12 MTR CORPORATION LIMITED respectively on a 100-point scale. We also continued to rank high in the Quality Index for the MTR Lines and Airport Express stood at 71 and 81 Customer satisfaction levels remained high. In 2006, the Service escalator and train door safety. elections for Best Station Operators and other campaigns targeting by training for our station staff and platform assistants. There were also “We serve from the heart” campaigns were launched, supported To improve passenger service further, “Year of the Customer” and and 99.7% train punctuality. Lines were 99.9%, supported by 99.9% reliability for train service delivery stringent Customer Service Pledges. Passenger journeys on time for MTR performance levels under the Operating Agreement and our more For the sixth consecutive year, we exceeded both the minimum Service performance Tao Publishing. Brands – Classic” award jointly presented by Transport Services” awarded by TV Commercial awards, “Prime Awards for Brand Excellence 2006 – Impressive TV Commercial” in the ATV-hosted 12th Annual Most Popular including the “Top Ten Most Popular TV Commercials Award” and “Most Our marketing and branding efforts attracted high-profile awards, resulting in a total of 20 in service by the end of 2006. saver machines to offer fare incentives to adult Octopus card holders, bringing the number to 32 in total. We also introduced four new fare more feeder bus routes offering inter-modal fare discounts were added, with other modes of transport helps maintain market share. Seven Promoting patronage on MTR Lines through improved connectivity the newly opened AWE Station. Kong Club. An advertising campaign also helped increase awareness of with the Tourism Board and the UnionPay Discover Hong were offered fare discounts on tourist products through a partnership promotions were offered during festive seasons. Overseas passengers from Dragonair VISA. To attract more local leisure travellers, fare programme was enhanced with the additional option of award points On Airport Express, the increasingly popular “Ride to Rewards” loyalty term supporters of our service. opinions. We treasure club members’ input and advice as they are long We regularly conduct MTR Club surveys to solicit suggestions and programmes helped reinforce positive customer service perceptions. and comedy sponsorship, jointly produced with TVB Jade. These 20,000 daily users. Two TV projects were also launched – a game show items. In May, we launched the Happy Index Promotion, attracting over patronage and contributed extra income as the stamps became collectible 10 Redeem Hello Kitty Stamps” promotion generated 1.2% additional One of our strengths is the effectiveness of our promotions. A “Ride Service promotions HK$612 million. market share rose to 23% from 22%. Fare revenue increased 9.1% to daily patronage rose 12.8% to 26,200, and Airport Express’ estimated Airport Express’ passenger volume rose 12.8% to 9.6 million. Average increased 3.3% to HK$5,911 million. while cross-harbour market share was also stable at 61%. Fare revenue of the total franchised public transport market remained stable at 25%, average weekday patronage increased 1.0% to 2.5 million. Our share Total patronage on MTR Lines rose 1.0% to a record 867 million and Patronage Lines. MTR from fares average higher and Station, (AWE) AsiaWorld-Expo the and (DRL) Line Resort Disneyland of opening the of impact full-year the expansion, economic from growth passenger by higher driven million, HK$6,523 to 3.8% increased 2006 for Express Airport and Lines MTR from revenue Fare Railway operations Executive management‘sreport Prime Magazine East Week , and the “Hong Kong magazine and Sing

Asset Management System, enabling us to and on trains. On the Line, information about the time to the Enhancements were made to passenger information systems in stations renovated stations to 46 since the programme started in 1998. undergoing improvements and renovations, bringing the number of project. The station improvement programme continued, with 38 stations in underground stations finished in the first half of 2006, ending a six-year The programme to retrofit at all 74 platforms Train services and network infrastructure improvements continued. Service improvements operators worldwide. but is also in many areas a leader in safety management among rail Company not only fulfilled internal and industry safety requirements, and 141 “industry effective practices”. The review concluded that the safety practices are considered “industry leading effective practices” Public Transportation Association. Results revealed that 8 of our Safety Management System Review was undertaken by the American meet the requirements of the Operating Agreement, our fifth External To ensure continued excellence and effectiveness of safety delivery and Next Magazine’s 2006”– Public Transport Category and, for the eighth consecutive year, recognition. We won Community of Metros. Service performances again received widespread international benchmarking exercise performed by the 12-member effectiveness and improve asset utilisation and performance. Our support costs also fell. a 3% increase in total revenue car kilometres operated in 2006. Corporate the full-year effect of the opening of DRL and the AWE Station resulted in HK$22.1. productivity. Operating costs per car kilometre decreased 3.1% to The Company continued to examine ways to improve efficiency and Productivity was completed in December. touched surfaces in MTR stations, trains and shopping malls. The project This powerful non-toxic disinfectant has been applied to commonly silver-titanium dioxide coating to improve hygiene levels in MTR. In September we introduced an innovative application of nano will be completed in 2008. self-operated stair lift installations are underway at seven stations, which passenger lifts is underway at Lai Chi Kok and Tai Wo Hau stations, while the and Airport Express. The installation of internal that helps hearing impaired passengers was installed at all stations along passengers was introduced at four stations, and a new induction loop continued. A new escalator audible device that assists visually impaired Station improvements promoting barrier free movement for passengers efficiency and reliability, and reduce noise. inverters was substantially completed. The inverters improve energy alternators on the 78 trains on MTR Lines by state-of-the-art static three new trains had been commissioned. The replacement of motor periods and non-peak hours has been enhanced. By year end, a total of Since September, the frequency of Tung Chung Line trains during peak pedestrian links at three stations. Access to the network was improved through completion of new to improve ride quality and service reliability. infrastructure in the Kwun Tong and Tsuen Wan lines was launched In January, a rail replacement programme to upgrade the rail displays were reconfigured to improve timely release of information. The network’s public announcement system and passenger information system with audio facilities embedded in seat headrests was rolled out. next train was extended, while on Airport Express trains a multi-media

