC. and Corporation practices and cultures work functions, resource human align to companies. two the between 200 in initiatives Training channels, many through delivered were and service, customer Outstanding gained apprentices Company e-learning. including Training Vocational the from Awards Apprentices/Trainees People calibre high develop and retain to effort our continued have We strategy. growth our of development the with align to individuals an through reinforced was culture pay-for-performance The remuneration attractive more mechanism, reward effective talents. professional young for progression career and packages of importance the stress to continued we time, same the At
,145 ,145 6 09 square square 09 6 2 million, or HK$1.08 HK$1.08 or million, 2 6 were HK$7,759 million with earnings earnings with million HK$7,759 were 6 74 million while net interest expense increased increased expense interest net while million 74 6 million for the year, before a one-off interest-free interest-free one-off a before year, the for million 66 , to receive all or part of its entitlement to such dividends in the the in dividends such to entitlement its of part or all receive to , 6 of MTR Corporation for 200 for Corporation MTR of of HK$3,8 of Company’s total dividend will be paid in cash. FSI has agreed to to agreed has FSI cash. in paid be will dividend total Company’s each of respect in declared dividends to commitment this extend 2009. December 31 ending years financial three the of form of shares (where a scrip dividend is offered by the Company) Company) the by offered is dividend scrip a (where shares of form the of 50% of maximum a that ensure to necessary extent the to The Financial Secretary Incorporated (“FSI”) has committed, for for committed, has (“FSI”) Incorporated Secretary Financial The December 31 to up years financial to relating declared dividends 200 this one-off loan advance, there was a cash deficit of HK$134 HK$134 of deficit cash a was there advance, loan one-off this million HK$94 of debt in increase by financed was which million million. HK$40 of balances cash of drawdown and dividend payments, the Company recorded positive cash flow flow cash positive recorded Company the payments, dividend After developer. property a to provided million HK$4,000 of loan recurring businesses and HK$4,400 million of cash receipts from from receipts cash of million HK$4,400 and businesses recurring capital for payments After purchasers. and developers property and capital working in changes expenses, interest expenditure, per share of HK$1.41. of share per the during strong remained position flow cash Company’s The from generated million HK$5,400 of inflow cash net with year from 2005. After accounting for the revaluation of investment investment of revaluation the for accounting After 2005. from shareholders the to attributable earnings reported properties, rates. Excluding investment property revaluation, net profit after after profit net revaluation, property investment Excluding rates. HK$5,9 was businesses underlying from tax respectively 4.4% and 2.9% of decreases slight share, per million. Depreciation charge was maintained at a similar level to to level similar a at maintained was charge Depreciation million. HK$2, at 2005, interest in increase an to due mainly million HK$1,398 to 2.7% by metres of the Elements. This was a reduction of 5.3% from from 5.3% of reduction a was This Elements. the of metres HK$ of 2005 in recognised profit development property Profit from property development amounted to HK$5,817 million, million, HK$5,817 to amounted development property from Profit along developments from proceeds surplus comprising mainly and recognition income deferred and Line O Kwan Tseung the 7, of area floor gross additional an of receipt the RMB15.3 billion Beijing Metro Line 4 project” 4 Line Metro Beijing billion RMB15.3 was the signing of the Concession Agreement for the the for Agreement Concession the of signing the was stakeholders and would be value accretive to the Company” the to accretive value be would and stakeholders
“In the Mainland of China, the most significant event of 2006 2006 of event significant most the China, of Mainland the “In “The merger package carefully balances the interests of our our of interests the balances carefully package merger “The 12 MTR CORPORATION LIMITED “Finally, I would like to take the opportunity 24 months from April 200 work will be undertaken at the Luk Yeung Galleria in 2007. established centres in their initial years of operations. Renovation new shopping centres generally achieve lower margins than full year impact of The Edge. However, it should be noted that centre in Kowloon Station towards the end of 2007, and the Mall in Beijing, the expected opening of the Elements shopping management businesses will benefit from the opening of Ginza In our property businesses, the property investment and which carries less attractive commercial returns to the Company. continue to face challenges with the migration of 2G users to 3G, Ngong Ping 3 the positive economic condition as well as the full year impact of station commercial and other businesses will also benefit from continued intense competition and no fare increases for growth. However, this growth may slow in 2007 as a result of Our rail business should benefit from the expected economic economic conditions in Hong Kong in 2007. Barring any major external shocks, we hold a positive view on Outlook communication with our staff working outside Hong Kong. Communication Programme” was launched to enhance overseas growth strategy. A “Stay-in-touch Employee Care & to support our colleagues working overseas as part of our During the year we established a designated HR team specifically to Hong Kong. graduates in the Mainland of China and overseas, in addition Trainee Programme expands its activities to top university develop young managers with high potential. The Graduate managers. The Executive Associate Scheme is designed to Initiative provides opportunities to executives and senior and planned career movements. The People Development academic or professional training, cross functional placements and are offered individualised programmes which include organisation. They are selected through a rigorous process, for capable staff with high potential at various levels in the requirements of the Company. These initiatives are designed to develop management talents in order to meet future During the year, we have undertaken three major initiatives are the heroes of MTR” staff for their support during the year. They to thank my fellow directors and all of our CEO’s reviewofoperationsandoutlook 6 0. However, the telecommunications business will 6 as part of the merger MOU. Our
Harbour Green at Olympic Station. Along the Tseung Kwan O on pre-sales, there will be surplus proceeds recognised from recognised in 2007. Also along the Airport Railway, depending the next two years with a large portion of this balance being balance of property deferred income to be recognised over pre-sales. Given current market conditions, we expect the recognised in accordance with construction progress and in 2007. Along the Airport Railway, deferred income will be Tseung Kwan O Line should continue to contribute to profit Property developments along both the Airport Railway and Hong Kong, 13 March 2007 C K Chow, They are the heroes of MTR. directors and all of our staff for their support during the year. Finally, I would like to take the opportunity to thank my fellow Metro Town ( Tiu Keng Leng Phase 1) in 200 have already been accounted for when we booked profit from Agreement and our accounting policy, costs relating to Le Point Station. As I noted last year, in accordance with the Development surplus proceeds will be booked from Le Point at Tiu Keng Leng Line, depending on the timing of issuance of Occupation Permit,
Chief Executive Officer 6 .
13 ANNUAL REPORT 2006 – pt. pt. pt. pt. pt. pt. pt.
time time
Increase/
%
6.67 66.09 2.2 25.2 (3.4 ) 61.2 (0.2)% (0.3)% 12.8 (2.2)% 9.3 (1.2)% 7.6 (0.9) 7.5 (0.8) 1.55 1.13 (9.0 ) 0.42 15.25 (4.4 ) 83,598 28.3 29.8 858.0 8,493 1.0 2,497 12.8 23.3 1.0 12.8 6,282 2,871 5,101 3.8 6,145 5.1 11,246 2.0 8,450 (5.3 ) (2.0 ) 6,140 113,666 (8.2 ) 28,264 (2.9 ) 69,875 5.9 (0.4 ) 9.9 55.7 (1.2)% 40.4 (3.7)% 22 1% 2005 (Decrease) 23 8.1 6.7 6.7 6.82 25.0 60.9 10.6 1.41 1.08 0.42 26.2 54.5 36.7 2006 63.85 19.56 866.8 9,576 2,523 6,523 3,018 5,201 5,817 7,759 5,962 11,018 28,152 76,767 108,531 120,421 and
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Airport MTR All MTR MTR Fare Airport Cross-harbour Airport Airport Non-fare
– – – – Operations highlights Operations Total – Share information Share Basic Financial ratios ratios Financial Operating Financial highlights highlights Financial Revenue –
Share Return Interest – Proportion – Proportion Interest (excluding Basic Dividend Market – Average – Fare – Operating Profit Operating Profit Profit Total Loans, Total Debt-to-equity Return (excluding (excluding
related Key figures Key 14 MTR CORPORATION LIMITED March boarding MTR trains. to urge passengers to take more care when A train door safety campaign February behaviour. platforms to promote safe and courteous formed to patrol MTR trains and station A 10-member (Holdings) Limited. Limited, a subsidiary of Cheung Kong Development Tseung Kwan O Area 86 Package Two The Company announced the award of the January Key eventsin2006 to the carpark. a new subway and entrance connecting for public use on 11 March, together with above Choi Hung Station was opened The Faster connection Kong Council of Social Service. Company Logo 2005/06” The Company was awarded the Caring Company award MTR Park & Ride Public Carpark Customer Care Team to Rich Asia Investments by the Hong was launched “Caring was
Government on 12 April. Metro Line 4 30-year Concession Agreement for Beijing Beijing MTR Corporation Limited signed the April Metro Line 4 Extension, or Daxing Line construction and operation of the conduct feasibility studies for investment, with Beijing Municipal Government to On 28 April, the Company signed an MOU contract awards. workers and security guards for future “wage protection” would follow the spirit of the Government’s On 27 April, the Company announced it education campaign. million for the Hospital Authority’s health on 9 April, raising more than HK$1.2 Hong Kong Amateur Athletic Association organised by MTR Corporation and the HONG KONG Race Walking 2006 1,000 walkers participated in the Charity walk a property package. together with the acquisition of systems of the Company and terms of the Government on 11 April, setting out the of Understanding (MOU) The Company signed a Proposed merger with the Beijing Municipal proposed merger policy for cleaning Memorandum with the KCRC of the rail Beijing
MTR jointly ,
.
May organised by ATV. Popular TV Commercial competition TV Commercial” Commercials Award” and “Most Impressive won the The Company’s 2005 TV Commercial consecutive year. East Week 2006 – Public Transportation” won the through high service standards, the Company enhancing the quality of life in Hong Kong In recognition of its contribution to Magazine Transport Category the MTR’s customer service gained the Company customer service. demonstrating our commitment to campaign was launched on 20 June, The Company’s it is scheduled to open in 2009. Serving the Area 86 property development, South Station The construction contract for June opened for public use on 24 May. and the shopping mall of Metroplaza was platform connecting to a public footbridge A new station entrance at Kwai Fong Station fourth year in a row. Reports was named one of the The Company’s Sustainability Report 2004
Architecture award Award” Kong Institute of Architects Merit Resort Line won a prestigious Sunny Bay Station on the Disneyland “Top Service Award 2006” – Public by the ACCA Hong Kong, for the “Top Ten Most Popular TV “Quality Living Award Hong Kong , for the eighth consecutive year. for its outstanding architecture. magazine for the second was awarded on 9 June. “We serve from the heart” in The 12th Annual Most presented by Best Sustainability Tseung Kwan O presented by “Hong Next
15 ANNUAL REPORT 2006
rode on on rode “Hong Kong Kong “Hong magazine magazine project. at Tiu Keng Leng Leng Keng Tiu at East Week Week East (first right), Mayor of the the of Mayor right), (first by by with Hangzhou Municipal Municipal Hangzhou with renewed his contract as as contract his renewed , our majority owned sixth sixth owned majority our , Hangzhou Metro Line 1 Line Metro Hangzhou shopping centre shopping The Edge The opening official its held centre, shopping November. 26 on ceremony Official visit Official Qishan Wang Mr. his and Government, Municipal Beijing on Company the visited delegation November. 13 opening Official Letter of Intent of Letter
A record 2.94 million passengers million 2.94 record A number highest the December, 22 on MTR single, a on recorded trips passenger of day. service regular The The Cheung of subsidiary a to sold was Station Ltd. (Holdings) Kong December the awarded was Company The Classic” – Brands its of recognition in Publishing Tao Sing and performance. excellent Chow K C Mr. Company the of Officer Executive Chief December 1 from years three further a for 2009. November 30 to 2006 signed Company the December, 8 On a investment potential covering Government the in
, the the ,
. , on 19 19 on , “Prime “Prime was launched launched was was held to to held was nano technology nano Prime Magazine Prime by by MTR Safety Month Safety MTR Senior Citizens’ Day Citizens’ Senior Day Disabled International “Loving Heart Campaign” Heart “Loving A new entrance at Tiu Keng Leng Station Leng Keng Tiu at entrance new A 27 on use public for opened was weatherproof a providing November, Ming Choi and Shores Ocean to walkway Town. Metro via Centre Shopping Accessible new entrance new Accessible The The seats their offer to passengers encourage to need. in people to trains inside November October train door safety. door train support To on rides free offered Company the November Express) Airport (excluding journeys MTR all cardholders. Octopus Elderly to support To and MTR all on rides free offered Company people disabled for journeys Express Airport November. 26 on The annual annual The whilst passengers amongst safety promote and escalator on focusing MTR, on travelling Hong Kong public, according to a survey by by survey a to according public, Kong Hong Betterment the for Alliance Democratic the Kong. Hong of the MTR, in levels hygiene enhance To non-toxic powerful a applied Company using coating disinfectant touch. commonly customers that surfaces to the awarded was Company The – 2006 Excellence Brand for Awards Services” Transport MTR service was once again ranked top top ranked again once was service MTR the by operators transport local among
in the the in Hong Hong
“Green “Green Rail Merger Merger Rail “Spectacular “Spectacular was was moved a step closer as as closer step a moved – made its debut, offering offering debut, its made – . in Hong Kong, organised by by organised Kong, Hong in was launched with a new new a with launched was “MTR Escalator Safety Safety Escalator “MTR , developed and financed by the the by financed and developed , into the Legislative Council on 5 July, an an July, 5 on Council Legislative the into Metropolis Daily Metropolis Campaign” promoting advertisement television safety. escalator The annual annual The Escalator safety campaign safety Escalator 18 September. September. 18 Ngong Ping 360, the biggest cableway cableway biggest the 360, Ping Ngong Asia in on public the to opened Company, and preparation. preparation. and September The West Island Line Island West The proposal updated an submitted Company the Government’s the to response in August 31 on planning detailed its with proceed to decision from 21 July 2006 until 31 July 2007. July 31 until 2006 July 21 from August by by Kuo-fung Ch’ien Raymond Dr. Company the of Chairman as reappointed boarding safety was voted as one of of one as voted was safety boarding Advertisements Print Ten Top Kong’s organised 2006” Awards Print Global “Metro Building Award” Building Council. Building Green Professional the train on campaign print Company’s The Sunny Bay Station’s outstanding contribution contribution outstanding Station’s Bay Sunny first the it won environment the to Bill process. merger the in forward step important July the introduced Government The An innovative advertising train – – train advertising innovative An Showcase” Mobile advertisers. for platform advertising new a 16 16 MTRMTR CORPORATIONCORPORATION LIMITED MOVING FORWARD Railway operations Executive management’sreport and the AsiaWorld-Expo Station contribution from the Disneyland Resort Line railway network in Hong Kong, with a full year The increase in patronage reflected our expanding satisfaction remained high LEFT MTR Lines hit another record MAIN IMAGE Levels of customer Patronage on 1717 ANNUAL REPORT 2006
International Airport continued to rise and the AWE Station that that Station AWE the and rise to continued Airport International Average passengers. more attracted 2005 December in opened and 2005, in 23,300 from 26,200 to 12.8% rose patronage daily travelling passengers of share market estimated Express’ Airport from and to travelling those (excluding airport the from and to year, the For 2005. in 22% from 23% to rose Station) AWE the to 9.1% by increased Express Airport from revenue fare million. HK$612 transport market remained stable at 25%. Our share of of share Our 25%. at stable remained market transport from revenue Fare 61%. at stable, also was traffic cross-harbour the than higher 3.3% million, HK$5,911 to rose Lines MTR 2005. in reported million HK$5,721 9.6 to 12.8% rose Express Airport the on volume Passenger Kong Hong using travellers air of number the as 2006, in million 1.0% to 2.5 million. Our share of the total franchised public public franchised total the of share Our million. 2.5 to 1.0% For 2006, total patronage on the MTR Lines reached another another reached Lines MTR the on patronage total 2006, For million 858 the over increase 1.0% a million, 867 of record by increased patronage weekday Average 2005. in recorded average fares from the DRL. the from fares average Patronage Station. The increase was also supported by higher average average higher by supported also was increase The Station. in changes of effect year full the to due Lines, MTR the for fares on impact positive the and 2005 in schemes promotional certain higher by further growth in patronage from both economic economic both from patronage in growth further by higher the of opening the of impact year full the and expansion (AWE) AsiaWorld-Expo the and (DRL) Line Resort Disneyland Total fare revenue from MTR Lines and Airport Express for 2006 2006 for Express Airport and Lines MTR from revenue fare Total driven was revenue Fare million. HK$6,523 to 3.8% by increased 18 MTR CORPORATION LIMITED Passengers and fare of our customer services. with TVB Jade. These programmes helped reinforce perceptions sponsorship of a situation comedy, which were jointly produced also saw two TV projects during the year, a game show and attracted over 20,000 users a day. This innovative approach In May we launched the Happy Index Promotion, which a much sought-after collectible item. patronage, but also contributed income as the stamps became Stamps” promotion not only generated 1.2% additional During July and September, the “Ride 10 Redeem Hello Kitty In 2006, a number of very successful campaigns were launched. quality as well as supporting incremental growth in patronage. promotions, which raises awareness of the Company’s service One of our strengths is the effectiveness of the Company’s service Service promotions yielding a 3.8% increase in fare revenue MTR again achieved record patronage and average fares also rose, Average fare HK$ billion(leftscale) Fare revenue million (rightscale) passengers Number of HK $ 1 2 3 4 5 6 7 8 9 s 2002 7.28 . 2003 7.06 2004 7.05 2005 7.25 2006 7.44 6.52 876
10 20 30 40 50 60 70 80 90 0 0 0 0 0 0 0 0 0
F of our service. treasure their input and advice as they are long term supporters throughout the year to solicit their suggestions and opinions. We To engage MTR Club members, we conducted surveys Fare tren Kong Club. Hong Kong Tourism Board and the UnionPay Discover Hong discounts on tourist products through a partnership with the seasons. Overseas passengers, meanwhile, were offered fare for children using Child Octopus card were offered during festive promotions including discounts on return journeys and free rides To attract more local leisure travellers to the Airport Express, fare the Dragonair VISA. was enhanced with the additional option of award points from “Ride to Rewards” loyalty programme aimed at business travellers in consumer prices in Hong Kong wage growth but were in line with the long-term changes In recent years, MTR fares have consistently lagged or the Airport Express, the increasingly popular Airport Express (avg. 5.11%growthp.a) average fare MTR system (avg. 4.99%growthp.a) price index(A Consumer (avg. 8.91%growthp.a) HK payrollindex d ) 200 400 600 800 1,000 1,200 Index . 1980 1985 staff serve customers from the heart left 1990 Friendly and professional station 1995 2000 2006 19 ANNUAL REPORT 2006
Railway operations Railway or the year, passenger passenger year, the or F Executive management’s report management’s Executive Reliable and easy-to-use equipment installed in stations in installed equipment easy-to-use and Reliable or the sixth consecutive year, the Company exceeded, in every every in exceeded, Company the year, consecutive sixth the or others which promote escalator and train door safety. door train and escalator promote which others BELOW Service performance Service again was performance operating Corporation’s MTR safety, reliability, of standards high very by underpinned satisfaction. customer and comfort passenger F the by required levels performance minimum the both area, more own our and Agreement, Operating the under Government Pledges. Service Customer stringent 99.9% by supported 99.9%, were Lines MTR for time on journeys punctuality. train 99.7% and delivery service train for reliability service of recovery for taken time the improve to continue We are there where passengers to impact the minimise to order in disruptions. service occasional Customer” the of “Year further, service passenger our improve To during launched were campaigns heart” the from serve “We and assistants platform and staff station our for Training year. the our of needs and feelings the understand to them enabled the elect to invited were passengers while better, passengers by supplemented were campaigns These Operator. Station Best
East Week East , and the “Hong “Hong the and , 1 . 22. 2006 5 8 22. 200 Prime Magazine Prime 3 22. 2004 Metropolis Daily Metropolis s 5 22. 2003 22.8 2002 $ HK were held steady despite the opening of new lines. new of opening the despite steady held were Operating cost per car kilometre fell as maintenance costs costs maintenance as fell kilometre car per cost Operating Railway operating cost operating Railway operated km car per Kong’s Top Ten Print Advertisements in the “Metro Global Print Print Global “Metro the in Advertisements Print Ten Top Kong’s by organised 2006” Awards Kong Brands – Classic” award jointly presented by by presented jointly award Classic” – Brands Kong Corporation’s MTR addition, In Publishing. Tao Sing and magazine Hong of one voted was safety boarding train on campaign print Popular TV Commercial competition hosted by ATV. The The ATV. by hosted competition Commercial TV Popular – 2006 Excellence Brand for Awards “Prime the took Company by awarded Services” Transport efforts achieved considerable recognition during the year. We We year. the during recognition considerable achieved efforts and Award” Commercials TV Popular Most Ten “Top the won Most Annual 12th the in Commercial” TV Impressive “Most holder fare saver machines, resulting in a total of 20 in service by by service in 20 of total a in resulting machines, saver fare holder 2006. of end the awareness passenger and branding marketing, Company’s The share, and during the year seven more feeder bus routes offering offering routes bus feeder more seven year the during and share, to number the bringing added, were discounts fare inter-modal card Octopus adult new four introduced also We total. in 32 Promoting patronage through improved connectivity with other other with connectivity improved through patronage Promoting market maintaining to important remains transport of modes opened AWE Station was launched in July. This was supported by by supported was This July. in launched was Station AWE opened their help to organisers event with arrangements special Express. Airport the using venue the to get participants An advertising campaign to increase awareness of the newly newly the of awareness increase to campaign advertising An 20 MTR CORPORATION LIMITED BELOW safety management among rail operators worldwide. industry safety requirements, but is also in many areas a leader in the Company has not only successfully fulfilled both MTR and “industry effective practices”. The review provided assurance that “industry leading effective practices” and 141 observations as Company’s safety practices were considered by the auditors as of the review were highly satisfactory, revealing that eight of the developed specifically for auditing rail operations. The results The review used a professional Rail Safety Audit Programme organisation, the American Public Transportation Association. undertaken by an independent urban transportation safety our fifth External Safety Management System Review was delivery and meet the requirements of the Operating Agreement, To ensure continued excellence and effectiveness of safety Service Award 2006” – Public Transport Category. year and, for the eighth year in a row, 2006”– Public Transport Category for the second consecutive Company won recognition through numerous awards. In Hong Kong, the Our service performance in many areas again received reliability and cost efficiency. Metros (CoMET), in the key areas of customer service, service benchmarking performed by the 12-member Community of continued to maintain a leading position in the international respectively on a 100-point scale. In addition, the Company Index for the MTR Lines and Airport Express stood at 71 and 81 regular survey also remained high. In 2006, the Service Quality Levels of customer satisfaction recorded during the year by our Railway operations Executive management’sreport Train service delivery was 99.9%, consistently achieving a very high standard East Week magazine’s “Quality Living Award HK Next Magazine’s “Top
information on the time to the next train was extended to ten a number of important enhancements. On the Tung Chung Line, The passenger information system in stations and on trains saw started in 1998. of renovated stations to 46 in total since the programme improvements and renovations, bringing the number of passengers. During the year, 38 stations underwent of MTR stations meet the ever more demanding expectations continued to ensure that the appearance and ambience The station improvement programme, now into its ninth year, that has greatly improved passenger comfort and safety. first half of 2006, marking the end of a six-year programme platforms in underground stations was completed in the The programme to retrofit platform screen doors at all 74 Station and rail forefront of public transport in Hong Kong. continued to ensure that the MTR network remains at the Improvements to train services and network infrastructure Service improvements in Hong Kong Market shares of major transport operators reconfigured to improve timely release of information. system and the passenger information displays were year. Across the network, the centralised public announcement headrests of seats began to be introduced in the middle of the multi-media system with audio facilities embedded in the minutes before arrival, while on Airport Express trains, a new transport market in Hong Kong. Despite strong competition, MTR maintained our share of the and ferrie Trams Green minibus Other buses KMB KCRC MT R s 12.8 14.2 12.6 28.8 13.8 Percentage 29.3 3. 3.7 6 25.2 15.4 25.0 15.6 2006
2005
21 ANNUAL REPORT 2006 2005
2006 23 e 22 43 48 6 1 7 Percentag 15 8 1 15 11 Committed and skilled maintenance staff are crucial crucial are staff maintenance skilled and Committed Airport Express Buses Private cars Coaches Others Taxis Market shares of major transport operators transport major of shares Market airport the to/from Kong Hong the from and to travelling people of proportion The upwards. trend to continued MTR on Airport International passengers was installed at all stations along the Tung Chung Chung Tung the along stations all at installed was passengers Express. Airport and Line Chi Lai at underway now is lifts passenger internal of Installation lift stair operated self while stations, Hau Wo Tai and Kok installations These stations. seven at progress in are installations 2008. in completed be will ABOVE passengers to delivered service quality of levels high the to and Wan Sha Cheung at operation into came lifts passenger New Sin Tai Wong at lifts stair self-operated and stations, Po Shui Sham audible escalator of type new A stations. Edward Prince and at introduced was passengers impaired visually assists that device stations, Tong Kwun and Mei Kip Shek Kok, Mong Tsui, Sha Tsim impaired hearing helps that loop induction new a while ong ong F 2005
2006 9 60. 61.2 6.3 1 Percentage 6. 32.5 r 0 . 33. s s R Buse Ferrie MT broadly stable at 61% at stable broadly The Company’s market share of cross-harbour traffic remained remained traffic cross-harbour of share market Company’s The Market shares of major transport operators transport major of shares Market harbou the crossing continued across the network. network. the across continued disabled, including passenger lifts, ramps, wheelchair aids and and aids wheelchair ramps, lifts, passenger including disabled, this 2006, During stations. to access easy provide to lifts stair stations in passengers for movement free barrier of enhancement efficiency and reliability of the trains and also reduce noise. noise. reduce also and trains the of reliability and efficiency disabled the for and network the to Access the for facilities in years the over considerably invested have We The replacement of motor alternators on the 78 trains on the the on trains 78 the on alternators motor of replacement The substantially was inverters static state-of-the-art by Lines MTR energy the improve inverters The year. the during completed peak periods and non-peak hours has been enhanced. By the end end the By enhanced. been has hours non-peak and periods peak commissioned. been had trains new three of total a year, the of Metro Town. Metro trains Passenger during Line Chung Tung of frequency train the September, Since Station saw a new entrance linking it to a footbridge to to footbridge a to it linking entrance new a saw Station to link new a received Station Leng Keng Tiu and Metroplaza Elsewhere during the year, access to the network was improved improved was network the to access year, the during Elsewhere stations. three at links pedestrian new of completion through Ride & Park the to link new a from benefited Station Hung Choi Kwai centre, shopping 8 Infinity the and Carpark Public the service life of the rails and reduce the chance of train service service train of chance the reduce and rails the of life service the defects. rail to due disruption upgrade the rail infrastructure in the Kwun Tong and Tsuen Wan Wan Tsuen and Tong Kwun the in infrastructure rail the upgrade ride to improvement an bring will which launched, was lines extend help will programme This reliability. service and quality In January, a rail replacement programme to progressively progressively to programme replacement rail a January, In 22 MTR CORPORATION LIMITED Benchmarking comparisons System and market information completed at the end of December. shopping malls. The project took three months and was compartments, as well as escalator handrails in MTR managed portion of grab poles and strap hangers inside train machines, add value machines, and lifts in stations, the red from escalator and lift handrails to push buttons on ticket issuing has been applied to commonly touched surfaces in MTR ranging titanium dioxide coating. This powerful non-toxic disinfectant technological innovation from Japan, known as nano silver- as our managed shopping malls, in September we introduced a To enhance the hygiene levels in MTR stations and trains, as well Health and hygiene Railway operations Executive management’sreport especially in customer service and service reliability We once again performed well against international benchmarks,
Number of station kiosks and mini-banks in stations Number of rail cars Number of advertising media in trains Daily hours of operation Number of advertising media in stations Minimum train headway Total route length Railway operation data Number of “e-Instant Bonus” machines in stations 2004 200 – – – – – – – Disneyland Resort Line Airport Express Hong Kong – Tsing Yi Tung Chung Line Hong Kong – Tung Chung Tseung Kwan O Line Island Line Kwun Tong Line Tsuen Wan Line 5
Punctualit Density System utilisatio Service reliability MTR performancevs.bestperformanc 100 93 99. 39 89 38 99.9 10 0 8
in km
number ofpassengerspertrackkm y
percentage oftrainsontim
in seconds
n
passenger journeysontim
passenger kmpercapacity
e . e
e
Best performance=10 0 asset utilisation and performance. enables us to optimise operational effectiveness and improve upgraded to the Enterprise Asset Management System. This During the year, the MTR maintenance information system was compared to 2005. operated in 2006. Corporate support costs were also lower resulted in a 3% increase in the total revenue car kilometres the full-year effect of the opening of the DRL and AWE Station were successfully contained at similar levels to 2005, even though car kilometre decreased by 3.1% to HK$22.1. Maintenance costs improve efficiency and productivity. During the year, the Company continued to examine ways to Productivity Staff efficiency and cost efficiency operating efficiency. New initiatives will further be introduced to enhance Morning peak 2004 200 5 270 720 240 360 160 124 128 128
Cost efficiency Staff efficiency MTR performancevs.best 10 77 100 75 0 Evening peak 15,206
fare revenuepertotalcost 1,074 9,036 number ofpassengersperstaffhour 2006 270 720 240 480 180 156 144 140 552 91 19 22
Morning peak F or 2006, operating costs per 270 720 240 480 160 128 128 128
Best performance=10 Evening peak 15,127 10,624 1,050 2005 0 270 720 300 600 180 156 144 144 557 91 19 18 23 ANNUAL REPORT 2006 K 138 255 183
Metro 2,102 100% 99.9% 99.7% 99.9% 99.4% 99.6% 99.8% 99.9% 99.9% 99.9% 99.9% 99.9% 99.9% 99.9% 99.9% in 2006 in 14,705
J 1,448,915 52 90 58 performance
513 Metro
I Actual 54 57 75 581 Metro
H 66 98 8,000 115 445 98.5% 99.0% 99.0% 99.5% 99.0% 97.0% 99.5% 99.0% 98.0% 99.0% 99.0% 99.0% 90.0% 99.0% 98.0% 98.0% Metro 500,000
Pledge target Pledge G 297 212 226 Customer Service Customer Metro 1,373
Passenger safety and service service and safety Passenger 424 471 540 Metro 1,449 N/A N/A N/A N/A N/A N/A N/A left priority top our remained 98.5% 98.0% 98.5% 98.0% 93.0% 97.0% 98.0% 98.5% 98.0% 95.5%
f
E 156 278 669 Metro Requirement 2,603 Performance
D 190 227 155 644 Metro
C 147 201 353 Metro 1,441
B 275 443 492 971 Metro
A 5 minutes 5 ≥ 170 153 122 464 Metro
*
50 80
114 856 MTR Lines
in million in
in million in
in km in
Train compartment: cleaned daily cleaned compartment: Train Trains: to maintain a cool, pleasant and comfortable train environment train comfortable and pleasant cool, a maintain to Trains: 26˚C below or at temperature a at generally MTR Lines MTR Lines MTR Airport Express Airport environment comfortable and pleasant cool, a maintain to Stations: concourses, station for 29˚C and platforms for 27˚C below or at generally days hot very on except Airport Express Airport Train body: washed every 2 days 2 every washed body: Train
– – – – – – – – – Metro system network data (2005) data network system Metro
Service performance item performance Service The Airport Express is excluded from metro benchmarking. metro from excluded is Express Airport The Cleanliness Temperature and ventilation and Temperature Train reliability: train car-km per train failure causing delays delays causing failure train per car-km train reliability: Train Train punctuality Train Passenger journeys on time on journeys Passenger delivery service Train Route length length Route stations of Number Passenger journeys journeys Passenger kilometres Car
Ticket issuing machine reliability machine issuing Ticket reliability gate Ticket reliability Escalator reliability lift Passenger days working 7 within time response enquiry Passenger Add value machine reliability machine value Add Ticket reliability: magnetic ticket transactions per ticket failure ticket per transactions ticket magnetic reliability: Ticket
Operations performance in 2006 in performance Operations * Régie Colectivo, Transporte de Sistema Transit, City York New Limited, Underground London Verkehrsbetriebe, Berliner are comparison the in metros other The Note: Metro, Moscow Metro, Tokyo Paulo, São de Metropolitano Régional, Express Réseau Parisiens Transports des Autonome Régie Metro, Parisiens Transports des Autonome system. metro by data the identifying specifically prohibits agreement benchmarking The Corporation. Operation Metro Shanghai and Madrid de Metro International performance comparisons: The 12-member Community of Metros (CoMET) Metros of Community 12-member The comparisons: performance International 24 24 MTRMTR CORPORATIONCORPORATION LIMITED NEW DIM and otherbusinesses Station commercial Executive management’sreport of its advertising media through format refinements and million. The Company continued to enhance the attractiveness During the year, advertising revenue rose by 4.7% to HK$534 Advertising opened in September. economy and the contribution from Ngong Ping 360, which over 2005. The revenue increase was supported by the strong telecommunications, revenue would have increased by 8.0% a much smaller one-off gain in 2006 also relating to to the termination of a telecommunications contract and HK$1,606 million. Excluding the one-off gain in 2005 relating other businesses increased by 3.3% in 2006 over 2005 to Revenue from the Company’s station commercial and en
advertising. giving advertisers another venue for product display or poster were introduced at Causeway Bay and Kowloon Tong stations, debute during off-peak hours. New 6-sheet scrolling units advertising train, the “Spectacular Mobile Showcase”, made its were introduced in eight MTR stations in May. In June, a new Among new formats introduced, Real Time Projection Zones slowed in the second half of 2006. innovation, although the growth of the advertising market s i o n s 25
25 ANNUAL REPORT 20062006
and other businesses increased businesses other and Our success in leveraging our railway assets assets railway our leveraging in success Our commercial station from revenue as continued, New plasma rings were MTR offers an increasing MAIN IMAGE installed at three stations RIGHT variety of channels to advertisers
s n o i s en NEW DIM NEW 26 MTR CORPORATION LIMITED BELOW would have decreased by 3.2%. the one-off items in 2005 and 2006 mentioned earlier, revenue to HK$259 million as compared with 2005. However, excluding Revenue from telecommunications services decreased by 22.5% Telecommunications in MTR stations. customers to settle their bills at all Customer Services Centres In February, a new service was introduced allowing CLP Power feeback was received from both passengers and advertisers. Company’s successful portfolio of free publications in April. Positive advertisers. A new infotainment magazine, entertainment to passengers, as well as more creative media to by a multimedia system that offers more information and On the Airport Express, the seatback TV in carriages was replaced network. would not miss a beat in stock movements when using the MTR provide real-time updates on the Hang Seng Index, so passengers system of the Concourse Plasma Network was upgraded to Central and Mong Kok stations during the year. The backend end. Three new Plasma Rings were installed at Tsim Sha Tsui, number of trackside plasmas increasing from 68 to 100 by year The MTR Plasma TV network expanded considerably, with the total Station commercialandotherbusinesses Executive management’sreport Higher rental rates boosted station commercial revenue ” metro pop” , joined the
expanded its presence in the market. The company’s optical fibre During the year, TraxComm Limited recorded higher revenue as it revenue shortfall. continued to show positive growth, partially offsetting this telecommunications business, such as rooftop site rental, led to revenue reduction for the Company. However, other continued to experience a steady decline. This migration has and corresponding revenue generated by the 2G platform as intense competition leading to price reductions, call minutes Due to the migration of mobile subscribers from 2G to 3G as well business activities Revenue from station commercial and other MTR system which have undergone renovation. Lam and Tsing Yi. This brings to 38 the number of stations in the Tau Kok, Choi Hung, Kowloon Tong, Shek Kip Mei, Lai Chi Kok, Po of 11 stations: Admiralty, Fortress Hill, Tin Hau, Quarry Bay, Ngau During the year, renovations were completed in the retail zones rise by 13.7% over 2005 to HK$391 million. rental rates, which offset a temporary net loss of retail space, to Station commercial facilities revenue benefited from higher Station commercial bandwidth services has increased to over 180 Gbps. network now covers 40 locations, whilst the capacity of its by advertising income and kiosk rental. Growth in revenue from station commercial and other activities was led Advertising Kiosk rental services Telecommunication Consultanc business revenue Ngong Ping360 Others y in HK$million 2002 979 18 93 23 63 39 6 8 9 1,117 2003 19 14 11 38 27 8 3 5 6 5 1,311 2004 18 12 29 23 46 2 6 8 8 7 1,555 2005 15 51 34 33 21 6 0 4 1 4 1,606 2006 159 534 391 259 199 64
27 ANNUAL REPORT 2006 In all, 32 new shops and 15 new new 15 and shops new 32 all, In LEFT network retail railway the joined trades skating rinks, children’s clothing stores and laundry services. services. laundry and stores clothing children’s rinks, skating transport sectors in Hong Kong. MTR Corporation’s share of the the of share Corporation’s MTR Kong. Hong in sectors transport million. HK$68 to 2005 over 70% by rose OHL in profit increasing an by driven was growth business years, previous in As As usage. card Octopus higher and providers service of number had providers service of number total the 2006, December 31 at and circulation in Cards earlier. year a 349 from 431 to risen 13.2 from risen respectively had value transaction daily average HK$73.3 to million HK$64.7 from and million, 14.7 to million providing institutions Financial period. same the during million the over 22 to 19 from rose service add-value automatic Octopus add-value per increase the offering now institutions five with year HK$500. of accepting were minibuses green 59 further a end, year By represents which 2,806, to total the bringing card, Octopus minibuses red of number the whilst fleet, entire the virtually The 2005. in 171 from 215 to increased card the accepting payment Octopus the in participate that parks car of number total. in 231 to 203 from rose system participating chains retail sectors, service public and retail the In supermarket, included year the during system Octopus the in into entry gained also system The bakeries. and shops biscuit exhibitions, churches, including 2006 in sectors new several Octopus Holdings Limited Holdings Octopus its on built (OHL) Limited Holdings Octopus year, the During non- and transport the to services payments providing in success patronage has been very encouraging with local and overseas overseas and local with encouraging very been has patronage 2007. March in million 1 over reaching visitors Although the launch was delayed some weeks by teething teething by weeks some delayed was launch the Although tourists and public Kong Hong the of response the problems, and enthusiastic been has attraction new important this to opened in September and recorded revenue of HK$64 million up up million HK$64 of revenue recorded and September in opened 2006. of end the to Ngong Ping 360, the cable car running from Tung Chung to the the to Chung Tung from running car cable the 360, Ping Ngong Island, Lantau on Ping Ngong at complex temple and Buddha Big attractions, tourist various offering village theme a with together HK$159 million. HK$159 360 Ping Ngong Miscellaneous business revenue including car park rental, rental, park car including revenue business Miscellaneous publications and connections station new sales, ticket souvenir reaching year, previous the over 1.9% of increase an registered to win prizes worth up to HK$50,000, with the objective of of objective the with HK$50,000, to up worth prizes win to for sales stimulating and brand shop MTR the enhancing tenants. our We also expanded our cross-selling promotions to include a include to promotions cross-selling our expanded also We cash and offers discount offering cards scratch instant of scheme draw lucky grand a with shops, network MTR in use for coupons the station retail network, including LUSH, CEU, AEON, Sanrio Gift Gift Sanrio AEON, CEU, LUSH, including network, retail station the Durance. and Gate Elements, resulted in total station retail area decreasing by 12% or or 12% by decreasing area retail station total in resulted Elements, metres. square 16,867 to metres square 2,203 to added were brands or trades new 15 and shops new 32 all, In operation as a result of the renovations. However, the temporary temporary the However, renovations. the of result a as operation to Station Kowloon at space retail of metres square 2,671 of loss centre, shopping new the with works integration station facilitate A total of 468 square metres of new retail area came into into came area retail new of metres square 468 of total A 28 MTR CORPORATION LIMITED end of 2007 is on schedule. completed in October and the opening of Phase 1 by the Songjiang New Town Station to Guilin Road Station were Shanghai Metro Line 9 proceeded well. The civil works from In Shanghai, the project management consultancy work on valuable new contracts that are in line with our strategy. the year, we saw good progress on existing projects and secured activities generated revenue of HK$199 million in 2006. During consultancies which can enhance the skill sets of our staff. Such opportunities in the Mainland of China or in Europe, or focused on key cities where such work may lead to investment The Company’s strategy for consultancy business remains External consultancy enabling them to enjoy benefits at ten participating partners. Octopus cardholders had registered their cards for the programme, cards, continued to thrive. As at year end, over 1.2 million earn and redeem rewards points with their registered Octopus The Octopus Rewards Programme, through which people can above Station commercialandotherbusinesses Executive management’sreport Ngong Ping 360 has had an encouraging start since opening in September the new vehicles and the new signalling systems. achieved included the reliability demonstration period for both SkyPlaza and the SkyPier saw good progress. Major milestones Mover System to connect the Hong Kong International Airport to In Hong Kong, the project to construct an Automated People Guangzhou Metro. system design for a digital trunked radio system for the our contract with Motorola Asia Pacific Ltd. to support the Maintainability and Safety for five years. We also renewed to provide consultancy service on Reliability, Availability, we entered into an agreement with Chengdu Metro Corporation Supervision Control System for Beijing Metro Line 5. In Chengdu, a contract in Beijing to provide consultancy for the Integrated Among new contracts signed, the Company secured Ziyang Locomotive Works. Mass Transit, as well as a rolling stock consultancy for the CSR operation and management consultancy service for Tianjin Binhai training contracts for Shenzhen Metro and Tianjin Metro, an completed satisfactorily during the year, including management Several consultancy projects in the Mainland of China were
29 ANNUAL REPORT 2006 The cable car and theme village have have village theme and car cable The ABOVE visitors overseas and local with popular proven
faced a variety of challenges and following a review of its its of review a following and challenges of variety a faced the took we 2006, of middle the in prospects and business business. the exit to decision Solutions (International) Ltd with a view to building a business business a building to view a with Ltd (International) Solutions had business The components. related rail of sourcing the in Rail Sourcing Solutions Sourcing Rail Sourcing Rail subsidiary owned wholly a up set we 2004, In In the UK, we secured consultancy assignments with with assignments consultancy secured we UK, the In London Cross and Rail Network Lines, Tube Rail, Metronet Limited. Links Rail advice to the Roads and Transport Authority on the city state’s state’s city the on Authority Transport and Roads the to advice designed being currently are which Line, Red and Line Green constructed. and years to 2008. to years engineering provide to contract a awarded were we Dubai, In second contract is with the Taiwan High Speed Rail Company and and Company Rail Speed High Taiwan the with is contract second centre control operation and service train station, covers two for maintenance system signalling as well as management, In Taiwan, two new contracts started in early 2006. Under the first, first, the Under 2006. early in started contracts new two Taiwan, In three for support maintenance and operational provide will we The Corporation. Transit Rapid Kaohsiung the to 2009 to years 30 30 MTRMTR CORPORATIONCORPORATION LIMITED MOMENTUM UPWARD Property business property investment and management increased by 7.3% the very strong profit recognised in 2005, while revenue from Profit from property developments decreased slightly from Executive management’sreport Railway projects. in Tseung Kwan O as well as deferred income from Airport Central Heights and Metro Town ( Tiu Keng Leng Phase 1) recognised from surplus proceeds relating to The Grandiose, million. The bulk of property development profit was Profit for the year from property developments was HK$5,817 Property development vibrant tourism. and retail space was supported by the strong economy and reversions as demand for high quality and well located office investment portfolio saw rising rentals and positive rent our property development business. The Company’s The Hong Kong property market was steady in 2006, benefiting Skyline, Tung Chung Package Two. Three and the December pre-sales for La Rossa in Coastal including those for Harbour Green at Olympic Station Package Sales and pre-sales during the year saw good progress, 7,609 square metres of retail space at Elements. from the receipt of the shell of an additional gross floor area of at Elements in Kowloon Station. We also recognised profit Tung Chung Packages Two and Three), as well as fit-out works Three), Coastal Skyline and Caribbean Coast (respectively, construction progress, at Harbour Green (Olympic Package comprised mainly deferred income recognition, in line with During 2006, profit recognised from Airport Railway projects Airport Railway 31
31 ANNUAL REPORT 20062006 Our 18 floors at Excellent management MAIN IMAGE Two IFC remained fully let RIGHT of our investment properties adds to their attraction 32 MTR CORPORATION LIMITED response from the market. Likewise, good progress of sales and Pre-sales of Le Point, Phase 2 of Tiu Keng Leng, drew a very good (Area 57a). Phase 1), The Grandiose (Area 55b), as well as Central Heights primarily from surplus proceeds from Metro Town ( Tiu Keng Leng For 2006, development profit along Tseung Kwan O Line came Tseung Kwan O Line and others was approved by the Town Planning Board in September. about 10,500 square metres gross floor area of shopping space, park and transport interchange to retail use, which would provide Yi, the Company’s proposal to convert part of the adjacent lorry the demand for such units in the area. At Maritime Square, Tsing foundation works began in October. This development will meet garden houses was approved by the Town Planning Board and At Caribbean Coast in Tung Chung, the Master Layout Plan for September and La Rossa in Coastal Skyline in October. and 16) in Caribbean Coast obtained their Occupation Permits in owners in June, while Harbour Green, Crystal Cove (Towers 15 The Arch, also at Kowloon Station, were handed over to individual Occupation Permit for the first phase in December 2006. Units of upscale retail development at Kowloon Station obtained its Several major developments were completed. Elements, the Property business Executive management’sreport completed in 2006 Elements and Harbour Green were major projects development plan and progress Airport Railway property Construction Retail andother Apartment Hotel/Serviced Offic Residential Under constructio complete e d
s . n Olympic Kowloo Hong Kong Tung Chung Tsing Yi Gross floorarea n 246 254 293
47 102 293 293 41 60
6 Thousand sq.m. 493 416 416 608 111 667 68 78 2 682 682 232 936 15 983 167 58 48 22 429 89 1,03 1,031 1,09 1,096 1 6 and held its grand opening in November, becoming MTR O Station development in Area 55b, was completed in January located at the podium floors of The Grandiose, the Tseung Kwan Leng Phase 1). The Edge, a majority owned shopping centre with The Grandiose, followed in June by Metro Town ( Tiu Keng Two major developments were completed, starting in January respectively. saw handovers to individual owners in June and November ( Tiu Keng Leng Phase 1) Towers One, Two, Three and Five, which sales completion was achieved at The Grandiose and Metro Town plan and progres Tseung Kwan O Line property development development was sold to a subsidiary of Cheung KongIn November,(Holdings) the Ltd. shopping centre at Tiu Keng Leng Station Kong (Holdings) Limited. loan is backed by a parent company guarantee from Cheung return for an increased sharing in kind of the development. The free loan of HK$4 billion to Rich Asia Investments Limited in market conditions, the Company decided to advance an interest- executed in February. To balance risk and reward, and in light of Kong (Holdings) Limited, and the Development Agreement was metres) to Rich Asia Investments Limited, a subsidiary of Cheung Tseung Kwan O Area 86 (gross floor area of 309,696 square In January, the Company awarded the tender of Package Two of Corporation’s sixth shopping centre. and acceptance of the revised plan. Area 86 will see considerable activity, following two successful tenders Under construction completed Construction Retail andothers Hotel Office Residential
s Area 86 Hang Hau Tseung Kwan Tiu KengLeng Gross floorarea became MTR Corporation’s sixth shopping centre LEFt The majority owned The Edge in Tseung Kwan O 450 123 126 139 142 O 45 12 142 142 0 3 191 Thousand sq.m. 6 237 36 131 17 58 25 254 4 1,603–1,613 5 290 40–50
1,653 33 ANNUAL REPORT 2006 2005 2006 3 59. e 54.2 7.5 5 Percentag 6. 17.7 20.6 6 6 18. 15. Residential Retail Office Car park Distribution of property management income management property of Distribution The major renovation programme to refurbish the shopfronts, shopfronts, the refurbish to programme renovation major The was I Plaza Telford at finishes ceiling and floor arcade, atrium, wet Chuen Fa Heng the addition, In December. in completed works. renovation following August, in re-opened was market that year the throughout programmes promotional Exciting raise to continued holidays and festivals of advantage full take among centres shopping Corporation MTR of profile the their strengthening further shoppers, and retailers both to refinements by supported were These competitiveness. into research on based centres shopping our in mix trade the portfolio the to added tenants New preferences. shopper mi-tu, MacLook, Ecco, Hallmark, HMV, include year the during Yamada Passion, & Fruits Mioggi, Panash, Dama, Giusto management our to added were units residential 4,518 year the During properties. commercial of metres square 16,546 and portfolio, Our wholly owned wet market with a lettable floor area of area floor lettable a with market wet owned wholly Our February. in Chung Tung in opened metres square 508 with mall upscale owned majority our Elements, of 1 Phase Station, Kowloon at metres square 82,750 of area floor gross been has Pre-letting 2007. of end the by open to expected is local and overseas both from response good a with met 1 Phase in space retail the of 90% 2007, March at As retailers. committed. been had Company the which in Carpark, Ride n’ Park Hung Choi The March. in opened share, 51% a has of share attributable Company’s the end, year at total In 133,927 comprises portfolio property investment overall the 39,529 properties, retail of area floor lettable metres square square 1,460 and offices of area floor lettable metres square usage. other of area floor lettable metres centres shopping our of environment retail the of a Enhancement is campaigns marketing planned well and renovations areas through these in efforts and properties Corporation MTR of hallmark response. market positive with 2006 throughout continued 0 0 0 900 600 300 1,20 1,80 1,50 5 22. 1,006 2006
8 94 2005 788 2004 684 2003
. 724 2002 8 4 20 16 12 24 ) ) Net rental income HK$ million (right scale Value of investment properties HK$ billion (left scale Revenue from investment properties increased as rentals rose rentals as increased properties investment from Revenue portfolio the to Edge The added we and Investment properties Investment levels at all of our shopping centres, except Luk Yeung Galleria, Galleria, Yeung Luk except centres, shopping our of all at levels were space retail lettable of metres square 427 where 2007. in work renovation for preparation in repossessed With the economy strong and vibrant tourism sector, especially especially sector, tourism vibrant and strong economy the With quality high for retailers from demand year, the of half first the in occupancy 100% maintain to Company the enabled space retail positive wealth effect from the stock market rally, as well as tourism tourism as well as rally, market stock the from effect for wealth reversions positive rental average, On Island. Lantau on development 16%. by increased reletting and leases of renewal continuous enhancements have enabled our shopping centres to to centres shopping our enabled have as such enhancements environment continuous retail the in factors positive the on the market, capitalise employment improved an demand, consumer stronger million as rental rates increased and we added the new majority majority new the added we and increased rates rental lettable as a with million Edge, The O, Kwan Tseung at years, centre previous in shopping As owned portfolio. the to metres, square 7,683 of area floor Revenue from investment properties increased by 6.8% to HK$1,263 HK$1,263 to properties Investment 6.8% by increased properties investment from Revenue floor area of not more than 168,537 square metres (including (including metres square 168,537 than more not of area floor and interchange transport public a for metres square 5,407 facilities). associated Hung Kai Properties Ltd. The proposed development will be a be will development proposed The Ltd. Properties Kai Hung residential, office, hotel, comprising project mixed-use gross total a with accommodations parking car and commercial In January 2007, tenders were invited for Area 56 of Tseung Kwan Kwan Tseung of 56 Area for invited were tenders 2007, January In Sun of subsidiary a Ltd, Lansmart to February in awarded was It O. open space, better pedestrian connections and more design design more and connections pedestrian better space, open Town the by accepted was packages subsequent for flexibility November. in Board Planning of Area 86 to accommodate changes in market conditions and and conditions market in changes accommodate to 86 Area of including plan layout master revised A preferences. purchaser additional to requirements, to surplus now schools, of conversion We continued to work hard on improving the development plan plan development the improving on hard work to continued We 34 MTR CORPORATION LIMITED * Airport Railwaypropertydevelopments(packagesawarded) ABOVE Property business Executive management’sreport Centre) (Sorrento) (The Arch) Package Three Package Two (The Waterfront) Sub-total
Sub-total Package One Kowloon Station (International Finance Hong Kong Station Location The numberofcarparkingspacesissubject toreview. Commerce Centre) Package Four (Elements, International and Seven Packages Five, Six (The Harbourside) Our property management business continued to expand
Wheelock and Company Ltd. The Hong Kong & China Gas Co. Ltd. Henderson Land Development Co. Ltd.
