2012 ANNUAL REPORT Fact Sheet THSRC Milestones Commencement Date: May 1998 Construction Stage: March 2000–December 2006 Operation Stage: Started in January 2007 Capitalization: NT$105.3 billion Summary Results for 2012: Train Services: 48,682 train services Punctuality Rate(defined as departure within 5 minutes of scheduled time): 99.40% Annual Ridership: 44.53 million passengers Annual Revenue: NT$33.98 billion Loading Factor: 54.59% Passenger Kilometers: 8.64 billion km Total Route Length: 345 km Number of Cities/Counties Passed Through: 11 cities/counties Maximum Operating Speed: 300 km/hr Number of Seats Per Train: 989 seats (923 seats in standard and 66 in business class carriages) Stations in Service: 8 (Taipei, Banqiao, Taoyuan, Hsinchu, Taichung, Chiayi, Tainan and Zuoying) Maintenance Depots in Service: 5 (Lioujia/Hsinchu, Wurih/Taichung, Taibao/Chiayi, Zuoying/ Kaohsiung and Yanchao Main Workshop/Kaohsiung) Note: Loading Factor=Passenger Kilometers/Seat-Kilometers x 100% Passenger Kilometers = sum of the mileage traveled by each passenger Seat Kilometers = ∑ (number of seats per trrainset * sum of the mileage of trains operated in revenue service) Table of Contents 02 Chairman’s Letter to Shareholders 04 Overview Company Profile 06 Company History 09 12 Our Business Five Years in Review 13 Results of Operations 14 Looking Ahead 18 19 Corporate Governance Corporate Governance Overview 20 Internal Control 27 The Disclosure of Relationship among the Top 10 Stockholders who are Related Parties, or a Relative up to the Second Degree of Kinship or a Spouse to One Another 28 30 Corporate Activities Public Relations 31 Corporate Social Responsibility (CSR) 33 36 Financial Report Financial Highlights 37 Financial Statements 40 CHAIRMAN’S LETTER to SHAREHOLDERS 02 03 Dear Fellow Shareholders, 2012 marked our sixth year of operation. Over the years, THSR has played a critical role in enhancing people’s lives The transformation of Taiwan by creating new choices for travel and bringing urban and THSRC has been started from rural communities closer together. We remain unwavering in our quest for excellence in service, customer satisfaction Annual Report 2012 Annual Taiwan High Speed Rail and corporate responsibility, with the principle of “Go Extra Mile” guiding every action we take. 2012 Results Since starting operations on the rail line in January 2007, we have carried over 200 million passengers. January 2013 marked our sixth operational anniversary, and we continued our efforts to increase patronage despite the challenges posed by the economic slowdown. During 2012, our passenger volume rose to 44.53 million, we provided a total of 48,682 train services, and our loading factor was 54.59%, an increase of 2.96 percentage points compared to 51.63% in 2011. Even with this increase in passenger volume, we managed to achieve a punctuality rate of 99.40% and a train service reliability rate of 99.98%, excluding factors that are beyond our control. We are proud of our zero accident record over the past year – no accidents or injuries to passengers or the public on railway premises were caused by train service operations or malfunctions of railway equipment. We also made strong progress in marketing and sales with the launches of a number of promotional programs, such as Fun Reading for Family, Early Bird ticketing, discounts for college students, upgraded service to business class, and vacation packages and deals under our T Holiday program. Furthermore, we provided Chin-Der Ou multiple channels for ticket purchasing, including at Chairman CHAIRMAN’S LETTER TO SHAREHOLDERS 02 03 convenience stores, via smart phone, and using contactless Looking ahead to 2013, we will bring more innovative EasyCard. We maximized accessibility to our HSR stations by services to our customers, in addition to our long-standing providing free shuttle bus services to and from downtown commitment to safety, reliability and ease of travel. We areas. will continue delivering profitable growth by expanding THSRC proceeds from station area development and affiliated Our financial performance also improved significantly from businesses. Concurrently, we will continue giving back to Annual Report 2012 Annual the prior year. We posted revenues of NT$33.98 billion, a the communities in which we live, work and serve. 