maintenance information

Maintenance costs were successfully contained, even though “Top Service Award 2006” – Public Transport Category. East Week

system was upgraded to the Enterprise magazine’s “Quality Living Award HK

optimise operational

13 SUMMARY FINANCIAL REPORT 2006

and Taiwan High Speed Rail Company. In Dubai, we were awarded a awarded were we Dubai, In Company. Rail Speed High Taiwan and secured we UK, the in while advice, engineering provide to contract assignments. consultancy of number a Solutions Sourcing Rail sourcing component related rail the exit to decided we review a Following Limited. (International) Solutions Sourcing Rail closed and business including churches, exhibitions, skating rinks, children’s clothing stores stores clothing children’s rinks, skating exhibitions, churches, including services. laundry and cardholders million 1.2 over saw Programme Rewards Octopus The ten at benefits enjoy to them enabling cards, their registered having partners. participating consultancy External work such where cities key on focuses strategy business consultancy Our Europe, or China of Mainland the in opportunities investment to lead may Consultancy staff. our of sets skill the enhance can which consultancies or million. HK$199 was 2006 in revenue 9 Line Metro Shanghai on work consultancy management project The to Station Town New Songjiang from works civil The well. proceeded the by 1 Phase of opening the and completed were Station Road Guilin Tianjin Metro, for Projects schedule. on remains 2007 of end Works Locomotive Ziyang CSR the and Transit Mass Binhai Tianjin Metro, completed. were Integrated the for consultancy provide to contract a signed We agreement an and 5 Line Metro Beijing for System Control Supervision also We services. consultancy for Corporation Metro Chengdu with the support to Ltd. Pacific Asia Motorola with contract our renewed Metro. the for system radio trunked digital a for design system project, construction System Mover People Automated the Kong, Hong In the and SkyPlaza to Airport International Kong Hong the connecting progress. good made Corporation Transit Rapid Kaohsiung the for began contracts Taiwan, In Ping Ngong the to Chung Tung from running car cable the 360, Ping Ngong Island, Lantau on Ping Ngong at complex temple and Buddha Big recorded and September in opened village, theme a with together carried has it 2007, March By end. year by million HK$64 of revenue visitors. million 1 over Limited Holdings Octopus providing in success its on built (OHL) Limited Holdings Octopus share Our sectors. non-transport and transport to services payments million. HK$68 to 70% by rose OHL in profit the of The usage. higher and providers service more by driven was Growth cards Octopus while 431, to 349 from rose providers service of number million 13.2 from rose value transaction daily average and circulation in respectively. million HK$73.3 to million HK$64.7 from and million, 14.7 to rose service add-value automatic Octopus providing institutions Financial 22. to 19 from card, Octopus accepting were minibuses green more 59 end, year By minibuses Red fleet. entire the virtually – 2,806 to total the bringing parks car participating and 215, to 171 from increased card the accepting 231. to 203 from rose sectors new in adopted was system the and joined also chains retail More