Sun Hung Kai Properties Ltd. Harbour Centre Development Ltd. Realty Development Corporation Ltd. Wheelock Properties Ltd. Worldwide Investment Co. (Bermuda) Ltd. Lai Sun Development Co. Ltd. Keppel Land Ltd. Singapore Land Ltd. Temasek Holdings (Pte) Ltd. The Wharf (Holdings) Ltd. Wing Tai Holdings Ltd. Sun Hung Kai Properties Ltd. Developers
Hang Lung Properties Ltd. Sun Hung Kai Properties Ltd.
Retail Car park Residential Car park Car park Hotel Residential Office Residential Type Car park Cross border bus terminus
Hotel
Residential Retail Residential Serviced apartment Car park Car park Kindergarten Office properties, together with the wet market in Tung Chung and properties were also added in the year. These commercial end of 2006. A total of 16,546 square metres of commercial of residential units managed by the Company to 58,876 at the added to our management portfolio, bringing the total number to HK$149 million. During the year, 4,518 residential units were the portfolio, to achieve revenue growth of 12.0% over last year Our property management business benefited from additions to Property management and other services throughout the year. floors at Two International Finance Centre remained fully let for Grade A office space in core Central business district, our 18 Akamaru Udon and Viva Halia Deli. Supported by strong demand Miyura, Viet Deli Vietnamese Restaurant, 2% casual wear,
area (sq. m.) 1,096,174 Gross floor 415,894 100,000 102,250 254,186 147,547 210,319 128,845 231,778 95,000 21,300 59,458 82,750 72,472 1,050 5,113
parking spaces 1,344 1,270 1,332 1,743 No. of 412 864
*
completion date Completed by Completed by phases from phases from 2002–2003 1998–2005 2006–2010 Completed Completed Completed By phases expected Actual or in 2005 in 2000 in 2003 from 35 ANNUAL REPORT 2006
from from from from in 2006 in in 2001 in in 2000 in in 1999 in Actual or or Actual expected By phases By By phases By by phases by Completed Completed Completed Completed Completed 1999–2005 2002–2007 2002–2008 completion date completion
617 264 932 920 No. of No. 1,185 2,037 1,380 spaces 14,300 parking
*
508 350 350 855 925 4,996 1,300 2,499 1,100 1,100 48,298 21,986 14,900 47,500 46,170 14,913 13,219 407,300 253,100 103,152 103,152 220,050 275,479 682,171 245,700 111,000 292,795 169,950 Gross floor Gross 3,517,668 1,030,634 area (sq. m.) (sq. area
Chao Wai SOHO a 170,000 square metres gross floor area area floor gross metres square 170,000 a SOHO Wai Chao number the seven to brings This complex. office and commercial with China of Mainland the in contracts management property of metres. square 1,020,254 of area total a head long-term a into entered Corporation MTR Beijing, in Also shopping a Kenzo, Oriental of operation the for years 47 of lease the in metres square 19,349 of area floor lettable a with centre refurbishment extensive Following district. Cheng Dong city’s end year at as and Mall Ginza renamed was it re-positioning, and January in opened mall The let. been had shops of 90% to close a at property the acquire to option an has Company The 2007. of right a and lease the of years five first the during price pre-set thereafter. refusal first
Wet market Wet Retail Residential
Residential Kindergarten Car park Car Residential Kindergarten Car park Car Car park Car Retail Car park Car Market Residential park Car Kindergarten Retail Hotel Residential Kindergarten Retail Residential park Car Retail Indoor sports hall sports Indoor park Car Office Office
Type Retail Office Office Residential Kindergarten
continued
Hutchison Whampoa Ltd. Whampoa Hutchison Cheung Kong (Holdings) Ltd. (Holdings) Kong Cheung
Sun Hung Kai Properties Ltd. Properties Kai Hung Sun
Hong Leong Holdings Ltd. Holdings Leong Hong HKR International Ltd. International HKR Ltd. Pte Recosia
Henderson Land Development Co. Ltd. Co. Development Land Henderson New World Development Co. Ltd. Co. Development World New Sun Hung Kai Properties Ltd. Properties Kai Hung Sun Swire Properties Ltd. Properties Swire China Overseas Land and Investment Ltd. Investment and Land Overseas China Kerry Properties Ltd. Properties Kerry Ltd. Investment Group China of Bank Sino Land Co. Ltd. Co. Land Sino Capitaland Residential Ltd. Residential Capitaland Hang Lung Group Ltd. Group Lung Hang
Developers Kerry Properties Ltd. Ltd. Properties Kerry China Overseas Land and Investment Ltd. Ltd. Investment and Land Overseas China Ltd. (Holdings) Kong Cheung Ltd. Whampoa Hutchison Sino Land Co. Ltd. Co. Land Sino Ltd. Investment Group China of Bank
CITIC Pacific Ltd. Pacific CITIC
Package Three Package Coast) (Caribbean Sub-total
Package Three Package Sub-total Grand Total: Grand Package Two Package Skyline) (Coastal
(Harbour Green) (Harbour Sub-total Station Chung Tung Package One Package
(Tung Chung Crescent, Chung (Tung Citygate and Seaview Seaview and Citygate Crescent)
Lettable floor area City Two) City Package Two Package Central Avenue, (Park Olympian and Park Olympian City One) City Olympian Tsing Yi Station Yi Tsing and Verde (Tierra Olympic Station Olympic One Package
Location
HSBC Centre, Bank of of Bank Centre, HSBC and Centre China Square) Maritime (Island Harbourview, (Island
metres gross floor area commercial and office development; and development; office and commercial area floor gross metres (packages awarded) Airport Railway property developments Ltd, all located in Beijing’s central business district: SOHO SOHO district: business central Beijing’s in located all Ltd, commercial- area floor gross metres square 170,000 a Shangdu, square 60,000 a 7, Phase SOHO Wai Jian development; cum-office Three new property management contracts for office/commercial office/commercial for contracts management property new Three China SOHO by year the during committed were developments Business in the Mainland of China of Mainland the in Business related and management consultancy, property Corporation’s MTR 2006. in progress further saw China of Mainland the in businesses and office area of 582,073 square metres under MTR Corporation Corporation MTR under metres square 582,073 of area office and Kong. Hong in management 24-hour passage walkway at The Edge, gives a total commercial commercial total a gives Edge, The at walkway passage 24-hour * 36 MTR CORPORATION LIMITED Choi HungParkandRidedevelopment * Tseung KwanOLinepropertydevelopments(packagestobeawarded) Tseung KwanOLinepropertydevelopments(packagesawarded) Property business Executive management’sreport and The Lane) (Residence Oasis Hang Hau Station
Area 56 and The Edge) (The Grandiose Area 86 Package Two Area 55b
(No. 8 Clear Water Bay Road) (Central Heights)
Choi Hung Station Location Area 86 Tseung Kwan O South Station Area 86 Package One Tseung Kwan O South Station (Metro Town) Tiu Keng Leng Station Area 57a Tseung Kwan O Station Subject to review in accordance with planning approval, land grant conditions and completion of statutory processes. of Subject toreviewinaccordancewithplanningapproval,landgrantconditionsand completion
Location Location
*
Sino Land Co. Ltd. Kerry Properties Ltd.
Wee Investments Pte. Ltd. Chow Tai Fook Enterprises Ltd. Sun Hung Kai Properties Ltd. Cheung Kong (Holdings) Ltd. Chime Corporation Ltd. Henderson Land Development Co. Ltd. New World Development Co. Ltd.
Nan Fung Development Ltd. Cheung Kong (Holdings) Ltd. Cheung Kong (Holdings) Ltd. Sun Hung Kai Properties Ltd.
Developers
Chun Wo Holdings Ltd. Developers
6–11 No. of packages envisaged
Car park Retail
Retail Type
Car park Residential Residential
Park & Ride Type
Car park Residential Car park Office Retail Retail Hotel Car park Car park Residential Kindergarten Residential Home for the Elderly Residential Care Car park Retail Residential Car park Retail Retail Residential Residential Residential
Type Retail Car park
39,500–49,500
1,153,764– area (sq. m.) area (sq. m.) 1,163,764
Gross floor Gross floor 19,138 2,400
Gross floor
138,652 309,696 136,240 236,965 20,000 58,130 80,000 84,920 11,877 26,005 16,800 (sq. m.) parking spaces 3,100 5,000 3,500 3,637 3,653 (max.) area 800 500 Expected
parking spaces No. of No. of 450 parking 54 spaces No. of 363 369 905 249 325 609
74
package tenders Awarded in in February in January in January in January in July 2001 2007–2011 Awarded Awarded Awarded Awarded Awarded Awarded October Awarded in June in July Period of 2002 2005 Status 2007 2002 2000 2006 2002 Status
completion date 2009–2010 2006–2007 Completed Completed Completed Completed completion completion By phases By phases expected Expected Actual or in 2004 in 2006 in 2005 in 2005 Actual from 2011 2015 2008 from date date 37 ANNUAL REPORT 2006 35% 35% 35% 71% 71% 70% 70% 70% 72% 72% 72% 51% 40% 40% 40% 40% 40% 50% 51% 51% 51% 50% 50% 70% 70% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 38.5% 38.5% 67.05% Company’s Company’s 58,876 units 58,876 582,073 sq. m. sq. 582,073 ownership interest ownership ownership interest ownership
– 4 – – – – – – – – – – – – – – – – – – – – – – 1 – 54 18 25 33 76 10 54 50 16 50 196 154 217 292 133 579 117 330 993 450 136 651 415 220 126 No. of No. No. of No. 1,308 parking spaces parking parking spaces parking
*
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – 70 36 301 286 508 920 540 8,308 2,869 6,042 1,252 1,216 2,629 7,683 18,360 16,829 39,529 40,075 13,219 12,054 19,411 18,710 28,931 Groos floor Groos area (sq. m.) (sq. area area (sq. m.) (sq. area Lettable floor Lettable
Motorcycle park Motorcycle Residential park Car Car park Car Motorcycle park Motorcycle Residential park Car park Motorcycle Residential park Car park Motorcycle Car park Car signboard Advertising Shopping centre Shopping park Car Residential Type Type Office Residential park Car park Car park Car Shopping centre Shopping
Car park Car Shops hall sports Indoor park Car Car park Car park Motorcycle Ride & Park Shopping centre Shopping unit Shop Shopping centre Shopping Car park Car park Car centre Shopping Wet market Wet Car park Car Wet Market Wet Car park Car Shopping centre Shopping Kindergarten Car park Car Motorcycle park Motorcycle Shopping centre Shopping Car park Car park Motorcycle Kindergarten Shop unit Shop unit Shop park Car Shopping centre Shopping park Car
– Two IFC Two – IFC Two and One –
O Kwan Tseung Street, Chun Tong 9 Grandiose, The O Kwan Tseung Road, Ling King 8 Town, Metro O Kwan Tseung Street, Tak Tong 9 Heights, Central O Kwan Tseung Hau, Hang Road, Shing Pui 15 No. Oasis, Residence Phase I, Carpark Building, Kornhill, Quarry Bay, Hong Kong Hong Bay, Quarry Kornhill, Building, Carpark I, Phase Centre, Admiralty Signboard, Advertising Roof Kowloon Road, Fai Hoi 11 No. One, City Olympian Kowloon West, Road Austin 1 No. Sorrento, The Arch, No. 1 Austin Road West, Kowloon West, Road Austin 1 No. Arch, The Location Location
Lettable floor area Area of managed commercial and office space office and commercial managed of Area Number of managed residential flats residential managed of Number Island Harbourview, No. 11 Hoi Fai Road, Kowloon Road, Fai Hoi 11 No. Harbourview, Island Kowloon Road, Fai Hoi 11 No. Centre, China of Bank
No. 18 Harcourt Road, Hong Kong Hong Road, Harcourt 18 No. Kowloon Tsui, Kok Tai One, City Olympian No. 18 Harcourt Road, Hong Kong Hong Road, Harcourt 18 No. Centre, Admiralty Podium, Floor First Units, Shop Ten International Finance Centre (IFC), Central, Hong Kong Kong Hong Central, (IFC), Centre Finance International Telford Plaza I, Kowloon Bay, Kowloon Bay, Kowloon I, Plaza Telford
Olympian City Two, Tai Kok Tsui, Kowloon Tsui, Kok Tai Two, City Olympian Telford Plaza II, Kowloon Bay, Kowloon Bay, Kowloon II, Plaza Telford Kowloon Hung, Choi Territories New Wan, Tsuen Galleria, Yeung Luk Caribbean Coast, Tung Chung, New Territories New Chung, Tung Coast, Caribbean Paradise Mall, Heng Fa Chuen, Hong Kong Hong Chuen, Fa Heng Mall, Paradise Choi Hung Park & Ride Public Car Park, No. 8 Clear Water Bay Road, Bay Water Clear 8 No. Park, Car Public Ride & Park Hung Choi
Maritime Square, Tsing Yi Tsing Square, Maritime
The Lane, Hang Hau Hang Lane, The
G/F, No. 308 Nathan Road, Kowloon Road, Nathan 308 No. G/F, Kowloon Road, Nathan 783 No. G/F, Territories New Chung, Kwai Gardens, Fong Kwai New The Edge, Tseung Kwan O Kwan Tseung Edge, The * Managed properties (as at 31 December 2006) Properties held for sale (as at 31 December 2006) Note: All properties are held by the Company under leases for over 50 years except for TelfordNote: All properties are held by the Company under leases Plaza I and Luk YeungII, Galleria, Maritime Kwai IFC, Square, New Fong Gardens, on 30 June 2047, Choi Hung ParkOlympian City and Caribbean Coast where the leases expire & Ride where lease expires the on 11 November The Lane where2051, the lease expires on 27 March 2052. expires on 21 October 2052 and The Edge where the lease Investment property portfolio (as at 31 December 2006) (as at 31 December property portfolio Investment 38 38 MTRMTR CORPORATIONCORPORATION LIMITED expansion projects Hong Kongnetwork The Way Ahead Executive management’sreport
Line to Kennedy Town l in August was submitted to Government proposal on the West Island Line MAIN IMAGE e ft It would extend the Island A revised project 39
39 ANNUAL REPORT 20062006 With the Government’s plan in Hong Kong’s Central District District Central Kong’s Hong in plan Government’s the With tunnel overrun the extending is Company the proceeding, convenience more ensure will which Station, Kong Hong beyond The passengers. Express Airport to reliability enhanced and agreement entrustment the under constructed be will tunnel be will project the anticipate we and Government the with 2009. of half second the by completed substructure works were completed in October and and October in completed were works substructure project The begun. has works superstructure the of construction of quarter first the of end the by completion for scheduled is property first the of date occupation expected the meet to 2009 86. Area at package development tunnels overrun extended Station Kong Hong We continued to work on projects to enhance enhance to projects on work to continued We maintaining to view a with network existing the market local the in growth works of the Area 86 Northern access road. Associated electrical electrical Associated road. access Northern 86 Area the of works and September by awarded were contracts mechanical and station The 2007. late in start to expected are works installation 86 saw steady progress. The main civil contract was awarded in in awarded was contract civil main The progress. steady saw 86 level ground two-storey a of construction comprising June, entrusted Government and interchange transport public station, Station and tunnel projects projects tunnel and Station Station South O Kwan Tseung Area at Station South O Kwan Tseung new the of Construction the existing network or to extend it to areas of Hong Kong Kong Hong of areas to it extend to or network existing the services. rail our from benefit would which During 2006, MTR Corporation was engaged in the planning planning the in engaged was Corporation MTR 2006, During enhance to designed projects, of number a of construction and 40 MTR CORPORATION LIMITED Executive management’sreport aim of obtaining approval for the project. District, we continue our discussion with the projected traffic demand from residents of the Southern strengthen the regional centre as a tourism attraction. To meet and the north part of Ap Lei Chau could be revitalised to Kong’s Southern District, and concluded that areas in Aberdeen the planning of tourism and commercial development in Lei Tung. Early in 2006, the H railway service would run from Admiralty Station to South Under the South Island Line (East) proposal, a medium capacity South Island Line (East) Station to Kennedy Town via Sai Ying Pun and University stations. The West Island Line will extend the Island Line from Sheung Wan Transport and Works Bureau in August. plans was submitted to the completed in mid 2006 and the first version of the draft gazette The preliminary design study on the West Island Line was West Island Line Network extensions under consideration Hong Kongnetworkexpansionprojects project proposal submitted to the orizons on Ap Lei Chau via Ocean Park, Wong Chuk completed in mid 2006 study on West Island Line was ri gh G t G The preliminary design overnment completed a review of overnment in July, with a revised G overnment’s Environment, G overnment with the H ang and H ong The new departure platform linking SkyPlaza at the Pedestrian links relieve crowding on the Island Line. convenient rail services for the new waterfront areas, as well as to planning for the Wan Chai reclamation and would provide shore of an extension of the existing Tung Chung Line along the north Island Line alignment with the The Company continued to discuss our proposals for the North North Island Line to works starting. Pioneer Centre and Prince Edward Station is under review prior pedestrian subway at Sai Yeung Choi Street South linking Pacific Place also opened in February 2007. The design of a The Queensway Subway linking Admiralty Station with Three a coach station, retailing, catering and entertainment areas. Kok Airport with customs, immigration and quarantine facilities, complex, housing the second passenger terminal at Chek Lap 2007. SkyPlaza is an integrated terminal and commercial International Airport with the Airport Express opened in February H ong Kong Island. The project is integrated with the G overnment. This line would be H ong Kong
41 ANNUAL REPORT 2006
Works for the Queensway Subway linking linking Subway Queensway the for Works ung, Sheung Wan and and Wan Sheung ung, H LEFT Place Pacific Three with Station Admiralty 2007 February in completed were ing, Kowloon Bay, Choi Choi Bay, Kowloon ing, H overnment. overnment. developments. Design of the subway began in February 2007 2007 February in began subway the of Design developments. in completion for 2009 early in start to expected is work and 2012. early Link Pedestrian Underground an for proposal a November, In the to submitted was Station Bay Causeway at scheme G at consideration under also are links pedestrian Further stations. Olympic In order to enhance the accessibility of the Tsim Sha Tsui Station Station Tsui Sha Tsim the of accessibility the enhance to order In station’s the linking planned also is subway pedestrian a further, adjoining of basements the with platform northern Kwai Kwai otel. otel. H yatt yatt H overnment has issued authorisation for a pedestrian pedestrian a for authorisation issued has overnment G overnment for construction of two underground entrances entrances underground two of construction for overnment completion in early 2010. early in completion linking the concourse of Tsim Sha Tsui Station with the the with Station Tsui Sha Tsim of concourse the linking the formerly Road, Nathan 63 No. of redevelopment for 2007 of end the towards begin to scheduled is Work completion in early 2009. 2009. early in completion the to proposal a submitted Corporation MTR July, In G subway at Cheung Lai Street connecting Lai Chi Kok Station with with Station Kok Chi Lai connecting Street Lai Cheung at subway is Work Road. Kok Chi Lai of south the at developments new the for scheduled is and 2007 of quarter first the in begin to expected The The 42 42 MTRMTR CORPORATIONCORPORATION LIMITED GOING places growth strategy in 2006 We made steady progress in our international Overseas growth Executive management’sreport RMB4.6 billion, or 30% of the capital cost, is being borne This is a RMB15.3 billion project, of which approximately Progress of our investment in BJL4 has been good. Mainland of China exploration of opportunities in the UK and continental Europe. other projects in the Mainland of China, as well as further Line 4 (BJL4) project and additional preparation work for our strategy in 2006, with the final approval for the Beijing Metro We made steady progress in our international growth
China and China Development Bank. loans provided by the Industrial and Commercial Bank of and 70% by two RMB1.6 billion 25-year non-recourse bank company will be financed 30% by equity from the partners civil construction. The RMB4.6 billion investment by the PPP Beijing Municipal Government to finance land acquisition and remaining 70% of the capital cost is being funded by the Investment Co. Ltd. and 49% by Beijing Capital Group. The 49% owned by MTR Corporation, 2% by Beijing Infrastructure by a Public-Private Partnership (PPP) company which is
43
43 ANNUAL REPORT 20062006
Preparatory work for our projects Civil work for Shenzhen Metro Line 4 project MAIN IMAGE in the Mainland of China is in progress RIGHT is ready to begin 44 MTR CORPORATION LIMITED ABOVE to be completed by 2009. Programmes have been finalised. Construction is expected under construction. Operation Readiness Targets and Tasks construction programme is well on target with 23 stations awarded. The 29km line comprises 24 stations, and the stock, signalling and automatic fare collection systems were and Financing Agreement were signed. Contracts for the rolling and in April 2006 the Concession Agreement, Lease Agreement (NDRC), the business licence of the PPP company was granted approval of the National Development and Reform Commission were achieved during the year. In January 2006, following the operation of, the BJL4 for 30 years. A number of key milestones Municipal Government for investment in, and construction and The PPP company has a Concession Agreement with the Beijing Overseas growth Executive management’sreport Construction progress on Beijing Metro Line 4 is well on target, with 23 stations now under construction Wuhan and Suzhou. projects in key cities such as Shenzhen, Beijing, Hangzhou, The Company also made further progress on similar potential and Phase 1 take-over programmes are being finalised. completion and civil work is ready to begin. Operations Readiness resumption have begun. Initial preparatory work is near and Phase 2 for 30 years. Related utilities diversion and land build Phase 2 of Shenzhen Metro Line 4 and operate Phase 1 In Shenzhen we are awaiting approval from the NDRC to Guojiatushuguan Lingjinghutong Zhongguancun Yuanmingyua Beijing MetroLine Renmindaxu Gongyixiqiao Beigongme Xuanwumen Taorantin Xizhimen Pinganli Majiap g n n u e
Jiaomenx Beijingnan Caishikou Xida Xisi Xinjiekou Dongwuyuan Weigongcu Haidianhuangzhuan Beijingdaxuedongme Xiyuan Anheqiaobei n i n 4 g n 45 ANNUAL REPORT 2006 The Concession, Lease and Financing Agreements Agreements Financing and Lease Concession, The LEFT April in signed were 4 Line Metro Beijing for In November 2006, MTR Corporation entered into a 50/50 joint joint 50/50 a into entered Corporation MTR 2006, November In state-owned a is which SJ, company railway Swedish with venture for bid joint a prepare to Sweden, in operator train passenger in concessions Öresundståg the for 2007 February in submission the over take will bidder successful The Denmark. and Sweden 2008. of end the at concessions was UK the in Franchise Western South the for bid earlier Our incumbent the to awarded was contract the and unsuccessful holder. franchise to submit a Best and Final Offer for the concession. A decision on on decision A concession. the for Offer Final and Best a submit to 2007. mid in expected is bidder preferred the miles in the Greater London region and carries approximately 23 23 approximately carries and region London Greater the in miles London for Transport December, In year. per passengers million bidders two the of one as Rail Laing with partnership our selected Rail Concession (LRC). LRC will use an inner suburban commuter commuter suburban inner an use will LRC (LRC). Concession Rail of extremities eastern and northern western, the serving network route 60 over stations 60 serves currently LRC London. Greater In October 2006, the Company and Laing Rail submitted a joint joint a submitted Rail Laing and Company the 2006, October In London formed newly the for contract service cost gross a for bid renewals, are coming up over the next few years. We will also also will We years. few next the over up coming are renewals, Germany, as such countries, European other in opportunities seek develop. to expected is privatisation where operating service contracts. The primary focus is in the UK and and UK the in is focus primary The contracts. service operating transport public of privatisation the where markets, Scandinavian franchise as well as franchises, new of number a and mature, is Europe “asset-light” pursue to continues Europe in strategy Our 46 46 MTRMTR CORPORATIONCORPORATION LIMITED Human resources TEAM SPIRIT Executive management’sreport Tremendous effort has been attached to communicating the the interests of all staff going into the proposed merger. members and the Company has committed to looking after The proposed rail merger with KCRC is a key issue for staff Merger planning and communication participation in merger integration programmes. career development initiatives for new business growth, and competence and develop the potential of our staff through adapt to change. During 2006, we continued to enhance core to provide service excellence, drive business expansion and in attracting and retaining the high calibre people needed MTR Corporation has been highly successful over the years
published jointly by the Company and KCRC. email. In addition, a special merger newsletter has been and Human Resources Director, briefings, a merger hotline and various channels, including a CEO video, letters from the CEO Since then, staff has been kept abreast of progress through staff views. raise questions, and enable management to listen to employees with the opportunity to obtain information and some 60 communication sessions were held, providing all immediately following the merger announcement in April, merger’s possible implications. During the three days
47 ANNUAL REPORT 2006
8 5 4 3 9
4,52 26 10 83 90 2006 6,639 0 6 9 6 4,60 24 82 68 89 2005 6,513 9 0 0 6 4,66 86 66 36 2004 6,555 0 2 5 2 4,73 40 85 64 2003 6,629
6 6 8 1 . 4,83 88 61 55 2002 6,891 Numbers of staff s t s Property development and management Engineering and projec Corporate management and service department Operation China and international businesses In support of our business expansion in Hong Kong and overseas, overseas, and Kong Hong in expansion business our of support In year the during grew workforce our areas to ensure staff members have the skills they need. they skills the have members staff ensure to areas the of support in Plan Training and Education corporate A training while developed, was Policy Safety Corporate new enhance to expanded were e-learning as such channels service customer of area the In further. effectiveness training through improvement on placed was emphasis training, listening. empathetic strength staff Total The award reflects initiatives such as the “More Time Reaching Reaching Time “More the as such initiatives reflects award The to 2005 November in launched was that scheme Community” voluntarily projects community to support corporate provide 81 of total a 2006, During staff. by in participated and initiated from volunteers 1,500 over involving undertaken were initiatives the children, underprivileged elderly, the helping Company, the others. and challenged mentally and physically development and Training all in training provide to continued Company the 2006, During 1.54 2006 . 1.52 2005 1.40 2004 1.27 2003 1.26 2002 HK$ million Productivity has shown continuous improvement continuous shown has Productivity for the year 2006/07. 2006/07. year the for Service in February. Following nomination by five different social social different five by nomination Following February. in Service again award prestigious this given were we organisations, service harmonious working environment for its staff, and of its its of and staff, its for environment working harmonious Caring the awarded were we community, the to contributions Social of Council Kong Hong the by 2005/06 Logo Company Caring company Caring and safe a provide to efforts Company’s the of recognition In communications to all staff on the major terms and conditions of of conditions and terms major the on staff all to communications and structure organisation on communication employment, staff. by received well were which workshops, integration cultural implementation strategies with care to ensure “buy-in” from staff. staff. from “buy-in” ensure to care with strategies implementation positions frontline of announcement the included Examples mass merger, the to relation in protected be will which between the two companies. This involved working closely with with closely working involved This companies. two the between information, of exchange the on parties external and internal developing and analyses, impact detailed conducting Beyond transparent communications, we worked hard during the the during hard worked we communications, transparent Beyond human aligning by integration smooth a for prepare to year practices and cultures work practices, and policies resource Staff productivity – turnover per operating operating per turnover – productivity Staff employee railway 48 MTR CORPORATION LIMITED that includes cross-functional placements. Kong and overseas, under a three-year development programme develops top-notch graduates from the Mainland of China, Hong level. Finally, the Graduate Trainee Programme recruits and development of high potential staff at the middle management Executive Associate Scheme identifies and fast tracks potential staff at executive and senior managerial level. The The People Development Initiative identifies and develops high other world-class practices. development programmes, cross-functional placements and prospects via a rigorous selection process, comprehensive the year, designed to establish a pipeline of management an important task and three key initiatives continued during Developing talent for general management continues to be Leadership development the Mainland of China. Qualification, which will help support our growth strategy in successfully acquired China’s National Enterprise Trainer awards for nine consecutive years. In addition, 17 trainers the Vocational Training Council. The Company has won similar being awarded the Outstanding Apprentices/Trainees Award by Success during the year included two Company apprentices Executive management’sreport Human resources
support this aspect of our operations. the year we established a designated HR team to specifically With our businesses outside Hong Kong growing rapidly, during Support for growth business 81 initiatives involving over 1,500 volunteers ABOVE foster a feeling of connectedness with the Hong Kong operations. communication with our staff working outside Hong Kong and & Communication Programme” was launched to enhance provided and during the year a “Stay-in-touch Employee Care We also regularly review and adjust the relocation support and regular workshops on business related topics. growth businesses, we organised intensive training programmes To enhance the skills and knowledge of staff involved in our of the world. Beijing, Shanghai, Taiwan, the United Kingdom and other parts and overseas business development, with over 30 stationed in are involved in consultancy business, investment projects Currently more than 170 full-time-equivalent staff members
The “More Time Reaching Community” scheme supported
49 ANNUAL REPORT 2006
0 5 0 2006 9. 6. 11. 5
200 2004 2003 s 2002 2001 2000 1999 n 1998 1997 8 4 2 6 0 In HK$ billio 10 12 Turnover Operating profit before depreciation (after property development profit) Net profit excluding investment property revaluation (profit from underlying businesses) Property management income increased by 12.0%, mainly mainly 12.0%, by increased income management Property portfolio, management the of expansion the to attributable and Grandiose The Arch, The as such additions new including Town. Metro Income from station commercial and other businesses increased increased businesses other and commercial station from Income income advertising in growth to mainly attributable 3.3%, by respectively. 13.7% and 4.7% by rose which rental shop and our and economy strong the by supported was growth This of expansion as well as formats advertising new of introduction Ping Ngong programme. renovation station the from area kiosk HK$64 contributed also 2006, September in opened which 360, was telecommunications in growth Income revenue. to million 2005 in received income non-recurring the by affected the in pressure pricing and cannibalisation continuous the and miscellaneous other and Consultancy market. phone mobile steady. were revenues business addition the and market retail the in growth continued With the in contracts management property and space retail more of management and ownership property from income portfolio, increased income Rental million. HK$1,412 to 7.3% by increased rates rental higher of result a as million HK$1,263 to 6.8% by rent turnover increased cases, renewal and relet on achieved the as well as Lane The of operation full-year the and received 2006. in Edge The and Ride and Park Hung Choi the of opening The lower development profit also affected net profit before before profit net affected also profit development lower The revaluation. property investment Net results from underlying businesse underlying from results Net
1 8 1 4. 5. 1. 0 11. 2006 0 1 1 4. 1. 6. 11.2 2005 6 6 9 3. 4. 0. 9.1 2004 9 8 4 2. 0. 5. s 9.1 2003 2 8 8 3. 0. 3. 7.8 2002 in HK$ billion
operations and related businesses management Property development Railway Property ownership and Good overall results maintained despite slightly slightly despite maintained results overall Good development. property from profit lower Operating profit contribution profit Operating received in 2006 relating to mobile network upgrading, non-fare non-fare upgrading, network mobile to relating 2006 in received 7.7%. by increased have would revenue management. In 2005, a one-off income was received from from received was income one-off a 2005, In management. telecommunication a of termination early an of settlement incomes non-recurring minor other and this Excluding contract. Non-fare revenues increased by 5.1% to HK$3,018 million, million, HK$3,018 to 5.1% by increased revenues Non-fare other and commercial station from million HK$1,606 comprising and ownership property from million HK$1,412 and businesses a 3.4% decline in average fare to HK$63.85 attributable to the the to attributable HK$63.85 to fare average in decline 3.4% a the from and to travelling passengers for fare average lower Station. AWE HK$612 million due to a patronage increase of 12.8% to 9.6 9.6 to 12.8% of increase patronage a to due million HK$612 full-year the and air-passengers in growth from resulting million by offset partly Station, AWE the of opening the of effect operations. to 9.1% by increased Express Airport the from revenue Fare and a 2.2% increase in average fare to HK$6.82. The increase increase The HK$6.82. to fare average in increase 2.2% a and changes both of effect full-year the to due was fare average in DRL of opening the and programmes promotion certain in Profit and loss and Profit HK$5,911 to 3.3% by increased Lines MTR from revenue Fare million 867 to patronage in growth 1.0% a of result a as million Review of 2006 financial results financial 2006 of Review Financial review Financial 50 MTR CORPORATION LIMITED of 7,609 square metres at Elements at Kowloon Station. as well as sharing-in-kind in respect of an additional floor area Green at Olympic Station and Elements at Kowloon Station, Skyline and Caribbean Coast at Tung Chung Station, Harbour Leng Phase 1), recognition of deferred income from Coastal Heights at Tseung Kwan O Station and Metro Town ( Tiu Keng comprising surplus proceeds from The Grandiose and Central million compared to HK$6,145 million in 2005, mainly Property development profit in 2006 amounted to HK$5,817 compared to 55.7% in 2005. in 2005 to HK$5,201 million in 2006. Operating margin was 54.5%, depreciation therefore increased by 2.0% from HK$5,101 million Operating profit from railway and related businesses before 7.1% to HK$4,340 million. Ping 360. Overall operating costs during the year increased by and Europe, as well as the pre-operating expenditures for Ngong development activities in Hong Kong, the Mainland of China expenses increased by HK$125 million due to increased Mall in Beijing. Project studies and business development business expansion in Hong Kong and expenditures for Ginza and management expenses increased by 31.1%, mainly due to with the growth of business activities, while property ownership commercial and other businesses increased by 23.7%, in line rates would have increased by 9.8%. Expenses related to station it opened. Excluding this one-off item, operational rent and relating to the Tseung Kwan O Line, backdated to 2002 when settlement with Government on ratable value assessment rates reduced by 29.3% owing to a one-off income from mainly due to annual salary increase. Operational rent and Staff costs and related expenses rose by 2.4% during the year, Financial review Turnover operations and a strong economy. Growth in revenue came across the board, supported by our expanding Fare revenue and otherrevenue Station commercial income management Rental and
in HK$million 7,686 2002 97 98 5,720 9 7 7,594 2003 1,117 98 5,489 8 8,351 2004 1,108 1,311 5,932 9,153 200 5 1,555 1,316 6,282 9,541 2006
1,412 1,606 6,523
an amount of HK$2,800 million pre-tax (HK$2,310 million post post-tax) was recognised in the profit and loss account. In 2005, properties in 2006 of HK$2,178 million pre-tax (HK$1,797 million properties, the increase in market value of our investment Accounting Standard (“HKAS”) 40 on revaluation of investment in 2005 to 6.7 times in 2006. In compliance with the Hong Kong to 5.5% in 2006, whilst interest cover reduced from 7.6 times the Company’s average interest cost increased from 5.1% in 2005 which are no longer capitalised. With higher market interest rates, expensing of interest costs relating to DRL and the AWE Station an increase of 2.7% owing to the rise in interest rates and the Net interest expense for 2006 amounted to HK$1,398 million, on certain assets which have been fully depreciated. Station, which were offset by the termination of depreciation full year depreciation charge in 2006 for DRL and the AWE addition of Ngong Ping 360 and other new assets, as well as the This represents a similar level as in 2005 after accounting for the Depreciation charge for the year amounted to HK$2,674 million. a slight reduction of 2.0% from HK$11,246 million in 2005. Operating profit before depreciation was HK$11,018 million, in 2005 to HK$1.41 in 2006. Earnings per share correspondingly decreased from HK$1.55 attributable to equity shareholders, a drop of 8.2% from 2005. by 8.3% to HK$7,758 million, of which HK$7,759 million was million. As a result, the net profit for the Group in 2006 declined comprising mainly deferred tax provision amounted to HK$1,411 venture partner, amounted to HK$23 million. Tax expense Kingdom, via a jointly controlled entity established with the joint costs for bidding for the South Western Franchise in the United million, an increase of 70% from 2005. The Company’s share of The Company’s share of net profit of OHL amounted to HK$68 tax) was recognised in the profit and loss account. our business activities. Most cost items rose, largely reflecting the growth in Operating expenses Staff costs Energy andutilitie and consumables Repairs, maintenance expenses and propertyrelated Station commercial expenses development business Project studyand expenses Other railway
s
in HK$million 3,672 2002 218 465 1,57 502 556 352 9 3,847 2003 49 455 549 1,64 546 605 3 3,822 2004
167 398 1,54 544 645 522 6 4,052 2005 543 142 1,61 541 616 596 4 4,340 2006 49 26 1,65 53 63 75 5 7 9 1 5 3
51 ANNUAL REPORT 2006
80.6 26.3 9 106. 2006 80.5 22.8 3 5 200 103. 80.8 18.9 7 99. 2004 14.2 82.7 3 9 96. 200 10.3 84.0 3 94. 2002 in HK$ billion
t Investment properties Other property, plant and equipmen Derivative financial assets and liabilities, which represent the the represent which liabilities, and assets financial Derivative by required as instruments financial derivative of value fair million HK$515 and million HK$195 at recorded were 39, HKAS HK$234 to compared as 2006 December 31 at as respectively movements The 2005. in respectively million HK$307 and million Hong stronger and rates interest US higher to due mainly were causing period, the during rates exchange forward dollar Kong fair currency and rate interest Group’s the of value the in decline a hedges. value growth assets Fixed as well as 360, Ping Ngong of capitalisation revaluation, property on Surplus assets. fixed in growth the to led Elements of part and Edge The of receipt Railway construction in progress decreased from HK$1,006 HK$1,006 from decreased progress in construction Railway 2006, December 31 at as million HK$232 to 2005 in million project 360 Ping Ngong the of transfer-out from resulting mainly by offset partly being completion, upon assets fixed to costs the at Platform SkyPlaza the on expenditures capital additional projects. Station South O Kwan Tseung the and Airport incurred costs represents progress in development Property already reimbursement less sites development property in progress in development Property developers. from received from million HK$3,297 to increased 2006 December 31 at as of capitalisation the to due mainly 2005, in million HK$2,756 the to provided loan interest-free an of respect in interest Two Package 86 Area O Kwan Tsueng of developer property from received reimbursement, by offset partly development, expended. costs up-front of project, same the of developer from million HK$2,018 to increased sale for held Properties residential unsold mainly comprising 2005 in million HK$1,311 in Town Metro and Heights Central Grandiose, the at units Station. Kowloon in Arch The at and O, Kwan Tseung
2006 2005 2004 2003 e 2002 30 20 10 60 50 40 Percentag n Operating margin (after depreciation) Operating margin (before depreciation) Operating margin has shown a steady improvement since 2003. since improvement steady a shown has margin Operating Operating margi Operating capitalisation of Ngong Ping 360 upon commissioning in in commissioning upon 360 Ping Ngong of capitalisation 2006. September investment property revaluation, the receipt of retail space (The (The space retail of receipt the revaluation, property investment square 7,609 and O Kwan Tseung in Grandiose the at Edge) the as well as Station Kowloon at Elements of gross metres assets invested in the railway system. Total fixed assets increased increased assets fixed Total system. railway the in invested assets at as million HK$106,943 to 2005 in million HK$103,275 from from surplus a to attributable mainly 2006, December 31 ending 31 December 2009. December 31 ending sheet Balance of bulk the with strong, remains sheet balance Group’s The is offered by the Company) to the extent necessary to ensure ensure to necessary extent the to Company) the by offered is will dividend total Company’s the of 50% of maximum a that years financial three the of each of respect in cash in paid be total dividend will be paid in cash. On 8 November 2006, 2006, November 8 On cash. in paid be will dividend total its receive to commitment its extend will it that agreed FSI dividend scrip a (if shares of form the in dividends to entitlement Secretary Incorporated (“FSI”) has agreed to receive its its receive to agreed has (“FSI”) Incorporated Secretary extent the to shares of form the in dividends to entitlement Company’s the of 50% of maximum a that ensure to necessary dividend option offered to all shareholders except those with with those except shareholders all to offered option dividend of any or America of States United the in addresses registered Financial The years, previous in As possessions. or territories its The Board has recommended a final dividend of HK$0.28 per per HK$0.28 of dividend final a recommended has Board The scrip a with total, in million HK$1,554 to amounting share, deferred tax provision, the underlying profit for the Group was was Group the for profit underlying the provision, tax deferred which HK$1.08, of share per earnings with million HK$5,962 2005. than lower 4.4% and 2.9% respectively were Excluding investment property revaluation and the related related the and revaluation property investment Excluding 52 MTR CORPORATION LIMITED standard Hong Kong Profits Tax rate of 17.5%. for the year, including provision on property revaluation, at the HK$9,453 million, mainly attributable to the tax effect on profit Deferred tax liabilities increased from HK$8,011 million to pre-sales activities. accordance with the progress of property construction and Kowloon and Olympic station development packages, in to HK$1,682 million following profit recognition at Tung Chung, Deferred income decreased from HK$3,584 million in 2005 which was primarily used for refinancing purposes. drawn down during the year amounted to HK$8,428 million, an increase of HK$94 million compared with 2005. Total debt accounting effects, total debt outstanding was HK$28,768 million, HK$28,152 million. Excluding the mark-to-market and hedge The carrying amount of total debt outstanding at year end was capitalised interest of HK$123 million accrued during the year. carried a balance of HK$3,355 million after recognition of million at inception. As at the end of the year, this loan receivable was recognised on the balance sheet at its fair value of HK$3,232 developer of Tseung Kwan O Area 86 Package Two development The interest-free loan of HK$4,000 million lent to the property of residential units which had been pre-sold. 2005 as a result of collection of receivable from purchasers significantly to HK$1,894 million from HK$3,095 million in Debtors, deposits and payments in advance decreased Financial review Cash utilisation Company invested in new projects and provided a loan to a developer. 2006 saw a minor net cash outflow, against an inflow in 2005, as the Use ofCas Source ofCash Operating activities and purchasers property developers Receipts from Net borrowings Capital expenditure Interest paid Dividends paid Net loanrepayment property develope Loan providedtoa Others, ne h t r in HK$billion Source ofCash 200 7. 8 5 5.2 2.6 2006 10.0 5. 0. 4. 4 2 4 200 7. Use ofCash 8 5 1.6 1.4 1.1 0. 3.5 2
2006 10.0
2. 1. 1. 4. 0. 9 6 2 0 3
million provided to a property developer, as compared to HK$5,934 million before a one-off interest-free loan of HK$4,000 in working capital and dividend payments amounted to Outflows for capital project payments, interest expenses, changes HK$2,610 million in the previous year to HK$4,400 million. in respect of property development projects also increased from for the year, while cash receipts from developers and purchasers increased from HK$5,189 million in 2005 to HK$5,400 million Net cash inflow generated from railway and related activities Cash flow equity ratio from 39.9% to 36.3%. improved from 40.4% to 36.7% at 2006 year end and net debt-to- 31 December 2005. As a result, the Group’s debt-to-equity ratio increased to HK$76,767 million from HK$69,875 million as at HK$5,450 million, total equity attributable to equity shareholders HK$253 million and retained earnings net of dividends of with increases in fixed asset revaluation and other reserves of issued for scrip dividend and share options exercised. Together HK$1,189 million to HK$38,639 million at year end due to shares Share capital, share premium and capital reserve increased by HK$40 million. in debt of HK$94 million and a drawdown of cash balances of cash deficit of HK$134 million which was financed by an increase million in 2005. After this one-off loan advance, there was a a net cash inflow of HK$3,866 million compared to HK$1,806 one-off interest-free loan, the Company would have recorded HK$5,993 million for the previous year. Hence, excluding the Debt servicing capability debt service ability remained strong and the debt-to-equity ratio improved. Total debt outstanding reduced slightly in 2006, with MTR Corporation’s Percentag Debt-to-equity ratio Times (rightscale) Interest cover Percent (leftscale) outstanding EBITDA/total loans e
5 10 15 20 25 30 35 40 45 2002 62.5 2003 55.9 2004 49.1 2005 40.4 2006 36. 6. 39 7 7
8 1 2 3 4 5 6 7 9
53 ANNUAL REPORT 2006
31 28 s s 52 y 20 49 20
Beyond 5 years 2 to 5 year Within 2 year By maturit s 2005 2006 s 34 s s Percentage* (As at 31 December 2006) 34 2 4 64 62 Interest rate swap Cross currency & interest rate swap Foreign exchange forward By instrument * Calculated based on nominal value Use of interest rate and currency risk currency and rate interest of Use product hedging The Company is an active user of derivative financial instruments, and and instruments, financial derivative of user active an is Company The only. purposes hedging for use their limiting of policy strict a has currency exposure, a well-balanced spread of maturities, the the maturities, of spread well-balanced a exposure, currency adequate an and instruments financing of types different of use able was Company the so, doing In horizon. financing of length adequate with portfolio debt diversified well a maintain to requirement. funding future its of coverage forward As at the end of 2006, the Group had total undrawn committed committed undrawn total had Group the 2006, of end the at As and hand on cash with together which billion, HK$5.7 of facilities expected are 2007 during flow cash operating positive projected well needs funding anticipated for coverage sufficient provide to 2007. through borrowing of Cost contained well is risk rate interest to exposure Group’s The debts, rate floating and fixed of mix conservative our to due result, a As financings. rate fixed attractive secure to ability and first the in rates short-term in increase significant the despite from 5.5% to rose year the for cost borrowing average half, increased and rate average higher the to Due 2005. in 5.1% by increased 2006 for expense interest gross borrowings, million. HK$1,524 to million HK$49 management Risk activities hedging and financing our conduct to continued We Financing Preferred well-established our with accordance in preferred the specifying by risks diversify to seeks which Model, of level permitted the debt, rate floating and fixed of mix
37 25 20 Medium term notes US$ Eurobonds HK$ bonds Bank loans & export credits US$ Global bonds 16 2 By instrument 57 g Percentage (As at 31 December 2006) t 13 (excluding Japan) 14 Hong Kong US Japan Europe Asia 15 1 By marke international markets. international Sources of borrowin of Sources diversify to is strategy our market, main our is Kong Hong Although important other to access ready maintain and sources funding our and HK$1.1 billion in 7 years maturity. This, together with the the with together This, maturity. years 7 in billion HK$1.1 and billion HK$4.1 of total a raise helped issued, MTNs billion HK$1.5 year. the in Group the for financings new of enter into a number of bilateral loan facilities on attractive terms. terms. attractive on facilities loan bilateral of number a into enter in billion HK$2.6 of total a arranged Group the year, the During maturity years 5 in billion HK$1.5 comprising loans, bank bilateral coupon rates of 4.3% and 4.15%. and 4.3% of rates coupon credit down drive helped also market the in liquidity excess The to Group the enabling further, market banking the in spreads Group successfully launched two separate fixed rate medium medium rate fixed separate two launched successfully Group million HK$500 a placement, private via issues (MTN) note term respective with note 3-year billion HK$1.0 a and note 2-year In 2006, the Group continued to focus our fund raising activities activities raising fund our focus to continued Group the 2006, In excess the of advantage take to market dollar Kong Hong the in the November, and February In rates. interest lower and liquidity result, Hong Kong dollar interest rates remained consistently consistently remained rates interest dollar Kong Hong result, year. the during rates US below tightening policy. During the year, the Hong Kong dollar market market dollar Kong Hong the year, the During policy. tightening capital strong attracting liquidity, with flooded be to continued a As activities. IPO and market stock buoyant the from inflows pursue a tighter monetary policy by raising the Fed Funds target target Funds Fed the raising by policy monetary tighter a pursue reached rate Funds Fed the when stabilised rates Interest rate. the to halt temporary a signalled Reserve Federal the and 5.25% New financings New rose rates interest dollar Kong Hong 2006, of half first the During to continued Reserve Federal the as rates US with tandem in Financing activities Financing 54 MTR CORPORATION LIMITED from stable to positive. In July, Moody’s changed the rating outlook for the Company issuer/foreign currency debt ratings at Aa3, with a stable outlook. short-term issuer rating at P-1 and long-term local currency Ceilings”. At the same time, Moody’s reaffirmed the Company’s based on its revised rating methodology for “Foreign-Currency following a review of corporate ratings throughout the region currency issuer rating from A1 to Aa3 with a stable outlook, In May, Moody’s upgraded the Company’s long-term foreign management and continuous Government support. Government based on our credit fundamentals, prudent financial maintained strong ratings on par with the Hong Kong SAR obtain internationally recognised credit ratings and has since The Company was the first Hong Kong corporate entity to Credit ratings concept to quantify and monitor these exposures. accepted “value-at-risk” methodology, and an “expected loss” adopts a risk monitoring framework based on the widely accordance to their credit ratings. In addition, the Company A-/A3, and that limits be assigned to these counterparties in requires all counterparties to have a minimum credit rating of To monitor and control counterparty risk exposure, the policy and currency risks, and not for speculation or trading purposes. used for hedging purposes to reduce exposure to interest rate of the Company stipulates that these instruments can only be financial instruments to manage our debt portfolio. The policy The Company remains an active corporate user of derivative Financial review debt portfolio approach to debt management and helps ensure a well balanced The Preferred Financing Model exemplifies the Company’s prudent Preferred financing model and debt profil in percentag Currency in percentag Maturity in months Financing horizon in percentag Interest ratebase in percentag Source
e e e e . As at31December2006 (Preferred FinancingModel)vs. (10-40 Fixed rate HK$ Within 2year Medium termloans Capital marketinstrument ) 15 s US$ Floating rate
2 to5year (40-60) (20-50) s Actual debtprofile 61 48 s Short termloansandoverdrafts Export credit (50-80) 79 Beyond 5year e (20-50) (70-100) s (30-60) (40-60)
(6-15)12 16
99.8 37 39 s (0-30) (0-10) (0-15)
0.2 1 4
stable outlook. short/long-term local currency ratings at a foreign currency rating from AA- to AA and reaffirmed our In August, R&I also upgraded the Company’s long-term * RatingsforHongKongdollar/foreigncurrencydenominateddebtsrespectively. term local/foreign currency ratings at A-1+ with a stable outlook. foreign currency ratings from AA- to AA and reaffirmed our short- In July, Standard & Poor’s raised the Company’s long-term local/ in Hong Kong Investment in new railway lines and existing network network and committed projects, are estimated at HK$5 billion. Projected capital expenditures between 2007–2009, based on existing Rating and investment Moody’s Standard & Poor’s Credit ratings Urban Line and otherprojects Tung ChungCableCar Disneyland ResortLine, capital work Airport Railwayfurther further capitalwork Tseung KwanOLine Information Inc. (R&I)
s s
s
2004 In HK$billion 2.5 0. 0. 1. 1. 1 4 0 0 2005 2. 0 1. 0. 0. 0 1 9 Short-term ratings 2006 1. 5 A-1+/A-1+ 0. 0. 1. 1 4 0 2007 1.8 a • –/P-1 0. 1. 0. 0. 1+/– • 4 0 3 1 1+/AA with a 2008 1.6 1. 0.
* 0.