5.40% increase from 2011. Our profit before tax was 3.96 billion, an increase of 0.77 billion compared to 3.19 billion (2)Top-line Growth in 2011. EBITDA reached NT$23.32 billion, a 2.60% increase The Directorate-General of Budget, Accounting and Statistics over 2011. of the Executive Yuan in February forecast Taiwan’s GDP growth at 3.59% for 2013. We are keen to seize the Based on the figures above, we demonstrated broad-based opportunities the growth trend presents, driving sales on an growth and improvement across our entire operation, from estimated passenger volume of 47.85 million in 2013. transport volume and passenger revenue to cost control and operational efficiency. (3)Main Marketing Initiatives Since the commencement of our operation, we have Research & Development investigated all aspects of passenger behavior and For the stability and safety of our railway operation, we researched their needs and satisfaction levels. We tailor worked to build up our maintenance capability and strived our services to surpass passenger expectations and to stay to reduce the cost and delivery risk of spare parts. To competitive against other transportation methods, to fulfill meet these objectives, we sought out local suppliers for our goal of gaining market share and growing revenue. The spare parts and built the capability of our repair works for main marketing initiatives we plan for 2013 include: electronic equipment. We conducted extensive research into the control of corrosion of OCS (overhead catenary system), A.Ensure safe and stable transport the protection of light indicators for turnout switches, the B.Plan innovative services improvement of track functions, bridge structure diagnosis C.Broaden the breadth and depth of our services through and management system development. We also launched working with our partners across the industry a study into MES (main earthquake sensor) bypass devices, D.Make booking and paying tickets easier and more among others. convenient E.Enable the exchange of transfer information through one Looking Forward common platform F.Improve the quality of service (1)Management Objective G.Advance the development of affiliated businesses Thanks to our efforts over the past six years, high speed rail has become the most important means of travel along Taiwan’s western corridor, serving as a catalyst for growth in the regional economies and enhancing the lives of those we serve. Chin-Der Ou Chairman O VERVIEW Creating a culture of customercentric innovation O VERVIEW Company Profile Business Segments 06 THSRC's business scope covers the operation of the high-speed rail and affiliated businesses, as well as station area development. A. High-Speed Rail Service C. Station Area Development THSRC provides high-speed rail services to each of the There are five station area developments located in major cities along Taiwan’s western corridor via eight Taoyuan, Hsinchu, Taichung, Chiayi, and Tainan. stations: Taipei, Banqiao, Taoyuan, Hsinchu, Taichung, The unused land and spaces within station premises Chiayi, Tainan and Zuoying. A total of 48,682 train available for affiliated business development totals services were delivered in 2012, with maximum traffic 30.14 hectares, with a floor area of 1,200,380 m2 volume amounting to as many as 196 services a day (approximately 363,000 ping), which can be used for during one of the long-holiday weekends. Offering an array of commercial purposes including hotels and speed, convenience and dependability, THSRC has restaurants, convention and exhibition space, recreation become the transport of choice for residents and and amusement venues, office space, retail facilities, travelers alike. and space for financial services, general services, telecommunication services, transportation services, B. Affiliated Businesses and tourism-related services. To serve the needs of the traveling public, at high-speed THSRC will work to enhance station area development rail stations, we have provided various commercial in support of the government’s policy of economic outlets that supply goods and services, including food, development, and we will align our development beverages, newspapers and other reading materials, efforts with the needs of local communities and market souvenirs, car rental and travel agency services, and car conditions in order to maximize profit. parking facilities. The main objectives of station area development are as Advertising, both at station sites and on board trains, follows: makes a significant contribution to THSRC revenue, • Execute and coordinate the Station Area Development offering passengers within the rail system a unique Agreement brand of distinctive artwork and information. • Initiate the overall development planning and All these commercial outlets and facilities are designed strategy for station area development to add value to passengers' high-speed rail experience • Evaluate different business models for station area and demonstrate THSRC's commitment to providing development, such as investing and building for high-quality services in its stations, which play an operation by the developer, joint ventures with important role in the communities served by the