, was was , capacity capacity

”metropop” 40 locations, with bandwidth with locations, 40

HK$159 million. HK$159 shops, with a grand lucky draw to win prizes worth up to HK$50,000. to up worth prizes win to draw lucky grand a with shops, souvenir rental, park car including revenue business Miscellaneous to 1.9% rose publications and connections station new sales, ticket station retail network. retail station scratch instant include to promotions selling cross expanded also We network MTR in use for coupons cash and offers discount offering cards the temporary loss of 2,671 square metres at Kowloon Station to facilitate facilitate to Station Kowloon at metres square 2,671 of loss temporary the resulted Elements, centre shopping new the with works integration station metres. square 16,867 to 12% decreasing area retail station total the in the to added were brands or trades new 15 and shops new 32 all, In 2005 to HK$391 million. HK$391 to 2005 of total A stations. 11 at completed were renovations zone Retail but renovation, to due added was area retail new of metres square 468 Station commercial Station rates, rental higher from benefited shops retail station from Revenue over 13.7% by rise to space, retail of loss net temporary a offset which Market expansion led to higher revenue for TraxComm Limited, whose whose Limited, TraxComm for revenue higher to led expansion Market covers now network fibre optical Gbps. 180 over of Migration of mobile subscribers from 2G to 3G and intense competition competition intense and 3G to 2G from subscribers mobile of Migration other However, declined. revenue and minutes call 2G meant grew. rentals, site rooftop as such business, telecommunications Revenue from telecommunications services decreased by 22.5% to to 22.5% by decreased services telecommunications from Revenue mentioned 2006 and 2005 in items one-off the Excluding million. HK$259 3.2%. by decreased have would revenue earlier, to pay their bills at Customer Services Centres. Services Customer at bills their pay to Telecommunications media for advertisers. A free infotainment magazine, magazine, infotainment free A advertisers. for media April. in launched customers Power CLP allowing service a launched we February, In Hang Seng Index. Index. Seng Hang multimedia a by replaced was TV seatback the Express, Airport the On creative more and entertainment, and information more offering system The number of trackside plasmas increased from 68 to 100 units by year year by units 100 to 68 from increased plasmas trackside of number The Concourse The stations. at installed were rings plasma new three and end the on updates time real provide to upgraded was Network Plasma Among new formats introduced, Real Time Projection Zones were were Zones Projection Time Real introduced, formats new Among “Spectacular the of debut the saw June stations. MTR eight at introduced were units scrolling 6-sheet New train. advertising Showcase” Mobile stations. Tong Kowloon and Bay Causeway at introduced continued to enhance the attractiveness of its advertising venues through through venues advertising its of attractiveness the enhance to continued the of growth the although innovation, and refinements format 2006. of half second the in slowed market advertising Advertising Company The million. HK$534 to 4.7% rose revenue Advertising increased by 3.3% to HK$1,606 million in 2006. Excluding a one-off gain gain one-off a Excluding 2006. in million HK$1,606 to 3.3% by increased in item one-off similar a and 2005 in contract telecommunications a from supported was increase The 8.0%. by increased have would revenue 2006, 360. Ping Ngong from contribution a and economy strong the by Station commercial and other businesses and other commercial Station businesses other and commercial station Company’s the from Revenue 14 MTR CORPORATION LIMITED and is due to be completed in early 2009, coinciding with the completion Work is underway on the new Tseung Kwan O South Station at Area 86, Station and tunnel projects several projects to enhance or extend the existing network. During 2006, we were engaged in the planning and construction of Hong Kongnetwork expansionprojects Lansmart Ltd, a subsidiary of Sun Hung Kai Properties Ltd. The proposed In February 2007, we awarded the tender of Tseung Kwan O Area 56 to Planning Board in November. A revised master layout plan for Area 86 was accepted by the Town a subsidiary of Cheung Kong (Holdings) Ltd. In November, the shopping centre at Tiu Keng Leng Station was sold to backed by a parent company guarantee. return for an increased sharing in kind of the development. The loan is an interest-free loan of HK$4 billion to Rich Asia Investments Limited in The Development Agreement was executed in February. We advanced Investments Limited, a subsidiary of Cheung Kong (Holdings) Limited. Area 86, with a gross floor area of 309,696 square metres, to Rich Asia In January, we awarded the tender for Package Two of Tseung Kwan O opened for business, became our sixth shopping centre. centre located at the podium floors of The Grandiose was completed and Town (Tiu Keng Leng Phase I). The Edge, a majority owned shopping Two major developments were completed, The Grandiose and Metro and Metro Town (Tiu Keng Leng Phase I) Towers One, Two, Three and Five. Tiu Keng Leng, drew a very good response, as did sales for The Grandiose (Area 55b), and Central Heights (Area 57a). Presales of Le Point, Phase 2 of surplus proceeds from Metro Town (Tiu Keng Leng Phase I), The Grandiose Along the , development profit came primarily from adjacent lorry park and transport interchange to retail use. Tsing Yi, we received town planning approval to convert part of the houses was approved and foundation works began. At Maritime Square, At Caribbean Coast in Tung Chung, the Master Layout Plan for garden Coast in Tung Chung obtained their Occupation Permits. Rossa in Coastal Skyline and Crystal Cove (Towers 15 and 16) of Caribbean handed over to individual owners. Harbour Green at Olympic Station, La first phase in December. Units of The Arch, also at Kowloon Station, were development at Kowloon Station, obtained the Occupation Permit for its Several major developments were completed. Elements, the upscale retail Rossa in Coastal Skyline, Tung Chung Package Two. including those for Harbour Green, Olympic Package Three, and for La metres of retail space at Elements. Sales and pre-sales were good, from receipt of the shell of an additional gross floor area of 7,609 square and Three respectively), fit-out works at Elements in Kowloon Station and Three), Coastal Skyline and Caribbean Coast (Tung Chung Packages Two in line with construction progress, at Harbour Green (Olympic Package Along the Airport Railway, profit was recognised from deferred income, and deferred income from Airport Railway projects. and Metro Town (Tiu Keng Leng Phase I) developments in Tseung Kwan O of profit from surplus proceeds relating to The Grandiose, Central Heights Profit from property developments was HK$5,817 million, with the bulk Property development rentals, high demand, a strong economy and vibrant tourism. market in 2006, whilst the investment portfolio was supported by rising Our property development business benefited from a steady property Property business Executive management‘sreport