2
1 3 2009 Plan 1.6 Long-term ratings 1. 0. 4 2 2010 0.9
Aa3/Aa3
AA/AA AA/AA 2011 0.6
* 55 ANNUAL REPORT 2006 as investment in new railway projects, whilst for property property for whilst projects, railway new in investment as for works fit-out of costs the mainly comprises it development, Tseung for works enabling development property Elements, Area for works infrastructure common and Station South O Kwan consists it investments, overseas For sites. development 86 4 Line Metro Shenzhen for expenditure capital of mainly as well as development property related the and construction total programmes, current on Based BJL4. for investment equity 2009 and 2007 between years three the for expenditures capital railway for billion HK$5 approximately be to estimated are Kong Hong in investment property for billion HK$1.4 projects, of total a in resulting investments, overseas for billion HK$6.4 and overseas for requirement billion HK$6.4 the Of billion. HK$12.8 Metro Shenzhen the for loan project billion RMB3.6 a investment, strong our of light In secured. been already has project 4 Line Group the commitments, modest these and position financial new other fund to capacity financing sufficient have to expects Line, Island West as such Kong Hong in opportunities investment overseas. and (West), and (East) Line Island South the capital outlays for sustaining and upgrading existing lines as well well as lines existing upgrading and sustaining for outlays capital programme comprises three parts – railway and property property and railway – parts three comprises programme Capital investment. overseas and Kong, Hong in projects of mainly consists Kong Hong in projects railway for expenditure Financing capacity capacity Financing expenditure capital projected current Company’s The and economic conditions, and future likely changes. To manage manage To changes. likely future and conditions, economic and funding our of assessment detailed effectively, capital of cost our basis. regular a on conducted is structure capital and requirement assumptions are realistic and robust, we also carefully review all all review carefully also we robust, and realistic are assumptions sensitivity conduct and model, the in used assumptions key business present account into taking variables, key on analyses investments. The model subjects all investment proposals to to proposals investment all subjects model The investments. average weighted our account into take that evaluations rigorous our ensure To return. of rate required and capital of cost We continued to use our comprehensive long-term financial financial long-term comprehensive our use to continued We to methodologies well-established on based model planning and projects new evaluate and operations railway our plan Financial planning planning Financial 56 MTR CORPORATION LIMITED # † Consolidated * Ten-year statistics New New on leases Dividend Interest Total Operations departments Corporate Employees Operating in percentage Financial Ratios Total in HK$ million Balance Sheet Profit Depreciation Turnover in HK$ million Profit and loss account Financial China Property Engineering Interest (excluding Debt-to-equity Debt-to-equity Non-fare Total Deferred Loans, Earnings Increase Operating
division accounting
assets equity
investment and
obligations
and cover
in
per development and revenue income proposed
management
international margin profit fair
established
results
attributable finance
and share
bank in times revaluation
value standard
ratio ratio
before project
properties as
under in HK$ overdrafts
and
charges
a (net
in percentage
requirement and
depreciation businesses
declared 2005
to
and
finance of reserves)
equity management deferred †
service
shareholders of #
tax) turnover 120,421 76,767 28,152 11,018 6,639 4,528 1,682 2,328 1,797 1,398 9,541 7,758 2,674 2006 37.1 36.7 31.6 54.5 1.41 104 833 265 909 6.7 8 60 4 68 6 59 5 48 427 8,486 468 8,786 2,380 456 7,537 1,111 7,332 519 918 7,231 6,891 567 904 1,104 6,629 618 1,317 978 6,555 4,575 1,031 6,513 642 5,890 551 966 15.7 82 5,132 660 402 930 4,943 5.1 4,756 689 366 886 3.7 4,836 246 4,730 855 31.3 3.8 4,669 860 4,600 45.0 3.8 896 58.5 26.0 4.5 62.2 39.7 21.0 5.6 66.4 51.4 22.1 53.7 71.1 54.0 6.1 22.2 47.3 63.3 58.2 24.6 7.6 48.2 49.3 62.5 24.6 51.7 40.9 55.9 25.6 53.4 49.1 27.7 52.2 40.4 29.0 49.3 31.4 54.2 55.7 16,705 41,815 15,970 42,601 13,776 45,115 10,403 50,355 8,411 53,893 53,574 6,226 10,875 57,292 – 16,897 5,061 61,892 23,177 69,875 4,638 27,203 31,385 – 3,584 33,508 32,025 1,252 30,378 75,428 28,264 0.42 82,104 – 87,250 92,565 0.81 98,126 101,119 – 102,366 0.85 106,674 113,666 0.70 500 0.85 2,118 95 1.23 2,161 1.55 2,215 475 2,259 1,104 2,299 1,143 874 3,805 4,720 1,125 6,574 5,523 1,539 6,981 7,290 1,450 7,252 7,301 1,361 7,577 7,769 7,592 9,116 7,686 1997 9,097 7,594 11,246 1998 8,351 9,153 1999 2000 * 2001 * 2002 * 2003 * 2004 * 2005 * * ,1 201 – 2,051 2,310
,6 653 ,5 359 ,7 409 ,1 289 2,783 2,819 2,116 4,069 4,278 3,579 927 4,450 6,543 1,426 8,463 2,039 2,091 2,178 2,470 2,402 2,499 2,682 –
–
– –
– –
– –
– –
– – – –
– 57 ANNUAL REPORT 2006
Secretary
the
to
suicides,
reportable
are
that
suicides/attempted
from
injuries),
ranging
without
or
(with
Regulations,
persons
Railway
affecting Transit
Mass
directly
the
or
under
equipment,
15 15 13 13 14 16 16 14 – 22.8 24.9 22.3 23.2 22.5 20.4 22.8 7.25 23.8 24.6 3.47 7.05 24.7 26.8 3.78 3.45 7.06 24.3 27.3 3.60 3.70 7.28 22.1 29.2 3.36 3.57 7.46 23.5 29.5 748 3.71 3.72 7.35 32.1 701 3.74 3.85 7.14 0.86 641 3.50 3.94 6.82 0.83 31 690 3.20 3.78 6.39 0.82 25 3.04 3.06 686 0.88 3.33 748 0.89 33 0.96 859 24 1.09 842 39 1.05 814 1.00 36 49 65 54 25.2 61.2 24.8 59.6 24.3 58.7 23.5 58.2 23.5 22 57.4 24.1 57.9 25.2 21 60.3 25.7 47.7 23 61.9 25.9 45.5 64.2 25 42.9 46.6 27 49.3 28 51.1 32 49.4 52.7 25 61.6 – 2,497 2,403 2,240 23 2,261 2,231 22 2,240 7.6 2,284 19 30.4 2,326 7.7 2,382 23 30.2 7.7 29.7 25 29.9 57 7.6 28 29.8 7.4 56 29.7 29 7.3 53 29.9 22 31.2 7.4 57 – 7.4 – 58 7.4 61 61 62 71 114,449 114,364 112,823 103,318 96,751 17,122 92,199 16,081 94,704 15,227 94,260 19,467 84,258 19,458 19,557 19,394 857,954 9,011 833,550 770,419 777,210 758,421 767,416 779,309 793,602 811,897 8,493 – 8,015 6,849 8,457 9,022 10,349 10,396 3,928 – * 2005 * 2004 * 2003 * 2002 * 2001 * 2000 * 1999 1998 1997 and paths.
14 23 23 26 58 Government
7.7 826 22.1 25.9 7.44 3.43 4.01 0.94 25.0 60.9 48.0 29.7 2006 plant 2,523 9,576
SAR
20,077 moving 115,784 866,754
Kong and
premises,
lifts
Hong
the railway
accidents
of
escalators,
staff
on
Works
affecting
^ and
accidents
million average events
average
^ to
contractors’
occurrences
per Transport profit costs profit costs
daily
are and
–
tracks, movement
carried
airport weekday
events staff reportable
– onto events
of of the
operating operating operating operating
Express Express Express Express Express
Environment,
Lines Lines Lines Lines Lines revenue revenue
movements the transport boardings transport
Railway Railway Railway Reportable Number Cross-harbour Railway Airport Airport Airport Airport Airport Safety Performance Safety Number HK$ per passenger carried (all services) (all carried passenger per HK$ Fare To/from services) (all operated km car per HK$ Fare Proportion of transport boardings transport of Proportion percentage in in percentage in All Proportion of franchised public public franchised of Proportion Average car occupancy car Average MTR Average passenger km travelled km passenger Average MTR Average number of passengers of number Average thousands in MTR MTR Total number of passengers of number Total thousands in in thousands in MTR Railway operations Railway operated km car Revenue
passengers for trespassing Reportable ^ 58 MTR CORPORATION LIMITED Express and DRL. shopping centres and offers of ticket discounts on the Airport vouchers upon spending stipulated minimum amounts in MTR enjoy various exclusive benefits, such as the redemption of cash in 2006 we launched four programmes allowing shareholders to Following prior year successes with shareholder programmes, support that has been given by many individual shareholders. MTR Corporation greatly values the long-standing shareholder Retail shareholder’s programme analysts in Hong Kong and overseas in 2006. 270 meetings were held with institutional investors and research and Singapore, to meet with institutional investors. In all, over centres, including London, New York, San Francisco, Boston Senior management visited several international financial conferences and organised other non-deal investor roadshows. During 2006 the company participated in four major investor understanding of the Company and its business strategies. dialogue with the investment community to ensure a thorough Management remains dedicated to maintaining an open buy-side institutions. basis and we are also followed by analysts from a wide range of houses currently publish reports on MTR Corporation on a regular region. A number of major local and international research Corporation one of the most widely covered companies in the Our proactive approach to investor relations has made MTR Communicating with institutional investors in Asia. becoming recognised as a leader in investor relations practices a high standard of corporate governance and disclosure, international capital markets, MTR Corporation has demonstrated As a result of this commitment, for over two decades in the lenders and bondholders. developments that may affect the interests of shareholders, to provide regular, full and timely information on corporate To communicate clearly and effectively, the Company aims investors. a continuous and active dialogue with existing and potential strategies, business development and future outlook through enhanced by clearly communicating the Company’s corporate that shareholder value and understanding of our credit can be with its wide base of institutional and retail investors. We believe MTR Corporation is committed to maintaining good relations Investors and MTR Corporation Investor relations
communications materials. encouraged to opt for electronic means to receive corporate area of sustainability, during the year shareholders were In support of the Company’s continued commitment in the calls in 2006. shareholders’ enquiries handled more than around 37,000 such The Company’s dedicated hotline to answer individual patronage figures and webcasts of results announcements. include additional information, such as historical monthly Investor Relations section of the website was upgraded to are also accessible on the corporate website. During 2006, the reports. These reports, together with other stock exchange filings, their needs, choose to receive different versions of the annual full versions, in English or Chinese. Shareholders can, based on information. Annual reports are available in both summary and extensive use of the company website to deliver up to date important company information, MTR Corporation makes To ensure all shareholders have equal and timely access to Access to information “Certificate of Excellence” in Investor Relations by Relations at a Hong Kong Company – Large Cap” as well as “Highly Commended – Grand Prix for Best Overall Investor Awards competition. In 2006, the Company was awarded under the “General Category” in the 2005 Best Annual Reports Association (HKMA), as the 2005 report won the Silver Award again achieved recognition from the Hong Kong Management For the 18th consecutive year the Company’s Annual Report Market recognition standards required for inclusion in these indices. Kong that is able to meet and maintain the globally recognised MTR Corporation remains one of the few companies from Hong the Dow Jones Sustainability Index and the FTSE4Good Index. responsibility and sustainability have been recognised by both Since 2002, our achievements in the areas of corporate social MSCI Index and FTSE Index series. stock is currently a constituent member of the Hang Seng Index, stock in some of the most important benchmark indices. The of liquidity is affirmed through the continued inclusion of our chip stock with a sizeable market capitalisation and a high degree MTR Corporation’s position in the Hong Kong market as a blue Index recognition IR Magazine
. 59 ANNUAL REPORT 2006
66 MTRJY 0066.HK HK 66
MTR Tower, Telford Plaza, Kowloon Bay, Hong Kong Hong Bay, Kowloon Plaza, Telford Tower, MTR our at online available also are accounts and reports annual/interim Our www.mtr.com.hk at website corporate enquiries Shareholder hours: office normal during operational is hotline enquiry Our 8888 2881 +852 Telephone: relations Investor analysts, securities and investors institutional from enquiries For contact: please Limited Corporation MTR Department, Relations Investor Kong Hong Bay, Kowloon Plaza, Telford Tower, MTR [email protected] Email: Index constituent Index indices: following the of constituent a is Limited Corporation MTR Series Index Seng Hang Series Index MSCI Index Kong Hong All-World FTSE Index Global FTSE4Good Index World Sustainability Jones Dow codes Stock shares Ordinary Kong Hong of Exchange Stock The Reuters Programme 1 Level ADR 2006 report Annual can Shareholders Chinese. and English both in available is report annual Our to: writing by copies obtain Limited Services Investor Kong Hong Computershare Kong Hong East, Road Queen’s 183 Centre, Hopewell Floor, 46th to: write please shareholder, a not are you If Limited Corporation MTR Department, Relations Corporate Bloomberg
31 December 31 August October dates inclusive) dates June 7 June 26 about or On 10 to 17 April (both April 17 to 10 4 April April 4 13 March 13 HK$108,531 million HK$108,531 HK$1 per share per HK$1 5,548,613,951 shares shares 5,548,613,951 (76.58%) shares 4,249,276,330 (23.42%) shares 1,299,337,621
10:1 Bank Chase Morgan JP 0.28 0.14 0.28 40th Floor, One Chase Manhattan Plaza Plaza Manhattan Chase One Floor, 40th 10081 NY York, New USA
(as at 31 December 2006): December 31 at (as
(in HK$) (in
(as at 31 December 2006): December 31 at (as
Depositary Bank Depositary 2007 interim dividend payment date payment dividend interim 2007 end year Financial Meeting General Annual date payment dividend final 2006 results interim 2007 of Announcement ADR Level 1 Programme 1 Level ADR ratio ADR to share Ordinary approximately one third of the total dividends to be paid for the entire year. entire the for paid be to dividends total the of third one approximately share per Dividend Dividend Final 2005 Subject to the financial performance of the Company, we expect to pay two two pay to expect we Company, the of performance financial the to Subject around payable dividends final and interim with year financial each dividends representing dividend interim the with respectively, June and October Nominal value Nominal capitalisation Market policy Dividend 2006 Interim Dividend Interim 2006 Dividend Final 2006 Bank. The shares are also quoted on the London International Bulletin Board. Bulletin International London the on quoted also are shares The Bank. shares Ordinary outstanding Shares MTR Corporation Limited’s shares are listed on The Stock Exchange of Hong Hong of Exchange Stock The on listed are shares Limited’s Corporation MTR American an through States United in traded are shares addition, In Kong. Chase Morgan JP by sponsored Programme 1 Level (ADR) Receipt Depositary www.mtr.com.hk information Share Listing Book closure period closure Book Kong Hong Bay, Kowloon Plaza, Telford Tower, MTR 8822 2798 +852 Facsimile: 2111 2993 +852 Telephone: Website Principal place of business and registered office registered and business of place Principal Kong Hong in domiciled and incorporated Limited, Corporation MTR Financial calendar 2007 calendar Financial results 2006 of Announcement dividend final 2006 for register to day Last Key shareholder information shareholder Key
Hong Kong SAR Government shareholding: shareholding: Government SAR Kong Hong float: Free 60 MTR CORPORATION LIMITED Sustainability role in climate change initiatives. UITP’s Sustainable Development Commission and takes an active Public Transport (UITP). MTR Corporation currently chairs the on the recently published policy of the International Union of MTR Corporation Climate Change Policy. This policy is modelled contributes to the community. In 2006, we officially adopted the stewardship of the Company and the resources it uses and MTR Corporation is taking a responsible position in its World citizenship Hong Kong a better place to live and work through our services. it has engendered a strong sense of community, aiming to make responsible actions for workplace decisions and practices. In turn, best practice guides individual employees in taking socially practice to frontline operations. This working commitment to As a result, we have succeeded in bringing sustainable best opportunities. interests and add value by pursuing subsequent development Engagement with stakeholders allows us to understand their are enshrined in our Enterprise Risk Management activities. risk, as part of our cost reduction / optimization programmes, The Company’s structured processes and systems to manage business activities and to its stakeholders. vision thus drives how MTR Corporation delivers value to the working ethos of flexibility, creativity and enterprising spirit. The encourage employees to implement best practices through a areas of community, process, strategy and people. Its aim is to Company’s businesses. The strategy focuses on the four key The vision forms the framework in which we steward the and community programmes into all aspects of operations. has helped embed sustainability, corporate social responsibility, Strategic Vision for driving change within the Company, which In 2004, MTR Corporation started implementing its Diamond Sustainability drives the business case integrating sustainability into all of our operations. and value-added. Throughout 2006, we made further progress in a dynamic interaction between focused strategy, cost leadership through sustainable competitive advantage achieved by way of business driver. The objective is to create value for stakeholders development as a process that has grown from commitment to among rail companies world wide in implementing sustainable MTR Corporation has been a leader among Asian companies and
Environment Programme (UNEP) and Standard & Poor’s. tank, SustainAbility, in association with the United Nations Global Reporters 2006 survey undertaken by UK-based think global corporate leaders in sustainability reporting in the recent In 2006, MTR Corporation ranked seventh amongst the 100 Reporting Initiative. of Metros), The World Economic Forum and the Global best practice reporting exercises under CoMET (Community and Ethibel indices. We also participate each year in major promote and measure sustainability such as the DJSI, FTSE4Good maintain membership in international benchmarks that MSCI and FTSE All-World Hong Kong indices series. We actively As a listed company we are a constituent of the Hang Seng, Global recognition service providers. efficient and ecologically sustainable railways and property becoming one of the global business community’s most resource the risks posed by climate change. We aim to achieve this by Our climate change policy commits us to adapt to and mitigate Our ClimateChangePolicy the top ten leaders named in the survey. organisation and one of only two non-OECD companies amongst debuts as the only Asia-based corporation, the only transport in particular, governance and business strategy. The Company The Company was singled out for its reporting excellence, • The key actions to be taken under the policy are to: we operate, in particular, the Mainland of China. consistently across all our businesses in the diverse markets in which a positive impact on the global environment. It is intended to apply developed by the UITP. The aim of the policy is to work towards Our Climate Change Policy takes as its guide the policy recently • • • •
report on achievements annually influence our energy providers to address the climate change issue reduce our direct carbon emissions in a targeted and implement actions to mitigate those risks continuous fashion assess risks and opportunities posed by climate change
61 ANNUAL REPORT 2006
Chairman and Chief Executive Officer Executive Chief and Chairman distinct are Officer Executive Chief and Chairman of posts The of appointment respective the to refer (please separate and of Chairman non-executive the as Kuo-fung Ch’ien Raymond Dr. Executive Chief the as Chung-kong Chow Mr. and Company, the page). this on Board the of Member a and Company the of Officer and chairing for responsible is Chairman non-executive The monitoring as well as Board, the of operations the managing Director about his/her independence under the Listing Rules, Rules, Listing the under independence his/her about Director independent. be to them of each consider to continues and and time sufficient give can he/she that ensures Director Each requested are They Company. the of affairs the to attention public in held offices of nature and number the disclose to commitments significant other and organisations or companies year. a twice Company the to identity their as well as Executive the and Board the of Members the of Biographies Members the of None 74. to 70 pages on out set are Directorate relationship any has Directorate Executive the and Board the of relevant or material other or family business, financial, (including Commissioner although other, each between relationships) the for Secretary and Chi-kong) Wong Alan (Mr. Transport for Sau-tung) Liao Sarah (Dr. Works and Transport Environment, Mr. and HKSAR, the of Executive Chief the by appointed were Secretary Financial The by appointed was Si-hang Ma Frederick various on sits Meng-sang Fang Christine Ms. and Incorporated, committees. advisory government has Company the Association, of Articles its under permitted As which for Insurance Liability Officers’ and Directors’ arranged have not do Company the of officers and Board the of Members excess. any bear to Officer of the Company was renewed for a further term of three three of term further a for renewed was Company the of Officer 2006. December 1 from effect with years Secretary the (being Directors non-executive other the of Two Commissioner the and Works and Transport Environment, the for HKSAR. the of Executive Chief the by appointed are Transport) for is Si-hang, Ma Frederick Mr. Director, non-executive Another the of Treasury the and Services Financial for Secretary the HKSAR the of Government The HKSAR. the of Government holds Incorporated, Secretary Financial The through Company. the of capital share issued the of 76% approximately the backgrounds, professional and business diverse from Coming experience valuable their bring actively Directors non-executive Company the of interests best the promoting for Board the to non- independent the hand, other the On shareholders. its and of interests the that ensuring to contribute Directors executive the by account into taken are Company the of shareholders all and objective to subjected are issues relevant that and Board has Company The Board. the by consideration dispassionate non-executive independent each from confirmation received
Board on the same date. His contract as the Chief Executive Executive Chief the as contract His date. same the on Board Mr. Chow Chung-kong was appointed as the Chief Executive Executive Chief the as appointed was Chung-kong Chow Mr. a for 2003 December 1 from effect with Company the of Officer the of Member a as appointed also was He years. three of term Chairman of the Company with effect from 21 July 2006 until until 2006 July 21 from effect with Company the of Chairman 2007. July 31 of the Board, was appointed as the non-executive Chairman of of Chairman non-executive the as appointed was Board, the of three of term a for 2003 July 21 from effect with Company the non-executive the as re-appointed was he 2006, July In years. Following the Board’s decision to split the roles of Chairman and and Chairman of roles the split to decision Board’s the Following Member a Kuo-fung, Ch’ien Raymond Dr. Officer, Executive Chief In this regard, the Company exceeds the requirement of the the of requirement the exceeds Company the regard, this In listed a of directors of board every requires which Rules Listing directors. non-executive independent three least at have to issuer The Board comprises 11 members, consisting of one executive executive one of consisting members, 11 comprises Board The non-executive ten and Officer) Executive Chief (the Director Directors. non-executive independent are six whom of Directors, budget, certain material contracts, strategies for future growth, growth, future for strategies contracts, material certain budget, risk investments, major and arrangements financing major structures. fare and policies treasury strategies, management affecting the Company’s overall strategic policies, finances and and finances policies, strategic overall Company’s the affecting policy, dividend statements, financial include These shareholders. operating annual policy, accounting in changes significant Protocol adopted by the Board, the Board has delegated the the delegated has Board the Board, the by adopted Protocol the to business Company’s the of management day-to-day matters on attention its focuses and Directorate, Executive The Board of Directors of Board The vested is business Company’s the of management overall The the and Association of Articles the to Pursuant Board. the in shareholders), each of these Directors is effectively appointed for for appointed effectively is Directors these of each shareholders), years. three approximately of term a currently nine Directors subject to the requirement to retire retire to requirement the to subject Directors nine currently annual each at retire shall them of one-third and rotation, by the by re-election to (subject Company the of meeting general Ordinance) to retirement by rotation and re-election at the the at re-election and rotation by retirement to Ordinance) Articles with accordance in meetings general annual Company’s are there As Association. of Articles Company’s the of 88 and 87 respect to Code Provision A.4.1, non-executive Directors of the the of Directors non-executive A.4.1, Provision Code to respect subject are but term specific a for appointed not are Company MTR the of 8 Section to pursuant appointed those for (save The Company has complied throughout the year ended ended year the throughout complied has Company The with that, except Provisions Code the with 2006 December 31 practices. This Report describes how the Company has applied applied has Company the how describes Report This practices. Practices Governance Corporate on Code the of principles the Rules. Listing the of 14 Appendix in contained “Code”) (the The Company is committed to ensuring high standards of of standards high ensuring to committed is Company The and shareholders of interests the in governance corporate best formalising and identifying to effort considerable devotes Corporate Governance Practices Governance Corporate Corporate governance report governance Corporate 62 MTR CORPORATION LIMITED between the Company and KCRC was discussed at three Board In 2006, the Board held eight meetings. The proposed merger Directorate as and when they consider necessary. Board also have full access to all Members of the Executive Board on all corporate governance matters. The Members of the that the correct Board procedures are followed and advises the of the Legal Director & Secretary, who is responsible for ensuring All Members of the Board have access to the advice and services of the Board Meeting. papers is sent in full at least 3 days before the intended date benefit of the Company. The agenda together with board all Members of the Board to make informed decisions for the discussions at Board meetings, provide information to enable the Company, to the Board. These reports, together with the which focuses on the overall strategies and principal issues of Chief Executive Officer also submits his Executive Summary, financial performance, corporate governance and outlook. The on their business, including the operations, project progress, Directorate together with senior managers report to the Board At each regular Board meeting, Members of the Executive the third quarter of each year. Director & Secretary and agreed by the Chairman some time in Board meetings for the following year is usually fixed by the Legal include a matter in the agenda of the meeting. The date of the than one week before the relevant Board meeting if they wish to inform the Chairman or the Legal Director & Secretary not less Chairman of the Company. Members of the Board are advised to prepared by the Legal Director & Secretary and approved by the procedures. The draft agenda for regular Board meetings is expense, if necessary, in accordance with the approved may take independent professional advice at the Company’s Board have full and timely access to relevant information and The Board meets in person regularly, and all Members of the Board Proceedings 13 March 2007. Directorate. Another meeting was held by the Chairman on Meetings and the performance of Members of the Executive discuss the responsibilities of the Board, proceedings at Board Executive Directorate (including the Chief Executive Officer) to non-executive directors without the presence of Members of the The Chairman held a meeting on 7 March 2006 with all of the the business of the Company. Executive Officer is responsible to the Board for managing meetings. As head of the Executive Directorate, the Chief non-executive Directors make an effective contribution at Board Board on a timely basis, the Chairman also ensures that the information about the Company’s business is provided to the the Executive Directorate. Apart from ensuring that adequate the performance of the Chief Executive Officer and Members of Corporate governancereport
below: The attendance record of each Member of the Board is set out board meetings. also provided by relevant Members of Executive Directorate at briefing sessions and establishment of new committees) were meetings and other in-house integration activities such as staff merger (e.g. progress of the Legislative Council’s Bills Committee Regular updates on other matters relating to the proposed did not have conflicts of interest, discussed the issues involved. special meeting before the other Members of the Board, who Government’s views on the proposed merger. They left the invited to attend one of those special meetings to express the the Secretary for Financial Services and the Treasury, were Environment, Transport and Works and Mr. Frederick Ma Si-hang, who did not have conflicts of interest. The Secretary for the the proposed merger were held involving Members of the Board conflicts of interest. In addition, two special meetings solely on meetings by the Members of the Board who did not have Members of the Board at the Company’s registered office. by the Legal Director & Secretary and open for inspection by all the minutes of that meeting. Minutes of Board Meetings are kept that meeting, followed by a report on what has been agreed in have any comment on the draft minutes, they will discuss it at minutes at the subsequent meeting. If Members of the Board approved procedure is that the Board formally adopts the draft comment within a reasonable time after the meeting. The minutes are circulated to all Members of the Board for their Members of the Board or dissenting views expressed. The draft and decisions reached, including any concerns raised by the the meeting with details of the matters considered by the Board The minutes of Board meetings are prepared by the Secretary of Secretary for the Environment, Transport and Works Commissioner for Transport (Alan Wong Chi-kong) Professor Cheung Yau-kai Directors Chow Chung-kong (Chief Executive Officer) Executive Director Independent Non-executive † Frederick Ma Si-hang * (Dr. Sarah Liao Sau-tung) Dr. Raymond Ch´ien Kuo-fung (Chairman) Non-executive Directors T. Brian Stevenson Lo Chung-hing Edward Ho Sing-tin Christine Fang Meng-sang David Gordon Eldon
3 meetings were attended by the alternate directors 5 meetings were attended by his alternate directors
Directors
Board meetings Attendance of in 2006 10/10 10/10
10/10 8/10 8/10 9/10 9/10 7/10 8/8 8/8 8/8
* † 63 ANNUAL REPORT 2006
(Alan Wong Chi-kong). None of the Committee Members is a is Members Committee the of None Chi-kong). Wong (Alan External Company’s the KPMG, of partner former or partner and Audit Internal of Head the Director, Finance The Auditor. are Company the of Auditor External the of representatives discretion the At Committee. the of meetings attend to expected meetings. attend to invited be also may others Committee, the of the and year, a times four meets normally Committee The meeting a request may Director Finance the or Auditor External necessary. it consider they if As an integral part of good corporate governance, the Board has has Board the governance, corporate good of part integral an As particular oversee to Committees Board following the established Committees these of Each affairs. Company’s the of aspects invited been have who Directors non-executive comprises and Remuneration Audit, the of Each members. as serve to Terms respective its by governed is Committee Nominations website: Company’s the on available are which Reference, of www.mtr.com.hk. and Company the between merger proposed the of respect In minority of interest the after looking of purpose the for and KCRC, the governance, corporate good ensuring and shareholders Board the of Committee Independent the established has Board all comprises IBC the Reference, of Terms its by Governed (“IBC”). is and Company the of Directors non-executive independent Sing-tin. Ho Edward by chaired to resources sufficient with provided are Committees All duties. their discharge Committee Audit Directors, non-executive three of consists Committee Audit The The Directors. non-executive independent are whom of two (chairman), Stevenson Brian T. are Committee the of Members Transport for Commissioner the and Yau-kai Cheung Professor the year then ended. In preparing the accounts for the year year the for accounts the preparing In ended. then year the have Board the of Members the 2006, December 31 ended those from apart and, policies accounting appropriate selected notes the in disclosed as policies accounting amended and new have 2006, December 31 ended year the for accounts the to periods. financial previous with consistently them applied and prudent are that made been have estimates and Judgments Auditor External the of responsibilities reporting The reasonable. 86. page on out set are the to presented accounts the above, the of support In Executive the of Members the by reviewed been have Board and reports interim and annual the both For Directorate. clearing for responsible is Division Finance the accounts, Committee. Audit the then and Auditor External the with them and standards accounting amended and new all addition, In discussed been have Company the by adopted requirements by adoption before Committee Audit the at approved and Company. the Committees Board
of the state of affairs of the Company and of the Group as at at as Group the of and Company the of affairs of state the of for flow cash and profit Group’s the of and 2006, December 31 The Members of the Board are responsible for preparing the the preparing for responsible are Board the of Members The are accounts The Group. the of and Company the of accounts view fair and true a give and basis concern going a on prepared the Company. the Accountability To assist their continuous professional development, the Legal Legal the development, professional continuous their assist To relevant attend to Directors recommends Secretary & Director by borne are training such for costs The courses. and seminars The Directors’ Manual is updated from time to time to reflect reflect to time to time from updated is Manual Directors’ The areas. those in developments general and specific duties of the Directors under general law law general under Directors the of duties specific and general also but Rules, Listing the and legislation) and law (common Committees. Board the of Reference of Terms the includes comprehensive induction programme on key areas of business business of areas key on programme induction comprehensive Directors’ a as well as Company, the of practices and operations the out sets only not Manual the things, other Amongst Manual. by the shareholders), each of these Directors is effectively effectively is Directors these of each shareholders), the by years. three approximately of term a for appointed a given is Board, the to appointment on Directors, the of Each As there are currently nine Directors subject to the requirement requirement the to subject Directors nine currently are there As each at retire shall them of one-third and rotation, by retire to re-election to (subject Company the of meeting general annual as other Directors. The Chief Executive has appointed the Office Office the appointed has Executive Chief The Directors. other as the and Works and Transport Environment, for Secretary the for directors”. “additional as Transport for Commissioner for Office nor will they be counted in the calculation of the number of of number the of calculation the in counted be they will nor the respects, other all In rotation. by retire must who Directors way same the in purposes all for treated are directors” “additional directors”. Directors appointed in this way may not be removed removed be not may way this in appointed Directors directors”. These HKSAR. the of Executive Chief the by except office from rotation by retire to requirement any to subject not are Directors The Chief Executive of the HKSAR may, pursuant to Section 8 of of 8 Section to pursuant may, HKSAR the of Executive Chief The “additional as persons three to up appoint Ordinance, MTR the if the number of Directors is not divisible by three, such number number such three, by divisible not is Directors of number the if Directors as retire must third) one than less and to nearest is as rotation. by rotation. In either case, the Directors so elected and appointed appointed and elected so Directors the case, either In rotation. annual each At re-appointment. and re-election for eligible are (or, Directors the of third one Company, the of meeting general A Director who retires in this way is eligible for election at that that at election for eligible is way this in retires who Director A when account into taken not is but meeting, general annual by retire should Directors many how and which deciding Board upon recommendation by the Nominations Committee Committee Nominations the by recommendation upon Board must Board the by appointed are who Directors Company. the of appointment. their after meeting general annual first the at retire Members of the Board the of Members any at Board the of Member a as appointed be may person A the by or meeting general in shareholders the by either time Appointment, re-election and removal of of removal and re-election Appointment, 64 MTR CORPORATION LIMITED within a reasonable time after the meeting and the minutes the minutes is sent to the Committee Members for their records the Committee Members for comments and the final version of dissenting views expressed. The draft minutes are circulated to including any concerns raised by the Committee Members and considered by the Committee Members and decisions reached, by the secretary of the meeting with details of the matters The minutes of the Audit Committee meetings are prepared to the Board after each Audit Committee meeting. Committee and highlights issues arising therefrom by a report The Chairman of the Committee summarises activities of the such audit and puts forward recommendations to the Board. activities or operations of the Company. It then reviews reports of into the efficiency, effectiveness or value for money of any of the (or otherwise approves) any topic to be the subject of an audit in consultation with the Chairman and the Chief Executive Officer up of major action plans recommended. The Committee selects, periodic reports from the Head of Internal Audit and the follow- and to protect its assets. In addition, the Committee reviews the Board to monitor the Company’s overall financial position review has been carried out. These controls and systems allow management systems and to report to the Board that such a Company’s financial controls, internal control and risk required to review, at least annually, the effectiveness of the executive director and any other person. The Committee is auditor(s) may wish to raise either privately or together with from the audit, the Committee discusses any matters that the Head of Internal Audit. Apart from considering issues arising Director), and further meets with both the External Auditor and the Board and the Executive Directorate (including the Finance dealing with the financial information, the Committee liaises with the Company’s financial information to be made public. In announcement of results and other announcements regarding and interim reports and accounts, together with the preliminary Committee monitors the integrity of financial statements, annual With respect to financial information of the Company, the approving the remuneration and terms of such engagement. on the appointment and removal of the External Auditor, and primarily responsible for making recommendations to the Board complying with relevant legal requirements. The Committee is the Committee also pre-approves any non-audit services for commences. Apart from giving pre-approval of all audit services, and scope of audit and reporting obligations before the audit The Committee discusses with the External Auditor the nature Company’s financial reporting system and internal procedures. financial information of the Company, and to oversee the relationship with the Company’s External Auditor, to review the Amongst other things, the Committee is required to oversee the include financial and efficiency aspects as described below. Under its Terms of Reference, the duties of the Audit Committee Corporate governancereport
out below. Representatives of the External Auditor, the Finance The attendance record of each Audit Committee Member is set • • • • work performed by the Committee in 2006 included: In 2006, the Audit Committee held four meetings. The major Committee meetings. the final determination on the agenda for the regular quarter of each year. The chairman of the Committee makes Committee Members’ reference and comment in the last for the meetings for the following year is set out for the Company’s registered office. A framework of the agenda items are open for inspection by the Committee Members at the objectives. remuneration by reference to the Company’s goals and Directorate, and reviewing and approving performance-based who are executive Directors and other Members of the Executive the remuneration packages of the Members of the Board of the Board who are non-executive Directors, determining recommending to the Board the remuneration of the Members that facilitate the employment of top quality personnel, include formulating a remuneration policy and practices The principal responsibilities of the Remuneration Committee Sing-tin (chairman), T. Brian Stevenson and Frederick Ma Si-hang. The Members of the Remuneration Committee are Edward Ho Directors, two of whom are independent non-executive Directors. The Remuneration Committee consists of three non-executive Remuneration Committee businesses to the Members at their meetings. property business and the Mainland of China and international provided an overview of the Company’s railway operations, of the China and International Business Director had respectively (or his representative), the Property Director and representative work. Further to that and by invitation, the Operations Director meetings for reporting and answering questions about their Director and the Head of Internal Audit attended all those
* Professor Cheung Yau-kai T. Brian Stevenson (chairman) Directors Commissioner for Transport (Alan Wong Chi-kong)
2 meetings were attended by his alternate director KPMG, External Auditor, for 2006. Pre-approving the audit and non-audit services provided by Approving the 2006 Audit Plan and reviewing the periodic Reviewing the Company’s internal control systems; Reviewing and recommending for the Board’s approval the report prepared by the Internal Audit Department; and Report and Accounts; draft 2005 Annual Report and Accounts and 2006 Interim
Audit Committee meetings in 2006 Attendance of
4/4 4/4 4/4
* 65 ANNUAL REPORT 2006
effectiveness and efficiency of operations of efficiency and effectiveness reporting financial of reliability regulations and laws applicable with compliance
The Company has established an Enterprise Risk Management Management Risk Enterprise an established has Company The business of management strategic the for framework (“ERM”) communicating for forum useful a provides framework The risks. thereby and organization the of levels different at issues risk of areas business key all covers It risk. on visibility improves 2006. early since operation in been has it and Company, the have organizations and processes cross-discipline Structured risk for levels divisional and corporate at place in put been rating standard A monitoring. and mitigation identification, on matters affecting the Company’s overall strategic policies, policies, strategic overall Company’s the affecting matters on shareholders. and finances the Committee, Executive the of Members the by Supported Committee Executive the chairs who Officer Executive Chief of business the of conduct the for Board the to responsible is Company. the the implementing for responsible is Committee Executive The responsibilities, its fulfilling In control. and risk on policies Board’s faced risks the evaluates and identifies Committee Executive the designs, and Board the by consideration for Company the by controls internal of system suitable a monitors and operates The Board. the by adopted policies the implements which monitoring for Board the to accountable is Committee Executive the to assurance providing and controls internal of system the have employees all Additionally, so. done has it that Board of areas their within controls internal for responsibility accountability. the by established been have strategies management risk Various assess identify, to Committee Executive the by advised as Board operations, business construction, including risks, reduce and appropriate as well as risks enterprise and safety treasury, finance, coverage. insurance In 2006, the IBC held two meetings to discuss and advise on, on, advise and discuss to meetings two held IBC the 2006, In Reporting and IFA the of appointment the others, among merger. proposed the to relation in Accountant Controls Internal the of controls internal of system the for responsible is Board The and policies appropriate setting subsidiaries, its and Company controls. such of effectiveness the reviewing Board, the by effected process a as defined is control Internal rather manage to designed personnel, other and Management objectives business achieve to failure of risk the eliminate than assurance absolute not and reasonable, provide only can and followings: the of • • • has Board the Board, the by adopted Protocol the to Pursuant Company’s the of management day-to-day the delegated attention its focuses and Committee, Executive the to business
4/4 4/4 4/4
Attendance of Remuneration of Attendance Committee meetings in 2006 in meetings Committee
Chief Executive Officer upon the renewal of his contract. his of renewal the upon Officer Executive Chief performance-based variable incentive scheme for the 2005 2005 the for scheme incentive variable performance-based period; performance the of Members other and Officer Executive Chief the for and 2006; in effect for Directorate Executive the 2005 Annual Report; Annual 2005 the Reviewed and approved the remuneration package for the the for package remuneration the approved and Reviewed Reviewed and approved payouts under the Company’s Company’s the under payouts approved and Reviewed packages remuneration the of review annual an Conducted Approved the 2005 Remuneration Report as incorporated in in incorporated as Report Remuneration 2005 the Approved T. Brian Stevenson Brian T. Directors (chairman) Sing-tin Ho Edward Frederick Ma Si-hang Ma Frederick
to vote, after taking into account the recommendations of the the of recommendations the account into taking after vote, to appointed be to required (“IFA”) adviser financial independent Rules. Listing the under Company the by of the proposed merger between the Company and KCRC are fair fair are KCRC and Company the between merger proposed the of interests the in is merger proposed the whether reasonable, and how on and whole, a as shareholders its and Company the of The principal responsibilities of the IBC include advising the the advising include IBC the of responsibilities principal The terms the whether to as shareholders independent Company’s Chaired by Edward Ho Sing-tin, the other Members are Professor Professor are Members other the Sing-tin, Ho Edward by Chaired Meng-sang, Fang Christine Eldon, Gordon David Yau-kai, Cheung Stevenson. Brian T. and Chung-hing Lo Committee did not convene any meeting during the year. the during meeting any convene not did Committee Committee Independent Directors. non-executive independent six of consists IBC The the Board candidates for filling vacancies on the Board. the on vacancies filling for candidates Board the the 2006, in appointments Board new no were there Since Eldon (chairman), Lo Chung-hing and the Secretary for the the for Secretary the and Chung-hing Lo (chairman), Eldon Sau-tung). Liao Sarah (Dr. Works and Transport Environment, to recommends and nominates Committee Nominations The The Nominations Committee consists of three non-executive non-executive three of consists Committee Nominations The Directors. non-executive independent are whom of two Directors, Gordon David are Committee Nominations the of Members The pages 68 to 69 and includes a description of the remuneration remuneration the of description a includes and 69 to 68 pages Company. the of policy Committee Nominations The Remuneration Committee also met on 8 March 2007 to to 2007 March 8 on met also Committee Remuneration The on out set is report This Report. Remuneration 2006 the approve The attendance record of each Committee Member is set out out set is Member Committee each of record attendance The below: • • • • In accordance with its Terms of Reference, the Committee Committee the Reference, of Terms its with accordance In year: the during work following the performed In 2006, the Remuneration Committee held four meetings. meetings. four held Committee Remuneration the 2006, In 66 MTR CORPORATION LIMITED risk management, control and governance processes. On a information that allows it to review all aspects of the Company’s Audit Committee. The Department has unrestricted access to to the Chief Executive Officer and has direct access to the internal controls of the Company. The Internal Auditor reports of the Company’s management, in assessing and monitoring the The Internal Audit Department plays a major role, independent price-sensitive information in strict confidence. Company, amongst other things, to keep unpublished employee is also bound by the Code of Conduct issued by the Transactions by Directors of Listed Issuers. In addition, every specific information are bound by the Model Code for Securities nominated managers who have access to price-sensitive and/or Members of the Board and the Executive Committee, and other relevant statutes/regulations are complied with. the Company’s operations, and to review at least once a year that to assess the risk of such statutes/regulations and their impact on units. They are required to identify any new or updated statutes, with statutes and regulations applicable to their own functional for overseas projects, are responsible for ensuring the compliance All Department Heads, including Business and Project Managers and timely preparation of reliable financial information. ensuring the accuracy and completeness of accounting records expenditures/payments, safeguarding the Company’s assets, established for preventing or detecting unauthorized CGIs and various departmental procedures and manuals are Sarbanes Oxley Act – Internal Control over Financial Reporting, Control documentations for compliance with Section 404 of US controls and evaluate their effectiveness. units are established to achieve, monitor and enforce internal manuals, committees, working groups and quality assurance Instructions (“CGIs”), divisional/departmental procedures and works in railway extension projects, Corporate General and functions, and safety of operating railway and construction To ensure the efficient and effective operation of business units ERM organization and processes that have been put in place. The Board also periodically reviews the implementation and the satisfactory control. and the Board annually to ensure that such risks are under The Executive Committee reviews significant risks half-yearly taking direct risk management responsibilities as risk owners. Enterprise Risk Committee, is underpinned by line management The operation of the ERM framework, which is overseen by the understanding of ERM. conducted, to promulgate the application and ensure consistent has been compiled, and regular briefing sessions are being A manual that governs the working of the ERM framework risks and the emergence of new risks are regularly reviewed. system is employed to prioritise risks, and changes to existing Corporate governancereport
of the external auditors, and consideration of the following: financial statements, and the nature, scope of work, and report audit work, in addition to reviewing the annual and interim the internal audit plan and reviewing the findings of internal and regulations. This is achieved primarily through approving efficiency of operations, and compliance with applicable laws including the reliability of financial reporting, effectiveness and the effectiveness of the Company’s system of internal controls, On behalf of the Board, the Audit Committee evaluates annually on the system of internal controls. reports to the Audit Committee his audit findings and his opinion the Audit Committee. On a half-yearly basis, the Internal Auditor Plan, based on risk assessment, that is reviewed and approved by reasonable period. Internal Audit produces a 4-year rolling Audit deficiencies highlighted from internal audits are rectified within is responsible for ensuring the control design and operating business and functional units as well as subsidiaries. Management compliance controls, and risk management functions of all regular basis, it conducts audits on financial, operational and Accounting issues, 2006 Interim Accounts, 2006 Audit Plan, Accounts to U.S. GAAP, Preview of 2006 Interim and Year End Annual Report on Form 20-F and Reconciliation of 2005 Annual Internal Audit covering: 2005 Annual Report and Accounts, reviewed the papers prepared by the Executive Committee and internal and external auditors. The Audit Committee has also audit report and external audit report, and private sessions with non-financial; review of significant issues arising from internal internal control and compliance issues, both financial and Executive Committee in relation to key business operations, Committee included: regular interviews with Members of the The processes in assessing internal controls by the Audit • • • • •
the effectiveness of the Company’s processes in relation to the incidence of any significant control failings or weaknesses the extent and frequency with which the results of the scope and quality of management’s ongoing monitoring the changes in the nature and extent of significant risks since financial reporting and statutory and regulatory compliance. financial performance or condition; and may in the future have, a material impact on the Company’s outcomes or contingencies that have had, could have had, or the extent to which they have resulted in unforeseen that have been identified at any time during the period and risk is being managed; of control in the Company and the effectiveness with which Committee to build up a cumulative assessment of the state monitoring are communicated, enabling the Audit Executive Committee; Audit Department, and the assurance provided by the of risks and the system of internal control, the work of Internal changes in its business and external environment; the previous review and the Company’s ability to respond to
67 ANNUAL REPORT 2006