Choi Hung Park n’ Ride Carpark, in which we have a 51% share, opened March 2007, 90% of the retail space has been committed by tenants. The of 82,750 square metres, is expected to open by the end of 2007. As at our majority owned upscale mall at Kowloon Station, with gross floor area floor area of 508 square metres opened in Tung Chung. Phase I of Elements, ahead of planned renovations. Our wholly owned wet market with lettable Galleria, where 427 square metres of lettable retail space were repossessed 100% occupancy levels at all its shopping centres, except Luk Yeung Demand for high quality retail space enabled the Company to maintain of leases and reletting increased by 16%. development on . On average, rental reversions for renewal market, the positive wealth effect from the stock market rally and tourism enhancements, stronger consumer demand, an improved employment metres, to our portfolio. Growth was helped by shopping centre shopping centre The Edge, with a lettable floor area of 7,683 square million as rental rates increased and we added the new majority owned Revenue from investment properties increased by 6.8% to HK$1,263 Investment properties square metres for a public transport interchange and associated facilities). gross floor area of not more than 168,537 square metres (including 5,407 residential, commercial and car parking accommodation with a total development will be a mixed-use project comprising hotel, office, . The tunnel is expected to be completed in 2009. the Company is extending the Airport Express overrun tunnel beyond With the Government’s plan in Hong Kong Central District proceeding, the superstructure began. awarded, station substructure works were completed and construction of of the first property package. Electrical & mechanical contracts were shopping centre was renamed as Ginza Mall and opened in January 2007. let as of year end. With a lettable floor area of 19,349 square metres, the shopping centre, which was extensively redecorated and close to 90% also signed a long-term head lease for the operation of Oriental Kenzo the Mainland of China, with a total area of 1,020,254 square metres. We Chao Wai SOHO. We now have seven property management contracts in developments were committed: SOHO Shangdu, Jian Wai SOHOIn Beijing,Phase 7three and new property management contracts for office/commercial to grow in the Mainland of China. Our property consultancy, management and related businesses continue Business in the Mainland of China metres under management. The Edge, resulted in total commercial and office area of 582,073 square including the wet market in Tung Chung and 24-hour passage walkway at of 16,546 square metres of commercial properties were also added, and bringing the total number of residential units we manage to 58,876. A total During the year, 4,518 residential units were added to our portfolio, Property management business revenue rose 12.0% to HK$149 million. Property management and other services Two IFC remained fully let. Heng Fa Chuen wet market reopened after renovations. Our 18 floors at A major renovation programme at Telford Plaza I was completed and the 1,460 square metres lettable floor area of other usage. retail properties, 39,529 square metres lettable floor area of offices and to the Company comprised 133,927 square metres lettable floor area of In total at year end, the overall investment property portfolio attributable during the year. 15 SUMMARY FINANCIAL REPORT 2006

staff staff

staff at executive and senior managerial level. The Executive Associate Associate Executive The level. managerial senior and executive at staff at staff potential high of development tracks fast and identifies Scheme Programme Trainee Graduate the Finally, level. management middle the graduates. top develops and recruits established we rapidly, growing Kong Hong outside businesses our With 170 than more the support to specifically team HR designated a Employee “Stay-in-touch a launched also We internationally. working with communication enhance to Programme” Communication & Care Kong. Hong outside working staff Europe operating “asset-light” pursue to be to continues Europe in strategy Our markets. Scandinavian and UK the on focus primary a with contracts, service gross a for bid joint a submitted Rail Laing and Company the October, In In Concession. Rail London formed newly the for contract service cost two of one as partnership our selected London for Transport December, in expected is decision a and Offer Final and Best a submit to bidders 2007. mid railway Swedish with venture joint 50/50 a into entered we November, In in concessions Öresundståg the for bid joint a prepare to SJ company successful The 2007. February in submission for Denmark and Sweden 2008. in over take will bidder and unsuccessful was UK the in Franchise Western South the for bid Our holder. franchise incumbent the to awarded was contract the Training Vocational the from Awards Apprentices/Trainees Outstanding recognition. such received have we year consecutive ninth the – Council Enterprise National China’s acquired successfully trainers 17 addition, In the in strategy growth our support help will which Qualification, Trainer China. of Mainland key three and crucial is management general for talent Developing talent. world-class retain and attract we ensure to continued initiatives potential high develops and identifies Initiative Development People The The design of a pedestrian subway at Sai Yeung Choi Street South South Street Choi Yeung Sai at subway pedestrian a of design The The review. under is Station Edward Prince and Centre Pioneer linking Cheung at subway pedestrian a authorised meanwhile, has, Government at developments new the with Station Kok Chi Lai connecting Street Lai first the in begin to expected is Work Road. Kok Chi Lai of south the 2009. early in completion for scheduled is and 2007 of quarter underground two of construction for proposal a submitted we July, In the with Station Tsui Sha Tsim of concourse the linking entrances begin to scheduled is Work Hotel. Hyatt former the of redevelopment 2010. in completion for 2007 in Station’s Tsui Sha Tsim link to planned also is subway pedestrian A developments. adjoining of basements the with platform northern 2012. in completion for 2009 in start to expected is Work scheme Link Pedestrian Underground an for proposal a November, In and Government, the to submitted was Station Bay Causeway at stations. more five at consideration under also are links pedestrian of 2 Phase build to NDRC the from approval awaiting are we Shenzhen, In We years. 30 for 2 Phase and 1 Phase operate and 4, Line Metro Shenzhen cities key in projects potential similar on progress further made also Suzhou. and Wuhan Hangzhou, Beijing, Shenzhen, including