Association to call a poll on all resolutions. The poll results were were results poll The resolutions. all on poll a call to Association on posted and newspaper Chinese a and English an in published AGM. the after day the on HKSE and Company the of websites the website Company’s the on posted was AGM the of webcast The AGM. the after day following the on are shareholders with communication of means other of Details 59. and 58 pages on relations Investor of section the in out set The nature of audit and non-audit services provided by KPMG KPMG by provided services non-audit and audit of nature The under is that entity any (including KPMG to paid fees and firm audit the with management or ownership control, common having party third informed and reasonable a that entity any or reasonably would information relevant all of knowledge internationally) or nationally firm audit the of part as conclude 104. page on accounts the to 5D note in out set are Shareholders with Communication the of one is (“AGM”) Meeting General Annual Company’s The It shareholders. its with communication of channels principal Directors question to shareholders for opportunity an provides the of Chairman The performance. Company’s the about Committees Board the of each of Chairmen the and Company AGM. 2006 the at present were by business formal the started Chairman the AGM, 2006 the At demand to entitled were who persons of categories the outlining Articles Company’s the of 67 Article with accordance in poll a AGM. the at proposed be to resolution any on Association of substantially each for proposed were resolutions Separate were resolutions the Before AGM. the at issue separate Chairman the as right his exercised Chairman the considered, of Articles Company’s the of 67 Article under Meeting the of As the Company is an SEC reporting company, it is generally generally is it company, reporting SEC an is Company the As legislation. this by bound of, process its continue will and been, has Company The implementing and practices and systems internal its reviewing applicable with line in legislation this under requirements new dates. compliance Auditor External order In Auditor. External its as KPMG engages Company The the and objectivity and independence KPMG’s maintain to applicable with accordance in process audit the of effectiveness Reference, of Terms its under Committee, Audit the standards, and KPMG by provided be to services audit all pre-approves and audit their of scope and nature the KPMG with discusses commences. audit the before obligations reporting the pre-approves and reviews also Committee Audit The for services non-audit any provide to KPMG of engagement balance to seeks and requirements legal relevant with complying money. for value with objectivity of maintenance the
and financial reporting, was signed into law by the President of President the by law into signed was reporting, financial and 2002. July 30 on States United the US Sarbanes-Oxley Act 2002 Act Sarbanes-Oxley US and transparency the enhance to seeks which legislation, This governance corporate of areas the in companies of accountability been shared with our joint venture companies for appropriate appropriate for companies venture joint our with shared been training. and policies their in adoption wholly owned subsidiaries has been reviewed and updated to to updated and reviewed been has subsidiaries owned wholly and Conduct of Code Company’s the on briefing a incorporate also has Guidebook The Staff. All for Guidebook Corporate the stipulations. The first certification was conducted in August 2006. August in conducted was certification first The stipulations. our to Company the of culture ethical the extend to order In our for Programme Induction the subsidiaries, China of Mainland staff compliance with these important documents, certification certification documents, important these with compliance staff acknowledge to staff all requiring years, two every conducted is its by abide to agreement and Code the of understanding their and the Corporate Guidebook for All Staff are reviewed every two two every reviewed are Staff All for Guidebook Corporate the and ensure to Department Management Resource Human by years reinforce To legislation. with compliance and appropriateness Business Ethics Business ethics business of standard high a to committed is Company The Conduct of Code Company’s the of contents The integrity. and have been requested to comply with the provisions of the the of provisions the with comply to requested been have Code. Model Model Code set out in Appendix 10 to the Listing Rules. Senior Senior Rules. Listing the to 10 Appendix in out set Code Model likely are Company, the in office their of because who, managers information, sensitive price unpublished of possession in be to The Company has adopted the Model Code and, having made made having and, Code Model the adopted has Company The the and Board the of Members that confirms enquiry, specific the with year the throughout complied Directorate Executive Model Code for Securities Transactions by by Transactions Securities for Code Model Code”) “Model (the Issuers Listed of Directors no significant control failings, weaknesses or significant areas of areas significant or weaknesses failings, control significant no affect might which year the during identified concern shareholders. management function, and concluded that adequate and and adequate that concluded and function, management the safeguard to maintained are controls internal effective were There assets. Company’s the and investment shareholders’ review of the effectiveness of the Company’s system of internal internal of system Company’s the of effectiveness the of review all covering 2006, December 31 ended year the for control risk and controls, compliance and operational financial, material Committee meeting. Committee the conducted Committee, Audit the through has, Board The Committee for China Projects. The Chairman of the Committee Committee the of Chairman The Projects. China for Committee issues highlights and Committee the of activities summarizes Audit each after Board the to report a by therefrom arising Complaints, Reporting of Internal Control Systems, Reporting Reporting Systems, Control Internal of Reporting Complaints, Annual Issues, Compliance and Litigation Outstanding of Audit and Control Procurement and Programme, Insurance Internal Audit’s Half-yearly Reports, Annual Report on Staff Staff on Report Annual Reports, Half-yearly Audit’s Internal 68 MTR CORPORATION LIMITED the Executive Directorate, comprises fixed compensation, variable Members of the Board who are executive Directors and Members of The Company’s remuneration structure for its employees, including Remuneration Structure for Employees respect of their recommendations. consult with both the Chairman and the Chief Executive Officer in of other Members of the Executive Directorate, the Committee will Officer, the Committee will consult with the Chairman and in the case Company’s remuneration policy. In the case of the Chief Executive Officer) and the Executive Directorate in accordance with the the Board who are executive Directors (namely, the Chief Executive and reviewing and determining the remuneration of the Members of The Remuneration Committee is responsible for establishing policies, conditions elsewhere in the Company. responsibilities of the non-executive Directors, and employment fees paid by comparable companies, time commitment, devoted to the Company, the Committee considers factors such as Directors are appropriately paid for their time and responsibilities Board who are non-executive Directors. To ensure that non-executive Board from time to time on the remuneration of the Members of the The Remuneration Committee makes recommendations to the the Executive Directorate Non-Executive Directors, Chief Executive Officer and remuneration. Director or any of his associates is involved in deciding his own The Remuneration Committee also ensures that no individual pages 61 to 67. during 2006 is set out in the “Corporate Governance Report” on A summary of the work performed by the Remuneration Committee on relevant issues. independent professional advice to support the Committee Remuneration Committee is authorised to obtain outside As necessary and with the agreement of the Chairman, the Executive Officer and other Members of the Executive Directorate. review and determine the remuneration packages of the Chief Company’s remuneration policy and has a delegated authority to executive Directors. It considers and recommends to the Board the three non-executive Directors, two of whom are independent non- The Board has established a Remuneration Committee consisting of its Board and Executive Directorate. importance of a formal and transparent remuneration policy covering employing and motivating top quality personnel, and recognises the The Company is committed to effective corporate governance and performance, and desirability of performance-based remuneration. and its subsidiaries, market practices, financial and non-financial duties and scope, employment conditions elsewhere in the Company including salaries paid by comparable companies, job responsibilities, To this end, the Company considers a number of relevant factors and aligns with the Company’s goals, objectives and performance. It is the Company’s policy to ensure that remuneration is appropriate Remuneration policy Remuneration Committee of the Company. This Remuneration Report has been reviewed and approved by the Remuneration report
and operating profit on an annual and rolling three-year basis. Company’s performance is measured by the return on fixed assets performance of the Company and individual performance. The Under the current scheme rules, the payouts are based on the Remuneration Committee. Incentive Scheme, the rules of which are regularly reviewed by the to receive an annual cash incentive under the Company’s Variable Directorate and selected management of the Company are eligible The Chief Executive Officer, other Members of the Executive Variable Incentives consideration market practices. performance. Benefits-in-kind are reviewed regularly taking into market practice, as well as the Company’s and individuals’ the Company’s remuneration policy, competitive market positioning, and reviewed annually for each position taking into consideration benefits-in-kind (e.g. medical). Base salary and allowances are set Fixed compensation comprises base salary, allowances and Fixed Compensation schemes. The specifics of these components are described below. incentives, discretionary awards, long-term incentives, and retirement Chief Executive Officer on 1 December 2006. completion of the contract period, HK$13,396,600 was paid to the November 2006. Pursuant to this contract and following the Shares on completion of his initial three-year contract on 30 He was entitled to receive an equivalent value in cash of 700,000 The Chief Executive Officer does not participate in the two Schemes. 41 to the accounts. Executive Directorate under the Schemes are set out in notes 6 and Details of the two Schemes and options granted to Members of the Members of the Board. Executive Directorate’s Interest in Shares” of the Report of the Schemes are set out under the paragraph “Board Members and the Executive Directorate as at 31 December 2006 under the two Options exercised and outstanding in respect of each Member of Option Scheme. Pre-Global Offering Share Option Scheme and the New Joiners Share The Company operates two share option schemes, namely the Long-Term Incentives and to motivate staff to strive for continuous business growth. contribution to the Company’s good performance in the past year competent or above performance as a recognition of the staff’s In 2006, a special discretionary award was provided to all staff with Discretionary Award specific business targets of the Company. incentive schemes to motivate the staff concerned in reaching In addition, the Company operates other sales and business-related under the scheme are made annually. performance exceeds pre-defined threshold standards, then payouts Directorate represent approximately 15-30% of base pay. If for the Chief Executive Officer and other Members of the Executive pay and portions of their fixed allowances. Target incentive levels originally funded by participants by foregoing their 13th month A portion of the target incentive levels under the scheme was
69 ANNUAL REPORT 2006 – 2 1 1 3 2 1 5
10 29 10 44 20
2005 2005 Number
– – – 2 9 1 7 1 3 31 11 47 18 2006 2006 Number
HK$500,000 Chairman, Remuneration Committee Remuneration Chairman, HK$1,000,000 HK$5,000,000 HK$1,500,000 HK$5,500,000
HK$10,000,000 HK$10,500,000
HK$0 – HK$0
HK$500,001 – HK$500,001 other benefits-in-kind other performance to HK$4,500,001 – HK$4,500,001 – HK$9,500,001 HK$1,000,001 – HK$1,000,001 – HK$5,000,001 in HK$ million HK$ in HK$10,000,001 – HK$10,000,001
Retirement scheme contributions scheme Retirement Base Salaries, allowances and and allowances Salaries, Base related remuneration Variable Remuneration Fees
Edward Ho Sing-tin, Sing-tin, Ho Edward Limited Corporation MTR 2007 March 8 Kong, Hong (ii) The gross remuneration of non-executive and executive Directors Directors executive and non-executive of remuneration gross The (ii) bands: following the within were payments) share-based (excluding highest five the includes table above the in shown information The Directors’ non-executive independent The employees. paid except band remuneration first the in included are emoluments the in included is emolument whose Chairman, non-executive the band. remuneration second by the Mandatory Provident Fund Schemes Ordinance. Additional Additional Ordinance. Schemes Fund Provident Mandatory the by subject provided be may level mandatory the above contribution employment. of terms individual to Company the by employed been have who Directors executive The of section benefit hybrid the join to eligible are 1999 April 1 before Scheme. Retirement the are 1999 April 1 after or on hired are who Directors executive The the of section benefit contribution defined the join to eligible Scheme. Retirement the Both Scheme. MPF the in participates Officer Executive Chief The MPF the to contribute each Officer Executive Chief the and Company Ordinance. MPF the by required as levels mandatory the at Scheme Directors Executive and Non-Executive of Remuneration the and Board the of Members the of remuneration total The (i) shown is payments) share-based (excluding Directorate Executive to 6 note in out set are details remuneration the and below accounts. the
not to join it and other employees who are not eligible to join the the join to eligible not are who employees other and it join to not each Company the and members Both Scheme. Retirement required as levels mandatory the at Scheme MPF the to contribute The Company has participated in the Bank Consortium MPF Plan Plan MPF Consortium Bank the in participated has Company The Fund Provident Mandatory the with registered been has which employees those covers Scheme MPF The Authority. Schemes chosen have but Scheme Retirement the join to eligible are who by an independent actuarial consulting firm. consulting actuarial independent an by Scheme MPF (c) redundancy for service accrued up to 31 December 2002, offset offset 2002, December 31 to up accrued service for redundancy are Members Scheme. Retirement the from payable benefits any by are contributions Company’s the while contribute to required not out carried valuation actuarial annual an to reference by determined (b) RBS (b) Retirement Occupational the under scheme registered a is RBS The of event the in only benefits provides It Ordinance. Schemes Company’s contributions to the defined contribution section are are section contribution defined the to contributions Company’s salary. base members’ of percentages fixed on based The defined contribution benefit section is a member investment investment member a is section benefit contribution defined The accumulated on based benefits provides which plan choice the and members’ Both returns. investment and contributions 1999 who would have been eligible to join the Retirement Scheme Scheme Retirement the join to eligible been have would who 1999 or, section contribution defined the either join to choose can Scheme. MPF the 2000, December 1 commencing by an independent actuarial consulting firm. consulting actuarial independent an by since employees new to closed been has section benefit hybrid The April 1 after or on Company the joining employees All 1999. March 31 Members’ contributions to the hybrid benefit section are based on based are section benefit hybrid the to contributions Members’ are contributions Company’s The salary. base of percentages fixed out carried valuation actuarial annual an to reference by determined an MPF Exemption so that it can be offered to employees as an an as employees to offered be can it that so Exemption MPF an provides section benefit hybrid The Scheme. MPF the to alternative times salary final of multiple a of greater the on based benefits returns. investment with contributions accumulated the or service The Retirement Scheme contains a hybrid benefit section and and section benefit hybrid a contains Scheme Retirement The the under scheme registered a is It section. contribution defined a granted been has and Ordinance Schemes Retirement Occupational employees who are classified by the Company as staff working on working staff as Company the by classified are who employees terms. gratuity on not are who and projects designated Scheme Retirement (a) choose between the Retirement Scheme and the MPF Scheme, Scheme, MPF the and Scheme Retirement the between choose The Scheme. MPF the join to required are employees other while for Scheme Retirement the supplement to scheme top-up a is RBS the MTR Corporation Limited Retention Bonus Scheme (the “RBS”), “RBS”), (the Scheme Bonus Retention Limited Corporation MTR the Scheme”). “MPF (the Scheme Fund Provident Mandatory a and can Scheme Retirement the join to eligible are who Employees Retirement Schemes Retirement MTR the schemes, retirement three operates Company The Scheme”), “Retirement (the Scheme Retirement Limited Corporation 1 December 2006. This contract entitles the Chief Executive Officer to Officer Executive Chief the entitles contract This 2006. December 1 completion on Shares 418,017 of cash in value equivalent an receive contract. three-year new his of The Chief Executive Officer’s contract was renewed with effect from from effect with renewed was contract Officer’s Executive Chief The 70 MTR CORPORATION LIMITED David Gordon Eldon and became a Trustee of the University in 2006. degree in economics from the University of Pennsylvania in 1978 Gold Bauhinia Star medal in 1999. Dr. Ch’ien received a doctoral Excellent Order of the British Empire in 1994 and awarded the of the Peace in 1993. He was made a Commander in the Most 1998 to 31 December 2006. Dr. Ch’ien was appointed a Justice the Independent Commission Against Corruption from 1 January 2002 and chairman of the Advisory Committee on Corruption of Executive Council of the Hong Kong SAR from 1 July 1997 to June British Administration, from 1992 to 1997, a member of the member of the Executive Council of Hong Kong, then under chairman of the Federation of Hong Kong Industries. He was a In addition, Dr. Ch’ien is the honorary president and past a Hong Kong member of the APEC Business Advisory Council. Kong/European Union Business Cooperation Committee and The Wharf (Holdings) Limited. Dr. Ch’ien is chairman of the Hong Convenience Retail Asia Limited, VTech Holdings Limited and and Shanghai Banking Corporation Limited, Inchcape plc, He serves on the boards of HSBC Holdings plc, The Hongkong non-executive chairman of HSBC Private Equity (Asia) Limited. (formerly known as hongkong.com Corporation). He is also as chinadotcom Corporation) and its subsidiary, China.com Inc 1998. Dr. Ch’ien is chairman of CDC Corporation (formerly known Chairman in July 2003. He has been a member of the Board since Dr. Raymond Ch’ien Kuo-fung Members of the Board Dr. Raymond Ch’ien Kuo-fung Executive Directorate Board and 55, was appointed Non-Executive Christine Fang Meng-sang Chow Chung-kong
of Standard Chartered Bank (Hong Kong) Limited. of Standard Chartered PLC and the non-executive chairman Consultative Conference. Mr. Chow is a non-executive director Municipal Committee of the Chinese People’s Political and a member of the Standing Committee of the Shenzhen committee of the Hong Kong General Chamber of Commerce, University of Hong Kong. He is also a member of the general the Hong Kong Tourism Board and the Council of The Chinese of the Hong Kong Institute of Certified Public Accountants, contribution to industry. He is currently a member of the Council Mr. Chow was knighted in the United Kingdom in 2000 for his Honorary Doctor of Engineering degree by The University of Bath. Program of Harvard Business School. He was awarded an of Hong Kong and was a graduate of the Advanced Management of Business Administration degree from The Chinese University The University of California respectively. He also holds a Master in Chemical Engineering from The University of Wisconsin and He holds Bachelor of Science and Master of Science degrees Gases Division in 1993. Mr. Chow is a chartered engineer. was appointed a director of its board and chief executive of its and before that, he spent 20 years with the BOC Group PLC and a leading engineering company based in the United Kingdom From 1997 to 2001, Mr. Chow was chief executive of GKN PLC, of Brambles Industries Ltd, a global support services company. on 1 December 2003. He was formerly chief executive officer Chow Chung-kong 56 , was appointed Chief Executive Officer Edward Ho Sing-tin Professor Cheung Yau-kai
71 ANNUAL REPORT 2006
Commissioner for Transport for Commissioner Chi-kong) Wong (Alan is an independent non-executive non-executive independent an is , , 61 Institute of Bankers. He is a Justice of the Peace. Peace. the of Justice a is He Bankers. of Institute David Gordon Eldon Eldon Gordon David 1999. since Board the of member a been has and Director years 37 after 2005 May in Group HSBC the from retired He Shanghai and Hongkong The of Chairman was He service. of 2005, May to 1999 January from Limited Corporation Banking June from Limited Bank Seng Hang of Chairman non-executive Limited Pacific Swire of member board a and 2005, April to 1996 Chairman Committee Executive the was Eldon Mr. 2005. May until and 2005 June until Kong Hong of Chest Community The of to adviser senior is He Patron. Vice its currently is Chairman and Kong) Hong in (based PricewaterhouseCoopers Dubai the Commerce, of Chamber General Kong Hong the of Group Noble the Authority, Centre Financial International Foundation Education School Girls’ Diocesan and Limited, Club, Jockey Kong Hong the of Chairman Deputy is He Limited. Development Trade Kong Hong the of member Council a an and Unisys of Board Advisory the of member a Council, Management Asset Eagle of director non-executive independent Capital the of member a appointed was Eldon Mr. Limited. (CP) other of number a holds and Tribunal Review Adequacy the of fellow a is Eldon Mr. appointments. service community Kong Hong the of fellow a and Bankers of Institute Chartered
Frederick Ma Si-hang Ma Frederick T. Brian Stevenson Brian T. is an independent non-executive non-executive independent an is , , 72 Secretary for the Environment, Transport and Works Works and Transport Environment, the for Secretary Sau-tung) Liao Sarah (Dr. Lo Chung-hing Lo of Sciences, and is a fellow of the Royal Academy of Engineering, Engineering, of Academy Royal the of fellow a is and Sciences, of past immediate and Canada of Society Royal the of fellow a Sciences. Engineering of Academy Kong Hong the of President an honorary Doctor of Science by The University of Hong Kong Kong Hong of University The by Science of Doctor honorary an Wales. of University the by Laws of Doctor honorary an and Academy Chinese the of member a elected been also has He Vice-President of the Hong Kong Institution of Engineers and and Engineers of Institution Kong Hong the of Vice-President awarded been has He Board. Accreditation its of Ex-Chairman the including, institutions, educational at degrees honorary several Chair and Headship of the Department of Civil Engineering Engineering Civil of Department the of Headship and Chair academic his to addition In Kong. Hong of University The in Senior first former the was Cheung Professor appointments, Professor of Civil Engineering at Calgary in 1970 and moved moved and 1970 in Calgary at Engineering Civil of Professor Chairman and Professor as 1974 in Adelaide of University the to the up took he 1977, In Engineering. Civil of Department the of Vice-Chancellor of The University of Hong Kong until 30 June June 30 until Kong Hong of University The of Vice-Chancellor career research academic his began Cheung Professor 2000. appointed was He Wales. Swansea, of College University the at Professor Cheung is Honorary Professor of Engineering and and Engineering of Professor Honorary is Cheung Professor Hong of University The of Vice-Chancellor the to Adviser Special Deputy Acting and Engineering of Professor Taikoo was He Kong. Professor Cheung Yau-kai Yau-kai Cheung Professor 1999. since Board the of member a been has and Director 72 MTR CORPORATION LIMITED degrees from Glasgow and Hong Kong Universities. in 1996. Mr. Stevenson is a chartered accountant and holds law Accountants from 1991 to 1997 and was president of the Society He served on the Council of the Hong Kong Society of Senior Partner of Ernst & Young, Hong Kong from 1981 to 1999. of the Hong Kong Jockey Club. Mr. Stevenson was previously the of BT, a member of the Public Service Commission and a Steward Corporation Limited, a member of the Asia Pacific Advisory Board non-executive director of The Hongkong and Shanghai Banking and has been a member of the Board since October 2002. He is a T. Brian Stevenson medal in 1998. to November 2005. Mr. Lo was awarded the Silver Bauhinia Star a board member of the Hospital Authority from December 1997 of the Airport Authority from April 1996 to May 1999. He was also Provisional Airport Authority in 1994 and served as vice chairman Authority. Mr. Lo was appointed as a board member of the to his present post. He is a director of the Urban Renewal positions within the Bank of China Group before being appointed Mr. Lo began his banking career in 1969 and he served in several restructuring of the Bank of China Group in October 2001. manager of Bank of China (Hong Kong) Limited, after the and has been a member of the Board since 1995. He is general Lo Chung-hing Advisory Board. Philharmonic Society Ltd. and chairman of the Antiquities also chairman of the Board of Governors of the Hong Kong including the Board of Hong Kong Hospital Authority. He is serves on a number of statutory boards and advisory committees Kong Industrial Estates Corporation from 1992 to 2001. Mr. Ho of Architects in 1983 and 1984 and was chairman of the Hong constituency. He was president of the Hong Kong Institute representing the architectural, surveying and planning functional of the Legislative Council of Hong Kong from 1991 to 2000, of Wong Tung & Partners Limited. Mr. Ho was an elected member an architect and the deputy chairman and managing director Director and has been a member of the Board since 1991. He is Edward Ho Sing-tin Development (Executive Committee). of the Commission on Poverty and Commission on Strategic Digital 21 Strategy Advisory Committee. She is also a member Committee, the Sustainable Development Council and the Welfare Advisory Committee, the Manpower Development on various government advisory committees, including the Social and has a strong background in community service. She sits General from 1993 to 2001. By training, Ms. Fang is a social worker Red Cross from 1989 to 2001 and held the position of Secretary Kong Council of Social Service, she worked for the Hong Kong Council of Social Service since 2001. Prior to joining the Hong Ms. Fang has been the chief executive of the Hong Kong Director and has been a member of the Board since 2004. Christine Fang Meng-sang Board andExecutiveDirectorate 55 , is an independent non-executive Director 62 68 , , is an independent non-executive Director is an independent non-executive 48 , is an independent non-executive
Limited, Long Win Bus Company Limited, New World First Bus companies, including The Kowloon Motor Bus Company (1933) Transport, Mr. Wong is also a director of several transport-related Officer from July 2004 to January 2005. As Commissioner for July 2004, and the Office of the Government Chief Information Information Technology Services Department from July 2001 to Authority from January 2000 to June 2001, the former 1996 to January 2000, the Mandatory Provident Fund Schemes Branch, the Office of the Commissioner of Insurance from August Polytechnic Grants Committee, the former Trade and Industry Culture Branch, the former Secretariat of the University and the former Health and Welfare Branch, the former Recreation and Department, the former City and New Territories Administration, Affairs Bureau, Civil Service Bureau, the former Urban Services the Government of the Hong Kong SAR including the Home that, Mr. Wong has served in various bureaux and departments of the Government of the Hong Kong SAR on 18 June 2005. Prior to appointment to the post of the Commissioner for Transport of director” under section 8 of the MTR Ordinance by virtue of his Board as a non-executive Director appointed as an “additional Commissioner for Transport in Economics and History. Kong in 1973, Mr. Ma holds a Bachelor of Arts degree, majoring Fund Schemes Authority. Graduated from The University of Hong Kong Mortgage Corporation Limited and Mandatory Provident a director of Hong Kong International Theme Parks Limited, Hong Ocean Park Corporation and the Airport Authority, Mr. Ma is also as board member of Kowloon-Canton Railway Corporation, Limited and RBC Dominion Securities Limited. Besides serving Bank, Chase Manhattan Bank, Kumagai Gumi (Hong Kong) services industry. He has served in key posts in J.P. Morgan Private Mr. Ma has more than 20 years’ experience in the global financial director and member of the Executive Committee of that group. Chief Financial Officer of PCCW Ltd. and was also an executive Hong Kong SAR. Before assuming that post, Mr. Ma was Group Financial Services and the Treasury of the Government of the Director on 1 July 2002 upon his appointment as Secretary for Frederick Ma Si-hang Hong Kong Institution of Engineers since 1996.) a fellow of the Royal Society of Chemistry since 1995 and the Health) from The University of Hong Kong. She has also been obtained a Doctorate Degree (Environmental/Occupational Corporation and Route 3 (CPS) Company Limited. Dr. Liao a number of companies including Kowloon-Canton Railway for the Environment, Transport and Works, she is also a director of Government of the Hong Kong SAR on 1 July 2002. As Secretary Secretary for the Environment, Transport and Works of the the MTR Ordinance in August 2002 after her appointment as the Director appointed as an “additional director” under section 8 of (Dr. Sarah Liao Sau-tung 55, joined the Board as a non-executive Secretary for the Environment, Transport and Works Route 3 (CPS) Company Limited.) Company Limited, Tate’s Cairn Tunnel Company Limited and Kong Tunnel Company Limited, Western Harbour Tunnel Citybus Limited, The Star Ferry Company Limited, The New Hong Services Limited, New Lantao Bus Company (1973) Limited, 55, joined the Board as a non-executive (Alan Wong Chi-kong 51, joined the
73 ANNUAL REPORT 2006
56, has served as the Property Director Director Property the as served has 56, 58, has been the Human Resources Resources Human the been has 58, since joining the Company in 1991. He is responsible for the the for responsible is He 1991. in Company the joining since and above properties all of management and development multi-disciplinary a leads He depots. and stations MTR to adjacent construction design, planning, the in involved managers of team developments. property large-scale of management and Kong Hong the for worked Ho Mr. 1990, and 1971 Between held latterly and administration land in specialising Government responsible Department, Lands the in post directorate a available land make to procedures and policies formulating for qualified Ho Mr. project. Railway Airport the and airport the for Kong. Hong in surveyor chartered a as 1974 in William Chan Fu-keung Fu-keung Chan William Human as Company the joined He 1998. August since Director human for responsible is He 1989. in Manager Resources and operations development, people management, resource management. security and administration training, management managerial senior held Chan Mr. Company, the joining to Prior Hong in sectors utility the in and commerce the in both positions Productivity Kong Hong the Government, the including Kong, Kong Hong and Limited Whampoa Hutchison Council, Hong the of member fellow a is He Limited. Telecommunications and 1985 since Management Resource Human of Institute Kong member Council a is He Institute. the of President Vice the also is the of member a and Kong, Hong of Federation Employers’ of Society, Housing Kong Hong the of Committee Remuneration Relations, Labour on Committee Board Advisory Labour the number a for Board Advisory and Development Career the and Science Social of Bachelor a received Chan Mr. universities. of majoring 1971, in Kong Hong of University The from degree economics. in Hang-kwong Ho Thomas Francois Lung Ka-kui, Lincoln Leong Kwok-kuen, Leonard Bryan Turk, Andrew McCusker Andrew Turk, Bryan Leonard Kwok-kuen, Leong Lincoln Ka-kui, Lung Francois
Biographical details are set out on page 70. page on out set are details Biographical 60, has been the Project Director of the the of Director Project the been has 60, Front: Chow Chung-kong Chow Front: and the Bronze Bauhinia Star medal in 1999. in medal Star Bauhinia Bronze the and Sciences, the Hong Kong Institution of Engineers and the the and Engineers of Institution Kong Hong the Sciences, was He Zealand. New Engineers, Professional of Institution 1986 in Singapore in (PBM) medal Service Public the awarded of Canterbury in New Zealand. In 2006, he was elected an an elected was he 2006, In Zealand. New in Canterbury of Engineering. of Academy Royal The of Fellow International Engineering of Academy Kong Hong the of Fellow a also is He 2001 to January 2007 and has been appointed as a member of of member a as appointed been has and 2007 January to 2001 Black Mr. 2007. February 1 from Council Industry Construction the University the from engineering civil in degree honours an holds Mr. Black served on the Vocational Training Council from 1998 1998 from Council Training Vocational the on served Black Mr. 1999, to 1993 from Board Advisory Construction the 2002, to from Board Coordination Industry Construction Provisional the director of London Underground’s Jubilee Line Extension project project Extension Line Jubilee Underground’s London of director Singapore’s on worked he that, before and, 1992 to 1990 from Crossing. Harbour Eastern the on and railway underground management expertise to railway projects in Mainland of China. China. of Mainland in projects railway to expertise management 1984 to 1976 from Company the for worked initially Black Mr. project the was he 1992, in Company the rejoining to prior and, Chung Cable Car. He is also responsible for undertaking feasibility feasibility undertaking for responsible also is He Car. Cable Chung the including railway, the to extensions new possible into studies project providing and Line Island West the and Line Island South projects, which have included the Airport Railway project, project, Railway Airport the included have which projects, O Kwan Tseung the Works, Relief Congestion Bay Quarry the Tung the and Line Resort Disneyland the project, Extension Russell John Black Black John Russell and planning the for responsible is He 1992. since Company upgrade and extension railway major all of implementation Members of the Executive Directorate Executive the of Members Chung-kong Chow above Black, John Russell Hang-kwong, Ho Thomas Fu-keung, Chan William right: to left From 74 MTR CORPORATION LIMITED Kingdom in 1992. of London. Dr. Lung was admitted to the Bar of the United Kingdom and a Bachelor of Law degree from the University Management from the University of Southampton in the United in the United Kingdom, a Master of Science degree in of Hong Kong, a PhD in Combustion from the University of Leeds of Science degree in Mechanical Engineering from the University industry in the United Kingdom. Dr. Lung holds a Bachelor Generating Board before the privatisation of the electricity United Kingdom, and three years at the Central Electricity a major generator, distributor and retailer of electricity in the Dr. Lung spent approximately five years at PowerGen plc, International, becoming Vice-President in 1996. Prior to this, positions at Duke Energy Asia Limited, an affiliate of Duke Energy gas and power business in China. From 1994 to 1997, he held development, governance and business performance of Shell’s General Manager, China, with responsibility for strategy the Company from Shell Eastern Petroleum (Pte) Ltd. He was the in a number of Royal Dutch Shell affiliates since 1997 and joined international consultancy. Dr. Lung has held various positions in Mainland of China, operating franchises in Europe and Company’s growth-business efforts, including investments Business Director since September 2005. He heads the Francois Lung Ka-kui International Limited. Aircraft Engineering Company Limited and Tai Ping Carpets Mr. Leong is also a non-executive director of both Hong Kong Authority Pension Fund Scheme. the Chinese International School and is a trustee of the Hospital Community Chest. He also serves on the Board of Governor of of the Hong Kong Housing Society and a board member of the Protection of Children, a member of the supervisory board of the executive committee of the Hong Kong Society for the an investment banker in Hong Kong. Mr. Leong is the chairman London and Vancouver, Canada and for a number of years as industries. Mr. Leong has also worked as an accountant in he worked in both the accountancy and investment banking in 1986. Prior to joining the Company as Finance Director, as a chartered accountant in England in 1985 and Canada graduated from Cambridge University in 1982 and later qualified of trustees of the Company’s retirement scheme. Mr. Leong chairman of both Octopus Holdings Limited and the board Company’s information technology function and serves as the treasury function. In addition, he has responsibility for the planning and control, budgeting, accounting and reporting and management of all of the Company’s affairs, including financial Director since February 2002. He is responsible for the financial Lincoln Leong Kwok-kuen Board andExecutiveDirectorate
48, has served as the China & International 46, has served as the Finance
administration, cost control and dispute resolution. Before also include construction contracts, contract drafting and management functions within the Company. His responsibilities secretarial services, insurance, procurement and enterprise risk since 1988. Mr. Turk is responsible for legal advice, corporate in 1981 and has been Legal Director and Secretary to the Board in England and Wales and in Hong Kong. He joined the Company Leonard Bryan Turk of the Institution of Mechanical Engineers of the United Kingdom. the Kensington University in the United States and is a member Mr. McCusker holds a degree in Mechanical Engineering from in March 2004 and Acting Operations Director in October 2005. (Operations). He was appointed Deputy Operations Director Operations Engineering Design Manager and Project Manager has been posted to other responsible positions, including as Operations Engineering Manager in 1987, and since then Power, Water and Rail Industries. He joined the Company of experience in the operating and engineering field in Defence, since December 2005. Mr. McCusker has more than 40 years Andrew McCusker financing of large projects. particularly on commercial property development and the joining the Company, Mr. Turk worked in England, concentrating 61, has served as the Operations Director 57, is a solicitor admitted to practice both
75 ANNUAL REPORT 2006 (up to 31 December 2006) December 31 to (up 2007) January 1 (w.e.f. 2007) January 1 (w.e.f. Prudence Chan Prudence Officer Executive Chief Limited TraxComm Nai-man Ho Paul Officer Executive Chief Solutions Sourcing Rail Limited (International) Chi-fai Tang David Officer Executive Chief Acting Training Manager – Operations – Manager Training Ka-sui Lok Manager Security & Administration Ming-chu Kong Amy Manager Development People Marketing Mei-chun Yeung Jeny Business Station and Marketing – Manager General Chung-tat So Eddie Manager Planning Transport Senior Mun-yee Kwan Stella Manager Business Senior Relations Corporate Che-ming Chan Leung Miranda Relations Corporate – Manager General May-kay Wong May Manager Relations Corporate Man-Kit So Maggie Manager Relations Government & Affairs External Audit Internal Yat-keung Hung Nelson Audit Internal of Head Acting Limited Holdings Octopus Linda Li Sau-lin Li Linda Adviser Legal Senior Meller Gillian Adviser Legal Senior Ching-kai Lai Ivan Manager Risk Enterprise Administration & Resources Human Fu-keung Chan William Director Resources Human Kin-ping Luk Vincent Resources Human – Manager General Yuen-fan Wong Alison International & China – Manager Resources Human Business Gar-lon Mok Francis Manager Development & Training Management Yan-ming Cho Steven Lila Fong Man-lee Fong Lila Secretarial – Manager Legal Thomson Paul Adviser Legal Senior General Manager – Procurement & Contracts & Procurement – Manager General Chi-fai Tang David Manager Contracts & Procurement Chi-ying Cheung Teresa General Manager Legal Edwin Kwan Pit-ming Kwan Edwin Controller Financial Assistant Wai-hung Kwan Jeff Treasurer Deputy Wing-man Kee Ng Denise Manager Finance Corporate Chi-choi Leung Manager Stores Procurement & Legal Turk Leonard Secretary & Director Legal Dunn Martin Chief Shopping Centre Manager Centre Shopping Chief Finance Kwok-kuen Leong Lincoln Director Finance Chiu-chung Lau Jimmy Treasury & Control Financial – Manager General Leung-wah Hui Herbert Finance Corporate – Manager General Sik-cheung Lai Daniel Technology Information of Head Siu-sun Lui Sunny Controller Financial Assistant Angus Cheng Siu-chuen Cheng Angus & Property Investment – Manager General Management Wai-keung Lau Gary Manager Estate Chief Chin Yiu Steve Planning Town – Manager Chief Ka-ming Chan Manager Estate Chief Sin-ling Leong Betty Manager Development Retail Chief Chui-lok Ng Candy Corporate Efficiency Manager Efficiency Corporate Frommer Glenn Manager Development Sustainability Yeomans Trevor Europe – Manager Contracts Property Hang-kwong Ho Thomas Director Property Hin-fu Chan Victor Development Property – Manager General Pak-hang Chan Terence Project Property – Manager General Adi Lau Tin-shing Lau Adi Integration Merger – Manager General Tze-shut Lo Ringo
Project Manager – Operations & General & Operations – Manager Project Hockin Roderic WIL/LAR – Manager Project Malcolm Gibson Malcolm Manager Design Chief Sorton David Russell Black Russell Director Project Hing-cheung Lam Henry Project – Manager General Strategy & Planning Manager Manager Planning & Strategy Project Jonathan Dring Jonathan Business European – Manager Commercial Chi-kun Chan Kelson Chief Executive Officer – European Business European – Officer Executive Chief Drake Richard Business European – Director Finance Lee Tze-man Lee L4 Beijing – Manager Project Long Jeremy Antonio Choi Fung-chung Choi Antonio L4 Shenzhen – Manager Project Chief Wing-kwok Luk Alvin Shanghai – Manager Project Chief General Manager – Beijing – Manager General Chak-pui Kam Jacob L4 Shenzhen – Manager General Paul Lo Po-hing Lo Paul China Southern & Central – Manager General Shiu-ki Wong Richard China & International Business International & China Ka-kui Lung Francois Director Business International & China Ho Chun-wing Ho Manager Development & Planning Morris Cheung Siu-wa Cheung Morris Manager Stock Rolling Chuen-choi Leung David Manager Infrastructure & International Consultancy Consultancy International & Kai-wing Lee George Manager Quality & Safety Operations Manager – LAR – Manager Operations Fabbian Franco Services Engineering Operations – Manager General Tony Yeung Sau-on Yeung Tony Development Operations – Manager General Kwok-yiu Leung Operations Director Operations Cheuk-man Lau Wilfred Operations of Head Chief Executive Officer Executive Chief Operations McCusker Andrew Chow Chung-kong Chow Key corporate management corporate Key Report of the Members of the Board
76 The Members of the Board have pleasure in submitting their I equity investments and long term operation and maintenance Report and the audited statement of Accounts for the financial contracts outside of Hong Kong; year ended 31 December 2006. J property management, shopping centre investment and Principal Activities of the Group railway related property development business in the Mainland of China; and The principal activities of the Company and its subsidiaries are: MTR CORPORATION LIMITED K the investment in, and construction of, Beijing Metro Line 4, A the operation of a mass transit railway system with lines from in which the Company has a 49% equity interest, for future Central to Tsuen Wan (Tsuen Wan Line), from Yau Ma Tei to Tiu operations under a 30 year concession agreement with the Keng Leng (Kwun Tong Line), from Po Lam to North Point Beijing Municipal Government. (Tseung Kwan O Line), from Chai Wan to Sheung Wan (Island Line), from Hong Kong to Tung Chung (Tung Chung Line), from In addition to the above, a Feasibility Study Report for Shenzhen Hong Kong to the Hong Kong International Airport and then Line 4 has been submitted to National Development and Reform AsiaWorld-Expo both at Chek Lap Kok (Airport Express Line) and Commission for approval. The Company is waiting for the result. from Sunny Bay to Disneyland Resort (Disneyland Resort Line); Dividend B property development at locations relating to the railway The Directors have recommended a final dividend of HK$0.28 system including the Tseung Kwan O Line Extension; per Ordinary Share to be payable to shareholders whose names C related commercial activities, including the letting of appear on the Register of Members of the Company on 17 April advertising and retail space, bandwidth services on the railway 2007. Subject to the passing of the necessary resolutions at the telecommunication system, property management and leasing forthcoming Annual General Meeting, such dividend will be management of investment properties (including shopping payable on or about 26 June 2007, in cash in Hong Kong dollars, centres and offices), property agency and Octopus Card Building with a scrip dividend alternative. The Company’s majority Access System services; shareholder, The Financial Secretary Incorporated, has agreed to elect to receive all or part of its entitlement to dividends in the D the design and construction of the Ngong Ping 360 tourism form of scrip to the extent necessary to ensure that a maximum facilities and subsequent monitoring of the appointed operator; of 50% of the total dividend paid by the Company will be in the E the design and construction of Tseung Kwan O South Station form of cash. as an extension of the Tseung Kwan O Line; Members of the Board F the planning and construction of future extensions to the Members of the Board who served during the year were railway system and other related infrastructure projects; Raymond Ch’ien Kuo-fung (non-executive Chairman), Chow G consultancy services covering all areas of expertise required Chung-kong (Chief Executive Officer), Cheung Yau-kai, David in the project management, planning, construction, operation, Gordon Eldon, Christine Fang Meng-sang, Edward Ho Sing-tin, maintenance and up-grading of railways plus fare collection, Lo Chung-hing, T. Brian Stevenson, Frederick Ma Si-hang, the property integration/development advice including other Secretary for the Environment, Transport and Works (Sarah property related services and advice on generation of non-fare Liao Sau-tung) and the Commissioner for Transport (Alan revenues; Wong Chi-kong). H investment in Octopus Holdings Limited, a subsidiary of the Company, which has business activities both in Hong Kong and overseas including the operation of a smart card system by its subsidiary Octopus Cards Limited for the collection of payments for both transport and non-transport applications in Hong Kong; 77 ANNUAL REPORT 2006
Assessments on the adequacy and effectiveness of the the of effectiveness and adequacy the on Assessments its controlling for control internal of system Company’s risks. its managing and activities management improving for opportunities of Identification profitability. and utilisation resources control, by commissioned as investigations and/or reviews Special management. Company
The Board has adopted risk management strategies on on strategies management risk adopted has Board The safety. and treasury finance, insurance, and construction the of developments business the with line in and 2006 During above the to changes certain approved Board the Company, and Policy, Management Risk Environmental the and strategies Strategy. Management Risk Enterprise the established further Policy. Management Risk Security to change no was There Float Public its of time the at Company, the to granted Exchange Stock The waiver a 2000, in Exchange Stock the of Board Main the on listing Rules Listing the of 8.08(1) Rule with compliance strict from the Waiver, Float Public the to Pursuant Waiver”). Float (“Public which shares of percentage minimum prescribed Company’s 10% than less be not must public the of hands the in be must the on Based Company. the of capital share issued total the of within and Company the to available publicly is that information the maintained has Company the Directors, the of knowledge the the to up and year the during float public of amount prescribed Waiver. Float Public the by required as report this of date Internal Audit Internal independent, provides Department Audit Internal Company’s The add to designed services consulting and assurance objective responsibilities Key operations. Company’s the improve and value include: Department the of • • • Chief the to directly reports Auditor Internal Company’s The Committee. Audit the to access direct has and Officer Executive Ethics Business 67. page to refer Please Policies
Biographical details for Members of the Executive Directorate Directorate Executive the of Members for details Biographical 74. and 73 pages on out set are year the during Member of the Board), Russell John Black, William Chan Fu-keung, Fu-keung, Chan William Black, John Russell Board), the of Member Francois Kwok-kuen, Leong Lincoln Hang-kwong, Ho Thomas Turk. Bryan Leonard and McCusker Andrew Ka-kui, Lung Executive Directorate Executive during served who Directorate Executive the of Members The a and Officer Executive (Chief Chung-kong Chow were year the Commissioner for Transport/Transport Services and Management Management and Services Transport/Transport for Commissioner Transport). for Commissioner the (for Lai-ching) Yip (Carolina Chu Man-ling, Annie Choi Suk-han and Yung Wai-hung [with [with Wai-hung Yung and Suk-han Choi Annie Man-ling, Chu the for Secretary the (for 2006]) August 31 from effect Deputy the (iii) and Works), & Transport Environment, Environment, Transport & Works (Patrick Ho Chung-kei, Thomas Thomas Chung-kei, Ho (Patrick Works & Transport Environment, the for Secretary Deputy the be to ceased [who Tat-ming Chow Cathy 2006], August 30 after Works & Transport Environment, McKenzie Glass and Alan Lai Nin (both for Frederick Ma Si-hang), Si-hang), Ma Frederick for (both Nin Lai Alan and Glass McKenzie Transport Environment, the for Secretary Permanent the both (ii) the for Secretary Deputy the and Chi-kong) Law (Joshua Works & Alternate Directors Alternate Martin (i) were year the during office in Directors Alternate The for re-election at that Meeting. that at re-election for pages on out set are Members Board for details Biographical 72. to 70 with the Articles of Association, Chow Chung-kong, David David Chung-kong, Chow Association, of Articles the with by retire will Meng-sang Fang Christine and Eldon Gordon themselves offer will Members Board three these All rotation. of Association and were re-elected as Members of the Board. the of Members as re-elected were and Association of accordance in and Meeting General Annual forthcoming the At At the Annual General Meeting on 8 June 2006 and pursuant to to pursuant and 2006 June 8 on Meeting General Annual the At Brian T. Kuo-fung, Ch’ien Raymond Association, of Articles the Articles the under retired Si-hang Ma Frederick and Stevenson In November 2006, Chow Chung-kong renewed his contract as as contract his renewed Chung-kong Chow 2006, November In years three further a for Company the of Officer Executive Chief 2009. November 30 to 2006 December 1 from non-executive Chairman of the Company with effect from 21 July July 21 from effect with Company the of Chairman non-executive 2007. July 31 until 2006 In July 2006, Raymond Ch’ien Kuo-fung was re-appointed as the the as re-appointed was Kuo-fung Ch’ien Raymond 2006, July In 78 MTR CORPORATION LIMITED of options is HK$8.44 to the Company; each Ordinary Share issued, the relevant exercise price per share Scheme (as referred in note 39 to the accounts). In respect of granted under the Company’s Pre-Global Offering Share Option pursuant to the exercise of share options which had been A Ordinary Shares. Of this number: paid. During the year, the Company issued a total of 66,757,512 Shares, 5,481,856,439 of which were issued and credited as fully Company was HK$6.5 billion, divided into 6.5 billion Ordinary As at 31 December 2005, the authorised share capital of the Share Capital and 40 to the accounts. Movements in reserves during the year are set out in notes 39 Movements in Reserves respectively. during the year are set out in notes 16 and 17 to the accounts Movements in fixed assets and railway construction in progress Fixed Assets and Railway Construction in Progress last ten years are set out on pages 56 to 57. Group together with some major operational statistics for the A summary of the results and of the assets and liabilities of the Ten-Year Statistics 87 to 163. and cash flows for the year are set out in the accounts on pages 31 December 2006 and of the Group’s results, changes in equity The state of affairs of the Company and the Group as at Accounts loans are set out in note 33 to the accounts. Particulars of borrowings including bank overdrafts and bank amounted to HK$28,152 million (2005: HK$28,264 million). The total borrowings of the Group as at 31 December 2006 Borrowings Bank Overdrafts, Bank Loans and Other Report oftheMembersBoard
4,094,000 Ordinary Shares were issued by the Company
Shares, 5,548,613,951 of which were issued and credited as Company was HK$6.5 billion, divided into 6.5 billion Ordinary As at 31 December 2006, the authorised share capital of the Ordinary Share). 30 June 2006 (for which the cash dividend was HK$0.14 per of the interim dividend of the Company for the six months ended order to satisfy shareholders’ scrip dividend elections in respect D per Ordinary Share); and 31 December 2005 (for which the cash dividend was HK$0.28 of the final dividend of the Company for the year ended order to satisfy shareholders’ scrip dividend elections in respect C options is HK$9.75 to the Company; Ordinary Share issued, the relevant exercise price per share of (as referred in note 39 to the accounts). In respect of each granted under the Company’s New Joiners Share Option Scheme pursuant to the exercise of share options which had been B held for sale of the Company are shown on page 37. Particulars of the principal investment properties and properties Properties year 2006. sold or redeemed any of its listed securities during the financial Neither the Company nor any of its subsidiaries purchased, Redemption of Listed Securities fully paid.
132,500 Ordinary Shares were issued by the Company 43,101,387 Ordinary Shares were issued by the Company in 19,429,625 Ordinary Shares were issued by the Company in
79 ANNUAL REPORT 2006
support, help desk operation and support services, and also also and services, support and operation desk help support, certified been have maintenance, and development software critical on rehearsal recovery Disaster 9001:2000. ISO under annually. conducted is applications Board the of Members of Contracts in Interests Directorate Executive the and or Company the which to significance, of contract no was There the of Member a which in and party a was subsidiaries its of any material a had Directorate Executive the of Member a or Board end the at subsisted which indirect), or direct (whether interest year. the during time any at or year the of Capital and Revenue Expenditure Revenue and Capital and review appraisal, the for procedures defined are There project All expenditures. revenue and capital major of approval the and Company the of assets net the of 0.2% over expenditure assets net the of 0.1% over services consultancy of employment Board. the of approval the require Company the of Issued Notes and Bonds ended year the during notes and bonds issued Group The the to 33D note in out set are which of details 2006, December 31 the meet to order in issued were notes and bonds Such accounts. the including requirements, funding corporate general Group’s of refinancing the and expenditure capital new of financing debts. maturing Processing Computer on reviews quality regular and procedures defined are There accuracy the ensure to systems computer of operation the data of efficiency and records financial of completeness and and operation centre computer Company’s The processing.