During 2006, we continued to provide wide-ranging training training wide-ranging provide to continued we 2006, During received apprentices Company Two staff. our to programmes initiatives such as the “More Time Reaching Community” programme that that programme Community” Reaching Time “More the as such initiatives helping initiatives 81 in volunteers Company 1,500 than more involved others. and children underprivileged elderly, the Our efforts to provide a safe and harmonious working environment saw saw environment working harmonious and safe a provide to efforts Our 2006/2007 for again and 2005/06 Logo Company Caring the awarded us recognises award The Service. Social of Council Kong Hong the by published jointly by both companies. We are also working working also are We companies. both by jointly published human and cultures work aligning by integration smooth a ensure to practices. and policies resource The proposed rail merger with KCRC is a key issue for staff and we are are we and staff for issue key a is KCRC with merger rail proposed The been has effort Tremendous interests. their after looking to committed wide through implications possible merger’s the communicating to made newsletter merger a including channels, communication internal ranging We have an excellent record of attracting and retaining high calibre calibre high retaining and attracting of record excellent an have We staff comprehensive provide to continued we 2006 during and people, programmes. training Human resources granted and in April the Concession, Lease and Financing agreements agreements Financing and Lease Concession, the April in and granted fare automatic and signalling stock, rolling the for Contracts signed. are stations 24 line’s the of 23 and awarded were systems collection 2009. by expected is construction of Completion construction. under Government. The PPP company has a 30-year Concession Agreement. Agreement. Concession 30-year a has company PPP The Government. and Development National the of approval the following January, In was licence business company’s PPP the (NDRC), Commission Reform 25-year non-recourse bank loans provided by the Industrial and and Industrial the by provided loans bank non-recourse 25-year remaining The Bank. Development China and China of Bank Commercial Municipal Beijing the by funded being is cost project the of 70% BJL4 is a RMB15.3 billion project, of which 30% or approximately approximately or 30% which of project, billion RMB15.3 a is BJL4 (PPP) Partnership Public-Private a by borne being is billion RMB4.6 PPP the by investment The Corporation. MTR by owned 49% company billion RMB1.6 two by 70% and equity by 30% financed be will company opportunities in Europe. in opportunities China of Mainland We made steady progress in our international growth strategy, with the the with strategy, growth international our in progress steady made We work preparation project, (BJL4) 4 Line Metro Beijing the for approval final of exploration further and China of Mainland the in projects other for Place also opened in February 2007. 2007. February in opened also Place Overseas growth The new departure platform linking SkyPlaza at the Hong Kong Kong Hong the at SkyPlaza linking platform departure new The 2007, February in opened Express Airport the with Airport International Pacific Three with Station Admiralty linking Subway Queensway the while The Company also continued to discuss proposals for the North Island Island North the for proposals discuss to continued also Company The the along Line Chung Tung existing the of extension an alignment, Line Island. Kong Hong of shore north service would run from Admiralty Station to South Horizons on Ap Lei Lei Ap on Horizons South to Station Admiralty from run would service our continue We Tung. Lei and Hang Chuk Wong Park, Ocean via Chau for approval obtaining of aim the with Government the with discussion project. this plans were submitted to the Government, and a revised project proposal proposal project revised a and Government, the to submitted were plans Bureau. Works and Transport Environment, the to submitted railway capacity medium a proposal, (East) Line Island South the Under Network extensions under consideration under extensions Network Station Wan Sheung from Line Island the extend will Line Island West The gazette Draft stations. University and Pun Ying Sai via Town Kennedy to 16 MTR CORPORATION LIMITED charge in 2006 for DRL and the AWE Station. Ngong Ping 360 and other new assets, as well as the full year depreciation million, a similar level as in 2005 after accounting for the addition of 2.0% from HK$11,246 million. Depreciation charge amounted to HK$2,674 Operating profit before depreciation was HK$11,018 million, a fall of 7,609 square metres at Elements. Elements; and sharing-in-kind in respect of an additional floor area of income from Coastal Skyline, Caribbean Coast, Harbour Green and Grandiose, Central Heights and Metro Town; recognition of deferred HK$6,145 million. This mainly comprised surplus proceeds from The Property development profit was HK$5,817 million compared to margin was 54.5%, compared to 55.7% in 2005. increased 2.0% from HK$5,101 million to HK$5,201million. Operating Operating profit from railway and related businesses before depreciation to HK$4,340 million. expenditure for Ngong Ping 360. Overall operating costs increased 7.1% Hong Kong, the Mainland of China and Europe, and pre-operating expenses rose HK$125 million due to increased development activities in expenses increased 31.1%. Project studies and business development businesses increased 23.7%, while property ownership and management increased 9.8%. Expenses related to station commercial and other Line. Excluding this item, operational rents and rates would have Government on ratable value assessment relating to the Tseung Kwan O fell 29.3%, affected by a one-off income from settlement with the Staff costs and related expenses rose 2.4%. Operational rents and rates The Arch, The Grandiose and Metro Town. attributable to the expansion of the management portfolio, including and The Edge. Property management income increased 12.0%, mainly operation of The Lane and the opening of the Choi Hung Park and Ride higher rental rates, increased turnover rent received, the full-year million. Rental income increased 6.8% to HK$1,263 million thanks to from property ownership and management increased 7.3% to HK$1,412 retail space and property management contracts in the portfolio, income With continued growth in the retail market and the addition of more were steady. phone market. Consultancy and other miscellaneous business revenues 2005 and continuous cannibalisation and pricing pressure in the mobile in telecommunications was affected by non-recurring income received in in September, also contributed HK$64 million to revenue. Income growth which rose 4.7% and 13.7% respectively. Ngong Ping 360, which opened attributable mainly to growth in advertising income and shop rental, Income from station commercial and other businesses rose 3.3%, recurring incomes, non-fare revenue would have increased 7.7%. of a telecommunication contract. Excluding this and other minor non- a one-off income was received from settlement of an early termination HK$1,412 million from property ownership and management. In 2005, HK$1,606 million from station commercial and other businesses and Non-fare revenue increased 5.1% to HK$3,018 million, comprising Station passengers. by a decline in average fare to HK$63.85 on lower average fares for AWE in air passengers and the full-year effect of the AWE Station, partly offset due to a patronage increase of 12.8% to 9.6 million resulting from growth Fare revenue from Airport Express increased by 9.1% to HK$612 million in average fare to HK$6.82. a result of a 1.0% growth in patronage to 867 million and a 2.2% increase Fare revenue from MTR Lines increased by 3.3% to HK$5,911 million as Profit and loss Review of 2006 financial results Financial review Executive management‘sreport