approved at the Board level. Board the at approved Major financing transactions and guidelines for derivatives derivatives for guidelines and transactions financing Major are framework management risk credit including transactions system for monitoring counterparty credit exposure using the the using exposure credit counterparty monitoring for system segregation appropriate also is There approach. Value-at-Risk Department. Treasury Company’s the within duties of to interest rate and currency risks. Prudent guidelines and and guidelines Prudent risks. currency and rate interest to derivatives Company’s the control to place in are procedures management risk credit comprehensive a including activities, requirements and market environment. Derivative financial financial Derivative environment. market and requirements swaps currency cross and swaps rate interest as such instruments exposure Group’s the manage to tools hedging as only used are floating rate debts, maturities, interest rate risks, currency currency risks, rate interest maturities, debts, rate floating and reviewed is model The horizon. financing and exposure financing Company’s the in changes reflect to periodically refined guidelines from the Board. It manages the Company’s debt debt Company’s the manages It Board. the from guidelines which Model Financing Preferred the to reference with profile and fixed instruments, financing of mix preferred the defines Treasury Management Treasury approved within operates Department Treasury Company’s The Board. Monthly results of the Company’s operations, businesses businesses operations, Company’s the of results Monthly Board. and Board the to budget the against reported are projects and regularly. prepared are year the for forecasts updated Reporting and Monitoring and Reporting operational all for system budgeting comprehensive a is There the by approved budget annual an with activities, business and participation of different activities such as CARE Scheme, The The Scheme, CARE as such activities different of participation Day. Casual Dress and Day Green Chest Community The Company was honoured with the President’s Award in in Award President’s the with honoured was Company The with Chest Community the to contribution its of recognition the including million, HK$2.5 over of donation cash of total a The MTR HONG KONG Race Walking 2006 raised over HK$1.2 HK$1.2 over raised 2006 Walking Race KONG HONG MTR The “Better InfoWorld’s Health Authority Hospital the for million campaign. education health Kong” Hong Better a for Health During the year, the Company donated a total of HK$78,280 to to HK$78,280 of total a donated Company the year, the During organisations. charitable Donations 80 MTR CORPORATION LIMITED issuable under the Pre-IPO Option Scheme. 2. The number of shares to which the option granted to each participant under the Pre-IPO Option Scheme does not exceed 25% of the number of the shares issued and to be granted under the Pre-IPO Option Scheme on or after the commencement of dealings in shares of the Company on Stock Exchange on 5 October 2000. 1. The Pre-Global Offering Share Option Scheme (“Pre-IPO Option Scheme”) is valid and effective for a period of ten years after 12 September 2000. No option may be offered Notes Notes 6B(i)and41A(i)totheAccounts Options tosubscribeforOrdinarySharesgrantedunderthePre-Global OfferingShare OptionScheme,asreferred toin † * Interests as beneficial owner 5. The 1,066,000 share options held by Francois Lung Ka-kui lapsed on 17 October 2006. Option Scheme. 4. Further details of the above share options are set out in the table below showing details of the options to subscribe for ordinary shares granted under the New Joiners Share 3. The 23,000 shares are held by Linsan Investment Ltd., a private limited company beneficially wholly owned by Lincoln Leong Kwok-kuen. Share Option Scheme. 2. Further details of the above share options are set out in the table below showing details of the options to subscribe for ordinary shares granted under the Pre-Global Offering Mr. Chow’s entitlement to receive an equivalent value in cash of 418,017 shares in the Company on completion of his three-year contract (on 30 November 2009). 1. Chow Chung-kong has a derivative interest in respect of 418,017 shares in the Company within the meaning of Part XV of the SFO. That derivative interest represents Notes Long PositionsinSharesandUnderlyingoftheCompany the Company and the Stock Exchange pursuant to the Model Code were as follows: the Laws of Hong Kong) (“SFO”)) as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to underlying shares and debentures of the Company (within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571 of As at 31 December 2006, the interests or short positions of the Members of the Board and the Executive Directorate in the shares, Board Members’ and Executive Directorate’s Interests in Shares Report oftheMembersBoard Interests of spouse or child under 18 as beneficial owner
Lincoln Leong Kwok-kuen Thomas Ho Hang-kwong William Chan Fu-keung
Other eligible employees and eligible employees Russell John Black Thomas Ho Hang-kwong Executive Directorate Christine Fang Meng-sang
William Chan Fu-keung T. Brian Stevenson Chow Chung-kong Member of the Board or Executive Directorate
20/9/2000 20/9/2000 20/9/2000
granted Date
41,409,000 Personal interests 1,066,000 1,066,000 23,000 53,889 46,960 53,985 1,712 4,689 granted options No. of – Number of Ordinary Shares held
*
5/4/2001 – 11/9/2010 5/4/2001 – 11/9/2010 5/4/2001 – 11/9/2010 interests Period during which Family 2,541 (day/month/year) rights exercisable – – – – – –
†
Corporate (Note 3)
interests 23,000 11,285,000 outstanding
321,000 317,500 1 January Options – – – – – –
2006 as at Share Options
1,043,000 the year Options during vested (Note 2) (Note 2) (Note 4) 321,000 217,500 Personal interests – – –
Derivatives – – – –
*
the year Options during lapsed – – –
(Note 1) 418,017 Personal interests 3,994,000 Other 100,000 exercised the year Options during – – – – – –
*
–
1,089,000 price per 377,430 264,460 418,017 Exercise share of interests options 53,985 (HK$) 8.44 8.44 8.44 1,712 4,689 Total
31 December outstanding 7,291,000 321,000 217,500 Options total issued share capital 2006 as at aggregate interests to
shares immediately Weighted average before the date(s) on which options Percentage of closing price of were exercised 0.01963 0.00680 0.00097 0.00003 0.00477 0.00008 0.00753
19.91 20.75 (HK$) –
81 ANNUAL REPORT 2006 – – – – – – – – – – – – – –
(HK$) 3.99 4.13 4.11 3.51 3.70 4.19 3.28 3.25 3.17 20.48 (HK$) average average of shares of Weighted granted date(s) on date(s) before the before immediately closing price price closing which options which were exercised were
– – – value per option per value as at as 2006 Weighted average Weighted 94,000 94,000 94,000 94,000 94,000 94,000 Options 268,200 213,000 266,500 213,000 213,000 1,043,000 outstanding 31 December 31
9.75 9.75 (HK$) (HK$) 15.75 15.45 15.97 18.30 15.97 16.05 18.05 18.05 20.66 20.66 21.00 19.104 19.732 options share of share Exercise Exercise 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 price per price (HK$)
per share per – – – – – – – – – – – – – – during Options the year the 132,500 exercised Expected dividend Expected
– – – – – – – – – – – – lapsed during
94,000 94,000 Options the year the 1,066,000 0.21 0.21 0.21 0.20 0.21 0.21 0.20 0.20 0.20
– – – – – – – – – – Volatility Estimated vested during 31,500 71,000 Options the year the 164,200 355,000 355,500
– – – – – – during 94,000 94,000 94,000 94,000 94,000 94,000 granted Options the year the 266,500 213,000 213,000
5 5 5 5 5 5 5 5 5
– – – – – – – – – as at as 2006 (Years) 94,000 94,000 Options 400,700 213,000 1 January 1 1,066,000 1,043,000 outstanding Expected life Expected
9/1/2016 9/9/2015 9/9/2015 2/5/2016
14/7/2013 26/9/2015 14/7/2013 19/6/2016 20/3/2016 20/3/2016 29/9/2016 25/4/2016 25/4/2016 6/10/2015 13/11/2016
(%) 4.62 4.67 4.62 3.83 3.81 4.73 4.47 4.40 4.00 rights exercisable rights (day/month/year) Period during which during Period interest rate interest 9/1/2007 – 9/1/2007 9/9/2006 – 9/9/2006 9/9/2006 – 9/9/2006 2/5/2007 – 2/5/2007 14/7/2004 – 14/7/2004 26/9/2006 – 26/9/2006 14/7/2004 – – 14/7/2004 19/6/2007 – – 19/6/2007 6/10/2006 – 6/10/2006 20/3/2007 – – 20/3/2007 20/3/2007 – – 20/3/2007 29/9/2007 – – 29/9/2007 25/4/2007 – – 25/4/2007 25/4/2007 – – 25/4/2007 13/11/2007 – – 13/11/2007
Estimated risk-free Estimated No. of No. 94,000 94,000 94,000 94,000 94,000 94,000 94,000 94,000 options granted 495,200 213,000 266,500 213,000 213,000 1,066,000 1,066,000
(HK$) 20.10 20.10 20.10 19.22 19.12 18.70 17.65 17.60 16.05 Date granted 1/8/2003 1/8/2003 4/7/2006 12/1/2006 27/9/2005 13/9/2005 23/9/2005 23/3/2006 31/3/2006 5/10/2006 12/5/2006 15/5/2006 12/5/2006 17/11/2006 17/10/2005 the date of grant of date the
immediately before immediately
Closing price per share per price Closing
12/5/2006 15/5/2006 12/5/2006 5/10/2006 17/11/2006 4/7/2006 31/3/2006 23/3/2006 Date granted
12/1/2006
Francois Lung Ka-kui Lung Francois employees eligible Other Lincoln Leong Kwok-kuen Leong Lincoln
employees eligible and
Executive Directorate Executive
model is as follows: as is model of the options are set out below. Pursuant to the terms of this Scheme, each grantee undertakes to pay HK$1.00, on demand, to the the to demand, on HK$1.00, pay to undertakes grantee each Scheme, this of terms the to Pursuant below. out set are options the of the in basis vesting accrued an on recognised are granted options share The options. the of grant the for consideration in Company, pricing Black-Scholes the using grant of date respective the at estimated granted, option per value average weighted The accounts. During the year ended 31 December 2006, 1,256,500 options to subscribe for shares of the Company were granted to 9 employees employees 9 to granted were Company the of shares for subscribe to options 1,256,500 2006, December 31 ended year the During grant of date respective the before immediately share per price closing respective the and Scheme Option Share Joiners New the under employee under any other share option scheme of the Company (including, in each case, both exercised and outstanding options) in any 12-month period must not exceed exceed not must period 12-month any in options) outstanding and exercised both case, each in (including, Company the of scheme option share other any under employee Scheme. Option New the under option such of respect in offer of date the at issue in Company the of shares the of 1% 2006. October 17 on lapsed Scheme Option New the under Ka-kui Lung Francois by held options share 1,066,000 The 3. 1. No option may be exercised later than ten years after its date of offer and no option may be offered to be granted more than five years after the adoption of the New Joiners Joiners New the of adoption the after years five than more granted be to offered be may option no and offer of date its after years ten than later exercised be may option No 1. 2002. May 16 on Scheme”) Option (“New Scheme Option Share to granted options the of exercise upon issuable and issued shares of number total the Rules, Listing the by required as manner the in shareholders by approved Unless 2. eligible such to granted option any of exercise the upon issuable and issued shares of number total the with together Scheme Option New the under employee eligible any Notes 6B(ii) and 41A(ii) to the Accounts 6B(ii) and 41A(ii) to Options to subscribe for Ordinary Shares granted under the New Joiners Share Option Scheme, as referred to in Notes Notes to in as referred Option Scheme, Share under the New Joiners Shares granted subscribe for Ordinary Options to 82 MTR CORPORATION LIMITED emoluments. make other payments equivalent to more than one year’s contract, give a notice period in excess of one year or pay or or which requires the Company to, in order to terminate such subsidiaries which is for a duration which may exceed three years No Director has a service contract with the Company or any of its payment of compensation, other than statutory compensation. by the Company or any of its subsidiaries within one year without General Meeting has a service contract which is not determinable No director proposed for re-election at the forthcoming Annual Directors’ Service Contracts HKSE pursuant to the Model Code. 352 of the SFO or otherwise notified to the Company and the as recorded in the register kept by the Company under section exercises of any such rights by any of them, equity or debt securities of the Company nor had there been any children under 18 years of age held any rights to subscribe for Board or the Executive Directorate nor any of their spouses or B of the SFO); and any of its associated corporations (within the meaning of Part XV the shares, underlying shares or debentures of the Company or Directorate of the Company had any interest or short position in A Save as disclosed above: the fair value of the share options. pricing model does not necessarily provide a reliable measure of materially affect the fair value estimates, the Black-Scholes option and because changes in the subjective input assumptions can characteristics significantly different from those of traded options, stock price volatility. Since the Company’s share options have highly subjective assumptions, including the expected life and estimating the fair value of traded options and requires input of The Black-Scholes option pricing model was developed for use in Report oftheMembersBoard
during the year ended 31 December 2006, no Member of the none of the Members of the Board or the Executive
of the Financial Secretary. Ordinance (Cap. 66 of the Laws of Hong Kong) under the control Exchange Fund is a fund established under the Exchange Fund Company were held for the account of the Exchange Fund. The 31 December 2006, approximately 1.46% of the shares of the The Company has been informed by the Government that, as at register kept by the Company under section 336 of the SFO: it was interested as at 31 December 2006 as recorded in the Company and the respective relevant numbers of shares in which in 5% or more of the nominal value of the share capital of the Set out below is the name of the party which was interested Substantial Shareholders’ Interests facilities may result. borrowings may be demanded and cancellation of the undrawn and the undrawn facilities. Otherwise, immediate repayment of share capital of the Company during the lives of the borrowings shareholder, owns more than half in nominal value of the voting condition that the Government, being the Company’s controlling facilities of HK$17,288 million, which were subject to the undrawn committed and uncommitted banking and other HK$27,508 million with maturities ranging 2007 to 2020 and As at 31 December 2006, the Group had borrowings of Shareholder to Specific Performance of the Controlling Loan Agreements with Covenant Relating
Name The Financial Secretary Incorporated (in trust on behalf of the Government)
4,249,276,330 Ordinary Shares No. of
Ordinary Shares
to total issued Percentage of share capital 76.58
83 ANNUAL REPORT 2006 Following the end of the year under review, the Company Company the review, under year the of end the Following
presence of the railway. The Company is required to pay (a) a (a) pay to required is Company The railway. the of presence 2007 February 26 on Premium Land the of 10% to equal deposit the when Premium Land the of balance remaining the (b) and will Premium Land the of payment The executed. is Grant Land successful the was which Limited, Lansmart by funded be 56. Area develop to tender the in tenderer Company the of shareholder controlling a is Government the As transaction the Company, the of person connected a therefore and of 14A.13 Rule under Company the for transaction Company connected a is the of announcement the in disclosed As Rules. Listing the waiver a granted has Exchange Stock the 2005, January 13 dated requirements the with compliance strict from Company the to otherwise would which Rules Listing the of 14A Chapter under the and Company the between transactions connected to apply “Waiver”). (the conditions certain to subject Government, B to Government the from offer an 2007 February 26 on accepted Town O Kwan Tseung of development proposed the with proceed Territories New Kung, Sai O, Kwan Tseung 56, Area No.72, Lot Government’s of acceptance Company’s the to subject 56”), (“Area and Premium”) “Land (the 56 Area for premium the of assessment private by grant land the of conditions and particulars the of and Company the between into entered be to 56 Area of treaty the by made was offer The Grant”). “Land (the Government the the delivered Company The 2007. January 15 on Government Land the and 2007 February 26 on Government the to acceptance months calendar three within executed be to expected is Grant date. that from mixed- a be will 56 Area in development the that proposed is It commercial residential, office, hotel, comprising development use of area floor gross total a with accommodations parking car and required is Company The metres. square 168,537 than more not been has which Premium, Land the Government the to pay to by HK$3,345,230,000, be to Government the by assessed the ignoring 56, Area of value market full the to reference (a) New Grant No. 9689 dated 16 May 2002, of Tseung Kwan Kwan Tseung of 2002, May 16 dated 9689 No. Grant New (a)
make payments in respect of noise mitigation measures and set set and measures mitigation noise of respect in payments make AB Site for premium the with parameters, development the out HK$8,061,470,000. at assessed Government to fix the boundary of Site AB, defer the expiry dates dates expiry the defer AB, Site of boundary the fix to Government relating requirements the revise periods, covenant building the of to Company the require accommodation, Government the to sites to be assessed. be to sites Letter Modification Further a into entered Company The (b) with Letter”) Modification “Further (the 2006 April 13 dated Site O, whichever is the later, pursuant to the Further Modification Modification Further the to pursuant later, the is whichever O, Site value or consideration total a with below) (b) in described Letter other the for consideration the and M1 site for HK$150,000,000 of months from the due date for payment of land premium of Site O, O, Site of premium land of payment for date due the from months 2018 December 31 to extended was which later, the is whichever of premium land of payment for date due the from months 66 or A 86 Area O Kwan Tseung at development for 70 No. Lot Town O 60 or 2015 December 31 date expiry period covenant (building purposes of the Listing Rules: Listing the of purposes Agreements Land During the year under review the following transactions and and transactions following the review under year the During were (or into entered been have below described arrangements the for persons” “connected are who persons with ongoing) continue as a going concern for the foreseeable future. foreseeable the for concern going a as continue Transactions Connected concern basis. The Board has reviewed the Company’s budget for for budget Company’s the reviewed has Board The basis. concern five following the for forecast longer-term the with together 2007, to resources sufficient has Company the that satisfied is and years Going Concern Going going a on prepared been have 163 to 87 pages on accounts The 30% in value of the Company’s turnover during the year ended ended year the during turnover Company’s the of value in 30% largest five Company’s the to attributable was 2006 December 31 value. by combined customers Less than 30% in value of supplies (which were not of a capital capital a of not were (which supplies of value in 30% than Less was 2006 December 31 ended year the during purchased nature) than Less suppliers. largest five Company’s the to attributable Major Suppliers and Customers and Suppliers Major 84 MTR CORPORATION LIMITED transaction is subject to the terms of the Waiver. a continuing connected transaction for the Company. The an ongoing basis, the Supplemental Agreement constitutes basis that the agreement involves the provision of services on a connected transaction for the Company. In addition, on the connected person (i.e. the AA) (the “Transaction”), it constitutes Agreement is a transaction between the Company and a is a connected person of the Company. As the Supplemental of Government, a substantial shareholder of the Company, The AA, being an associate (as defined in the Listing Rules) Agreement have not been changed. Otherwise, the basic terms and conditions of the Maintenance re-negotiated and reflected in the Supplemental Agreement. Maintenance Agreement for a further three-year period has been People Mover. As a result, the price for the option to extend the extended the scope of maintenance work for the Automated which are being built at the Airport. This has correspondingly order to serve the new Sky Plaza and Sky Pier terminal buildings decided to modify and extend the Automated People Mover in Since entering into the Maintenance Agreement, the AA has for another three years until 6 July 2008. extend the term of the agreement at pre-agreed rates and prices also included an option, exercisable at the discretion of the AA, to expired on 6 July 2005. However, the Maintenance Agreement The Maintenance Agreement was for a term of three years, which (the “Maintenance Agreement”) with the AA on 18 March 2002. The Company entered into the original maintenance agreement (the “Airport”). Automated People Mover at Hong Kong International Airport year period of the existing maintenance agreement for the (“Supplemental Agreement”) for the renewal for a further three- agreement with The Hong Kong Airport Authority (“AA”) On 30 June 2005, the Company entered into a supplemental Continuing Connected Transactions Rule 14A.45 of the Listing Rules. made in accordance with paragraph B(I)(i) of the Waiver and The above disclosure relating to the Entrustment Agreement is HK$111.1 million. in 2009. The Entrustment Agreement was executed in the sum of and Approaches Project. The works are scheduled for completion associated services as part of the Tseung Kwan O South Station under which the Company would construct road L861 and Agreement (“Entrustment Agreement”) with the Government On 22 June 2006 the Company executed an Entrustment Entrustment Agreement Report oftheMembersBoard
Standard on Related Services 4400 “Engagements to Perform out a review of the Transaction in accordance with Hong Kong The Company has engaged the auditors of the Company to carry whole. and in the interests of the shareholders of the Company as a Supplemental Agreement on terms that are fair and reasonable (3) parties; and the Company than terms available from independent third (2) (1) was entered into: reviewed the Transaction and confirmed that the Transaction Independent Non-executive Directors of the Company have In accordance with paragraph (B)(I)(iii)(a) of the Waiver, all the of the Listing Rules. accordance with paragraph (B)(I)(i) of the Waiver and Rule 14A.46 The above disclosure relating to the Transaction is made in Hong Kong, 13 March 2007 Secretary to the Board Leonard Bryan Turk By order of the Board Directors to fix their remuneration. General Meeting to reappoint them and to authorise the continue in office. A resolution will be proposed at the Annual The retiring auditors, KPMG, have signified their willingness to Auditors Government is a substantial shareholder in the Company. Agreement. Maintenance Agreement, as amended by the Supplemental (ii) Company; and (i) that the Transaction: Waiver, the auditors have confirmed to the Board of Directors Accountants. In accordance with paragraph (B)(I)(iii)(b) of the issued by the Hong Kong Institute of Certified Public Agreed-Upon Procedures Regarding Financial Information”
has been entered into in accordance with the terms of the in accordance with the Maintenance Agreement and the on normal commercial terms which are no less favourable to in the ordinary and usual course of the business of the Company; has been approved by the Members of the Board of the
85 ANNUAL REPORT 2006
reserve other
leases but and
advance
capital
new in
obligations
provisions accounting
liabilities issued
and finance
operations
2006
plan and
judgements
sheet
and
parties
annual Government
Kowloon-Canton
under
payments and
transactions
the premium assets the
events
developer
sale
amendments, charges
controlled
and with balance
December related for
retirement of
party for
China securities
equivalents interpretations
from to
31 the share loans
sheet
payments in in
estimates accounts Schemes in jointly
spares
obligations held financial
and
merger
accrued
property due due cash of
income
retentions
in deposits
impact
related
benefit
a Corporation
tax
effective
parties ended
and
and reserves
capital,
to and housing
balance
yet
46 Commitments 41 Share-based 42 Retirement 43 Defined 44 Interests 45 Material 47 Investments 48 Post 49 Accounting 50 Possible 51 Proposed 52 Approval 24 Investments 25 Staff 26 Properties 27 Derivative 28 Stores 29 Debtors, 30 Loan 31 Amounts 32 Cash 33 Loans 34 Creditors, 35 Contract 36 Amounts 37 Deferred 38 Income 39 Share 40 Other Railway standards 148 151 153 156 157 159 161 161 162 163 163 163 129 130 130 131 133 133 134 135 135 136 141 142 143 143 144 145 146 not period related
and
equity
Board in
the notes
non-controlled
shareholders depreciation of
subsidiaries
of account
progress
changes
and progress
in
of loss
statement
in policies
equity
before
charges
sheet
losses
report payments
developments to
and Members
associates flow
less subsidiaries
of
Directorate compliance
lease
share in
finance
and
accounts
profit balance statement cash non-controlled associates information
of
expenses
auditor’s expenditure revenue
accounting development per property in in accounts
profits
of
land
and construction tax
of sheet attributable on assets
the revenue
Executive
to
13 Dividends 8 Depreciation 19 Deferred 20 Prepaid 21 Interests 22 Investments 23 Interests 14 Earnings 15 Segmental 16 Fixed 17 Railway 18 Property 9 Interest 10 Share 11 Income 12 Profit 3 Fare 4 Non-fare 5 Operating 6 Remuneration 7 Profit 1 Statement 2 Principal • Consolidated • Consolidated • Balance • Consolidated • Consolidated Independent the 126 128 121 122 123 113 117 118 110 110 110 109 109 107 108 108 105 107 103 103 104 92 Notes 92 89 90 91 87 Accounts 88 86 Contents subsidiaries Independent auditor’s report
86 To the shareholders of MTR Corporation Limited (Incorporated in Hong Kong with limited liability)
We have audited the consolidated accounts of MTR Corporation Limited (the “company”) set out on pages 87 to 163, which comprise the consolidated and company balance sheets as at 31 December 2006, and the consolidated profit and loss account, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
MTR CORPORATION LIMITED Directors’ responsibility for the accounts The directors of the company are responsible for the preparation and the true and fair presentation of these accounts in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of accounts that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility Our responsibility is to express an opinion on these accounts based on our audit. This report is made solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the accounts are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the accounts.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated accounts give a true and fair view of the state of affairs of the company and of the group as at 31 December 2006 and of the group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.
KPMG Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 13 March 2007 Consolidated profit and loss account
87 for the year ended 31 December in HK$ million Note 2006 2005 ANNUAL REPORT 2006 REPORT ANNUAL Fare revenue 3 6,523 6,282 Station commercial and other revenue 4A 1,606 1,555 Rental and management income 4B 1,412 1,316 Turnover 9,541 9,153 Staff costs and related expenses 5A (1,653 ) (1,614 ) Energy and utilities (539 ) (541 ) Operational rent and rates (65 ) (92 ) Stores and spares consumed (120 ) (120 ) Repairs and maintenance 5B (511 ) (496 ) Railway support services (80 ) (74 ) Expenses relating to station commercial and other businesses (443 ) (358 ) Property ownership and management expenses (312 ) (238 ) Project study and business development expenses 5C (267 ) (142 ) General and administration expenses 5D (192 ) (207 ) Other expenses 5D (158 ) (170 ) Operating expenses before depreciation (4,340 ) (4,052 ) Operating profit from railway and related businesses before depreciation 5,201 5,101 Profit on property developments 7 5,817 6,145 Operating profit before depreciation 11,018 11,246 Depreciation 8 (2,674 ) (2,682 ) Operating profit before interest and finance charges 8,344 8,564 Interest and finance charges 9 (1,398 ) (1,361 ) Change in fair value of investment properties 16 2,178 2,800 Share of profits less losses of non-controlled subsidiaries and associates 10 45 9 Profit before taxation 9,169 10,012 Income tax 11A (1,411 ) (1,549 ) Profit for the year 7,758 8,463
Attributable to: – Equity shareholders of the Company 12 7,759 8,450 – Minority interests (1 ) 13 Profit for the year 7,758 8,463
Dividends paid and proposed to equity shareholders of the Company attributable to the year: 13 – Interim dividend declared and paid during the year 774 764 – Final dividend proposed after the balance sheet date 1,554 1,535 2,328 2,299
Earnings per share: 14 – Basic HK$1.41 HK$1.55 – Diluted HK$1.41 HK$1.55
The notes on pages 92 to 163 form part of these accounts. 88 MTR CORPORATION LIMITED The notes on pages 92 to 163 form part of these accounts. Consolidated balance sheet Contract retentions Short-term loans Investments in securities Loans and obligations under finance leases Minority Capital Net Total Other reserves Derivative financial liabilities Railway construction in progress Lincoln K K Leong C K Chow Raymond K F Ch’ien Approved and authorised for issue by the Members of the Board on 13 March 2007 Bank overdrafts Liabilities Interests in associates Interests in non-controlled subsidiaries Prepaid land lease payments Property development in progress Fixed assets Assets at 31 December Deferred tax liabilities Current taxation Creditors, accrued charges and provisions Amounts due from the Government and other related parties Loan to a property developer Derivative financial assets Deferred expenditure Cash and cash equivalents Debtors, deposits and payments in advance Stores and spares Staff housing loans Deferred tax assets Deferred income Amounts due to related parties Properties held for sale Total Share capital, share premium and capital reserve – Other property, plant and equipment – Investment properties
assets
equity equity
and
interests
reserves
attributable in HK$ million
to
equity
shareholders
of
the
Company
Note 33A 33A 18A 33A 38A 38B 38B 16 35 24 40 17 21 31 30 27 34 19 29 25 36 37 39 27 23 20 32 28 26
106,943
2,2 120,421 676 76,786 76,767 38,128 38,639 76,786 43,635 27,033 84,404 22,539 ,9 3,297 3,355 1,894 2,018 9,453 1,682 3,639 1,114 2006 171 594 565 232 177 272 195 272 100 515 193 310 25 9 19 1 1 5 –
103,275 113,666 69,896 69,875 69,896 43,770 32,425 37,450 27,865 83,383 19,892 1,006 3,095 1,311 8,011 3,584 3,415 2,756 2005 103 608 281 385 154 248 234 183 307 170 359 19 14 17 34 21 2 – – Balance sheet
89 at 31 December in HK$ million Note 2006 2005 ANNUAL REPORT 2006 REPORT ANNUAL Assets Fixed assets 16 – Investment properties 22,539 19,892 – Other property, plant and equipment 84,256 83,286 106,795 103,178 Railway construction in progress 17 232 1,006 Property development in progress 18A 3,297 2,756 Deferred expenditure 19 283 115 Prepaid land lease payments 20 594 608 Investments in subsidiaries 22 184 182 Staff housing loans 25 25 34 Properties held for sale 26 2,018 1,311 Derivative financial assets 27 195 234 Stores and spares 28 272 248 Debtors, deposits and payments in advance 29 1,782 2,975 Loan to a property developer 30 3,355 – Amounts due from the Government and other related parties 31 700 424 Cash and cash equivalents 32 127 116 119,859 113,187 Liabilities Bank overdrafts 33A 5 14 Short-term loans 33A 1,114 385 Creditors, accrued charges and provisions 34 3,259 3,086 Contract retentions 35 191 170 Amounts due to related parties 36 11,718 12,773 Loans and obligations under finance leases 33A 15,518 15,290 Derivative financial liabilities 27 515 307 Deferred income 37 1,682 3,584 Deferred tax liabilities 38B 9,453 8,011 43,455 43,620 Net assets 76,404 69,567
Capital and reserves Share capital, share premium and capital reserve 39 38,639 37,450 Other reserves 40 37,765 32,117 Total equity 76,404 69,567
Approved and authorised for issue by the Members of the Board on 13 March 2007
Raymond K F Ch’ien C K Chow Lincoln K K Leong
The notes on pages 92 to 163 form part of these accounts. 90 MTR CORPORATION LIMITED The notes on pages 92 to 163 form part of these accounts. Consolidated statement of changes in equity Shares issued during the year Movements
Cash flow hedges: Total
Employee share-based payments Total Net profit for the year Exchange difference on translation of accounts of overseas subsidiaries
Surplus on revaluation of self-occupied land and buildings, Total equity as at 1 January for the year ended 31 December Net income recognised directly in equity Total Total
Dividends Reduction – Employee Share Option Scheme – 2006 interim dividend Effective portion of changes in fair value, net of deferred tax – to initial carrying amount of non-financial hedged items – to profit and loss account Transfer from equity – to deferred tax – Minority interests – 2005 final dividend net of deferred tax – Attributable to equity shareholders of the Company – Scrip Dividend Scheme – Equity shareholders of the Company – Minority interests
recognised recognised equity equity
declared in
in as as
minority
equity at at
income income 1 31
January
or
December
arising
interests
approved
and and
in HK$ million
from
expense expense
on
during
capital disposal
for for
the
transactions the the
of year
year year a
subsidiary
attributable
to:
Note 39 40 13 40 40 40
69,875 (1,535 ) 7,758 1,189 1,153 (774 ) 250 271 (34 ) (17 ) (18 ) 13 21 36 (2 ) 3 3
2006
69,896 76,786 (2,309 ) 8,008 8,008 8,009 1,192 (1 ) (1 )
62,016 (1,509 8,463 1,181 1,135 (764 500 406 (21 10 90 32 69 46 1 4 8
) ) ) 2005 62,024 69,896 (2,273 8,963 8,963 8,950 1,182 13 –
) Consolidated cash flow statement
91 for the year ended 31 December in HK$ million Note 2006 2005 ANNUAL REPORT 2006 REPORT ANNUAL Cash flows from operating activities Operating profit from railway and related businesses before depreciation 5,201 5,101 Adjustments for: Decrease in provision for obsolete stock (2 ) – Loss on disposal of fixed assets 37 40 Deferred project study costs written off 26 – Amortisation of deferred income from lease transaction (6 ) (6 ) Amortisation of prepaid land lease payments 14 13 (Increase)/decrease in fair value of derivative instruments (7 ) 9 Unrealised gain on revaluation of investment in securities (2 ) – Employee share-based payment expenses 9 5 Exchange gain (1 ) (7 ) Operating profit from railway and related businesses before working capital changes 5,269 5,155 Increase in debtors, deposits and payments in advance (53 ) (82 ) Increase in stores and spares (17 ) – Increase in creditors, accrued charges and provisions 204 118 Cash generated from operations 5,403 5,191 Overseas tax paid (3 ) (2 ) Net cash generated from operating activities 5,400 5,189
Cash flows from investing activities Capital expenditure – Tseung Kwan O Extension Project (6 ) (114 ) – Disneyland Resort Line Project (45 ) (272 ) – Tung Chung Cable Car Project (165 ) (413 ) – Tseung Kwan O property development projects (134 ) (1,207 ) – Property fitting out works and other development projects (815 ) (227 ) – Purchase of assets and other capital projects (1,738 ) (1,221 ) Merger studies (88 ) (17 ) Receipts in respect of property development 4,400 2,610 Loan to a property developer (4,000 ) – Purchase of investment in securities (194 ) (114 ) Proceeds from sale of investment in securities 106 133 Loans to associates – (15 ) Investment in an associate (100 ) – Principal repayments under Staff Housing Loan Scheme 9 13 Net cash used in investing activities (2,770 ) (844 )
Cash flows from financing activities Proceeds from shares issued 36 46 Drawdown of loans 6,929 3,800 Proceeds from issuance of capital market instruments 1,499 1,491 Repayment of loans (5,749 ) (2,721 ) Repayment of capital market instruments (2,450 ) (4,168 ) Reduction in capital element of finance lease (131 ) (121 ) Release of refundable deposits and asset replacement reserve funds (13 ) (1 ) Interest paid (1,611 ) (1,416 ) Interest received 10 16 Interest element of finance lease rental payments (19 ) (29 ) Finance charges paid (16 ) (17 ) Dividends paid (1,155 ) (1,138 ) Net cash used in financing activities (2,670 ) (4,258 )
Net (decrease)/increase in cash and cash equivalents (40 ) 87 Cash and cash equivalents at 1 January 345 258 Cash and cash equivalents at 31 December 32 305 345
The notes on pages 92 to 163 form part of these accounts. 92 MTR CORPORATION LIMITED Notes totheaccounts the year are included in the consolidated profit and loss account from or to the date of their acquisition or disposal, as appropriate. non-controlled subsidiaries (see note 2D) and associates made up to 31 December each year. The results of subsidiaries acquired or disposed of during The consolidated accounts include the accounts of the Company and its subsidiaries (collectively referred to as the “Group”) and the Group’s interest in Basis B financial position for financial years 2005 and 2006. policy are set out in note 2X. The adoption of this amendment does not have a significant financial impact on the Group’s results of operations and accumulated amortisation, and the amount of the provision, if any, that should be recognised in accordance with HKAS 37. Further details of the new initially at fair value, where the fair value can be reliably measured. Subsequently, they are measured at the higher of the amount initially recognised less guarantees issued. Under the new policy, material financial guarantee contracts are accounted for as financial liabilities under HKAS 39 and measured With effect from 1 January 2006, in order to comply with the Amendment to HKAS 39, the Group has changed its accounting policy for financial called upon. liabilities and contingent assets”. No provisions were made in respect of these guarantees unless it was more likely than not that the guarantee would be In prior years, financial guarantees issued by the Group were disclosed as contingent liabilities in accordance with HKAS 37 “Provisions, contingent have significant changes in the Company’s relevant accounting policy for the current accounting period onwards. new and revised standards, the Amendment to HKAS 39 “Financial instruments: recognition and measurement on financial guarantee contracts” may (iii) The HKICPA has issued certain new and revised HKFRSs that are effective for accounting periods beginning on or after 1 January 2006. Among those Judgements made by management in the application of HKFRSs that have significant effect on the accounts and estimates are discussed in note 49. future periods. the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which from these estimates. judgements and estimations about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical (ii) The preparation of the accounts in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the • • • • fair value as explained in the accounting policies set out below: (i) The measurement basis used in the preparation of the accounts is historical cost basis except that the following assets and liabilities are stated at their Basis A Principal 2 The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 50). accounting periods reflected in these accounts are disclosed in note 2A(iii). accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior The HKICPA has issued certain new and revised HKFRSs that are effective for accounting periods beginning on or after 1 January 2006. Changes in by the Group is set out in note 2. Public Accountants (“HKICPA”), and accounting principles generally accepted in Hong Kong. A summary of the principal accounting policies adopted Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKAS”) and Interpretations issued by the Hong Kong Institute of Certified accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). These accounts have also been prepared in These accounts have been prepared in compliance with the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Statement 1
derivative financial instruments (see note 2T). financial instruments classified as investments in securities (see note 2L); and classified as a finance lease (see note 2F(ii)); other leasehold land and buildings, for which the fair values cannot be measured separately at the inception of the lease and the entire lease is investment properties (see note 2F(i));
of of
consolidation preparation
accounting
of
compliance
of
the
accounts
policies
9393 ANNUAL REPORT 2006
(continued)
entities
policies
controlled
subsidiaries
jointly
accounting
and
In the Company’s balance sheet, its investments in associates and jointly controlled entities are stated at cost less impairment losses (see note 2G(ii)). note (see losses impairment less cost at stated are entities controlled jointly and associates in investments its sheet, balance Company’s the In Unrealised profits and losses resulting from transactions between the Group and its associates and jointly controlled entities are eliminated to the extent extent the to eliminated are entities controlled jointly and associates its and Group the between transactions from resulting losses and profits Unrealised asset the of impairment an of evidence provide losses unrealised where except entities, controlled jointly and associates the in interest Group’s the of account. loss and profit the in immediately recognised are they case which in transferred, behalf of the associate or the jointly controlled entity. For this purpose, the Group’s interest in the associate and the jointly controlled entity is the carrying carrying the is entity controlled jointly the and associate the in interest Group’s the purpose, this For entity. controlled jointly the or associate the of behalf net Group’s the of part form substance in that interests long-term Group’s the with together method equity the under investment the of amount entity. controlled jointly the or associate the in investment for the year. the for and nil to reduced is interest Group’s the entity, controlled jointly the or associate the in interest its exceeds or equals losses of share Group’s the When on payments made or obligations constructive or legal incurred has Group the that extent the to except discontinued is losses further of recognition An investment in an associate or a jointly controlled entity is accounted for in the consolidated accounts of the Company using the equity method and is is and method equity the using Company the of accounts consolidated the in for accounted is entity controlled jointly a or associate an in investment An net entity’s controlled jointly the or associate’s the of share Group’s the in change acquisition post the for thereafter adjusted and cost at recorded initially entities controlled jointly and associates the of results acquisition post the of share Group’s the reflects account loss and profit consolidated The assets. A jointly controlled entity is an entity which operates under a contractual arrangement between the Group or the Company and other parties, where the the where parties, other and Company the or Group the between arrangement contractual a under operates which entity an is entity controlled jointly A activity economic the over control joint share parties other the of more or one and Company the or Group the that establishes arrangement contractual entity. the of An associate is an entity over which the Group or the Company has significant influence, but not control or joint control, over its management, including including management, its over control, joint or control not but influence, significant has Company the or Group the which over entity an is associate An decisions. policy operating and financial the in participation recognised immediately in the profit and loss account. loss and profit the in immediately recognised 2G(ii)). note (see losses impairment less cost at stated are subsidiaries non-controlled in investments its sheet, balance Company’s the In E Associates Unrealised profits and losses resulting from transactions between the Group and the non-controlled subsidiaries are eliminated to the extent of the the of extent the to eliminated are subsidiaries non-controlled the and Group the between transactions from resulting losses and profits Unrealised are they case which in transferred, asset the of impairment an of evidence provide losses unrealised where except subsidiaries, those in interest Group’s Non-controlled subsidiaries are not consolidated in the accounts as the Group does not have effective control over their Boards. The investments in non- in investments The Boards. their over control effective have not does Group the as accounts the in consolidated not are subsidiaries Non-controlled and cost at recorded initially are and method equity the using Company the of accounts consolidated the in for accounted are subsidiaries controlled Group’s the reflects account loss and profit consolidated The assets. net their of share Group’s the in change acquisition post the for thereafter adjusted year. the for subsidiaries non-controlled those of results the of share Investments in subsidiaries are carried in the Company’s balance sheet at cost less any impairment losses (see note 2G(ii)). note (see losses impairment any less cost at sheet balance Company’s the in carried are subsidiaries in Investments D Non-controlled the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make good good make to, able is and to, obligation binding a has minority the that extent the to except interest Group’s the against charged are minority, the has Group the by absorbed previously losses of share minority’s the until Group the to allocated are subsidiary the of profits subsequent All losses. the recovered. been face of the consolidated profit and loss account as an allocation of the total profit or loss for the year between minority interests and the equity equity the and interests minority between year the for loss or profit total the of allocation an as account loss and profit consolidated the of face Company. the of shareholders to attributable losses further any and excess, the subsidiary, a of equity the in interest minority the exceed minority the to attributable losses Where Minority interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the the by owned not are that interests equity to attributable subsidiaries of assets net the of portion the being date, sheet balance the at interests Minority within equity in changes of statement and sheet balance consolidated the in presented are subsidiaries, through indirectly or directly whether Company, the on presented are Group the of results the in interests Minority Company. the of shareholders equity the to attributable equity from separately equity, Intra-group balances and transactions, and any unrealised profits arising from intra-group transactions, are eliminated in full in preparing the consolidated consolidated the preparing in full in eliminated are transactions, intra-group from arising profits unrealised any and transactions, and balances Intra-group is there that extent the to only but gains, unrealised as way same the in eliminated are transactions intra-group from resulting losses Unrealised accounts. impairment. of evidence no to be controlled if the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from from benefits obtain to as so policies, operating and financial the govern to indirectly, or directly power, the has Company the if controlled be to activities. their C Subsidiaries of half than more holds indirectly, or directly Group, the which in company a is Ordinance Companies Kong Hong the with accordance in subsidiary A considered are Subsidiaries directors. of board the of composition the controls or power, voting the of half than more controls or capital, share issued the 2 Principal Notes to the accounts
94 2 Principal accounting policies (continued)
F Fixed assets (i) Investment properties are land and/or buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation.
Investment properties are stated in the balance sheet at fair value as determined annually by independent professionally qualified valuers. Gains or losses
MTR CORPORATION LIMITED arising from changes in the fair value are recognised as profit or loss in the year in which they arise.
Property that is being constructed or developed for future use as investment property is classified as asset under construction within property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified as investment property at fair value. Any difference between the fair value of the property at that date and its previous carrying amount is recognised in the profit and loss account.
(ii) Land held for own use under operating leases and buildings thereon, where the fair values of the leasehold interest in the land and buildings cannot be measured separately at the inception of the lease are accounted for as being held under a finance lease, unless the buildings are also clearly held under an operating lease. The self-occupied land and buildings are stated in the balance sheet at their fair values on the basis of their existing use at the date of revaluation less any subsequent accumulated depreciation. Revaluations are performed by independent qualified valuers every year, with changes in the value arising on revaluations treated as movements in the fixed asset revaluation reserve, except: • where the balance of the fixed asset revaluation reserve relating to a self-occupied land and building is insufficient to cover a revaluation deficit of that property, the excess of the deficit is charged to the profit and loss account; and • where a revaluation deficit had previously been charged to the profit and loss account and a revaluation surplus subsequently arises, this surplus is firstly credited to the profit and loss account to the extent of the deficit previously charged to the profit and loss account, and is thereafter taken to the fixed asset revaluation reserve.
(iii) Civil works and plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 2G(ii)).
(iv) Assets under construction are stated at cost less impairment losses (see note 2G(ii)). Cost comprises direct costs of construction, such as materials, staff costs and overheads, together with interest expense capitalised during the period of construction or installation and testing. Capitalisation of these costs ceases and the asset concerned is transferred to the appropriate fixed assets category when substantially all the activities necessary to prepare the asset for its intended use are completed.
(v) Leased assets (a) Leases of assets under which the lessee assumes substantially all the risks and rewards of ownership are classified as finance leases. Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments (computed using the rate of interest implicit in the lease), of such assets are included in fixed assets and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation and impairment losses are accounted for in accordance with the accounting policy as set out in notes 2H(iv) and 2G(ii) respectively. Finance charges implicit in the lease payments are charged to the profit and loss account over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
(b) Leases of assets, other than that mentioned in note 2F(v)(c) below, under which the lessor has not transferred substantially all the risks and rewards of ownership are classified as operating leases. Where the Group leases out assets under operating leases, the assets are included in the balance sheet according to their nature and, where applicable, are depreciated in accordance with the Group’s depreciation policies. Impairment losses are accounted for in accordance with the accounting policies on impairment of assets (see note 2G(ii)). Revenue arising from operating leases is recognised in accordance with the Group’s revenue recognition policies as set out in note 2Z(iv).
(c) Land held for own use under an operating lease where its fair value cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease (see note 2F(ii)). For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous lessee, or at the date of construction of those buildings, if later. 95 ANNUAL REPORT 2006 (continued)
policies
assets
accounting of (continued)
assets
deferred expenditure; and expenditure; deferred entities. controlled jointly and associates subsidiaries, non-controlled subsidiaries, in investments property development in progress; in development property payments; lease land prepaid fixed assets (other than properties carried at revalued amounts); revalued at carried properties than (other assets fixed progress; in construction railway
A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in in recognised been loss impairment no had determined been have would that amount carrying asset’s the to limited is losses impairment of reversal A recognised. are reversals the which in year the in account loss and profit the to credited are losses impairment of Reversals years. prior exceeds its recoverable amount. recoverable its exceeds asset. the of amount recoverable the determine to used estimates the in change favourable a been has there if reversed is loss impairment An the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the the for determined is amount recoverable the assets, other from those of independent largely inflows cash generate not does asset an Where asset. the unit). cash-generating a (i.e. independently inflows cash generates that assets of group smallest belongs, it which to unit cash-generating the or asset, an of amount carrying the whenever account loss and profit the in recognised is loss impairment An The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are are flows cash future estimated the use, in value assessing In use. in value and price selling net its of greater the is asset an of amount recoverable The to specific risks the and money of value time of assessments market current reflects that rate discount pre-tax a using value present their to discounted • • estimated. is amount recoverable asset’s the exists, indication such any If • • • • (ii) Impairment of other assets other of Impairment (ii) or impaired be may assets following the that indications identify to date sheet balance each at reviewed are information of sources external and Internal decreased: have may or exists longer no recognised previously loss impairment an of these assets) where the effect of discounting is material. is discounting of effect the where assets) these of account. loss and profit the through reversed is loss impairment the decreases, loss impairment an of amount the period subsequent a in If Debtors and other current and non-current receivables are reviewed at each balance sheet date to determine whether there is objective evidence of of evidence objective is there whether determine to date sheet balance each at reviewed are receivables non-current and current other and Debtors of value present the and amount carrying asset’s the between difference the as measured is loss impairment the exists, evidence such any If impairment. recognition initial at computed rate interest effective the (i.e. rate interest effective original asset’s financial the at discounted flows, cash future estimated date of retirement or disposal. Any related revaluation surplus is transferred from the fixed asset revaluation reserve to retained profits. retained to reserve revaluation asset fixed the from transferred is surplus revaluation related Any disposal. or retirement of date G Impairment receivables other and debtors of Impairment (i) charged as an expense when incurred. when expense an as charged between difference the as determined are property investment an than other asset fixed a of disposal or retirement the from arising losses or Gains (vii) the on account loss and profit the in expense or income as recognised are and asset the of amount carrying the and proceeds disposal net estimated the are replaced is derecognised, with gain or loss arising therefrom dealt with in the profit and loss account. loss and profit the in with dealt therefrom arising loss or gain with derecognised, is replaced are is asset that of performance of standard assessed originally the maintain or restore to asset fixed existing an of maintenance or repairs on Expenditure F Fixed is it if asset the of amount carrying the in recognised is asset fixed existing an of parts certain of replacement the to relating expenditure Subsequent (vi) that parts those of amount carrying The reliably. measured be can item the of cost the and Group the to flow will benefit economic future that probable 2 Principal Notes to the accounts
96 2 Principal accounting policies (continued)
H Depreciation (i) Investment properties are not depreciated.
(ii) Fixed assets other than investment properties and assets under construction are depreciated on a straight-line basis at rates sufficient to write off their cost or valuation, less their estimated residual value, if any, over their estimated useful lives as follows: MTR CORPORATION LIMITED Land and Buildings Self-occupied land and buildings ...... the shorter of 50 years and the unexpired term of the lease
Civil Works Excavation and boring...... Indefinite Tunnel linings, underground civil structures, overhead structures and immersed tubes ...... 100 years Station building structures ...... 100 years Depot structures ...... 80 years Concrete kiosk structures...... 20 years Cableway station tower and theme village structures ...... 27 years
Plant and Equipment Rolling stock and components ...... 4 – 40 years Platform screen doors ...... 35 years Rail track ...... 7 – 30 years Environmental control systems, lifts and escalators, fire protection and drainage system ...... 7 – 30 years Power supply systems...... 7 – 40 years Aerial ropeway and cabin ...... 5 – 27 years Automatic fare collection systems, metal station kiosks, and other mechanical equipment...... 20 years Train control and signalling equipment, station announcement systems, telecommunication systems and advertising panels ...... 5 – 20 years Station architectural finishes ...... 20 – 30 years Fixtures and fittings ...... 10 – 15 years Maintenance equipment, office furniture and equipment ...... 10 years Computer software licences and applications ...... 5 – 7 years Cleaning equipment, computer equipment and tools ...... 5 years Motor vehicles ...... 4 years
Where parts of an item of property, plant and equipment have different useful lives, each part is depreciated separately. The useful lives of the various categories of fixed assets are reviewed annually in the light of actual asset condition, usage experience and the current asset replacement programme.
(iii) No depreciation is provided on assets under construction until construction is completed and the assets are ready for their intended use.
(iv) Depreciation on assets held under finance leases is provided at rates designed to write off the cost of the asset in equal annual amounts over the shorter of the lease term or the anticipated useful life of the asset as set out above, except in cases where title to the asset will be acquired by the Group at the end of the lease where depreciation is provided at rates designed to write off the cost of the asset in equal amounts over the anticipated useful life of the asset.
I Construction costs (i) Costs incurred by the Group in respect of feasibility studies on proposed railway related construction projects (including consultancy fees, in-house staff costs and overheads) are dealt with as follows: • where the proposed projects are at a preliminary review stage with no certainty of materialising, the costs concerned are written off to the profit and loss account; and • where the proposed projects are at a detailed study stage, having been agreed in principle by the Members of the Board based on a feasible financial plan, the costs concerned are dealt with as deferred expenditure until such time as a project agreement is reached, whereupon the costs are transferred to railway construction in progress.
(ii) After entering into a project agreement, all costs incurred in the construction of the railway are dealt with as railway construction in progress until commissioning of the railway line, whereupon the relevant construction costs are transferred to fixed assets.
J Property development (i) Costs incurred by the Group in respect of site preparation and land costs paid for property development are dealt with as property development in progress. 97 ANNUAL REPORT 2006
(continued)
policies
(continued)
operations
accounting
development
controlled
remeasured on a basis consistent with the policy set out in note 2J(viii); and 2J(viii); note in out set policy the with consistent basis a on remeasured of time the at assets such of value fair the on based recognised is profit development, the of assets the of distribution a receives Group the where development. the with connection in Group the by retained obligations and risks outstanding any account into taking after and receipt obligations, if any, retained by the Group in connection with the development; the with connection in Group the by retained any, if obligations, issue the upon Group the by recognised initially is income development, the of sale from surplus net the of share a to right a receives Group the where subsequently is properties unsold any in interest The reliably. estimated be can costs and revenue of amounts the provided permits occupation of where the Group receives payments from developers at the commencement of the project, profits arising from such payments are recognised when when recognised are payments such from arising profits project, the of commencement the at developers from payments receives Group the where and risks outstanding the account into taking after and development, for acceptable and complete are works enabling site and foundation the
profit and loss account on the basis of note 2J(vi) after netting off any related balance in property development in progress at that time. that at progress in development property in balance related any off netting after 2J(vi) note of basis the on account loss and profit received as property development in progress. In cases where up-front payments received from developers exceed the related expenditures incurred incurred expenditures related the exceed developers from received payments up-front where cases In progress. in development property as received these of respect in fees consultancy and overhead staff, on Group the by incurred Expenses income. deferred as recorded is excess such Group, the by the in recognised is operations such from earned income of share Group’s The progress. in development property as capitalised also are developments responsible for its own costs, including in-house staff costs and the costs of enabling works, and the developers normally undertake to pay for all other other all for pay to undertake normally developers the and works, enabling of costs the and costs staff in-house including costs, own its for responsible proceeds surplus before sale of proceeds the from deductible are costs Such etc. fees, professional costs, construction premium, land as such costs project payments up-front of net paid costs land and works enabling of costs the for accounts Group the operations, such in interests its of respect In shared. are K Jointly to considered are entities separate establishing without developments property for developers with Group the by into entered arrangements The normally is Group the arrangements, development the Under ventures”. joint in “Investments 31 HKAS to pursuant operations controlled jointly be (ix) Where properties under construction are received as a sharing in kind from a development, these properties are initially recognised in assets under under assets in recognised initially are properties these development, a from kind in sharing a as received are construction under properties Where (ix) are which construction, under assets the into capitalised are assets those of construction the in incurred costs Further value. fair at construction completed. been have use intended their for assets the prepare to necessary activities the all substantially when assets fixed to transferred related revenue is recognised. The amount of any write-down of properties to net realisable value is recognised as an expense in the period the write- the period the in expense an as recognised is value realisable net to properties of write-down any of amount The recognised. is revenue related in reduction a as recognised is value, realisable net in increase an from arising properties, of write-down any of reversal any of amount The occurs. down occurs. reversal the which in period the in sold properties of cost the (viii) Where properties are received as a profit distribution upon completion of development and are held for sale, those properties are stated at cost cost at stated are properties those sale, for held are and development of completion upon distribution profit a as received are properties Where (viii) in incurred be to costs less price selling estimated the represents value realisable Net receipt. upon value realisable net estimated their by represented the which in period the in sold properties of cost as recognised is properties those of amount carrying the sold, are properties When properties. the selling (vii) Where the Group is liable to pay the developer consideration for the retention of part of a property to be redeveloped, profit attributable to the the to attributable profit redeveloped, be to property a of part of retention the for consideration developer the pay to liable is Group the Where (vii) the when account loss and profit the in recognised be will developer) the from received payment any (including redevelopment the of respect in Group accuracy. reasonable with determined be can profit realised of amount the and Group the of obligation the of quantum Upon recognition of profit, the balance of deferred income or property development in progress related to that development is credited or charged to charged or credited is development that to related progress in development property or income deferred of balance the profit, of recognition Upon be. may case the as account, loss and profit the • • • equates to its face value. face its to equates account loss and profit the in recognised are developers property with conjunction in undertaken properties of development the from arising Profits (vi) follows: as its present value discounted at the prevailing market rates of interest at inception. The difference between the fair value and the face value of the loan is is loan the of value face the and value fair the between difference The inception. at interest of rates market prevailing the at discounted value present its development. the of completion upon account loss and profit the to transferred and construction during progress in development property as with dealt maturity at loan the of value fair the that so loan the of period the over loan the to debited and account loss and profit the to credited is income Interest basis prior to commencement of redevelopment. The surplus arising on revaluation is credited to fixed asset revaluation reserve. On commencement of commencement On reserve. revaluation asset fixed to credited is revaluation on arising surplus The redevelopment. of commencement to prior basis progress. in development property to transferred is property the of value book net the redevelopment, is which value fair at stated initially is loan such contract, development the of terms the of one as developer a to provided is loan interest-free an Where (v) (iii) Expenditure incurred on the development of properties for self-occupation by the Group is transferred to fixed assets when the occupation permits permits occupation the when assets fixed to transferred is Group the by self-occupation for properties of development the on incurred Expenditure (iii) use. into put are properties the and issued are use existing an on revalued is property relevant the property, self-occupied existing an redevelop to developer a with reached is agreement When (iv) transferred to deferred income. In these cases, further costs subsequently incurred by the Group in respect of that development are charged against against charged are development that of respect in Group the by incurred subsequently costs further cases, these In income. deferred to transferred income. deferred J Property attributable progress in development property in amounts the against offset are developments of respect in developers from received Payments (ii) are progress in development property in balance the of excess in developers from received payments of amounts surplus Any development. that to 2 Principal Notes to the accounts
98 2 Principal accounting policies (continued)
L Investments in securities The Group’s policies for investments in securities (other than investments in its subsidiaries, non-controlled subsidiaries, associates and jointly controlled entities), which are held for trading purpose, are as follows:
(i) Investments in securities are initially stated at fair value. At each balance sheet date the fair value is remeasured, with any resultant unrealised gain or
MTR CORPORATION LIMITED loss being recognised in the profit and loss account.
(ii) Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or they expire.
(iii) Profit or loss on disposal of investments in securities are determined as the difference between the estimated net disposal proceeds and the carrying amount of the investments and are accounted for in the profit and loss account as they arise.
M Defeasance of long-term lease payments Where commitments to make long-term lease payments have been defeased by the placement of securities, those commitments and securities (and income and charges arising therefrom) have been netted off in order to reflect the overall commercial effect of the arrangements. These transactions are not accounted for as leases and these liabilities and investment in securities are not recognised as obligations and assets. Any net amount of cash received from such transactions is accounted for as deferred income and is amortised over the terms of the respective lease.
N Stores and spares Stores and spares used for railway and business operation are categorised as either revenue or capital. Revenue spares are stated in the balance sheet at cost, using the weighted average cost method and are recognised in the year in which the consumption occurred. Provision is made for obsolescence where appropriate. Capital items are included in fixed assets and stated at cost less aggregate depreciation and impairment losses. Depreciation is charged at the rates applicable to the relevant fixed assets against which the capital spares are held in reserve.
O Long-term consultancy contracts The accounting policy for contract revenue is set out in note 2Z(iii). When the outcome of a fixed-price consultancy contract can be estimated reliably, contract costs are recognised as expense by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a consultancy contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.
Consultancy contracts in progress at the balance sheet date are recorded in the balance sheet at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented in the balance sheet as the “Gross amount due from customers for contract work” (as an asset) or the “Gross amount due to customers for contract work” (as a liability), as applicable. Progress billings not yet paid by the customer are included in the balance sheet under “Debtors, deposits and payments in advance”. Amounts received before the related work is performed are included in the balance sheet, as a liability, under “Creditors, accrued charges and provisions”.
P Cash and cash equivalents Cash and cash equivalents comprise cash at banks and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.
Q Debtors, deposits and payments in advance Debtors, deposits and payments in advance are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for bad and doubtful debts (see note 2G(i)), except where the effect of discounting would be immaterial or the discount is not measurable as the receivables are interest-free loans made to related parties without any fixed repayment terms. In such cases, the receivables are stated at cost less impairment losses for bad and doubtful debts.
R Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value, net of transaction costs incurred. The unhedged portion of interest-bearing borrowings are subsequently stated at amortised costs; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.
Subsequent to initial recognition, the carrying amount of the hedged portion of interest-bearing borrowings is remeasured and the change in fair value attributable to the risk being hedged is recognised in the profit and loss account to offset the effect of the gain or loss on the related hedging instrument.
S Creditors, accrued charges and provisions Creditors, accrued charges and provisions are stated at amortised cost if the effect of discounting would be material, otherwise they are stated at cost. 99 ANNUAL REPORT 2006
activities
(continued) (continued)
hedging
and
policies
instruments
accounting
financial benefits
to the plan. the to Where the calculation of the Group’s net obligation results in a negative amount, the asset recognised is limited to the net total of any cumulative cumulative any of total net the to limited is recognised asset the amount, negative a in results obligation net Group’s the of calculation the Where contributions future in reductions or plan the from refunds future any of value present the and costs service past and losses actuarial net unrecognised In calculating the Group’s obligation in respect of a plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds ten percent of the the of percent ten exceeds loss or gain actuarial unrecognised cumulative any that extent the to plan, a of respect in obligation Group’s the calculating In account loss and profit the in recognised is portion that assets, plan of value fair the and obligation benefit defined the of value present the of greater recognised. not is loss or gain actuarial the Otherwise, plan. the in participating employees the of lives working remaining average expected the over the profit and loss account, or capitalised as part of the cost of the relevant construction projects or capital works in the case of project related employees, employees, related project of case the in works capital or projects construction relevant the of cost the of part as capitalised or account, loss and profit the the immediately, vest benefits the that extent the To vested. become benefits the until period average the over basis straight-line a on be, may case the as manner. similar a in immediately recognised is expense approximating the terms of the Group’s obligations. If there is no deep market in such bonds, the market yield on government bonds would be used. The The used. be would bonds government on yield market the bonds, such in market deep no is there If obligations. Group’s the of terms the approximating method. credit unit projected the using actuary qualified a by performed is calculation in expense an as either recognised is employees by service past to relating benefit increased the of portion the improved, are plan a of benefits the When (iii) The Group’s net obligation in respect of defined benefit retirement plans is calculated separately for each plan by estimating the amount of future future of amount the estimating by plan each for separately calculated is plans retirement benefit defined of respect in obligation net Group’s The (iii) and value, present the determine to discounted is benefit that years; prior and current the in service their for return in earned have employees that benefit dates maturity have that bonds corporate quality high on date sheet balance at yield the is rate discount The deducted. is assets plan any of value fair the (ii) Contributions to defined contribution retirement plans, including contributions to Mandatory Provident Funds (“MPF”) as required under the Hong Hong the under required as (“MPF”) Funds Provident Mandatory to contributions including plans, retirement contribution defined to Contributions (ii) contributions those except incurred, as account loss and profit the in expense an as recognised are Ordinance, Schemes Fund Provident Mandatory Kong assets. qualifying the of cost the of part as capitalised are which works, capital and projects construction of respect in incurred staff project for (i) Salaries, annual leave, leave passage allowance and other costs of non-monetary benefits are accrued and recognised as an expense in the year in year the in expense an as recognised and accrued are benefits non-monetary of costs other and allowance passage leave leave, annual Salaries, (i) projects construction of respect in staff project for incurred benefits those except Group, the of employees by rendered are services associated the which assets. qualifying the of cost the of part as capitalised are which works, capital and Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the profit and loss account. loss and profit the in immediately recognised are accounting hedge for qualify not do that instruments derivative any of value fair the in Changes U Employee firm commitment is recognised as a non-financial asset, in accordance with the above policy. However, when a hedged liability or a firm commitment is commitment firm a or liability hedged a when However, policy. above the with accordance in asset, non-financial a as recognised is commitment firm account. loss and profit the to transferred immediately is equity in reported was that loss or gain cumulative the occur, to expected longer no accounting hedge for qualify not do that Derivatives (iii) transferred from equity and included in the initial cost or carrying amount of the asset. the of amount carrying or cost initial the in included and equity from transferred the accounting, hedge for criteria the meets longer no hedge a when or exercised, or terminated sold, is or expires instrument hedging a When the when or loss, or profit affects liability hedged the when recognised is and equity in remain shall time that at equity in existing loss or gain cumulative Amounts accumulated in equity are transferred to the profit and loss account in the periods when the hedged liability affects earning. However, when the the when However, earning. affects liability hedged the when periods the in account loss and profit the to transferred are equity in accumulated Amounts are equity in recognised were that losses and gains associated the asset, non-financial a of recognition the in results hedged is that commitment firm (ii) Cash flow hedge flow Cash (ii) The equity. in directly recognised is hedges flow cash as qualify and designated are that derivatives of value fair the in changes of portion effective The account. loss and profit the in immediately recognised is portion ineffective the to relating loss or gain (i) Fair value hedge value Fair (i) any with together account, loss and profit the in recorded are hedges value fair as qualify and designated are that derivatives of value fair the in Changes risk. hedged the to attributable are that liabilities or assets hedged the of value fair the in changes the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of the item being hedged. being item the of nature the and instrument hedging a as designated is derivative the whether on depends loss or gain resulting the recognised of value fair the hedge to hedge: value fair a (1) either: as employed derivatives designates Group the applies, accounting hedge Where commitment. firm a of risk currency foreign the or liability recognised a of flows cash in variability the hedge to hedge: flow cash a (2) or liabilities; not for trading or speculation purposes. speculation or trading for not recognising of method The date. sheet balance each at value fair their at remeasured subsequently are and value fair at recognised initially are Derivatives T Derivative exchange foreign and rate interest its manage to swaps currency and swaps rate interest as such instruments financial derivative uses Group The and liabilities Group’s the with associated risks financial eliminating or reducing for solely used are instruments these policy, Group on Based exposure. 2 Principal Notes to the accounts
100 2 Principal accounting policies (continued) U Employee benefits (continued) (iv) Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date is recognised as a staff cost, unless the original employee expenses qualify for recognition as an asset, on a straight-line basis over the vesting period and taking into account the probability that the options will vest, with a corresponding increase in the employee share-based capital reserve within equity. Fair value is measured by use of a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The expected life used in the model MTR CORPORATION LIMITED has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
During the vesting period, the number of share options that is expected to vest is reviewed. Any adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit and loss account for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the capital reserve). The equity amount is recognised in the capital reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).
For cash-settled share-based payments, a liability equal to the portion of the services received is recognised at the fair value of the shares determined at each balance sheet date.
(v) Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.
V Retirement Schemes The Group operates an Occupational Retirement Scheme (the “MTR Corporation Limited Retirement Scheme”), which is supplemented by a top-up scheme (“MTR Corporation Limited Retention Bonus Scheme”) mainly for project staff to provide extra benefits in the event of redundancy.
In addition, the Group has set up a MPF Scheme by participating in a master trust scheme provided by an independent MPF service provider to comply with the requirements under the MPF Ordinance.
Employer’s contributions to the defined contribution section of the MTR Corporation Limited Retirement Scheme and the MPF Scheme are recognised in the accounts in accordance with the policy set out in note 2U(ii).
The employer’s contributions paid and payable in respect of employees of the hybrid benefit section of the MTR Corporation Limited Retirement Scheme, as calculated annually by independent actuaries in accordance with the Retirement Scheme Rules and provisions of the Occupational Retirement Schemes Ordinance, are used to satisfy the pension expenses recognised in the accounts according to note 2U(iii). Any deficit or surplus thereof will be dealt with in the balance sheet as accrued or prepaid benefit expenses, as the case may be.
W Income tax (i) Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Income tax is recognised in the profit and loss account except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
(ii) Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
(iii) Deferred tax assets and liabilities arise from deductible and taxable temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.
The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination) and investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. ANNUAL REPORT 2006 101 (continued) (continued)
policies
liabilities
) contracts
contingent
continued accounting (
and
guarantee recognition
tax
the same taxable entity; or entity; taxable same the or settled be to expected are assets or liabilities tax deferred of amounts significant which in period future each in which, entities, taxable different simultaneously. settle and realise or basis net a on liabilities tax current the settle and assets tax current the realise to intend recovered,
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either: on authority taxation same the by levied taxes income to relate they if liabilities, and assets tax deferred of case the in – – in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the the settle and asset the realise to or basis, net a on settle to either intends Group the or Company the liabilities, and assets tax current of case the in or simultaneously; liability
terms of the leases. Lease incentives granted are recognised in the profit and loss account as an integral part of the aggregate net lease payments payments lease net aggregate the of part integral an as account loss and profit the in recognised are granted incentives Lease leases. the of terms recognised is income management Property earned. are they which in period accounting the in income as recognised are rentals Contingent receivable. provided. are services the when contract. When the outcome of a consultancy contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred incurred costs contract of extent the to only recognised is revenue reliably, estimated be cannot contract consultancy a of outcome the When contract. recoverable. be will probable is it that the with accordance in for accounted is leases operating under premises railway other and kiosks station properties, investment from income Rental (iv) (iii) Contract revenue is recognised when the outcome of a consultancy contract can be estimated reliably. Contract revenue is recognised using the the using recognised is revenue Contract reliably. estimated be can contract consultancy a of outcome the when recognised is revenue Contract (iii) the for costs contract total estimated to date to incurred costs contract of percentage the to reference by measured method, completion of percentage reliably, revenue is recognised in the profit and loss account as follows: as account loss and profit the in recognised is revenue reliably, provided. is journey the when recognised is revenue Fare (i) provided. are services the when recognised are railway the within provided services telecommunication from fees service and income Advertising (ii) Z Revenue measured be can revenue of amount the and Group the to flow will transactions the with associated benefits economic the that probable is it Provided Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a as disclosed is obligation the reliably, estimated be cannot amount the or required, be will benefits economic of outflow an that probable not is it Where the by confirmed be only will existence whose obligations, Possible remote. is benefits economic of outflow of probability the unless liability, contingent economic of outflow of probability the unless liabilities contingent as disclosed also are events future more or one of non-occurrence or occurrence remote. is benefits of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the Where made. be can estimate reliable a and obligation the settle to required be will benefits economic of outflow an that probable is it event, past a of obligation. the settle to expected expenditure the of value present the at stated are provisions material, is money of value time carried in creditors, accrued charges and provisions in respect of that guarantee, i.e. the amount initially recognised less accumulated amortisation. accumulated less recognised initially amount the i.e. guarantee, that of respect in provisions and charges accrued creditors, in carried Y Provisions result a as arising obligation constructive or legal a has Group or Company the when amount or timing uncertain of liabilities for recognised are Provisions The amount of the guarantee initially recognised as deferred income is amortised in the profit and loss account over the term of the guarantee as income income as guarantee the of term the over account loss and profit the in amortised is income deferred as recognised initially guarantee the of amount The of holder the that probable becomes it (i) when and if 2Y note with accordance in recognised are provisions addition, In issued. guarantees financial from currently amount the exceed to expected is Group the on claim that of amount the (ii) and guarantee, the under Group the upon call will guarantee the When the Group issues a financial guarantee, where the effect is material, the fair value of the guarantee (being the transaction price, unless the fair value value fair the unless price, transaction the (being guarantee the of value fair the material, is effect the where guarantee, financial a issues Group the When account loss and profit the to debited initially is inception at receivable or received consideration any of netting after estimated) reliably be otherwise can provisions. and charges accrued creditors, within income deferred as recognised and X Financial because incurs it loss a for guarantee the of holder the reimburse to payments specified make to issuer the require that contracts are guarantees Financial instrument. debt a of terms modified or original the with accordance in due when holder the to payment make to fails debtor specified a • enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: are conditions additional following the and liabilities tax current against assets tax current off set to right enforceable • sufficient taxable profits will be available. be will profits taxable sufficient tax Current offset. not are and other each from separately presented are therein, movements and balances, tax deferred and balances tax Current (iv) legally the has Group the or Company the if, only and if, liabilities tax deferred against assets tax deferred and liabilities, tax current against offset are assets The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient sufficient that probable longer no is it that extent the to reduced is and date sheet balance each at reviewed is asset tax deferred a of amount carrying The that probable becomes it that extent the to reversed is reduction such Any utilised. be to benefit tax related the allow to available be will profits taxable W Income and assets the of amount carrying the of settlement or realisation of manner expected the on based measured is recognised tax deferred of amount The discounted. not are liabilities and assets tax Deferred date. sheet balance the at enacted substantively or enacted rates tax using liabilities, 2 Principal
Notes to the accounts
102 2 Principal accounting policies (continued)
AA Operating lease charges (i) Rentals payable under operating leases are charged on a straight-line basis over the period of the lease to the profit and loss account, except for rentals payable in respect of railway construction, property development in progress and proposed capital projects which are capitalised as part of railway construction in progress, property development in progress and deferred expenditure respectively.
MTR CORPORATION LIMITED (ii) Prepaid land lease payments for land are stated at cost and are amortised on a straight-line basis over the period of the lease terms to the profit and loss account as land lease expenses.
BB Interest and finance charges Interest expense directly attributable to the financing of capital projects prior to their completion or commissioning is capitalised. Exchange differences arising from foreign currency borrowings related to the acquisition of assets are capitalised to the extent that they are regarded as an adjustment to capitalised interest costs. Interest expense attributable to other purposes is charged to the profit and loss account.
Finance charges implicit in the lease payments on assets held under finance leases are charged to the profit and loss account over the period of the lease so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
CC Foreign currency translation Foreign currency transactions during the year are translated into Hong Kong dollars and recorded at exchange rates ruling at the transaction dates. Foreign currency monetary assets and liabilities are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit and loss account.
The results of foreign enterprises are translated into Hong Kong dollars at the average exchange rates for the year; balance sheet items are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are dealt with as a movement in reserves.
DD Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format. As substantially all the principal operating activities of the Group are carried out in Hong Kong, no geographical segment information is provided.
Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group enterprises within a single segment.
Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year.
Unallocated items mainly comprise derivative financial assets and liabilities, corporate assets, interest-bearing loans, borrowings, share of results of non- controlled subsidiaries, associates and jointly controlled entities, corporate and financing expenses and minority interests.
EE Related parties For the purposes of these accounts, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities including entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.
FF Government grants Government grants are assistance by Government in the form of transfer of resources in return for the Group’s compliance to the conditions attached thereto. Government grants which represent compensation for the cost of an asset will be deducted from the cost of the asset in arriving at its carrying value to the extent of the amounts received and receivable as at the date of the balance sheet. Any excess of the amount of grant received or receivable over the cost of the asset at the balance sheet date will be carried forward as advance receipts to set off against the future cost of the asset. ANNUAL REPORT 2006 103 – 7 561 510 344 334 211 156 470 120 111 252 122 108 126 2005 2005 2005 Ping
Disneyland Ngong
1,555 1,183 1,316 5,721 6,282 the the
3 at 64
534 259 199 122 112 128 128 281 146 612 492 391 159 2006 2006 2006 2005, 1,263 1,412 5,911 6,523 1,606
services.
August businesses
1
from
related
conditioning
air and
of
effective
and,
operations
provision
Lines car
the
O
to
cable
Kwan
relating
Chung
Tseung
Tung
and
the
Chung
from
(2005: HK$63 million) HK$63 (2005:
Tung
generated
million Island, 2006.
Wan,
HK$64
revenue
of
September Tsuen comprises:
18
revenue
income
on Tong, comprises
to:
revenue
income
other revenue
Kwun revenue service
Centre is other revenue
and
income
the
commenced and
business attributable
business income
income Finance
income
revenue 360
business was
income management Galleria comprises:
which
comprise
Square
Mall
360
Plaza Express Ping commercial rental
agency properties revenue and
rental
commercial Lines in Lines
income Yeung
Ping Village,
Line. revenue
MTR
Rental in HK$ million HK$ in
Advertising in HK$ million HK$ in Station MTR in HK$ million HK$ in Fare Kiosk Telecommunication Consultancy Ngong Miscellaneous Luk Paradise Maritime International Other Management Property Airport Telford B Rental 4 Non-fare A Station 3 Fare Ngong Included The Theme Resort Notes to the accounts
104 5 Operating expenses before depreciation
A Staff costs comprise:
in HK$ million 2006 2005
Amount charged to profit and loss account under: – staff costs and related expenses 1,653 1,614 MTR CORPORATION LIMITED – repairs and maintenance 58 50 – expenses relating to station commercial and other businesses 145 145 – property ownership and management expenses 40 40 – project study and business development expenses 115 32 – other line items 42 51 Amount capitalised in: – railway construction in progress 40 136 – property development in progress 79 76 – assets under construction and other projects 309 261 Amount recoverable 197 166 Total staff costs 2,678 2,571
Included in operating expenses are the following:
in HK$ million 2006 2005
Share options granted to directors and employees 9 5 Contributions to defined contribution plans and Mandatory Provident Fund 17 12 Expense recognised in respect of defined benefit plans (note 43E) 123 134 149 151
B Repairs and maintenance costs relate mainly to contracted maintenance and revenue works. Other routine repairs and maintenance works are performed by in-house operations, the costs of which are included under staff costs and stores and spares consumed.
C Project study and business development expenses comprise:
in HK$ million 2006 2005
Business development expenses 245 129 Miscellaneous project study expenses 22 13 267 142
Business development expenses relate mainly to studies on business opportunities in China and Europe in line with the Group’s business strategy.
D Included in general and administration expenses and other expenses are the following charges/(credits):
in HK$ million 2006 2005
Auditors’ remuneration – audit services 5 4 – tax services 1 1 – other services – 2 Loss on disposal of fixed assets 37 40 Derivative financial instruments: – foreign exchange contracts – ineffective portion of cash flow hedges (8 ) 6 – transfer from hedging reserve 1 3 Amortisation of land lease expenses (note 20) 14 13 Unrealised gain on revaluation of investment in securities (2 ) – ANNUAL REPORT 2006 105
8 (2 ) the
10 1.0 4.7 4.7 4.8 0.2 0.2 0.2 0.3 0.2 0.3 0.2 0.2 0.2 5.0 4.8 4.8 5.0 2005 Total 46.9 10.1 in
million.
with
New
were
HK$0.3 ended
Interests
2006
)
was
– – – – – – – – – – accordance year Company’s to
and
(1
45 46 4.2 1.0 1.0 0.9 1.0 0.9 0.9 1.0 in
10.9 2006 the the
2005
2005
for
2006
Directorate’s
years under
the Leong
December of K *
Variable
Lung
October
– – – – – – – – – – – K K
Executive
31
0.3 0.3 0.3 0.5 0.4 0.3 0.3 2.4 17 K
each
in on and
Lincoln ended
follows:
Francois for
lapsed
year as
Company
and Members’
the
– – – – – – – – – – the
Lung
were
5.9 3.7 3.5 3.6 3.5 3.4 3.5 3.5 pay, K kind contribution performance for by
30.6 K payments
Leong
“Board benefits scheme related
K paid
Directorate K
Company
Francois payments
the
to
Base allowances, and Retirement remuneration
Lincoln paragraph
share-based
– – – – – – – –
of
to contributions 3.0 0.3 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.2 1.0 of
Fees in the
Executive total
granted
value share-based
under The
granted
Directorate the
fair his
Directorate
comprise:
of
options
The
(continued)
and Scheme. options
The 41. disclosed
. value
account
Executive grant. Executive
Fund are
fair share
note
of
loss
the
the of Board
the
and
and date shares
and
and Provident and
the value
the
Board profit depreciation
quarters
at of fair
Board
Board the
the
the Scheme
the staff (2005: HK$0.6 million) HK$0.6 (2005:
Company’s of Mandatory to
the of
and the
of
before
estimated
in include Option million
as
Members charged Directorate
Members
not Company’s
Members
building Share of
do the the HK$0.3
interest
Members the
of of
Scheme,
Kuo-fung
of of office was
expenses
expenses
Turk Meng-sang
Kwok-kuen Board Executive Eldon Ka-kui
Joiners
Fu-keung Si-hang
Black
Hang-kwong Chi-kong Sing-tin
the the Sau-tung Report 2006 member directors’
Option Ch’ien
lease
Ma
Fang
New
a Lung Bryan centre,
Yau-kai Ho McCusker
of of Ho
Chan Leong of Stevenson
emoluments
John
is capitalised
the
Chung-kong
Gordon Liao
the Wong
of Share
emoluments Chung-hing of
Brian
Chow
above details
Andrew Leonard David Christine Edward Lo T. Sarah Frederick Alan William Thomas Lincoln Francois Russell Cheung Raymond Chow K
December
Operating
The
million HK$ in 2006 Members
Shopping in HK$ million HK$ in – – HK$12,000.
– – – – – – – – Members – – – – Amount – – – – 31 A Remuneration (i) 6 Remuneration E 5 Operating * C The terms Joiners The Shares” Notes to the accounts
106 6 Remuneration of Members of the Board and the Executive Directorate (continued)
A Remuneration of Members of the Board and the Executive Directorate (continued) In addition, C K Chow does not participate in the Company’s two share option schemes. He was entitled to receive an equivalent value in cash of 700,000 shares on completion of his initial three-year contract on 30 November 2006. Pursuant to this contract and following the completion of the contract period, HK$13,396,600 was paid to C K Chow on 1 December 2006 (note 41B).
MTR CORPORATION LIMITED The aggregate emoluments of Members of the Board and the Executive Directorate for the year pursuant to section 161 of the Hong Kong Companies Ordinance was HK$60.6 million (2005: HK$45.4 million).
Base pay, Variable allowances, Retirement remuneration and benefits scheme related to in HK$ million Fees in kind contribution performance Total
2005 Members of the Board – Raymond Ch’ien Kuo-fung 1.0 – – – 1.0 – Cheung Yau-kai 0.2 – – – 0.2 – David Gordon Eldon 0.2 – – – 0.2 – Christine Fang Meng-sang 0.2 – – – 0.2 – Edward Ho Sing-tin 0.3 – – – 0.3 – Lo Chung-hing 0.2 – – – 0.2 – T. Brian Stevenson 0.3 – – – 0.3 – Robert Charles Law Footman (retired on 18 June 2005) 0.1 – – – 0.1 – Sarah Liao Sau-tung 0.2 – – – 0.2 – Frederick Ma Si-hang 0.2 – – – 0.2 – Alan Wong Chi-kong (appointed on 18 June 2005) 0.1 – – – 0.1
Members of the Executive Directorate – Chow Chung-kong – 5.7 – * 4.2 9.9 – Russell John Black – 3.5 0.3 1.0 4.8 – William Chan Fu-keung – 3.5 0.3 0.9 4.7 – Philip Gaffney (retired on 5 December 2005) – 3.9 0.3 1.1 5.3 – Thomas Ho Hang-kwong – 3.5 0.3 1.0 4.8 – Lincoln Leong Kwok-kuen – 3.4 0.5 1.0 4.9 – Francois Lung Ka-kui (appointed on 26 September 2005) – 0.9 0.1 0.2 1.2 – Andrew McCusker (appointed on 1 October 2005) – 0.9 0.1 0.2 1.2 – Leonard Bryan Turk – 3.5 0.3 0.9 4.7 3.0 28.8 2.2 10.5 44.5
In December 2005, Philip Gaffney received a lump sum benefit payment of HK$11.6 million from the MTR Corporation Limited Retirement Scheme upon retirement.
(ii) 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 (Chapter 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. Dr. Raymond Ch’ien Kuo-fung, a Member of the Board, was appointed as the non-executive Chairman of the Company with effect from 21 July 2003 for a term of three years. In July 2006, he was re-appointed as the non-executive Chairman of the Company until 31 July 2007. All of the five individuals with the highest emoluments are Members of the Executive Directorate whose emoluments are disclosed above.
(iii) C K Chow has a derivative interest in respect of 418,017 shares within the meaning of Part XV of the Securities and Futures Ordinance. That derivative interest represents C K Chow’s entitlement to receive an equivalent value in cash of 418,017 shares on completion of his three-year contract ending on 30 November 2009.
The arrangement was offered in order to provide a competitive level of compensation which is to be closely tied to the performance of the Company. ANNUAL REPORT 2006 107
35 95 19 (11 ) least the at 126 971
2005 2005
all on at
his
at
2004,
Members (i) 2000
2006, Members
earlier).
to
acquire including
paragraph Executive
is
own September
to
2,682 1,794 3,296 6,145 2,502 exercised August Directorate
)
the the
and Lung,
26
4
K 47 82 19 October of
to has
(17
granted
2000 555 342
K
September 2006 2006
and 17
2,674 5,817 2,526 3,724 1,213 up
he after
under
20
(whichever
beneficially Executive
2002 out on after and
case, options Member
to
respectively.
which
Francois
the on set
and lapses September the
on
of
each each
and
are 2005
of
on
20
options
in
February times
date continue
on 1
option all
2006
41A(i), Leong times
the at Member Details
his
K
shares,
a
all must 266,500
2003, (i) (continued)
K
note September at as
Scheme. options
in
Board. which 27 own
earlier).
46,000
December own
is including
on Lincoln granted
the
and 31 Option
granted December of least
Directorate
and
at
was
1 date
at
to described as 2003 New
was
41A(ii),
appointment
on
the beneficially Directorate
up
the beneficially (whichever his
or to 2002,
note Members
of to Executive
August McCusker
in full
1 Scheme”)
shares,
the upon the
in
lapses
McCusker,
Company
Directorate
terms on of of
October
continue
the required
the Andrew 26
Option 46,000 Executive
option
option
described granted
shares Andrew must Report
was
as his his with after
Executive
Member
joined
least
the
the and were
at
Scheme. earlier). the Lung
of (“Pre-IPO Leong
K is times Lung which
of
K
and K 1,066,000 Lung K
eligible
K all
2005,
on exercised
Scheme”) K K
options at
Option K
accordance
Shares”
has Scheme each
(ii)
in date
in
Member acquire
Lincoln he Francois share August Board
Option businesses
(whichever
the to and 4 Francois
Pre-IPO 2006
Francois each
or Option
the Scheme, and
which
other the of
after
(“New
Interests
lapses
full
Scheme, Scheme, of shares; of leases
on
options
in
additional Share
and
Leong, and
October
kind K Leong
Option no
on respect date K 17 option
K
in
Scheme
23,000 Option Option
K
in on finance
option comprises:
on: on
and follows: his
granted
the
18B(i))
Offering
Directorate’s times as his
least Pre-IPO New New assets
developments
beneficiaries Lincoln 18B(ii))
sharing commercial Option all
Members under
at were
are
(note Lincoln which
lapsed
income
assets the the the
at
charges not
development Scheme
fixed
of
of of on of
from including
(note (ii) held
Share Chow, 2001, outstanding
are
Pre-Global
station Executive exercised
K
Chow,
from costs
developments and date and
C to options K
kind
terms and terms terms Option and deferred
railway has
and payments assets
C
to
corporate property
in
Directorate, Directorate
the Joiners
comprised
he
October up
or surplus from
operations recognised
on Lung’s shares; except
other fixed
relating 26 property
overhead vesting New Company’s vesting
of vesting K 2005. Pre-IPO
shares.
options
full
sharing on on up-front K exercised
which
on
Members’ in
shares the the the the the
the
Executive Executive
after
respectively, 23,000 on
the the
in HK$ million HK$ in Depreciation
in HK$ million HK$ in Profit Unallocated – Income Other Assets Share – Railway – Transfer October –
2005 Under 1 8 Depreciation 7 Profit (ii) New Joiners Share Option Scheme Option Share Joiners New (ii) Under (i) Pre-Global Offering Share Option Scheme Option Share Offering Pre-Global (i) Under B Share Options 6 Remuneration of under of Directorate, Under times “Board 1,066,000 least date option Under 23,000 Francois Notes to the accounts
108 9 Interest and finance charges
in HK$ million 2006 2005
Interest expenses in respect of: Bank loans, overdrafts and capital market instruments wholly repayable within 5 years 1,143 934
MTR CORPORATION LIMITED Bank loans and capital market instruments not wholly repayable within 5 years 504 485 Obligations under finance leases 15 25 Finance charges 25 33 Exchange (gain)/loss (2 ) 7 Derivative financial instruments: Fair value hedges (19 ) 107 Cash flow hedges: – transfer from hedging reserve (18 ) 29 – ineffective portion 2 1 Derivatives not qualified as hedges 8 (130 ) (27 ) 7 Interest expenses capitalised (126 ) (114 ) 1,532 1,377 Interest income in respect of: Deposits with banks and other financial institutions (9 ) (15 ) Staff housing loans (2 ) (1 ) (11 ) (16 ) Interest income from loan to a property developer (123 ) – 1,398 1,361
Interest expenses have been capitalised at the average cost of borrowings to the Group calculated on a monthly basis. The average interest rates for each month varied from 5.4% to 5.6% per annum during the year (2005: 4.8% to 5.6% per annum).
10 Share of profits less losses of non-controlled subsidiaries and associates
Share of profits less losses of non-controlled subsidiaries and associates comprises:
in HK$ million 2006 2005
Share of profit before taxation of non-controlled subsidiaries (note 21) 80 47 Share of loss of associates (note 23) (23 ) (31 ) 57 16 Share of income tax of non-controlled subsidiaries (note 21) (12 ) (7 ) 45 9 ANNUAL REPORT 2006 109 1 % the 0.3 0.1
(2.3 ) 490 2005 in
year’s
with
subsidiaries,
its current .
appropriate dealt
1,058 1,548 1,549 2005
and
2 the
30 10 been 381 against at
2006
1,409 1,411 1,028 off
has
(2005: 17.5%) (2005: HK$ million HK$
set Company
charged
for which
the
is
17.5%
1,737 (228 ) 17.3 1,549 15.4 of )
10,012
at
% 0.3 0.3 (2.5 17.3 15.4 rate
available
respect
Tax are
subsidiaries in
Profits which
2006 )
account overseas
27 30 (2005: HK$8,364 million) HK$8,364 (2005:
Kong for
(230
loss
1,411 9,169 1,584 forward
and HK$ million HK$
Hong million
at
Taxation
brought profit
2006. rates
HK$7,717
losses
of
tax calculated
is tax
profit consolidated
a December
Kong
the
31
applicable
in
at represents:
Hong
accumulated includes
in
ended
made
profit on:
year
account rates arising
been
the
the substantial
loss
concerned has
shareholders for countries. shareholders at
differences accounting
Tax
properties and
have
differences losses
and
equity
relevant
recognised profit Profits equity to either tax
calculated jurisdictions
the temporary
not to
investment tax
in tax,
expenses Kong expense of
temporary of
the revenue tax
year losses sustained on
in Hong ruling
subsidiaries
attributable before
value tax
the reversal tax consolidated
its
have
fair for
profits the or profit and profit
between
tax
in and current
Company. taxation
tax in to
tax
on non-deductible non-taxable unused
attributable
for of deferred
expenses the of of of
tax
tax
profits tax
tax for of
others change tax
rates before
Company overseas origination
effect effect effect
consolidated
provision Income
Reconciliation the
Tax Profit
Current in HK$ million HK$ in – Deferred Notional Tax Tax Actual – – – applicable
The 12 Profit B A 11 Income No accounts as assessable current Provision Notes to the accounts
110 13 Dividends
During the year, dividends paid and proposed to equity shareholders of the Company comprised:
in HK$ million 2006 2005
Dividends paid and payable in respect of 2006 – Interim dividend of 14 cents (2005: 14 cents) per share 774 764 MTR CORPORATION LIMITED – Final dividend proposed after the balance sheet date of 28 cents (2005: 28 cents) per share 1,554 1,535 2,328 2,299
Dividend in respect of 2005 – Final dividend of 28 cents (2004: 28 cents) per share approved and paid in 2006 1,535 1,509
The final dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.
During the year, scrip dividend elections were offered to all shareholders except shareholders with registered addresses in the United States of America or any of its territories or possessions. The Company’s majority shareholder, The Financial Secretary Incorporated (“FSI”), had elected to receive part of its entitlement to dividends in the form of scrip to the extent necessary to ensure that the amount payable in cash would not exceed 50% of the total dividend payable. Details of dividends paid to the FSI are disclosed in note 45L. On 8 November 2006, the Government agreed to extend the scrip dividend arrangement for another three financial years until the financial year ending 31 December 2009.
14 Earnings per share
A Basic earnings per share The calculation of basic earnings per share is based on the profit for the year attributable to equity shareholders of HK$7,759 million (2005: HK$8,450 million) and the weighted average number of ordinary shares of 5,510,345,238 in issue during the year (2005: 5,430,594,654), calculated as follows:
Weighted average number of ordinary shares
2006 2005
Issued ordinary shares at 1 January 5,481,856,439 5,389,999,974 Effect of scrip dividends issued 25,713,468 37,418,279 Effect of share options exercised 2,775,331 3,176,401 Weighted average number of ordinary shares at 31 December 5,510,345,238 5,430,594,654
B Diluted earnings per share The calculation of diluted earnings per share is based on the profit for the year attributable to equity shareholders of HK$7,759 million (2005: HK$8,450 million) and the weighted average number of ordinary shares of 5,516,115,460 in issue during the year (2005: 5,436,752,536) after adjusting for the number of dilutive potential ordinary shares under the employee share option schemes, calculated as follows:
Weighted average number of ordinary shares (diluted)
2006 2005
Weighted average number of ordinary shares at 31 December 5,510,345,238 5,430,594,654 Number of ordinary shares deemed to be issued for no consideration 5,770,222 6,157,882 Weighted average number of ordinary shares (diluted) at 31 December 5,516,115,460 5,436,752,536
C Both basic and diluted earnings per share would have been HK$1.08 (2005: HK$1.13) if the calculation is based on profit from underlying businesses attributable to equity shareholders, i.e. excluding increase in fair value of investment properties net of related deferred tax, adjusted as follows:
in HK$ million 2006 2005
Profit attributable to equity shareholders 7,759 8,450 Increase in fair value of investment properties (2,178 ) (2,800 ) Deferred tax on change in fair value of investment properties (note 11A) 381 490 Profit from underlying businesses attributable to equity shareholders 5,962 6,140
15 Segmental information
Segmental information is presented in accordance with the Group’s business segments, which comprise the following:
Railway operations: The operation of an urban mass transit railway system within Hong Kong and an Airport Express serving the Hong Kong International Airport and the AsiaWorld-Expo both at Chek Lap Kok. ANNUAL REPORT 2006 111 ) ) ) ) )
48 45 232 594 272 171 100 538 430 395 railway (629 Total
5,783 9,541 5,817 8,973 8,344 2,178 4,905 2,018 3,355 2,686 3,833 1,682 5,515 2,152 1,113 7,758 3,297 (2,627 (3,758 (1,411 (1,398 11,600 38,120 43,635 the 120,421 117,464 102,396
on
– – – – – – – – – – – 898 623 825 services
1,113 3,796 3,297 2,018 3,355 5,817 5,817 5,817 1,562 2,185 13,291
) ) bandwidth
developments Property
– – – – – 48 120 232 538 430 395 594 272 Total 5,783 9,541 1,109 5,783 3,156 1,254 3,210 3,330 (3,758 (2,627 related space, railway
segments. activities
101,571 104,173 operations and retail
) )
business
properties. and
– – – – – – – – – – – –
(4 63 63 and 470 711 711 (312 1,100 1,412 1,100 1,096 2,178 22,971 23,034 individual
of
advertising investment
of of
) )
– – – – – – – – – – – 4 9 11 (82 businesses. 116 511 511
(443 other
operations system. 1,163 1,606 1,163 1,081 2,503 2,512
letting
the
in
management railway
) )
commercial Station ownership Property
including subsidiaries’
– – – – – the
64 37 979 272 594 232 120 430 395 to employed
and
leasing
3,520 1,037 6,523 1,988 2,108 1,075 3,520 (2,541 (3,003 Railway and 78,627 76,097 operations businesses management and activities
assets
relating
cableway
other
below:
and
locations commercial
management services,
at
charges
2006 equipment
summarised
Related
(continued) Property
and are
finance
properties
consultancy
development plant and
depreciation
December
non-controlled businesses: progress
depreciation activities
subsidiaries
railway 31 progress of
than in
progress
in depreciation interest progress property,
in
expenses management: Property investment
other
in
before charges of on: information
other
losses
associates ended developer sale * payments
and
system, business
developments and
before before include
construction for less
securities
assets and
value
year
construction lease
in assets
corporate liabilities finance assets
liabilities
major
development
non-controlled associates
assets fair construction expenses profit profit held
expenses the property
of under
income expenditure
development property in in
profits
in land
and a construction tax
expenditure ownership developments:
under Information for
of
on commercial
assets liabilities to
results
Profit Interests Assets
Depreciation Revenue in HK$ million HK$ in 2006
Liabilities Segmented
Assets Operational
Profit Income Property Investments Properties Interests Unallocated Assets Property Prepaid Operating Operating Unallocated Operating Interest Change Share Railway Loan Total Deferred Unallocated Railway Non-cash Deferred Total Other Capital Operational subsidiaries Station 15 Segmental * Operational telecommunication Property Property The Notes to the accounts
112 15 Segmental information (continued)
Total Station Property railway commercial ownership operations Railway and other and and related Property in HK$ million operations businesses management activities developments Total
MTR CORPORATION LIMITED 2005 Revenue 6,282 1,555 1,316 9,153 – 9,153 Operating expenses before depreciation (3,005 ) (358 ) (238 ) (3,601 ) – (3,601 ) 3,277 1,197 1,078 5,552 – 5,552 Profit on property developments – – – – 6,145 6,145 Operating profit before depreciation 3,277 1,197 1,078 5,552 6,145 11,697 Depreciation (2,517 ) (126 ) (4 ) (2,647 ) – (2,647 ) 760 1,071 1,074 2,905 6,145 9,050 Unallocated corporate expenses (486 ) Operating profit before interest and finance charges 8,564 Interest and finance charges (1,361 ) Change in fair value of investment properties 2,800 2,800 Share of profits less losses of non-controlled subsidiaries and associates 9 Income tax (1,549 ) Profit for the year ended 31 December 2005 8,463
Assets Operational assets * 77,697 1,525 20,243 99,465 2,042 101,507 Assets under construction 739 24 – 763 2,898 3,661 Railway construction in progress 1,006 – – 1,006 – 1,006 Property development in progress – – – – 2,756 2,756 Deferred expenditure 209 – – 209 – 209 Prepaid land lease payments 608 – – 608 – 608 Investments in securities 183 – – 183 – 183 Properties held for sale – – – – 1,311 1,311 80,442 1,549 20,243 102,234 9,007 111,241
Interests in non-controlled subsidiaries 103 Unallocated assets 2,322 Total assets 113,666
Liabilities Segmented liabilities 2,173 373 499 3,045 559 3,604 Deferred income 126 – – 126 3,458 3,584 2,299 373 499 3,171 4,017 7,188
Unallocated liabilities 36,582 Total liabilities 43,770
Other Information Capital expenditure on: Operational assets 30 14 405 449 – 449 Assets under construction 768 238 – 1,006 721 1,727 Railway construction in progress 983 – – 983 – 983 Property development in progress – – – – 1,455 1,455 Non-cash expenses other than depreciation 40 4 – 44 – 44
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. ANNUAL REPORT 2006 113 ) ) )
– – – – (4 ) (45 284 (338 (392 2,674 1,199 2,690 2,178 26,801 24,528 24,510 been
106,943 133,744 109,216 127,785 have
) )
– – – – – – – – – – – – 24,510 – – (78 ) – 2,800 – – 459 939 – (216 ) – 21,597 – (33 ) – – 22,077 2,686 (3 ) (280 ) (2 values
(906 under
4,905 4,905 3,661 4,905 2,152 final
assets’
) )
– – – – – – – – Such (5 ) (4 )
69 and Assets
824 905 (330 (370 2,249 22,937 34,830 57,767 21,018 56,339 57,767 values.
year.
claimed ) )
– – – – – – – 44 1,727 2,176 5 – – – – 1 (2 ) (76 ) (2 ) (275 ) (1 ) (215 ) (8 the
(20 375 380 3,864 3,492 42,680 46,544 46,544 46,188 during
contractors’
on
values
)
– – – – – – – – – – – – – – 175 (175 ) – – 3,492 21,018 – – – – 176 137 763 977 (1,114 ) – 46,188 56,339 3,661 106,188 – 3,093 18,984 45 based (45 and Civil Plant
284 1,989 1,705 1,989 1,989 contract
final
Self-occupied
lower
– – – – – – – – – – – – – – – – – – – 459 – – – (33 ) – – 33 395 2,258 commissioning
at
of 405 469
2,800 2,178 16,687 1,246 45,704 55,081 3,051 121,769 19,892 1,705 42,696 35,321 3,661 103,275 19,892 1,705 46,188 56,339 3,661 127,785 19,892 1,705 22,539 22,539 22,539 19,892 time
properties buildings works equipment construction Total Investment land at
contractors
with
capitalised
claims Station
assets
contract
railway
of 40) 40)
17)
2006
2005
40) 40) certain
(note (note
AsiaWorld-Expo
* *
to (note
finalisation 17)
and
Project (note (note
relate
December Valuation Valuation Car
Line December
(note
2005 2006 2006 2005 31 revaluation disposal disposal revaluation
31 following
year year value value
2006 2005 adjustments adjustments at
on on on on Cable at commissioned commissioned 2005 2006 2006 2005
Resort revaluation revaluation
commissioned the the fair fair
adjustments assets
depreciation depreciation in in
back back back back on on
for for value
value
assets assets
December December December December Chung downward
Valuation Valuation
January January January January
December December 31 31 31 1 1 1 31 1
or or
book book
Cost 31 31 Cost Group
At At Written Change Cost At At At Disneyland Reclassification Capitalisation Net Reclassification Disposals/Write-offs Additions
in HK$ million HK$ in Cost
Additions Disposals/Write-offs Tung commissioned Written Other Surplus Net Aggregate Charge At Change At At Written Surplus Projects At Other Written At At Aggregate Charge Capitalisation At adjusted * Capitalisation The 16 Fixed Notes to the accounts
114 16 Fixed assets (continued)
The Company
Self-occupied Investment land and Civil Plant and Assets under in HK$ million properties buildings works equipment construction Total
Cost or Valuation MTR CORPORATION LIMITED At 1 January 2006 19,892 1,705 46,188 55,676 3,637 127,098 Additions 469 – – 65 2,069 2,603 Disposals/Write-offs – – (20 ) (241 ) (2 ) (263 ) Change in fair value 2,178 – – – – 2,178 Surplus on revaluation (note 40) – 284 – – – 284 Tung Chung Cable Car Project commissioned (note 17) – – 375 824 – 1,199 Other assets commissioned – – 1 871 (872 ) – At 31 December 2006 22,539 1,989 46,544 57,195 4,832 133,099
At Cost – – 46,544 57,195 4,832 108,571 At 31 December 2006 Valuation 22,539 1,989 – – – 24,528 Aggregate depreciation At 1 January 2006 – – 3,492 20,428 – 23,920 Charge for the year – 45 380 2,216 – 2,641 Written back on disposal – – (8 ) (204 ) – (212 ) Written back on revaluation (note 40) – (45 ) – – – (45 ) At 31 December 2006 – – 3,864 22,440 – 26,304 Net book value at 31 December 2006 22,539 1,989 42,680 34,755 4,832 106,795
Cost or Valuation At 1 January 2005 16,687 1,246 45,704 54,414 3,045 121,096 Additions 405 – – 30 1,709 2,144 Capitalisation adjustments * – – (2 ) (76 ) – (78 ) Disposals/Write-offs – – (2 ) (257 ) (3 ) (262 ) Change in fair value 2,800 – – – – 2,800 Surplus on revaluation (note 40) – 459 – – – 459 Reclassification – – 175 (175 ) – – Disneyland Resort Line and AsiaWorld-Expo Station Projects commissioned (note 17) – – 176 763 – 939 Other assets commissioned – – 137 977 (1,114 ) – At 31 December 2005 19,892 1,705 46,188 55,676 3,637 127,098
At Cost – – 46,188 55,676 3,637 105,501 At 31 December 2005 Valuation 19,892 1,705 – – – 21,597 Aggregate depreciation At 1 January 2005 – – 3,093 18,471 – 21,564 Charge for the year – 33 395 2,180 – 2,608 Capitalisation adjustments * – – – (4 ) – (4 ) Written back on disposal – – (1 ) (214 ) – (215 ) Written back on revaluation (note 40) – (33 ) – – – (33 ) Reclassification – – 5 (5 ) – – At 31 December 2005 – – 3,492 20,428 – 23,920 Net book value at 31 December 2005 19,892 1,705 42,696 35,248 3,637 103,178
* Capitalisation adjustments relate to certain railway assets capitalised at time of commissioning based on contractors’ claimed values. Such assets’ final values have been adjusted downward following finalisation of contract claims with contractors at lower final contract values during the year. ANNUAL REPORT 2006 115 by
– fair
in
in under 288 966
2005 2005 land
which of the spaces
made the assets
has
Company net
the
be
Debenham
a Lang firm
Eastern
and 33C. to Crossing increase the
basis”,
in been
the
had
DTZ parking payments in which
the
buildings
net works
Jones has note
1,254 1,705 1,705
as
following
car payments with
and – in Harbour
Civil The its
deemed
resulted Self-occupied the
vested
307 947 38B), reversion
2006 2006 is
operate out land
1,989 1,989 1,254 independent tunnel. surveyors,
be and
has
to
consideration
Eastern and set accounts yields. surveyors,
an of
rail Government (note
will which
agreement of
by are semi-annual account.
valuation
and
the
the firm
Group
Station “term
these
Limited in firm to a cost, the
nominal
loss
(2005: HK$914 million) HK$914 (2005: in
The assets
sale
2006
the
a
further at
on
a Limited
the and
for
follows: with
basis,
vested
Kowloon relating
million as
into above,
2005
stated that
based
Company
be this
is
2008 profit independent
dealt
Surveyors.
December
are in 16A are independent
On comparable
an
of
(2005: HK$86 million) HK$86 (2005: Company
works
the
are
31
effect Square,
HK$892 an on
by entered value, Tunnel
to
at
note properties
the
by
in fair 1,399 18,493 19,892
Ordinance,
million Tunnel to
been Union
2006
nominal. Institute
Kong basis ancillary Company
at
Crossing valuations checks
at
be construction credited
2006 use the Company have leases and Kong
1,437
to HK$58 Kong
Hong
Investment 22,539 21,102
Crossing
the of undertaken centre carried
into
been
Company
under
Harbour
December Hong
valuation would
New
tax
Hong railway finance
existing
has
the and
31
2000,
expected an Surveyors.The the are at New
with
Harbour
2006
Eastern with of of
valuation to market Surveyors.
shopping
on
under
are
June
Kong
properties deferred
of to
the
value Government
30
of 1986 held
retail of Eastern
value The
revaluation
which On the Hong market
Institute payable net
Agreement December
the the
Members
regard in
the
by
market
Institute being
“Agreement”) of
31 to
40).
the open respect
market
October
Kong as
staff at
held from which
in an ,
(the open amounts
17
shell
having Kong
vested
(note to
payments at are
open
under
their
Hong be development.
Government.
pursuant at treated
arising
leases:
dated Hong
depreciation. Limited certain the the buildings lease
will held
the
income
which will,
of account the
for among
renovated revalued Agreement
of reference
and
and
of
from
finance assets assets revalued
rental
all by buildings
assets have
as were land
Company kind reserve
minimum the
net
and partially the were Members
in
in
accumulated who (2005: HK$492 million) HK$492 (2005:
a
Understanding to
Company
Members relevant
Government Group
land
of treated staff future
less Tunnel
Management
the title the properties,
a determined
staff the the
are
sharing Leung, million
include (2005: HK$2,800 million) HK$2,800 (2005: buildings cost
revaluation Included their
a
of
Kong self-occupied
reversionary
Tie into
at
as
their
which 2J(ix))
and
which the (continued)
asset
Group’s 2008. and
to between
HK$329 million Hong
of
among
Company Company
self-occupied indemnify
stated
land Agreement, of
Memorandum (note
the
entered
among
fixed until to depreciation properties
a non-cancellable
New the construction The The of leases
Company
have
the
Debenham agreed
existing
has been the
assets
to to
of pursuant into amount have
total
the HK$2,178 be
surplus receipt and and
value
agreements to
who the DTZ
agreed
under
of lease. to
by
Crossing
who analysis leases
expiry Aggregate
book upon self-occupied investment
addition under entered
Group Group
buildings Company carrying
Group’s
Company value
Leung,
terms
Assets The
All the All
In
Less: in HK$ million HK$ in Cost
Long million HK$ in Medium-term Net
finance
The E D C B A The 16 Fixed The and transferred The held Tie surveyors, received Harbour At revaluation capitalises value turn LaSalle, fair on Government Company the The a Notes to the accounts
116 16 Fixed assets (continued)
F The Group leases out investment properties and station kiosks under operating leases. The leases typically run for an initial period of one to ten years, with an option to renew the lease after that date at which time all terms will be renegotiated. Lease payments are usually adjusted annually to reflect market rentals. Certain leases carry additional rental based on turnover. Lease incentives granted are amortised in the profit and loss account as an integral part of the net lease payment receivable.
MTR CORPORATION LIMITED The gross carrying amounts of investment properties of the Group and the Company held for use in operating leases were HK$22,539 million (2005: HK$19,892 million). The gross carrying amounts of station kiosks held for use in operating leases were HK$439 million (2005: HK$446 million) and the related accumulated depreciation charges were HK$108 million (2005: HK$95 million).
The Group’s total future minimum lease receipts under non-cancellable operating leases are receivable as follows:
The Group and The Company
in HK$ million 2006 2005
Within 1 year 1,350 1,295 After 1 year but within 5 years 1,875 2,025 Later than 5 years 161 214 3,386 3,534
G In March 2003, the Group entered into a series of structured transactions with unrelated third parties to lease out and lease back certain of its passenger cars (“Lease Transaction”) involving a total original cost of HK$2,562 million and a total net book value of HK$1,674 million as at 31 March 2003. Under the Lease Transaction, the Group has leased the assets to institutional investors in the United States (the “Investors”), who have prepaid all the rentals in relation to the lease agreement. Simultaneously, the Group has leased the assets back from the Investors with an obligation to pay rentals in accordance with a pre-determined payment schedule. The Group has an option to purchase the Investors’ leasehold interest in the assets at pre-determined dates for fixed amounts. Part of the rental prepayments received from the Investors has been invested in debt securities to meet the Group’s rental obligations and the amount payable for exercising the purchase option under the Lease Transaction. In addition, the Group retains legal title to the assets and there are no restrictions on the Group’s ability to utilise these assets in the operation of the railway business.
As a result of the Lease Transaction, the Group received total cash of approximately HK$3,688 million and committed to long-term lease payments with an estimated net present value in March 2003 of approximately HK$3,533 million, which have been defeased by purchase of debt securities to meet the payment obligations. The Group received in 2003 the cash amount of HK$141 million net of costs from the Lease Transaction.
As the Group is not able to control the investment account in pursuit of its own objectives and its obligations to pay the lease payments are funded by the proceeds of the above investments, those liabilities and investments in debt securities are not recognised in March 2003 as obligations and assets of the Group. The net amount of cash received by the Group has been accounted for as deferred income and is being amortised to the Group’s profit and loss account over the terms of the respective leases. ANNUAL REPORT 2006 117 – – – – – – – – – – – – – 8 – – – – 1 6 5 3 at
48 51 79 24 18 30 16 43 10 43 40 14 57 Dec 755 933
117 175 232
) ) )
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,006 – – – – – – to (5 (5 (5
and Balance
) ) ) ) ) )
– – – – – – – – – – – – – – – – – – – – – – – (4 ) on Transfer 16) spares 31
(51 ) (24 ) (39 )
(75 (94 (87 931 (943 (1,199 (1,199
Capitalised commissioning stores – 5 7 – 1 3 6 2 4 8 3 34 14 14 22 74 (353 ) 24 17 30 11 23 36 27 99 27 24 15 39 16 185 (1,259 ) 419 124 (140 ) 278 278 (1,687 ) (756 ) 489 983 (939 ) 150 (183 ) 430 132 193 271
– – – – – – 1 1 5 1 7 1 8 6 at
14 46 37 10 57 16 33 16 24 18 51 48 43 30 79 16 Jan Expenditure (note
336 279 478 444 962 755 933 (931 ) 1 1,074 1,409 1,006 Balance progress
in
Project Project
Project
45E) Project
Project Project Station Station
expenses expenses expenses expenses expenses expenses expenses expenses
Car Car Line
Project Project
(note
Company
Station
South South
construction other other other other other other other other
O O The
Cable Cable costs costs costs costs costs costs costs costs grant
fees fees fees fees fees
Resort
and and and and and and and and
and Platform Platform
costs costs costs costs costs costs costs costs Kwan Kwan
Chung Chung
costs costs costs costs costs costs costs costs
Group
Staff Consultancy Staff Consultancy Finance Construction Staff Finance Construction Construction Construction Consultancy Staff AsiaWorld-Expo Construction Staff Construction Construction Government Tung Construction Consultancy Staff Finance SkyPlaza in HK$ million HK$ in 2006 Tseung
Finance Finance Disneyland Finance Total
SkyPlaza
Total 2005 Tseung
Staff Finance Staff Finance Consultancy Tung
The 17 Railway Notes to the accounts
118 17 Railway construction in progress (continued)
A Tseung Kwan O South Station Project The construction of future railway stations along the Tseung Kwan O Line is covered by the Project Agreement with the Government signed on 4 November 1998.
The main civil contract and associated electrical and mechanical contracts have been awarded and the construction works are in progress. The project is
MTR CORPORATION LIMITED on programme and scheduled for completion in 2009. The capital cost for the project based on the defined scope of works and programme is estimated at approximately HK$1 billion.
At 31 December 2006, the Company had incurred expenditure of HK$175 million (2005: HK$43 million) on the project and had authorised outstanding commitments on contracts totalling HK$321 million (2005: HK$12 million) related to the project.
B Tung Chung Cable Car Project The Project Agreement between the Government and the Company for the design, construction, financing and operation of the Tung Chung Cable Car Project was signed on 19 November 2003.
The project was completed in mid 2006 and started to serve the public on 18 September 2006. Negotiation on the final accounts with various contractors is in progress. It is estimated that the total cost of the project will be approximately HK$1.2 billion.
C SkyPlaza Platform Project The Project Agreement between the Airport Authority and the Company for the design, construction, financing and operation of the SkyPlaza Platform Project was signed on 18 July 2005.
The project construction work is nearly completed with target opening in the first half of 2007. The capital cost for the project based on the defined scope of works and programme is estimated at approximately HK$0.1 billion.
At 31 December 2006, the Company had incurred expenditure of HK$57 million (2005: HK$30 million) on the project and had authorised outstanding commitments on contracts totalling HK$2 million (2005: HK$14 million) related to the project.
18 Property development in progress
Under the Airport Railway Agreement related to the construction of the Airport Railway, the Government had granted to the Company development rights on the land (“Land Grant”) over the five station sites along the railway at market value for property development. In preparing the sites for development, the Company incurs costs related to foundation and site enabling works and expects the costs to be reimbursed by property developers in the form of up-front cash payments when development packages are awarded. In accordance with the development agreements entered into with property developers, the developers are also responsible for the balance of the development costs.
Notwithstanding having entered into the development agreements with the developers, the Company being the grantee of the land remains primarily responsible for the fulfilment of all the conditions and obligations in the Land Grant. Such conditions and obligations include the type and quantity of the developments that must be built, public facilities to be provided, and the completion date of the project.