all shareholders except those with registered addresses in the US or any amounting to HK$1,554 million, with a scrip dividend option offered to The Board recommended a final dividend of HK$0.28 per share, 2.9% and 4.4% lower. underlying profit was HK$5,962 million or HK$1.08 per share, respectively Excluding investment property revaluation and the related deferred tax, decreased from HK$1.55 to HK$1.41. shareholders, a drop of 8.2%. Earnings per share correspondingly HK$7,758 million, of which HK$7,759 million was attributable to equity deferred tax provision, was HK$1,411 million. Net profit fell 8.3% to the United Kingdom was HK$23 million. Tax expense, comprising mainly Our share of costs for bidding for the South Western Train franchise in Our share of net profit of OHL was HK$68 million, an increase of 70%. post-tax) was recognised in the profit and loss account. investment properties of HK$2,178 million pre-tax (HK$1,797 million revaluation of investment properties, the increase in market value of our compliance with the Hong Kong Accounting Standard (HKAS) 40 on 5.5%, while interest cover reduced from 7.6 times to 6.7 times. In market interest rates, our average interest cost increased from 5.1% to to DRL and the AWE Station which are no longer capitalised. With higher to the rise in interest rates and the expensing of interest costs relating Net interest expense was HK$1,398 million, an increase of 2.7%, owing of pre-sold residential units. HK$1,894 million because of collection of receivables from purchasers Debtors, deposits and payments in advance decreased significantly to fair value hedges. causing a decline in the value of the Group’s interest rate and currency stronger Hong Kong dollar forward exchange rates during the period, The movements were mainly due to higher US interest rates and recorded, as compared to HK$234 million and HK$307 million last year. and liabilities of HK$195 million and HK$515 million respectively were In line with the requirements of HKAS 39, derivative financial assets Central Heights, Metro Town and The Arch. million, comprising mainly unsold residential units at The Grandiose, Properties held for sale increased to HK$2,018 million from HK$1,311 developer of the same project, of up-front costs expended. Two development, partly offset by reimbursement, received from the provided to the property developer of Tseung Kwan O Area 86 Package due to the capitalisation of interest in respect of an interest-free loan Property development in progress increased to HK$3,297 million, mainly Kwan O South Station projects. expenditures on the SkyPlaza Platform at the Airport and the Tseung assets upon completion, being partly offset by the additional capital resulting from transfer-out of the Ngong Ping 360 project costs to fixed Railway construction in progress decreased to HK$232 million, mainly of Elements and the capitalisation of Ngong Ping 360. retail space (The Edge) at the Grandiose and 7,609 square metres gross attributable to surplus from investment property revaluation, receipt of railway system. Total fixed assets increased to HK$106,943 million, mainly Our balance sheet remains strong, with the bulk of assets invested in the Balance sheet commitment to 2009. total dividend will be paid in cash. It also agreed to extend this extent necessary to ensure that a maximum of 50% of the Company’s agreed to receive its entitlement to dividends in the form of shares to the of its territories or possessions. The Financial Secretary Incorporated has

17 SUMMARY FINANCIAL REPORT 2006

1+/AA with a stable outlook. stable a with 1+/AA • billion project loan for the project has already already has project 4 Line Metro Shenzhen the for loan project billion are years three next the for expenditures total such, As secured. been sufficient have to expected is Group the and modest, considered overseas and Kong Hong new other fund to capacity financing investments. rating from A1 to Aa3 with a stable outlook. Moody’s also reaffirmed our our reaffirmed also Moody’s outlook. stable a with Aa3 to A1 from rating issuer/foreign currency local long-term and P-1 at rating issuer short-term was later which outlook stable a with Aa3, at ratings debt currency positive. to changed ratings currency local/foreign long-term our raised also Poor’s & Standard currency local/foreign short-term our reaffirming whilst AA to AA- from outlook. stable a with A-1+ at ratings currency foreign long-term our of upgrade R&I’s by followed was This local short/long-term our of reaffirmation and AA to AA- from rating a at ratings currency planning Financial planning financial long-term comprehensive our use to continued We and projects new evaluate and operations railway our plan to model evaluations rigorous to investments all subjects model The investments. required and capital of cost average weighted our account into take that carefully we robust, and reliable are results the ensure To return. of rate sensitivity conduct and model, the in used assumptions key all review we effectively, capital of cost our manage To variables. key on analyses requirements funding our of assessment detailed conduct regularly also structure. capital and capacity Financing is 2009 and 2007 between years three the for expenditure capital Total Hong in railways existing for billion HK$5 approximately be to estimated HK$6.4 and Kong Hong in investment property for billion HK$1.4 Kong, billion. HK$12.8 of total a in resulting investments, overseas for billion RMB3.6 a investment, overseas for requirement billion HK$6.4 the Of rates in the first half, average borrowing costs for the year rose to 5.5% 5.5% to rose year the for costs borrowing average half, first the in rates HK$49 by increased expense interest gross while 2005, from 5.1% from million. HK$1,524 to million management Risk accordance in portfolio debt well-diversified a maintain to continued We risks diversify to seeks Model The Model. Financing Preferred our with debts, rate floating and fixed of mix preferred the specifying by maturities, of spread well-balanced a exposure, currency maximum length adequate an and instruments financing of types different of use future our of coverage forward sufficient provide to horizon financing of needs. funding instruments, financial derivative of user corporate active an remain We to exposure reduce to purposes hedging for solely used are which exposure, risk counterparty control To risks. currency and rate interest better, or A-/A3 of ratings credit with counterparties with only deal we In rating. credit its on based limit counterparty each to assign and widely the on based framework monitoring risk a adopt we addition, and quantify to concepts loss” “expected and “value-at-risk” accepted exposures. these monitor ratings Credit internationally obtain to entity corporate Kong Hong first the were We with par on ratings maintained since have and ratings, credit recognised Government. the issuer currency foreign long-term our upgraded Moody’s year, the During