Costs of foundation, site enabling works and land costs incurred by the Company are capitalised as property development in progress and payments received from developers are credited to property development in progress to offset costs incurred in respect of the same development. In cases where payments received from developers exceed the related expenditure incurred by the Company, such excess is recorded as deferred income (note 18B(i)). In these cases, any subsequent expenditure incurred by the Company in respect of that development will be charged against deferred income. Deferred income is to be recognised as profits of the Company at the appropriate time after charging any remaining costs related to foundation and site enabling works, and after taking into account the outstanding risks and obligations retained by the Company relating to each development. Until such time as deferred income is recognised as profit, it is recorded as a liability of the Company in recognition of the Company’s obligations under the Land Grant.
The Tseung Kwan O Extension (“TKE”) Project Agreement entered into in 1998 between the then Secretary for Transport, for and on behalf of the Government, and the Company in respect of the construction of the Tseung Kwan O Extension provides the Company with the right to undertake property developments at four station and depot sites along the Tseung Kwan O Line (“Tseung Kwan O Extension Property Projects”) under separate land grant agreements. The basis of accounting for development costs incurred by the Company and payment related thereto is consistent with that for the property developments along the Airport Railway. ANNUAL REPORT 2006 119 – – – – – at at
42 Dec Dec 997
2005 1,120 1,120 3,297 3,297 of
loan
2,461 3,458
) ) ) )
– – – – – 2,756 7) 31
out (80 ) 2,756 (58 ) (22 ) (14 (14
442 2006 profit Balance
1,562 1,120 project Balance 30). (1,213 (1,213
interest-free
(note
) ) ) ) ) )
2006
in Company’s
(27 ) (27 )
18A) (note from Transfer
(106 (452 (558 (106 (452 (558 18B(i)) completion 31
against against
the
progress as
project
with
Offset property Amount Offset received payments
developers on 4 27 20 956 (152 ) (1,794 ) 2,419 210 (152 ) 565 (528 ) 410 430 106 from in
1,007 1,113 connection development
in
property
Payments development recognised
(2005: nil) (2005: – – – 5 86
at received at
45 42 Jan developers (note Jan Expenditure (note
1 1 3,414 1,548 (707 ) (1,794 ) 2,461 2,088 1,455 (707 ) 3,409 2,043 1,241 (528 ) 2,461 2,756 2,756 2,419 Area
million O
Balance Balance
Kwan
HK$768
is
Tseung
18B(i))
(continued) 2,
Projects
(note
Package
comprises:
of
Extension
progress
O
developers
in
Projects Projects
development
Kwan from
developer
progress development
the
in
Projects Property Property Projects
to 18B(ii)) Tseung
Projects Projects Projects Projects
property received
for
property on
(note
Company Company Company
on development
Extension Extension Extension Extension
Property Property
Property Property
extended projects projects
kind The The The
O O O O amount payments
in
development income
the and and and
income
million Kwan Kwan Kwan Kwan
in Railway Railway Railway Railway
property property
Sharing Up-front
Group Group Group
Tseung
2005 Airport
million HK$ in 2006 Airport
in HK$ million HK$ in Deferred
2005 Airport in HK$ million HK$ in 2006 Airport
– Tseung
Tseung – Tseung Other Other Included (i) Deferred income on up-front payments up-front on income Deferred (i) The The B Deferred A Property The 18 Property HK$4,000 Notes to the accounts
120 18 Property development in progress (continued)
B Deferred income on property development (continued) (ii) Deferred income on sharing in kind Under the property development agreement in respect of an Airport Railway development package, the Company received during 2004 certain portions of the shell of a retail centre at Union Square, Kowloon Station and its car parking spaces. Part of the property development profit is deferred as the Company has an obligation under the development agreement to complete the fitting-out works. On this basis, movements of the deferred income on MTR CORPORATION LIMITED this sharing in kind during the year are set out below:
The Group and The Company
in HK$ million 2006 2005
Balance as at 1 January 997 1,092 Less: Amount recognised as profit (note 7) (555 ) (95 ) Balance as at 31 December 442 997
C Stakeholding funds As stakeholder under certain Airport Railway and Tseung Kwan O Extension Property Projects, the Company receives and manages deposit monies and sales proceeds in respect of sales of properties under those developments. These monies are placed in separate designated bank accounts and, together with any interest earned, will be released to the developers for the reimbursement of costs of the respective developments in accordance with the terms and conditions of the Government Consent Schemes and development agreements. Any balance remaining will only be released for distribution after all obligations relating to the developments have been met. Accordingly, the balances of the stakeholding funds and the corresponding bank balances have not been included in the Group’s and the Company’s balance sheets. Movements in stakeholding funds during the year were as follows:
The Group and The Company
in HK$ million 2006 2005
Balance as at 1 January 3,478 4,064 Stakeholding funds received and receivable 22,843 15,599 Add: Interest earned thereon 176 111 26,497 19,774 Disbursements during the year (19,637 ) (16,296 ) Balance as at 31 December 6,860 3,478
Represented by: Balances in designated bank accounts as at 31 December 6,858 3,476 Retention receivable 2 2 6,860 3,478 ANNUAL REPORT 2006 121 the at at
43 72 72 and
Dec Dec 209 281 115
170 395 565 170 113 283 China
between in
merger Project
16 32 16 16 98 70 98 4
131 147 year 31 year 31 186 284 168
the the
Line
proposed
Metro
the
on
at Expenditure Balance at Expenditure Balance
78 27 83 56 56 72 72 43 Jan during Jan during
134 281 115 209 1 1 Shenzhen
studies Balance Balance
the
the
for
to
works
relation
in
design
to
expenses
relates
and
mainly costs
year staff
the
direct for
projects
incremental
capital
Corporation.
Kong.
projects projects projects projects
consultancy,
proposed
Railway
Hong
the
in capital capital capital capital
on
external
Project
expenditure
proposed proposed proposed proposed
incurred
Line comprise
Kowloon-Canton on on on on
and
studies studies studies studies Island
studies
Company Group expenditure
West
Expenditure Expenditure
2005 Merger in HK$ million HK$ in 2006 Merger
2005 Merger 2006 Merger million HK$ in Expenditure Expenditure The The 19 Deferred Merger Company The the Notes to the accounts
122 20 Prepaid land lease payments
The Group and The Company
in HK$ million 2006 2005
Cost At 1 January 732 732 MTR CORPORATION LIMITED Addition – – At 31 December 732 732 Accumulated amortisation At 1 January 124 111 Charge for the year 14 13 At 31 December 138 124 Net book value at 31 December 594 608
A The above prepaid land lease payments, all of which relate to land held for railway depots in Hong Kong, is analysed as follows:
The Group and The Company
in HK$ million 2006 2005
At net book value – long leases 157 160 – medium-term leases 437 448 594 608
B The lease of the land on which the civil works, plant and equipment are situated for the operation of the railway was granted to the Company under a running line lease for the period up to 29 June 2050 which can be extended for further periods of 50 years at nominal payment (note 45C).
Under the terms of the lease, the Company undertakes to keep and maintain all the leased areas, including underground and overhead structures, at its own cost. With respect to parts of the railway situated in structures where access is shared with other users, such as the Lantau Fixed Crossing, the Company’s obligation for maintenance is limited to the railway only. All maintenance costs incurred under the terms of the lease have been dealt with as railway operating costs in the profit and loss account. ANNUAL REPORT 2006 123 – in of
24 24
and 2005
Kong
Macau service system system system
activities holding holding services scheme projects
in common common common system
collection
automatic
a contactless contactless
Hong
introducing introducing relationship card card Netherlands Netherlands
a
management fare
Marketing loyalty on on the
Principal the the
Company smart smart
– 24 24 2006 The smartcard payment
management management overseas
consultancy
a in
smartcard payment
a in of
Kong Investment Kong Operate Kong Customer Kong Investment Kong Kong Consultancy Kong Operate
Macau Promote Place operation
– 103 103 2005
by incorporation
Group
– The interest
171 171 2006
Group:
the Held
the
ownership
of
of
Proportion subsidiaries
Group’s Held
up effective by
HK$2 57.4% – 100% Hong HK$2 57.4% – 100% Hong HK$2 57.4% – 100% Hong HK$1 57.4% – 100% Hong HK$1 57.4% – 100% Hong capital interest Company subsidiary and
paid
non-controlled
and EUR18,000 57.4% – 100% Netherlands Project
share
MOP25,000 57.4% – 100% major HK$42,000,000 57.4% 57.4% – Hong HK$42,000,000 57.4% – 100% Hong
Issued subsidiaries
all
ordinary of
particulars
the
Limited Limited
Limited
Limited non-controlled
B.V.
Limited Limited Limited
in
at cost at contains
Limited Macau (NL)
assets list
Holdings Cards Connect Investments Knowledge Netherlands Rewards Cards Cards shares, net
company
of of
following
Share
Octopus
Unlisted in HK$ million HK$ in Name Octopus
Octopus
Octopus Octopus
Octopus
Octopus
Octopus
Octopus
The
21 Interests Notes to the accounts
124 21 Interests in non-controlled subsidiaries (continued)
In June 1994, the Company entered into an agreement with four local transport companies, Kowloon-Canton Railway Corporation, The Kowloon Motor Bus Company (1933) Limited (subsequently replaced by KMB Public Bus Services Holdings Limited), Citybus Limited and The Hongkong and Yaumati Ferry Co., Limited (subsequently replaced by New World First Bus Services Limited and New World First Ferry Services Limited), to incorporate a company, Creative Star Limited, now Octopus Cards Limited (“OCL”), to undertake the development and operation of the “Octopus” contactless smart card ticketing system, which was initially used by the shareholding transport companies. Although the Company currently holds a 57.4% interest in the issued shares of MTR CORPORATION LIMITED OCL, its appointees to the Board of Directors of OCL are limited to 49% of the voting rights at board meetings. The shareholders have agreed to provide the necessary funding to OCL for its operations and for the development of the “Octopus” system.
On 20 April 2000, OCL received approval from The Hong Kong Monetary Authority (“HKMA”) to become a deposit-taking company (“DTC”) for purposes of extending the use of Octopus cards to a wider range of services, including those that are non-transport related. Prior to becoming a DTC, the Octopus card was exempted from the definition of “multi-purpose card” under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong) on the basis that its use was restricted to transport related services only.
On 17 January 2001, the Company entered into a new Shareholders’ Agreement with the other shareholders of OCL. Under this agreement, the Company disposed of a shareholding interest of 10.4% in OCL to certain other shareholders of OCL for a consideration of HK$16 million, together with a deferred consideration to be received in the event of OCL subsequently becoming a stock exchange listed company.
On 21 October 2005, the Company and the other shareholders of OCL entered into a number of agreements to adjust the arrangements relating to OCL, in order to make the non-payment businesses of OCL into new, separate subsidiaries independent of the payment business of OCL that is regulated by the HKMA. Accordingly, a new holding company, Octopus Holdings Limited (“OHL”), has been set up to hold the entire issued share capital of each of these new companies as well as OCL. The Company’s effective interest in OHL and its subsidiaries is 57.4%.
At the same time, the shareholders of OHL made a loan in aggregate amounting to HK$150 million to OHL pursuant to a Subordinated Loan Agreement, with each shareholder lending an amount in proportion to its shareholding in OHL. The Company has therefore lent HK$86 million to OHL (or 57.4% of the total amount of the loan). The loan is for a term of five years and is unsecured, the rights of the lenders are subordinated in all respects to the rights of the other unsubordinated creditors of OHL in respect of all other unsubordinated liabilities, and interest on the loan is payable at a rate of 5.5% per annum.
During the year ended 31 December 2006, a total amount of HK$56 million (2005: HK$54 million) was paid by the Company to OCL in respect of the central clearing services provided by OCL to the Company. During the same period, load agent fees and fees for handling Octopus card issuance and refund amounting to HK$9 million (2005: HK$9 million) and HK$5 million (2005: HK$5 million) respectively were received from OCL in respect of services and facilities provided by the Company at various MTR stations.
During the year, services fees amounting to HK$2 million (2005: HK$2 million) were also received from OCL in respect of rental of computer equipment and services and warehouse storage space payable to the Company under a service agreement. ANNUAL REPORT 2006 125 (7 ) 22 40 41 81 69 47 42 (78 ) (47 ) (89 ) (12 ) (41 ) 332 354 129 158 336 129 180 138 180 103 2005 2005 (1,311 ) (301 ) (1,653 ) (100 ) ) ) ) ) ) ) ) ) ) )
(Audited) 1,210 1,833 (Audited)
42 23 85 55 80 (12 (70 (97 (99 (22 (65 (54 156 314 190 297 255 297 171 382 405 155 140 118 2006 2006 (373 1,521 2,181 (1,884 (1,446 (Audited) (Audited) below:
shown
are
OHL
for
sheet
(continued)
balance
the
and
services
10)
charges
subsidiaries account
value
(note
loss add
cardholders finance
10)
for
to and
and taxation
account (note
due
profit
charges tax
loss
before depreciation interest
sheet
assets hand
bank and non-controlled deposits
on
profit income net
in shareholders before before income and
card of of of
and consolidated to balance profit
December year taxation
income fees
and
profit profit
31
due profits
the
share share share
tax banks
expenses liabilities operating assets capital before for assets
agent
at floats costs
December
ended
assets interest
condensed 31
Net Profit Income Group’s Group’s Retained
Equity Share
Liabilities Card Investments in HK$ million HK$ in Assets Fixed at Depreciation
Year million HK$ in Turnover Amounts Net Load Other Operating Operating Profit Other Other Staff Cash Other Group’s Consolidated Consolidated 21 Interests The Notes to the accounts
126 22 Investments in subsidiaries
The Company
in HK$ million 2006 2005
Unlisted shares, at cost 187 185 Less: Impairment losses 3 3 MTR CORPORATION LIMITED 184 182
Investments in subsidiaries include HK$24 million (2005: HK$24 million) in respect of investments in non-controlled subsidiaries, the relevant details of which are disclosed in note 21. The following list contains details of controlled subsidiaries as defined under note 2C as at 31 December 2006, which have been consolidated into the Group’s financial statements.
Proportion of ownership interest Issued and paid up Group’s Held Place of ordinary/registered effective by the Held by incorporation Name of company share capital interest Company subsidiary and operation Principal activities
Glory Goal Limited HK$10,000 100% 100% – Hong Kong Investment holding MTR (Shanghai Project HK$1,000 100% 100% – Hong Kong Railway consultancy Management) Limited services, property investment and development MTR Beijing Line 4 Investment HK$1 100% 100% – Hong Kong Investment holding Company Limited MTR China Consultancy Company HK$1,000 100% 100% – Hong Kong Railway consultancy Limited services MTR China Property Limited HK$1,000 100% 100% – Hong Kong Property management MTR Engineering Services Limited HK$1,000 100% 100% – Hong Kong Engineering services MTR Property Agency Co. Limited HK$2 100% 100% – Hong Kong Property agency MTR Rail Transport Training HK$2,800,000 100% 100% – Hong Kong Provide rail (International) Company Limited transport training MTR Shenzhen Investment HK$400,000 100% 100% – Hong Kong Investment holding Holding Limited MTR Telecommunication HK$100,000,000 100% 100% – Hong Kong Radio communication Company Limited services MTR Travel Limited HK$2,500,000 100% 100% – Hong Kong Travel services Rail Sourcing Solutions HK$2 100% 100% – Hong Kong Global railway supply and (International) Limited sourcing services TraxComm Limited HK$15,000,000 100% 100% – Hong Kong Fixed telecommunication network services
Hong Kong Cable Car Limited * HK$1,000 100% 100% – Hong Kong Dormant
Lantau Cable Car Limited * HK$1,000 100% 100% – Hong Kong Dormant
MTR (Estates Management) Limited * HK$1,000 100% 100% – Hong Kong Dormant MTR (Shanghai Metro HK$1,000 100% 100% – Hong Kong Dormant Management) Limited *
Candiman Limited * US$1 100% 100% – British Virgin Investment holding Islands Fasttrack Insurance Ltd. HK$77,500,000 100% 100% – Bermuda Insurance underwriting ANNUAL REPORT 2006 127 the
for
of and and
Metro
1% project
activities
holding holding holding Finance holding Finance holding services services
work
equivalent
4
marketing
promotion early-stage supply than
consultancy consultancy
construction was
development management management Line management
less
Principal which
constituting
million,
sourcing
of
Kong Kong China and China China China Shenzhen China China China
turnover
Place HK$1.5
Islands/ Islands/
People’s Property People’s Property People’s Railway People’s Railway People’s Property People’s Conduct People’s Railway operation
Kingdom Railway Kingdom Kingdom Investment Investment Kingdom Investment Kingdom Investment Kingdom Investment of
total
and
assets
Hong Republic Republic
of
of Republic services, of Hong Republic Republic of of Republic preparatory of
Republic management of by incorporation net consideration
a
at total
of
interest
reflect
the Held
KPMG disposed
ownership
by
of
been
audited has
not
Proportion Ltd.
Co.
subsidiaries up Group’s Held
US$1 100% 100% – Cayman GBP1 100% – 100% United GBP1 GBP1 100% 100% – – 100% United 100% United the GBP1 100% – 100% United capital interest Company subsidiary and
GBP29 100% 100% – United GBP29 100% – 100% United paid
of
US$1,000 100% 100% – Cayman Management disposal. and
share US$150,000 70% – 70% The HK$1,000,000 100% 100% – The HK$1,000,000 100% 100% – The RMB3,000,000 100% 100% – The the
HK$93,000,000 100% – 100% The HK$15,000,000 60% – 60% The (continued) HK$250,000,000 100% – 100% The Issued
of ordinary/registered effective by
statements
Property
time
* *
Anbo financial
the Ltd.
*
* at
The Co.
Ltd.
Limited Limited
subsidiaries Co. value
Donghai
Limited
*
KPMG.
Limited Limited
(UK)
Services Limited in Limited Limited
Metro
by
totals.
Ltd. Property book
(001)
(Beijing) (C.I.) (SWT) (UK) (Shenzhen) (IKF) (No.2) (Silverlink)
Co. (Shenzhen)
Management net Kong
Shenzhen * audited
Commercial Property Solutions Lease
Premier Management
not
Hong year, consolidated
company
Ltd. Ltd. Limited
the of
Corporation Corporation Corporation (Beijing) Consultancy Finance Consulting (Beijing) Corporation Corporation Corporation Corporation company’s
Sourcing
the
MTR
Chongqing
(Incorporated) (Incorporated) MTR MTR MTR MTR Co. (Incorporated) Rail Name
Management Facilities MTR (Incorporated) Co. MTR (Incorporated) MTR MTR Limited Co. respective (Incorporated)
Shanghai Construction (Incorporated) MTR MTR MTR * Subsidiaries During 22 Investments to Notes to the accounts
128 23 Interests in associates
The Group
in HK$ million 2006 2005
Share of net assets 100 –
MTR CORPORATION LIMITED The Group and the Company had interests in the following associates as at 31 December 2006:
Proportion of ownership interest Issued and paid up Group’s Held Place of ordinary/registered effective by the Held by incorporation Name of company share capital interest Company subsidiary and operation Principal activities
Beijing MTR Corporation Limited RMB1,380,000,000 49% – 49% The People’s Railway construction, (Incorporated) Republic management of China and development
Great South Eastern Railway Limited * GBP100 29% – 29% United Kingdom Bidding vehicle
MTR Laing Metro Limited * GBP2 50% – 50% United Kingdom Bidding vehicle
MTR Laing Railway Company Limited * GBP2 50% – 50% United Kingdom Bidding vehicle
South Western Railway Limited * GBP2 50% – 50% United Kingdom Bidding vehicle
* Companies not audited by KPMG.
The registered share capital of Beijing MTR Corporation Limited is RMB1,380 million of which 49% (RMB 676 million) is to be contributed by the Group. As of 31 December 2006, the Group has made an equity contribution of HK$100 million, representing about 15% of the registered capital committed by the Group.
The summary financial information of the Group’s effective interests in associates is as follows:
in HK$ million 2006 2005
Non-current assets 185 – Current assets 6 2 Non-current liabilities (25 ) – Current liabilities (105 ) (33 ) Net assets/(liabilities) 61 (31 )
Income – – Expenses (23 ) (31 ) Loss for the year (23 ) (31 ) ANNUAL REPORT 2006 129 ) ) )
– – 3 6 23 10 (48 160 183 sheet 205 388 202 205 100 372
2005 (135 (183 (Unaudited) (Unaudited) balance
the
35 and
237 272 2006 account
loss
and
profit
comprising:
condensed
subsidiary
whose
underwriting
Limited,
insurance
2006
Corporation
MTR
overseas
December
an
31
by Beijing
to
of
held
results
the value incorporation)
securities
of
fair (continued)
at debt
(date
provisions
included
period
2006 and
the securities
overseas,
represent
year for in
assets
year 1
associates January
1
charges information listed
loss net
16
in
progress period
of of
account
2006 after within
in securities
from
the
in
reserve accrued loss
financial below: share share
for
securities
sheet
period assets
capital assets
and December
maturing maturing
assets loss
the
Group above
31
shown
– Group’s Construction
in HK$ million HK$ in Trading
Net Equity Share Liabilities Creditors, Loans
Assets Fixed at million HK$ in Net For million HK$ in Exchange Group’s Other – Investments The 24 Investments Balance Profit 23 Interests The are Notes to the accounts
130 25 Staff housing loans
The Group and The Company
in HK$ million 2006 2005
Balance at 1 January 34 47 Redemption (5 ) (8 ) MTR CORPORATION LIMITED Repayment (4 ) (5 ) Balance at 31 December 25 34
The Group and The Company
in HK$ million 2006 2005
Amounts receivable: – within 1 year 4 5 – after 1 year 21 29 25 34
The MTR Staff Housing Loan Scheme, a Company financed scheme, was introduced in 1997 to replace, on a phased basis, the previous arrangements whereby interest subsidies were paid by the Company to eligible employees. All housing loans granted to employees carry interest either at the prevailing Best Lending Rate less 1.75% per annum or at the Company’s Average Cost of Borrowings plus 0.75% per annum, and are secured by mortgages over the relevant properties.
The Company considers that the nominal value of housing loans are not significantly different from their fair values.
26 Properties held for sale
The Group and The Company
in HK$ million 2006 2005
Properties held for sale – at cost 876 1,090 – at net realisable value 1,142 221 2,018 1,311
Properties held for sale at 31 December 2006 comprised mainly residential units, retail and car parking spaces at the Olympic Station, Kowloon Station, Tiu Keng Leng Station and Tseung Kwan O Area 55b and Area 57a developments, while those held for sale at 31 December 2005 comprised mainly properties at Olympic Station, Kowloon Station and Hang Hau Station. They represent either properties received by the Company as sharing in kind or as part of the profit distribution upon completion of the development and the attributable interest in unsold units of shared surplus developments for which occupation permits have been issued. The properties are stated in the balance sheet at the lower of cost, which is deemed to be their fair value upon initial recognition as determined by reference to an independent open market valuation at the date of receipt (notes 2J(vi) and (viii)), and their net realisable value at the balance sheet date. Net realisable value represents the estimated selling price less costs to be incurred in selling the properties. The net realisable values as at 31 December 2005 and 2006 are determined by reference to an open market valuation of the properties as at those dates, undertaken by an independent firm of surveyors, DTZ Debenham Tie Leung, who have among their staff Members of the Hong Kong Institute of Surveyors.
Properties held for sale at net realisable value are stated net of provision of HK$49 million (2005: HK$18 million), made in order to state these properties at the lower of their cost and estimated net realisable value. ANNUAL REPORT 2006 131 – 1 1 5 9 1 4 5 4 4 1 1 6 53 24 26 128 195 458 515
– – – – – – – – – – 6 76 – – – 27 – – 17 71 71 25 268 310 years Total
Over – – – – – – – – – – 1 3 – – 12 15 1 7 45 44 89 190 198 years 5
5 in
–
values
Fair Maturing follows:
– – – – – – – – – – 1 166 – 38 234 5 131 165 307 1 68 – – 84 32 121 – – 13 – 128 153 281 – 1 4 4 4 4 as
11 23 years 2
are
2
–
– – – – – 1 6 1 1 5 5 – 8 – – – 1 6 7 1 4 2 1 4 outstanding 12
year 1 than
instruments
1
Less 9 1 25 95 478 900 750 100 650 150 418 650 400 2,517 4,219 2,000 14 2,242 1,908 2,032 3,373 1,000 7,873 15,635 10,114 29 14,015 25,749 amount 14,480 18,790 26,663
derivative
of
Notional liabilities
maturities
and
and
values
fair assets
amounts,
assets liabilities assets liabilities
hedges hedges hedges hedges hedges hedges hedges
financial Company
forwards forwards forwards forwards
as as as as as as as
swaps swaps swaps swaps
The hedges hedges hedges hedges hedges hedges hedges hedges
notional hedges hedges hedges hedges hedges hedges hedges hedges
swaps swaps swaps swaps
financial financial financial financial
and flow flow flow flow flow flow
flow flow
qualified qualified qualified qualified qualified qualified qualified exchange exchange exchange exchange rate rate rate rate value value value value value value value value
value currency currency currency currency
cash cash cash cash fair fair not not not fair not cash cash not fair fair fair fair cash not fair cash not
Group contracted
– Foreign – Foreign – Foreign – Foreign – Cross – – Cross – – in HK$ million HK$ in 2006 Derivative
– Cross Total Derivative
2005 Derivative
Interest – – – Derivative Interest Total
Interest – – – – – Cross – – Interest – – – The A Fair The 27 Derivative Notes to the accounts
132 27 Derivative financial assets and liabilities (continued)
A Fair value (continued) The discounted cash flow method, which discounts the future contractual cash flows at the current market interest and foreign exchange rates that are available to the Group for similar financial instruments, is the main valuation technique used to determine the fair value of the Group’s borrowings and derivative financial instruments such as interest rate swaps and cross currency swaps. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. MTR CORPORATION LIMITED
The Group’s derivative financial instruments consist predominantly of interest rate and cross currency swaps, and the Group used the relevant interest rate swap curves as of 31 December 2006 and 2005 to discount financial instruments. For Hong Kong dollars, interest rates used ranged from 3.904% to 4.185% (2005: 3.925% to 4.594%), U.S dollars from 5.062% to 5.431% (2005: 4.334% to 5.106%) and Euro from 3.721% to 4.348% (2005: 2.384% to 3.853%).
B Financial risks The Group’s operating activities and financing activities expose it to three main types of financial risks, namely interest rate risk, foreign exchange risk and credit risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge its exposure to interest rate and foreign exchange risks. These instruments are employed solely for hedging and not for trading or speculation purposes.
Risk management is carried out under policies approved by the Board of Directors. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as liquidity risk, interest rate risk, foreign exchange risk, credit risk, concentration risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity. The Board regularly reviews these polices and authorises changes if necessary based on operating and market conditions and other relevant factors.
(i) Liquidity risk Liquidity risk refers to the risk that funds will not be available to meet liabilities as they fall due, and it results from timing and amount mismatches of cash inflow and outflow. The Group adopts a prudent approach to managing liquidity risk by maintaining sufficient cash balances and an adequate amount of committed banking facilities at all times to provide forward coverage of all of its funding needs including working capital, debt refinancing, dividend payments, capital expenditures and new investments for a set minimum period of time of between 6 to 15 months.
(ii) Interest rate risk The Group’s interest rate risk arises from borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk whilst borrowings based on floating rates expose the Group to cash flow interest rate risk. The Group manages its exposure to interest rate risk by using mostly interest rate swaps.
(iii) Foreign exchange risk Foreign exchange risk arises when recognised assets and liabilities are denominated in a currency that is not the Group’s functional currency.
The Group manages its exposure to the foreign exchange risk by using mostly cross currency swaps and forward foreign exchange contracts.
(iv) Credit risk Credit risk refers to the risk that a counterparty will be unable to pay amounts in full when due. For the Group, this arises mainly from the deposits it maintains and the derivative financial instruments that it has entered into with various banks and counterparties. To limit its exposure to credit risk, the Group places deposits and enters into derivative financial instruments only with financial institutions with acceptable credit ratings. For derivative financial instruments, the Group further quantifies and monitors its credit exposure by estimating the current fair market values and the potential change in fair market values of these instruments based on the “value-at-risk” concept.
(v) Concentration risk The Group has no significant concentrations of credit risk with respect to the deposits it maintains and the derivative financial instruments it has entered into with various banks and counterparties. To reduce concentration risk, the Group assigns to each deposit-taking bank a credit rating based limit in accordance with credit policy approved by the Board. Pursuant to this policy, the Group also assigns mark-to-market limits to all its counterparties, and monitors the current and potential exposures due to derivative financial instruments against these limits. ANNUAL REPORT 2006 133 10
137 121 258 248 933 2005 2005 terms
the requirements.
investment
upon 2,975 2,042 Company
8 respective
156 124 280 272 825 957 2006 2006 The days Group’s
1,782 the
maintenance 21
the
with
of
within
cyclical
due
Tenants
meet
are accordance
to
2005 in
days.
settlement.
50 kept
due agreements.
to
daily 7
are
retentions,
stocks lease
Group
with
of from 3,095 2,042 1,053
and
The agreed
825 2006 follows: Cards
1,894 1,069 institutions
any as signing
spares ranging
to
are the
dates Octopus
financial
upon subject
due
with activities
days. contingency
through
with 30
Group, deposit
or
mainly the
debts),
principal
within
to rental
its tickets monthly agreements
due
from advance
comprise doubtful swap billed
are
months’
in two-ride entrusted
are
and year and
1 arising
and three
fees bad
currency works
to:
after pay
for
monthly and single
to
relate capital
for
receivables rate payments losses
stock
billed
of consumed:
and
cash consumed
are required others
be
projects
and in
advance be
interest to
are
in and obsolete to respect
telecommunications
impairment in contracts either
income
for
under
progress. to kiosks and
spares
Company in
expected
policy deposits
expected
development payments
specific
operations
services
The
collected and station
work of provision year
relation
is and
1 year
spares receivable credit
of
in
and
1
spares and
advertising
(net
Railway Property and
and Specific agreements.
after within
revenue Group Group’s
Debtors Consultancy
Amounts the Rentals,
Debtors in HK$ million HK$ in Less: Stores in HK$ million HK$ in – – – deposits – The of 29 Debtors, The 28 Stores Stores (iii) (i) (iv) properties certification (ii) Fare Notes to the accounts
134 29 Debtors, deposits and payments in advance (continued)
The ageing analysis of debtors included above is as follows:
The Group The Company
in HK$ million 2006 2005 2006 2005
MTR CORPORATION LIMITED Amounts not yet due 1,157 2,461 1,145 2,448 Overdue by 30 days 102 107 96 61 Overdue by 60 days 18 26 17 24 Overdue by 90 days 6 35 4 6 Overdue by more than 90 days 150 17 143 12 Total debtors 1,433 2,646 1,405 2,551 Deposits and payments in advance 342 348 258 323 Prepaid pension costs 119 101 119 101 1,894 3,095 1,782 2,975
Included in amounts not yet due are HK$478 million (2005: HK$46 million) receivable from certain stakeholding funds (note 18C) awaiting finalisation of the respective development accounts.
As at 31 December 2006, all debtors, deposits and payments in advance were expected to be recovered within one year except for HK$160 million (2005: HK$168 million) included in the amounts relating to deposits and receivables in respect of railway operations and others, which were expected to be recovered between one to three years. The nominal values less impairment losses for bad and doubtful debts are not discounted as it is considered that the effect of discounting would not be significant.
Included in debtors, deposits and payments in advance are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:
The Group The Company
in $ million 2006 2005 2006 2005
Euro 1 2 1 2 Japanese Yen – 1 – 1 New Taiwan dollar 37 13 37 13 Pataca – 2 – 2 Pound sterling 1 – – – United States dollar 25 22 24 22 Won 1 – 1 –
30 Loan to a property developer
The Group and The Company
2006 2005 Nominal Carrying Nominal Carrying in HK$ million amount amount amount amount
Interest-free loan to a property developer 4,000 3,355 – –
The loan was provided to the developer of Package 2, Tseung Kwan O Area 86 property development project under the terms of the development agreement. The loan is interest-free and guaranteed by the developer’s ultimate holding company and 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 in progress. ANNUAL REPORT 2006 135 – – 2 2 2 2 63 27 22 88 53 63 the
(14 )
285 424 116 102 2005 2005 2005 and are related
as
Tseung
the
the MTR
other
from which of
currency values
the of
and
fair
) rates,
Company Company Company
– – 2 2 3 (5 respect 22 34 93 40 22 94 18
their 127 122 523 700
2006 2006 2006 The The The in functional
between
recoverable
market
from the
development
Government
claims
stations than
Authority
the
floating
different at
property
other from
contract of values. – – 2 2 2
63 14 53 27 22 88 15 Housing
(14 ) due 306 359 345 154
for 2005 2005 2005 equivalents.
fair
interchange
bearing
the
of currency
respect
significantly
by cash
their
a
in
or in
amounts not interest
provision
Group Group Group
as are
cash )
provision
– – 2 8 2 3 other
(5 Company of 22 34 40 22 94 18
The The The well 276 310 305 177 the
All 2006 2006 2006
approximate distribution the
as
considered
to to
with denominated
year. associates
parties
are
profit
to
one as
movements
retention,
parties amounts loans
entrusted
considered
connection within and
related
The in
are
involving Company.
properties works
related
following release the not
loans
other
to months.
for other
the
receivables
the Company
received 24 losses)
formation of are and due
and
the
and
site to
transactions entrusted within were
sheet
to values
outstanding
(“KCRC”) were income impairment
months. works to
works
settled
of Government relates
statement
entrusted balance
12
carrying sheet
institutions the which
(net the
flow ), relates
The
Government deferred
in works
within
entrusted from
Corporation to Authority
balance cash
rate.
the substantially infrastructure
financial
due
the the Company
be above
in in relates received
with
Railway
recognised to
relate: other the
equivalents
Government Housing
equivalents
the
from
be
discount
of
33B) hand
on to the the KCRC and amounts
they
subsidiaries
cash
Group on
of due cash
Authority
Project.
(note expected (2005: HK$3,868 million HK$3,868 (2005:
from from from
and
equivalents equivalents the
connection
and banks from: dollar
which
dollar
are in Company’s
and values
due due expected due to
subsidiaries retentions cash
due cash cash
year,
with
associates
Housing Kowloon-Canton million Government banks the
due in States
Extension to
franc
the were
overdrafts at and and
to Taiwan
entity
the the associates other non-controlled the O
systems.
amount amount amount nominal
contract the
Swiss – – – Cash Cash – Euro in $ million $ in in HK$ million HK$ in Deposits
Amounts in HK$ million HK$ in Cash United Loans Bank – New – of HK$3,833
32 Cash
31 Amounts The During Included Government, The Kwan The All KCRC parties The amounts similar Notes to the accounts
136 33 Loans and obligations under finance leases
A By type
The Group
Carrying Repayable Carrying Repayable amount Fair value amount amount Fair value amount
MTR CORPORATION LIMITED in HK$ million 2006 2006 2006 2005 2005 2005
Capital market instruments Listed or publicly traded: US dollar Global notes due 2009 5,651 6,100 5,834 5,711 6,253 5,834 US dollar Global notes due 2010 4,511 5,056 4,679 4,582 5,176 4,679 Debt issuance programme (Eurobond due 2014) 4,380 4,565 4,663 4,514 4,605 4,663 14,542 15,721 15,176 14,807 16,034 15,176 Unlisted: Debt issuance programme notes due 2006 to 2020 7,046 7,383 7,075 5,976 6,226 6,021 HK dollar notes due 2006 to 2008 515 512 500 1,526 1,520 1,500 HK dollar retail bonds due 2006 – – – 1,002 1,003 1,000 7,561 7,895 7,575 8,504 8,749 8,521 Total capital market instruments 22,103 23,616 22,751 23,311 24,783 23,697 Bank loans 4,789 4,706 4,757 4,282 4,315 4,306 Obligations under finance leases (note 33C) 141 141 141 272 272 272 Loans and obligations under finance leases 27,033 28,463 27,649 27,865 29,370 28,275 Bank overdrafts 5 5 5 14 14 14 Short-term loans 1,114 1,114 1,114 385 385 385 Total 28,152 29,582 28,768 28,264 29,769 28,674
The Company
Carrying Repayable Carrying Repayable amount Fair value amount amount Fair value amount in HK$ million 2006 2006 2006 2005 2005 2005
Capital market instruments Listed or publicly traded: US dollar Global notes due 2009 5,651 6,100 5,834 5,711 6,253 5,834 US dollar Global notes due 2010 4,511 5,056 4,679 4,582 5,176 4,679 10,162 11,156 10,513 10,293 11,429 10,513 Unlisted: Debt issuance programme notes due 2018 426 597 465 443 614 480 426 597 465 443 614 480 Total capital market instruments 10,588 11,753 10,978 10,736 12,043 10,993 Bank loans 4,789 4,706 4,757 4,282 4,315 4,306 Obligations under finance leases (note 33C) 141 141 141 272 272 272 Loans and obligations under finance leases 15,518 16,600 15,876 15,290 16,630 15,571 Bank overdrafts 5 5 5 14 14 14 Short-term loans 1,114 1,114 1,114 385 385 385 Total 16,637 17,719 16,995 15,689 17,029 15,970 ANNUAL REPORT 2006 137
– – 10 10 to .
2005 2005
. and
interest currency
3.904%
activities activities comprising
), after
from interest
relevant
– – 8 8 and
hedging hedging
the 2006 2006
ranged market
After After before (2005: 2.384% to 3.853%) to 2.384% (2005:
used
used (2005: HK$5,300 million) HK$5,300 (2005:
current
relate,
Group rates 4.348%
the
million (2005: HK$8,851 million HK$8,851 (2005: to
at the they
13 13 interest and
2005 2005 flows
million which
3.721%
HK$5,700
to
cash
to swaps,
dollars,
from activities activities
entity
Euro HK$14,946 Kong
1,420 2,120
the
hedging hedging
currency 10 10
and of
contractual
2006 2006
amounting
Hong 1,418 2,118
cross Before Before totalling
For
future
and currency
facilities
values. the
rate
amounts fair
loan
instruments. instruments.
their
functional
bank
discounts interest
(continued)
undrawn the of
(2005: 4.334% to 5.106%) to 4.334% (2005:
financial which financial
with
than
committed 5.431% leases
approximated to
other
similar
method facilities. discount
facilities
for
predominantly to
undrawn loan
flows 5.062%
finance
currency
overdrafts 2005 Group
a
consist bank
cash
from
in
the and and
available
uncommitted to
under
of
2006 dollars loans had
short-term U.S
discounted instruments ,
available
Group denominated
number and
the
is
a
the December on short-term
follows:
that
financial had
of 31
as
obligations
of 2006,
based are rates
as
borrowings, programme
Group dollar dollar
and are
of
amounts derivative
(continued)
the
curves
States States activities
December values
(2005: 3.925% to 4.594%) to 3.925% (2005: exchange
issuance
type
31
Company Group swap carrying fair amounts Group’s
at
addition,
United United Euro million $ in Euro million $ in debt
a In The The 33 Loans A By The As The The hedging foreign The rate 4.185% Notes to the accounts
138 33 Loans and obligations under finance leases (continued)
B By repayment terms
The Group
Capital Bank Obligations Capital Bank Obligations market loans and under finance market loans and under finance
MTR CORPORATION LIMITED instruments overdrafts leases Total instruments overdrafts leases Total in HK$ million 2006 2006 2006 2006 2005 2005 2005 2005
Long-term loans and obligations under finance leases Amounts repayable beyond 5 years 10,088 600 – 10,688 10,084 916 – 11,000 Amounts repayable within a period of between 2 and 5 years 11,663 2,092 – 13,755 11,163 2,178 – 13,341 Amounts repayable within a period of between 1 and 2 years 1,000 2,030 – 3,030 – 606 141 747 Amounts repayable within 1 year – 35 141 176 2,450 606 131 3,187 22,751 4,757 141 27,649 23,697 4,306 272 28,275 Bank overdrafts – 5 – 5 – 14 – 14 Short-term loans – 1,114 – 1,114 – 385 – 385 22,751 5,876 141 28,768 23,697 4,705 272 28,674 Less: Unamortised discount/ premium/finance charges outstanding (103 ) (3 ) – (106 ) (118 ) (5 ) – (123 ) Adjustment due to fair value change of financial instruments (545 ) 35 – (510 ) (268 ) (19 ) – (287 ) Total carrying amount of debt 22,103 5,908 141 28,152 23,311 4,681 272 28,264
The Company
Capital Bank Obligations Capital Bank Obligations market loans and under finance market loans and under finance instruments overdrafts leases Total instruments overdrafts leases Total in HK$ million 2006 2006 2006 2006 2005 2005 2005 2005
Long-term loans and obligations under finance leases Amounts repayable beyond 5 years 465 600 – 1,065 480 916 – 1,396 Amounts repayable within a period of between 2 and 5 years 10,513 2,092 – 12,605 10,513 2,178 – 12,691 Amounts repayable within a period of between 1 and 2 years – 2,030 – 2,030 – 606 141 747 Amounts repayable within 1 year – 35 141 176 – 606 131 737 10,978 4,757 141 15,876 10,993 4,306 272 15,571 Bank overdrafts – 5 – 5 – 14 – 14 Short-term loans – 1,114 – 1,114 – 385 – 385 10,978 5,876 141 16,995 10,993 4,705 272 15,970 Less: Unamortised discount/ premium/finance charges outstanding (51 ) (3 ) – (54 ) (65 ) (5 ) – (70 ) Adjustment due to fair value change of financial instruments (339 ) 35 – (304 ) (192 ) (19 ) – (211 ) Total carrying amount of debt 10,588 5,908 141 16,637 10,736 4,681 272 15,689
The amounts repayable within 1 year in respect of long-term loans and obligations under finance leases are included in long-term loans as these amounts are intended to be refinanced on a long-term basis. ANNUAL REPORT 2006 139 Net Limited (C.I.)
the
by
and
capital,
Company
9 150 2005
to minimum
Corporation
working guaranteed unsecured
Tunnel MTR
of
other
. Kong
general
to
for maturity. irrevocably
the expense Total
Hong 1,500 1,491
of
obligations and
Net
upon
New
1,499 to 2005.
Company
notes
follows:
the unsubordinated and 2005 141 2005 131 272 2005 19 28 150 300 Present Interest
– as
to
150 150 dollar and (2005: HK$2,518 million) HK$2,518 (2005:
2006
2006
2006
payments
unconditionally lent unsubordinated
16E).
2006 Kong on are
1,500 and
repayable amount received amount received
future Principal consideration Principal consideration
(note
were
Hong
December
– 9 9 issued
to minimum minimum relating
leases make
unconditional, 31
lease 2006
December to
at issues
unsecured
notes
31
as unlisted
the
finance
comprise: The
finance
other
a
ended unsecured, to from
as
2005 – under facilities
the expense Total value
(continued) 141 141 year
commitments lease future lease lease future lease
Limited. 2006
of and
direct,
loan
Present Interest
the
treated received minimum relating payments periods payments payments periods payments of
(C.I.)
are
value is
2006
leases obligations
during
Company’s unsubordinated
(2005: HK$1,650 million) HK$1,650 (2005:
respect
which
had
proceeds
in
the
guarantee and
Corporation December net
million and the finance
31
redeemed Crossing
The
MTR
Company
was under
the between ended
Government Group’s
under HK$2,450
of
unconditional
Harbour
and the the
year redeemed Company.
subsidiary,
by leases a
are
securities
the
Company the
purposes. year period
and
by Group Eastern
notes 1 a
of
redeemed the
given
debt lease
unsecured, the the
of during
finance
issued issued
for within within
obligations Company listed corporate
Group
2006,
direct, finance
issued were
obligations
under the programme The
notes
are guarantees and
other
obligations Group’s
years under
or
no and
repayable repayable
year,
notes
notes and and
2
agreement
The the December
the issuance
and
the
were and of
31
Group Group above
at
Amounts million HK$ in Debt
Amounts million HK$ in
1 Obligations 33 Loans There E Guarantees The D Bonds Bonds The C Obligations As The None Company; under Limited. unsubordinated refinancing During Notes to the accounts
140 33 Loans and obligations under finance leases (continued)
F Interest rates Outstanding amount of total borrowings, excluding obligations under finance leases, of HK$28,011 million (2005: HK$27,992 million) comprise:
The Group
Fixed rate borrowings and Variable rate borrowings and MTR CORPORATION LIMITED borrowings swapped to fixed rates borrowings swapped from fixed rate Carrying amount Interest rate Carrying amount Interest rate HK$ million % p.a. HK$ million % p.a.
2006 Amounts repayable beyond 5 years 7,667 4.2 – 8.4 2,711 (Note) Amounts repayable within a period of between 2 and 5 years 7,517 4.2 – 7.5 5,904 Amounts repayable within a period of between 1 and 2 years 1,207 3.1 – 5.5 1,844 Amounts repayable within 1 year 557 4.9 – 5.5 604 16,948 11,063 3.1 – 7.3
2005 Amounts repayable beyond 5 years 6,635 4.3 – 8.4 4,169 (Note) Amounts repayable within a period of between 2 and 5 years 7,528 3.1 – 7.5 5,594 Amounts repayable within a period of between 1 and 2 years 557 4.9 – 5.5 45 Amounts repayable within 1 year 3,409 2.2 – 5.5 55 18,129 9,863 3.3 – 6.2
The Company
Fixed rate borrowings and Variable rate borrowings and borrowings swapped to fixed rates borrowings swapped from fixed rate Carrying amount Interest rate Carrying amount Interest rate HK$ million % p.a. HK$ million % p.a.
2006 Amounts repayable beyond 5 years 1,590 4.2 – 8.4 (562 ) (Note) Amounts repayable within a period of between 2 and 5 years 7,517 4.3 – 7.5 4,754 Amounts repayable within a period of between 1 and 2 years 707 3.1 – 5.5 1,329 Amounts repayable within 1 year 557 4.9 – 5.5 604 10,371 6,125 3.1 – 7.3
2005 Amounts repayable beyond 5 years 447 5.5 – 8.4 911 (Note) Amounts repayable within a period of between 2 and 5 years 7,528 3.1 – 7.5 4,928 Amounts repayable within a period of between 1 and 2 years 557 4.9 – 5.5 45 Amounts repayable within 1 year 2,407 2.2 – 5.5 (1,406 ) 10,939 4,478 3.3 – 6.2
Note: In respect of the variable rate borrowings and borrowings swapped from fixed rate, the interest rates quoted are their contract rates as at balance sheet date subject to repricing in less than one year. ANNUAL REPORT 2006 141 87 56 The (2005: (2005: 155 459 601 104 492 137
2005 2005 due
Group
for services
(2005: (2005: million
The
immaterial.
projects. unforeseen
completed be amounts
to
1,293 2,457 3,086 1,112 1,676 3,086 on Company Company million HK$56
The
customers payable. is 97 79 56
456 589 603 137 152 would 2006 2006
The The to
subject 1,377 2,519 3,259 1,263 1,709 3,259 respective
year. claims year
HK$512
due the
for interest that,
one
one
for telecommunication
of
sensitivity. deposits
after swap than
from
amount
these except
and provisions
anticipated more provisions
87 56 gross settled year
is 591 643 116 498 137 155
2005 2005 commercial
values. received
it be
the after
one
include to
fair in
progress
their and
discounting
in
of
of income
mentioned their
settled within
works
Group Group
work be view
1,430 2,780 3,415 1,112 2,005 3,415
included expected
resolved from effect of
in
to
79 56
above The The
settled 645 651 103 631 137 152
2006 2006 advance services.
the
1,472 2,871 3,639 1,263 2,089 3,639 date,
were
the been be
to and
to by construction
different
disclosed expected have
which
is certification
losses considers
other
tenants
covered that
. claims
expected
upon
others, transportation and
Group of separately kiosk
significantly
2006 and
were these
not The recognised not
settled
of
projects
sufficiently station
are
are
less are
provision be years.
Most
and
December its
operations
provisions capital
follows:
will
which profits 31
three as
the shop assets. and
(2005: HK$130 million) HK$130 (2005:
at from
is
provisions
paid
of movements
railway
provisions
be
from within and
to
work projects
dates to
related million
their
work charges
recognised resulting
and respect
due the
and repaid in
capital
of relating charges plus received by
contract
be to
HK$179 required
accrued contract
is to for part
creditors
for
above as days days provisions
Project charges due accrued
incurred
provisions
deposits provisions related amounts
2006,
60 90 deposits
amount others
trade
and are management
creditors,
the of demand and
costs claim customers
and
all rental
in
included mainly on and
within within of
customers
to
capitalised creditors, Extension which
Project
or
benefits
to
such are charges accrued
O
of December
but but
of 2006,
remaining
refundable
charges due
of balances mainly
were 31
due days
included the projects
amount creditors
days days days
at are operations Kwan
.
Railway
30
values other
of
accrued 30 60 90
amounts employee majority
which amount accrued
year
work amounts and December
amount
significant
within after after after Tseung Property Railway Airport
31 one
above gross analysis aggregate nominal no
at
– Total
Due in HK$ million HK$ in
Creditors, in HK$ million HK$ in – Due Due Due Rental Accrued – Gross – Creditors, The The HK$463 million) HK$463
HK$56 million) HK$56
34 Creditors, The after contracts, has The circumstances, operators, carrying contract The As Notes to the accounts
142 34 Creditors, accrued charges and provisions (continued)
Included in creditors, accrued charges and provisions are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:
The Group The Company
in $ million 2006 2005 2006 2005 MTR CORPORATION LIMITED Euro 3 3 3 3 Japanese Yen 5 2 5 2 New Taiwan dollar 3 – 3 – Pound sterling 1 1 1 1 Swiss franc 1 1 1 1 United States dollar 53 51 39 37 Won – 2 – 2
35 Contract retentions
The Group
Due for Due for release after release within in HK$ million 12 months 12 months Total
2006 Railway extension projects 19 48 67 Railway operations 34 92 126 53 140 193
2005 Railway extension projects 7 63 70 Railway operations 9 91 100 16 154 170
The Company
Due for Due for release after release within in HK$ million 12 months 12 months Total
2006 Railway extension projects 19 46 65 Railway operations 34 92 126 53 138 191
2005 Railway extension projects 7 63 70 Railway operations 9 91 100 16 154 170
The effect of discounting these contract retentions is considered immaterial as these amounts are substantially due to be released within 24 months.
Included in contract retentions are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:
The Group The Company
in $ million 2006 2005 2006 2005
Swiss franc 3 3 3 3 ANNUAL REPORT 2006 143 – 6 non-
132 126 2005 2005 are
of
repayment
respect
in
3,458 3,584
12,773 12,773 Company specified subsidiaries
– 6 to
126 120 2006 2006 The with
1,562 1,682 11,718 11,718 Limited due
(C.I.)
purposes
material.
balances
year.
not
is
– one 17 17
Corporation
2005 corporate
remaining
after
MTR
amount
The to
general
the
settled
its due
Group
and be
values. for
– – –
to The
fair 2006
terms
their
Company
at
expected
the
are
repayment to
stated companies:
are
(2005: HK$12,773 million) HK$12,773 (2005: fixed
on-lent Group
any
16G) million
were
amounts
have
related
(note not
which These
other
do
(2005: HK$12,773 million) HK$12,773 (2005:
HK$11,704
18B) and
they
interest.
as transaction
million
subsidiary,
(note
includes
the back
parties
accrued by
subsidiaries
lease
discounted and HK$11,515 the
of to issued subsidiaries
and
development
been income 33D), related
due out
as
notes not
to
(note
property lease and
Company have subsidiaries Company’s
due on on income amounts
rates
the the and
The to:
recognised are bonds
to to
and due
income income
interest from
due due
bearing
Amount associates subsidiaries and
Group followings
Less: Less: in HK$ million HK$ in Deferred
in HK$ million HK$ in Amounts Deferred – – Amounts 37 Deferred The The 36 Amounts Amounts proceeds dates interest Notes to the accounts
144 38 Income tax in the balance sheet
A Current taxation in the consolidated balance sheet comprised overseas tax liabilities in respect of consultancy services income earned offshore, chargeable at the appropriate current tax rates of taxation ruling in the relevant countries.