attractive fixed rate financings. Despite a significant increase in short-term short-term in increase significant a Despite financings. rate fixed attractive Cost of borrowing of Cost our to due contained well is risk rate interest to exposure Our secure to ability and debts, rate floating and fixed of mix conservative At year-end, the Group had total undrawn committed facilities of of facilities committed undrawn total had Group the year-end, At positive projected and hand on cash with together which billion, HK$5.7 for coverage sufficient provide would 2007, during flow cash operating 2007. in needs funding anticipated billion of new bilateral bank loans comprising HK$1.5 billion in 5 years years 5 in billion HK$1.5 comprising loans bank bilateral new of billion the with together This, maturity. years 7 in billion HK$1.1 and maturity billion. HK$4.1 of financings new total in resulted issued, MTNs The excess liquidity in Hong Kong also helped further drive down credit credit down drive further helped also Kong Hong in liquidity excess The bilateral into enter to Group the enabling market, banking the in spreads HK$2.6 arranged Group the total, In terms. attractive on facilities loan fixed rate MTN issues via private placement, a HK$500 million 2-year 2-year million HK$500 a placement, private via issues MTN rate fixed of rates coupon respective with note 3-year billion HK$1.0 a and note 4.15%. and 4.3% New financings New Kong Hong the in activities raising fund its focus to continued Group The interest low and liquidity strong its of advantage take to market dollar separate two launched successfully we November, and February In rates. and drawdown of cash balances of HK$40 million. HK$40 of balances cash of drawdown and activities Financing recorded positive cash flow of HK$3,866 million for the year, before a before year, the for million HK$3,866 of flow cash positive recorded property a to provided million HK$4,000 of loan interest-free one-off of deficit cash a was there advance, loan one-off this After developer. million HK$94 of debt in increase by financed was which million HK$134 and HK$4,400 million of cash receipts from property developers and and developers property from receipts cash of million HK$4,400 and expenses, interest expenditure, capital for payments After purchasers. Company the payments, dividend and capital working in changes Cash flow Cash with year the during strong remained position flow cash Company’s The businesses recurring from generated million HK$5,400 of inflow cash net dividends of HK$5,450 million, total equity attributable to equity equity to attributable equity total million, HK$5,450 of dividends debt-to- the result, a As million. HK$76,767 to increased shareholders ratio debt-to-equity net and 36.7% to 40.4% from improved ratio equity 36.3%. to 39.9% from million to HK$38,639 million due to shares issued for scrip dividend and and dividend scrip for issued shares to due million HK$38,639 to million revaluation asset fixed in increases with Together exercised. options share of net earnings retained and million HK$253 of reserves other and to the tax effect on profit, including provision on property revaluation, revaluation, property on provision including profit, on effect tax the to 17.5%. of rate Tax Profits Kong Hong standard the at HK$1,189 by increased reserve capital and premium share capital, Share recognition at Tung Chung, Kowloon and Olympic station development development station Olympic and Kowloon Chung, Tung at recognition packages. attributable mainly million HK$9,453 to increased liabilities tax Deferred debt outstanding was HK$28,768 million, an increase of HK$94 million. million. HK$94 of increase an million, HK$28,768 was outstanding debt refinancing. for primarily million, HK$8,428 was down drawn debt Total profit following million HK$1,682 to decreased income Deferred HK$123 million accrued during the year. the during accrued million HK$123 HK$28,152 was end year at outstanding debt total of amount carrying The total effects, accounting hedge and mark-to-market the Excluding million. An interest-free loan of HK$4,000 million to the property developer of of developer property the to million HK$4,000 of loan interest-free An of value fair its at recognised was Two Package 86 Area O Kwan Tseung carried receivable loan this end, year at As inception. at million HK$3,232 of interest capitalised of recognition after million HK$3,355 of balance a