B Deferred tax assets and liabilities recognised The components of deferred tax assets and liabilities recognised in the balance sheet and the movements during the year are as follows: MTR CORPORATION LIMITED The Group
Deferred tax arising from Depreciation Provision allowances in and other excess of related Revaluation temporary Cash flow in HK$ million depreciation of properties differences hedges Tax losses Total
2006 At 1 January 2006 8,895 2,242 228 5 (3,378 ) 7,992 Charged/(credited) to consolidated profit and loss account (146 ) 381 (23 ) – 1,197 1,409 Charged to reserves (note 40) – 58 – (7 ) – 51 At 31 December 2006 8,749 2,681 205 (2 ) (2,181 ) 9,452
2005 At 1 January 2005 8,663 1,666 229 – (4,205 ) 6,353 Charged/(credited) to consolidated profit and loss account 232 490 (1 ) – 827 1,548 Charged to reserves (note 40) – 86 – 5 – 91 At 31 December 2005 8,895 2,242 228 5 (3,378 ) 7,992
The Company
Deferred tax arising from Depreciation Provision allowances in and other excess of related Revaluation temporary Cash flow in HK$ million depreciation of properties differences hedges Tax losses Total
2006 At 1 January 2006 8,896 2,242 228 5 (3,360 ) 8,011 Charged/(credited) to profit and loss account (153 ) 381 (23 ) – 1,186 1,391 Charged to reserves (note 40) – 58 – (7 ) – 51 At 31 December 2006 8,743 2,681 205 (2 ) (2,174 ) 9,453
2005 At 1 January 2005 8,652 1,666 229 – (4,179 ) 6,368 Charged/(credited) to profit and loss account 244 490 (1 ) – 819 1,552 Charged to reserves (note 40) – 86 – 5 – 91 At 31 December 2005 8,896 2,242 228 5 (3,360 ) 8,011
The Group The Company
in HK$ million 2006 2005 2006 2005
Net deferred tax asset recognised in the balance sheet (1 ) (19 ) – – Net deferred tax liability recognised in the balance sheet 9,453 8,011 9,453 8,011 9,452 7,992 9,453 8,011
C The Group has not recognised deferred tax assets in respect of its subsidiaries’ cumulative tax losses of HK$155 million (2005: HK$77 million) as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdictions and entities. ANNUAL REPORT 2006 145 1 35 767 386 2005 Total 1,189 and are
HK$ million HK$ premium
2006
allotted
share 6,500 5,482 4,780 27,188 37,450
be 1
31 the to 724 366
2006 6,500 5,549 5,902 1,122 of December
27,188 38,639 to premium
31 HK$ million HK$
shares
at
as
credited
application
– 4 unissued 43 20 67
The
Scheme capital Share
full
Proceeds
in
HK$ million HK$ up shares.
Option
those
paying Share
of
HK$ in price account account
8.44 9.75
17.79 19.87 value Joiners
applied par
New
be
the
and
of Option/ Share
only
shares scrip can
exceeds
132,500 Number Scheme
4,094,000 43,101,387 19,429,625 66,757,512 reserve shares Ordinance.
reserve
each of Company. Option
the
capital
price
of Share
the HK$1.00
capital
Companies
issue of
comprise:
the Offering and
Kong
year
Company,
shareholders
the
which Hong
the
the Scheme
by
the of
Pre-Global to
each
during of
premium the
up Scheme
Option
48B
amount shares
dividends
HK$1.00 paid
under the dividends
exercised Association
Share
share (2005: 5,481,856,439 shares) 5,481,856,439 (2005: of
Option
scrip
section of bonus
fully
scrip
by
options paid Share and shares shares
options
paid:
41.
Offering
final interim
represents Articles
capital, fully
share fully
share note the issued
as
Joiners 2005 2006
governed
in to
reserve
as as and is
premium
New Pre-Global premium
shares
Issued
in HK$ million HK$ in Authorised: 6,500,000,000
Employee – Issued Issued Share Capital
– 5,548,613,951
Outstanding Pursuant 39 Share disclosed distributed Share account New Notes to the accounts
146 40 Other reserves
The Group
Attributable to equity shareholders of the Company Fixed Employee asset share-based revaluation Hedging capital Exchange Retained
MTR CORPORATION LIMITED in HK$ million reserve reserve reserve reserve profits Total
2006 Balance as at 1 January 2006 697 24 2 4 31,698 32,425 Cash flow hedges: Effective portion of changes in fair value, net of deferred tax – (18 ) – – – (18 ) Transfer from equity – to profit and loss account – (17 ) – – – (17 ) – to initial carrying amount of non-financial hedged items – (2 ) – – – (2 ) – to deferred tax – 3 – – – 3 2005 final dividend – – – – (1,535 ) (1,535 ) 2006 interim dividend – – – – (774 ) (774 ) Surplus on revaluation, net of deferred tax (notes 16 and 38) 271 – – – – 271 Employee share-based payments – – 3 – – 3 Exchange difference on translation of accounts of overseas subsidiaries – – – 13 – 13 Profit for the year – – – – 7,759 7,759 Balance as at 31 December 2006 968 (10 ) 5 17 37,148 38,128
2005 Balance as at 1 January 2005 291 (66 ) 1 – 25,521 25,747 Cash flow hedges: Effective portion of changes in fair value, net of deferred tax – 69 – – – 69 Transfer from equity – to profit and loss account – 32 – – – 32 – to initial carrying amount of non-financial hedged items – (21 ) – – – (21 ) – to deferred tax – 10 – – – 10 2004 final dividend – – – – (1,509 ) (1,509 ) 2005 interim dividend – – – – (764 ) (764 ) Surplus on revaluation, net of deferred tax (notes 16 and 38) 406 – – – – 406 Employee share-based payments – – 1 – – 1 Exchange difference on translation of accounts of overseas subsidiaries – – – 4 – 4 Profit for the year – – – – 8,450 8,450 Balance as at 31 December 2005 697 24 2 4 31,698 32,425 ANNUAL REPORT 2006 147 ) ) ) ) )
1 3 3 (2 10 32 69 (21 ) (18 (17 406 271 Total (774
to
dealt 7,717 included
(1,535
addition, 37,765 32,117
total is
In
hedges
the
directly 2T(ii).
accounting
buildings
reserve flow profits that
in
profits.
) )
note – – – – – – – – – – – –
and
The
cash in
released (774
in 7,717
land (1,535
36,802 31,394 realised retained be
considers
explained .
or
used the hedges
as (2005: HK$9,874 million) HK$9,874 (2005:
enterprises.
flow
being
constitute
, – – – – – – – – 1 25,303 25,529 – (764 ) (764 ) – (1,509 ) (1,509 ) – – – – – – 8,364 8,364 1 2 31,394 32,117 5 3 2 Company
million
self-occupied exercised,
cash
not foreign exercised,
is the of
instruments
for of
do
be
to
2006,
option they
HK$11,671
yet
hedging
of adopted (2005: HK$21,520 million) HK$21,520 (2005: the
accounts
revaluation ) ) ) ) of
Employee share-based are
– – – – – – – – – – 3 tax (2
10 32 69 24 24 the (66 ) (21 ) (10 (18 (17
the (2005: HK$48 million) HK$48 (2005: because
of December when
policy
of value
million
which
31
net
from
fair
at
million
As the
account
granted
in arising
translation accounting
shareholders HK$25,131
HK$93
– – – – – – – – – – – – – – – – properties, to to
profits.
the of the
291 406 697 968 271 697 asset Fixed premium options deficits change
reserve reserve reserve profits
with from
or
revaluation Hedging capital Retained net
realised
amount share share
amounted investment
of
distribution an
arising the
of is
for to
surpluses
2CC.
value accordance
constitute cumulative 2006
the
in
fair
note
the not
in shareholders differences available
flow
with
the
of revaluation
do
transferred associates.
out not
on
deal cash be
December
also
equity
set
and
are
to
31 portion to
exchange
up they comprises at
either forfeited.
policy hedged as as surpluses
set
or
will reserves
the foreign effective
tax tax was reserve
subsidiaries
of all
profits
items items distribution
the
other
38) 38)
expired
amount 2006 2005 of of for
is
accounting
cumulative
the capital
reserve
and and (continued)
deferred deferred
net net 2005 2006 payments The payments
the hedged hedged the changes changes retained
16 16
account account
amount amount
of
of
comprises non-distributable
of of recognition
option comprises
profits, available
net net with
loss loss
non-controlled
equity equity are 2U(iv). December December tax tax
the
(notes (notes
January January
if Group’s
revaluation 1 1 31 31
the dividend dividend year year and share-based and carrying carrying
reserves reserve
considers
tax tax portion portion
reserve value, value, note
from
from revaluation, revaluation,
at at at at
to share-based share-based
hedges: hedges: dividend dividend
the
retained profits
reserves the the
non-financial
non-financial
as as as as
on on asset
fair fair in
subsequent
profits
profit initial deferred deferred initial profit
of
for for accordance final interim interim final
flow
flow
under to to to to to to from
2F(ii)).
in Company
hedging fixed employee exchange
Company
retained
– Transfer – – Profit 2005 2005 Balance million HK$ in 2006 Balance
2006 Surplus Employee Balance of Cash in Effective Cash deferred in Effective Surplus 2005 2004 – – – Transfer of Employee deferred Balance Profit in The 40 Other Included (note The attributable pending The amount The policy retained The with Apart the Notes to the accounts
148 41 Share-based payments
A Equity-settled share-based payments The Group granted equity-settled share options to its Members of the Executive Directorate (except CEO) and certain employees under two share option schemes, the Pre-Global Offering Share Option Scheme and New Joiners Share Option Scheme. Details of the schemes are as follows:
(i) Pre-Global Offering Share Option Scheme
MTR CORPORATION LIMITED In connection with the Initial Public Offering (“IPO”) and Stock Exchange listing of the Company’s shares in October 2000, a Pre-Global Offering Share Option Scheme (“Pre-IPO Option Scheme”) was established. Under the Pre-IPO Option Scheme, a total of 769 employees including all the Members of the Executive Directorate, except C K Chow, Lincoln K K Leong and Francois K K Lung who were appointed on 1 December 2003, 1 February 2002 and 26 September 2005 respectively, were granted on 20 September 2000 options to purchase an aggregate of 48,338,000 shares, representing 0.9% of the issued share capital of the Company as at 31 December 2006. The options carry an exercise price of HK$8.44 per share, which was equivalent to 90% of the IPO offer price of HK$9.38 per share. The options may be exercised prior to 11 September 2010, subject to the vesting provisions under the Scheme. As of 31 December 2006, all options granted under the Pre-IPO Option Scheme have been vested.
In 2006, a total of 4,094,000 previously vested share options have been exercised. The weighted average closing price in respect of the share options exercised during the year was HK$19.86 per share. In addition, no share options were lapsed as a result of the resignation of option holders during the year. As at 31 December 2006, total options to subscribe for 7,829,500 (2005: 11,923,500) shares remained outstanding.
As the options under Pre-IPO Option Scheme were granted before 7 November 2002, no share-based payment was required to be recognised in accordance with HKFRS 2 “Share-based payment”.
(ii) New Joiners Share Option Scheme In May 2002, the New Joiners Share Option Scheme (the “New Option Scheme”) was adopted at the 2002 Annual General Meeting to provide share options to new members of the top and senior management of the Company who did not participate in the Pre-IPO Option Scheme. Under the Rules of the New Option Scheme, a maximum of 5,056,431 shares, which represent 0.1% of the issued share capital of the Company as at 31 December 2006, may be issued pursuant to the exercise of options granted under the New Option Scheme. Options granted will be evenly vested in respect of their underlying shares over a period of three years from the date on which the relevant option is offered. The exercise price of any option granted under the New Option Scheme is to be determined by the Company upon the offer of grant of the option and which should not be less than the greatest of (i) the average closing price of an MTR share for the five business days immediately preceding the day of offer of such option; (ii) the closing price of an MTR share on the day of offer of such option, which must be a business day; and (iii) the nominal value of an MTR share.
The following table summarises the outstanding share options granted under the New Option Scheme since inception:
Date of grant Number of share options Exercise price Exercisable period HK$
1 August 2003 1,311,200 9.75 on or prior to 14 July 2013 13 September 2005 94,000 15.97 on or prior to 9 September 2015 23 September 2005 213,000 15.97 on or prior to 9 September 2015 12 January 2006 94,000 15.45 on or prior to 9 January 2016 31 March 2006 94,000 18.05 on or prior to 20 March 2016 12 May 2006 266,500 20.66 on or prior to 25 April 2016 12 May 2006 213,000 21.00 on or prior to 2 May 2016 15 May 2006 213,000 20.66 on or prior to 25 April 2016 4 July 2006 94,000 18.30 on or prior to 19 June 2016 5 October 2006 94,000 19.732 on or prior to 29 September 2016 17 November 2006 94,000 19.104 on or prior to 13 November 2016 ANNUAL REPORT 2006 149 – – – – – – – – life HK$ price years
2015 2015 2016
period
March
October
20
6 Exercisable
September 2005 2005
to
Remaining Weighted
to
– – – – – – – – of contractual of average 26
to prior
prior
or
or
prior .
or
924,500 9.75 1,443,700 307,000 1,066,000 7.53 94,000 9.69 9.74 9.76 2,910,700 8.64 1,561,200 1,467,000 (117,500 ) 9.75 15.82 2,910,700 9.75 12.81
follows:
– – life options as HK$
price options exercise years 6.53 8.69 9.02 9.22 9.32 9.34 9.47 9.75 9.87 7.96 9.75
10.20 12.81 19.57 15.94 14.60 lives:
HK$ were price (2005: HK$15.21) (2005:
prices
Scheme:
2006 2006 ) )
Remaining Weighted
contractual – – HK$20.43
of contractual Number of average Number
Option was exercise
options exercise options 94,000 94,000 94,000 94,000 94,000 307,000 479,500 213,000 (132,500 Number Number 1,413,700 1,311,200 2,780,700 2,910,700 1,256,500 2,780,700 year New 94,000 16.05 on 94,000 18.05 on
options Exercise (1,254,000
remaining
1,066,000 15.75 on the average the
and share
of
of
during
prices
terms
weighted
Number the
exercise exercised
related with
their
options
following
and
accordance
the
share
in
had the
of
(continued)
lapsed
outstanding 2006
(continued)
respect
options in
options
payments
December
price share
share 31
of at
payments
closing year
year
year following December
share-based January the
December number
the 31 1
the the 2005
31
at at the average
outstanding
2005 at
in
during 2006 year,
during
during price
grant
the
of options
September October March weighted
Outstanding
HK$19.732 HK$19.104 HK$20.66 HK$21.00 HK$18.30 HK$15.75 HK$16.05 HK$15.45 HK$18.05 HK$9.75 HK$15.97
Outstanding Granted Exercised Lapsed Exercisable Date 27 Exercise
17 27 A Equity-settled 41 Share-based During The Share Movements Notes to the accounts
150 41 Share-based payments (continued)
A Equity-settled share-based payments (continued) According to the Black-Scholes pricing model, the fair values of options granted during the year ended 31 December 2006 were as follows:
Inputs into the Black-Scholes pricing model Share price Fair value immediately Expected MTR CORPORATION LIMITED of options before Exercise Expected Expected Risk-free dividend Date of grant granted grant date price volatility life interest rate per share HK$ HK$ HK$ years % HK$
12 January 2006 3.17 16.05 15.45 0.20 5 4.00 0.42 31 March 2006 3.28 17.65 18.05 0.20 5 4.47 0.42 12 May 2006 4.11 20.10 20.66 0.21 5 4.62 0.42 12 May 2006 3.99 20.10 21.00 0.21 5 4.62 0.42 15 May 2006 4.13 20.10 20.66 0.21 5 4.67 0.42 4 July 2006 4.19 18.70 18.30 0.21 5 4.73 0.42 5 October 2006 3.51 19.22 19.732 0.20 5 3.83 0.42 17 November 2006 3.70 19.12 19.104 0.21 5 3.81 0.42
When computing fair values of the options granted, expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 5 years and the expected life adopted was assumed to be the fifth year after granting of the options, with expected dividends based on historical dividends. In addition, vesting terms under the grants have been taken into account whilst no market conditions associated with the share option grants have been considered. Changes in the subjective input assumptions could materially affect the fair value estimate.
During the year ended 31 December 2006, the Group recognised total expenses of HK$3 million (2005: HK$1 million) related to equity-settled share-based payments.
B Cash-settled share-based payments The CEO does not participate in the Company’s two share option schemes. He was entitled to receive an equivalent value in cash of 700,000 shares on completion of his initial three-year contract on 30 November 2006. Pursuant to this contract and following the completion of the contract period, HK$13,396,600 was paid to the CEO on 1 December 2006 (at a price of HK$19.138 per share derived in accordance with the terms of the grant by reference to the average closing price of the Company’s shares on the 20 business days immediately preceding 30 November 2006).
Following renewal of the CEO’s contract for another three years expiring on 30 November 2009, he is entitled to receive an equivalent value in cash of 418,017 shares in the Company on completion of his new contract in 2009. As at 31 December 2006, an amount of HK$6.2 million (2005: HK$4.3 million) has been recorded as share-based payment expense for the year, including HK$0.2 million in respect of his entitlement accrued under the new contract. Fair value of the outstanding entitlement is calculated based on the closing price of the Company’s shares at year-end date. As at 31 December 2006, the fair value of these shares was HK$19.56 per share (2005: HK$15.25). ANNUAL REPORT 2006 151 in
net
was
and Hong was
hybrid
by
can
of The (“MPF”)
of
after of
(2005: (2005:
and
a
salary.
the
members
net 2006 section
continued independent firm
the
Fund
and and
while Laws
Scheme
member
Company.
permanent salary
basic
both an
section. defined
a Scheme
million
left 2006,
the is return
the
by determined promoted In
benefit
final . and of
Scheme of
December Scheme of are are
benefit Provident HK$9.9 Scheme”) 1999,
426 Company. the
31 Retirement members’
hybrid independent redundancy
retirement, members
those comprising MPF who Retirement
benefit
at
provided
of
the
date:
were April an that all
the on
investment
the
hybrid
as
1
of the multiple
the
(2005: 5,844) (2005: of from
a As
Inc., (Chapter had on
the
Mandatory of
and join turnover,
“Retirement defined
Scheme, value
contributions
scheme
rate
to
5,749 benefits to
the valuation
maintain Promotees
(the
section. percentages both discretion Crosby, assumption to separate trust
asset
benefits
was the
contributions
greater . &
with
Scheme
only.
Ordinance
at
the the
net
mortality,
eligible
kept offering fixed
Scheme. the
long-term
at
Retirement Company’s implemented
of
on
benefit
master a Scheme
be
vested
on The
that, are on
contains
a
Forster
Authority ). the returns MPF
The
was
in members’
rates
Schemes
of
section,
utilised Retirement membership the hybrid accordance
would liability
based MPF
assets
based
Perrin, in
included be total (2005: HK$165 million) HK$165 (2005:
salary. Scheme
which
the
the are members’
the the
Retirement
total confirmed
who to
2000,
in
benefit of
by expected service used investment
valuation
2006, basic
the
that
benefits
Retirement
Towers, million
participating (2005: HK$5,899 million) HK$5,899 (2005:
1999
for
In
of section,
addition, section
so . and
past value
Limited actuary
by
between
by
remain account
In
2006, Retirement
(2005: HK$9.6 million HK$9.6 (2005: April granted
to
December
actuarial The
1
million
2006 HK$166 1 provides 2000 or The
benefit
benefit
contribution
was
full choose assumptions “RBS”).
reserve
(2005: 501) (2005: allowances after A
term.
million percentage
aggregate aggregate
Occupational
1977. can or
the Corporation (the December
contributions
section arrangements 599 section
the
the of the
HK$6,906
defined to
on fixed
31 short
December a ORSO. December actuarial
a
MTR
contributed
was
At
trust 1 exemption HK$20.3
contribution
was
commencing 31 the contribution
cover cover on the Scheme
and
benefit Scheme under the benefit
on
appropriate at
or, to to
was
over 2000, 2006
beginning with Company
section out
principal
transferred
accumulated with based
defined
separate defined
Bonus hybrid Company
section
valuation. July the
the
this on
section of Scheme
The are 3
schemes,
at
The the registered the were
Retirement
The
sufficient
adequate
Scheme. carried Company
On to expected contribution
MPF December
the together was
benefit and under terms based
trust
joining
the accordance
than was actuarial
benefit
MPF than
Retention an section
31
Method. returns. in
1994.
join the
116%.
an
at
up
staff the
retirement
defined from
forfeitures members. to
under
to hybrid
more
as
more Age increases
annum,
. Scheme
was set a benefits
its
benefit
join Limited the
sections,
under
1999, was per
to contributions
to
October Scheme. deed, annually has
membership level salary
both assets
eligible
contribution
section investment held 31
either out hybrid Attained reference
for
MPF
trust
assets benefit March
total
established
with are
service contribution occupational
retirement
Retirement with
the the
join (2005: HK$65 million) HK$65 (2005: from
31
the
required the
with
funding the
Corporation
defined benefit Company
was to provides
to Company’s
two (2005: 2.0%) (2005: carried
to of
The
on
total
are Schemes
Employees
using the the effect leaving
solvent, the
MTR are
Scheme’s
million 2006, the schemes
provides adjustment 2.0%
hybrid (2005: HK$97.7 million) HK$97.7 (2005: terms
choose contribution the Scheme and
Scheme was Scheme of and the
with
an
and either operates entrants
the Directorate
contributions the
of these elements.
alternative
HK$65 can provider.
which
of
and actuaries, employees
to of
contributions join
corresponding
million
death
new an Ordinance,
valuations
and
December defined
to
scheme, value Scheme
plan to as 1999
(“ORSO”)
increases The
value
31 members’ it
service
the Retirement Company assets Retirement Executive
at
April
According As MPF top-up (iii) Actuarial valuations Actuarial (iii) Actuarial HK$5.5 million) HK$5.5 the section benefit contribution defined The (ii) Both (i) The hybrid benefit section benefit hybrid The (i) Members’ A Retirement The The 42 Retirement contributed Scheme; 1 (b) the asset HK$141.7 retirement temporary and contribution Schemes The closed force. (a) the Kong) consulting choose salary offer The disability, accumulated choice Notes to the accounts
152 42 Retirement Schemes (continued)
B RBS The RBS was established under trust as of 1 January 1995. The RBS is a defined benefit scheme and applies to all employees classified by the Company as staff working on designated projects and who are not on gratuity terms. The RBS provides for benefits to be payable only in the event of redundancy for accrued service up to 31 December 2002. The RBS was registered under the Occupational Retirement Schemes Ordinance with effect from 1 December 1995. As at 31 December 2006, there were 358 members (2005: 366) under the RBS. MTR CORPORATION LIMITED
The RBS is non-contributory for members. The Company’s contributions are determined by the Executive Directorate with reference to an actuarial valuation and are charged as part of the staff costs to various projects on the basis of the amount contributed. During 2005 and 2006, the Company was not required to make any contributions to the Scheme. The net asset value of the RBS as at 31 December 2006 was HK$12 million (2005: HK$13 million).
Actuarial valuations are carried out annually. A full actuarial valuation of the RBS was carried out at 31 December 2006 by Towers, Perrin, Forster & Crosby, Inc. using the Attained Age Method. The principal actuarial assumptions used included an expected weighted rate of investment return net of salary increases, of approximately -1.25% (2005: -1.35%) per annum, together with appropriate allowance for expected rates of redundancy. The actuary confirmed that, at the valuation date:
(a) due to the nature of the RBS which provides for benefits only on redundancy, there was no aggregate vested liability, and thus the RBS was technically solvent; and
(b) the value of the RBS assets, together with the future contributions recommended by the actuary and to be adopted by the Company, would be sufficient to meet the liabilities of the RBS on an on-going basis.
C MPF Scheme Effective from the MPF commencement date of 1 December 2000, the Company joined The Bank Consortium MPF Plan which has been registered with the Mandatory Provident Fund Schemes Authority and authorised by the Securities and Futures Commission. As at 31 December 2006, the total number of employees of the Company participating in the MPF Scheme was 726 (2005: 520). In 2006, total members’ contributions were HK$2.7 million (2005: HK$1.5 million) and total contribution from the Company was HK$3.0 million (2005: HK$1.9 million). ANNUAL REPORT 2006 153 million other the
for
from
HK$13
actuarial
– (35 ) – – 3,245 2,531 – – – 65 261 230 7 5,463 1 7 104 5,981 7 5,981 2 (170 ) (1 ) (142 ) (4 ) (101 ) in and
RBS Total RBS Total RBS Total services
amount of
this
changes 2007.
in
future termination
segregate or
and (2005: HK$1 million) HK$1 (2005: Scheme to
follows:
as
million
(35 ) (141 ) (5,899 ) (13 ) (97 ) (5,912 ) (172 ) ) ) ) ) )
3,245 2,531 158 5,934 5,899 13 13 171 13 5,947 5,912 2005 5,456 65 2005 261 230 2005 103 5,974 2005 2005 2005 2005 5,974 2005 2005 Retirement Retirement Retirement retirement rendered
65 Retirement practicable (92 (43
210 253 251 856 HK$1 2006 2006 2006 (119 (515
3,623 3,128 6,961 6,918 5,981 7,314 7,314 upon (6,918
the of not
summarised
is services to
it
are
) ) ) ) future
securities year – – – – – – 7 3 3 5
(1 (4 (3 employees
to 12 12 12
RBS Total Scheme RBS Total Scheme RBS Total Scheme (12 2006 2006 2006 the However, for
debt
contribution
relate in
year. and
during
also
benefits
one
) ) ) ) )
million
will shares
plans 65
(43 (91 198 253 251 859 than 2006 2006 2006 (115 (520
3,623 3,128 6,949 6,906 5,974 7,311 7,311 provide (6,906
Scheme Scheme Scheme HK$151
Retirement Retirement Retirement benefit more
ordinary that
follows:
pay
obligations
after as contributions
to
plans
defined
are obligations
benefit future
Company’s
expects these benefit as
recovered the
sheets
of plan
in be
defined
Group to
defined
months, the
Schemes
respect
The balance
of
in two
the
the to
twelve to
expected investments
in value
gains/(losses)
retirement
is
following:
are
next paid obligations
conditions.
the
asset the
movements Schemes
of
present
respectively. Company Company Company assets
actuarial in
assets
the funded The contributions
the
benefit
market
recognised cost
above The The The
of plan in by
plan consist 42).
and
the contributions
units of
the and and and
makes (gains)/losses
paid of service cost value
receivable
in
securities (note
assets December amounts
January value unrecognised asset
31 1 Group Group Group Group
The Movements Plan portion Voluntary Members’ Benefits Interest Actuarial At Fair At million HK$ in
Bonds Cash Equity million HK$ in million HK$ in Present Current Net Net
A Included C The (2005: HK$10 million) HK$10 (2005: B The A The The 43 Defined amounts reasons assumptions Notes to the accounts
154 43 Defined benefit retirement plan obligations (continued)
D Movements in plan assets
The Group and The Company
Retirement Retirement Scheme RBS Total Scheme RBS Total
MTR CORPORATION LIMITED in HK$ million 2006 2006 2006 2005 2005 2005
At 1 January 5,899 13 5,912 5,365 14 5,379 Group’s contributions paid to the Schemes 166 – 166 165 – 165 Members’ contributions paid to the Schemes 65 – 65 65 – 65 Benefits paid by the Schemes (91 ) (1 ) (92 ) (141 ) (1 ) (142 ) Expected return on plan assets 357 – 357 326 – 326 Actuarial gains/(losses) 510 – 510 119 – 119 At 31 December 6,906 12 6,918 5,899 13 5,912
E Expense recognised in the consolidated profit and loss account is as follows:
Retirement Retirement Scheme RBS Total Scheme RBS Total in HK$ million 2006 2006 2006 2005 2005 2005
Current service cost 253 – 253 261 – 261 Interest cost 251 – 251 230 – 230 Expected return on plan assets (357 ) – (357 ) (326 ) – (326 ) Net actuarial (gain)/loss recognised – (1 ) (1 ) – (3 ) (3 ) Expense recognised 147 (1 ) 146 165 (3 ) 162 Less: Amount capitalised 24 (1 ) 23 31 (3 ) 28 123 – 123 134 – 134
The retirement expense is recognised under staff costs and related expenses in the consolidated profit and loss account.
F Actual return on plan assets
in HK$ million 2006 2005
MTRCL Retirement Scheme 867 445
MTRCL Retention Bonus Scheme – – ANNUAL REPORT 2006 155 – (8 ) (4 ) (7 ) 23 31 RBS 288 2002 2002 2005 The
volatility
categories.
– – 7 14 14 investment 560 361 asset
2003 2003 2005
expected
individual
on 4.25% 6.00% 4.00% 4.00% 2.25% 3.60% Retirement Scheme
– 7 7 5 14 (91 ) RBS Scheme RBS 243 2004 2004 2006 3.50% 2.75% 4.00% returns follows: experience,
Retirement as
the
of are
actual
sum – 7 6
(2 ) 13 (98 ) (154 ) (178 ) (500 ) (75 ) 119 2005 2005 2006 the
account average)
3.75% 6.00% 4.00% Scheme on
Retirement into
not
weighted
and
taking
) )
5,974 5,899 5,456 5,365 4,277 4,638 3,775 3,768
as – 3 9 3
12 510 after 2006 2006 (405 (464
whole 7,311 6,906
a
as
(continued)
(expressed
determined
2006
portfolio
been
the adjustments.
on
have gain/(loss) gain/(loss)
obligations December
– –
gain/(loss) gain/(loss)
without 31
– – based
at assets
is
plan
it as
plan assets liabilities assets liabilities
returns,
used on
plan plan plan plan
on on on on assets
return historical
Furthermore,
of retirement
plan on
arising arising arising arising obligations obligations
Scheme Scheme
assumptions on
rate
the the
December Company
long-term. in in assets assets
return funded funded 31
benefit
exclusively
actuarial The of
of of at the
increases
plan plan long-term
adjustments adjustments adjustments adjustments in information
of of and rate
rate
based
value value
salary is
principal
value value
Group inflation expected
Historical The Surplus/(Deficits) Fair Experience in HK$ million HK$ in Present
in HK$ million HK$ in Present
Discount
Expected Future Experience Experience Fair Surplus/(Deficits) Experience
The H G 43 Defined The and amount Notes to the accounts
156 44 Interests in jointly controlled operations
The Group has the following jointly controlled operations in respect of its awarded property development projects as at 31 December 2006.
Location/ Total gross Actual or expected date of development package Land use floor area (sq. m.) completion of construction works *
Hong Kong Station Office / Retail / Hotel 415,894 Completed by phases
MTR CORPORATION LIMITED from 1998 – 2005 Kowloon Station Package One Residential 147,547 Completed in 2000 Package Two Residential 210,319 Completed by phases from 2002 – 2003 Package Three Residential / Cross Border Bus Terminus 105,113 Completed in 2005 Package Four Residential 128,845 Completed in 2003 Package Five, Six and Seven Residential / Office / Retail / Hotel / 504,350 By phases from 2006 – 2010 Serviced Apartment / Kindergarten Olympic Station Package One Residential / Office / Retail / Indoor Sports Hall 309,069 Completed in 2000 Package Two Residential / Retail / Market 268,650 Completed in 2001 Package Three Residential / Kindergarten 104,452 Completed in 2006 Tsing Yi Station Residential / Retail / Kindergarten 292,795 Completed in 1999 Tung Chung Station Package One Residential / Office / Retail / Hotel / Kindergarten 361,531 Completed by phases from 1999 – 2005 Package Two Residential / Retail / Kindergarten 255,949 By phases from 2002 – 2007 Package Three Residential / Retail / Wet Market / Kindergarten 413,154 By phases from 2002 – 2008 Hang Hau Station Residential / Retail 142,152 Completed in 2004 Tiu Keng Leng Station Residential / Retail 253,765 By phases from 2006 – 2007 Tseung Kwan O Station Area 55b Residential / Retail 96,797 Completed in 2006 Area 57a Residential / Retail 29,642 Completed in 2005 Tseung Kwan O South Station Area 86 Package One Residential / Retail / Residential Care Home for the Elderly 139,840 2008 Area 86 Package Two Residential / Kindergarten 310,496 By phases from 2009 – 2010 Choi Hung Park-and-Ride Residential / Retail 21,538 Completed in 2005
* Completion based on issuance of occupation permit
The Group’s assets held in relation to these joint venture operations include various site foundation works and related staff and overhead costs. The costs incurred by the Group on each development package are set off against any up-front payments received from developers in relation to that development package, and the balance is shown on the balance sheet either as property development in progress or deferred income (note 18) as the case may be. As at 31 December 2006, total property development in progress in respect of these jointly controlled operations was HK$2,028 million (2005: HK$1,087 million) and total deferred income was HK$1,562 million (2005: HK$3,458 million).
During the year ended 31 December 2006, profits of HK$5,817 million (2005: HK$6,145 million) were recognised (note 7). ANNUAL REPORT 2006 157 to a
and in for
of
basis, the
period upon
2006. relevant Hong
certain support
addition met
of separately that
In
the the
extension. initial
operation and considered
upon
renewal
transfer of
financing
been an included
between
consequential
Company and financial
also period
the
for and Government where
has
September years
railway also
Railway. provides
identified the Government are
the
18 50 the
financing certain the
or
dealings also are of
on by provide day,
parties
operate
support Airport Government including
to OA construction,
franchise,
and extend
along a
maintenance the same the
Agreement to
members,
normal
The
periods build, agencies
related
granted of
extended,
a for
the
the agreed
railway,
the is design,
financial
construction, his
on include:
in family commenced granted
On
agreed
or
the trust further
disclosures” Lines,
franchise. transit year was
on for
franchise
for arise
close design,
construction, developments
a
franchise
Board
the railway. departments,
develop, party construction
committed that the mass
operation of Government their the
to Express the
capital current the
the
for under
etc.
the of design, Government
the
Company to
Such extended
with property
for
the
to
parameters terms
“Related which share the
be
1998 Airport franchise. the
for rates, Island
year 24 the the which
on including
for
1995
Government will
Project,
Member
in and
to
and
the Government
a relation issued
extension July
date and
residential HKAS
50-year them in
DRL Lantau
5
relevant the
to shareholding. to any
the November
2005. Ordinance,
Chung leases on
18).
and the the
change
specifying
during
4
franchise
provisions still
its
initial on pursuant Group
with of
on involving of
on
any are
Tung
Company’s (note taxes,
the related
Company
August Railway
pursuant
Ping
construct policy 1
the
the those
detailed
the
fees,
which respect of of
on completed
commercial
financing
Company’s without
for and Government
of parties
land Company’s Government
agreement
in
and Transit
Government between for Ngong
the which was the the
Government years and
the the
and
at
76.6%
the
development except Mass
transactions land OA,
the
operate with
project
with
operation cost.
operation
with prior with
accounts.
payment
of
to prevailing project the dividends
the
from
in
Village
with party and the
of payment the
of
Government parties, The and
Transactions formal
in
property
as cash
Government
no
Directorate,
a letter
nominal
Group the to granting
for at
Theme connection terms at
approximately the Agreement related
these
agreement 2003.
such a
into
commenced the coterminous In the
railway, purposes
be
the an
Agreement
with by Government’s disclosed comfort with
are Company.
holds to with construction
to
leases and
Executive
the
and
a
between into
Railway
the Company
into
transit the entered for (“DRL”).
17B.
the
they entitlement
land
(“OA”) to December
2005 Project
of
transactions which
requirements of the
its transactions design,
Day 24 Line
mass that note together
to and Pursuant
Airport separately TKE
received
of
entered
June Extension
considered the
in on entered so
Transactions
O subject in are the the those
Company
agreements
land
party for
are
Resort out
leases
to Members of System
Agreement
existing
and the
waivers into
into
shareholder
than set
Kwan
expenditure
franchise. Appointed Group.
line
Company Incorporated, Company
Car voting, interests
and
the
Group, are made
the the
the 2003,
the
transactions the
other completed
commencing related land granting of be
from the
entered
capital entered parameters
Cable
Disneyland Tseung
franchise majority
Board
Operating
running
was 2000, operate
the under 2000, will
party Secretary project
2002,
the and
an the the
the the
Government years the
to
entities, for is parties of of of
DRL
of certain
the
30
Chung July
June
July November
abstains
the
into accounts.
railway of Company
of Company
14
railway Company’s 30 related 24 19
The
SAR,
years,
Financial Tung
related On The On The specifying On On the the 50
these
F D E C B A The 45 Material of operation operation of of satisfying to the Kong through provisions controlled extension period entered 2004. amendments Government Details in various Members be Member Major Notes to the accounts
158 45 Material related party transactions (continued)
G On 24 January 2005, the Company accepted an offer from the Government to allow the Company to proceed with the proposed development on Site F of Tseung Kwan O Town Lot No. 70, Area 86, at an assessed land premium of HK$2,319 million together with other ancillary terms and conditions as specified in the modification letter to be entered into between the Company and the Government. Upon award of the development package on 8 February 2005, the agreed land premium, of which one-half or HK$1,160 million was paid by the Company, was settled.
MTR CORPORATION LIMITED H On 18 July 2005, the Company entered into a project agreement with the Airport Authority for the procurement of MTR station extension works and related railway facilities to serve the SkyPlaza currently under construction at the Hong Kong International Airport. Details of the project are described in note 17C.
During the year, the Group has had the following material related party transactions:
I In connection with the construction of various railway projects, certain essential project works are embedded within the infrastructure works to be undertaken by the Government or certain of its related parties. These works have been entrusted to the Government and its related parties and are payable on an actual cost basis according to architectural certifications. The Government and certain of its related parties, on the other hand, have entered into entrustment agreements with the Company for the construction of various other infrastructure works that are also reimbursable according to actual costs certified. Details of the amounts paid and the amounts receivable and payable as at 31 December 2006 are provided in notes 17, 31 and 36 respectively.
J The Company has business transactions with its non-controlled subsidiaries in the normal course of operations, details of which are disclosed in note 21.
K The Group has paid remuneration to the Members of the Board and Members of the Executive Directorate. Details of these transactions are described in note 6A. In addition, the Members of the Executive Directorate were granted share options under the Company’s Pre-Global Offering Share Option Scheme and New Joiners Share Option Scheme. Details of the terms of these directors’ options are disclosed in note 6B and under the paragraph “Board Members’ and Executive Directorate’s Interests in Shares” of the Report of the Members of the Board. Their gross remuneration charged to the profit and loss account is summarised as follows:
in HK$ million 2006 2005
Short-term employee benefits 44.5 42.3 Post-employment benefits 2.4 2.2 Equity compensation benefits 6.5 5.2 53.4 49.7
The above remuneration is included in staff costs and related expenses.
L During the year, the following dividends were paid to the Government:
in HK$ million 2006 2005
Cash dividends paid 777 760 Shares allotted in respect of scrip dividends 990 978 1,767 1,738 ANNUAL REPORT 2006 159 951 543 598 959 476 909 904 353 829 Total Total Total 1,354 2,258 1,426 2,335 expenses
overhead
8 4 5 64 97 2,098 22 26 72 77 and and 403 1,141 105 3,057 408 339
428 676 1,104 costs,
property,
staff
as
such – –
67 1,744 2,952 67 1,336 2,001 and Overseas and of 738 479 408 259
325 325 454 349 803 428 676 works equipment 1,104 contracts
Improvement Acquisition enhancement plant follows:
as
Railway Property capital
– – 67 1,744 67 1,336 to
543 598 were 476 353 829 325 325
1,141 Railway extension projects operations projects management subject
accounts
be
the
Railway Property
not
in
543 598 476 353 829 will
for 1,141
Railway extension projects that operations projects management project
costs provided
are
not
following:
for
the
2006
contracted
comprise
December
yet
31
not at
as
for for for for for for but operations
for for for for for for
railway
authorised contracted contracted contracted contracted contracted contracted
commitments
under yet yet yet yet yet yet
Company
contracted contracted contracted contracted contracted contracted not not not not not not
The
interest. amounts capital
but but but but but but and and and and and and
the and commitments
in
commitments
Group Group Company capitalised
The Outstanding
2006 Authorised million HK$ in
2005 Authorised in HK$ million HK$ in 2006 Authorised
2005 Authorised
million HK$ in 2006 Authorised
2005 Authorised Authorised Authorised Authorised Authorised Authorised Authorised The A Capital (i) 46 Commitments The The Included and (ii) Notes to the accounts
160 46 Commitments (continued)
B Operating lease commitments The Group had operating leases on office buildings, staff quarters and a shopping centre in Beijing as at 31 December 2006. The total future minimum lease payments under non-cancellable operating leases are payable as follows:
The Group The Company MTR CORPORATION LIMITED in HK$ million 2006 2005 2006 2005
Payable within one year 53 8 5 8 Payable after one but within five years 250 3 5 3 303 11 10 11
The above includes HK$2 million (2005: HK$1 million) in respect of the office accommodation and quarters for construction project staff, majority of which are subject to rent reviews. The Group has the right to acquire the shopping centre in Beijing at a pre-determined price during the first five years of the lease term, which commenced from April 2006, or release its obligation as a tenant by making a compensation to the landlord upon expiry of the fifth year.
C Liabilities and commitments in respect of property management contracts The Group has, over the years, jointly developed with outside property developers certain properties above or adjacent to railway depots and stations. Under most of the development agreements, the Group retained the right to manage these properties after their completion. The Group, as manager of these properties, enters into services contracts with outside contractors for the provision of security, cleaning, maintenance and other services on behalf of the managed properties. The Group is primarily responsible for these contracts, but any contract costs incurred will be reimbursed by the owners and tenants of the managed properties from the management funds as soon as they are paid.
As at 31 December 2006, the Group had total outstanding liabilities and contractual commitments of HK$773 million (2005: HK$619 million) in respect of these works and services. Cash funds totalling HK$788 million (2005: HK$695 million) obtained through monthly payments of management service charges from the managed properties are held by the Group on behalf of those properties for settlement of works and services provided.
D Material financial guarantee contracts The Company provides guarantees to investors of debt securities issued by one of its subsidiaries, MTR Corporation (C.I.) Limited (note 33D), which amounted to approximately HK$11,515 million as at 31 December 2006. Proceeds from such debts issued have been on lent to the Company. As such, the primary liabilities have already been recorded in the Company’s balance sheet. ANNUAL REPORT 2006 161
for is be
in
same and to the
of
15% line 2005,
be Beijing the
for artery the Capital Beijing
billion),
Industrial railway of project
will at be out
Group
the People’s
about entire the
the by
the premium railway.
financed comprising As
The
International traffic of
expected
will
Members Government the by
for
Beijing
the
by
carry is
be incurred
(HK$4.6
the
commenced. September
land project of
the
to
In and Kong
Both will
of borne
provided north-south respect Municipal
The
(“PPP”) have registration
million)
maintenance
awarded.
along billion
Project People’s
in be
(2005: HK$105 million) HK$105 (2005: representing
all operated
years.
Hong Agreement.
for
north-south stock.
Limited 4.6 which
(“BIIC”) assessed
development
loans RMB.
major
Report operation be will
been 30
space the an in
Ltd systems
of
(HK$673
RMB the main
the of million the company at
will
Shenzhen
Platform
million,
bank
rolling
70%
a
is
(2005: nil) (2005: Municipal have
2 billion)
Co.
of
loans the
term completed and
Properties and Concession
a PPP
responsible mixed-use
(2005: HK$166 million) HK$166 (2005: and
million
HK$77
a which 1 residential forming
Kai terminal HK$100 with Beijing bank be billion) for
system
SkyPlaza
the
forming
(HK$6.0 of
mechanical be
676
of
partnership System and
by the Limited,
project the
line
and
million
systems Investment
Development
non-recourse will Hung
and
Phases
RMB
totalling Agreements”
second project billion the
the (HK$1.9
56
by
with Station, billion),
Metro Shenzhen, Sun
collection
of
6.0 the both
in of operate HK$282
“Land
which Area
4, non-recourse
complete
fare billion (“BOT”) of to
contribution electrical
investment
commercial
of
RMB
initialed Corporation
mechanical by to
the is
public-private
financed
of
1.9 (HK$15.2 Line Town at
Infrastructure
a
development
is metres. Shenzhen
Agreement SkyPlaza, costs operation section Total and
Longbeicun MTR
commitments
cost PPP
equity with
related subsidiary RMB
New
billion),
to
form
the a such
billion an balance and
automatic
metres
with
The
Beijing
final
2006,
to in and
square
Beijing Shenzhen the estimated
that
Government
15.3 and
contract proposed
The electrical
proceed
out is made of
investment Station
(HK$1.4
Concession square Longhua
trains 2 Limited,
and Group, PPP, to
Express
the 4”)
interest. the set construction.
RMB
day.
has 168,537
of to
other
of
at PPP’s the the December
2% of are Build-Operate-Transfer
approximately 4 construction People’s 2006,
billion
project
civil
Line signaling
proposed Phase a
million
had Majialou 31 Government,
billion) to same
the
Airport
is mainly
and
1.4
of
Group
the
area Line
Lansmart for of and It
2.9 April
4”)
which the the of
provision
stock, from
the In As
between Government RMB
of
Group
estimated
on floor Huanggang
equity, from
remaining Municipal
(HK$2.4
Line
the
finance of People’s is
the investment,
the into obtained
2006, 2006. to Principle
rolling amounting the
for
(“Shenzhen
from Shenzhen Bank. from gross
completion
running the Details acquisition
in
comprising and tender was billion progress. from
of
capital investment connecting SkyPlaza
a project
2
in
owns line
4
2.4 Shenzhen (“Beijing entered Development”).
land project
Apart Municipal
is January
Upon
tenders
the offer
System
running
Total including
56 in BIIC
December
the
Limited. involves project
of
the
Line
was
RMB an Phase
maximum
metro
31 in platform
Zone. Agreement of
of mainly
accepted Group. the
commitments
Beijing registered
and
Project Development
expenditure of
a
Metro (“Area whilst
railway with an
which 4 license
for
developments
tendering
the
has
the Beijing As
56 contracts opening
has Lansmart Agreement, billion. Principle Government. Shenzhen.
Group PPP
of
accepted by
into
China Group capital
finance
and the Line 41
in office
in
by urban
events departure Economic
Area PPP deferred the to the
of
investment
project,
the
upon for
and
Group.
business
underground
O
4 property
construction
as of and
by
HK$0.1 Shenzhen
Central
Company
new The
its
design China
Metro entered the
total total
of
of Government
funded the
2005,
Company
Line a Special
the
China
Concession
the sheet
the 4
Kwan by
committed
in hotel subsidiaries
of
the
be outstanding
of Agreement
years. established
the
operation May the interests
21-kilometre of
Group are
to
from investment 2006, an
Government 30
associated Line Beijing a
2007, budget
capitalised 2007, In
Central
of obtained
Beijing
including total
29-kilometre
capital contributed Bank is
owned of the
Tseung
in in
49%
2007, a
30% respect
4
both project. Shenzhen
the total
the with
in and is
has
2004,
in
to been
million, balance
years. and work 4
in
subsidiary
term commercial,
the
this
original 2004, Line signing approval
People’s The
owns
capital
awarded. a
30 February
PPP from
February
of December to commenced
to
have
Line
of (“BCG”), the
February
15 for registered
28
the 31
each 4 Commercial signed.
Board.
26
equity
at On On the Beijing. HK$3,345
December January
term
of project B A 48 Post In B Investment A Investment In 47 Investments the As by contracts of of relation Government Group and implemented development Airport, Following date, Municipal investment Preparatory residential, within a contributing approval On requirements subject BCG Shenzhen was Beijing corridor Line Company’s contributed Notes to the accounts
162 49 Accounting estimates and judgements
A Key sources of accounting estimates and estimation uncertainty include the following: (i) Estimated useful life and depreciation of property, plant and equipment The Group estimates the useful lives of the various categories of property, plant and equipment on the basis of their design lives, planned asset maintenance programme and actual usage experience. Depreciation is calculated using the straight-line method at rates sufficient to write off their cost or valuation over their estimated useful lives (note 2H). MTR CORPORATION LIMITED
(ii) Impairment of long-lived assets The Group reviews its long-lived assets for indications of impairment at each balance sheet date according to accounting polices set out in note 2G(ii). In analysing potential impairments identified, the Group uses projections of future cash flows from the assets based on management’s assignment of a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
(iii) Pension costs The Group employs independent valuation professionals to conduct annual assessment of the actuarial position of the Group’s retirement plans. The determination of the Group’s obligation and expense for the defined benefit element of these plans is dependent on certain assumptions and factors provided by the Company, which are disclosed in notes 42A(iii) and 42B.
(iv) Revenue recognition on property development Recognition of property development profits requires management’s estimation of the final project costs upon completion and, in the case of property distribution-in-kind, the properties’ fair value upon recognition. The Company takes into account independent qualified surveyors report, past experience on sales and marketing costs, as well as the prevailing market conditions when estimating final project costs on completion, and bases on professionally qualified valuers’ reports in determining the estimated fair value of property distribution-in-kind.
(v) Properties held for sale The Group values unsold properties at the lower of their costs or net realisable values (note 26) at the balance sheet date. In ascertaining the properties’ net realisable values, which are represented by the estimated selling prices less costs to be incurred in relation to the sales, the Group employs independent valuation professionals to assess the properties’ estimated selling prices, and makes estimations on further selling and property holding costs to be incurred based on past experience and with reference to general market practice.
(vi) Interest-free loan to a property developer The Group estimated the fair value of the interest-free loan to a developer at its present value discounted at the prevailing market rates of interest at inception.
(vii) Valuation of investment properties The valuation of investment properties requires management’s input of various assumptions and factors relevant to the valuation. The Group conducts annual revaluation of its investment properties by independent professionally qualified valuers based on these assumptions agreed with the valuers prior to adoption.
(viii) Franchise The current franchise under which the Group is operating allows it to run the mass transit railway system until 30 June 2050. Pursuant to the terms stipulated in the Operating Agreement with the Government, the Company considers that it has the legal right to extend the franchise for further periods of 50 years upon expiry of each franchise term (note 45C). The Group’s depreciation policies (note 2H) in respect of certain assets’ lives which extend beyond 2050 are on this basis.
(ix) Income tax Certain treatments adopted by the Company in its tax returns in the past years are yet to be finalised with the Hong Kong Inland Revenue Department. In assessing the Company’s income tax and deferred taxation in the 2006 accounts, the Company has followed the tax treatments it has adopted in those tax returns, which may be different from the final outcome in due course.
(x) Project provisions The Group establishes project provisions for the settlement of estimated claims that may arise due to time delays, additional costs or other unforeseen circumstances common to major construction contracts. The claims provisions are estimated based on an assessment of the Group’s liabilities under each contract by professionally qualified personnel, which may differ from the actual claims settlement.
(xi) Deferred expenditure As disclosed in note 2I(i), the Group capitalises proposed railway project costs in deferred expenditure when the projects are at a detailed study stage and having been approved in principle by the Members of the Board. Such decision involves the Board’s judgement on the outcome of the proposed project.
(xii) Fair value of derivatives and other financial instruments In determining the fair value of financial instruments, the Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. For financial instruments that are not traded in active markets, the fair values were based on the discounted cash flows method which discounts the future contractual cash flows at the current market interest or foreign exchange rates, as applicable, for similar financial instruments that were available to the Group at the time. ANNUAL REPORT 2006 163
be
for
after will
its debate
and Group 2007 2007 2008
future. to 2006
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and Designed by Sedgwick Richardson Editiorial by Conatus Limited or address, and loss of share certificates should be addressed in writing to the Registrar: Any matters relating to your shareholding, such as transfer of shares, change of name Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Telephone: +852 2862 8628 Facsimile: +852 2529 6087 Hopewell Centre, 183 Queen’s Road East, Hong Kong Shareholder services
MTR Corporation Limited MTR Tower, Telford Plaza, Kowloon Bay, Hong Kong GPO Box 9916, Hong Kong Telephone: +852 2993 2111 Facsimile: +852 2798 8822 www.mtr.com.hk (Stock Code: 66)